I hope I'm not taking advantage of your seemingly endless goodwill, but I was wondering if you answer what is hopefully a simple question. Apparently, tuition expenses of an employee for education directly related to his employment is a non-taxable benefit. Can this money be reimbursed to the employee/student or must it be paid directly to the educational institution. If we can do this, either way, how do I put this in terms that my bookkeeper will understand? They didn't seem to have any idea what I was speaking about.
Answer
See the T4130 published by the Canada Revenue Agency which offers guidance as to which employee benefits are taxable and which aren't
On p 15, it says
¦ Specific employment-related training
We generally consider that courses taken to maintain or
upgrade employment-related skills are mainly for your
benefit when it is reasonable to assume that the employee
will resume his or her employment for a reasonable
period of time after he or she completes the course.
For example, tuition fees and other associated costs such
as books, meals, travel, and accommodation that you pay
for courses leading to a degree, diploma, or certificate in
a field related to your employee's current or future
responsibilities in your business are not a taxable benefit.
***************************
As far as I can tell, you can either pay for the courses directly to the institution or pay the employeee to reimburse the employee's cost.
The bookkeeper should record it in a separate account called employee benefits non-taxable.
Hope this helps
acupuncture
Is acupuncture allowed as a medical expense?
In Ontario starting from 2004 when The Traditional Chinese Medicine Act was passed, acupuncture should be allowed . This was the conclusion of a recent Tax Court case decided in Aug 2010.
topic 3 top of page
***********************************************************************************************
Death tax avoidance strategies Questions:
In consideration of potential tax avoidance strategies concerning death and estate taxation: (This question applies to Ontario if there are any distinctions.)
a) Would a pre-death gifting of money to siblings avoid an after after-death taxation?
b) In the case of property, I understand either pre-death disposition or leaving the property in the estate yields the same capital gains taxation and I believe the rates are calculated on the estate taxation rate as opposed to those receiving the proceeds who may have varying taxation rates. Is this understanding correct and/or are there any tax advantages to pre-death disposition versus letting it go to the estate? If there are additional estates that come to bear can you please list them and try to quantify?
Thank you
Answer
First, on cash or simple interest bearing term deposits, there is usually no concern. The reason is that the rule says that upon death a taxpayer is deemed to have disposed of his capital assets at fair value. The tax kicks in only when the fair value of the asset in question exceeds its cost. In the case of cash its fair value always equals its cost. Also, in the case of short term interest bearing deposits, there is usually no gain because the fair value usually equals its cost.
In the case of other property, it depends what kind of property is at issue. Let me just illustrate with one example. If it's a rental property, then very often the fair value far exceeds the cost of the property. So, without any planning, if the taxpayer dies whilst owning such a property, he is deemed to have disposed of it at fair market value. On his terminal return, the trustees of his estate would report a taxable capital gain ( which is one-half the capital gain) on the deemed disposal of that rental property. The taxable capital gain is added to his taxable income which in turns adds to the tax the estate must pay on the deceased's behalf.
Now, if we're talking about a taxpayer with a low income but who now generates a very large capital gain-- say $200,000-- because of the deemed disposition, then he'll be paying some tax at the lower rates. But, as his taxable income climbs to $71,000 and higher, he'll be paying tax on some of the taxable gain at the 43% rate and maybe even the 46% rate if his taxable income climb to even higher than $115,000.
Now, getting back to the question of a pre-death disposition. Yes. It could make a difference if he parcels out small portions of ownership of the property each year, so that his taxable capital gain still keeps him in the lower tax brackets. For example, he could gift 1/10 of the property each year to one or more beneficiaries. He would report the gain as taxable income on his return for each year. But, at least, not all the gain is brought into income at once which would catapult his income to the higher tax brackets.
That's all for now. It's rather sketchy, but I hope at least a bit informative.
---------------------------------------------------------------------------------------------------------------------------------
Estate- division of assets
Questions:
my mother is selling her home and dividing the money between my brother and myself, do we have to pay inheritance tax on this money?
Dear
Thanks for visiting my website and posting your inquiry.
If it's the home she's resided in since she bought it, there should be no tax on the sale of it because it should qualify for the principal residence exemption. When you and your brother eventually get the money, there should be no tax consequences at all.
