COMPANION CREDIT: Can Pet Expenses be Tax Deductible?

Everyone thinks their pet is the best… and they are right! This is common knowledge for most animal lovers and owners, but can your animal companion actually earn you tax credits? The short answer is no: Bella, Fluffers or Mr. Pickles likely does not qualify, no matter how good they are at cuddling or looking cute. Still, there are some cases where a portion of buying, training or feeding an animal can be used as a deductible. Keep reading for Liu & Associates’ guide to some of these benefits!

ANIMAL THERAPY OR SERVICE ANIMALS

Usually listed under medical expenses on income tax forms, you may qualify for benefits or credits if you or a dependent requires the assistance of an animal. Consider submitting the necessary receipts if you pay for regular animal therapy or the purchase, training and upkeep of a service animal.

FARM ANIMALS

If you own livestock, herding animals or guard animals in order to operate a business, you very likely can claim a portion of their initial purchase as well as costs of caring for them. Optimizing your tax return is vital for the successful operation of ranches and farms of any size or scale, so do not overlook the benefits and credits available to you.

ANIMAL TRANSPORTATION

Moving residences is one of the rare cases where your family pet(s) could earn you an income tax credit. Since moving means your pet(s) and the necessary supplies need to come with you, there are some accommodations for reporting any related costs. Also: if your business relies on transporting your animals, a portion of your fuel and maintenance costs should always be claimed as deductible.

CHARITABLE DONATIONS

If you give to shelters, rescues or other non-profit animal welfare organizations, always request a tax receipt when eligible. A charitable donation is one of the easiest ways to express your love for domestic animals while earning income tax credit. Costs related to fostering and sponsoring animals for certified organizations may also qualify.

JOBS WITH DOGS

Not just limited to dogs, animal ownership is a multibillion-dollar, worldwide industry– there are countless industries and professions that thrive within it. Always claim any eligible expenses directly related to your job! For example: a dog walker can claim a portion of their fuel and maintenance costs, if they use their personal vehicle to transport dogs to and from their clients’ homes.

The five scenarios outlined above are only some of the ways owning or caring for an animal could lead to income tax deductions, credits or benefits. For a full understanding, contact or visit Liu & Associates today with any issues, complications or concerns!

7 Most Forgotten Tax Credits, Benefits and Deductions

While freelancers and business owners may be quite familiar with tax credits, benefits and deductions– it is no guarantee that you are getting everything that could be owed to you. Also, these opportunities often apply to anyone filing taxes… even if they did not earn any professional income in a given year. Keep reading for our top seven most forgotten and overlooked tax credits, benefits and deductions!

#1: Income-related costs

No matter how you earn your living, if you make taxable income– you are eligible to claim certain costs incurred in pursuit of it. While self-employed taxpayers are familiar with the many ways to claim a tax credit, you should not overlook them if you work for an employer. Commuting costs, business lunches and qualified expenses are just some the more commonly claimed credits.

#2: Mandatory expenses

If your profession requires you to pay for certain privileges or qualifications, you may very well be able to claim all or a portion as an income tax credit. Examples of such expenses are union dues, licensing exam fees and professional certification payments.

#3: Interest paid on student loans

This one is easier to remember, as the national and provincial student finance authorities issue tax forms to anyone paying back student loans. To make sure you do not miss out on these deductions: always keep your current mailing address and contact information on record.

#4: Credits for parents

Parents are busy people! It is understandable why taxes are not at the front of your mind, but credits and benefits can mean more money to raise your family. Always file your taxes to qualify for annual benefits for dependent children and be sure to review eligible credits related to childcare expenses.

#5: Medical costs

Tax credits can be earned through your own disability, the disability of a dependent, injury or illness, dietary requirements and many other conditions. Your health should be your first priority, so make sure you file your income tax by the deadline every year. The burden of your medical costs can be reduced by keeping your information current and providing the required documents.

#6: Moving deductions

Have you moved this year? Did you hire movers, rent a truck or use your own vehicle to transport your belongings? You are likely eligible to claim income tax credits for a percentage of your expenses– businesses may also qualify!

#7: Homeowner credits

Owning a home means you have a lot of responsibility, but just like maintaining and up keeping the property: your finances should always be in order. This does not mean paying your mortgage in record time, but it does mean taking advantage of every credit and benefit available to you. There are government programs that reward first-time owners, as well as those renovating or upgrading their existing homes.

The seven tax credits, benefits and deductions above are just a few of the most commonly forgotten– contact or visit Liu & Associates today for a comprehensive review of your eligibility.

Working from Home: What can you claim on your tax return?

