Tax Tips & Advice

How Many of These Green Tax Credits Apply to You?

0 Comments 15 March 2013

Everything’s green for St. Patrick’s Day – shamrocks, green shirts, even green beer – making it the perfect day to think about taking action to make our environment a cleaner, greener place.

Being green is its own reward, of course, but there are also financial rewards such as tax credits. See how many of these green tax credits you’ll be able to claim this year.

Income Tax Credits

Do you take public transit? Then you’ll definitely want to use the Public Transit Tax Credit when you do your income tax. You don’t have to be a student and, as this is a federal tax credit, you don’t have to live in any particular province; you can claim the full amount of public transit passes that permit unlimited travel on buses, streetcars, subways, commuter trains and even local ferries.

Have you installed a geothermal ground source heating system or solar thermal heating equipment in 2012? If you did and you live in Manitoba, you’ll be able to claim the Green Energy Equipment Tax Credit (15% of the eligible capital installation cost of geothermal ground source heating and 10% of the eligible capital cost of qualified solar thermal heating equipment installed in 2012).

Provincial Sales Tax Credits and Exemptions

The provinces are also making efforts to reward people and businesses for being green.

Did you buy or lease an alternative fuel or hybrid vehicle? Several provinces offer rebates of the provincial taxes you pay when you buy or lease a hybrid vehicle. In Prince Edward Island (PEI), provincial sales tax rebates of up to $3,000 are available on hybrid vehicles purchased or leased; Quebec  offers a similar rebate on the QST (Quebec Sales Tax).

Ontario runs an Electric Vehicle Incentive Program; those who purchase a new plug-in hybrid electric or battery electric vehicle are eligible for an incentive ranging from $5,000 to $8,500. They can also apply for rebates of up to $1,000 or 50 percent of the cost of installing an electric vehicle charging station at their home or business.

And BC offers a similar program. The Clean Energy Vehicle Program provides up to $5,000 off of the pre-tax sticker price per eligible clean energy vehicle. The vehicle you buy doesn’t have to be electric; new hydrogen fuel cell vehicles and compressed natural gas vehicles are also eligible.

Tax Tips & Advice

Eleven Things You Need to Know About Tax-Free Savings Accounts

0 Comments 13 March 2013

The Tax-Free Savings Account (TFSA) was introduced by the federal government in 2009, allowing Canadians to set money aside tax-free during their lifetime.

Here are eleven things you should know about TFSAs:

1) You have to be 18 years or older and have a valid Canadian social insurance number to open a Tax-Free Savings Account (TFSA).

2) Your TFSA can be a deposit, an annuity contract or an arrangement in trust, or you can set up a self-directed TFSA which you manage yourself, buying and selling different types of investments.

3) All the income you earn on that money and whatever money you withdraw from your TFSA account are generally tax-free, too.

4) Only the account holder can contribute to a particular TFSA. If you give your spouse or common-law partner money to contribute to their own TFSA, neither that money nor any interest earned on that money will be attributed back to you.

5) Since 2009, you accumulate TFSA contribution room every year if you are, as you see above, 18 or older, have a valid Canadian social insurance number and are a resident of Canada. You don’t have to officially open a TFSA or have filed income tax in a particular year to accumulate contribution room.

6) The TFSA dollar limit was $5,000 between 2009 and 2012. In 2013, the limit was increased to $5,500. However, your TFSA contribution limit is based on the TFSA dollar limit of any given year, plus any unused TFSA contribution room left over from the previous year, taking into account any withdrawals you made from your TFSA in the previous year. The Canada Revenue Agency provides a pair of examples that show how TFSA contribution room is calculated.

To figure out your TFSA contribution room, you may wish to use their RC343 – Worksheet – TFSA contribution room.

7) Having a TFSA account will not affect any government benefits or credits you receive, such as Old Age Security (OAS) benefits, Guaranteed Income Supplement (GIS),  Employment Insurance (EI) benefits or the goods and services tax/harmonized sales tax credit (GST/HST), just to name some of the most common ones. None of these will be reduced or clawed back.

