CoVid 19 – Employment Insurance (EI) vs. Canadian Emergency Response Benefit (CERB)

So many questions circling around…

“Do I apply for EI?”
“Do I need my employer to issue me a ROE”
“When will funds be available to me”
“Covid19 is directly related to my work shortage, do I qualify?”
“How do I apply?”
“Help!!!”

As Income Tax preparers, and bookkeepers, we are frequently asked the same questions daily related to unemployment and layoff. This is all in relation to the closure of non-essential business and reduction of hours. Over the past 3 weeks, the government began announcing new measures to help Canadians through these tough economic times.

As most of you are aware last week Justin Trudeau announced a new Canadian Emergency Response Benefit (CERB). This benefit replaced the two previous measures announced.

The Canadian Emergency Response Benefit (CERB) is a taxable benefit that would provide $2,000 a month for up to four months. This benefit is for Canadians who have had their employment income drastically reduced as a result of the Corona Virus. This benefit is a much simpler and accessible combination or the previous announced emergency benefits. It also currently REPLACES EI for those who have and have yet to apply.

The EI system was not designed to process such shear volumes of applicants, a majority received following March 15th, 2020. Given this situation, all Canadians who have ceased working for the reasons listed below, whether they are EI eligible OR NOT, would be able to receive the Emergency Response Benefit in a timely manner.

The CERB would cover Canadians who have lost their jobs, are sick, quarantined, or taking care of someone who is sick with COVID-19. This also applies to working parents who must stay home without pay to care for their children who are sick or who are at home due to care facility closures.

The CERB also applies to wage earners, contract workers and the self-employed who would otherwise be ineligible for Employment Insurance (EI).

Additionally, workers who are still employed, but are not receiving income, because of disruptions to their work situation due to the pandemic qualify. It is a broad spectrum of applicants who are available for this benefit.

To qualify, applicants must have had $5,000 in employment income, self-employment income, or maternity or parental leave benefits for 2019 or in the 12-month period preceding the day they make the application.

You’ll be able to apply through the CRA MyAccount secure portal, your secure My Service Canada Account or over the phone.

If you’ve already applied for EI and your application hasn’t been processed yet, you’ll automatically be applied for the CERB instead.

Canadians could begin to receive your benefit in as little as 10 days after application.

To note: If you are already receiving EI benefits regular or sickness benefits will continue to receive their benefits and should NOT apply for the emergency response benefit. If your EI benefits end before Oct 3rd, 2020 you can then apply for CERB once your benefits cease, IF they are unable to return to work due to COVID-19.

For more funding sources available from the federal and provincial governments during Covid-19, take a look at our blog later this week.

For more Frequently Asked Questions – https://www.unifor.org/en/faq-new-canada-emergency-response-benefit-cerb

RRSP’s – the ins and outs and what you need to know!

The last month to make RRSP contributions to be claimed for 2019 tax filing is upon us. Time to check those couch cushions, and winter coat pockets and scrounge up some savings, to make that all-important contribution!

What are RRSP’S?

Registered Retirement Savings Plan, a plan created by the federal government to allow you to save and invest your hard-earned dollars into a tax deferred savings account. The term “tax deferred” refers to any money put into the plan that can accumulate tax free until the money is withdrawn.

When can I contribute for the current year?

March 2, 2020 is the contribution deadline for the 2019 tax filing season.

The RRSP contribution period goes from March 2nd of the current year to March 1st of the following year (first 60 days). These dates are important to remember, especially the first 60 days of the following year. These latter contributions can ONLY be declared in the previous years tax return.

Let’s use Peter as an example:

Peter contributes $2,000 to his RRSP on Feb 23rd, 2020. Because the contribution was made in the first 60 days of the year, Peter must declare these on his 2019 tax return. He can choose not to use the contributions and carry them forward to the following year, but he must claim them in the 2019 year.

Can I contribute as much as I want into the plan?

Not exactly. You are limited to the lesser of 18% of your earned income for the year, or the maximum, which is predetermined every year. This year the max sits at $26,500 of contribution room. This amount is what is called your RRSP limit and can be found on your Notice of Assessment from the CRA, or your My Account. All unused room from previous years, accumulates to future years.

The government stipulates *earned income* as not all sources of income are included; including but not limited to interest income, dividends and capital gains.

