8 New Year’s Resolutions to Save You Money in 2020

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When it comes to making New Year’s resolutions, there seems to be two goals everyone tries to commit to: get in shape and save money.

While our professional accountants at Liu & Associates may not be able to help you tone up your beach body, we can definitely address the goal of saving money.

The idea is to start small and to not overwhelm yourself with financial goals. Consider the following 8 resolutions you can try this year to begin saving money and brightening your financial future:

1. Create a Budget

The best way to keep your spending and saving on track is to create a budget.

Budgets don’t have to be elaborate plans that are difficult to follow.

Begin By tracking your spending for a month or two to see where your money is going. Calculate your income and expenses. From there, adjust your spending habits to free up some saveable money.

2. Set Small Savings Goals

Saving money can be a daunting task – but most people think too big and bite off more than they can chew. When the savings plan isn’t working out, they tend to throw in the towel.

Start with smaller savings goals. You can even begin a savings challenge where you save $1 the first week and add a dollar each following week.

3. Start an Emergency Fund

Did you know that 75% of Canadians do not have any money set aside in case of an emergency?

Medical issues, loss of employment, household damage and car repairs can come out of nowhere. You want to avoid relying on credit or loans to deal with these issues.

For 2020, look into opening a TFSA. This is a tax free savings account available for Canadians over the age of 18. Although there are caps on how much you can place in the account per year, these accounts are flexible, great for emergency funds and withdrawals are tax free.

4. Consolidate Your Debts

If you carry multiple balances across different debts, you are likely paying varying interest rates.

To save money on interest payments, consider moving all of your debts to one place. You can apply for a line of credit, personal loan or credit card to cover all your debts.

5. Plan Trips and Vacations in Advance

The earlier you book a flight or hotel, the better rate you can receive. Try to plan your vacations and trips as early as possible.

This also gives you an opportunity to save money instead of making all of your purchases on a credit card and having to pay it all back later.

6. Switch Service Providers

There’s always a better deal out there – shop around for cable, internet and cell phone rates.

Most companies will offer you an introductory rate for signing up. Just be aware of the expiration dates of these deals and what you will expect to pay once the promotion ends.

Also consider bundling services to save money each month.

7. Create Meal Plans

Meal planning is a great way to cut down on your grocery bills and avoid the temptation to eat out.

(And, if you’re looking to get in shape, it can help with that too!)

To create a meal plan, simply decide what meals you are going to prepare for your family for the week, taking into consideration any leftovers that can be used again or served as lunch. Make your grocery list in accordance with your plan and stick with it.

8. Learn About Money

This could be the year for you to improve your financial literacy. Take time to learn more about money management, budgeting, investing and paying off debts.

 

If you have any questions about making changes to your personal finances, or learning more about financial literacy, feel free to contact us at Liu & Associates for more information!

5 Things You Didn’t Know Were Tax Deductible

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Each year many Canadians loathe the approach of tax time and worry about receiving a hefty tax bill after everything is submitted and filed.

Fortunately, there are many tax deductions available to Canadians – most you probably haven’t even heard about.

The accountants at Liu & Associates know taxes and want to help you save money every year. Here are 5 costs you didn’t know were tax-deductible:

1. Child Care Expenses

Most Canadians know that childcare expenses can be claimed on income tax, but that deduction extends beyond just daycares and in-home sitters.

Hired caregivers, day nursery schools and centers, educational institutes that provide childcare services, day and overnight camps and boarding schools are all considered tax-deductible.

As long as the primary purpose of any of these services is to provide childcare, they can be claimed on your taxes.

2. Moving Expenses

If you are required to move because of your work, business, or for school, you may be able to claim costs associated with relocating to a home at least 40 km closer to the new workplace, business, or school.

You may also be able to claim travel costs such as accommodations, meals and vehicle expenses as well as additional expenses related to selling your home and purchasing a new one and connecting and disconnecting utilities.

When you are moving for a job or business, eligible moving expenses are deducted from the income earned at that location. Any excess can be carried forward to the next year’s tax return.

Tax credits for moving are non-refundable, meaning that they only count against taxes owing and you will not receive a refund from any unused amounts.

3. Dependents

Dependants are family members, and not just immediate ones, with mental or physical disabilities that depend on you for care.

