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What to do if you have a tax dispute with the government

If you are one of the many Canadians who has received a reassessment notice from the CRA, you need to respond with an objection notice before the 90-day deadline to enter what is known as the objection stage. After a decision to your objection, if you are still being asked to pay, you can file for an appeal in tax court with a good chance of settling before your court date. Another option is to file a Voluntary Disclose before any action by the CRA is taken if you think you made a mistake on your return; however, you may still be subject to a penalty regardless of if the disclosure is valid.

Key Takeaways:

When filing an objection, it’s best to include new evidence or documents to support why the reassessment was incorrect, because the taxpayer has the burden to show that it is wrong.
Typically, it takes 9 to 12 months for the CRA to assign an appeals officer and review an objection.
After the CRA’s decision at the objection stage a person has 90 days before proceeding to the Tax Court stage, which roughly takes 18 months,although it can take longer because of securing a court date for a hearing.

“Tax disputes are evidentiary disputes that require digging to prove a case. They are also legal disputes based on the interpretation of certain tax provisions, and always occur between the government (the Canadian Revenue Agency) and taxpayers.”

Personal Investor: High debt-to-income ratio? So what. – BNNBloomberg.ca

Currently, the average Canadian household owes $1.80 for every $1 of income. This situation would be problematic for older people who have not saved enough for retirement, but for younger generations it is often necessary. The debt-to-income ratio doesn’t measure the size of the debt itself, but rather the likelihood of default. Note that the biggest cause of debt is home mortgages, and often house values appreciate. It has been argued that investing in a home provides a better return for the risk than investing in stocks as well as being able to live rent-free in your investment. As they age, younger mortgage owners will see their their income rise and debt decline. Provided they manage it well, their debt-to-income ratio isn’t a problem.

“The fact that the average Canadian household owes $1.80 for every dollar it takes in each year could spell trouble for older folks who have not saved enough for retirement, but for younger Canadians trying to get an equity foothold, it’s a necessary evil.”

CRA phone scam arrests imminent, says RCMP

Heard about those harassing phone calls, aimed at tens of thousands of Canadians, which claimed to be from the Canada Revenue Agency, demanding unsolicited payments? According to an August 23, 2019 news article, almost a year after CBC News’ investigation into the Canada Revenue Agency phone scam, a RCMP task force reports they have made 45 arrests in India, where the scam originated. But that’s not the end of the story. Canadian accomplices appear to have ferried the proceeds of the scammers’ crimes to India. More arrests in Canada are expected soon.

“Nearly a year after a CBC investigation into the CRA phone scam, the RCMP say its task force has brought about 45 arrests in India, where the scam calls are made.”

Canada’s credit score obsession is leading people to make bad financial decisions

Often Canadians feel a false sense of security when they find out they have a higher credit score. A higher score can lead to more borrowing, creating a cycle of debt that the borrower can never get out of. The largest element of your credit score is your payment history. Paying the minimal amount on time will increase your score, while paying the balance in full and making extra payments will not improve your score. Utilizing more credit than you need to can also increase your score, making you feel safe to borrow more. Before borrowing, always consider your finances and not your score.

Key Takeaways:

Too much information about a persons credit score is available online and that information has led to unwise actions related to credit.
Even someone with a high credit score can end up becoming insolvent.
Credit scores reward indebtedness, because credit scores are a product for the banks.

“Trying to game the system by tailoring your borrowing habits to what you think is the right credit score ‘formula’ can actually improve your credit score while making you financially worse off.”

Business owners often underestimate hiring costs. The lowdown on CPP and EI – The Globe and Mail

For any business, large or small, employees are both necessary and expensive. Canadian businesses have to manage not just wages employees earn, but also pay roll taxes such as the Canada Pension Plan (CPP) and Employment Insurance (EI). As a result, expanding the roster of your small business can become far more costly than you might first expect. If you’re a small business, be sure to budget for and know the rules – for instance, who is eligible and who isn’t ineligible – to ensure you’re not under or overpaying.