What makes RRSPs enticing to the average taxpayer is, that not only does your money grow without any interference from the tax man, but you get a tax deduction each year you contribute. Any and all amounts, including the first 60 days of the current year get deducted from your total income, which helps determine your NET income. That’s an almost instant return on investment even before your money has had time to work for you.

Let’s use Peter again as an example:

Peter made $46,000 during the year. He had $3,000 of disposable income and decided to contribute his money to his RRSP. At $46,000 earned income Peter falls into the 15% federal income tax bracket. The $3,000 acts as a deduction from income, bringing his net to $46,000. Peter just maximized his RRSP deduction, by bringing him down a federal income tax bracket!
Let’s take a look at a simple calculation.
Without RRSP $46,000 x 15% =$6900 tax payable.
With RRSP Contribution $46,000 – $3,000 = $43,000 x 15% $6450 tax payable.

The tax savings alone are huge for Peter, and he was pleased with his decision to contribute. Most places of employment take enough tax off your salary or hourly wages to match your year income according to your tax bracket. So, in theory Peter receives a $450 refund from the CRA for his contribution, this does not take into account any and all other forms of income deductions, as well as the provincial tax calculation.

Now another thing to consider is lowering your net income can potentially increase your government credits, like GST/HST and the Canada Child Benefit. These are all calculated based on net income!

As tax preparers, we recommend RRSP contributions as they can provide a huge return on investment to the taxpayer.

The benefits of an RRSP do have an expiry date. Unfortunately, at age 71 is when the CRA requires you to start withdrawing from your RRSP at set percentages. This money being withdrawn is now a RRIF. The whole point of RRSP contributions, aside from ensuring you can live comfortably upon retirement, but it defers the taxes paid on this money, when you likely have lower earned income and be taxed in the lowest tax bracket.

One last thing to note, if you do have RRSP saved up and are a first-time home buyer you can withdraw up to $35,000 for the down payment on your home and have that withdraw be tax free. Repayment is over a 15-year time span, and first payment is required in the second year after the withdrawal. If the money is not contributed back in each tax filing year, it will simply be added as other income. Typically, any money withdrawn from your RRSP is subject to income tax for any other reason outside the Home Buyers Plan and the Lifelong Learning plan, which similarly is the opportunity to withdraw up to $10,000 in a calendar year, ($20,000 lifetime) for education opportunities, with a similar repayment plan.

Now is the time to determine if you should make that last RRSP contribution for the year.

Have questions or want some advice for this upcoming tax filing season, we at SheDo Tax are more than happy to help!

So you received a review letter from the CRA… Now what?

The CRA is requesting more information about your income tax return after you’ve already cleaned out and packed up your tax folders.

Breathe.

A tax review is different from a tax audit. A review is a simpler look at the tax return information, where an audit is a more formal and detailed analysis of the taxpayers return.
The CRA regularly conducts review programs as an important part of the self-assessment tax system. To determine if they’ve assessed your return correctly, they may request more supporting documents and information that applies to the situation your being reviewed for.

They may select your income tax for review for multiple reasons:

A.  Could be a conflict of information between third-party sources (slips issued by your employer, financial institution, your history of credits claimed and deducted)

B.   Could be unusual claims or significant changes from your filing history; or…

C.  Sometimes, its as simple as a random selection.

Also keep in mind that there are a few different types of reviews:

  1. Pre-assessment Review Program (The CRA conducts a review before processing your return and issuing a Notice of Assessment. The peak period for this program is between February and July.)
  2. Processing Review Program (The CRA reviews your return after issuing a Notice of Assessment usually between August and December.)
  3. Matching Program (This can take place before or after the Notice of Assessment is issued, where information from your tax return is compared to a third-party source -your employer or a financial institution.)
  4. Special Assessments Program (This also takes place after the Notice of Assessment is issued. It is a more in-depth review, resulting from trends in non-compliance that have come to the attention of the CRA.)

If you get selected for review, not to worry…We are here to help!  It’s time to co-operate!

Avoid unwanted fees. Do not ignore the CRA’s request to provide additional information on your tax return. The CRA can adjust as they see fit based on the information available. Respond to their request within the specified time frame (usually 30 days) of receiving your notice and avoid the unnecessary hassle. To respond, you must include your reference number (located at the top right corner of their letter to you) and provide all of the information requested.

Do not fret! As concerning as it may seem to receive a letter from the CRA requesting additional information, it’s quite common. As long as you keep your legitimate receipts, slips and letters organized, you won’t need to scramble. This process is as fast and simple as you make it.