If you have dependent family members, you are eligible for two tax credits:

Home Accessibility Tax Credit (HATC)

This non-refundable tax credit covers goods or renovations related to an individual who is eligible to claim a disability tax credit or is over the age of 65. For example, if you were responsible for the care of an elderly parent in a wheelchair, you could claim the cost of installing a wheelchair ramp.

Canada Caregiver Credit (CCC)

If you taking care of a family member or eligible relative outside of the national health care system who depends on you due to a mental or physical disability, you can claim this credit on your taxes.

4. First Time Home Buyers

In order to encourage young Canadians to purchase homes, the Canada Revenue Agency (CRA) offers a tax credit when buying your first house.

The First Time Home Buyers’ (FTHB) tax credit can be used to claim legal fees, disbursements and land transfer taxes. Up to $5000 can be claimed as a non-refundable tax credit.

There are also grants available from provincial governments such as a property transfer tax grant and property tax grants.

If you are interested in seeing what grants are available for you, please contact our expert accountants at Liu and Associates for more information!

5. Medical Expenses

There are many medical expenses beyond prescriptions that can be claimed on your taxes.

For example, travel costs for medical procedures greater than 40 km from your home can be claimed – as long as the necessary medical services are not available near you.

The cost of service animals trained for individuals who are blind, deaf or have Autism, epilepsy or diabetes can be claimed on taxes, as long as the animal is procured through a recognized provider. The claimable costs include the cost of the animals as well as veterinary bills and food. This deduction does not apply to emotional support animals.

Medical marijuana is also a claimable deduction on your taxes, as long as it is authorized for medical purposes and purchased from a designated producer.

Click here for more medical expenses that are tax-deductible.

And There’s More!

These are just a few of the lesser known costs that can be claimed on your yearly tax return.

Contact us today to learn more about tax-deductible costs that can save you money!

What Does It Mean To Incorporate a Business?

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If you run a small business but want to develop your company into a serious enterprise, you should consider the process of incorporation.

While incorporation involves a whole new aspect of accounting and tax preparation, as well as an application process, there are innumerable benefits to incorporating a small business.

What is Incorporation?

Incorporation, often abbreviated as “inc.” in the United States and Canada, is the legal process of forming a legal entity, or corporation, which is then recognized by law. This process then separates a company’s assets and income from those of the owners and investors.

How To Incorporate a Business

To incorporate your business, use the following steps:

Choose a name for your corporation

Be sure to choose something distinctive and not misleading. You can use the NUANS® Search System to compare your proposed corporate name with databases of existing corporate names. This comparison determines any similarities that may exist between your chosen name and existing names.

Complete the articles of incorporation

The articles of incorporation establish the structure of the corporation. This form needs to be signed by an incorporator. Incorporators are typically the owners of the business but can also be members of the law firm handling the incorporation process.

Establish an initial office address

This is the address in which all of the corporation’s records and documents will be located. The board of directors should also be established and their addresses provided in application as well.

File the proper forms

The proper forms must be filed and the necessary fee paid. There are two forms which are necessary to incorporate: Form 1 (Articles of Incorporation) and Form 2 (Initial Registered Office Address and First Board of Directors). Other forms may be necessary depending on the situation – you can find them here.

Wait for the application to be processed

If the application is incomplete, it will be returned with an explanation as to why it was invalid. A completed form may also be returned if there is pertinent information missing.

Otherwise, a completed and accepted application will be processed and the applicant will be notified of its success.

The Benefits of Incorporating a Business

While incorporation may seem like a lengthy and complicated process, there are significant benefits to incorporating your business.

Here are a few advantages to incorporating your business:

Protect the Owners and Investors Assets from Company Liabilities

Corporation owners exists separately as individuals from the company entity. Any debts or liabilities held against the company do not personally affect the owners and investors.

This means that personal assets, such as houses and cars, cannot be seized in relation to the company’s debts and responsibilities.

That being said, a corporation can own property which is not protected against liabilities.

Allows Company to Raise Capital Through Stock

When you incorporate a business, you have more opportunities to raise money in order to grow and develop your company. Corporations can incur debt but they can also raise money by selling shares.

This is known as “equity financing” and is highly beneficial to companies since it does not have to be repaid and incurs no interest.

The only caveat is that issuing shares reduces your percentage of ownership in the company.

