Find your pot of gold.
With the RSP season now behind us, we can now shift our attention to the next item on our financial health checklist: our taxes. This month's collection of articles are meant to help you understand many of the ways that you can maximize your tax refund while keeping in mind some of the changes and additions to the tax laws. To help you relax a bit and unwind, we've included a great sugar cookie recipe, just in time for the coming Spring season!
Peter, Richard, Claudio and Joanna
Did you know that?
by Worldsource Wealth Consultant - February 2013
A lot has changed over the past few years; make sure that you are aware of the following tax savings opportunities that may be available to you.
The Family Caregiver Tax Credit: Is a 15 per cent non-refundable tax credit on amounts up to $2,000 that provides tax relief to caregivers of infirm dependant relatives. This includes, for the first time, infirm spouses, common-law partners, and minor children.
The Medical Expense Tax Credit: In order to fully recognize the medical and disability-related costs incurred by caregivers, the previous $10,000 limit on the amount of eligible expenses a caregiver can claim in respect of financially dependent relatives has been removed.
The First-Time Home Buyer's Tax Credit: Assists first-time home buyers with the costs associated with the purchase of a home. This credit can be worth up to $750.
Don't forget about the Children's Fitness Tax Credit: This is a well-used tax credit that allows families to claim a 15 per cent non-refundable tax credit on the first $500 spent on the cost of registering a child in an eligible physical activity program, such as soccer, hockey or gymboree.
If you own a Small Business, take a look at the Hiring Credit for Small Business: Small businesses that meet certain criteria and paid more in Employment Insurance premiums in 2012 than 2011 are eligible for this credit, which can help business owners earn up to $1,000 in tax savings.
The Children's Arts Tax Credit: Canadian families can claim a 15 per cent non-refundable tax credit on the first $500 spent on registering a child in an eligible artistic, cultural or music program.
The Textbook Tax Credit: This credit recognizes the cost of textbooks, and provides tax relief to students in addition to the Tuition and Education Tax Credits. Students must first claim this credit on their personal returns, but may be able to transfer unused amounts to a parent, grandparent, spouse or common-law partner.
The Canada Employment Credit (CEC): Is a 15 per cent non-refundable tax credit on an amount of $1,095 in employment income, the CEC recognizes employees' work expenses for items such as home computers, uniforms and office supplies.
The Public Transit Tax Credit: Allows Canadians to claim the cost of public transit passes for the year.
The Volunteer Firefighters' Tax Credit: Is available to any volunteer firefighter who serves at least 200 hours per year at one or more fire departments in their community.
Transferring Credits: Some tax credits such as charitable donations can be transferred between spouses. These credits are often worth slightly more to the higher income earner, depending on the province that is resided in.
Disability Tax Credit: This is a non-refundable tax credit that a person with a severe and prolonged impairment can claim to reduce the amount of income tax paid during the year. If you are eligible to claim this credit you are also eligible to open a Registered Disability Savings Plan. If you have never claimed this amount, the disability tax credit can be claimed retroactively for up to 10 years
The 2012 federal budget also increased the traveler's exemption to $200 from $50 for Canadian shoppers who purchased goods while out of the country for 24 hours. The budget also increased the exemption levels for travelers, who are out of the country for 48 hours or more to $800,
Start Planning for 2013
by Worldsource Wealth Consultant - February 2013
In 2013 your financial plan will no longer include pennies. While saving your pennies has always been a slow and steady way to increase your wealth, the Canadian federal government has found a way to save approximately $11 million a year by no longer making them. That of course is the estimated annual cost of manufacturing a penny. The Royal Canadian Mint will start collecting pennies on Feb. 4, 2013 for recycling, with approximately six billion pennies expected to be collected over the next six years.
Higher Payroll Taxes
Canadians earning at least $47,400 will pay $891.12 in EI premiums this year, up $51.50. Meanwhile employers will pay $1,247.57 per employee, an increase of $71.61.
Canada Pension Plan contributions will also increase by $49.50 to $2,356.20, for those earning at least $51,100. Note that the employer's share will increase by the same amount.
Tax Bracket Increases
2013 will see David Johnston become the first Governor General in Canadian history to pay income tax. He and all other Canadians will now pay taxes at the following federal rates.
Increased TFSA Contribution Amount
The amount that you can contribute annually to your TFSA has increased by $500 to $5,500. For someone who has never opened up a TFSA before and was at least age 18 in 2009, your total cumulative TFSA contribution room starting January 1, 2013 is now $25,500.
Contributing to an Registered Retirement Savings Plan (RSP)
The maximum RSP deduction limit for 2012 is $22,970. However, if you did not use your entire RSP deduction limit for the years 1991- 2012 you can carry forward unused RSP contributions to 2013. In 2013 the maximum RSP deduction limit increases to $23,820.
