2021 Tax Guide: First Year Working from Home? What to Know

man with beard and glasses wearing denim shirt sitting a grey couch doing his taxes on his laptop

2020 proved to be an interesting and evolving time as more and more employees worked from home.

When you are no longer working in your company’s workspace, the way in which your file your taxes changes drastically.

If you worked from home during 2020, you may be eligible to make work-related claims and take advantage of additional deductibles on your taxes.

To understand whether you are eligible to claim your home offices expenses, and what you can claim on your 2020 taxes, keep reading our tax guide to your first year working from home:

Who Can Claim Home Office Expenses?

Employees who worked from home more than 50% of the time over a period of at least four consecutive weeks due to COVID-19 can claim home office expenses.

This applies to 2020 only.

Instead of tracking expenses and having your employer certify your requirement to work from home, the CRA has simplified this method by offering a temporary flat rate of $2 per day for each day at home – to a maximum of $400.

This eliminates the need for an employer to sign the T2200 or T2200S slips.

To calculate your workdays, you must use the days that you worked full-time or part-time, not vacation days, sick days or other days off.

But if your employer has reimbursed you for all your home office expenses, you cannot claim these on your taxes.

What Expenses Can Be Claimed?

If you are eligible to claim expenses for working from home, what you can claim depends on the type of income you earn.

The type of work is divided into three categories: Employment, Commission and Self-Employment.

This table will help you understand what you are eligible to claim:

Employment Commission Self-Employed
Heat ✔ ✔ ✔
Electricity ✔ ✔ ✔
Phone ✖ ✔ ✔
Internet ✔ ✔ ✔
Rent ✔ ✔ ✔
Repairs/Maintenance ✔ ✔ ✔
Mortgage Interest ✖ ✖ ✔
Property Tax ✖ ✔ ✔
Insurance ✖ ✔ ✔
Capital Cost Allowance ✖ ✖ ✔
Water, Security, Etc. ✔ ✔ ✔

For more information on what is considered capital cost allowance, and what repairs and maintenance, are eligible for deductions, get in touch with our expert accountants today!

How to Calculate Your Home Office Portion of Expenses

man sits in home office while working on computer

Once you know what you are eligible to claim while working from home, you need to figure out what percentage of these costs relate to your home office – you cannot claim the entire amount.

This is done by considering the percentage of time you use your home office space for work as well as the proportion of your home used for the workspace.

The CRA determines this on a “reasonable basis”, meaning that they take the square footage of your home office and divide it by the total square footage of your home.

If you use a common space, such as a kitchen or dining area, you can claim your home office based on the number of hours your space is used for work.

Because many people worked both from home and at work, these situations may require you to prorate your expenses based on the number of months out of twelve in which you worked from home.

Other Deductible Expenses

When claiming your home office space on your 2020 taxes, don’t forget that you can also include other deductible expenses such as supplies that are necessary for doing your job.

These supplies can include pens, pencils, file folders and ink cartridges, for example.

Also, if you use your personal phone to make business calls, you can also claim long-distance charges and minutes used on your cell phone (if these incur additional charges on your bill).

However, this doesn’t mean you can simply buy supplies just to save money on your taxes!

There has to be an understanding between you and your employer that you were required to purchase these items in order to fulfill your employment duties.

Employer Allowances and Reimbursements

Any allowances received for your home office expenses from your employer are considered to be a taxable employee benefit and should be included in your income on your T4 or T4A slips.

However, direct reimbursements made by your employer do not need to be included in your income – except in the case where there is a potential for personal use of the expense. The portion related to personal use is then included in your income as a taxable benefit.

For example, if your employer gives you the money to purchase a computer for work, that amount is considered to be taxable income.

(Except in the case of computers, the CRA has implemented a new exception that allows you to claim a $500 reimbursement if the equipment was purchased during the pandemic for work).

Alternatively, if your employer has you purchase a computer and then reimburses you for it afterward, this is not considered taxable income.

In the case of personal use, if your employer gives you a cell phone, but you are allowed to use it personally after hours, you would have to consider the time the phone is used personally and claim that percentage on your taxes.

Don’t Miss an Opportunity to Save on Your Taxes!

While we certainly don’t recommend you make claims on your 2020 taxes beyond what you are eligible for, there is definitely an opportunity to save on your taxes when you work from home.

