2016 Tax Season Update #2

How much do we each pay for our health care in Ontario?

Health care has been in the news lately south of the border. Our health care in Ontario is paid through our personal tax system. The Ontario Health Premium is included on our pay stubs as part of income tax withheld, but did you know how much? The premium ranges from $0 if your taxable income is $20,000 or less, to $900 if your taxable income is more than $200,600.

A family would pay the premiums based on their own individual taxable incomes, so this also means that family members with little or no income (such as stay at home spouse, children, or other dependants) do not pay the premium.

Not bad, eh?

Examples of how much individuals can expect to pay in Ontario Health Premium
Individual Taxable Income Premium for Tax Year
Up to $20,000 $0.00
$21,000 $60.00
$22,000 $120.00
$23,000 $180.00
$24,000 $240.00
From $25,000 to $36,000 $300.00
$36,500 $330.00
$37,000 $360.00
$37,500 $390.00
$38,000 $420.00
From $38,500 to $48,000 $450.00
$48,100 $475.00
$48,200 $500.00
$48,300 $525.00
$48,400 $550.00
$48,500 $575.00
From $48,600 to $72,000 $600.00
$72,100 $625.00
$72,200 $650.00
$72,300 $675.00
$72,400 $700.00
$72,500 $725.00
From $72,600 to $200,000 $750.00
$200,100 $775.00
$200,200 $800.00
$200,300 $825.00
$200,400 $850.00
$200,500 $875.00
$200,600 and over $900.00

Don’t Forget To Report the Sale of your Principal Residence on Your Tax Return!

Given the average price of a home in the Greater Toronto Area is $916,567, this new requirement to report the sale of your principal residence and exemption on your personal tax return for 2016 will be a huge tax grab if we are not careful.

Generalizing that there is no capital gains tax on the sale of your home is inaccurate. If your family happens to own another principal residence, such as a cottage, there will be capital gains tax on one of them, either the home or the cottage. The capital gains tax can be minimized with a formula used for the principal residence exemption. However, CRA will not allow the principal residence exemption if the sale is not reported on your tax return! You can ask CRA if you can amend the return, but a penalty may apply:

The penalty is the lesser of the following amounts:

  1. $8,000 or

2. $100 for each complete month from the due date of your tax return to the date your

request was made to amend the return

Notice to Reader

 Dean Constand CPA publishes this blog for information purposes only. Feel free to distribute to colleagues and friends. Although the material has been carefully prepared, it is not a substitute for professional advice.

 

2016 Tax Season Update

  • RRSP Contribution Deadline Wednesday March 1, 2017
  • Your RRSP deduction limit shows up on you Notice of Assessment for 2015 taxes filed
  • Go to CRA’s Online Service: My Account, click on link below to set up for instant access to some of your tax information
  • http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html
  • Withdrawals from your RRSP are taxed at your marginal tax rate when you file your personal tax return
  • However, the advantages of an RRSP are the tax deduction for the contribution, and the time value of your investments growing tax-free for several years until retirement, because a dollar saved today is worth more than a dollar saved tomorrow
  • TFSA Contribution Room
    • You will accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.
    • The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.
    • The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
    • The annual TFSA dollar limit for the year 2015 was $10,000.
    • The annual TFSA dollar limit for the year 2016 was $5,500.
    • The annual TFSA dollar limit for the year 2017 is $5,500.
  • If you haven’t contributed since the inception of the TFSA in 2009, you can contribute an accumulated maximum of $52,000 in 2017
  • Go to CRA’s My Account which will give you your TFSA Contribution Room, broken down by financial institution if you select that
  • The advantage of a TFSA is the time value of your investments growing tax -free, however, there is no tax deduction for the contribution like an RRSP
  • Withdrawals from your TFSA are tax-free, however, when it comes to replacing your withdrawals, you have to wait until the following year if you have already contributed your limit for the year, see example below:

 

Example

Since opening her TFSA in 2009, Jenny has contributed the maximum TFSA dollar limit in each year. By the end of 2014, she has accumulated a total of $31,000 in her TFSA account. In 2015 Jenny makes a $10,000 contribution, the TFSA dollar limit for 2015. Later that year, she withdraws $3,000 for a trip. Unfortunately, her plans change and she cannot go. Since Jenny already contributed the maximum to her TFSA earlier in the year, she has no TFSA contribution room left.