Nowadays, business and their employees are connected more than ever– allowing increased flexibility when, where and how people complete their work. Also there is a rising number of people whose main income is self-employment, which has blurred the lines between are personal spaces and the workspace. Income tax law has always accounted for those that make their living from their living room… or anywhere else in the home for that matter! If you work from home or are self-employed, do not overlook the credits you can claim on your income tax return. For more information, read on for four fantastic facts from Liu & Associates!

#1: Self-employed vs. “Working from home.”

If you work for a business and they allow you to complete your work remotely– you are not self-employed and do not qualify for the same tax benefits unless your employer signs the appropriate form. Self-employed individuals are eligible for a much wider range of claims and credits, so it is important to distinguish between the two circumstances.

#2: Automobile costs.

In modern business, being mobile can be extremely important– which means you may use your personal vehicle for work purposes. When this happens, you are entitled to claim the cost you incurred for these specific uses. This means calculating how much gas you used, as well as the ratio of how much you use the vehicle for work versus how much you use it personally. Once totaled for the year, you may claim a percentage of these costs as a credit against your income tax.

#3: Pro-rated expenses.

Like we mentioned in the tip above, the ratio of personal and work use can be applied to many expenses. This process is called “pro-rating” the cost over time to fairly represent how much money is spent on each item over the tax year. Some categories of these expenses include: insurance premiums, mortgage interest payments, property tax payments, utilities, furnishings or equipment– refer to the Government of Canada’s guidelines for a more comprehensive list of options.

#4: Carryforward.

One of the best results of claiming your “business use of home” costs is even if you do not need the credits, they can be rolled over to the next tax year. This carryforward provision is especially useful for self-employed people who are only just starting out. They may not make enough income to require tax relief, so they can defer the benefits to a more profitable year.

The four tips above are only a sketch of the diverse and complex reality of income tax law. If you have questions or concerns about your situation, contact or visit Liu & Associates today!

3 Common Student Tax Questions and Answers

Post-secondary students of any age are busy people! Between studies, exams and everyday life– it can become overwhelming to even think about taxes, let alone be familiar with all the ins and outs of the Income Tax Act. Keep reading for our advice for students and answers to three common questions about taxation.

DO STUDENTS NEED TO FILE TAX RETURNS?

The short answer: yes! All Canadians who earn income should file a tax return every year, even if they do not owe an amount to the Canada Revenue Agency (CRA). Filing a tax return means you could be eligible for a Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit. It also increases the allowable amount of future contributions to a Registered Retirement Savings Plan (RRSP). Additionally, becoming familiar with taxation as a student will prepare you for further obligations when you enter the professional world.

2. WHAT EXPENSES CAN STUDENTS CLAIM FOR TAX CREDIT?

Whether you are a student exclusively or you work in addition to your studies, there are numerous reasons to claim certain tax credits. The costs of child care, moving, public transit, textbooks and tuition can all be claimed as tax credit– up to a certain amount, as outlined by the CRA. There are also provisional “education amounts” that count towards credits for each month you were enrolled. Even if you did not earn enough in a year to use this credit, much of it can be carried forward indefinitely and it can even be transferred to a spouse to reduce their taxes.

3. SHOULD STUDENT DEBT BE CONSOLIDATED?

Once you have graduated, it may be very tempting to combine the debt you accumulated as a student into one payment at a more affordable interest rate. In fact, there is no shortage of financial institutions and lenders that have a variety of consolidation programs. The downside of these offers is that you will no longer be eligible to claim the interest paid on student loans as a tax credit. If you can afford to, it is almost always best to keep your student loan debt separate.

The above answers are only a summary of the many ways students can take advantage of Canadian tax rules and regulations. If you have any questions or concerns, whether you are a student or know one, contact or visit Liu & Associates today!

Retail Tax Preparation Services vs. Accountants

There are three main tax filing options for you to consider: do-it-yourself, a retail tax preparation service or an accountant. Read on as we dive into the differences between retail tax preparation services and accountants and how you can decide which one is right for you.

Experience

Tax Professionals

Tax preparation services employ ‘tax professionals’, not certified accountants. This is not to say that employees are not qualified to help you with your taxes, as training for these positions is usually quite rigorous; however, they do not possess a degree in accounting or the level of experience an accountant would bring to the table.

Accountants

There are two types of accountants you will run into: independent and CPA. An independent accountant has graduated with a related bachelor’s degree, while a CPA (Certified Public Accountant) has not only completed a bachelor’s degree in accounting, but has also achieved CPA accreditation. CPA accreditation requires additional coursework and experience requirements, as well as passing an exam.

Depending on how complex your tax return is, you may seek out different levels of experience to help you get the most out of your return.

Time

Retail tax services offer a convenience that accounting firms can’t always accommodate. Accountants work on an appointment basis, while retail tax services give you the ability to just drop in whenever you have time. Retail preparation centers also usually offer extended hours to maximize convenience.

