Canada Child Benefit

Starting July 2016 Universal Child Care Benefit (UCCB), Canada Child Tax Benefit (CCTB), and National Child Benefit Supplement (NCBS) will be replaced with the Canada Child Benefit (CCB). The new CCB will provide a maximum benefit of $6,400 per child under 6 and $5,400 per child aged 6 through 17.
The benefit will be reduced when adjusted family net income is over $30,000.  The rates of reduction will vary depending on the number of children, and when adjusted family net income is over $65,000. Entitlement to the CCB for July 2016 to June 2017 will be based on adjusted family net income for the 2015 taxation year.  According to the reduction rates once adjusted family net income reaches approximately $107,050, the benefit is reduced to zero.

 

Canada Child Benefit Phase-out Rates and Adjusted Family Net Income Thresholds
Number of children (for phase-out rates) Phase-Out Rates (%)
$30,000 to $65,000 Over $65,000
1 child 7 3.2
2 children 13.5 5.7
3 children 19 8
4 or more children 23 9.5

 

 

For your estimated benefits see the Canada Child Benefit Calculator

 

 

2016 Tax changes

Below is a summary of some of the changes between your 2015 and 2016 tax returns. I have discussed some of the important changes in more depth in supplementary articles:
Federal changes:

  • Four of the child tax credits (arts, fitness, education and textbooks) have been eliminated
  • Tax on income between $ 45,282 and $ 90,563 decreases from 22% to 20.5%
  • Tax on income over $200,000 rises from 29% to 33%
  • Family Tax Cut, which allowed couples with children under 18 to transfer up to $ 50,000 to the lower-income-spouse has been eliminated
  • Universal Child Care Benefit (UCCB) will be replaced with the Canada Child Benefit (CCB) beginning in July 2016
  • The TFSA annual limit will be drop from $10,000 to $5,500 for 2016
  • A slight increase in EI and CPP taxes due to the difference between inflation and wage growth
  • The basic personal amount and some other credits will increase by 1.4% for 2017
  • Introduction of teacher and Early Childhood Educator School Supply Tax Credit

Ontario changes:

  • Ontario will double the first-time homebuyers’ maximum land transfer tax refund to $4,000
  • Ontarians will receive a rebate of 8% on rising hydro bills

When is my Tax Return Due?

 

With the exception for self-employed individuals and their spouses, Personal income tax returns and the tax owing are normally due by April 30th.  Penalties and interest may be charged for late returns or late payments.

This year however, the due date is extended to Monday, May 1, 2017 because April 30, 2017 is a Sunday. Individual taxpayers can apply this rule to other CRA deadlines. According to the CRA information on Important Dates for Individuals “When a due date falls on a Saturday, a Sunday, or a public holiday, we consider your payment to be paid on time or your return to be filed on time, if we receive it or if it is postmarked on the next business day.”

It’s important to stress that this rule applies only to individual taxpayer and does not apply to the remittance of an deduction and amounts withheld (for example payroll taxes, CPP, EI or GST/HST remittances), or payable by a corporation.  The CRA deems these amounts to have been made on the date the CRA receives them. For more information see section 248(7) of the income tax act.

 

The Canada Revenue Agency (CRA) may allow a grace period for taxpayers who are experiencing delays in submitting their return online.  The amounts owed to the CRA are still due by the April 30th (or May 1st for this year) to avoid any penalties.

The deadline for Self-employed individuals is Thursday, June 15, 2017 to file their 2016 personal tax returns, but if the self-employed taxpayer owes an amount, the balance must still be paid by May 1st.

Remember the CRA applies a late-filing penalty and interest so even if you can’t afford to pay by the deadline, you can avoid late-filing penalties which may be as high as 34%. See my penalties article for more details.

