This fall, the federal government announced a nice little perk for Canadians with investment income. Starting January 1, 2009, everyone 18 and over, can contribute up to $5,000 to a Tax Free Savings Account (TFSA). Nearly every type of investment can be deposited there. The beauty of these is that they are not taxed when income is earned. For example, if you deposit $5,000 to a GIC, the interest is not taxed when you pull it out.
Where this is possibly more powerful is if you have (non RRSP registered) stocks that have devalued recently. If you believe that they are underpriced, they could be a good choice for this TFSA deposit. Of course, you must be of the mind-set that the market will come back and that these stocks are currently a bargain. Transferring these stocks into the TFSA would trigger a gain or loss for your personal tax in the year transferred.
Note, that you do not get to write off the deposit, as you would an RRSP, but unlike an RRSP, you will never be taxed on the growth and there is no requirement to collapse this plan, as there is with RRSPs.
Over the years, as long as this plan is in place, you will get an additional $5,000 of contribution room, per year.
Your bank or investment advisor should be able to assist you in setting one of these up. Note that every bank has a link if you search “Tax Free Savings Account”. Please read through their summaries and FAQ’s.
Monday, December 15, 2008
Monday, March 17, 2008
2008 Automobile/ Vehicle Deduction Limits and Expense Benefit Rates for Business
Ottawa, December 24, 20072007-111
2008 Automobile Deduction Limits and Expense Benefit Rates for Business
The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2007. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2007. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2007.
The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes for 2008 will be increased by 2 cents to 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre. For the Yukon Territory, Northwest Territories and Nunavut, the tax-exempt allowance will rise by 2 cents to 56 cents for the first 5,000 kilometres driven and 50 cents for each additional kilometre. The allowance amounts reflect the key cost components of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel costs.
The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers for 2008 will increase by 2 cents to 24 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will increase by 2 cents to 21 cents per kilometre. The amount of the benefit reflects the costs of operating an automobile. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee’s income.
The Government reviews these rates and limits annually and announces any planned changes prior to the end of the calendar year. This practice ensures that businesses are aware of the new rates before the beginning of the year in which they apply.
2008 Automobile Deduction Limits and Expense Benefit Rates for Business
The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2007. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2007. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2007.
The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes for 2008 will be increased by 2 cents to 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre. For the Yukon Territory, Northwest Territories and Nunavut, the tax-exempt allowance will rise by 2 cents to 56 cents for the first 5,000 kilometres driven and 50 cents for each additional kilometre. The allowance amounts reflect the key cost components of owning and operating an automobile, such as depreciation, financing, insurance, maintenance and fuel costs.
The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers for 2008 will increase by 2 cents to 24 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will increase by 2 cents to 21 cents per kilometre. The amount of the benefit reflects the costs of operating an automobile. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee’s income.
The Government reviews these rates and limits annually and announces any planned changes prior to the end of the calendar year. This practice ensures that businesses are aware of the new rates before the beginning of the year in which they apply.
Tuesday, October 30, 2007
October 30, 2007 Tax Relief for Individuals, Families and Businesses
Ottawa, October 30, 20072007-083
Canada’s Government Delivers Broad-Based Tax Relief for Individuals, Families and Businesses
The Honourable Jim Flaherty, Minister of Finance, today presented the Government’s 2007 Economic Statement, which proposes broad-based tax relief for all Canadians, including a further reduction of the goods and services tax (GST).
"Given the uncertainty in the global economy, now is the time to provide additional tax relief for Canadians," said Minister Flaherty. "Our strong fiscal position provides Canada with an opportunity that few other countries have—to make broad-based tax reductions that will strengthen our economy and leave more money in the pockets of ordinary Canadians."
Since coming to office 21 months ago, the Government has taken action that will reduce the overall tax burden for Canadians and businesses by about $190 billion, bringing taxes to their lowest level in nearly 50 years.
