Answering your TFSA questions

The tax-free savings account allows an individual to make contributions and earn income within the account tax-free, even when its withdrawn. An individual over the age of 18 begins to accumulate a maximum contribution room beginning 2009. The annual contribution rooms are as follows:

2009 – $5,000

2010 – $5,000

2011 – $5,000

2012 – $5,000

2013 – $5,500

2014 – $5,500

2015 – $10,000

2016 – $5,500

2017 – $5,500

2018 – $5,500

Questions about TFSAs:

Q: If I haven’t made any contributions to my TFSA, how much can I contribute now?

A: If you have never made any TFSA contributions, up to the end of 2018, you are able to contribute a maximum of $57,500. Contribution rooms roll forward to the future years if annual maximums have not been met.

 

Q: What if I contributed $7,000 in 2015? How much can I contribute now?

A: If you contributed $7,000 in 2015, you would still have $3,000 left over from 2015 to contribute today. Note that it is important to avoid over-contributions by tracking contribution/withdrawal activity.

 

Q: If I made a contribution of $5,500 in April 2017 and withdrew $3,500 in August 2017, can I contribute $2,000 by the end of 2017?

A: Since the contribution maximum was met in April 2017 for the 2017 year, although you withdrew $3,500, you would not regain the contribution room until the following year. Therefore, contributing another $2,000 would result in an over contribution subject to taxes payable at 1% per month for the excess amount sitting in the TFSA.

 

Q: Can I make investments with my TFSA?

A: Absolutely! A great tax advantage in investing with your TFSA is investment income is earned tax-free. Tax tip: If there is an investment loss, there is an indirect loss to your contribution room for the year.

 

Q: Can I open multiple TFSAs?

A: Yes. An individual can have multiple TFSAs; however, all the accounts share the total contribution room. It is important to ensure that if you are opening more than one TFSA or are transferring funds between TFSAs, that these transfers are completed directly as internal transfers by the bank. Transfers completed by the bank will not impact your contribution room. You may name a surviving spouse as the successor holder of your TFSA. If the TFSA holder passes away, the surviving spouse will receive the TFSA balance and there will be no impact on the survivor’s own contribution room. This transfer must be completed as a direct/internal transfer by the bank to avoid contribution room complications.

Alberta Child Benefit

Keep posted for an update on any proposed upcoming changes to this benefit in 2018.

The Alberta Child Benefit is available to assist lower-income families with children under 18. To be eligible for the ACB, you must:

  • be a parent of 1 or more children under the age of 18
  • have a family net income of less than $41,746 per year
  • be a resident of Alberta for at least 1 month prior to receiving the benefit
  • file a tax return

 To apply for this benefit, visit: https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview.html#nt or contact our office and one of our personal tax professionals would be glad to assist you. 

2017 Personal Tax

It’s that time of the year again! Get your 2017 personal taxes filed on time. For self-employed individuals, the filing deadline is June 15, 2018. For all other individuals, the filing deadline is April 30, 2018. We can begin to file online as early as February 26, 2018.

If you are new to our firm, contact Carrie Tsui at (780) 482-3431, extension 312 to get started.

Changes in Reporting Requirements for Employers for Taxable Benefits

In 2018 the Canada Revenue Agency is making the following two changes to ease the burden for employers who have to report taxable benefits:

  • Employers who pay group term life insurance premiums for retirees will only have to report a paid premium if it is greater than $50 and it is the only income reported on a T4A slip. Previously, all amounts, regardless of how small, had to be reported.
  • The threshold for reporting employee benefits that result from employer-sponsored social events will be $150 per person, instead of $100. All other aspects of the related policy will stay the same.

Correct your taxes with the Voluntary Disclosures Program

The Voluntary Disclosures Program (VDP) gives you a chance to change a tax return you previously filed or file a return that you should have filed. By making these changes through the VDP, the Canada Revenue Agency (CRA) may give you relief from prosecution and penalties.

How do you make a voluntary disclosure?

