Canada: Trim Your Bill: Quick And Easy Deductions

Last Updated: January 27 2014
Article by Samantha Prasad

The holidays are officially here, and in the seasonal spirit of giving, I've prepared some quick and easy deductions to help cut your tax bill.

In addition to well-known tax-saving tips, I'll also serve up a few lesser-known year-end strategies that will benefit higher-net-worth investors, business- people, and executives.

Claim Interest on Disappearing Investments

If you have borrowed money for an investment (or even a business) that you may have sold for a loss, you're not likely to be too happy about the fact that you are still paying interest. Well, it's just possible that this interest may still be deductible.

There are two (unhappy) exceptions to this, however:

  • In the event you have managed to salvage some proceeds and the money is put to personal use rather than re- invested, the portion of your continuing interest charges relating to the personal-use investment won't be deductible.
  • If the investment you made was in real estate – but it's important to note that you will lose the deductibility only if the real estate is "directly held." In other words, the interest charges should continue to be deductible if (for example) the real estate was held in a partnership or a company.

A case can also be made for continuing interest deductions for real estate if you have managed to salvage some proceeds from the investment and then re-invested in the same type of property.

Investment carrying charges

Most investment-related carrying and financial service charges are deductible if they are related to earning income (i.e., investment counsel and safety- deposit box charges).

Check your bank statements for investment or business-related service charges, such as certification or overdraft charges, or fees for new chequebooks for your investments.

Also, make sure you've picked up all expenses on your brokerage statements, e.g., interest on margin accounts or late payments on stock purchases.

Although brokerage fees themselves are not immediately deductible, they reduce your capital gains exposure when you sell. Another possibility: interest which becomes payable in 2013 on an investment or business loan. This holds true even if you can't make the actual payments, but regularly deduct interest in the year it becomes payable.

Get your GST/HST Back

If you're allowed to deduct employment expenses (like an automobile or home office), you can claim a rebate to recover the GST/HST included in the price of goods and services on which you have claimed a deduction.

A similar rebate applies if you earn income from a partnership registered for GST/HST. In both cases, you can recover the GST/HST you pay on expenses you deduct personally by filing Form GST 370, Employee and Partner Goods and Services Tax Rebate, with your T1 return.

Objection expenses

You can also deduct legal fees paid for advice to object to (or appeal) an assessment under the Income Tax Act, the Unemployment Insurance Act, the Canada Pension Plan or the Quebec Pension Plan, plus any related accounting fees (net of any award or reimbursements for such expenses).

Taxable benefits on interest- subsidized loan

If a taxable benefit has been added to your T4 as a result of an interest-subsidized loan from your employer, you may be able to claim an offsetting deduction if the funds were used for income- earning purposes. For example, if you are a member of an employee share-purchase plan.

Tax return preparation fees

If you pay to have your tax return prepared and part of the fee relates to accounting charges for detailing your investment or business income, this portion of the fee should be deductible. Ask your accountant to send you a separate bill for these charges to back up the deduction.

Capital Gain Reserves

If you have sold assets in 2013 and realized a capital gain, you may be able (in some cases) to claim a capital gains reserve to defer recognition of that capital gain for tax purposes.

You can claim a reserve if you sell a property but do not receive all of the proceeds right away. An example of this would be selling appreciated shares and taking back a promissory note as consideration.

Under the reserve rules, you need only recognize one-fifth of the gain in the current and each later year (cumulatively). The result: the entire capital gain will be accounted for by the fourth year after the year of sale.

If you are not able to claim a reserve due to receiving all of the proceeds immediately on the sale, look to see if you have a capital loss carryforward balance from previous years that can off- set your capital gain.

Have your kids report capital gains

Since you may be footing the bill for school, it only seems right that your kids should foot the bill for capital gains.

If an investment is owned by your kids, the gain can be reported on their tax return. This could dramatically slash, or even eliminate, the tax bite. How so? With the basic personal credits, a child or grandchild with no other income can make over $22,000 a year in capital gains – per child, that is – free of federal tax.

And even if the gain exceeds this amount, your kid is in the lowest tax bracket where the tax rate is only about half of what a high-income earner would pay.

(Note: in most cases, the funding parent must normally pay tax on interest and dividends generated by the investment until the year the child turns 18 due to the attribution rules; how- ever, if the investment does not generate much income, then this becomes less of an issue.)

People will sometimes hold an investment for their kids, per- haps as a gift for them, but it is registered in the name of the adult. This isn't necessarily a showstopper. For one thing, if the account is registered in your name "in trust," this may show that it is really for your kids.

Another possibility is to visit a tax advisor to discuss the possibility of documenting the fact that the investment is for your kids – for example, by filling out a legal declaration of trust.

File a Tax Return

Many new businesses experience start-up losses in the first few years of their existence.

Still, you should file a return for each year. That's because your business's loss can be used to reduce income from other sources in the current year, or it can be carried back three years and forward twenty years. And that income can be from any source – be it the business itself, from employment or even from investment income.

But to claim the loss, you must file a tax return for the year.

The year-end for an individual who is a sole proprietor or an active partner in a partnership created since 1995 is December 31. Self-employed taxpayers and their spouses (if not separated) have until June 15 to file a return, although any taxes owing must be paid by April 30.

Lower Your Tax Instalments

If you pay taxes on an instalment basis, you've probably received several notices from CanRev informing you how much those instalments should be. But if your income has gone down in the last few years, think twice before you send in your cheque.

CanRev's instalment calculations are based partly on your income tax position from two years ago, and partly on last year's.

Instead of using CanRev's method, you are legally entitled to base your instalments on last year's tax position, or even on the current year's estimated position, if it is lower.

But be careful with the latter: penalties may apply if you underestimate your taxes and your instalments turn out to be lower than what the other two options required.

If your income has gone down in the last couple of years, using one of the other two options can mean that you could reduce your quarterly instalments without suffering interest penalties. But if you under- install, CanRev will start to charge you interest; the current rate is five per cent.

However, this rate is com- pounded daily – and worse still, it's non-deductible. So this is an expensive way to enhance your cash position. For seriously delinquent instalments, there is a 50 per cent interest surcharge slapped on.

If, during the year, it becomes apparent that you have paid more instalments than necessary, you might consider deliberately not following the instalment schedule by paying deficient or late instalments. This, in fact, is quite "legal."

By the way, if you've over- installed or have paid early, Can- Rev gives you what's known as an "offset" or "contra-interest" credit.

Basically, the rule works as if you had deposited the instalment in a bank account and earned interest (at CanRev's prescribed rates – currently three per cent for individuals and one per cent for businesses).

This credit can then be applied against interest penalties on deficient or late instalments.

The flip side of this, of course, is that you can reduce interest charges on a late or deficient tax instalment by overpaying other instalments, or paying them before their due date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Samantha Prasad
Similar Articles
Relevancy Powered by MondaqAI
Minden Gross LLP
Minden Gross LLP
Minden Gross LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Minden Gross LLP
Minden Gross LLP
Minden Gross LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions