Frequently Asked Tax Questions
Amount for an Eligible Dependent
Q: What is the amount for an eligible dependent?
A: The amount for an eligible dependant is what used to be called the equivalent-to-spouse amount. It allows single or separated taxpayers who are supporting a dependant an equivalent tax break to that enjoyed by taxpayers who support a spouse or common-law partner.
Q: I got married last year. Before I got married I was supporting my six-year-old child from a previous relationship. Can I claim the amount for an eligible dependant for my child?
A: Yes, you can claim the amount for an eligible dependant if you were single or separated at some time in the year.
Q: I am divorced and had to pay child support payments to my ex-wife on behalf of my son. However, my son moved in with me in July, and I was no longer required to make the support payments. Can I claim the amount for an eligible dependant for the period in which he lived with me?
A: No. In any year in which you are separated from your spouse or common-law partner for the entire year, you cannot claim an amount for an eligible dependant if you were required to make support payments for that dependant. However, you will be able to claim the amount for an eligible dependant next year if your son continues to live with you next year and you are no longer required to make support payments.
Q: I lost a bundle on the stock market last year. Can I claim my losses on my tax return?
A: You can only use your capital losses to offset capital gains. If your capital losses exceeded your capital gains, you will have a net capital loss that you can apply against taxable capital gains either in one of the three preceding years or in any future year.
Q: I owned shares in a company that went bankrupt last year. What are the tax consequences?
A: In the year in which a company becomes bankrupt, you may elect to have disposed of your shares for nil proceeds. This will result in a capital loss equal to the adjusted cost base of the shares. You should attach a note to your tax return stating that you are electing to have subsection 50(1) of the Income Tax Act apply to the shares.
Q: I sold some shares that I inherited from my grandfather several years ago. The shares were purchased by my grandfather more than 25 years ago, how do I determine their cost?
A: The tax cost of the shares to you would be their value at the time you inherited them. You should contact the executor of your grandfather's estate for this valuation.
Q: If I have made charitable donations, but my other non-refundable tax credits are sufficient to reduce my taxes to zero, can I carry these charitable donations forward, and if so for how many years can I carry them forward?
A: Yes, you may carry the donations forward for five years.
Q: I have made charitable donations of under $200 during the tax year. Next year I plan to donate about the same amount. Is it best to claim all of my present donations on this year's tax return, or wait until next year or later to claim these?
A: For smaller donations it may be advantageous to save the donations for several years and combine them because there is a higher credit for donations over $200. The federal non-refundable credit for donations up to and including $200 is 16%, and on the balance, 29%. You will also be entitled to a provincial credit equal to the lowest provincial tax rate on the first $200 and highest provincial tax rate on the balance.
Q: I attended a social that was intended to raise funds for a "recognised" Canadian charity. Can I claim the cost of the tickets as a charitable donation?
A: Probably not. The cost to attend such an event could only be claimed if the charitable organization separated the admission cost portion from the donation portion, and issued a receipt for the amount qualifying as a donation. This is because a charitable donation must be a true gift without any consideration being received in return.
Child Care Expenses
Q: Both my wife and I work full time. She makes more money than I do, so it is more beneficial for her to claim the day care expense. Is this OK?
A: No, the spouse or common-law partner with the lower net income must claim child care expenses. Exceptions exist for periods during which the lower-income spouse or common-law partner was infirm, going to school or in prison.
Q: I'm a single mom, and I work evenings. I have a teenaged babysitter come in to look after my children. Can I claim this as child care expenses?
A: Yes, as long as the teenager is not related to you and he or she is looking after your children so you can go to work. Include the babysitter's Social Insurance Number and make sure you get a receipt.
Q: What is the maximum amount of child care expenses I can claim for my 4-year-old son?
A: The maximum allowable claim is the lesser of:
total child care expense paid or
two-thirds of your earned income
The maximum dollar amount is reduced from $7,000 to $4,000 for children seven years old or over. It is increased to $10,000 if the child is disabled.
Contributing to an RRSP
Q: How much can I contribute to my RRSP that I can deduct on my 2012 tax return?
