How Much Should I Donate to Charity This Year?

woman donating to charity on her laptop

Did you know that Albertans gave around $1.47 billion to charities in 2013?

Out of all the provinces, Alberta taxpayers had the highest median charitable donation amount in the country!

Although there are many reasons you should make a charitable donation, getting relief on your annual personal taxes is one you shouldn’t ignore.

Charitable tax credits can help you reduce your owing tax amount, and we can help you figure it out!

Liu & Associates is here to help you understand how charitable giving affects taxes and how much you should donate to charity this year:

How Does Charitable Giving Affect Taxes?

Charitable donations are non-refundable tax credits and can only reduce the tax you owe – they will not generate a refund for you.

When you make a donation to a charity that is registered with the CRA, a certain percentage of that donation comes back to you as a tax refund (but not a tax credit).

If you don’t owe any taxes, you don’t get a refund, no matter how many donations you have made.

However, your overall tax savings will equal the amount of charitable tax credits that are calculated.

The Charitable Donation Tax Credit is available to individuals who make a donation to a registered charity in the form of money or anything else of value, such as stocks, ecological and cultural gifts, and property.

If you receive something in return for your donation (such as a ticket to a special event), the value of what you received has to be deducted from the amount you donated.

What Donations Are Tax Deductible in Canada?

In order to claim your donations on your taxes, the organization you donate to must be a registered charity.

You can use the Canada Revenue Agency (CRA) website to check and see if a charity is registered.

Eligible donations include money that is donated to a charitable organization, publicly listed securities donated to charitable organizations, and the excess value of non-cash property (over $500).

How Much of a Charitable Donation Is Tax Deductible?

To calculate the total amount of donations you want to claim, look at donations made by December 31 of the applicable year, any unclaimed donations from the past five years, and any unclaimed donations made by your common-law partner or spouse in the past five years.

The Charitable Tax Credit is 15% of the first $200 you donate and 29% on any amount above that threshold.

Under certain rules, you can even claim 33% if you are in a higher tax bracket!

On top of the federal tax rules for charitable donations, each province offers its own tax credits for donations.

In Alberta, the province offers an additional 10% tax credit on the first $200.

Overall, you can claim eligible donations to a limit of 75% of your net income.

How Do I Claim Charitable Donations on My Taxes?

man filling tax form with help laptop caluclator and note at office desk

In order to claim the Charitable Donation Tax Credit, you need to fill out Schedule 9 of your tax return.

To do this properly, you need to keep all of your official donation receipts and any other supporting documents, such as pledge forms, cheques, and bank statements.

Whenever you make a donation, the charitable institute you donated to will send you a tax receipt for the upcoming tax season.

Keeping all of these documents is important since the CRA may request proof of the donations.

Charitable donations are a priority when it comes to CRA post-assessments, and they can often trigger an audit.

To ensure you don’t trigger an audit by claiming your charitable donations, be sure your official donation receipts include the following:

  • A statement that identifies the receipt as official and for tax purposes.
  • The name and address of the charity (that matches their file with the CRA).
  • The charity’s registration number and the serial number of the receipt.
  • The place the receipt was issued.
  • The day or year the donation was received, as well as the day the receipt was issued.
  • Your full name and amount of the donation.
  • A description and value of anything you receive in exchange for the donation.
  • A signature of the individual authorized by the charity to acknowledge donations.

Ultimately, the details on the receipt must match what the CRA has on file.

You should keep these receipts and any other donation records for at least 6 years in case they are requested by the CRA.

How Much Should I Donate Based on My Income?

How much you donate based on your income is a personal decision and depends on your unique situation and circumstances.

However, since there is always a great need for donations in Canada, it’s important to give what you can.

Here are some things you should consider when it comes to deciding how much you should donate:

A Giving Plan

Create a strategy that includes who you want to give to and how much. Think about the causes you are passionate about and find organizations that fit the CRA’s criteria.

Decide How Much to Give

As a general rule, you can start with 1% of your income. This allows you to give what you can, even if there are changes to your income.

If 1% is a comfortable amount for you, you can increase it every year to maximize your charitable giving.

Automatic Giving

When it comes to including charitable donations in your financial planning, it’s easier to give more when you give small amounts at a time.

Once you’re used to donating on a regular basis, incorporating your donations into your budget becomes a seamless process!

Review Your Plan

Every 6 to 12 months, you should take a look at your giving plan and figure out if you are spending too much on donations or if you can give more.

Or perhaps you want to diversify your donations and give to different charities.

Should I Donate Once Annually or Monthly?

Ultimately, it makes no difference on your personal tax return whether you donate once a year or every month.

However, as we mentioned above, donating on a monthly basis is a more congruent way to incorporate charitable giving into your financial planning or budget.

But donating annually can be beneficial if you receive a significant sum of money once per year, such as a tax return.

Whether or not you should donate once annually or monthly is a choice you need to make based on your unique circumstances.

While everyone is encouraged to give, you need to make sure you are doing what is best for your financial health!

No One Has Ever Become Poor By Giving!

The above words were spoken by the young Anne Frank, and we couldn’t agree more.

At Liu & Associates, we appreciate your efforts to make positive changes in the world!

Charitable donations are an amazing way to give back to your community and make a wonderful impact on individual lives.

If making and claiming donations seems like a complicated process, our team of expert accountants is here to help!

We can help you step-by-step when it comes to claiming charitable donations on your taxes to ensure you benefit from your generosity and the taxes are done right.

Book an appointment or contact us today for more information!

Avoiding a CRA Audit When Self-Employed

woman sitting at home office desk with cup of coffee

Tax audits can be a stressful ordeal.

The CRA conducts audits based on risk assessments and considers self-employed individuals to be risky when it comes to filing taxes.

Rest assured that many self-employed individuals who experience audits have done nothing wrong – they simply caught the attention of the CRA, who wants to ensure that tax legislation and compliance are maintained.

