Tax implications of the 2016 budget

Tax implications of the 2016 budget

Tax implications of the 2016 budget

Tax implications of the 2016 budget

The 2016 federal budget included a number of measures that will impact Canadian taxpayers. Here are some of the tax aspects of the budget which will impact individuals and small business owners.

1. Reduction of middle-income tax bracket

The middle-class income tax bracket would be cut from 22% to 20.5%, starting this year. That means if your taxable income is between $45,282 and $90,563, you’ll pay less tax.

2. New High Net worth (HNW) tax bracket

The Liberals introduce a new 33% tax bracket for high net worth people who earn more than $200,000 each year.

3. Increasing the attention on tax evasion

The Liberals will invest $444.4 million over five years to help the Canada Revenue Agency ensure tax evasion is difficult. This money will go to hiring more tax auditors and specialists, developing robust business intelligence infrastructure, increasing verification activities and investigating criminal tax evaders.
The Liberals will also spend $351.6 million over the next five years to help the Canada Revenue Agency improve its ability to collect outstanding tax debts.

4. Closing tax loopholes for HNW

For those private corporation business owners, this Budget will close loopholes that allow them to use a life insurance policy to make distributions tax free.

5. Retirement age rolled-back to 65

The retirement age will stay at 65. This reverses the Conservatives’ decision to raise it to 67 beginning in 2023.

6. Low-income seniors get 10% more in GIS benefits

Starting in July 2016, low-income seniors who rely almost exclusively on Old Age Security and Guaranteed Income Supplement (GIS) benefits can expect a 10% increase to their total maximum GIS benefits.

7. Introduction of the Canada Child Benefit

Starting in July, the Universal Child Care Benefit (UCCB) and Canada Child Care Benefit (CCTB) will be replaced with one non-taxable Canada Child Benefit (CCB).
Under the current system, families with one child and with annual earnings of $30,000 would receive $4,852, after tax, if their child was under age 6, or $3,916 if their child is aged 6 to 17.
Under the new Canada Child Benefit, these low-income families could see $6,400 per child under age 6 and up to $5,400 per child per year for children aged 6 to 17. As a result, most Canadian families will see an average increase in child benefits of almost $2,300 starting this year.

8. Increased Child Disability Benefits

An additional amount of up to $2,730 for each child who is eligible for the Disability Tax Credit will be added to the existing Child Disability Benefit.

9. Elimination of income splitting for couples with kids

The prior Conservative government’s introduction of the Family Tax Cut allowed couples to income split and save up to $2,000 in taxes each year. This income splitting for couples with children under age 18 will be eliminated.

10. Elimination of fitness or arts tax credit for kids

Currently, families can get a tax credit of $150 and $75 per child through Children’s Fitness and Arts Tax Credits (up to $1,000 and $500 in eligible expenses, respectively).
There will be a 50% reduction of the maximum eligible expenses for the Children’s Fitness and Arts Tax Credits in 2016, and a complete elimination of both credits by 2017.

11. Elimination of education and textbook tax credit

This Budget eliminates the Education and Textbook tax credits, effective Jan. 1, 2017.

12. Introduction of School Supply Tax Credit

Budget 2016 has introduced a new credit for the cost of educational supplies. The credit is available to teachers and early childhood educators who incur the cost of supplies for the purpose of teaching or otherwise enhancing students’ learning in the classroom or learning environment. This new credit will allow an employee who is an “eligible educator” to claim a 15% refundable tax credit based on up to $1,000 in expenditures made by the employee for “eligible supplies.”

Teachers will qualify as eligible educators if they hold a teacher’s certificate that is valid in the province or territory in which they are employed. Similarly, early childhood educators must hold a certificate or diploma in early childhood education.

13. Elimination of capital gains tax exemption on donations

Budget 2015 included a proposal to provide an income tax exemption on capital gains of donated private corporation shares or real estate beginning in 2017. To qualify, the cash proceeds from the disposition would need to be donated to a registered charity or other qualified done within 30 days. This is now eliminated in 2016 Budget.


Budget 2016: How budget could affect Canadian communities


What the Liberal budget means for high-income Canadians

 

Capital Gains vs Business Income

 

Capital Gain vs. Business Income

Capital Gains vs. Business Income

Capital Gains vs Business Income

As indicated in our previous articles, the housing market in Canada has attracted many investors. This has allowed real estate investors to make a quick profit. The popularity has also been fueled by the preferred tax treatment on capital gains. In Canada only 50% of the capital gain is taxable at your marginal tax rate.This has allowed taxpayers to shelter large portion of their income from the tax man. However, you should be aware that not all income qualifies as a capital gain. It could be taxed as business income, in which case 100% of the amount is subject to tax.

For example, to determine if the rental income qualifies as a capital gain or business income the following Six factors are considered as cited in Ayala v. The Queen:

  1. The nature of the property sold;
  2. The length of time the taxpayer was in possession as owner of the property;
  3. The frequency and number of operations carried out by the taxpayer;
  4. The improvements made by the taxpayer to the property;
  5. The circumstances surrounding the sale of the property; and
  6. The taxpayer’s intention at the time the property was acquired, as indicated by the taxpayer’s actions.