A: Your RRSP limit for 2012 is shown on the Notice of Assessment that you received after you filed your 2009 return. If you have lost your Notice of Assessment, you can call the CRA T.I.P.S. line at 1-800-267-6999.
Q: What happens if I accidentally contribute too much?
A: If you contribute more than your limit, you can carry forward the excess amount on Schedule 7 and deduct it in a future year when you have accumulated more RRSP room. However, if your excess contribution is more than $2,000, you will be subject to penalty tax. In this case, it may be advisable to withdraw the excess amount.
Q: What are the tax consequences of contributing to my wife's RRSP?
A: If you contribute to your wife's RRSP, you get the same deduction as if you had contributed to your own. Likewise, the deduction is subject to your own RRSP limit, not your wife's. On the other hand, the RRSP belongs to your wife, so when the money is removed, she will have to report it, not you. In short, you get the deduction; she reports the income. Therefore, it is an excellent way to split income between spouses. However, to prevent abuses, any withdrawals from a spousal RRSP will be attributed back to the contributor to the extent contributions were made to any spousal RRSP during that year or the immediately preceding two years.
Q: Is it best to contribute to my own or to my husband's RRSP?
A: That depends on the level of income both you and your husband can expect at retirement. Ideally, you should try to equalise the retirement income between you to minimise taxes. This means that if you will have a company pension when you retire, and your husband will not, it may be best to contribute to your husband's RRSP. However, if the situation is reversed, you should contribute to your own RRSP, at least until you have generated enough capital in your RRSP to generate an income to equal your husband's retirement income.
Q: I understand that there is a disability tax credit. As I am somewhat arthritic, I am not able to participate in many recreational activities. Does the inability to participate in such activities establish a legitimate claim for the disability credit?
A: Probably not. A disability must be such that it markedly restricts your ability to perform a basic activity of daily living. This does not include working, housekeeping, or a social or recreational activity.
Q: What certification is required in order to claim the disability tax credit?
A: In order to claim the amount, you must file a T2201 Disability Tax Credit Certificate, which must be completed by a medical doctor, optometrist, audiologist, psychologist, occupational therapist, speech language pathologist or physiotherapist. These are the only people who can certify that you meet the definition of "disabled."
Q: What can I claim for my disabled daughter?
A: If your daughter was under 18 at the end of the year, she is entitled to a supplement of $3,848 in addition to the regular disability amount of $6,596. The supplement is reduced by child care expenses claimed for your daughter that are in excess of $2,254. Any portion of the disability amount and supplement that cannot be fully utilised by your daughter can be transferred to you. The provinces and territories also have disability supplements for children under 18. In Saskatchewan, Yukon, the Northwest Territories and Nunavut, they are the same as the federal supplement. In the other provinces, they range from a high of $3,940 in Alberta to a low of $2,353 in Newfoundland.
Electronic Filing (EFILE/NetFile)
Q: How does electronic filing work?
A: We enter your tax information into our computers and file it online with the CRA.
Q: What are the advantages of filing electronically?
A: Because you do not have to mail your return, and because the CRA does not have to manually enter your tax information into its computer, it is a lot faster than paper-filing.
Q: Are there any types of tax return that cannot be electronically filed?
A: Only a small percentage of tax returns cannot be electronically filed. These include the returns of deceased taxpayers and non-residents.
Q: How can I be sure that my personal tax information will remain confidential?
A: In order to ensure confidentiality, the CRA requires that all EFILE transmissions be sent in an encrypted format that cannot be viewed or altered by other Internet users.
Q: Can I claim my automobile expenses as an employment expense?
A: You can claim automobile expenses if you are required to use your car in the course of your employment and you do not receive a non-taxable allowance for your expenses. You will need a T2200 Declaration of Conditions of Employment, signed by your employer stating that this is the case. Your claim must be based on the actual auto expenses you incur, prorated by the ratio of employment use to total use. This means you must keep a record of all your auto expenses, as well as the total kilometres driven for employment purposes and the total kilometres for the year.
Q: Can I deduct the cost of commuting to and from my place of work?
A: The cost of commuting via private vehicle is a personal expense and is not deductible. If you use public transit and purchase a monthly transit pass, you can deduct the purchase cost. In order to do so, you must obtain an official purchase receipt for the pass.
