I often hear from people that they want to save for a down payment before they think about buying their first home, but in the meantime prices are going up on values faster than they can save.
I always recommend getting an RRSP and using the Home Buyer Plan (HBP) to them, but not just strictly as a saving tool. There are a lot of ways that this can be beneficial.
While people often say they don't have the money to save for their RRSP or down payment, consider making automatic deductions. Each payday pay your RRSP $25 or $50 or try doing direct transfers from your bank account by "rounding off" your bank balance a few dollars each week. You will be surprised how fast it adds up and how little you miss it. You can also ask your employer to offset this by lowering your tax deductions at source to account for the higher refund you will receive, so often this works out to the same or similar "take home" amount.
Firstly, the contributions to the RRSP are tax deductible. So while you are saving up for your own home, you will get a tax break in the form of a higher refund or lower tax bill. This can be from 20% up to 40% of what you are putting into the RRSP coming back as a tax refund. Often the strategy ends here, once enough is saved the RRSP holder takes the money (up to $25,000 per spouse) out under the Home Buyer Plan and uses it as their down payment. Under the HBP you can take out money out of the RRSP without it being considered income or losing your tax breaks so long as you put it back in an RRSP over 15 years.
However, there are other ways to leverage that RRSP to help you buy your first home. The money can be used for anything, not just a down payment. The only requirements for taking it out are that you:
- are purchasing a home you intend to live in within a year of purchase
- you haven't owned another home in the past 5 years or have a balance owing to the HBP already
- The money has to be in for at least 90 days before the withdrawal
- you must make the withdrawal within 30 days of the purchase and if multiple withdrawals, they have to be in the same year
- you agree to repay the withdrawal over 15 years (with a 2 year reprieve before you starts) into your own RRSP, but if you can't make that payment you pay tax on the payment you should have made to offset the original tax break you received. (Note: in a year you have little or no income, you can basically skip it with no tax consequences).
Sometimes, using the HBP money in other ways can help make the purchase a reality, for instance letting your mortgage broker know you will use the withdrawal to pay down existing debts, instead of entirely as a down payment, may help you qualify for a mortgage or higher amount that you may not have qualified for due to "Debt Service Ratios" as these are used to determine how much of your income goes to debt. Even if you have only a few payments left to go paying down a debt, this can be held against you in qualifying for a mortgage. One client did this as we suggested and qualified for a mortgage of $80,000 higher. Making it possible to find a home available in the approved range that wouldn't have been previously possible. Often people take all the cash they have to pay down debt to try and improve debt service ratios, but recycling it through the RRSP first gets them the tax refund and the money to pay down debt in order to make that money go much further.
Another idea is that if you have a lump sum you are planning to use for your down payment or can "borrow" for 90 days somehow, put in the RRSP before using it to buy the property. This will allow you to get both a tax break and a nice size tax refund as well. Therefore getting more "bang for your buck" with the same money. Putting your down payment fund in the RRSP first may give you enough money to qualify for a larger mortgage, or provide you with money for closing costs, moving expenses, and incidentals like renovations or furniture.
Sometimes using this strategy makes the difference between making it work to buy your home or not. People are frequently disappointed that they can't qualify for quite enough money, when doing this can make it work. Mortgage brokers try to be helpful but aren't always knowledgeable about RRSP's options that might help or that sometimes less down payment and paying down the debts can be the key, even if they are small ones.
Keep in mind that as a first time home buyer you will also qualify for the First Time Home Buyer Credit which gives taxpayers a $5000 non-refundable tax credit in the year they buy their first home. This translates into a $750 extra refund.
Feel free to contact us at service@painfreetaxes.ca for free tax planning around buying your new home or leveraging your down payment in the best possible way. You might be surprised how using these strategies can make your dream of owning your own home a reality faster, or leave you with a little less cash crunch in the process.
www.painfreetaxes.ca
Friday, 8 November 2013
Friday, 27 September 2013
CRA Reviews and getting supporting documentation. We do this for no extra charge, and sometimes its a lot of work.
I frequently end up helping clients to support a review of their tax deductions with Canada Revenue Agency.
