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Who reports capital gains if a stock is owned jointly?

Capital gains can be confusing, due to the way they’re taxed, and if they are a shared asset, e.g. owned jointly by spouses. First, it’s important to determine your capital gains by subtracting the Adjusted Cost Base minus your outlays and expenses from the Proceeds of Disposition. The resulting positive number is a capital gain. However, only half of your capital gains are taxed, and you can also offset those gains with any losses you had in previous years. Second, determine the true owner of the asset in the partnership. For instance, if you put in 50 percent and your partner also contributed 50 percent, then it is fair to claim 50 percent of the capital gains.

Key Takeaways:

Half of that gain is taxable; and added to your other income for the year to be subject to your marginal tax rate.
Capital losses can be carried forward throughout your entire lifetime to offset capital gains in your future. They can also offset capital gains of the immediately preceding three years in any order.
Who reports the income depends on who provided the capital or how much each contributed to the purchase of the stocks.

“When you invest together, you get taxed together.”

RESPs: free money from government that half of Canadians don’t ask for

According to Statistics Canada, less than half of parents take advantage of free money from the government. Any Canadian can open a Registered Education Savings Plan (RESP) for their child. And the best part is that for every dollar you put into the plan, the government kicks in an extra 20 percent towards the cost of paying for education expenses. There are also additional programs for low-income families that receive government help. While there are rules regarding the government portion, you have options available to you if the child named in the RESP doesn’t attend university or college.

Key Takeaways:

Even if you don’t have money to put into it right now, open an RESP so you can add as little as $5-10 when you can.
The government contributes through the Canada Education Savings Grant (CESG), which provides 20 cents for every dollar contributed, up to a maximum of $500. Depending on your income, the contribution may be even higher, and you may qualify for the Canada Learning Bond.
The CESG allows families to carry forward unused contribution room, so you can catch up from the previous year’s contribution.

“Millions of Canadians struggle under the financial burden of parenthood…It’s hard enough to pay the bills, let alone save for the kids’ education. That’s why it’s so baffling that less than half of those eligible participate in a program offering parents free money for their kids post-secondary education.”

How to ensure a smooth succession

While succession is a common and complex problem for many business owners, most have not put adequate time into preparing for it. In fact, according to a 2016 survey of business owners, only 8 percent had a formal, written succession plan in place. This lack of preparation puts this group at significant risk should they exit the business sooner than expected. It’s important to set the company up for the next generation of leadership with a strong financial foundation, tax plan, and legal structure. If the company is being handed over to a family member, it’s crucial to have a development framework in place so that the individual has a leadership roadmap. Finally, be sure to communicate with employees early and often about succession plans, so that they remain loyal and are not caught by surprise.

Key Takeaways:

Goals: What are they? Increasing wealth for your retirement or the business.
Planning: Do the key players know who they are and what they should do.
Knowledge: What is the real worth of your business and can you retain needed employees as you transition.

“As the saying goes, nothing is certain but death and taxes. For entrepreneurs, you can add “exiting the business,” whether through a sale, transfer to the next generation or their own passing.”

The top 10 things the taxman may review on your tax return

After you’ve submitted your tax return, here are the items that Canada Revenue Agency (CRA) is likely to question. This list is based on conversations with several tax professionals, and from a list by the CRA of the most common mistakes found on Canadian tax returns. The top ten items deal with: employment expenses, carrying chargers, moving expenses, medical expenses, charitable donations, capital gains & losses, allowable business investment losses, tuition credits, student-loan interest, and providence of residence.

Overall, receipts are key, and also knowing what you can and can’t claim. For instance, a lot of people try to claim non-deductible things like safety deposit box fees and brokerage fees, and there’s still a lot that can’t be claimed on medical expenses like vitamins or over-the-counter medications cannot be claimed.

Key Takeaways:

Employees are not allowed many deductions on employment expenses. Improper employment expenses should not be deducted because auditors scrutinize this area closely.
People sometimes fail to keep valid receipts. Make sure you have documentation, such as receipts, for all your deductions.
Changing your province of residence can result in increased scrutiny.

“The following is a list of the top 10 items that the taxman is likely to question.”

Prepare Now For These 3 Emergencies You’ll Probably Face

No matter how healthy and hardworking that you are, life can always hit you with sudden emergencies that can throw you off course. Some of these emergencies can be predicted and prepared for. People are living longer and as your parents age you need to be prepared emotionally and financially to care for them. Stress and anxiety can effect all of us and it’s important to seek care before it gets out of control. You also need to be prepared financially for any inheritance you receive, invest wisely and make it last.

Key Takeaways:

Unfortunately, we are all likely to experience a parent who becomes ill and/or passes away, and over the next decade or so will see many people step into caregiver roles.
According to the Centre for Addiction and Mental Health (CAMH), one in five Canadians experience a mental health issue in any given year, making it a leading cause of disability.
With life expectancy being higher than ever before, many Canadians will need to ensure they have enough money to fund their retirement years so they can live the type of full lifestyle they want.

“Life, and death, happens. It struck me that what tied these two experiences together was the lack — and importance — of preparation. This got me thinking about several life events that will be trending over the next several years as baby boomers age, but that impact each of us, and why it’s critical that we’re ready.”

