It's tax time and our income tax specialists can help. Interested in potential tax savings opportunities? The team at Cloutier Matthews wants to ensure no tax credits and deductions go unmissed. We are a full service accounting firm located in Courtenay, BC, serving clients throughout the Comox Valley, Powell River and Vancouver Island.

Tax Season Is Coming

With February upon us we are rapidly approaching our busy tax season. Although the personal tax filing deadline falls on April 30, 2018, procrastination can be your enemy at this time of year, particularly for those of you with more than one or two slips to report. Here are a few friendly tips on how to prepare for the upcoming tax season:

Know what to expect

  • Review your prior year filing to get an idea of what you may be reporting this year:
  • Employment income slips (T4 slips)
  • Investment income slips (T3/T5 slips)
  • Pension income slips (T4A for CPP, OAS, or private pensions)
  • Donation receipts
  • Medical receipts (only worthwhile if significant)

Know when to start assembling tax information

  • T-slips are generally issued at the end of February (T3 slips are the exception, issued at the end of March), so look for these in early March
  • Donation receipts are typically mailed out early in the year, so start looking for those now
  • If you have significant medical expenses, you can start assembling that information now
  • Note that Pharmacies can usually print out an annual summary that shows ALL of your prescription costs for the year

Be organized this tax season

Keeping all your information together in one place and organized by type will help relieve last minute panic and make preparing your return much more efficient.

Self-employed individuals

It is important to keep revenue and expense information neatly organized, with supporting documentation (receipts, invoices, etc.) on hand; many people find Excel to be very useful to track their self-employed earnings.

RRSP Contributions

If you are considering making an RRSP contribution for 2017, note that the deadline falls on March 1, 2018. If you are unsure if making a contribution this year would be advantageous, feel free to get in touch for some guidance.

What’s New This Tax Season?

The federal government chose to target corporations for most of their revisions to the tax code this year, with only a few minor changes for personal income taxes.

  • No More Federal Children’s Fitness or Children’s Arts Tax Credits
    • Effective 2017, these Federal tax credit are no longer available (but the Provincial credits still remain, so bring in your receipts!)
  • No More Education & Textbook Tax Credit
    • Effective 2017, this tax credit will no longer be available to students BUT the tuition tax credit will remain in effect

This list is not exhaustive, but identifies the changes most likely to impact your tax filing.

Questions?

If any questions arise as you begin to assemble your tax information, feel free to contact us. We are here to help!

Personal Liability for Corporate Directors – A Warning

If you or someone you know is the director of a corporation, be warned: you may be on the hook personally for amounts owing by the company to the Canada Revenue Agency (CRA).

Generally, directors are not personally liable for the actions—or inactions—of a company, as corporations are considered to be separate legal entities under the eyes of the law. However, should the company fail to withhold and remit certain taxes to the CRA, the tax department can go after individual directors to recover the amounts due. These obligations include, but are not limited to:

  • Payroll deductions (employee income taxes, CPP, and EI)
  • GST/HST
  • Withholding taxes for non-residents
  • Excise duties

The CRA would also charge a penalty of 10%-20% of the outstanding amount, plus accrued interest, all of which could ultimately be levied on a corporate director should the company fail to satisfy its obligations. In order for the CRA to seek payment from a director for amounts owed by the company, the CRA must:

  • demonstrate its inability to recover the amounts directly from the corporation;
  • issue the assessment against the director(s) within two years of the director(s) leaving the company’s Board; and
  • prove the director(s) did not exercise due diligence to prevent the company’s failure to withhold and remit the amounts in question

Although the initial burden of proof rests with the CRA, directors can still find themselves in the unfortunate position of having to personally fulfill the financial obligations of the company. It is therefore advisable for owner/managers serving as directors of their company to seek professional advice from their accountant to minimize the risk of personal liability. For directors of larger corporations, liability insurance might also be a prudent consideration—particularly in situations where the director has limited exposure to the day-to-day operations of the company.

