The taxman has no place in the bedrooms of the nation, unless you claim it as a home office

The Income Tax Act allows tax deductions on expenditures employees incur for their work and are not reimbursed by the company that they work for. If you want to deduct home office expenses you need to meet the criteria required to do so. This includes a form T2200 signed by the company you work for. If you use your home or car, you may be assessed on what percentage of your home property as well as your drive time is used for work and you may have to pay a penalty if the CRA believes you deducted too much.

“One woman who primarily used her bedroom as an office went to tax court over how much of her home she was allowed to claim.”

Read more: https://business.financialpost.com/personal-finance/taxes/the-taxman-has-no-place-in-the-bedrooms-of-the-nation-unless-you-claim-it-as-a-home-office

How to get the biggest tax bang for your RRSP buck – BNNBloomberg.ca

Contributing to your Registered Retirement Savings Plan can pay you back with a nice tax credit, and the deadline for contributions is March 2. However, be aware that these contributions might be handled differently depending on your specific tax situation. Key is your total taxable income, which can be used in conjunction with an online RRSP calculator to determine what tax refund you can expect for funding your plan. And remember, instead of spending your refund from RRSP contributions, you can roll them from into a savings plan to continue accumulating.

“Few may realize that not all RRSP contributions are treated equally, or how making strategic contributions can boost tax savings over the long term.”

Read more: https://www.bnnbloomberg.ca/how-to-get-the-biggest-tax-bang-for-your-rrsp-buck-1.1378759

Avoid the CRA With TFSAs and RRSPs: Which One Should You Invest in First?

Many Canadians can be confused by the differences between a RRSP, or Registered Retirement Savings Plan, and a TFSA, or Tax-Free Savings Account. For starters, a RRSP merely defers taxes on the funds saved in the account, while funds saved in a TFSA are not taxed. Those funds you save in a RRSP also lower the income you will be taxed on for that year, especially if you’re in a higher income tax bracket. Each type of saving plan has different tax advantages, so consult the regulations or your tax professional to decide which is the best option for your finances.

“Here are some key differences. First, TFSAs allow you to grow your savings or investment tax free, while RRSPs allow for tax-deferred growth. When you withdraw from an RRSP (or RRSP turned RRIF), the amount will be counted as taxable income.”

Read more: https://www.fool.ca/2020/01/12/avoid-the-cra-with-tfsas-and-rrsps-which-one-should-you-invest-in-first/

Audit-proof your side hustle

If you are self-employed or run a side hustle for extra income, you need to know what taxes are owed to avoid any penalties or audits. You need to keep very detailed records and file on time. If you use equipment for personal as well as business use, you need to track your usage. Income splitting with family members who you employ must be well documented. Also, be careful claiming losses, they can help you with deductions and refunds but too many could make your side hustle seem like a hobby and you will lose any tax benefits.

“Business owners are responsible for keeping meticulous records of income and expenses, as well as asset purchases.”

Read more: https://www.moneysense.ca/save/taxes/audit-proof-your-side-hustle/

What is a ‘related business’ for TOSI purposes?

TOSI (tax on split income) rules aren’t easy to comprehend. A typical TOSI case would be when a business-owner splits income by paying corporation dividends to family-member shareholders. There are instances in which this tax can be legally avoided, such as when under 10 percent of a corporation’s income is derived from a related business. Important CRA interpretations of the law relate to holding companies and operating companies. Also relevant is the fact that TOSI usually doesn’t apply to property income (as opposed to a business income). Ultimately, a tax advisor should be thoroughly familiar with CRA technical interpretations regarding TOSI, in order to best serve one’s clients.

“The Income Tax Act defines a “related business,” which is generally a business in which a Canadian-resident family member is actively involved or has a significant capital interest at any time during the year.”