Corporations Have Unlimited Life Spans

As owners and shareholders pass away or move on, their shares are transferred to their heirs or sold. This means that as those in charge of the business are no longer involved, the corporation itself passes on through inheritance or sale.

Incorporating Makes a Business Credible

Incorporation provides credibility to a business by projecting a serious nature to potential investors, lenders, suppliers, customers and employees. It distinguishes a company as one that is long-lasting and committed to continuing into the future.

Take Your Business to the Next Level

Our professional accountants at Liu & Associates can help you navigate the process of reorganizing your accounts and taxes if you decide to incorporate your small business.

Feel free to contact us today for more information!

How to Choose an Executor for Your Will and Estate

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When creating a will, there is more to consider than simply what goes to whom. After you are gone and passed, someone will be responsible for executing your will.

Although you will not be around for the aftermath of dealing with your estate, you want to make sure you appoint the right person for the job – and choosing that individual can be a stressful and confusing endeavor.

What is an Executor?

An executor is the person responsible for following through on your will after you have died. This individual is in charge of sorting out your finances,  making sure your debts and taxes are paid and distributing the remainder of your estate to your beneficiaries and heirs.

It is also the job of the executor to identify everything in your estate, including bank accounts, pension payments and life insurance payouts.

The executor does not control the estate – they are legally obligated to fulfill your requests faithfully and fairly.

Choosing an Executor

When choosing someone to be the executor of your will, it’s important to put feelings aside and look at the situation objectively.

Being an executor is not a position of merit or perceived importance – it’s  a large responsibility and you want to make sure that the individual chosen can fulfill it.

When choosing an executor for your will and estate, consider the following:

  • Someone you can trust. You want to be sure to choose an individual who can execute your will fairly and objectively.
  • Someone who lives close by. An executor who lives out of town, province or even the country is going to face the long distance struggles of dealing with your family and assets. They will also face logistical challenges if a house needs to be sold or if local laws differ from where they reside.
  • Someone who has a flexible schedule. Sorting out an estate takes time and there are many deadlines that must be met. You want to ensure that the individual has the time to properly execute the will and meet the deadlines.
  • Someone who has some knowledge of taxes and finances. The majority of a will’s execution involves finances and having a basic knowledge of these things will make it easier for the executor of the will. For more complex estates, or foreseeable family conflicts, you may want to consider appointing an estate professional to plan your will and estates.

Professional Wills and Estates Planning

Wills and estates planning is recommended if you own a business or a large and complex estate. You may also want to consider hiring a professional to plan your will if you suspect that family conflict will make executing the will difficult.

Financial experts, such as the professional accountants at Lui & Associates, can ensure that your financial wishes are carried out correctly and legally.

We can tailor a plan to meet your specific needs, paying close attention to aspects of wills and estate planning such as:

  • Estate valuation
  • Tax elections
  • Tax planning
  • Estate freeze
  • Family trusts
  • Asset transfers

Having a professional prepare your will and estates ensures that your beneficiaries are protected legally and financially.

Our experts at Liu & Associates can handle any issue in regards to will or estate planning. Contact us today for more information about having your will and estates planning done proficiently and professionally.

The Benefits Of Having A TFSA

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In 2009, Canada introduced a unique way for Canadians to invest and save money – tax free!

Known as a TFSA, the Tax Free Savings Account is a flexible and simple way to grow a savings account.

What can you save for? Basically, anything you can think of:

What is a TFSA?

A TFSA is a tax free savings account available to Canadians who are 18 years of age or older.

As its name suggests, TFSAs are completely tax free. This means that savings are placed into an eligible investment and grow tax free. All interests, dividends and capital gains are tax free. Even withdrawing from a TFSA is considered non-taxable income.

TFSAs can be used for anything – tuition, down payments, retirement income, emergency funds. They are suitable for both long term and short term savings goals.

The Benefits of a TFSA

1. Draw Income During Retirement

Most retirement incomes are taxable, meaning that you have to pay taxes on any amount you withdraw. Withdraws from a tax free savings account, on the other hand, are not considered income and are not taxed.

If you can establish a healthy TFSA, you can draw on that account for your retirement income before having to touch your taxable RRSPs.

2. Flexibility of Savings

A TFSA gives you the flexibility to save for short term goals such as a vacation, long term goals such as retirement or to have an emergency fund.

