A Comprehensive Guide to the FHSA in Canadian Tax Returns The First Home Savings Account or FHSA is a tax-free savings plan. It is a registered account for first-time homebuyers to gather funds to buy or build their qualifying first home. It is important to understand how this account can affect your tax return to plan your taxes efficiently. Benefits from the FHSA for tax returns come with rules around contributions, withdrawals, transfers, and reporting requirements. There are tax-deductible contributions and tax-free withdrawals for qualifying home purchases, so you’ll want to make sure you’re maximizing it. The Process to Open Your FHSA To set up your First Home Savings Account, you need to meet the following criteria: The information your FHSA issuer will need includes your Social Insurance Number (SIN), date of birth, and certification of your eligibility as a first-time homebuyer. If any information submitted around your eligibility is inaccurate, the account can be revoked on top of significant tax implications. Types of FHSA Accounts Depending on your investment preference, your First Home Savings Account investment can take different forms. Depositary FHSAs provide stable growth through cash, term deposits, or Guaranteed Investment Certificates (GICs). Trusteed FHSAs offer growth potential with investments like bonds and mutual funds. Insured FHSAs provide additional security through annuity contracts, usually providing even more peace of mind for these investors. Your FHSA Participation Room The First Home Savings Account participation room refers to the maximum amount you can contribute or transfer to it. In short, for every year since opening the account, your participation room grows by $8,000. In the first year of opening your First Home Savings Account, your participation room is set at $8,000 and keeps growing until the lifetime limit of $40,000. Unused contribution room carries forward and your FHSA participation room equals the total unused amounts from previous years, plus $8,000 for the year. Excess Contributions Exceeding your FHSA contribution or participation limit results in creating an excess FHSA amount. If your participation room for the year minus the total contributions or transfer is a negative amount, you have an excess FHSA amount. This incurs a tax of 1% per month on the highest excess FHSA amount in that month. This payment continues until the excess amount is removed by new participation room on January 1 of the next year, or by removing the amounts yourself. In the case where the calendar year ends and you have an excess FHSA amount, you need to file a return to report it and determine the tax payable. Withdrawals from the FHSA To make tax-free withdrawals from your First Home Savings Account, there are a few conditions to meet. These conditions include the following: You need to meet all the above conditions to make a tax-free withdrawal. If you do not, then your withdrawal is not qualified and may be taxable. This requires you to include it as income on your income tax return for the year in which the withdrawal was received. What’s a Qualifying Home To be considered a qualifying home, it must be a housing unit in Canada including existing homes and homes under construction. This includes single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, apartments in duplexes, triplexes, fourplexes, or apartment buildings, or a share in a co-operative housing corporation that lets you own and gives an equity interest in a housing unit. When the share only gives you a right to tenancy in the housing unit, it does not qualify. Designated Withdrawals for Excess Amounts To reduce or eliminate an excess FHSA amount, you can: Reporting and Documentation When utilizing the First Home Savings Account, it is crucial to file your income tax returns on time. FHSA activity in the year needs to be reported, but First Home Savings Account issuers will send a T4FHSA statement. This tax slip has all the information your accountant will need. This includes details on contributions, transfers, and withdrawals so that your tax return filing is accurate. To really leverage the benefits of your First Home Savings Account in tax returns, you need to make sure you understand the rules it comes with. In certain cases, it may just be best to get in touch with a personal tax expert so that you don’t end up paying more tax than you need to. Reach out to the Advanced Tax team today to get ahead of your tax planning with a personalized solution. If you already have your account setup, we’ll make sure you get the expert guidance needed to complete your FHSA tax return with confidence.