Read more: https://www.advisor.ca/tax/estate-planning/what-is-a-related-business-for-tosi-purposes/

TFSA overcontribution woes continue

A recent Tax Court case demonstrates the costliness of over-contributing to a TFSA. An Ontario taxpayer who owns a roofing company inadvertently deposited $40,000 into a TFSA account instead of his regular chequing account. He was then punished with over $2,000 in penalties. The man had made smaller over-contribution previously receiving a warning letter from the CRA in response. This time, the CRA assessed a penalty tax. Tax Court judges are not allowed to cancel penalty taxes. Only the CRA can do that, which is what the judge in this case urged them to consider.

“It used to be the CRA’s practice to automatically assess the TFSA overcontribution penalty. In response to numerous innocent overcontribution errors, the agency changed its policy in 2016.”

Read more: https://www.advisor.ca/tax/tax-news/tfsa-overcontribution-woes-continue/

When your investment partners don’t play by the CRA’s rules

A question is raised by a concerned taxpayer who declared rental payments as income as well as capital gains on a condo that was sold while his friends who invested with him plan not to. If you own a residence and don’t live there, you need to report any money made on renting as well as capital gains when sold or you could be assessed with heavy penalties. As long as the taxpayer paid based on his percentage of profit, he should be okay, but his partners could run into trouble and penalties at any time for not doing so.

“The partners who didn’t report the income will be faced with the lesser penalty of 10% of the amount of income they didn’t report, or 50% of the difference between the tax they paid and should have paid.”

Read more: https://www.moneysense.ca/columns/ask-moneysense/what-happens-if-you-dont-pay-taxes-on-the-sale-of-a-condo/

Albertans pay less into TFSAs than Canadian average

Alberta’s average annual contribution increased by five per cent this year. Albertans hold an average of $28,551 in their TFSA. Canadians are choosing to grow their contributions more often. Alberta residents are more likely to put funds in their investment accounts once a quarter. About half of Canadians save TSFAs for retirement. TFSA contribution is limited to $6000 in 2020, but you can invest more if you have unused contribution room. Some Canadians check their investments on a monthly basis while others check theirs quarterly.

“Albertans contributed more to tax-free savings in 2019, but still less than Canadians on average.”

Read more: https://calgarysbusiness.ca/business/albertans-contribute-less-to-tfsas-than-canadian-average/

Lessons from more than five years of battling the taxman

A taxpayer who fought the CRA in court over just a little more than $13,000 finally won his case but the story is a cautionary tale. He sold a condo that he never lived in, the CRA assessed a tax on the profits as well as applied negligence penalties. Luckily, he was able to prove that he intended to live in the condo but could not. A judge ruled that profit from the condo was considered capital gains and not income. Taxpayers should be aware that when selling a property, the CRA will assess penalties if the profits aren’t reported correctly.

“It’s clear from this story that the CRA is focusing a lot of attention on real estate transactions. So, make sure you understand the factors the taxman will consider when determining the tax treatment of any sale.”

Read more: https://www.theglobeandmail.com/investing/personal-finance/taxes/article-lessons-from-more-than-five-years-of-battling-the-taxman/

Beware the rules that apply to incorporated employees – The Globe and Mail

Incorporated employees are those who may “reasonably be regarded as an officer or employee of the hirer, but for the existence of the corporation,” and they (or a related person) owns 10 per cent or more of the company providing the services. They used to be able to get away with not paying personal taxes because the company paid them. However, the rules were changed in 1981 when PSB rules were enacted. If the PSB rules apply to you, you can avoid any penalties by taking certain steps like paying yourself a salary as an income as well as hiring over five people to work in your corporation. You can also avoid PSB penalties by keeping any receipts that prove you are an independent contractor, including use of personal equipment and avoiding accepting employee benefits.

“If your corporation employs more than five people, you’ll avoid PSB status, and the nasty tax implications.”

Read more: https://www.theglobeandmail.com/investing/personal-finance/taxes/article-beware-the-rules-that-apply-to-incorporated-employees/