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Often we receive similar questions from a number of our clients, so we'd like to answer some of the more common questions here.
If you have any general questions that you would like to see answered, please
email us at info@thecoastgroup.ca.
FAQ TOPICS:
1. Tax Deadlines
2. Pension Income Splitting
3. Personal Instalments
4. Death and Taxes
5. Actor's Q & A
6. Apprentice/Training Tax Credit
7. GST/HST Rates by Province & Territory
1. Tax Deadlines:
What are the Filing Due Dates?
T2 - Corporate Installments
Due at the end of each month (starting in 2008 certain corporations can pay quarterly)
Corporations Tax Returns
- 2 months (and in many cases 3 months) after year end taxes are due
- 6 months after year end, Return is due
(Eg. For an August 31st year end the corporate tax return is due February)
** 5% penalty if the 6 month deadline is missed!!
T1 - Personal Tax Returns
Due April 30th for the previous year
** Exception - Self Employed Income Tax Returns due June 15th (however tax is still due April 30th)
Payroll
Due on the 15th of each month (however some companies with larger payrolls will have earlier due dates)
T3 - Trust Returns
Due March 31st yearly - No Exceptions!
T4 & T5 (Wage and Dividend Summaries)
Due at the end of February
WCB Returns
Due on various dates, depends on the situation
HST Returns - Any period end
- Annual Returns due 3 months after Year End
- Quarterly Returns due 1 month after end of each quarter
*Determining factor:
- if Revenue is greater than $500,000 must do quarterly
- if Revenue is less than $500,000, can do annually
** Exception - Yearly HST for Individual due June 15th (Self Employed)
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2. Pension Income Splitting:
What is Pension Income Splitting?
Under the new rules, up to one half of pension income received that qualifies for the pension income tax credit can be transferred to your spouse or common-law partner (both of which are referred to as "spouse" below).
Why would we want to do this?
Splitting income allows the higher income spouse to transfer income to the lower income spouse, thereby taking advantage of the lower marginal tax rates of the lower income spouse and resulting in a lower overall tax bill to the couple. Because of this benefit available to spouses, the Income Tax Act only allows income splitting under very limited situations.
When does this apply?
Pension income splitting rules apply to taxation years 2007 and beyond.
What pension income can be split?
Payments from RPP, RRSP, RRIF, and some foreign pension payments.
What pension income does not qualify for splitting?
OAS, CPP (which can already be split under CPP rules), death benefits, retiring allowances, RRSP withdrawals, employee benefit plans.
How do we split the pension income?
By electing on Form T1032 prior to the filing deadline, in both spouse's personal tax returns to transfer the income. The transferor will deduct the elected amount from their income, and the transferee will include the elected amount in their income.
Is the transferred pension income eligible for the $2,000 pension income tax credit?
Yes.
Do we have to split our pension income?
No. Each and every tax year you can elect how much pension income to split, if any. The rules recognize that many spouse's like to keep their finances separate from one another.
Will splitting pension income affect OAS payments?
Yes. Depending on the income levels of the spouse's it could decrease your OAS claw-back, or it could in fact increase your OAS claw-back. For this reason it is essential that you seek professional advice in determining whether you should split pension income or not.
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3. Personal Instalments:
Who has to pay instalments?
You have to pay your income tax by instalments for the current year if your net tax owing for the current year will be more than $3,000 AND your net tax owing was more than $3,000 in either of the two calendar years before the previous year.
Why do I have to pay instalments?
If you receive income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by instalments. This can happen if you receive rental, investment, or self employment income, certain pension payments, or income from more than one job.
What are my instalment payment options?
You have three instalment payment options:
a. no-calculation option (this option is best for you if your income,
deductions, and credits stay about the same from year to year);
b. prior-year option (this option is best for you if your current calendar
year income, deductions, and credits will be similar to your prior
calendar year amount but significantly different from those in the
calendar year before that); or
c. current-year option (this option is best for you if your current calendar
year income, deductions, and credits will be significantly different from
those in prior years).
*If you choose the best instalment payment option for your situation, you will not overpay your tax during the year or have a large amount of tax to pay when you file your return. You do not have to tell the CRA which option you choose.
I received an instalment letter and/or reminder from the CRA. Do I have to pay the instalments that they suggest?
No. Instalment reminders sent by the CRA are always based on the no-calculation option. You can pay the instalments based on the option you choose as discussed in question 3 above.
