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Tax Returns: Caring for Dependent Relatives

tax returns caring for dependent relatices
Many of the familiar tax breaks for children have been cancelled and have been replaced by a non-taxable child payment to lower income families. There still are tax credits available for those who care for dependant relatives (children and adult) and we will touch on these below.Family caregiver amount (FCA)If you have a dependent with an impairment in physical or mental functions, you may be eligible to claim an additional $2,121 for one or more of the following amounts: spouse or common-law partner amount;amount for an eligible dependent; andcaregiver amountCaregiver amountIf, at any time in 2016, you (either alone or with another person) maintained a dwelling where you and one or more of your dependents lived, you may be able to claim a maximum amount of $4,667 ($6,788 if he or she is eligible for the family caregiver amount) for each dependent.Each dependent must have met all of the following criteria: He or she was 18 years of age or olderHe or she had a net income in 2016 on his or her return (or would have been if he or she filed a return) of less than $20,607 ($22,728 if he or she was eligible for the family caregiver amount)He or she was dependent on you due to an impairment in physical or mental functions or, if he or she is your or your spouse's or common-law partner's parent or grandparent, was born in 1951 or earlierInfirmCRA allows credits for dependent children under the age of 18 with infirmities (physical and mental). These are best claimed by the parent with the higher taxable income.You can only claim an amount if the dependent's net income is less than $13,595.The CRA may ask for a signed statement from a medical practitioner showing:the nature of the impairmentwhen the impairment beganwhat the duration of the impairment is expected to bethe person is, and will continue to be, dependent on others because of an impairment in physical or mental functions.These credits also apply to other relatives:You can claim an amount for each dependent if that person meets all of the following conditions. The person must be:your or your spouse’s (or common-law partner’s) parent, grandparent, brother, sister, uncle, aunt, nephew, or nieceborn in 1998 or earlier and have an impairment in physical or mental functionsdependent on you, or on you and others, for supporta resident of Canada at any time in the year (you cannot claim this amount for a person who was only visiting you).Disability Tax Credit (“DTC”)Those with more serious health issues may qualify for the DTC. A form T2201 (available online from CRA website) must be completed by the patient’s GP or specialist confirming the nature, severity and start date for the disability. Do NOT pay a DTC firm to help you with this form. You can do it with the help of your GP. The doctor will charge for this service but it can be claimed as an eligible medical expense. The form looks intimidating due to its size but the GP fills nearly all of it. You do the front page.CRA decides whether the person is eligible and advises this by letter. In many cases they approve the DTC back-dated to the start of the condition. This means adjustments to prior returns. A simple task that can be accomplished by sending CRA a letter and asking them to do it.Some points to bear in mind regarding the DTC:It is a tax credit and is of no use to an individual not paying tax. It can therefore be transferred to a caregiver who looks after the claimant and provides the necessities they are unable to perform on their own.CRA is looking at these much more closely – especially the transfers.The T2201 may expire and CRA will request a new one to verify that the disability still exists.Remember that tax credits reduce the amount of tax payable. They do not reduce it dollar for dollar.Example: The Personal amount for 2016 is $11,474. This does not mean the tax payable is reduced by this amount. Tax credits have a rate applied to them (currently 15%) so the amount of reduction from the Personal Amount is $11,474 x 15% = $1,721.10.For 2016 the DTC amount is 8,001 which translates into a tax reduction of $1,200. The DTC of $8,001 is increased by $4,667 maximum supplement for persons under 18).I hope this article provided some information on Family Car Giver tax credits and Disability Tax Credits.  Please let us know if you have any questions. You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn. Until next time,  Ian