Q: I have to use my car for employment purposes. What are the tax consequences of buying versus leasing?
A: If you buy your car, you can deduct capital cost allowance at the rate of 30% per year (15% in the first year). You cannot claim CCA to the extent that the cost of your car exceeds $30,000, plus GST/HST/PST. You can also only claim interest charges up to a maximum of $300 per month. If you lease the car, you can deduct your lease payments up to a maximum of $800 per month, plus GST/HST/PST. In either case, you must prorate the total amount by the ratio of employment use to total use.
Q: Can I deduct meal expenses if I am away from the office on company business?
A: You can deduct meal expenses if you are ordinarily required to work away from your employer's place of business or in different places, and you were out of town for at least 12 hours. You will need a T2200 Declaration of Conditions of Employment, signed by your employer stating that this is the case. Only 50% of meal expenses are deductible. Different rules apply to employees in the transportation industry. If your employer's principal business is the transportation of goods or passengers, the CRA will allow you to claim $15 per meal to a maximum of three meals a day without receipts. In this case you will need a TL2 Claim for Meals and Lodging Expenses, signed by your employer. Again only 50% of your meal expenses will be deductible.
Q: I am an apprentice auto mechanic. Can I claim the cost of my tools?
A: Apprentice vehicle mechanics can claim a deduction for tools acquired as a condition of their employment. The deduction is limited to the amount by which the cost of the tools exceeds the greater of $1,000 and 5% of their income from the apprenticeship in the year purchased. If your income is low in the year you purchase the tools, it may be advantageous to defer claiming the deduction to a future year.
Q: I received some dividends from a company in the United States from which United States income tax was withheld. My neighbour told me that I have to report the dividends on my Canadian tax return and pay tax on it again. Why do I have to pay tax on the same income twice?
A: Canadian residents must pay tax to Canada on their worldwide income even though foreign income may also be taxed in the country from which it arises. However, to avoid double taxation, Canadians who pay income or profits tax to a foreign country are allowed a foreign tax credit to offset the foreign taxes paid.
Q: I receive Social Security retirement benefits from the United States. Should I be paying tax to the United States government for these benefits?
A: U.S. Social Security benefits paid to a resident of Canada are fully exempt from tax in the United States and partially exempt from tax in Canada. The entire amount of benefits is reported as income on your Canadian return and the exempt portion (15% of the benefits) is claimed as a deduction.
Q: This past year I worked in Australia for the entire year. I filed a return with the Australian government and paid taxes on the income I earned while I was there. Is there any reason I should file a return when I was not in Canada at any time during the year?
A: If you retained residential ties with Canada while you were away, you may be considered a "factual resident" of Canada, even though you were not physically present here. In this case you will have to report the Australian income on your tax return and claim a foreign tax credit for the tax paid to Australia. However, if you are considered to be a resident of Australia under the Australia-Canada tax treaty, you will not be taxable on this income in Canada.
Immigrating to Canada
Q: I am a U.S. resident working in Canada on a one-year contract. I have not brought my family with me and I will be returning to the United States as soon as my contract has finished. Am I considered to be an "immigrant" to Canada for tax purposes?
A: No. Because you will be considered a resident of the United States under the Canada-United States tax treaty, you will be treated as a non-resident for Canadian tax purposes. This means you will not be taxable to Canada on your world income. However, you will be taxable on your Canadian employment income unless the total remuneration received in the year was less than $10,000 or you were in Canada for not more than 183 days and your remuneration was borne by a source outside Canada.
Q: I immigrated to Canada on July 1. Will I be taxed on my income for the whole year?
A: No. You will be taxed on that portion of your world income you earned after you established residential ties here. The only types of income earned before that which are taxable are Canadian-source employment income, business income or scholarship income, or capital gains from the disposition of Taxable Canadian Property. "Taxable Canadian Property" is a technical term that includes real estate situated in Canada, but not publicly traded shares.
Q: Can I claim the expenses I incurred in moving here?
A: You can only claim your expenses incurred in moving to Canada if you are a full-time student at a post-secondary institution. You may then deduct your expenses against any income you have from scholarships, fellowships, bursaries or research grants from that institution.
