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Recoup the Cost of Work-Related Courses

When you or an employee returns to the classroom to follow work-related courses or obtain a higher degree, some of the costs can be deducted and others are eligible for tax credits.

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Other Considerations

Other factors to consider and discuss with your accountant include:

The tuition tax credit may be used for fees to take exams required to obtain a professional status recognized by federal or provincial statute, or to be licensed or certified in order to practice a profession or trade in Canada. Ancillary fees and charges are also eligible for the credits.

You may deduct tuition fees for auditing courses where you attend lectures but don’t take exams or receive credit.

You may claim a tax credit for transit passes generally totalling at least one month’s duration.

You may claim a GST credit if you are eligible.

In general, expenses are not deductible if they are eligible for tuition, education or other tax credits, if they are capital expenditures that produce a lasting benefit to the taxpayer or if they are personal or unreasonable. You could not, for example, deduct the costs when:

  • Medical general practitioners train to qualify as specialists;
  • Lawyers take an engineering course unrelated to their legal practice, or
  • An employee takes university or other courses leading to a degree or other certificate unrelated to your business.

Employers who pay for or reimburse employees for their tuition may deduct reasonable amounts as a business expense regardless whether the business or the individual benefits from the course. If your company provides an employee or former employee with a scholarship or bursary on the condition that the employee will return to the business, the amount paid is considered employment income.

Employees incur taxable benefits when courses are business-related and not directly related to your business (e.g. stress management, employment equity, first aid, and language courses) or when the employee develops personal interests or technical skills not related to your business.

Tax Deductions

You may deduct as a business expense the costs related to courses and training that maintain, update or upgrade an existing skill or qualification. For example, the following costs would generally be tax-deductible:

  • Professional development courses taken as required or recommended by a professional body to maintain professional standards;
  • Tax courses taken by lawyers or accountants who are qualified to do tax work, whether or not they have previously been involved in such work, and
  • Courses on electronic ignition taken by the owner of an automobile repair shop.

Eligible expenses include travel, food and beverages and lodging. They do not include tuition and other costs for which there are tax credits. Thus, if you or an employee plans to obtain an MBA, you could not deduct the costs, but they would generally be eligible for tax credits.

Tax Credits

In general, tax credits may be claimed for tuition fees if they:

  • Total more than $100 at a post-secondary school level paid to a university, college, or other educational institution in Canada;
  • Total more than $100 for a student who is at least 16 years old at the end of the taxation year with skills for (or improve the student’s skills in) an occupation, paid to an educational institution in Canada certified by the Minister of Human Resources Development;
  • Total more than $100 at a university, college or other educational institution in the United States to which a student living near the Canada-U.S. border commutes; or
  • Are for full time courses at a university outside Canada that last for at least 13 consecutive weeks and lead to a degree.

You cannot claim any amount less than $100 for the year or the costs of books, room and board, or student association fees. Otherwise, you can claim total fees. This could also include the cost of courses and seminars related to your work. Individuals taking courses as a condition of their job can claim the costs as an employment expense rather than as a tax credit.

The tuition tax credit may be claimed whether the students or the company pays the fees. However, if your business pays for or reimburses employees for all or a portion of their tuition, they may claim the credit only if the amount is included as a taxable benefit.

An education amount tax credit and a textbook credit can be claimed for each whole or part month in which a taxpayer was enrolled in a qualifying program. The amount of credits varies depending on whether the person was a full-time or part-time student. Individuals may claim the full-time credit if they attended only part-time and are eligible for the disability tax credit or would be eligible for the credit except that their disability is not severe and prolonged.

Unused Credits and Lifelong Learning

Unused tuition, education and textbook credits may be carried forward indefinitely to offset future income, or may be transferred to a spouse or common-law partner or to a parent or grandparent of you or your spouse or partner. The transfer of costs should not exceed more than the individuals can use on their tax returns. Any excess costs then can be carried forward.

If you have a Registered Retirement Savings Plan (RRSP), you may withdraw money tax-free to pay for qualifying full-time education and training for yourself or your spouse or common-law partner. However, you cannot withdraw money for both at the same time. If you are disabled, you can use the plan for both full-time and part-time education and training.

