Flip with Care: Watch Out for Principal Residence Rules

There’s nothing like a good house flipping show to get you thinking about the cash potential in your own home. The house flipper approach is to buy homes, live in them short-term while fixing them up, and then sell them; often for big profits. It sounds simple, but it’s not a foolproof strategy, because it comes with tax risks. When done often, house flipping can raise eyebrows at the CRA. Learn how to flip with care, and understand the principal residence rules that could diminish your profits, or worse.

Though the housing market has recently cooled somewhat, the deposition of real property still has the potential to be very lucrative. This is especially true if you earn one tax-exempt capital gain after another using your principle residence exemption. But it’s not a claim that’s guaranteed – there are, in fact many grey areas in the burden of proof all taxpayers have in their relationship with the CRA. It’s important to understand these ahead of tax filing season. 

In the case of the sale of your principle residence, the CRA looks at your intention at the time you purchase the home as well as how many times you made similar transactions. If you buy and sell real estate too often, the CRA may disallow your claim for the principal residence exemption. Even worse, they could disallow the capital gains treatment that comes with a 50% inclusion rate. This circumstance requires the reporting of 100% of the gain as a gross profit if they get the impression you’re in the business of buying and selling homes. 

So where is the line drawn that determines whether profits are tax-free or classified as business income? The more closely your business or occupation is related to commercial real estate transactions (i.e. if you are a real estate broker or builder), the more likely it is that any gain realized from such a transaction will not qualify for the principal residence exemption at all and be considered business income rather than a capital gain.

The courts have considered some of the following criteria on a case-by-case basis to guide us in assessing the right tax filing requirements.   

Checklist for Determining Tax Attributes of Real Estate Dispositions:

  • The taxpayer’s intention with respect to the real estate at the time of its purchase
  • Feasibility of the taxpayer’s intention
  • Geographical location and zoned use of the real estate acquired, extent to which these intentions were carried out by the taxpayer
  • Evidence that the taxpayer’s intention changed after purchase of the real estate
  • The nature of the business, profession, calling or trade of the taxpayer and associates
  • The extent to which borrowed money was used to finance the real estate acquisition and the terms of the financing (if any) arranged
  • The length of time the real estate was held by the taxpayer
  • Factors which motivated the sale of the real estate
  • Evidence that the taxpayer and/or associates had dealt extensively in real estate

Your principal residence can be a great source of wealth, especially if you can use the principal residence exemption to pocket tax free accrued gains. But a warning to potential house flippers – know the tax rules. Your principal residence exemption may be at risk if you don’t follow proper tax filing procedures. And keep this important tax fact in mind: all principal residence dispositions, whether tax exempt or not, must be reported on your personal tax return.   

Excerpted from Essential Tax Facts by Evelyn Jacks, 2018 edition. The new 2019 version is available for pre-order by calling 1.866.953.4769 now.

Don’t Miss the RRSP Contribution Deadline: March 1.

The CRA officially began accepting electronically filed tax returns this week, but you may want to slow down and observe an important tax savings opportunity before you rush to file. Contributions to your Registered Retirement Savings Plan (RRSP) for the 2018 tax year ends on March 1, 2019. Besides reducing your tax bill, you could score even bigger returns: increased refundable and non-refundable tax credits.

To contribute, you have to have contribution room, which you can calculate yourself. Earned income includes employment income, net income from a proprietorship or rental property, net research grants, disability amounts received from the Canada Pension Plan and taxable support payments received. Or you can find your contribution room on your 2018 Notice of Assessment.

Keen savers can get a head start on their 2019 RRSP now. Your 2019 maximum contribution amount is 18% of your earned income in 2018 to a dollar maximum of $26,500. Plus, any unused contribution room carried forward from 2018. The $26,500 amount is reached when 2018 earned income hits $147,222. 

Your contribution room is also reduced by your Pension Adjustment (PA); which is generated if your employer contributes to a Registered Pension Plan or Deferred Profit Sharing Plan for you. Your contribution room may also be reduced by any Past Service Pension Adjustment (PSPA). If you leave your employment and have a Pension Adjustment Reversal (PAR), your RRSP room will be increased.

