Frequently Asked Questions
TCG Chartered Professional Accountants LLP fields a wide variety of queries.Often we receive similar questions from a number of our clients, so we'd like to answer some of the more common questions here.
If you have any general questions that you would like to see answered, please email us at .
Divorce, Separation & Your Taxes
A divorce/separation can be a very difficult time for all parties involved, especially in the beginning. However, as difficult as it can be, there are critical things that individuals need to be aware of. The following information is designed to help make things easier down the road:
- Call CRA and let them know as soon as your marital status changes. It can affect the amount of child tax benefit and/or GST/HST credits to which you’re entitled.
- CRA will only consider you separated once you’ve been living separate and apart for a period of 90 days or more due to a breakdown in a relationship. CRA does not consider you separated until separate residences are being maintained by both parties. Be prepared to prove to CRA that you are indeed maintaining a separate residence. Keep copies of leases signed, Hydro bills in your name, change of addresses with insurance companies, etc. If you’re unable to prove that you’re maintaining a separate residence, they won’t accept your claim of separation for purposes of child tax benefit, GST/HST credits or the eligible dependant claim.
- CRA may consider you living separate and apart while living in the same residence if that residence has separate living quarters self-contained in the same household. These types of living arrangements are more difficult to prove to CRA, so be prepared to prove separate parental and financial responsibilities.
- If there are two children, each parent can claim a child unless only one parent must pay child support to the other. In this case, only the parent not paying support can claim the child(ren) - shared custody/eligible dependant
- the child support agreement or court order was entered into prior to May 1, 1997 and hasn’t been altered since that time. In these cases, the payments are taxable to the recipient and deductible by the payor. If both parties would like to change this, they can file a T1157 (election for child support payments) in which the parties can elect for the child support payments to not be taxable/deductible. Once this election has been accepted it cannot be revoked.
Making Payments with the Canada Revenue Agency
To make payments, for individual and business accounts, with the Canada Revenue Agency, your main options are:
Electronically - online banking - You should be able to pay electronically through your financial institution's Internet or telephone banking services. Please contact your financial institution for more information.
Electronically - CRA My Payment - You can make electronic payment directly to CRA via the option in My Payment. This is a service that uses Interac® online to make payments directly to the CRA from your online banking account. Only certain financial institutions participate in this service.
At your financial institution - You can make your payment free of charge at your branch of a Canadian chartered bank, caisse populaire, or credit union. You must have a remittance voucher from the CRA in order for the institution to accept the payment. Give the remittance voucher to the teller, who will detach and keep the payment section of the form, and who will stamp and give the rest to you as a receipt.
By pre-authorized debits - You can have your payments debited from your account automatically, however we don't recommend this option as to change the frequency or amounts you need to continually contact the CRA.
By mail - You can send a cheque or money order payable to the Receiver General, and a completed remittance voucher, to Canada Revenue Agency, 875 Heron Road, Ottawa ON K1A 1B1. Note - Please write your social insurance number (SIN) on the back of your cheque or money order to help CRA process your payment correctly. If you don't have a remittance voucher, you MUST include a letter telling the CRA where to apply your payment.
Other options - There are other options for making payments that are less frequently used.
More information - For all the specific details as to how to make payments with CRA, please visit http://www.cra-arc.gc.ca/mkpymnt-eng.html
Spousal RRSP
What is a spousal RRSP?
A spousal RRSP is a special RRSP where you make the contributions and get the tax deduction on your tax return, but your spouse is entitled to the future withdrawals from the plan, and hence they pay the tax on future withdrawals, subject to certain restrictions discussed below.
My spouse already has her own RRSP – is this the same thing?
No. Your spouse’s RRSP is one where they make contributions, get the tax deduction, and are entitled to the future withdrawals from the plan.
What’s the benefit of contributing to a spousal RRSP?