When are the instalments due?
Your instalment payments are due March 15, June 15, September 15 and December 15. When a due date falls on a Saturday, a Sunday, or a holiday recognized by the CRA, they consider your payment to be paid on time if received or if it is postmarked on the next business day. Payments you make in person at your financial institution, or electronically are considered received by the CRA on the date that you make them.
How and where do I make my instalment payments?
Each instalment reminder package the CRA sends includes two copies of Form INNS3, Instalment Remittance Form. If you need more copies, call the CRA at 1-800-959-8281.
To make your payments, you have four options:
Electronically - You can now make electronic payment directly to CRA via the option in My Payment. You may also be able to pay electronically through your financial institution's Internet or telephone banking services.
At your financial institution - You can make your payment free of charge at your branch of a Canadian chartered bank, caisse populaire, or credit union. You must have Form INNS3 from the CRA in order for the institution to accept the payment. Give Form INNS3 to the teller, who will detach and keep the payment section of the form, and who will stamp and give the rest to you as a receipt.
By pre-authorized debits - You can have your instalment payments debited from your account, however we don't recommend this option as to change the frequency or amounts you need to continually contact the CRA.
By mail - You can send a cheque or money order payable to the Receiver General, and a completed Form INNS3, to Canada Revenue Agency, 875 Heron Road, Ottawa ON K1A 1B1. Note - Please write your social insurance number (SIN) on the back of your cheque or money order to help CRA process your payment correctly.
What if I don't remit the right amount of instalments?
The CRA can charge you interest and penalties for failure to make installments.
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4. Death and Taxes:
I was named the executor of a friends will. Do I need to do anything?
YES! As the named legal representative of the deceased your responsibilities include filing all necessary tax returns for the deceased, making sure all taxes owing are paid, and letting the beneficiaries under the will know, which, if any, of the amounts they receive from the estate are taxable. The Canada Revenue Agency ("CRA") can hold you personally liable for any amount of taxes the deceased owes!
Do I have to accept responsibility of legal representative?
No. You can opt to turn down this position.
I've accepted the responsibility as legal representative, what should I do first?
You should contact the CRA and Service Canada to notify them of the deceased date of death.
Do I have to keep making the deceased personal tax instalments?
No.
Does the deceased need to file a tax return?
Yes! A tax return that reports all income received up to the date of death must be filed. When a person dies they are deemed for tax purposes to have disposed of ALL properties owned by them. This can create a significant tax liability in the year of death, hence failure to file a return on time can result in large penalties and interest being assessed. You have at least 6 months to file this return. So if the date of death was between January 1 and October 31, the return is due April 30 of the following year. If the date of death was between November 1 and December 31 the return is due 6 months after the date of death.
What about income received after the date of death?
This income needs to be reported on a T3 Trust Income Tax Return, and this return must be filed annually until the entire Estate is distributed in accordance with the will. In certain cases, where the estate is distributed immediately after the person dies, or if the estate did not earn income before the distribution, you will not be required to file a T3 Return.
Are there any tax planning opportunities in all the filings?
Yes! Though outside the scope of this Q&A, things to consider in preparing the filings include, but not limited to, filing the optional tax returns to report certain incomes, electing out of the spousal rollover provisions, utilizing all loss carry-forwards, claiming 24 months of medical expenses, carrying back capital losses of the estate to offset capital gains in the deceased final return, allocating income to the beneficiaries from the estate, and much more.
I'm concerned that I can be held personally liable as the legal representative.
To minimize this risk we recommend filing for a clearance certificate from the CRA once all the tax returns have been assessed and before any property is distributed to the beneficiaries. A clearance certificate certifies that all amounts for which the deceased is liable to the CRA have been paid.
The above all seems pretty confusing. Should I get help with this?
It is highly recommended that you work with your advisors in winding up a deceased persons affairs. Again, as the legal representative you are liable for the deceased tax debts, and are responsible to the beneficiaries for distributing the estate according to the will. Failure to do so properly can have significant legal ramifications to you, as such there is significant value in dealing with advisors that have experience in these matters.
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5. Actor's Q & A:
Richard Wilson has worked extensively in the film & television industry over the last ten years with people and companies on both sides of the camera and on both sides of the border. Over the years there have been questions that come up all the time. Some of those are addressed here.
Of course, every particular case is potentially different but there are general principles that apply to everyone.
What can I write-off?
