Category Segal LLP Insider Current News

Segal LLP invites you to the 2017 Tax Series for Accountants and Finance Professionals

Wednesday February 8, 2017
Wednesday March 8, 2017

Novotel Toronto North York

Presented by:
Howard Wasserman, CPA, CA, CFP, TEP
Vern Vipul, LLB, MTax


Wednesday, February 8, 2017

  1. Income tax and HST: Common Risk Areas and Issues Accountants Need to Know.
  2. Use of Losses: Everything You Want to Know
  3. Trusts: New focus by CRA: Planning consideration. What you need to be aware of plus

Wednesday, March 8, 2017

  1. Small Business Deduction: How is it allocated now? Special focus on PC’s.
  2. Goodwill and ECE: What Happens Now?
  3. Partnerships: What do we do now? How to wind up if necessary


Howard Wasserman, CPA, CA, CFP, TEP

Howard Wasserman has consulted on Canadian and International tax matters for over 20 years and joined Segal’s rapidly growing Tax Group in 2016. He brings a broad base of expertise and experience with owner managed businesses including estate planning, international tax strategies, post mortem planning, corporate reorganizations, mergers, acquisitions, and business purchase and sale. Howard has a successful track record presenting appeals, managing tax negotiations, and presenting voluntary disclosures to CRA. He is a member of CPA Ontario, CTF, CFP, STEP and is a regular participant at the Canadian Tax Conference.

Vern Vipul, LLB, MTax

Vern is exclusively involved in providing commodity tax services to Segal’s clients, including GST/HST, PST, QST and a number of other indirect taxes. Vern has written extensively in the area of indirect taxation and has published articles in various publications, such as the Canadian Tax Foundation’s Canadian Tax Highlights and the Ontario Bar Association’s OBA Taxation Law Newsletter. Vern has spoken extensively on indirect taxation topics and represents clients in tax audits and appeals before the Canada Revenue Agency, and has represented clients at the Tax Court of Canada.

Venue and Registration

$90 includes two sessions (CPD eligible), full breakfast and underground parking. (HST included)

Novotel Toronto North York Johnson Room (2nd Floor)
3 Park Home Avenue North York,
Ontario M2N 6L3

BY TTC: Yonge Subway, North York Centre
BY CAR: Novotel North York

7:45 am Registration, Networking and Buffet Breakfast
8:30 am – 10:00 am Seminar and Q&A

Please RSVP no later than January 29th 2017 – Seating is Limited
To Donna Aydinli:
Phone: 416-774-2413

Use Your RRSP to Lend Yourself a Tax-Deductible Mortgage

012017_Thinkstock_144318112_lores_KWAre you mulling how much to contribute to your Registered Retirement Savings Plan (RRSP) this year and wondering if you could get a bigger return than you get from mutual funds or GICs? There might be a strategy you should consider.

For many, mutual funds are well-suited to their savings strategies. They generally provide a reasonable rate of return. However, for others, there may be an option that potentially sidesteps the risks of market volatility, increases savings, provides deductible debt and even lets you exceed your usual contribution limits. It’s complicated, so consult with your tax advisor, if you think the plan might work for you.

Tax Deductible Debt

The strategy also allows you to take on tax deductible debt. Normally, mortgages fall into the category of debt-bearing interest that can’t be deducted from taxes. Typically, over the term of the loan, most end up paying thousands of dollars in interest to the lender. If your RRSP is large enough, you can lend its capital to yourself to finance a mortgage inside a self-directed RRSP and pay yourself that interest, which provides a healthy fixed-income return. You earn the interest as you repay the principal of the mortgage to yourself. That keeps the cash working even as it’s being paid back.