Q: I am immigrating to Canada later this year. Is there anything I can do to avoid paying more tax than I have to?
A: If you are expecting to receive any lump-sum payments (for example, a retiring allowance from your employer), you should try and time it so that you receive them before you establish residential ties here, otherwise they will be included in your income for Canadian tax purposes. You may also want to consider the possibility of transferring some of your investments to a non-resident trust before you leave. As long as the income is retained in the trust, it will not be taxable in Canada until you have been here for five years.
Q: My wife and I have a joint bank account. Since she is in a lower tax bracket, I want her to report the interest from it. Is this acceptable?
A: Probably not. You have to report income from investments in proportion to how much each of you contributed to their purchase. If you both contributed the same amount of money to the account, you would each report half the interest. However, if you contributed all the money, you would report all the interest.
One way to achieve the result you want would be to arrange your affairs so that your wife uses her money to make income-producing investments, while you use your money for non-income-producing items such as paying off the mortgage.
Q: If I buy mutual funds and put them in my daughter's name, does she report the income they earn?
A: No. When you transfer property to a minor child, you have to report any income it earns up until the year in which the child turns 18. However, the child reports any capital gains realised by the property. If you want to set aside money for your daughter, you should therefore put it in an investment that will generate capital gains as opposed to dividends or interest. Assuming your daughter does not have any other income, the investment could realise up to $18,078 of tax-free capital gains per year (at 2009 rates).
Q: Are there any legitimate means I can use to split income with my daughter?
A: A special rule allows your daughter to report the income from her Child Tax Benefit payments if they are deposited in a separate account in her name. If you are saving for her education, you may also want to consider a Registered Education Savings Plan (RESP). Income earned in an RESP is not taxed until it is withdrawn. Assuming your daughter decides to pursue a post-secondary education, it will then be taxed in her name.
Q: Can incorporating my business protect my personal assets?
A: Incorporation provides some protection against personal assets by limiting your liability. However, in most cases financial institutions require a personal guarantee from the principal shareholder(s) of a small business corporation. This severely limits this advantage to incorporation.
Q: My proprietorship is booming! I'm making more money than I need. Is now a good time to incorporate?
A: Generally speaking, if your small business is earning more profit than you need personally, incorporation may be a good idea. Incorporating gives you as a shareholder more options for the distribution of income. Another advantage is that the income tax rate for small business corporations is more favourable than that for individual shareholders.
Q: Are dividends paid out by a corporation a tax-deductible expense?
A: No, dividends are paid out of after tax dollars. This is why the recipient pays tax at a lower rate on dividends than on other income.
Q: I have heard that dividends enjoy a preferential tax rate. Can you explain?
A: Dividends from taxable Canadian corporations enjoy beneficial tax treatment because of the dividend tax credit. Since dividends are paid out of a corporation's after-tax income, they have already been taxed at the corporate level. To prevent double taxation, a dividend tax credit is allowed to the individual who receives the dividend, to offset some or all of the corporate tax paid. Depending on your income bracket, this may result in an effective tax rate from between 7% to 36% (the exact percentage will vary, depending on the provincial tax rate and other factors). An enhanced dividend tax credit has been proposed for 2006 and subsequent years for dividends received from large corporations.
Q: How are capital gains taxed?
A: Only 50% capital gains are included in income. As a result, the tax you pay on capital gains is only 50% of what you would pay on most other types of income, such as interest or employment income. The first $500,000 of capital gains realised in respect to qualified farm property or qualified small business corporation shares are tax-free.
Q: Financial planners often use the term "marginal tax rate." What is that and why is it important?
A: Your marginal tax rate is the rate at which you are taxed on your next dollar of income. It depends partly on your taxable income, partly on the non-refundable tax credits you can claim, and partly on your province of residence at the end of the year. The federal tax system has four different tax rates. For 2005, your first $35,595 of taxable income is taxed at 15%. Your next $35,595 of taxable income is taxed at 22%. Taxable income between $71,190 and $115,739 is taxed at 26% and taxable income in excess of $115,739 is taxed at 29%. With the exception of Alberta, which has a single rate of 10%, the provinces also have progressively increasing tax rates depending on your income level. So if you are wondering how much extra tax you will have to pay if you make an RRSP withdrawal, do some moonlighting, or realise a capital gain on the sale of some shares, you need to know your marginal tax rate.