You can use a TFSA in so many different ways in so many different stages of your life. Here are some ideas as to how a TFSA can be used:

  • Savings for Education. You may already have a registered education savings plan (RESP) set up for your child – and you probably have already accessed the maximum government grants. If that is the case, you can use a TFSA to save more for your children’s education.
  • Rainy Day Savings. In this uncertain world, you never know when you may need money for good times or bad times. You can use a TFSA in case you lose your job, incur uncovered health care costs or if your home or car require unplanned repairs.
  • Care for Elderly Parents. If you’re responsible for caring for aging parents, a TFSA can help with the cost of healthcare at home or in a long-term care facility.

With a TFSA, you can invest or save – the choice is yours!

3. Reduce Tax on Investments

You can use a tax free savings account to shelter investments that would usually be taxed at a higher rate.

Tax shelters are legal investment vehicles that aim to reduce or eliminate your tax liability. Some are risky and should be avoided, but TFSAs are a safe way to shelter your investments and reduce your bill.

4. No Income Required

In order to open a TFSA, you do not require any proof of income.

As soon as a Canadian turns 18, they only need to prove they are a resident of Canada and provide a social insurance number to begin a tax free savings account.

Once an individual turns 18, they start accumulating contribution room on a TFSA, regardless of employment status.

The contribution room is the maximum amount you can contribute to a TFSA per year. If you do not take advantage of the contribution room, the remainder carried forward to the next year.

5. Does Not Affect Government Benefits

Because withdrawals from a tax free savings account are not considered to be taxable income, taking money from a TFSA does not affect government benefits such as the child tax benefit or retirement supplements like the Guaranteed Income Supplement (GIS).

Ready to Start Saving – Tax Free?

Our expert accountants at Liu & Associates are ready to answer any questions you may have about opening a Tax Free Savings Account! Contact us today for more information.

Bookkeeping for Nonprofit Organizations

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Even though nonprofit organizations do not focus on generating an income, it is still important to have proper bookkeeping habits to ensure the organization’s success.

Understanding tax implications, as well as properly recording and tracking financial data, will help you to run a successful nonprofit. This will enable you to meet your goals and supports your cause.

What is a Nonprofit?

A nonprofit is an organization that focuses on furthering a social cause or shared goal. They do so by using its surplus of revenue to aid these causes and goals instead of distributing its income to shareholders, leaders or members. This is what separates a nonprofit from a business.
 
Both businesses and nonprofits have the same tasks to record, track and analyze financial transactions. Yet, nonprofits answer to its mission whereas businesses answer to the stockholders.

The revenue generated by nonprofits consists of donations, grants, and investments. All these revenue streams are considered to be tax-exempt. This means they are not required to pay income tax on the money they receive.

Tax Reporting Requirements for Nonprofits

Even though nonprofits are tax-exempt, they still need to file a T2 Corporate Income Tax Return. Some nonprofit organizations may also have to fill out a Form T1044 (“Non-Profit Organization Information Return”).

The T2 Corporate Income Tax Return is an 8-page form that is due 6 months after the last date of the organization’s fiscal year. If the nonprofit organization only operates in a single province or territory, only 2 of those pages need to be filled out.

Under certain circumstances, a nonprofit organization may also have to file for T1044:

  • If the organization received dividends, royalties, rentals or interest in excess of $10,000 during the year;
  • If the organization owns more than $200,000 in assets;
  • If the organization was required to submit a T1044 the previous year.

Navigating these forms may be tricky and you want to make sure you get it right. Contact our accountants at Liu & Associates for more information.

Financial Statements for Nonprofit Organizations

Statement of Financial Position

In the world of business, bookkeeping often involves a balance sheet that details the owner’s equity and assets. Nonprofits, however, use a Statement of Financial Position to detail its assets and liabilities of the organization as well as its net assets.

The net assets are divided into 3 categories:

  • Unrestricted Assets: These assets are collected from donors with no restrictions on use.
  • Temporarily Restricted Assets: These assets have restrictions imposed on them by the donor. These usually specify that the donation is used in a certain way. Temporarily restricted assets typically include an expiration date on the restrictions.
  • Permanently Restricted Assets: These assets have usage restrictions that do not expire. These restrictions are usually placed on large sum donations.

Statement of Activities

These statements quantify the revenues detailed in the Statement of Financial Position.

