news brief Archives - Page 6 of 17

Have foreign property? The CRA issues harsh penalties if you don’t file this form

If you own foreign property, in most cases, you will need to fill out the Foreign Income Verification Statement Form (T1135) if the value of the property exceeds $100,000 (at any point during the tax year in question). If you do not do so, the CRA may issue harsh penalties. Failure-to-file charges are $25 for each day the form is late, up to a maximum of $2,500 per tax year, plus non-deductible arrears interest. The T1135 is not well-known. Nevertheless, there are numerous cases of otherwise diligent taxpayers getting hit with excessive fines for not filing it.

“When we think of foreign property, our minds may turn to that offshore Swiss bank account or, perhaps, a Florida rental property. But, believe it or not, a T1135 must be filed if you own foreign stocks, such as Apple Corp., Ford Motor Co. or Bank of America, in your Canadian, non-registered brokerage account.”

A primer on keeping your tax records

Just because you’ve filed your tax return doesn’t mean you’re over and done with the process. Everyone who pays taxes in Canada has a legal obligation to retain records relating to their tax return for six years. This means that the 2018 tax year records should be kept until the end of 2024. For business and individuals, all your records and receipts related to your taxes should be filed and maintained for that length of time, so that they’re available in case the Canada Revenue Agency requests any additional information. Don’t get caught off guard; keep those records and stay prepared.

“After you’ve filed your tax return, the story isn’t quite over because you have obligations to keep tax records for some time – although many people don’t.”

How to renegotiate your pay and treat your career as a financial asset – BNNBloomberg.ca

Financial planning needs to go beyond your investments and should be focused on the source of financing these investments, your job. Negotiating a salary before you even begin working could cost you a million dollars over time. When you have been with a company for a while, you need to be strategic when asking for a raise. Make sure you go to your bosses informed about your situation and the company’s situation to get the raise you deserve, which in turn can go towards your investments.

“The average Canadian will earn some $2 million over a 40-year working life, but not many of us think of our jobs as multi-million dollar investments.”

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.”

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 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.”

CRA Steps Up the Fight

Canadian tax lawyers are noticing changes in the Canada Revenue Agency, which has become significantly more aggressive in how it pursues tax revenue. There has been a shift to increased auditing, and tax reforms to give the CRA more tools and resources to combat tax cheating. This has led to tax lawyers moving from a focus on tax planning to one focused on litigation and audit defense. The Canadian government has also significantly increased the funds available to the CRA, and it has been using the money to investigate a higher number of returns than in the past.

“Whether it is with house flippers in the overheated real estate market, international tax evasion, GST/HST or the federal government’s new tax reforms, tax lawyers say the Canada Revenue Agency is sharpening its fangs with new capabilities and growing more aggressive in the hunt for tax revenue.”