If you file late for 2024, the penalty is 5% of your 2024 balance owing, plus an additional 1% for each full month that you file after the tax filing due date—to a maximum of 12 months.

Looking further back, if the CRA charged you a late-filing penalty for 2021, 2022, or 2023 and requested a formal demand for a return that they haven’t received, your late-filing penalty for 2024 will be 10% of your balance owing. Then you will be charged an additional 2% for each full month that you file after the due date—to a maximum of 20 months.

Filing and making payments on time can help to keep costs down.

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Contribute to Your RRSP

Contributions to RRSP’s are tax deductible and the income earned within the plan grows tax deferred until retirement. You can claim a contribution of up to 18% of 2020 earned income to a maximum of $27,830. Earned income is defined as income from employment, business, net rental income from real estate, CPP/QPP disability pension, certain types of royalties, and spousal or child support payments that are included in your income.The contribution limit may be subject to the year 2020 pension adjustments. Pension adjustments reflect, in most cases, your employer’s contributions to a pension plan or actuarial commitments to such plans in the year 2020.You can contribute to your RRSP up to December 31st in the year you turn 71 years old. This is also the age/date limit for converting your RRSP into a RRIF or annuity otherwise the full proceeds of your RRSP will become taxable.Even if you are over 71, if you continue to have earned income and your spouse is 71 years of age or less in the year, consider contributing to a spousal RRSP for them. You will be entitled to the RRSP deduction on your return.

Donating Appreciated Shares

Gift publicly traded securities (eg: shares) that have appreciated in value instead of cash. This will give you 2 benefits – you will obtain a charitable donation tax receipt for the market value of the shares you are donating, and you will not have to include the income from the capital gains on the shares.

Capital Asset Purchases

Consider the acquisition of fixed assets for your business prior to year end – new accelerated write-offs are available federally and for Quebec that can provide significant tax savings.

Eligible Deductions & Credits

If you paid the following expenses by December 31, 2021, they will be eligible for deductions or credits on your 2021 personal tax return:

• Childcare expenses
• Deductible support payments
• Charitable donations
• Union and professional dues
• Moving expenses
• Political donations
• Accounting fees
• Medical expenses
• Investment counsel fees
• Interest paid on loans used to purchase investments
• Tuition fees

Tax Loss Selling

Consider selling investments in your portfolio that have accrued losses to offset capital gains that you may have realized on other investments during the year. The losses can also be used to offset capital gains realized in the 3 previous years. Of course, we are referring to investments held outside of an RRSP. However, you must be careful of the superficial loss rules preventing you from claiming a capital loss on an identical asset that you reacquired 30 days before or after the sale date.

Other Tax Planning Issues

• Consider a Registered Education Savings Plan (RESP) for your children.
• Set up a Tax Free Savings Account (TFSA).
• Review your December income tax installment.
• Make a low interest loan to your spouse. If you have previously set one up, remember to pay the interest by January 30, 2022.
• Repay outstanding shareholder loans and pay interest on employee loans.
• Contribute to your spouse’s or common-law partner’s RRSP to the extent of your RRSP deduction limit for 2021. This doubles the amount a couple can withdraw for the Home Buyer’s Plan.
• Consider a Registered Disability Savings Plan for a child with a severe disability.
• Pay reasonable salaries to family members in 2021.
• Convert non-deductible debt to deductible interest.
• Review your will every five years.
• Split pension income with spouse.
• Home buyer’s tax credit for first time home buyer.

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The decline in revenue test remains the same for the base subsidy as it did under the previous program but with more flexibility – there is now a choice as to which period is used as a comparison (year-over-year method or the Jan/Feb 2020 average) regardless of the method used for the previous four periods. However, to benefit from the top-up subsidy, a new revenue decline test will be calculated based on the prior three-month period or alternatively compared to the average sales for January and February 2020, as shown in the table below.

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Principal residence sold this year?

In 2016 an administrative change to CRA’s reporting requirements for the sale of a principal residence  (PR) occurred. When you sell your PR or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale. This is the case if you are eligible for the full income tax exemption (PRE) because the property was your principal residence for every year you owned it.