Category Archives: Business
A Guide to the BC Renter’s Tax Credit You may have heard of the BC Renter’s Tax Credit, but we’re here to break down exactly how it works. That means discussing what it is, who is eligible, how to claim it, and how much you get. Between increasing living costs and general inflation, the government understands that British Columbians are struggling to keep up. To help the residents of British Columbia, the provincial government employed this refundable tax credit. What is the BC Renter’s Tax Credit? During the 2023 tax year, the BC Renter’s Tax Credit was introduced to offer financial assistance to low and moderate-income residents. These residents must be renting an eligible rental unit, basically almost any living accommodation in British Columbia. It is processed by the Canada Revenue Agency (CRA) for BC through your personal income tax return. How Much is the Credit Amount? Depending on the individual’s adjusted income, the amount of the BC Renter’s Tax Credit varies. For the 2023 tax year, the maximum credit is 0. To receive this maximum credit, the individual or family’s adjusted income should be $60,000 or less. The credit is phased out as the adjusted income increases until $80,000. This reduction is based on 2% of the amount by which your 2023 adjusted income is more than $60,000. Additionally, the income threshold amount is indexed to inflation every year. For example, in 2024, the thresholds will be from $0 to $63,000 for the maximum credit, and it’ll be phased out at $83,000. Eligibility Criteria To qualify for the BC Renter’s Tax Credit, individuals must live in an eligible rental unit in BC for at least six one-month periods during the tax year, pay rent for the unit, and be a BC resident on December 31st of the tax year. Additionally, individuals must be 19 years or older, a parent, or cohabiting with a spouse or common-law partner. Eligible Rental Units Rent must be paid on an eligible rental unit which includes the following: Ineligible Situations If any one of the following situations apply to you, you cannot claim the BC Renter’s Tax Credit. Ineligible Rent The following amounts paid are not eligible for the BC Renter’s Tax Credit: Claiming the BC Renter’s Tax Credit Claiming the BC Renter’s Tax Credit is a straightforward process. Individuals claim it by completing the BC479 form for British Columbia Credits during their personal income tax failing. To make sure there are no discrepancies or delays in claiming the BC Renter’s Tax Credit, fill out the appropriate form on your T1 Income Tax and Benefit Return. How You Can Make the Most of the BC Renter’s Tax Credit This tax credit is a major opportunity for those struggling with increased living costs in British Columbia. Because it is a refundable tax credit, it will reduce the taxes you owe and if the credit is more than the combined federal and BC income tax you owe, the difference will be paid out as an income tax refund. Work with our tax experts to make sure you make the most of the BC Renter’s Tax Credit today. Contact them and book your appointment to get your personal income tax filed for the last tax year by clicking here.
How Does the RRSP Tax Deduction Work for Canadian Income Tax Setting up an RRSP, or Registered Retirement Savings Plan, not only assists you in retirement at ensuring you have the savings you need, but also provides an RRSP tax deduction based on the amount you contribute. You set up the account and it is registered with the government so that you or your spouse/common-law partner can contribute to it for tax deductions. After the end of a tax year, Canadian taxpayers are given two extra months to contribute to their RRSP. The RRSP contribution deadline is at the end of February after every calendar year. In 2024, this falls on Thursday, February 29. Setting Up Your RRSP RRSP accounts are set up through financial institutions. The income generated in your RRSP investment account is exempt from tax until you begin to receive payments from the plan. Depending on your financial situation, your financial institution will recommend different types of RRSP accounts and potential investments. Alternatively, a spousal or common-law partner RRSP can be set up. This ensures that your retirement income is split more evenly. Usually, this has benefits when there are differences in income levels between the partners. The contributor gets the tax deduction for their contributions and the annuitant receives the income. It is likely that the annuitant, or whoever is receiving the payments in retirement, will be of a lower income tax bracket. Thus, they would pay less tax on it the funds received. Types of RRSP Investments A self-directed RRSP is one in which you build and manage your own investment portfolio. It involves buying and selling a variety of different types of investments. On the other hand, you can rely