Q: In the case of a married or common-law couple, which spouse should claim the medical expenses?
A: Usually it is more advantageous for the spouse with the lower net income to claim the medical expenses because the claim is reduced by 3% of one's net income. Because of this 3% reduction, the higher the net income, the lower the net claim for medical expenses will be.
Q: Can aspirins be claimed as a medical expense?
A: Not if they are purchased "over the counter." However, they may be claimed if they are prescribed by a medical practitioner and recorded by a licensed pharmacist.
Q: Can vitamins and herbs that you purchase from a health food store on the advice of a friend be claimed as a medical expense?
A: If they were not prescribed by a qualified medical practitioner and recorded by a pharmacist, they are not eligible medical expenses.
Q: Can I claim medical expenses such as dental treatment for my 21-year-old son who is away from home attending university?
A: Yes, if at some time in the year your son was dependent upon you for support. In the case of dependants 18 or over, your claim is reduced by the lesser of $1,844 and 3% of the dependant's net income. Your maximum claim per dependant is $10,000.
Q: Do I need to keep receipts for my moving expenses?
A: Not for all moving expenses. Receipts are not needed if you use the simplified method for claiming meals and vehicle expenses. Under the simplified method you can claim a flat rate of $15 per meal to a maximum of $45 per person per day. And if you use your car, you can use a flat rate per kilometre that varies depending on which province you moved from. However, you must keep track of the total kilometres driven that relate to the move. All other moving expenses still have to be supported by receipts.
Q: What is the detailed method for claiming moving expenses?
A: If you use the detailed method, you must keep track of all your motor vehicle expenses for the entire year and calculate your deduction as a percentage of the total kilometres driven. For example, suppose the distance you moved was 2,000 kilometres, your total mileage for the year was 20,000 kilometres, and your total vehicle expenses for the year were $5,000. Your deduction would then be $500, calculated as (2,000/20,000km) x $5,000.
Q: I lived in a rented apartment in the city where I used to reside before my move to start a job in a new location. Can I claim a deduction for costs such as legal fees related to the purchase of my new home in the new city?
A: No. If you did not own and sell a home in the old location, you cannot claim expenses related to the purchase of a home in the new location.
Q: Do I have to have a job secured in the new location before my move in order to claim moving expenses, or can I move to a new city, look for a job, and then claim moving expenses once I start working?
A: You can claim moving expenses to the extent of your earned income at the new location regardless of whether you had obtained your new job before or after the move.
Moving to the United States
Q: Should I cash in my RRSPs before I move to the U.S.?
A: In most cases, it is not advisable to cash in your RRSPs before you move to the U.S. If you collapse your RRSPs while resident in Canada, you will be taxed at your marginal rate for that year. If you wait until you move, lump sums will be taxed at a rate of 25%. If you leave the money in until you convert it to a RRIF or an annuity, the Canadian tax rate drops to 15%.
Q: Will I have to file a Canadian tax return after I move?
A: If your move is temporary and you do not sever your Canadian residential ties, you will have to continue filing a Canadian return every year, reporting your world income. If you are making a permanent move and severing your Canadian residential ties, you will have to file as a part-year resident in the year you move. In subsequent years, you will not have to file a Canadian return unless you have Canadian-source employment or business income or dispose of taxable Canadian property.
Q: How will my CPP and OAS be taxed if I move to the U.S.?
A: Under the Canada-U.S. tax treaty, CPP and OAS benefits paid to a resident of the U.S. are not taxable in Canada. However, you will have to include them on your U.S. return. For U.S. tax purposes, they will be treated in the same manner as U.S. Social Security benefits.
Registered Education Savings Plans
Q: What is a Registered Education Savings Plan (RESP)?