To gain a more thorough understanding of the claims you can make on your taxes related to having a home office, we recommend speaking to a knowledgeable accountant.

Our team at Liu & Associates is more than happy to help you navigate your taxes after your first year of working from home.

Let’s talk today!

Tax Implications of the Canadian Emergency Wage Subsidy (CEWS)

The COVID-19 pandemic took the world by storm and placed many businesses, especially small ones, in a precarious position of losing revenue and long-term closures. Luckily, in Canada, the government stepped in and offered the CEWS in order to help businesses keep their heads above water.

Now that these relief programs are in full swing, many individuals and business owners are wondering how this benefit money is going to affect their 2020 income tax return. The simple answer for business owners is: The CEWS is taxable income. When it comes to filing time, this money will be included in your business’ income. However, there is more to claiming the CEWS than simply including it in your taxes.

Read on to learn what the CEWS is, how it will affect your return and what to do if your business is audited in relation to this wage subsidy:

What is the CEWS?

In order to help businesses during the COVID-19 shutdown in 2020, the Canadian government offered the Canadian Emergency Wage Subsidy (CEWS) to help cover part of their employee’s wages due to drops in business revenue.

The subsidy was designed to help employers re-hire workers, prevent further job loss and ease their business back into normal operations.

The CEWS was available to taxable corporations such as individuals, non-profits, registered charities and other eligible entities and was provided over a 12 week period, divided into three qualifying periods.

Is the CEWS Taxable?

The CEWS, as a wage subsidy, is considered to be government assistance and therefore must be included in the employer’s taxable income.

The amount of CEWS received by an employer for a qualifying period will be included in the employer’s income. 

Employers will be entitled to a deduction for the amount of remuneration paid to employees but the amount of CEWS received will reduce any remuneration expenses eligible for tax credits calculated on the same remuneration.

Eligible remuneration for the CEWS includes salary, wages, fees, commissions and other remuneration such as taxable benefits – basically, anything subject to income tax withholdings.

However, this excludes retiring allowances and stock option benefits.

Claiming the CEWS on Your Income Tax Return

When it comes to the wage subsidy, there are no special withholding requirements on behalf of the employer.

All amounts paid to employees through the CEWS are considered regular employment income that is subject to regular withholdings such as income tax, CPP (Canada Pension Plan) contributions and Employment Insurance Premiums.

To accommodate for government relief programs during the COVID-19 pandemic, the Canada Revenue Agency (CRA) has published new T4 reporting requirements for the 2020 tax year.

The CRA will be using a new code system to identify employment income made to eligible employees during particular CEWS periods.

Therefore, employers will be required to provide additional information in order to help the CRA validate payments under the CEWS, CERB (Canada Emergency Wage Subsidy) and the CESB (Canada Emergency Student Benefit).

This information, in addition to reporting regular employment income in Box 14/Code 71, employers will need to use these new codes in the “Other Information” section at the bottom of the T4 slip according to the period in which they apply:

  • T4 Code 57 – Periods 1 and 2 – March 15 to May 9, 2020
  • T4 Code 58 – Periods 3 and 4 – May 10 to July 4, 2020
  • T4 Code 59 – Periods 5 and 6 – July 5 to August 29, 2020
  • T4 Code 60 – Period 7 – August 30 to September 26, 2020

The CRA may release new codes to cover the additional periods in the extended CEWS program.

These new T4 requirements apply to all employers, not just those who collected the CEWS.

When it comes time to prepare your 2020 taxes for your business, Liu & Associates will be available to help you navigate this new filing process.

Contact Our Team

Preparing for a CEWS Audit

Beginning in September of 2020, the CRA began issuing audit request letters to businesses who had been claiming the CEWS.

Their intent with these audits was to identify the types and levels of non-compliance in preparation for larger-scale audits.

When performing a CEWS audit, the government is looking to make sure the relief benefits went to companies that were eligible for them.

These “mini-audits” required that companies provide the government with pertinent information within a timeline of 10 days.