If Jenny wishes to re-contribute part or all of the $3,000 she withdrew, she will have to wait until the beginning of 2016 to do so. The $3,000 will be added to her TFSA contribution room at the beginning of 2016.

If she re-contributes any of the withdrawn amount before 2016, she will have an excess amount in her TFSA and will be charged a tax equal to 1% of the highest excess TFSA amount for each month that the excess remains in her account.

 

  • What is New for 2016?

 

  • New Federal Middle Class Tax Rate Cut and New Federal Top Rate Bracket
  • For those making between $45,282 and $90,563 their taxes have decreased from 22% to 20.5% in 2016. That’s a maximum tax savings of $679. For those making above $200,000, the new federal top bracket, their taxes have increased from 29% to 33%.
  • New Increase to Donation Credit for Federal Top Rate Bracket Individuals

 

  • As a result of the new 33% federal top rate bracket, donations in excess of $200 made by individuals in this bracket will get a federal donation credit that is worth 33 cents in tax savings for every dollar donated to registered charities

 

  • New Increase to Guaranteed Income Supplement For Single Low-Income Seniors
  • The guaranteed income supplement benefit for single, low income seniors increased up to $947 annually, starting in July 2016.
  • New Canada Child Benefit
  • The old Canada Child Tax Benefit and the Universal Child Care Benefit (which was taxed) were replaced by the new Canada Child Benefit commencing in July 2016
  • The Canada Child Benefit will pay the following tax-free amounts:
  • Children under the age of 6 $6,500
  • Children 6 to 17 $5,400
  • Disability amount $2,730 (in addition to the above)
  • The above benefits start being reduced when the family net income is over $30,000
  • Go to CRA’s Child and Family Benefits Calculator, click on link below, to see how much you might get:
  • http://www.cra-arc.gc.ca/bnfts/clcltr/cfbc-eng.html
  • To qualify for these benefits, both you and your spouse or common-law partner, if you have one, must file a return every year, even if there is no income to report.
  • New Home Accessibility Tax Credit
  • If you are 65 or older, or are disabled, you or your spouse or common law partner can claim up to $10,000 for renovating your home (and land up to 1.24 acres) that you own, to allow you to gain access to or be mobile and functional within your home
  • The federal credit is worth 15% in tax savings of eligible expenses paid, to a maximum of $1,500 (15% x $10,000)
  • New Eligible Educator School Supply Tax Credit
  • If you are a teacher at an elementary or secondary school, or an early childhood educator at a regulated child care facility, you can claim up to $1,000 of school supplies for the purpose of teaching or facilitating students’ learning
  • The federal credit is worth 15% in tax savings of eligible supplies paid, to a maximum of $150 (15% x $1,000)
  • New Reporting of Sale of Principal Residence
  • What is Eliminated or Reduced for 2016?

 

  • Child Tax Incentives Eliminated

 

  • The Family Tax Cut for couples with at least one child, or often referred to as income splitting, is eliminated
  • The Children’s Fitness Credit and Children’s Arts Credits are reduced by 50%, to $500 and $250 respectively in 2016, and will be eliminated in 2017

 

 

Notice to Reader

 

Dean Constand CPA publishes this blog for information purposes only. Feel free to distribute to colleagues and friends. Although the material has been carefully prepared, it is not a substitute for professional advice.

HARPER TAX CREDITS GONE

What we used to call the “Harper Tax Credits” will disappear after you file your tax return this year.  Personally, I don’t think that taking these away is a bad thing because these are things that don’t enhance the productivity of the economy. The federal budget of March 22, 2016 also unveiled a middle class tax cut, a boost to student grants and the guaranteed income supplement for single low income seniors, and a new high tax bracket rate.

Fitness and Arts Tax Credit

In 2016 the limits for your kids’ sports and artistic activities for the fitness and arts tax credits, $1,000 and $500 respectively, will be reduced to half, and these credits will completely disappear in 2017.