The first two steps in this strategy are:

1. Set up a self-directed RRSP, and

2. Put the mortgage into the plan.

Your self-directed RRSP may hold a mortgage on any residential or commercial property in Canada that you own, provided:

  • You have cash or cash equivalents in your RRSP that equal the amount of the mortgage.
  • A lender approved by the National Housing Act administers the mortgage (the lender will charge fees for the service).
  • The mortgage interest rate and other terms and conditions reflect normal commercial practices.
  • The mortgage is insured either by the Canada Mortgage and Housing Corporation (CMHC) or by a private mortgage insurer.

However, while the mortgage is insured, you can’t miss a payment or two even though you’re borrowing your own money. Failing to make payments means the administering financial institution could place the mortgage into default and sell the property.

Instead of using the cheapest interest rate, like the one you’d want to get from your financial institution, you can pick the posted rate because you want to pay as much interest as you can to yourself. Posted rates are generally double the current returns on guaranteed investment certificates (GICs) and non-high-yield bonds.

How it Works

Let’s say you have a $200,000 mortgage and the same amount in your self-directed RRSP. The money in the plan can be used to pay off the mortgage lender and you then start making regular mortgage payments to your RRSP — in other words, to yourself.

If your mortgage is paid off, you might want to borrow $200,000 on a home equity loan and spend that money on some conservative investment that will yield a stable rate of return in a non-registered investment portfolio. You then take $200,000 from your RRSP to pay off the equity loan.

In the end, you:

  • Set up an investment portfolio outside your RRSP without paying any tax, and
  • Make what amounts to a tax-free transfer of equity into your RRSP.

So, if you set up an RRSP mortgage with a 25-year amortization period and you are paying yourself back $1,400 a month, you’ll eventually contribute $420,000 to your RRSP, more than twice what you took out.

That may result in paying more than the normal allowable RRSP contributions. Generally, your contribution limit is based on your annual income. But because your RRSP holds the mortgage, you must make those regular monthly payments into the RRSP regardless of what your annual income is.

Another point to keep in mind: If you borrow money on a home equity loan to invest outside your RRSP, the interest on that loan is tax deductible. If you borrow money to put into your RRSP, you can’t deduct the interest.

Cost Considerations

When considering holding your mortgage in a self-directed RRSP, there are several financial considerations to discuss with your tax advisor:

  • Compare the rate of return on the mortgage — taking into account the one-time and annual costs associated with holding the mortgage — to the rate of return on an alternative investment.
  • The strategy requires opening a self-directed RRSP.
  • There are set up, appraisal and legal fees, as well as the cost of the mortgage insurance premium. That can range from 0.6% to 3.85% of the amount of the mortgage (these rates are scheduled to rise in March, reflecting the new regulatory capital framework for mortgage insurers that came into effect on January 1, 2017).
  • The premium depends on the loan-to-value ratio of the mortgage and is calculated on the total mortgage amount no matter how much money you have in your RRSP.

The longer the amortization period, the more you put into the RRSP. However, you could make your RRSP mortgage “open,” meaning you can pay it off at any time without penalty. This tactic comes at a premium rate, so you wind up paying more interest. The same applies if you create an RRSP mortgage as a second mortgage on your home.

This strategy is complex and doesn’t make financial sense for everyone. Your advisor can help you to determine if this retirement savings tactic is in your best interests.

Owning Vacation Property in the U.S. Is a Complex Proposition

011317_Thinkstock_538452657_lores_KWIt’s about that time of year when Canada’s snowbirds are enjoying warmer weather in southern parts of the United States and may be thinking about whether to buy a permanent vacation home there. They may want to rent it out for part of the year or sell the U.S. property they own. Other Canadians like skiing and skating they can do here in the winter and prefer to vacation south of the border during the spring and summer where the warm weather may start earlier and last longer.

In any case, it’s important to understand the tax implications of owning or selling a home in the United States.

First off, if you plan to buy and want a mortgage, be prepared for a complicated process.

Typically, the process involves:

  • Completing a mortgage application,
  • Accessing your Canadian and/or U.S. credit history and having it reviewed,
  • Gathering income and asset documents,
  • Ordering and obtaining documentation for an appraisal and title search, and
  • Preparing closing documents.

It generally it takes as long as 45 days to get a home loan (it can last as long as 60 days if there are minor credit or income verification issues, and 75 days if there are difficulties with title transfers, missing documentation or insufficient appraisal values).

Typically, you’ll need to put down at least 20% of the value of the home. You’ll be asked to provide information and documentation about the source of the down payment. To avoid delays, it’s critical that once you’ve deposited your down payment into your banking account, it remains there.

Related Costs

The costs associated with obtaining a mortgage in the United States can be higher than in Canada, due largely to the third-party services needed to complete the process. There are standard application and transaction settlement fees for such services as property appraisal and title search. On average, expect to pay from 3% to 5% of the selling price in fees.

In addition, U.S. mortgage interest is compounded monthly, while in Canada it is compounded semi-annually. If you decide to become a permanent resident of the United States, interest payments may be tax deductible on the U.S. tax return you’ll be required to file.

And keep your eyes open for the foreign national premium. Many U.S. banks charge Canadians this premium, primarily due to a lack of information on the prospective mortgagee’s credit history. It can add 1% to 3% to your mortgage rate.

Rental Income

Many vacation property owners rent out vacation property when they aren’t occupying it. This rental income may be taxed in both countries. As a Canadian, you’ll have to comply with relatively complex U.S. income tax laws and reporting requirements. You may choose one of the following two options:

The United States tax rules that apply to ownership of U.S. real estate by foreign persons are different from the rules that apply to Americans. Canadian residents receiving rental income from U.S. real estate are usually subject to a U.S. withholding tax of 30% of the gross income. However, an alternative is to choose to pay tax on the rental income on a net basis. If you choose that option, you’ll have to file a tax return with the Internal Revenue Service (IRS) reporting your net rental income. That’s done by making this election with the IRS and providing appropriate information to the tenant. This election is permanent and can only be revoked in limited circumstances.

Don’t assume that because expenses exceed rental income you won’t have to file a tax return or have tax withheld. The IRS requires that a withholding agent (such as a real property manager who collects the rent on your behalf) be personally and primarily liable for any tax that must be withheld from the rental income. If you fail to file a timely tax return, the agent will be liable for the amount due as well as interest and penalties. In addition, you’ll no longer be able to claim deductions against the rental income causing the gross rents (instead of net rents) to be subject to the 30% tax.

Mandatory Depreciation

In addition, unlike Canadian tax rules, depreciation is a mandatory deduction in the United States. If you don’t file a tax return, you’re still deemed to have claimed depreciation and could be subject to recapture. Failure to file a return also reduces your ability to carry forward passive activity losses. As a result, on a subsequent sale of the property, you’d have a taxable income inclusion in the form of recapture with no offsetting loss carry-forward.

In Canada, of course, you’ll pay graduated federal taxes on worldwide income, including revenue from your U.S. property after deducting applicable expenses. You can generally claim a foreign tax credit on your Canadian taxes for the U.S. taxes you pay.

Selling the Property

The general rule is that the agency closing the sale withholds 10% of the gross sales price and remits it to the IRS. This is simply a withholding that the IRS will apply against the tax payable on any capital gain. There are a couple of exceptions:

1. The withholding doesn’t apply if it is sold for less than US$300,000 (C$393,000) and the purchaser intends to use the property as a residence, and

2. You can apply to the IRS to have the withholding tax reduced if the expected tax on the transaction will be less than 10% of the sale price.

Any gain on the sale is taxable and you must file a tax return with the IRS. If the tax is less than the amount withheld, you’ll receive a refund for the difference. The U.S. tax you pay generates a foreign tax credit that can be used to reduce your Canadian tax liability. If you’ve owned the property continuously since before September 27, 1980, for personal use only, there’s a provision in the Canada-US tax treaty that can be used to reduce the gain. Consult with your tax advisor.

Canadian Taxation

As a Canadian resident, you must report and pay tax on your worldwide income. This includes capital gains realized on the sale of U.S. real estate, which are taxed at 50%. You can reduce your gross sales price with deductions for broker commissions, closing costs and attorney’s fees. After those deductions, you’re left with the capital gain. The gain will be calculated in Canadian dollars so the actual capital gain or loss reported would include a foreign exchange component in addition to any change in the U.S dollar value of the property.

Again, you can claim a foreign tax credit for the U.S. income tax paid on the sale.

Any home you own, including in the U.S., can be designated as your principal residence for each year in which you, your spouse or common-law partner, or your children were residents in Canada and ordinarily lived in it for some time during the particular year. That allows you to claim the principal home exemption.

Capital Gain

If you’re unable to designate your home as your principal residence for all the years you owned it, a portion of any gain on sale may be subject to tax as a capital gain. The portion is calculated using a formula that takes into account the number of years you owned the home and the number of years it was designated as your principal residence.

The principal residence exemption formula is:

Number of years the home is the principal residence, plus one, times the capital gain divided by the number of years the home is owned.

The extra year in the top of the equation (the “one-plus rule”) means that when you move, the old home and new home will be treated as a principal residence in the year of the move, even though only one of them can actually be designated as such for that year (for sales after October 3, 2016, the “one-plus” factor applies only when you reside in Canada during the year you buy the property).

So, say the following holds true:

  • You own the home for 20 years,
  • It has been your principal residence for 14 years,
  • The capital gain on the sale is $100,000, and
  • You lived in Canada when you bought the property.

The exemption amount = ([14 + 1) = 15 times $100,000] / 20 = $75,000, leaving a capital gain of $25,000, and a taxable capital gain (50%) of $12,500.

This article only covers some of the complex rules that come into play when you own real property outside Canada. Consult with your advisors so you comply with all the laws and requirements.

An Annual Conundrum: RRSP or TFSA

022616_Thinkstock_137234817_lores_KKAs the clocks stroked midnight on January 1, Canada ushered in a new year, got the ball rolling for its 150th anniversary and kicked off the 60-day RRSP season.

Until March 1, 2017, you can continue to contribute to your Registered Retirement Savings Plans (RRSP) and deduct the money on your 2016 tax return. The current annual contribution limit is the lesser of 18% of your 2015 earned income, or $25,370.

Keep in mind that contributions to your employer’s pension plan reduce the amount you can invest in your RRSPs and unused contribution room (annual contribution limit minus contributions paid) can be carried forward. The exact amount of your contribution limit will be included in the “RRSP Deduction Limit Statement” section of the Notice of Assessment you’ll receive from Canada Revenue Agency (CRA).

Qualified Investments

Of course, RRSPs aren’t the only vehicle where you can stash your retirement dollars. Every year during RRSP season, many Canadians wrestle with whether to add savings to their RRSPs or to Tax-Free Savings Accounts (TFSAs).

For the most part, whatever investments are allowed in an RRSP can go into a TFSA. That includes cash, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates and bonds. You can contribute foreign funds, but they’ll be converted to Canadian dollars, which can’t exceed your contribution room.

The lifetime contribution limit for a TFSA is $52,000 in 2017. That amount reflects an annual limit of $5,000 for each calendar year from 2009 through 2012 and $5,500 for 2013 and 2014. For 2015, the annual limit was raised to $10,000 and then trimmed back to $5,500 for 2016, where it remains for 2017. The limit is indexed to inflation. There is no deadline for TFSA contributions.


Unused contribution room in your TFSA can be carried forward indefinitely while unused RRSP contribution room can be carried forward until you’re 71 years of age.

You can open accounts at a bank or credit union, investment dealer, discount broker, mutual fund company or life insurance company. While you can own more than one account, the overall limits still apply.

