Category Archives: Taxes

Taxable Natural Persons

Taxpayers Beware

For the past couple years there have been stories circulating around the internet claiming that you don’t have to pay income taxes.

Most of these stories seem to have originated from American conspiracy theorist websites. Their basic argument is that you are in fact two people; first the “natural” person you were born as. Second; the “legal” person the government created when they issued you a social insurance number.

According to these theorists, a “natural” person does not have to pay income tax.

False.

Canada Revenue Agency (CRA) has sent out notices warning taxpayers against these schemes.

There is no such thing as a “natural” person. You need to know that Canada Revenue Agency has won every single one of their court cases against these people. As a Canadian, you do have to pay the income tax you owe.

You should also know that these “tax protesters” as they call themselves, are usually raking in the cash by inviting you to attend expensive seminars that pretend to teach you how to avoid paying taxes. They will try to sell you books, dvds and consulting services containing the same false information.

In 2012 Russell Porisky, the main Canadian proponent of this scheme, was sentenced to 4 1/2 years in jail for tax evasion and fraudulently counselling other people to do the same.

“It is difficult to set out his line of argument with cogency because it lacks logic, coherence and consistency,” the judge wrote. “Mr. Porisky’s theory not only does not bear any legal logic, but it also fails to accord with common sense. It is a failed attempt at word magic and has no validity.”

The Canadian Constitution allows the government to raise money by any “mode or system of taxation.” The penalties for tax evasion are up to 200% of the taxes owing plus up to 5 years in jail.

Even if you don’t owe any taxes, Canadians need to file a tax return in order to qualify for HST refunds and Trillium grants.

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The Cost of Tax Phobia

A lot of people are so scared of the entire idea of tax season, that they rush right down to the tax preparer in the mall, and pay them to make it all go away. These guys charge anywhere from $40 and up.

Some people use tax preparation services that offer refunds right on the spot. This is where things can get costly.

If you file your return online, under normal circumstances you should have your refund in a week or two. If you get your tax return prepared by the instant refund people you get your money right away. The cost you pay for this convenience is ridiculous. You can pay up to 15% of your refund for this service.

You should also know that if you pay someone else to do your tax return, and they make a mistake, it’s not their problem. It’s yours. CRA will make you fix the mistake, and you will have to pay any penalties, interest, or late charges yourself. The guy in the mall has no responsibility.

Some of these tax preparation companies have also begun to encourage customers to accept their instant tax refund in the form of a preloaded debit card instead of a cheque. These debit cards are so loaded with fees and charges that they reduce the real cash available in your pocket.

My advice? If you decide to do things this way, ask for a cheque, avoid the debit card. Best advice? Get a simple tax preparation software program, and do it yourself.

 

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50% off Coupon on Easy Tax Tips

To celebrate the first day of Tax Season, from now until April 15, I’m happy to be able to offer a coupon for 50% off the price of Easy Tax Tips for Canadians at Smashwords.

Click on the link here, enter the coupon code SM43D and download the book in your favourite version.

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Easy Tax Tips for Canadians

Available at Amazon.com or Smashwords.com

My new book “Easy Tax Tips for Canadians” is now available.

Written in the same accessible style as my blog, this is the tax book for you if:

  • You hate tax season,
  • You don’t understand your taxes,
  • You’re afraid you always miss a deduction,
  • You wish someone could make this easier.

Easy Tax Tips keeps it simple, with hints and tips for regular wage earners, in plain English that allows you to save money by doing your taxes yourself.

You can buy the ebook version for $2.99 in all formats including Kindle and epub here. Or you can get the paperback version for $5.99 from Amazon.

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How to Get a Bigger Paycheque

Have you ever heard of a Source Deduction Waiver?

Every payday your employer deducts the amount of  tax set by the Canada Revenue Agency. This money is applied against your annual tax bill.

But not everyone has the same income tax circumstances. There are people who have significant deductions, like monthly RSP contributions, child care expenses, or even deductible investment loan interest, which often result in a sizable tax refund each year.

If this describes your situation, you might be eligible for a Source Deduction Waiver. A source deduction waiver means that your employer could deduct less tax from your paycheque each month. If that’s the case, it will mean that you won’t receive a huge refund at the end of the year, however you will get more money every payday.

While it does feel nice to get a big refund every spring, you have to remember that this refund is your own money, which you have given to the government as an interest free loan for the past twelve months. I am sure you could come up with better ideas than of what to do with a little more money every month than the government does.

For the proper forms, go to the Canada Revenue Agency website, www.cra-arc.gc.ca, and search for form T1213.

If you are up to date on your taxes, the government will calculate the proper amount, and authorize your employer to reduce the tax withheld. Please remember that this is not automatically renewed, you do have to reapply each year.

Put a little more money in your own pocket next year.

 

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Spousal RRSPs, How it Works

If you are not familiar with all the mechanisms of RRSPs, Spousal RRSPs, TFSAs and some of the other types of accounts which are offered at Banks, Investment Dealers and Insurance Companies in Canada, it can be very easy to misunderstand how they work and how they differ. This is very common with Spousal RRSPs.

Often when the account is being set up the advisor gives a quick verbal explanation of how the account works and what the benefit will be to you. Sometimes you get the details in writing, but let’s face it, how many people ever bother to read the fine print?

On more than one occasion I have run across people who misunderstood how their Spousal RRSP works.

To cover the basics – It is a retirement savings account which allows one spouse (husband or wife) to make deposits into the retirement fund of the other spouse. They can be married or common-law. This is most useful in cases where one spouse earns a higher income than the other, or one spouse will have a higher retirement income from a fully funded defined benefit pension plan, and the other will not.

The main things to remember are

  • the account is set up in the name of the receiving spouse
  • the spouse who makes the contribution is the one who gets the tax deduction
  • the receiving spouse, who’s name is on the account, is the owner of the account
  • the owner of the account makes all the decisions about how and where the money is invested
  • the contributor has no say in how the account is operated, or how or when money is withdrawn
  • in the event of marital breakdown the money in this account will be included in the marital assets calculations and apportioned according to the divorce agreement, the contributor does not have a right to ask for the return of the money
  • tax attribution rules mean that if money is deposited by the first spouse and withdrawn within the first three years by the receiving spouse, it will be taxed back to the original contributor
  • exceptions to the three year rule occur in case of marital breakdown or death of the account owner

So are Spousal RRSPs a good idea? Yes. Although new pension splitting rules have reduced the income splitting benefit slightly, it is still good financial planning to equalize income as much as possible and ensure the both spouses have fully funded retirements.

 

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Filed under How It Works, Investing, Pensions, Retirement, Saving, Spousal RRSP, Taxes