You may participate in the Lifelong Learning Plan as many times as you want, but you may not begin a new plan before the end of the year in which all previous withdrawals are repaid.

Consult with your accountant for more details.

Regularly Review Your Property Insurance

When you bought your home, you may have simply purchased a homeowners’ insurance policy sufficient to satisfy the requirements of your mortgage lender. But lenders only require policies that protect the house, not its contents.

lores_umbrella_rain_shade_insurance_weather_protect_sun_mbThose possessions are likely to grow in quantity and value over time and they need to be insured. You may also need optional coverage, called riders, for earthquakes, windstorms and other natural disasters or to increase the amounts paid out on certain items. In addition, remodeling, adding a room, and getting married or divorced are just some of the changes in your life that should prompt you to review your policy’s terms.

Here are some frequently asked questions about property insurance. The answers provide only general information. Consult with your financial advisor about your specific situation.

Q. What types of homeowners’ insurance can I purchase?

A. There are three types of policies:

  1. Standard, which protect against several named, or listed, perils that could damage your home and its contents, such as lightning, windstorms, hail, theft and certain types of water damage.
  2. Broad, which upgrade coverage on the structure to include all risks, but leaves the contents on a named perils basis. All risks policies generally list what is excluded from coverage, such as faulty workmanship and general wear and tear.
  3. Comprehensive, which provide all-risks protection on both the structure and its contents.

When you purchase a policy it’s important that it will cover at least 100 per cent of its replacement cost. This is not the same as market value of your home or the cost you paid for it. The market value of a home is the amount a willing buyer would pay to a willing seller, excluding the land, regardless of how much it would cost to rebuild the home. Replacement cost is what you would have to pay to repair or rebuild the entire home.

It’s impossible to predict what the exact cost will be to replace your home, so it’s critical to have enough coverage to take that into account. An appraiser can help you determine what it would cost to completely replace your dwelling. Also, check to be sure that the policy will automatically adjust to increases or decreases in construction costs in your area.

Q. What should I look for when it comes to water-damage coverage?

A. Generally look for policies that cover damage from plumbing overflows, holes in a roof, burst pipes and windows shattered during a storm that allow rain to blow in. Policies generally don’t cover damage from continuous seepage or sewer backups, but you can purchase that protection as a rider. For the most part, flood insurance isn’t available in Canada because flooding is considered inevitable. You should take whatever steps are necessary to protect your home and belongings from such disasters.

Q. How do deductibles work?

A. Your deductible is the amount you pay for covered damage before the insurance kicks in. Higher deductibles mean lower premiums but additional financial risk. Usually a deductible is a flat rate that can be as low as $500.

Many insurers offer percentage deductibles, particularly for coverage of damage from earthquakes, hurricanes and windstorms. Under these policies, you pay a certain percentage of your home’s insured value before you get reimbursements. For example, if your policy has a two per cent deductible and your home is insured for $250,000, you pay the first $5,000 in damages. Be sure your deductible is an amount you can afford to pay.

Q. Can I get a discount?

A. Many insurers offer discounts to people who own newer homes, have installed such safety features as smoke detectors and burglar alarms or have not filed claims for a specific period of time. Some companies even offer discounts to non-smokers.

Q. What is liability coverage?

A. This covers unintentional injuries to visitors or accidental damage to a neighbour’s house as well as legal costs if you are sued. A minimum of $1 million is recommended.

Q. How are claims paid on personal possessions?

A. Most policies cover personal possessions at a rate of 50 per cent to 70 per cent of the amount of insurance you have on the dwelling. In other words, if your home is insured for $100,000, your policy would cover from $50,000 to $70,000 of the value of the contents. You can purchase two types of coverage:

  1. Cash value policies that pay the depreciated value of the item, which is the replacement cost minus a deduction based on the age and condition of the original item.
  2. Replacement cost policies that reimburse you for the full amount. If you have this coverage and opt for a cash settlement, you will be paid on a depreciated basis.

