Canada Revenue Agency readies for tax season, children’s fitness tax up $500 to $1,000

 

Reported by: `Customs Today Report March 20, 2015

SUMMERSIDE: A regional outreach partnership officer with the Canada Revenue Agency (CRA), and it’s her job to help ease the pain for Canadians.

Clarke recently explained some of the changes Canadians can expect to encounter while filling out their 2014 returns.

For starters, CRA is pushing electronic filing more than ever, she said.

“We are moving towards more electronic communications with Canadians, because that’s what a lot of people want,” she said.

There are many advantages to filing online, she added, not the least of which is government cost savings and a speeding up of the process for Canadians.

“You could have your refund in as little as eight business days, if you have direct deposit set up.”

“It’s just really easy.”

Canadians who want to file online can find a host of resources at www.Netfile.gc.ca, including a list of CRA certified programs to help them.

This website will point people in the directions of the various tax credits they may be eligible for.

New to that list this year is the much talked about family tax cut announced by Prime Minister Stephen Harper in 2014.

That is a non-refundable tax credit up to $2,000, available to eligible families with children under 18.

The good news is that Canadians don’t really have to worry about calculating this change into their returns, said Clarke, as anyone filing online will have it automatically included as they fill out their returns.

Also new this year is the increase of the children’s fitness tax credit, up from $500 to $1,000.

Search and rescue volunteers can now also claim a similar tax credit to what has previously been available to volunteer firefighters.

Canadians might also notice a new box on their tax returns where they can include an email address and sign up for something called Online Mail.

This service allows the government to send people their notice of assessment electronically through a secure system.

 

 

SOURCE :

http://customstoday.com.pk/canada-revenue-agency-readies-for-tax-season-childrens-fitness-tax-up-500-to-1000-2/

 

 

 

The Basics of Capital Cost Allowance

 

Posted on July 3, 2014 by Dan • 2 Comments

Capital Cost Allowance (CCA) is the tax term for depreciation and is used when capital assets are purchased. Examples of capital assets are a building, equipment, furniture or fixtures.
 
Related: How Taxes Work When Renting Out Your Home
When a business buys a capital asset like a vehicle or if the owner of a rental property builds a detached garage on the property, they would need to claim CCA.

CCA – Rental Property

A rental property owner may have capital expenses related to their property – examples are hardwood flooring, adding new kitchen cabinets or upgrading the electrical system. Any expense that has a lasting benefit is usually considered capital.
 
Related: Lessons From a First Time Landlord
The building itself is obviously the biggest amount to claim CCA on, but claiming CCA year after year can lead to higher taxes paid in the future if the property is sold. This situation is called a ‘recapture’ of CCA. For this reason you should check with a professional on whether you should claim CCA at all – it might be to your advantage to not claim any.
 
Related: How the Principal Residence Exemption Works
Whether something is an upgrade or just a repair can be tricky. If it’s an upgrade – it’s capital. Otherwise it is a regular expense. A repair would be the costs of having someone fix an air conditioner while an upgrade would be getting a brand new air conditioner.

How to Calculate CCA

CRA uses pools when calculating CCA – all capital items are divided into classes and then pooled together. CRA has a table that is used to determine which class an item falls into:
 
The different classes have different rates. Computer software (Class 12) has the highest rate (100%) which is likely because software gets outdated so quickly.
 
The declining balance method is used to calculate CCA and the ½ year rule means that only half the amount of CCA normally allowed can be claimed in the year of purchase. This rule is meant to prevent people from buying expense capital assets right before year end, but then being able to claim a full year of CCA.
 
The undepreciated capital cost (UCC) is the amount that is still in the pool from the prior year. If nothing was bought last year or this is the first year of buying capital assets, this amount would be zero.

Example of CCA Calculation

John owns an I/T consulting business and bought $2,000 of computer hardware. This falls under class 10 with a rate of 30%. He would claim CCA as follows:
Year       Capital Cost Allowance
1            $2,000 x 30% x ½ = $300
2            $2,000 – $300 x 30% = $510
3            $2,000 – $300 – $510 x 30% = $357
 
In year 3, the UCC of the computer software would be $833. I should note that the above calculation is straight forward and assumes no additions or deletions to the pool. An addition (purchase) gets added in the year it was bought and would increase the UCC. A sale of an asset would mean the amount received for the asset gets taken out of the pool for that year.
 
Final thoughts: This article is only meant as an introduction to how CCA works. Things get tricky when there are purchases and sales in the same year, but the main idea is that it’s important to distinguish between regular expenses and capital expenses as they are treated differently for tax purposes.
 