Using a spousal RRSP is an allowable way to income split with a lower income spouse – this means you save tax! In the example where one spouse stays at home to raise the children and earns no income, they cannot contribute to an RRSP as they have no earned income. If the working spouse only invests in their own RRSP, upon retirement the working spouse will have all the retirement income to report on their tax return, likely resulting in higher taxes owing. Whereas if the working spouse contributes half to their own RRSP and half to a spousal RRSP, then upon retirement the income will be split between both spouses, which in general would lead to less taxes owing. As well, if you are over 71, you can continue to contribute to a spousal RRSP if they are under 71.
Can’t we split our RRSP income in retirement using the “pension income splitting provisions”? Why bother with the spousal RRSP?
Spousal RRSP’s have been allowable for a long time, whereas the “pension income splitting provisions” have only been around since 2007. Who knows if the “pension income splitting provisions” will still be around when you retire? As well there are very specific rules to qualify for “pension income splitting”. For example, a lump-sum RRSP withdrawal does not qualify, nor do certain RRSP annuity payments made before age 65. So using a spousal RRSP maximizes your flexibility down the road to income split, both before AND after retirement.
Can I contribute to a spousal RRSP and have them withdraw it in the same year?
No. To ensure spousal RRSP’s aren’t abused to income split in the short term, there is an attribution rule that would allocate any income inclusion from the spousal withdrawal to the contributing spouse if a withdrawal is made within 2 years after a contribution year. For example, if the working spouse contributes to a spousal RRSP in 2008, then no more contributions could be made in 2009 and 2010, and an amount could then only be withdrawn in 2011 without having the income attribution rule apply.
So I could use a spousal RRSP to claim a deduction on my return in 2013, have my spouse withdraw it in 2016 and have it included in their income?
That’s right! But this strategy isn’t for everyone. First of all the purpose of an RRSP is long term retirement savings via tax deferral, so doing such a strategy defeats the purpose of the RRSP. However, in cases where a couple needs the cash-flow but wants to benefit from lower taxes, they could use this strategy to income split. The downfalls are the couple would be without the cash for 3 years before the non-working spouse can withdraw the funds without the attribution rules applying, as well this strategy is only effective in four year cycles as NO further contributions can be made in years between the contribution year and the withdrawal year and in the withdrawal year. We suggest seeking advice from a professional accountant and investment advisor before implementing anything contained herein.
Education Savings for your Children
In 2013 it is estimated that the cost of a 4 year university degree is $60,000 if your child is not living at home. This figure is expected to rise to $90,000 in 2025. So if you value education and feel it is important to help your children with this cost, whether you have the financial means or not, read on to learn about how small contributions today, and even none at all, can help your child with this future cost.
Registered Education Savings Plan (“RESP”)
An RESP allows you to make contributions to a tax-deferred savings plan, much like an RRSP. The difference is the government provides grants to the extent you make contributions, which is basically free money! The grant is based on your contribution, and family income. A higher grant is available for families with lower income. All your contributions and the government grants grow tax free until the day your child needs the funds for education. When your child uses the funds, your child pays tax (not you) on the income earned and grant income that is withdrawn. The original capital contributed comes out tax free. The benefit of taxing the income and grants in the child’s hands is they probably won’t have any tax to pay on this, the assumption being they shouldn’t have a lot of income being a student, plus they’ll have tuition tax credits available.
Below are summarized a few examples of how much money you can accumulate in these plans with a small amount of money each month on the assumption you start as soon as your child is born. There are all sorts of calculators online to help you determine based on your situation how much you can save, so please take the time to check it out, and work with your accountant / financial advisor to see what you can afford. Your kids will thank-you for it, and what a great way to encourage your child to move out from under your roof when they turn 18!
Example 1 - $50/ month or $600 per year contributed – Family income under $43,561 – 3% return on investment
Each year you contribute $600 the grant received will be $220. You would have almost $20,000 saved by the time your child turns 18!
Example 2 - $100/ month or $1,200 per year contributed – Family income between $43,561 & $87,123 – 3% return on investment
Each year you contribute $1,200 the grant received will be $290. You would have almost $36,000 saved by the time your child turns 18!
