The 2012 personal tax season is now here and as such I have prepared various checklists to aid in gathering the information necessary to prepare your personal tax returns. These checklists are a guide to ensure you are paying the least amount of taxes possible. I recommend you review them to ensure you are not missing any deductions or claims on your return.

The tax checklists can be found at this link.

The 2011 personal tax season is now here and as such I have prepared various checklists to aid in gathering the information necessary to prepare your personal tax returns. These checklists are a guide to ensure you are paying the least amount of taxes possible. I recommend you review them to ensure you are not missing any deductions or claims on your return.

The tax checklists can be found at this link.

Please be advised that effective December 16, 2011, the office address has changed to:
7-1120 Victoria Street North
Kitchener ON N2B 3T2

There are no changes to the phone or fax numbers.

Please take note of the change and direct all future correspondences to the new location.

As the end of 2011 is fast approaching, here are some personal tax tips I think you should consider:

1. Some deductible expenses and credits can only be claimed if they are ‘paid’ in the year. For example, if you receive an invoice for a dentist bill incurred in November 2011, but didn’t pay it until February 2012, then this dentist bill may be claimed on your 2012 tax return, not your 2011 tax return. Here are some items that should be paid before the year end in order to get the tax deduction or credit – interest expense, safety deposit box fees, investment management fees, medical expenses, tuition fees, donations, child fitness programmes and transit passes.

2. Donations are a good way to give back to society and get a tax break. If you hold publicly traded stocks with an inherent capital gain, consider donating them to your favourite charity. The capital gain will be non-taxable to you and you will receive a full donation receipt for the fair value of the shares. I mention donations in point 1, but one point out I want to emphasize is to watch out for the donation schemes that promise a large donation receipt for a low contribution. This is the time of the year when these schemes get heavily promoted, so be wary if a promoter approaches you with these arrangements. Learn more here. You can also consider donating your publicly traded stocks

3. If you have a capital gain in the year, you may want to review your portfolio for the stocks that are in a capital loss position in order to realize the loss to offset the gain to save taxes. In order to claim the loss, the trade must be executed prior to December 23 if the stock is on a Canadian exchange. However, you should discuss first with your investment adviser if selling the stock is a prudent move.

4. Contribute to your kids registered education savings plan in order to receive the federal government grant.  The federal government will provide a grant up to $500 if you contribute a maximum of $2,500 per child. This is a great way to get free money and save for your children’s education so why not take advantage of this.

5. Contribute to your tax-free savings account if you have not utilized your maximum room.  Even though the TFSA does not give you a tax deduction or save you taxes today, I think it will prove more useful in the long run compared to an RRSP.

I am pleased to announce that Ark Chartered Accountant will change it’s name to Ark Accounting & Tax Professional Corporation effective November 1, 2011.

This name change is a result of a change in the business structure.

Even though I am changing the name, I want to stress that all services, support and commitment provided to customers and suppliers will remain unchanged. The only effect to the name change is that all correspondences, marketing materials and invoices will be updated with the new name.

The 2010 personal tax season is now here and as such I have prepared various checklists to aid in gathering the information necessary to prepare your personal tax returns. These checklists are a guide to ensure you are paying the least amount of taxes possible. I recommend you review them to ensure you are not missing any deductions or claims on your return.

The tax checklists can be found at this link.

The following article is reprinted from the newsletter Business Matters with the permission of the Canadian Institute of Chartered Accountants. If you would like to receive this newsletter, please join our contact list.

Times are tough, cash is tight.

This is not the time to cut costs in an effort to reach short-term goals. You may inadvertently create unforeseen difficulties that may surprise you later.

The following list outlines what NOT to do when cash is short:

DO NOT:

Sign Your Life Away

Prudent debt management suggests that debt incurred for business purposes should be the only debt at risk when operating your business. When times get tough and small businesses need operating capital, financial institutions often ask for personal guarantees from the owner/manager. When one signs as an agent on behalf of a corporation, only the company assets are at risk in the event of bankruptcy; if, however, the owner/manager signs a personal guarantee for the corporate debt, he or she may be subject to unlimited liability.

Postpone Paying Government Withholding Taxes

All personal income tax withheld from employees for remittance to the government, Canada Pension Plan, Employment Insurance, as well as the GST or HST collected from customers are collected in trust for the government. With the current HST rate at 13% (in British Columbia, Ontario, New Brunswick, Newfoundland and Labrador but 15% in Nova Scotia) the amount collected can grow quickly. Using the GST or HST collected or employee deductions to augment current cash flow between collection and the remittance deadline is undoubtedly a widespread practice. Be aware, however, that failure to remit by the deadlines set by the various regulatory bodies will result in stiff penalties regardless of the unremitted dollar amount. Penalties increase with each missed deadline. In addition, if your business declares bankruptcy, corporate officers and directors could be held accountable and required to repay the delinquent amounts out of their own pockets.