Q. Are there monetary limits on the coverage of specific possessions?

A. First, standard and broad policies don’t generally provide coverage for such valuable items as furs and jewellery. But even with comprehensive insurance, the dollar limits may be inadequate not only on those items but also on stolen cash, garden tractors, computer software, bicycles, and collections of coins, stamps and cards. The good news is that you can generally purchase reasonably priced riders for supplementary coverage. When it comes to art and antiques, you need to look for specialty insurance policies.

Q. Will my homeowner policy pick up the extra cost of having to conform to new building codes if I have to rebuild my home?

A. No, most insurance policies do not pay for this. You may be able to purchase a rider, but it may pay only a portion of the increased costs.

Q. I live in a condominium and the condo corporation carries insurance. Do I need my own policy?

A. Yes, because the corporation’s insurance covers only items that are part of the building. You need insurance for upgrades you make to the unit, for your possessions and for personal liability.

Q. What is title insurance?

A. Title insurance compensates you for losses from such factors as unknown title defects, existing liens, encroachment issues, fraud, and other issues that can hinder your ability to sell your property. When considering this insurance, carefully review the exclusions.

Get the Most Tax Benefit From Your Charitable Spirit

The airwaves and your mailbox are probably filling up with messages of altruism — or they will be soon. The holidays are on their way and so are charities’ pitches for donations.

And many of us will heed the calls. The latest World Giving Index puts Canada in sixth place globally in overall generosity. The survey tracks donations of money, time and random generosity to strangers. Compiled by the United Kingdom’s Charities Aid Foundation, a registered charity, the index ranks Canada 11th in terms of donations, above the United States (13), but below high-giving countries such as Myanmar (1), Australia (3), New Zealand (5), the UK (7) and Ireland (10).

111116_thinkstock_187068179_lores_kwAccording to the most recent Survey of Giving, Volunteering and Participating by Statistics Canada, 82% of Canadians age 15 and older gave money to charities in 2013. Overall, Canadians gave $12.8 billion to charitable or non-profit organizations that year.

And in a new twist, technology continues to change the donation landscape, at least when it comes to Millennials. A recent Charitable Giving study by Capital One Canada found that Millennials are more likely to donate to charities that offer digital payments (53%), and are more likely to trust charities with a strong digital presence (50%).

Many people do respond to year-end appeals, which is why many charities make them. And of course, many donors claim the available tax breaks. If you count yourself among the philanthropic Canadians, there are a few issues to understand before you click “Donate Now” or write a cheque.

At the top of the list is whether your charity of choice is registered. Only charities or qualified donees that are registered with Canada Revenue Agency (CRA) can issue the receipts you need to claim tax breaks.

Once you’ve chosen a charity, there are other issues to consider. Here are seven of them:

1. Donations are credits, not deductions. You’ve probably heard that you can take deductions for your charitable donations. In reality, your gifts qualify for a nonrefundable tax credit.

You aren’t required to claim donations in the year you make them. You can reach back as far as five years to use unclaimed donations and carry them forward for as long as five years.

In addition, the CRA has ruled that as an administrative practice, taxpayers can initially choose which spouse or common-law partner will report a donation or gift and can subsequently transfer any carry-forward balances from one to the other.

While you may not think you donate enough to merit a strategy, keep in mind that even small amounts can add up to significant tax savings over time. Generally, you can get a credit for all donations to registered charities for as much as 75% of your net income. In the year of death (and going back one year), the limit is 100% of net income. The limit also is 100% of net income for certain gifts, such as ecologically sensitive land and cultural property.

In addition, if you haven’t donated before, you’ll get a supplemental credit: the First-Time Donor’s Super Credit. This adds 25% to the rates used in calculating the credit for as much as $1,000 in donations.

The tax break currently is available through 2017 for individuals and their spouses who haven’t claimed a tax credit since 2007.

It is calculated as the total of the:

  • Lowest income tax rate for a year multiplied by the first $200 of charitable donations, and
  • Highest income tax rate for the year multiplied by the portion of the donations claimed that exceeds $200.

2. Give publicly traded shares and stock options. If you donate certain types of capital property to a registered charity or other qualified donee, you may be eligible for an inclusion rate of zero on any capital gain realized on the gifts. Qualifying property includes:

  • Shares of the capital stock of a mutual fund corporation,
  • Units of a mutual fund trust,
  • Prescribed debt obligation (for example, government savings bonds),
  • Ecologically sensitive land (including a covenant, an easement, or in the case of land in Quebec, a real servitude) donated to a qualified donee other than a private foundation where conditions are met, and
  • Shares, debt obligations or rights (for example, security stock options) listed on a designated stock exchange.

