Business and Personal Tax Updates
Issue 24 – April 2013 (to be emailed Tuesday, April 9, 2013)
Just a few more weeks and the annual filing of personal income tax returns will be over. One thing that we as accountants see is that the CRA is constantly introducing new rules and as a result of Tax Court rulings, adjusting how tax laws are interpreted. You really do need expert help when it comes to filing your personal and business taxes. That’s where you’ll appreciate our knowledge, years of experience and personal approach. Have a question about business strategy, finances or taxes? I invite you to call personally call me at 506-657-4067 or 1-800-650-4067 to see how we can help you.
I look forward to hearing from you and I hope you enjoy the following summaries.
P.S. As a favour to a friend or business colleague, feel free to forward this email to those who you think could benefit from the information below.
FAMILY CAREGIVER TAX CREDIT
Effective January 1, 2012, the new Family Caregiver Tax Credit, a 15% non-refundable credit on $2,000, will provide tax relief to caregivers of mentally or physically infirm dependent relatives, including, for the first time, spouses, common-law partners, and minor children.
CRA notes that an employee can deduct the cost of supplies paid if the employee meets all of the following conditions:
- Under your contract of employment, you had to provide and pay for the supplies.
- You used the supplies directly in your work.
- Your employer has not repaid and will not repay you for these expenses.
- You keep with your records a copy of Form T2200, Declaration of Conditions of Employment, which has been completed and signed by your employer.
Supplies are only materials used directly in your work, and for no other purpose.
Supplies include items such as stationery, stamps, toner, ink cartridges, street maps, and directories. Supplies do not include items such as briefcases or calculators.
U.S. RENTAL PROPERTY
The following comments primarily relate to the ownership of U.S. rental property by Canadians. They may not apply to individuals such as U.S. citizens, U.S. residents, and Green Card holders.
U.S. Withholding and Filing Responsibilities
The IRS has posted an online article entitled “Foreign Persons Receiving Income from U.S. Real Property”. According to this release, taxation depends on whether earnings are considered investment income having tax withheld at 30% of gross earnings, or “effectively connected with a U.S. trade or business” and taxed on a net income basis. A foreign owner can elect to have the income treated as “effectively connected” by submitting a properly completed Form W-8ECI.
With regards to the filing of income tax returns, a non-resident failing to submit a timely filed income tax return may lose the ability to claim deductions against the rental income.
State filing and tax payment may also be required.
It may be worthwhile to file tax returns even if a loss is experienced so as to capture the losses for later use when net incomes become positive or when a profit is realized on the sale of the property.
Sale of Real Estate
The United States imposes taxes on profits on the sale of U.S. real estate by a Canadian under the Foreign Investment in Real Property Tax Act. To enforce collection, a 10% withholding tax is paid to the IRS by the purchaser (or escrow agent as applicable). A Canadian person may be exempt from the 10% withholding tax if the selling price is less than $300,000 and the buyer intends to use the property as a “residence”. The buyer must sign an affidavit to this effect. Alternatively, the vendor can apply to the IRS for a reduction in the withholding tax to the maximum possible U.S. tax. The application for a waiver of the withholding tax must be sent to the IRS prior to the closing of the sale.
If the seller does not have an Individual Taxpayer Identification Number (ITIN), he or she may apply for one with the waiver application. On a practical side, some escrow agents administering the sale will not wait for the ITIN to be processed and simply remit the withholding to the IRS. If possible, it is recommended to get the ITIN prior to the sale to avoid this issue.
If the withholdings are sent to the IRS, the seller may file a U.S. tax return at the beginning of the next year to recuperate any withholdings paid in excess of what the actual tax on the sale would be.
Also note that some states have a withholding tax on the selling price of real property (such as California)
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www.fitday.com/ provides an online journal and a collection of tools such as a calorie counter, long-term diet analysis and advice/discussion area to assist you in achieving your health goals.
Donna Mazerolle & Associates provides:
- Strategic Planning
- Business Plans
- Accounting and Bookkeeping
- Growth Strategies
- Budgeting and Forecasting
- Growth Management Strategies
- Turnaround Strategies and Management
- Help with Sourcing Funds
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional. Although every reasonable effort has been made to ensure the accuracy of the information contained in this newsletter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents. Do you have questions… give us a call at 506-657-4067 or 1-800-650-4067 (outside Saint John).