CERTIFIED GENERAL ACCOUNTANT
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 84 Moody Street
Port Moody, BC
V3H 2P5
Phone: 604-469-3733
Toll free:
 1 (877) TWHAWES
1 (877) 894-2937
Fax: 604-469-3760 or
1 (866) 901-7775
Cell: 604-626-2066
Email: itfgrs@terryhawes.com

The first rule of a Professional Accounting Practice ...

"Nobody is in a rush for the wrong answer."

- "Take advantage of every tax vehicle that you can, as long as the vehicle is a good investment in its own right." -

- "Real charity does not care if it is deductible or not." -

- "Be committed to your partners' well-being, and they'll be committed to yours." -

• You have earned income
• You have taxes payable
• You have CPP payable
• You, or your spouse, are entitled to receive the Child Tax Benefit
• You disposed of capital property
• You have a taxable capital gain
• You exceed OAS, EI thresholds
• You have not repaid amounts withdrawn from your RRSP under your Home Buyers’ Plan or Life-Long Learning Plan
• You ceased to be a Canadian Resident and have deemed dispositions to report, or
• You received a Request to File or Demand to File from CRA.

• To receive a refund of taxes withheld at source
• To receive refundable tax credits: Child Tax Benefit GST Credit Provincial Tax Credit BC Family Bonus
• To report a non-capital loss (CRA will maintain a record of your losses available for carry forward)
• To report income eligible for RRSP contributions (CRA will maintain a record of your contribution room), or
• To report tuition and education credits (CRA will maintain a record of the unused federal and provincial amounts).

• April 30 Individuals June 15 Self Employed Individuals and Spouses.

• April 30 All Taxpayers.

• First Occurrence: Late Filing Penalty – 5% of the unpaid tax at the filing due date Additional Penalty – An additional 1% per month of the unpaid tax for each month or part month the return is not filed (to a maximum of twelve months)

• Second Occurrence: Late Filing Penalty – 10% of the unpaid tax at the filing due date Additional Penalty – An additional 2% per month of the unpaid tax for each month or part month the return is not filed (to a maximum of twenty months)

• Tax Tip: To avoid penalties, file your return by the Tax Return Filing - Due Date, even if you cannot pay the taxes owing.

• The rate is set quarterly for unpaid taxes and underpaid/unpaid installments

• These penalties could be as much as 37-1/2% of the interest (in excess of $1,000) otherwise charged. Although CRA does not have the authority to enforce the payment of installments, it does have statutory authority to levy interest and penalties on installments not made. This applies to corporate tax, GST and personal tax.

Other Tax/Financial Tips...

► Income Splitting

          a) Make sure both spouses will have same annual income when they retire.

Use spousal RRSP's to help achieve this goal.  If neither spouse will have a pension from their employment when they retire, then both spouses should try to have the same amount in RRSP's.  If one spouse will have a pension, then the other spouse should have a greater amount in RRSP's. The spouse making the contribution gets the deduction from income when the contribution is made.  However, if the funds are withdrawn within 3 years of the contribution, the withdrawn amount will be taxed as income to the spouse who made the contribution

          b)    Split income by employing your spouse.

If you are self-employed, you can employ your spouse.  The spouse must be paid a reasonable wage for services performed. 

► Try to earn your investment income (outside of RRSP's) at the lowest tax rate possible.

All capital gains and Canadian dividends are taxed at lower rates than other income such as interest and foreign dividends.  For the 2002 tax year, the tax paid by BC taxpayers is lower for Canadian dividends than for capital gains, up to approximately $53,000.  Keep in mind that interest income and dividend income are received each year (or accrued, in the case of some bond interest), and are taxable in the year  you receive the income.  You are not taxed on your capital gains until your investment is sold, so you have some control over which year you receive the income, because you can choose when to sell your investments.

If you have only Canadian dividend income, you can earn approximately $29,000 before any federal or BC tax is payable.  For every $100 of Canadian dividends, $125 is included as taxable income (the extra $25 is called the dividend "gross-up").  However, there is a dividend tax credit (for 2002, it is 21.77% of the gross-up amount, for BC taxpayers) which reduces the tax payable, resulting in a low tax rate.

If you have only capital gains income, you can earn approximately $15,500 before any federal or BC tax is payable.  The tax paid on capital gains is low, because only 50% of capital gains are taxed, and the gains are not taxed until the investments are sold, except in situations where there is a deemed disposal.  A deemed disposal can occur, for example, upon the death of a taxpayer, or when an investment is transferred into an RRSP, or if the investment is given as a gift. 