A: An RESP is an education savings plan that allows for the contribution of funds into a tax-deferred account by a parent/grandparent/interested person (Member) on behalf of a child (Nominee) for the funding of post-secondary education costs. Interest earned on the Member's principal contributions accumulates tax-deferred. There is no maximum contribution limit per child per year, with a lifetime limit of $50,000.
Q: What is the Canada Education Savings Grant (CESG)?
A: The CESG is a federal government program that offers a grant equal to 20% of the first $2,500 of annual RESP contributions (or maximum of $500 per child per year). Lifetime maximum CESG available is $7,200 per child. The CESG on the first $500 of contributions is increased to 40% for families with income up to $35,595, and to 30% for families with income between $35,595 and $71,190.
Q: What is the Canada Learning Bond (CLB)?
A: The CLB is a federal program geared toward assisting low income families with their children's post-secondary education funding. Generally, children born on or after January 1, 2004, will be eligible for a CLB in each year that the child's family is entitled to the National Child Benefit (NCB) supplement, up to and including the year in which the child turns 15 years of age. The amount of the CLB will be $500 in the first year in which the child's family is entitled to the NCB supplement and $100 in any subsequent year of entitlement. Therefore, the proposed maximum that could be received is $2,000 lifetime.
Q: My wife does not work outside our home. How can we set up a retirement income plan for her?
A: Assuming you have sufficient RRSP deduction room, you can contribute to a spousal RRSP. When your wife makes withdrawals from the plan, the income will then be taxable to her unless you have contributed to the plan within the last three years.
Q: My spouse never contributed to the Canada Pension Plan so will not receive benefits from it. My sister told me that I can split my benefits with my spouse. Is this true?
A: Yes, spouses can apply to have their CPP retirement benefits split between them. The amount that can be split will depend on how long you lived together during your contributory periods.
Q: I am turning 71 this year. What happens to my RRSP?
A: By the end of the year in which you turn 71, you must either cash in your RRSP or convert it into a form of retirement income. Most people convert their RRSPs into a Registered Retirement Income Fund (RRIF). This is just like your RRSP, except that you can no longer contribute to it. Like an RRSP, income earned by your RRIF is allowed to accumulate tax-free. However, you must withdraw a minimum prescribed amount each year. You may prefer to use your RRSP funds to buy an annuity. This will provide you with specified monthly payments, either for life or a fixed term (usually until age 90). The payments may be constant, or they may increase at regular intervals, either by a fixed percentage or to match inflation. This option may appeal to you if you want the security of a fixed income. If you simply withdraw the money from your RRSP, the entire amount will be taxable in the year it is withdrawn. If the amount is substantial, this will subject you to tax at a higher marginal rate. If you have little or no other income, it may make sense to make a partial withdrawal. Otherwise you should probably consider one of the other options.
RRSP Home Buyers' Plan
Q: I plan to buy a house next month. Can I put my down payment into my RRSP, get the tax deduction, and then take it out to buy the house?
A: You cannot claim a deduction for an RRSP contribution if it was made less than 90 days before the Home Buyers' withdrawal. However, this applies only to the extent that the balance in the RRSP after the withdrawal is less than the amount contributed in the 90-day period.
Q: I have owned a house in the past. Does that mean I cannot make use of the Home Buyer's Plan?
A: Not necessarily. You are eligible to participate for calendar year 2006 as long as neither you nor your spouse or common-law partner owned a home and lived in it as a principal residence in the period beginning January 1, 2002, and ending 31 days prior to your withdrawal. Also, if you participated in the Home Buyers' Plan previously, your repayment balance must be zero as of January 1 of the year in which you wish to make a new withdrawal.
Q: If I make use of the Home Buyers' Plan, what are my future obligations?
A: The amount you withdraw will have to be repaid over a 15-year period, beginning the second year after your withdrawal. You will be notified of the amount you have to repay, and the date by which it must be repaid. If you do not repay the money as required, the amount will be added to your income.
Q: How do I make a repayment under the Home Buyers' Plan?
A: The repayment is easy: simply make a regular contribution to any of your RRSPs. It does not have to be to the same RRSP from which you withdrew the money. However, it must be to your own personal RRSP, not a spousal RRSP. Then, when you file your tax return, designate the amount relating to your Home Buyer's Plan repayment.