*****************************************************************************
car allowance
Questions:
I receive $0.44 per kilometre rate from my employer for gas expense, can I still claim the lease payment of my car and the motor expenses??
Answer
The CRA's policy is that if you receive a non-taxable car allowance , then you can't claim car expenses. The only exception would be if the car allowance was 'woefully inadequate' which doesn't seem to apply in your case.
If I refinance my home, i.e., increase the mortgage and use the funds to invest in a business. Is the interest on that portion of the mortgage deductible?
A
Yes. But, let me just tell you that it's always safer if the business generates a profit because the government may enact rules to tie interest deductibility to reasonableness of profit in what the funds are used for.
Question
For the past 5years, I've lived in Mississauga, and worked in downtown Toronto. This year, I'm moving to be closer to work. If the move is greater than 50 km, are the moving expenses deductible?
Answer
Yes. As, I understand the term 'eligible relocation' as defined in income tax law, you don't have to relocate your place of employment in the year you move. In fact, as in your case, even if you've worked 5 years in the same place, if your new residence is more than 40 km closer to work than your old residence
was, the costs of the move are eligible a a moving deduction.
back to top ______
__________________________________________________________________________
Question
What are the rates of tax on an inherited estate?
Answer
I think you're asking one question that is two.-- or two questions that are four-- two before death and two post-death.
That is, 1) what is the tax to the deceased upon death, and, 2) what is taxed to the heirs of the property
Let me answer by illustrating with a simple example.
Say, an elderly gent-- Mr E passes on leaving a house, some cash, and a rental property.
On his passing there's a rule that deems him to have disposed of his capital property on death. (I'm not going to discuss what the definition of capital property is because it would only increase the already tedious nature of the topic).
This poses no problem for cash. Also, it's usually no problem for the house because of the principal residence exemption which means the house can pass on to the kids tax free.
The problem lies with the rental property. This is usually considered capital property. So Mr E is deemed to have disposed of the rental property at death. This makes this a bit complicated .
So,when Mr E's heirs get around to preparing his final tax return, they should use an accountant.
The accountant would report the disposal of the rental property at its fair market value at the time of Mr E's passing. This fair market value less the cost of the property is the capital gain . The taxable portion of the capital gain is 50% of the capital gain.
( By the way, the cost isn't necessarily the cost. It could be something called V day value if the property was owned since before 1972. No time to get into it now.)
Now, getting back to the question, What is the tax rate on the what is deemed disposed of upon death?
The answer is : For the cash- zero; for the house- zero if it was his principal residence all the years he owned it; for the rental property- on the calculated taxed capital gain he is taxed at his marginal tax rate. For 2007 it's about 21.5% for the first $37,000 in taxable income , the it jumps to about 30% and keeps creeping up till it hits about 43% at a taxable income of $74,000.
So, say he left $1oo,ooo in cash , a house worth $600,000 and a rental property worth $500,000 that cost him $200,000.
On the cash, tax is zero. Same for the house if it's always been his principal residence.
On the rental property his capital gain is $300,000 ( I'm assuming he bought it after 1971). His taxable capital gain is $150,000. It looks like $30,000 of the gain will be taxed at 46% ( the top tax bracket that kicks in at $120,000 of taxable income); the rest of the gain is taxed at rates of between 21% and 43%.
By the way, there's a probate tax that could be levied that I'm not even going to discuss
Here is depends who inherits the estate. Is it one individual or is it an estate?
If it's just one heir, all he need do is include the income from the estate on his personal return. In the example, the income would be the rent from the property and the rent from the house if it's being rented and the income from the cash if it's earning interest. He's taxed at his marginal tax rate.
If there's more than one heir, then that's an estate. The estate should file T3 returns including the income in the estate. The estate, being a testamentary one (i.e., formed as result of the death of a person) is taxed at the same rates that an individual personal taxpayer is taxed except that an estate gets no personal exemptions.
By the way, the estate's trustees can allocate the income of the estate to its beneficiaries-- but check with your accountant about this.
