Author Segal LLP

2016 Year-End Tax Planning Letter

We are coming to the end of 2016, and our tax team has been busy compiling a list of tax planning ideas that can increase tax savings for yourself and family members.

The topics we cover include:

  • Changes in tax rates for individuals and corporations
  • Eligible capital property
  • Trust & estates
  • Key dates

To assist you with this, click here to view the Year-End Tax Planner which includes some ideas you may want to consider.  Your Segal advisor can assist you in determining which of these ideas make sense to you.

Please do not hesitate to call your Segal advisor with any questions about this communication

Inside Public Accounting The 2016 Best of the Best Firms Canada

inside-public-accounting 2016_best-of-the-best_web

THE 2016 BEST OF THE BEST FIRMS CANADA

Listed in alphabetical order

FIRM / HEADQUARTERS CEO / MP PARTNERS / STAFF
GGFL / Ottawa Deborah Bourchier 11 / 79
PSB Boisjoli LLP / Montreal Marc Elman 18 / 135
Segal LLP / Toronto Dan Natale 12 / 70
Shimmerman Penn LLP / Toronto Maj-Lis Vettoretti 6 / 27
Williams & Partners / Markham, Ontario Nick Angellotti 9 / 45

Copyright © 2016 The Platt Group / INSIDE Public Accounting / www.insidepublicaccounting.com

Dan_Natale

Being named one of Inside Public Accounting’s (IPA) Best of the Best Firms in Canada for 2016 is a tremendous honor for Segal LLP and a clear reflection of our team’s dedication and hard work. This is the first year Canadian firms have been considered for the Best of the Best recognition; IPA honors CPA firms across North America for their overall superior performance. “Best of the Best firms are built on a strong foundation of openness, trust and respect for their employees. They are not content to stand still. They plan ahead for the future of the firm and they anticipate the needs of their clients” says Michael Platt, publisher of IPA. We congratulate our fellow honorees and thank IPA for this important acknowledgment. Over our forty-year history, our clients have come to expect exceptional service from Segal and this acknowledgement is an affirmation that our focus on culture, collaboration and client service is a successful formula, one we are committed to as we look to the future.

Dan Natale CPA,CA
Managing Partner, Segal LLP 

Claim Every Tax Credit Available

Credits can help save money on your tax bill because they trim the amount due. Moreover, each of the provinces has its own system of rates applying to the credits, which can lower your tax liability even more. Some credits can be transferred between people in the same family to optimize their use.

Fundamentally, you calculate your federal tax credit by multiplying a dollar amount by the lowest federal tax rate. The dollar amount of some tax credits — such as the basic personal, age, and spousal credits — are indexed to increases in the Consumer Price Index. Unused tax credits aren’t refundable.

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Severe and Prolonged

The Canada Revenue Agency (CRA) considers impairment severe if it markedly restricts your daily living activities. It is prolonged if it has lasted, or is expected to last, at least 12 months.

The courts, however, have considered the overall impact that a disability has had on taxpayers’ lives.

For example, the Tax Court of Canada has ruled that although an individual suffering from chronic fatigue syndrome wasn’t markedly restricted from performing any of CRA’s specified list of basic daily activities, she qualified for the credit because of the cumulative restrictive effects the illness had on her ability to function (Gibson v. The Queen, 2014 TCC 236).

These tax credits can be a gold mine. Here are some of the most common federal credits:

Basic personal. Each year, every taxpayer can earn a certain amount of income before paying any federal tax. This amount normally changes annually. The basic personal tax credit is calculated by multiplying the tax rate for the lowest tax bracket by the basic personal amount.

Spousal or common-law partner amount. If during the year you supported a spouse or common-law partner whose income was less than the basic personal amount, you may claim a tax credit. Both spouses can’t claim the credit for each other in the same year. The credit declines as the spouse’s income increases and is eliminated when income reaches a certain level. Special rules may apply if your status changed during the year.

Amount for an Eligible Dependent. This benefit is calculated in the same manner as the spousal credit for any time during the year that you were single, divorced or separated and supported a dependent who lived with you. But there are restrictions, including:

  1. The dependant, other than a child, must be a Canadian resident.
  2. A dependant child must be either under 18 at any time in the year, or any age if dependant by reason of mental or physical infirmity.
  3. The claim may be used only for one dependant.