In the case of Montreal tax payer who sold six of her real estate properties and reported the income as a capital gain, her appeal was denied and income was assessed as business income. The judge in this case concluded that the Montreal taxpayer was probably and likely had acquired the properties “for the purpose of reselling them at a profit at the earliest opportunity rather than considering them as long‑term investments.” The taxpayers appeal was denied and her income assessed as business income forcing her to pay tax on 100% of the sale proceeds.

These rulings will impact many different business and industries. It is critical taxpayers seek adequate legal and tax advise when making decisions.

Capital Losses vs Business Losses 

When it comes to capital losses vs business losses the opposite is also true. A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. Read our article on capital losses vs business losses to gain more insight.

Cheema & Associate Professional Corporation – Chartered Professional Accountants  is an accounting firm located in Brampton, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for Tax Help, Personal Tax, Corporate Tax, Year End Financials, Accounting & Estate Taxes.

Capital Losses vs Non-Capital Losses

Capital Losses vs Non-Capital Losses

Capital Losses vs Non-Capital Losses

 Capital Losses Vs. Non-Capital Losses

 Capital Loss

A capital loss arises when you sell a capital property you own for less than its adjusted cost base. A capital loss can be carried back three years and forward indefinitely. The inclusion rate for a capital loss is as follows:

Year Inclusion Percentage
Before 1988 50%
1988 and 1989 67%
1990 to 1999 75%
Jan 1 to Feb 27, 2000 75%
Feb 28 to Oct 16, 2000 67%
Oct 17 to Dec 31, 2000 50%
2001 to present 50%

Non-Capital Loss (Business loss)

A non-capital loss arises when you incur  any loss from employment, property or a business. The carry-forward periods are:

Year of Loss Carry Forward Period Carry Back Period
Taxation years ending March 22, 2004 7 Years 3 Years
Taxation years ending after March 22, 2004 10 Years 3 Years
Taxation years ending after 2005 20 Years 3 Years

Capital Losses vs. Business Losses 

A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. In the case of Mr. Prochuk vs. Queen he tried to argue his losses were business losses and could be used to reduce other income. Mr. Prochuk was not successful in arguing his claim because he did not meet the criteria for a business loss. Mr. Prochuk was an engineer turned investor, he should have considered the following seven factors to determine if his losses were capital or non-capital.

The factors to be considered for a investment transaction to determine the type of loss:

  1. The number of transactions
  2. The intention of the purchaser when buying the securities
  3. The length of time that the securities are held
  4. The quality of the securities
  5. The time devoted to stock market transactions
  6. The extent of borrowing
  7. The taxpayer’s expertise or special knowledge in the securities market

The court concluded that Mr. Prochuk had acquired his investment for a long-term and was a passive investor, therefore his losses would be capital losses not business losses.

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 Cheema & Associate CPA Professional Corporation is an accounting firm located in Brampton, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for Tax Help, Personal Tax, Corporate Tax, Year End Financials, Accounting & Estate Taxes.  

Small Business Tax Tips

Small Business Tax

Small Business Tax

 Small Business Tax Tips

A small business owner faces many struggles everyday just to stay in business. The reporting requirements and red tape continues to grow each and every year. At the end of the year, its tax time; the time of the year every small business owner dislikes. Sorting out books and records and paying the government always gets in the way of running your business. However, year end does force us to clean-up the books and get a grasp of the revenues and expenses. The following small business tax tips will help every small business owner prepare and overcome the tax challenges.

  • Competent tax advice
    There is nobody else that will understand your business better than you. However, when it comes to taxes it may not be your specialty. Getting competent tax advice from a qualified professional can make a big difference to your business. Find the right tax accountant for your business that will guide you and help you overcome tax challenges.
  • Do the math
    Understanding the finances of your business is very important. This would require you to do the math and keep all the records up to date. This will give you a snap shot of exactly how your business is performing month to month.
  • Pay your taxes on time
    There are steep penalties and interest applied by the CRA on late filings. Paying taxes on time will help reduce penalties & interest. Late filings will also tie you up with more paperwork and increased accountant fees. Paying taxes and other liabilities on time will help build trust and a good reputation for your business.
  • Log your travel
    Business owners are always on the go and traveling to generate income. Keeping a log of your travels can help generate tax deductions for your business.
  • Use government tax credits
    The federal and provincial government offers many tax credits and tax deductions to small business owners. It’s important to speak with your accountant to utilize them. There are deductions available for home office and personal car used for the business and even hiring a student.
  • Incorporating your small business 
    Incorporating your business can have legal and tax benefits. By incorporating your business, owners can take advantage of the tax credits such as the Small Business Deduction which brings the tax rate to 15.5% in Ontario. It’s important to speak to your accountant and lawyer regarding this.
  • Income splitting with family members
    Splitting income by legally employing family members can help reduce the tax rate. 