--------------------------------------------------------------------------------------------------------------------
Inheritance tax in Ontario
Question
Is inheritance taxed in ontario, and if you inherit a house, and you sell it is the money yours.
Answer
If the deceased person lived in the house, it is presumably his or her principal residence and therefore not taxed upon her passing. If you inherit a house and you sell it, the money is yours usually because usually it either a) qualifies as a principal residence if you lived in the house after the passing of the parent, or b) the increase in value in the house since the passing of the parent is negligible.
That's a short and somewhat vague answer. There may be issues about probate fees and clearance certificates and maybe even capital gains to the heirs or the estate that I won't get into right now, but may do so at a more opportune occasion.
Five years ago I bought a triplex for $450,000. I occupy one of the three rental units.
Recently, I've received an offer to sell the building for $800,000. How much tax will I pay on it?
Answer
If all 3 units are of equal sq footage, you're exempt from 1/3 of the capital gain . So, you're gain will be 2/3 of $350,000 or $233,310 less legal and commision costs on sale.
The max tax you'd pay on the gain is about $53,000 because only half the gain is taxable and the max marginal tax rate is 46%
back to top ----------------------------------------------------------------------------------------------
Dividends to spouse
Question
I have one other question I forgot to ask, I read somewhere that the government expects you to pay yourself a reasonable amount for the time you've worked, is this anything to be concerned about if doing the dividend route?
Answer
As far as dividends are concerned, you are entitled to declare and pay a shareholder dividends-- even in substantial amounts-- even if the shareholder does no work for the company. This is now an established principle that is due to the decision and reasons given in the Neuman case that you can read here:
As for salaries, what you say is correct in that the salary has to be commensurate with the value of the work performed. But, this only applies for an employee who is not the owner. The owner of the company can have his company pay him a salary in any amount he chooses. If , for example, your company, down the road, earns $1 million per year. Then, even if you work only 10 hrs per year in the company, you're entitled to have the company pay you a wage of $1 million.
**********************************************************************************************************
Transfer of property
Question
My wife, her sister, and their father owned recreational property together. This year, the property was put into one person's name. Is the property deemed to have been sold, and as it is recreational property, do the other two owners now claim the value of the appreciated property as taxable income?
Answer
Note: The answer below is necessarily sketchy pending a better knowledge of the details of the events and property in question.
The answer depends on what you want to achieve by transferring it from three persons' names to one person.
If your intention is for all three to retain beneficial ownership in the property, but you find it easier to do certain things if the property is in one name rather than three, then the property is not deemed to have been sold.
If , for example, you want to rent out the property and for admin purposes, you only want to disclose the name of one of the owners, then it's possible that there is no transfer of ownership in the first place ( when transferring the property from three people to one). All you're doing, in effect, is appointing one person as a nominee-- or trustee-- to hold the property in trust for all three persons. This would not constitute a transfer of beneficial ownership; hence no sale need be reported on any one's tax return.
However, you should have a trust agreement in place to avoid problems with CRA.
If, one the other hand you intend to effect a transfer of beneficial ownership from the three to the one, the the two transferors must report a sale of property on their tax returns. It's not the value of the appreciated property that is reported as taxable income. Rather, it's the taxable capital gain that is included in taxable income. The taxable capital gain is one half of the capital gain which is usually-- but not always-- the share of the fair value of the transferred property minus the share of cost.
q
I have owned my home (principle residence) since 1978. Upon my death, for what taxes would my daughter (the inheritor of this property) be liable?
A.
There should be no tax at all payable upon the passing of your home from you to your daughter because it's been your principal residence all the years that you owned it. There may however be probate fees on the estate depending on which province you reside in.
***************************************************************************************
Tax rate on estate's interest income asked Dec 07
Q
I am an executor for my dad's estate. He died in Jan. 2007. A GIC in his estate comes due in Dec. 2007 and the interest from this GIC will be subject to tax. What is the approximate rate of tax that Revenue Canada will charge the estate? This interest from the GIC will be the only source of income for the estate in 2007.
A
If the estate is in Ontario, for 2007, the first $35,000 of taxable income is subject to tax at the rate of about 21%. You should file and report the income on a T3 trust return.
**********************************************************************************************************
Are wills deductible? asked Dec 07
Q.
