Don't miss out on those income tax deductions any more!

Income tax season is upon us and we are ready to assist you in getting the maximum tax benefits that you are entitled to. Below are two most commonly missed tax deductions to watch for. Keep your eye on my blog to see the remaining 8 of then top ten for 2012.

We all pay our fair share of tax and never should we pay more than our fair share. When deductions that we are entitled to claim are missed - then we are paying more than our fair share. Cope, Barrett & co, Certified General Accountants can help you to achieve the best and most fair tax filing. We think our income tax services are different than many - simply put WE CARE! It matters to us enough to take the time to really consider all the options available to our clients. We compare prior year claims, consider changes in your financial or personal position. We are often told by our clients that what makes us different from tax and accountants they have used in the past is that we actually TALK with them! Seems odd to me because talking with my client has always been the logical choice. Talking with clients has helped us notice things they may benefit from or changes that need to be adjusted for. Talking with clients helps me realize tax benefits they may be missing and that is very important to both of us.
Well back to the subject of this post - ten tax deductions you don't want to miss!...
1. Medical expenses...some are obvious like prescriptions, eyeglasses or dental fees. Often however people miss things like naturopath, massage, chiropractic, physiotherapy, medical travel and meals deduction, tutors, renovations for medical needs, costs of a van for wheelchair use, attendant care...oh this list is endless. When in doubt keep the reciept - and call me!

2. Disability Tax Credit... so misunderstood. This tax credit is available to those persons who struggle with day to day activity such as walking slowly, or extremely poor eyesight. Others may have chronic depression or need attendant care to assist with daily living. You do not have to be on a disability income to qualify, nor does receiving a disability income automatically qualify one for the tax credit! I have seen clients recieve thousands of dollars in tax refunds as they didn't realize this existed. Let's talk!
Reasons 3 and 4 coming in our next chat. Questions? Call me at 613-962-2151 or 613-476-2150

RRSPs and TFSAs—making the annual choice (February 2012)

It’s that time of year again, when advertisements about the wisdom of contributing to your registered retirement savings plan (RRSP) fills the airwaves and Web sites. And, since the introduction of tax-free savings accounts (TFSAs) in 2009, February is now also the month in which Canadians wrestle with the question of whether to put any available funds into an RRSP before the contribution deadline of February 29, 2012, or whether to deposit those funds instead in a TFSA.

It’s important to be clear, at the outset, that it’s not an either/or choice. Taxpayers can (and probably should) utilize both the RRSP and TFSA options in planning their financial affairs. Realistically, however, for most taxpayers the limitation is one of resources and cash flow, and it’s often not possible to fund contributions to both an RRSP and a TFSA in the same year, let alone in the same month. That said, what are the considerations which apply in determining which savings/investment vehicle is preferable for 2012?

There are some similarities between TFSAs and RRSPs. Both allow savings to grow and compound free of current tax, and for both, contributions not made in a year can be carried forward and made in any subsequent year. As well, the types of investments which can be made with RRSP or TFSA contributions are, for all intents and purposes, the same, meaning that one’s choice of investment (i.e., guaranteed investment certificates (GICs), mutual funds, bonds, etc.) should be irrelevant to the choice of RRSP vs. TFSA. However, the differences between the two savings vehicles are at least as significant as their similarities.

