As the season rolls closer here are a couple ways you can save.
1) Start gathering supplies early. There are some things you can't get until December but for others that you know that you'll need start stocking up now. If you know early to mid December is your baking time the stores know it too as that's when many push demand. Buy sugar and other baking supplies now when you find it on sale! Not only will you save money but you'll have everything you need at the time you need it!
2) Shop for little things early. Stocking stuffers and smaller presents don't take a lot of storage space in your home. Stock them up and wrap them as you find them - often on sale. Don't shop for the Christmas sales only - there's money to be saved all year if it's something you plan to buy anyway.
3) Be a creative shopping expert! Look at your recipients' interests. Someone likes grilling or summer entertaining hit the *summer* clearance sales for Christmas presents at sometimes 60-70% off. You have the ideal gift for them that you won't find in November or December because it's seasonal.
4) Do a little at a time. You have a couple hours of time there's nothing that says you can't bake a few dozen Christmas cookies and put them in the freezer! You'll have that much less to do and save money on ingredients.
5) Shop at direct purchase outlets in season. When you're passing that farm stand that advertises pecans or walnuts or maple syrup - stop and get some and set it aside for holiday treats. You help small business and give yourself a great "taste of the season" cheaper, or at the same money, as commercial stores vying for your Christmas budget dollar.
6) Recycle/reuse. There are thousands of ways to use every day items that most throw out to make things with them. Check out Instructables.com or even youtube.com for how to videos and make things for Christmas!
7) Start now setting aside $10 or so per week for holiday meals. Watch for sales! If hams go on sale and you have $20-40 saved up you can get that and stick it in the freezer. Spreading out the work can make a big difference as well as the finances.
There are many ways to stretch the Christmas budget and when things are tight it can mean getting creative. It also helps to adjust your thinking. Planning for a Christmas budget isn't about what you're doing without it's how much MORE you can do with what you have!
Give a magazine subscription
Give a subscription to a magazine you already get as a gift. Magazines offer discounts at this time of year. Sometimes you can get a whole year’s subscription for just $5. Check out EBAY, I didn't have time to check to long but there are thousands of issues on there.
Click here for more details
Shop online
There are plenty of places were your can shop for less on the internet. Try places like Half Ebay and Overstock.com. Take the time to comparison shop. It can really make a difference.
Wednesday, November 18, 2009
Wednesday, July 22, 2009
July Market Update from Kelowna
We are increasingly confident that the 2007-2009 bear market lows reached on March 9, 2009 will hold. Usually, if a bear market low is tested it happens within six months. We are already four months off the March 9 lows and it looks doubtful that these levels will be retested. Most of the world’s leading stock indexes have increased 40% or more from March 9 to June 12. The S&P 500 increased 39.9% and the S&P/TSX increased 41.6%. Since June 12, the stock market has experienced a mild correction of between 7% and 10% thru July 10. The S&P 500 has dropped 7.1% and the S&P/TSX has declined 9.9%. We believe that this correction phase is likely over now that we have entered the second quarter earnings reporting season. As in the first quarter, we believe that corporate earnings reports for the second quarter will be better than expected. This should propel the market higher as investors gain confidence that the worst of the profits reports are behind us.
Investor and consumer confidence is gradually returning. We have noticed a positive change in sentiment. While there are still perma-bears and disbelievers out there, they are increasingly becoming a minority, sort of like Gov. Sarah Palin supporters. They are not yet ready to accept defeat. As the markets move higher, corporate profits improve, and there are more signs that the recession is coming to an end, we think market sceptics will eventually throw in the towel. We still believe that the recession in Canada and the U.S. will be over by October.
With both Chrysler and General Motors now out of bankruptcy, we think that auto sales will start to improve soon. With mortgage rates still near record lows, the housing market is starting to improve in a number of locations such as California, Florida, and Arizona. Substantially lower home prices also helped attract buyers who could get financing. There will likely be more home foreclosures (but the new supply is being absorbed).
The financial crisis also appears to be over. Interest rate spreads on corporate bonds have come down, the LIBOR rate is back to near normal levels as is the TED-spread. Financing is available to qualified borrowers, and the prime rate is still very low in Canada (2.25%) and in the U.S. (3.25%). Almost all major banks say that they have increased lending in recent months. While there are corporate borrowers who say that money is still tight, we believe that the banks are lending money to most borrowers. Certainly, investor concerns about the health and viability of the major financial institutions have ended. While there are still reports of small regional banks in the U.S. failing, there have been no major financial institutions that have failed or needed to be rescued by the government.
The U.S. bank stress test seems to have done its job in getting all the major banks to strengthen their capital bases. We think this phase is now complete and the banks will resume their normal business models and gradually restore profitability as the recession ends. The worst is clearly over for the major Canadian and U.S. financial institutions.
