Drawbacks of a Family Trust part 1
Filed Under Alberta, Contributors, Finances, Kustom Design, Tax, calgary, family trust · Tagged: cost family trust, CRA, family trust drawback, set up trust
Over the last number of blogs we’ve covered many of the benefits of the Family Trust. As you will see after we cover some of the main drawbacks of a trust is that the benefits of a family trust far outweighs the drawbacks!
One of the main drawbacks of a family trust is the cost associated with setting up the family trust. Setting up a family trust requires legal documentation being drafted, thus the majority of the cost is the legal fees to set up the trust. Fees to set up the Family Trust can range anywhere from $2,500 to $8,000, with the average cost being around $5,000 for set up. The fees vary depending on your situation. For example do you need to set up a corporation, set up a holding company, or do you have existing corporations that you want to have the trust own. Although this is costly, keep in mind it is a one time fee. Once it is set up it is quite simple to maintain annually with the major annual cost being the T3 Return filing, which Kustom Design’s T3 prices start at $350 per year. In comparison to the value you get for you and the next generations the price is minimal.
Another drawback of the Family Trust is that CRA has a 21 Year Deemed Disposition Rule. This rule states that a Trust has a Deemed Disposition on assets 21 years after they are acquired, and every 21 years thereafter. The 21 Year Deemed Disposition Rule can be avoided by distributing property to the Beneficiaries before the 21st year or by providing in the Trust that the property will indefeasibly vest in the beneficiaries prior to the deemed disposition.
Another potential issue with Family Trusts is If income is left inside a Trust, the highest marginal tax rate is paid. (Unless it is a Testamentary Trust) Also, in most cases Losses cannot be flowed through like income and gains, however losses can be claimed against Trust Income. Trusts take tax planning to maximize, when used properly they are extremely beneficial and will save you a lot of tax, however if you do not plan properly you may pay more tax.
Taxpayers’ Ombudsman
Filed Under Alberta, Contributors, Finances, Kustom Design, Tax, calgary · Tagged: CRA, taxpayer service rights, Taxpayers’ Bill of Rights, Taxpayers’ Ombudsman
If you feel that your service rights have been neglected while dealing with the CRA, you can always contact the Taxpayer's Ombudsman and make a complaint. It is the Taxpayers' Ombudsman's responsibility to ensure that the taxpayers' rights are respected by the CRA at all times. The service rights outlined in the Taxpayers’ Bill of Rights include numbers 5, 6, 9, 10, 11, 13, 14 and 15. Please check my previous blog entry for the complete Taxpayers’ Bill of Rights.
The Taxpayers’ Ombudsman provides independent and impartial reviews of complaints about how the CRA serves and treats taxpayers, and addresses systematic problems that affect many taxpayers.
Mistakes, undue delays, misleading information and staff behavior on the part of the CRA fall under the service-related complaints that the Taxpayers’ Ombudsman takes care of.
Through the assistance of the ombudsman, the CRA has issued apologies, released bank accounts they had seized, cancelled penalties and interests they were charging, reviewed some of its policies and procedures and in some cases, ended collection activities.
Please note that the Taxpayers’ Ombudsman’s responsibilities does not include complaints that are not service related such as those related to tax policy, program legislation, matters that are before the courts and matters that other statutory bodies would deal with. In addition to this, the Taxpayers’ Ombudsman does not direct the CRA to take action.
Before contacting the Taxpayers’ Ombudsman, you should allow the CRA to resolve your complaint within a reasonable amount of time by trying to resolve your issue with the CRA employee you have been dealing with or with the employee’s supervisor. If you are not satisfied with the way they dealt with you, you may file a formal complaint with the CRA by submitting a completed Form RC193, Service-Related Complaint. If you are still not satisfied with the way the CRA dealt with your complaint, you may contact the Office of the Taxpayers’ Ombudsman. There are no costs with filing a complaint or for any service rendered by the Taxpayers’ Ombudsman.