Statement of Cash Flow

The Statement of Cash Flow tracks the flow of cash in and out of the nonprofit organization. It specifically focuses on activities held by the organization that generates and uses the cash.

Statement of Functional Expenses

This last statement documents how expenses are incurred for each area of the nonprofit organization. These areas include management, administration, fundraising and programs.

Bookkeeping Basics for Nonprofit Organizations

Accounting Software or Journal System

In order to keep your nonprofit organization organized, you need to establish a system for tracking financial transactions. These transactions include receipts, distributions (such as payouts and expenditures) and petty cash.

Open a Dedicated Bank Account for the Organization

Do not use a personal bank account for your nonprofit organization. Opening a separate bank account is important for keeping accurate records of incoming and outgoing money.

Create a Budget

Like a for-profit business, a nonprofit organization requires a budget. A simple budget plan includes expected income sources and expected expenses. It is also important to determine what your financial goals are, estimates of cost and income and see if the budget aligns with your plan.

Financial Statements

Once you have everything in place, you need to create financial statements as mentioned above. These documents will help you keep track of where the money is coming from, where it is going and how it got there.

Common Mistakes Made by Nonprofit Organizations

Here at Liu & Associates, our accountants want to ensure that your nonprofit organization is successful. The following are common mistakes made by nonprofit organizations and how you can avoid them:

Poor Planning (Or No Planning At All)

Even though nonprofit organizations differ from revenue-generating business, the need for a plan is just as important. You may not be looking to make a profit, but a nonprofit organization still needs a vision, a goal and a plan to get there.

A good business plan includes information such as sources of funding, potential products or services to be offered. It is also important that you include a needs assessment. 

No Financial Knowledge

Running a nonprofit is more than generating donations and dispersing them appropriately.

As part of the business plan, you need to consider what sort of startup costs are appropriate to get your organization running. You also need to keep good financial records. This is because although nonprofit organizations are considered tax-exempt, you still need to file taxes for it.

Assuming Taxes Don’t Have to be Filed

Again, just because nonprofit organizations are tax-exempt doesn’t mean you are exempt from filing taxes. There may be some cases where certain revenues are considered taxable. Even if those situations do not apply to your nonprofit organization, a tax return is still necessary. Otherwise, you may face the penalties of not filing.

Bookkeeping for Nonprofits is Not Impossible

But it can be confusing and challenging. Let our experts at Liu & Associates help you navigate the details of nonprofit bookkeeping. Contact us today!

Taxes After 65

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Turning 65 is a significant milestone in every Canadian’s life. With the changes in health and lifestyle also comes changes in financial income and taxes.

Understanding what these changes are and how to prepare for them is important in ensuring your taxes are done properly and without error.

Liu & Associates is here to help you understand exactly what changes tax-wise when you reach the age of 65.

What Changes After 65?

Once you turn 65, you are eligible for more tax benefits than younger taxpayers. These include a claimable age amount, pension income amount, medical expenses and other federal credits.

Because you will be receiving age-specific incomes, these payments must be in your yearly tax return.

The following payments are considered taxable income:

  • OAS (Old Age Security)
  • Retiring Allowance
  • Other pensions and superannuation
  • RRSP (Registered Retirement Savings Plan)
  • Annuity payments
  • PPRP (Pooled Registered Pension Plan)
  • Retroactive lump sum payments
  • Income from trust or a retirement compensation agreement
  • RRIF (Registered Retirement Income Fund)
  • CPP (Canada Pension Plan)
  • QPP (Quebec Pension Plan)

Income Sources for Seniors

Being 65 years old and being retired are not mutually exclusive. Many senior Canadians work beyond the age of 65 and, in doing so, can still take advantage of supplemented incomes based on their age.

There are income programs, however, that focus specifically on retired individuals. That being said, income supplements such as OAS can be affected if additional income is made through part-time work.

These are various income sources for Canadian seniors that consider age as well as retirement:

Old Age Security (OAS)

OAS is an income supplement financed by Canadian tax dollars for individuals over the age of 65. It provided benefits to individuals over 65 and is considered taxable income.

Canada Pension Plan (CPP)

CCP is an income funded by payroll deductions and is available as early as 60 years of age. CPP is also taxed income source.

Guaranteed Income Supplement (GIS)

The GIS is available to low-income Canadians and is a non-taxed income.