Further details can be found in this CRA publication:

http://www.cra-arc.gc.ca/E/pub/tp/ic89-2r3/ic89-2r3-e.html

If you have any questions or concerns or would like to discuss your potential exposure to this section of the Income Tax Act, we are here to help. Call us any time at 250-338-7367.

Are You Eligible To Claim Employment Expenses?

Good News – Tax Deductions are Available!

If your employer allows you to work from home, or if you are an employee that earns commission income, the Canada Revenue Agency (CRA) allows you to deduct certain expenses on your personal tax return. These deductions could significantly reduce the amount of tax you pay, depending on your circumstances. Read on!

Allowable Expenses

Unless otherwise noted, the following expenses can be deducted if you are an employee working from home or an employee earning commission income.

  • Work-Space- In-The- Home Expenses
    • If you perform the majority (more than 50%) of your work from a dedicated workspace at home and you regularly use the workspace for work-related meetings, phone calls, or emails you can deduct the following:
      • Electricity, heating, and repairs/maintenance; and
      • Mortgage interest, property taxes, insurance (commissioned employees only)
  • Cell Phone
    • If you work from home or earn commission income, you can deduct the portion of airtime expenses that relates to your employment.
  • Vehicle Expenses
    • If your contract of employment requires you to use your vehicle to fulfill your employment duties and you do not receive a non-taxable allowance from your employer to cover the costs, you can claim a deduction for your automobile expenses. Allowable expenses include:
      • Fuel and oil;
      • Repairs and maintenance;
      • Insurance;
      • Licence and registration fees;
      • Parking;
      • Capital cost allowance;
      • Interest paid on a loan to purchase the vehicle; and/or
      • Eligible leasing costs
      • Not that if you are eligible to claim auto expenses, you will be required to maintain a vehicle log to track usage.
  • Supplies
    • If your contract of employment requires you to provide and pay for certain supplies used in the course of your work, you may claim a deduction for the amounts paid in the year. Eligible supplies include:
      • Stationery;
      • Stamps;
      • Toner and ink cartridges for photocopiers and printers;
      • Etc.
  • Travelling Expenses
    • If you are required to travel for your work and you meet certain eligibility criteria, you can claim a deduction for food, beverage, and lodging expenses if your employer does not provide you with a non-taxable allowance.
  • Accounting Expenses
    • Employees who work from home and employees who earn a commission are allowed to deduct the cost of hiring someone to prepare their personal income tax return.

Additional Expenses Claimable by Commissioned Employees

In addition to the expenses listed above, the following can be claimed by employees who earn commission income.

  • Computers and Equipment
    • Commissioned employees can deduct the leasing costs of computers, copiers, and other office equipment from their employment income.
  • Other Expenses
    • Commissioned employees can also claim a deduction for:
      • Advertising and promotion costs relating directly to their employment;
      • Licensing costs paid to professional or regulatory bodies;
      • Food, beverage, and entertainment expenses (restrictions apply)

How Do I Claim These Expenses?

Eligible employment expenses are reported on a special form contained within your personal income tax return (Form T777). You must also have your employer complete and sign Form T2200 to be eligible to claim any of the above expenses. (“Declarations of Conditions of Employment” – this form is readily available online). Note that Form T777 gets submitted with your tax return, while Form T2200 must be kept by you and provided to CRA on request.

Help!

As with all tax filings, proper record keeping makes calculating your allowable deductions (and providing support to CRA, if necessary) that much easier. If you have any questions or would like any assistance regarding the above, please feel free to call us today. We at Cloutier Matthews are here to help!

Tax Credits for Medical Expenses

At tax time every bit of relief helps, which is why it is important to fully understand all of the potential tax savings available to you. Every tax situation is unique and people often miss out on tax credits or other benefits that go unclaimed. For this reason, it is often beneficial to hire a professional tax preparer to assist you with your tax filings.

