Thanks to favorable economic conditions and historically low interest rates, real estate investing has boomed here in Canada. If you have invested in rental properties, or plan to in the near future, take in these three tax tips on how to make the most out of your real estate investment(s).
1. Keep Proper Records
Keep proper documentation of any income or expenses coming from your rental property. Do not be tempted to mix these transactions with your personal bank account. It’s a common oversight which often leads to headaches for you, your accountant and the CRA around tax season. The CRA will expect proper filing in an organized fashion; and don’t be fooled into thinking just a bank transaction history will do.
2. Buy and Hold – Don’t Sell Too Early
Be careful to not sell your rental property too quickly. The CRA may actually view any profit earned as business income. If that’s the case, you will have to pay taxes on your profit. It’s favorable to hold onto your property a long-term basis. If and when you decide to sell, it’s far more likely that the profit will be classified as capital gain, thus making one half of your gain safe from a tax hit.
3. Consider Depreciation
Depreciation, or Capital Cost Allowance (CCA), can be a good way to protect your real estate income from taxes by transferring your obligation to future tax years. CCA works by amortizing a portion of the cost of your rental property against your rental income – roughly 4% of your building’s cost on a declining basis year by year. But note that selling your property may result in a recapture of your CCA. You would be forced to add this recaptured amount to your taxable income when preparing your tax return. Unlike capital gain, recapture is 100% taxable.
So you were in the giving mood last year? Good on you! If you did give to charity in 2015, you’re probably eligible for returns on those contributions. Here are five tips on maximizing the tax benefits on your charitable donations.
1. Keep and Gather Receipts
An eligible receipt must have the charity’s name and registration number. It should also include the date, serial number, amount donated, donor’s name, and a signature on behalf of the organization. Make sure your receipts have all these details before filing. If you are filing by paper, you will be required to include all receipts before sending to the CRA. If filing electronically, keep the receipts handy in case the CRA asks for them later.
2. Combine Spouses’ Donations
Any donations made by a spouse or common law partner can be filed by either person in the relationship. And so, to maximize eligible tax credits, all donations should be lumped together.
3. Don’t forget In-Kind Donations
In-Kind donations include common items like clothing, food, toys and other household goods. The CRA will allow credits on what they call “gifts of property.” If you have made donations such as these, you will need a receipt from the charity showing fair market value for the item donation(s).
4. Donations at Work Count Too
If you made any financial contribution to your workplace, you are eligible for a credit. Keep track of them and be sure to notify your employer if necessary. You can refer to these workplace donations in “Box 46” on your T4.
5. Carry Forward your Donations Appropriately
Most donations can be carried forward for up to five years. There are a few advantages of doing this. The first is to take advantage of the higher tax credit available on donations over $200. Also, until 2017, you can carry forward your donations to take advantage of the CRA’s “First-Time Donor’s Super Credit.” This credit gives you an extra 25 percent non-refundable federal tax credit when you file your first charitable donation.
I was extremely fortunate and thankful to have attended the 2016 US / Canadian State Dinner After Party. The After Party was held at the top of The W Hotel which overlooks the White House, Capitol Hill, and Lincoln Memorial, among other American Landmarks. The event was hosted by the Canadian American Business Council (CABC) which is an organization focused on private sector issues that affect both Canada and the United States.
There were 250 people in attendance of the State Dinner After Party which enabled me to meet a number of very interesting and exciting, past and present, politicians and business leaders. Not surprisingly, the atmosphere at the After Party was extremely electric and energizing, and went on into the early hours.
One of the by-products of the 2016 State Dinner, which was certainly echoed by the After Party’s atmosphere, is that Canada and the US are now closer than ever. Obama and Trudeau have a renewed commitment to work together on key environmental issues, more effective energy policies, more efficient border security, and on building cleaner and more innovative economies. And while there were more than enough secret service agents on site, Obama and Trudeau unfortunately did not attend the After Party, which given all they had accomplished during the day is certainly understandable.
What is more interesting to me though is that these types of bi-national events are bringing about a real change in the way that Canadians and Americans view each other and our longstanding relationship. During my trip to Washington, I encountered and spoke with many Americans who were eager to learn about the new Trudeau Government, its Policies, and Justin Trudeau himself. From my perspective, as someone who has lived and worked in the States as well as Canada, there is a notable difference with how Americans are viewing Canadians and our new government. It really does seem that Justin Trudeau and his government have captured much of the american political audience in a very positive and inspiring way.
I came away from attending the 2016 US/Canadian State Dinner After Party with a very strong sense of my country and its values, and I for one have never been more proud of Canada and more excited for its future.
About The Author: Matthew J. McGrath, CFA has been managing investment portfolios for well over 18 years, two of which were spent working directly on Wall Street. His Wall Street experience followed a 10 plus year career at the RBC Financial Group, where as a Vice President and CFA Charter holder Matthew had managed more than $150 million in Assets. Matthew then joined and went on to successfully grow Optimize Wealth Management. During his eighteen years in the financial industry, Matthew has been recognized for his drive and his vision, has spoken at numerous investment conferences, and now advises individuals and families seeking a long term relationship with their financial advisor. In addition to his passion for the financial industry, Matthew is an avid runner and has run three Boston Marathons.
So you found that very first T4 slip in the mail. Yes, it’s tax season again, and for your benefit, we have compiled four ways to get a little extra from your tax return this year.
1. File as a Family
As a married couple, you both can claim several non-refundable tax credits on each of your returns. These include medical expenses, donations and political contributions. Furthermore, you can also transfer non-refundable tax credits to one another (the age amount, pension income amount, disability amount, child amount and tuition, education and textbook amounts). The point is simple, embrace your family during tax season – filing your taxes as a family can make your pockets a little deeper.
2. Don’t Miss Employment Deductions
If your employment contract requires you to pay out-of-pocket expenses, you may be able to get those deductions back. Note that your employer has to certify these expenses by way of form T2200 – Declaration of Conditions of Employment.
3. Have Your Partner File Despite Small or No Income
Even if your partner makes little to no income, there are still many reasons to file. The two biggest are not missing out on GST / HST tax credits and the Child Tax Benefit.
4. Keep and File Medical Expenses
Many people often ignore this tax benefit because of the high threshold of eligibility. A person must have expenses that exceed roughly $2,200 or three per cent of their net income. But there is a long list of expenses that qualify, so don’t assume you’re short. You just might be surprised.