Example 3 - $208.33/ month or $2,500 per year contributed – Family income over $87,123 – 3% return on investment
This would get you the maximum grant allowable of $7,200 by the time your child turns 15, and at this point you’d have almost $56,000 saved. With 3% return on that figure and no more contributions the $56,000 would grow to almost $61,000 by the time your child reached age 18!
Can’t afford anything? There is still free money available!
BC Training and Education Savings Grant - For children born after 2006, even if you can’t afford anything, by simply opening an RESP for your child before they turn 7 years old, the BC government will contribute $1,200 into your child’s RESP account!
Canada Learning Bond – For families that are entitled to the National Child Benefit Supplement (aka “family allowance” or “baby bonus”) which gets paid with your Child Tax Benefit monthly payments, all you have to do is open an RESP and for children born after 2003 you are entitled to $500 immediately, plus $100 for each year you are entitled to the NCBS up to age 15, plus $25 to cover the cost of opening an RESP. That’s $2,025 free!
This investment stuff all sounds very confusing…
Go to your bank and talk to a financial advisor for free. They can help you get an account opened, set you up on a monthly payment plan (and determine how much you can afford, if any), and get all the free money that your child is entitled to. They can also help you with investment choices, which can be as simple and risk free as putting the money in guaranteed investment certificates.
Non-Residents Renting Property in Canada
Are there witholding taxes on my rental income?
Yes. Any person remitting rents to a non-resident is required to withhold and remit to the Canada Revenue Agency (“CRA”) 25% of the gross rents paid. Most tenants, however, are unaware of this obligation. Accordingly, many non-residents with rental property in Canada remit the 25% of their gross rental income to the CRA on their own account.
Do I need to file a tax return?
No. However, you can file a Section 216 elective return to get some of the 25% withholding taxes refunded (see below). You only have 2 years (and in some cases 6 months) from the year end to file the Section 216 elective return. If you don’t file then the 25% withholding tax is a final payment of tax in Canada.
How do I get the tax witheld back?
The 25% withheld on the gross rental revenue is the final tax obligation. However, a section 216 tax return can be filed to pay tax on the net rental income (gross sales – rental expenses = net rental income) of the rental property at Canada’s marginal tax rates. This generally allows a significant portion of the taxes withheld to be refunded.
What types of expenses relate to my rental property?
Typical rental expenses include: advertising, insurance, interest, legal & accounting costs, management & strata fees, maintenance and repairs, property taxes, utilities, and any relevant travel costs related to maintaining the rental property. These must all be expenses incurred for the purpose of making money with your rental property and documented by receipts.
I bought a property in Canada and I am going to rent it, but first I'm going to renovate it. Are the renovation costs important or just the rental costs?
Yes, the renovation costs are important to track. If it’s a repair to existing structure (replacing the furnace), the cost will be recorded as an expense on the rental statement. If the renovations are substantial and improve the residence, these costs impact the tax adjusted cost base of the property. This is important when you sell the property, and properly tracking these costs could help reduce your taxes upon sale.
I have had rental property and I have been filing my section 216 tax returns, but now I'm going to sell the property. Is there anything I need to know?
Yes. When you sell the property you are required to notify the CRA of the sale within 10 days of closing, or face a $2,500 penalty. To learn more, read our Q&A for Non-Resident Sale of Canadian Property.
I have had rental property for severa years, and I just learned about the non-resident witholding tax requirements. What should I do?
You should immediately file all Section 216 elective tax returns under CRA’s section 216 Late-filing Policy.
What if I don't bother with the above?
When you sell the property the CRA will request the 25% of all gross-rents to be paid before issuing the certificate of compliance. To learn more about your obligations when you sell your property, read our Q&A for Non-Resident Sale of Canadian Property.
Non-Residents Selling Property in Canada
All non-residents selling Canadian real estate are required to undergo the same process. Without the proper guidance, it can be a long and complex process, and can result in significant penalties. Robert E. Flux, CA, CFP of The Coast Group Chartered Accountants is happy to assist to ensure all documentation is filed correctly and in a timely manner.
