There could be income splitting opportunities if one’s spouse earns substantially more than the other. Personal credits and some other deductions automatically get transferred from one spouse to another.
For example, the spouse with the higher income has investment income/ passive income like interest, dividends, rent, capital gains. In most situations, if one gifts these financial assets to another spouse with a lower income, attribution rules may apply. So, if you gift $10,000 to your spouse and he or she earns $1,000 on that money. This income would be attributed back to you.
On the other hand, instead of giving this sum as a gift, if you loan this sum to your spouse and charge interest at CRA’s prescribed rate, income attribution rules would not apply.
Other planning opportunities could be Spousal RRSP contribution, pension income splitting, investing child tax benefits in child’s own name.
If you become a Canadian resident, you’re generally deemed to have disposed of and immediately reacquire each property you own outside of Canada. This deemed disposition is done at the Fair Market Value (FMV). It is important that this FMV is correctly determined and proper documentation is maintained. This can have a long-term impact on its eventual disposition.
Depending on the individual circumstances and the time of the year one establishes Canadian residency, personal tax credits for self and spouse could be claimed even if the spouse does not take residency.
This means that it is possible to claim personal tax credits for a non-resident spouse.
Any tax planning has to be done carefully keeping in mind individual circumstances.
If you made a gift of money or other property to certain eligible institutions, you may be able to claim provincial and federal non-refundable tax credits on the filing of your tax returns and claiming the same.
If you have U.S. income, you can claim gifts to U.S. charities, if that can be allowed on a U.S. tax return.
Depending on the tax bracket, you could claim over 40% as tax credit. For example, if you make a gift of $10,000 as an eligible donation you could get a tax break of $4,000.
You do not have to claim the tax credit for the year you make the gifts. If it is beneficial, you may carry forward and claim them on your tax return for any of the next five years.
Child care expense is an expense incurred for providing child care services for an eligible child of a taxpayer. The taxpayer must have resided with the eligible child at the time the expense was incurred for the expense to qualify as a child care expense.
The annual child care expense amount is dependent on the age of the child and number of children you have, subject to a maximum amount of $13,000. If you have 2 children and only one goes to daycare, you could still be eligible to claim the entire amount paid for one child, subject to the overall limits.
You may claim less than the maximum amount allowed however, unclaimed amounts cannot be carried forward to future years.
You can deduct mortgage interest (other than principal repayment), other interest paid for rental property, maintenance and repairs (other than capital expenses), property taxes, home insurance, utilities, management fees, advertising, travelling etc.
In the case that there is still rental income after taking out all the expenses, it can be used to reduce income from other sources, including salary. Therefore, it is important that one deducts all the available expenses. Depending on the circumstances, rental losses could be carried back or forward to reduce taxable income of those years.
Capital Cost Allowance could also be claimed on the capital cost of your rental property, but care should be taken in case you rent only a portion of your house and use part of it as your principal residence. You cannot claim capital cost allowance to turn the rental income into a loss.
CRA may review the claims on your tax return. They send letters each year to make sure that Canadians file their tax returns correctly and receive the benefits and credits they are entitled to. It is important that you keep all your documents, receipts and other paper to substantiate your claims. It’s important that you reply and send all the information requested as soon as possible. This will help the CRA review your file quickly and easily. If you need help, we’ll work with you to address any questions.
You have a capital loss when you sell or are considered to have sold a capital property for less than its adjusted cost plus expenses involved in selling the property. You are allowed capital losses even if the property is located outside of Canada.
Capital losses can be adjusted against capital gains or, in case you don’t have enough capital gains during the year then these losses can be carried back or forward to other years.
Please consult us before initiating any such transactions
If you received pension income in the year that qualifies for the pension income amount, you may qualify to split the pension income. The transferring spouse and the receiving spouse have to make a joint election each year. Only one joint election can be made for a tax year. Each year, the split percentage can change.
Pension splitting will affect any tax credits and benefits that are calculated using one taxpayer’s net income, such as the age amount, the spouse or common-law partner amount, and the repayment of old age security benefits. You should make sure that this split is optimized so that one gets the maximum tax benefit.
As a small business owner, you need to carefully consider whether to own the automobile in your personal name or in the name of your small business corporation.
If you own the automobile personally, then you may use that for business purposes and charge on a per-kilometre rate that CRA considers reasonable. As per CRA, the reasonable charge is 55 cents per kilometre for the first 5,000 kilometres driven and 49 cents per kilometre driven after that.
In the case that your small business corporation owns the automobile, then the rules are a little complex. As the owner of the small business corporation, you have access to or control over the automobile.
The benefit for an automobile owned by the corporation generally is:
Standby charge is 2% of the cost of auto per month. If this is available for the full 12 months, then the charge is 24% of the cost of the automobile and is included in your income each year. There could be a reduction in standby charge if the automobile is used for less than 50% for personal use and total kms driven for personal use is 20,004 kms or less.
Operating Expenses Benefit is 26 cents per Km driven for personal use.
If the automobile is made available to a shareholder who is not also an employee, the value of the benefit is included in the shareholder’s income as a “benefit conferred on a shareholder”. Generally, all kms driven by a shareholder who is not an employee of the company is considered personal, unless it can be substantiated as being for business purposes.
Even if you have no income to report, you should still file your income tax and benefits return by the due date, to be eligible to receive certain tax credits and benefits on time.
Eligibility for certain benefit payments is based on information from your yearly tax return. If you don’t file your income tax and benefit return, you could miss out on these credits and benefits. For example: the goods and services tax/harmonized sales tax (GST/HST) credits, Child Tax benefits. Some other provincial benefits are available depending on your province of residence such as the Ontario Trillium Benefit.
If you are a student, you could also lose the benefit of claiming education credits by not filing and claiming in your tax returns. You may also pass $5,000 worth of credits to your spouse, parents or grandparents and carry forward the remaining for use against your taxes in a future year that you cannot use for the current year.
As a student you may also claim the rent you pay and receive some provincial tax benefits.
You may also claim the interest you pay on your student loans from government as deduction from your income. If you do not have to pay taxes for the year the interest is paid, you may not claim the same in that year and carry forward to for use for the next five years.
You may file back year tax returns- up to 10 years
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