While larger-scale audits may end up operating differently, it is worth it for you (and your business) to always have the following information ready and available:

  • Documents from the employer’s minute books (i.e., anything related to the CEWS claim).
  • 2019 tax information (revenues, general ledger, revenue journal entries).
  • 2020 tax information (same as above)
  • Information used to compute the CEWS revenue decline percentages.
  • General payroll information (source deductions, contracts, proofs of payment, etc.).
  • Information related to other subsidies/government programs (i.e., Temporary Wage Subsidy).
  • A signed copy of the CEWS Attestation Form.
  • Documents that support any exceptions or elections utilized for CEWS.
  • Remuneration exclusions.
  • Qualifying revenue exclusions.

These requirements can be complex and extensive and failure to provide full compliance can result in a “gross negligence penalty” – which can be up to 50% of the difference between the amount of CEWS claimed and the amount of CEWS entitled.

If your business does receive an audit letter in relation to the CEWS, it is highly recommended that you consult an expert accountant to help you identify and organize CEWS calculations, claims and filing processes.

To get more information on how to handle a CEWS audit, please contact our expert accountants at Liu & Associates.

Don’t Leave Anything to Chance

While the CEWS was a life-saver for many businesses, it is certainly going to cause some challenges and confusion at tax time.

Don’t leave the health of your business to chance! It is recommended that you consult with a tax expert to ensure that your taxes, especially in relation to employee remuneration, are filled out properly and accurately.

Feel free to contact Liu & Associates with any questions you may have!

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Tax Implications of the Canadian Emergency Response Benefit (CERB)

While most people are hoping for brighter prospects in 2021 many Canadians are going to be approaching their taxes with an additional income to consider, which may cause some confusion and financial hardship. The best way to avoid this is to take the time now to consider what implications the CERB will have on your taxes in 2021.

With a little foresight and proactivity, you will be better prepared to tackle your 2021 tax return and pay the owing taxes on your CERB payments. In this article, we’re going to go over what the CERB is, how it’s going to be taxed and how you can plan ahead for CERB-related tax implications:

What is the CERB?

In response to the COVID-19 pandemic that shut down our entire country earlier this year, the government offered assistance through a program called the Canadian Emergency Response Benefit (CERB). This program provided Canadians with up to $8000 worth of relief funds between March 15, 2020, and September 26, 2020, if they were unable to work due to the pandemic.

After that period of time, the CERB was rolled over into the Employment Insurance program. The CRA did not withhold any taxes on CERB payouts so many Canadians are left to wonder exactly how this income is going to affect the taxes they file in 2021.

The answer is pretty straightforward as long as you know how income is taxed.

How Much Can the CRA Tax the CERB?

The tax rate on the CERB payments will depend on your total earnings in 2020. You can estimate your taxes by adding together your employment income (including any self-employed income), income from other sources and your CERB payments.

Basically, the CERB is taxable income but it was not taxed when it was given to you – this is why determining the tax rate is important. For example, if you earned $40,000 (after taxes) through employable income and $8000 in CERB in 2020, your taxable income is $48,000.

That total will determine under which federal and provincial tax brackets you fall into. For example, the federal tax rate on the first $48,535 is 15%. Anything you earn above that amount is taxed in a higher bracket.

You also have to consider provincial tax rates, which differ from province to province. Here are the provincial tax brackets for Alberta:

  • $131,220 or less = 10%
  • $131,220.01 to $157,464 = 12%
  • $157,464.01 to $209,952 = 13%
  • $209,952.01 to $314,928 = 14%
  • $314,928.01 and up = 15%

To use our example above, you would determine the tax rate based on the total of earned income and CERB, which would be $48,000. This amount would be taxed federally at 15% and provincially (in Alberta) at 10%. The total tax rate works to 25%.

To determine the tax on your CERB, take that marginal tax rate of 25% and apply it to the amount of CERB received. If the full $8000 in CERB was claimed, the taxes would equal $2000. The total taxes owing in this example would be $12,000 but, since the CERB was not taxed, you are guaranteed to owe that $2000.

Keep in mind that this is a simple calculation that does not take into consideration any tax credits or deductions, which would certainly apply to your earned income. That being said, expect to pay the taxes on CERB. 

How to Plan Ahead for CERB-Related Tax Implications

At Liu & Associates, we strongly urge you to start planning for the next tax year as soon as possible. Don’t wait until April of 2021 to start getting your financial affairs in order.

First and foremost, you should prepare for owing taxes on the CERB by setting aside whatever money you can. By using the numbers given above (you can check your province’s tax brackets here), you can estimate how much in taxes you could be owing.