Process Theory
Due at the end of each month, Canada has the right under its tax laws, and under most Income Tax Treaties with other countries, to tax the sale of your Canadian real estate. Because you are not resident in Canada, the Canada Revenue Agency (“CRA”) wants to ensure it at all times has sufficient “security” from you to cover your taxes owing, in case you decide to not comply with the required tax filings. To do so, the CRA requires the purchaser to withhold 25% (or 50% in some cases) of the sale price. This is not the final tax owing! Through the process of applying for a “Certificate of Compliance”, the CRA will request a withholding tax payment of 25% of the NET capital gain instead of the 25% of the sales price withheld by the purchaser. This is still not the final tax owing! By filing a Canadian T1 tax return reporting the net gain, you will be entitled to a significant refund of the amount of taxes withheld by the CRA. In effect, the process forces you to comply with your tax obligations; otherwise, you’ll be donating a significant sum to the Canadian government.
What is the process?
Step 1 – Purchaser is required to withhold 25% (or 50% in some cases) of the total purchase price.
Step 2 – Seller must let the CRA know about the sale or proposed sale by filing for a Certificate of Compliance. These are due no later than 10 days after the actual sale. The penalty for late filing is $25 per day to a maximum of $2,500, even if no taxes are owing. If the property is jointly held, then multiple penalties will apply.
Step 3 – The CRA will request payment or acceptable security to cover the resulting taxes payable to cover the resulting taxes payable, and issue a Certificate of Compliance. Our experience is the CRA is currently taking over 3 months to process the forms and issue Certificate of Compliance.
Step 4 – Upon receipt of a copy of the Certificate of Compliance, the purchaser can release the amounts withheld from Step 1 to the non-resident.
Step 5 – After the end of the calendar year, the non-resident is required to file a Canadian tax return to report the sale.
NOTE: If the purchaser does not receive the Certificate of Compliance or a “comfort letter” from the CRA, they are required to remit the amount withheld from Step 1 to the CRA within 30 days after the end of the month in which the property was purchased. Failure to remit the withholdings to the CRA by the due date may result in a penalty to the PURCHASER equal to 10% or 20% of the amount that was required to be remitted.
Process example:
Assume you sold your Canadian real property for $400,000 and originally paid $75,000 15 years ago.
Step 1 – Purchaser will withhold $100,000 [$400,000 x 25%]. Typically this is held in trust by the seller’s lawyer.
Step 2 – Seller files for Certificate of Compliance.
Step 3 – The CRA will request payment or acceptable security of $81,250 [($400,000 - $75,000) x 25%]. Seller’s lawyer remits the $81,250 out of the $100,000 originally withheld to the CRA. CRA issues Certificate of Compliance.
Step 4 – Upon receipt of a copy of the Certificate of Compliance, the sellers lawyer can release the remaining funds held in trust of $18,750 [$100,000 – 81,250].
Step 5 – After the end of the calendar year, upon filing of the non-resident tax return, the actual tax liability is approximately $55,000. The non-resident receives a refund of $26,250 [$81,250 – 55,000].
Employee or Independent Contractor
The question of whether a person is in a business relationship (self-employed independent contractor) or in an employee-employer relationship is not one that is always easy to answer. The answer to this question has income tax, Canada Pension Plan, Employment Insurance, labour relation and perhaps even other implications. Even more confusing is the fact you could be considered an employee under labour relation rules but still be considered independent for income tax!
When examining whether or not a person is an employee or a self-employed individual, the key question that is asked is whether or not the person is engaged to perform services as a person in business on his or her own account, or as an employee. To do this, the relationship between the worker and the payer is examined using a two step approach.
Step 1 - What was the intent of the worker and payer when they entered into the working arrangement? Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)?
Sometimes the intention is clear, and both parties are in agreement (common intent). Sometimes the intent can be found in a written agreement. Sometimes the two parties have a different understanding as to the status of their working relationship, in which case there is no common intent.
Workers and payers can set up their affairs as they see fit; however, they have to ensure that the status they have chosen is reflected in the actual terms and conditions of the employment. To make the intention clear it is extremely important for there to be a written and signed employment agreement or independent contractor agreement in place.