As you build RRSP contribution room, any amounts that are unfunded from prior years are carried forward throughout your lifetime for use in the future so long as you are eligible to contribute to your own or your spouse’s RRSP. By the end of the year in which you turn age 71, your RRSP must be converted to a RRIF (Registered Retirement Income Fund) or an annuity, and you can no longer make contributions. 

But, unused RRSP room can still be used to your advantage even if you are age ineligible. If you have a younger spouse, you can make Spousal RRSP contributions (a contribution to a plan under which the spouse is the annuitant) and still claim the deduction on your tax return so long as the spouse is age eligible.

Your next step is to see your tax or financial advisors to help you calculate and contribute to your RRSP in the most advantageous manner.

Thought Leadership: Five Tips on Building Team Culture

For many organizations – especially those in the tax and financial services – now is the time to build team culture in advance of a busy season of client interaction. Success of the team depends on so many factors including the right skills, processes and evaluation. For leaders of the team, there are five essential steps to building team culture in good times and bad.

So just how do you build a team culture that accomplishes maximum participation towards a single vision for success and common goals, especially in times of great stress?

Here are the five steps, as discussed in Knowledge Bureau’s new certificate course,  Business Leadership, Culture, and Continuity  which is found in the MFA-Executive Business Growth Specialist program:  

  • Establish your leadership – This refers to your own role as the founder, leader and master keeper of the vision. Before you can start building an effective team, you need to develop the right kind of leadership skills yourself. This does not mean asserting authority, but rather fostering trust, honesty, integrity and transparency in your leadership style (do what you say you will do). If your employees trust your judgement, they will not only follow your lead, but also work effectively when you are not around.
  • Establish relationships with each employee – Get to know your people as individuals. This means learning their skill-sets, what motivates them, their work habits and future goals. Regular, ongoing communication on a one-to-one basis will be an effective way of achieving this. This knowledge will prove extremely valuable to you, as it allows you to match each employee’s expertise and competencies to your organizational plan, and will help increase both productivity and job satisfaction. Additionally, including your employees in decision making as much as possible instead of just delegating tasks, giving them open-ended projects where they select the process and timelines and determine the best solution, will ensure you are developing your people along with the company.
  • Build relationships between your employees – As your team begins to work together in harmony and cooperation, examine the way they work together and communicate with each other to see how you might encourage a deepening of the inter-relationships of your team members. Stronger relationships between your employees also means deeper trust and respect. If there are conflicts, try to resolve them amicably by encouraging them to understand each other’s perspective and mediate where necessary. One way to do this is to brainstorm solutions, which also helps empower them and may lead to new creative solutions to a problem.
  • Foster teamwork – Once you have established relationships with and between your employees, you will be able to focus on helping them work together effectively. Encourage your team to share information both amongst themselves and within the larger organization. Having an effective communication system and not being afraid to ask your team members how they feel can go a long way to improving teamwork. Knowing and understanding what others are working on and how they are contributing to the vision and success of the organization helps improve working relationships.

Compare countries where the leaders take the time to meet and understand each other’s culture and challenges (like the G7) with those who try to operate isolated from the rest of the world, and you will understand how better solutions come from working together toward a common goal with regular, ongoing communication.

  • Evaluate performance – You will be able to assess your team’s performance not only on a fiscal basis, but also in terms of how effectively they display and preserve the values and culture of your company. This means that you will be able to evaluate the performance of your team as a whole alongside their individual performance. While great financial KPIs (Key Performance Indicators) and positive bottom-line results are one measurement of success, the turnover rate of your employees will also provide an indicator of whether you are operating with a high-performing team. We have all seen companies that have a revolving door of employees and are constantly in a training mode, so that their ability to focus on the longer term is challenged. On the other hand, a company with a well-developed and cohesive team and employee tenure above industry averages is very valuable in a succession plan.

No matter how smart, talented, driven or passionate you are about your business, your success as a leader depends on your ability to build, inspire and sustain a team – and get results. You are accountable to that, and the stakes are high. Just consider the recent firing of the Anaheim Ducks’ coach, or the recent troubles experienced by the British and Canadian Prime Ministers who have challenges within their teams.

