Sievert Financial Services Inc.
43 Colborne Street, Suite LL100 M5E 1E3 Toronto, ON, Canada

What are Registered and Non-Registered Accounts? Registered accounts are investment accounts that have advantages to them and therefore have a limit to the amount you can contribute to them. Non-registered accounts are normal investment accounts which have no limit to the amount you can invest in them and are taxed normally. Below are brief explanations of four different types of registered accounts. Tax Free Savings Accounts (TFSAs): ...Continue reading

Small Business Tax Revisions The Latest On December 13, 2017, finance minister Bill Morneau announced his latest revisions to the tax changes he proposed earlier this summer. Many are questioning the timing of this announcement as this was the last day the Parliament would meet preceding a six-week recess. The rules outlined in this announcement are to take effect on January 1, 2018. The latest announcement addresses income-sprinkling The prior announcements addressed p...assive investments in corporations and lifetime capital gains exemption changes. The income-sprinkling changes are intended to target individuals who pay family members (through salary or dividends) an unreasonable amount based on the family members contribution to the business. There are a few situations in which business can be exempt from these new rules: The family member is 18 or older and has made a significant labour contribution to the business (defined as an average of at least 20 hours of work per week during the year or any of five previous years) The family member is 25 or older and owns a 10% or greater share of the business (service-based and professional corporations do not qualify for this exemption) The family member is the business owner’s spouse, the business owner is 65 or older, and the business owner meaningfully contributed to the business Those not falling into one of the above categories may also be able to be exempt from these new rules provided they pass a reasonableness test. The end result of these changes means increased recording obligations for businesses work hours for related parties should be carefully recorded. You will need to have detailed hours recorded in case of a CRA audit. The specifics on many of these measures will be released in the 2018 budget. The Senate’s national finance committee issued a report on December 13, 2017 as well, recommending that the tax plan should be delayed or withdrawn in its entirety. The committee says that the unclear rules could lead to arbitrary decisions by CRA and lead to tax appeals. The committee recommends the government do a comprehensive review of the entire tax code something which hasn’t been done in 50 years.

Your Retirement Cash Flow Retirement planning is something everybody should spend time doing, and the plan should be reviewed periodically to make sure the estimates used still hold true. Having a retirement plan not only saves you and your family headaches, but can also save lots of tax money. If you want to retire at 55 or at 85, you will need a plan in place to save you money. In retirement, your cash flow will come from different sources than those sources when you were... working. There are differences in how these amounts are taxed and what tax credits you are and will be receiving. Assuming you will be receiving CPP and OAS in retirement, you will want to fund many of your expenses with these payments. The same will hold true to any company pension you will receive. The reason to do this is because you know these items are going to be taxed. Funds in registered accounts will be the last places you will want to draw funds from as these registered accounts are sheltered from being taxed. Depending on your situation, you may consider partially converting your RRSP’s to a RRIF at 65 even if you are still working. The two biggest reasons to do this are: 1. When you are 65 or older, RRIF income qualifies for the (up to $2,000) pension income credit. If you do not have other private retirement plans, it may be beneficial to try to get this credit 2. Your RRIF income qualifies for income splitting You should be aware that once you turn 71, you are required to convert your RRSP’s to RRIF’s. If you do not do this, the balance of your RRSP’s will be included in your income and you will be taxed on the entire amount.

Morneau’s Mistake Proposed Small Business Tax Changes The recent changes to income tax provisions affecting Canadian businesses and tax strategy are misguided but they will affect business investment. You must remember these provisions have been created by overpaid civil servants (studies indicate they are paid 10% more than the private sector equivalent) and they also have golden pension programs, but they are jealous of the successful businessman/businesswoman.... Trudeau and Morneau have declared they are fighting for the middle class, but these proposed changes will condemn the middle class to always stay in the middle class. Income Splitting The strategy of paying spouses and children salaries that are not equated to services provided will not be deductible to the business but will be taxable to the recipient. This provision regarding unreasonable expenses was already in the Income Tax Act (Section 67) but was not usually applied; this will now change. You will have to prove that the wages paid are reasonable as it relates to the services provided. Section 67 of the ITA reads In computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances Passive Income in Small Businesses We are not sure what this will entail until specifics are provided in the next budget. At present, passive income derived from funds not required for the business will attract a higher tax environment whether it is a higher tax rate or the removal of the refundable portion of the higher tax rate currently applied to this income. There is a grandfathering provision from which details are not available: it has been stated that there will be a $50,000 exemption (being 5% of $1,000,000). This is the businessman’s pension issue vs the civil servants indexed golden pension. In addition, if the corporation has significant passive assets, it will not qualify for the capital gains exemption on the sale of a Qualified Small Business Corporations shares. Conversion of Income to Capital Gains There will be new provisions precluding the accumulation of income in a corporation and then selling the shares whose values are inflated by the retained investment income thereby avoiding a dividend distribution. It should be pointed out that it is rare that a purchaser of shares would give fair value in the purchase price since they will bear the tax cost of recovering the asset and also they will inherit any hidden problems of the purchased corporate vehicle. Capital Gain Exemption This has remained untouched after the backtracking of the Finance Minister. In summary, the proposed changes are still undergoing scrutiny and the needed details will not be revealed until the next budget is available.