At the heart of the Tax Relief Package is an additional 1-percentage-point reduction in the GST, effective January 1, 2008. This tax cut fulfills the Government’s key campaign commitment and builds on the initial GST reduction introduced in Budget 2006. For consumers, the total savings from the 2-percentage-point reduction in the GST will amount to approximately $12 billion next year.
Individual savings will be significant:
A family purchasing a new $300,000 home will save $3,840 in GST.
A family spending $10,000 on home renovations will save $200 in GST.
A family spending $30,000 on a new minivan will save $600 in GST.
The GST credit will be maintained at its current level, translating into more than $1.1 billion in benefits annually for low- and modest-income Canadians.
The Government is proposing additional tax relief for individuals and families by:
Increasing the basic personal amount to $9,600 retroactive to January 1, 2007. The basic personal amount will be increased to $10,100 on January 1, 2009. This proposal will provide Canadians with an additional $2.5 billion in tax relief in 2007 and 2008.
Reducing the lowest personal income tax rate to 15 per cent from 15.5 per cent retroactive to January 1, 2007.
Families earning between $15,000 and $30,000 will pay on average almost $180 less in tax in 2008 as a direct result of the tax measures announced in the Fall Economic Statement.
Families earning between $45,000 and $60,000 will pay on average almost $400 less in tax in 2008 as a direct result of the tax measures announced in the Fall Economic Statement.
Families earning between $80,000 and $100,000 will pay on average $602 less in tax in 2008 as a direct result of the tax measures announced in the Fall Economic Statement.
In order to make businesses even more competitive, it is essential
that Employment Insurance rates be reduced for employers and
employees.
The premium rate for employees will fall to $1.73 from its current level of $1.80 per $100 of insurable earnings, effective January 1, 2008. The rate paid by employers will be reduced as well, to $2.42 from $2.52 per $100 of insurable earnings.
The maximum insurable earnings (MIE) for 2008, will be $41,100, up $1,100 from its 2007 level.
The MIE is the income level up to which earnings are insured and on which premiums are paid by employees and employers.
Also for Canadian businesses, the Government will be:
Reducing the general corporate income tax rate to 15 per cent by 2012, starting with a 1-percentage-point reduction in the rate in 2008 beyond the already scheduled reductions.
Reducing the small business income tax rate to 11 per cent in 2008, one year earlier than scheduled.
"We are putting business taxes on a five-year track downward to help stimulate further economic growth and create even more jobs," said Minister Flaherty. "We are ushering in a new era of declining business taxation in Canada. It will be a steady, predictable decline that businesses can count on and can plan on."
With these reductions, Canada’s general federal corporate income tax rate will fall by one-third between 2007 and 2012, and Canada’s corporate tax rate will become the lowest among the major industrialized economies.
The Government also announced it is planning additional debt reduction of $10 billion this fiscal year, for a total of more than $37 billion in debt relief since coming to office. This is the equivalent of $1,570 for each man, woman and child in Canada.
As a result, the federal government’s debt-to-GDP ratio—its debt load as a share of the economy—is expected to fall below 25 per cent by 2011–12, three full years ahead of the original target and its lowest level since the late 1970s.
With the additional debt reduction in the Economic Statement, the total value of personal income tax relief provided under the Tax Back Guarantee will rise to $2.5 billion by 2012–13.
The 2007 Economic Statement is available on the Department of Finance website.
Canada’s Government Delivers Broad-Based Tax Relief for Individuals, Families and Businesses
The Honourable Jim Flaherty, Minister of Finance, today presented the Government’s 2007 Economic Statement, which proposes broad-based tax relief for all Canadians, including a further reduction of the goods and services tax (GST).
"Given the uncertainty in the global economy, now is the time to provide additional tax relief for Canadians," said Minister Flaherty. "Our strong fiscal position provides Canada with an opportunity that few other countries have—to make broad-based tax reductions that will strengthen our economy and leave more money in the pockets of ordinary Canadians."
