Tax agency calls mandatory fingerprinting ‘a powerful deterrent’
As the year draws to an end, it’s the perfect time to be proactive about tax planning. According to EY’s Asking better year-end tax planning questions, asking your tax advisor better questions today can help identify real tax savings opportunities – before it comes time to complete tax returns in April.
“As tax rules become more complex, it’s even more critical to think of the bigger tax picture continuously throughout the year, as well as from year to year as your personal circumstances change,” says Bruce Sprague, Tax Partner with EY’s Private Client Services practice. “No one likes year-end surprises. Having a conversation with your tax advisor about optimizing your tax savings can yield financial benefits into 2017 and beyond.”
Sprague explains: “Reviewing estate planning goals and wills on a regular basis, for example, can protect your assets and provide tax-efficient income before and after your retirement, as well as a tax-efficient transfer of your wealth to the next generation.”
EY suggests considering how to approach current year-end planning with an eye to the future. Here are EY’s top 9 questions Canadians should ask their tax advisors before the end of 2016:
- Are there any income-splitting techniques available to me?
Determine if you can take advantage of differences in tax brackets and marginal rates in your family with income-splitting loans, reasonable salaries to family members or spousal RRSPs.
- Have I paid my 2016 tax-deductible or tax-creditable expenses yet?
There are a variety of expenses, including interest and child-care costs that can only be claimed as deductions in a tax return if the amounts are paid by the end of the calendar year. You’ll want to check on expenditures that give rise to tax credits and consider if the deduction or credit is worth more to you this year or next.
- Have I considered the impact of any changes to personal tax rules that are effective for the year?
As a result of 2016 changes announced by the Federal government, if you have sold a principal residence in 2016 or hold any linked notes that are maturing after 2016, you may be subject to the new rules and should discuss the impact with your tax advisor.
- Have I maximized my tax-sheltered investments by contributing to a TFSA or an RRSP?
Make your TFSA and RRSP contributions for 2016 and catch up on prior non-contributory years. In order to maximize tax-free earnings, consider making your 2017 contributions in January.
- Have I maximized my education savings by contributing to an RESP for my child or grandchild?
Make registered education savings plan (RESP) contributions for your child or grandchild before the end of the year. With a contribution of $2,500 per child under age 18, the federal government will contribute a grant (CESG) of $500 annually.
- Is there a way to reduce or eliminate my non-deductible interest?
Interest on funds borrowed for personal purposes is not deductible. Where possible, consider using available cash to repay personal debt before repaying loans for investment or business purposes on which interest may be deductible.
- Have I reviewed my investment portfolio?
Consider if you have any accrued losses to use against realized gains and determine if you have realized losses to carry forward.
- Can I improve the cash flow impact of my income taxes?
Determine if you’re eligible to request reduced source deductions and see if you’re required to make a 15 December instalment payment.
- Have I thought about my estate planning?
End of the year presents the perfect time to review and update your will and consider if there are changes to your life insurance needs. It may be the right time to consider an estate freeze to minimize tax on death and/or probate fees. Developing a comprehensive succession plan can help you pass the benefit of your assets to the right people at the right time.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.
EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
SOURCE EY (Ernst & Young)
Here are H&R Block’s top five tips to help prepare for the upcoming tax season.
Are you among the million Canadians preparing for your annual migration to the southern United States this winter?
Despite the high exchange rate, you should be able to buy as much as you did during past winter vacations if you have maintained a U.S. dollar investment account. Maybe you were fortunate enough to have bought U.S. securities in your RRIF during 2010 to 2013, for example, when the Canadian dollar was strong.
Besides holding U.S. dollar investments, snowbirds should further protect their savings by buying travel medical insurance before crossing the border into the U.S.
Buy medical insurance
Note that Canadian provincial government health insurance covers only a small fraction of the high cost of medical treatment in the U.S. If you don’t buy private medical insurance you’d have to self-insure. That could mean paying tens of thousands of U.S. dollars out of your own savings.
The biggest challenge in buying travel medical insurance is dealing with pre-existing medical conditions. According to the Canadian Institute for Health Information, more than 70 per cent of Canadians aged 65 or over have some kind of chronic health condition.
To be properly covered you have to meet the stability requirement of not needing treatment within a specified period of time. If you don’t meet the stability requirement, your policy could be void or you can be excluded for anything related to your pre-existing condition. Many insurance companies consider a snowbird as being treated if they simply see a doctor or change dosage. Your insurance adviser needs to ask lots of questions about your past and present medical conditions.
Robin Ingle, CEO of Ingle International, says if a client has recently been diagnosed with a condition, he or she usually needs to remain stable for the first 12 months, so it is very hard to be covered.
Remember to save receipts for your travel health insurance premiums. Claim them as medical expenses on your 2016 income tax return next spring.
Count the days
Carefully count the days you are in the U.S. each year. It is easy to become a resident alien subject to U.S. tax on your worldwide income.
