Tax Tips

Income tax concerns:
The tax season is around the corner. Revenue Canada reported that in '99, the most commonly reviewed claim adjustments (audits), were infirm dependants 18 years and older, moving expenses, support payments, caregiver salaries, and medical costs. (Source: the eFile association of Canada.) Audits may be triggered randomly or simply by type of deduction. For example, in 2001, 'Performers & Actors' were under heavy scrutiny by CCRA. Tax filers have the option to appeal any assessment or reassessment by Revenue Canada considered unfair by the client.
(We attend to these audits and appeals on behalf of our clients.)

After attending an audit with an Actor, decided to prepare this Newsletter. Notes on what records of expenses we believe should be kept and some CCRA (Revenue Canada) reference documents we used.

A Common T4 problem.
Employed individuals who have more than one job at a time, time and again, don’t have sufficient tax deducted from their pay, resulting in the amount owing is much more than they expected. We will look at an example of Joe Citizen who had three jobs, one, a full-time job earning $29,500 and two part time jobs with income of $5,500, and $3,600 respectively. The "basic personal amount" that should have only been allowed should be on the $29,500 only and since the part time jobs were both, low, under the "basic personal" amount, NO TAXES were DEDUCTED on for these two jobs. However, his total employment income was actually $38,600, so besides having the additional taxes to pay, he also moved to a higher tax bracket. It is usually far less problematic for clients to make sure that sufficient taxes are deducted throughout the year than to save for tax time. Employers are not accountable for insufficient deductions, taxes owing are the sole responsibility of the tax payer.

RRSP Precautions.
RRSPs are a popular means to reduce taxable income. Individually are allowed to save 18% of the previous year's income, to a maximum of $13,500 per year for retirement (subject to Budget changes). The RRSP reduces the taxable income by the contributed amount for that year. Amounts not contributed are carried forward for use in future years.

Common Problem: RRSP contributions should not be used as short term savings. Amounts withdrawn are added to the taxable income. Most institutes only deduct 10% of the withdrawn amount for tax. The withdrawal increases the income, possibly moving the tax-payer to a higher tax bracket. Undeclared income runs the risk of penalty and interest, so be sure to secure complete income information before filing.

RRSP Example: John's employment income in 2001 was $80,000, from which deductions for CPP, El, and tax totaled $24,783.90. His return was calculated to be $5.37.

His first consideration: $3,500 RRSP investment, reducing his taxable income to $76,500, increasing his refund to $1,464.87, an improvement of $1,459.50.

His second consideration: Increase RRSP contribution to $45,000 and employer's RIPP to $3,500, thereby reducing his taxable income to $31,500, and increasing his refund to $17,316.23, an improvement of $17,310.86.

A Common RRSP Problem:
Individuals may miss-calculate the amount of RRSP available to them. It is best to check with CCRA how much is available.

Had John only had room for $35,000 RRSP, it would have meant that he over contributed $10,000 reducing his actual refund.
Had John cashed in RRSPs from a previous year, he would have increased the taxable income by the amount of RRSP cashed.
We assist clients and their investment advisors in preparing potential future tax scenarios.

Actors, Performing Artists:
Income is commonly listed on the T4A slips, however, do keep track of each expense related to each event. Our client recoded everything he did which gave the Tax Auditor little room for reversing anything!

Expenses. A general list circulated amongst with deductible expenses follows on the next page, however, CCRA may not always allow some with unless they comply with their "rules".

Source of information: CCRA (Revenue Canada documents IT-525R "Performing Artists"