After this current stock market correction is over, and it may already be over, we think that the stock market will continue to move higher over the remaining six months of the year. We think there are five good reasons why this should occur. First, we will see more evidence that the recession is ending over the next six months. Fiscal stimulus efforts (i.e. increased government spending) and easy monetary policy (i.e. low interest rates) will eventually end the recession. Second, corporate profit comparisons are gradually improving and will continue to improve in the third and fourth quarters. Third, stock valuations are still attractive with most stocks having anywhere from 50% to 100% upside potential just to get back to their former highs. Fourth, right now there is no viable good alternative to stocks with government bond yields extremely low compared to stock dividend yields. And fifth, there is still a lot of money sitting in cash, T-bills, and money market funds looking for the right time to get back into the stock market.
Eventually, most of this cash will find its way into the stock market as investors seek higher investment returns. We are confident that investor psychology has only just begun its shift away from extreme fear levels and is gradually moving to more neutral levels before it once again moves into its extreme greed levels likely by 2012. We still believe that stock market returns in both Canada and in the U.S. will exceed 20% for the full year of 2009. Such returns are not uncommon coming out of a major bear market. However, we also expect to see a couple more corrections (pull-backs of 7% to 10%) before the year is over.
In the meantime, our stock portfolios are still structured defensively. We have very low exposure to the consumer and reasonable exposure to the industrial and transportation sectors. Our biggest exposure remains financials and energy sectors. We believe energy prices will move higher in the next few years as the major global economies renew their growth. If the global recession carries into the first half of 2010, we think our portfolios will still do fine given the conservative nature of our stocks and the heavy emphasis on dividends.
10-year government bond yields in Canada and the U.S. trended almost straight up from the end of March to mid-June and then fell until early July. To be more specific, the yield on the 10-year Government of Canada bond rose from 2.78% on March 31 to 3.65% on June 10 and then fell to 3.27% on July 10. Bond yields on 10-year U.S. Treasury notes rose from 2.7% on March 31 to 3.94% on June 10 and then fell to 3.29% on July 10. With inflation rates running near zero in both countries it is no surprise that government bond yields are this low. However, large fiscal budget deficits and large increases in the money supply inevitably mean higher inflation within two years making 10-year government bonds at these low yields seem a bit risky and not that attractive.
We believe bond yields are headed higher over the rest of the year and therefore, we are keeping our bond portfolio duration levels below six years. The Canadian dollar rose 16.7% from $.7928 U.S. on March 30 to $.9251 on June 2. It then fell back to $.86 U.S. as of June 30. The rapid rise coincided with the steep increase in crude oil prices. With oil prices falling from $72 U.S. a barrel to $60 U.S. a barrel, the Canadian dollar has also fallen. We are still long-term positive on the Canadian dollar expecting it to rise back to the $.92 U.S. to $.94 U.S. range by year-end.
Market Submission from Tim Burt - Cardinal Capital
Investor and consumer confidence is gradually returning. We have noticed a positive change in sentiment. While there are still perma-bears and disbelievers out there, they are increasingly becoming a minority, sort of like Gov. Sarah Palin supporters. They are not yet ready to accept defeat. As the markets move higher, corporate profits improve, and there are more signs that the recession is coming to an end, we think market sceptics will eventually throw in the towel. We still believe that the recession in Canada and the U.S. will be over by October.
With both Chrysler and General Motors now out of bankruptcy, we think that auto sales will start to improve soon. With mortgage rates still near record lows, the housing market is starting to improve in a number of locations such as California, Florida, and Arizona. Substantially lower home prices also helped attract buyers who could get financing. There will likely be more home foreclosures (but the new supply is being absorbed).
The financial crisis also appears to be over. Interest rate spreads on corporate bonds have come down, the LIBOR rate is back to near normal levels as is the TED-spread. Financing is available to qualified borrowers, and the prime rate is still very low in Canada (2.25%) and in the U.S. (3.25%). Almost all major banks say that they have increased lending in recent months. While there are corporate borrowers who say that money is still tight, we believe that the banks are lending money to most borrowers. Certainly, investor concerns about the health and viability of the major financial institutions have ended. While there are still reports of small regional banks in the U.S. failing, there have been no major financial institutions that have failed or needed to be rescued by the government.
The U.S. bank stress test seems to have done its job in getting all the major banks to strengthen their capital bases. We think this phase is now complete and the banks will resume their normal business models and gradually restore profitability as the recession ends. The worst is clearly over for the major Canadian and U.S. financial institutions.
After this current stock market correction is over, and it may already be over, we think that the stock market will continue to move higher over the remaining six months of the year. We think there are five good reasons why this should occur. First, we will see more evidence that the recession is ending over the next six months. Fiscal stimulus efforts (i.e. increased government spending) and easy monetary policy (i.e. low interest rates) will eventually end the recession. Second, corporate profit comparisons are gradually improving and will continue to improve in the third and fourth quarters. Third, stock valuations are still attractive with most stocks having anywhere from 50% to 100% upside potential just to get back to their former highs. Fourth, right now there is no viable good alternative to stocks with government bond yields extremely low compared to stock dividend yields. And fifth, there is still a lot of money sitting in cash, T-bills, and money market funds looking for the right time to get back into the stock market.