For donations of publicly traded securities, the inclusion rate of zero also applies to any capital gain realized on the exchange of shares of the capital stock of a corporation, subject to certain conditions. In cases where the exchanged securities are partnership interests, a special calculation is required to determine the capital gain.

If you didn’t receive an advantage for your donation, the full amount of the capital gain is eligible for the inclusion rate of zero. If, however, you received or are entitled to an advantage, only a portion of the capital gain is eligible for the inclusion rate of zero. The remainder is subject to an inclusion rate of 50%.

Check with your charity about how to make such gifts. For more information, consult with your tax advisor.

3. Combine spousal donations. Donations made by one spouse or common-law partner can be claimed by either one. To maximize the credit, lump your donations together for a larger credit.

Also, some or all of your donations may be carried forward for up to five years. This may allow you to take advantage of the higher credit for donations exceeding $200. Consider carrying forward donations made in low-income years, or in years when other credits are used. If donations exceed the 75% net income limit, save some for future years. When it comes to the Super Credit, you and your spouse or common-law partner can share the claim, but the total combined donations claimed can’t be more than $1,000.

4. Donate in kind. The CRA allows tax credits for gifts of property, but not for services. Common items include:

  • Valuable art,
  • Antiques,
  • Clothing,
  • Toys,
  • Household goods, and
  • Food.

5. Donate special items. There are special rules for donations of cultural gifts, and for artists who donate their work. Talk with your advisor.

6. The system is two-tiered. To encourage donations, the federal and provincial governments have set up a two-tiered tax credit system. First, you add up your donations and then:

  • The first $200 qualifies for a tax credit at the lowest tax rate. When the federal and provincial programs are combined, you cut your taxes by about 25% of the amount of the donation (the exact amount varies by province).
  • Any amount exceeding $200 qualifies for a credit at the highest tax rate. For this donation, you save about 45% in taxes, depending on your province.

7. Receipts are essential. Keep your receipts and be sure they are signed on behalf of the organization and have the charity’s name and registration number, date, serial number, amount donated and donor’s name. They also should have the URL of the CRA (www.cra-arc.gc.ca/charities).

If you file your taxes the old-fashioned way, on paper, your tax advisor may ask for your receipts. If you file electronically, save them in case the CRA asks for them later.

Receipting carries certain administration burdens, so a charity may choose to issue receipts according to certain criteria or not to issue receipts at all. Some registered charities set minimum donation thresholds for receipting. Others don’t provide receipts during certain fundraising events, but don’t hesitate to ask for one.

If you donated to an employee charitable trust, or through your employer as an agent of a registered charity, your T4 slip (Statement of Remuneration Paid should show your total donations for the year. In these situations, the CRA accepts your T4 slip as your official receipt for income tax purposes.

If you plan to donate this or any other year, and you have questions, consult with your advisor to help ensure that you maximize the benefits.

Segal LLP is Excited to Announce Three New Senior Team Members

segal-team-imageHoward Wasserman, CPA, CA, CFP, TEP – Principal, Taxation
(Click Here for bio)

Vern Vipul, LL.B., M.Tax – Associate, Indirect Tax
(Click Here for bio)

Susan Hamade, CHRL – Director of Operations
(Click Here for bio

SMEs Fall Short in Tapping International Market

102716_thinkstock_517711792_lores_kwCanadian small and medium business enterprises (SMEs) largely aren’t tapping into the markets abroad, other than the United States, even though they concede that exports are a key factor to remain competitive in a global market.

SMEs are keen to do business abroad, according to the sixth annual Small Business Challenge survey by United Parcel Service (UPS) Canada. Of 300 respondents in the survey, only 43% are doing business with countries outside of Canada and the U.S., although 61% said they hope to do business in Europe, while 42% are eyeing South and Central America.