Severance packages are designed to help transition employees to new opportunities. However, when paid as a lump sum they become immediately taxable. Recipients should therefore explore ways to defer the impact of taxation by exploring opportunities such as retiring allowances, retirement compensation arrangements or even using unused RSP contribution room.
Changes to the Canada Pension Plan (CPP)
In 2013 the maximum CPP retirement benefit for new pensioners will increase from $986.67 to $1,012.50 per month. This increase is calculated based on the average yearly maximum pensionable earnings for the last five years.
If you choose to delay receiving your CPP benefit after age 65 your pension will increase by .70% for every month that you delay taking CPP up until age 70. If you start receiving your CPP pension at the age of 70, your pension amount will be 42% more than it would have been if you had taken it at age 65.
Conversely in 2013 if you decide to receive your CPP benefit before age 65 your monthly pension will decrease by .54% every month. For a person who applies for and receives their CPP retirement pension at age 60, this represents a maximum reduction of 32.4% in 2013 and will gradually increase to 36% by 2016.
Share & Split Income
Income-splitting and sharing can save you thousands of dollars in tax every year, as it allows spouses to shift income from a spouse in a high tax bracket to the spouse in a lower one. Sometimes, this can also reduce or even eliminate the claw backs that exist on government programs such as Old Age Security payments and the age credit.
Make sure that you explore sharing CPP income with your spouse. While pension sharing is technically not the same as pension income splitting, CPP pension sharing can accomplish the same benefits by shifting income to the lower earning spouse.
Pension income splitting is available on several kinds of pension income, such as payments from a company pension plan, RIF payments and annuity payments from an RSP or deferred profit sharing plan, provided that the recipient of this income is over the age of 65.
Pension income splitting can also allow both partners to claim the $2,000 pension income tax credit. If you have not done so already and are over the age of 65, you may want to explore ways to create pension income in 2013.
For those under the age of 65, income splitting may also be accomplished through the creation of a Spousal RSP.
Prescribed rate loan to spouse
The income attribution rules are often triggered when one spouse gifts assets to another .A spousal loan avoids this risk and is a strategy that can be used to transfer investment income from a higher earning spouse to that of a lower earning spouse. As interest rates are still very low, now is an appropriate time to consider this strategy.
Avoid these 8 common tax filing mistakes
by Evelyn Jacks - March 2013, thestar.com
This tax year marks the 50th since Canada underwent a major tax reform in 1972. Despite all the technological wizardry since then, your responsibility has not changed: It's up to you to file a return on time every year.
But that's tough to do when there are two moving targets: Changing tax law and your changing life events. Canadians love their tax refunds, but hate rounding up the paperwork to do the return. That's where common tax filing errors really begin.
I have answered thousands of tax questions on open line shows and online forums and here are the common filing mistakes I'd like to share.
1. Fix errors from prior years.
You can recover missed tax refunds and credits by filing an adjustment to prior filed returns up to 10 years back in the case of the federal T1. You can even do this online.
I have seen so many good news stories: The most heartwarming from an exhausted widow who had heard me speak about the disability tax credit. Caring for her cancer-stricken husband over many years left little time to review tax savings opportunities. She claimed for previous years to correct for the missed credit and received a five figure bonus that helped pay for funeral expenses. Think about what lucrative deductions and credits might you have missed in filing past returns?
2. Report all income, the right way. Taxpayers make lots of mistakes reporting their income, from double reporting taxable benefits that are already included in Box 14 of your T4 slip to failing to report tips and gratuities. Common problem areas also include the reporting of foreign pensions and the interest your adult child paid you on the mortgage you are holding for him.
This year there are two issues of particular note for business people and real estate investors:
- Avoid the underground economy. Statistics Canada says the three industries most likely to participate in the underground economy are construction, retail and hotels and restaurants. If you are in these industries, CRA may want to review your filings, so make sure you can justify all income reported and all deductions claimed.
- Be careful flipping homes. If the home you sell is your primary residence, there is no tax paid on the sale. That's right, the $50,000 gain on the home you bought for $500,000 last year and sold this year for $550,000 is tax exempt. But here's the lesser-known trap: If you buy and sell those principal residences too often, you could face a tax problem. You'll lose the principal residence exemption, and even the 50 per cent capital gains inclusion break if the tax department thinks you're in the business of buying and selling homes.
In short, 100 per cent of the resulting gains could be added to your income. Talk to a tax pro if you're worried.
3. Missed capital losses: In a post-financial crisis world, this is really important. Don't miss reporting your losses on your investments. They could be worth thousands in erasing capital gains of the current year. If you have no gains on this year's return, know that you can use unapplied capital losses to wipe out taxes on capital gains of the prior three years or on future gains. That carry forward opportunity is indefinite. In the year of death, unused capital losses may be used against all types of income.
