TOSI Rules: Everything You Need To Know

In this blog, we look at some frequently asked questions about the tax on split income (TOSI) rules, including an overview of the proposed changes from the Federal Government.

What is income sprinkling?

Income sprinkling, sometimes called income splitting, is a tax planning strategy that involves distributing income from a high-income individual to family members who have lower income brackets.  The intent is to reduce the overall taxable income of the family by spreading it out among multiple individuals. The downside is that, depending on how it's done, it can be considered a form of tax avoidance or evasion.

What are the TOSI rules?

The TOSI rules are designed to limit the ability of high-income individuals to split their income with family members in lower tax brackets. The rules apply to certain types of income, including dividends from private corporations and any income from businesses or trusts. The rules are designed to ensure that income-splitting is only used for legitimate business purposes and not as a way to reduce taxes. The rules also limit the amount of income that can be split with family members.

What is the tax rate for TOSI rules?

The tax rate under the TOSI rules is the same as the top marginal tax rate for the individual receiving split income, which is currently 33%. This means that any income that is split with family members subject to the TOSI rules will be taxed at 33% rather than whatever lower tax rate they would normally pay. As such, the TOSI rules can significantly increase the amount of tax paid by some individuals.

Are there any exceptions to the TOSI rules?

Yes, there are some exceptions to the TOSI rules. Generally, these include situations where family members provide significant labour or capital in the business, such as through an active role in the company or by providing a loan to the company. In these cases, income may be split without being subject to the TOSI rules. However, it is important to note that the Canada Revenue Agency (CRA) will review all cases carefully and assess whether an exception is appropriate.

What is the proposed change to the TOSI rules?

The proposed change to the Tax on Split Income (TOSI) rules involves limiting passive income inclusion in a corporation to specific family members. The Federal Government is proposing to limit the ability of high-income individuals to use private corporations as a tax planning strategy by limiting the amount of passive income that can be split with family members. Under the proposed changes, any passive income that is split with a family member would only qualify for inclusion under the TOSI rules if that family member meets certain conditions, such as being over the age of 25 and contributing to the business in some way. The proposed changes are intended to ensure that income-splitting is only used for legitimate business purposes.

Who will be affected by the proposed changes to the TOSI rules?

The proposed changes to the TOSI rules will affect high-income individuals who have used private corporations as a tax planning strategy. Those affected by the proposed changes will no longer be able to split their passive income with family members in lower tax brackets. It is important to note that the proposed changes will only affect income that is split with family members and not other types of income or investments. Additionally, the proposed changes will also affect those who are not directly involved in the business but may benefit from income splits through family members. It is important to note that these proposed changes have not yet been implemented and the details are still being discussed by the government.

Conclusion:

The Tax on Split Income (TOSI) rules are a set of rules designed to limit the ability of high-income individuals to split their income with family members in lower tax brackets. The rules apply to certain types of income and are designed to ensure that income-splitting is only used for legitimate business purposes and not solely to reduce taxes. The Federal Government is proposing to limit the amount of passive income that can be split with family members under the TOSI rules. Those affected by the proposed changes will need to consult with a tax professional to understand how the proposed changes may affect their tax situation.

Looking for a professional accountant to help you make sense of all of the rules and regulations? Let us help. At Blackspark, we specialize in personal tax return preparation. Contact us today to learn how our services can assist you.

This blog post is intended to provide general information only and should not be construed as tax advice or opinions. Always consult a qualified accountant before making any decisions regarding your tax situation.

How to Get the Best Tax Refund in Canada

As spring approaches each year, Canadians look forward to the warm months ahead but dread the looming tax season. Knowing what you are entitled to early on will make it easier to keep track of the documentation you need to claim expenses later. The deadline to file your return in Canada each year is April 30. The Canada Revenue Agency (CRA) is constantly updating its tax rules, so don’t procrastinate and scramble at the last minute to educate yourself on getting the most out of your tax refund. Let the tax accountants at Blackspark help.

Contribute to Your RRSP

Contributing to your RRSP is one of the best ways to maximize your tax refund each year and get a larger return. The deadline to contribute for each tax year is March 1. Your contribution limit is 18% of your earned income from the last tax year (up to a maximum of $29,210 for 2022) plus any unused amounts from previous years. You can find your RRSP contribution limit in your CRA account.

The more you make annually, the more your RRSP contributions can generate tax savings. However, you must also consider if it makes more sense to contribute to a Tax-Free Savings Account (TFSA), as the long-term tax savings from that choice could be significantly greater than prioritizing the immediate tax benefit of RRSP deductions. The tax accountants at Blackspark can help you optimize that.

Claim Interest on Student Loans

You cannot claim interest on personal loans, lines of credit, or student loans from foreign banks. However, you can claim interest on student loans received under the Canada Student Financial Assistance Act, the Canada Student Loans Act, and equivalent provincial or territorial programs. The student loan interest claim is a non-refundable tax credit, which can only be used to lower your tax, but any excess credit beyond that will not increase your tax refund. You can carry forward student loan interest for up to five years, so it might be wise to save your claim for a year when you owe more taxes.

Deduct Childcare Expenses

If you have children, you probably already receive family benefits like the GST/HST Credit and the Canada Child Benefit (CCB). However, you can also claim eligible childcare expenses to lower your taxable income. These include:

• Childcare services from caregivers

• Daycare services

• Childcare services from educational institutions

• Day camps and day sports schools

• Boarding schools and overnight camps

Support payments sent to a former spouse and/or children can also impact your tax bill, depending on the type of support you provide.

