2016 Personal Tax Checklist

It’s Personal Income Tax Time Again…

At Canwest Accounting, we are happy to help you with your personal income tax returns.  That’s why we have created a “2016 Personal Tax Checklist” for you to fill in before you come to see us.

Simply print out the checklist, fill in, then let us help you with the rest!

Download: 2016-personal-tax-checklist (PDF)

 
2016-personal-tax-checklist-2

How to find us at our Westshore Office

west shore accountantFinding us at our 2nd location in the Westshore can be a bit tricky if it’s your first time.  Here are some directions to help:

Canwest Accounting
132-328 Wale Road
Colwood BC   V9B 0J8
250-940-2919

Turn into the NEW Holiday Inn Express Hotel on Wale Road across from the Co-Op Gas station. Take a left turn and follow to the end of the parking lot where there is free 90-minute ground level parking.  Enter through the Coastal Offices door.  Notify reception that you are here.

Find us on Google Maps.

How Capital Gains Tax Strategies Change Under the New 2016 Rules

capital gains tax man

For most Canadians, the new requirement to report the sale of a principal residence will be nothing more than a compliance exercise—but one shadowed by the threat of unrestricted audits and sizeable penalties. To help you negotiate through the new reporting rules, please see the 8 questions you have about principal residence tax rules. But for families with more than one property as well as real estate investors, this new requirement may introduce a few wrinkles into the more common capital gains strategies used to minimise the amount of tax owed to the CRA.

To help you maximise the capital gains tax strategies under this new reporting requirement, here are eight tips and suggestions.

Read more: Feds close housing tax loophole »

Tip #1: You must remember to report each sale

The new rules, announced in early October 2016, will require you to report every single property sale on your tax return. That means in your 2016 income tax return (due sometime in April 2017) you will need to report the sale of property, even if you don’t end up owing tax on the sale.

Failure to report the sale—whether intentional or unintentional omission—and you risk an audit, penalties and interest charges and the ability to shelter future home sales through the principal residence exemption (PRE).

Read more: Use the principal residence exemption to save on taxes »

Tip #2: A change in use is also considered a sale

Even if you haven’t actually put your home up for sale, the CRA will deem it to be sold if you change the use of the property. Take, for example, you decide to buy a new, larger home for your growing family but want to hold onto your current property and rent it out. The CRA considers this a “deemed disposition”—you haven’t actually transferred the ownership to another person, but you have changed the primary use of the property, from your family home to a rental property. As such, the CRA will consider the home sold, for tax purposes, at the current fair market value.

Thing is, there are a number of ways to trigger a deemed disposition. The most common way is to change the use of a property—from a family home to a rental property. Another way to trigger this type of taxable disposition is to gift the property to a third-party. Do this and the property is deemed to have been sold at its fair market value, at that time. One final way to trigger a deemed disposition is when the taxpayer ceases to be a resident of Canada, for tax purposes. In all cases, the owed tax can be delayed and deferred until the property is actually sold, but for specific advice always talk to a tax specialist.

Read more: Can you avoid capital gains tax »

Tip #3: You can still use strategies to minimise taxes

For years, many Canadians minimised the amount of capital gains tax owed by strategically designating when each property was their principal residence, for tax purposes. To make this strategy work, however, the properties can not be income-producing during the years they are designated as a principal residence.

“Canadian families with a home and a cottage owned personally will be impacted by these new rules, as they’ll need to report the sale of each property,” explains John Sliskovic, private client services tax leader at EY LLP. “A family could still optimise the benefit of the principal residence exemption by designating the property with the greatest accrued gain as the principal residence.”

To see how this strategy is used to pay less capital gains tax, let’s look at an example. Say you and your spouse bought a home in 2001 for $250,000. In 2002, you received an inheritance and bought a cottage about two hours away from Toronto for $200,000. For the next 14 years, until 2016, you and your spouse lived full-time in your city home and spent summers and holidays at the cottage. In that time, your family home appreciated and is now worth $650,000. During the same time period, the cottage’s fair market value rose to $725,000.

