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tax surprisesWell the personal tax return season rush is basically over but I will continue preparing tax returns for 2012, and prior years, for the balance of the year. While reflecting on the achievements of our 2012 tax season I’m reminded of the clients surprised by information I shared with them.  Here are 5 significant 2013 Canadian client surprises this season:

1.    RESP Funds Received.  The surprise was that the money was taxable. The good news is that the money is taxed to the student, who usually doesn’t have a lot of income that year and tax payable is minimal, if any.  A T4A slip is received from the investment source and the amount is recorded in Box 42.

2.   CPP on Self-Employed Earnings.  I met for the first time with two self-employed clients.  They were surprised that they were contributing to their CPP.  When reviewing their returns I explained that as sub-contractors or self-employed they had to contribute to their CPP if net self-employment income exceeded $3,500. They are obligated to pay the employee and the employer portion. Their previous tax preparers had never explained that fact to them and they had been worried for years about their retirement.

3.   Medical Expenses.  When reviewing returns with clients they were surprised that the total amount they paid in medical expenses was not reflected in their tax summaries.  I explained that the credit for allowable medical expenses was calculated at 3% based on excess of their net taxable income, to a maximum of $2,109. An example of this calculation is; if net income is $30,000 then they would need more than $900 in medical expenses before the credit could be implemented.  That’s why it is the rule of thumb to apply the medical expenses to the person with the lower net income when preparing tax returns for couples.  The main reason that this would not be the case is if the person with the lowest income had no Federal Tax payable.  Medical expenses can only help you reduce your tax liability.

4.   Donation Receipts. Like the medical receipts, clients were surprised that the total amount they contributed wasn’t reflected on their tax summaries.  With donations, the first $200 is credited at 15% and with amounts over $200., the credits are calculated at 29%.  Like Medical Expenses, these credits can only help reduce your Federal Tax owing.  If there is no Federal Tax owing, the donation credits can be carried forward for 5 years. If filing as a couple, donations should be combined, no matter whose name is on the receipts, for maximum benefit.  The rule of thumb is to allocate the donation receipts to the person with the highest taxable income.

5.   Daycare expenses. Year after year the question comes up as to why all daycare expenses cannot be used.  There are a couple of surprises where this expense is concerned.  First, unless you’re in a married or common-law relationship, the individual with the lowest income must claim the daycare at 80% of earnings. An example would be; if the person with the lowest income earned $8,000 the allowable daycare expense would be $6,400, even if the daycare receipts indicated $7,000. Second if you are in a partner relationship and you have no earned income, then none of the daycare expenses are allowable. Employment Insurance (EI) is not considered earned income. There are other exceptions to the lowest income rule, along with maximum amounts allowed based on the child’s age that can be found by clicking here.

If you were surprised by any changes or explanations to the 2012 tax rules or preparation of your personal tax returns, I would be interested in hearing from you with the details. Don’t forget to leave a link back to your own blog if you have one via the commentluv feature here on the site.

Until next time,

Maureen

 

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chair liftThe Ontario government introduced the Ontario Healthy Homes Renovation Tax Credit (OHHRTC) to help make homes safer and more accessible for seniors 65 years or older. This credit could create a substantial refund for some taxpayers. The following are 10 key issues you need to know about this tax credit.

1. This refundable credit is available to a senior in their own home or that of another taxpayer living in the same home. An example would be a parent aged 65 or older living with a son or daughter. The improvements to the home and the subsequent tax credit can be used by the younger taxpayer.

2. The senior does not have to be disabled.

3. The maximum amount you can claim is $10,000 in eligible home improvements. The amount of money you could receive back is 15% or $1,500.

4. The credit is not dependent on income.  Seniors and their family members at all income levels are eligible.

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QuickBooks Pro AdvisorOne of the challenges we have in working with client files is sharing the QuickBooks information.  This occurs when the client likes to access their file on a regular basis and we need access to it at the same time, to determine payroll, WSIB and GST/HST remittances.  And due to accessibility or speed sometimes logging into the client files remotely just isn’t the best answer.  What we do instead is ask the client to make an Accountant’s Copy of their file and email it to us.  With our copy we can reconcile the bank, make adjusting entries and almost anything else we need to do while the client can still work on their file.  The only frustration the client has had when we’ve finished with their file is incorporating the file we send back to them with the one they’ve been working on.  The following is the process we now give our clients to enable a smooth blending of the files.