on your financial institution instead to build and manage a mixed investment account of mutual funds, bonds, GICS, equity (stocks) or other plans catered to your financial needs and risk levels. Annual RRSP Tax Deduction Limits When making contributions to your RRSP, it is important to consider your RRSP deduction limit. Even though 100% of your RRSP is tax deductible, there are limits and penalties for those who contribute more than their allowable limit. Every dollar that is contributed reduces your taxable income by the same amount. You can contribute to your RRSP until December 31st of the year that your turn 71 if you have an available RRSP deduction limit. For a spousal or common-law partner RRSP, the same applies but is dependent on when they turn 71 and not you. Keep in mind that any amount paid for administration services for an RRSP can’t be claimed. Only claim the amount that is contributed directly to the RRSP. Calculating Your Maximum RRSP Tax Deduction Your RRSP deduction limit contains the following amounts: If you are unsure of what your RRSP deduction limit is, check your latest notice of assessment, notice of reassessment, or Form T1028 and it will show your RRSP deduction limit. You can also view your RRSP information online via the CRA’s My Account portal. Find your deduction limit by clicking here. Exceeding Your RRSP Tax Deduction Limit If you contributed more to your RRSP than what was allowed in your RRSP deduction limit, you may have to pay a penalty. This is a tax of 1% per month on unused contributions that exceed your RRSP deduction limit by over $2,000. There are some situations in which the penalty doesn’t apply, and they are as follows: Withdrawing Funds from Your RRSP While the funds remain in your RRSP, the income they earn is tax exempt. Once any withdrawals are made, payments are received, or an investment is cashed in, then tax is paid. For locked-in RRSPs, funds generally cannot be withdrawn until retirement. The Home Buyers’ Plan (HBP) This is a program by the federal government that lets you withdraw funds from your RRSP to buy or build a home for yourself or disabled person. The current HBP withdrawal limit is $25,000. For each withdrawal under the HBP, a Form T1036, Home Buyers’ Plan (HBP) Request to Withdraw Funds from an RRSP needs to be filled out. Meeting the Annual Contribution Deadline for the RRSP Tax Deduction The deadline to contribute to your RRSP for the deduction to apply on your 2023 income tax return is on February 29, 2024. It is always the last day of the February after the end of the tax year. You may still be unsure of how much you can contribute and what the best way to maximize your tax savings is. That’s what our team of tax experts is here for. Get in touch with us for a free consultation with our accountants by clicking here. We can help you identify how much you should deduct and work with you to plan your next year’s taxes.
Here’s What You Need to Know About the New Trust Reporting Requirements for T3 Returns The Canada Revenue Agency just made a major announcement in that all trusts, with a few exceptions, must file a T3 return. This is required for trust reporting in tax years ending after December 30, 2023. For certain trusts like bare trusts, this will be the first time that they need to file. Which Trusts Need to File a T3 Return Any trust, either resident or non-resident, need to file a T3 return if the meet the following criteria: Bare Trusts The new changes have a significant effect on bare trusts. A bare trust is when the trust acts as an agent for its beneficiaries. The person or entity that is listed as the owner of an asset does so for another and is not the true beneficial owner. First, it is important to understand if a bare trust arrangement even exists. To do so, the title or asset holder’s benefits and costs or risks are compared to find a mismatch. If there is one between legal and beneficial ownership, it is likely a bare trust and needs a return. In a bare trust arrangement, it is likely that a lawyer was not involved and there is no written agreement. Here are some common examples: Exemptions to the New Trust Reporting Registered plans, qualified disability trusts, and those falling under the following criteria are exempt to the new trust reporting changes. Trust Reporting for the First Time If the trust is affected by these changes, that means a T3 Trust Income Tax and Information, or T3 Return and a Schedule 15 Beneficial Ownership Information of a Trust need to be filed with the CRA annually. The change is that if a trust didn’t earn any income, dispose of any capital property, or distribute income or capital in the year would generally not have to file an annual return. What Does Your Trust Need to Do and When If the trust is affected, that means they need to be filing an annual T3 return for tax years ending after December 30, 