Your year-end guide for income tax planning and preparation 2019
1. Assess your tax-year for planning issues and opportunities
a. How much tax is being withheld at source?
If no tax, or too little, was withheld at source on your RRSP and RIF/LIF withdrawals, employment insurance benefits and/or your CPP & OAS payments, you may find yourself owing additional tax. If you have a tax bill owing of at least $3,000 in the current tax year and either of the two previous years, you will be required to pay tax instalments.
b. Did you experience any significant life changes?
- Change of employment
- Divorce: Subject to certain requirements, spousal support payments are tax-deductible to the payer and taxable to the payee.
- A move and/or purchase of a home: The Homebuyer’s Tax Credit is available to first-time homebuyers and those who qualify for the Disability Tax Credit.
- Disability: If you’ve experienced a disability, read our blog “Should you be applying for the Disability Tax Credit?”
Be sure to make your financial planner aware of these changes – there could be additional benefits or tax implications to plan for.
c. Did you make your contributions?
Although unused contribution room can be carried forward, earlier contributions allow for more time for tax-deferred growth. This may include:
Consider setting up pre-authorized contributions in order to ensure that you are contributing to your plans.
d. Do you have taxable capital gains to offset?
If you have sold investments at a gain in your non-registered account this year, consider selling securities with accrued losses before year-end to offset these taxable capital gains. If you sell a position at a loss, the loss can be applied to offset capital gains in the current year or the previous three years. Note that if the security is repurchased within 30 days of the sale, the loss cannot be applied.
2. Collect all relevant tax receipts
You may be missing some receipts or have some that are not compliant with CRA requirements. Starting the process of collecting your receipts now allows you to follow-up on any missing information before you file your taxes.
- Charitable Donations: CRA has specific requirements on what information must be included on a charitable donation receipt. They have provided examples of what a suitable receipt must include to meet the requirements of the Income Tax Act and its regulations.
- Medical Expenses: Medical expenses over a certain threshold are eligible for a tax credit. CRA indicates whether you need a receipt, a prescription and/or certification in writing.
- Political Contributions: There are tax credits available for federal and provincial contributions. An official tax receipt is required to claim the credit.
- Child care receipts: Child care expenses may be deductible if they are incurred to allow you or your spouse to work, attend school or carry on research. Eligible child care expenses may include day care, day camp, overnight camps, boarding school, and nursery school. Generally, these expenses must be claimed by the lower-income spouse.
- Moving Expenses: If you moved at least 40km closer to your new place of work or education, you can deduct moving expenses such as travelling costs, meals and lodging, and selling costs provided you have receipts.
- Tuition Expenses: Tuition fees may be eligible for the Tuition Tax Credit. This may include tuition fees, administration fees, library and lab charges.
- Carrying Charges & Interest Expenses: You can deduct carrying charges and interest expenses incurred to earn investment income. This may include fees paid for investment advice pertaining to non-registered accounts, interest paid on money borrowed to earn non-registered investment income and legal fees paid to obtain an order for child/support payments if you are the recipient of the payments.
Are you self-employed?
If yes, keep reading, if no skip to “New in 2019”
If you are self-employed, you must be aware of your tax obligations. In addition to the information above, you may also require:
- Income and expenses for the year: If you do not have accounting software you can use a simple spreadsheet or, if your needs are more complex, you might want to consider an accounting program. We are affiliates of XERO, a small business accounting software. If you would like to discuss this, contact us.
- Mileage log: If you deduct vehicle expenses related to your business, you are required to keep a mileage log and all relevant receipts.
- Vehicle expense receipts
- Maintenance and repairs
- License and registration fees
- Eligible interest charges paid on your vehicle loan
- Eligible leasing costs
- Home Office Expenses: If you are a home-based business, you may be able to write off a portion of your home expenses. This may include rent, mortgage interest, property taxes, utilities, and home insurance.
- Capital Cost Allowance (CCA): Consider if you would like to claim your CCA deduction for the year or carry-forward for higher income years. If you disposed of capital property this year, you may have to report your recapture of CCA as income or be eligible to deduct your terminal loss.
New in 2019:
- The annual TFSA contribution limit was increased $5,500 in 2018 to $6,000 in 2019
- The Home Buyers’ Plan limit has been increased to $35,000 starting March 19th, 2019
- The First-Time Home Buyer Incentive was introduced, allowing first-time home buyers who meet the income threshold requirements to borrow 5-10% of the purchase price from CMHC.
- 2019 changes for Canadian Controlled Private Companies (CCPC) include:
- Manitoba has increased the small business corporate tax threshold from $450,000 to $500,000.
- The small business corporate tax rate decreased from 10% to 9%.
- If passive income earned is >$50,000, the small business corporate tax threshold begins to reduce. At $150,000 of passive income, the threshold is completely eliminated, and no active income is eligible for the reduced small business tax rates.
The information in this commentary is for informational purposes only and not meant to be personalized financial planning advice. The content has been prepared by the team at Fraser & Partners from sources believed to be accurate.