However, there are ways that your small business can properly file its taxes and avoid a CRA audit!

Reasons Self-Employed Individuals Get Audited

As someone who is self-employed, there are things that can trigger an audit with the CRA.

Before we look at how to avoid an audit, let’s look at these common audit triggers:

You’re Self-Employed

Sometimes being self-employed is enough to trigger an audit!

When you don’t receive a T4 slip from an employer, the CRA cannot check your income against an official document to look for mistakes and accuracy.

Because you are reporting your income, the CRA may assume that the records are not accurate and will audit your income to check for errors.

Your Tax Return Has Changed Significantly

If you claim way more or way less than you did in previous years, the CRA may flag your account and conduct an audit.

There are many reasons a self-employed income can vary (COVID, supply chain issues, more time to dedicate to your business, etc.), but if you know you are filing a significantly different amount, then be prepared for an audit.

Your Claims Seem Excessive

Being self-employed means you can claim various expenses on your tax return, such as your home office or vehicle.

However, if the CRA thinks you are claiming more than you are eligible for, they will conduct an audit to review your expenditures.

For example, it’s unlikely that you would use your vehicle solely for business, so claiming the entire cost of your car is going to raise eyebrows at the CRA.

You Continually Claim Business Losses

If you are continually claiming business losses each year and reducing income from other sources, the CRA will conduct an audit to verify whether or not your business is actually a commercial enterprise.

How to Keep Proper Tax Records

Close-up Of A Businessperson's Hand Calculating Invoice At Workplace

The first step in avoiding a CRA audit when self-employed is to keep proper tax records!

This includes organizing your records, invoices, receipts, and other financial documents for at least six years.

You can use record-keeping software such as QuickBooks to help manage your tax records, but here are some other self-employed tax tips for organizing your documents:

  • Keep your business and personal accounts separate to keep things simple and efficient.
  • Use spreadsheets to log claims such as mileage on your vehicle and purchases for your business.
  • Use a file folder to organize your receipts. If the receipt doesn’t fully describe your purchases, make a note.
  • Make backups of any digital information. If using paper copies, make digital backups.
  • Dedicate time each week to work on your bookkeeping. Don’t leave your tax preparation to the last minute!

By improving your financial record-keeping, you can avoid a CRA audit, and if you do get audited, you will have all the necessary information organized and ready to go!

Incorporated Business vs. Non-Incorporated

Even as a self-employed individual, you can incorporate your business in order to separate your business from your personal finances.

Otherwise, when you run a non-incorporated business, you are personally responsible for the results of the business – good and bad.

However, when you incorporate your business, you are responsible for preparing quarterly and annual reports for the CRA.

This can involve extensive paperwork, so keeping good records as an incorporated business is essential.

Non-incorporated businesses don’t require such a heavy load when it comes to preparing taxes, and your business and personal taxes can be filed in one individual tax return.

Get to Know your Tax Deductions

Earlier, we mentioned how excessive deductions can trigger an audit. To avoid a CRA audit when self-employed, let’s look at the type of tax deductions you are eligible for:

Business Operating Expenses

  • Start-up costs
  • Delivery and shipping costs
  • Accounting fees
  • Advertising costs
  • Tax preparation services

Home Office Expenses

  • Home office cost (the percentage of your home your office space occupies compared to your rent/mortgage, utility costs, etc.)
  • Telephone and internet (the percentage of hours used for business versus personal)
  • Cleaning supplies
  • Office supplies

Vehicle Expenses

  • Gas
  • Insurance
  • Repair Costs
  • Parking Fees

(Keep in mind that if you use your vehicle for both business and personal use, you will have to calculate the deduction costs based on how often you use your car for business and how many kilometers you use for business.)

Other Deductions

Don’t miss out on these additional tax deductions for self-employed individuals!

  • Bank fees on your business bank account
  • Private health plans

Keep a Backup Fund (Just in Case)

As a self-employed worker, you do not get to enjoy having a regular income like waged and salaried workers.

For this reason, it’s important to keep a backup fund just in case!

Start by establishing an emergency fund by looking at your budget and seeing how much you can afford to put aside.

Not only will an emergency fund help you in a pinch, but it may come in handy for paying your taxes.

You should keep any balances on your credit cards below their limits and consider applying for a personal line of credit. These can be great buffers should you run into any financial hardships.

When it comes to being self-employed, financial hardships can occur for many reasons, such as:

  • Irregular income
  • Tech breakdowns
  • Late payments from clients
  • Burnout (you don’t get paid vacation, sick leave, or mental health days when you’re self-employed!)

Ultimately, having a backup means you can address any sudden financial issues in your business and avoid a CRA audit.

Accounting Services in Edmonton For Self-Employed Individuals

Avoiding a CRA audit when self-employed is considerably easier when you have a professional and knowledgeable accountant by your side!

Get in touch with Liu & Associates today to learn more about how our team can support your small business and help you organize your taxes to avoid a stressful audit.

Let’s talk!

What Happens to Unused Tuition Tax Credits?

Tuition tax credits are non-refundable credits, meaning that they will work toward lowering the amount of taxes you owe but they will not be contributed to any refunds.

This means that they will help keep your owing taxes low but will not increase the amount you get back on your taxes.

Sometimes, however, it works out that the tuition you are claiming exceeds the amount you owe. So what happens to the rest of the tuition tax credit? Does it disappear into obscurity?

It doesn’t and the good news is that you can carry forward or transfer any unused credits!

Before we discuss how transferring and carrying forward works, let’s look at how you can go about claiming your tuition tax credits – and don’t forget to read to the end for some important considerations you should know about.

Claiming Tuition Tax Credits

Any student over the age of 16 who is enrolled in a post-secondary designated educational institution in Canada can claim tuition credits on their tax return. If you are studying abroad, you are eligible as long as you are studying full-time for at least three weeks.

