Canadian Tax Blog

Tax Tip: Top 10 ways to reduce your tax bill

Now available on the Canada Revenue Agency website:

Did you know?
There are a number of ways to reduce the amount of tax you owe and keep more money in your pocket at tax time. The Canada Revenue Agency (CRA) can help you learn more about the various credits and deductions that you may be entitled to and that can save you money when you file your 2011 income tax and benefit return.

Important facts

For individuals:

1. Plan ahead - Register for My Account, gather your receipts and NETFILE access code, and sign up for direct deposit before April 30. Submitting your income tax and benefit return before the tax-filing deadline means you can avoid having to pay late-filing penalties.

2. Families - Save those receipts! All the activities you have been paying for throughout the year (piano, karate, tutoring, hockey, and more) may save you money at tax time.

3. Tax-free savings account - A tax-free savings account (TFSA) is one great way to save money since you don't pay tax on any income you earn from investments in your TFSA.

4. Registered retirement savings plan - Any income that you earn in a registered retirement savings plan (RRSP) is exempt from tax, as long as the funds stay in the plan. RRSPs help you save for your retirement and give you a break at tax time too.

5. Public transit tax credit - If you or someone in your family is a regular user of public transit, then you may be able to claim a non-refundable tax credit based on the cost of eligible transit passes.

6. Pension income splitting - If you receive income from a pension, you can split up to 50% of eligible pension income with your spouse or common-law partner to reduce the taxes that you pay.

7. Students - Are you still in school? Students can claim the tuition, education, and textbook amounts. Have you graduated recently? You may be eligible to claim the interest that you paid on your student loans.

8. Child care expenses - If you have children, you may be able to claim child care expenses that you or your spouse or common-law partner paid so that either of you could work, do research, or go to school.

9. Home buyer's tax credit - If you're a first-time home buyer you may be eligible to claim $5,000 on the purchase of your new home, which can save you up to $750.

For people who are self-employed:

10. Hiring an apprentice - Did your business employ an apprentice? A salary paid to an employee registered in a prescribed trade in the first two years of his or her apprenticeship contract qualifies for a non-refundable tax credit for the employer.

For the full post please visit the CRA web site.

Deadline approaching for 2011 RRSP contributions

Canadians should be advised that February 29, 2012 is the last day you can contribute to a RRSP for the 2011 tax year.

According to the Canada Revenue Agency web site, "Registered Retirement Savings Plans (RRSPs) are one of the most popular investment vehicles for Canadians. According to Statistics Canada, 6 out of 10 Canadian families held RRSPs in 2005."

The most recent information about your RRSP deduction limit is available through My Account at www.cra.gc.ca/myaccount.

View our list of important dates and deadlines for 2012.

Elite CEOs pocket average annual wage in hours

The Canadian Centre for Policy Alternatives kicked off 2011 with a new study that shows compensation for Canada's top CEOs appears to be recession-proof. Prepared by by CCPA Research Associate Hugh Mackenzie, according to the CCPA web site "the study looks at 2009 compensation levels for Canada's best paid 100 CEOs and finds they pocketed an average of $6.6 million during the darkest period of the recession - a stark contrast from the total average Canadian income of $42,988."

The report continues that at the identified rate of remuneration, this small handful of elite CEOs pocketed the equivalent of the average Canadian wage by 2:30 pm on January 3 - the first working day of the year. You can read the full report via the CCPA web site. See:
http://www.policyalternatives.ca/publications/reports/recession-proof

Warning: If you donate to a gifting tax shelter, expect to be audited

According to a new Tax Alert published by the Canada Revenue Agency, "each year, Canadian taxpayers participate in gifting arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The Canada Revenue Agency (CRA) continues to warn Canadians against these gifting arrangements and audits those who participate."

The tax alert continues its warning stating:

To date the CRA has denied over $4.5 billion in tax shelter gifting arrangement donations and reassessed over 130,000 taxpayers who have made donation claims through a gifting scheme. For most claims, the CRA has denied the gift entirely. The CRA audits gifting arrangement tax shelters that provide donation receipts three or four times the out-of-pocket cost.

Decisions in recent court cases have concluded that the "donation" made by the taxpayer was not a gift or, where it was a gift, the amount did not exceed the out-of-pocket cost to the taxpayer. In the Maréchaux case, the Federal Court of Appeal upheld the Tax Court of Canada (TCC) decision that there was no gift given as a result of the defendant's participation in a leveraged cash donation scheme. In the Lockie case, the TCC concluded that the gift in a buy-low-donate-high scheme was the amount paid by the taxpayer.

The CRA advises that anyone thinking of investing in a tax shelter gifting arrangement should get independent legal and tax advice from a tax professional who is not connected to the arrangement or the promoter.