Now you want to retire and part of that transition is to simplify your life by selling both properties and downsizing. If you needed to sell both properties this year, you’d end up having to pay capital gains tax on at least one—designate your city home and the exemption would save you from paying $60,000 in tax*; designate your cottage and the exemption would save you from paying $78,750 in tax. Already strategically choosing to shelter the property with the highest appreciation would save you $18,750 in tax. That’s not chump change. Talk to a tax specialist and you could further fine-tune this strategy to save even more on your taxes.

Remember, there are no changes to the current requirements of the principal residence exemption. “There are no proposed changes to this rule,” says Sliskovic.

Read more: A strategy to slash capital gains tax »

Tip #4: But now you have to keep much better records

While the new requirement to report all property sold in 2016 and in future years won’t impact strategic tax planning, it will put more onus on property owners to establish and keep better records. It will mean diligently keeping all receipts and invoices—an important aspect of real estate investment, particularly if you want to increase your adjusted cost base (ACB) on the property, and save tax later on when you go to actually sell the property.

It also means that you will have to establish the fair market value of a home whenever you have a deemed disposition. The easiest way to do this would be to pay about $500 for an accredited appraisal report. You’d then need to keep this on file until you actually transfer ownership of the property to another person, thereby triggering capital gains tax that needs to be paid to the CRA. That’s because under the new rules, the CRA will have the information it needs to figure out whether tax might be owed on a property.

Read more: Pay less capital gains tax »

Tip #5: Big changes if you own property through a trust

Families that own a home or cottage through a trust may be impacted in a different way. “The proposed changes limit the types of trusts that are eligible to designate a property as a principal residence,” says Sliskovic.

For example, a trust that is no longer eligible to designate the property as a principal residence under the new rules, but owns that property at the end of 2016, must separate its gain into two components: The gain accrued to 31 December 2016 may potentially be sheltered by the principal residence exemption, and the gain accruing from the beginning of 2017 to the date of disposition that will be subject to tax.

“Families that have utilized trusts to hold principal residences will need to carefully review the amendments and make any necessary changes to ensure that their estate planning is still appropriate,” explains Kim G. C. Moody, director, Canadian Tax Advisory at Moodys Gartner Tax Law LLP, in a recent legal brief.

“Non-residents who utilized trusts to acquire property and claim the principal residence exemption will also be greatly affected,” explains Moody. With these new rules the strategic use of such trusts and similar “planning is now effectively dead.”

Tip #6: House-flippers watch out!

For real estate investors that specialize in buying, renovating and then quickly selling homes—a process known as house-flipping—the new reporting requirements will force you to justify the “ordinarily inhabited” rule.

As Moody explains: “The property also has to be a “capital property” of the taxpayer.” This means that it cannot be part of the trade of the business. This obviously isn’t the case for house-flippers. “House flippers are not eligible for the principal residence exemption since properties that are quickly sold after the acquisition will likely not be considered capital property but rather inventory,” writes Moody. As a result, any profits from selling the house are no longer considered a capital gain but rather as business income and would not be entitled to the principal residence exemption.

Read more: Tax profit of house sale as income or capital gain »

Tip #7: Don’t be surprised by these changes

The recent changes to how sold property is reported to the Canada Revenue Agency is not the first time the principal residence exemption has been significantly changed. One of the more significant changes occurred in the early 1980s, when each spouse was no longer allowed to claim a principal residence exemption for different properties (thereby enabling married couples to “double-up” on the benefits of the principal residence exemption).

As a result, all family units are restricted to sharing the principal residence exemption for every calendar year for properties disposed of after 1981. While Federal Finance Minister Bill Morneau has stated that the feds are in a holding pattern right now, when it comes to the country’s real estate markets, don’t be surprised if additional changes are announced in the near future.

Right now, the Liberal government wants to assess how recent changes have impacted each property market; if the shifts they are anticipating don’t transpire, it’s quite possible the federal government, or other levels of governments, will consider additional measures.