Employment Taxes: Personal Services Business (PSB)

employee or contractor in ontario
To continue on the same topic of the last blog, when the CRA considers you an employee or contractor, we will now discuss personal services business (PSB). Personal Services Business A personal services business (PSB) carried on by a corporation in a taxation year means a business of providing services wherean individual who performs services on behalf of the corporation (an "incorporated employee"), ora person related to the incorporated employee is a specified shareholder of the corporation, provides services to another entity, and the relationship between the provider of the service and the entity receiving the service could reasonably be regarded as an employee/employer relationship.  However, if the corporation employs more than 5 full-time employees throughout the year it will not be considered to be carrying on a personal services business.If the individual performing the services would be considered a contractor and not an employee, then the corporation would not be considered a PSB.  Personal Services Business - Deductions are LimitedS. 18(1)(p) of the Income Tax Act restricts the deduction of expenses of a personal services business of a corporation to the following allowable deductions:the salary, wages or other remuneration paid in the year to an incorporated employee of the corporationthe cost of any benefit or allowance provided to an incorporated employeeany amount expended in connection with the selling of property or the negotiating of contracts by the corporation, as long as the amount would have been deductible if it had been expended by the incorporated employee under a contract of employment that required the employee to pay the amount, and legal expenses incurred by the corporation in collecting amounts owing to it on account of services rendered The above amounts are only deductible by a personal services business if they would be deductible by a business other than a personal services business.Personal Services Business Corporate Tax RateA personal services business is not eligible for the small business deduction, and thus pays tax at full corporate tax rates.  For taxation years that begin after October 31, 2011, a PSB is also not eligible for the general rate reduction, resulting in a federal corporate tax rate of 28%.  The total tax rate in 2014 in Ontario would be 39.5%, and in BC 39%.  The 2016 Federal Budget  increased the federal corporate tax rate for personal services business from 28% to 33%, effective for the 2016 and later taxation years.  Where the corporate taxation year straddles 2015 and 2016, the rate increase will be prorated according to the number of days that are after 2015.Shareholders of Personal Services BusinessShareholders of these corporations deemed to be Personal Service Business are thus at a very severe disadvantage as regards deductions from income and the tax rate applied to income earned inside the corporation unless all income is paid out as salary, with CPP, EI and Income tax withheld and remitted by the shareholder. As noted above this will include the employer’s portion (i.e. the shareholder pays twice) of CPP and EI. This makes these vehicles very expensive propositions for the prospective employee.When looking for work, the employer has the balance of power in deciding what the working relationship will be. These structures can work if you really want the work but be sure to be adequately armed with the facts so you can negotiate fair remuneration to adequately compensate you for the costs involved.Do you have any questions about Employment Expenses and Taxes in Ontario?  We would love to hear from you.  You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn. Until next time, Ian

When Does the CRA Consider You a Contractor/Employee?

Some employers make it a condition for retaining your services that you become a “contractor” but CRA can investigate this to see whether you should be classified as an “employee”. You may wonder what difference it makes.Employers must withhold income tax, CPP and EI from wages and salaries and remit this money to CRA at least monthly. They must also pay the employer’s portion of CPP and EI which adds to their cost of having employees. CRA wishes to ensure that CPP and EI are properly funded and that employment structures are not formulated to avoid or defeat this.  How then does CRA judge whether you are in fact an employee?Are You an Employee or a Self-Employed Independent Contractor?The question of whether a person is in a business relationship (self-employed independent contractor) or in an employee-employer relationship is not one that is always easy to answer.  There have been many court cases on this subject.  The courts generally look at the following criteria in making their decisions: control - more control is generally exercised by an employer over an employee than by a client over a self-employed personchance of profit/risk of loss - self-employed persons usually have some degree of financial risk, and more opportunity for profit than employeesintegration - an employee's job will be an integral part of an employer's business, where the tasks performed by a self-employed person will likely be less integrated with the client's businesstools and equipment - self-employed persons are more likely to be supplying their own tools and equipment, as well as being responsible for their maintenanceRC4110These topics are further explained in the CRA publication RC4110 Employee or self-employed.  A comprehensive checklist is also provided in this publication.  This checklist is useful for a worker or a payer (employer/client) to help determine whether their relationship is a business relationship or an employer/employee relationship. Remember that as a self-employed individual you do not have to pay EI (although you can opt-in) but you do have to pay employer and employee portions of CPP.If CRA decides to alter the relationship from Contractor to Employee, the EMPLOYER will have to pay to CRA the amount of any tax not withheld plus the employee’s and employer’s portion of both CPP and EI.Some employers believe that having you incorporate gets round this.CRA covers this off by creating a category called Personal Services Business.Stay tuned for the blog next time where we discuss Personal Services Business.Do you have any questions about Employment Expenses and Taxes in Ontario?  We would love to hear from you.  You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn.Until next time, Ian