One common tax credit that goes unclaimed is family medical expenses. Many Canadians do not know that they can claim medical expenses as a tax credit and so miss out on potentially substantial tax savings.

Which Expenses Qualify?

Most medical expenses qualify for the credit. Some common examples include:

  • Prescription drug costs
  • Cost of dental work
  • Cost of eyewear, dentures, and orthotics
  • Cost of services provided by (not exhaustive):
    • Registered Massage Therapist (RMT)
    • Chiropractor
    • Physiotherapist
  • Out of country medical costs (e.g. getting surgery done in foreign country)
  • Nursing home costs
  • Attendant care costs (e.g. in-home care)
  • Cost of extended health insurance and travel health insurance

The above list is not exhaustive and other types of expenses also qualify for the credit. Note that some expenses do NOT qualify, including:

  • Cost of MSP premiums
  • Over-the-counter medication or equipment
  • Costs that have been reimbursed (e.g. medical expenses covered by an extended health policy)

How Do I Claim Medical Expenses on My Tax Return?

The cost of qualifying medical expenses is claimed as a tax credit on Schedule 1 of your personal income tax return. The Canada Revenue Agency allows taxpayers to pool the medical expenses of the family and report the combined amount on one return. This means that you can claim your spouse’s and dependent children’s medical expenses, as well as your own, when you file. A qualified tax advisor can determine which spouse should claim the credit in order to maximize the tax savings.

Receipts do not need to be submitted when you file your return, but they must be kept on file for the next 6 years should CRA request to see them.

Note: Medical expense receipts are one of the most common items requested by CRA. Do not be alarmed if you receive a letter from them requesting copies of all relevant receipts. Should you receive a letter from CRA asking you to support amounts claimed as medical expenses, your tax advisor can assist you in providing a timely and appropriate response.

Disability Tax Credit

Another often-missed tax saving is the Disability Tax Credit (DTC). If you, your spouse, or your child(ren) suffers from a severe and prolonged medical condition you may be eligible to claim the DTC, which provides more than $8,000 in federal tax credits. A qualified tax advisor will be able to help you determine whether or not you may qualify, and will provide assistance in compiling and submitting the necessary paperwork to the CRA once your medical practitioner has confirmed your eligibility.

We Are Here to Help

If you need assistance determining which medical expenses you can claim and how best to claim them, we are here to help. Please feel free to contact us today for a free initial consultation.

Reporting Income on Rental Property or Suites

If you own rental property or have a rental suite in your home, the Canada Revenue Agency (CRA) requires you to report any income on your tax return. How do you satisfy this reporting requirement without triggering undue CRA scrutiny of your tax filing?

This article is for you.

Reporting Requirements for Rental Properties

The CRA provides a special form for taxpayers to report rental activities, which must be completed and submitted as part of your annual tax filing to CRA. The form itself is relatively straightforward (unlike many forms and schedules provided by CRA), but there are many considerations to bear in mind as you complete it. The following discussion highlights some of the more important items:

Allowable Expenses

Allowable expenses for rental activities include repairs, property taxes, mortgage interest, insurance, advertising, utilities (if not paid by the tenant), and strata/management fees. Certain expenses (like auto and travel) can only be claimed under very restrictive circumstances, while others (such as the principal portion of mortgage payments) cannot be deducted at all. You are also unable to deduct the value of your own services or labour relating to the rental property.

Note that only the portion of expenses directly related to the rental operation can be deducted. Over-aggressively claiming rental expenses can be a “red flag” and increases the risk of CRA audit.

Co-Ownership

If you co-own the property you should indicate your percentage share of the ownership on the form. Co-ownership between spouses can be an effective way to split income, and is comparatively easy to report. However, if you co-own property with unrelated parties you must ensure that everyone reports the income and expense amounts consistently to decrease the likelihood of CRA review or audit.

Sale of a Rental Property

If you sell a rental property, you must report the disposition on your tax return and pay tax on any capital gains. There are a series of rules that may or may not apply on the sale, depending on your unique circumstances, and calculating the capital gain or loss is not always a straightforward process. Care must be taken to ensure the disposition is reported correctly on your tax return.