Write Off Work and Moving Expenses

There are several eligible work-related expenses that you can deduct from your taxes. This list includes things like cell phone bills and office supplies if your employment contract requires you to purchase these items and you did not receive an allowance for them. If you work from home, you can claim expenses for your home office, such as internet bills, stationery, computers, rental payments, and other related services. This can be tricky, so ask your tax accountant for professional guidance here.

You can also deduct expenses related to moving if you meet the following criteria:

• You moved to work, run a business, or attend an educational institution

• You moved at least 40 kilometres closer to your new job or school

Moving expenses that are eligible for deduction include vehicle expenses, accommodation costs for utility hookups and disconnection, and title transfer costs.

Buy a House

The CRA offers tax credits for new homebuyers to help offset the costs of buying a house. The Home Buyers’ Amount allows you to claim a $10,000 tax credit if you purchased your first home and did not live in another home owned by you or your partner in the past four years. You may also qualify for the GST/HST New Housing Rebate if you did substantial renovations or purchased or built a new home. There is a similar provision for landlords under certain conditions.

Donate to Charity

Canada’s tax system is generous for those who donate to charity. The Charitable Donations tax credit can be up to 33 percent of the amount you donated. You may also be entitled to an additional amount reaching up to 24 percent of your donation, depending on your province of residence. Donations and gifts are a non-refundable tax credit, which can only be used to lower your tax bill and not to receive a refund. Like student loan interest, you can carry forward unused donations for up to five years.

Taxes can be complicated to complete, depending on your employment, loans, and other factors. Not every available credit or deduction applies to every circumstance, and you don’t want to err on either side. Eliminate the intimidation by working with a tax accountant, who will ensure you get all the tax deductions and credits you are due each year.

This blog post is intended to provide general information only and should not be construed as tax advice or opinions. Always consult a professional accountant for specific advice related to your situation. Thank you.

How Income Splitting Works

Income splitting is a great way to reduce your tax bill. It allows you to move income from a higher-income spouse to a lower-income spouse, to take advantage of lower tax rates. But how does it work? Let's take a look.

What does income splitting mean?

Income splitting in Canada is a method by which the higher-income spouse (aka higher-earning spouse) transfers a part of their income to the lower-income spouse (aka lower-earning spouse). An income splitting strategy is used so that both taxpayers end up with similar taxable income.

Ideally, each spouse should end up in the same tax bracket, thereby lowering the household's overall tax bracket and resulting taxes payable. Only eligible pension income is allowed to split using income splitting. You can split eligible pension income with your spouse or common-law partner, up to 50%.

Although income splitting can be implemented before retirement, it is less common.

What can be done relatively easier and early on, however, is making use of a spousal RRSP. Since the higher income spouse will be able to put aside more money into savings, they can contribute some of it to a spousal RRSP.

In this way, you can make sure that the RRSPs of both spouses will be similar in size at the time of retirement. This will result in a lower overall tax burden, as income withdrawals from two smaller RRSPs will result in less taxable income than withdrawals from a single large RRSP.

The more common income splitting scenario takes place during retirement, when spouses will split pension income.

Advantages of income splitting

Income splitting can be beneficial for any couple where one spouse has significantly higher income. But, income splitting is most advantageous for high-income earning couples that are normally in high tax brackets. When you are retired, you will no longer have employment income.

However, your investment accounts will hopefully be supplying you with income. If the investment income earned from your investment accounts is big, your resulting tax bracket will be high. This is when income splitting comes into play.

Simply put, if you are retired and you end up in a different income tax bracket than your souse, you should investigate income splitting to lower your overall tax liability.

An example of income splitting

Jane and John Doe are a retired married couple. Jane's pension income and investments are significantly larger than John's, especially the interest income that she earns on her investments. As a result, John is in a significantly lower income tax bracket.

In this example, Jane is the transferring spouse and John is the receiving spouse. Therefore, splitting pension income will reduce the combined tax obligations of the couple, allowing them to each fall under the same tax bracket and reduce taxes.

Types of income eligible for income splitting

Unfortunately, not all kinds of income are eligible for income splitting. There are also limitations on the type of taxpayer. Specifically, the spouse (or common-law partner) receiving the pension needs to be at least 65 years of age (there are a few exceptions to this rule, see CRA's guide for more details: Line 31400 - Pension income amount).

For this tax reduction strategy, both spouses must also live in Canada and live together during the tax year of the income splitting. Certain exceptions apply, for example if one spouse is separated for medical reasons. But, generally, you must be living together and living in Canada.

Assuming both taxpayers qualify for income splitting, here are the eligible types of income:

1. Income from a RRIF (Registered Retirement Income Fund), except amounts included on line 11500 and transferred to an RRSP, another RRIF or an annuity

2. RRSP (Registered Retirement Savings Plan) annuity payments

3. Life annuity income

The following types of income are NOT eligible for income splitting:

1. Government benefits, such as Old Age Security (OAS) payments

2. Income from the Canada Pension Plan

3. Income from the Quebec Pension Plan

4. Income from a United States individual retirement account (IRA)

Check the following resource for more details about the eligibility of certain types of income: CRA - Eligible pension income.

How to income split

You must opt-in to income splitting every year when you have your tax return prepared. Both spouses will need to file Canada Revenue Agency Form T1032, Joint Election to Split Pension Income. Don't worry if the T1032 form looks complicated; a qualified professional accountant can help you complete it accurately and make sure that you comply with the income tax act.

