Tax Break Bulletins

The Canada Revenue Agency (CRA) has provided a detailed list of the most common mistakes found with personal tax returns. Understanding these common errors will help you save time and money in the long run.

The common mistakes as noted by the CRA are:

Moving Expenses

• Costs associated with home staging, job and house hunting, renovations, mail forwarding, storage costs (near former residence), and short­-term accommodation are all expenses that are not eligible to be claimed.
• Receipt issues, such as date of receipt being inconsistent with date of move, or the receipt specifying payment occurred at a later date, but contains no proof of later payment.

Student Loans

• Non­-eligible interest cannot be claimed. Interest is only eligible to be claimed on loans received under a federal or provincial/territorial government law. Interest paid on personal loans, student lines of credit, or foreign student loans is not an eligible deduction.
• Only official receipts with the taxpayer’s name are eligible for claim. Tuition, Education and Textbooks
• Only official receipts with the course name appearing on the receipt are eligible for claim. Invoices do not replace an official receipt.
• Part­-time months cannot be claimed as full-­time months – and vice versa.
• Attending an educational institution not recognized by the CRA.

Medical Expenses

• Common expenses that cannot be claimed are:
  • Vitamins, natural supplements, and over­-the­-counter medication,
  • Medical supplies, such as bandages, shoe inserts, etc.,
  • Non­medical furniture such as recliners and non­-hospital beds; and
  • Cosmetic procedures.

Public Transit

• The copy of the transit pass must be complete. It cannot have your name missing or an illegible signature.
• Electronic payment cards must meet the minimum 32 one­-way trip requirement in a 31 day period.

To ensure that any of the mistakes above are not being made, consult with your accountant if you have any questions regarding your personal tax return.

Did you recently sell a property and make a gain on its sale? Are you wondering whether there is any tax to pay on this sale?

If the property has been designated as your principal residence for the entire length of ownership, then there are no tax implications. To qualify as a principal residence, the property must have been owned by you or jointly with another person. Additionally, you, your spouse (current or former), or any of your children must have lived in the property for some period of time.

You are only allowed to designate one property per year as your principal residence. Situations that tend to complicate tax matters occur when more than one property is owned during the same time period.

When this occurs, you should designate the years of principal residence to the property with the highest capital gains on a per year basis. This will help minimize income taxes throughout your life, whereas designating all the years to the first property sold will simply minimize taxes in the first year of sale.

What properties are eligible for the principal residence exemption?

• House
• Cottage
• Condominium
• Apartment (in an apartment building or duplex)
• Trailer, Motor Home, or Houseboat

How do I calculate my exemption?

(1 + # of years designated / total # of years owned) x Capital Gain = Principal Residence Exemption

Example:

You own two properties:

1. House – purchased in 2001 for $350,000
2. Cottage – purchased in 2005 for $150,000

In 2014, you sold your house for $500,000 and moved into your cottage (which had a market value of $200,000).

House:

• Initial purchase price: $350,000
• Sale price: $500,000
• Gain: $150,000 ($500,000 – $350,000)
• # of years owned: 14
• Gain per year: $10,714

Cottage:

• Initial purchase price: $150,000
• Sale price: $200,000
• Gain: $50,000 ($200,000 – $150,000)
• # of years owned: 10
• Gain per year: $5,000

This example shows the accrued gains per year on the house is higher than the accrued gains on the cottage. Therefore, designating it as the principal residence for all those years is the most appropriate tax decision. This would result in the entire gain on the sale of the house begin exempt for tax purposes. Going forward, the cottage can claim the principal residence designation.

If you are considering selling a property and have further questions, you should contact your accountant at once for helpful advice!

Get to know the potential tax implications you are facing.

The Canadian and Ontario lotteries are ever­-increasing, creating more temptation to buy into the pool and win it big. But what tax implications would you face if you became the lucky winner?

In Canada, lottery winnings are not taxable and are not required to be included as part of your annual income. However, additional income earned on the winnings (such as interest on investments) is considered taxable and must be reported to the CRA.

If you wish to share your fortune with friends and family members, they will not be taxed on the winnings since this is considered to be a gift and is not required to be reported as income. However, if additional income (such as interest) is earned on the gift, the same rule applies, and any additional income earned is considered taxable.

Gifting to friends or family members do not have income tax implications either. For example, a father can gift $10,000 to his son for the purchase of a new vehicle. This gift is non­-taxable income for the son and, likewise, is not tax deductible to the father. The only situation where tax comes into play with gifting is when the gift is capital property (real estate or investments), at which point the property is deemed to be disposed of at its fair market value.

If you have any questions regarding the tax implications on your lottery winnings or general gifting rules, please contact your accountant for assistance.