DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

Archive for the ‘Personal Tax’ Category

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Information for Disabled Persons

In Canadian Income Tax, Disability, Personal Tax on February 26, 2013 at 1:01 am

Disability

In a previous article we discussed the way in which an individual must establish proof of a disability in order to claim certain tax credits. In this article we touch on some of what is available for disabled persons under the Income Tax Act.

The rules in this area are very complex (OK, downright confusing!!) and we will hit the highlights here, but for a more detailed discussion with examples, the CRA offers an excellent guide in its publication RC4064-Medical and Disability Related Information.

Disability Tax Credit

The most common credit is the disability amount ($7,546 for 2012) available to all persons who qualify. An additional supplement of up to $4,402 may be available if you are under 18 years old at the end of the year. Any unused credit can be transferred to your spouse, or to another relative under certain circumstances if you lived with them and you were dependent on them for support.

The disability amount cannot be claimed, however, if you are claiming as a medical expense credit, either the cost of a full-time attendant or full-time care in a nursing home (see below). If you are in this situation, you must make a choice to determine which claim would be more beneficial to you.

Full-Time Attendant or Nursing Home

If you or your spouse pay the costs of a full-time attendant or full-time care in a nursing home, these costs may be claimed as medical expenses.

Other Attendant Care Expenses

There is a separate rule that allows you to claim up to $10,000 of attendant care expenses (full or part time) as a medical expense credit without hampering your ability to claim the disability amount (this claim could overlap with the full-time care credit described above). So if you want to claim the disability tax credit, this rule gives you the opportunity to claim some (if not all) your attendant care costs in combination with the disability tax credit. (Didn’t I warn you about the confusing thing?). Take care to ensure that the amounts paid to a group home are broken down on your annual receipt between eligible medical costs (such as salaries paid for food preparation, laundry, housekeeping and medical care services) and non-eligible costs (such as rent, food and operating costs of the home).

Don’t Forget the Registered Disability Savings Plan

If you or your child is disabled and under the age of 60, then you should consider starting a Registered Disability Savings Plan. The amounts you contribute can earn income tax-deferred (similar to an TFSA), and you may also be eligible for additional government grants that would supplement your contributions.

Family Caregiver Amount

Finally, for 2012 and future years, a new $2,000 “Family Caregiver Amount” is available as a supplement to certain amounts you may be eligible to claim for dependents. For example, if you claim a personal tax credit in respect of your dependent spouse or child, and that person is also disabled, then you may add $2,000 to that claim.

 

 

 

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Love Conquers CRA

In Canadian Income Tax, Personal Tax on February 14, 2013 at 1:38 am

LovewifeLast year, during my travels through Jordan, our tour guide, Ali, who was about to leave us after 2 days in the southern part of the country, mentioned to me that he had a long drive ahead of him. He was not going home. He was making the 3 hour drive back up north to Amman, as he had been doing every evening, to visit his wife in the hospital. Each morning, he would drive back to the south for 3 hours to resume his duties. I found this type of dedication to be remarkable and, with a shy smile, he replied simply, “I love my wife”.

Later, after drying the mist from my eyes, I asked myself whether the cost of such a commute, if made by a Canadian taxpayer, would be considered eligible for the medical expense tax credit. (This paragraph was added as a dramatic segue. Everything else in this post is true. :-) )

Eerily, the answer recently came across my desk in the form of the Tax Court case of Jordan v. R. (I kid you not!). Terri Jordan, a resident of Weyburn Saskatchewan was struck by an aneurysm at age 48 and suffered brain damage. She required treatment in a rehabilitation centre in Regina. Her husband Bill commuted 120 kilometres to visit his wife daily, over a period of 102 days during 2010. His auto and meal costs totaled more than $15,000 and he sought to claim these as medical expenses.

The law provides that travel costs qualify as medical expenses if they are reasonable outlays incurred in respect of the patient and, where the patient has been certified by a medical practitioner to be unable to travel without the aid of an attendant, in respect of one person who accompanied the patient, to obtain medical services in a place that is at least 80 kilometres from the locality where the patient dwells and equivalent services cannot be obtained in that locality.