Frequently Asked Questions

Let's review the questions that often arise when researching financial planning and how to lower the tax burden through pension income splitting:

What is income splitting?

Income splitting is a plan that allows retirees (in different tax brackets) to transfer pension income to the lower income spouse (up to 50%) to take advantage of a lower tax bracket. To use income splitting, certain conditions must be met regarding the type of taxpayers, as well as the types of income.

What is the benefit of income splitting?

All things considered, you would rather pay tax on your income in a lower tax bracket. Using income splitting, you can transfer pension income (such as from a registered retirement income fund) to your lower income spouse and reduce the overall tax liability of your household.

Who is allowed to split income in Canada?

Generally, both spouses must live together and live in Canada during the specified tax year. There are some exceptions, however.

What qualifies for income splitting?

Eligible income types include income derived from registered retirement income funds (RRIF) and registered retirement savings plan income.

If it is time to file your taxes and you are looking for high-quality help, consider using Blackspark. Our professional tax accountants are experienced in all tax matters and will help you realize the maximum benefit from your tax situation.

This blog post is intended to provide general information only and should not be construed as tax advice or opinions. Always consult a professional accountant for specific advice related to your situation. Thank you.

What is a TD1, Personal Tax Credits Return?

If you're an employee in Canada, chances are you've heard of the TD1, Personal Tax Credits return. It's the form that every Canadian employee must complete so that their employer can deduct the correct amount of taxes from their paycheque each month. But what exactly is it, and why do you need to fill one out when you start a new job? Let's break it down.

What is a TD1 Form?

A TD1 form is used to determine how much tax is deducted from your employment income, or other income, such as pension income. The form takes into account any deductions or credits that may apply to your income for the year, such as tuition and education amounts, medical expenses, and other types of deductions or credits available to Canadians. By accurately completing this form, your employer (or payer) will be able to deduct the right amount of money each time they issue you a cheque.

How Do You Fill Out a TD1 Form?

Filling out a TD1 form isn't difficult, but it can be tedious if you don't know what you're doing. The first step is to read through all of the questions on the form carefully and answer them as accurately as possible. You will need information such as your social insurance number (SIN), marital status, and address in order to complete the form correctly. Once you have answered all of the questions, simply sign and date the form before submitting it back to your employer.

Do I Have To File A TD1 Every Year?

No—once you have filled out and submitted a TD1, Personal Tax Credits Return for a particular job, there’s no need to submit another one until either your situation changes or you start working for another employer. However, if any changes occur throughout the year—such as getting married or divorced—you will need to make sure that these changes are reflected on your TD1 form by submitting an updated version with your new employer (or current employer) so they can adjust their records accordingly.

Conclusion

Filing a TD1, Personal Tax Credits Return may not be fun, but it’s necessary if you want your taxes deducted correctly from each paycheque throughout the year! Make sure to take some time each year (or when needed) to review and update any relevant information before resubmitting it with your employer - otherwise you might find yourself having some unwelcome surprises come tax season!

If tax forms give you a headache, let us help. At Blackspark, our professional tax accountants specialize in preparing personal tax returns.  We are here to help make tax time easier, so don’t hesitate to reach out! We look forward to hearing from you soon. Thank you.

This blog post is intended to provide general information only and should not be construed as tax advice or opinions. Always consult a professional accountant for specific advice related to your situation. Thank you.

Cryptocurrency and Taxes in Canada

It's tax season again, and if you’re a Canadian investor, you might be wondering how cryptocurrency fits into the equation. Are crypto investments taxed? If so, how much? There are many questions that need to be answered when it comes to taxes and cryptocurrency in Canada, so let’s dive in!

What is Crypto?

Let's begin by defining cryptocurrency. Cryptocurrency is a digital asset that can be exchanged for goods or services. Cryptocurrency is not legal tender and operates independently of a central bank, authority, or government. Strong encryption techniques are used to control how units of cryptocurrency are created and verify transactions.

How is Crypto Taxed in Canada?

In general, The Canada Revenue Agency (CRA) treats cryptocurrency like a commodity for purposes of the Income Tax Act. As such, cryptocurrency transactions are subject to taxation. Depending on the circumstances, any income from cryptocurrency transactions is generally treated as business income or capital gains. Similarly, if earnings qualify as business income or capital gains, then losses are treated as business losses or capital losses. Taxpayers must figure out whether any cryptocurrency activity results in income or capital, as this affects how the revenue gained from such activities is taxed under income tax law. Not all taxpayers who engage in buying and selling cryptocurrencies are considered to be carrying on business activity.

What is Crypto Fair Market Value?

You'll need to report the cost basis and fair market value of your cryptocurrencies at the time of transacting. This is important because it will determine whether you have made a profit or loss on the transaction. For example, if you bought one Bitcoin for $10K and then sold it later for $11K - you would have made a $1K profit. On the other hand, if you had bought one Bitcoin for $10K and then sold it later for $9K - you would have incurred a loss. The tax treatment of the profit or loss depends on whether or not your cryptocurrency transactions are considered business income or not. If they are considered business income, then (net) profits are considered taxable income and (net) losses can be used as a deduction against any other taxable income. Alternatively, if your cryptocurrency profits and losses are considered capital gains or losses, then (50%) of your net profits will be taxable income and net losses can be used to offset other capital gains in the current, three prior, and any future tax years.

