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Can I deduct safety deposit boxes on my 2013 personal taxes?

Yep! It’s still good. But starting in 2014 it’s a no-no. Here’s the details.

Oh, and in case you’re wondering, you enter it on Schedule 4. Scroll down until you see number III.

April 2, 2014 Posted by | Personal Tax, Random Questions, tax, tips | , , , | Leave a comment

Where do I enter a T5008 slip on my tax return?

“I have a trading account and my bank sent me a T5008 slip and a trading summary for the year. Do I have to enter both of these on my tax return or just one? If so, which one?”

Ack! Whatever you do, do not enter both! You’ll end up paying double the tax. Now that I have your attention…

So what is a T5008 slip anyway?

You mean besides a slip I absolutely hate? I know, hate is a strong word. I wish I had the vocabulary to come up with something stronger.

You see, the T5008 is not sent out by your broker or bank to “assist you in preparing your taxes,” despite what the letter says that accompanies the slip. The Canada Revenue Agency requires your broker to prepare and send these out to you whenever certain types of trades/transactions occur. And, of course, your broker must send a copy of the T5008 slip to the CRA. So, the T5008 slip is really just a sneaky way for the CRA to keep an eye on people selling stocks.

What information is on the T5008?

The selling price of the security is always on the slip. The CRA knows exactly how much you received in proceeds for dumping the latest dog. As for the cost of the security (or ACB, adjusted cost base in tax talk) sometimes it’s on the slip, sometimes it’s not. Occasionally it may even be accurate. Usually it’s not.

So…if the cost is not correct on the slip, how do I calculate my taxable gain on my tax return?

I know! Right?? This is further complicated by the fact that not all types of trades need to be recorded on T5008’s, so often they are not even an accurate portrayal of everything a taxpayer has sold in a given year. The taxpayer is required by law to calculate accurate ACB’s of any stocks bought and sold throughout the taxation year. Relying only on the flimsy T5008’s is a recipe for disaster.

So what do you use the T5008 for then?

I put my coffee cup on it. Works great. Then I use the trading summary to enter all my trades for the year on Schedule 3. Just remember to use a weighted average when calculating the ACB’s of any stocks sold in the year. I’ll talk more about that in another post since it deserves its own.

For now, just remember what to use the T5008 for.

Nothing.

 

March 28, 2014 Posted by | Personal Tax, Random Questions, tax | , , | Leave a comment

Chainsaw deduction for forestry worker employees

Do you work in the forestry industry? Did you buy a new chainsaw or trimmer? You can deduct the cost of these (and their operating expenses) on your tax return on Line 229. To do so, you must meet these requirements:

  • You work in forestry operations.
  • You use a power saw to earn your employment income.
  • You had to pay for the power saw under your contract of employment and your employer will not be reimbursing you.

You should also get a T-2200 form signed by your employer. You do not have to file this with your return but you should keep one at home in case CRA decides to ask you for it.

Go here for more details.

 

October 25, 2012 Posted by | Personal Tax, tax, tips | | Leave a comment

What can servers deduct at tax time in Canada?

I got a good questions from a server recently and thought I’d share the answer with everyone, since I’m sure there are lots of you out there wondering the same thing.

“Hi!  Came across your site randomly and really appreciate what you do!  I am a server and I’ve always wanted to know, but didn’t know how to find out about what servers can write off at the end of the year as expenses.  I’ve heard that we can write off clothing, toiletries, haircuts, etc, whatever we spend on our appearance as it is part of the job.”

Well, I’m afraid I have a whole lot of bad news and only $160 worth of good.

Servers are in most cases employees, and employees are usually not allowed to write off any of these things. If they could write off things that “enhance their appearance” than any office worker could also argue that, because they have to wear suits to work, they should be allowed to write off the cost of their clothing. This is not the case. Employees are expected to pay their own costs for clothing and uniforms. In other words, looking good is not tax deductible.

To offset these types of costs, all employees are allowed to claim the “Canada Employment Amount, which is a non-refundable tax credit. In 2011 this was 15% of $1,065 (which equals about $160 in your pocket). Strictly self-employed people cannot claim this amount.