8) You can put pretty well anything that you could put into a Registered Retirement Savings Plan (RRSP) into a TFSA such as:

  • cash;
  • mutual funds;
  • securities listed on a designated stock exchange;
  • guaranteed investment certificates (GICs);
  • bonds; and
  • certain shares of small business corporations.

9) You can also contribute foreign funds to your TFSA, although they will need to be converted into Canadian dollars on the date of your transaction and the total amount of your contribution cannot exceed your TFSA contribution room.

10) In kind contributions can also be made, as long as the involve qualified investments, such as guaranteed investment certificates (GICs), government and corporate bonds, mutual funds, and securities listed on a designated stock exchange. Once again, if it could go into an RRSP, it can generally go into a TFSA. (Note that when you make this kind of contribution, you will be considered to have sold the property at its Fair Market Value at the time of the contribution – meaning you may end up with a capital gain on your income tax return.  See LINK Blog Do You Have a Capital Gain? for more information on this.)

11) And one last thing you need to know about TFSAs – you definitely don’t want to over-contribute to one!

TurboTax

TurboTax’s Personal Profiling Feature Makes Doing Your Taxes Easy

0 Comments 11 March 2013

Life is what happens to you when you’re busy making other plans, said John Lennon, but whatever stage of life you’re at and whatever happens to you, TurboTax has you covered.

Whether you’re a student, starting a career or a family, getting ready to retire, or already there, there’s an edition of TurboTax designed to meet your specific circumstances.

Which TurboTax Edition Is Right for You?

You’re in school TurboTax Student Online is the edition customized for you. It will guide you through tax deductions such as the tuition tax credit and show you how to get back some of the money you’ve spent on books, moving expenses, and even meal costs.

You’re starting your career – TurboTax Home & Business (online and desktop) will locate hidden tax deductions related to your employment, such as tax credits to help you get back the money you’ve spent on using public transit to get to and from work.

You’re running your own business  Whether you’re your own boss full-time or part-time, TurboTax Home & Business will find business tax deductions you may be unaware of and help you analyze your business, too.

You’ve bought a home – TurboTax Standard (online and desktop) will show you how to apply for home buyers’ credits, claim renovation costs and moving expenses.

You have kids  TurboTax Standard will lead you through relevant child-related tax credits from the nursery through university, from the baby bonus through credits that help you recoup the costs of art and/or fitness programs for your kids.

You’re investing in your future – TurboTax Premier (online and desktop) provides extra guidance for people with investments and/or rental property income.

You’re enjoying your golden years – TurboTax Premier is designed for snowbirds and people who want to get more out of their pension income.

And every edition of TurboTax has life changes profiling built in, to help you find and take advantage of every possible tax deduction to ensure that you get your maximum income tax refund, guaranteed.

Just Answer Some Simple Questions

When you use TurboTax to do your income tax return, you’ll be asked simple questions in plain language about what’s new in your life. Click to tick an answer, and you’re whisked to a screen related to the tax deduction or credit associated with the situation your answer described.

There’s no need to search through a long list of tax deductions and credits to pick out whichever one might apply to you. TurboTax figures out the tax deduction or credit that fits and takes you directly to page where you enter your relevant information.

It’s painless. It’s easy. It’s a lot more inexpensive than telling an accountant about your life situation and then having him or her complete your income tax return for you.

If you didn’t use it last year to complete and file your income tax, make this the year to let TurboTax make doing your taxes easy.

Ask Caroline

Can Rental Expenses from a Previous Year be Deducted?

0 Comments 08 March 2013

We purchased a new home in November 2011 and began to renovate the basement into an apartment for my parents. We purchased all the materials for the renovation in 2011, but the renovation was not complete until January 2012. We are adding the rental income to my husband’s taxes for 2012. Can we deduct the cost of materials from 2011 on 2012 taxes? How would they be claimed?