In order to ascertain the value of a cryptocurrency transaction where a direct value cannot be determined, you must use a reasonable method. Keep detailed records to show how you calculated the value. The CRA's general stance is that the fair market value is the highest price (in dollars) that a willing buyer and a willing seller (that are both informed, knowledgeable and prudent, and acting independently) would agree upon in an open, unrestricted market. Use the same method consistently when ascertaining transaction values.

Keeping Accurate Crypto Records

The CRA also requires investors to keep records of all their trades so they can accurately calculate their gains or losses during tax season. This includes keeping track of the date each trade was made along with the cost basis and fair market value. It's also important to note that there may be other taxes that apply such as GST/HST depending on where you live in Canada and what type of transactions you're making with your cryptocurrency (i.e., buying/selling goods or services).

Conclusion

Cryptocurrency has become increasingly popular over the past few years - especially among Canadian investors looking for alternative investments outside traditional stocks and bonds. However, it's important to understand how taxes work when investing in crypto assets here in Canada as this can affect the accuracy of your tax return. If you need help at tax time, a Blackspark professional accountant can help you properly report your crypto activities.  With their assistance, you can ensure you are compliant with CRA rules and regulations.

Reference:

If you're looking for more information on how the CRA is treating cryptocurrency transactions in Canada, please visit their website for the most up-to-date guidelines and regulations: Guide for cryptocurrency users and tax professionals - Canada.ca

Thank you for reading!

This blog post is intended to provide general information only and should not be construed as tax advice or opinions. Please consult with a professional chartered accountant before making any decisions related to tax reporting of cryptocurrency investments.

How Much Tax is Deducted from a Paycheck in Ontario?

If you look at your pay stub, you will see that taxes and deductions are taken off, and the numbers might seem quite arbitrary. All Canadians indeed pay the same federal tax rates on their paychecks, but provinces set up their own provincial rates. So, where do businesses get the numbers for deducting taxes? Let’s find out.

RRSP Contributions

If you are registered with a group Registered Retirement Savings Plan (RRSP), this will be deducted from your paycheck before any taxes and placed into your RRSP until you take it out of the plan. Some companies allow you to choose a percentage (up to a specified maximum) that will be taken out, and they will match, and you will not have to pay taxes on this amount until you take it out of your RRSP. As a result, your current taxable income will be reduced, and you will get to enjoy immediate tax savings while reaping the benefits of company matching to help grow your RRSP.

Canada Pension Plan (CPP)

Canada Pension Plan (CPP) is a monthly, taxable benefit that replaces part of your income when you retire. Contributions to CPP are compulsory for all working Canadians aged 18-70, and for 2022 the contribution amount is 5.7% for both employees and employers. When you retire, you can apply to receive CPP.

Employment Insurance (EI)

Employment Insurance (EI) provides temporary income support to unemployed Canadians. The EI contribution amount for employees in 2022 is 1.58% on any income up to $60,300. Any income over $60,300 is not subject to EI premiums, so the maximum you will contribute to EI in 2022 is $952.74. Employer EI premiums are 1.4 times the employee contribution, resulting in a maximum of $1,333.84. Self-employed individuals are not subject to EI premiums on their income unless they opt into the program to receive special benefits, such as maternity or sick leave.

Canadian Federal Tax

Federal taxes collected from your Ontario paycheck are used to pay for public facilities, programs, and services Canadians use all over the country. These can include national defence, national parks, and economic development. In Ontario, your taxable income places you in the following federal tax brackets:

• $50,197 or less: 15.00%

• $50,197 - $100,392: 20.50%

• $100,392 - $155,625: 26.00%

• $155,625 - $221,708: 29.00%

• $221,708 or more: 33.00%

It is important to note that these taxes occur beginning in the bottom bracket, not entirely in the highest bracket, as is the common misconception. This means that if you earn $150,000 per year, the first $50,197 will be taxed at 15.00%, then another $50,197 will be taxed at 20.50%, and the last $49,608 will be taxed at 26.00%.

Ontario Provincial Tax

Provincial taxes collected from your Ontario paycheck are used to pay for public facilities, programs, and services used throughout the province by residents and businesses. These include schools, health care, roads, emergency services, libraries, and recreation centers. In Ontario, your taxable income places you in the following provincial tax brackets:

• $46,226 or less: 5.05%

• $46,226 - $92,454: 9.15%

• $92,454 - $150,000: 11.16%

• $150,000 - $220,000: 12.16%

• $220,000 or more: 13.16%

Like federal taxes, provincial taxes are deducted beginning in the bottom bracket and increasing as your pay increases, not entirely in the highest bracket. For example, if you earn $100,000 per year, the first $46,226 will be taxed at 5.05%, the next $46,228 will be taxed at 9.15%, and the last $7,546 will be taxed at 11.16%.

How to Calculate Net Income

Your net income is calculated by taking your total earnings and subtracting all applicable taxes and deductions. To calculate your net income, you first need to know your gross yearly salary. Then do the following:

1. Deduct any RRSP contributions if applicable.

2. Add additional earnings, if applicable, such as bonuses. This is done to avoid tax evasion and overestimation of the benefits that you might get from child support payments or spousal support.

3. Withhold all federal and provincial taxes, CPP, and EI. Deduct all federal and provincial taxes from the remainder after RRSP contributions. You can use the brackets above as a reference point.

4. The result is your net income.

Federal and provincial taxes, and RRSP contributions, if applicable, are deducted from your pay each period, while other tax deductions are only taken annually when doing your taxes. A Blackspark tax accountant can help prepare your annual tax return at a low cost and ensure that you take advantage of every tax credit opportunity.

Recently Separated or Divorced?

