In case you didn’t know, the T1213 (entitled “Request to Reduce Tax Deductions at Source for Tax Year”) is a form from the Canada Revenue Agency that lets you take back the interest free loan to the government you give them every time you get a huge honkin’ tax return.

If you regularly contribute to your RRSP’s and you also regularly donate in the form of a pre-authorized contribution plan (like I have for my TD e-series funds), you regularly donate to charities or pay for child care costs, you can choose to forgo the big tax return at the end of the year and just get a bigger pay cheque bi-weekly or monthly or whenever you get paid.

Most people would want to get a bigger pay cheque because otherwise you are giving an interest free loan to the government (the government already takes so much, why would we want to give them even more?).  If they give you a loan (e.g. if you over-contributed to your TFSA) they ding you like heck, but when they do it to us, they just turn their back.  Sigh… C’est la vie

If you are interested in getting less taxes dinged each pay cheque, here are the steps you need to take in order to do so:

Make sure you have a pre-authorized payment plan for your RRSP

• Make sure you have all the slips and receipts etc. for your child care costs or your charitable donations that you regularly make, employment expenses you would normally fill out on your T777, interest expenses on investment loans, and even rental losses.

• Find out who your human resources/ payroll deductible person at your place of work is, because you will have to give the CRA their contact information and and they can set it up through payroll to deduct less taxes of your paycheque

• Fill out that T1213 form and send it in along with the documentation and send it in to CRA

• Et voila, you will get less taxes taken off your paycheque in about a few week to months

The reasons why I’m not filling out the T1213:

I think this is a great way to get taxed less throughout the year, but to be honest (and feel free to judge me haha), I really enjoy my big tax refund at the end of the year.  I’m not sure why, perhaps it’s some sort of psychological defect of mine.  I like to plan how I spend the big tax refund and I like how I can use it to fill up my TFSA contribution room or to fill up my RRSP room for next year.  I know that if I got a bigger pay cheque throughout the year, despite my automatic ‘pay myself first’ deductions, I know I would be tempted to adjust things and adjust my budget, and I probably would contribute less to my TFSA and RRSPs (heck, it’s human nature, I suppose).

Another reason is because I’m afraid of commitment.  Although I have been contributing regularly to my pre-authorized payment plan for my RRSP for years, I like the idea of just stopping it if need be (or if life gets in the way of my regular contributions)… without having to fill out more paper work or talking to the human resources person again, or being on hold on the phone with the Canada Revenue Agency for eons.

Finally, because I get a lot of investment income slips, it can be unpredictable as to what my interest income is for the year, or my capital gains etc.  I don’t want to have to pay the Canada Revenue Agency for this and with the RRSP deduction, it would be a good buffer for all of this non-employment income I get, so I can avoid (God forbid) having to OWE the Canada Revenue Agency come tax time.

So my dear government, enjoy your interest free loan courtesy of me…for now.  I know I’m not being financial smart or prudent with this decision, but that’s what personal finance is about, right? It’s personal What works for me may not work for others.

Readers, do you use the T1213 form?  I wonder what the percentage of Canadians is that reduce their income taxes is, by this method?  Can you list any other pros or cons for the T1213 form completion?  Do you enjoy the big tax refund at the end of the year like me, or are you more pragmatic?

Comment on this post »

I finally finished doing my taxes (looking forward to a whopping refund of $1147- wish there was more, but beggars can’t be choosers, now can they?) and I thought I would share with you some tax tips for those working at home.  Back in 2009, I shared some last minute tax tips, and this post will talk about work-at-home expenses for your own business, specifically.

The CRA views income earned through blogging as a business (with you as the sole proprietor of the business if you are not incorporating your blog business), and this amount get added  onto your regular income as your total gross income for the tax year, and it gets taxed at your marginal tax rate (unless you incorporate your blogging business).  You would use form T2125- Statement of Business or Professional Activities.

2010 was a good year- I have finally started to make some income off my blog.  2009 was a negative year, the $3.42 income for December’s 2009 Google Adsense (ha!) didn’t even get paid out, so I was able to subtract my business expenses of my blog from my regular full time income.  Namely, I took advantage of the 100% Capital Cost Allocation for computers (class 52) and got a nice discount on my beloved MacBook Pro courtesy of the tax man (this goodness unfortunately ended in February 2011- so if you bought a computer, keep the receipt!).  This however, can’t of course be done consistently as CRA will smell something fishy and assume you’re not actually running a business.