Work closely with your accountant and financial planners to overcome the year end tax challenges. Engage your accountant in advance so they have time to make a plan of action and implement strategies.


 For more small business tax tips on incorporating read our article How to setup a business?
For more small business tax tips on tax rates read our article on Income Tax Rates.

Tax Preparer

Tax Preparer

Tax Preparer

  Preparing Your Tax Return

Preparing your tax return can be a complicated process with all the different tax credits available to taxpayers. Tax laws continuously change and it has made it difficult for tax payers to keep up with these changes. At our firm we continuously attend CRA seminars and tax conferences to enhance our knowledge. This has allows our firm to deliver direct quality to our valued clients. We have licensed tax prepares who will professionally prepare your tax returns. Our accounting firm is located in Brampton, Ontario and services clients from Oakville, Mississauga, and Toronto. Contact our firm for all your tax preparation needs. We go the extra mile and optimize all tax returns to ensure you get the maximum refund possible.

Download our 2014/2015 Personal Tax Checklist:

 

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Helpful Resources:

  • If you have decided not to use a tax preparer this year for your taxes you should definitely visit all about your tax return to help you prepare  your return accurately
  • Students: are you moving to attend school? Buying textbooks? Paying tuition or student loan interest? Paying for child care? You could be eligible for a tax refund! Read about what you can include in your tax return if you are a student or recent graduate.
  • Canada Revenue Agency’s My Account connects you to your personal tax and benefits information 24 hours a day, 7 days a week, and allows you to check for your tax refund, check your Registered Retirement Savings Plan (RRSP) limit, track your GST/HST payments and change your address.

  Visit our Tax Centre for more helpful resources: 

Our Office Location:

Cheema & Associate CPA Professional Corporation is an accounting firm located in Brampton, Ontario at the main intersection of Kennedy Rd S and Clarence St. Our office address is 143 Clarence st. Suite 5, Brampton ON L6W 1T2.

Book An Appointment:

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Brampton Tax Accountants

Tax Accountant

Tax Accountant

Cheema & Assocaite – Your Local Brampton Tax Accountants 

Cheema & Associate CPA Professional Corporation is an accounting firm located in Brampton, Ontario at the main intersection of Kennedy Rd S and Clarence St. Our office address is 143 Clarence st. Suite 5, Brampton ON L6W 1T2.

We provide income tax services to all types of clients from Brampton. We have been serving the Brampton market for over three years. Tax has evolved over the years with strict regulations imposed by the Canada Revenue Agency. We can professionally prepare your tax returns while maximizing your refund by designing and catering unique tax planning strategies. Our professionals have experience in handling wide rage of unique tax returns. Contact us for your 2014 personal income tax returns.

Our Brampton tax accountants are dedicated in assisting you in all your income tax needs.

Personal Income Tax
Personal tax has evolved over the years with strict regulations imposed by the Canada Revenue Agency. Your local Brampton tax accountants can professionally prepare your tax return while maximizing your refund by designing and catering unique tax planning strategies. Our professionals have experience in handling wide rage of unique tax returns.

Corporate Tax
Our uniquely designed tax programs can assist you with complying with the complicated provisions of the Income Tax Act (ITA) while minimizing tax liabilities. We can structure your business to maximize profitability and minimize tax risks.Contact us for your 2014 corporate tax returns.

Audit & Appeal
Our team is dedicated to assist you in all your CRA appeals. We make sure that your company’s tax audit is handled smoothly and efficiently. We can assist you with the tax audit process – starting from the information gathering stage to negotiation with the tax authorities. We can also help in negotiating payments and even apply for interest or penalty relief.

2014 Ontario Personal Income Tax Rates

Ontario Tax Rates 2014

Ontario Tax Rates 2014

2014 Ontario Personal Income Tax Rates

As with other years the Ontario government has changed some of the tax brackets and rates for 2014. The major changes were:

  • Lowered the taxable income threshold for the 13.16% tax rate from $514,090 to 220,000
  • Added a new tax rate of 12.16% on taxable income between $150,000 to $220,000

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Non-resident eligibility of child tax benefits and GST/HST rebate

Non-residents - Child Tax Benefits

Non-residents – Child Tax Benefits

Tracking Canadians emigrating to other parts of the word has become a serious challenge for the Canada Revenue Agency (CRA). Over the past several years the CRA has begun targeting non-residents claiming child tax benefits and GST/HST rebates. This has created confusion among taxpayers in determine if they qualify for these benefits while they are residents/non-residents. Although a taxpayer files tax returns as a resident, they still may not be eligible for the child tax benefits and GST/HST.

This is exactly what happened with a Calgary family living in China for the past several years and filing tax returns as residents. Although the tax returns were accepted by the CRA, they have still assessed the family with $18,000 tax bill for child tax benefits and gst/hst rebates for which the CRA claims they did not qualify for.

 

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