There are tax implications you should be aware of before filing your T1 return.

If you separated from or divorced your partner in the last tax year, and are preparing to file your T1 return, here’s what you need to know about reporting your split to the CRA, as well as some key things to consider.

How does the CRA defines ‘marital status’ for income tax purposes?

Definitions

Spouse refers to a person you are legally married to.

Common-law partner refers to a person who is not your spouse but with whom you are in a conjugal relationship and at least one of the following conditions applies:

• This person has been living with you in a conjugal relationship for at least 12 continuous months (including any period of time where you were separated for less than 90 days because of a breakdown in the relationship)

• This person is the parent of your child by birth or adoption

• This person has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on them for support

For tax purposes, you are considered separated when you have been living separately for a period of at least 90 consecutive days. If you reconciled before the end of the 90-day period, you are not considered as having separated at all. Divorce on the other hand, is considered valid upon the legal dissolution of the marriage. 

According to the Canadian Revenue Agency’s definition, spouses and common-law partners are treated equally.

When should you notify the CRA of your separation or divorce?

The CRA should be notified as soon as possible if a couple is divorcing. However, separating couples should wait until they have been separated at least 90 days before notifying the government.

Why should you notify the CRA of your separation or divorce?

Married or living common law families qualify for a number of refundable and non-refundable tax credits that are based on the size of the ‘family net income’ which means the net income of both spouses. However, when you become separated or divorce, your net income is only based on one income, which results in an increase in refundable tax credits. Notifying the CRA ensures that the calculation of federal or provincial credits can be made without including the estranged spouse or common-law partner’s net income.

Newly separated parents and refundable tax credits

“In Canada, more than 40% of couples will divorce or separate - and, among them, about 25% will have minor children at the time of their split.”

- Canadian Revenue Agency

Working through the financial supports and the sharing of tax benefits and credits, can be daunting. Generally, we assume that the individual eligible for tax credits - like the tax-free monthly Canada Child Benefit (CCB), or the GST/HST credit - is the female parent. However, there are still a number of factors that will need to be considered. For example, if both parents share custody of the child(ren), who live with each parent half of the time, each can receive half of the CCB.

Is child support taxable?

Child support payments are not taxable which means that if you are receiving child support, you do not have to pay tax on that money. On the other hand, if you are the person paying child support, your support payments cannot be deducted on your tax return. It should also be noted that any other support payments detailed in a court order or an agreement are considered as child support if they are not specifically defined as spousal support.

Is spousal support taxable?

When a lump-sum payment is made upon the finalization of a separation or divorce, it is not taxable to the recipient and it is not deductible to the person paying it.

However, spousal support payments are taxable to the person who is receiving the payments and deductible to the person who is making the payments under the following circumstances:

1. The amount is receivable under an order by a court, tribunal or a written agreement, based on provincial laws.

2. The amounts are specific and paid to the recipient (or an agency handling collection) on a periodic basis. The timing of these payments must be outlined in the court order or agreement which can include specific purposes like rent, property taxes, educational costs, etc.,

3. The person receiving payments has the discretion to use the amount received as she or he wishes, although certain specific purpose payments can be made directly to a third party if this is specified in a court order or agreement.

4. The recipient and the payer are living separately and apart. The exception to this rule occurs if the payer is the legal parent of the child(ren) of the recipient.

To the spouse who receives the taxable spousal amount, there may be a large tax balance due at tax filing. If you are eligible, making an RRSP contribution can help reduce the net taxes owing.

What if child support payments have not been paid?

In terms of child support payments, if money is owed but has not yet been paid, it is considered in arrears. For tax purposes, all arrear payments are considered to be non-deductible child support payments until the child support is up-to-date. Once paid, all subsequent payments are then considered spousal support payments that are taxable to the person receiving them and deductible to the payer.

Are legal fees deductible?

The legal fees associated with getting a separation or divorce, or to establish, negotiate or contest the amount of support payments is not deductible. However, any legal fees incurred to enforce the pre-existing payment of support amounts, or to defend against an application for the reduction of support payments, is deductible.

Who gets to claim child care expenses?

As in normal circumstances, child care expenses are claimed by the lower-income spouse. The costs may be claimed by the higher income spouse if there is a separation for a period of at least 90 days and if a reconciliation occurred within the first 60 days after the taxation year. If reconciliation does not occur, then each spouse may claim any child care expenses they paid during the year with no adjustment for the child care expenses claimed by the other parent.

What about other federal non-refundable tax credits?

Aside from the calculations of family net income for the purposes of claiming tax credits, the breakdown of a marriage or common-law relationship will affect numerous other important financial considerations including the division of assets, pension assets and rules relating to spousal or common-law partner RRSPs. 

How Blackspark can help

If you separated or divorced in the last tax year, filing your tax return will be a little more complicated now. We can help. We have the expertise and experience needed to ensure that you maximize the benefits available and get the tax deductions you are entitled to. We’re in your corner.

Sources and Resources: Government of Canada

Support Payments
Support Payments Guide
Legal Fees
Support Payments Received

Thinking about hiring a remote accountant to file your tax return?

What to know.

The COVID-19 pandemic has, seemingly overnight, changed the way we live and work. Every facet of our lives has been affected and to some extent, become more digital and online. This includes the annual requirement to prepare our personal tax returns. With tax season upon us, you may be trying to figure out how to get your return prepared by a remote accountant. Here are some key things to consider:

Can a remote accountant prepare my return without ever meeting me face-to-face?