If you have a capital loss, it can be used to reduce capital gains.  Capital losses cannot usually be used to reduce other income.  However, capital losses can be carried back up to 3 years to be offset against prior capital gains, and can be carried forward indefinitely.  The only time they can be used to reduce other income is in the year of a taxpayer's death, or the immediately preceding year.  At this time, 50% of the capital loss would be used to reduce other income. 

If you have only investment income such as interest and foreign dividends, you can earn only about $7,700 before any federal or BC tax is payable.  This is because 100% of the income is taxed, and there is no tax credit related to this income.  Thus, an amount approximately equal to the personal tax credit can be earned before tax is paid.

If you have only employment income, you can also earn about $7,700 before any federal or BC tax is payable.  However, even on this small amount you will be paying over $350 of CPP and EI premiums.

► Pay the premiums on your disability insurance.

If you receive disability insurance, it will be tax-free if you have paid the insurance premiums, or if the premiums for all employees was paid by the employer, and included in the taxable income of each employee.  If the employer pays the premiums and they are not treated as taxable income for all employees, then any disability insurance received will be taxable. 

► Claim medical expenses on the tax return of the spouse with the lowest income.

To determine the allowable deduction for medical expenses, you have to deduct from your total medical expenses (for 2002) the lesser of $1,728 or 3% of net income.  Thus, if net income is $20,000, you could deduct all medical expenses exceeding $600.

You can claim medical expenses for any 12-month period ending in the tax year, and not claimed in a previous tax year.  Thus, if you had insufficient medical expenses for a claim for the prior year, you may be able to combine some of them with the current year's expenses to make a claim. 

► Make use of your investment losses.

If you have a capital loss on an investment outside of an RRSP, you can sell the investment and utilize the capital loss to offset it against capital gains.  You can offset the capital losses against current year capital gains (not against other types of income), or you can carry back the losses to offset them against capital gains in any of the previous three years.  You can also carry the capital losses forward indefinitely, to be offset against future capital gains.

If desired, after you sell shares to utilize the loss, you can then repurchase them, but you must ensure that you avoid having your loss disallowed as a "superficial loss".  A capital loss on an investment is considered a superficial loss if the investment sold is

(a)	acquired by the taxpayer, the taxpayer's spouse or a corporation controlled by the taxpayer within the period beginning 30 days before and ending 30 days after the disposition, and
(b)	owned 30 days after the disposition by the person who acquired the property.

 Thus, if you wish to repurchase the shares, you should wait at least 30 days to do so, or your losses will not be deductible. 

► Defer tax on severance or retiring allowance.

A portion of amounts received as severance pay or retiring allowance can be transferred directly to an RRSP, so that tax need not be deducted.  The allowed transfer amounts, which cannot exceed the severance or retiring allowance received, include:
    -$2,000 for each year or part year of service with the employer before 1996, and
    -an additional $1,500 for years of service which occurred before 1989, in which the employer's contributions to a company pension plan had not vested in the employee.  Thus, up to $3,500 per year can be transferred for years of service prior to 1989.

Years of part time employment also qualify as years of service.  Even if only one day is worked in the year this qualifies as a year of service.

If the severance or retiring allowance is not transferred directly into an RRSP, the qualifying amount can still be contributed to the RRSP in order to be allowed as a deduction on the tax return for the year it was received.  To qualify, the contribution must be made within 60 days of the end of the calendar year in which it was received. 

► Transfer shares to your RRSP, but not at a loss!

If you hold shares of corporations outside of your RRSP, you can use them as your RRSP contribution by transferring them to your RRSP.  Your contribution amount is the market value at the time of the transfer.  For tax purposes, you have effectively disposed of the shares, so any gain will be taxable to you.  However, if you have a loss on shares transferred to an RRSP, this loss is considered to be a "superficial" loss, and is not deductible.  In most cases, unless the loss is very small, it would be best to sell the shares and contribute the cash to the RRSP.  If you wish to repurchase the same shares in your RRSP, wait 30 days to do so, because the loss may be considered a superficial loss if they are repurchased before that.

► Make sure you deduct your safety deposit box fees.

One of the deductions that is often missed is the fee for your safety deposit box.  These fees can be deducted at line 221 of the personal tax return, "carrying charges and interest expense".