End of Year Investments Evaluation Realize Your Gains or Losses With just over two months left in the year, it is time to get ahead of the game by evaluating your investments. Your portfolio may have some large unrealized gains or losses and you should get a sense of your tax situation before deciding what part of your portfolio you will be selling. Depending on your position, you may want to sell to realize gains or you may want to sell to realize losses. Everybody’s ci...rcumstances are different and there is no on-size-fits-all strategy. Selling to Realize Gains: As far as tax planning strategies, there are few reasons why you want to realize gains. That being said, you may want to sell and realize gains if you are in a lower tax bracket this year, but will have increased income in future years. You also may want to sell to realize gains if you have already realized losses earlier in the year. Selling to Realize Losses: Selling to realize losses is talked about often near the end of the year, so it is important to make your move before others do. If you are looking to sell to realize a loss, it is likely others are doing the same thing you want to sell first so the other sellers don’t drive the price down further. If you act first, you will be realizing smaller losses than if you act last. Once everybody has done their sell offs at the end of the year, December can be a great time to pick up those securities which have been oversold. You should be aware that if you sell and realize a loss, you will have to wait 30 days to buy the security back. If you want to stay in the position (or a similar position), there are a few ways: - You can sell an in the money put option - You can buy an in the money call option - You can buy ETFs where the security you want is strongly weighed - You can buy a similar security - You can wait the 30 days Summary: Evaluate your options and make your decisions before others do. Sell now before others and then buy in December late after others have made their sell offs. Always consult an investment advisor or tax professional regarding your specific investment or tax situation.

Quick Method of Accounting for GST/HST If you are collecting GST/HST and do not have many expenses applicable to GST/HST, the quick method of accounting for GST/HST (Quick Method) may be for you. This is because you do not need to keep track of your Input Tax Credits (ITCs) and instead remit GST/HST based on a fixed rate of your revenues. The Quick Method is usually beneficial to businesses where salaries are the major expense (as salaries are not subject to GST/HST). T...here are some exceptions, but typically businesses can apply to use the Quick Method if the annual worldwide taxable supplies are not more than $400,000. Businesses providing legal, accounting, bookkeeping, financial consulting, tax services, and others are not eligible to use the Quick Method. Individuals who may benefit from this can find more information at https://www.canada.ca//rc4058-quick-method-accounting-gst-. Form GST74 (found at https://www.canada.ca//gst74-election-revocation-election-) allows businesses to make an election or revoke an election to use the Quick Method. Example Let’s take a simple example of a business located in Ontario and providing all services to Ontario. This business earned $100,000 and collected $13,000 (13%) in HST. This business had $10,000 of expenses and paid $1,300 HST on those expenses. Accounting for HST normally, you would report collecting $13,000 and paying $1,300 in ITCs. The net amount you would have to remit to CRA would be $11,700. Your GST/HST return would look like this: Line 101: $ 100,000 Sales and other revenue Line 105: 13,000 GST/HST collected Line 108: 1,300 ITCs Line 115: $ 11,700 To be remitted to CRA Using the Quick Method, you would report $113,000 on line 101 of the return. Line 103 would be $9,944 ($113,000 x 8.8%). Line 107 would be the 1% credit on the first $30,000 of eligible supplies, being $300 ($30,000 x 1%). The total payable would be $9,644 ($9,944 - $300). Your GST/HST return would look like this: Line 101: $ 113,000 Sales and other revenue (incl. GST/HST collected) Line 105: 9,944 GST/HST collected Line 107: 300 1% of the first $30,000 revenue for the year Line 115: $ 9,644 To be remitted to CRA We can see that with this simple example, the fictitious company would save $2,056 by just switching to the Quick Method.