Read more: Hard to predict impact of new housing rules: Morneau »

Tip #8: No more 1+ for foreign buyers

Anyone who was a non-resident of Canada in the year a property is bought, will no longer be able to automatically add a year to the number of years the property is considered a principal residence. (Tax specialists often point out that every Canadian is allowed to claim the PRE for each year the property is owned, plus one, effectively decreasing the capital gains taxes owed, where applicable.) This new rule applies to any property sold (or deemed to have been sold) after October 3, 2016.

“In effect, this will prevent a non-resident of Canada from being able to dilute their taxable capital gain on the disposition of an otherwise principal residence in years where they acquire and dispose of properties,” explains Moody. However, he is concerned that non-residents may get around this new rule by gifting funds to their resident spouse or child, who acquires the property on the non-resident’s behalf and allows them to continue to take advantage of the 1+ rule.

Where can I get more information?

Finally, if you want more information on how these recent changes will be applied, the CRA will be providing more detailed instructions in the T4037 Guide: Capital Gains 2016.

Taken from MSN.com

Employment Insurance Changes 2016

santa-unemployedImproving Employment Insurance (EI) is part of the Government’s plan to help the middle class and those seeking to join it.

The Government of Canada says that it wants Employment Insurance to be there for Canadians who need help the most, when they need it.

You can check out the changes on their website at this link:  https://www.canada.ca/en/services/benefits/ei/changes-2016.html
 

MSP Premium Changes 2017 in British Columbia

msp premiumsIn January 2017, MSP premium rates and the Regular Premium Assistance program are changing. As a result, more British Columbians will be eligible for assistance with their MSP premiums.

On Sept. 15, 2016, the government of British Columbia announced updates to the previously published 2017 MSP premium and Regular Premium Assistance rates. The planned 4% increase has been cancelled. As a result, the full premium rate for one adult will not increase and will remain at the 2016 rate of $75.

In addition, rates for those receiving Regular Premium Assistance will be reduced by about 4% beyond what was announced with Budget 2016.

As of January 1, 2017:

  • There will be no premiums for children under 19 years of age.
  • MSP premium rates will be determined by the number of adults on an MSP account (the MSP account holder and, if applicable, a spouse).
  • The MSP premium rate for two adults will be twice the amount of the single adult rate.
  • Full Regular Premium Assistance will be available to those whose adjusted net income is $24,000 or less (an increase from the current $22,000).
  • Premium Assistance will be available to those whose adjusted net income is up to $42,000 (an increase from the current $30,000).
  • You can view the 2016 premium rates and 2017 premium rates on the MSP Premiums page.

Reporting the sale of your principal residence for individuals (other than trusts)

principal residence saleOn October 3, 2016, Canada’s Federal Government announced an administrative change to Canada Revenue Agency’s reporting requirements for the sale of a principal residence.

When you sell your principal residence or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale. This is the case if you are eligible for the full income tax exemption (principal residence exemption) because the property was your principal residence for every year you owned it.

Starting with the 2016 tax year, generally due by late April 2017, you will be required to report basic information (date of acquisition, proceeds of disposition and description of the property) on your income tax and benefit return when you sell your principal residence to claim the full principal residence exemption.

We Have Expanded

Canwest Accounting is excited to announce that we have expanded to the Westshore!  We will now have our Cloverdale office in Victoria, and our new office is at:

canwest accountingCanwest Accounting
132-328 Wale Road
Colwood BC   V9B 0J8
250-940-2919

The office is in the new Holiday Inn Building with entrance and parking around the back.

At the moment we are open at this new location on Tuesdays and Thursdays from 8:30 – 4:30.

Please give us a call at 250-940-2852 if you would like to come by and check us out!

Find us on Google Maps.

 

Student Tax Tips

Students save with “extra credits” this term!

student tax creditsThe Canada Revenue Agency (CRA) is helping you keep more money in your pocket with tax credits, deductions, and benefits for you when you do your taxes. Even if you have little or no income, you should still file your income tax and benefit return to claim tax credits and get benefits and credits.

