How to Choose an Executor for Your Will and Estate

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

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.

 

Are Vehicle Expenses Tax Deductible?

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If you use your vehicle for any reason related to employment and work, you may be missing out on vehicle expense deductions you can claim when you file your taxes.

While it may not be possible to claim the entirety of your vehicle, there are certain factors you can consider to see if your vehicle expenses are eligible for tax deductions.

Are my vehicle expenses tax deductible?

Some vehicle expenses are tax deductible in Canada as long as you meet certain requirements. Either you must use your own personal vehicle for employment-related purposes or be responsible for expenses related to a company vehicle.

Employment-related purposes may include visiting and/or transporting clients and customers, attending business meeting off-site or traveling from your main job location to a temporary location.

If you use for vehicle for work-related purposes, then your vehicle expenses are tax deductible under the following circumstances:

  • You are normally required to work away from your place of business or in different locations.
  • You are required to pay for expenses under a contract with your employer. Exceptions to this would be if your employer pays for expenses, if you are reimbursed for expenses or if you refuse reimbursement.
  • You did not receive a non-taxable allowance for expenses. This would be an amount given directly to you from the employer for vehicle expenses.
  • You have a T2200 form (Declaration of Conditions of Employment) completed and signed by your employer.

If you receive a non-taxable vehicle allowance from your employer, yet the cost exceeds the allowance, you can claim the difference by voluntarily providing the CRA (Canada Revenue Agency) with the amount of allowance you received. You can then claim the difference.

What kind of vehicle expenses can I deduct?

If you meet the requirements for claiming your vehicle expenses on your tax return, you may be able to deduct:

  • Fuel
  • Maintenance and repairs
  • Insurance
  • License and registration fees
  • Eligible interest on the vehicle loan
  • Eligible leasing costs of the vehicle

You can also deduct what is called “capital cost allowance” (CCA). This means that, because you cannot deduct the total cost of your vehicle, you can claim part of the cost caused by depreciation.

How much of my vehicle expenses can I claim?

The amount you can claim depends entirely on whether or not the vehicle is used strictly for business purposes or if you use it personally as well. If the vehicle is used for employment and personal use, you can only claim the percentage of expenses related to your job.

This will all be calculated on your tax return but you should track your total kilometers driven and the kilometers driven for work purposes. On your return, you will need to know these amounts for the entire tax year.

Also keep in mind that driving from home to work and from work to home is considered to be personal use. These kilometers are not claimable.

How do I claim my vehicle expenses on my tax return?

The first thing you’ll fill out is Form T777 (Statement of Employment Expenses), specifically lines 5-16 (Calculation of Allowable Motor Vehicle Expenses).

Enter the make, model and year of your car ad well as the total kilometers driven and the total kilometers driven for work during the last tax year.

You’ll end up with a total on line 16 which you can then enter in on line 9281 of the form. Complete the rest of Form T777 – line 9368 is the total you will enter on line 229 of your return.

 

Not sure if your vehicle expenses are tax deductible? We can help! Contact us today for more information.

Are There Any Tax Implications for an Inheritance in Canada?

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In some countries, inheritance taxes are imposed upon an amount inherited by a person from someone who has died. That person is responsible for paying tax on whatever they receive. Fortunately for us in Canada, inheritance taxes do not exist when it comes to receiving an inheritance from a loved one.

Instead, the estate of the deceased pays the taxes before any money or value is transferred to the beneficiary. This means that, in the end, the beneficiary should not have to worry about taxes.

While this may reduce the initial value of the estate, it certainly provides peace of mind to beneficiaries and loved ones who would otherwise shoulder the burden of any owing taxes, interests or penalties.

Who Inherits the Estate?

Who inherits the estates all depends on whether or not the deceased left a valid will. An estate is considered to be everything that a person owns when they die, including their property and their debts. A will is a legal document that describes who will inherit the estate after the owner of the will passes away.