Education and Textbook Credits

These credits were based on the number of months that you attended a post-secondary education program. You can still claim them in 2016 but will disappear in 2017. Credits for tuition fees can still be claimed, which appear on the T2202A that can be downloaded from your educational institution.

Trudeau’s budget increased Canada student grant amounts by 50% for students from low – and middle-income families and part-time students which, I think, enhances the productivity of the economy better.

Family Tax Cut

The family tax cut can be claimed in your 2015 tax return for the last time. This was relevant for couples with at least one child under the age of 18 and allowed a higher-income spouse to transfer up to $50,000 to their spouse or common-law partner and save up to $2,000 in taxes.

I will discuss other ways to split income with family members in another blog.

Middle Class Tax Rate Cut

For those making between $45,282 and $90,563 their taxes will decrease from 22 per cent to 20.5 per cent in 2016. The budget also increased taxes for those making above $200,000 from 29 per cent to 33 per cent.

Guaranteed Income Supplement For Single Low-Income Seniors

Trudeau’s budget boosts the guaranteed income supplement benefit for single, low income seniors by up to $947 annually, starting in July 2016.

 

 

Notice to Reader

Dean Constand CPA, CGA, LPA publishes this newsletter for information purposes only. Feel free to distribute to colleagues and friends. Although the material has been carefully prepared, it is not a substitute for professional advice.

ESTATE PLANNING MADE SIMPLE

ESTATE PLANNING CHECKLIST (PART 2 – TRUSTS)

  1. Do you want to give some of your estate away today during your lifetime by way of a living trust to those who are entitled to benefit from it, your beneficiaries, such as family, friends, and/or charity, while you still have legal control of those assets? Yes    No

Living Trusts set up during your lifetime – Pros

  • Providing For Beneficiaries Who Can’t Manage Assets On Their Own – You can provide for dependants with special needs, beneficiaries of a complicated estate who don’t have the expertise to manage it, management of a minor’s inheritance to be received in a lump sum when he or she reaches 18 by spacing it out, with a living trust
  • Providing For Yourself And Your Spouse If Too Old Or Sick – You can provide for yourself, or you and your spouse, during your lifetime with a living trust called an Alter-Ego Trust, or Joint Spousal Trust, respectively, allowing legal control of those assets in the trust to rest with a trustee, who manages the property in advance of your or your spouse’s death or disability, thus acting as a power of attorney – you must be 65 years of age to set up this trust
  • Second Marriages – You can provide for your spouse from a subsequent marriage during his or her lifetime with a living trust called a Spousal Trust, after which the assets from the trust pass to the children of your first marriage
  • Estate Freezes – If you own an investment (other than your home) or a business that has grown in value over the years and will continue to grow, you can pass  the future growth to the hands of your beneficiaries now, and still maintain control, by way of a living trust that owns a corporation, which allows you to establish or “freeze” your taxes on that growth now, but pay those taxes later when you die, thus reducing a potentially higher tax bill if you waited to transfer your growing assets when you died
  • When investments are transferred to a trust by the settlor they are transferred at fair market value, so any gain on the growth of those investments are taxed in the hands of the settlor when the transfer occurs, however, this tax is deferred for Spousal, Joint Spousal,  Alter-Ego living trusts, and for transfers to corporations for estate freezing purposes
  • My first checklist on estate planning explained that in addition to the advantage of control and management offered by a trust, assets held in a trust are protected as they are owned by the trust and are not accessible to creditors of an individual
  • There are no probate or estate administration fees on the assets held in a trust, as the assets pass outside of your will via the trust document (see my first checklist for the probate fee rates)
  • The trust document remains confidential, whereas a will becomes a public document if it is probated, disclosing the value of the estate as well to the public

Living Trusts set up during your lifetime – Cons

  • Accounting fees for annual preparation of the trust tax return and financial statements of the trust, legal costs to prepare the trust document, however, accounting and legal fees are tax deductible by the trust
  • The living trust is a separate person under our tax law, and pays tax on its income at the highest marginal tax rate, however, the trustee can pay, or make payable, the income of the trust to beneficiaries with lower marginal tax rates, thus avoiding the high tax by the trust

2.   Do you want to give some of your estate away by way of a testamentary trust that is set up under your will and comes into effect when you die? Yes    No