Equifax Hack Protecting Your Personal Information As you have probably heard, the credit monitoring firm Equifax had a major data breach earlier this summer. The breach exposed personal data of approximately 143 million Americans, as well as a number of others worldwide. Preliminary reports estimate that approximately 100,000 Canadians were affected, likely only those that have dealings in the U.S., but it is not clear that it is limited to those people. The personal inf...ormation that may have been affected include names, addresses, social insurance numbers, and possibly credit card numbers. Equifax learned of the breach on July 29, though they did not disclose it to the public until September 7. Equifax has taken action to try to mitigate the effect of the breach. Canadians who have been affected will be notified by mail, outlining any steps the individual should take. Equifax is providing complimentary credit monitoring and identity theft protection for 12 months to affected individuals. If you are not contacted by Equifax, but still have concerns, you can reach them at 1-866-699-5712 or at [email protected]. You can also view updates from the company on this incident at www.equifax.ca. It is good practice to be vigilant with your credit. We recommend to always review your account statements and report any unauthorized activity to your financial institutions. Many financial institutions offer credit monitoring which helps keep track of suspicious activity. You should also obtain a copy of your credit report annually. In Canada, you can contact Equifax and Transunion to obtain a copy of your credit report. You can also set up fraud alerts on your credit reports through these companies. If a company asks for your Social Insurance Number (SIN), you should always ask yourself why they would need this information. Anyone can ask for your SIN, but only a few people and institutions are required to collect it. If you do not think the company needs your SIN, you can explain to them that you would rather not provide it and ask if you could provide a different type of identification instead. You should escalate your concerns to a manager if required. Because of this incident, you should also be weary if you are contacted by somebody purporting to be from Equifax or another company wanting to help as these people may be scammers. Equifax has noted they will be contacting people by mail, so if you receive a phone call from them it may be an impersonator. Always err on the cautious side.

Registered Educations Savings Plan (RESP) The principle behind the Registered Education Savings Plan (RESP) is a tax deferred savings program in order to assist in funding the costs of a post-secondary education including apprenticeship programs for family members. The contributions are not deductible for tax purposes and the income earned on the invested funds are not taxable until removed from the plan. The initial contributions are not taxable upon withdrawal.... The government will provide a grant of 20% of the annual contribution up to a maximum of $500 annually and $7,500 cumulatively over the life of the plan until the designated beneficiary is 17. The contribution limit for each beneficiary is $50,000. The capital contributions are withdrawn first and then subsequently the funds drawn by the student to fund education are taxable to the student. What happens if the person doesn’t go on with extended education? Firstly, the plan can continue until the beneficiary is 36 years of age. Once it is determined that extended education is not in the future of the beneficiary, 1. There can be a transfer of benefits to a related party to the beneficiary who is under the age of 21. The grant money must be refunded to the government if the receiving related party has already reached their cumulative contribution limit of $7,500. 2. In the event the beneficiary began to attend the extra schooling, there is a six month window to remove the income portion which is taxable to the student and this should be taken advantage of. 3. If the contributor has the RRSP room, the capital contribution can be rolled over to this RRSP. 4. In the event that the previous three options are not acceptable, then the cumulative income portion will be paid to the contributor and is taxable to the contributor plus a 20% surtax. In order to take this option, the plan must be 10 years old and the beneficiary is over the age of 21. The ordering of options should be executed 1 through 4 in that order.