If your claim was changed after being reviewed by one of the CRA’s programs and you have additional information or documents related to the claim, the CRA will accept all new submissions and review your claim again for a possible adjustment. Send any additional information or documents to the address indicated on the letter you received or online using your “My Account”.

If you have any other questions regarding a letter you may have received, the SheDo Squad is happy to help.  Reach out and will respond in a timely manner.

Looking forward to hearing from you!

Shannon Smith, 1/3 of our Epic SheDo Squad

Fallin’ Behind on your Taxes?

Every year it is estimated that 3 Million Canadians do not file their taxes on time.  As Income Tax Preparers, this is a staggering number.

 

The Canada Revenue Agency (CRA) encourages filing on or before the deadline of April 30th for T1 individuals, and June 15th for small business owners.  T2 Corporate tax are due 6 months after the end of their fiscal year. So, what if you missed the deadline? What if months or years have gone by since you last filed your taxes?……. Whether you are filing personal tax, small business or corporation, filing late is better than not filing at all.

Admittedly, there aren’t too many people I know, that enjoy filing their taxes.  Tempting as it may be, procrastinating will only make it worse. Often the burden of calculating expenses, collecting receipts, having lost slips, or paying a debt owing to the government is more than enough reason to delay filing.

If your tax balance is zero or you’re getting a refund, you can breathe a sigh of relief, you won’t incur penalties for late filing. It is important to note that filing late can delay your government benefits; for example, if you qualify for the Canada Child Benefit or HST credit and don’t file on time, you may not receive your payment on time.

If you have a balance owing, the penalties for filing late can be quite steep, and often a burden. The current late filing penalty is 5% of your balance owing, plus an additional 1% for each month your return is late, up to 12 months. If filing late is your only option, it is a good idea to file as soon as you can to avoid racking up that extra 1% penalty per month.

There are larger penalties for chronic late filers, a status with the CRA you never want to hold.

On the bright side, there is some reprieve for those who owe a balance to the CRA. If full payment for outstanding debt puts you in financial hardship, you do have a few options. Firstly, you can choose a monthly payment plan set forth and agreed upon between yourself and the CRA. You also have the option in paying in a few installments. The government will accept any attempt at payment. DO NOT think this debt will go away, and that you can delay paying….  I will explain why in another blog post.

Paying what you can does not mean you will no longer accrue interest, but you will only pay interest on the outstanding debt.  Furthermore, there is an interest relief program available to Canadians if you do end up owing money to the CRA. This situation does not apply to everyone, and it is not a guarantee, but if you must file your return late because of circumstances beyond your control, you can apply to have late penalties waived. Check out :  RC4288 Request for Taxpayer Relief with CRA for further details.

In Summary, if you have been delaying filing your taxes, for whatever reason, we here at the SheDo Tax Company would be happy to help you get your taxes on file, up to date and without judgement.  We understand that life gets in the way, other priorities sometimes trump getting your taxes in on time.  You can put your trust in us, and believe us when we say, you are not the only one who has Fallin’ Behind.

 

We are always here to help you!

Rachel Whitlock

 

 

Claiming Donations – TIPS IN 6

Whether you’re volunteering at your church, participating in a local walkathon, or donating to a charitable organization, we Canadians live in a society full of generosity. Along with the colossal feeling of knowing you’ve made a difference; your donation can also yield a tax break. Donating to a charitable organization is helps lower your taxes payable!

 

  1. First things first– This tax credit helps to lower your taxes payable… however, this is a non-refundable tax credit. As such, it can only be used to reduce tax owed; if you don’t owe any tax, you don’t get a refund from this credit. Generally, your tax savings will be equal to the amount of the charitable tax credit calculated.

 

  1. Balance Owing – If you know you’re going to owe money to the government, why not donate some of that money to a qualified charity, rather than the government? This will not only lower your taxes payable, but you’ll be supporting a charity in need.

 

  1. Qualified Charities – It’s important to know if you’ve donated to a qualified charity.  As an example, unfortunately GoFundMe donations are considered a “personal gift” and not a donation. (This doesn’t mean you can’t donate to these campaigns, it’s just not tax deductible).  It is extremely important to ensure the charitable organization you are contributing to is a registered charity and has an eligible charitable registration number.

