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Will you blow your tax refund on something fun? Blame it on mental accounting – The Globe and Mail

People often treat money differently depending on where it comes from. This is known as mental accounting. Even though a dollar is a dollar regardless of where it comes from, to many of us, how we label it plays a strong role in how we plan to spend it. This is particularly true for tax refunds, which people often think of as “free” money, when in actuality, it is a tax-free loan to the government. It would be better to reduce the amount of tax withheld on our paycheques by filing paperwork with our employer. Although one reason for why we may not do this is because of Prospect Theory, whereby we magnify the pain of owing $5 versus the pleasure of receiving a $5 refund.

“Every year around this time, someone chastises the masses over being happy about getting an income tax refund when, in effect, they’ve given the government an interest-free loan for the year. “

CRA asks Canadians to air grievances in online consultation

The federal institution Canadians interact most often with is the Canada Revenue Agency for annual tax filings. Being fully aware of this, the CRA has recently put out an online questionnaire that it hopes will give Canadians a chance to provide feedback to the agency on how they feel about it, and how well they think the agency is doing its job. The consultation closes June 18, so go here to add your voice: https://www.cra-engage-arc.ca/en/collections/serving-canadians-better. This is one component of the CRA’s attempts to stay more citizen-oriented, and connected to the people it serves.

“Canadians can fill out a three-part online questionnaire starting today that asks them how well the agency has performed in providing services, including whether they have ever had any bad experiences dealing with it.”

46% of Canadians $200 or less away from financial insolvency

Due to increased interest rates, many Canadians are struggling with paying their bills. People who have been increasing what they owe have been hurt by the Bank of Canada’s five rate hikes that began in 2017. Almost half of residents surveyed claim as little as 200 dollars stands between them and financial insolvency at the end of each month after paying their bills. Most worrisome, many of those surveyed believe they will not be able to keep up if rates increase again.

“The number of Canadians who are $200 or less away from financial insolvency at month-end has jumped to 46 per cent, up from 40 per cent in the previous quarter, as interest rates rise according to a new poll.”

The swap scheme that led to a forty-fold increase in one woman’s TFSA

Almost as soon as the Canadian government set up rules for TFSAs (tax-free savings accounts) a decade ago, Canadian citizens have been looking for ways to exploit the rules to their advantage. In one instance, a woman used a series of swaps to turn an initial $5,000 contribution into more than $200K. The government took the woman to court, with the judge ruling that much (although not all) of her gains were subject to an “advantage tax,” which was passed to punish such gaming of the system.

“While most of us simply use our TFSA to save for retirement or, perhaps for shorter-term goals such as a down payment on a home, the opportunity for abuse of the tax-free nature of the TFSA has been there from Day One.”

Canada’s housing market headed for weakest year in almost decade, warns CREA in updated outlook

The number of homes sold in Canada was down 4.4 percent in February with prices down 5.2 percent, which is a 10-year low. If the expected pull back of 1.6 percent occurs in 2019, then that would mark the weakest annual sales since 2010. The year-over-year drop in sales was heavily concentrated in British Columbia and Alberta. Part of the blame can be attributed to a bad winter, but also the mortgage stress test, which came into effect in January 2018. We’ll have to wait to see if the housing market picks up as the weather gets better but the projections are not as robust as they have been in previous years.

“Only time will tell whether successive changes to mortgage regulations went too far, since the impact of policy decisions becomes apparent only well after the fact.”

Cheaper gas and home heating? Here’s what happens when Alberta ditches the carbon tax

Alberta’s carbon tax is coming to an end this month. Although despite Premier Jason Kenney’s promise to end it, we’ll likely see it return due to the federal government having a “backstop” carbon tax for provinces who don’t have one of their own. In the meantime, Albertans can enjoy a reprieve dependent on how long it takes Ottawa to implement their tax. One of the immediate places, where Albertans will see a price drop is gasoline, and as of May 31st, motorists in Alberta may be able to fill up for 6.7 cents less because of the elimination of the tax.

“A carbon tax-free period of indeterminate length will begin on May 30, the day the United Conservatives promise the $30/tonne levy will end.”

Nearly 75% of entrepreneurs will exit their businesses in 10 years. Who will fill their shoes?

Business owners who own and run successful businesses do so because they have put in the time, energy, as well as finances to make it successful. Business owners looking to retire by handing over their business to a family member may find themselves paying more taxes than just selling to a non-family member. If the government wants to keep Canadians working and succeeding, the laws need to be changed. Business owners should also take a long-term approach and plan way ahead of time about how they will turn over their companies to minimize issues when the time comes.

“Nearly three quarters of small business owners in Canada will be faced with this challenge in the next 10 years, leading to a transfer of business assets potentially worth more than $1.5 trillion.”

Tax benefits of being your own boss

One of the perks of being your own boss is a later tax filing deadline. Canadians employed by someone else needed to file their taxes by April 30th with the Canada Revenue Agency (CRA), but self-employed individuals have until June 17 to file their returns. Currently, one in 10 Canadians is self-employed, but it is estimated that this will grow to 45 percent of people in the workforce within the next decade. Keep in mind that when you file, self-employed individuals also get tax breaks. For instance, if you regularly conduct business from home, then you can claim a portion of your home’s expenses like utilities, repairs, insurance, mortgage interest and property taxes. It may also be possible to deduct other expenses as well like a vehicle provided you meet the requirements.

“One advantage to being your own boss is a later tax filing deadline.”

1.6 million Canadian banking records shared with IRS

Since an information sharing agreement was made with the U.S. in 2014, 600,000 Canadian bank accounts in 2016 and again in 2017 was shared, which is up from 300,000 records in 2015. In this reciprocal agreement, the CRA shares account information for account holders from the U.S., and the IRS sends information on Canadians, who have U.S. bank accounts. This information sharing can result in Canadians being taxed more based on U.S. repatriation tax law put into effect in 2017. Many have argued against this information sharing, including court cases, but so far appeals have not resulted in a change to the agreement.

“The Canadian government has shared more than 1.6 million Canadian banking records with the U.S. Internal Revenue Service since the start of a controversial information-sharing agreement in 2014.”

How CRA treats you depends on where you live, auditor reports

Although the taxpayer bill of rights guarantees equal treatment of all taxpayers, a new report has shown that is not how the CRA actually functions. Different cases take longer to be resolved, depending on where the taxpayer lives. Certain agents are also ore lenient in waving fees and penalties, while other agents refuse to waive fees even when the CRA is in the wrong. The CRA has vowed to address and fix these inconsistencies within the organization.

“When taxpayers file new information that could change their tax bills in one region, getting an answer takes about three months. In another, it’s more like nine. And CRA can’t really explain why.”