Starting with the 2016 tax year you were required to report basic information (date of acquisition, proceeds of disposition and description of the property) on your income tax and benefit return when you sell your PR to claim the full principal residence exemption.  Failure to do so could result in penalties levied by the CRA of up to $8000.

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On one side, there is the question of the risk involved that the salary may be unreasonable and having the expense being disallowed. On the other side, there is the benefit of lower tax brackets, RRSP contribution room and unused credits. In a situation where the spouse contributes nothing to the business but is paid a salary which, if paid to an unrelated employee, would have been much lower based on the work performed, the risk mentioned above increases. However, there are numerous functions that can be performed by family members away from the business premises which are easily overlooked. These functions are summarised below:

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Typical voluntary disclosures include; domestic business income never reported, failure to collect or remit GST/HST and/or source deductions, information returns not previously submitted, foreign wages and benefits not reported, and domestic and foreign dividends and interest never reported.

Relief is determined on a case by case basis.

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1: Not choosing the right structure.

When you start your business, you can choose to structure it as a corporation,  a sole proprietorship or a partnership, depending on the circumstances. The structure you choose can have a significant impact on the amount of taxes you pay. For new business start-ups, our team can help you select the structure that is best for your needs and goals.  For existing businesses, an experienced tax preparer can advise and help you to change your business entity for future tax filings.

2: Mixing your business and personal expenses.

Using the same accounts to pay both business and personal expenses can result in an accounting nightmare. When tax time arrives, it can be very difficult to determine which of these expenses are deductible and which are not. Furthermore, if you deduct personal expenses on your income tax return, you may be subject to penalties from the CRA, even if the deduction was an accident. Conversely, you can miss out on legitimate business deductions that would have saved you money.  If you have already mixed business and personal expenses, we can help you sift through them in order to determine which are deductible. We can also help you separate future expenses to prevent this problem during subsequent tax years.

3: Deducting start-up costs incorrectly.

The CRA does not allow new businesses to deduct all of your start-up costs in the year that you open your business.   Some of your pre-opening expenses are eligible for deduction at the time you open for business but others will need to be amortized.  The rules can be confusing, but the professionals at Jerome & Co. will help you understand and apply them properly.

4: Not applying deduction limitations appropriately.

The CRA limits the amount of certain expenses, such as entertainment costs, automobile expenses & meal allowances that you can deduct from your taxable income. If you fail to follow these rules, you may be subject to additional taxation and/or penalties in the event of an audit. Having a professional tax preparer prevents you from making these common mistakes.

5: Classifying workers incorrectly.

Individuals who receive payments from your company may be classified as employees or independent contractors. Classifying employees incorrectly can lead to a variety of problems, including significant tax penalties. We can help you classify each worker appropriately to avoid problems.  There are also forms that must be filed in a timely manner or penalties may still apply.

6: Missing the filing deadline.

In some cases, small businesses may put off filing their tax returns because they don’t have the money available to pay the bill or because they simply don’t have time to file. Unfortunately, if you don’t file on time, you will owe a failure-to-file penalty that will continue to grow until you file the return. With Jerome & Co. we will work closely with you to help you meet your tax filing deadlines. Even if you do not have the funds to pay your taxes, an experienced tax preparer can still help you to file on time & avoid costly penalties.

7: Paying tax bills late.

When you fail to pay your taxes on time, you may be subject to significant interest. Jerome & Co can work with you throughout the year to help properly plan for your tax obligations and make sure you are aware of all payment options.

8: Using an unqualified accountant or tax preparer.

Never agree to work with any tax preparer who is not properly qualified; is inexperienced with small business; or works seasonally and is unavailable year-round.  At Jerome & Co, we specialize in working with small business owners and we will be here whenever you need us – no matter the time of year.