Are wills tax deductible on income tax return?
Answer
As far as I know, neither the cost of preparing a will nor the cost of funerals is tax deductible
back to top ******************************************************************************************
Do you need a Toronto area CA firm? If you're looking for an affordable Toronto CA firm, you may find the way I do business right up your alley. Check out my site at http://www.torontotaxhelp.com
Are disability insurance payments taxable?
asked Jan 08
A friend of mine will come off short term disability during which she has received 100% of salary less standard taxes and move to long term disability next month. The long term disability insurance is part of the standard benefit package at her work. We know that the payments will be 65 percent of her regular gross income but have had varying opinions as to whether or not this income is subject to personal income tax. Thanks for you help
A.
Here's what I think the answer is: ( I may be mistaken, so get a professional opinion).
If your friend is receiving amounts on a periodic basis from a disability insurance plan in respect of a loss of income from employment then the amount is taxable under Income Tax Act 6(1) (f) as long as the employer has made a contribution to the plan. If the employer made no contribution to the plan (i.e., the plan was entirely employee funded), then the benefits are not taxable.
If both employer and employee contributed to the plan then the benefits are taxable but the amount is reduced by the amount of contributions made by the employee.
Depending on the specifics of the particular situation, the answer could change. So, again, have your friend consult a professional.
back to top
Who gets to claim the kids when there is joint custody?
asked Feb 08
Q
I'm going through a divorce and have joint custody of two children, which one of gets to claim them if we both have equal custody?
A
Well, each of you could try claiming one kid as an equivalent to spouse credit (now called wholly dependent person credit) under 118(1)(b).
However, be warned that CRA may disallow it based on the 2005 Charlebois case, which is similar to your circumstances. In that case the Court said since both parents supported both children, neither child was "wholly dependent" on any parent. So, neither parent was denied the credit.
More recently, in the 2007 de Moissac case, where one child was 6 months with one parent and 6 months with the other, neither parent was allowed the credit since, again, the child was not "wholly dependent" on any parent.
However, in that case the judge recommended that the law be changed to correct the obvious unfair result. I'm not sure whether the law has changed yet.
So, you may wish to give it a shot and hope for the best.
back to top
What marital status is it better to put? single or married
asked Jan 08
Q.Hello,
I'll keep this brief.
Just married last Feb. 2007, is it illegal doing taxes as a single vs. married? or is their an advantage submitting taxes as a married couple?
Both work no kids.
Secondly, what are the income tax brackets i.e.: making $59,000 vs. $60,000 per year?? or where do they lye?
A.
Sorry, but I never tell my clients what marital status to put on their returns.
The reason is that what you put on your return has implications, not just for taxes, but for other things as well. For example, I had a lady client who filed as single even though she was in a common law relationship with a man. When the man passed on, the lady wanted to claim part of his estate on the grounds that they had lived together for a number of years. But, the lawyer for the man's estate challenged her on the grounds that she had filed her tax returns as a marital status: single.
So, I can't advise you what marital status to put on your return. There are just too many variables and implications involved.
For 2008, in Ontario, here are the rough tax brackets for various levels of taxable income:
The first column is the taxable income; the second the marginal tax bracket for income above that taxable income. So, income in excess of $59,000 is taxed at 32.98%
0 0.2105
36,020 0.2415
37,885 0.3115
57,689 0.3298
69,472 0.36274
72,041 0.394096
75,769 0.434096
123,184 0.464096
Hope this helps.
back to top
Q. Does a child with income have to file a tax return?
Starting at what age do a person need to file a tax return? For children under 16 years old but they may have some investment income under a custodian account set up by their parents, and they have capital gains, do the parents need to file a tax return separately for them? Or for children just over 16 years old and work part-time with earned income, do they have to file the tax return themselves?
A
According to 150(1) of the Income Tax Act, the way I understand it, if there's no tax to pay, then you don't need to file a tax return unless there's a capital gain or disposal of a capital property.
So, to answer your questions: If all that the child has is a small amount of investment income, he wouldn't have to file. If there were capital gains-- or losses, for that matter-- he should file.
