April 2014
The end of tax season.




The end of April is approaching, and with it comes the end of another critical period in our journey of reaching our financial goals. This month's newsletter consist of articles gathered to help us keep our focus during this tax season.


Be well.



Peter, Claudio and Joanna

How to Get the Most Out of Your Tax Return - Tips for Tax Time

by Ray - March 2014, financialhighway.com


Every Canadian wants to pay less tax. And the common goal at tax season is to claim every credit and deduction to minimize the tax bite. There are some simple steps you can take to reduce your tax liability. Missing a deduction or making an error means you are paying the taxman too much. Cleo Hamel, Senior Tax Analyst with H&R Block Canada offers the following tips on how to make the most of your tax return:

  • File a tax return even with no income: There are benefits like the GST/HST Benefit and the Canada Child Tax Benefit (CCTB) that are calculated based on your last tax return filed. Depending on where you live, you may also be eligible for provincial benefits. You do not need income to qualify for these benefits but you need to file in order to receive them. Both parents have to file in order to receive the CCTB. [See: Filling A Tax Return When You Don't Owe Anything]
  • Track down receipts: Missing a credit is like leaving money on the table. If you have misplaced receipts, it is worth the extra time to track them down.
  • Pool receipts: Married and common-law spouses may be able to pool charitable donations and medical expenses to maximize their tax savings. Same applies to the Transit Pass Credit and families. Parents can claim passes for children under 19.
  • Extra credit for first time donors:  New for 2013, the First-time Donor's Super Credit is meant to encourage donations by people who have not donated to charity before, or who had fallen out of the habit. If you haven't claimed a donation receipt since before 2008, your donations could receive an extra boost in 2013. For first time cash donations made after March 20, 2013, you can claim 40% per cent on the first $200 of donations and 54 per cent for donations between $200 and $1,000.
  • Charitable donations: For more regular donors, the standard federal tax credit for charitable donations is 15% for your first $200 of donations and 29% on donations over that amount. And you can pool your receipts for up to six years to help maximize your tax savings. Plus you will receive additional provincial savings.
  • Claim the kids: Children come with a variety of tax benefits. For example, parents can claim the Child Tax Credit which amounts to $2,234 for each child younger than 18. This results in $335 in tax savings per child. Remember the Children's Fitness Amount and Arts Amount can both be claimed by either parent but cannot exceed $500 respectively in total per child.
  • Benefits for caregivers: If your parent or parents are 65 or over, have less than $19,435 in income and are living with you, you may be able to claim the caregiver amount. The key is that they must live with you. Sending money from afar to support them does not qualify. You can also claim parents under the age of 65 if they are dependent on you due to an infirmity. In this case the income threshold will be $21,864. The caregiver amount is increased by the $2,040 family caregiver amount when the dependant is infirm.
  • Get organized for next year: If you haven't already, start an envelope or folder to hold all your 2014 tax slips and receipts. Next year, it will save you the time and hassle of trying to track down receipts and gather the necessary documents.

View original article here.

Finding the Hidden Gold in your Tax Return

by Robb Engen - April 2014, boomerandecho.com


While most people use a tax program to complete their tax return, the program is only limited to the information you enter and you may not be fully maximizing your tax refund.


As an accountant, I come across plenty of small credits that are often overlooked by people because they aren't aware they apply or aren't sure how they work.


Here are a few quick tips to make sure you're getting the most for your money.


Making Changes to a Prior Year

Did you know that you can amend your tax returns up to 10 years back? Lots of people don't know this and any missed credits or deductions from prior years can be amended to trigger a refund from a prior year.


Making simple mistakes on a tax return like forgetting to claim a credit or deduction is easy to do so it's important to take a few minutes and make sure there isn't anything overlooked.


You can easily adjust your tax return by completing a form called T1-ADJ (T1 Adjustment Request). It's important that the adjustment form is filled out rather than filing a second tax return for that year.


Here are a few things that people commonly miss and could potentially put more money in your pocket.



Brokerage fees. If you have bought or sold stocks in the past 10 years and paid brokerage fees related to the transactions, the fees paid can be deducted on your tax return (non-registered accounts only).


Child care costs. Here's a trick that lots of people miss. If the lower income spouse is unable to look after the children because they were attending school full-time, the higher income spouse is able to claim the child care costs. This will come in handy for us when we eventually start our family in the next couple years since my wife may go back to school full-time.


Moving expenses - You can deduct reasonable moving expenses related to a move that brings you closer to your work. Note that the move needs to be at least 40km and has to be work-related.