If, for example, you regularly visit Arizona from Nov. 16 to April 15 each year, then you average 150 days per year in the U.S. That means you exceed the 122-day threshold used in the Substantial Presence Test for U.S. income tax purposes. The Internal Revenue Service (IRS) formula is based on the number of days you stay in the U.S. over three years.
Protect yourself from penalties by annually submitting IRS Form 8840, a Closer Connection Exemption Statement for Aliens, to prove you are a Canadian resident.
Carry a “border binder” to show border guards that you have a stronger presence in Canada than in the U.S. Include photocopies of your Canadian bank account statement, Canadian income tax assessment notice, title to your Canadian residence plus a copy of your most recent 8840 form.
Selling U.S. property
Are you considering profiting from the strong U.S. dollar by selling your U.S. vacation home? The IRS requires the purchaser to withhold up to 15 per cent of the full sales proceeds for U.S. tax. To recoup this tax, you’d need to file a U.S. tax return to report your sale.
Report the cost and sale amounts in U.S. dollars on your U.S. tax return. Use Canadian dollars to report the cost and sale amounts on your Canadian tax return. If you bought when the loonie was strong and sell when the loonie is weak, you might have capital gains tax to pay on your Canadian return.
Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional advisor on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.
In the recent provincial budget, the Newfoundland and Labrador government introduced a new 15% retail sales tax on home, auto and business insurance policies. Effective July 1, 2016, all new or renewing insurance policies in the province will be subject to this tax. In addition, the existing government tax that is paid on insurance premiums will increase by 1%.
“This is a tax and not an increase on insurance premiums,” said Amanda Dean, Vice-President, Atlantic, IBC. “Knowing the financial strain this will add to Newfoundlanders and Labradorians, customers are encouraged to talk to their insurance representative about options that might be available such as discounts for combining home and auto coverage, or for having security and safety features.”
IBC recommends that customers speak with their insurance representative if they have questions about their individual policies.
Also challenging in Newfoundland and Labrador is that the number of auto insurance claims continues to rise, and claims have been getting more expensive. Between 2004 and 2014, the average increase in claims costs per vehicle was 41% in Newfoundland andLabrador, compared with 20% in New Brunswick, 10% in Nova Scotia and 0% in Prince Edward Island.
The property and casualty insurance industry looks forward to reviewing the auto insurance product in Newfoundland and Labrador to find ways to rein in costs for drivers in the province.
About Insurance Bureau of Canada
Insurance Bureau of Canada (IBC) is the national industry association representing Canada’s private home, auto and business insurers. Its member companies make up 90% of the property and casualty (P&C) insurance market in Canada. For more than 50 years, IBC has worked with governments across the country to help make affordable home, auto and business insurance available for all Canadians. IBC supports the vision of consumers and governments trusting, valuing and supporting the private P&C insurance industry. It champions key issues and helps educate consumers on how best to protect their homes, cars, businesses and properties.
P&C insurance touches the lives of nearly every Canadian and plays a critical role in keeping businesses safe and the Canadian economy strong. It employs more than 120,000 Canadians, pays $8.2 billion in taxes and has a total premium base of $49 billion.
For media releases and more information, visit IBC’s Media Centre at www.ibc.ca. Follow IBC on Twitter @InsuranceBureau and @IBC_Atlantic or like us on Facebook. If you have a question about home, auto or business insurance, contact IBC’s Consumer Information Centre at 1-844-2ask-IBC.
If you require more information, IBC spokespeople are available to discuss the details in this media release.
SOURCE Insurance Bureau of Canada
The taxman had to forgo as much as $1.5 million in interest when the Canada Revenue Agency extended last year’s tax filing deadline after mistakenly giving the wrong date.
Agency officials estimated that moving the income-tax returns deadline to May 5, from the usual April 30 midnight deadline, meant $1.43 million in lost interest from Canadians who filed their taxes late over those five days, according to documents released under the Access to Information Act.
The information comes more than a year after the Star first requested details about the error that likely resulted from repeating an old message, or possibly copying and pasting information from 2014, when a five-day extension was granted to taxpayers due to a hacking incident.
The $1.43-million figure assumes all tax payments — totalling $2.09 billion — were late by five days, based on a five-per-cent interest rate, but the CRA said it has no way of knowing what the true financial impact was. By May 6, it had received 24.7 million individual tax returns, in line with projections.
The $1.43-million estimate was provided to show “a worst-case scenario,” CRA spokesman David Walters said in an email.
“It is not possible to determine the exact cost as we do not know when individuals would have filed and paid their taxes, if the extension had not been granted,” Walters said.
Last April, the agency did not disclose cost implications, stating that “given the extended period is short, and most taxpayers filed by April 30, the costs resulting from the filing extension will be negligible.”
Immediately after the deadline was extended, the Star filed two separate requests for information under the Access to Information Act. One asked for the financial implications of lost revenue related to the extension, which was released last week as part of 38 pages of documents, while the other asked how the mistake was made and discovered.
Source: Toronto Star