“It’s important for [SMEs] to recognize that continued growth relies heavily on expansion, and international exports are key contributors to success,” said Paul Gaspar, director of small business, UPS Canada. He added: “Canadian and international governments are focusing on the easy exchange of international goods. Today, three-quarters of Canadian SMEs recognize that Canadian Free Trade Agreements create opportunities within foreign markets by reducing trade barriers.”

The survey revealed that 76% of Canadian SMEs exporting to international markets consider their websites as their main commerce channel. Facebook pages came in second, with 41% saying they used that social media tool for business.

More Highlights

Other highlights of the survey include:

  • 39% of SMEs don’t have a supply chain in place, and 9% of those said they weren’t sure where to find or how to create one.
  • 52% have a supply chain strategy, and 42% of those have a third-party partner.
  • 74% said they had met or exceeded their business goals, of which 25% attributed it to the low Canadian dollar and 20% cited a boost in e-commerce and expansion to foreign markets.

According to UPS, the products of Canadian SMEs are sought after internationally because of their quality, the reputations of Canadian companies and the low exchange rate of the dollar.

8 Tips

If you are interested in taking advantage of this by starting to export, here are eight tips to consider:

1. Plan your strategy. You need a detailed plan that includes a thorough risk assessment. It’s also important to ensure your business is equipped to handle the demands of international trading.

2. Choose a target niche early on. Import/export activities cover such a vast range of industries that new companies can benefit from focusing on a single target at first for experience and to establish a reputation.

3. Make contacts. This is likely the most important step. You may have relatives in a foreign country who can help or you may have frequently visited and established business relationships in a country. Sometimes you just have a feeling for what will sell in certain countries.

If you are starting from scratch, foreign consulates are a good place to start, and they can help you find out about a company’s solvency and reputation. And of course, the Canadian and International Chambers of Commerce, as well as the chambers of every city you’re aiming for, can help establish contacts.

Another, albeit time-consuming, step is to compile lists of all foreign and domestic businesses in your chosen niche and begin a direct sales and marketing campaign. Place calls, send emails and mail marketing materials directly to sales and purchasing managers in each company, and follow up on all conversations and agreements.

4. Find a local mentor or investor. This person can help guide you to understand the culture and the local consumer. If you don’t know one right off the bat, look to colleagues who might be able to connect you with others that are located in the country. You could also look at reaching out to local business networks or researching online for websites that specialize in expats living in the country in which you are looking to set up shop.

5. Determine your contacts’ needs. Compile a list of all the companies that expressed an interest in doing business with you in the previous step. Contact the purchasing and sales managers in each company to discover which products they have to offer to foreign buyers if you want to import and which products and materials they wish to purchase from a foreign source.

6. Develop a supply chain. Effective management of your supply chain is critical. When the supply chain plan is in sync with other operational plans within the company, the entire process of receiving and shipping products runs more smoothly. Build your supply chain plan in tandem with other senior managers to develop the most effective and efficient plan.

In simple terms, supply chain management is the coordination of all your activities related to filling client orders, from preproduction to delivery of the product. During this process, components of the product will change hands many times, from your suppliers to manufacturing, to storage, to shipping and, eventually, to the point of delivery and consumption.

7. Adapt to the local culture. In some countries you’ll need to customize your product or service to meet local customers’ tastes. At the very least, you’ll need to put your marketing message in the local language and make sure the meaning translates correctly.

8. Know your tax responsibilities. All roads lead to taxation. You’ll need international tax or legal counsel to identify which jurisdictions require sellers to be responsible for collecting sales taxes and which jurisdictions subject them to income taxes. Most U.S. states impose a sales tax on goods and/or services sold in that state.

Similarly, the European Union’s value-added tax (VAT) is imposed on certain services and goods sold to customers located in the member states of the European Union. Each member state may have different VAT rates, and different tax rules apply to sales of goods and provision of services.

Because in a typical e-commerce transaction, a seller based in one state frequently conducts business with a customer located in another state or a foreign country, the common issues are which tax laws of which state or country will apply. The federal, state and international tax laws applicable to Internet transactions are still evolving and can be complex and confusing.

Consult with your advisors. They can help you sort out your global plan as well as understand the laws and taxes in the countries where you may want to expand.