“Some business owners are paying premiums when they don’t need to on family members in the business.”

Free parking is a nice workplace perk, but the taxman still wants his cut

When it comes to what’s taxable, meaning what will factor into how much taxable income you will be assessed upon by the CRA, a lot of people forget about perks and benefits. Take free parking, for example. While some employers offer it to employees, in many areas, parking carries a monetary value. Over the years, there have been many challenges to the taxability of employer-provided parking. A recent case again challenged it, but the courts stated that parking and commuting to work is an ordinary personal expense, which means it is a taxable benefit.

“Even if you’re among the lucky workers who still get free parking at your place of employment, it’s often not truly free as the taxman generally considers free parking to be a taxable employment benefit.”

How you draw down your retirement savings could save you thousands — this program proves it

Retirees wanting to maximize their retirement income frequently face a host of complex scenarios when trying to find the right timing and income optimization method for their unique situation. Often, there is a lack of information and tools available to people to help them determine the best plan for them. One new tool is called “Cascades.” It helps determine when to draw/spend and delegate money in the most tax efficient way. The program also shows a year by year chart of where and when money should be spent. In the example, it determined that the couple’s estate would be a few hundred thousand larger if they first drew on non-registered funds, then registered, and finally from their TFSA account.

Key Takeaways:

There may be as many as 26 distinct sources of income a retired couple may encounter.
It’s not as simple as merely maximizing each stream of income because tax brackets, clawbacks of government benefits and other considerations all interact in complex ways.
The emphasis is on finding the “winning strategy,” defined as providing the highest estate value, net of taxes and fees, at the expected life expectancy.

“Once it’s time to start using your retirement savings, it can be tricky to figure out what money to take out when and from where.”

How to have the ‘money talk’ – BNNBloomberg.ca

For many couples, the time will come to have the “money talk.” Couples often marry more than just their partner; they marry their finances too. Which means they need to get on the same page regarding how they manage their joint funds. It should begin by disclosing your incomes, debts and assets. And then, discuss with your partner what your goals and expectations are of the other person. It may also be wise to consider a prenuptial or co-habitation agreement before living together.

“More relationship break down over financial cheating than actual cheating.”

Tax implications of making transfers between registered accounts

Before you transfer funds between registered accounts, it’s important to understand the rules that apply for that type of account and under what circumstances you may be able to access your money in that account. Exceptions exist for withdraws from a locked-in account based on extreme financial hardship, shortened life expectancy and sometimes based on your age and what province you live in. For instance, someone in Ontario can transfer up to 50 percent of the balance inside an LIRA to an LIF, and then, up to 50 percent of that LIR balance can be withdrawn or transferred into an RRSP. Provided all the money is transferred into an RRSP, then you would only need to report the changed, but there are no tax implications.

“Generally, transfers between registered accounts like RRSPs, LIRAs, RRIFs, LIFs, RESPs, and TFSAs do not have tax implications. The funds transfer over on a tax-free (for TFSAs) or tax-deferred (for other accounts) basis.”

For common-law couples, estate planning is full of pitfalls. Here’s how to avoid some of them

Common law couples or those who are married for the second time have more inherent estate planning issues than married couples. If one partner dies before the other, the survivor may end up owning property with the deceased’s children. Assets can be too little or too much when the deceased partner’s children are also beneficiaries. Retirement plans if left to the survivor could also be heavily taxed. It’s best to seek financial help to ensure that both the surviving partner is compensated while avoiding these common pitfalls.

Key Takeaways:

Estate planning can be difficult as each partner may bring into the relationship different or uneven financial needs like own children’s needs, having their own property; past obligations.
An advantage of common-law spouses and couples in second marriages holding real estate as tenants in common is that their ownership can be transferred to whomever they wish.
Certain types of assets can pass more efficiently to a surviving spouse or common-law partner than to children.

“Talking about dying and proactively planning for it can be difficult, but it is easier for married couples who started with nothing and built their nest egg together. Common-law couples and those who remarry may [want to] manage their financial affairs separately.”