Special exceptions for other types of employees:

If you are a commissioned salesperson, or your employer requires you to pay certain job-related expenses AND they have given you a form T-2200 specifying what these expenses are, you may be entitled to claim some deductions on your tax return under Form T777: Statement of Employment Expenses.

However, I can’t see this happening much with an employee who is a server. And did I say I only had $160 worth of good news? Sorry, I meant $159.75.

October 18, 2012 Posted by | Personal Tax, Random Questions | , , | Leave a comment

These people can file their taxes online for FREE

Students, seniors, first-time filers, and people with a total family income under $20,000 can use UFile FREE!

FREE. Ahhh…that’s a beautiful word, isn’t it? If you fit into one of these groups of taxpayers go here and read more about how you can file your tax return online for free.

So, no excuses. Get those taxes over and done with. Get that refund. Build up your RRSP contribution room. Apply for those GST refunds. Register with Elections Canada. And if you think you have a balance due, get them done anyway! Think of how much you’ll save on interest and penalties!

Sorry, that’s the best pep-talk I can come up with for filing your taxes.

Did I mention it’s free?

www.drtax.ca/en/UFile/tips-and-tools/UFilefreefiling

April 22, 2012 Posted by | canada, Personal Tax, tax | , , , , | Leave a comment

What year should I carry my current year capital loss back to?

(Before or after reading this post you may want to refresh your memory with: What do I do with a capital loss?)

 

Here is a great question that I thought I’d pull out of the comments and make into a post. I’m sure many of you out there will find it useful:

My specific question is not how to facilitate the carryback loss (T1A), but rather which year going back is optimal to get the largest return?

Year -3 net income 50,000
Year -2 net income 80,000
Year -1 net income 100,000
This year (10,000) loss

Will I get more of a return for my loss if I apply it to Last year (Year-1) since it was my highest earning year?

At first glance it would seem to make sense to carry back his loss to the year that has the highest income (in this case Year 1: $100,000), but let’s look a little deeper to make sure. I’m going to walk you through my thought process here, which is usually a pretty murky bog, but I’ll try my best.

“Net Capital Losses” and “Capital Losses” are different animals.

1. What kind of loss are we dealing with?

“This year (10,000) loss”.

Is this a “capital loss” or a “net capital loss”? For a detailed description of how to calculate capital gains and losses go here. But generally, this should clear things up:

capital gain OR capital loss = proceeds – cost – other outlays

taxable capital gain OR net capital loss = (proceeds – cost – other outlays) x 50%

That 50% is the “capital gains inclusion rate” for the year in which the transaction took place. In other words, you only get taxed on 50% of capital gains, as opposed to 100% on employment income or interest income.

For this example, I’m going to assume that the above “$10,000 loss” is actually only a capital loss. So that would give us a net capital loss of $10,000 x 50% = $5,000 .

2. Did he have any “taxable capital gains” in the previous 3 years that he can write off this year’s “net capital loss” against?

Year – 3 net income 50,000
Year – 2 net income 80,000
Year – 1 net income 100,000

Unfortunately, the above only tells me what the person’s net income for the year was. What I really need to know is what were the person’s taxable capital gains (Line 127 on the tax return) for each of those years. Why? Because capital losses can only be applied against capital gains. This means you cannot decrease any other type of income (such as employment income) with a capital loss.

So, for the purposes of this example, let’s assume the following:

Year – 3 taxable income $50,000, of which $5,000 is a taxable capital gain (L127)
Year – 2 taxable income $80,000, of which $7,000 is a taxable capital gain (L127)
Year – 1 taxable income $100,000, of which $10,000 is a taxable capital gain (L127)

Using the above numbers, we see that he had enough gains that he could carry back his current year’s loss to any one of the preceding three years.

