Tax Questions

[DanH]

RRSP trustee fees have not been deductible since 1996.

Paragraph 20(1)(bb) of the Income Tax Act allows taxpayers to deduct "Investment Counsel Fees. "Administrative" or "bookkeeping" fees relate more to custodial fees. But these things are only deductible for NonRRSP (i.e. taxable) accounts. I wrote a couple of articles on this where I challenge the industry's practice regarding deductibility (which in the end seems appropriate but food for thought nonetheless).

From April 2004: Are fees deductible? and Deductibility of fees

[dougd]

Drats! Thanks for the feedback. It was sure looking good there for awhile.

Doug

[Jo Anne]

Drats! Thanks for the feedback. It was sure looking good there for awhile.

Doug

What? You believe Dan, but you didn't believe me or Adrian?

[dougd]

It's not a question of "believing" anyone. Your comment only said "certain" costs without definition. Given the consensus developed with responses from a number of contributors led me to the conclusion I was barking up the wrong tree. I won't claim the fees.

Cheers,

Doug

[Jo Anne]

It's not a question of "believing" anyone. Your comment only said "certain" costs without definition. Given the consensus developed with responses from a number of contributors led me to the conclusion I was barking up the wrong tree. I won't claim the fees.

Cheers,

Doug

OK.

Next time you have a tax-related question, please keep in mind that I'm an accountant.

[Brix]

Can't seem to find a convincing, authoritative answer to this newbie question.

Normally interest which can be considered to have accrued in a tax year on strip bonds and GICs is taxable, even if the cash is not received until a subsequent year.

I keep encountering suggestions, however, that tax is payable on the interest from one-year GICs only in the year the interest is received and the interest income reported.

My present circumstances happen to be such that this seems far too good to be true, and frankly I can't think of a rationale which would explain why it should be so.

[Bylo Selhi]

Can't seem to find a convincing, authoritative answer to this newbie question.

It's been that way ever since CRA changed the rules many years ago to make interest taxable as accrued. Prior to that people used to hold compound interest bonds in taxable accounts letting the interest accrue tax-deferred to maturity. (Imagine pseudo-RRSPs that some people created in the early '80s out of 30-year GoC strips that yielded 15%.)

My present circumstances happen to be such that this seems far too good to be true, and frankly I can't think of a rationale which would explain why it should be so.

Probably to appease the folks who benefited from the previous regime. This "quirk" also has some useful tax planning opportunities, e.g. buy a 30-day cashable 1-year GIC mid year and then decide if you want to cash it in late December (to crystallize interest and pay tax on it in the current year) or hold it into the next year (to defer the interest and tax owing until the following April.)

Added: Line 121 - Interest and other investment income

Term deposits, guaranteed investment certificates (GICs), and other similar investments
On these investments, interest builds up over a period of time, usually longer than one year. Generally, you do not receive the interest until the investment matures or you cash it in...

The amount of income you report is based on the interest you earned during each complete investment year. For example, if you made a long-term investment on July 1, 2006, report on your return for 2007 the interest that accumulated to the end of June 2007, even if you do not receive a T5 slip. Report the interest from July 2007 to June 2008 on your 2008 return.

Note: Your investment agreement may specify a different interest rate each year. If so, report the amount shown on your T5 slip, even if it is different from what the agreement specifies or what you received. The issuer of your investment can tell you how this amount was calculated.

For most investments you made in 1990 or later, you have to report the interest each year, as you earn it...

[Brix]

Aha! CRA's rather arcane concept and phrase, "complete investment year" was missing from my frantic attempts to google up an answer.

Thanks very much, Bylo.