Step 2 -The working relationship between the worker and payer is verified to determine whether the intent of the parties is reflected in the facts.
The following elements are considered:
- the level of control the payer has over the worker’s activities;
- whether or not the worker provides the tools and equipment;
- whether the worker can subcontract the work or hire assistants;
- the degree of financial risk taken by the worker;
- the degree of responsibility for investment and management held by the worker;
- the worker's opportunity for profit; and
- any other relevant factors, such as written contracts.
A determination is made as to whether or not the facts reflect the stated intention. When there is no common intent, a decision is made as to whether the answers are more consistent with a contract of service or with a contract for services.
In real life situations there are typically factors supporting both sides such that this topic is much debated between Canada Revenue Agency and Taxpayers in the Tax Courts, a rather costly endeavour in hindsight. Accordingly, when setting up your agreement review the considerations and ensure your agreement includes factors that support the intention of the parties.
This topic is further explained in the CRA publication RC4110 Employee or self-employed. A comprehensive checklist is also provided in this publication. This checklist is useful for a worker or a payer (employer/client) to help determine whether their relationship is a business relationship or an employer/employee relationship.
CRA also has information on the following categories of workers to help determine whether they are employees or self employed for purposes of CPP and EI, in their web page CPP/EI Explained:
- real estate agents
- workers who own and operate heavy machinery
- workers engaged in construction
- workers engaged in fishing
Tax Deadlines
What are the Filing Due Dates?
T2 - Corporate Installments
Due at the end of each month (starting in 2008 certain corporations can pay quarterly)
Corporations Tax Returns
- 2 months (and in many cases 3 months) after year end taxes are due
- 6 months after year end, Return is due
(Eg. For an August 31st year end the corporate tax return is due February) ** 5% penalty if the 6 month deadline is missed!!
T1 - Personal Tax Returns
Due April 30th for the previous year
** Exception - Self Employed Income Tax Returns due June 15th (however tax is still due April 30th)
Payroll
Due on the 15th of each month (however some companies with larger payrolls will have earlier due dates)
T3 - Trust Returns
Due March 31st yearly - No Exceptions!
T4 & T5 (Wage and Dividend Summaries)
Due at the end of February
WCB Returns
Due on various dates, depends on the situation
GST/HST Returns - Any period end
- Annual Returns due 3 months after Year End
- Quarterly Returns due 1 month after end of each quarter
*Determining factor:
- if Revenue is greater than $500,000 must do quarterly
- if Revenue is less than $500,000, can do annually
** Exception
- Yearly HST for Individual due June 15th (Self Employed)
Pension Income Splitting
What is Pension Income Splitting?
Under the new rules, up to one half of pension income received that qualifies for the pension income tax credit can be transferred to your spouse or common-law partner (both of which are referred to as "spouse" below).Why would we want to do this?
Splitting income allows the higher income spouse to transfer income to the lower income spouse, thereby taking advantage of the lower marginal tax rates of the lower income spouse and resulting in a lower overall tax bill to the couple. Because of this benefit available to spouses, the Income Tax Act only allows income splitting under very limited situations.When does this apply?
Pension income splitting rules apply to taxation years 2007 and beyond.What pension income can be split?
Payments from RPP, RRSP, RRIF, and some foreign pension payments.What pension income does not qualify for splitting?
OAS, CPP (which can already be split under CPP rules), death benefits, retiring allowances, RRSP withdrawals, employee benefit plans.How do we split the pension income?
By electing on Form T1032 prior to the filing deadline, in both spouse's personal tax returns to transfer the income. The transferor will deduct the elected amount from their income, and the transferee will include the elected amount in their income.Is the transferred pension income eligible for the $2,000 pension income tax credit?
Yes.Do we have to split our pension income?
No. Each and every tax year you can elect how much pension income to split, if any. The rules recognize that many spouse's like to keep their finances separate from one another.Will splitting pension income affect OAS payments?