Eventually, most of this cash will find its way into the stock market as investors seek higher investment returns. We are confident that investor psychology has only just begun its shift away from extreme fear levels and is gradually moving to more neutral levels before it once again moves into its extreme greed levels likely by 2012. We still believe that stock market returns in both Canada and in the U.S. will exceed 20% for the full year of 2009. Such returns are not uncommon coming out of a major bear market. However, we also expect to see a couple more corrections (pull-backs of 7% to 10%) before the year is over.
In the meantime, our stock portfolios are still structured defensively. We have very low exposure to the consumer and reasonable exposure to the industrial and transportation sectors. Our biggest exposure remains financials and energy sectors. We believe energy prices will move higher in the next few years as the major global economies renew their growth. If the global recession carries into the first half of 2010, we think our portfolios will still do fine given the conservative nature of our stocks and the heavy emphasis on dividends.
10-year government bond yields in Canada and the U.S. trended almost straight up from the end of March to mid-June and then fell until early July. To be more specific, the yield on the 10-year Government of Canada bond rose from 2.78% on March 31 to 3.65% on June 10 and then fell to 3.27% on July 10. Bond yields on 10-year U.S. Treasury notes rose from 2.7% on March 31 to 3.94% on June 10 and then fell to 3.29% on July 10. With inflation rates running near zero in both countries it is no surprise that government bond yields are this low. However, large fiscal budget deficits and large increases in the money supply inevitably mean higher inflation within two years making 10-year government bonds at these low yields seem a bit risky and not that attractive.
We believe bond yields are headed higher over the rest of the year and therefore, we are keeping our bond portfolio duration levels below six years. The Canadian dollar rose 16.7% from $.7928 U.S. on March 30 to $.9251 on June 2. It then fell back to $.86 U.S. as of June 30. The rapid rise coincided with the steep increase in crude oil prices. With oil prices falling from $72 U.S. a barrel to $60 U.S. a barrel, the Canadian dollar has also fallen. We are still long-term positive on the Canadian dollar expecting it to rise back to the $.92 U.S. to $.94 U.S. range by year-end.
Market Submission from Tim Burt - Cardinal Capital
Friday, July 17, 2009
Incorporate or not to Incorporate - Tax Deferral
What are the benefits of incorporation and when should a business incorporate? Incorporated businesses offer a number of major benefits but a big one is tax deferral. In Kelowna there are a number of small businesses operating under various structures and it really depends on the specific business. A designated tax specialist should be sought before making any final decisions.
Using a corporation provides tremendous tax deferral opportunities as the tax rate on the first $400,000 of active business income in a corporation is just 16.5% (2008 – BC). It is precisely this smaller business rate that’s crucial to the viability of incorporation, especially when it is compared to the top personal rates in BC – 43.7%.
Remember, tax deferral exists only as long as the owners are able to leave some money in the corporation. When they pay themselves a dividend, there’s a second layer of tax, which brings the total up to roughly the top marginal rate in each province. So if a business owner uses up all their cash flow for personal living expenses, the benefit of incorporation is reduced if not eliminated. For more benefits of Incorporation logon to www.serviss.ca.
Professional tax and legal advice should always be sought before entertaining any business changes. Incorporation can be a complicated process and is not for every business owner.
I would recommend the following tax specialist firms for Kelowna business owners:
Grant Thornton - Kelowna
Meyers Norris Penny - Kelowna
KPMG - Kelowna
Andrew Tse CA - Kelowna
Adams Heymen Owen - Kelowna
Using a corporation provides tremendous tax deferral opportunities as the tax rate on the first $400,000 of active business income in a corporation is just 16.5% (2008 – BC). It is precisely this smaller business rate that’s crucial to the viability of incorporation, especially when it is compared to the top personal rates in BC – 43.7%.
Remember, tax deferral exists only as long as the owners are able to leave some money in the corporation. When they pay themselves a dividend, there’s a second layer of tax, which brings the total up to roughly the top marginal rate in each province. So if a business owner uses up all their cash flow for personal living expenses, the benefit of incorporation is reduced if not eliminated. For more benefits of Incorporation logon to www.serviss.ca.
Professional tax and legal advice should always be sought before entertaining any business changes. Incorporation can be a complicated process and is not for every business owner.
I would recommend the following tax specialist firms for Kelowna business owners:
Grant Thornton - Kelowna
Meyers Norris Penny - Kelowna
KPMG - Kelowna
Andrew Tse CA - Kelowna
Adams Heymen Owen - Kelowna
Monday, July 6, 2009
Caution - Kelowna Contractors - Watch your deductions!
As I read these recent legal cases I thought the Okanangan Valley and Kelowna in particular would be interested. As Kelowna has experienced explosive construction growth in the past 5 years it would be valuable to know where the government stands on construction shortcuts and grey areas. As a financial advisor in the Kelowna area for a number of years I have witnessed first hand this growth and built a number of financial strategies around protecting the interests of local Business Owners. Enjoy the below cases...