There are really only two real principles that you have to keep in mind. To be deductible, expenditures have to be (1) made for business reasons and (2) reasonable in the circumstances. For actor's this can include commissions, dues, telephone, meals & entertainment, professional fees, training, research and portions of home and vehicle costs to name a few. It is always a good idea to keep anything that "might" be a write-off and you and your advisor can make those judgment calls at tax-time. Obviously you need to keep receipts for everything but equally important is to document the business purpose of each major receipt. For example, you don't just need to have the plane ticket from your trip to LA but also need to document why you went.
How much money should I put aside for taxes?
As most of you are probably painfully aware, you are responsible for your own taxes (and HST if applicable) in that nothing is withheld at source on Canadian acting work. Accordingly, you need to make sure you put aside enough money for your taxes at the end of the year. A good rule of thumb is 25% of each cheque that you get. If you do that, you won't get stuck in a huge hole at the end of the year. If you have owed money in the past, you may also have to send some of that money to government ahead of time as installments. While these are not compulsory and can be adjusted based on your current year's earnings, if you do owe at the end of the year and have not paid installments as required, they will charge you interest on the payments not made or made late!
Do I need a HST number?
This one is pretty straight forward. If you earn more than $30,000 gross (total - before agent's fees and dues etc) than you have to register for and start to collect HST. Once you hit that amount, you are stuck with that HST number even if you never hit $30,000 again. If you are in this situation, discuss the situation with your advisor.
Should I incorporate?
Incorporating in Canada means creating a separate legal entity ("the company") which is also its own separate taxable entity (i.e. - the company also files a tax return) and then having your income and expenses run through the company rather than your personal return. In the right circumstances this can be a great way to reduce the taxes that you are paying. In general terms there are three ways that a company can help you:
The first is if you have dependents that don't have a lot of income you can "income-split" through a company. The second is that if you are going make a whole bunch of money in a short period of time, you can use a company to spread your income out over multiple years (which saves a bunch of taxes). Finally, and most importantly, if you are making more money than you need to pay the rent and grocery bills and can leave money behind in the company for the future, you can take advantage of the small-business tax rate which is effectively half of what you would be paying personally. Sometimes people think that there is a magical amount that they have to earn for it to make sense (and $100K plus is not a bad rule of thumb) but really it has to do with how much you spend. If you make $200K a year and spend all of it, the company is not going to help you that much. If you make $90K and only spend 2/3rd's of it, the company can definitely help.
What if I do some work in the US?
Working in the US can get complicated very fast! If you know that you are going to be working in the US you should always talk to your advisor ahead of time as the right moves in the beginning can save a bunch of hassles in the end.
I am a US citizen, does that matter?
Yes, absolutely it does. US citizens have to file a US tax return (and potentially other forms) every year even if they never step into the US. This is different from Canada where filing a tax return is based on residency, not citizenship. This can also affect whether you incorporate or not. Again, these rules get complex fast and if you are not complying with US rules you should talk to your advisor about that right away.
I am moving down to LA and plan to stay there, do I have to keep filing taxes in Canada?
Obviously moving to the US is dependent on immigration issues but assuming you get that figured out (i.e. - you get a green card or multi-year visa) then it is possible to arrange your affairs so that you don't have to file in Canada anymore (which will generally mean less taxes overall). Canada taxes people based on residency and so if you make a true move down to the US and cut your financial and legal ties with Canada, then you won't have to file in Canada anymore. The actual execution of the related tax return in the year that you leave can be complex and again, should be discussed ahead of time with your advisor.
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6. Apprentice/Training Tax Credit:
BC doubles training tax credits from $2,000 per employee to $4,000 effective July 1, 2009. Federally, effective May 3, 2006 there are tax credits available to employers.
The following links provide information on the programs:
Provincial: BC Apprentice/Training Credits
Federal: Federal Apprentice/Training Credits
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7. GST/HST Rates by Province & Territory :
British Columbia = 12% HST
Ontario = 13% HST
Nova Scotia = 15% HST
Newfoundland, New Brunswick = 13% HST
Alberta, Nunavut, Yukon, NWT, Saskatchewan, Manitoba, Quebec = 5% GST
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The Coast Group
Chartered Accountants
200 - 5710 Teredo St.
Sechelt, BC V0N 3A0
Tel: 604.885.2254
Fax: 604.885.3779
Call us Toll Free:
1-855-885-2254
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