[like_to_retire]

complete investment year

I also believe that once you decide on the "year' you're going to use, then you have to be consistent every year after that...

ltr

[Arby]

My mother moved 6 months ago and I diligently updated the address on all of her financial accounts, however a few items are still being sent to her old address. For anyone who has moved recently, you may want to check the following items to ensure any correspondence has been sent to the correct address:

- CRA: I updated the address on CRA's "My Account" website 6 months ago, but the Netfile access code was recently mailed to the old address. When I called CRA to find out why the mailing was sent to the old address, they said the cutoff date for 2008 address changes was July 2007 !! Any changes after July 2007 would not be reflected on CRA mailings for the 2008 tax year.

- Mutual Funds: A T5 slip for a mutual fund held in a TDWH account was sent directly from the mutual fund company to the old address. All other T-slips from TDWH were sent to the correct address. TDWH said they automatically inform fund companies about address changes on TDWH accounts, but some fund companies are not diligent in updating their addresses.

[AltaRed]

I have experienced that for years - having often moved every 2-3 years. It has always been a PITA keeping track of what should be expected and when and where.

[brucecohen]

Having moved (way too) often, I've learned to buy mail forwarding from Canada Post for at least a full year.

[jf]

T4A for RESP.

The account is at Templeton. I made sure that they were informed about the address change when we moved. First, I called to notify them of the change. Then, I called again after a couple of days to verify that the new address is on file. All was well and good and I started receiving the statements at the new address. The statements have been delivered to the new address for the past 4+ years.

Now, it was the first time we did RESP withdrawal last year. I was expecting some form (turns out to be the T4A) at around the time I get my other slips (T4, T5, etc). I was not getting any, so I called them. It turns out that the address of my kids have not been changed and the T4A was sent to the old address (since the T4A is issued to the child). So they sent me a copy and I already got it, so that's fine.

BUT what bothers me now is that they said that they have no record that the one they sent to the old address has been returned to them. The T4A contains my child's SIN.

I hope they can deliver this electronically. My past employer used Ceridian for our payroll. Payslips and T4s were delivered via ePost.

-jf

[AltaRed]

BUT what bothers me now is that they said that they have no record that the one they sent to the old address has been returned to them. The T4A contains my child's SIN.

It is quite possible the people at the new address simply threw it out (with some small residual risk of that specific envelope being picked up by someone at the garbage dump before the machinery buried it). Not much you can do about that. Some people I know cannot be bothered to simply write "moved" on it and drop it back into the mail slot.

FWIW, we have received mail like that many times over the years. The important looking stuff gets "moved" written on it and re-mailed. Anything else we just tossed.

[jf]

FWIW, we have received mail like that many times over the years. The important looking stuff gets "moved" written on it and re-mailed. Anything else we just tossed.

Yeah, we do the same thing and that's what I'm hoping happened in this case.

[jb007]

According to some posts I read here Canada does not appear to have a gift tax, which is great news. I am interested in finding out more about this and how it work though. For example:

Would we need to include the total amount of the gifts received in our taxes?

also, doesn't large sums of money transfered into accounts raise red flags? would we then need to explain where the gifts are coming from and why?

and is there a frequency rule? ie <1 gift a year?


thanks for any input

[pitz]

According to some posts I read here Canada does not appear to have a gift tax, which is great news. I am interested in finding out more about this and how it work though. For example:

Would we need to include the total amount of the gifts received in our taxes?

No. There is no requirement to report gifts received on your taxes.

also, doesn't large sums of money transfered into accounts raise red flags? would we then need to explain where the gifts are coming from and why?

If more than $10k is transferred between accounts, then FINTRAC must be notified by your bank.

You must be cautious when receiving a gift from someone who may be insolvent or someone with a tax debt, as fraudulent conveyances can be reversed by the courts.

and is there a frequency rule? ie <1 gift a year?

No rules; its your money. If its a gift to a related minor, then you may be subject to attribution on any income derived from the gift.

[DanielCarrera]

According to some posts I read here Canada does not appear to have a gift tax, which is great news. I am interested in finding out more about this and how it work though.

I believe pitz answered your question, but I thought that you might be interested to know that under certain conditions you could pay a tax for giving certain gifts (gifts that increase in value).