Capital losses. If you sold shares in a company for a price less than you paid, the capital loss should be recorded for that year even if there are no capital gains in the same year because the capital loss can be carried forward to future years (and eventually be used to offset any capital gains in the future).



Caregiver amount - this is a credit available for people who had their mother or father move in with them and needed to care for them. Note that there is a maximum income requirement for the mother or father in order for you to be eligible to claim this credit.


Disability amount - if you have a child born with a severe disability you can get a credit for the disability and will need to get your doctor to fill out a certificate stating that they are in fact disabled.


Tuition credits - if you have a child going to post-secondary school you can transfer up to $5,000 per year of his/her tuition credits. This is useful because the student likely won't have an income high enough to use all of the credits.


Donations - they should be combined between spouses in order to maximize this credit (the % of credit is higher for any donation over $200). There is also a 'super' credit available for first-time donors this year. I make charitable donations each year so I wouldn't qualify as a first-time donor, but this credit is an extra incentive for anyone who doesn't normally make donations.


Final thoughts

The above list gives you a few ways to maximize the tax refund you will receive, and the best part is that you are allowed to go up to 10 years back to correct any mistakes made on prior returns.


If you've missed credits or deductions that you should have taken, consider filing a prior year adjustment (T1-ADJ) available on the CRA website.

View original article here.

Marginal Tax vs. Average Tax

by Jim Yih - April 2014, retirehappy.ca


In Canada, we operate under a marginal tax rate system which simply means the more money we make, the more tax we are privileged to pay. Marginal tax is simply the amount of tax paid on an additional dollar of income. As income rises, so does the tax rate. This is different than a flat tax rate where you pay the same rate of tax no matter what your income level is.


Knowing your marginal tax rate can help you make effective financial decisions. From a planning point of view it is not good enough to just know how much money you make. It is essential to understand how much you keep. Making a dollar doesn't allow you to count on spending that dollar. Knowing your marginal tax rate will tell you how much of that dollar you can utilize toward your lifestyle. If you are planning your finances or retirement, the focus should be on your net income.


In Canada we have two layers of income tax - federal and provincial. To illustrate how marginal tax rates work, my example shows tax rates for Alberta residents and encompasses both provincial and federal tax.


For the year 2013, there are five tax brackets:

$0 to $11,038 - 0% (this is not really a bracket but the personal exemption level)
$11,039 to $17,593 - 15%
$17,594 to $43,561 - 25%
$43,562 to $87,123 - 32%
$87,124 to $135,054 - 36%

over $135,055 - 39%


If you earn $50,000 in income in 2010, then you would be in the 32% marginal tax bracket and you would pay 32% of any additional dollar you made to the federal government. If you earn $100,000, then you would be in the 36% marginal tax bracket.


One of the biggest misconceptions about tax rates is that your entire income will be taxed at your marginal tax rate. Here's an example to show you how it actually works:


The person making $50,000 per year would not pay $16,000 in tax ($50,000 x 32%). Instead, his/her tax would be calculated like this:

$11,038 at 0% = $0
($17,593 minus $11,038) at 15% = $983
($43,561 minus $17,593) at 25% = $6,492

($50,000 minus $43,561) at 32% = $2,060

Total tax = $9,535


The marginal tax rate of 32% is the amount of tax paid on any additional dollar made up to the next tax bracket. In this example, the average tax is only 19.1% ($9,535 divided by $50,000 of total income). Average tax is the percentage of tax paid based on your total gross income and reflects the total tax you are paying. It is the total amount of tax you will pay through all the brackets divided by total income and will mathematically always be lower than the marginal tax rate.


The tax system varies from province to province. With 10 provinces and three territories, you can imagine the complexity of the Canadian tax system. Add in the fact that the rules can change every year because of provincial and federal budgets and you have an ever-changing and complex tax system.


Lastly, paying tax is not such a bad thing because it means you are making more money. You hear people complain about paying tax and the desire to pay not tax. I have a solution . . . make no money and you will pay no tax.


But also know that no matter what tax bracket you are in, you should never ever turn down money. Our tax system works in such a way that the more you make, the more tax you will pay but you will still always win by making more money. You will never lose by making more money.


My advice to people. Learn how the tax system works before you complain. Learn how to use the system to your advantage.

View original article here.
Issue: 41
Financial Markets
In This Issue
How to Get the Most Out of Your Tax Return - Tips for Tax Time
Finding the Hidden Gold in your Tax Return
Marginal Tax vs. Average Tax.

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Peter Bailey
Wealth Advisor
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1 

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