Thought leadership: The successful leader is one who can recruit and grow a great functional team who are motivated by the leader’s vision and plans to execute on it. There is no doubt that functional teams outperform individual greatness by a very high margin. But just as true, is that dysfunction within the team needs to be quickly recognized and nipped in the bud. That’s even more important when you know that rough waters could lie ahead.

Changes Coming to Trust Filings

The CRA has been provided funding of $79 million over a five-year period, and $15 million on an ongoing basis, to support the development of an electronic platform for processing T3 returns. The goal: to address the government’s concerns about “significant gaps” in trust filing. By the year 2021, there will be new requirements for filing trust returns, and advisors in tax and financial services will need to come up to speed on this issue.

Specifically, certain trusts (including some trusts that are not currently required to file a T3 return) will be required to file and report the identity of all trustees, beneficiaries and settlors of the trust. In addition, it will be required that trusts report the identity of each person who has the ability to exert control over trustee decisions regarding the appointment of income or capital.

This initiative was first introduced by Finance Canada, in the February 27, 2018, federal budget. The commentary noted that a trust that does not earn income or make distributions in any given year is generally not required to file an annual (T3) return of income. Rather, a trust is required to file a T3 return if the trust has tax payable or it distributes all or part of its income or capital to its beneficiaries. In the 2018 budget, there is no requirement for the trust to report the identity of all its beneficiaries.

Now, the Finance Department wants to change all that and require annual reporting for specific trusts. As a result, from 2021 forward, reporting rules will change as follows for:

  • Express trusts that are resident in Canada
  • Non-resident trusts that are currently required to file a T3 return

An express trust, as defined in the budget documents, is generally a trust created with the settlor’s express intent, usually made in writing (as opposed to a resulting or constructive trust, or certain trusts deemed to arise under the provisions of a statute).

Some trusts are not affected. According to the most recent proposals, exceptions to the additional reporting requirements apply for the following types of trusts:

  • Mutual fund trusts, segregated funds and master trusts
  • Trusts governed by registered plans (i.e., deferred profit sharing plans, pooled registered pension plans, registered disability savings plans, registered education savings plans, registered pension plans, registered retirement income funds, registered retirement savings plans, registered supplementary unemployment benefit plans and tax-free savings accounts)
  • Lawyers’ general trust accounts
  • GRE (Graduated Rate Estates) and qualified disability trusts
  • Trusts that qualify as non-profit organizations or registered charities
  • Trusts that have been in existence for less than three months or that hold less than $50,000 in assets throughout the taxation year (provided, in the latter case, that their holdings are confined to deposits, government debt obligations and listed securities)

In summary, what needs to be reported: the identity of all trustees, beneficiaries and settlors of the trust, as well as the identity of each person who has the ability (through the trust terms or a related agreement) to exert control over trustee decisions regarding the appointment of income or capital of the trust (e.g., a protector).

Penalties effective for 2021 and subsequent taxation years. The following will be implemented for those who fail to file trust returns:

  • Late filing: $25 per day (minimum $100; maximum $2,500)
  • Additional late filing penalty: 5% of fair market value of trust assets (minimum $2,500) where the failure to file the trust return was made knowingly or due to gross negligence.

Helping Seniors: 10% Fail to Receive GIS

According to Statistics Canada*in 2016, 4.9% or 289,000 of 4.9 million seniors in Canada were living in poverty. Yet, more than one in ten seniors who are eligible for the Guaranteed Income Supplement (GIS) didn’t receive it in 2016-17. This is a big concern because, in fact, the number of seniors living in poverty is on the rise. So what’s the problem?

The Guaranteed Income Supplement (GIS) is designed to assist low-income seniors. Unfortunately, the government says many low-income seniors who could use the extra cash often don’t apply for GIS because they think they earn too much, or don’t understand the process.

The current process is that seniors who are automatically selected to receive Old Age Security are also automatically selected to receive the GIS based on their income, as reported on their last income tax return. But here is one of the problems – not all seniors file or file a return on time.

Once enrolled, seniors continue to receive the GIS so long as they file a tax return and report sufficiently low income. But, those income levels fluctuate and the eligibility ranges are not well known. They also depend on the taxpayer’s family status as shown in the table below.