- You give $10,000 to your best friend => nobody pays tax.

- You buy a block of stock for $5,000 and it goes up to $10,000, and then you give it to your friend. => You pay capital gains tax on the extra $5,000. From your friend's pov he got the stock at $10,000. If the stock later goes to $11,000 and then he sells, he only has to pay capital gains on the new $1,000.

You can imagine a similar situation if you gift a house, a painting or some other asset that has increased in value.

[brucecohen]

Also there are "attribution" rules that curb your ability to avoid tax by giving money or property to family members. If you give investment money to your spouse, income earned on that money is attributed back to you for tax purposes. If you give investment money to a minor child, interest and dividends are attributed back to you for tax purposes but capital gains are not.

[jb007]

thanks for all the input it was very helpful.

[stick_on_a_carrot]

Hi there. My wife and I are contemplating the possibility of renting out our house (only property we own), and then renting an apartment ourselves. I'm just wondering which of the following income tax scenarios would apply in this case.

1) Pay income tax on full amount collected from the rental of our house.

2) Pay income tax on the difference between the money collected on the rental of our house and the amount of rent we're paying for the apartment.

3) Pay no income tax at all since the house in question is our only 'owned' property.

4) None of the above.

Any information would be greatly appreciated.

[Nemo2]

I would presume that, the moment you rent out the unit, it ceases to be your principal residence and becomes an investment property for which you would pay tax on income minus expenses.

(However, I'd wait until someone more knowledgeable comes along......which shouldn't take long.)

[izzy]

Hi there. My wife and I are contemplating the possibility of renting out our house (only property we own), and then renting an apartment ourselves. I'm just wondering which of the following income tax scenarios would apply in this case.

1) Pay income tax on full amount collected from the rental of our house.

2) Pay income tax on the difference between the money collected on the rental of our house and the amount of rent we're paying for the apartment.

3) Pay no income tax at all since the house in question is our only 'owned' property.

4) None of the above.

Any information would be greatly appreciated.

As I'm sure you expected the least favourable interpretation will apply for tax purposes.-i.e. alternative no 1 (minus expenses)

If you own no other property on which you claim the principle residence exemption and you don't claim depreciation then alternative no 3 may apply but for capital gains purposes only and just for 4 years unless for example you moved across the country for work reasons (or other reasons which CRA deem acceptable) when you MAY be able to make a case for the principle residence exemption to apply for longer.In this case you should definitely seek informed professional advice as there would be pretty stringent conditions.

[AltaRed]

As I'm sure you expected the least favourable interpretation will apply for tax purposes.-i.e. alternative no 1 (minus expenses)

If you own no other property on which you claim the principle residence exemption and you don't claim depreciation then alternative no 3 may apply but for capital gains purposes only and just for 4 years unless for example you moved across the country for work reasons (or other reasons which CRA deem acceptable) when you MAY be able to make a case for the principle residence exemption to apply for longer.In this case you should definitely seek informed professional advice as there would be pretty stringent conditions.

The OP needs to read CRA IT-120 to get the facts. Alternative 1 (less expenses) as pointed out is correct over the longer term as a stand alone income producing property. It will be important to have an appraised Fair Market Value on the date of conversion for cap gains purposes.

Alternative 3 may apply for cap gains exemption purposes (but not investment income purposes) for a 4 year period and it will depend on an election under ITA Subsection 45(2) or (3) and provided CCA has not been declared. In that 4 year period, income must be declared (offset by expenses) as it is an income producing property during that period.

[stick_on_a_carrot]

Thanks for the information. As Izzy stated above, I figured we would likely be looking at scenario 1, but was hoping for #3 of course . Any capital gains implications shouldn't really apply, as we intend to rent out the house for a period of ~10 years, during which time we will be traveling a lot, then coming home and renting an apartment/basement suite until we can afford to take off again. At the end of that period we will be moving back into the house, so the only consideration should be the rental income collected during that 10 year period.