Newsletter – Taxation by Accountant Mississauga

Tax Tips for 2013

It’s not too early to begin planning your tax strategy for 2013.

Automotive

Deductible Allowance Rates
If you have employees who use their own vehicles in your business, the limit on deductible tax-exempt allowances paid by you to your employees in 2013 increased by one cent to 54 cents per kilometre for the first 5,000 kilometres driven and to 48 cents for each additional kilometre as of January 1. The rates in the Yukon, the Northwest Territories and Nunavut are 58 cents and 52 cents respectively.

Taxable Benefit Rates
If you drive a vehicle supplied by your employer, the prescribed rate for determining the taxable benefit of the personal portion of operating expenses paid by your employer for 2013 will increase by one cent to 27 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will increase by one cent to 24 cents per kilometre.

Instalment Payment Dates for 2013
Because income from interest, capital gains or rental properties is usually not taxed sufficiently (if at all) at source to cover the annual tax liability, the Canada Revenue Agency (CRA) wants taxpayers with this kind of income to pay in instalments for balances owing accrued through the tax year. The previous year’s tax return or a notice from the CRA will indicate the instalment amounts. If the payments are not received on time, the CRA will calculate interest charges on the overdue amounts and add them to your reassessment when you file your next income tax return.

Your instalment payment dates for 2013 are March 15, June 15, September 15 and December 15. If a due date falls on a Saturday, Sunday or statutory holiday recognized by the CRA, the payment is considered to have been paid on time if it is received on the next business day. It is worth noting that the CRA will not recognize a letter postmarked on the due date as having been received on that date. Payments sent by mail are only considered to be received and paid to the CRA on the actual date they are received at a CRA office.

Payments made through Internet or telephone banking systems are considered paid on the payment date. Taxfilers should, however, pay attention to bank processing rules. Payments made after 6:00 p.m. on a Friday or a holiday may not be processed until the next working day, for example. To save interest costs, make sure payment is made a couple of business days before the due date. Postdated cheques or preauthorized debits are considered paid the date the transaction is authorized.

If instalment payments were scheduled but the taxpayer dies during the year, the CRA will waive the remaining schedule.

Tax-Free Savings Accounts
A taxpayer can make an annual contribution of $5,500 in after-tax dollars to a Tax-Free Savings Account (TFSA). Withdrawals attract no tax. Some account holders accidentally overcontribute by mistakenly treating the account as a savings or chequing account and withdrawing and then redepositing amounts that in total exceed the allowable annual contribution limit. Overcontributions can be returned to the TFSA without penalty only after the end of the year in which the funds were withdrawn. Another mistake is to contribute a non-qualified investment or make a contribution while the taxpayer is a non-resident. If such a mistake occurs, an RC243 Tax-Free Savings Account (TFSA) Return must be filed along with any taxes owing by June 30 of the year following the year in which the error was made. These areas will not be a problem if a financial institution or investment advisor is consulted before any contribution is made. In the event that an investor is not aware that they have erred, the CRA will use information provided by the issuer of the TFSA and send a notice of reassessment to the taxpayer.

Although there is an annual contribution limit, uncontributed amounts can be carried forward indefinitely. Thus, if the limit for 2013 is $5,500 but no contribution was made in 2012 when the limit was $5,000, the eligible contributable amount for 2013 is $10,500. To find the amount of your eligible TFSA contribution room, go to www.cra.gc.ca/myaccount, www.cra.gc.ca/quickaccess or the Tax Information Phone Service (TIPS). The number to call is 1-800-267-6999.

Capital losses can be carried back for three years.

Capital Gains and Losses
Net capital losses or capital gains are calculated each year by subtracting the lesser of the one from the greater of the other. Half of any net capital gain is included in income. Unused losses can be carried forward indefinitely to reduce future capital gains. The CRA also allows taxpayers to carry unused current-year capital losses back for three years to retroactively reduce capital gains and thereby recover some of the taxes paid on the taxable portion of those gains. For example, an unused capital loss in 2013 could be either carried forward to reduce any future capital gains or carried back and applied against capital gains in 2012, 2011 and/or 2010 to recover income taxes paid on the taxable capital gains in those years. To carry a current-year capital loss back to any or all of the previous three years, complete a Form T1A, Request for Loss Carryback. Use this form and do not file amended returns for the year or years in question. Your chartered accountant will probably have all the information you need to complete the Request.

In addition to capital losses on investments that may be applied against capital gains of previous years, capital losses created in 2013 on listed personal property may also be applied against capital gains from listed personal property of the previous three years and for the next seven years. Note that only listed personal property losses can be applied against listed personal property gains.

Capital gains deductions and allowable business investment losses may be impacted by cumulative investment expenses such as interest, carrying charges, and rental losses. If these amounts are greater than similar income, including capital gains and dividends, then your deductions from the above amounts will be reduced. Once this data is entered, it shows as accumulated amounts on CRA form T936 Calculation of Cumulative Net Investment Loss.

If circumstances in 2013 promise gains in either investments or listed personal property, it would be wise to discuss the potential gains with your chartered accountant to put a tax strategy in place for the end of the year.

Always Plan Ahead
Minimizing your personal income taxes is no longer a matter of just waiting until the end of the year and filling out the forms. To take full advantage of the expenditures allowed and the deductions available and to avoid paying unnecessary penalties and interest, take a proactive approach that includes maintaining proper up-to-date records and engaging in ongoing consultations with your tax advisors.

April 2013

This issue’s topics deal with:

• What Should I Charge for My Services?
• Online Purchasing
• The Perils of Credit Cards
• Tax Tips for 2013