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5 BULLET FRIDAYS - Tax Mechanic News, Tips, Strategies

5 BULLET FRIDAYS - Tax Mechanic News, Tips, Strategies

Tax Mechanic
February 16, 2024

Bite size tax and finance related information that could save you $$$

Power of Capital Gains

Capital gains are a powerful and often underutilized tax strategy that can help individuals and businesses reduce their tax liability while building wealth.

You can offset capital gains by selling investments with capital losses in your non-registered accounts. Also, take advantage of the preferential tax treatment for capital gains, which are typically taxed at a lower rate than interest income.

When selecting your investments, keep in mind that capital gains and dividends from Canadian stocks are eligible for the capital gains tax exemption and the dividend tax credit, respectively. Consider incorporating these investments into your portfolio to minimize taxes.

The best tax strategies will depend on your unique financial situation and objectives. Whether you're planning for retirement, minimizing your current tax liability, or preparing for the future, a well-thought-out tax strategy can help you keep more of your hard-earned money and achieve your financial goals.

Let’s look at your portfolio and do some tax planning. Book a free, friendly, no-obligation call.

How to pay yourself at year’s end
to save on taxes

A frequent question that comes up in tax planning conversations with incorporated business owners as the year-end approaches is about the optimal method for paying yourself in 2023. The question pertains to how a corporation disburses income to a shareholder who also functions as an employee—either as salary or dividends.

Opting for corporate business income as salary (or a bonus) allows you to claim an income tax deduction for the salary, and payroll taxes like CPP and EI. Subsequently, you include the salary in your taxable income, subjecting it to personal tax rates.

Alternatively, your corporation can pay tax on its corporate income in the year it is earned and then distribute its after-tax corporate income to you as dividends in that year or a subsequent one. This allows for a lower tax rate (compared to salary) on eligible and non-eligible dividends, through the dividend tax credit. Read more!

The Maple Leafs Captain taking the CRA to the court.

Toronto Maple Leafs captain John Tavares is taking the Canada Revenue Agency (CRA) to court over a tax dispute exceeding $8 million. The issue arose from the CRA's reassessment of Tavares's 2018 tax return, claiming his income was $17.8 million higher than reported, resulting in a demand for $6.8 million in taxes plus $1.2 million in interest. Tavares, who signed a seven-year $77 million contract with the Leafs in 2018, argues that the discrepancy stems from a $15.25 million signing bonus, which he views as an inducement rather than salary. He asserts that this should qualify for a reduced tax rate under a Canada-US Tax Treaty provision. The appeal highlights the difference between bonus money and salary, emphasizing that bonuses are independent of playing time or other factors. The case has yet to be tried in court. Read more!

Guidelines for Home Office Expense

The Canada Revenue Agency (CRA) has updated its guidelines for claiming home office expenses for the 2023 tax year. The simplified $2-per-day method introduced during the COVID-19 pandemic is no longer applicable. Employees who worked from home in 2023 must now follow a detailed expense-claim method. To claim expenses, employees must meet specific conditions, including being required by their employer to work remotely and covering related expenses. They must spend over 50% of their work time at home for at least four consecutive weeks in 2023 and obtain a completed and signed T2200 form from their employer. Eligible expenses include utilities, rent, maintenance, and internet fees, while mortgage interest, home internet connection fees, and capital expenses are not deductible. Taxpayers must fill out form T777 and submit it with their tax return by the deadline to claim workspace-in-the-home expenses. Assistance is available for determining eligibility and calculations.