Cost

Each tax preparation option comes with a different price tag. There are many online tax softwares that are free for users. Retail tax centers are the next most economical option, and an independent accountant will usually charge less than a CPA. Again, depending on complexity, the cost of an accountant can far outweigh the time and possible mistakes you might make doing it on your own. A person with one T4 for the whole year may find it a piece of cake to file online, but a self-employed contractor who also owns a rental property might not find it quite so simple.

How you choose to file your taxes should be based on the complexity of your return, your desire to take on the task, and your budget. While hiring an accountant may cost more than a retail tax preparation service, it will ensure that you’re getting the most up to date tax knowledge and the best return possible. If you’re looking for some tax help, contact the team at Liu & Associates. Our accountants are equipped to handle both corporate and personal tax solutions.

4 Ways to Avoid A Personal Tax Audit This Season

Ah, the dreaded tax audit. While few taxpayers will ever actually face an audit, we all fear receiving that notice letter. Undergoing a personal tax audit can be a stressful and time-consuming experience – so how do you avoid it? While there is no sure fire way to ensure you never get audited, there are a few steps you can take that will minimize the chance of the CRA knocking on your door; read on to learn more!

1. Know Your Risk

Certain industries have been flagged as “high risk” by the CRA. Contractors, restaurant serving staff, and mechanics are just a couple of industries that are well-known audit targets. If you work in one of these industries, take extra caution in ensuring your tax filing is complete and accurate. Make sure you have all your supporting documentation for any deductions or credits you are claiming.

2. Don’t Ignore Further Information Requests

Most times, if the Canada Revenue Agency contacts you it will just be a request for further information. This is not the same as an audit. Now that reports are filed online, people don’t need to send in all of their supporting documents so sometimes the CRA will request these documents to be sent in. It’s important that you don’t ignore these requests as doing so can not only get your claim denied but also flag your returns for audits in the future.

3. Note Large or Unusual Expenses and Deductions

Certain types of expenses are more likely to be flagged by the CRA that others. Interest deductions, charitable donations and moving expenses are a few examples. Don’t let this scare you from claiming these on your next return, just make sure you understand the rules around claiming and keep your receipts in case you’re asked to provide further proof. Another audit red flag is drastic changes in income or expenses from year to year. Again, if your claims are legitimate there is nothing to worry about. Just make sure you have the appropriate supporting documentation and you’ll be good to go!

4. Get Help!

Having things done right the first time is the best way to avoid an audit. Having your taxes filed by a professional will not only maximize your return, but also ensure it’s filed correctly.
Looking for Tax Advice?

Whether you are looking to get help filing your personal tax return, or are currently facing an audit and are seeking professional advice, the team and Liu & Associates can help! Contact us to schedule an appointment today.

What’s a Tax Audit?

While the auditing process is meant to help maintain public confidence in the fairness of Canada’s tax system, it can be a stressful and onerous experience on a taxpayer. There are two main types of tax audits: business audits and personal audits. Read on to learn a bit more about each type, what you can expect if you’re selected for an audit of your own and how Liu & Associates can help.

Business Audits

A business tax audit is a process in which the CRA closely examines small and medium-sized businesses’ books and records to ensure they are complying with their tax obligations. Audits are also used as a way to ensure the business is receiving any monetary amounts they are entitled to.

How Are Businesses Chosen?

The business audit selection process is based on a risk assessment system. When choosing businesses to audit, the CRA will also look at any information it has on file and may compare it to similar files.

What Does an Auditor Look at?

A tax auditor will look at the company’s books, records and documents. Examples include but are not limited to:

Previous tax returns
Business records
Personal records

Personal Audits

Personal audits are very similar to business audits. The selection process and the documents that are reviewed are all of similar nature – the difference is that the focus is on personal taxes rather than company taxes. Again, the purpose of an audit is to ensure that your assessment is accurate. If you’re selected for a personal tax audit, the CRA will ask for you to submit certain receipts and records. Sometimes the submission of these documents will be enough, and other times an auditor will be sent out to complete a more thorough check. The audit may take place at a CRA office, or at your home.

Results of an Audit

Throughout the audit process, the auditor will openly identify any issues and discuss them with you. You are also welcome to raise any concerns you may have as well. At the end of an audit, one of three things will occur:

No adjustments will be made to your assessment
A reassessment will result in you owing more tax
A reassessment will result in you receiving a refund

Don’t Sweat It

Audits may seem like a scary process, but if your documentation is accurate and in order there shouldn’t be any major issues that come up. Most errors that arise are honest mistakes that are easily amended. The best thing you can do to prepare for an audit is to keep track of your records for a minimum of six years.

If you or your company is selected to undergo an audit, contact the experts at Liu & Associates. Our team will ensure that your rights are observed and work to minimize any consequences. We act as a buffer between you and the CRA to minimize the time and stress that is so commonly associated with an audit. Give us a call today!