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Family Responsibility OfficeThe Family Responsibility Office (FRO) enforces child and domestic support orders and collects support payments for families. They help nearly 400,000 people every year in the Province of Ontario.

I have clients that ensure their payments are made in full and on time through pre-authorized debits from their bank account and directed to FRO. A problem we have on an annual basis is the CRA not recognizing the deduction for spousal support on personal tax returns.  For the past 8 years one of my clients gets a Notice of Reassessment stating “We have disallowed your deduction for support payments to a spouse or common-law partner.  You can deduct only support amounts paid under a written agreement or court order that are more than the child support payable for current and prior years”.  Each year we have to send exactly the same written agreement to the CRA and they then reverse their assessment. No conversations take place, no explanation of why it has to be sent year after year, it just does. And it is very stressful to those that receive the first Notice of Reassessment. When initially they thought they were getting a refund of $4,000, the CRA is asking them to pay $3,000!

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canadian-penniesEffective February 4th, 2013, the Royal Canadian Mint will no longer distribute pennies. In the March 2012 Federal Budget Finance Minister Jim Flaherty said it cost roughly 1.6 cents to make each penny.  This phasing out of the Canadian penny will supposedly save taxpayers $11 million dollars annually.

So how are vendors and consumers supposed to handle the demise of the penny?  February 4th is the date businesses will be encouraged to begin rounding transactions. The penny will still be acknowledged in financial transactions if payments are made by cheque, debit, charge cards or electronic transactions.  Cash transactions are to be rounded to the nearest five cent increment.

Below is a guideline supplied by the Department of Finance Canada to illustrate how cash transactions will be rounded in a fair and transparent manner.

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WSIB Laws Have Changed

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I just went online and e-registered http://www.beregisteredbeready.ca/ for WSIB on behalf of one of my clients.  He is a sole proprietor, doesn’t have employees and sometimes hires sub-contractors.  Because of the new rules that become effective January 1, 2013, he no longer has an option of paying WSIB for himself. It will be mandatory.  In the past he’s always paid the WSIB for the sub-contractors he hired. In the New Year he is no longer allowed to do that.  All construction workers must be registered and pay for their own WSIB coverage.  Without coverage and the clearance certificates required at construction and other sites, they will not be able to work.

If you register now there is no payment required in 2012.

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Download QuickBooks transactionsI usually receive a couple of requests each month for instructions or guidance on how to download bank transactions into a QuickBooks file.  The following step by step instructions seem to meet the needs of those that are technology challenged, myself included.

I recommend that you back-up your QuickBooks file before doing this for the first time. 

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Earlier today I was at a half day seminar titled Business Continuity for Small Business. It was offered by the York Small Business Enterprise Centre and York Region.  The speaker was Ann Wgyanowski MBCP, MBCI, CBRM from BCP Help.  She offered a comprehensive approach to what we all need to consider for business continuity planning and emergency management.

The two key aspects to this are:

  1. Emergency Procedures and Crisis Communications and,
  2. Business Continuity – what you do next to keep business running.

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I recently went to a new client with the purpose of giving two of their staff members QuickBooks training. I had spoken with the office manager a couple of times before our meeting to understand their business and ensure that QuickBooks could meet their needs. When I arrived at their office, the owner of the business started asking me a completely different set of questions.  They weren’t pertaining to the training but more about the different versions of and access to QuickBooks.  Initially QuickBooks was going to be installed on one computer; they don’t have a server.  I explained about sharing of the data file, access and problems that could arise with having numerous copies of their QuickBooks file.  It then occurred to me that QuickBooks Online could be the solution to their problem. In the process, we discovered 5 good reasons to use QuickBooks in the Cloud.

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I recently attended the first annual IPBC Canadian Bookkeeping Conference in Vancouver.  Besides hearing some outstanding speakers over the three and a half days of the conference there were also some great sponsors.  With the ever changing landscape of software available I would like to share 3 great business software programs that can make our bookkeeping and accounting lives more accessible and secure.

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