CPP and EI premiums. If you pay premiums for Canada Pension Plan and Employment Insurance, you can claim the credit on the amount paid. If you are self-employed and pay both the employee and employer CPP premiums, you can claim a credit for half the amount (the employee portion) and a deduction for the employer’s half.

Disability. The credit applies if a Canadian medical doctor certifies that you suffer from severe and prolonged mental or physical impairment. (See right-hand box) Other professionals may certify specific disabilities: An optometrist can certify sight impairment or an audiologist can certify a hearing disability.

Caregiver. You can trim your tax bill if you are 18 or older and care for an ailing, dependant relative, parent or grandparent including an in-law, who is at least 65 years of age. This credit isn’t available on behalf of an individual for whom the amount for an eligible dependant credit or infirm dependant credit has already been claimed.

Medical. You can claim a credit for any non-reimbursed medical expenses on your own behalf or for your spouse or common-law partner. You can also claim expenses for other dependants, but the total may have to be reduced by a portion of the dependant’s income.

Public transit. You can claim the cost transit passes of monthly and longer durations. You can also claim shorter-duration passes if each allows unlimited travel for at least five consecutive days and you purchased enough of these passes to cover 20 days in any 28-day period. You may claim electronic payment cards when they are used to make at least 32 one-way trips within 31 days. The credits may be claimed by either the taxpayer or the taxpayer’s spouse or common-law partner for transit costs incurred by themselves and their dependant children under the age of 19. Keep your passes and receipts so that you can substantiate your claim.

Adoption. You my claim a credit for adoption expenses up to a certain amount in the year the adoption is finalized. Eligible expenses include: fees paid to a federally or provincially licensed adoption agency; court, legal and administrative expenses; reasonable and necessary travel and living expenses of the child and the adoptive parents; document translation fees; mandatory fees paid to a foreign institution; expenses related to the immigration of the child, and other reasonable expenses required by a provincial or territorial government or an adoption agency. Quebec residents may claim a refundable tax credit for adoption expenses that equal half of the total eligible cost of adoption.

Tuition and textbooks. You may claim tuition fees exceeding $100 for post-secondary courses at a college or university or, if you are 16 years of age or older, for courses at approved institutions to improve your occupational skills. Keep an official income tax receipt in case the CRA asks for it, but it doesn’t have to be attached to your income tax return. The 2016 budget proposes to eliminate the federal education and textbook tax credits.

Interest on student loans. Federal, provincial and territorial non-refundable credits may be claimed on loan interest. The credits are calculated by multiplying the lowest tax rate by the amount of the interest. The exception is Quebec, which uses a fixed rate.

Only loans under the Canada Student Loans Act, The Canada Student Financial Assistance Act or similar provincial or territorial government law qualify for the credit. Interest on student loans from financial institutions don’t qualify. While only the student can claim the credit, the loan itself can be paid either by the student or a relative, such as a parent.

Unused interest amounts can be carried forward for five years, so if your taxes are zero in a particular year you can save the credit to use later.

Pension income amount. You may claim federal, provincial and territorial credits on certain pension income. The credit is non-refundable but any unused portion may be transferred to a spouse or common-law partner, although the unused amount may not be carried forward or back.

Donations. Generally you may claim as much as 75% of net income as donations except in the year of and the year preceding death. In those years 100% of net income can be claimed. These rules don’t apply to capital property.

If you are a first-time donor, however, you can claim an extra 25% non-refundable credit when you claim your charitable donation tax credit. This means that you can get a 40% credit for as much as $200 in cash donations and a 54% credit for the part of the cash donations that is over $200 but not more than $1,000. First time donors are individuals who haven’t claimed a donation credit after 2007.

If you aren’t a first-time donor, the tax credit for the first $200 in donations or gifts to an eligible charity is at the lower personal tax rate except in Quebec, which uses a fixed rate. The credit for the amount exceeding $200 is at the highest federal provincial or territorial tax rate except in Alberta, which applies a fixed rate.

If you and your spouse or common law partner have combined donations of more than $200, you may combine them and claim them on one tax return. Donations may be carried forward for up to five years.

Consult with your professional advisor for more details on these credits.

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.