5 Things To Know About Canada Pension Plan Changes

If you’re looking to retire, then you’ll want to know about the changes to the Canada Pension Plan (CPP) and how they will affect your retirement income. Federal Finance Minister Bill Morneau announced a suite of changes after meeting with his provincial counterparts in December 2017. Here are five things Canadians should know regarding the changes.

Key Takeaways:

Time off work for children or disabilities will not reduce retirement benefits for Canadians.
Instead of “drop out” years, benefits will be calculated with a 40-year accrual that will set the income for non-working years.
Survivors benefits will be paid regardless of age, dependent children or disability, and a lump-sum death benefit of $2,500 instead of being calculated based on a deceased’s earnings.
A lump-sum payment upon a person’s death will be set for everyone at $2,500, instead of being calculated based on a deceased’s earnings.
The government says there won’t be an increases in CPP contribution rates, but Canadians will have to wait until the chief actuary assesses the costs and effects of all the measures once the Liberals table the necessary legislative amendments to the CPP.

“The government says the changes won’t require increases in CPP contribution rates.”

Here’s what to do when you take over a parent’s finances

According to Statistics Canada, 17 percent of Canadians are over 65, and 90 percent agree it’s important to discuss finances with their parents. However, over 60 percent hadn’t had a conversation on what would happen in the event of the death of a parent or if they were otherwise unable to handle their finances themselves due to long term illness or incapacitation. The issue is further complicated by the fact that few people are well versed in the finer points of personal finance. This makes estate planning – i.e. having that discussion and making plans before the worst happens – even more important.

Key Takeaways:

The first thing you should do with your parent’s investments is take inventory of what they have in the first place.
Take a close look at your parent’s income and expenses to make sure you know how they are funding their lifestyle and whether it is sustainable.
Ensure that your parent’s tax returns are up to date, as some seniors may be entitled to government benefits and others may owe money on their taxes since neither investment income nor minimum withdrawals from a RRIF are required to have tax withheld at source.

“I think it is important for children to try to talk to their senior parents about money, even if it is short, sweet and high-level.”

Take back control of your RRSP with these three easy steps

For any Canadian, who hopes to retire with a secure financial future, it pays to track your saving vehicles to maximize them. For instance, if you have an RRSP, then take the time needed to understand it, and specifically to pay attention to what your money is being invested in. You should understand how much of what your investing is in bonds, stocks, or other forms of securities. You should know what you are putting into your fund and how the fees are structured. Finally, you should expect and receive clear statements, showing the return of your investment in a regular and transparent way.

Key Takeaways:

Many investors are unclear on exactly what they own in their accounts, so it’s critical to know what type of financial products you own and what is their overall asset allocation between bonds and stocks, and ensure it’s within your risk tolerance.
Know what you’re paying for fees, and monitor what your returns are like by comparing them to benchmarks.
From a tax perspective, it’s also wise to look at where you earn those returns. For instance, it’s best to grow your TFSA, because your eventual withdrawals are tax-free. With a RRSP, your withdrawals will be taxed.

“Knowing what you own, knowing what you are paying in fees and knowing what you are earning in returns should be goals for anyone looking to take control of their RRSP.”

Is it better to hold U.S. stocks in a TFSA or RRSP?

Withholding taxes can come into play when you’re considering whether to hold U.S. stocks in a TFSA or RRSP. Knowing where your U.S. stock should be held will help you get the maximum benefit from your investment. For instance, if you have a blue-chip U.S. stock, then you need to consider if your return, even after the 15% IRS withholding tax, will leave you with a better return than Canadian investments. The timing of your retirement can also help determine where you should hold your investments. An RRSP is a better account to keep U.S. stocks, unless you plan on retiring soon in which a TFSA makes more sense.

Key Takeaways:

If you own U.S. stocks, the IRS requires that taxes are withheld regardless of the fact that the stocks are held in a tax-free TFSA account.
The IRS does not levy withholding taxes on U.S. investments held in an RRSP.
If you are unsure about the tax implications, including how provincial taxes will affect your investments, always seek professional advice.

“If you are intending to hold for a long time, then moving your stocks to your RRSP account and holding Canadian investments in your TFSA may be a good strategy.”

Should Pete sell mutual fund to pay down the mortgage?

Pete has a low fixed-rate mortgage, and although he pays the required bi-weekly payments, he is able to pay an annual lump sum with no fees attached. He can get the money by selling his mutual fund, but he is questioning if this is a good idea. After evaluating the positives and negatives, the answer is no, because the interest rate in the mutual fund is higher than the mortgage interest rate. Another reason not to do this is that there could also be hidden fees and tax consequences (if held within an RRSP) of selling a mutual fund.

Key Takeaways:

Withdrawing from investments to pay off your mortgage could have hidden fees associated with it, and is generally not a good idea.
Increasing your payments on the mortgage if you have surplus cash could be helpful for the future.
If you increase payments on your mortgage, make sure to choose an amount that will not cause you financial hardships in the future.

“People want to know where their money will be most effective. [But] selling high returns for low-rate debt doesn’t add up.”