Child Care Expenses & Taxes in Ontario

Tax returns are relatively simple until you add to the equation. Items such as investments, capital gains and children all add complexity to tax returns in Ontario. In this second blog I will be talking about Child Care Expenses and taxes in Ontario.  (To read my first blog on Children & Taxes, click here).Child Care Costs are Not Claimed as a Non-Refundable Tax CreditChild care costs are not claimed as a non-refundable tax credit, but as a deduction from income on line 214 of the personal tax return.  A non-refundable tax credit is always at the lowest tax rate (except in Quebec), but a reduction of income would save tax at the taxpayer's marginal tax rate.In most cases, child care expenses for an eligible child must be claimed by the parent with the lower net income for tax purposes.  If the parents are separated and share custody, sometimes each parent may claim a portion of the child care costs.  Where a medical doctor certifies in writing that the lower-income spouse is incapable of caring for the child due to a physical or mental infirmity, then the costs may be claimed by the higher income spouse.Who is Eligible?An eligible child is a child of you or your spouse or common-law partner, or a child who was dependent on you or your spouse or common-law partner, and whose net income in the year was less than or equal to the federal basic personal amount, ($11,327 in 2015).  The child must have been under 16 years of age at the beginning of the year, unless the child was mentally or physically infirm.What Are Allowable Child Care Expenses?Allowable child care expenses are those paid for the care of an eligible child, to enable the parent to earn employment income, carry on a business, attend an eligible program at a designated educational institution for at least 3 consecutive weeks, or carry on research or similar work for which a grant has been received.  Some examples of eligible child care expenses include day-care centres and day nursery schools, some individuals providing child care services, day camps and day sports schools, educational institutions such as private schools (the portion of tuition costs relating to child care services), boarding schools, and overnight sports schools and camps.What Are the Limits on the Total Amount of Child Care Expenses Per Child?There are limits on the total amount of child care expenses that can be claimed for each child.  There are also limits on the amounts that can be claimed for expenses related to boarding schools or overnight camps.Basic Annual Limit for Each Child for Child Care ExpensesEligible children:Basic Limit2015+20141.Age 6 or less at the end of the tax year, for whom the disability amount cannot be claimed$8,000$7,0002.Any age, for whom the disability amount can be claimed11,00010,0003.Age 7 to 16 at the end of the tax year, for whom the disability amount cannot be claimed5,0004,0004.Over 16 at the end of the tax year, with a mental or physical impairment, for whom the disability amount cannot be claimed5,0004,00 Thus, if you have 3 children ages 5, 7 and 15, your total claim for 2015 or 2016 would be limited to $18,000 ($8,000 + 2 x $5,000).  See example below.Maximum Weekly Claim for Certain Child Care ExpensesThe maximum that can be claimed for expenses for a stay in a boarding school (other than education costs) or an overnight camp (including an overnight sports school) is: ·         $175 per week for a child in line 1 above ·         $250 per week for a child in line 2 above, and ·         $100 per week for a child in lines 3 or 4 above.Annual Limit for Child Care Expenses Based on IncomeThe claim for child care expenses cannot exceed two-thirds of your earned income for the year.Do you have any questions about Child Care Expenses and Taxes in Ontario?  We would love to hear from you.  You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn.Until next time, Ian