Yes. Like many professional services, meeting your accountant is not required to prepare your personal income tax return. What is required is that you officially authorize your accountant to interact with CRA on your behalf, including the ability to get your personal tax information directly from the CRA website. There is a specific form to do that, which your accountant should provide for you to sign when you begin your relationship. Your signature can be provided electronically, so that you don’t have to meet in person.

Are e-signatures valid for tax documents?

Yes. Many tax authorities around the world, including CRA, have implemented policies to allow e-signatures because of the pandemic. As a result, the CRA will recognize electronic signatures as having met the signature requirements of the Income Tax Act.

How do I get my slips and other information to a remote accountant?

This process will vary by accountant. Some accountants will have only email, or a basic shared online folder, available for you to provide your information. More modern accountants should have some login-based site that allows you to review information and submit documents securely. This can have a big impact on the amount of work and preparation you have to do, yourself. For example, an accountant that requires you to scan all of your slips and upload them is having you shoulder some of the tax preparation burden. Therefore, their fee should reflect that.

How secure is it to send my information online?

It depends. Sensitive tax information, such as any document with your Social Insurance Number, financial account numbers or other personally identifying details should never be emailed (either in the body of the email or included as an attachment). Email is inherently less secure than transferring documents via a secure, login-based website. Also, the location of email servers means your messages may be stored outside of Canada. For example, if you (or your accountant) use Gmail, Hotmail or some other web-based email provider, your messages are likely being stored on the U.S.-based servers of those companies. Likewise, you should never send such information by text message on your phone. It is tempting to snap a quick picture of your document and text it, but this is not a secure practice. The ideal solution is to find an accountant that gives you a secure login to their web-based system for collecting information and that has an established communication process to make sure that all information is shared back and forth in that system.

How Blackspark does it:

At Blackspark, we provide a 100% remote and secure tax preparation service for Canadians and their families across the country. We have a proprietary system that includes electronic signatures and a convenient online process for collecting your tax information securely, while you never leave the comfort of your home. We weren’t satisfied with existing tax software, so we built our own technology to make things easier for you, and us. That gives us more time to spend where it matters - making sure your tax return is prepared properly and giving you the best service possible.

How to find lost money (and more) in your CRA My Account

Did you know that CRA might owe you some cash, right now?

Not only that, but they may have been holding it for years, while you have been none the wiser? It’s true.

It’s not often in life that we find some lost money. Even rarer is finding out that Canada Revenue Agency owes us cash that we didn’t know about. But, for many Canadians, that is precisely the situation. You see, the average person moves from one residential address to another, at least a few times during their lifetime. Often, despite their best efforts, their new address may not be accurately (or immediately) updated with all of their personal and business accounts. In such cases, it is easy for mail to never reach the intended recipient. Other times, mail can simply go missing, whether it is lost, or perhaps even stolen.

Now, if that mail was a payment sent by CRA, the government agency will keep a record of the uncashed cheque. You just may not know about it. Earlier this year, CRA soft-launched a feature to allow taxpayers to easily find out if they are entitled to any such payments. The key is to log in to CRA My Account and navigate to the right spot.

Here’s how to do it:

Head over to CRA’s My Account for Individuals:

1. Log in with your username and password (or, if you don’t yet have a CRA My Account login, register to create one).

2. Under “Related Services”, look for the menu item labelled “Uncashed cheques”. Click it and cross your fingers.

3. Voila! If CRA is holding any uncashed cheques for you, they will appear in a table, showing the amount, along with instructions for how to get it sent to you.

4. Bonus tip: To make sure you don’t miss out on any future such payments, sign up for direct deposit. That way, CRA will just go ahead and deposit the amounts directly into your bank account.

So, did your author find any long-lost treasure in his CRA My Account? Indeed, I did! I had an uncashed cheque for about $50 from 1998! Likely due to moving my residence that year. Okay, not enough to retire on, but still a nice surprise and worth the two minutes it took to check!

What else is in CRA My Account?

Other than playing the lost cheque lottery, CRA My Account is a useful site for all Canadian taxpayers. I urge you to become familiar with its features. Most importantly, it will tell you the status of your account, including balances and any payments due or owed. Also, you can quickly find your RRSP deduction limit and TFSA contribution room. If you are keen on preparing your own tax return, you’ll also find most (if not all) of your tax information slips, for each tax year.

By the way, if you find the information in CRA My Account a little bit daunting at tax time, let us be your tax preparation partner. We’ll organize all of the important data from CRA on your behalf, and use it to prepare and file your tax return. For a fixed price and with no upfront fee.

TurboTax vs Wealthsimple Tax

Looking to file your simple tax return in Canada with DIY software?

Let’s compare two popular choices.

TurboTax

TurboTax is Do-it-Yourself (DIY) tax software from Intuit. You may be familiar with Intuit as the makers of QuickBooks, the popular small business accounting software application. Intuit Canada is a wholly owned subsidiary of Intuit, Inc., which is an American company.

TurboTax software has been around for several years and is well-known to DIY taxpayers. The advantage of this longevity is that TurboTax has developed many features and can handle most types of tax returns, from simple to complicated. For Canadians, there are currently four different versions of TurboTax: Free, Standard, Premier and Self-Employed. If you have business or professional income, you will need to choose the Self-Employed version, which is also the most expensive. You can use TurboTax to connect to CRA’s Auto-Fill My Return service and download tax slips that have been issued to you for the tax year. If you use one of the paid versions of TurboTax, you will also be able to access product assistance.