For many families, the CERB presented a reduction in monthly income. In these cases, it is best to look at budgeting and debt management to ensure the owing taxes will be available next year.

Our expert accountants at Liu & Associates want to help you keep your finances on track. If you have any questions or concerns regarding your plan to pay the CERB taxes, please don’t hesitate to get in touch!

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How to File Your Taxes with CERB Payments

When tax time rolls around, those who claimed the CERB will receive a T4A from the government for 2020 indicating the total amount of funds received.

This amount will be claimed on line 13000 of your income tax return and the new T4 slip will break your employment income into periods that align with CERB payment periods.

The new format will inform the CRA of the CERB amount you received while you were still working.

This T4A must be reported on your income tax return as income and, since no taxes were deducted from the CERB payments, you need to be prepared to pay the taxes on it.

As mentioned above, the amount owed will depend on your 2020 marginal tax rate, which takes into account all other income earned in 2020.

Again, if you are unsure how to proceed with filing your taxes and CERB payments, get in touch with Liu & Associates for more information.

Take Action Now

The more you do now to determine what kind of taxes you will owe on your CERB payments, the less stressful next year’s tax season will be.

Take some time to determine how much, approximately, you will make this year and crunch the numbers to get your tax rate.

Again, if ever you find yourself struggling with this, our team at Liu & Associates is ready to help you sort out your taxes and manage your finances. Get in touch with us today!

Contact Us

How An Accountant Can Help With Shareholder Disputes

Corporations can be complex entities.

While setting up a corporation is relatively easy, having “too many cooks in the kitchen”, so to speak, can create disagreements and heated arguments.

Whether disputes arise due to the shareholders’ vested interest in the company, or a proverbial “hot head”, dealing with these disputes can be lengthy and costly.

With the help of our certified accountants, Liu & Associates can help you navigate these disputes by gathering pertinent information regarding your corporation.

Keep reading to learn more about how shareholder disputes are resolved and how an accountant can help:

What Happens When Shareholder Disputes Arise?

Most businesses in Canada have one or more owners or shareholders.

Because shareholders hold a stake in the company, disputes among shareholders and business owners can lead to considerable disagreement and complicated litigation.

This means that a corporation can file taxes, borrow or lend money and can sue and be sued.

Shareholder disputes arise when the owners and managers of a business argum among themselves.

Shareholders and owners have the final say when it comes to making decisions that will affect the business.

The rights of the shareholder include the right to vote at shareholders’ meetings, the right to attend these meetings and the right to all information regarding the affairs of the corporation.

When these rights are not respected, a shareholder can sue the shareholders or owners who failed to respect them.

Most shareholder disputes must be resolved through arbitration instead of by the courts.

The process can be messy and expensive, requiring the support of a lawyer or litigator.

However, accountants can be highly beneficial in resolving these situations as well.

How Can an Accountant Help During a Shareholder Dispute?

During a shareholder dispute, accountants can act as either a receiver or inspector.

Receivers and Inspectors

As a receiver, the accountants are put in charge of the stakeholders’ interests by taking possession of the assets in a dispute.

Receivers can also conduct an auction between disputing shareholders which results in one shareholder buying the other out. They can also sell or liquidate the business and divide the proceeds to the respective stakeholders.

As an inspector, the accountant’s job is to gather information and report the discovered facts. This can include examining financial records, gathering information from officers and employees about the company’s affairs and completing a business valuation.

Business Valuation

Business valuations are conducted by the accountant during a shareholder dispute to determine how much the shares are worth so that a sale can be facilitated.

This is a complex process that requires a solid understanding of a host of valuation principles and application.

Income Tax Returns

Most income tax returns define shareholder equity and its changes for each year.

However, even if this is not reflected on the return, having an accountant review the income and expense information is helpful and can identify situations where returns don’t match up.

Oftentimes an innocent oversight, this issue can sometimes be a deliberate omission and having this knowledge is useful during litigation.

Financial Statements

Quarterly or monthly financial statements should be reviewed to identify any discrepancies between the records and income tax returns.

A qualified and professional accountant can review these documents to ensure there is no deliberate wrongdoing.