With a will, the estate is distributed as per the directions of the will after taxes and expenses are paid and settled. If, however, the deceased did not have a valid will, then government-imposed rules are applied:

  • If there is a surviving spouse but no surviving descendants, then the spouse receives the estate.
  • If there are surviving descendants, and no surviving spouse, then the descendants receive the estate.
  • If there are both surviving descendants and a spouse, the spouse receives the household furnishing and the spousal preferential share (a specified amount from the estate before other distributions are made). The spouse then receives half the remainder of the estate, with the other half split between descendants.
  • If there are no descendants or spouse, the estate goes to other relatives based on a government-imposed distribution schedule.

Filing the Deceased’s Final Tax Return

After a person passes away, their tax return is filed and any owing taxes are paid by the estate. This is done by the deceased’s legal representative, which is usually an executor or estate administrator. This individual also notifies the CRA (Canada Revenue Agency) and Service Canada of the date of death and forwards any necessary documents.

The final tax return and owing taxes are due on April 30th if the deceased passed away between January 1st and October 31st. Otherwise, they are due six months after the date of death.

Any owing income tax is paid by the estate first.

Clearance Certificate

After the deceased’s taxes are filed and settled, a Clearance Certificate needs to be requested from the CRA to confirm that all taxes have been paid. A Clearance Certificate confirms that the estate has paid any taxes, interest and penalties owed.

A Clearance Certificate is necessary because it allows the legal representative to distribute the inheritance to any receivers without the risk of being personally responsible for any amounts owing.

Distribution of Inheritance

After the Clearance Certificate is obtained, the executor distributes what remains of the estate in accordance to the will. The entire process from death to receiving inheritance can be a lengthy process, as wills have to be verified, items appraised and taxes filed.

Ultimately, the beneficiary will never have to worry about paying taxes on any amounts received.

Is it Ever TOO Late to File Taxes?

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Whether you owe money to the government, or are expected a refund on your taxes, it can be too late to file your taxes.

The deadline for filing taxes in Canada is April 30th. If that date falls on the weekend it is then moved to the next business day. While you can file your taxes any time throughout the year, there are certain consequences for filing late.

These consequences depend entirely on whether or not you owe taxes to the CRA (Canada Revenue Agency) or if the CRA owes you a refund. Either way, filing late can cause serious disruptions in your finances.

If You Owe Money

If you owe money, and do not file your taxes or file them late, you can face a hefty penalty on the amount owing.

When you file late, or not at all, the CRA charges compound daily interest starting on the day after the due date (usually May 1st) on any unpaid amount. This includes any unpaid amounts from previous years.

The penalty for filing late is 5% on the total amount owing plus 1% for each month the return is late. This interest is calculated up to 12 months past the due date.

For example, if you owe $10 000 and file your taxes 5 months late, the CRA will charge 5% interest on the owing amount plus an additional 5% (1% for each month late). This means you will ultimately owe $11 000 on your taxes.

If You Are Owed Money

If you have money coming your way, you have up to 10 years to complete your return and receive your refund. Beyond that deadline, your refund is lost and cannot be claimed.

However, filing late even when you are receiving a refund may cause delays with your spouse or common-law partner if their refund depends on information from your return.

Another delay can occur if you receive benefit payments, such as the Canada Child Tax Benefit or the Working Income Tax Benefits, or a GST credit. Your payments may be interrupted since your eligibility is determined by your reported income.

Finding Out if You Owe Money or Not

In order to determine which set of consequences you could potentially face, you need to know whether or not you will be owing money to the government. You can do this one of 3 ways:

  • Calculate your taxes via government provided forms.
  • Use online software to calculate your taxes.
  • Have a company provide a free estimate.

However, if you are taking the time to fill out the necessary forms to determine whether or not you owe money, you may as well file the taxes. Even if you do owe, delaying the inevitable will only increase the interest on the amount owed.

Even If You Owe Money, You Should File As Soon As Possible

Despite whether or not you can pay the owing amount by the due date, you should file your taxes on time. Luckily, the CRA can work out a payment arrangement so you can make smaller payments over time until your debt is paid.

If you don’t, you are looking at that accruing interest on the unpaid amount beginning immediately after the tax filing deadline.

While ignoring the problem may seem like a good way to make it go away, letting your taxes sit in limbo will only make matters worse down the road – whether you end up paying large interest rates or lose out on GST credits and benefit payments.

Not Sure What to Do?

Contact us today to speak with a dedicated professional who will be more than happy to address your current situation and determine your tax-related needs.