Perhaps most important to taxpayers, contributions made to an RRSP are deductible from income, resulting in a lower tax bill for the year of contribution and, for many taxpayers, a tax refund. Contributions to a TFSA are, on the other hand, made with after-tax funds, meaning that tax will already have been paid on the income used to make that contribution. Many taxpayers, when presented with an option which will reduce current year taxes, find that the most attractive choice. However, over the long-term, the tax consequences of choosing an RRSP over a TFSA can erode that benefit. When funds contributed (along with investment income earned on those funds) are withdrawn from a TFSA or an RRSP, the tax consequences are very different. Funds withdrawn from an RRSP (or a registered retirement income fund (RRIF) into which the RRSP has been converted) are fully taxable, without exception, at whatever tax rate applies to the taxpayer at the time of withdrawal. TFSA funds (including accumulated investment income) are withdrawn from the plan free of tax, regardless of when the withdrawal is made or the purpose to which the funds are put. And for taxpayers who are receiving Old Age Security benefits (or any other means-tested benefits) from the federal government, it is important to note that RRSP or RRIF funds withdrawn will be included in income for the purpose of determining eligibility for such benefits, while TFSA funds will not. Finally, while RRSP contributions for 2011 must be made by February 29, 2012, there is no similar deadline for TFSA contributions—they can be made at any time during the calendar year. Finally, when funds are withdrawn from a TFSA, the plan holder can “top up” the TFSA in any subsequent year by the amount of that withdrawal. Funds withdrawn from an RRSP cannot be re-contributed, unless the withdrawal was made as part of government-sanctioned withdrawal plans, like the Home Buyers’ Plan or the Lifelong Learning Plan.
The minority of working taxpayers who are members of registered pension plans will likely find the TFSA option particularly attractive. The maximum amount which can be contributed to an RRSP for the 2011 tax year is calculated as 18% of earned income for 2010, to a maximum contribution of $22,450. However, that maximum contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under the pension plan. Where the RPP is a particularly generous one, RRSP contribution room may be minimal, and a TFSA contribution the logical alternative.

In a similar way, for taxpayers over the age of 71, the RRSP v. TFSA question is simply irrelevant. Taxpayers over that age are not eligible to make contributions to an RRSP, making TFSAs the only tax-free savings vehicle to which they can make contributions. The benefit is greatest for older taxpayers whose required RRIF withdrawals are greater than their current needs. While such RRIF withdrawals must be included in income and taxed in the year of withdrawal, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.

For younger taxpayers, where the savings goal is short-term (e.g., a down payment on a home or paying for next year’s vacation), the TFSA is clearly the better choice. While choosing to save through an RRSP will provide a deduction on that year’s return and probably a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP a year or two later. And, more significantly from a long-term point of view, using an RRSP in this way will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn from the plan cannot be replaced. While the amounts involved may seem small, the loss of compounding on even a small amount over 25 or 30 years can make a significant dent in one’s ability to save for retirement.

Taxpayers who are expecting their income to rise significantly within a few years (e.g., students in post-secondary or professional education or training programs) can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted against income which would be taxed at the much higher rate, generating a tax savings. And, if a need for the funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

Financial planners and tax advisers are accustomed to being asked by clients at this time of year whether it makes more sense to pay down the mortgage (or other debt) or to contribute to an RRSP. That question has become more complicated now that the TFSA option has been added to the mix. There is, however, a solution which allows you to do both. Assuming a marginal tax rate of 45%, an RRSP contribution of $10,000 will generate a tax refund of $4,500. Contribute that $10,000 (or as much as you can) to your RRSP and, when the resulting tax refund lands in your bank account, move it to a TFSA or use it to pay down the mortgage or other debt, or split it between the two.

The Canada Revenue Agency has dedicated sections of its Web site to addressing the need of taxpayers for information about TFSAs and RRSPs, and those sections can be found at http://www.cra-arc.gc.ca/tx/tfsa-celi/menu-eng.html and http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html, respectively.

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The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Canada Pension Plan changes for individuals aged 60 to 70 — January 2012

Did you know…?
Significant changes to the Canada Pension Plan (CPP) will occur in January 2012 to reflect the way Canadians are living, working, and retiring. The changes will affect both employees and self-employed workers aged 60 to 70. The changes will not affect you if you are already receiving a CPP or Quebec Pension Plan (QPP) retirement pension and you remain out of the workforce. Employees working in Quebec and other workers not subject to the CPP will also not be affected by these changes.
What’s new?
Contribution changes (what you will pay):

• All workers aged 60 to 65 will be required to make CPP contributions—even if they are receiving a CPP or QPP retirement pension.
• Workers who are 65 to 70 years of age and who are receiving a CPP or QPP retirement pension will be required to contribute unless they have elected to stop their CPP contributions. To elect to stop contributing to the CPP, workers will have to be at least 65 years of age and do the following:
  • Employees (who may also have self-employment income) will have to complete Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election and give a copy to their employer. In addition, employees should send the original to the Canada Revenue Agency (CRA). The election will take effect on the first day of the month after the employee gives the form to their employer.
    • Note: The CRA has been accepting Form CPT30 since December 1, 2011, but only from those employees who as of December 31, 2011 are at least 65 years of age and in receipt of a CPP or QPP retirement pension.
  • Self-employed workers will have to complete Schedule 8, CPP Contributions on Self-Employment and Other Earnings, when they file their income tax and benefit return for 2012 or any subsequent year. The election will be effective on the first day of the month referred to in Schedule 8.