Rental Suite in Your Principal Residence

If you rent out a portion of your principal residence, proper planning may enable you to still qualify for the full Principal Residence Exemption (which allows you to avoid capital gains tax on the sale of your residence). If you do not meet the required conditions you will be subject to capital gains tax on the rental portion of your home, so advance planning is recommended.

Change in Use Rules

There are a few circumstances that require special attention with the change of use in rental property:

  1. You convert some or all of your home into a rental property
  2. You stop renting out a property and move in yourself
  3. You want to move out of town for a new job and rent out your house while you are away

Any of the above creates new tax reporting requirements. The impact of the change in use rules depends on a variety of factors, but in all cases it is highly advisable to seek out qualified assistance to ensure you avoid negative tax consequences.

Final Word

The CRA is paying closer attention to individuals with “non-routine” (and harder to verify) sources of income such as rental properties. Organized record keeping and professional advice help ensure your tax compliance, and we at Cloutier Matthews are always here to help.

Filing a Tax Return as a Self Employed Individual

FACT

Filing a tax return with self-employment income requires more due diligence than filing with only employment income.

FACT

Self-employment income is scrutinized more closely and audited more regularly by the Canada Revenue Agency.

FACT

We can help.

As an employee, all of your required income information is found on a single slip (i.e. a T4 slip) provided by your employer. If you are self-employed, gathering the information you are required to report isn’t always easy. As well, there are rules and requirements a self-employed taxpayer must follow that do not apply to employees.

Here are some important things to consider when you have self-employment earnings to report:

Record Keeping

It is particularly important for self-employed taxpayers to maintain organized records of income and expenses each year, especially if business use of home amounts are being claimed. The CRA often asks taxpayers to provide support for reported amounts, and if the information is well organized it makes this task significantly easier (and increases the likelihood of CRA ruling in your favour). This can be challenging when business expenses are mingled with personal ones (e.g. using one credit card for business and personal expenses), so proper record keeping is a must.

Business Use of Home

Self-employed individuals may be able to deduct a portion of their repair and utility bills, property taxes, and mortgage interest if a portion of their home is dedicated to business activities. The CRA allows a deduction based on the area of the home used for business, so if you have a 100 sq. ft. home office in a 1,000 sq. ft. house, you can effectively deduct 10% of the annual cost of home ownership from your business income earned in the year.

Canada Pension Plan (CPP) and Employment Insurance (EI)

Generally, self-employed workers are not required to remit EI premiums as they are not eligible to claim EI benefits. However, there are special EI benefits available to self-employed taxpayers in certain circumstances, including:

  • Maternity/parental leave;
  • Leave for illness or injury; or
  • Compassionate leave (taking time off work to care for a critically ill relative)

In order to qualify, you must register and begin paying premiums at least 12 months in advance of applying for benefits.

As a self-employed individual you are required to remit both the employee and employer portion of CPP. The amount of CPP owing is calculated during preparation of your return, and amounts due must be remitted by April 30th .

Should You Collect GST?

Self-employed individuals may have to charge their customers GST if they have more than $30,000 of taxable sales in the year. This requires the taxpayer to register a GST account with the CRA, file an annual (or quarterly) GST return, and remit the taxes collected. If you are required to charge GST from your customers and fail to do so, you will be required to pay the tax out of your own pocket.

Filing Deadline

In recognition of the additional time required to organize records and paperwork, the CRA provides self-employed taxpayers a later filing deadline (June 15th ). This deadline also applies for GST returns, if required.

Note that amounts owing to CRA by self-employed taxpayers (including income tax, CPP, and GST) are due by April 30th (even though your tax return isn’t due until mid-June!), so remitting an estimated amount of taxes owing by April 30th is a good idea if you wish to avoid interest charges.

