Get Ready for Tax Season!
Can you believe it is almost the start of another personal tax season? The year seems to have flown by again.
Every year there are always a few questions that come up, so we thought it would be helpful to list them below with some handy explanations in case these questions were on your mind this year!
When do my medical expenses begin to make a difference?
Medical expenses provide a tax credit after a threshold has been met. The threshold is the lower of 3% of your net income or $2,497 for 2022. So, if there is a spouse with lower income, the medical credit will start to reduce tax sooner. But if both spouses have an income of over $80,000 you will need more than $2,497 of expenses to make a difference on your taxes.
Luckily, medical expenses include items like the premiums paid on a private health plan (like Blue Cross) and regardless of which family member the medical was for, they can all be claimed on one return to maximize the benefit.
What do I need to confirm if I have foreign property with a cost of over $100,000?
If you hold foreign property including real estate, investments, or property in the account of a Canadian securities dealer it must be reported on your personal tax return.
Luckily, most investment advisors will provide you with a T1135 slip that has all the reporting information required. You just need to ask them to send it onto VR!
Note that personal use real estate, like a vacation home is not required to be reported. However, if you are producing rental income from the property, it does need to be reported to CRA as part of the declaration.
Can I claim expenses against my employment income?
Yes! But only if a T2200 has been completed by your employer. There are additional limitations on what can be deducted by a person earning regular salaried income as opposed to a person who earns commission income.
For an expense to be deductible it must be outlined in your employment contract that it is required to complete your duties as an employee and has not been reimbursed by the employer. Please review the T2200 carefully to ensure the appropriate boxes are marked to allow for the deductions.
Can I split income with my spouse?
Not directly since 2015. Although if you have a corporation of which both spouses are shareholders, there is some ability to split income, but it is limited by the Tax on Split Income rules. We are happy to discuss specific situations with you on this area as we plan through your corporate year-end.
There is also the ability to split certain credits and claim them on the return of only one spouse to maximize their tax efficiency. (i.e. the above-mentioned medical expenses and donations.)
What do I need to know about reporting capital gains?
This could almost be an article by itself! But in simple terms here is what you need to know.
A capital gain (or loss) can be calculated with three pieces of information:
A. The proceeds on sale, converted into Canadian dollars if the sale took place in another currency, using the rate in effect on that day.
B. The cost base of the investment. Converted into Canadian dollars at the rate in effect on the day it was purchased, not sold. This can lead to large swings in the gain or loss as the US exchange rate especially has changed greatly over the years.
The cost base also includes any additions to the original investment. For equity investments this means that additional purchases are added into a weighted average cost calculation.
For example, if the original investment was $10,000 for 1,000 shares and there was a subsequent purchase of $15,000 for 2,000 shares the cost base per share is $8.33 per share.
So even though the subsequent sale of 1,000 shares for $9 a share is lower than the $10 per share paid on the original investment, because the weighted average of the identical properties must be used as the cost base, there is actually a small gain per share on the sale.
C. The proceeds or outlays of disposition which can be used to reduce the capital gain on the sale of the investments. (i.e. commission)
Proceeds – cost base – outlays = capital gain or loss
If you have any questions on any of the above, or something else, feel free to contact us.