Q: Can I pay more than the amount required under Home Buyers' Plan if I have the money?
A: Yes, you can pay as much as you want, up to the total balance owing. Simply make an RRSP contribution to a personal RRSP, then designate the amount you want to treat as a repayment when you file your return. This will reduce your outstanding balance and thus your future minimum repayment amounts.
Q: I am turning 65 this year. Am I going to be taxed at a lesser rate because I am a senior?
A: The tax rates do not fluctuate according to age; however, seniors are entitled to a couple of credits that are not available to most others. These include the age amount ($3,979) and the pension income amount (maximum of $2,000). The age amount is reduced by 15% of your net income in excess of $29,619. Depending on where you live, you may also benefit from special provincial tax credits. For example, Saskatchewan has a supplementary senior amount of $1,051 that does not have an income limitation.
Q: I have recently transferred all of my Registered Retirement Savings Plans (RRSPs) to a Registered Retirement Income Fund (RRIF). I do not need any additional income, but I was told that I have to withdraw from this plan every year. Is this true?
A: You must withdraw a minimum amount from your RRIF each year. The amount is determined by multiplying the value of the RRIF at the beginning of the year by a prescribed factor that varies with your age or, if you choose, the age of your spouse. However, you may withdraw more than this if you want. Any amount over the minimum is called an "excess" amount. All amounts withdrawn from your RRIF must be included in your taxable income. However, the minimum amount is not subject to tax withholding at source. If you are 65 or over, your RRIF payments are eligible for the pension income amount.
Q: My husband's aged mother is living with us. Her only income is from Old Age Security and the Guaranteed Income Supplement. Is there anything we can claim for her?
A: If your mother-in-law is 65 or older and her income is less than $16,989, either you or your husband can claim a caregiver amount for her. The full caregiver amount of $3,848 is reduced by her income in excess of $13,141. Your mother-in-law must be living with you and not just visiting on a temporary basis. However, she does not have to have lived with you for the full year.
Starting Your Own Business
Q: I started a small home-based business this past tax year. How do I report my income and expenses?
A: If your business is a proprietorship, which means you are the sole owner and it is not incorporated, you would need to summarise your business income and expenses on form T2124 and include the net income on your current-year income tax return.
Q: I bought a new car last year that I use entirely for my business. Can I claim it as an expense?
A: Although you bought it for use in your business, you cannot claim the entire cost in the year of purchase because it is a capital property. Instead, you can claim capital cost allowance (CCA), which allows a portion of the expense to be claimed each year over a number of years.
Q: I started a business this year. Do I have to register for GST?
A: If your taxable sales are more than $30,000 and they are not exempt from GST/HST, you must register. If your sales are less than $30,000, you have the option of registering. Registering is generally a good idea since you can then claim input tax credits in respect of your expenses.
Q: I have started a small arts and crafts business that I work on in the evenings and at weekends, but I have not sold anything yet. Can I claim my expenses against my other income?
A: You can only claim a business loss if the activity you are engaged in constitutes a source of income. If it is not reasonable to assume that you will realise a cumulative profit over the entire period that you carry on the business, the loss may be disallowed.
Q: My husband and I separated last year, and he pays $500/month for child support for our two children. We have a separation agreement in force dated January 15, 2005. Do I have to include these payments in my taxable income?
A: No. If your agreement was signed after April 30, 1997, the amounts you received for child support are neither taxable to you nor deductible for him. However, spousal support continues to be taxable to the recipient and deductible to the payer.
Q: I paid my ex-wife a lump sum payment of $20,000 last year as part of our separation agreement. Can I claim this?
A: No. Lump sum payments are not deductible unless they were paid to catch up on arrears payments for regular periodic amounts.
Q: I pay child support to a woman whose child I fathered. Can I claim this as a deduction?
A: If you never lived with the woman, the payments would only be deductible if you paid them pursuant to a court order (not a written agreement) dated before May 1997.
These tax tips are presented for information only with errors and omissions excepted.
Please do not use them in place of obtaining professional advice from your accountant or
Storoszko & Associates at 647 367-3477.
Please obtain professional advice before using these tips for your personal tax situation.