If you live abroad, you can contribute to either plan provided you have primary residential ties to Canada. If you become a nonresident, you can keep your current account, but contribution room will no longer accumulate. This is a complex issue; discuss it with your tax advisor.

If Flexibility Is Your Goal

Generally speaking, TFSAs are more flexible than the average RRSP. A TFSA is more accessible if ever money is needed. If you run into an emergency of some sort, you can withdraw money without any tax consequence, because contributions are made with after-tax money. Be wary of this advantage however. It may tempt you to raid your plan and fall behind in your savings strategy.

RRSP contributions, on the other hand, are made with pre-tax dollars. The savings are tax-deferred until you start making withdrawals. That money is then taxed. Early withdrawals are subject to withholding tax. Your financial institution will hold back the tax on the amount you take out and pay it directly to the government. The withholding tax rate is between 10% and 30%, depending on how much you take out of your RRSP. (In Quebec, the rate is between 5% and 15% and provincial tax is also withheld.)

The investment income — including capital gains — earned in a TFSA isn’t taxed, even when you withdraw it. And the full amount of your withdrawals can be redeposited in future years. If you decide to re-contribute all or some of the money you withdraw in the same year, you can do this only if you have available contribution room. Otherwise, you must wait until January 1 of the next year.

Overcontribution Penalties

If you overcontribute, the penalty is 1% of the highest excess in the month, for each month your account has an excess. It’s a good idea to make a TFSA withdrawal before the end of a year. That way you can pay it back the following year. Note that depositing large amounts in the same year that you make a withdrawal from your TFSA could mean that you’ll exceed your current year’s contribution limit and you’ll be subject to penalties.

There’s a special provision for RRSPs that allows an over-contribution of as much as $2,000 before penalties accrue. The penalties generally are 1% a month on the amount over $2,000.

TFSAs allow you additional room to invest if you’ve maxed out your RRSP contributions for the year. And unlike RRSPs, if you dip into your TFSA, the withdrawn amount is added back into your contribution room in the following year.

Financial Circumstances

Among the considerations when choosing between an RRSP and a TFSA are the specifics of your financial circumstances.

For example, TFSA payouts aren’t considered income by the federal government, so they don’t:

  • Trigger the Old Age Security (OAS) or Guaranteed Income Supplement claw-backs,
  • Reduce bonus payments for children of low-income families, or
  • Affect income-tested student aid, pharmacare or other subsidies.

Another consideration is age. December 31 of the year you turn 71 years old is the last day that you can contribute to your RRSP. After that, you must convert the plan to a Registered Retirement Income Fund (RRIF) or an annuity. If you convert to an RRIF, you must withdraw a minimum amount each year. In contrast, you can own a TFSA for the rest of your life.

Two Special Plans

RRSPs offer two plans that don’t come with TFSAs:

  1. The Lifelong Learning Plan (LLP) that lets you make withdrawals to finance full-time training or education for you, your spouse or your common-law partner. You must repay 1/10 of the total amount you withdrew until the full amount is repaid.
  2. The Home Buyers’ Plan (HBP) that allows you to withdraw as much as $25,000 in a calendar year to buy or build a qualifying home for yourself or a related person with a disability. Generally, you have up to 15 years to repay the money.

You can make “in-kind” transfers to both RRSPs and TFSAs from a non-registered account. But if you’re contributing a security with an accrued capital gain, a disposition is triggered and you’ll pay a capital gains tax in the year of the transfer. If you contribute an asset with an accrued loss, the CRA will deny the loss.

Investment Decisions

Both RRSPs and TFSAs can hold a variety of investments, but you’ll want to discuss the possibilities with your advisor. For example, you may want to avoid speculative investments. You won’t get any benefit from a loss if the investment’s value drops. Also, be cautious when contributing GICs. If you make less than 1% on a GIC, there isn’t much benefit from the tax sheltering aspect of the account.

