You’ve probably been seeing a number of ads and articles about Tax Free Savings Accounts. That’s a good thing because most Canadians should have one.
This blog entry outlines why Tax Free Savings Accounts are beneficial and how they work.
The main reason for putting savings in a TFSA is that they are an easy way to earn tax-free investment income. Once you open a TFSA you can deposit up to $5,000 each year. Any interest, dividend or capital gains you earn can be withdrawn at any time and you won’t have to pay tax on this investment income. That’s why they are called Tax Free Savings Accounts.
When you deposit money to a TFSA you won’t deduct your deposit from your income on your tax return like you do with a RRSP contribution. But when you withdraw money, whether it is the money you deposited or the income it earned, you won’t need to report it on your tax return as taxable income. Also, after you withdraw money you can re-deposit it in the next calendar year (plus the $5,000 for that year).
Some other things you might like to know about TFSA’s:
You don’t need $5,000 to start a TFSA.
You can start it any time after January 1st 2009 if you are 18 years old or older.
You can contribute to your spouse’s TFSA without any tax ramifications to you.
If you deposit less than $5,000 in one year then you can add the amount you didn’t deposit to your $5,000 limit for the next year.
You can use your TFSA to save for whatever you want: a car, a house, a renovation; or a once-in-a-lifetime vacation.
In my opinion, if you're saving any money for any reason at all you should seriously consider opening a TFSA.
Some Quick SR&ED Tips
This blog entry provides two quick tips regarding SR&ED claims.
The first one has to do with broadband lines and access equipment.
Remember to include the leasing costs of broadband lines and access equipment in your SR&ED claim. The amount that can be claimed will depend upon whether it is: used All or Substantially All (ASA; > 90%) for SRED; it is Shared Use Equipment (SUE 50% < x < 90%); or neither.
The second tip has to do with Ontario Investment Tax Credits.
Companies in Ontario should remember to also claim the Ontario Investment Tax Credit while they are claiming their federal SR&ED credits. Failure to do so will be expensive, as CRA will automatically assume that the company has applied for this the previous year and will include this in the next year’s federal SR&ED submission as “Government Assistance”, thus reducing the current year’s claim. McLarty & Co’s SR&ED team provides its clients with documentation templates that assist in the claim and audit process. To learn about the latest administrative changes to the SR&ED program please contact Kevin Goheen.
2009 Federal Budget Highlights
This blog entry highlights a few of the changes that were announced in the 2009 federal budget on January 27th.
First I should note that there were no new corporate rate reductions announced. However our finance minister did confirm that the government plans to make Canada more competitive by becoming the country with the lowest corporate tax rates among the major industrialized economies. As previously announced the general corporate tax rate is still scheduled to decrease from 19% to 15% by 2012.
The good news for small business was a $100,000 increase in the small business tax deduction. The annual business limit for Canadian-controlled private corporations eligible for the reduced small business tax rate increased from $400,000 to $500,000. This change is effective January 1, 2009 and is pro-rated for fiscal years straddling this date.
Consistent with the small business deduction change was the announcement that the phase-out range for investment tax credits for scientific research and experimental development is increasing by $100,000 so that the phase-out range is no longer $400,000 to $700,000 but $500,000 to $800,000.
More good news for manufacturers was that the temporary increase in the capital cost allowance rate for manufacturing and processing equipment to a 50% straight–line rate has been extended for eligible assets acquired in 2010 and 2011.
For eligible new computers and system software acquired in Canada after January 27, 2009 and before February 2011, a CCA rate of 100% applies with no half –year rule. That means that businesses can deduct 100% of most computer costs if they are incurred before February 2011.
There were also some changes on the administrative side. The government has increased the number of companies and situations where returns must be filed electronically (e-filed). Now all corporations with annual gross revenues over $1 million will be required to e-file their income tax returns. Additionally, tax information returns that include over 50 items (instead of 500) must be e-filed after 2009. So if your company has 51 T4’s to file next year you will need to do it electronically. To encourage everyone to follow the new rules, the budget also introduced a penalty for filing in an incorrect format.
There was some good news for individual taxpayers who own a home that is due for a renovation.
For 2009 a new, non-refundable temporary tax credit will be available to homeowners for improvements to a principal residence. The credit will apply to expenditures between $1,000 and $10,000, incurred for work acquired after January 27, 2009 and before February 2010. This credit can generate tax savings of up to $1,300 for homeowners.
Those are some of the 2009 budget highlights for businesses and individuals.
The New SR&ED T661 Form
This blog entry is about the Canada Revenue Agency’s new version of the T661 form.
Every SR&ED claim involving a taxpayer’s fiscal year which ends on or after January 1st, 2009 MUST use this revised T661.
There are two significant changes in the new T661.
CRA has demanded substantive changes from taxpayers with regards to “Evidence…(the taxpayers) have to support (their) claim” which they have generated WHILE the SR&ED was in progress, in that it must be declared to belong to one of 12 categories.
These documents must prove:
the technological advancement sought;
the technological obstacles;
the work done;
the start and end dates; and
the employees or contractors involved.
CRA has indicated which types of documents support which types of filing requirements e.g. records of trial runs cannot substantiate technological obstacles.
As a result, contemporaneous creation of correct project documentation is crucial.
Another major change is the elimination of free format technical descriptions. Instead, projects must be described in two or three text boxes, with severe word limits on each section. In our opinion, this word limit does not allow taxpayers to either describe the business context of their SR&ED projects nor describe the systematic aspects of complicated projects involving manufacturing trials or complicated software development cycles.
We anticipate that as a result, many more technical reviews will be performed, as CRA seeks further information about the projects. As a result, the prudent way for taxpayers to proceed is to write their technical descriptions as was done in previous years, then cut, paste and edit the appropriate material into the new T661, but retain their original technical description, as it will be useful information to give to the CRA technical reviewer.
McLarty & Co’s SR&ED team provides its clients with documentation templates that assist in the claim and audit process. To learn about the latest administrative changes to the SR&ED program, please contact Kevin Goheen.
