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Tax

 

To pay or not to pay? That is the question!

The topic we all love to hate – income taxes – Federal, Provincial or Territorial (plus non- resident taxes for non-Canadians who hold Canadian assets and investments and expat taxes for snowbirds)!

To answer the lead question – we don't HAVE to pay – as long as are prepared to accept the consequences! Assuming most people want to be free to live in their own homes and travel knowing they will be welcome to return, then taxes have to be paid.

For this commentary, I will focus on personal income taxes as they apply to the vast majority of Canadian tax-payers. Non-Canadian and expat Canadians have special issues and their returns tend to be considerably more complicated – if you fall into one of these categories, I strongly recommend that you consult a Chartered Accountant or Certified General Accountant in Canada and a Certified Public Accountant in the Excited States{intentional} or a recognised and accredited accounting professional where you reside or stay in your snowbird role.

I prepare a significant number of personal tax returns each year – and the number increases constantly as more people become frustrated at the increasing complexity of our income tax system. Compared to our southern neighbours, the same tax-payer in Canada would have an average of about 18 pages to their return while in the US (both state and federal combined) would total no more than 6 pages {yes, I also do US returns for some Canadians with investments and/ or property down south}. Please be assured, this is NOT saying that the US income tax system is better than the Canadian version – but it is significantly less complex.


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CRA has made important strides to try and make things easier for many tax-filers. E-file and Netfile are now available to a significant number of people here – it is all on-line, fully secure and you can do it yourself in most cases. This service is currently free (I hope it stays that way too!) and refunds generally arrive back within 2 weeks – pretty good service. To use E-file or Netfile, you need to wait until you are sure that you have received all of your tax slips – from employment, pensions, RRSPs, RRIFs, other investments, banks/trust companies/credit unions/ insurance companies, charitable receipts, safety deposit box receipt, public transit receipts, EI, Children's Tax Benefit, Universal Child Care Benefits, other social assistance payments and eligible medical/prescription receipts are the most common. Waiting until the third-week of March is the best bet – some businesses and charities can be very slow to mail their slips and receipts – better to wait and be sure you have them all rather than rush things!

Even with the comparative simplicity of E-file, Netfile and other commercially available tax software, many people find themselves too intimidated to even attempt to use them – and I can understand their feelings! Some people are still very leery about internet security – and with good reason given all of the press that abounds relating to hacking and breaches to even high-level and well-secured government websites and computer systems.

All of these issues combine to make tax preparation a growing industry – albeit I think for the wrong reasons! But I digress.

If you decide to seek outside assistance, you will need all of the above information plus your own personal details and those for all members of your family including SINs for children if you have them available. If you have children/teenagers, then additional information such as childcare costs, education expenses and receipts, fitness expenses will also be required. Most professional preparers have a checklist they can mail or email to you that covers everything so you don't waste time. All preparers charge a fee and it is normally based on the time it takes them to complete your return – the better organised you are, the lower will be the fee – if they have to sort through a show-box or grocery bag – they will charge you for their time – as they should!

If you operate a business or have rental income, then much more information will be required. For sole proprietors, self-employed individuals and partners, a detailed accounting of all income, business expenses (including equipment purchases and leases) is required plus a log of automobile mileage and expenses including gas, repairs, insurance, business parking, carwashes, the lease contract or purchase contract will also be needed. Again, most preparers have a checklist you can use.

For those people who own investment real estate (including those with "mortgage helpers" in the basement – whether or not they are relatives!) will need property tax statements, property assessments, purchase agreements, rental agreements, utility costs, insurance, etc.

It is not possible in this short review to cover all eventualities – if you have concerns, contact a well-qualified preparer – your friends may be able to recommend someone or you can do your own searching in the yellow pages or on line – but make sure you are satisfied with their qualifications and service they provide before you hand over everything. Also ask if their service and fee includes working with you to resolve any questions (within reason of course) that CRA may have – but remember, regardless of whether or not you have someone else prepare the return, YOU are legally responsible for the content and it is YOU that will pay the price for failing to provide accurate or complete information – NOT the preparer!

As most people know, ours is a "progressive" tax system – which means that the rate of tax increases (progresses) as our income increases. Federally, we currently "enjoy" 4 tax rates above a minimum income threshold – 15%, 22%, 26% and the top bracket is 29%. People with taxable incomes below the threshold pay no Federal Income Tax. Once we have done the Federal side of things, we come to the Provincial or Territorial part of the number-crunching. With the exception of our friends in Québec, Federal and Provincial/Territorial Returns are all filed with CRA who sends money out to the respect provinces and territories as returns are received. For Québecers, they file their Federal return with the CRA and a separate Provincial return directly to Revenu Québec.

Items such as personal exemptions, tax credits etc. vary from province to province and territory to territory and can raise the top tax bracket close to 50% in some jurisdictions – and this can change at any time. Every time the Federal Minister of Finance or the Provincial/Territorial counterparts stand up in Parliament or the Legislature, pay close attention, something will happen that WILL affect you in some manner.

 


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