For more information on previous tax alerts, go to www.cra.gc.ca/alert on the CRA Web site.

Harper Thanks Canadians for Donating to Charities

The Canada Revenue Agency recently issued a news release indicating that Prime Minister Stephen Harper's Government thanks Canadians for donating to registered charities. In the news release Canadians were reminded to of the limited time available to donate in 2010 to receive a tax credit for that tax year.

Thanks to special tax measures designed to benefit charities and people who donate to them, donations made to registered charities provide Canadians a valuable tax credit to help reduce their tax burden and an incentive to support the important work being done in their communities.

According to the example provided in the news release, donating $200 to charity provides a tax credit of 15% of the total and for donations over $200 the tax credit goes up to 29%.

"Donating to registered charities is truly a win-win situation. Donors receive tax relief and charities continue to carry out work in the community," continued Minister Ashfield, "Our government encourages individuals to support the important work registered charities do each year".

In order for Canadians to receive the full tax credit for their charitable donations they must make them before the end of 2010 and they must also be sure to get a receipt from the registered charity.

For more information on donating to charities and receiving these tax credits, you are encouraged to visit the CRA web site at http://www.cra-arc.gc.ca.

Canada's richest getting richer?

An interesting post appeared recently on the web site of the Canadian Centre for Policy Alternatives indicating how Canada's rich keep getting richer. The CCPA released a major report by Senior Economist Armine Yalnizyan that indicates that Canada's richest 1% has enjoyed more of the gains from economic growth than ever before in recorded history.

The report identifies income trends over the past 90 years, revealing the richest 1% took 32% of all growth in incomes between 1997 and 2007.

For more information, see the CCPA article on its website.

Taxpayers' Ombudsman Report: Right to Know

Canadian Taxpayers may be interested in reviewing the Taxpayers' Ombudsman recently-released report entitled The Right to Know.

In the report the Ombudsman makes recommendations concerning which the Minister of National Revenue has asked the Canada Revenue Agency (the CRA) to develop a plan of action and make the necessary changes.

According to the CRA website, the Minister has stated:

"Our government is committed to ensuring the fair and equitable treatment of all Canadian taxpayers. That is why we developed and introduced the Taxpayer Bill of Rights and created the position of Taxpayers' Ombudsman to report to the Minister with recommendations on how the Canada Revenue Agency can better serve Canadians. The role of the Ombudsman is to ensure that the Canada Revenue Agency is respecting the rights of taxpayers as per the Taxpayer Bill of Rights, and I am pleased to accept and act on the recommendation in his report."

For more information, see the CRA news release at:
http://www.cra-arc.gc.ca/whtsnw/tms/sttmnt1109-eng.html

or the Tax Ombudsman web site at:
www.taxpayersrights.gc.ca

Taxpayer relief deadline: December 31, 2010

In a news release on its website, the Canada Revenue Agency (CRA) reminds taxpayers and all tax registrants that they have until December 31, 2010 to file requests under the taxpayer relief provisions for the 2000 tax year and any reporting period that ended during the 2000 calendar year.

According to the CRA news release, "taxpayer relief provisions of the Income Tax Act limit the discretion of the Minister of National Revenue to cancel or waive penalties and interest, accept certain late-filed, amended, or revoked income tax elections; and issue income tax refunds beyond the normal three-year period (for individuals and testamentary trusts only). This only applies to tax years that ended within the 10 calendar years immediately preceding the calendar year in which a request is made."

Taxpayers and registrants or their authorized representatives can make a taxpayer relief request by completing Form RC4288, Request for Taxpayer Relief, or by writing to their tax services office. For more information, please see:
http://www.cra-arc.gc.ca/nwsrm/rlss/2010/m11/nr101108-eng.html?eml

CRA promotes tax relief for businesses

The Canada Revenue Agency (CRA) has announced the launch of the Government of Canada's advertising campaign promoting the 100% capital cost allowance rate for computers.

According to this announcement Canadian business owners now have until January 31, 2011, to acquire new eligible computer hardware, including systems software, in order to claim 100% of the capital cost allowance.

This temporary tax relief measure was previously announced in Canada's Economic Action Plan. It allows Canadian businesses to claim a 100% capital cost allowance deduction for eligible computer hardware, including systems software, acquired after January 27, 2009, and before midnight, January 31, 2011.

For more information on tax relief for businesses, please see the CRA website at: www.cra.gc.ca/taxcuts

Hurricane Igor Tax relief measures available to Canadians

For information on the Canada Revenue Agency's (CRA) tax relief measures available to taxpayers affected by Hurricane Igor in Newfoundland and Labrador, please see the CRA web site at:
http://www.cra-arc.gc.ca/nwsrm/rlss/2010/m09/nr100923-eng.html