Due to length, we have split this article into four sections, one per week in the month of August 2017: 1. General Knowledge and Resources 2. Executors Responsibilities 3. Income Tax Returns 4. Planning Your Estate... Part 4: Planning Your Estate Parts 1 through 3 dealt with steps following death. In Part 4 we will look at things to do before death to set up your estate in the way you want it. Having a will is the most obvious item in this category, and it is advisable to hire a lawyer for this to make sure it is set up proper and conveys your wishes. Beneficiaries on bank/investment accounts are just as important as wills and should be updated whenever a will is updated. These named beneficiaries of bank/investment accounts supersede the will and the companies holding these assets are required to distribute the assets according to their beneficiary designation. Upon death all assets are considered to have been sold at their fair market value and taxes are paid on the gain on this ‘sale’. This is called a deemed disposition on death. To avoid having your estate pay an oversize tax bill upon your death, it is advisable to spread your capital gains over many years. This is especially advisable if your current income leaves you below the top tax bracket as a large deemed disposition could push you into higher tax brackets. After the deemed disposition, the investments new adjusted cost base would be the deemed disposition sale price. There are few exceptions to this deemed disposition rule. If you have a joint tenants with right of survivorship (JTWROS) account with a spouse you can opt to transfer these assets to your spouse with no deemed disposition. This only works if it is with a spouse and the account is set up properly by the financial institution. Sometimes it may be beneficial to trigger the deemed disposition even if the account(s) was set up in this manner. For example, if one spouse dies within the first week of a year, they are most likely not going to have too much income to report for that year. The surviving spouse will likely be paying higher taxes in this year anyways with the investments moving into their name. If you trigger the deemed disposition gain, you could end up paying a larger percentage of income in a lower tax bracket. For Tax Free Savings Accounts (TFSAs), the beneficiary designation can have great future tax consequences. Specifically, one can name a spouse or common-law partner as a successor holder which will allow the surviving partner to effectively have two TFSAs with the contribution limit of both. This only works for spouses or common-law partners and the designation of a successor holder must be set up prior to death. There are many complexities when dealing with a death of a TFSA holder, so please consult your accountant before assuming any of the aforementioned has automatically happened.

What to do when someone has died Part 3: Income Tax Returns In order to process anything for a deceased individual, CRA needs a copy of the will (including any secondary wills) and death certificate on file. We ask for copies of these for our files as well. We also ask for a copy of probate (if applicable), a copy of the last tax return filed, and our form (that can be found on the forms and links page of our website) filled out by one of the executors. Finally, we get the...Continue reading

What To Do When Someone Has Died Part 2: Executors Responsibilities The executor has many responsibilities including, but not limited to:... Arranging the funeral Notifying companies, banks, and government agencies of the death Compiling and filing a list of assets of the deceased at the time of death Maintaining any property of the deceased until it can be sold or distributed Paying all outstanding debts and taxes Disposing of properties and distributing assets Representing the estate in court It is advisable to seek advice from or hire a lawyer and an accountant to ensure the proper steps are followed. These professionals will help determine if the estate needs to go through probate, determine the taxability of items (you may have to pay tax on that painting Grandma had on her living room wall all these years), and give you peace of mind. Do not be too hasty when distributing the assets of the estate, even if the beneficiaries are pressuring it is the executor, not the beneficiary, that will be on the line if proper legalities are not followed. The executor should either check with CRA themselves, or have an accountant check with CRA to determine if there are any outstanding tax filings or outstanding balances. Unfiled returns or unpaid balances can deplete the reserves of the estate quickly, and it is important to know about these items early on. The executor should notify all financial institutions of the death and it is advisable to centralize the liquid assets of the deceased into one bank account and (if applicable) one broker account. A list of assets at the date of death should be created which would include bank accounts, investments, real estate holdings, automobiles, antiques, artwork, jewelry, stamp/coin collections, and other assets of value. The executor should pay for mail forwarding and notify the sender of applicable mailings of the death. The mail should be monitored as it will help pinpoint assets and liabilities which you may have missed accounting for.

What To Do When Someone Has Died Due to length, we have split this article into four sections, one per week in the month of August 2017: 1. General Knowledge and Resources 2. Executors Responsibilities 3. Income Tax Returns... 4. Planning Your Estate Part 1: General Knowledge and Resources If a person dies in a hospital or care home, you should notify those caring for the deceased. In the event of an unexpected death, you should call emergency services or the coroner’s office. It is very important to notify the executor of the deceased if they are somehow not aware. If you are not the executor, you do not have legal authority to act and make decisions on behalf of the deceased. You can offer to help the executor with their duties, but they have ultimate and final authority of all decisions in relation to the deceased and the property of the deceased. To find out more about the executors duties, make sure to read part 2 of this article which outlines some of the many items executors must consider. To notify CRA of the death, you can fill out their form at https://www.canada.ca//request-canada-revenue-agency-updat and send it to the tax centre of the deceased. The government of Ontario has a website which answers many questions at https://www.ontario.ca/page/what-do-when-someone-dies and the Canada Revenue Agency has a tax related website at http://www.cra-arc.gc.ca/tx/ndvdls/lf-vnts/dth/menu-eng.html. It is important to remember that it is normal to grieve and many people decide to seek counselling to help them through this hard time. There are many options out there and it can take seeing more than one counselor before you feel it is the right fit. If you are struggling to deal with a loved ones death, you should ask your doctor if they have any recommendations on who to contact. They have recommended people before and could help you find a good fit.