Mitigate Shareholder Disputes with Liu & Associates

Our accounting firm can quickly put together a team of experts to analyze taxes and business valuation, as well as use forensic accounting, to help you with your shareholder dispute.

When it comes to legal issues and litigation, a company’s worst enemy is being unprepared.

Trust our staff of professional accountants at Liu & Associates to provide you with our comprehensive understanding and investigative abilities to help you mitigate shareholder disputes.

Contact us today!

How An Accountant Can Help With Strategic Business Planning

Do you know where your business is heading?

Every business needs a strategy in order to reach their goals.

However, without the proper eyes to oversee the myriad of data involved in growth and development, that path can become confusing and impossible to navigate.

That’s why our professional accountants at Liu & Associates want to help you with strategic business planning.

Keep reading to find out what strategic business planning is and how an accountant can help you achieve your company’s goals:

What is Strategic Business Planning?

Strategic business planning focuses on identifying long-term business objectives and ranking them by importance.

This can be a complex process and involves gathering information, analyzing data and conducting assessments of available business resources.

The point of this entire process is to ensure that a company continues to develop financially and socially.

When it comes to strategic business planning, the goal is to identify and improve the framework, goals and direction of a company by considering its marketing capabilities, technological advantages and available resources.

This creates a foundation in order to develop actionable plans and solutions in order for the company to achieve its ultimate goals.

The entire process can be a huge undertaking, which is why having an accountant aid in strategic business planning can be highly beneficial.

How Can an Accountant Help with Strategic Business Planning?

Accountants do so much more than simply organize money and finances.

Highly trained accountants, such as our team at Liu & Associates, are capable of creating an accounting system that checks, supports and lays out a business’s strategic management goals.

They are also able to adapt to change, meaning that they can accommodate new regulations that can affect your business as well as develop new strategies should your business need to head in a new direction.

Being able to factor in all these considerations means that a company can make better and informed decisions on how to save and spend their money.

Accountants can also help businesses create a strategic business plan by:

  • Setting Profitability Goals. Business decisions cannot be left to chance, especially regarding financial performance. Accountants can collect the right type of data and analyze it so that business owners can make better long-term profitability goals.
  • Creating Acquisition Strategies. Accountants can help develop acquisition strategies in order for businesses to cut costs, consolidate and make beneficial business purchases.
  • Supporting Risk Management and Control. Accountants can help companies monitor the status and health of their business activities by quantifying risk management objectives to make them relevant and measurable.

Regardless of what you are planning, our practitioners will make sure it makes sense from a financial point of view.

The best strategy is one that is clearly laid out and easy for your company to follow.

Strategic Business Planning Services

Strategic business planning can cover any number of things, from simple financial goals to future leadership and growth.

While many business owners have a great plan for their company, it can be difficult to create the strategy when you are overwhelmed by the amount of financial information involved in making that plan happen.

If you are starting a business, or interested in getting your company on the right track, don’t hesitate to contact our expert team of accountants at Liu & Associates.

We will be able to take a look at your company and offer advice on many aspects of your business including tax planning and optimization, accounting policy development, business growth and development and cost analysis.

Get in touch today!

What is a Joint Venture?

Did you know that the streaming site HULU is a joint venture between NBC and Disney?

Or have you ever noticed how there is a Starbucks at every Barnes & Noble?

These are examples of popular and successful joint ventures.

Any two businesses can enter into a joint venture in order to make a profit, diversify a product line or to simply become competitive in their industry.

These types of business alliances are growing in popularity and are gaining importance in the market.

If you are a business owner, and curious about how a joint venture works, here is a quick guide that will help you out:

What is a Joint Venture?

A joint venture is a business arrangement, such as a new project or other business activity, that involves two or more parties pooling resources.

Each of the participating individuals or entities are jointly responsible for any profits, costs and losses associated with the venture.

However, the venture itself is considered its own entity and is separated from any of the participants’ business interests.

For example, Google Earth is a well-known venture between Google and NASA. If some sort of litigation was brought against Google Earth, for whatever reason, both Google and NASA’s interests would be protected.

The same goes for BMW and Toyota, who created a joint venture to research hydrogen fuel cells, vehicle electrification and lightweight materials.

When To Consider a Joint Venture

Even though joint ventures are technically “partnerships”, they can for any legal structure.