Rental expenses must be deducted in the year they are incurred, so you can’t claim the renovation expenses in 2012 if you paid for them in 2011. You can adjust your 2011 tax return to claim the expenses in 2011 though, even if no rental income was earned in 2011. In the description of the adjustment state that you thought you were able to claim them in 2012, but found out that you couldn’t and that you started receiving rental income in 2012.

There’s also something else for you to consider; if you don’t intend to actually make a profit charging rent to your parents, you may not have to include it as rental income. The question to ask yourself in this case is: Would you be charging the same amount of rent if it was to a complete stranger? If the answer is no, that you’d be charging more, then you aren’t really out to earn a profit. Of course if you aren’t claiming the rental income, you cannot claim any expenses either.

Throughout tax season, Caroline, a tax analyst with TurboTax, will answer your tax questions. Have a question you’d like to ask? Click here.

Tax Tips & Advice

6 Tips to Make Doing Your Taxes Easier

0 Comments 07 March 2013

Getting organized in advance can make a huge difference when it comes time to complete and file your income tax. Follow the tips below for a smooth and trouble-free tax time!

  • Whenever you get a receipt that you are going to keep and use for tax purposes, look at it before you file it. If the date is hard to read, write the date on the receipt. In many cases, (such as medical and business receipts) you’ll need the date when you’re entering the receipt data, and taking a second or two to make sure the date is legible now will save lots of squinting and guessing later.
  • Put all your income tax receipts, such as your medical receipts, charity receipts and T4 slips into a single folder. When you get such a receipt, it only takes a few seconds to slip it into the folder. And when it’s time to do your income tax, all the receipts you need are in one place.
  • Paperclip your Notice of Assessment from the Canada Revenue Agency to the inside of the folder so it too is right where you need it when you’re ready to complete your income tax return.
  • If you have a rental property, set up and use a separate folder for all the receipts pertinent to that property. Then you won’t have to bother sorting through all your receipts to separate your rental property receipts from your personal receipts at tax time. (Need to review what you can and can’t claim? See our What Expenses Can You Claim on a Rental Property? series.)
  • If you have a business, and don’t already have a separate system for filing your receipts, make sure you set up a separate folder for your business receipts as well. They too need to be kept separate from your personal receipts. (For a review of allowable business expenses, see Eligible Business Expenses.)
  • Invest in software such as TurboTax to make doing your taxes easier. Income tax software helps by automatically filling out forms for you based on the information you supply, doing calculations for you and even letting your efile your completed tax return.  Besides the Standard edition, available online or as software, there are Premier and Business editions available for those with investments such as rental properties or businesses, too.

And remember, even if you use income tax software and are not sending your receipts in to the Canada Revenue Agency, you need to keep them – for six years, according to law, as the Canada Revenue Agency may wish to see them at some time.

Tax Tips & Advice

Tax Credits for 2012: TurboTax Has You Covered

0 Comments 06 March 2013

The average Canadian family of four now receives more than $3,100 in extra tax savings, according to the Canada Revenue Agency, thanks to various tax relief measures put into effect by our federal government.

TurboTax is always up-to-date with all the latest income tax changes and will make sure that you don’t miss out on any tax credits or deductions.

Here are the some tax credits that you might be able to claim on your 2012 income tax return:

The Family Caregiver Amount – If you care for infirm dependent relatives, such as an infirm spouse, common-law partner, or child, you may be able to claim an additional non-refundable tax credit of up to $2,000 when you claim that person as:

  • a spouse or common-law partner amount (line 303 of the Schedule 1, Federal Tax);
  • an eligible dependant (line 305 of the Schedule 1, Federal Tax);
  • a child under age 18 at the end of the year (line 367 of the Schedule 1, Federal Tax); or
  • an infirm dependants age 18 or older (line 306 of the Schedule 1, Federal Tax).

The Medical Expense Tax Credit – The $10,000 limit on the amount of eligible expenses a caregiver can claim in respect of financially dependent relatives has been removed.