However, if your employer pays or reimburses your tuition, you are not eligible to claim the tuition credit unless the tuition amount is included in your earnings. Or, if the employer pays tuition to your parent on your behalf.

In order to claim the tuition tax credit, you will need a T2202 (Tuition and Enrolment Certificate) issued by your school to certify that you qualify for the tax credit as well as provide you with the amount to claim on your taxes.

Unused Tuition Tax Credit Options

woman using calculator to do taxes beside piggy bank with graduating cap

In order to find out how much you have in unused tuition, log in to your CRA My Account. From there, click “Go to Tax Returns” in the Tax Returns section.

Scroll down on that page and look for the “Carryover Amounts” section and click “View Carryover Amounts”.

Keep scrolling until you find the “Federal Tuition Amounts” and the “Provincial Tuition Amounts”. This is where you’ll see if you have any unused amounts in the first column for last year’s row.

If that row is blank, you don’t have any unused amounts that you can carry forward or transfer. 

You can also find this information on your Notice of Assessment from last year or on your federal and provincial Schedule 11 from last year’s tax return.

Carrying Forward Tuition

If you have unused tuition tax credits for the current tax year (that you have not transferred), you can carry them forward to claim in future years – but you have to claim your carry forward in the first year that you pay income tax.

In order to calculate the amount you are carrying forward, you have to file a tax return and fill out federal Schedule 11.

As far as carrying forward your unused tuition tax credits, this is done automatically by the CRA. They will apply the available tuition amount to your taxes every year until it has been all used.

Transferring Tuition

Another option you have for unused tuition tax credits is to transfer the amount to qualifying relatives such as parents, grandparents, spouses, and common-law partners. 

In order to do so, you must designate the individual receiving the transfer, as well as the amount of the transfer, with form T2202 and Schedule 11

It’s important to note that your parents or grandparents are not qualified recipients if your spouse or partner claims an amount for you on lines 30300 or 32600 on their tax return.

If you do choose a parent or grandparent to receive your unused tuition tax credits, they will claim the transfer amount on line 32400 of their tax return. Transfers to your spouse or partner can be claimed on line 36000 of Schedule 2.

When it comes to transferring your tuition tax credits, you can only transfer up to $5,000 of the current year’s tuition. You can only transfer your provincial tuition from this year – carry-forward amounts from a past year cannot be transferred.

Why Would I Transfer My Unused Tuition Tax Credits?

While you can certainly carry over your unused tax credits to benefit future tax returns, there are some benefits to transferring the amount to a spouse or family member:

  • You get the money earlier.
  • If there is a change in tax law, tuition tax rates will likely go down meaning that they will be worth less on your tax return.
  • You have to use your tuition credits until you reduce your taxes to zero, regardless of any applicable tax credits (based on your income). For this reason, you would be simply wasting your tuition tax credits when other income-based benefits would reduce your amount owing anyway.

Important Considerations for Tuition Tax Credits

Before you carry forward or transfer your tuition tax credits, here are some important considerations to keep in mind:

  • For 2018 and later years, there is no tuition transfer available in New Brunswick, Ontario, or Saskatchewan because these provinces no longer have the tuition-education tax credits.
  • If you move to another province after carrying forward your tuition, you have to use the federal unused tuition amounts from your Notice of Assessment (or CRA account) when completing the provincial Schedule 11 for your new province of residence (unless you moved to Ontario, Québed or PEI).
  • Students must have taxable income in order to claim tuition tax credits. 
  • There is a Federal tax credit as well as a Provincial tax credit for tuition, so to claim or transfer these amounts you have to complete both the Federal Schedule 11 and the Provincial Schedule 11.

Get the Most Out of Your Tuition Tax Credits

Instead of attempting to navigate through the process of transferring or carrying forward your unused tuition tax credits, why not let the professionals do the work for you?

Our professional team at Liu & Associates has years of experience providing expert personal accounting services to clients in Edmonton and Calgary. 

Contact us today!

What is the Earliest I Can File My Taxes?

woman sitting at desk filing taxes

In Canada, every person must file income tax and benefit returns each year. The due date for having your taxes filed is April 30th – but if you’re self-employed you have until June 15th.

So that means if you are filing your 2021 taxes, they will be due April 30th, 2022, and June 15th, 2022, respectively.

However, just because you have until the end of April to file your taxes doesn’t mean you have to wait until the last minute!

The earliest date that the CRA (Canada Revenue Agency) will start accepting electronically filed tax returns is usually around February 22nd.

But keep in mind that some tax slips are not due until March so you may not have all of the information you need by the end of February. 

When Can I Expect My Tax Refund?

Getting your tax return can be quicker than you think. The CRA cannot guarantee a timeline but they do have stated goals for getting you your money as long as you file before or at the deadline.

Typically, if you file your tax return online, the CRA’s goal is to send your return within two weeks. If you file by paper return, the goal is eight weeks. 

However, if the CRA decides to take a closer look at your tax return and reported income, or initiates a tax audit, it can take longer. And, if you’re filing from outside of the country, there is a 16-week wait time.

How to File Your Tax Return

When it comes to filing your tax return, you have a few options:

  • NetFile. NetFile allows you to use a software package so you can fill out your own tax return and file it electronically. 
  • Autofill. If you use certified tax software, you can use Autofill to automatically fill in parts of our tax return based on information slips that have been filed with the CRA.
  • Print and Mail. You can also use software to print and mail your return if certain restrictions prevent you from using NetFile.
  • Professional Tax Preparation. An accounting firm can also prepare and file your taxes and ensure that your forms are filled out properly and that your receive your income quickly.

Although it is recommended that you use tax software to file your return (this ensures accuracy and a quick refund), you can also file manually. This involves acquiring a package of tax forms, filling them out, including all information slips, and mailing them to the CRA.