4. Pension income splitting.
There are a variety of ways to cut the taxes on your pension income. You can assign half your Canada Pension Plan benefits to your spouse if you have both reached age 60, for example. That way you each report this income, hopefully at lower marginal tax rates. Up to 50 per cent of qualifying pension income from superannuation or RRSP/RRIF deposits may be split, too, with an election made each year. Talk to your tax advisor, as there are age restrictions, and if necessary, review your income splitting in prior years. If you didn't optimize, you can do so within a three-year adjustment period.
5. The most-missed tax deduction. It's not the largest amount but many people miss claiming their safety deposit box. Over time, those missed deductions add up. This is especially true if you are a high income earner or if you are just over a clawback zone for OAS or Canada Child Tax Benefits. Investors should also review statements from their financial institutions to make sure interest costs and brokerage fees are claimed as carry costs.
6. The most lucrative deduction. This is serious money, so don't miss out: Qualifying moving expenses include real estate commissions, which can run into the five figures. Again, moving expenses are subject to audit so keep all receipts. To make the claim, you have to move 40 kilometers closer to a new work or business location where active income is earned (sorry, but EI, pension or investment income doesn't qualify).
7. The most lucrative tax credit. In my experience, that's the Disability Tax Credit, claimed by someone who is markedly disabled on a permanent basis, or their supporting individual. Especially vulnerable are those with progressive diseases, like Alzheimer's or cancer. A doctor or other qualified healthcare professional must fill in form T2201, the Disability Tax Credit Certificate. In many cases, the information provided by the healthcare professional may indicate several years of impairment. Previous tax returns can be adjusted for the tax credit for each year that the Disability Tax Credit Certificate has been approved by CRA.
8. The most-missed tax credit. The list is extensive and everyone has some, so why not find out more about claiming the medical expenses that you are missing? They can be grouped into the best 12-month period ending in the tax year. This year, you'll be able to claim blood coagulation therapies and associated peripherals such as pricking devices, lancets and test strips if they are prescribed by a medical practitioner.
Those buying gluten-free products may make a claim for the difference in costs from regular products, and there are a host of claims for renovations you need to make to accommodate a disabled person with mobility issues. You will need to reduce the total by the lesser of $2,109 or 3 per cent of your net income, so it's usually best to claim these costs on the return of the spouse with the lower income. An RRSP deduction can help increase this claim. My new book, Jacks on Tax, Your Do-It-Yourself Guide to Filing Taxes Online, for the complete list.
Remember, the trick to tax filing is to pay the correct amount of tax - but not a cent more. If you missed something, use the Taxpayer Relief provisions to get your rightful refund, claiming repetitive misses back over a 10 year period. But don't procrastinate. Organized tax files and receipts, together with timely filings, will help you avoid costly errors.
View the original article here.
Flower Sugar Cookies
By Martha Stewart, marthastewart.com
- 4 cups sifted all-purpose flour, plus more for surface
- 1 teaspoon baking powder
- 1/2 teaspoon salt
- 8 ounces (2 sticks) unsalted butter, softened
- 2 cups sugar
- 2 large eggs
- 2 teaspoons pure vanilla extract
- Royal Icing
Sift flour, baking powder, and salt into a bowl. Cream butter and sugar with a mixer until pale and fluffy. Reduce speed to medium; add eggs and vanilla. Reduce speed to low; add flour mixture gradually, beating until incorporated. Shape dough into 2 disks. Wrap each in plastic and refrigerate until firm, at least 1 hour or overnight.
Place 4 or 5 skewers on a parchment-lined baking sheet, alternating the direction the tips are pointed. Repeat with remaining skewers.
Preheat oven to 325 degrees, with racks in upper and lower thirds. Let 1 disk of dough stand at room temperature until just soft enough to roll, about 10 minutes. Roll out dough on a lightly floured surface to 1/4- to 1/2-inch thickness. Cut out shapes using a 3 3/4-inch flower cookie cutter. Transfer to baking sheets, placing each cookie on a skewer, covering 2 inches of the skewer end. Gently press cookies down. (Cookies will stick once they are baked.) Roll out scraps once, and repeat. Repeat with remaining disk of dough. Freeze until cookies are firm, 15 minutes.
Bake in batches, switching and rotating sheets halfway through, until edges of cookies turn golden, 15 to 18 minutes. Let cool on sheets on wire racks.
Spoon royal icing into a pastry bag fitted with a small plain round tip, and decorate cookies. Let stand overnight or until icing dries completely.
View original recipe here.
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Toronto, Ontario M5M 4M1
The information provided is for general information purposes only and is based on the perspectives and opinions of the owners and writers. The information is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting, or professional advice. Readers should consult their own subject matter experts for advice on the specific circumstances before taking any action. Some of the information provided has been obtained from sources, which we believe to be reliable, however, we cannot guarantee its accuracy or completeness. Worldsource Financial Management Inc. does not assume any liability for any inaccuracies in the information provided.Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual Funds and Segregated Funds provided by the Fund Companies are offered through Worldsource Financial Management Inc. Other products and services are offered through Peter Bailey.