The Canada Revenue Agency understands that all businesses might not get off to a good start and be profitable, but you will eventually have to be making money somehow in a year or two, otherwise that might trigger the tax man’s suspicions, and you might smell an audit coming.

Here are some deductions you can take off from blogging income to lessen the burn from the CRA tax man:

(more…)

Comment on this post »

I STILL haven’t gotten around to testing the waters to see roughly how much my tax refund (or perhaps tax owing, now that I started a blog!) is for 2010.

Last week, youngandthrifty.ca was giving away an H&R Block at Home Premium Edition (worth $34.95USD) for the neighbours south of the border.  I think the only person who signed up was Helly from Heckled Trio.  So congratulations Helly! I’ll send you over the codes for your tax filing enjoyment

This week, CANADIANS can rejoice as H&R Block from Canada approached me to see if I was interested in giving away Canadian versions of the H&R Block Do-It-Yourself Tax Software (a $34.99 CAD value).

H&R Block Do-It-Yourself Tax Software Giveaway

Here is the “411″ so to speak, on the the Do It Yourself Tax software:

• Netfile Certified
• It allows the user to do up to 16 tax returns on it(you can do it for your whole family.. and friends! You’ll be the most popular guy or girl on the block- guaranteed lol)
• includes free Audit Assistance (a $75 value)- basically this means that God forbid if you ever get audited by the Canada Revenue Agency, you just need to bring your documents etc. to the local H&R Block and their tax professionals will deal with it for you (which saves you from the auditing nightmare)
• and also includes Canadian Tax Tips for Dummies (I think it’s a PDF version of it, not the hard copy)
• It carries forward for you (saves you time next year)
• Prepares anything from rental income to investment income etc.
• You can choose to print it or do Netfile (I’m print it myself, my accountant in the past said if you use Netfile, you get audited more often)

By now, you should have received all your T4′s so you can get ready for tax season!  Who else is as excited as me?

Here’s how you enter for a chance to win ONE of FIVE H&R Block Do It Yourself Tax software codes:

• Subscribe to youngandthrifty.ca (either via RSS or email) and comment that you did so (I need your email to send you the codes).
• If you already subscribe, thank you!  Just comment below and I hope that you win because you are a loyal reader
• For an EXTRA ENTRY Tweet:  “H&R Block Do It Yourself Canadian Tax Software giveaway ($35 value) via @youngandthrifty http://bitly.com/dKFyJ9″ but you must also comment below that you did so and already be a subscriber to be eligible for the extra entry
• Winners will be selected by random.org
• Contest runs until next Thursday (to give you enough time to do your taxes, of course) March 10 at midnight PST

GOOD LUCK!

Now onto some PF Blog Love:

• KrantCents asks a very good question- How do you measure success? (to me, success is different for everyone)
• Retire by 40 is looking for a Fourplex for an investment and he talks about why he thinks its a good real estate investment
• Money Smarts Blog does an interview with Derek Foster for his new book The Idiot Millionaire
• Yes I am Cheap does her monthly check up on her debt and finances
• Eemusings shares her confessions (and I have the same thoughts with more than one of them: name changes and preplanning meals)
• Sustainable Personal Finances gives another great moneysaving/ecofriendly tip to use a crock pot to cook (I am so in love with my crock pot!!  Chili, pulled pork sandwiches, beef short ribs yum yum)
• The Financial Blogger has an updated list of TSX Dividend yields and ex-dividend dates (great to use to load up on your CDN dividend stocks.  I’ll be sharing my list of what I bought for my TFSA this year soon)
• Echo from Boomer and Echo asks where you get your financial information (and blogs and the internet is high on the list, much to Investors Group’s chagrin)
• Dividend Ninja interviews Dan Bortolotti (for those of you who don’t know, he’s THE Canadian Couch Potato!)
• Budgeting in the Fun Stuff has a guest post from Squirrelers with 10 Tips to Reduce your Health care Expenses.  Crystal also shares her blogging income updates for you voyeurs out there- last month she made $1000 on her blog! (and I thought I was doing good lol)

Comment on this post »

I know it’s early to be talking about Canadian tax saving strategies, but I thought I would talk about my experience with flow through shares since it doesn’t seem like there’s much information out there on this topic.

Besides, it’s never too early to be talking about taxes!

So your big question might be, “what the heck are flow through shares? How do they “flow through”? Who gave them that name anyways?”

I can’t answer who came up with the name Flow Through shares, but I’ll try and answer the former two questions.