How to Receive Your Payment

You can receive your payment via direct deposit as long as you set up your account as such. This puts your refund straight into your bank account as soon as possible.

Plus, if you receive payments such as GST refunds or CCB (Canada Child Benefit), these payments go directly into your account as well.

If nothing shows up in your bank account after the two-week time frame, you can always check the status of your return through CRA’s My Account website. To do so, you will need your social insurance number, date of birth, and the amount of total income entered on line 150 of your tax return from the previous year.

What Do I Do if I Owe Money to the CRA?

young woman with shocked expression looking at piece of paper

Knowing tax deadlines is important not only in filing as early as possible but also to avoid interest and penalties on amounts owing. Even if you are not getting a refund, it’s helpful in knowing how much you owe as soon as possible.

Penalties and Interest

If for some reason you don’t think you can pay your taxes by the date they are due because of circumstances beyond your control, the CRA may waive penalties and interest. These types of circumstances include serious illness, accident, death of a family member, financial hardship, and natural/human-made disaster.

It may also be possible to set up a payment plan with the CRA where you pay the owing balance in installments. However, if you miss the set installment payment due date, you may need to pay installment interest.

Otherwise, if you file late and don’t pay the amount owing in time, you could face a late-filing penalty of 5% of the balance owing plus 1% of the balance owing each month your payment is late.

How to Make a Payment

When you owe money on your taxes, you have to make your payments to the CRA. This can be done using a number of methods:

  • Online Banking: You can make a payment directly through your financial institution although the specific steps involved can vary from bank to bank. 
  • Financial Institution: If you don’t use online banking and want to make the payment in person, you can do so at your bank. However, you will need a remittance form and must contact the CRA directly to receive one (they cannot be printed from the CRA website).
  • CRA’s My Payment: The CRA website has an online payment service called My Payment. There is no fee to use this service and you don’t need to be registered for any of the CRA’s other online services. You do, however, need a debit card (Visa, Mastercard, etc.) to set up the payment.
  • Credit Card: You can make payments with a credit card but these have to be done through a third-party provider (PaySimply and Plastiq) and cannot be made directly to the CRA. There is a fee to use this service.
  • Pre-Authorized Debit: You can authorize the CRA to debit your account for the amount of taxes owed on dates you specified – this method of payment is best suited if you are paying your owing balance in installments.
  • Cash/Debit: It is possible to pay for your taxes in cash or by using a debit card by visiting a Canada Post outlet. You will need a self-generated QR (quick response) code found on the CRA website.

Keep in mind that some forms of payment take time to process and may arrive at the CRA after the due date. This is why it’s a good idea to file your taxes early so you can make a payment on the owing balance as soon as possible.

Filing Your Taxes Early

As long as you have received all of the necessary paperwork to file your taxes correctly, there’s no need to wait until the deadline!

Filing early means that you will receive your refund quickly or have more time to sort out paying back taxes you owe.

Want to speed up the process? Our accountants at Liu & Associates can file your taxes to ensure accuracy and a fast return.

Contact us today for more information!

 

Common Tax Terms Explained

Do you ever find that when tax lingo starts flying around at tax time, most of it goes right over your head? 

Filing and paying taxes involves more than reporting your income to the government. There are a lot of nuances to consider when it comes to preparing your taxes properly as well as ensuring you are taking advantage of eligible credits and deductions.

In order to manage your finances in a more tax-friendly way, it’s helpful to know what many of these terms mean. Here is a list, from A to Z, of some common tax terms explained:

After-Tax Income

This is the income leftover after you subtract all of your federal and provincial taxes and employment deductions such as CPP (Canadian Pension Plan) and EI (Employment Insurance).

Audit

A tax audit occurs when the CRA (Canada Revenue Agency) examines your tax return to verify that your income and deductions are accurate. 

Canada Child Benefit (CCB)

The Canada Child Benefit (CCB) is a tax-free monthly payment received by eligible families with children under the age of 18. It helps to offset the costs of raising children and may also include the child disability credit if applicable.

Canada Pension Plan/Québec Pension Plan Benefits (CPP/QPP)

The Canada Pension Plan (CPP) or Québed Pension Plan (QPP) replaces part of your income after you retire. This is a taxable benefit and the amount you receive depends on your average earnings while you worked.

Dependent

A dependent is an individual who relies on your income. You can claim the dependent tax credit for spouses (if their net income is less than $13,808), children under the age of 18 (unless they are older and have a mental or physical infirmity), and parents/grandparents (if they are dependent on you and live in your home).

Employment Insurance Benefits (EI)

Employment Insurance Benefits (EI) is available to individuals who have lost their job through no fault of their own. It is also used to cover maternity/parental leave, sick leave and, recently, CERB payments. These benefits are taxable in the year in which thhey are received.

GST/HST Credit

The GST/HST credit is paid out to individuals depending on how much money they earn. Those with lower incomes may receive this payment quarterly (four times per year) to offset the GST/HST they pay. This credit is tax-free.

Information Slips

Information slips are forms used by employers, trusts, and businesses to inform taxpayers and the CRA (Canada Revenue Agency) of how much income was earned and how much tax was deducted.

Investment Income

The CRA takes into consideration interest earned on investments along with annual earnings. This includes foreign interest, dividend income, foreign income, and foreign non-business income.

Land Transfer Tax (LTT)

Land Transfer Tax (LTT) is a one-time tax you pay when you purchase a home in all provinces and territories except for Alberta and Saskatchewan. In these provinces, there is only a small transfer fee. The tax amount varies by province but is usually calculated based on a percentage of the property value.

NetFile

NetFile is an electronic tax-filing service that allows you to do your personal taxes using NetFile-certified tax software and send your return directly to the CRA (Canada Revenue Agency). 

woman sitting at desk looking at paper and using calculator

Non-Refundable Tax Credits

Non-refundable tax credits are used to reduce the amount of federal tax you pay. However, these credits do not contribute to your tax refund if you are eligible for you. In Canada, you can claim the non-refundable tax credit for their personal amount.