Here are nine of your top tax-time savings and potential benefits and credits. Remember you need to file on time if you want your credits!

Eligible tuition fees – You may be able to claim the tuition fees paid to attend certain post-secondary educational institutions for the tax year in question.

Education amount
– As a full-time student (or a part-time student, who has a certified mental or physical impairment or who is eligible for the disability tax credit), you can claim $400 for each month you were enrolled in a qualified education program in a designated educational institution. As a part-time student, you may be able to claim $120 for each month you were enrolled.

Textbook amount – Claim this amount only if you are entitled to claim the education amount.
$65 for each month you qualify for the full-time education amount
$20 for each month you qualify for the part-time education amount

Interest paid on your student loans – You may be able to claim an amount for the interest paid in 2016 on your student loan for post-secondary education after you complete your education. You can also claim interest paid over the prior five years if you haven’t already claimed it. It must be interest paid on a loan received under the Canada Student Loans Act, the Canada Student Financial Assistance Act, the Canada Apprentice Loans Act, or a similar provincial or territorial law.

Public transit amount – You can claim the cost of eligible public transit passes or eligible electronic payment cards for travel within Canada on public transit for 2016.

Eligible moving expenses – If you moved for your post-secondary studies and are a full-time student, you may be able to claim moving expenses. You can deduct these expenses only from the part of your scholarships, fellowships, bursaries, certain prizes, research grants, and artists’ project grants that have to be included in your income. If you moved to work, including for a summer job, or to run a business, you may also be able to claim your moving expenses. However, you can deduct these expenses only from the income you earned at the new work location. To qualify, your new place of residence must be at least 40 kilometres closer to your new school or work location.

student tax preparation

Goods and services tax/harmonized sales tax (GST/HST) credit – If you are turning 19 before April 1, 2018, you may be eligible for the GST/HST credit. The CRA will determine your eligibility when you file your 2016 tax return and will send you a notice if you are eligible for the credit.

Canada child benefit (CCB) –The CCB is a tax-free monthly payment made to eligible families to help them with the cost of raising children under the age of 18. The CCB might include the child disability benefit and any related provincial and territorial programs. It replaces the Canada child tax benefit, national child benefit supplement and the universal child care benefit.

Child care expenses – If you pay someone to look after your child while you go to school, you may be able to deduct child care expenses.

You may be able to transfer the unused amount from your eligible tuition fees, education and textbook amount to a parent, grandparent, or to the parent or grandparent of your spouse or common-law partner. For information on this and other topics of interest to students, go to cra.gc.ca/youth or read guide P105 Students and Income Tax.

Planning on hiring students this summer?

The Government of Canada has introduced a program called Canada Summer Jobs.  This can be a great opportunity to create more jobs for students, and to allow employers to hire affordable help through the summer!

If you want to take advantage of the program this year, you need to apply by early March.

If you qualify, your business will be subsidised by the government based on your summer students’ work (up to 50% of their wages based on provincial minimum wage – or up to 100% for non-profits).

Read more at the Canada Summer Jobs website.

 

CRA’s Auditing Focus for 2015

cra logoEvery year, CRA chooses new criteria for what they will focus their auditing efforts on.  Taxpayers and businesses who meet the criteria they choose are more likely to be audited.

For the 2015 tax year, CRA will be looking more closely at individuals and businesses who:

  1. claim business losses multiple years in a row,
  2. claim rental losses multiple years in a row, or
  3. are employees claiming employment expenses.

This month, CRA will send intent-to-audit letters to about 30,000 individuals and businesses who fit in one or more of these groups.

If you receive one of these letters, or if you fit into any of those three groups, you can prepare yourself by getting professional help with your tax return.

You can call Canwest Accounting at 250-388-4094, and speak to Sharlane about how to best prepare you for a potential audit.

We’ll work with you to make sure your records are complete and accurate; so if CRA comes knocking, you’ll be ready!