Personal Tax Planning MARCH 2015

Transcription

1 Personal Tax Planning MARCH 2015

2 Disclaimer This material deals with complex matters and may not apply to particular facts and circumstances. In addition this material and the references contained herein reflect laws and practices which are subject to change. For these reasons this material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. Although this material has been carefully prepared, neither JMH & Co. PC nor any persons involved in the preparation and/or presentation of this material accept any legal responsibility for its content or for any consequences arising from its use.

3 What s New? Family Tax Cut Non refundable tax credit of up to $2,000 for eligible couples with minor children Based on net tax reduction that would be realized if up to $50,000 of an individual s taxable income was transferred to the eligible individual s spouse or commonlaw partner. Effectively takes advantage of lower income spouse s lower tax bracket. Effective 2014 and onward.

4 What s New? Child Care Expense Deduction Each deduction dollar limit increases by $1,000 for 2015 and onward Enhanced Universal Child Care Benefit Increase monthly benefit for child under 6 from $100 to $160 effective January 2015 Monthly benefit of $60 for child from 6 until the child reaches the age of 18 effective January 2015 Must receive Royal Assent before enhanced payments can be made. First increased payment should occur July 2015 including retroactive payments for January June 2015 Will replace Child Tax Credit

5 What s New? Children s Fitness Tax Credit 2014 Maximum amount increased to $1,000 per child for 2014 and onward FTC will be converted to a refundable tax credit for 2015 and onward.

6 Spousal Loans Use of spousal loans Consider loan from high income family member to lower income family member at CRA prescribed rate of 1% (current subject to change quarterly). Loan interest is taxable to higher income spouse and deductible for lower income spouse. Lower income spouse invests loan proceeds and income from investments is taxed in lower income spouse s hands. Loan must be properly papered and there must be a paper trail to document interest paid to avoid attribution of income back to higher income spouse. (Interest must be paid at least annually and no later than 30 days after the end of the year)

7 Pension Income Splitting 2007 and later taxation years. You and Spouse can agree to split up to 50% of your eligible pension income. Transfer if one spouse is in a higher tax bracket than the other and to utilize $2,000 pension income credit Cannot use Family Tax Cut provisions if split pension income Consider moving $4,000 per year from RRSP to RRIF? Eligible pension income > age 65: RPP, RRSP, DPSP and RRIF Eligible pension income < age 65: RPP Certain payments received as a result of the death of your spouse

8 Transferring Capital Losses Between Spouses Spouse #1 has a stock that has decreased in value Spouse #2 has realized a capital gain. Spouse #1 transfers the stock to Spouse #2 and elects out of the spousal rollover provisions so the transaction is deemed to happen at FMV. Superficial loss rules apply and loss is denied to Spouse #1 but increases Spouse #2 s tax basis of shares. Spouse #2 waits 30 days and sells the shares on the open market to trigger the loss. The loss can be applied against Spouse #2 s capital gain.

9 Family Trust General Discussion What is a Family Trust? Cost / benefit of setting up this structure. Family Trust and attribution. (Use of interest bearing loan) No Kiddie Tax on public company dividends. Use of a partnership with a Family Trust.

10 Snowbirds US tax issues Substantial presence (US Domestic Law) > 31 days in the current year Days in the current year + 1/3 of days in first preceding year + 1/6 of days in the second preceding year = > 182 = US Resident for Income Tax purposes

11 Snowbirds Cont d Closer connection? Tax Treaty Rules? 122 days

12 US Estate and Gift Tax Gift Tax Annual exclusion for 2014 $14,000 (indexed) Annual exclusion for 2014 non citizen spouse $145,000 (indexed) Estate Tax Exemption for 2014 $5,340,000 (indexed) Rate 40% Prorated for non citizen, non residents QDOT? Gifting Portability

13 General Housekeeping Tax loss selling Keep track of all eligible medical and donation receipts Donations For cumulative donations over $200 the tax credit is 50 cents on the dollar! Deduction of investment counsel fees for nonregistered accounts Interest deductibility