Non-Taxable Earnings

There are some incomes, such as the GST/HST credit or CCB (Canada Child Benefit) that are not considered taxable. These are known as non-taxable earnings.

Refundable Tax Credits

Refundable tax credits reduce the total amount of tax you pay and can contribute to your tax refund. Examples of this would be the GST/HST credit and the Working Income Tax credit.

Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) is a savings plan for retirement in which the amount you contribute is deducted from your taxable income. However, any amounts you withdraw from your RRSP are added to your taxable income.

Self-Employment Income

When you earn an income from a business that you operate or from freelancing contracts, whether you are a sole proprietor or work with a partner, this is considered self-employment income.

Tax Brackets

There are four income tax brackets you may fall into depending on your income. This determines your rate of tax. Up until a certain amount is taxed at 15% and anything beyond that amount is taxed at a higher rate.

Tax Credits and Deductions

Any amount that reduces the amount of tax you have to pay is considered to be a tax credit. They can be refundable or non-refundable.

A deduction, on the other hand, can lower your taxable income as well as the tax rate used to calculate your tax. 

Tax-Free Savings Account (TFSA)

A tax-free savings account (TFSA) is an account that allows Canadians over the age of 18 to save money and earn tax-free interest. You are also not charged taxes on the amounts you withdrawal. However, you can’t use contributions to a TFSA to lower your taxable income.

Taxable Income

Your taxable income is your total income and determines how much income tax you need to pay. This includes wages, capital gains, and other earnings for the tax year, minus deductions and losses. 

Tuition Deductions and Education Credits

The Tuition Tax Credit allows students 17 years and older enrolled in a higher education institution to use their school tuition fees to reduce their taxable income. They can also transfer up to $5000 worth of credits to a spouse/common-law partner or parent/grandparent.

The Student Loan Interest deduction applies to government student loans and allows you to deduct the interest on those loans from your taxes. 

Have More Questions?

If ever you come across a tax term you don’t understand, or struggle to comprehend your finances and tax returns, don’t hesitate to contact our expert accountants at Liu & Associates!

We are ready and dedicated to helping you file your personal, corporate, and estate taxes as well as help you understand the entire process.

Let’s chat! 

What Are Tuition Tax Credits, And How You Can Claim Them?

Two students sit on grass outside of a red brick university building

In 2017, the Canadian government eliminated the federal educational and textbook tax credits. However, they did not eliminate the tuition tax credit, allowing students the opportunity to apply tuition costs toward owing taxes. While it may not seem like a huge tax break, it can relieve a significant financial burden on students who balance post-secondary studies with working and making an income.

If you are a student attending, or planning to attend, a post-secondary educational institution, you are going to want to make sure you take full advantage of this tax credit.

What is the Tuition Tax Credit?

The tuition tax credit is an education tax break offered to Canadians by the Canada Revenue Agency (CRA). It allows students 17 years of age and older who are enrolled in post-secondary education to use their tuition to reduce their taxable income.

The tuition amount, up to $5,000, can also be transferred to a spouse, common law partner, parent or grandparent.

In order to be eligible for the tuition tax credit, students must attend a post-secondary level course at an accredited institution in Canada – although individuals may qualify at school abroad as well.

Student Loan Interest Deduction

In addition to the tuition tax credit, students may also be able to deduct interest from government issued student loans from their taxes. This only applies to government loans – interest from personal loans or lines of credit are not eligible.

Other School-related Deductions

Although Canada has done away with claiming textbooks and other school-related costs as tax deductions, students can take advantage of tax breaks related to moving costs.

The moving expenses deduction applies to individuals who move more than 40 kms away from home to attend an accredited educational institute on a full-time basis. This deduction may cover the costs of moving, airfare and the connection and transfer of utilities.

However, there are restrictions. A student can only apply relocation costs against the tax they are required to pay on scholarships, bursaries, fellowships, prizes and research grants.

How to Claim Tuition Tax Credits

The tuition tax credit is a non-refundable credit, meaning that if the tuition amount is greater than the tax owed, you won’t get a refund from the claimed amount. It works by decreasing or eliminating any amounts owed to the government. Unused tuition amounts can be carried forward to the next year or transferred to a spouse, common law partner, parent or grandparent.

For example, if you claim $4,500 worth of tuition but your owing tax bill is only $1,000, you can transfer the remaining $3,500 to an eligible family member or carry it forward to a future tax year. You will not receive that $3,500 as a refund, as this is a non-refundable tax credit.

Calculating the Tax Tuition Credit

The tuition tax credit is calculated by combining all eligible tuition fees then multiplying the total by the lowest federal tax rate percentage for the current tax. The federal tax rate percentage depends on your income bracket, which depends on which province you live in and how much income you declare.

Claiming the Tax Tuition Credit

Post-secondary institutions issue form T2202A (Tuition and Enrolment Certificate) to students, certifying that you have taken the eligible courses of necessary duration in order to qualify for the tax credit.

The form indicates in Box A the total eligible tuition fees paid as well as the months you were enrolled in school either part-time (Box B) or full-time (Box C).

Take Full Advantage of Tax Relief

If you are eligible for tax breaks because you are a student, be sure to take full advantage of these opportunities. Our accountants at Liu & Associates can answer any questions you have related to your tuition costs and tax claims. Contact us today for more information

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How Do I File Taxes For Someone Who Has Passed Away?

They say that nothing is certain except for death and taxes. However, when dealing with both at the same time, figuring out what to do can create a sense of uncertainty.

Finding closure is an important part of the grieving process and, when a loved one passing away, this often includes tying up loose ends and settling their estate.

A part of settling a deceased individual’s estate is ensuring that their taxes are properly filed one last time. 