For example, corporations, partnerships and LLCs can all be used to form a joint venture and, although joint ventures are typically formed for production or research, they can also be created for a continued purpose.

Joint ventures can also be used to combine large and smaller companies in order to complete one big project or deal or several big or little ones.

Here are some reasons why you may want to consider forming a joint venture:

  • You can leverage resources. By combining the resources of both companies, you can leverage the strengths of both entities. For example, such as Google Earth, Google had the coding and programming technology while NASA had the satellites.
  • It will save you on costs. When you partner up with another business, you can split costs such as advertising and labor.
  • You can combine expertise. A joint venture can certainly benefit from the unique skills and expertise each party can bring to the table.

If you’re looking at developing a product or business that can benefit from having another party involved, it may be worth looking into a joint venture.

The Pros and Cons of a Joint Venture

As with any business venture, there are benefits and risks. Here are some pros and cons of forming a joint venture:

Pros of a Joint Venture:

  • Joint ventures are not a partnership. Therefore, separate business assets are protected from liability.
  • Joint ventures enable fast business growth by achieving maximum profitability through shared resources.
  • Joint ventures can be temporary. This means that individual parties can benefit from the agreement and then go their separate ways after achieving business goals and sharing profits.

Cons of a Joint Venture:

  • Joint ventures often involve different management styles. These differences may create friction and impact operations.
  • Joint ventures can end up like school projects. You may end up with one party who is unable (or unwilling) to contribute equally.
  • Joint ventures can fail if clear goals are not defined. With unclear goals, it’s difficult to assign responsibilities to all parties involved.

Are You Ready for a Joint Venture?

While joint ventures provide exciting business opportunities, no agreement should be stepped into lightly.

Our professionals accountants at Liu & Associates can help clarify the financial implications of a joint venture as well as help you determine whether incorporating this venture is in your best interest.

If you are considering forming a joint venture, please contact our experts for more information!

Writing a Business Plan: Do I Need an Accountant?

Are you starting a small business?

Have you thought about hiring an accountant?

Probably not, since you are likely focusing your time and energy on the growth of your business – but accountants are trained to do a lot more than payroll and taxes.

A professional accountant can help you develop your small business from writing a business plan to the official formation of your company.

While you don’t need to hire a full-time accountant to help you out, a couple of hours can make the difference in getting your small business off the ground.

Creating the Business Plan

An accountant will be able to help you write a business plan based on realistic information. You don’t want to risk a failed business plan based on optimistic assumptions and not current market conditions.

While optimism and risk tolerance can be beneficial to starting a business, an accountant can help you to balance the plan.

Experienced and expert accountants can use their knowledge to ensure your business plan is financially cohesive and realistic.

Forecasting Your Costs

When you create a business plan, you will be expected to forecast the various costs involved in starting and building your business. For first time business owners, this can be both daunting and confusing.

Accountants, however, can help you understand these costs by walking you through the numbers to create an accurate forecast for your business.

Determining Your Business Structure

When you start a small business, you can choose to incorporate it or run it as a sole proprietor. Both business structures have their own pros and cons, and are better suited to specific situations.

If you’re not sure about which way to go with your small business, an accountant can help you make the right choice by laying out the legal and tax advantages of incorporating your business – as well as the risks and pitfalls.

It’s a very important decision no small business owner would make lightly.

Registering Your Business

Do you know which programs you need to register with when starting a small business?

An accountant can help you out by making sure that your business is registered properly. For example, you may be required to register for GST/HST, payroll and your province’s WorkSafe entity.

Some business structures are not required to register for as many programs as others. Talk to an accountant about which programs are necessary for your small business.

Hiring an Accountant After Starting a Business

If you missed out on hiring an accountant to help you set up your small business, it’s not too late to benefit from their help!

In addition to the ways an accountant can help you get your small business off the ground, they can also help with many other aspects of your small business including:

  • Bookkeeping
  • Payroll
  • Taxes
  • Government Audits

So, even if your business is up and running, an accountant is a valuable asset when it comes to guiding and growing your business – as well as giving you back your time.

Ready to Get Started?

Our professional accountants at Liu & Associates are ready to help you get your small business started!

Contact us today to find out how we can help you write your business plan as well as guide you on the path to growing your small business into a huge success.

You can learn more about our business accounting services here.