Yes. Depending on the income levels of the spouse's it could decrease your OAS claw-back, or it could in fact increase your OAS claw-back. For this reason it is essential that you seek professional advice in determining whether you should split pension income or not.Personal Installments
Who has to pay installments?
You have to pay your income tax by installments for the current year if your net tax owing for the current year will be more than $3,000 AND your net tax owing was more than $3,000 in either of the two calendar years before the previous year.
Why do I have to pay installments?
If you receive income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by installments. This can happen if you receive rental, investment, or self employment income, certain pension payments, or income from more than one job.
What are my installment payment options?
You have three installment payment options:
a. no-calculation option (this option is best for you if your income,
deductions, and credits stay about the same from year to year);
b. prior-year option (this option is best for you if your current calendar
year income, deductions, and credits will be similar to your prior
calendar year amount but significantly different from those in the
calendar year before that); or
c. current-year option (this option is best for you if your current calendar
year income, deductions, and credits will be significantly different from
those in prior years).
*If you choose the best installment payment option for your situation, you will not overpay your tax during the year or have a large amount of tax to pay when you file your return. You do not have to tell the CRA which option you choose.
I received an installment letter and/or reminder from the CRA. Do I have to pay the installments that they suggest?
No. Installment reminders sent by the CRA are always based on the no-calculation option. You can pay the installments based on the option you choose as discussed in question 3 above.
When are the installments due?
Your installment payments are due March 15, June 15, September 15 and December 15. When a due date falls on a Saturday, a Sunday, or a holiday recognized by the CRA, they consider your payment to be paid on time if received or if it is postmarked on the next business day. Payments you make in person at your financial institution, or electronically are considered received by the CRA on the date that you make them.
How and where do I make my installment payments?
Each installment reminder package the CRA sends includes two copies of Form INNS3, Installment Remittance Form. If you need more copies, call the CRA at 1-800-959-8281.
To make your payments, you have four options:
Electronically - You can now make electronic payment directly to CRA via the option in My Payment. You may also be able to pay electronically through your financial institution's Internet or telephone banking services.
At your financial institution - You can make your payment free of charge at your branch of a Canadian chartered bank, caisse populaire, or credit union. You must have Form INNS3 from the CRA in order for the institution to accept the payment. Give Form INNS3 to the teller, who will detach and keep the payment section of the form, and who will stamp and give the rest to you as a receipt.
By pre-authorized debits - You can have your installment payments debited from your account, however we don't recommend this option as to change the frequency or amounts you need to continually contact the CRA.
By mail - You can send a cheque or money order payable to the Receiver General, and a completed Form INNS3, to Canada Revenue Agency, 875 Heron Road, Ottawa ON K1A 1B1. Note - Please write your social insurance number (SIN) on the back of your cheque or money order to help CRA process your payment correctly.
What if I don't remit the right amount of installments?
The CRA can charge you interest and penalties for failure to make installments.Death and Taxes
I was named the executor of a friends will. Do I need to do anything?
YES! As the named legal representative of the deceased your responsibilities include filing all necessary tax returns for the deceased, making sure all taxes owing are paid, and letting the beneficiaries under the will know, which, if any, of the amounts they receive from the estate are taxable. The Canada Revenue Agency ("CRA") can hold you personally liable for any amount of taxes the deceased owes!
Do I have to accept responsibility of legal representative?
No. You can opt to turn down this position.
I've accepted the responsibility as legal representative, what should I do first?
You should contact the CRA and Service Canada to notify them of the deceased date of death.
Do I have to keep making the deceased personal tax installments?
No.
Does the deceased need to file a tax return?
Yes! A tax return that reports all income received up to the date of death must be filed. When a person dies they are deemed for tax purposes to have disposed of ALL properties owned by them. This can create a significant tax liability in the year of death, hence failure to file a return on time can result in large penalties and interest being assessed. You have at least 6 months to file this return. So if the date of death was between January 1 and October 31, the return is due April 30 of the following year. If the date of death was between November 1 and December 31 the return is due 6 months after the date of death.