Delay Opening the Mail

Many owner/managers have had times when cash flow was so tight and reminders in the mail so numerous that the mail was ignored. Failure to open the mail to at least find out what has to be dealt with can create additional problems even more onerous than owing money. Consider this: your insurance company may cancel its coverage; the Canada Revenue Agency and other regulatory authorities may freeze your bank accounts; regulatory authorities or creditors may notify your business that a sheriff will lock the doors and seize all assets. Now you have even worse time-consuming and expensive problems that must be dealt with by your lawyer and Chartered Accountant.

Cash Personal RRSPs to Fund the Business

Using your RRSP to keep your business afloat may be available as a last resort but, before you take that step, realize the initial cost in personal-tax liability is high. If, for example, you need an additional $30,000 for the business, current legislation requires you to withdraw about $37,500. Assuming you paid yourself taxable income of $39,000 for the year, the additional $37,500 would push you into such a high tax bracket that cash-flow problems could be exacerbated later when you have to withdraw more capital to pay your higher income taxes. You may now be in the unenviable position of not only losing the capital gains and investment income that could have been generated from the withdrawn funds, your future annual allowable contribution levels may not permit you to make up the losses.

Review advertising effectiveness before cutting advertising expenditures.

Cut All Promotion

Advertising and promotion are often seen as expenses that can be slashed out of operating costs. Indeed, you should ensure that frivolous advertising is eliminated. No advertising or promotion, however, removes your voice from the market place. You also need to keep existing clients informed of any changes that might affect the products they buy. This may be an opportunity to review the effectiveness of your advertising expenditures and see where it is most and least effective.

Cut Insurance Coverage

Reducing insurance coverage is another road to short-term savings. Before taking this route, however, consider the consequences. Do any loan covenants require a specific level of coverage for the assets securing the loan? If vehicles are leased, are they subject to any insurance conditions? Failure to maintain adequate insurance may be a breach of contract that forces loans to be called or vehicle leases to be cancelled.

Stop Paying Premiums

Eliminating expensive life insurance premiums on key personnel, especially on you, the owner/manager, is another short-term solution that could become a long-term problem. Before taking this tactic, you should consider how stressful times can create health problems. If you are unable to continue working, you could be placing your business, your shareholders (partners), and your family in jeopardy, particularly if buyout insurance becomes inadequate as a result of a short-sighted cutback in the premiums. If you try to renew the insurance, medical examinations and/or higher costs may prevent you from reinstating the policy at its former level.

Reduce Your Take-Home Pay

Reducing your own remuneration is certainly one more method of maintaining cash flow. But keep in mind that a certain level of remuneration is required for day-to-day living. Often reduced remuneration is offset by increased draws by owner/managers. At some time in the future the owner/manager must record these draws as personal taxable income with the risk of moving into a higher tax category. Perhaps personal and family income requirements should be reviewed to consider whether hiring family members would provide the necessary family income without raising your personal tax rate.

DO:

Seek Advice

Maintaining control over business costs is essential in any business. The secret to controlling costs without creating higher future costs is to carefully analyze the specifics of cost cutting and determine with the assistance of your Chartered Accountant whether your current plans will be detrimental to your business in the long run.

As the end of 2010 is fast approaching, here are some personal tax tips I think you should consider:

1. Some deductible expenses and credits can only be claimed if they are paid in the year, a different concept than incurred in the year. For example, you incur a dentist bill in November 2010, but didn’t pay it until February 2011. In this example the dentist bill may be claimed on your 2011 tax return, not your 2010 tax return. Here are some items that should be paid by year end in order to get the tax deduction or credit – interest expense, safety deposit box fees, investment management fees, medical expenses, tuition fees, donations, child fitness programmes and transit passes.

2. Donations are a good way to give back to society and get a tax break. I mention donations in point 1, but one thing I want to point out is to watch out for the donation schemes that promise a large donation receipt for a low contribution. The CRA plans on auditing all of these tax shelter gifting arrangements, so be wary of these arrangements. Learn more here.

3. If you have a capital gain in the year, you may want to review your portfolio for the stocks that are in a capital loss position in order to realize the loss to offset the gain to save taxes. In order to claim the loss, the trade must be executed prior to December 24 if the stock is on a Canadian exchange. However, you should discuss first with your investment adviser if selling the stock is a prudent move.

4. Contribute to your kids registered education savings plan in order to receive the federal government grant.  The federal government will provide a grant up to $500 if you contribute a maximum of $2,500 per child. This is a great way to get free money and save for your children’s education so why not take advantage of this.

5. Contribute to your tax-free savings account if you have not utilized your maximum room.  Even though the TFSA does not give you a tax deduction or save you on taxes today, I think it will prove more useful in the long run compared to an RRSP.

Are you aware of all the Federal and Provincial government incentives available to support your company’s sustainability and going green strategies? More and more companies are doing their part in reducing their carbon footprint on the environment and the major concern for them is the balancing act to ensure they are profitable while reducing the impact of operations on people and the environment. For a decent list of federal and provincial incentives that may apply, please go here.

If you are a Canadian resident that is planning on heading south for the winter, then you should read the following pamphlet from the Canada Revenue Agency. It will provide information on certain income tax requirements that may affect you as well as explain any US tax laws that could impact you.

You can find the pamphlet here.