 

  1. Tax Credit Rates – You can’t always claim the full value of gifts given to charities. Instead, you are limited to claiming gifts up to 75 percent of your net income in most cases. If you donate $200 or more, you qualify for a higher rate. This means that you are eligible for a tax credit worth15 percent on the first $200 donated, plus a tax credit worth 29 percent on any amount above $200. For example, if you donate $200, you receive a tax credit worth $30 (15 percent of $200). However, if you donate $500, you receive the same $30 tax credit, plus a tax credit worth $87 on the amount above $200.

 

  1. Timeline– You can claim donations made on or before Dec 31 in the same tax year. You can also claim any donation amounts not claimed by you or your spouse or common-lay partner in the past five years. This being said, you can also carry forward donation receipts for up to five years and claim them all at once in a single tax year. If you are claiming several credits this year, such as tuition and education credits, check to see if your donation would be better claimed in a future year. Remember, donation credits are non-refundable which means that if you are already in a position where you don’t owe any tax, you won’t benefit from claiming the credit.

 

  1. Super Credit – The super credit started in the 2013 tax year and is listed as only temporary for the 2013 to 2017 tax years. This credit results in an additional 25 percent to the federal rates. For the first $200, you receive the old 15 percent plus another 25 percent worth of credit. For amounts over $200, the amount would be the 29 percent plus another 25 percent federal credit. The maximum contribution that qualifies for the super credit is $1,000. Any amount over that $1,000 does not receive the additional credit.  This credit is only considered to first-time donors.   To be considered a first-time donor, you, or a spouse or your common-law partner, must not have claimed the charitable donations tax credit in the past five years.
  • The super credit is only beneficial to individuals who are behind in taxes and if you have carry forward amounts owing. If you are one of these individuals it is most beneficial to apply all donations on your 2017 return!

 

And that’s my tips in 6!

If you have any questions in regards to the Donation non-refundable tax credit, reach out to us today!  Happy to Help!

Shannon Smith and the SheDo Tax Crew

“So, I Started My Own Business and Know SQUAT About Bookkeeping…”

Congratulations, Being an entrepreneur is so rewarding! You’ve taken your dreams and plans and created a reality and are NOW a small business owner!

You are excited and ready to get started on the right foot! Learning to balance your books and bringing in revenue is a MUST.  Keeping track of your expenses, and your cash flow is probably the most important aspect of running a successful and profitable business.

“I just keep my expenses on a spreadsheet.”

I cringe often at statements like this. Not because I hate spreadsheets. I’m a bookkeeper, I LOVE spreadsheets. The problem with keeping track of your expenses on a spreadsheet is one of memory and will power. If you don’t remember to track the expense on the spreadsheet, it doesn’t get tracked.

And unless you’re meticulous, you probably aren’t reconciling your receipts to your bank accounts or creating financial statements. These steps are key to not only your financial overview of your company – but filing your taxes at fiscal year end!

The answer:  Switching from Excel Spreadsheets to Bookkeeping Software!

Switching from spreadsheets to bookkeeping software is a great tool for your business. Here are a few reasons:

  • By connecting to your bank account, it downloads all transactions, they just need to be categorized.
  • You can upload pictures of the receipts, keeping everything in one place.
  • Connecting to software allows you or your bookkeeper to reconcile your accounts and get you those financial reports in seconds.
  • Create invoices and estimates with breeze, and even collect payments!
  • Have employees? Why not use software to run your payroll and track employer taxes not to mention your HST payments each quarter.

There are plenty of different bookkeeping software systems that work great, but my software choice is QuickBooks Online.

We use QuickBooks Online for most of our clients, and I have no complaints. There are multiple affordable packages available for you to choose from that we are proud to offer. One of my favourite aspects of this software is it take a lot of the guess work out and allows you an to take an up-to-date snapshot of your company… whenever you need it!

One piece of advice I recommend, if you are not confident in using the software yourself, contact a professional first. (SheDo… SheDo…) We have had some clients that have come in that require many corrections in the books and records after trying to figure it out themselves year after year. This can often get timely and extremely costly.

This is where we come in….

Before trying to figure your bookkeeping plan on your own, you may need a little guidance from your favourite tax accountants…. Simply message us, we are here and happy to help!

We get it…You just want to run your business. That’s why you should let us handle your bookkeeping!

Looking forward to working with you!

Rachel Whitlock and the SheDo Squad