Spousal RRSP Contributions in Canada

There are tax and estate planning advantages to making Spousal RRSP contributions. Typically, when making an RRSP contribution into a plan with your name on it, you receive a deduction against taxable income and upon withdrawing the funds, it becomes part of future income.

 

Having spousal or common-law RRSP contributions goes into your spouses plan but does use your contribution room giving you the tax deduction. The benefit to this is your spouse will report the future income which should allow for income balancing, if you make more money than your spouse.
Spousal RRSP’s is also a way to split retirement income. Any funds you put into the RRSP are tax free until you take it out.

 

Thinking about buying a house for the first time? Using one spouse’s RRSP and the other Spouse’s spousal RRSP for the Home Buyer’s Plan doubles the $25,000 maximum withdrawal.
The amount you can contribute during any year is indicated on your notice of assessment, and cannot be over your contribution limit, although your spouse’s contribution limit is not affected by the spousal RRSP. There is also a limitation as to how long a spouse must hold the funds in an RRSP before withdrawing the funds. Should the spouse withdraw the funds from the RRSP before this time passes, the income can be attributed back to the contributing spouse.
For more information, do not hesitate to contact our office to discuss a plan that is best suited for your family.

New Mortgage Rules

The federal government has announced new mortgage rules which will affect many Canadians. With the housing prices in Canada on the rise the government has been looking at whether Canadians can afford to pay for their mortgages if the interest rates increase.  At the moment interest rates are as low as 2.5% which is a record low.

Under the new rules that began on October 17, 2016 anyone with an insured mortgage will have to go through a stress test. The test would show if they are still able to afford their mortgage if the rates were to increase to the Bank of Canada 5-year fixed rate of 4.65%. The rules also apply to those with over 20% down payment on their mortgage. The stress test also requires no more than 39% of the borrower’s income would be needed to pay for the mortgage and other housing costs.

Borrowers looking to get a low-ratio insurance will now have to have an amortization period of 25 years or under and the rules require the house to be the principal home for the borrower. The home price will have to be $1 million and under and the borrower will have to have a credit score of at least 600. The Total Debt Service which includes debt payments cannot go above 44%.

When it comes time to sell the property you will now have to report the sale to the Canada Revenue Agency. If the home sold was your principal residence then the sale would remain tax free. When the home is an investment property the home will be subject to tax on capital gains. This new rule will help with recovering taxes from foreign investors looking to make a quick turn around on their investment by claiming the home as their principal residence.

Finance Minister Bill Morneau insists these new rules will make Canada’s economy more stable for the future. This new system may help in the long-term with the debt Canadians put themselves in and only time will tell if it will benefit Canadians and our economy.

2016 Tax Update

The New Year brings new tax changes that Canadians needs to be aware of as it may affect their annual tax returns. We have provided a brief overview of the tax changes the new Liberal government is intending to offer Canadians.

The Liberal government is introducing a middle-class tax cut for Canadians which will lower the tax rate for Canadians that earn between $45,282 and $90,563. The rate will be reduced from 22% to 20.5%. The government will increase the tax rates on Canadians that earn more than $200,000 with a tax rate of 33%.

The Tax-Free Savings Account (TFSA) contribution limit which was just increased in 2015 to $10,000 has now been lowered back to $5,500.

The Family Tax Cut which is income splitting will also now be cancelled for 2016 but it will not affect the income splitting for senior citizens.

A Canada Child Benefit (CCB) will be introduced that will replace the Universal Child Care Benefit and the Canada Child Tax Credit. This new tax credit will benefit children up to 17 years of age. The benefit will bring in over $6,400 for families per year for children less than 6 years and those over 6 will receive $5,400. Those households with income over $200,000 will not be able to receive this tax free benefit.

Another tax break that the current government is considering is providing companies with a 12 month discount on Employment Insurance premiums to help create more jobs.

The new changes will affect many Canadians that is why it is important to be prepared and informed of all of these changes. Be sure to follow us on Twitter and our blog for the most recent updates.

CPP and EI rates Increase for 2016

In 2016 the new Canada Pension Plan maximum pensionable earning will be $54,900.

  • The basic exemption amount for CPP is $3,500. The employee and employer contribution has not changed from 2015 at 4.95%.
  • The maximum employee and employer contribution is $2,455.30 and the self-employed maximum is $5,088.60.

The 2016 Federal EI employee premiums have increased to $955.04 and the employer premium is $1,337.06.

  • The rate stays unchanged at 1.88% since 2013.
  • The EI annual insurable earnings have a maximum of $50,800 for 2016.

For more information on rate and premium increases, please contact our office at (613) 234-6006.

Are you entitled to claim the eligible dependant amount?

Children are usually thought of as dependants but in some circumstances the individual may claim other related individuals as dependants for tax purposes on line 305 of their tax return.

The individual may claim the credit if they meet all of the following requirements:

  • The individual did not have a spouse or partner or if there was a partner they were not living, supporting or being supported by them
  • The individual supported a dependant in the year
  • The individual lived with the dependant in the home that they maintained

To be eligible the dependant will also have to be:

  • A parent or grandparent through blood, marriage, common law partner or adoption.
  • The child, grandchild, brother or sister through blood, marriage, common law partner or adoption and the child is under 18 years of age or has a physical, mental impairment

If the dependant has been away for educational purposes then CRA would still consider them as dependants and allow you to claim the basic amount.

If parents share custody of a child and both the parents are required to make support payments for the child then only one parent will be able to claim the amount for the dependant.

The amount of the Federal non-refundable tax credit for 2014 is $11,138 and $11,327 for 2015.

What is the Kiddie Tax?