The First-Time Home Buyers’ Tax Credit – If you bought a qualifying home in 2012 and are a first-time home buyer, a person with a disability buying a home, or an individual buying a home on behalf of a related person with a disability, you may be able to claim a non-refundable tax credit of up to $750.

The Canada Employment Credit (CEC) – Designed to recognize employees’ work expenses for items such as home computers, uniforms and supplies, this is a 15 percent non-refundable tax credit on an amount of $1,095 in employment income.

The Children’s Fitness Tax Credit – Do you have a child or children that play sports such as hockey or soccer? You can claim a 15 percent non-refundable tax credit on an amount up to $500 for the cost of registering a child in eligible physical activity programs such as these.

The Children’s Arts Tax Credit – You can also claim a 15 percent non-refundable tax credit on an amount up to $500 for the cost of registering a child in eligible “artistic, cultural, or other programs” such as music lessons or tutoring.

The Textbook Tax Credit – If you’re a student, you may be eligible to claim $65 for each month you qualify for the full-time education amount and $20 for each month you qualify for the part-time education amount to help cover the cost of textbooks. The textbook tax credit is calculated as part of the Tuition tax credit and is a 15 percent non-refundable tax credit.

The Public Transit Tax Credit – Those of us that use public transit, whether we’re students or not, can claim the full amount we spend on eligible transit passes for the year.  This is also a 15 percent non-refundable tax credit.

The Tradesperson’s Tool Deduction – You can now deduct from your income part of the cost of tools purchased throughout the year.

The Volunteer Firefighters’ Tax Credit  If you were a volunteer firefighter during the year and completed at least 200 hours of eligible volunteer firefighting services with one or more fire departments in the year, you can claim an amount of $3,000 which entitles you to a 15% non-refundable tax credit.

Remember, these are just the some of the tax credits that are available to individuals for the 2012 tax year. There are over 400 potential tax deductions in all, and TurboTax will help you find all the ones that apply to you so use it to get the biggest possible tax refund – guaranteed

TurboTax

TurboTax Gives You the Tax Help You Need

0 Comments 04 March 2013

Why use TurboTax rather than some other tax application to complete and file your Canadian income tax?

Accessible help to give you the tax answers you need is one reason.

Suppose, for instance, that you’re a parent with two hockey-playing children, wondering if there’s some kind of tax deduction that would give you a break on the registration fees you had to pay to enroll your kids in their hockey program.

If you were using TurboTax to do your income tax, you might:

1) Connect with experts and other TurboTax customers in the TurboTax Live Community and ask them if anyone knew of a tax deduction that would apply to your situation. You might find you don’t even have to ask the question, because a quick scroll brings up an answer to your particular question as one of the most popular ones asked and you can immediately start reading about the Children’s Fitness Credit.

2) Use the TurboTax Help Center to find the answer to your question. You’ll find that the Help Center is conveniently arranged into categories by task, making it even faster to find the answer you’re looking for. When you select the ‘Doing Your Taxes’ category in the Help Center, and then the ‘entering deductions and credits’ section, the question, “What is the Children’s Fitness Tax Credit?” appears – which you would obviously want to explore.

3) Use TurboTax’s Live Tax Advice service to get your question answered. If you use the Premier or Home & Business editions of TurboTax, you can get one-on-one advice from TurboTax’s tax experts by phone or chat for free, seven days a week during tax season.  (You can still use the Live Tax Advice service if you use other editions of TurboTax for a $15 fee.)

Prefer to speak French? The Live Tax Advice experts who answer French questions are from Québec.

No matter which method of help you chose to use, you’d quickly discover that the Children’s Fitness Credit applies to situations such as yours – and learn how you can deduct it on your income tax return to give you more tax savings.

And all of these types of help are directly accessible from within the TurboTax program. You don’t have to leave what you’re doing, open a browser window, find the TurboTax website and then navigate to the help section to get the help you need; just select the type of help you want to use from the right side panel of the program, click, and you’re there.