This is a normal part of the self-assessment process we have in Canada in particular since returns are usually electronically filed without documentation. It is not what you would call an audit and it isn't usually triggered by anything considered suspicious or fraudulent on your tax return.
It is important however to provide the correct information in the requested amount of time for your review to avoid having your expenses reversed. Otherwise you may owe CRA back some money.
This is something that I help my clients with as part of my service in order to save them headaches.
If for some reason CRA rejects your expenses during a review, that doesn't mean they can't be reinstated. Often they just need more documentation.
In one case I had a client with $18,000 worth of medical that was rejected partly because insufficient information was provided and partly because CRA had misinterpreted some of the information. The client thought CRA was refusing to allow the claims unfairly, and he was right. In this case, because it was complicated, I opted to file a Notice of Objection on his behalf and formally request a formal review of this decision. I also submitted the correct information that hadn't been submitted originally by his prior service provider. In this case, almost all the claims were reinstated except for a couple of things we had advised him were not going to be accepted already.
This case took a lot of work and follow up and quite a bit of effort to make a clear picture for CRA to understand, in part because there were complex Medical Travel circumstances and some documentation was difficult to obtain.
However, in the end we were very successful, because we cared enough to help. And it didn't cost the client anything extra.
If you have had deductions rejected by Canada Revenue Agency (CRA) you should talk to us for free. Maybe they can be reinstated, if we can help you through the process.
www.painfreetaxes.ca
service@painfreetaxes.ca
This is a normal part of the self-assessment process we have in Canada in particular since returns are usually electronically filed without documentation. It is not what you would call an audit and it isn't usually triggered by anything considered suspicious or fraudulent on your tax return.
It is important however to provide the correct information in the requested amount of time for your review to avoid having your expenses reversed. Otherwise you may owe CRA back some money.
This is something that I help my clients with as part of my service in order to save them headaches.
If for some reason CRA rejects your expenses during a review, that doesn't mean they can't be reinstated. Often they just need more documentation.
In one case I had a client with $18,000 worth of medical that was rejected partly because insufficient information was provided and partly because CRA had misinterpreted some of the information. The client thought CRA was refusing to allow the claims unfairly, and he was right. In this case, because it was complicated, I opted to file a Notice of Objection on his behalf and formally request a formal review of this decision. I also submitted the correct information that hadn't been submitted originally by his prior service provider. In this case, almost all the claims were reinstated except for a couple of things we had advised him were not going to be accepted already.
This case took a lot of work and follow up and quite a bit of effort to make a clear picture for CRA to understand, in part because there were complex Medical Travel circumstances and some documentation was difficult to obtain.
However, in the end we were very successful, because we cared enough to help. And it didn't cost the client anything extra.
If you have had deductions rejected by Canada Revenue Agency (CRA) you should talk to us for free. Maybe they can be reinstated, if we can help you through the process.
www.painfreetaxes.ca
service@painfreetaxes.ca
Tuesday, 24 September 2013
Extended Health Benefits Frequently Not Included as a Deduction. Leaving hundreds of your refund unclaimed.
I spend a lot of time educating my clients about what is a Medical Expense that they can use that they haven't thought of. The most frequently overlooked is the Extended Health & Dental plans. SOMETIMES these show up on your T4, but more often than not the employer/payroll deducted plans only show on your paystubs.
There is a common misperception that if your Health Plan comes off your payroll it is not deductible, but the employee paid portion is. Companies sometimes will issue a letter stating the amount paid but that is rare, normally all you will receive is your paystubs and we can use either each paystub or the final one from the year to determine the total paid for the year. Often retirees get this type of expense deducted off a pension cheque and get a letter once a year that contains the amounts for their plans.
In many cases their former tax professional has not mentioned this to them, even though the health plan was obvious from their medical receipts or statements.
For many families this is the most common medical expense and can make the difference between having enough to claim and not (because 3% of your income is subtracted from your expenses like a deductible).
I have done adjustments for at least 6 clients recently for clients to claim this type of expense that has been overlooked for years. The average refund for these adjustments is at least $900-$1200 per family. Sometimes more if many years have gone by.
