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How To Use a T1213 Form – Money Now or Money Later?

Worker A“I can’t wait for my tax return this spring, I could really use that thousand bucks right now”

Worker B“Are you serious?  You let the government take an extra thousand bucks from you when you didn’t have to?”

Worker A“What are you talking about, I didn’t have any choice, it just comes off my cheque every week.  Besides, I like having a big cheque to look forward to.”

Worker B“Suit yourself , I’m just going to continue to let my money earn interest for me in my bank account, instead of in the government’s.”

If you’d rather be “Worker A” (and there are actually a couple of valid reasons for making that choice) then you can probably click through to another article more to your liking.  If you’re interested in keep your own money instead of lending it to the government for free for a few months, then you should probably read on.

When you start any job in Canada, the employer is supposed to provide you with TD1 forms for your province/territory in addition to the one that is Canada-wide.  This form has several questions on it.  They mostly revolve around what tax credits you will be entitled to.  This determines how much tax you are likely to pay for the upcoming year, and consequently how much an employer is supposed to take off your cheque and remit to the government.  The credits and deductions on a TD1 form that can be claimed are:

1) The basic personal exemption (everyone gets this)

2) Your age amount (for people 65 or older)

3) Pension income amount

4) Amount for children under 18

5) Amount for caring for an infirm adult Continue Reading →

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“USA Citizens” and The RESP/TFSA Battle

Is anyone else sick of dealing with bureaucratic machines that are absolutely terrible at what they are trying to accomplish? To catch a few of you up, I am one of the million or so Canadian citizens that has been residing in Canada and paying my fair share of taxes for my entire life, yet has been told I have to file a ridiculous amount of paperwork on a yearly basis because I was born in the USA. My significant other and extended family are in the same boat. To understand some of the details read this background piece on the trials and tribulations of trying to become aware of my supposed duties as an American citizen check this out.

A Screw Up So Bad Only a Bureaucrat Could Love It

I actually am kind of fascinated by the incredible gong show that this whole ordeal has turned into for the IRS. Can you imagine the huge cost in manpower and resources that the IRS is going to need to go through these filings, as well as to enforce their new FATCA rules on Canadian banks? Now think about the fact that the vast majority of Canadian/American citizens are just like me and owe no taxes. Who in the world would take out Canadian citizenship as a tax haven move? It makes no sense at all. Does the IRS really think that anyone with enough wealth to try to hide it in Canada won’t simply find another place to hide it altogether? Billionaires have the means to hire lawyers and accountants to switch their citizenship to something more advantageous while making up BS reasons why they did so, or else find untraceable tax havens and loopholes all around the world. Their own Presidential candidate has dozens of foreign bank accounts and paid an effective tax rate of 14.7% for crying out loud! So ultimately one has to conclude that the big fish the IRS is chasing they have almost no hope of ever catching, while at the same time they induce the costs of having to process hundreds of thousands of “0 rated” tax forms that are pretty complicated. The only people that are actually making money here are the super high in-demand tax specialists that have taken $3,000 from my uncle, $1,400 from my dad, and $300 from me (and I did the majority of my own paper work – after several hours of frustration). What a waste.

USA citizenshipJust to give people some idea of the ridiculousness that this has on your life besides the obvious stomach punch that is paying high fees to an accountant to prepare a tax return that says you don’t owe anything, I thought I would look at two great Canadian programs that my citizenship impacts. Both RESPs and TFSAs are very cool financial tools that Canada allows citizens to use as a means of encouraging savings. While the US and Canadian governments have worked out a sort of hands-off reciprocal treaty concerning RRSP and 401K accounts, the same cannot be said for RESPs and TFSAs. If you want to use these financial vehicles in Canada and you have to file a USA tax form, get ready for the incredibly complicated world of income trusts. Since those accounts are not really income trusts they don’t fit into the bureaucratic conundrum that is the USA tax code. Just writing this gets me incredibly frustrating since no American in their right mind would use a TFSA to hide money from the American government! Continue Reading →

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Tax Deduction For Political Contributions

Don’t you just love paying for attack ads? I know I do! We’ll the good news is that there is bi-partisan support for one thing in Canada these days, and that is political donations. I always knew that there was a tax deduction for political contributions available in Canada, but I wasn’t sure just what incentives it included. The reality was very interesting to me when I looked it up.

The non-refundable tax credit (meaning that you need to have sufficient federal tax payable on your yearly return in order to claim the credit, otherwise you cannot carry it forward) that is provided when you donate to support a political party in Canada is up to 75% on the first $400 of donations! That is crazy to me. We are essentially paying off our political parties with our own tax dollars. If you go over $400, from $400-$750 is a 50% tax credit, and from $750-$1175 is 33.3%. To sum it up, if you gave $1175 donation to your political party of choice, you would get a $300 tax credit on the first 400, $175 on the next $350, and then a final $175 on the last $525, for a grand total of $650.

How To Claim Your Political Donation Tax Credit

The mechanics behind claiming your tax deduction for political contributions is for the political party to issue an official receipt. Only direct monetary donations will be considered for the tax credit. Volunteer work for political campaigns is not considered a true Canada Political Donation Tax Creditdonation, and no credit will be given for this sort of donation. In order to claim this credit the usual restrictions apply. You must be a citizen or permanent resident of Canada, and as of 2007 corporations have not been allowed to make political contributions in Canada (you hear that big brother in the USA!). A couple can make two separate political donations in order to maximize their tax savings. Continue Reading →

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