What about income received after the date of death?
This income needs to be reported on a T3 Trust Income Tax Return, and this return must be filed annually until the entire Estate is distributed in accordance with the will. In certain cases, where the estate is distributed immediately after the person dies, or if the estate did not earn income before the distribution, you will not be required to file a T3 Return.
Are there any tax planning opportunities in all the filings?
Yes! Though outside the scope of this Q&A, things to consider in preparing the filings include, but not limited to, filing the optional tax returns to report certain incomes, electing out of the spousal rollover provisions, utilizing all loss carry-forwards, claiming 24 months of medical expenses, carrying back capital losses of the estate to offset capital gains in the deceased final return, allocating income to the beneficiaries from the estate, and much more.
I'm concerned that I can be held personally liable as the legal representative.
To minimize this risk we recommend filing for a clearance certificate from the CRA once all the tax returns have been assessed and before any property is distributed to the beneficiaries. A clearance certificate certifies that all amounts for which the deceased is liable to the CRA have been paid.
The above all seems pretty confusing. Should I get help with this?
It is highly recommended that you work with your advisors in winding up a deceased persons affairs. Again, as the legal representative you are liable for the deceased tax debts, and are responsible to the beneficiaries for distributing the estate according to the will. Failure to do so properly can have significant legal ramifications to you, as such there is significant value in dealing with advisors that have experience in these matters.
Actor’s Q & A
Richard Wilson has worked extensively in the film & television industry over the last ten years with people and companies on both sides of the camera and on both sides of the border. Over the years there have been questions that come up all the time. Some of those are addressed here. Of course, every particular case is potentially different but there are general principles that apply to everyone.
What can I write-off?
There are really only two real principles that you have to keep in mind. To be deductible, expenditures have to be (1) made for business reasons and (2) reasonable in the circumstances. For actor's this can include commissions, dues, telephone, meals & entertainment, professional fees, training, research and portions of home and vehicle costs to name a few. It is always a good idea to keep anything that "might" be a write-off and you and your advisor can make those judgment calls at tax-time. Obviously you need to keep receipts for everything but equally important is to document the business purpose of each major receipt. For example, you don't just need to have the plane ticket from your trip to LA but also need to document why you went.
How much money should I put aside for taxes?
As most of you are probably painfully aware, you are responsible for your own taxes (and HST if applicable) in that nothing is withheld at source on Canadian acting work. Accordingly, you need to make sure you put aside enough money for your taxes at the end of the year. A good rule of thumb is 25% of each cheque that you get. If you do that, you won't get stuck in a huge hole at the end of the year. If you have owed money in the past, you may also have to send some of that money to government ahead of time as installments. While these are not compulsory and can be adjusted based on your current year's earnings, if you do owe at the end of the year and have not paid installments as required, they will charge you interest on the payments not made or made late!
Do I need a HST number?
This one is pretty straight forward. If you earn more than $30,000 gross (total - before agent's fees and dues etc) than you have to register for and start to collect HST. Once you hit that amount, you are stuck with that HST number even if you never hit $30,000 again. If you are in this situation, discuss the situation with your advisor.
Should I incorporate?
Incorporating in Canada means creating a separate legal entity ("the company") which is also its own separate taxable entity (i.e. - the company also files a tax return) and then having your income and expenses run through the company rather than your personal return. In the right circumstances this can be a great way to reduce the taxes that you are paying. In general terms there are three ways that a company can help you:
The first is if you have dependents that don't have a lot of income you can "income-split" through a company. The second is that if you are going make a whole bunch of money in a short period of time, you can use a company to spread your income out over multiple years (which saves a bunch of taxes). Finally, and most importantly, if you are making more money than you need to pay the rent and grocery bills and can leave money behind in the company for the future, you can take advantage of the small-business tax rate which is effectively half of what you would be paying personally. Sometimes people think that there is a magical amount that they have to earn for it to make sense (and $100K plus is not a bad rule of thumb) but really it has to do with how much you spend. If you make $200K a year and spend all of it, the company is not going to help you that much. If you make $90K and only spend 2/3rd's of it, the company can definitely help.