Financial Considerations for Divorce 

Did you know that 41% of first marriages in Canada end in divorce?

While many couples divorce for a variety of legitimate and understandable reasons, the procedure is not simply a straightforward dismantling of a wedding certificate.

There are many financial considerations when filing for divorce, and the more prepared you are for that portion of the proceedings, the less you will have to worry about when the divorce is finalized.

Here are some financial aspects you should pay close attention to while proceeding with a divorce:

Marital Assets

When it comes to divorce, financial assets such as cash, bank accounts, stocks, mutual funds and savings bonds must be considered carefully.

Especially because not all assets created equal. It’s impossible to simply split everything down the middle.

Rushing into a settlement without careful consideration can be a financially and emotionally difficult situation to deal with after the divorce is finalized.

Real estate also needs to be addressed when filing for a divorce. This includes your marital house as well as other houses and properties, vacation properties, timeshares, rental properties and business properties.

Because a home is as much a financial investment as an emotional one, it can be difficult to negotiate how the property will be split, whether it is sold or one spouse buys out the other in order to keep the house.

Debt

Even if one spouse agrees to assume responsibility for debts such as mortgage, this does not mean the other spouse has no financial obligation to the joint debt.

Ultimately, both names on the debt, loan or mortgage are held accountable for paying it. Therefore, if the spouse that keeps the home defaults on mortgage payments, both parties suffer the resulting consequences.

A divorce decree cannot terminate financial obligations to creditors.

The only way to protect yourself if your spouse is assuming responsibility for a debt is to contact the lender and determine if he or she can refinance the loan under his or her name.

Otherwise, you have to place trust that he or she will keep up with the payments.

Bank Accounts

Most married couples establish a joint bank account in which all incomes are combined and all expenses are paid from it.

If your income is automatically deposited into a joint account, you will want to have it switched to a personal account in your name only.

Be sure to also take your name off the joint accounts to avoid liability if the account becomes overdrawn.

Although most divorces are amicable, should you suspect that your spouse is going to clear out the account, take your entitled half and put it in a separate account.

Taxes

There are a number of refundable and non-refundable tax credits that are based on the size of your “family net income”. When you’re married, this means the income of both spouses.

Therefore, when you divorce, your family net income is based on only one income. This means that you may become eligible for an increase in tax credits.

For this reason, it’s crucial that you update the CRA (Canada Revenue Agency) immediately after the divorce is finalized so that the recalculations can be done as soon as possible.

If you are separating in lieu of divorcing, you will have to live apart for at least 90 days before you notify the government.

Get the Help You Need

While you may be tempted to navigate the waters of divorce on your own, it is recommended that you seek guidance from a tax professional or accountant.

Our expert and experienced accountants at Liu & Associates can provide you with professional advice when it comes to sorting out your finances during a divorce.

If you are preparing for divorce proceedings, or simply have questions about your finances, don’t hesitate to contact us today!

How to Save Money When Your Income Temporarily Shrinks

Pandemics and recessions – at this point in time it seems our society has seen it all. And the financial impacts on businesses and families is undeniable.

While our world is currently suffering the detrimental effects of COVID-19, experiencing an economic downfall is not unique to this situation.

This pandemic has certainly been unprecedented but families and individuals should always be prepared for a decline in their income.

If you were not concerned about saving money before the downturn on our economy, you are certainly trying to find ways now.

Luckily, our accountants at Liu & Associates are focused on helping people avoid financial disaster.

Here, we’ve put together ways that you can save money even when your income has temporarily shrunk:

Create a Spending Plan

The first step in creating any sort of saving plan is to take control of how you spend your money.

A spending plan is different from a budget: it’s a tool to help you feel in control of your financial decisions. It will also help you find extra income that you can safely tuck away into a savings.

First, look at your reduced income – pay attention to what is coming in and what has to go out. Expenses such as these include rent/mortgage payments, bills and necessities like groceries and gas.

Next, focus on the things you are spending money on that are necessary. Do these things make your life better? If not, consider getting rid of them (such as monthly subscriptions) or stop buying them.

This may seem difficult at first but, remember, you are creating a habit and that takes time.

Start a Rainy Day Savings

A rainy day savings is money that you put aside “just in case”. This phrase likely originated from the days of agriculture when farmers had to set aside provisions for the rainy days in which they couldn’t work.