What To Expect When Filing A Late Tax Return

Filing your tax return late should be avoided if possible, because doing so can end up costing you big – especially if it happens year over year! A late tax return can come with interest, penalties and even interest on your penalties! However, if you have missed the April 30 deadline, don’t dismay – Liu & Associates can help! Read on for what you need to know about late tax returns.

What Fees Are Associated with Filing My Taxes Late?

If you owe taxes to the CRA and you fail to meet the April 30 deadline, penalty charges and compound interest will accrue on any unpaid amount. The late-filing penalty is 5% of your 2016 balance owing, plus 1% of your balance owing for each full month your return is late (maximum of 12 months).

If you have already racked up a late-filing penalty in previous years, your new penalty may bump up to 10% of your balance owing, plus 2% of your balance owing for each full month your return is late (to a maximum of 20 months).

Starting May 1, the CRA starts to charge compound daily interest on any unpaid amounts owing for the previous year. Even more, you will start getting charged interest on any penalties you receive starting the day after your return is due.

What If I Don’t Owe Any Tax?

If you don’t owe the government any money, you don’t need to worry about getting hit with a penalty – but the government will hang on to any refund until you file a return.

You’re Not Alone

Liu & Associates can help minimize the stress that is associated with filing a late tax return. Our team will help to create a solution to your late filing. Give us a call to book an appointment today!

Tax Implications of Rental Properties

Owning a separate rental property or renting out a space in your home can be a great way to make some additional income; however, it’s important you understand the tax implications that surround this type of endeavour. Read on for Liu & Associate’s guide to rental properties, taxes and more!

Claiming Rental Income

Regardless of the type of property you are renting (a room, your basement, a separate property), you must report all rental income to the CRA on a yearly basis. You’ll need to fill out a T776 – Statement of Real Estate Rentals form, which will allow you to claim the rent received from any tenants, as well as give you a space to claim expenses.

Claiming Expenses

If you’re renting out your principal residence (aka, the place you live in), you can claim a certain percentage of the household expenses. The amount you can claim is based off the size of the rental suite. If your basement suite takes up 25% of your home, you can claim 25% of your household expenses. Claimable expenses are things like heat, water, power, home insurance, etc.

Claiming Capital Cost Allowance (CCA)

This is where things can get a bit tricky, because there are a couple routes you can take. When performing long-term renovations on a rental property, such as installing a new roof, you can claim something called capital cost allowance (CCA). Claiming CCA gives you a tax break in the short term, but means that you will have to pay capital gains when you decide to sell your home.

If you decide not to claim CCA, you won’t receive any depreciation on your renovation, but you also do not have to pay capital gains when you sell your house. Whether or not you decide to claim any CCA will depend on your own unique situation. It’s best to chat with an accountant to see what’s best for you!

Questions?

If you have a rental property and have questions about your taxes, give the team at Liu & Associates a call! Our expert accountants will ensure you’re getting the maximum return, while making informed recommendations that will benefit you in the long run.

7 Tax Changes in 2016

Recently a new government took office in Canada and part of what got them there were changes to the tax code. So what does this mean for you and your finances? Read on for Liu & Associates’ reference guide for some of the new tax changes going forward.

Tax-Free Saving Accounts (TFSA)

In recent years the contribution limit to TFSAs was as high as $10,000. The new limit has been set at $5,500; so keep that in mind when calculating your tax-exempt investments.

Canada Apprentice Loan

Red Seal trade program enrollees can claim a tax credit equivalent to the interest paid on any student loans. Ensure you are in a designated program before assuming you can claim the credit.

Child Fitness Tax Credit

Originally a non-refundable tax credit, receipts submitted for costs or fees related to a child’s physical activity can now be claimed up to $150. Instead of being applied to taxes owed (non-refundable), even those getting returns will now benefit from this credit.

Child-care expenses

Before this year, child-care expenses were capped at $7,000 per child under 6 and $4,000 per child between 7 and 16 years old. Each credit limit was increased by $1,000 in the new wave of tax changes.

New tax brackets

Refer to the following list to determine which tax bracket you fall into:

$45,282… 15%
$45,282-90,563… 20.5%
$90,563-140,388… 26%
$140,388-200,00… 29%
Over $200,000… 33%

*NOTE: Each rate is only applied to the portion of income to which it corresponds.

Enhanced Universal Child Care Benefit (UCCB)

If your family received the UCCB from the previous government, the amount will be counted as taxable income. While this may lead to a smaller refund for the moment, there are plans for a tax-free replacement.

The above list is a summary of some new additions and subtractions to and from the complex tax code of Canada. If you have questions or concerns about filing your taxes– no matter how complicated– contact or visit Liu & Associates today!