You may find it difficult to determine exactly how much you will end up paying for TurboTax, as some online reviewers complain about persistent notices within the application, attempting to upsell you to additional features. It is possible to start preparing your return with one version of the software and then find out, later on, that you need a more expensive version to complete your return due to certain elements of your tax situation. As such, it is prudent to spend some time determining exactly which types of income and deductions are included with each version of TurboTax, before starting your return.

Wealthsimple Tax

Another DIY tax software choice is Wealthsimple Tax. Wealthsimple tax started out as SimpleTax, a relatively small Canadian company, based in Vancouver. Over the past decade, SimpleTax became popular with Canadian DIY taxpayers, by providing a “pay what you want” pricing model. In September of 2019, SimpleTax was acquired by Wealthsimple, another Canadian company, and re-branded as Wealthsimple Tax.

Although not as well-known as TurboTax, SimpleTax has a good reputation for being easy to use and applicable to a variety of tax return situations. You can file previous year tax returns, all the way back to the 2012 tax year, using previous versions of SimpleTax. Like TurboTax, you can use SimpleTax to connect to CRA Auto-Fill My Return and download tax slips before entering them into the software. SimpleTax also has the ability for you to set up two-factor authentication, for extra security regarding access to your account and data.

While SimpleTax appears to maintain the “pay what you want” pricing option, for now, some online reviewers are worried that this may change as a result of the recent acquisition by Wealthsimple. From 2024, Wealthsimple charges for two additional feature tiers of the software; Plus and Pro. Paying for the software grants the user 1-day email support (vs. 3 days for the free version) and the option to talk to a tax preparer (not necessarily a licensed chartered accountant or CPA, but rather somebody with experience preparing returns at H&R Block or TurboTax, for example, according to the Wealthsimple website FAQ). Wealthsimple is an online investment management service that does charge for their other products. Some online reviewers are also disenchanted that SimpleTax appears to be back-tracking on their long-standing promise that they would “never, ever sell” your data, as the company’s posted privacy policy has been modified on this topic, since the Wealthsimple acquisition.

How to choose between TurboTax and Wealthsimple Tax?

For most relatively simple tax returns, both options will allow you to get the job done. For a breadth of features, the edge probably goes slightly in favour of TurboTax. On the other hand, if using a purely Canadian company is important to you and you and you like the “pay what you want” pricing model, SimpleTax may be the more attractive choice.

Rather have somebody else take care of it for you?

If you don’t quite have the confidence to prepare your own return, why not let Blackspark do it for you - we provide online, remote personal tax preparation, for a fixed fee. Your return will be prepared by a licensed Canadian chartered accountant that is an expert in the Canadian tax code. Our proprietary technology also makes getting your details to us a breeze. Which means you can have the peace of mind that your return is being handled by a professional, while you spend your time doing other things.

Filing taxes for the first time?

Here are the Do’s and Don’ts

As a child, you likely received plenty of unsolicited advice from adults on the subject of finding the right life partner. Don’t rush, find somebody that accepts you, as you are, and that isn’t afraid of commitment. All great advice. But you probably didn’t hear much about the longest-term adult relationship that you will inevitably have - your relationship with Canada Revenue Agency, aka CRA.

While your first year filing a tax return is surely the end of your youth, it’s not all bad - indeed, it may mean that you’ve landed your first paying job. In any case, you have embarked upon a relationship that will require annual attention (at least) and CRA is a partner that you definitely want to keep happy. Just like the pursuit of bliss in any relationship, there are some definite do’s and don’ts.

Do learn the basics of a tax return

I’m not saying you should enroll in accounting courses. But, a basic understanding of a personal tax return will help you decipher any advice you receive from family, friends and tax professionals, as everybody has their own opinion about how to handle your taxes. It will also help you make sense of the letters and memos that CRA will be sending you throughout the year. The Internet is your friend, here, with its endless resources. I suggest becoming familiar with the different types of income, deductions and credits, and some of the more common elements such as RRSP and TFSA contribution limits.

Do start keeping records

When I started paying taxes, I started keeping a neat file folder for each tax year, in a cabinet, so that I could organize all of the paper slips I received in the mail, as well as other important information to keep on hand, like donation and expense receipts. Nowadays, of course, the process is much more digital. Many slips, investment reports and expense summaries are available in electronic form and can be stored on your computer, or even in the cloud. Wherever you decide to store your records, I suggest keeping separate folders for each tax year. At some point in your relationship with CRA, you will undoubtedly be asked about something from a previous tax year. It will save you a lot of time and frustration if you have tidy records.

Don’t put off filing

There are a million more fun things to do than taxes. A billion, maybe. The temptation is to procrastinate and do everything at the last minute, or even after the tax deadline if you are certain that you don’t have an amount owing. The first problem with this is that rushing at the end may mean that you forget something important. Forgetting a source of income can lead to painful penalties. Likewise, failing to include a deduction or credit means you will pay more tax (or get a smaller refund). It’s better to start early and take your time, so you can be sure you’ve covered everything. If you have an accountant preparing your return, also remember that they will be doing taxes for many people and their workload towards the deadline will be immense. You are surely going to get better attention if you engage with them in February, rather than March or April.

Don’t ignore CRA’s letters

Yes, your new lifelong partner is also a pen-pal. You will soon be able to instantly recognize their letters and memos as they arrive in their light-brown envelopes, or emails with bilingual subject lines. Open them right away and read them, thoroughly. These communications may be simple reminders, such as when your tax instalments are due for the following year. But, sometimes, they concern an anomaly in your file or a question that CRA has about your records. Remember, almost every transaction you will have with CRA is tied to a due date. Many little brown envelopes sit on kitchen tables for months, while taxpayers incur financial penalties for situations that could have been easily avoided with prompt attention.