In the Jordan case this provision was interpreted by the CRA as applicable only to the transportation of the patient, and they allowed only the cost of one round-trip.

Judge Woods, however, interpreted the rule as applying not simply to the cost of moving the patient, but to those additional travel and accommodation expenses incurred by an attendant during the period of rehabilitation.

The court noted further that Ms. Jordan was required to receive medical treatment in Regina for a protracted length of time and that Mr. Jordan’s daily presence contributed significantly to her recovery. The appeal was allowed.

Now go hug someone you love, and………..

happy-valentine-day-wallpaper

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Tax Organizer 2012 Is Here

In Canadian Income Tax, Personal Tax on January 29, 2013 at 6:11 pm

Hey everyone, The Tax Issue Tax Organizer 2012 is up and running. I received many emails last year from accountants and individuals expressing their appreciation for this useful tool so I encourage you to try it and let me know how you like it.

Happy tax season!!

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What’s Your Tax Issue? Travel For Medical

In Canadian Income Tax, Personal Tax on April 22, 2012 at 2:28 pm

The Tax Issue

Last year, I was vacationing in Florida and experienced some shortness of breath. I went to the hospital and they suggested I return home to Canada on an emergency basis for further workup. My flight back home cost $1,198. Can I claim this as travel for medical attention?

The Answer

According to the law, transportation costs to receive medical attention are only allowed in very restricted circumstances. First of all, the travel must be from your home to wherever you seek attention, and only if substantially equivalent medical services were not available near your home. The distance traveled must be at least 40 kilometres from your home, and it must be reasonable to expect that you would travel to that place for attention.

If you had to travel at least 80 kilometres (one way) from your home to obtain medical services, you may be able to claim accommodation, meal, and parking expenses in addition to your transportation expenses as medical expenses.

In your case, since the travel was not from your home I would suggest that your plane fare would not qualify as a medical expense.

For more information, visit the CRA’s web page on this topic.

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What’s Your Tax Issue? Exam Fees

In Canadian Income Tax, Personal Tax on April 18, 2012 at 1:44 pm

The Tax Issue

I am a physician doing my residency at McGill Unversity. Last year, I paid $3725.00 to the Royal College of Physicians and Surgeons in respect of exam fees required for my professional designation. I have a very official looking receipt but I’m being told that these fees may not be deductible. I’m getting different opinions everywhere. Do these fees qualify as tuition for tax purposes?

The Answer

Prior to 2011, the short answer was no. Only exam fees paid to a an educational institution were considered eligible for the tuition tax credit. As a small consolation, the CRA did suggest that if you are a self-employed professional, the exam fees might qualify as an eligible capital amount if they are paid in respect of your business or profession.

However, the 2011 federal budget contained amendments that will allow examination fees paid to a professional association, provincial ministry, or other institution for an examination required to obtain a professional status recognized by federal or provincial statute, or to be licensed or certified to to practice a trade or profession in Canada. These amendments apply to examinations taken in 2011 and subsequent taxation years.

 

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What’s Your Tax Issue? Sale of Estate Assets

In Canadian Income Tax, Personal Tax on April 13, 2012 at 8:08 pm

The Tax Issue

I am in the midst of settling my mother’s estate and my accountant has told me I have to sell her house within one year or else I’ll have to pay capital gains tax. He is also telling me that all my mother’s possessions such as jewellery, furniture and  and artwork may be subject to tax. I’ve never heard of this. Can you tell me if he is right?

The Answer

OK, the first thing you must know is that generally, upon the death of an individual, she is deemed to have disposed of all her capital property immediately before her death for proceeds equal to fair market value at that time.

First, let’s deal with the house. I’m assuming your mother lived in the house for the full time she owned it and it is eligible for the principal residence exemption. That means there will be no tax on the gain at death, but you will still inherit the place at a tax cost to you equal to the fair market value of the house at the time of her death.

