Tax Tips

Tax Tips For Canadian Income Tax Returns

If you are unsure as to which receipts you should keep to substantiate business expense claims, please visit our Resources page for a list of the more common deductible expenses.

Please contact us for further information or for information regarding topics not covered below.

·         Accrued wages – must be paid completely within 180 days of year end.

·         Adoption – eligible expenses include: Fees paid to an adoption agency licensed by a provincial or territorial government; Court, legal and administrative expenses related to an adoption order in respect of the child; Reasonable travel and living expenses for the child and the adoptive parents; Document translation fees; Mandatory fees paid to a foreign institution; Any other reasonable expenses required by a provincial or territorial government or an adoption agency licensed by a provincial or territorial government.

·         Assets with more than one use are subject to depreciation only in the proportion of business use to the total use. For example: if an asset costing $1,000 is used ½ for business and ½ for personal use, then the value eligible for depreciation is $500.

·         Bankruptcy – two tax returns are prepared in the year of declaring bankruptcy. The first covers the period from January 1st to the date of bankruptcy; and the second covers from the day following bankruptcy to December 31st.

·         Capital gains and losses are generally the differences between the amount received as proceeds of disposition of the property and the property’s adjusted cost base plus any costs incurred in disposing of the property, such as brokerage commissions and legal costs. The adjusted cost base is generally the cost of the property, which would usually include all costs associated with the acquisition.

·         Caregiver tax credit is a personal tax credit offered to individuals who provide in-home care for parents or grandparents who are 65 years of age or older. The tax credit also applies if in-home care is provided to the individual’s child, grandchild, parent, grandparent, sibling, aunt, uncle, niece or nephew or if the person is an adult who is dependent on the individual by reason of mental or physical infirmity. It is the Canada Revenue Agency’s view that a person is infirm if the person is incapable of being gainfully employed for a considerable period of time due to the infirmity.

·         Charitable donation receipts must be issued by a registered charity or a Canadian amateur athletic organization with a registration number. Gifts in the form of services are not eligible.

·         Club dues paid to clubs whose main function is to provide recreation, dining or sports facilities for their members are not deductible. If incurred for business, however, 50% of the cost of meals at such clubs may be deducted.

·         Conventions – expenses related to attending up to 2 conventions per year are deductible so long as the convention is held by a business or professional organization and the taxpayer attended for business or professional reasons. The deductions are limited by the ‘meal and entertainment expense’ rules.

·         Deceased persons – in the year of death, tax returns are completed to the date of death. Guide T4011, Preparing Returns for Deceased Persons, has information about filing requirements and options. Income received after the date of death must be reported for the estate on a T3, Trust Income Tax and Information Return.

·         Dividends paid to a taxpayer by a corporation on shares must be included on the taxpayer’s personal tax return.

·         Farming is defined as one or more of the following: The tilling of soil; The raising and/or exhibiting of livestock; The maintaining of horses for racing; The raising of poultry; Fur farming; Dairying; Fruit farming; The keeping of bees; The growing of Christmas trees.

·         Farming inventory adjustments are valued at year end. Any amounts required to be included in income by virtue of this adjustment are deducted in the following year. Flexible inventory adjustment is done on a voluntary basis whether the farmer is in a loss position or not. Mandatory inventory adjustment must be taken in loss years.

·         Filing deadline for business tax returns is June 15th of the year following the taxation year. Taxes payable, however, must be paid in full no later than April 30th to avoid interest charges.

·         Hobby farmers whose chief source of income is other than the hobby farm are restricted as to how much they may claim as farm losses. Currently, the maximum deduction is $17,500.

·         Home offices must be your principal place of business used exclusively for the purpose of earning income and be used on a regular and continuous basis for meeting clients, customers, or patients in respect of the business.

·         Late-filing penalty – regardless whether the taxpayer can pay the full amount of tax owing, the late-filing penalty can be avoided simply by filing the return on time.

·         Lump sum payments may qualify for tax relief if they pertain to a prior year. Lump sum payments that qualify include: Support for child, spouse or common-law partner; Wages or pension benefits other than non-periodic benefits; Employment insurance benefits and benefits paid under wage-loss replacement plans; Income received from an office or employment under the terms of a court order or judgment.

·         Personal tax credits include: Personal tax credits (basic, spouse or common-law partner, eligible dependent and dependents tax credit; Age credit; EI and CPP credit; Pension income credit; Canada employment credit; Public transit passes credit; Adoption expense credit; Impairment credit; Unused tuition, textbook and education credits carried forward from previous year; Education credit; Transfer of tuition, textbook and education credits to parent; Transfer of spouse’s or common-law partner’s credit; Medical expense credit; Charitable donations credit; Credit for interest paid on student loans; Dividends tax credit; Kids fitness credit; Home Renovation Tax Credit (2009 tax year only).

·         Rental income deductions include property tax, insurance, maintenance and repair expenses, utilities, advertising, and interest on borrowed money used to purchase or improve property.

·         Retained earnings represent the accumulated profits and losses of the business.

·         Self-employment – individuals whose net income from self-employment for the current or previous year is more than 50% of their total income or whose total income for the current or previous year is $10,000 or less can deduct health and dental premiums made to private health insurance plans.

·         Voluntary Disclosures Program – if a taxpayer voluntarily tells the Canada Revenue Agency of an amount they failed to report, or of an incorrect filing, or even of a failure to file, the CRA has the discretion to waive the late payment penalty, meaning that the taxpayer will only have to pay the taxes owing plus interest.

·         Wages paid to a spouse, common-law partner or child are included as an expense to the self-employed or business owner.