To end on a positive note, filing your first tax return doesn’t mean doom and gloom for the rest of your days.

On the contrary, it is quite possible to have a lifelong relationship with CRA that is as stress-free as the best friendships. But, like a good friend or partner, CRA does need your focused attention, from time to time. Nobody likes to be taken for granted, or forgotten about!

If you need a little bit of help getting started, consider working with us. At Blackspark, we provide tax preparation remotely and for a fixed price. Our goal is to make sure your taxes are taken care of, so you don’t have to worry about it.

Thinking about doing your own taxes?

Here are the pros and cons to consider

Ah, tax season. Before we’ve even had a chance to settle down from the holidays, we start getting pesky reminders about doing our taxes, again. If you are like many Canadians, you may wonder, each year, if you should prepare your own tax return. Is it really that hard? Is it worth the time and effort?

Of course, it is difficult to provide a definitive answer, as each taxpayer has a unique situation. Generally speaking, the more complex your financial situation, the more challenging it will be to prepare your own return. For example, if you have rental properties, relocated and changed employers, or many investment accounts, then your return is going to take more time and attention than if you simply have a single employer and RRSP contribution. On the other hand, if you do have a simple return, there are free software tools available that will get you started. You can even file your return by hand, on paper. Yes, a small percentage of Canadians still do that!

If you don’t have the confidence to prepare your own return, or the free apps are not sophisticated enough for your financial situation, you will need to decide how to get help. This may still be in the form of Do-It-Yourself (DIY) software, like TurboTax with additional paid features that are not available in free editions. Or, it might mean finding a tax preparation company like H&R Block, or even a traditional tax services firm, staffed by chartered accountants.

What are the pros and cons?

With paid versions of DIY software, you should have the tools necessary to account for a broad variety of tax situations. As long as you don’t have any really unique elements to your tax situation like foreign income, filing requirements in multiple jurisdictions, or assets that trigger special reporting requirements, chances are there is a paid version that will let you get the job done. Of course, the downsides are 1) you still have to understand the fundamentals of preparing a tax return, 2) you have to take full responsibility, yourself, for the proper preparation and filing of your return, and 3) you have to pay for the software. That last point can be frustrating at times, as you may be lured to a vendor’s website by a very low advertised price (or even the promise of free), only to find yourself being upsold to required features once you have already started preparing your return.

If you elect to find a tax preparation company or tax firm to help, you will have the benefit of a trained individual preparing your return on your behalf, as well as the company standing behind the accuracy of your return, provided that you have given them accurate information. This can save you a lot of effort and, at the same time, give you peace of mind. On the negative side, you will still be responsible for collecting all of the required documents (slips, expense statements, etc.) and figuring out how to get them to your tax firm. If the firm does not have a smooth digital process in place, you may even have to drop the documents off at their physical office. Also, you will undoubtedly be billed hourly, based on the complexity of your return, and you may not even know the cost until your return is filed and tax season is over. Nobody likes an invoice from their accountant to start the summer!

Here at Blackspark, our goal is to give you the best of both worlds. We think that everybody should be able to have a professional accountant prepare their tax return and at a fixed price. We built great technology to help you provide your tax information to us quickly and remotely. Then we prepare your return with licensed chartered accountants. If that sounds like a fit for you, consider working with us.

Who actually prepares your tax return?

And why does it cost so much?

Depending on how you file your taxes, you may be wondering who exactly prepares your return and where your fees end up. Obviously, if you have been using DIY tax software, or trusting a friend or family member to prepare your taxes, there isn’t any confusion. But, if you use a traditional tax firm, things may be less clear.

This is because tax firms continue to rely on what’s called a “leveraged staffing model” to prepare returns. In a nutshell, it means they try to get lower-salaried employees, called Preparers, to do most of the work. Think of it as the grunt work, meaning all of the document organization, such as photocopying, collating and annotating, as well as the communication with taxpayers to make sure everything is in place. Then, the firm will usually have a layer of Managers above the Preparers, whose job it is to review the work that the Preparers have done, for each taxpayer file. If there are missing items, the file goes back down to the Preparers, and so on, until the Manager is satisfied with the level of completion. Once the Managers have completed their review of the files, they are finally passed on to a Partner for sign off.

Naturally, it is in the firm’s best interest to have the Partners spend as little time as possible reviewing tax returns. After all, they are the highest-salaried employees with highest billable hours. There’s nothing wrong with that, in itself - as long as the return is complete, accurate and properly reviewed, it makes perfect business sense for the firm to do things that way, as it minimizes their cost.

What is less appealing, for the taxpayer, is that throwing more lower-skilled labour at the preparation task still results in high prices that are generally still billed by the hour. It’s difficult for firms to pass along any cost savings to the taxpayer because they still have fixed costs, like salaries, office space and overhead, associated with the number of employees required for a leveraged staffing model. So even though the bulk of the work in preparing the returns is done by low-salary Preparers, the taxpayers don’t see the benefit.

At Blackspark, we think there is a better way, one that is a win-win for accountants and taxpayers, alike.

We’re using modern technology that creates a better experience for the taxpayer and, crucially, also eliminates manual preparation efforts and the need to have an abundance of Preparer staff, along with the associated overhead costs. We believe the expertise of a Partner and highly experienced licensed chartered accountant should be available to everyone, with transparent pricing.