How to transfer your tuition credit. Claiming moving expenses. How to split your pension with your spouse. Whatever your question, TurboTax will help you answer it.

Have a Mac? TurboTax Online tax software is made for Mac as well as PC. Like TurboTax CD/download versions, it’s available in Standard, Premier, and Home & Business editions.

Tax Tips & Advice

Don’t Over-Contribute to Your TFSA!

0 Comments 01 March 2013

If you are a person who makes a number of contributions and withdrawals to a Tax-Free Savings Account (TFSA) over the course of a year, you’ll want to ensure that you don’t over-contribute.

If you do over-contribute, you will be taxed one percent per month each and every month the excess amount stays in your TFSA account(s).

And an excess amount in a TFSA can occur at any time during the tax year. So if you over-contributed to your TFSA account in January of a tax year and didn’t notice it until you did your income tax, you would be charged monthly interest for almost an entire year!

Now, unless  you’ve made a huge error, we’re not talking about the kind of sums that will drive you into bankruptcy, as there is a limit on how long the penalty will be charged.

“The tax of 1% per month,” says the Canada Revenue Agency (CRA), “will continue to apply for each month that the excess amount remains in the TFSA. It will continue to apply until whichever of the following happens first:

  • the entire excess amount is withdrawn; or
  • for eligible individuals, the entire excess amount is absorbed by additions to their unused TFSA contribution room in the following years.”

However, small amounts add up, too, and no one likes to pay more tax than they have to.

How to Avoid Having an Excess Amount in Your TFSA

The best way to avoid over-contributing to your TFSA account is to know how TFSA contributions work.

You are considered to have an excess TFSA amount “at any time in a year as soon as the total of all TFSA contributions you made in the year exceeds the total of your TFSA contribution room at the beginning of the year plus any qualifying portion of a withdrawal made in the year up to that time” (Canada Revenue Agency).

Look at this example the Canada Revenue Agency provides:

In 2011, Judy begins the year with a TFSA contribution room of $5,000.

Judy’s contributions and withdrawals for 2011 are the following amounts:

  • Contribution on March 16 – $1,000
  • Withdrawal on June 15 – $2,000
  • Contribution on August 23 – $2,000
  • Withdrawal on September 8 – $1,000

You might think, looking at the above, that Judy is fine, TFSA contribution wise, because although she hit her TFSA limit on March 16th, she withdrew $2,000 on June 15th before she contributed another $2,000 on August 23rd.

You’d be wrong.

The Canada Revenue Agency explains, “Judy’s first two contributions, in January and March, reduced her TFSA contribution room to zero. Since her June withdrawal does not get added back to her contribution room until the following year, her August contribution caused an excess TFSA amount of $2,000 for that month. Her September withdrawal of $1,000 would be considered a qualifying portion of the withdrawal in computing her highest excess amount for the following month, October. An excess TFSA amount of $1,000 remains until the end of the year and she will have to pay a 1% tax for the months of August to December.” (our italics).

Judy ends up paying an additional $70.00 in tax.

Here are two other examples of qualifying portions of a withdrawal on the same page as the one just quoted.

The best advice? If you’re going to make withdrawals and contributions in the same tax year, keep a close eye on the overall balance of all your TFSA accounts (if you have more than one), so you can immediately make the kind of qualifying portion of a withdrawal that counts – one made during the year that was required to reduce or eliminate a previously determined excess amount.

Tax Tips & Advice

How to Take Advantage of Spousal RRSPs

0 Comments 26 February 2013

If you’ve recently gotten married or notified the government you’re in a common law relationship, you’ve likely already had a talk about what to do with your finances.

With the RRSP deadline on March 1st, it’s a good time to consider whether you should stick with your individual RRSP, if you’ve already opened an account, or whether a spousal RRSP is right for you.