CRA Penalties and interest

Let’s get the simple stuff out of the way first:

  • Your tax return is considered late if it is not received by the due date and a penalty applies
  • If you don’t owe or are owed a refund there is no penalty
  • Penalties are fixed and apply to returns that are late; interest is variable and depends on how long the owing amount was outstanding

Late-filing penalty

If a taxpayer owes tax for 2016 and does not file a return by May 1, 2017, the CRA will charge a late-filing penalty. The penalty is 5% of your 2016 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months (i.e. as high as 13%)

 

If a taxpayer is charged a late-filing penalty on their return for 2013, 2014, or 2015 their late-filing penalty for 2016 may be 10% of their 2016 balance owing, plus 2% of their 2016 balance owing for each full month your return is late, to a maximum of 20 months (i.e. as high as 50%).

Conclusion:

  • Always try to file and pay by the deadline
  • Even if you can’t pay on the deadline, file your return by the deadline
  • If you can’t afford to pay the entire amount owing you or you representative call CRA’s debt management call centre at 1-888-863-8657 from 7 a.m. to 11 p.m., Eastern time.

 
CRA prescribed rates can be found here

Employees Rejoice

Technological advances pay off for taxpayers

If you are employed, the filing deadline for filing your 2015 taxes is on April 30 at midnight. Those who have overpaid taxes will get a refund and will not be changed a penalty for filing late; however, if you owe taxes, filing late can costs you. So be sure to file on time.
The CRA is arguably one of the most technologically advanced government agencies in Canada. This means that they are progressively improving their methods of catching tax dodgers by focusing on anomalies and matching their records with the information they receive from taxpayers. But technology is not always ominous; it sometimes works in the taxpayers’ advantage.
In early 2016 the CRA announced that it will make certain tax-related information available online for taxpayers and their accountants, not just for 2015 but for the past 10 years. This information includes Notices of Assessment, income slips such as T4s, T5s, T3s, T4Es, and other tax-related information such as RRSP contributions and room and Home-Buyers-Plan.
Furthermore, it improved the function of an exciting service which was previously called Tax Data Delivery and renamed it Autofill My Return. Accountants can use Autofill My Return to automatically download their clients’ income slips to their software. This means that, we as tax preparers can practically eliminate the risk of human-made errors and do our job more efficiently and effectively. It also means that if you misplace your T4 or T5, you don’t have to wait for weeks to obtain a duplicate copy.
So what does this mean for taxpayers?
It means:

  • For the first time ever having your taxes prepared by a professional accountant could cost the same or even less than buying an off-the-shelf software.
  • No more reassessments for missed or partially-prepared slips.
  • You will receive a secure electronic copy of your tax return so you never have to look for it when you need it
  • A Chartered Professional Accountant will represent you if the CRA inquires about your account

Call (416) 836-4731 or email info@mkg-cpa.com to book an appointment today.

Filing your personal income tax

Unlike the medical and law professions, anyone can call themselves an accountant. However, not all accountants have the professional training and acumen to deliver superior results.

When you trust a professional to prepare and file your income tax returns you:  

– Ensure your business records are professionally maintained: CPAs are bound by the regulatory body’s the rules of professional conduct and must therefore handle client files according the profession’s standards. This means that your records are kept private and confidential and you will be able to request or retrieve your file at any time. At MKG, all engagements come with standard documentation so that you know what we will be performing, the scope and extent of our work, and exactly what you will receive.

– Keep up with tax changes: CPAs regularly participate in professional development seminars and courses to ensure they are up-to-date with the latest changes to the Income Tax Act and are able to assess their clients’ accounts based on these changes. Did you know that you can refile your tax returns for the past three years? If you are unsure whether your taxes have been filed properly, give us a call. We perform free reviews of your prior tax returns. You will only pay if we recover an additional refund for you.
– Taking advantage of all possible tax savings: The Income Tax Act is complex and somewhat difficult to understand for the layman. When you trust a professional accountant to deal with your tax matters, you will be able to take advantage of all possible tax savings, pay the minimum required tax, and maintain a good standing with the CRA. We will spend as much time as needed to get to know your current situation and future plans and will recommend tax-saving strategies in order to pay the lowest overall tax possible.
– Avoid interest, penalties, and hassle: Canada’s tax system is based on self-assessment. This means that individuals voluntarily complete an income tax return to report their annual income and claim all deductions or credits that apply to their situation. If, however, you are unable to provide sufficient documentation or have claimed deduction or credits that did not apply to your situation, you will be responsible for returning the refund you received and may also be liable for interest and penalties. If you have not filed your prior year tax returns, I can help you avoid the interests and penalties.