Flow Through Shares

• Basically an investment that has intense tax advantages (which means you get a big refund come tax refund time)
• Primarily involves investments in the Oil and Gas Industry, the Mining Industry, and the Wind Power Industry
• The investment is 100% tax deductible against your income
• After a certain period (usually 1-2 years) your shares will roll over into a mutual fund which you can sell at any time
• It turns fully taxable income into future tax advantaged capital gains
• You have to look at the Marginal Tax Bracket you’re in to see how much money you will get back come refund time
• The higher your pay (the more taxes you pay), the more you’ll get out of this

Here’s how it works:

Let’s pretend you bought $10K worth of flow through shares.  Let’s pretend you make the big bucks, and your Marginal Tax Bracket is 43.7%.

When you get your tax refund- if you work as an employee, you will get $4370 back, meaning you will have tax savings of $4370.

This works by multiplying $10,000 x 43.7%= $4370.

(It’s just like an RRSP- whatever you contribute, you get a tax savings of your marginal tax bracket)

However, there’s a catch.

When  you sell your flow through shares- let’s assume for simplicity’s sake that you neither make nor lose money on the $10,000 you invested, the adjusted cost base is $0- so the capital gain is considered $10,000.

So that tax you would have to pay when you sell is:

$10,000/2=$5000x 43.7%=$2185.

So you got $4370 back from the government, but when you sell, you have to pay a capital gains tax of $2185.  Therefore, the net income advantage is $2185.

Again, since I haven’t done a PROS and CONS list in a long time, I’ll do one now:

PROS:

• It’s a nice tax shelter from the government (as we know, there are few tax shelters!)
• If you’re in a high tax bracket, it’s one way to not have to be gauged in paying taxes
• You help stimulate the Canadian economy, eh?

CONS:

• When you sell, the adjusted cost base is $0, so whatever you have is considered a capital gain
• They can be super risky
• They are often sold at a premium
• It would be supportive of the oil and gas industry, mining.. I guess that’s what Canada is all about, but if you have issues with it in terms of the environmental consequences of supporting exploration companies, then it might not be for you
• Doing the taxes for flow through shares is complicated.  You’ll probably need to get an accountant involved (which might incur extra costs)

My own experience:

Check out my post on my “other” investments.  As you know, initially in my personal finance journey, I was tax savings hungry and all I cared about was getting nice fat tax refund.  One shouldn’t just jump into an investment for the tax refund (as I have now learned, lol).  I had bought $5000 worth of flow through shares in 2005.  I received approximately $1500 in a tax refund which I later reinvested into something else.  However, the current value of my flow through shares is $1800 (note that I had invested $3500 initially).  So if I were to sell it (which I plan to do soon), I would have to pay about $270 in capital gains tax.  So I had actually received $1230 in a tax refund, were I to sell it at its current pricing.  So I am down a net of $1930.

So as you can see, flow through shares have not been good to me (hey that rhymed!).

Tips on buying flow through shares:

• It is recommended that Flow Through shares are not to exceed 5-10% of your portfolio since they’re so risky
• They can be bought buy your local financial adviser (mine kind of pushed them on me)
• They are usually sold at certain times of the year (“offerings”) and are often sold at a premium
• Try and time your flow through shares purchase well
• Make sure you understand that your money won’t be accessible for at least a year or two- so don’t buy it if you’re planning to save up for a large purchase
• Don’t be like me and just get it for the tax advantages (though very tempting, I know)

I hope that helps clarify the confusion!  Any readers out there have flow through shares in their portfolio?

Comment on this post »

Professor Benjamin Alarie who is an associate professor of the University of Toronto Faculty of Law (shout out to the T-dot lol) recently launched, with the help of his law students, a new non-commerical website (read- no ads!) called TaxWiki.ca which aims to provide accurate tax information to the Canadian public.  It’s a FREE resource that aims to answer tax questions accurately of all kinds, including information about donations and official receipts, to questions about principle residence.

Everyone knows that the Canadian Revenue Agency (CRA) website is confusing and not updated very well (heck, even the Officer of the Auditor General of Canada admits it!), so this new intiative is unprecedented.  I think it will change the way Canadians see taxes.  Taxes won’t be so scary anymore, and hopefully people will feel confident enough to do their own taxeswell.  They will feel empowered with tax information at their fingertips… instead of resorting to Googling “taxes Canada student loans” or something.

(more…)

Comment on this post »