The Basics on Eligibility.  The allowance is available to low-income seniors aged 60 to 64 who are married to a pensioner or are the surviving spouse of a senior. These figures are for January to March 2019 and are indexed quarterly.

Family Situation Maximum Income
(excluding OAS)
Single, widowed, or divorced senior $18,240* $898.32 $1/$24
Spouse receives full OAS $24,096* $540.77 $1/$48
Spouse does not receive OAS $43,728* $898.32 $1/$96 over $4,096
Spouse receives the Allowance $43,728* $540.77 $1/$48

* Benefit reduced by one dollar or each multiple of income level shown (e.g. $1 for each $24 of income for a single senior). Note that the first $3,500 of employment income does not count.

** combined income of both spouses

Less Common GIS Situations:

  • Retiring seniors – seniors who are about to retire and anticipate a lower income in their first year of retirement may apply for the GIS based on their estimated income after their retirement date. This occurs even if they do not qualify based on income reported on their last tax return.
  • Death of a spouse – when a taxpayer’s spouse dies, their GIS is based on their own income for the year of death rather than their family income (as it was for years when they were married at the end of the year). However, even if this income level is very low, they will not automatically receive the GIS based on their income unless they apply for it.
  • RRSP meltdown – when the taxpayer reaches age 72, any RRSP balances have to be transferred to an RRIF and there are minimum withdrawal amounts annually from the RRIF. For low-income seniors, the minimum withdrawal reduces their GIS each year. 

Seniors anticipating low income in retirement and who have small RRSP balances, transfer the RRSP balance to the TFSA before they are eligible for the GIS so withdrawals can be made without affecting the GIS.

More wrinkles:  For those who are not automatically enrolled or who do not qualify based on income reported on their last tax return, an application is required. Over the coming weeks, the government will be sending out tens of thousands of letters to seniors who are receiving OAS to remind them to apply, but there is no reminder for GIS. Those that meet the eligibility criteria outlined above are encouraged to apply. 

A role for advisors. Tax and financial advisors can help by encouraging their clients to know and understand income ranges that qualify for the GIS and to complete the application forms for seniors as a public service.

Written in collaboration with Walter Harder.

Getting the New Climate Action Incentive Rebate Right

Canada now has anationwide standard for reducing carbonpollution, which means that starting in 2019, a federal “backstop” carbon pollution pricing system will apply to four provinces – Saskatchewan, Manitoba, Ontario and New Brunswick – that have not implemented their own systems. For taxpayers in these provinces, a new refundable tax rebate will be claimed on the 2018 tax return. But, like most tax provisions, it has its wrinkles.

The majority of the charges collected from a fuel tax that begins on April 1, 2019, will be returned through this rebate, called the Climate Action Incentive payments. The amounts being returned to individuals and families are calculated as follows:

SK $305 $152 $76
MB $170 $85 $42
ON $154 $77 $38
NB $128 $64 $32

Payments in Subsequent Years. Climate Action Incentive payments will increase annually as fuel charges rise, until at least 2022. The exact payment amounts are to be announced annually, but for the time being are projected to be as follows:

 Saskatchewan 2020 2021 2022
First adult $452 $596 $731
Spouse $225 $297 $364
Child $113 $148 $182
Family of four $903 $1,189 $1,459

 Manitoba 2020 2021 2022
First adult $250 $328 $402
Spouse $125 $164 $201
Child $62 $81 $99
Family of four $499 $654 $801

 New Brunswick 2020 2021 2022
First adult $189 $247 $303
Spouse $94 $124 $152
Child $47 $62 $76
Family of Four $377 $495 $607

 Ontario 2020 2021 2022
First adult $226 $295 $360
Spouse $113 $147 $180
Child $56 $73 $89
Family of four $451 $588 $718

Supplement for Residents of Rural and Small Communities. In recognition of increased energy needs and reduced access to alternative transportation options, residents of rural and small communities will have their payments increased by 10 percent. To find out which areas will qualify, go to this link:

There, you should be able to find the places outside of metropolitan areas that may qualify, according to CE Summit delegate Dianne Lepage of Liberty Tax Service. She tells us that some towns don’t show up per se, but their rural municipality does. For example, Rapid City, Manitoba, is not there but the rural municipality of Oakview is. It will, in other words, take some digging to find out exactly who qualifies to get the extra payment.