These are just some of the ways in which we will deliver superior and reliable results. Contact us to make an appointment for a free consultation or a free review of your prior tax returns.

Starting a business

 

Starting a business is a daring and demanding endeavor and requires a lot of time and effort. Before you can turn your ideas into reality, you must assess the risks and rewards of the venture, and take into account many factors such as capital requirements, sources of funding, competitiveness of the industry in which you will be operating, and the core competencies which will set you apart from the competition. A professionally formulated business plan can assist you in identifying your business’ strengths and weaknesses, evaluating its financial viability, and securing financing. At MKG, we are accounting professionals who can turn your business ideas and crude data into a well-articulated and meaningful business plan and increase your business’ chance of success. It is worth mentioning that business plans are not just for start-ups; established and especially growing businesses use business plans in order to communicate their vision to their employees, prepare financial forecasts, raise capital, and compare their actual and planned performances.

The next steps

Once you have created a business plan and secured financing, you will need to decide the legal structure of your business. This is a complex issue and needs careful consideration as it will affect you and your business’ liabilities, and income tax consequences.
There are several ways in which one can carry out your business in Canada: as a sole proprietorship, a corporation, or a partnership. Each method has some advantages and disadvantages.
For example as a sole proprietor, you do not have to file a separate corporate tax return every year (which can be costly) and report your business income as part of your personal tax return; this allows you to claim any business losses on your personal tax return. This is an enormous opportunity for start-up businesses which are more likely to incur losses initially as it will allow the owner to reduce his or her personal taxes to the extent they incurred losses in their business. Incorporated businesses, on the other hand, cannot transfer their losses to the owners; although they may carry the losses forward to reduce their taxable income in the future. A disadvantage of sole proprietorships is that they are considered a separate legal entity and the proprietor(s) stand personally liable should their business be sued for damages or misconduct.
Incorporating your business involves some setup costs such as name searches and incorporation fees and requires a separate corporate tax return to be filed every year. An incorporated business is also subject to closer scrutiny by the provincial or federal regulatory bodies. For most profitable businesses, however, the tax savings outweigh the initial and ongoing costs of incorporation. Once incorporated, your business becomes a separate legal entity which means that you and your personal assets are protected from liabilities incurred by your business. It should be noted however, that most banks require a personal guarantee on business loans which means that should your business default on the payments, you will be personally responsible for the loan. Aside from the legal liability protection that a corporation offers, there are some other noteworthy advantages such as the Capital Gains Exemption. Assuming that you or your family members are the shareholders of an incorporated business, each shareholder is entitled to $ 800,000 Capital Gains exemption on disposal (i.e. when they sell the shares), a fantastic opportunity for those who want to retire or pass on the torch to their children. Another advantage of incorporating your business is the ability to split the income generated by your business with family members to the extent of their involvement in the business.

One of the most attractive features of an incorporated business is the ability to retain a portion of the earnings in the business. Since corporations enjoy lower tax rates and – unlike sole proprietorships and partnerships- have the option of maintaining all or a portion of their earning in the corporation, the shareholder(s) personally, pay tax only on amounts received as salary or dividends from the business. This is an enormous opportunity for those businesses whose income fluctuates from year to year or those whose income exceeds the needs of the shareholder(s).

Whether you choose to conduct your business as a sole proprietorship or corporation or if you need to assess which structure suits your needs, we are here to help. We, at MKG, can provide you with the relevant facts about your business’ financial performance to assist you in making sounds business decisions. If you choose to incorporate, we can guide you through the process, from names searches to filing the governmental paperwork and obtaining certificates.