Since coming to office 21 months ago, the Government has taken action that will reduce the overall tax burden for Canadians and businesses by about $190 billion, bringing taxes to their lowest level in nearly 50 years.
At the heart of the Tax Relief Package is an additional 1-percentage-point reduction in the GST, effective January 1, 2008. This tax cut fulfills the Government’s key campaign commitment and builds on the initial GST reduction introduced in Budget 2006. For consumers, the total savings from the 2-percentage-point reduction in the GST will amount to approximately $12 billion next year.
Individual savings will be significant:
A family purchasing a new $300,000 home will save $3,840 in GST.
A family spending $10,000 on home renovations will save $200 in GST.
A family spending $30,000 on a new minivan will save $600 in GST.
The GST credit will be maintained at its current level, translating into more than $1.1 billion in benefits annually for low- and modest-income Canadians.
The Government is proposing additional tax relief for individuals and families by:
Increasing the basic personal amount to $9,600 retroactive to January 1, 2007. The basic personal amount will be increased to $10,100 on January 1, 2009. This proposal will provide Canadians with an additional $2.5 billion in tax relief in 2007 and 2008.
Reducing the lowest personal income tax rate to 15 per cent from 15.5 per cent retroactive to January 1, 2007.
Families earning between $15,000 and $30,000 will pay on average almost $180 less in tax in 2008 as a direct result of the tax measures announced in the Fall Economic Statement.
Families earning between $45,000 and $60,000 will pay on average almost $400 less in tax in 2008 as a direct result of the tax measures announced in the Fall Economic Statement.
Families earning between $80,000 and $100,000 will pay on average $602 less in tax in 2008 as a direct result of the tax measures announced in the Fall Economic Statement.
In order to make businesses even more competitive, it is essential
that Employment Insurance rates be reduced for employers and
employees.
The premium rate for employees will fall to $1.73 from its current level of $1.80 per $100 of insurable earnings, effective January 1, 2008. The rate paid by employers will be reduced as well, to $2.42 from $2.52 per $100 of insurable earnings.
The maximum insurable earnings (MIE) for 2008, will be $41,100, up $1,100 from its 2007 level.
The MIE is the income level up to which earnings are insured and on which premiums are paid by employees and employers.
Also for Canadian businesses, the Government will be:
Reducing the general corporate income tax rate to 15 per cent by 2012, starting with a 1-percentage-point reduction in the rate in 2008 beyond the already scheduled reductions.
Reducing the small business income tax rate to 11 per cent in 2008, one year earlier than scheduled.
"We are putting business taxes on a five-year track downward to help stimulate further economic growth and create even more jobs," said Minister Flaherty. "We are ushering in a new era of declining business taxation in Canada. It will be a steady, predictable decline that businesses can count on and can plan on."
With these reductions, Canada’s general federal corporate income tax rate will fall by one-third between 2007 and 2012, and Canada’s corporate tax rate will become the lowest among the major industrialized economies.
The Government also announced it is planning additional debt reduction of $10 billion this fiscal year, for a total of more than $37 billion in debt relief since coming to office. This is the equivalent of $1,570 for each man, woman and child in Canada.
As a result, the federal government’s debt-to-GDP ratio—its debt load as a share of the economy—is expected to fall below 25 per cent by 2011–12, three full years ahead of the original target and its lowest level since the late 1970s.
With the additional debt reduction in the Economic Statement, the total value of personal income tax relief provided under the Tax Back Guarantee will rise to $2.5 billion by 2012–13.
The 2007 Economic Statement is available on the Department of Finance website.
Wednesday, June 6, 2007
CRA Apprenticeship Job Creation Tax Credit (AJCTC)
There’s a new government incentive that your company might be able to take advantage of (started May 2, 2006). Timing: you have 1 year from your fiscal year end to file. The link is below for you to read through. In a nutshell, you get an ITC (Investment Tax Credit) on the corporate tax return for up to $2,000 per apprentice (for their first 2 years of apprenticeship) if they are in a qualifying trade.