Santagapita et al. v. The Queen, 2009 DTC 1019 (T.C.C.)
Subsection 18(3.1) of the Income Tax Act (Canada) (the "Act") denies a deduction for so-called "soft costs" incurred by a taxpayer that are attributable to the period of the construction, renovation, or alteration of a building. Such costs must be added to the capital cost of the building, which essentially postpones the ability to deduct construction period soft costs to the post-construction period in the form of capital cost allowance.
The recent decision of the Tax Court of Canada in Santagapita et al. v. The Queen, 2009 DTC 1019 (T.C.C.), considered a number of elements pertaining to the application of the soft cost capitalization rule in subsection 18(3.1) of the Act. In Santagapita, the taxpayers leased a commercial rental building owned by them to a corporation that was wholly owned by them. The building was extensively damaged by fire and the business being carried on in the building was discontinued. The taxpayers received fire insurance proceeds for loss of rent. The taxpayers made extensive repairs and renovations to the building and, on completion, the building was rented to an arm's length tenant.
The taxpayers were assessed by the Minister of National Revenue. Among other things, the Minister added the fire insurance proceeds of $50,000 on account of loss of rent to the taxpayers' income under subsection 9(1) of the Act. The Minister also capitalized all construction-related expenses incurred with respect to the renovation of the building (including mortgage interest) to the cost of the building, pursuant to subsection 18(3.1) of the Act.
The Court had no difficulty in concluding that the insurance proceeds for loss of rent were properly included in the taxpayers' income. The Court then turned to the question of when the renovation of the building was completed. The answer to this question would determine the amount of the renovation "soft costs" that would be required to be added to the cost of the building pursuant to subsection 18(3.1). The Court concluded that the renovation of the building was completed at the time the front entrance to the building was finished, as the building then became habitable and all of the planned renovation work was actually completed.
Interestingly, the Court concluded that interest expense incurred by the taxpayers on the mortgage that was taken out to acquire the property could be deducted on a current basis under paragraph 20(1)(c). The interest expense was not subject to the capitalization rule in subsection 18(3.1) of the Act, since the actual use of the mortgage proceeds related to the acquisition of the property, and not to the subsequent renovation of the building. The Court also considered the effect of subsection 20(29) of the Act. When a building is under construction or renovation and is also used to earn rental income during the construction/renovation period, subsection 20(29) of the Act permits soft costs, which would otherwise have to be capitalized, to be deducted to the extent of construction period rental income. In this case, the Court reduced the amount of the costs required to be capitalized to the building by the amount of the fire insurance proceeds received by the taxpayers on account of damages for loss of rent.
-Ian V. MacInnis, Fogler, Rubinoff LLP (Barristers & Solicitors)
Soft Costs Deductible Against Insurance Proceeds
The taxpayers leased a commercial rental building owned by them (the "Building") to a corporation wholly owned by them (the "Corporation"). Following a fire in 2001 that caused extensive damage, the business being carried on in the Building was discontinued, fire insurance proceeds of $50,000 for loss of rent were received by the Corporation in a lump sum in 2002, and the Building was extensively repaired and renovated. The Building was then rented to an arm's length tenant in 2005. In reassessing the taxpayers for 2002 and 2003, the Minister: (a) divided the $50,000 insurance proceeds into four $12,500 portions, and included $12,500 in each of the taxpayer's incomes for each of 2002 and 2003; (b) capitalized all construction-related expenses incurred with respect to the Building (including mortgage interest) up to October 29, 2003 under s. 18(3.1) of the Income Tax Act (the "Act") on the assumption that the renovations to the Building were completed at that time, and not in 2001 as the taxpayers had contended; and (c) disallowed the deduction of certain expenses under s. 18(1)(a) of the Act. The taxpayers appealed to the Tax Court of Canada.
The taxpayers' appeals were allowed in part. The $50,000 insurance proceeds were to compensate the taxpayers' for their claim for damages for loss of rent. It therefore had to be included in their income under s. 9(1) of the Act. It was also irrelevant that the $50,000 was paid to the Corporation, because the taxpayers, and not the Corporation, were entitled to receive it. However, the Minister should have included the entire $50,000 in the taxpayers' incomes for 2002 when it was received, rather than dividing it between 2002 and 2003. Therefore, no portion of the $50,000 should have been included in the taxpayers' incomes for 2003. The renovation of the Building was completed no earlier than October 29, 2003, as the Minister had assumed. But because the $50,000 constituted "income from renting the building" within the meaning of s. 20(29) of the Act, the pre-October 29, 2003 expenses that were capitalized by the Minister became deductible by the taxpayers under s. 20(29) up to the amount of the $12,500 inclusion in each of their incomes for 2002. Conversely, the mortgage interest was unaffected by the capitalization rules in s. 18(3.1) of the Act, since the mortgage proceeds were used by the taxpayers to purchase the Building, and not to renovate it. Hence, the taxpayers were entitled under s. 20(1)(c) to deduct mortgage interest on a current basis. For 2002 and 2003, these deductions amounted to one-half of $19,044 and $19,218, respectively, for each taxpayer. The evidence also indicated that utilities expenses of $1,502 were incurred during 2002, but that no amounts in excess of those permitted as deductions by the Minister were incurred by the taxpayers with respect to maintenance and repairs of the Building. The Minister was ordered to reassess accordingly.