Now the question is, how do you determine what the fair market value was at the time of death? Well the best way is to actually sell the house immediately. The closer the date of the sale to the date of death, the better estimate you have of the value at death. The longer you wait to sell, the more you will have to rely on an estimate of the value at the time of death based on valuation methods. Whatever the difference is between the value at the time of death (i.e., your tax cost) and the actual sale proceeds when you sell will become a capital gain or loss in your hands.

If you feel the value will be going up in the future, then if you plan to sell, do it sooner rather than later if you want to avoid having to report a capital gain on the increase in value from the time of death.

If the value goes down, then selling within the first year of death allows you to make a special election to use the capital loss against any gains reported on your mother’s final tax return.

Now to the other stuff. Technically speaking, all personal belongings are referred to in the law as “personal use property”, and they are subject to special rules. They are also deemed disposed of at the time of death at fair market value. The only difference is that each item has a deemed minimum cost base and minimum value for tax purposes of $1,000. So, any item that is worth less than $1,000 will not be taxed.  Gains will be taxed, and losses, if any, may be applied only against gains from other personal use property.

Items such as jewellery and artwork are another subset of personal use property called “listed personal property”, and are also subject to the above rules. Losses on this type of property, however, can only be applied against gains from other listed personal property.

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What’s Your Tax Issue? Quebec Business Income

In Canadian Income Tax, Personal Tax on April 2, 2012 at 8:21 pm

The Tax Issue

I live in Ontario. I have $130K  of self employment income earned in Ontario and $12K  of  self employment income earned in Quebec. Do I have to file a Quebec return? Will I have any balance of taxes owing given the amount I earned in Quebec?

The Answer

Every self-employed person resident in Canada may have to perform an allocation of income if their income is earned through a permanent establishment (“PE”) in a different province. If you don’t have a PE in another province through which you earn your business income, then no allocation is necessary.

A PE is defined as a “fixed place of business”, and includes an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse. You will also have a PE if:

(a) You have an employee or agent established in the province if he has the general authority to contract on your behalf or if he has a stock of merchandise from which he regularly fills orders; or

(b) You have made use of substantial machinery or equipment in the province at any time during the year.

If you have a PE in another province, you must make an allocation of your income among the provinces in which you do business. There is a specific formula you must use to make the allocation, which is done on form T2203. The allocation you make will affect your provincial tax payable.

And yes, if you have PE in Quebec, which has its own tax return, then you must file a Quebec tax return. Report the full amount of your income on the Quebec return. Then the provincial allocation is made and the Quebec tax payable is apportioned based on the allocation.

So, to answer your question, if you have a PE in Quebec, you will have a Quebec tax return to prepare and you will likely have some Quebec tax to pay, based on the formula.

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What’s Your tax Issue? Workspace At Home

In Canadian Income Tax, Personal Tax on March 6, 2012 at 10:57 pm

Well, it’s tax time again, and so from now until the end of April, The Tax Issue will be devoted to your tax issues. So send in your questions and subscribe to this blog to make sure you don’t miss the answer!

Today’s question is very interesting and it affects many people as more and more are working from home these days.

The Tax Issue

My late husband was a CA and he always said we should not claim some of our home office expenses as it would create some sort of problem when we later sold the house. He died a decade ago and I am the furthest thing from a CA that there is!

Last year, my job changed and I now work at home full-time. My employer issued a T2200 for me to claim office supplies and other expenses. If I claim part of my heat, power and desk chair, will that trigger any problems in two years to come when I sell my house?

The Answer

Don’t worry about selling your home, you’ll be fine!

The fact is, as an employee, you can claim only certain specific expenses as required by law, and those are subject to some very strict conditions. Your employer must require you to work at home. Thus, the requirement for the T2200 form.

In order to claim part of your home expenses, you must meet one of the following two conditions:

  • The work space is where you mainly (more than 50% of the time) do your work.
  • You use the work space only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients or customers.

You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating, maintenance, property taxes, and home insurance. However, you cannot deduct mortgage interest or capital cost allowance (depreciation).