If he has earned income, I think it's a good idea that he should file a return because a)he may get back the EI, tax or CPP deducted, and b)it will increase
back to top
Are the deductions off my pay cheque deductible?
asked Jan 08
have deductions taken off of my pay check for benefits - for example I have dental coverage through my employment however I pay for a portion of the premiums and the company pays the rest. $80.00 comes off each pay check and approx 20 dollars of that goes towards some sort of pension plan. The rest is for the medical benefits. Can I claim either one of these on my personal income tax. I live in Ontario by the way.....
A
Yes. The medical insurance premiums are an eligible medical expense. Find out from the payroll person-- if it's not obvious from your pay stub-- how much comes off your pay for medical insurance premiums. Also, find out the name of the insurer that provides coverage. Then, claim the amount as a medical expense.
The part of the deduction that goes to life insurance is not deductible, far as I know.
back to top
Capital gains
Five years ago I bought a triplex for $450,000. I occupy one of the three rental units.
Recently, I've received an offer to sell the building for $800,000. How much tax will I pay on it?
Answer
If all 3 units are of equal sq footage, you're exempt from 1/3 of the capital gain . So, you're gain will be 2/3 of $350,000 or $233,310 less legal and commision costs on sale.
The max tax you'd pay on the gain is about $53,000 because only half the gain is taxable and the max marginal tax rate is 46%
back to top
car allowance
Questions:
I receive $0.44 per kilometre rate from my employer for gas expense, can I still claim the lease payment of my car and the motor expenses??
Answer
The CRA's policy is that if you receive a non-taxable car allowance , then you can't claim car expenses. The only exception would be if the car allowance was 'woefully inadequate' which doesn't seem to apply in your case.
back to top
Child care expense- can tuition qualify?
Question:
We've enrolled our 6 year old daughter in grade 1 in a private school . We pay $8,500 a year in tuition. Can we deduct this amount from our income?
Answer:
To qualify for tuition credits, normally the payments must be made for courses at the post secondary level. Grade school and even high school tuition don't qualify as tuition under the income tax act.
What might work in your case, though, is to claim the payments as child care expenses. But, you have to be careful here. There are are a number of requirements for payments to be deductible as child care.
First, child care expenses are deductible only to the lower income spouse if both parents are together.
Second, the child care has to be for bona fide child care. Education is specifically ruled out. The CRA takes the position that payments for pre-school are generally child care, but not for grade 1 and up.
But, there's a recent case that you may want to hang your hat on. The case is Bailey vs Queen and was heard informally in 2005 in the Tax Court of Canada.
There, the taxpayer sent her child to grade primary at a private school in Halifax N.S. . CRA argued that her payments to that school should not qualify as child care because they were for education.
The judge however sided with the taxpayer saying that in this particular case the intent of the parent in enrolling the child in the school was not for 'education' but rather for 'child care'. Education was only an incidental benefit. But, the main purpose was child care.
I don't think this case changed the rules that much because the CRA anyway usually allowed pre Grade 1 and I think grade pimary is the same as pre-grade 1.
But, if you're the type of taxpayer who won't try to deduct an expense unless you can find some basis for it, here is something you can use. As long as you can argue your primary intention in sending your child to private school was for 'care', not for 'education', you should feel comfortable in deducting your child's schooling.
But, CRA will likely disagree with you because their policy is to only accept payments for pre-grade school as child care, but not for grade one and up. However, there's a slight chance they'll allow Grade one due to Bailey.
back to top
Question (asked June 15-07)
Topic: The Canadian Death Tax
I just inherited about $8000.00 from my Mums estate how much and what kind of tax will I have to pay?
Answer
Probably nothing. You probably don't even have to report anything either. If your mum left cash and that's all you got, you should have no tax obligation.
Last time I looked there is no death tax or inheritance tax in Canada. There may be a probate fee on the estate your mum left, but that's something for the trustees to worry about. They should also get a clearance certificate from Canada Revenue Agency before making a distribution to the beneficiaries of the estate.
Now, let me say something here. And that is that if you're also a trustee of the estate, you should definitely engage professional help.
Because even in a simple scenario, there could be complications.
Ask the taxman.ca
common questions on canadian tax