Testamentary Trusts – Pros

  • Providing For Spouse and Children In the Event Spouse Remarries – You can provide for your surviving spouse and preserve the assets for your children if your spouse remarries using a Spousal testamentary trust
  • Providing For Beneficiaries Who Can’t Manage Assets On Their Own – You can provide for dependants with special needs, beneficiaries such as your spouse of a complicated estate who don’t have the expertise to manage it, management of a minor’s inheritance to be received in a lump sum at 18 by spacing it out

Testamentary Trusts – Cons

  • Accounting fees for annual preparation of the trust tax return and financial statements of the trust, legal costs to prepare the trust document, however, accounting and legal fees are tax deductible by the trust
  • The testamentary trust is a separate person under our tax law, and under the new recent rules, pays tax on its income at the highest marginal tax rate like a living trust (with the exception of the first three years after the settlor’s death, in which case graduated marginal tax rates still apply to the testamentary trust), however, the trustee can pay, or make payable, income of the trust to beneficiaries with lower marginal tax rates, thus avoiding the high tax by the trust

A Cautionary Word About “Henson” Trusts

  • A “Henson” Trust can be a living (set up while you are living) or testamentary trust (comes into effect when you die)
  • In either case, you can use a Henson Trust to provide for a beneficiary who is physically or mentally disabled with investments you transfer into it, plus the beneficiary may be eligible to get additional funds and assistance from the Ontario Disability Support Program (“ODSP”) since he or she does not have an “enforceable right” to the trust (the “hallmark”of a Henson trust), thus the trust is not considered an “asset” affecting his or her eligibility for disability support programs
  • A word of caution about transferring investments into a Henson Trust to potentially obtain the additional support funding offered by the ODSP:  When investments are transferred to a Henson Trust by the settlor they are transferred at fair market value, so any gain on the growth of those investments are taxed in the hands of the settlor when the transfer occurs, so the tax consequences should be carefully weighed against the potential government benefits to be received.

 

Stay tuned …..

My next newsletter will continue the Estate Planning Checklist and discuss U.S. Estate and Gift Taxes … did you know that you could be subject to U.S. Estate Tax even if you are a Canadian resident, Canadian citizen, and have never set foot in the U.S.?!

 

 

 

Notice to Reader

 

Dean Constand CPA CGA publishes this newsletter for information purposes only. Feel free to distribute to colleagues and friends. Although the material has been carefully prepared, it is not a substitute for professional advice.

ESTATE PLANNING CHECKLIST (PART 1)

ESTATE PLANNING CHECKLIST (PART 1)

  1. Do you want to give some of your estate away today during your lifetime to family, friends, and/or charity? Yes    No

Gifting your estate during your lifetime – Pros

  • You get to see your gift enjoyed
  • Gifting money to young adult children (over the age of 18) lets them invest and pay tax on their returns at lower tax rates if they’re in a lower tax bracket than yours
  • The reason I qualify the second bullet with young adult children “over 18” is because if you gift money to your minor children (18 and under) the income or dividends earned on the investment are attributed back to you and get taxed in your personal taxes (capital gains, however, do not get attributed back to you but get taxed in the minor’s personal taxes)
  • Gifting money to young adult children to pay down their debts is a guaranteed rate of return, which is the interest on their debt
  • You could save the estate administration tax or probate on the gifted money as it’s not part of your estate (probate is the process for validating your will requested by third parties before they transfer any assets according to your wishes, and a probate fee is charged which in Ontario is $5 per $1,000 for the first $50,000, $15  per $1,000 thereafter)

Gifting your estate during your lifetime – Cons

  • Will you run out of money and need it back? – do the math or hire a financial planner
  • There may be those that would contest the money that was gifted after you die – ensure to document the money gifted with your executor (person authorized to administer your estate after you die, who gathers up your assets, pays your debts including taxes on death, and distributes what remains of your estate to your beneficiaries)

 

2. Have you considered the following ways to distribute your estate after your death?

 

  • By having a signed will? Yes   No

–         If you die without a will, the law steps in to determine who gets what

  • By designating beneficiaries for all your registered investments RRSP/RRIF, Tax-Free Savings Account, Pension Plan, and life insurance policy? Yes    No