Taxpayers’ Rights
Filed Under Alberta, Contributors, Finances, Kustom Design, Tax, calgary · Tagged: CRA, Tax Season, taxpayer, taxpayer bill of rights, taxpayer rights
It’s only fitting to end the tax season with some helpful information for taxpayers. So this week’s blogs would be all about tax, tax and more taxes!
Let’s start by reviewing what rights you are entitled to as a taxpayer.
1. You have the right to receive entitlements and to pay no more and no less than what is required by law.
2. You have the right to service in both official languages.
3. You have the right to privacy and confidentiality.
4. You have the right to a formal review and a subsequent appeal.
5. You have the right to be treated professionally, courteously, and fairly.
6. You have the right to complete, accurate, clear and timely information.
7. You have the right, as an individual, not to pay income tax amounts in dispute before you have had an impartial review.
8. You have the right to have the law applied consistently.
9. You have the right to lodge a service complaint and to be provided with an explanation of our findings.
10. You have the right to have the costs of compliance taken into account when administering tax legislation.
11. You have the right to expect us to be accountable.
12. You have the right to relief from penalties and interest under tax legislation because of extraordinary circumstances.
13. You have the right to expect us to publish our service standards and report annually.
14. You have the right to expect us to warn you about questionable tax schemes in a timely manner.
15. You have the right to be represented by a person of your choice.
I would like to encourage you to get familiar with your rights as taxpayers to make sure that you are treated professionally, courteously and fairly especially during this tax season. Whether you are simply filing your personal income tax returns, getting tax information or are being reassessed, it is important that the CRA respects all the service rights you are entitled to according to the Taxpayer Bill of Rights.
Step 3: Legally Minimize Taxes Paid part 1
Filed Under Alberta, Contributors, Finances, Kustom Design, Tax, calgary · Tagged: CRA, Financial Freedom, legal minimize tax, Minimize tax, save tax, Supreme Court Canada
As we approach the deadline for filing taxes, I want to discuss the 3rd Step to Financial Freedom, Legally Minimize Taxes Paid, in detail.
Let’s look at the basis on how Canadians save taxes – We do not look at tax evasion or tax avoidance which are illegal. Instead, we look for ways to minimize taxes legally. According to the Supreme Court of Canada, which super cedes the CRA – You have the right to arrange your affairs in ways to minimize taxes.
We’ll review the top ways people are saving taxes on my next blog!
Making your Mortgage Interest Tax Deductible
Filed Under Alberta, Contributors, Finances, Kustom Design, Tax, calgary, tax deduction · Tagged: CRA, mortgage interest, qualified investment, retirement portfolio, tax refund
Introducing a powerful way for you to turn the largest debt of your lifetime into annual tax refunds, knock years off your mortgage, and build a larger retirement portfolio at the same time, using legal tools from the CRA. Because you are able to deduct interest paid on money borrowed to invest it is all about paper trail. To be able to claim this deduction you must be able to show that the borrowed money did get placed into a qualified investment. The first step to making your mortgage interest tax deductible is to get a re-advanceable mortgage, such as a home equity line of credit. Next you must get as much liquid cash as you can from assets and investments. Use this liquid cash to pay down your mortgage, and then reborrow the same amount that you paid down. Use this newly borrowed money to purchase new qualified investments and you now have a legitimate tax deduction on that portion of your mortgage interest. Now with any tax savings or other lump sums of money you get, continue to pay down your mortgage, reborrow and invest. Use this method to continue to increase your tax deduction and build your retirement portfolio!
Employment Expenses
Filed Under Alberta, Contributors, Finances, Kustom Design, Tax, calgary · Tagged: CRA, Declaration of Conditions of Employment, Employment Expenses, T2200, T4 income
Are you or someone you know employed and paying for expenses that are not reimbursed by your employer? Many people do not know that employment expenses can be deducted. For example if you had to carry tools for work, needed to drive your vehicle or needed a computer for work and you had to pay for the items you may be able to deduct them on your taxes. If you were reimbursed for these expenses you would not claim them on your taxes, however if you were reimbursed for them, but your employer included the reimbursement in your T4 income, then you would claim the expenses. The key to claiming these expenses is getting a T2200 (Declaration of Conditions of Employment) signed by your employer. CRA typically requires this for each year you are claiming expenses. Business Owners deduct all kinds of expenses, why can’t employees deduct some as well!