It seems like lately our society has hit many rainy days.

For this reason, it seems more important now than ever that you put aside some money in case you run into unforeseen difficulty, trouble or need.

This will help you avoid taking on more debt to handle unforeseen situations.

This form of savings should be your top priority. Ideally, you should have at least 6 months of expenses saved away.

However, for many people this can be impossible. Instead, focus on tucking away whatever free money you can find after creating your spending plan.

Long Term Savings

Even with a shrinking income, if you are able to continue to contribute to your longer term savings and investments, continue to do so.

You may not see the point since fluctuating interest rates are making these savings less rewarding than before, but think about these investments as a long term goal.

If you’re tempted to play around with your portfolio during this economic downswing, it is advisable that you speak with a financial expert.

Recessions Don’t Last Forever

Today’s financial atmosphere may seem hopeless, but history has proven that, despite economical hardship, society always comes out the other side.

One of the defining features of a recession is that they don’t last forever.

The future is always uncertain, as we can all contest to looking back only a few months ago. However, no matter the current global condition of the economy, you should always be prepared to weather the storm.

If you are worried or stressed about your current financial situation, our expert accountants at Liu & Associates are happy to help answer any of your questions.

Please don’t hesitate to contact us today.

Does Paying My Taxes Late Affect My Credit Score?

It’s no secret that paying your taxes late comes with consequences including interest and penalties that could negatively affect your finances. Is a negative impact on your credit score another possible impact?

It’s easy to assume that any debts or money owing will be held against your credit score. When it comes to late taxes, it works a little differently.

Does the CRA Report to Canada’s Credit Bureaus?

In general, the Canada Revenue Agency will not report to Canada’s credit bureaus if you owe a small amount in income taxes, paid your taxes late, or received any basic penalties.

The CRA’s privacy policy restricts the amount of information they are able to share with outside organizations, including Canada’s credit bureaus. However, there is on exception: in the event that you owe enough in taxes for there to be a court case and a collection agency becomes involved, CRA is able to put a tax lien on your credit report. If your debts owing become public information via a court case or collections, your taxes owing will impact your credit score.

What Should I Do If I Owe Taxes?

Most of the time, an individual ends up paying taxes late if they are not in a financial position to pay taxes on time. In order to avoid  late taxes affecting your credit, it’s best to deal with them immediately before the debt becomes too large. Ignoring the problem will not make it go away and could end up making it worse with ruined credit or even bankruptcy.

Even a small amount owing needs to be taken care of as soon as possible before interest charges inflate the original debt.

If you do owe taxes, here are some steps you can take to deal with the debt:

  • Contact the CRA immediately: The Canada Revenue Agency doesn’t want to drag you through court cases, so they are often willing to work out a payment plan. If you can prove that you absolutely do not have the means to pay your owing taxes in a short amount of time, you may be able to work out a multi-year payment plan.
  • The Taxpayer Relief Provision: If your tax situation meets certain criteria, your case may be forwarded to the Minister of National Revenue. Should your case be approved, you could receive tax penalty and interest relief.
  • Save and spend responsibly: You should consider establishing a savings account for tax purposes and other emergencies. Being able to pay a portion of your tax bill is better than not paying anything.

What Does Affect My Credit Score?

Knowing what actions affects your credit score is important in keeping your credit score high.

While your taxes only affect your credit if they become a substantial debt, many other elements come into play when determining your credit score:

  1. Payment History: The largest part of your credit score is based on how well you pay your bills and owing amounts on credit products. It takes into consideration late, short, and missed payments – all of which can negatively affect your credit score.
  2. Utilization: Credit bureaus look at how much debt you have versus how much available credit you have. If you continually run your credit cards to their limits, this will lower your credit score.
  3. Credit History: The amount of time you’ve had your credit products also impacts your credit score. Debts that you’ve carried and maintain good payments on for many years look better than newer debts.
  4. Credit Product Variety: Credit bureaus also like to see a variety of credit products, not just credit cards. This includes loans, mortgages and lines of credit.

Why Take the Chance?

Any amount owing in late taxes, whether it be a large amount or small one, can spell trouble for your finances. Contact Liu & Associates today for more information on how you can avoid interest and penalties when you owe money on your taxes.