Annuity Payments

Annuities are a financial product sold by an annuity provider, usually a life insurance company. They will pay a guaranteed regular income during retirement but the money received is taxable.

Superannuation

A superannuation is a company plan created by a company for the benefit of its employers to use during retirement. The funds deposited will grow until retirement is reached or the funds are withdrawn. This is a taxable income.

PPRP (Pooled Registered Pension Plan)

This retirement income option is geared toward individuals and self-employed individuals. This plan will move with you from job to job and is considered taxable income. However, it is only considered a “pension income” when you are 65 or older.

RRIF (Registered Retirement Income Fund)

RRIF’s are arranged between an individual and a carrier such as an insurance company, trust or bank. The fund is registered with the federal government and is taxable income.

Tax Benefits for Seniors

As mentioned above, there are tax benefits once you reach the age of 65. To take full advantage of potential tax benefits, speak to a full-service accounting practice such as Liu & Associates LLP to seek out all qualifying tax credits.

Age Amount

Once you reach the age of 65, you may be eligible to claim an age amount on your taxes. If your net income is less than $83,353, you are able to claim this tax credit.

Pension Income Amount

With the pension income amount, you can claim up to $2000 in credit on eligible pension income. These incomes include a pension or annuity income received as payment for a pension or superannuation plan or payments from an RRSP.

Medical Expenses

If you have any medical expenses that are not reimbursed and equal more than 3% of your income, you can claim them on your taxes.

These include more than prescription medication. As long as the medical necessities you are claiming are prescribed, you can claim items such as:

  • Air conditioners
  • Bathroom aids
  • Chairs
  • Hospital bed
  • Orthopedic shoes, boots, and inserts
  • Page-turner devices
  • Walking aids

In order to claim these expenses, you need to keep your receipts.

Other Federal Credits

The CRA (Canada Revenue Agency) offers a Home Accessibility Tax Credit (HATC). This non-refundable tax credit is available for any home improvements that help to better your quality of life such as walk-in tubs, wheelchair ramps, and hands-free faucets.

Because this is a non-refundable tax credit, it can only be applied to reduce any tax owing and not put toward any refunded taxes.

Tax Tips for Seniors

While not much changes when it comes to filing taxes after the age of 65, there are some considerations worth noting to ensure the procedure is done properly and without error.

For more information regarding any changes to your tax return, please contact our accountants.

1. Stay Organized

Keep track of all your expenses on a monthly or bi-monthly basis. Try to keep all your paperwork, including receipts, in one place.

2. OAS and Part-time Income

If you work part-time while claiming OAS, the government will reduce your OAS payment if you make over $75,910 a year. This is called the “OAS clawback” and typically reduces your OAS by 15 cents for every dollar you earn over that amount.

3. Pension Splitting

When you are married or common law, the higher-earning partner can split up to half their pension income with the lower-earning partner. This spreads taxable income so that one partner is not taxed in a higher tax bracket.

4. RRSP’s

Your RRSP contributions provide tax breaks but any money withdrawn is considered taxable income. By the end of the year that your turn 71 you will have to withdraw the funds, convert the funds to a RRIF or use them to purchase an annuity.

Have Questions About Filing Taxes?

If you’re confused about how to file your taxes after the age of 65, please do not hesitate to contact our professional and experienced accountants today.

Maximizing Your Charitable Donation Credits

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The Canadian government encourages its population to give generously by offering a Charitable Donations Tax Credit (CDTC). This tax credit is in existence for those who donate to registered charities.

A donation is anything considered to be a gift in which nothing is given in return. These include money, assets or objects of value.

The CRA (Canada Revenue Agency) allows all Canadians to claim up to 29% of all donated amounts. Depending on your province of residence, you may be eligible for up to an additional 24% of all donated amounts.

The CDTC is a non-refundable tax credit. This means that you can only apply any claimable amounts to taxes owing, not taxes refunded.

Qualifying for the Charitable Donations Tax Credit

In order to qualify for the CDTC, you must donate to a registered charity or any public organization that can issue a tax receipt.

The Canadian government’s website offers a searchable online database of registered charities. You can always check with the database to ensure that your donations qualify for the CDTC.

If you donate to a charity or organization that gives you something in return, such an event ticket, you must deduct the value from the donation. The difference can then be claimed.