SOURCE :
http://www.ourbigfatwallet.com/the-basics-of-capital-cost-allowance/
 
 

Rental Income - Property Income or Business Income for Tax Purposes?

 

In general, the number and kinds of service provided in relation to the rental of the property will determine whether the income is property or business income.  The more services that are provided, the more likely that the income will be considered business income.  The number of rental properties being managed will not affect the classification of the income.  For more detailed information, see the Canada Revenue Agency (CRA) Interpretation Bulletin IT-434 Rental of Real Property by Individual.

Why does it matter?

Property income and business income are treated differently for tax purposes.  The following are some of the differences.

Business income

is reported on line 135 of the tax return, as part of self-employment income.

is subject to Canada Pension Plan (CPP) premiums on net income.

is included in working income for purposes of the working income tax benefit (WITB).

is included in self-employment income for calculation of the refundable medical expense supplement.

is included in earned income for purposes of calculating the child care expense deduction.

Property income

from real estate rentals is reported on line 126 of the tax return.

is not subject to CPP premiums.

is not included in working income for the working income tax benefit (WITB).

is not included in self-employment income for calculation of the refundable medical expense supplement.

is not included in earned income for purposes of calculating the child care expense deduction.

 

SOURCE :

http://www.taxtips.ca/realestate/rentalorbusiness.htm

 

 

 

Three basic types of income: employment income, business income and property income

 

In Canadian income tax system, you are taxed on your taxable income. What is income? "Income" is not specifically defined in the Income Tax Act. Almost any benefit you receive from any activity is likely to be taxable as income.

Each year, you are required to declare your income from all sources. Different types of income are treated differently. So understanding the sources of income is the first step in tax planning.

There are three main categories of taxable income: employment income, business income, and property income and capital gains.

Employment income includes most benefits derived from employment, such as salaries, bonus, as well as any retiring allowance you receive when leaving a job. The income is normally reported on the T4s issued by your employer.

If you are a professional, independent contractor, or a freelance worker, you are probably earning business income. You are taxed on the "profit" of the business. The profit is calculated by subtracting your expenses incurred to generate revenue from your earned revenue.

Income from property includes interest, dividend, and rent. You also have to pay tax on capital gains made from sales of property. But capital gains are subjected to special rules for the taxable amounts.

Employment income, business income, and property income are the main sources of income. There are other type of income such as alimony and maintenance payments, child support payments, and annuities.

Any comments? Contact Simon at simontax@proccounting.com

Proccounting provides accurate, convenient, and affordable tax preparation services. Plus, clients get Life Time Tax Support for each return prepared. Learn more about our tax preparation services

 

 

SOURCE :

http://www.proccounting.com/resources/tax-information/97-three-basic-types-of-income-employment-income-business-income-and-property-income

How to File Your Rental Income Taxes Read more at http://www.milliondollarjourney.com/how-to-file-your-rental-income-taxes.htm#mQvcRdafkIS1ZKfc.99

If you’re a landlord, it’s important to understand how to file your rental income come tax time. Whether you’re renting out a basement apartment or an investment property, you’ll need to report your rental income. This is done by completing Form T776, Statement of Real Estate Rentals.

If you’re filing your own income tax, you’ll need to fully understand the form to properly file your taxes; the last thing you want to do is get audited by Canada Revenue Agency (CRA).

Tax Treatment of Rental Income

Similar to income earned from self-employment, you’ll need to report rental income earned in a calendar year. If you work a regular 9 to 5 job, you’re probably used to taxes being deducted at source by your employer. However, since taxes aren’t deducted from each rent cheque received from your tenants, you’ll need to pay your fair share of taxes come April 30th. The advantage of rental income is that you’re able to write off a percentage of the expenses related to your rental

Read more at http://www.milliondollarjourney.com/how-to-file-your-rental-income-taxes.htm#mQvcRdafkIS1ZKfc.99

Why You Should Claim That Rental Income

 

July 5, 2012 1 Comment

With rising home prices many homeowners nowadays are looking at offering rental suites to tenants in order to assist with monthly mortgage payments. The income generated from rentals can be a great “mortgage-helper” to any household. In turn, interest rates have been at all time lows and purchasing that condo, cottage, or house as a second rental property can be a great investment.

An outlook many landlords have on reporting income generated from a rental is to keep this amount undisclosed in order to keep more cash away from the taxman. This article will go over why it is necessary to disclose this income to Canada Revenue Agency (CRA) not only to satisfy tax law, but for your benefit as well.

Definition of Rental Income

Rental income is simply defined as any earned income as a result of rental property you own or have use of. Rental income includes houses, apartments, rooms, office space, and other real or moveable property.