If you are responsible for filing taxes for someone who has passed away, it’s important to ensure that the process is completed properly. Here is a quick guide to filing what is called the Final Return:

Types of Deceased Returns

After someone passes away, there are three types of deceased returns that may need to be filed. A Final Return has to be filed after death but it is also possible to have to file other returns known as Optional Returns and Trust Returns.

The final return is an income tax return that is filed for an individual in the year of their death. One final tax return must be submitted on their behalf to cover any income received in that year.

If the death occurred between January and October, the final return is due by April 30th. However, if the individual died between November and the end of December, it is due six months after the date of death.

Optional returns are for claiming income that you would otherwise report on the final return as a means of reducing or eliminating taxes for the deceased. You can claim certain amounts more than once, split them between returns, or claim them against certain types of income.

Lastly, a trust return refers to the tax form package for a trust and is due 90 days from the end of the trust’s tax year. A trust is an entity or individual that holds the right to properties or assets in lieu of the beneficiary that is entitled to them

In this article, we’re going to focus on how to file a final return for someone who has passed away.

Who is the Legal Representative Responsible for Filing a Final Return?

Most people pass away with a will that names the executor, the inheritors, and the beneficiaries. The executor is the individual who has the authority to collect necessary information in order to distribute the deceased’s assets according to the will.

If someone dies without a will, also known as “intestate”, the process takes longer since someone has to apply to the courts to be appointed as administrator. This is usually a surviving spouse or one of the surviving children.

In either case, the executor or administrator is responsible for filing the final return.

Why Does a Final Return Have to be Filed?

When someone passes away, they must pay tax on their regular income but may also need to pay tax on what they owned. A final return is how the legal representative (the executor or administrator) finds out if the deceased owes any income tax.

Income tax is like any other debt and has to be paid by the estate first before the inheritors or beneficiaries receive anything

Once the legal representative files the taxes, they receive an NOA (Notice of Assessment) which includes the date the CRA checked the tax return, details of what is owed, or the amount to be refunded.

After the NOA is received, the legal representative can get a clearance certificate and start distributing property from the estate.

What Information Do I Need for the Deceased’s Tax Return?

hands over a desk holding a receipt and using a calculator

If you are the administrator or executor of the deceased’s will, you will need to collect some information before filing the final return.

You will need to know the deceased’s income from all sources starting from January 1st of the year they passed up to and including their date of death. You may have to look at previous returns as well as contact employers, banks, trust companies, and pension plan managers.

Before you file the taxes, gather any information slips and documentation that you need to indicate or estimate income and deductions.

As far as getting information from the CRA or Revenu Québec, you will need to provide a copy of the death certificate, the deceased’s social insurance number, and a copy of the document proving that you are the executor or administrator.

How to Complete a Final Return

In order to complete a final return for an individual who has passed away, you must first determine the due date for the return in order to avoid penalties and interest for filing late.

When filling out the tax forms, complete the identification area on behalf of the deceased and calculate the total income you need to report. You’ll also want to determine any eligible deductions and non-refundable tax credits before figuring out the total taxable income.

From there, you’ll figure out the refund or balance owing. 

Keep in mind that final returns cannot be submitted online through NETFILE. You will have to mail in the return or have them filed by an accountant.

Need Help Filing the Final Return?

As an executor or administrator, you want to make sure that your loved one’s final return is filled out and filed properly to avoid penalties and ensure the estate is settled as quickly as possible.

Dealing with the loss of a loved one is hard enough without worrying about the estate – but it doesn’t have to be a stressful ordeal!

When you hire an accounting firm such as Liu & Associates, we can help you avoid fines, fees, and penalties from occurring as well as ensure all aspects of the final return are completed thoroughly and properly.

Why not let our experienced accountants handle the financial matters of your loved one’s estate? Contact Liu & Associates today!

Claiming Medical Expenses – What You Need to Know

black man with glasses and grey blazer in wheelchair speaking to a woman in a pink cardigan.

Did you know that you can claim medical expenses on your income tax?

In Canada, you can take advantage of the Medical Expense Tax Credit (METC). This is a non-refundable tax credit that allows you to claim eligible medical expenses for yourself, your spouse or your dependents.

The process isn’t as straightforward as simply plugging in your numbers, however. First, you need to determine if your expenses are eligible and if you meet the cost threshold to claim them.

It can be confusing but, here at Liu & Associates, we want to help you understand the process. Keep reading to learn more about claiming medical expenses:

How Does the Medical Expenses Tax Credit Work?

The Medical Expenses Tax Credit is available as a non-refundable credit – meaning that you can’t get money back from it but it will apply to and lower any taxes owing.

You can claim your medical expenses as a tax credit during the year that you paid for them for yourself, your spouse or a dependent. These expenses include prescription medication, prescribed medical tests, etc.

You can view an entire list of eligible medical expenses on the Government of Canada’s website.

However, there is a threshold when it comes to claiming these expenses. The medical expenses must amount to 3% or more of your net income during the taxation period or higher. You can only claim amounts that exceed this percentage.

Alternatively, there is a predetermined base amount for each tax year so the amount you are looking for is the lesser of the two.

For example, this amount for the 2020 tax year was $2397. So if your net income was $40,000, you can deduct any expenses in excess of $1200. However, if your income was over $79,900, you only claim expenses over that $2397.

Keep in mind as well that medical expenses do not have to follow a calendar year, only a 12 month period. This means that as long as the end of the 12 months falls within the tax year you are filing for, you can choose which 12 month period to claim.

For instance, if you had more medical bills between August and February, you can make your 12 month period from August 1st to February 28th and claim all of the expenses in the year February falls into.

Claiming medical expenses in a way that benefits you financially can be tricky. It’s recommended that you speak with a professional accountant in order to maximize your return.

Commonly Overlooked Medical Expenses You Can Claim on Your Tax Return

Man uses calculator on desk with stethoscope

Apart from prescriptions and medication, there are many health-related costs you can claim under the Medical Expenses Tax Credit.