Any over-remittance will be refunded by CRA once they have assessed your return. Spouses of self-employed individuals also have until June 15th to file their returns, but the same April 30th payment deadline applies.

Having your return professionally prepared reduces your risk of being audited by CRA and eliminates the hassle of preparing the schedules on your own.

School Supply Tax Credit for Early Childhood Educators and Teachers

Good news for teachers paying out of pocket for classroom supplies! A new tax credit is now available to teachers (and qualifying early childhood educators working in a regulated child care facility) to help defray the cost of classroom supplies borne by the educator.

Examples of qualifying supplies include:

  • Games, puzzles, and books
  • Containers (e.g. Rubbermaid totes or banker’s boxes)
  • Educational software
  • Art supplies
  • Stationery (pens/pencils, flashcards, paper, etc.)
  • Items for science experiments

Other classroom items, such as computer hardware, furniture, carpeting, etc. are NOT eligible for the credit.
Teachers who have purchased qualifying materials for use in the school will be eligible for a 15% tax credit on the first $1,000 of purchases, provided that:

  • The supplies are used directly in the classroom;
  • The supplies are used for the purpose of teaching or facilitating students’ learning; and
  • The teacher was not reimbursed for the cost

This credit is available effective 2016-onwards, and is based on purchases made during the calendar year (not the school year), regardless of when the supplies are actually used.

Example

Mr. Smith purchased $50 worth of qualifying supplies in April, 2016 for a class science project. In September, he spent $50 on new art supplies for classroom use. He used his own money for the purchases, and will not be reimbursed. Mr. Smith can therefore claim a total credit of $100 when he files his 2016 personal tax return, for an effective refund of $15 ($100 x 15% = $15).

Important Note

In order to support the claim, teachers must retain receipts supporting the amount paid AND provide written certification from their employer (e.g. the school principal) confirming the expenses; receipts alone will not be enough for CRA to accept the claim should they ask for support.

Further details, including a summary of what should be included on the employer’s certification letter, can be found here

As always, feel free to contact us directly should you have any questions or concerns regarding this or any other matter.

Sell your home in 2016? Better tell the tax man

New reporting requirements have recently come into effect that requires all Canadians to report the sale of their home on their tax return.

Even though there will generally not be any taxes owing on the sale (see below), if you fail to report the sale by the filing deadline for your tax return (typically April 30 th ), late filing penalties of $100 per month will apply up to a maximum of $8,000.

Given the severity of the penalties the Canada Revenue Agency (CRA) can impose, it is extremely important that taxpayers are aware of this new requirement.

Who Does This New Rule Apply To?

The new rule applies to all taxpayers who sell their principal residence in any year, starting in 2016.

What is a Principal Residence?

To qualify as your principal residence you must own the property and it must be where you ordinarily live . The sale of a principal residence was not required to be reported to the CRA prior to 2016.

Do I Have to Pay Tax if I Sell My Principal Residence?

If you designate the property as your principal residence for every year you owned it, you will not pay tax on the sale, even if you sell it for more than you paid for it. Exception: if you operated a home-based business or rented out a portion of your home, you might have to pay capital gains tax on that portion of the home.

How Do I Report the Sale of My Principal Residence?

The sale will be reported on Schedule 3 of your income tax return, and the required information is:

  • Address of the property
  • The year it was acquired, and
  • The sale price

This information must be reported on your tax return relating to the year of sale (i.e., if you sell your house in 2017 you must report the sale on your 2017 income tax return, which will generally be due by April 30th , 2018).

On a Related Note – First Time Home Buyer Tax Credit

If you became a first-time homeowner in the year, congratulations! There is a $5,000 federal tax credit available to you if you purchased a home during the year and you have not owned a home in any of the four prior years. The credit equates to a tax savings of $750, and can be claimed on Schedule 1 of your income tax return.

Help!

If you have any questions or need any assistance whatsoever in fulfilling this new requirement, the team at Cloutier Matthews is here to help. Contact us today for a free initial consultation.

Start saving money at tax time.
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