Adjustments can be made for up to 10 years. Contact us for a free review of your return. service@painfreetaxes.ca
www.painfreetaxes.ca
There is a common misperception that if your Health Plan comes off your payroll it is not deductible, but the employee paid portion is. Companies sometimes will issue a letter stating the amount paid but that is rare, normally all you will receive is your paystubs and we can use either each paystub or the final one from the year to determine the total paid for the year. Often retirees get this type of expense deducted off a pension cheque and get a letter once a year that contains the amounts for their plans.
In many cases their former tax professional has not mentioned this to them, even though the health plan was obvious from their medical receipts or statements.
For many families this is the most common medical expense and can make the difference between having enough to claim and not (because 3% of your income is subtracted from your expenses like a deductible).
I have done adjustments for at least 6 clients recently for clients to claim this type of expense that has been overlooked for years. The average refund for these adjustments is at least $900-$1200 per family. Sometimes more if many years have gone by.
Adjustments can be made for up to 10 years. Contact us for a free review of your return. service@painfreetaxes.ca
www.painfreetaxes.ca
Monday, 23 September 2013
Accountant told his client he couldn't claim his move to Ontario and back... We fixed it, and got a new client.
One of our clients had moved to Ontario and after about a year decided to move back to BC. Their accountant told them repeatedly that they could not claim the moving expenses for either move. The accountant was wrong and would have cost them thousands they were entitled to. Fortunately, we were able to set this right.
Moving expenses can only be claimed against earnings in the new location. Because they never really earned much income in Ontario, most of the expenses for the move to Ontario were lost, however the move back to resume working in BC was completely legitimate. CRA did review the claims and accepted them.
Not only did our advice save these clients thousands in this case, they also have told us that while our fees are much more reasonable than his former accountant, we have provided more tax saving advice than they ever did for triple the fees.
Moving expenses are a commonly missed expense due to misperceptions about the requirements to make the claim or whether it is worthwhile.
For free advice or a review of your moving expenses give us a call or email us.
www.painfreetaxes.ca or service@painfreetaxes.ca
Moving expenses can only be claimed against earnings in the new location. Because they never really earned much income in Ontario, most of the expenses for the move to Ontario were lost, however the move back to resume working in BC was completely legitimate. CRA did review the claims and accepted them.
Not only did our advice save these clients thousands in this case, they also have told us that while our fees are much more reasonable than his former accountant, we have provided more tax saving advice than they ever did for triple the fees.
Moving expenses are a commonly missed expense due to misperceptions about the requirements to make the claim or whether it is worthwhile.
For free advice or a review of your moving expenses give us a call or email us.
www.painfreetaxes.ca or service@painfreetaxes.ca
Did you have childcare expenses that went to waste?
Childcare expenses like daycare or day camps usually have to be claimed by the lower income spouse, so if that person doesn't have any income sometimes the expense goes to waste.
However sometimes the tax preparer (or tax software) hasn't asked a few questions like:
- was the lower income earner a student during the year?
- was the lower income person infirm (ill) for more than 2 weeks?
- was the lower income person in prison during the year?
We have made many corrections for people in this situation who were told that they couldn't claim their childcare or the tax software simply omitted it. Depending on the amount of the expense and the higher income earner's income, this change could get you back 25-40% of the value of the childcare expense.
Also, if in fact it can't be used as childcare, perhaps the expense would also qualify as an Arts Credit or Fitness Credit depending on the activity. In some cases when the expense isn't beneficial for one credit, it may qualify for the other.
Feel free to contact us to review your prior returns if you aren't sure if you have lost out on claiming childcare you thought you could claim.
www.painfreetaxes.ca
service@painfreetaxes.ca
However sometimes the tax preparer (or tax software) hasn't asked a few questions like:
- was the lower income earner a student during the year?
- was the lower income person infirm (ill) for more than 2 weeks?
- was the lower income person in prison during the year?
We have made many corrections for people in this situation who were told that they couldn't claim their childcare or the tax software simply omitted it. Depending on the amount of the expense and the higher income earner's income, this change could get you back 25-40% of the value of the childcare expense.
Also, if in fact it can't be used as childcare, perhaps the expense would also qualify as an Arts Credit or Fitness Credit depending on the activity. In some cases when the expense isn't beneficial for one credit, it may qualify for the other.