Santagapita et al. v. The Queen,¶30-555; ¶50-480; ¶50-930; ¶50-935
Triplex Used as Residence—Taxpayers Not Entitled to Rebate
The taxpayers constructed a triplex, and occupied 48% of the available space in the triplex themselves. The parents of one of the taxpayers occupied 22% of the space in the triplex, and the balance of the space was rented to a third party. On the assumption that the taxpayers and persons not at arm's length with them were occupying the triplex primarily as a residence, the Minister concluded that the taxpayers were not liable for tax under the self-supply rules in s. 191(3) of the Excise Tax Act (the "Act"), since they fell within the exception to those rules in s. 191(5)(b) of the Act. Having thus produced a zero tax assessment under the self-supply rules, the Minister denied the taxpayers the rebate in respect of land and building for residential rental accommodation claimed by them under s. 256.2(3) of the Act. The taxpayers appealed to the Tax Court of Canada.
The taxpayers' appeals were dismissed. The issue was whether the taxpayers were using the triplex "primarily as a place of residence for the individual, an individual related to the individual or a former spouse or common-law partner of the individual" within the meaning of s. 191)(5)(b) of the Act. "Primarily" in this context means more than 50% (see Foote v. The Queen, 2007 GTC 704 (T.C.C.)). Also, in its context the word "or" in s. 191(5)(b) should be interpreted conjunctively rather than disjunctively. Logically, therefore, Parliament's intention was that s. 191(5)(b) be interpreted to cover the primary use of the complex as a place of residence for the individual and any individual related to him/her. Parliament never intended s. 191(5)(b) to extend to a situation involving the primary use of the complex as a residence for either the individual or an individual related to him/her. In the present case, the triplex was being used by the taxpayers and the parents of one of them. This brought their situation within s. 191(5)(b) and disentitled them to the s. 256.2(3) rebate claimed. This result was not an unjust one for the taxpayers, since they had never paid any GST under the self-supply rules from the outset. The Minister's assessments were affirmed accordingly.
If you found value in this material please learn more about Dustin T. Serviss @ www.serviss.ca
Santagapita et al. v. The Queen, 2009 DTC 1019 (T.C.C.)
Subsection 18(3.1) of the Income Tax Act (Canada) (the "Act") denies a deduction for so-called "soft costs" incurred by a taxpayer that are attributable to the period of the construction, renovation, or alteration of a building. Such costs must be added to the capital cost of the building, which essentially postpones the ability to deduct construction period soft costs to the post-construction period in the form of capital cost allowance.
The recent decision of the Tax Court of Canada in Santagapita et al. v. The Queen, 2009 DTC 1019 (T.C.C.), considered a number of elements pertaining to the application of the soft cost capitalization rule in subsection 18(3.1) of the Act. In Santagapita, the taxpayers leased a commercial rental building owned by them to a corporation that was wholly owned by them. The building was extensively damaged by fire and the business being carried on in the building was discontinued. The taxpayers received fire insurance proceeds for loss of rent. The taxpayers made extensive repairs and renovations to the building and, on completion, the building was rented to an arm's length tenant.
The taxpayers were assessed by the Minister of National Revenue. Among other things, the Minister added the fire insurance proceeds of $50,000 on account of loss of rent to the taxpayers' income under subsection 9(1) of the Act. The Minister also capitalized all construction-related expenses incurred with respect to the renovation of the building (including mortgage interest) to the cost of the building, pursuant to subsection 18(3.1) of the Act.
The Court had no difficulty in concluding that the insurance proceeds for loss of rent were properly included in the taxpayers' income. The Court then turned to the question of when the renovation of the building was completed. The answer to this question would determine the amount of the renovation "soft costs" that would be required to be added to the cost of the building pursuant to subsection 18(3.1). The Court concluded that the renovation of the building was completed at the time the front entrance to the building was finished, as the building then became habitable and all of the planned renovation work was actually completed.
Interestingly, the Court concluded that interest expense incurred by the taxpayers on the mortgage that was taken out to acquire the property could be deducted on a current basis under paragraph 20(1)(c). The interest expense was not subject to the capitalization rule in subsection 18(3.1) of the Act, since the actual use of the mortgage proceeds related to the acquisition of the property, and not to the subsequent renovation of the building. The Court also considered the effect of subsection 20(29) of the Act. When a building is under construction or renovation and is also used to earn rental income during the construction/renovation period, subsection 20(29) of the Act permits soft costs, which would otherwise have to be capitalized, to be deducted to the extent of construction period rental income. In this case, the Court reduced the amount of the costs required to be capitalized to the building by the amount of the fire insurance proceeds received by the taxpayers on account of damages for loss of rent.