Complete Form RC199, Voluntary Disclosures Program (VDP) – Taxpayer Agreement and submit documents online service through My Account and My Business Account or your accountant can submit it on your behalf.

 

Important facts

By applying to the CRA under the VDP, you might only pay the taxes you owe plus interest.

A valid disclosure has to meet all four of the following conditions:

  • a penalty would apply
  • it is voluntary, which means you make it before you are aware of the CRA taking any compliance action against you
  • the information is at least one year overdue
  • it includes all the relevant information.

Anyone can use the VDP, including individuals, businesses, employers, payers, trusts and estates, whether a resident or a non-resident of Canada.

Estate Planning – Trusts and Wills

We get a lot of questions regarding the estate planning process. Some common factors to note in the planning process include:

·       Creating a will

·       Creating a trust

·       Considering gifting

Creating a will is an important step in an individual’s estate planning process. If an individual passes away without a will, it becomes an intestate, in which assets become frozen and are distributed by the government or courts. Creating a will allows an individual to ensure their assets are distributed appropriately after death. Expenses to be considered upon death include funeral expenses, payment of outstanding debts, and probate fees. Probate is the process of verifying the will and validating the executor.

In Alberta, assets such as real estate held in the estate may be subject to probate fees when an individual passes away. In this case, gifting your assets or creating a trust can be established to avoid these probate fees. 

There are several types of trusts that can be created:

1.       A testamentary trust arises upon the death of a person. However, if you would like to create a trust during your lifetime, there is an option to create an inter-vivos trust.

2.       The advantage of creating an inter-vivos trust is to allow the separation of control of an asset from its ownership. When an inter-vivos trust is created, the individual is able to transfer ownership of assets into the trust to beneficiaries (such as children) without actually having to pass the control of the assets yet. This type of trust may be beneficial from a tax perspective. The process of creating a trust includes providing a legal trust agreement, applying for a trust number, and filing annual returns. Note that a trust is different from a personal tax return as a trust cannot claim personal tax credits and are subject to different tax rates should there be taxable sources of income. Contact our office to see if creating an inter-vivos trust is the right choice for you.

Principal Residence Exemption: New Legislation and Reporting Rules

Starting in 2016 tax year, all taxpayers are required to report basic information on their income tax return when their principle residence is sold in order to claim the principal residence exemption. The information that must be disclosed includes:

·        date of acquisition,

·        proceeds of disposition, and

·        description of the property.

The information needs to be included in Schedule 3 and filing it with the T1 Income Tax Return for the relevant year.  Schedule 3 has been modified accordingly.  Form T2091 (or Form T1255 – for a deceased individual) is still required for the designation in cases when the property was not the taxpayer’s principal residence for all of the years of ownership. This is also the case in deemed disposition situations like when a change of use occurs on the property.

If a taxpayer doesn’t make the appropriate filing, then the CRA (tax department) can impose a penalty.  The penalty is the lesser of the following amounts:

1. $8,000; or

2. $100 for each late filing month.

Planning Your Personal Taxes for 2017 – Federal Personal Tax Credits

The personal credits listed below apply for 2017:

                                                                                     Gross                              Credit (15%)

Basic personal                                                               $11,635                              $1,745

Spouse or eligible dependent(1), (2)                            $11,635                              $1,745

Canada Caregiver Credit

Infirm dependent under age 18 (3)                           $2,150                                 $322

Infirm dependent age 18+ (3)                                     $6,883                                 $1,032

Age(4)                                                                               $7,225                                $1,084

Disability                                                                        $8,113                                 $1,217

Additional disability for child under 18 (4)              $4,733                                 $710

Notes:

(1) Reduced by spouse’s net income.

(2) Enhanced by $2,150 ($322 credit) if dependent is infirm.

(3) Reduced by dependent’s net income in excess of $16,163;.

(4) The Age credit is reduced by an amount equal to 15% of an individual’s net income exceeding $36,430.

(4) Reduced if child care and attendant care expenses exceed $2,772.