If a stock pays foreign dividends, you could find yourself subject to a withholding tax. In a non-registered account you get a foreign tax credit for the amount of foreign taxes withheld, but if the dividends are paid to your TFSA, that credit isn’t available. (There’s an exemption from withholding tax under Canada’s tax treaty with the United States, but it doesn’t apply to dividends paid to a TFSA.)

When You Might Avoid TFSA Contributions

If you are considering putting money into a TFSA, there are four situations where you might want to consult your advisor with the idea of placing your money elsewhere:

  1. You’re in a high tax bracket and have RRSP room available. Contributing to the RRSP will help you lower your tax bill.
  2. You’re in a group savings plan at work and want to take full advantage of a company matching contribution.
  3. You have high-interest consumer debt such as credit cards or unsecured lines of credit. If you pay down the debt, you’ll have more to save in the long run.
  4. You plan to finance your children’s education but haven’t maxed out all the available contribution room for their Registered Education Savings Plan (RESP) contributions ($50,000 max for each account).

Consult with your accountant for guidance on which account best suits your situation.

Take Inventory of Your Personal Financial Assets

120816_Thinkstock_510695912_lores_KWNow that the holiday bustle has wound down, try to take some time to compile or update your personal financial statement and lists of important documents and other data.

This inventory can serve as a snapshot of your financial situation and help simplify your life when it comes to performing such standard financial tasks as preparing your tax return, planning your estate, calculating your net worth and applying for a loan.

What to include in your list depends on your personal situation, but here’s a list of some common items to consider:


Investments. Include stocks, Treasury bills, municipal or commercial bonds, and mutual funds. List the current market values, the purchase price, number of units held, dividends and maturity dates.

Insurance policies. Include life and medical insurance, annuitants, pension plans and coverage for your home, automobiles, and any policies held for other property.

Real estate. List the current value of all the property you own, including principal residence, vacation homes, undeveloped land, rental property or commercial buildings you may have an interest in. Indicate where the deeds and title insurance policies can be found. If you’re involved in partnerships, include the names and addresses of your partners.

Accounts. Savings, chequing and other bank accounts, as well as savings bonds and Guaranteed Investment Certificates. List the bank, the account number, balance and any yield or maturity dates.

Vehicles. Automobiles, boats, recreational vehicles, campers and motorcycles.

Other personal property. These items include valuable jewelry, gems, precious metals, antiques and collectibles.

Other assets. Include long-term royalties due to you, partnership interests, trusts and interests in a closely held business.


Short-term liabilities. Include the amounts owed on credit cards and installment loans. List the accounts, numbers and balances.

Long-term liabilities. List the amounts owed on mortgages and loans for college, cars, home improvement and other purposes.

Unpaid taxes.


Safe deposit box. List the bank, the number of the box and the location of the key.

Military service documents. These papers generally enable the collection of veterans’ benefits. Where are they located?

Advisors. List the names and phone numbers of your accountant, attorney, securities broker and insurance agent.

Tax returns. Indicate where you keep copies of past tax returns.

Estate planning essentials. List the location of the original of your will and any additions to it, where copies can be found and the names of your executors or trustees. Also include information about any power of attorney document.

As well as this information, consider making an inventory of such personal information as:

Social Insurance Card number, name on the card and its location

Health Card number, name and location


Your email address

Computer and laptop passwords

Social media accounts, user IDs and passwords

Your spouse or other members of your family may need to be able to access the companies that provide the following services, as well as the account numbers:

Home phone

Mobile phone

Cable and Internet



Home alarm (and security code)

Other critical documents may include:

Adoption papers

Prenuptial agreement

Marriage certificate

Separation agreement

Divorce papers

Custody papers

Citizenship papers

Remember: Once the list is complete, store it safely. Lost or stolen information may be used for identity or financial theft. If the document is lost or stolen, take immediate steps to protect yourself by informing relevant authorities, including your bank, credit card company and insurer.

Update the list when necessary. Discuss it with your advisors and be sure your loved ones know where to find it.