3. Find his tax brackets: Federal and Provincial

As we all know, we have federal taxes and provincial taxes here in Canada. And they change every year. Go here to find yours for this year or previous years: Income tax rates in Canada (tax brackets)

Federal tax brackets:

  • 15% on the first $41,544 of taxable income, +
  • 22% on the next $41,544 of taxable income (on the portion of taxable income between $41,544 and $83,088), +
  • 26% on the next $45,712 of taxable income (on the portion of taxable income between $83,088 and $128,800), +
  • 29% of taxable income over $128,800

BC enjoys 4 tax brackets:

  • 5.06% on the first $36,146 of taxable income, +
  • 7.7% on the next $36,147, + 10.5% on the next $10,708, +
  • 12.29% on the next $17,786, +
  • 14.7% on the amount over $100,787
Ontario is lucky to only have 3:
  • 5.05% on the first $37,774 of taxable income, +
  • 9.15% on the next $37,776, +
  • 11.16% on the amount over $75,550

But Alberta only has 1: a flat rate of 10%. Looks like I found the one I’ll be using for my example.

4. Calculate tax refunds

I’m going to assume my friend is from Alberta and enjoys a flat-rate provincial fleecing of 10%. So let’s calculate the different possible refunds.

Carry loss back to Year 3 (taxable income $50,000):
Federal taxes = $5,000 x 22% = $1100, AB taxes = $5,000 X 10% = $500
Total Refund= $1,600

Carry loss back to Year 2 (taxable income $80,000):
Federal taxes = $5,000 x 22% = $1100, AB taxes = $5,000 X 10% = $500
Total Refund= $1,600

Carry loss back to Year 1 (taxable income $100,000):
Federal taxes = $5,000 x 26% = $1300, AB taxes = $5,000 X 10% = $500
Total Refund= $1,800

Suspicion Confirmed

As we suspected, he will be better off to carry his loss back to Year 1. He will gain an extra $200 by doing so in this particular case.

However, if we do this, we will forever lose access to the gains in Year 3 (remember, you can only carry capital losses back three years). So if we are pretty sure we are going to have capital losses next year, we may want to carry the current year’s losses all the way back to Year 3, since there is only a $200 difference. But if this year’s loss is a rare event, it makes more sense to get the biggest bang for the loss and carry it back to the year with the highest taxable income.

March 6, 2012 Posted by | loss carryback, Personal Tax, tax, tips | , , , , , | Leave a comment

Where do I enter tips on my tax return? What percentage do I report?

Where do I enter tips on my Canadian tax return?

Put them on Line 104: Other Employment Income. But before you do this, double check that your employer does not report any of your tips on your T4.  Some employers pay a set amount of tips to their employees and will usually include these amounts in Box 14 on your T4 slip. Sometimes they may include those amounts that customers leave as tips on credit cards. Having to report them once is bad enough.

Do not enter tips on Line 130: Other Income, unless you’ve got a crush on your local CRA auditor. (Hey, it could happen).

What percentage of my tips do I have to report?

100%. If you don’t know exactly how much in tips you received during the year, estimate as accurately as you can. Don’t estimate it as 10% of your annual wages (Gross Pay) because Stan Superserver told you that’s what he does, and he has never had a problem.

Read this post on tips for more details.

Help out your fellow servers by taking this 1-question survey about how much your tips are.

February 6, 2012 Posted by | canada, Personal Tax, Random Questions, tips | Leave a comment

How do I write off a capital loss from a previous year?

Which forms and lines should I be using to offset my 2011 capital gains with capital losses from previous years?

We have Jeff to thank for this post. He emailed me and asked this question. I like hearing from people like him because sometimes it’s tough for me to know exactly what kinds of things would be useful for folks out there. So don’t be shy people! Send me your questions and if I know the answer I’ll make a post of it.

So…here is the situation: You have a capital gain in 2011 and you have capital losses from a previous year (or years) and you want to use them to offset your 2011 capital gain.

If you are using TurboTax (or any other software really), open up the Forms explorer and type in “loss” in the keyword search box. One of the matching terms that come up should be “Loss Worksheet”. That’s where you want to go.

Once you’ve found the Loss Worksheet, scroll down a little more than half-way to the section called “Net Capital Losses”. Look at that table and see if there is a record of the old loss in the first or second column. You would then go to the “Claimed in 2011” column in line with it and enter how much of that old loss you want to use to offset your 2011 gain.

However, if there is nothing in one of those first two columns, then it means one of two things:

1) You have not been using the same software each year and so it hasn’t updated your carryforward loss amounts. If this is the case, contact CRA and request your “Net Capital Loss carryforward amounts”. Then plug these numbers in.