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Child and family benefits

• Canada child tax benefit (CCTB) – You may be entitled to a tax-free monthly payment that helps eligible families with the cost of raising children under the age of 18. You need to apply to determine if you are eligible for the CCTB. In addition you (and your spouse or common-law partner, if applicable) must file an income tax and benefit return every year, even if you did not receive income in the year.
• Goods and services tax/Harmonized sales tax (GST/HST) credit – The GST/HST credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST or HST that they pay. To receive this credit, you must file an income tax and benefit return every year, even if you did not receive income in the year. If you have a spouse or common-law partner, only one of you can receive the credit. The credit will be paid to the person whose return is assessed first. The amount will be the same, regardless of who (in the couple) receives it.
• Universal child care benefit (UCCB) – If you have children under the age of 18, you may be entitled to this taxable benefit, which supports child care choices for families. For the 2015 tax year, under the UCCB, families will receive $160 per month for each child under 6 and $60 per month for each child aged 6 through 17. Payments are issued monthly.
• Working income tax benefit (WITB) – Working individuals and families with low income may be able to claim this refundable tax credit. The WITB includes a supplement for individuals who are eligible for the disability tax credit. Eligible individuals and families may be able to apply for the 2016 advance payments.
• MyCRA mobile app – Get your tax information on-the-go! Use this mobile application to securely access some of your tax and benefit information, anywhere, anytime. Go to www.cra.gc.ca/mobileapps and select “MyCRA”.

The post Top things families should know about tax benefits, credits and deductions. appeared first on Peter Kupovics, CPA, CMA, MBA.

Expecting a baby?

Congratulations! If you have a new baby or expecting a baby, there are plenty of credits and benefits you may be eligible to receive.

Important facts

• Automated Benefits Application – Save time and paperwork! When registering the birth of your newborn, the mother of the child can also consent to use the Automated Benefits Application (ABA), which allows you to automatically apply for child tax benefits at the same time. If you live in a participating province, you can consent to use the ABA on your child’s birth registration form. You will be applying for:
  • the Canada child tax benefit (CCTB);
  • the universal child care benefit (UCCB); and
  • any related provincial/territorial programs.

  Your child will also be registered for the goods and services tax/harmonized sales tax (GST/HST) credit.

• My Account – If you do not live in a participating province, you can apply for the Canada child and family benefits by using the Apply for child benefits service through My Account or by completing and mailing Form RC66, Canada Child Benefits Application to your tax centre

Explanations of these benefits:

• Canada child tax benefit (CCTB) – The CCTB is a tax-free monthly payment made to eligible families to help them with the cost of raising children under 18 years of age.
• Universal child care benefit (UCCB) – If you have children under the age of 18, you may be entitled to this taxable benefit, which supports child care choices for families. For the 2015 tax year, under UCCB, families will receive $160 per month for each child under 6 and $60 per month for each child aged 6 through 17. Payments are issued monthly.
• Provincial and territorial programs – Most provinces and territories have child and family benefit and credit programs that?combine with your Canada child tax benefit and the goods and services tax/harmonized sales tax (GST/HST) credit.
• GST/HST credit – Families with low or modest incomes can receive this tax-free quarterly payment to offset some of the GST/HST they pay.
• Working income tax benefit (WITB) – Low-income families that are in the workforce can claim this refundable tax credit to get personal tax relief. With a child as your eligible dependant, you may now be able to claim this tax credit or the amount claimed may increase.
• Disability amount – If you or your dependant has a severe and prolonged impairment in physical or mental functions, you or your dependant may be eligible for the disability tax credit (DTC). To determine eligibility, you must complete Form T2201, Disability Tax Credit Certificate and have it certified by a medical practitioner. Canadians claiming the credit will be able to file online regardless of whether or not their Form T2201 has been submitted to the CRA for that tax year.
• Child disability benefit (CDB) – The CDB is a tax-free benefit for families who care for a child under age 18 who is eligible for the disability?tax credit.
• Registered education savings plan (RESP) – You can start saving for your child’s future now. An RESP is a contract between you (the subscriber) and another individual or organization (the promoter) that allows you to make contributions toward your child’s future education. Programs such as the Canada education savings grant (CESG) and the Canada learning bond (CLB) are other great incentives to create an RESP for your child.

For more information on child and family benefits, go to www.cra.gc.ca/benefits.

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