Talking Tax with Silvia Jacinto

Silvia Jacinto, tax partner at Crowe Soberman

• Compile your 2018 tax information now – doing this in advance of the April 30 deadline gives you the opportunity to review all relevant financial information for the year, compile expense and donation receipts, and ensure you do not miss out on tax deductions and credits. 
• Ensure you are taking advantage of all available deductions and tax credits.  If you use an external accountant or tax preparer to file your taxes, speak to them now about what deductions and credits you can claim to minimize your taxes.  The credits that are not often well-known are:
  • Medical expense tax credit in respect of a service animal trained to perform specific tasks for a patient with a severe mental impairment.  Eligible expenses include the cost of the animal, the care and maintenance of the animal, reasonable travel expenses paid for the patient to attend school or other facility that trains these animals. If you are a pensioner and you have spouse or common-law partner, ensure you take advantage of pension income splitting. You may be eligible to split up to 50 per cent of your eligible pension income with your spouse or common-law partner.  This will reduce your aggregate tax liability if your spouse or common-law partner is in a lower tax bracket.
  • If you support a spouse, common-law partner or dependent with a physical or mental impairment, you may be eligible for the Canada caregiver credit.  This is a non-refundable tax credit on up to $6,986.  An individual is considered to depend on you for support if they rely on you to regularly and consistently provide them with some or all of the basic necessities of life such as food, shelter and clothing.
• If you sold a principal residence during the 2018 year, you will be required to report the sale on your personal tax return even if you are claiming the principal residence exemption to shelter the entire gain.  Taxpayers must file Form T2091 to designate the principal residence exemption.  The CRA may accept a late designation but penalties may apply.  If a taxpayer fails to report the sale of a principal residence all together, the CRA may reassess his or her tax return beyond the normal three year assessment period.
• A reminder that if you hold foreign investments with a cost of more than $100,000 at any time in the year, you must file a T1135 information form.  Failure to file the T1135 or late filing of the form will result in penalties.  Note that personal-use foreign assets such as a vacation home do not have to be reported on a T1135. To the extent that the foreign assets generated income during 2018, you must report this income on your Canadian tax return.  You may be eligible for a foreign tax credit to reduce or offset your Canadian tax if you paid tax in a foreign jurisdiction on the income.
• Ensure you compile all of your donation receipts for the year.  In order to claim the donation tax credit, you must have eligible donation receipts and these are often requested by the CRA after your return is filed (especially if the return is e-filed).  If you do not utilize all of your 2018 donations in the year, you can carry forward the unused balance for five years.
• If you adopted a child and incurred expenses in respect thereof in 2018, you are eligible for the non-refundable adoption tax credit.  The maximum amount of eligible adoption expenses on which a credit is available is $15,905.
• If you underwent fertility treatments in 2018, expenses that you paid for the treatments may be eligible for the medical expense tax credit.  Costs may include medical services, drugs and lab tests.  
• If you and/or your spouse purchased your first home in 2018, you are eligible for the First-Time Home Buyers’ Tax Credit, computed on up to $5,000.
• If you have children and incurred child care expenses during 2018, you are eligible for a child care deduction.  The maximum deduction for child care is $8,000 for children under the age of seven, $5,000 for older children and $11,000 for disabled children. Eligible expenses include the nanny salaries, daycare fees and summer camp fees.
• If you incurred expenses to make your home more accessible and safe for a senior and/or a disabled person, you may be eligible for the home accessibility tax credit on up to $10,000 of expenses.
• If you are considering making a charitable donation this year, instead of donating cash consider donating publicly-listed shares directly to the charity.  Your taxable gain will be nil in respect of the disposition of the shares and you will get a full donation receipt for the fair market value of the shares donated.
• If you borrowed money to buy an investment asset that will generate taxable income in the future, the interest on this borrowing is deductible against any sources of income you have for the year.  Note that interest incurred in respect of an RRSP loan is not deductible.

Business owners – using a corporation:

• You may have heard about the tax on split income rules (“TOSI”) which were enacted effective January 1, 2018.  These rules are meant to curtail the ability of business owners to split income from their business with family members that are in lower tax brackets.  For example, before 2018, a business owner could have restructured the shareholdings to have his or her adult children own dividend-paying shares of the corporation so that dividends could be paid to the kids and taxed at their low marginal tax rates.  This was a way for business owners to fund expenses on behalf of their kids in a tax-effective manner.
• If you do not require all of the after-tax profits of your corporation to fund living expenses, you can enjoy a significant tax deferral as the corporate tax rate is significantly lower than the highest personal marginal tax rate.  The corporately retained funds could be reinvested in the business or simply invested in passive assets. 
• There are some new rules regarding the small business deduction that you should be aware of, as follows:

1. If your corporation provides goods or services to another related corporation and there is otherwise no cross-ownership of shares between the companies, the two corporations must nonetheless share one small business deduction.
2.  If you operate an active business in your corporation, as well as invest in passive assets, income generated on the passive assets will reduce the small business deduction limit if the income is in the range of $50,000 and $150,000.  The small business deduction is completely eliminated if the income on the passive assets exceeds $150,000.