Personal Tax Tips
- Selling your US property
When you decide to sell your US real estate you will have to file a US tax return. Don’t forget that on the sale itself, you will have to pay a US withholding tax of 10% of the gross sale price. This tax can offset any realized gains on the sale. There are two ways to reduce your withholding tax.
- a. If you purchased your property for less than 300,000 and had actual plans to live in the home for 50% of the time within a 12 month period.
- b. Obtain a withholding certificate prior to the sale of the house.
- Medical expenses
Eligible medical expenses for yourself, spouse and dependants are not limited to Canadian boarders.
- Medical premiums
Premiums paid for US health coverage are qualified medical expenses in Canada.
- Reporting online income
If you earn money through electronic commerce the income is subject to the same tax laws as traditional commerse. Using systems to trade such as Ebay are included in this requirement.
- CPP
The maximum pensionable earnings for CPP is 44,900 and the basic exemption is 3,500.
- RRSP Schemes
Be careful of RRSP schemes which promise withdrawals of funds from an RRSP without paying tax. Promoters of these schemes often promise to return part of the taxpayer's investment by offshore debt or credit, immediate access to assets in locked in funds and unrealistic returns.
Personal Questions & Answers
- Q? My tax returns got lost in the mail and CRA assessed me penalties. Is this correct?
- A: Yes, innocent good faith i.e. mailed but never received by CRA is not a defence to the imposition of penalties.
- Q? I have a Life Income Fund (LIF). How can I access these funds?
- A: All individuals 55 or older will be entitled to a one-time conversion of up to 50% of federally regulated LIFs into a tax-deferred savings vehicle with no maximum withdrawal limit. Individuals facing financial hardship may withdraw up to $22,450 a year.
- Q? Should I put my two children’s names as co-tenants on my cottage to save probate fees?
- A: No, CRA’s position will be that you have sold two thirds of your property to your kids and you will have to pay capital gains taxes now.
- Q? I have to go to Toronto for an operation. Can I claim my spouse’s expenses for the trip?
- A: If your doctor has certified that you are incapable of traveling alone then the travel, meals and accommodation costs of your spouse are qualified medical expenses in addition to your own costs.
- Q? I am purchasing a second home in the US. Should I be doing anything?
- A: Yes, The IRS requires an initial filing when the investment is first made (Form BE-13/14) and an annual filing (Form BE-15) and a special filing each five years (Form BE-12). These forms may be found through a Google search under BE-13 (12,14,15).
- Q? My marital status has changed. Should I be doing anything?
- A: If you have children than you should file Form RC65 (Marital Status Change) with CRA and you may be eligible for additional Child Tax Benefits and GST rebates as only ‘your’ income will be used ( not both income) in calculating benefits.
- Q? I spent 180 days in the US and the balance in Canada. Do I have any problem with the IRS?
- A: Yes! If you have consistently spent more than 120 days in the us for the last three years, the US will consider you a resident which means you must file a US return and pay tax on your income from ALL sources even though you may be paying Canadian taxes.
- Q? I withdrew money from my RRSP equal to the over-contribution and did not declare this on my tax return. CRA has sent me a reassessment. Is this correct?
- A: Yes, there is a procedure to file a form T3012A and obtain permission before taking the money from your RRSP. Only then can you cash in your RRSP without paying taxes.