Children and Taxes in Ontario

children and taxes in Ontario
Tax returns are relatively simple until you add to the equation. Items such as investments, capital gains and children all add complexity to tax returns in Ontario. In this blog I will talk about the taxes associated with Children in Ontario.Child BenefitsThe Federal Government has discontinued Universal Child Care Benefit (which was added to taxable income) and Child Fitness Tax Credit and Arts Credit (2016 is the last year and reduced amounts apply). The new package of tax assistance for children is an income-tested, monthly child benefit that is non-taxable. Only lower-income Canadians will receive this benefit. Rules for single parents and shared-custody are more complex and will form the subject of a separate article.Tax Returns for ChildrenWhen your child starts work they do have to file their own tax return. When a child receives a T4 from an employer, just like any other employee, a copy of that T4 is sent to the CRA. When listing dependants in your tax return you must declare their net income on your return. All children should file a tax return after their 18th birthday to ensure that they automatically receive the GST credit when they turn 19. They should file annually thereafter to maintain whatever benefits they are entitled to receive.TuitionRecent changes have reduced the effectiveness of the total tuition benefit. The textbook amount has been reduced. This is still a significant benefit to parents who may have the child’s unused tuition transferred (subject to limits) to their own credits, if the child agrees. Normally the child cannot benefit from the credit while at college or university due to their limited income. Their parent (or grandparent) will be in a higher tax bracket and the transfer can reduce Federal and Provincial taxes by some $900.The only acceptable evidence of the tuition fees is a form T2202A from the college or university. The child can access this tax form from their student web account, download it and print it.Children with Special NeedsThe child disability benefit (CBD) is a tax-free benefit for families who care for a child under age 18 whoe is eligible for the disability tax credit. A child is eligible for the disability tax credit when a medical practicioner certifies, on Form T2201, Disability Tax Credit Certificate, that the child has a severe and prolonged impairment in physical or mental functions, and the Canada Revenue Agency (CRA) approves the form.The CDB is paid monthly to the Canada child benefit (CCB) eligible individuals as a supplement to the children's special allowances (CSA).Click here for more information.   Do you have any questions about Children and taxes in Ontario?  Stay tuned for my blog next week on Child Care Expenses and Taxes in Ontario.We would love to hear from you.  You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn.Until next time,Ian