Following are other criteria for the program shared by Finance Canada:

Relief for Farmers. Upfront relief from the fuel charge will be provided with exemption certificates when certain conditions are met. Specifically, a registered distributor can deliver, without the fuel charge applying, gasoline or light fuel oil (e.g., diesel), if the fuel is for use exclusively in the operation of eligible farming machinery and all, or substantially all, of the fuel is for use in the course of eligible farming activities. Farmers do not need to be registered for the purposes of this relief.

Eligible farming machinery means property that is primarily used for the purposes of farming and that is a farm truck or tractor, a vehicle not licensed to be operated on a public road, or an industrial machine or stationary or portable engine. Diversion rules to ensure that the fuel charge applies if gasoline or light fuel oil is not used as intended.

Relief for Fishers. Similar rules apply to fishers when all, or substantially all, of the fuel is for use in the course of eligible fishing activities and when certain conditions are met, one of them being that the province be prescribed for the purposed of the relief. There are currently no listed provinces that are prescribed.

Exemptions to Carbon Taxes. A full exemption from carbon pollution pricing will be granted to: diesel-fired electricity generation in remote communities, for aviation fuel in the territories, and for farmers and fishers. Partial relief from the fuel charge would also be provided for eligible commercial greenhouse operators.

Bottom line: Remind all taxpayers in these provinces to file a tax return – whether they have income or not. It will lead to a bigger tax refund!

The Tax Refund: Friend or Foe to Wealth Management?

The Statistics Canada’s Individual Income Tax Report*released on January 8, highlighted just how much Canadians are being over-taxed by the CRA. With average tax refunds coming in at $1,757 for the 2018 filing season, many taxpayers are effectively providing the government with interest-free loans of approximately $150 per month for up to 16 months before they see their refund. Just how much is that really costing you?

Consider this: $150 a month could help you take advantage of investment opportunities or pay down debt. Investing the money in a TFSA at a 5% return would earn almost $50 in interest over a 12-month period. While that may not sound like much annually, it’s significant over the long-term if that investment is allowed to grow. The earnings are tax-free along the way and when they are withdrawn, too. 

If the money was put into an RRSP, almost immediate tax savings would result, at the taxpayer’s marginal tax rates, provided the taxpayer is age-eligible and has RRSP contribution room.  A spousal RRSP opportunity may also be possible. This opportunity brings with it the possibility of reducing withholding taxes throughout the year, using Form T1213.

Likewise, if taxpayers used that $150 monthly payment to reduce debt — particularly high-interest consumer debt — instead of giving it up to the CRA in overpayment, that could make a significant financial impact. Especially when you consider that the average interest rate for credit cards in Canada is 19%, and that number continues to rise. The benefit is exponentially positive, given that interest on consumer debt is not deductible.

Many Canadians celebrate their refund cheque as though it’s free money when, in reality, money collected through over-taxation should have been theirs all along. Lacking access to it therefore has a negative impact on their financial future – making the tax refund a foe, not a friend, to financial planning goals.

To prevent these repercussions seek out the services of a certified professional in tax-efficient debt management  or a Real Wealth Manager, who can help you coordinate financial plans with tax filing priorities. It’s important to reduce CRA’s reach up-front, and control whether the correct amount of tax is being paid on a regular basis.

Consider the following implementation tips:

  • Fill out a TD1 for your employer’s payroll department, outlining tax credits and deductions you’re likely to claim. Payroll deductions can be adjusted accordingly. This often needs to be requested, as most companies don’t routinely provide these forms to new hires.
  • Update your employer on significant life changes that may impact the amount of tax to be withheld (child or spouse no longer a dependent, for example).
  • Inform your employer if you have more than one employer in the same tax year. This could affect your tax-exempt basic personal amount. Otherwise, if a new employer assumes this applies, under-taxation could occur and you’ll owe money you weren’t anticipating.
  • CRA can give approval to an employer to collect less tax in cases where employees are making RRSP contributions or claiming significant childcare costs, for example. An advisor can help you make the right moves in order to ensure only the necessary taxes are being withheld.