-Ian V. MacInnis, Fogler, Rubinoff LLP (Barristers & Solicitors)
Soft Costs Deductible Against Insurance Proceeds
The taxpayers leased a commercial rental building owned by them (the "Building") to a corporation wholly owned by them (the "Corporation"). Following a fire in 2001 that caused extensive damage, the business being carried on in the Building was discontinued, fire insurance proceeds of $50,000 for loss of rent were received by the Corporation in a lump sum in 2002, and the Building was extensively repaired and renovated. The Building was then rented to an arm's length tenant in 2005. In reassessing the taxpayers for 2002 and 2003, the Minister: (a) divided the $50,000 insurance proceeds into four $12,500 portions, and included $12,500 in each of the taxpayer's incomes for each of 2002 and 2003; (b) capitalized all construction-related expenses incurred with respect to the Building (including mortgage interest) up to October 29, 2003 under s. 18(3.1) of the Income Tax Act (the "Act") on the assumption that the renovations to the Building were completed at that time, and not in 2001 as the taxpayers had contended; and (c) disallowed the deduction of certain expenses under s. 18(1)(a) of the Act. The taxpayers appealed to the Tax Court of Canada.
The taxpayers' appeals were allowed in part. The $50,000 insurance proceeds were to compensate the taxpayers' for their claim for damages for loss of rent. It therefore had to be included in their income under s. 9(1) of the Act. It was also irrelevant that the $50,000 was paid to the Corporation, because the taxpayers, and not the Corporation, were entitled to receive it. However, the Minister should have included the entire $50,000 in the taxpayers' incomes for 2002 when it was received, rather than dividing it between 2002 and 2003. Therefore, no portion of the $50,000 should have been included in the taxpayers' incomes for 2003. The renovation of the Building was completed no earlier than October 29, 2003, as the Minister had assumed. But because the $50,000 constituted "income from renting the building" within the meaning of s. 20(29) of the Act, the pre-October 29, 2003 expenses that were capitalized by the Minister became deductible by the taxpayers under s. 20(29) up to the amount of the $12,500 inclusion in each of their incomes for 2002. Conversely, the mortgage interest was unaffected by the capitalization rules in s. 18(3.1) of the Act, since the mortgage proceeds were used by the taxpayers to purchase the Building, and not to renovate it. Hence, the taxpayers were entitled under s. 20(1)(c) to deduct mortgage interest on a current basis. For 2002 and 2003, these deductions amounted to one-half of $19,044 and $19,218, respectively, for each taxpayer. The evidence also indicated that utilities expenses of $1,502 were incurred during 2002, but that no amounts in excess of those permitted as deductions by the Minister were incurred by the taxpayers with respect to maintenance and repairs of the Building. The Minister was ordered to reassess accordingly.
Santagapita et al. v. The Queen,¶30-555; ¶50-480; ¶50-930; ¶50-935
Triplex Used as Residence—Taxpayers Not Entitled to Rebate
The taxpayers constructed a triplex, and occupied 48% of the available space in the triplex themselves. The parents of one of the taxpayers occupied 22% of the space in the triplex, and the balance of the space was rented to a third party. On the assumption that the taxpayers and persons not at arm's length with them were occupying the triplex primarily as a residence, the Minister concluded that the taxpayers were not liable for tax under the self-supply rules in s. 191(3) of the Excise Tax Act (the "Act"), since they fell within the exception to those rules in s. 191(5)(b) of the Act. Having thus produced a zero tax assessment under the self-supply rules, the Minister denied the taxpayers the rebate in respect of land and building for residential rental accommodation claimed by them under s. 256.2(3) of the Act. The taxpayers appealed to the Tax Court of Canada.
The taxpayers' appeals were dismissed. The issue was whether the taxpayers were using the triplex "primarily as a place of residence for the individual, an individual related to the individual or a former spouse or common-law partner of the individual" within the meaning of s. 191)(5)(b) of the Act. "Primarily" in this context means more than 50% (see Foote v. The Queen, 2007 GTC 704 (T.C.C.)). Also, in its context the word "or" in s. 191(5)(b) should be interpreted conjunctively rather than disjunctively. Logically, therefore, Parliament's intention was that s. 191(5)(b) be interpreted to cover the primary use of the complex as a place of residence for the individual and any individual related to him/her. Parliament never intended s. 191(5)(b) to extend to a situation involving the primary use of the complex as a residence for either the individual or an individual related to him/her. In the present case, the triplex was being used by the taxpayers and the parents of one of them. This brought their situation within s. 191(5)(b) and disentitled them to the s. 256.2(3) rebate claimed. This result was not an unjust one for the taxpayers, since they had never paid any GST under the self-supply rules from the outset. The Minister's assessments were affirmed accordingly.
If you found value in this material please learn more about Dustin T. Serviss @ www.serviss.ca
Tax Tips from the Canada Revenue Agency
Benefits for Families (for links to more financial information see below)
Deductions
Parents may be able to deduct eligible child care expenses they incurred in 2008 for children who are under the age of 16, or who are dependent on them and have a mental or physical infirmity. For more information, and to make your claim, use Form T778, "Child Care Expenses Deduction for 2008".