Property Rental Ontario: Deductions from Income

In Ontario, if you rent out one or more rooms in your home, or if you own a rental property, there are many expenses that can be deducted in calculating your net rental income.  These expenses include mortgage interest, property taxes, utility costs, house insurance, maintenance costs, advertising, and property management fees.  Rental income and expenses can be recorded using the cash basis of accounting, unless the property rental is considered business income, in which case the accrual basis of accounting must be used.  Keep reading for a breakdown of the criteria the CRA uses to determine if an expense is a capital expense or a current expense.Using Rental Losses to Reduce IncomeRental losses can generally be used to reduce income from other sources.  If the rental loss exceeds income from other sources, and cannot be deducted on the current year tax return, it becomes a non-capital loss, which can be carried back or forward to reduce taxable income in other years.If you rent out only a portion of your home, you would only be able to deduct a portion of the costs.  If you rent a room to a friend or relative at less than fair market value and this results in a rental loss, you would not be able to deduct the rental loss.  Any costs which are directly related to the rental portion of your home will be 100% deductible, and costs which relate to the whole building, such as property taxes and insurance, would only be partially deductible.  The expenses can be split using floor area or the number of rooms that you are renting, as long as the split is reasonable.Capital Cost Allowance (CCA)Capital cost allowance (CCA) may be claimed based on the purchase price of the building, furniture and fixtures, etc., but not the land, and may not be used to create or increase a rental loss.  If you only rent a portion of your home, then you would only be able to claim a portion of the CCA, and this may result in the loss of the principal residence exemption when you eventually sell your home.   Net rental income or loss is reported on line 126 of your personal tax return.  This net income is included in "earned income" for purposes of calculating your allowable RRSP deduction limit for the following year. Capital vs. ExpenseGeneral rules regarding whether an item should be capitalized (capital expense) or can be expensed (current expense):When a cost is incurred to acquire a new asset, not as a replacement for a failed asset, and the asset is of an "enduring nature" (i.e., will not have to be regularly replaced), the cost is capitalized. If a repair is incurred in order to resell the property, this is not deductible as an expense, and must be capitalized.  This is true even if this type of repair would normally be expensed.When a property has just been acquired, usually any costs incurred in order to get the property into usable condition would be capitalized.When a repair is incurred in order to acquire a new tenant this would normally be expensed, not capitalized.When a repair is required due to wear and tear, the cost is normally deductible as an expense.When fixtures such as toilets and sinks, i.e., things that become a part of the building once installed, are replaced due to normal wear and tear, this would normally be a deductible expense.  However, if these things are replaced in order to upgrade to something of better quality or performance, not because of wear and tear, this would normally be capitalized.CRA indicates the following criteria should be used when determining if an expense is a capital expense or a current expense:Determine if the expense provides a lasting benefit. If it provides a lasting benefit, or extends the useful life of the property, it is capitalized.  Example:  putting vinyl siding on the exterior of a wooden or stucco house.If the expense recurs after a short period of time, it is expensed.  Example:  painting the interior or exterior of a house.Determine if the expense maintains the property, or improves the property.If the property is repaired and improved to better than its original condition (when it was new), then the expense is capitalized.  Example: replacing wooden steps with concrete ones.If the property is merely restored to its original condition, the cost is expensed in the current period.  Example:  replacing a worn-out roof with a roof of similar materials.Determine if the expenses are for a part of the property, or are they separate from the property.For replacement of assets that are separate from the building, the cost would normally be capitalized.  Examples:  refrigerators, stoves, compressors.When replacing an asset that is part of the building, the cost would normally be expensed.  Examples:  wiring, plumbing, hot water tanks.If you cannot determine from the above whether the cost is a capital or current expense, consider the value of the expenses.If they are of considerable value in relation to the value of the property, they are probably capital expenses.  However, if they are of considerable value because needed regular maintenance has not been done over a long period of time, the value would not necessary make these costs capital in nature.If they are not of considerable value in relation to the value of the property, and are costs for ordinary maintenance, they are most likely current expenses.Canada Revenue Agency (CRA) has a Rental Income Tax Guide (T4036) which goes into detail about deductible expenses, capital cost allowance, deemed dispositions, splitting of expenses between personal areas and rental areas, and most issues regarding property rental.We would love to hear from you.  You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn.Until next time,Ian

Local Tax Company Going Green: Paperless Communications

We are taking a stand and doing our part to go green.  As a tax company, we have the potential to use a lot of paper.  However, in order to save paper to protect our environment and help minimize our rising costs, Holland Landing Tax Company and Mount Albert Tax Company is aiming for a paperless office.  This is in line with the CRA who are attempting to make their systems paperless as well (see below).We now only print a summary of your return except for:Business returnsCorporate returnsIf you need a full copy, we can send you a PDF copy by email.We have also eliminated our Letter of Engagement for personal tax clients.CRA Notification via EmailThe CRA wants to communicate with you by email. They wish to eliminate snail-mail and send your Notice of Assessment (reassessment and other letters) by email. You have the option to select this or not. This will also make it easier for you to find and send us your NOA each year – a document we must have in order to create an accurate tax return. Please advise us and we will notify CRA on your e-filing.Communicating with Mount Albert/Holland Landing Tax Company via EmailWe would also like to communicate with you by email. There are many tax changes that affect you and your income tax. We wish to bring them to your attention early instead of you being surprised by them at tax time. If you wish to take advantage of this free service, please provide us with your email address and ensure we do not get caught by your spam filter. We will only send you an email that refers or relates to your personal situation. There will be no marketing or solicitation. Your address will not be sold or given to any third party. If at any time you wish to stop receiving our emails, just reply with the word REMOVE typed into the email.We are serious about our environment:Our bags are made from recycled pop and water bottlesOur pens are made from recycled plasticWe use refillable ink and toner in our printersWe use recycled paperOur shredded paper is recycledWhat steps are you or your business to help go green?We would love to hear from you.  You can follow and like us on Facebook as Mount Albert Tax Company or Holland Landing Tax Company, and you can connect with us on LinkedIn. Until next time,Ian