Feel free to contact us to review your prior returns if you aren't sure if you have lost out on claiming childcare you thought you could claim.
www.painfreetaxes.ca
service@painfreetaxes.ca
Sunday, 22 September 2013
Getting a Disability Tax Credit Approved is Only the First Step. One client missed claiming $9600 of credits.
Time after time I have helped clients get credits that were missed relating to a Disability Tax Credit, the unusual thing is they are people who already had the credit approved and thought they had received the benefit from it already.
People apply for the credit and then once approved, don't make all the adjustments needed to get everything they are entitled to.
In this case, the clients received a credit for their child, backdated to when his ADHD became severe enough to qualify. Once processed, CRA automatically sent them a revised Child Tax Benefit based on the qualification and after receiving this large sum of money the client assumed that was all there was to it.
However, I discovered while helping them with a review of their medical expenses that they had not in fact claimed the actual credit and revised their returns going back for several years.
Initially they didn't believe me, but I guaranteed them that if they didn't receive this money I would refund all the fees for the related work to do the adjustments.
This got them back $9600 plus interest just in time for Christmas. Turns out the timing was perfect for them and they really needed the money when it arrived.
If you think you might qualify for the Disability Tax Credit, or aren't sure having one has benefited you, contact us at service@painfreetaxes.ca and we can look into it for you at no charge.
Our company provides mobile service in Victoria, BC and remote service Canada Wide through the internet, phone and fax.
People apply for the credit and then once approved, don't make all the adjustments needed to get everything they are entitled to.
In this case, the clients received a credit for their child, backdated to when his ADHD became severe enough to qualify. Once processed, CRA automatically sent them a revised Child Tax Benefit based on the qualification and after receiving this large sum of money the client assumed that was all there was to it.
However, I discovered while helping them with a review of their medical expenses that they had not in fact claimed the actual credit and revised their returns going back for several years.
Initially they didn't believe me, but I guaranteed them that if they didn't receive this money I would refund all the fees for the related work to do the adjustments.
This got them back $9600 plus interest just in time for Christmas. Turns out the timing was perfect for them and they really needed the money when it arrived.
If you think you might qualify for the Disability Tax Credit, or aren't sure having one has benefited you, contact us at service@painfreetaxes.ca and we can look into it for you at no charge.
Our company provides mobile service in Victoria, BC and remote service Canada Wide through the internet, phone and fax.
Saturday, 21 September 2013
Can't Figure Out WHY you Owe on Your Taxes? This client overpaid more than $22,000 plus penalties.
We had a client who was very behind on his taxes because every time he filed he ended up owing, a lot. So he avoided it like the plague.
We took a close look at his return, and he was right, it didn't make any sense... he shouldn't owe. But he was missing information and his previous (Major Tax Firm) hadn't noticed. All he was filing with was a T4, and owing $5000 each year. Obviously something was seriously wrong, especially since he worked at a bank. This should have been noticed by anyone doing his tax return and he shouldn't have been left wondering why.
It turned out his employer had a generous RRSP plan through payroll, and he was getting a LOT of RRSP's held back off his pay and matched, but never bringing in the receipts with his taxes when it was time to file.
We helped him obtain those missing receipts and got him back over $22,000 from previous returns and reversed all his prior late filing penalties of $10,000 (because if you don't really owe, you don't pay penalties). As well as refunds in all the years we were filing that he thought he was going to owe again.
Also, because he hadn't been using his RRSP receipts, his Home Buyer Plan repayment was being added to income, which we also had corrected.
In addition, because his RRSP's were so large, he was over-contributing and about to be penalized on his oversize RRSP (by a 1% penalty per month). But we eliminated that overpayment by adjusting his returns so that his Home Buyer Plan was paid out early and advised him to stop contributing so much to the RRSP. This out of the box strategy saved him a lot in penalties as well.
We also helped him claim a lot of medical and dental items he didn't know he was missing.
Contact us to look over your old returns at service@painfreetaxes.ca
We took a close look at his return, and he was right, it didn't make any sense... he shouldn't owe. But he was missing information and his previous (Major Tax Firm) hadn't noticed. All he was filing with was a T4, and owing $5000 each year. Obviously something was seriously wrong, especially since he worked at a bank. This should have been noticed by anyone doing his tax return and he shouldn't have been left wondering why.