Claiming Donations on Your Tax Return

Claiming donations on your tax return is one of the least complicated form procedures. Yet, it is still important to understand what information you need and where it goes.

Calculating Charitable Tax Credits

The first step in calculating your charitable tax credit is to determine your eligible amount.

This amount can be claimed for the current applicable tax year but can also be claimed from the previous 5 years (as long as those amounts have never been claimed).

You can calculate your CDTC rate by using the CRA’s charitable donation tax credit calculator.

Necessary Documents

In order to properly file your charitable donations, you need an accurate record of the donations made. Be sure to keep all receipts from your charitable donations.

Just to be safe, you should hang on to additional documentation in case of a review or audit. These documents include pledge forms, cancelled cheques, credit card statements, stubs and/or bank statements.

Once you have the necessary documents, you will need to fill out a Schedule 9 when you file your taxes.

Filling Out the Schedule 9 Form

Filling out the Schedule 9 form is an easy and straightforward process.

Simply claim your eligible donation amount on line 340 of the Schedule 9 form. Work down through the rest of the form in order to calculate your claimable amount on line 34.

You will then transfer the amount of line 34 to line 349 of your Schedule 1 form.

If you’re confused about tax filing and forms, contact Liu & Associates. We can help you make sense of your filing needs.

Maximizing Your Charitable Donation Credits

We know the spirit of giving donations is to support the causes that need them and we know that those who donate do so out of care and kindness.

However, there’s no denying that there are tax benefits for donating and there’s no reason that those who give should not maximize their charitable donation credits.

Set Up Pre-authorized Donations or Payroll Deductions

Setting up pre-authorized donations or payroll deductions is a quick and easy way to make regular donations. It also helps to make donations trackable.

If you set up a payroll deduction to donate toward a registered charity, you will be provided your total donation amount in box 46 of your T4 slip. That way, there is no need to add up receipts or records of donations.

Combine Your Donations With Your Spouse or Partner

When the total of donations claimed on your taxes exceeds $200, they are eligible for bigger deduction benefits.

You can take advantage of those benefits by combining your donations with your spouse or partner. Claim those pooled donations under the spouse or partner who will receive the larger tax benefit.

Because the CDTC is a non-refundable tax credit, it would be beneficial to claim donations under the spouse who will be owing on their taxes. The donation tax credit can reduce that amount.

Carry Forward Your Donations

You can hold onto unclaimed donation receipts for up to 5 years. It may be worth your while to hang on to them and claim them in a single tax year.

You may want to do this if you are claiming other tax credits, such as tuition or education credits, that will contribute to a refund.

Much like the benefits of pooling donations with your spouse or partner, carrying forward your donations is beneficial if you are expecting to owe on your taxes.

Again, the CDTC will not apply to any refunded amounts.

Consider Giving “Gifts in Kind”

Not all claimable donations have to be monetary.

Donations eligible for the CDTC can also be in the form of physical items. These are “Gifts in Kind” and can include items such as artwork or jewelry and even real estate.

When it comes to claiming Gifts in Kind on your taxes, the objects or property value is at fair market value and are used as the tax credit amount.

Take Advantage of the Charitable Donations Tax Credit

If you regularly make donations, or are looking to start, we can help you organize your CDTC tax information. Contact one of our experienced accountants for more information.

Common Tax Mistakes Small Businesses Make

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Small businesses are taking the world by storm as more and more people opt to work for themselves and create their own legacy. With growing businesses come growing pains and many small business owners are prone to making many mistakes – especially when it comes to taxes.

If you are a small business owner, or are thinking about starting your own business, avoid the hassle of tax-time headaches by avoiding these common mistakes:

1 Not Keeping Receipts

If the CRA sees any amounts on your claim that seem a bit too high or suspicious, they are entitled to perform an audit on your return. This would require that you provide receipts as proof of expenses so the CRA can compare the totals to those on your return.

Some businesses make the mistake of relying on their credit card statement as a record of expenses for their company. Unfortunately, the CRA does not accept credit card statements as evidence of expenses.

To avoid any potential issues with receipts and expenses, keep all receipts related to your business. Maintain an organized system by writing exactly what the receipt was for on the back.

2 Claiming Personal Expenses

When certain aspects of your personal life are used to run your business, it is important that you make a clear distinction of what percentage is business and what percentage is personal. When you fail to divide the usage, filing your taxes will become a confusing mess that will need to be sorted out.