What if I do some work in the US?
Working in the US can get complicated very fast! If you know that you are going to be working in the US you should always talk to your advisor ahead of time as the right moves in the beginning can save a bunch of hassles in the end.
I am a US citizen, does that matter?
Yes, absolutely it does. US citizens have to file a US tax return (and potentially other forms) every year even if they never step into the US. This is different from Canada where filing a tax return is based on residency, not citizenship. This can also affect whether you incorporate or not. Again, these rules get complex fast and if you are not complying with US rules you should talk to your advisor about that right away.
I am moving down to LA and plan to stay there, do I have to keep filing taxes in Canada?
Obviously moving to the US is dependent on immigration issues but assuming you get that figured out (i.e. - you get a green card or multi-year visa) then it is possible to arrange your affairs so that you don't have to file in Canada anymore (which will generally mean less taxes overall). Canada taxes people based on residency and so if you make a true move down to the US and cut your financial and legal ties with Canada, then you won't have to file in Canada anymore. The actual execution of the related tax return in the year that you leave can be complex and again, should be discussed ahead of time with your advisor.Apprentice/Training Tax Credit
BC doubles training tax credits from $2,000 per employee to $4,000 effective July 1, 2009. Federally, effective May 3, 2006 there are tax credits available to employers.
The following links provide information on the programs:Provincial: BC Apprentice/Training Credits
Federal: Federal Apprentice/Training Credits
GST/HST Rates by Province & Territory
British Columbia = 5% GST
Ontario = 13% HST
Nova Scotia = 15% HST
Newfoundland, New Brunswick = 13% HST
Alberta, Nunavut, Yukon, NWT, Saskatchewan, Manitoba, Quebec = 5% GST
Tax Free Savings Accounts (“TFSA”) – Beneficiary Designations
TFSA’s have now been around since 2009. If you have not made any contributions before, as of 2016 you can contribute a maximum of $46,500, and each year after 2016 you will be able to contribute an additional $5,500 (the annual contributionamount being subject to indexation).
Any income and capital gains in your TFSA are tax-free to you, so a TFSA should certainly be part of your overall savings portfolio.
Like registered retirement savings plans (“RRSP”), you have the ability to designate a beneficiary on your TFSA. Unlike RRSP’s, a TFSA has a third possible designation, the “successor holder”, which is still not well understood by many, and the differences in the designations can have a significant impact to your Estate. The only person that can be a “successor holder” is one’s spouse.
It should be mentioned that you may not have ANY TFSA beneficiary designation. In the case of a self-administered TFSA account (i.e. one you opened through an online brokerage), the default may be no designation until you to file a “beneficiary designation form” to have one added to the account. Your beneficiary designation is typically shown on your investment statements, if not contact your financial institution to confirm your designation. In the case of no designation made, the default on your death is your TFSA gets paid to your Estate.
Here are the income tax and probate fee differences between the designations:
- No designation (default Estate) / Estate designated as beneficiary:
- Tax on any increase in value up to date of death - none
- Tax on any increase in value after date of death – fully taxable to Estate as income
- Subject to BC probate fees – yes
- Specific individual and/or spouse designated as beneficiary:
- Tax on any increase in value up to date of death - none
- Tax on any increase in value after date of death – fully taxable to individuals and/or spouse as income
- Subject to BC probate fees – no
- Spouse designated as Successor Holder:
- Tax on any increase in value up to date of death - none
- Tax on any increase in value after date of death – none
- Subject to BC probate fees – no
So if you have a spouse, you should ensure that they are designated as the successor holder of your TFSA. This ensures, on your death, they step into your shoes as owner of your TFSA, effectively doubling the amount of TFSA that continues to grow tax-free. If you only designate your spouse as beneficiary, this is not the same as designating them as successor holder, because your TFSA will not continue to grow tax-free in their hands upon your death.
For more information, contact your Chartered Professional Accountant or financial institution. You can get more information at: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/dth/menu-eng.html