Save up to $1,000 through the new Hiring Credit!

The Federal budget of June 6, 2011, announced a new hiring credit designed to alleviate the burden on small businesses trying to expand their payroll.  Those businesses paying $10,000 or less in EI premiums in 2011 will see any additional hiring and accompanying premiums credited back up to $1,000.  This means any business with a payroll of around $400,000 or less could add an employee in 2011 and suffer no extra EI premium on the first $1,000. 
Of further help is the Canada Revenue Agency (CRA) will automatically credit back the money upon the 2012 T4 tax return being filed.  No need to keep track of new employees either, since the credit is based on the increase in the employer's 2011 premiums over those paid for 2010.

Upcoming Changes to our Canada Pension Plan Beginning 2012 ...

At the beginning of 2012 changes will be made to the Canada Pension Plan which may affect Canadians who are both retired and currently receiving CPP retirement benefits and those who are contemplating retirement in the near future.
While the number of Canadians who could be affected by these changes is in the hundreds of thousands, there are some who don’t need to consider them. Canadians who have already retired and are receiving Canada Pension Plan benefits, but are either already age 70 or older, or have no plans to return to the work force, on either a part-time or full-time basis, can safely ignore these changes.
For most of the rest of us, some choices may have to be made, as follows.
Under current rules, it’s possible to choose to begin receiving CPP retirement benefits at any time between the ages of 60 and 70. However, once benefits start being paid, the recipient, even if he or she returns to the work force on a part-time or full-time basis, cannot contribute again to the Canada Pension Plan. As well, for Canadians less than 65 years of age, it is necessary, in order to begin receiving CPP retirement benefits, to be out of the work force, or to have significantly diminished earnings, for two months before benefits start. Both those rules are about to change.
The simplest change is the fact that it will be possible, as of January 1, 2012, to begin receiving CPP retirement benefits without any interruption in one’s working life. Where an individual chooses to stay in the work force while also receiving CPP benefits, it’s often the case that the choice is made from financial necessity. In such cases, a two-month interruption in earnings can impose a real hardship. That will no longer be the case.
The second change is that those who stay in the work force, or decide after retirement to return to the work force may, beginning January 1, 2012, also return to making CPP contributions. Where an individual who is between the ages of 60 and 65 and receiving CPP retirement benefits returns to the paid work force, he or she will be required to resume making CPP contributions—there is no choice in the matter. Where that individual is between the ages of 65 and 70, he or she will be able to choose whether or not to resume making such contributions. The decision is the employee’s, but the contributions will automatically be deducted from the employee’s pay, beginning January 1, 2012, unless he or she provides the employer with a signed Form CPT30, Election to Stop Contributing to the Canada Pension Plan, by the end of December 2011. That form is now available on the Canada Revenue Agency (CRA) Web site at http://www.cra-arc.gc.ca/E/pbg/tf/cpt30/cpt30-11e.pdf. Once completed and submitted to an employer, the form is effective as of the beginning of the following month, so the CRA Web site includes a reminder that it should not be completed or submitted until after November 30, 2011. As well, an employee who has signed and completed such a form and later has a change of heart can revoke the election, and once again start making CPP contributions, beginning in 2013.
One of the biggest decisions to make with respect to Canada Pension Plan retirement benefits is when to begin claiming and receiving such benefits. A lot of factors go into that decision—whether or not you are still in the workforce and how long you are planning to keep working, what other sources of income (i.e., private pension income, or annuity payments) are available, whether additional income is needed to meet current living costs, even one’s current state of health and family longevity history, etc. One of the biggest factors to consider, however, is the fact that the amount of pension received will depend on when one decides to start receiving it. And, the changes which are taking effect between 2011 and 2016 will make this a greater factor than it has been previously.
Before the changes, a CPP retirement pension was increased by 0.5% for each month after age 65 that the recipient delayed receiving it. Similarly, the amount receivable was decreased by 0.5% for each month before the age of 65 that recipient accelerated receiving it. For those who defer receipt, the monthly percentage increase will go from 0.6% in 2011 to 0.7% in 2013. That doesn’t sound like much, but it means that, by 2013, someone who defers receipt of their CPP pension until age 70, will receive a monthly pension amount which is 42% higher than it would have been if the same person had chosen to begin receiving that pension at age 65. The consequences are similar for those who choose to begin receiving CPP “early”. The reduction percentage will rise from 0.5% to 0.6% between 2012 and 2016. In practical terms, that means that someone who begins receiving their CPP pension in 2016 at the age of 60 will receive benefits that are 36% lower than they would have been if they had waited until age 65.
There is, of course, no right or wrong answer to the question of when it’s best to begin receiving CPP benefits, and certainly no “one size fits all” answer. In some cases, financial need may compel a person to begin receiving benefits at the earliest possible opportunity, regardless of the effect such a claim may have on the amount of those benefits. Others, who don’t necessarily need a CPP cheque to pay basic living expenses may nonetheless decide that they are willing to accept a lesser amount in order to have earlier access to those benefits and to use them to carry out —travel plans, for instance—which may not be as easy to accomplish later in life. Still others may decide to start using private retirement savings, like an RRSP, or begin receiving an employer-sponsored pension, while deferring receipt of CPP as long as possible. Whether any of these is the best course of action depends entirely on the individual’s circumstances (especially his or her financial circumstances) and their current and planned retirement lifestyle.