To calculate the percentage of work-space-in-the-home expenses you can deduct, use a reasonable basis, such as the area of the work space divided by the total area.

If you need more information on deductions of home expenses or other employment expenses you can claim, you will find it at the CRA website.

Now, back to your late husband and his concerns. The rules on home office expenses are different for self-employed people. They can claim a portion of mortgage interest and depreciation (CCA) in the calculation of their self-employed earnings. However, if they choose to claim CCA, they will likely suffer in the end when the house is sold, since it will not completely be eligible for tax-free treatment as a principal residence. That’s what he was worried about and that’s why most self-employed people are advised not to claim CCA on their homes.

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Support Payments Redux

In Canadian Income Tax, Personal Tax on February 13, 2012 at 1:46 pm

So you’ve split up with your significant other, and you’re forced to make support payments. The first thing you’ll be asking me is, “are they deductible?” Well, just like your relationship, it’s complicated. That’s what The Tax Issue is here for.

There are two basic requirements before you even consider taking a deduction. First, the payments must be based on a written agreement or a court order. Second, they must be periodic payments. Lump sums or payments based on a mutual, non written understanding are not deductible.

Once you’ve passed these hurdles the rules are different depending on when your agreement or court order was signed. We’ll tackle them one at a time, but before we do, you should be aware of one more thing: any amount that is deductible to the payer is also taxable to recipient.

Written Agreement or Court Order After April 1997

If your document is dated after April, 1997, only payments made in support of your spouse (or common law partner) are deductible. Child support is not.

Your agreement must clearly specify which payments are exclusively for spousal support. If no mention is made of the purpose of the payments, they are deemed to be for child support and are not deductible.

Payments made to a third party qualify as long as they are for the benefit of your spouse and he or she has control over them. For example, if a court order specifies that payments are to be made to a landlord for your spouse’s rent, it must also be made clear that your spouse may at any time have those payments made to her instead if he or she so desires.

If you qualify for a deduction under the above rules, you must register your agreement or court order with the CRA by filing form T1158.

Written Agreement or Court Order After April 1997

If your document is dated prior to May, 1997, then payments for spousal support and child support are deductible.

However, if the agreement was amended after April, 1997 and the amount of child support payments is modified, then you fall into the new rules, and they will no longer be deductible.

You can also choose, if your spouse agrees, to have the new rules apply to make the payments non-deductible (and non-taxable to the recipient) by filing an election on Form T1157.

Those are the basic rules. If you need more information, try the CRA guide P102. That should answer most of your questions.

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Introducing The Tax Issue Tax Organizer for 2011!!

In Canadian Income Tax, Personal Tax, Uncategorized on January 17, 2012 at 2:06 pm

Organizing tax information for your tax preparer can be a daunting task. Do you use a shoebox? a shopping bag? Despite your best intentions, you may not have the time or the knowledge necessary to provide a complete and organized dossier.

Those of use who prepare your taxes just don’t have the time or energy to instruct their clients on how to properly prepare their income tax papers.

And so, as a public service to those beleaguered tax preparers, and to those of you who want your accountant to love you at tax time, The Tax Issue introduces the Tax Issue Tax Organizer.

The Tax Issue Tax Organizer is a free PDF file that you can download and use as an accountant, to give to your client, or as a client to use yourself to help organize the information you give to your tax preparer and make his or her life a little easier.

How to use the Tax Issue Tax Organizer

Simply download and print the Organizer. Each page represents a section that will let you organize the information for that topic. It starts with a list of the relevant documents you should submit to your tax preparer. Attach each page to a separate envelope or file folder containing the documents for that section.

Each page has a list of Do’s and Don’ts to help ensure that you help your tax preparer by including all the necessary documents and receipts he needs to efficiently prepare your taxes.

Finally, each page contains a few tax tips to help guide you through the process.

Even if you prepare your own tax returns, The Tax Issue Tax Organizer is a great tool to help you prepare.

Have a great tax season and enjoy using the Tax Issue Tax Organizer!