Canada Tax Update 2020

In Canada Tax is levied on companies and People by Federal government and respective province department separately.

Notes of Important Tax Terms for Canadian Tax Law Interpretation.

1.SIN – Social Insurance Number

2. T4 – Employment Income

3. T5 – Dividend Income

4. T1 – Personal Tax Return

5. T2 – Corporate Tax Return

6. T2200 – Declaration of Conditions of employment

7. T2125 – Self Employed Income

8. NOA – Notice of Assessment

9. CPP – Canada Pension Plan

10. EI – Employment Insurance (1.58% from 1.62% last year)

11. CRA – Canada Revenue Authority

Foreign Property & Income

1.Global Income is taxable in Canada too like in USA

2. Apply for Foreign tax paid Credit (Even eligible to take shelter of Double tax treaties)

3. Disclose Property above $ 100k – cash, deposit, equity, real estate

4.Acquisition cost of foreign property is deductible as a purchase cost

5.Prefer to Disclose your Income sourced from any other country before landing to Canada. ( i.e. all those amount is not taxable)

Possible Tax Planning & Optimization

1.RRSP Contribution to be carried forward

2. Tuition fees to be split with spouse / carried forward

3. Contribute effective to RRSP to avoid jumping tax bracket

4. File Family return together

5. Candaa Training Credit avail and carry forward

6. TFSA- Tax free saving account

7. Transfer wisely each year from RRSP to TFSA

8. RESP – Registered Education Saving Plan and take advantage of Contribution made by Canadian government to this account too.

9 . Split home buyers Credit, donations and political contributions made by you.

What’s Tax Resident ?

1.Significant residential ties

2.Have to file tax return even if landed on the last day or zero Income 3.Tax Year – Same as calendar year (i.e. January to December) 4. General Tax Filing dead line – 30th April of the next year

How ever it has been amended for the year 2019 tax return to June 1st of 2020.

Points to be considered…

1. Provide a void/cancel cheque to set up direct deposit of refund : Weeks are being taken to process the refund after filing return normally Create online CRA account for getting the e-mails of each documents and NOA.

Full time Employment V/s. Contractor (Self employed)

1.Instead of Full time salaried / employment set up if you set up corporation and represent as a professional contractor then you can marginally save 10-12% in Your total annual tax payment

2.As we can claim expenditures paid out of pocket as a eligible business

3. Expenditure subject to availability of legitimate invoices of the same.

4. Tax Deferrals benefits

5. Individual and spouse both can cash out as a directors

6. Tax split opportunities.

HOME BUYER’S PLAN (HBP)

The home buyers’ plan (HBP) assists first-time homebuyers in attaining a down payment sooner. It allows those buying a home for the first time to withdraw money from their RRSP without paying any tax. Any money borrowed under the HBP must be paid back over 15 years, beginning in the second year after your initial withdrawal was made. Only funds that have been in your RRSP for at least 90 days can be withdrawn as part of the HBP.

After being frozen for several years, the federal government has increased the withdrawal limit on the HBP as part of the 2019 federal budget. Effective March 19, 2019, those eligible to participate in the program can withdraw up to $35,000 from their RRSP, up from $25,000 in previous years. This means that a couple buying a home together could withdraw a combined $70,000 from their RRSPs to buy their first property.

There are special rules in place if you’re acquiring a home for an individual who’s eligible for the disability tax credit (DTC). The rules are being updated so that the same $35,000 withdrawal limit is provided to those buying a home that’s more accessible and better suited for people with disabilities.

Registered Retirement Savings Plan (RRSP)

An RRSP is a retirement savings plan that you establish, that we register, and to

which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan; you generally have to pay tax when you receive payments from the plan. You can contribute up to the age of 71.

RRSP consist of two limits First, CRA limit which is $ 27,230.00 and you individual personal limit is 18% of 2019 Income + Carry forward limits of you previous year.

Why to Invest ? 1. TAX DEFERALS 2. PENSION SPLITTING ETC.

You don’t require to claim deduction in the same financial year instead you can carry forward and claim in the subsequent year too. Also note that every dollar if you withdraw from it is taxable. Wisely you can transfer certain balance from RRSP to TFSA.

TFSA – Tax Free Saving Account

CRA allows you to open a TFSA Account from your Post tax earned Income and the Real purpose of TFSA is to create saving habit and preferably people has to open it with Financial Institutions or Small banks for achieving their Short term goals and total earning From the investment made from this account is completely tax free.

Every year has some limit declared up where you can contribute and please note that You can certainly accumulate your monthly limit every year after the age of 18 and filing Of tax return is advisable.

Money can be withdrawn anytime and no need to pay taxes anytime and withdrawn Amount will be added in the next year limit for the calculation of amount in totality how Much can we contribute.

Penalty in case you contribute more than your eligible amount will be 1% of Over – Contribution till the time default contribute.

CANADA TRAINING CREDIT

CRA will be providing a Canada Training credit which provides you with a $250.00 refundable tax credit that can be used towards the following year’s taxes.

You can accumulate up to $ 250.00 each year on half of eligible tuition fees paid in that respective year but there are some conditions that apply, one you must file a Tax return. Age – Must be at least 25 years old and 64 years old at the end of the tax year Third – You have to be a Canadian resident, fourth – You have to have self employment income at least $10,000.00 and under the third tax bracket which is $147,667.00 in 2019 so $250.00 credit will be added to a notional account in 2019 and be available for 2020. You can accumulate up to $ 5,000.00 a life time and unused balance will expire the year you turn 65 years.

Earlier it was not available. Started from 2020 only.

Basic Personal Allowance for 2019 and Prior years was $12,069 & $ 11,809 but for 2020….

On December 9, 2019, the Government tabled a Notice of Ways and Means Motion that proposes to amend the Income Tax Act that will increase the basic personal amount.

For individuals whose net income for the year is less than or equal to the amount at which the 29% tax bracket begins ($150,473 for 2020), the basic personal amount will increase to $13,229 for 2020, $13,808 for 2021, $14,398 for 2022, $15,000 for 2023. The amount will be indexed after 2023.

For individuals whose net income is greater than the amount at which the 29% tax bracket begins ($150,473 for 2020), the increase in the basic personal amount will gradually phase out so that the basic personal amount for individuals whose income is greater than the next tax bracket threshold ($214,368 for 2020), remains unchanged ($12,298 for 2020) and will continue to be indexed.

Further information on the proposed changes to the basic personal amount can be found at the following Department of Finance news release. 

Similar increases are proposed for the maximum spouse or common-law partner amount and the maximum amount for an eligible dependant. The phase out of the increase is based on the individual’s income rather than the income of the dependent.

Federal Tax rate for 2020

KINDLY NOTE : PROVINCIAL TAX RATE DIFFER IN EACH STATE OF CANADA SO HAVE TO CALCULATE DEPEND ON THE STATE IN WHICH YOU STAY.

This article have been published for Education and reference purpose mainly. Further, In case of any further query or proposal for strategical collaboration then you may reach us at [email protected]