While Canada.ca does list every eligible expense, here are some common ones you may be overlooking:

Health Plans

The premiums you pay for medical and dental plans, along with any co-pay portions of your coverage, can be claimed on your taxes. 

Any premiums paid by payroll deductions will appear on your T4 under “other information” (box 85).

If you pay for private health care coverage, make sure you claim these amounts as well. Your provider should send you a letter stating how much you paid into the plan the previous year.

Gluten-Free Products

If you, your spouse or your dependent suffer from Celiac disease, you can claim the costs of gluten-free products – but only for that individual, not the entire family.

To calculate the eligible expense, take the product cost and minus the cost of a comparable product with gluten. This is the amount you can claim.

Travel Expenses

If you are required to travel more than 40km one way to receive medical services, you can claim your travel expenses.

However, in order to qualify, you must prove that equivalent services are not available closer to your home.

Moving Expenses or Renovations

If you suffer from a severe and prolonged impairment mobility-wise, you can claim up to $2000 to move to a more accessible home. 

Likewise, you can also claim construction and renovation costs to changes made to your current resident to better accommodate a mobility or functioning issue. However, the cost must be reasonable.

Private School/Tutoring

If you have a child with a physical or mental impairment that requires special schooling (such as staff, facilities or equipment), you may be eligible to claim tuition costs.

Also, you can claim tutoring services for those with learning disabilities or impaired mental function. 

In either case, you need to have a medical practitioner certify the need.

Foreign Medical Expenses

If you require medical services while traveling outside of Canada, either in a public or private hospital, you may be able to claim these expenses.

How to Claim Medical Expenses on Your Tax Return

The first thing you need to do when claiming medical expenses on your tax return is to determine if you have an eligible amount. Again, you can always speak to an expert accountant to help you figure this out.

Once that has been determined, it’s important to gather and keep track of all of your receipts. Although you are required to submit them, you need to make sure your totals are accurate.

Plus, should you experience an audit by the CRA, you need to provide proof of your claims.

On your tax return, look for the following lines to enter your amounts:

  • Line 33099 – Medical expenses for self, spouse or common-law partner, and your dependent children
  • Line 33199 – Allowable amount of medical expenses for other dependents

That’s it! Figuring out what to claim is the hard part – actually claiming it is straightforward.

If you have any questions about which medical expenses are eligible and how you should claim them on your taxes, do not hesitate to contact our knowledgeable team of accountants at Liu & Associates.

We can help guide you through the process and ensure that you get the most out of your tax return!

Let’s chat today.

What Happens If I Claim No Income On My Taxes?

overhead photo of hands working on a laptop with eye glasses on desk and pencil holder on desk. crumbled paper is nearby.

Whatever your situation in life, it may be possible that you do not work and earn an income. Perhaps you lost your job or chose to stay home and care for your children.

No matter your situation, you’re probably wondering whether or not you have to file your taxes at all. 

While federals laws do not require you to file a tax return if you have no income to claim, it’s important to determine if there are other situations that may require you to.

The last thing you want is to face an audit or pay the interest and fees for a late tax return.

Even if no situation applies to you where you are required to file a tax return with no income, there are many benefits to doing so anyway.

So, if you find yourself facing tax time with no income to claim, here are a few things you should consider before not filing:

Reasons to File Your Taxes With No Income

Even if you’ve earned no income for the year, there are certain situations where you definitely need to file your taxes:

  • You owe taxes.
  • The CRA (Canada Revenue Agency) has requested that you file a tax return.
  • You received any CWB (Canada’s Worker Benefit) payments.
  • You sold any real estate or investment shares – whether or not you made a profit from them.
  • You had to repay any OAS (Old Age Security) or EI (Employment Insurance) benefits.
  • You used some of your RRSPs (Registered Retirement Savings Plan).
  • You contributed to CPP (Canada Pension Plan).
  • You paid any EI premiums on self-employment earnings.
  • You are splitting a pension income.

If any of these situations apply to you, you are still responsible for filing a tax return.

The Benefits of Filing a Tax Return With No Income

Smiling woman sitting in front of laptop looking at piece of paper.

Even if the above situations do not apply to you, there are benefits to filing a tax return even if you have no income to claim.

Federal and provincial benefits are tied to your tax return and your reported income (even if it’s zero) will determine which ones you are eligible for.

So before you decide to forego filing due to no income, consider these benefits you could miss out on:

GST/HST Credit

If you are eligible to receive the Good and Services Tax or Harmonized Sales Tax credit, you must file a tax return in order to receive these payments.

Canada Child Benefit

If you have children under the age of 18, you qualify for the Canada Child Benefit (CCB) – with the amount you receive depending on your children’s ages and your income.

The CCB can also include the Child Disability Benefit and any provincial programs you may be eligible for.

Not filing a tax return excludes you from these payments.

School Credits

If you attended a school, you can claim eligible tuition fees on your tax return. 

While you won’t receive any money back from them (they are a non-refundable credit), they must be reported for the current tax year in order for you to carry them forward or transfer them.

Otherwise, if you don’t file a return and claim them, you cannot use them on future tax returns.

Daycare Subsidies

If you have a child that attends daycare, you could be eligible for a daycare subsidy depending on your income.

The only way to apply for this program is to have a tax return stating your earnings since your eligibility is determined by your reported household income.

This also extends to subsidized sports and extra-curricular activities for your child.

Student Loans

Oftentimes, parents need to submit their reported income in order for their children to secure a student loan.

Since student loans are another needs-based program dependent on your income, it’s important that you have a tax return to include in the application process.

Assisted Living/Nursing Homes

For seniors looking for assisted living or nursing home accommodations, or those with a disability, the payment amount depends on affordability which is determined from reported income.

Without a tax return to prove earnings, seniors and those with disabilities will miss out on reduced payments for living arrangements.