The link is pretty well laid out. The most difficult part is to get your employees registered as apprentices. We can then claim the ITC on the tax returns.
We just put through a claim for a hair stylist working at one of our clients’ salon. The company is getting $1900 back.
The formula is Wage paid to the individual in the year (from May 2, 2006) * 10%.
Here’s the link
http://www.cra-arc.gc.ca/whatsnew/apprenticeship-e.html#q4
The link is pretty well laid out. The most difficult part is to get your employees registered as apprentices. We can then claim the ITC on the tax returns.
We just put through a claim for a hair stylist working at one of our clients’ salon. The company is getting $1900 back.
The formula is Wage paid to the individual in the year (from May 2, 2006) * 10%.
Here’s the link
http://www.cra-arc.gc.ca/whatsnew/apprenticeship-e.html#q4
Wednesday, April 25, 2007
Allowable Home Office Expenses:
These claimable expenses include:
home mortgage interest
property taxes
home insurance
utilities
business phone
landscaping costs
The claimable percentage of these expenses is based on your dedicated home office space divided by the total square footage of your liveable home area space.
home mortgage interest
property taxes
home insurance
utilities
business phone
landscaping costs
The claimable percentage of these expenses is based on your dedicated home office space divided by the total square footage of your liveable home area space.
Thursday, April 19, 2007
Testamentary Trust Planning
This type of trust (testamentary: included in the will) is very useful for a family with young children. The survivors benefit from this in future tax savings. The tax savings result from the trust earnings being taxed in the child's hands. Since the children make little or no income, no taxes are incurred.
Here's an example of how this testamentary trust works: When the insured dies, his/her life insurance proceeds are transferred into this trust, with the remaining property going to the surviving spouse.
In the trust documentation, it is indicated that the beneficiaries are the children and spouse, the spouse is also the trustee. The spouse is now able to spend the trust money in the interests of the children. These expenditures such as camps, computer purchases, and any other purchase that aids in the progress or enrichment of the children's life are eligible.
Here's an example of how this testamentary trust works: When the insured dies, his/her life insurance proceeds are transferred into this trust, with the remaining property going to the surviving spouse.
In the trust documentation, it is indicated that the beneficiaries are the children and spouse, the spouse is also the trustee. The spouse is now able to spend the trust money in the interests of the children. These expenditures such as camps, computer purchases, and any other purchase that aids in the progress or enrichment of the children's life are eligible.
Sunday, April 15, 2007
Reasons to Incorporate Your Business:
1)Qualified Small Business Exemption: If the owner of this business ultimately sells the shares of the business, they may qualify for up to a $750,00 lifetime capital gains exemption. There are 4 criteria that need to be met to qualify for this tax-free capital gain. See February blog notes for these 4 rules.
2) Income splitting: You may pay a reasonable salary, and /or bonus and to your family members. This compensation is for the services they have provided to the business.
It's best to document a list of each person's responsibilities performed within the business.
The 'reasonableness' test does not apply to dividends paid. This means that the owner of the business can pay any amount of dividend to a shareholder who doesn't provide any services to the company.
3)Tax deferral opportunities: such as,
a) if your company's year-end is established between July 1 and Dec. 31, employee bonuses payable can be paid up to 180 days, resulting in the individual declaring his/her bonus in the next calendar year and
b) retaining income within the company when not needed personally. This would save you an amount that you would have otherwise paid in personal taxes owing, had this amount been withdrawn and declared personally.
4) Private Health Services Plan (PHSP): This plan recognized by CRA under bulletin IT-339R2 was introduced as a cost efficient and tax effective means of providing health and dental benefits for small and medium sized businesses. This plan is an inexpensive way for incorporated employers and sole proprietors to provide tax free health and dental services for themselves and their dependents, their employees and their dependents. These services are 100% tax deductible to the corporation or the sole proprietor, but not taxable as benefits to the individuals.