2023. Deadlines for a T3 return and the Schedule 15 are 90 days after the trust’s tax year end. Most of the time, the tax year end is the calendar year end. For any trusts that had a December 31, 2023, tax year end, they need to file by March 30, 2024. This is a Saturday, so the return is deemed filed on time if the CRA receives it on the next business day. For 2024, that means the deadline moves to April 2, 2024. To get started on the filing, additional information for all reportable entities is needed. This includes trustees, settlors, beneficiaries, and controlling people for the trust. The controlling people include any of those who could have been a reportable entity for only part of the year. Another piece of information needed is the trust account number. For any correspondence, payments, and the return itself, make sure the trust number is included. If you don’t have the trust number yet, the CRA has online options to do so in the following forms: Need Help with Trust Reporting? Make sure you’re prepared for the filing deadline of April 2, 2024, if you need to file a T3 trust return this year. Our team of tax experts is here for you so send us a message or give us a call to help you get through this process, especially if it’s your first time filing a trust return. If you’re not clear on whether you’re in a bare trust or not, well that’s just another reason to get in touch with a professional tax consultant. Get ahead of the tax season today by reaching out to us here.
Our Guide on How to Get a GST Number in Canada For businesses in Canada who are coming to or have passed the $30,000 annual revenue mark, they must consider that they need to register for a GST (Goods and Services Tax) number. In this guide, we’ll take you through the steps on how to get a GST number in Canada. Your GST number is a key part of the process for any business to collect and pay GST on their sales while claiming the GST from their expenses. Business Number (BN) or Social Insurance Number (SIN): The Initial Step to Get a GST Number Before starting the GST registration process, make sure you have either a Business Number (BN) or a Social Insurance Number (SIN). If you don’t have a BN yet, you can use your SIN instead. We recommend getting a BN for easier access to other tax programs that may apply to your business like the following: Find out more about how to get yourself a Business Number through the CRA’s website by clicking here. Selecting the Registration Start Date: Backdating GST Registration Choosing the right date for your GST registration is important. Usually, this is the date when your annual revenue reached and/or exceeded $30,000. At this point in revenue, it becomes mandatory to register for a GST number in Canada. You may even want to consider backdating GST registration for a sole proprietorship, depending on when you hit the revenue threshold. If you have questions on what to do if you need to back date GST registration, just contact us. Estimating Annual Revenue: A Critical Component to Get a GST Number To finish the registration process, you’ll need to provide an estimate of your annual revenue. This includes taxable sales, leases, and other supplies, but excludes supplies that are exempt, financial services, and certain property sales. Part of our accounting services include helping you accurately estimate your annual revenue for GST registration. Keep in mind, this estimate doesn’t need to be exact, but do the best you can because it determines your filing period and frequency. This ranges from quarterly to annually depending on your revenue and preferences. Choosing Your Fiscal Year End Based on Your Business Structure Generally, sole proprietors and people considered to be self-employed choose a fiscal year that aligns with the calendar year. This makes it easier considering that the income tax year lines up accordingly. Corporations may have a different fiscal year that doesn’t align with the tax year and can be any 365-day period in the year. Depending on your business structure, you’ll want to choose a fiscal year that works best for your unique business. Methods of Registering for a GST Number in Canada Here is a brief list on the methods used when registering for a GST number in Canada: Start registering for your GST number using the CRA’s platform by clicking here. Obtaining a GST number in Canada is an important step for businesses. Having a reliable CPA accounting firm by your side makes the process and filing much simpler. Plan your registration in consideration of your revenue, choose an appropriate fiscal year end, and provide a revenue estimate. If you have questions or need assistance, our team at Advanced Tax is here to help. All you need to do is reach out to us by clicking here. Get your GST number in Canada with confidence, while making sure that your business is compliant with the Canada Revenue Agency.