Federal non-refundable tax credits:
Amount for children born in 1991 or later: You can claim $2,038 for each of your or your spouse's or common-law partner's children who were under the age of 18 at the end of the year and lived with you throughout 2008. For more details, see line 367 of the 2008 General Income Tax and Benefit Guide.
Children's fitness tax credit: Parents can claim, on line 365, fees paid to register their child in a prescribed program of physical activity, up to a maximum of $500 per child who is under 16 years of age at the beginning of the year in which the expenses are paid. If their child qualifies for the disability tax credit, parents can claim up to $500 per year in eligible fitness expenses paid for the child who is under 18 years of age at the beginning of the year. For more details, see line 365 of the 2008 General Income Tax and Benefit Guide.
Public transit pass credit: You can claim the cost of certain transit passes or electronic payment cards to travel by local ferries, buses, streetcars, subways, or commuter trains. For more details, see line 364 of the 2008 General Income Tax and Benefit Guide.
Benefits and Credits
Child benefits
Parents and caregivers can apply for the Canada Child Tax Benefit ("CCTB"), which is a non-taxable monthly payment for every child under the age of 18. The amount is calculated based on the number of children in their care, the province or territory of residence, and their 2008 family net income. Parents can also receive the Universal Child Care Benefit, which is a taxable guaranteed payment of $100 per month per child under the age of six.
In order to receive the benefit, parents must complete Form RC66, "Canada Child Benefits Application", or apply online using the "Apply for Child Benefits" service through "My Account". In addition to the CCTB, parents could receive the Child Disability Benefit if their child is eligible for the disability amount.
Goods and services tax/harmonized sales tax ("GST/HST") credit
Each year, you or your spouse or common-law partner can complete the application area on page 1 of your income tax and benefit return to receive the GST/HST credit. For more information on the GST/HST credit, go to www.cra.gc.ca/benefits, see Pamphlet RC4210, "GST/HST Credit", or call 1-800-959-1953.
Working Income Tax Benefit ("WITB")
Working individuals and families with low incomes may be able to claim the WITB when filing their income tax and benefit returns. The WITB includes a supplement for individuals who are entitled to the disability amount. Eligible individuals and families can also apply for advance payments of up to one half of their estimated 2009 WITB by completing Form RC201, "Working Income Tax Benefit Advance Payments Application for 2009".
Benefits for Seniors
There are a number of tax measures that may be of interest to Canadian seniors. To receive the GST/HST credit, you must apply by completing the application area on page 1 of your 2008 income tax and benefit return, even if you received the credit last year. For more information on the GST/HST credit, see Pamphlet RC4210, "GST/HST Credit", or go to www.cra.gc.ca/benefits.
To split your eligible pension income between you and your spouse or common-law partner in order to reduce the amount of taxes that you owe, both of you should complete Form T1032, "Joint Election to Split Pension Income". Be sure to keep the form in your records if you file electronically, or include it with your paper return. Go to www.cra.gc.ca/seniors for more detailed information.
You can contribute to your registered pension savings plan ("RRSP") up to December 31 of the year you turn 71 years of age (before 2007, this age limit was 69 years of age). Similarly, RRSPs and deferred profit sharing plans will generally be required to begin the payment of benefits to you by the end of the year during which you turn 71.
In November 2008, the minimum amount withdrawal from a registered retirement income fund ("RRIF") in 2008 was reduced by 25%. For more information about the RRIF, go to www.cra.gc.ca/seniors.
Federal Non-Refundable Tax Credits
Age amount: If you are 65 years of age or older and your net income for 2008 was less than $66,697, you can claim all or a portion of the age amount of $5,276. See line 301 of the 2008 General Income Tax and Benefit Guide for more information.
Disability amount: If a qualified practitioner certifies on Form T2201, "Disability Tax Credit Certificate", that you have a severe and prolonged impairment in a physical or mental function, you can claim the disability amount of $7,021. To learn more, see Guide RC4064, "Medical and Disability-Related Information".
Pension income amount: You may be able to claim up to $2,000, if you reported eligible pension, superannuation, or annuity payments on line 115, line 116, or line 129 of your return. For more information, see line 314 of the 2008 General Income
Tax and Benefit Guide.
Public transit amount: You can claim the cost of certain monthly transit passes or electronic payment cards used to travel by local ferries, buses, streetcars, subways, or trains. For more details, see line 364 of the 2008 General Income Tax and Benefit Guide.
Medical expenses: You may be able to claim the cost of medical expenses for any 12-month period ending in 2008 (provided that they have not been claimed before) for yourself, your spouse or common-law partner, or your dependants. For 2008, your total expenses have to be more than 3% of your net income or $1,962, whichever is less. For more information about medical expenses, including a list of common eligible expenses, CLICK HERE.
Are you a new family looking for Life Insurance quotes or a financial advisor in Kelowna.