OR:

2) You never reported the loss in the year it occurred. If this is the case, you must adjust your tax return for the year in which the loss occurred before trying to use that loss to offset current year gains. (so you have to file a T1 Adjustment Request).

Keep this post handy…tax season is always closer than we like to believe!

December 5, 2011 Posted by | Personal Tax, Running Your Business, tax | , , , | Leave a comment

What do I do with a capital loss?

The next few posts I’m going to talk about capital gains and capital losses.

The most common examples of capital property include stocks, mutual funds, and real estate.

Capital gains are reported on Schedule 3 of your Income Tax Return. If there is a gain, it flows through to Line 127. If there is a loss it is kept track of by the Canada Revenue Agency and your tax software for future (or past) uses.

To calculate a capital gain you can read about it all here. But really, all you need to do is enter the “proceeds” (money you received), the “Adjusted Cost Base”, and “carrying costs” on Schedule 3 and let TurboTax do it for you.

The tricky part is deciding what to do with a capital loss. You can use a capital loss to offset capital gains in any future year (not salary income unfortunately!). But what most people fail to realize is that you can also carry that loss back to any of the preceding THREE years. And generally, this is the wisest thing to do. Go back as far as you can and eat away at those gains before they become untouchable (ie. after three years).

To do this, you will need to file a T1A form as part of your current year tax return (included in TurboTax). You do not need to go back and re-do the tax return of the year that had the gain.

I’ll do another post about how to fill out the T1A in detail. Oh one more point! Always record your capital losses in the year in which they occur. Don’t say “I lost a bunch of money in stocks so no need to report it on my tax return.”

If you don’t record your losses in the current year it will screw up your Net Capital Loss carryforward amounts that the Canada Revenue Agency keeps track of.

Next post I’ll talk about how to use your past losses to offset capital gains in the current year.

 

Related Post:

What year should I carry my capital loss back to?

November 22, 2011 Posted by | Personal Tax, Running Your Business, tax | , , , , | 8 Comments

Are accounting or tax preparation fees deductible?

 

Are accounting or tax preparation fees deductible on my tax return?

Yes. No. I mean yes.

Let me explain.

YES:

If you are a business owner, accounting fees and tax preparation fees are deductible on the T2125 Statement of Business Activities under Line 8860, “Legal, Accounting, and other professional fees“. According to a CRA Interpretation Bulletin (IT-99R5):

1. Except where there is a specific provision in the Act dealing with legal or accounting fees…, legal and accounting fees are deductible only to the extent that they

(a) are incurred for the purpose of gaining or producing income from a business or property, and
(b) are not outlays of a capital nature

So, according to (a), as long as the accounting fees were for the purpose of producing income for a business, then absolutely, deduct away!

(Just so you don’t stay awake tonight asking yourself what (b) above means, it usually pertains to legal or accounting fees when purchasing something big like real estate or machinery. In this case the fees cannot be expensed, but must be added to the capital cost of the property and depreciated over time.)

NO:

Unfortunately, form T2125 is only one part of your tax return. CRA believes the rest of your tax return has absolutely nothing to do with producing income for a business. Therefore, in their eyes, only the accounting fees charged to prepare specifically form T2125 would be eligible for the deduction.

YES:

Welcome back to the real world. I try to visit whenever I can.

If my client has a business, I always claim 100% of the tax preparation/accounting fees I charge him. I enter it on the  T2125.  In other words, I always prepare the personal portions of a tax return for “free”. It’s that stupid T2125 that costs all the money.

If my client does not have a business, but has some investment or “property” income (like bank interest, or stocks) I claim the fees as a deduction on Schedule 4.

If my client has neither of the above, I do not claim any tax preparation or accounting fees.

What if I buy tax software and do it myself?

If you have a business, by all means put the cost of TurboTax, or whatever software you are using in Office Expenses on the T2125. It is a legitimate cost of doing business, and you won’t find any profitable businesses doing their taxes by hand these days.

If you don’t have a business, but have investment income, you could try deducting it on your Schedule 4 (Statement of Investment Income).

If you have neither of the above, you have a dream. And dreams are not deductible no matter where you put them.

September 16, 2011 Posted by | Personal Tax, Random Questions, Running Your Business, tax | , , , , | 1 Comment