How to File a Tax Return With No Income

When it comes to filing your taxes with no income to claim, the process is pretty simple: File as normal and don’t input an income.

However, the thought of paying someone to file taxes when you earned no income may seem redundant and inspire you to skip out on filing them.

Before you do, consider these options for filing your tax return for free:

These programs allow you to input your information and send your tax return directly to the CRA through NetFile.

Why are they free? Many of these software and tax companies offer free access to filing your tax return as long as the return is simple and straightforward – as would be the case if you are claiming no income.

Otherwise, more complicated tax returns require a fee to use the software.

Alternatively, you can also file your taxes the old-fashioned way by picking up the necessary forms and mailing your claim directly to the CRA.

To File Or Not To File?

That is the question. The simplified answer is that, if you earned no income and do not need to file, you don’t have to file.

However, it’s important to take the above-mentioned benefits into consideration. If you are eligible for these programs, why not take advantage of them?

Otherwise, if you are not sure if you should file your taxes or not without an income, you can always speak to our professional and knowledgeable accountants at Liu & Associates.

We can help guide you to making the best decisions when it comes to your tax claims as well as your financial health.

Let’s get in touch today!

2021 Tax Guide: How to Claim Your Home Office and Utilities

black woman in yellow shirt sitting at desk with laptop doing tax paperwork

Last year was an interesting one when it came to employment norms. People accustomed to commuting to an office or workplace every day were offered the opportunity to work from home.

Likewise, many people also decided to start their own businesses at home.

If you fall into either of these categories, your situation drastically changes the way in which you will file your 2020 taxes.

Instead of plugging in your T4’s and calling it a day, you now have to consider your home office expenses and what you can claim as deductions on your taxes.

The process is fairly straightforward and includes only a simple calculation to determine eligible deductions amount.

However, knowing what expenses you can claim can be a bit trickier.

Before we explore how to claim your home office and utilities, here is some information on whether or not you are eligible:

Are You Eligible to Claim Home Office Expenses?

Self-employed individuals and employees who worked from home more than 50% (over a period of at least four weeks) due to the pandemic can claim home office expenses.

These expenses range from office supplies to internet services and rent/mortgage.

Not all work-from-home jobs are created equal. For instance, if you work for yourself you can claim more deductions than someone who is employed and working from home.

What you can claim as an employee may seem convoluted since the CRA has implemented new regulations to accommodate the increase in work-from-home individuals due to COVID-19.

If you need clarification about what you are eligible to claim as an employee or self-employed individual, feel free to contact our team of knowledgeable accountants for more information.

Claiming Home Office Expenses: Self-Employed

For those who are self-employed, you can claim your home office if your workspace is your main place of business or is used to regularly meet with clients, customers or patients.

By comparing the space of your home office to the space of your home to calculate a percentage, you can claim a portion of your household expenses.

For example, if your home office is 200 square feet and your home is 2500 square feet, you would divide the office by the home and get a percentage of 8%. That means you can claim 8% of your household expenses.

These expenses include:

  • Telephone
  • Utilities (heat, electricity, water, etc.)
  • Internet
  • Rent/Mortgage
  • Property taxes
  • Maintenance and repairs
  • Insurance
  • Mortgage interest

You can also deduct expenses related to your home office such as office supplies (pens, pencils, ink, etc.).

Be sure not to deduct equipment such as chairs, desks and computers – these are considered capital expenses.

Claiming Home Office Expenses: Employed

Computer programmer writing program code on computer in home office

When you are working at home as an employee, you can only claim your home office if you use your home office exclusively for work or you use the space to complete more than 50% of your work.

In order to qualify as an employee, your employer must require you to maintain a home office as part of your contract of employment.

Also, you cannot claim any expenses that have been reimbursed by your employer.

Lastly, your employer must fill out and sign form T2200 (Declaration of Conditions of Employment).

Once you determine that you do qualify to claim your home office as an employee, you can calculate your claim percentage:

Divide the square footage of your office space by the square footage of your home.

You can use this percentage to determine the portion of your home expenses and utilities that you can claim on your taxes.

These expenses include:

  • Telephone
  • Utilities (heat, electricity, water, etc.)
  • Internet
  • Rent/Mortgage
  • Property taxes
  • Maintenance and repairs

Unlike self-employed individuals, employed workers cannot claim mortgage interest or insurances.

Instead of calculating your home office expenses, the CRA has introduced a new “temporary flat rate method” which allows you to claim $2 per day that you worked at home up to a maximum of $400.

These days only include days worked and not vacation, sick or absent days.

This method is preferred if you only worked from home temporarily.

Otherwise, if you feel you are eligible for more than $400 in deductions, you’ll want to use the percentage mentioned above to calculate your claims.

Common Mistakes When Claiming Home Office Expenses

You have to be very careful when claiming home office expenses so that you don’t trigger an audit by the CRA.

Don’t make the mistake of claiming full expenses related to your home. You need to calculate the percentage and only claim the appropriate portion.

Also, when claiming repairs and maintenance, these costs only apply to your home office. You cannot claim repairs made to other areas of your home.

Be vigilant when claiming your home office expenses. Rounding up the costs can prompt the CRA to take a closer look at your tax return.

You should also break down your home office into different categories. Inputting large numbers in one category could also cause the CRA to question your return.

The CRA’s new “temporary flat method” eliminates the need to track expenses but if you need to calculate the percentage of your space to maximize your return, it’s best to hang on to your receipts.

By following the above tips, you can safely claim your home office and utilities without worrying about facing an audit.

Let Us Help You With Your Tax Return!

To better protect yourself against a CRA audit, why not let the experts take care of your tax return?

Our team at Liu & Associates can ensure that your taxes are filed properly while including all eligible deductions to maximize your return.

There are definitely financial perks to working from home – and we want to help you explore them all!

Let’s chat today!