Hot Tips (Income Tax) Beat the Tax System Income Tax Tips Checklist... Opening balances · Check for reassessments, objections, etc., to determine if carry forward figures are correct · Is prior year earned income for RRSP correct? Donations · Usually go to spouse with higher taxable income (but watch dividend income) · Should we carry forward donations? CSB'S · Watch for interest accruals prior years · Do we have to accrue this year? · Ensure correct accrual is calculated (e,g, annual or from issuance of bond) Medical expenses · May use any 12 month period ending in the year · Deceased person may use 24 month period including date of death · Spouses may claim other spouse’s expenses, including children · It may be advantageous to claim on lower income spouse's return · Nursing home care can be claimed, but form T2201 must be completed by the family physician. · Revenue Canada may still disallow the deduction if the form does not identify the care as medically necessary. Rental properties · Cannot create loss with CCA on buildings · Income and expenses from all properties owned are grouped together when considering how much CCA can be claimed · Where low taxable income , claim CCA only to extent necessary · Add back of loss creating CCA for minimum tax Tuition fees · Check ### · May only claim if more than $100 paid to an institution · Consider transfer to supporting individual education deduction certificates. · Education Savings Plans - back of form has to be filled out and signed by student · Consider transfer to supporting individual · Don’t forget the education tax credit for full and part time studies · Take advantage of education savings plans Interest Expense · Has any money been borrowed to earn investment income? Are there any other eligible expenses to be claimed against investment income? Safety deposit boxes, accounting and investment counselling fees etc. Business income · Ensure asset additions and disposals in financial statements are reflected on CCA schedule in tax return · Make sure interest income is not included in financial statements and also as T5 in tax return Loss carry backs · Are there any loss carry backs or losses to be carried forward from other years? · Fill out form T1A Ontario tax credits · Can they be claimed? Remember both incomes must be taken into account. · Don’t forget political donations. CPP/UI Earnings · If nil code nil in appropriate box Political contributions · Split between spouses if 2 or more contributions to get a higher percentage credit · If one spouse pays no tax transfer the claim to the other spouse GST · Is GST credit claimable? Credit is reduced by 5% of family income over $25,921 · Ensure income and expense summaries prepared are net of GST · Claim back GST on eligible employee expenses where applicable. Revenue Canada is allowing employees to deduct full expenses including GST from income and include the rebate in income in the following year when received. Investment tax credits · May be carried forwards and backwards and are also refundable · Capital gains exemption · Disposals of eligible small business shares are entitled to a $500,000 capital gains exemption on the sale of their small business shares. · Check the carry forward balance of any previous capital gains elections which may have been claimed to determine the balance available if any. Children · Child tax (credit) benefit. These credits (benefits) are now mailed directly to parents on a monthly basis, provided the children have been properly identified and recorded on the personal income tax return. It is necessary to file a personal income tax return to obtain the credits. · This replaces the old family allowances and child tax credit. Children are no longer claimed as dependents on your personal income tax return. Foreign pension income · Watch tax treaty , may not be fully taxable · All foreign world wide income must be reported by Canadian residents. · You must declare all foreign assets excluding certain properties in excess of $100,000 on form Pension income · Cannot roll into spousal RRSP and claim pension income deduction for same amount (e.g. rollover must be $1,000 less than pension income) Commission salespersons · Need to attach T2200 · Claim back GST portion of expenses Other · Equivalent to married deduction? Note this can no longer be claimed if the individual is living common law. · Disability deduction? See form T2201 · Election to transfer dividends to spouse? Capital Cost Allowance · Avoid taking maximum capital cost allowance where there is no tax savings generated. Quick Reference for Tax Beaters · The General Rule: all reasonable business-related expenses are tax deductible if they are incurred to earn income. · Even without a receipt you can still claim an expense... write out the details and keep in your expense records. · Where no description shows on a receipt, itemize the purchase yourself to help your memory and add valuable documentation. · Save significant tax dollars by legally allocating income among family members; pay reasonable salaries. · Apply to have your family member EI exempt. · Defer claiming CCA on fast write-off assets in low income years to get more dollar for your deduction. · Save time and money by choosing the proper business structure - get advice! · Remember to request a refund of the GST and PST on accounts receivable that you have written off. · Where possible, turn personal loans into business loans and deduct the interest for tax purposes. · Pay down personal loans before business loans to maximize your tax deductible interest expense. · Reduce taxes by making a provision or deduction in your inventory for obsolete or damaged goods. · Take a write down for doubtful paying customers and defer tax dollars. · If your home is your principal place of business, maximize your tax deductions by designating an area in your home to be used exclusively for your business. · Claim terminal losses to maximize your tax savings. · Delay claiming CCA in times where you may lose the use of the deduction. Do not claim CCA if you do not save taxes. · When purchasing a computer and software at the same time, break out the software portion of the purchase and deduct at the 100% CCA rate. · Elect to include electronic office equipment in a separate CCA class to potentially increase your tax deductions on sale. · Remember to deduct CCA on personal assets which are now being used in your business. · Deduct a portion of the cost of assets used both personally and in a business. · If two or more vehicles are used in your business, keep track of the business kilometres on each vehicle to maximize your tax deductions. · Record your odometer readings at the beginning and end of each year. · Delay deducting SR & ED expenses to reduce risk of loss carry forwards expiring, and to level out income, in excess of the small business limit. · If you carry out eligible SR & ED activities consider incorporating your business to receive a 100% refund of investment tax credits / SR & ED. · Remember to tell Revenue Canada to refund to you your New Hires Program Benefits. · Don't forget to review 1997 to see if you were eligible for a New Hires Program refund. · Consider have Revenue Canada conduct their audit at your accountant's office to minimize disruption and possibly tax. Do not be conveniently available to Revenue Canada auditors... get lost! · File your notice of objection on time to keep your appeal rights alive. Kiddie Tax Tip · Where a management company exists and children are the beneficiaries of a trust, there may be substantial built up asset value in the shares of the management services company of the goodwill of the business carried on. · Consider a sale of the shares to the parents for the fair market value realizing exempt capital gains and receive as payment an interest bearing promissory note to the trust. · The interest income to the trust would not be subject to attribution or kiddie tax. See Also:  Estate Planning  |  Other Tips