1 M. Todd Achen, C.A. Chartered Accountant Todd’s Tax Tips and TrapsPCFAC PresentationTuesday, October 19, 2010
2 Todd’s Tax Tips and Traps Every individual or company is unique, as are their planning goalsPlease seek your own expert financial advise prior to implementing any good tax planAvoid tax schemes, as if it sounds to good to be true, it likely is and should be avoidedPlan and understand your tax and enjoy the more effective after tax cash flow
3 Credit ProfessionalsBooking of a bad debt – specific write off and use of a contra AFDATip: get cash back for your company, as tax deductible if done over 25% cash offsetTrap: Completely writing off the books, loses place maker for debt on books. General provision is not tax deductible. Long term nature, and reversals.
4 Credit Professionals Recovery of 5% GST from a bad debt write off As GST was remitted on the invoiced amount, you can claim a GST ITC to get 5% tax back to assist with the mitigation of your bad debtBook keeper may book it wrong unless asked, as $50k GST to claim on every $1 Million bad debtTip: Ensure that accountant books correctly, as not to offset your loss with a 5% cash backTrap: must be properly booked into regular GST returns, and ITC claimed within 2 years (4 years for smaller co’s)
5 Credit ProfessionalsCrossborder Performance or Financial Guarantee Fees should be charged for at FMV ratesLarger credit spread, so of higher value nowCanadian corporate tax 10% less than USACRA Precedence setting GE Case here in Canada, where an inherent guarantee is discountedTip: Work with Tax Professionals to get 10% cash flow for company if US guarantees, as Canada’s tax rate is lowerTrap: Could be a CRA tax penalty for your company, had the crossborder transfer price should have been in place
6 Small BusinessIf you are a Canadian Private Controlled Corporation, there is up to $0.75 Million in free capital gains exemption:750k Capital gain = $375 Taxable capital gain = up to $150k cash savingsTip: Seek professional assistance, as need to perfectly “purify” the company for sale at least 2 years priorTrap: Small self-employees contractors may not qualify as a professional corporation needs at least 5 employees
7 Small BusinessUse of a Health Plan, for extended coverage, and seeking expanded coverage on a wider list of medical items for family member employeesTip: Tax deductible, can extend to Health Spending accounts (see next section)Traps: Managing administration and premium costs, seek experienced advice
8 Individual Tax Tips Health Spending Account (HSA): Allows you to spend pre tax dollars, instead of tax paid cash, saving the effective tax value of up to 40%Just like the CRA tax deduction for medical expenses, but no minimum threshold to surpassE.g. 2 kids with braces2 Xs $7.5k = $15k, less $2.5k X 2 max benefit cap, less $4k HSA (40% tax savings on remaining $10k), = $6k actual net cash outlay, not $15kTip: Save 40% tax value by having large medical events covered by topping up your employment HSA limitsTrap: Have a plan to deposit monthly for estimated amounts, only have 1 year to catch up
9 Individual Tax Tips Spousal RRSPs: Attribution of income between spouses, if not done in proper format E.G. buy sharesTip: Get caught up one year, usually put in Feb/11 for 2010, should be putting in the 2011 value tooTrap: While PM Harper now allows certain pension and RRIF income to be shared, it is not until the youngest spouse is 65. So need to plan to take out RRSP’s before 65 if planning to retire early
10 Individual Tax Tips 1% Spousal Loan Do for life or 20 or 25 years Once in a life-time opportunity, as first time ever this rate has been so lowCRAs approved rateTip: Just like gifting tax free earning potential to your spouseTrap: Attribution of income between spouses, if not done in proper format, so interest MUST be paid by Jan 30 of the year following each year
11 Individual Tax Tips CPP Double Dip Collect early at age 60, and also then cease future CPP contributionsTip: CPP values or age limits are sure to change, so double dip your CPP as you deserve it.Trap: Ensure that you are not working for at least 2 full months, 1 before applying, 1 afterGet your personal CPP update with on line request
12 Individual Tax Tips TFSA: New, but if you have not started, you should:2009/10/11 = $15k Xs 2 = $30k TFSAA rare gift from the government as no tax attribution to split with spouse or kid >18Tip: Top up amounts to wife, or start a fund for your kids to buy a house, as grows over timeTrap: only redeposit the annual limit “once per year” to avoid over contribution penalties
13 Individual Tax Tips RESP: Top up if not already done so, as free 20%: Tip: Have the grandparents fund the RESP via gift to the parents, as education is a great gift to give and tax efficientTip: If kids are in high school, now is the time to consider changing over to secured investments like GIC’s to protect capital to ensure that you have cash for themTrap: Lots of paper work for RESP withdrawals, so plan a head and have GIC’s mature in the summer prior to school starting
14 Individual Tax Tips The Forgotten Tax Credits Worth thousands if qualified, as the government has them there to support their policies:Tip: If separated from spouse, ensure that you use the “equivalence to spouse” credit as better than a child creditTip: If disabled spouse, child or parent, seek a medical certificate “one-time” for disability creditTip: If parent has new medical and living costs, seek disability credit and medical costs e.g. apportioned nurse care on monthly bill. Up to $10k per child is deductible, so good to have a tax efficient plan
15 Individual Tax TipsSelf-Directed RRSP house mortgage. Not a tax deductible mortgage or HELOC on investment income.Why have the bank lend to you, if you can lend it to yourself?Why be concerned to be in the market, if you can not afford market losses?Every major bank does it, but not ATB. Some CMHC feesTip: great way to get premium (twice a GIC rate) returns, and consolidate service providers and safeguard assets (as loan is to yourself)Trap: ensure to reinvest the RRSP once it is cash RRSP on the portion of the loan paid.
16 Individual Tax Tips If it sound too good to be true, it is: E.g. Offshore Swiss bank accountsE.g. Artwork Charity donationsCanadian government is closing the door on tax avoidance schemes with new 2010 anti-avoidance reporting requirements and penaltiesMatter of policy, as still allow for flow through shares. But remember just having a tax shelter does not make it a good investmentDo your research for what fits you, understand it.Everyone has the right to efficiently manage your tax affairsHave a Tax Plan as Taxes are likely your highest living 40% and a good plan can lead to better after tax cash flowQuestions ??
17 M. Todd Achen, CA Been a Chartered Accountant for over 20 years Graduated of U of Saskatchewan, BComm w Majors in Accounting and General BusinessArticled with PwC Calgary and also E&Y TorontoCrossborder comptroller, credit and risk management, and taxation experience in natural gas, oil, NGL’s, electricity and services, while at companies like:Novagas, ATCO, TransAlta, and Encana for the last 10 yearsLoves international travelling ever since a year long honey-moon around the world (in part from taxes saved from RRSP’s),Gives international travel tips and also saves individuals with:Todd’s Tax Tips and Traps.