The kiddie tax was introduced in 2000. The purpose of this tax is to prevent high income individuals from being able to reduce their taxes by income splitting company dividends to their children. The way the kiddie tax works is that the first $1,000 of income is tax free and the second $1,000 is taxed at a lower child’s rate. If the amount is higher than $2,000 then the kiddie tax is applied and they are taxed at the marginal tax rate.

The kiddie tax will be applied if the child falls into one of these categories:

  • Is under 18 years of age at the end of 2015.
  • Is 18 years of age at the end of the year and has earned income which is less or equal to half of their support.
  • Is between 19-23 and a full time student at the end of the year and has earned income which is less than or equal to half of their support.

When the child is under 18 years of age with a parent that is a resident of Canada and they have been transferred dividends from a company the federal tax rate of 29% is applied. The child can only use the dividend tax credit and not any other credits to lower their taxes on the dividends. There are two ways to report your child’s kiddie tax. You can report the child’s investment income on the parents’ tax return using Form 8814 or the child can file a separate tax return using Form 8615. The tax with either option will be the same.

GST/HST on E-commerce

As an online e-commerce business owner you are required to follow the same place of supply rules when it comes to GST/HST as it is treated the same as purchasing in store. However, when you are selling goods online to customers the application of the place of supply is generally based on the legal delivery of the goods to the recipient of the supply.

When the product is delivered within Canada then the registered business will have to charge GST/HST and the amount will depend on which province the product was delivered. If the customer is not a Canadian resident then the sales tax may be zero-rated which means it is taxed at 0%

These are the 2015 GST/HST Rates in Canadian Provinces and Territories:

  • BC, 5% GST
  • AB, 5% GST
  • SK, 5% GST
  • MB, 5% GST
  • ON, 13% HST
  • QC, 5% GST
  • NL, 13% HST (will increase to 15% on January 1, 2016)
  • NS, 15% HST
  • NB, 13% HST
  • PE, 14% HST
  • NT, 5% GST
  • NU, 5% GST
  • YT, 5% GST

The business will have to charge GST/HST depending on the customers delivery address. The addresses of customers will have to be collected if a CRA auditor requests proof. Make sure to also keep your proof of purchases, payments and business transactions.

The tax rules and regulations for selling online are a lot more sophisticated then the brief over provided in this blog. Each individual product, service and mandate requires an independent overview to ensure the appropriate tax applications are made. We would suggest contacting our office to arrange a free consultation to learn more.

 

Federal Foreign Tax Credit

When a Canadian resident earns income in a foreign country they are required to pay taxes on that income with the CRA. Individuals may qualify for the foreign tax credit if they have paid foreign taxes on that income. The foreign tax credit will protect Canadians from double taxation. To qualify the individual must be a resident of Canada.

When a taxpayer applies for the foreign tax credit they must separate their income in the following categories:

  • Foreign business- income tax
  • Foreign non-business-income tax

The foreign non-business tax credit will be calculated differently in each foreign country. When calculating the tax credit for business-income tax the taxes are deducted first on the foreign non-business-income. This happens in order to allow the individual to get the most out of their tax credit throughout the years. If the individual earned income that is exempt in the foreign country because there is a tax treaty then it would not be included in calculations for the foreign tax credit. If the individual’s federal foreign tax credit is lower than the foreign tax paid then they might qualify for a provincial or territorial tax credit.

For many individuals earning income from foreign countries the rules regarding taxation is a complicated one which is why our professionals are standing by for any questions you may have.

Working Income Tax Benefit

The working income tax benefit is for families and individuals with low income that make income over $3,000 (base amount for most provinces and territories). If the individual or the individuals spouse is over the age of 19 on December 31 and a resident of Canada for tax purposes then they qualify for the WITB. When an individual is enrolled full-time at an educational institution for more than 13 weeks in the current year then they are not eligible for the benefit. The benefit will be calculated at the end of the year on Schedule 6 of the tax return and the amount will depend on the province you reside in as of December 31.

Individuals without children making between $6,992 and $11,332 the maximum refundable amount would be $998 and when the individuals’ income is over $17,986 then the WITB would be reduced to zero. Families with children with income between $10,252 and $15,649 the maximum refundable amount would be $1,813 and when the income is over $27,736 then the WITB would be reduced to zero.

Individuals who are eligible for the disability tax credit (DTC) may also qualify for a disability supplement which is 25% of the individuals’ income. Canadians can also apply with Canada Revenue Agency to have up to 50% of their WITB paid in advance. The payments are paid out on the 5th day of each quarter.

 

Caregiver Amount

When parents and grandparents grow older and are unable to live alone one option that many people are considering is having them move into their home.

If the parent or grandparent is over 65 years of age and lives with you then you may qualify for a caregiver tax credit.

The individual (caregiver) is able to claim $4,530 for the 2014 tax year and $4,608 for 2015. In order to claim the caregiver amount the individual’s parent or grandparent has to live in their home during that tax year. The parent that is dependent on the individual also has to have been a resident of Canada and have to be living in the same household. If there are other relatives living in the same household that are dependent on the individual because of physical or mental problems then the caregiver amount can be claimed as well.

To qualify the dependent must be over 18 years of age, resident of Canada and depend on the individual due to mental or physical struggles. The dependent also needs to be a relative of yours or your spouses to qualify. Those dependent relatives may be able to qualify for the Disability Tax Credit and any amount not claimed can be transferred to the individual. The Canada Revenue Agency may ask for a signed document from the dependents doctor showing the date and type of impairment. There are other limitation and rules for qualifying.

Always be sure to keep your documents on file for the CRA. To learn more, contact our office to determine if you qualify for the Caregiver Amount.