BEHIND IN FILING YOUR TAXES??? CRA HAS RELIEF PROVISIONS...

Since the 1990s, the taxpayer relief provisions of the various Acts administered by the Canada Revenue Agency (CRA) have enabled it to help taxpayers who, because of circumstances beyond their control, are unable to meet their tax obligations.

The CRA is aware that sometimes taxpayers may face unforeseen circumstances, which prevent them from meeting their tax obligations. These circumstances could be personal misfortunes (sickness, death in the family), natural disasters (fire, floods), service disruptions (postal strike), or an error by the CRA (incorrect information).

The CRA administers various legislations with taxpayer relief provisions that give the Minister of National Revenue discretion to:

• cancel or waive penalties and/or interest;
• accept certain late-filed, amended, or revoked elections (income tax only); and
• issue income tax refunds or reduce the amount payable beyond the normal three-year period (individuals and testamentary trusts only).

Let Cope, Barrett & co, Certified General Accountants help you to get on track and stay there.  Often interest and penalties cost far more than just getting the tax returns prepared by us, and the bonus to you is a good night's sleep and worry-free days.  Contact me today 613-962-2151 or 613-476-2150

Did you know?

-          Debt consolidation can reduce your interest expense, allow you to save more money, and possibly retire years sooner. You may be able to replace your credit card debt or other high interest debt with a Line of Credit or Home Equity Loan. A fun read that provides a debt reduction strategy can be found in the book, The Fireman and The Waitress, by Dessa Kaspardlov.

-          If you are a retiring business owner, and worked for your corporation prior to 1996, you may be able to pay yourself a tax free retiring allowance. The Canada Revenue Agency allows for additional RRSP contribution room for years worked prior to 1996.

-          Your business can pay your medical expenses if you set up a  Health Spending Account. What is usually an out of pocket expense, can become a tax deductible expense for your corporation.

-          If you have recently launched a Microfit Project with the Ontario Power Authority, you may be eligible for a refund of the HST you paid for the project.

-          If you have been treated poorly by the Canada Revenue Agency (CRA), you can file an RC 193 to voice a complaint. The CRA provides this mechanism to allow taxpayers to file complaints about undue delays, poor or misleading information, staff behavior and mistakes that could have resulted from misunderstandings, omissions or oversights. There are also other appeal procedures, if you disagree with a tax assessment.

We provide direct links to government agencies, and financial calculators from our website www.copebarrett.ca