We (Elliott & Company CMAs, http://www.ellco.ca/) have an alliance with a Benefit Plan company that offers our clients a special rate due to the referrals that we are providing to this company. If you are currently under a plan (i.e. Shield, London Life, etc.), this alliance will waive the $150 one-time sign up fee. If you are not with an existing plan, your sign up fee will be reduced to $75. A 5% admin fee will be charged, rather than the 10% admin fee that you may be used to for medical/dental claims put through your plan. Those of you that are sole proprietors, you should talk to our associate company about eligibility. If you have employees, you may still be able to use this.
5) Universal Life Insurance: This allows for tax-sheltered growth of the company's retained earnings. One condition is that the premiums of this policy are not deductible within the company. The owner can use these insurance funds for his/her business or personal needs, if a collateral policy is arranged through bank loans. Appropriate documentation and steps need to be taken to ensure that these funds used for personally aren't later deemed from CRA as a personal benefit.
6) Corporate limited liability.
7) Corporate image presence.
COSTS: Being incorporated does come with other costs such as: incorporation fees, annual corporate tax return preparation and financial statement preparation (Elliott & Company CMAs: http://www.ellco.ca/ year-end (notice-to-reader) cost ranges between $500-$800/year).
Also, you may have no choice but to incorporate, if the companies you contract to require you to do so for liability purposes.
2) Income splitting: You may pay a reasonable salary, and /or bonus and to your family members. This compensation is for the services they have provided to the business.
It's best to document a list of each person's responsibilities performed within the business.
The 'reasonableness' test does not apply to dividends paid. This means that the owner of the business can pay any amount of dividend to a shareholder who doesn't provide any services to the company.
3)Tax deferral opportunities: such as,
a) if your company's year-end is established between July 1 and Dec. 31, employee bonuses payable can be paid up to 180 days, resulting in the individual declaring his/her bonus in the next calendar year and
b) retaining income within the company when not needed personally. This would save you an amount that you would have otherwise paid in personal taxes owing, had this amount been withdrawn and declared personally.
4) Private Health Services Plan (PHSP): This plan recognized by CRA under bulletin IT-339R2 was introduced as a cost efficient and tax effective means of providing health and dental benefits for small and medium sized businesses. This plan is an inexpensive way for incorporated employers and sole proprietors to provide tax free health and dental services for themselves and their dependents, their employees and their dependents. These services are 100% tax deductible to the corporation or the sole proprietor, but not taxable as benefits to the individuals.
We (Elliott & Company CMAs, http://www.ellco.ca/) have an alliance with a Benefit Plan company that offers our clients a special rate due to the referrals that we are providing to this company. If you are currently under a plan (i.e. Shield, London Life, etc.), this alliance will waive the $150 one-time sign up fee. If you are not with an existing plan, your sign up fee will be reduced to $75. A 5% admin fee will be charged, rather than the 10% admin fee that you may be used to for medical/dental claims put through your plan. Those of you that are sole proprietors, you should talk to our associate company about eligibility. If you have employees, you may still be able to use this.
5) Universal Life Insurance: This allows for tax-sheltered growth of the company's retained earnings. One condition is that the premiums of this policy are not deductible within the company. The owner can use these insurance funds for his/her business or personal needs, if a collateral policy is arranged through bank loans. Appropriate documentation and steps need to be taken to ensure that these funds used for personally aren't later deemed from CRA as a personal benefit.
6) Corporate limited liability.
7) Corporate image presence.
COSTS: Being incorporated does come with other costs such as: incorporation fees, annual corporate tax return preparation and financial statement preparation (Elliott & Company CMAs: http://www.ellco.ca/ year-end (notice-to-reader) cost ranges between $500-$800/year).
Also, you may have no choice but to incorporate, if the companies you contract to require you to do so for liability purposes.
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