Whether your rental is an apartment or an illegal (secondary) suite, CRA still requires you to disclose any income. A large concern of many owners of illegal suites is being exposed to municipal authorities. Generally, all information provided to CRA from taxpayers is protected under strict privacy law. In the eyes of CRA, income not earned legally is still simply considered income; the same as any other legal income earned. It is not in the interest of the CRA to report illegal suites to different municipalities, but to ensure all income included for tax purposes.

Deductible Expenses

The largest benefit to disclosing rental income on your tax return is the ability to reduce income by claiming deductible expenses. Most landlords spend a large amount of money on expenses directly related to earning rental income; these expenses are not deductible if a landlord does not disclose this income to CRA. The following are a list of common current expenses that can be deducted against rental income:

• Advertising:  Any amounts paid to newspapers, online ads, signs, posters, or other advertising materials related to your rental property.

• Insurance:  Insurance costs incurred to cover your rental property; or, if your rental is a part of your home, a portion of your total insurance may be deductible.

• Interest:  If a landlord has borrowed funds in order to purchase a rental property, typically a mortgage, interest payments are deductible against rental income. This only applies to interest and not to payments applied to principle.

• Repairs and Maintenance:  The topic of repairs and maintenance has many “grey areas”. Any costs incurred in doing regular repairs and maintenance are deductible; however, determining what is actually “regular” repairs and maintenance is where this gets tricky.

ie. Cost incurred relating to cutting the lawn at the home would be considered regular; however, replacing the lawnmower itself may not.

• Professional /Management:  While the rental property is operating, any costs related to management companies, legal, and accounting can all be deducted.

• Utilities:  In operating a home, any costs incurred to heat, provide electricity, telephone, internet, cable, or gas can all be deducted. If the rental is a suite in your home, a portion of your total utility bill can be deducted against rental income.

Other expenses not listed above may still be deductible if considered “reasonable” in earning rental revenue. With all the deductions available to owners of a rental property, the result of properly reporting income can result in a tax saving. Owners with high income from other areas, if planned properly, can end up reporting a loss and reduce their overall tax payable.

Consequences of Not Disclosing Income

Dealing with a CRA audit can be a very stressful situation. Not disclosing any type of income can result in numerous consequences.

• Interest Accrual:  Any tax owing from income that had been unreported can be subject to interest. This interest is calculated from when the income should have been reported and can easily total up to a large sum.
• Penalties and Fines:  CRA has the ability to charge penalties for late filing. This amount is also backdated to the time when the income should have been reported. Interest is calculated on the penalty itself as well. Not reporting income to CRA is a form of tax evasion; this can result in extremely large fines making re-payment difficult. Failure to report income can result in a number of different penalty categories with CRA:

The first being the “Failure to Report Income Penalty”. This penalty simply charges 10% of the total amount you failed to report on your tax return. Interest is compounded daily on this amount backdated to the date owed.

The second category this may fall under is “False Statements or Omissions Penalty”. This penalty is commonly known as gross negligence. If CRA deems you to have falsified your tax return they have calculated the following gross negligence penalty:

The greater of:

$100; and

50% of the understatement of tax and/or the overstatement of credits related to the false statement or omission.

If any non-disclosed amount is voluntarily reported to CRA you may qualify for the “Voluntary Disclosure Program” which could waive you of any penalties. If you find yourself in a situation like this, consult with your professional accountant to determine the best course of action.

• Loss of Personal Property:  In the event of a large amount owing to CRA, they have the ability to place liens on homes and property, garnish wages and/or bank accounts. These liens take priority over any other liens and mortgages already registered on the property.

• Prison:  Tax evasion is a crime. CRA can pursue charges against a taxpayer which can result in imprisonment.

If your rental property is a portion of your home (principle residence) you need to ensure no capital cost allowance (CCA) is taken. A principle residence is exempt from capital gains, a great advantage when holding a property and selling for a profit. By claiming any amount of CCA on your property, you may not be able to claim it as a principle residence and therefore not be exempt from capital gains when selling.

In the case of a second property, you can claim CCA, which in turn reduces your taxable income related to your rental property. When a rental property, that is not your primary residence is sold, you must report capital gains earned on the sale. Failure to report capital gains will result in severe taxes and penalties from CRA.

Withholding income from CRA can not only cause you trouble, but can also leave you missing valuable deductions. Before you get a knock on the door from the taxman, speak with your accountant to help with important tax planning.

 

SOURCE

http://www.jasmith.com/why-you-should-claim-that-rental-income/