Using a Private Health Service Plan (PHSP)
Filed Under Contributors, Finances, Kustom Design, Tax, calgary, child care expense · Tagged: Cost Plus Plan, CRA, dental, medical, PHSP, Private Health Service Plan, vision
A Private Health Service Plan, also referred to as a PHSP or Cost Plus Plan, is a legal plan within CRA’s guidelines whereby a company can legally deduct medical, dental and vision expenses. For some people with larger medical or dental bills this turns out to be a substantial savings. Typically a person who is the owner or shareholder of their company must take out money from their business to pay for these expenses, thus they are typically taxed on that money personally and they don’t get any tax deductions. You may be asking, “Well, don’t I get a tax credit for medical expenses?” You may receive a small tax credit for medical expenses, but it is only a small percentage of what you can save with a PHSP. For example let’s say you have a Corporation and you, as an employee, want a $2,500 laser eye surgery. With a PHSP the after tax cost is $2,375, derived from the 2,500 cost plus a 10% admin fee less corporate tax savings (14% in Alberta) However, the after tax cost to you as an individual could be close to $4,100, derived from the $2,500 cost plus the taxes paid on the money you took out of your corporation to pay for the eye surgery. The more the medical, dental and vision expenses…the more the savings!
Beware slackers!
Filed Under Tax · Tagged: calgary, CRA, interest, late filing, penalties, Tax Return, taxpayer
Taxpayers who are late with their tax returns and who owe taxes will be charged interest and late filing penalties. Interest is charged on the outstanding balance starting the day after the due date of the return and is compounded daily.
Interest are subject to change quarterly so make sure you check the CRA website regularly for updated rates (http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/ntrst/menu-eng.html).
The late filing penalty is 5% of the outstanding balance, plus 1% of the outstanding balance every month that your return is late, to a maximum of 12 months.
Remember, prepare your tax returns well ahead of the due date to avoid paying interests and penalties!
Procastinate later — interests and penalties for late tax returns
Filed Under Tax · Tagged: calgary, CRA, interests, late filing, late tax returns, penalties, Personal Income Tax Return
We are weeks away from the due date of our Personal Income Tax Returns. If you have not started on your returns yet, this might change your mind. Did you know that the CRA charges interests and penalties if you owe taxes and file your taxes after the due date? Yes they do! The CRA charges interests on the outstanding amount starting the day after the April 30th due date and is compounded daily.
Not only that, the CRA charges a late filing penalty of 5% of the outstanding balance plus 1% of the oustanding balance every month that your return is late, to a maximum of 12 months.
Remember: Prepare your tax returns way ahead of time. The earlier you file your tax return the better!
If you have any tax questions, let the tax guru know!
Tax Season has arrived!
Filed Under Tax · Tagged: accountant, calgary, CRA, Personal Income Tax Return, T slip, Tax Return, Tax Season
Tax Season has officially begun. It is always daunting this time of year when you have to collect and organize your t-slips, receipts and what nots. Here are a few tips that will help you get through the tax season in one sane piece.
1. April 30th is the deadline to file your personal income tax return so prepare all the required paperwork well ahead of this due date. Remember that the CRA charges interests and penalties for late returns.
2. Look at the several ways you can file your tax returns and choose wisely. Consider the cost, time and the risk factors when choosing. You can either go through an accountant, online, manual filing, etc. Check out this link to learn more — www.kustomdesign.wordpress.com.
3. Be aware of important dates related to your tax returns — when you should expect your T4, T3’s, etc.
4. Make sure you are familiar with the tax credits and deductions that apply to you. You can go directly to the CRA website or consult a tax specialist to help you out.