It turned out his employer had a generous RRSP plan through payroll, and he was getting a LOT of RRSP's held back off his pay and matched, but never bringing in the receipts with his taxes when it was time to file.
We helped him obtain those missing receipts and got him back over $22,000 from previous returns and reversed all his prior late filing penalties of $10,000 (because if you don't really owe, you don't pay penalties). As well as refunds in all the years we were filing that he thought he was going to owe again.
Also, because he hadn't been using his RRSP receipts, his Home Buyer Plan repayment was being added to income, which we also had corrected.
In addition, because his RRSP's were so large, he was over-contributing and about to be penalized on his oversize RRSP (by a 1% penalty per month). But we eliminated that overpayment by adjusting his returns so that his Home Buyer Plan was paid out early and advised him to stop contributing so much to the RRSP. This out of the box strategy saved him a lot in penalties as well.
We also helped him claim a lot of medical and dental items he didn't know he was missing.
Contact us to look over your old returns at service@painfreetaxes.ca
Voluntary Discolure saved our client $10,000
We recently assisted a self-employed client who was filing from 2010-2012, and had received a demand to file the 2011 Tax Return. It turned out they also had to file GST/HST returns from 2009-2012 but had not received any demands about this yet - but we knew filing the tax returns would trigger this.
We advised our client and filed the outstanding 2011-2012 tax returns, and then we filed all the 2010 return and all the GST/HST Returns for 2009-2012 with a Voluntary Disclosure Request as they were all late filed. Immediately upon receiving the 2011/2012 tax returns CRA demanded the GST/HST returns, however we had already submitted them with Voluntary Disclosure which were acknowledged only 3 days before they issued the demand.
CRA accepted the Voluntary Disclosure for our client, and having proceeded this way has saved the client at least $10,000 in penalties. CRA could have refused to accept this, however it was worth the effort to try, and in this case it paid off in a big way for our client.
We advised our client and filed the outstanding 2011-2012 tax returns, and then we filed all the 2010 return and all the GST/HST Returns for 2009-2012 with a Voluntary Disclosure Request as they were all late filed. Immediately upon receiving the 2011/2012 tax returns CRA demanded the GST/HST returns, however we had already submitted them with Voluntary Disclosure which were acknowledged only 3 days before they issued the demand.
CRA accepted the Voluntary Disclosure for our client, and having proceeded this way has saved the client at least $10,000 in penalties. CRA could have refused to accept this, however it was worth the effort to try, and in this case it paid off in a big way for our client.
Wednesday, 18 September 2013
RRSP Pitfalls - Being Thorough Brings Extra Tax Savings
New clients came to us that hadn't filed for several years and on review we discovered some information didn't make sense.
The couple had RRSP withdrawals but no evidence they had ever put money in RRSP's in all the years we were preparing. We looked into it further by contacting CRA and discovered over $2000 of RRSP contributions were never deducted, mainly from 2003-2004. The result of fixing this was additional tax savings of over $500.
They would have been double taxed on this money, first when they earned it, and again when they took it out of the RRSP; because they never got a tax break when they put it the RRSP to remove it from income when it was earned.
Adjustments can be made to filed tax returns for up to 10 years. Contact us for a free consultation if you aren't sure about your RRSP deductions or withdrawals at service@painfreetaxes.ca we serve clients worldwide with Canadian Personal Income Tax Returns.
The couple had RRSP withdrawals but no evidence they had ever put money in RRSP's in all the years we were preparing. We looked into it further by contacting CRA and discovered over $2000 of RRSP contributions were never deducted, mainly from 2003-2004. The result of fixing this was additional tax savings of over $500.
They would have been double taxed on this money, first when they earned it, and again when they took it out of the RRSP; because they never got a tax break when they put it the RRSP to remove it from income when it was earned.
Adjustments can be made to filed tax returns for up to 10 years. Contact us for a free consultation if you aren't sure about your RRSP deductions or withdrawals at service@painfreetaxes.ca we serve clients worldwide with Canadian Personal Income Tax Returns.
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