Spousal RRSPs are a good idea if one person has a significantly higher income compared to the other partner. Having the higher-income spouse contribute to a partner’s RRSP will help the couple defer taxes or reduce the taxes you pay on your investments. Someone who makes a higher income is taxed more by the government, which means any earnings they make on their investments are taxed at a higher rate. With income splitting, this couple can save money they pay on taxes.

Keep in mind that the amount the higher-income partner contributes to his/her partner’s RRSP still counts against their contribution limit. If the contribution amount they make to their or their partner’s account exceeds their limit, they will be dinged by the government. This also means that the lower-income partner is still able to contribute their full contribution limit to the spousal RRSP since the partner’s contributions doesn’t affect their individual contribution room.

The spousal RRSP belongs to whomever it is under, in most cases it’s the lower-income holder. One thing to keep in mind is that there’s a three-year limit before the amount contributed to spousal RRSP – whether by the plan owner or the partner – will be counted as income for the lower-income partner. If funds are withdrawn before then, the income will be counted as income for the other partner.

If there’s a younger person in the relationship, spousal RRSPs are also a method to continue contributing to an RRSP since the RRSP can be under the younger partner’s name. The older, higher-income earner can continue to contribute to the account. As long as the spouse is under 71 years old, the higher-income earner can still claim tax deductions on the amount they’ve contributed.

Save your household’s funds from taxes when it comes to retirement by taking advantage of spousal RRSPs. TurboTax can help you see how much get the most of your RRSP contributions.

TurboTax

Make Tax Preparation Easier With TurboTax’s RRSP Wizard

0 Comments 25 February 2013

You can do it the long, aggravating way by setting up a spreadsheet and entering the data such as your income, the amount you might contribute to an RRSP, and your marginal tax rate before and after that particular contribution amount to guesstimate how much of an RRSP contribution you should make this tax year.

Or you can use TurboTax.

TurboTax’s built-in RRSP Optimizer makes it easy to see how different RRSP contribution amounts can increase your tax refund or lower your tax owing.

  1. You don’t have to make any calculations as TurboTax does it all for you.
  2. As you see in the screenshot below, the amount of your potential refund or tax owing is clearly displayed at the bottom of the RRSP Optimizer tool.
  3. To see how different RRSP contribution scenarios would affect your income tax, you don’t have to return to different forms and input different numbers to see different results; just move the sliders or type in the different figures you want right in the RRSP Optimizer to get the information you want.
  4. Nor do you have to play around with different scenarios to cut to the chase and see what amount you would have to contribute to your RRSP to get the biggest possible refund – just click on the ‘Auto Calculate: Maximize My Refund’ link and TurboTax instantly shows you the answer.

And using the RRSP Optimizer is easy.

When you first start working on your return with TurboTax, you are asked to enter your personal information and answer a few simple questions about your tax situation. One of these is whether or not you’ve contributed to an RRSP from January 1st, 2012 through March 1st, 2013.

Once you’ve completed your Personal Tax Profile, and entered your income, you can quickly access the RRSP Optimizer by clicking on the blue file folder RRSP tab across the top of your screen.

This will bring up the RRSP Optimizer welcome screen that tells you how the Optimizer works.

“The RRSP Optimizer lets you see the effect that purchasing additional RRSPs before March 1, 2013 would have on your tax return. Use the sliders or enter directly in the Additional contribution or Balance due fields to see how your bottom line could change.”

The only holdup is that you have to enter your RRSP limit for the 2012 tax year before you can use it. It’s not much of one though. You’ll notice that the phrase RRSP limit is hyperlinked in blue on the screen. If you don’t know where to find your RRSP limit, clicking on the hyperlink will take you to a screen that explains where to find it.

Enter your contribution limit, click on the blue RRSP tab again to bring up the RRSP Optimizer, and voila! You’ll see how much of a tax refund you would get or how much income tax you’ll have to pay with the information you currently have put into the tool.

So why do it the hard way? Get TurboTax in the online or desktop edition that’s right for you and see how much easier it is to make the most of your RRSP contributions.

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