For instance, you may use your personal vehicle for business purposes. By tracking the amount of time you use your vehicle for business, and comparing it the time you use it for personal reasons, you can generate a percentage that you can then apply to vehicle-related expenses.

3 Inaccurate Payroll Records

Many small business owners take it upon themselves to manage payroll to their employees. However, a disorganized payroll system not only creates a nightmare when preparing to file taxes but can also result in some hefty penalties if not done correctly.

Speak to a professional accountant about how you can best organize your payroll system and properly classify your employees to avoid tax related issues.

4 Forgetting to Charge HST

When your small business makes less than a $30 000 annual income, a registered HST number is not necessary. Some businesses, however, find themselves experiencing an increase in income and surpass the $30 000 mark before realizing they have yet to apply for an HST number.

It is recommended that all small businesses, despite their annual income, register for an HST number right away. This will ensure that you are prepared should your annual income surpass $30 000. Otherwise, you may be penalized for not charging taxes if your annual income is greater than that amount.

5 Failing to Report Cash or Trade Payments

Some small business owners believe that if a transaction is not recorded on paper then there is no need to claim the payment as income. This is very illegal and all cash and trade exchanged for product or work must be reported.

If not, the CRA may impose severe penalties that include charging interest, court fines and possibly jail time. It is best for all small business owners to report all income and keep copies of receipts made out to customers and clients.

6 Being Disorganized

Overall, the biggest mistake small business owners make is being disorganized. Tax time is the worst time to play catch up on your record keeping.

An experienced accountant can help you keep all your records organized as well as aid you in preparing your taxes.

Contact Liu and Associates today with any questions you may have about organizing your small business and preparing for your tax return.

How to Deal With Tax Collection Actions

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Owing money to the Canada Revenue Agency (CRA) is not like owing money to any other debt or creditor. The CRA and its Collections Department is empowered by laws to collect on your debt. This means they negotiate differently than other creditors – they have the means to be more aggressive when working out a payment plan.

Each year after you file your taxes, the CRA sends a Notice of Assessment detailing the information of your return. If you owe money on that return, you have 30 days from the time of the assessment to pay the amount owing. The CRA will usually contact you with a request for payment, by phone or mail, if the amount isn’t paid within that 30 days.

You have 90 days after the date that the Notice of Assessment was mailed to make a payment or set up a payment arrangement. Otherwise, the debt then gets passed over to the Collections Department.

What are the CRA’s collection options?

Because the CRA has more power to collect on a debt than regular creditors, they have various means of seizing the amount owed and apply it to the tax debt:

  • Using money owed to you from other government programs. The first step the CRA will likely take is to use money owed to you, such as your GST/HST credits, and apply these towards the debt.
  • Garnishing your wages. It rarely gets to the point of having your employment income garnished to satisfy a debt but the CRA is legally allowed to intercept payments to you from 3rd party such as an employer.
  • Seizing and selling your assets. As a last resort, the CRA can seize property that you own, such as your car, and have these assets sold by a court enforcement officer. They then use the proceeds to pay off the debt.

What are my options when dealing with CRA collections?

Paying in Full

If you find yourself with a tax debt, it is in your best interest to pay the amount owing as soon as you can. By paying in full, you avoid interest charges and other legal and financial consequences. The easiest way to do this is to pay online through the CRA website.

Otherwise, you can pay through your bank or other financial institution or by mail. To do so, you will require the remittance slip located at the bottom of your Statement of Account. Do not staple it to any cheques or other forms and be sure to never mail cash to the CRA.

You can find more information about payment options at Canada.ca.

Partial Payments

Even if you cannot pay the tax debt in full, you should take action right away. The CRA will work with you to resolve debt and you may qualify for payment arrangements. When a payment arrangement is made, you are able to make smaller payments over time. However, if you miss payments the arrangement may be null and voided.

You may also qualify for a taxpayer relief provision, which relieves part of your debt or interest based on your situation.

Refusal to Pay

Refusing to pay a tax debt can have serious financial or legal consequences. Once the debt goes to the CRA’s Collection Department, they are liberty to employ any of the above methods to collect on the amount owing. If you are in disagreement with the CRA’s assessment, you can file an Income Tax Objection.

Have questions about tax debt and collection actions? Contact our professionals at Liu & Associates LLP for more information.