–          There is no probate fee on the value of these assets

  • By owning assets jointly which pass by survivorship to the other joint owner(s) if you predecease them? Yes   No

–         There is no probate fee on the value of these assets

–         However, be careful not to transfer part of your investment property that has grown in value solely in your name for the purposes of joint ownership to your  children, as this would trigger a taxable capital gain (a deemed sale of the investment at fair market value) in your name which would be a greater tax hit than saving on the probate fees

–         Therefore, jointly own any assets from the onset to prevent this

  • By leaving your assets by way of a trust to others who are beneficiaries of the trust? Yes    No

–         There is no probate fee on the value of these assets

–         A trust is a private document and remains confidential, whereas a will becomes a  public document if it is probated, disclosing the value of the estate as well to the public

–         A “trust” is exactly that, trusting a trustee with legal ownership of the trust assets for the benefit of beneficiaries who have beneficial ownership, who may be unable to manage or control distributions of the trust assets (for example, spacing a minor’s inheritance over time rather than the minor inheriting a lump sum, providing a spouse with the means to manage a complicated estate by trusting it to experts, preserving your estate assets for your children in the event your spouse remarries, providing lifetime income for dependents with special needs)

–         Assets held in a trust are protected as they are owned by the trust and are not accessible to creditors of an individual

–         Income taxes can be saved by splitting income with lower-income beneficiaries by allocating income of the trust to them

–         There are two types of trusts: living trusts created during one’s lifetime, and testamentary trusts created at the time of one’s death through proper wording in one’s will

–         You can use a trust to be eligible for means tested provincial disability support programs, as the assets are not in the disabled’s name, but owned by the trust (“Henson trust”)

  • By a partnership or shareholder agreement?  Yes   No

–         Your interest in a partnership or corporation is distributed according to the agreement.

–         Having a secondary will to distribute your private corporation shares or partnership interest will avoid those assets from being probated, because it only takes one asset requiring probate to make all assets governed by the same will subject to probate fees

Stay tuned …..

My next newsletter will continue the Estate Planning Checklist and discuss the various uses of testamentary and living trusts.

 

Notice to Reader

 

Dean Constand CPA CGA publishes this newsletter for information purposes only. Feel free to distribute to colleagues and friends. Although the material has been carefully prepared, it is not a substitute for professional advice.

 

Filing your taxes for 2013, what’s new?

  • Safety deposit box payments made after March 20, 2013 are no longer deductible.
  • Adoption expense tax credit has been enhanced to claim eligible adoption expenses earlier than before; from the time an application is made for registration with a provincial ministry responsible for adoption. This allows certain expenses such as provincially required home study and fees to complete adoption courses to be claimed. Continue reading Filing your taxes for 2013, what’s new?

Estate planning…are you ready?

The goals of estate planning include:

  1. Minimizing income taxes and other taxes or “probate fees”  payable on death
  2. Ensuring  liquidity to pay taxes at death, for example, with life insurance, or by paying capital gains tax with instalments over ten years
  3. Providing an orderly transfer of assets to the next generation
  4. Delaying taxes on assets transferred to your spouse
  5. Maintaining control and management over assets transferred
  6. Protecting assets from creditors
  7. Providing income to meet retirement needs
  8. Maximizing after-tax income if disabled and authorizing someone to act on your behalf Continue reading Estate planning…are you ready?

Year End Tax Tips

December 2011

Dear Client,

Happy Holidays!

I would like to take this opportunity to thank you for letting me serve your accounting and tax needs.  I look forward to working with you for a prosperous 2012.

This blog discusses Year End Tax Tips. While minimizing taxes is important, the year end tax tips should not take your attention away from making sound economic decisions with your financial planner when it comes to investment strategy. Continue reading Year End Tax Tips

Family Cottage Transfer

October 2011

Dear Client,

Welcome to my blog! The old format of my newsletters discussing both Small Business Needs and Personal Income Tax will now each be posted as an alternating new blog to my website periodically. As promised in my last newsletter, I was going to discuss planning for the succession of the family cottage and tax implications, and my first blog uses a decision tree to help you with Continue reading Family Cottage Transfer