Advisors helping taxpayers through this process can do more than simply manage the logistics; having conversations around this issue creates an opportunity for education. It’s time to start moving the needle and help Canadians better understand the complex tax issues that impact their wealth.

The Statistics Canada Individual Income Tax Report*

What Else Is New in 2019? Auto Expense Deduction Changes

Did you check your odometer reading at the start of the year? Finance Canada confirmed its 2019 auto expense rates on December 27, but they don’t quite measure up to cover the carbon taxes that increase the cost of driving, including the increased gas prices as of January 1. Those who use passenger vehicles for business will be disappointed that their write-offs haven’t changed at all, unless a new vehicle was purchased after November 20, 2018.

Here are the tax changes:

Employer-owned cars. For those who use an employer-provided vehicle, the prescribed rate that determines the taxable benefit for the personal portion of operating expenses paid by employers will be increased to 28 cents per kilometer from 26 cents. For those employed principally in selling or leasing cars, the rate goes up to 25 cents; also a 2-cent-per-kilometer increase. However, that’s not all in terms of costs to employees with this benefit: a standby charge must be computed separately to reflect the fact that the car is available for personal use.

Employee-owned cars. For those who purchase a passenger vehicle, limits on the claims for capital cost allowance, interest costs and leasing costs will not be changed from 2018 limits. The amounts are $30,000 (plus taxes), $300 a month and $800 a month (plus taxes), respectively.

Tax-exempt allowances. The limit on tax-exempt allowances paid to employees who use their own vehicles for business purposes will increase by 3 cents to 58 cents per kilometer for the first 5,000 kilometres driven, and then to 52 cents for each additional kilometer. Those living in the Northwest Territories, Nunavut and Yukon will add 4 cents to this, making it 62 cents per kilometer for the first 5,000 kilometres, and 56 cents there over that distance.

Given that these allowances are intended to offset the costs of owning and operating the vehicle — including fuel, financing, insurance, maintenance and depreciation — the new rates may not be enough to cover the carbon taxes of 4.4 cents starting April 1 for provinces that do not have their own carbon tax regime; and that amount will be even more in other provinces that do.

Average gas prices. It turns out Manitoba has the lowest average gas prices in the country these days, according to the CAA website. As of January 2, the rates were as follows:

Province Gas Price per Litre ($)
Alberta 091.1
British Columbia 125.8
Manitoba 088.7
New Brunswick 101.6
Newfoundland and Labrador 108.5
Nova Scotia 096.1
Ontario 097.6
Prince Edward Island 095.7
Quebec 108.4
Saskatchewan 096.0

Get Ready for 2019: Six Great Tax Moves and Audit-Busters

These tax tips have been excerpted from Evelyn Jacks’ Essential Tax Facts: How to Make the Right Moves and Be Audit-Proof, Too,which has been fully updated with the information your clients need to know when filing their 2018 taxes. It’s not too late to give Canadians the gift of financial literacy this holiday season – and shipping is free!

 Game-Day Tax Strategies

  1. Be sure to adjust your prior filed returns for errors or omissions before the end of the year, especially if you suspect CRA owes you money. Remember, the 2008 tax year is statute-barredas of January 1 so you’ll leave money on the table forever if you miss this opportunity. 
  2. Plan your income sources: Earning a variety of different income sources with different tax attributes can help you to “average down” the taxes you pay. 
  3. Time your income receipts. Before you pull out that extra $5000 from your RRIF to surprise your spouse with a vacation for Christmas, consider doing so in January instead. This tactic will postpone income taxation until the 2019 tax year. Do the opposite if income will be higher next year.
  4. Don’t skimp on your RRSP contribution: An RRSP contribution will increase your tax credits and your after-tax cash flow,too, because it will help you reduce clawbacks of important social benefits you’ll receive all year long.
  5. Top up your RESP contributions: It’s a gift that will generate a Canada Education Savings Grant for you, which will embellish on education savings opportunities for your family.
  6. File family tax returns together: Because many credits are based on “family” rather than “individual” net income, you and your spouse need to file tax returns together. It’s a smart start to the new year to focus on family tax planning. Hunting down and organizing receipts early can really help, to avoid the annual tax filing panic. Spend some time getting organized over the holidays if you can.