Deductions
Parents may be able to deduct eligible child care expenses they incurred in 2008 for children who are under the age of 16, or who are dependent on them and have a mental or physical infirmity. For more information, and to make your claim, use Form T778, "Child Care Expenses Deduction for 2008".
Federal non-refundable tax credits:
Amount for children born in 1991 or later: You can claim $2,038 for each of your or your spouse's or common-law partner's children who were under the age of 18 at the end of the year and lived with you throughout 2008. For more details, see line 367 of the 2008 General Income Tax and Benefit Guide.
Children's fitness tax credit: Parents can claim, on line 365, fees paid to register their child in a prescribed program of physical activity, up to a maximum of $500 per child who is under 16 years of age at the beginning of the year in which the expenses are paid. If their child qualifies for the disability tax credit, parents can claim up to $500 per year in eligible fitness expenses paid for the child who is under 18 years of age at the beginning of the year. For more details, see line 365 of the 2008 General Income Tax and Benefit Guide.
Public transit pass credit: You can claim the cost of certain transit passes or electronic payment cards to travel by local ferries, buses, streetcars, subways, or commuter trains. For more details, see line 364 of the 2008 General Income Tax and Benefit Guide.
Benefits and Credits
Child benefits
Parents and caregivers can apply for the Canada Child Tax Benefit ("CCTB"), which is a non-taxable monthly payment for every child under the age of 18. The amount is calculated based on the number of children in their care, the province or territory of residence, and their 2008 family net income. Parents can also receive the Universal Child Care Benefit, which is a taxable guaranteed payment of $100 per month per child under the age of six.
In order to receive the benefit, parents must complete Form RC66, "Canada Child Benefits Application", or apply online using the "Apply for Child Benefits" service through "My Account". In addition to the CCTB, parents could receive the Child Disability Benefit if their child is eligible for the disability amount.
Goods and services tax/harmonized sales tax ("GST/HST") credit
Each year, you or your spouse or common-law partner can complete the application area on page 1 of your income tax and benefit return to receive the GST/HST credit. For more information on the GST/HST credit, go to www.cra.gc.ca/benefits, see Pamphlet RC4210, "GST/HST Credit", or call 1-800-959-1953.
Working Income Tax Benefit ("WITB")
Working individuals and families with low incomes may be able to claim the WITB when filing their income tax and benefit returns. The WITB includes a supplement for individuals who are entitled to the disability amount. Eligible individuals and families can also apply for advance payments of up to one half of their estimated 2009 WITB by completing Form RC201, "Working Income Tax Benefit Advance Payments Application for 2009".
Benefits for Seniors
There are a number of tax measures that may be of interest to Canadian seniors. To receive the GST/HST credit, you must apply by completing the application area on page 1 of your 2008 income tax and benefit return, even if you received the credit last year. For more information on the GST/HST credit, see Pamphlet RC4210, "GST/HST Credit", or go to www.cra.gc.ca/benefits.
To split your eligible pension income between you and your spouse or common-law partner in order to reduce the amount of taxes that you owe, both of you should complete Form T1032, "Joint Election to Split Pension Income". Be sure to keep the form in your records if you file electronically, or include it with your paper return. Go to www.cra.gc.ca/seniors for more detailed information.
You can contribute to your registered pension savings plan ("RRSP") up to December 31 of the year you turn 71 years of age (before 2007, this age limit was 69 years of age). Similarly, RRSPs and deferred profit sharing plans will generally be required to begin the payment of benefits to you by the end of the year during which you turn 71.
In November 2008, the minimum amount withdrawal from a registered retirement income fund ("RRIF") in 2008 was reduced by 25%. For more information about the RRIF, go to www.cra.gc.ca/seniors.
Federal Non-Refundable Tax Credits
Age amount: If you are 65 years of age or older and your net income for 2008 was less than $66,697, you can claim all or a portion of the age amount of $5,276. See line 301 of the 2008 General Income Tax and Benefit Guide for more information.
Disability amount: If a qualified practitioner certifies on Form T2201, "Disability Tax Credit Certificate", that you have a severe and prolonged impairment in a physical or mental function, you can claim the disability amount of $7,021. To learn more, see Guide RC4064, "Medical and Disability-Related Information".
Pension income amount: You may be able to claim up to $2,000, if you reported eligible pension, superannuation, or annuity payments on line 115, line 116, or line 129 of your return. For more information, see line 314 of the 2008 General Income
Tax and Benefit Guide.
Public transit amount: You can claim the cost of certain monthly transit passes or electronic payment cards used to travel by local ferries, buses, streetcars, subways, or trains. For more details, see line 364 of the 2008 General Income Tax and Benefit Guide.
Medical expenses: You may be able to claim the cost of medical expenses for any 12-month period ending in 2008 (provided that they have not been claimed before) for yourself, your spouse or common-law partner, or your dependants. For 2008, your total expenses have to be more than 3% of your net income or $1,962, whichever is less. For more information about medical expenses, including a list of common eligible expenses, CLICK HERE.
Are you a new family looking for Life Insurance quotes or a financial advisor in Kelowna.
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