Tax Tools of the Trade

  • Own a private corporation? File a T2corporate tax return and pay attention to the new Tax on Split Income rules for adults starting in 2018. As well, inquire about the new rules regarding passive investment income in a private corporation, which begin January 1, 2019.
  • Sold or transferred your home? Form T2019 Designation of a Property as a Principal Residence will need to be filed. It’s complicated, so be sure to solicit some professional help with this.
  • Leaving Canada for good? List reportable properties with your final T1 return: T1161 List of Properties by an Emigrant of Canada. You may have a departure tax, so get some experienced professional help.

Your Audit-Buster Checklist

  1. Get organized: Keep meticulous tax records—in order—all year long to save time and money on filing your audit-proof tax return. This is your first defence in the tax filing requirement.
  2. Preserve your appeal rights: Take note of the date on your Notice of Assessment or Reassessment—CRA’s response to your tax filing. This is used to determine your further appeal rights. Keep a hard copy of this form with your permanent tax records.
  3. Globetrotters: A departure tax is payable if you leave Canada permanently, but it’s reversible if you change your mind. Keep all your tax records.
  4. Investors: Understand the different definitions of income—both active and passive—and the power that CRA auditors have to challenge their tax attributes.On an audit, you may need to prove why an investment should be considered passive rather than active in nature, to save tax dollars.
  5. Beware of the potential for income recharacterization: CRA can consider a single transaction or a series of transactions to be business income (100percent taxable), although you filed them as a capital transaction (50 percent taxable). The burden of proof is on you to convince CRA why you are right. Keep detailed records about the reasons for the transaction, its relationship to your regular line of work and other criteria set out by CRA in its Interpretation Bulletin 459.

Educate Your Clients: Six Essential Tax Tips for 2019

Share the gift of education with your clients this holiday season! By discussing the six essential tax tips your clients need to know for 2019 and beyond, you can help Canadians become more informed on the tax-efficient decisions that will improve their financial health in the new year.

KBR’s top tax tips have been excerpted from Essential Tax Facts: How to Make the Right Moves and Be Audit-Proof, Too,which has been fully updated with the information your clients need to know when filing their 2018 taxes. Author Evelyn Jacks says, “It’s the obligation of every taxpayer to know and follow the tax rules, and keep records to back up claims. These Essential Tax Facts have been written to empower Canadians in their often frustrating relationships with CRA—which are for life, by the way—so that they can keep more of their hard-earned dollars working for their financial future.”

Share these tax tips with your clients to help you make the right tax moves for their households and be audit-proof, too. The complete book also makes a great Christmas gift.”

  1. All taxpayers should file by April 30. The filing due date is April 30 for individual returns and June 15 for those who file returns to report sole-proprietorship income or expenses. However, if proprietors owe money to the CRA, the interest clock starts ticking the day after the April 30 tax filing due date, just like for other taxpayers.
  • It pays to have a tax pro. The burden of proof for the numbers on your return is always on you, even if CRA has made a mistake; therefore, it is important to establish a relationship with a competent professional you can call on, should you have sudden trouble with the CRA. More common, your tax pro can help you with administrative issues that hold up your tax refunds, adjustment requests or to prepare for a tax audit. 
  • Do a “tax-360.” Most people are not aware of their “carry-over” opportunities; that is, the potential to use certain tax provisions in previous or future tax returns to offset taxes payable. Be sure to review past returns and take future tax planning into account rather than focusing on only the year at hand.
  • Selling a tax-exempt principal residence? You will need to know about a new requirement when you file your T1 tax return: you must file Form T2091 Designation of Property as a Principal Residence by an Individual to report that principal residence disposition starting in 2017. Failing to do so can attract a penalty of up to $8000.
  • Claim foreign tax credits. Where income is taxed in more than one country, tax treaties ensure that credit is given in the country of residence for taxes paid to the foreign jurisdiction. If you were subject to taxes in a foreign country, be sure to claim a foreign tax credit on your Canadian return.
  • Departure taxes. Emigrants from Canada must file a “final return” to which a departure tax will be applied to the capital gains resulting from any increase in value of taxable assets, as of the date of departure. This is reversible if you decide to return to Canada in the future, so keep all your records.