They told me it was untaxable in 1965' no excuse for failing to declare income, judge finds
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While Canada’s tax system is generally one of self-reporting, there are a variety of checks and balances built into it to verify that taxpayers are, indeed, reporting their income properly each year. The most common method the Canada Revenue Agency has of checking up on us is to match the various types of income we report with the income that is reported on T-Slips, copies of which are electronically submitted to the agency by payors. For example, employers report employment income on a T4 slip, investment income is reported on T3 or T5 slips, the disposition of securities is reported by your broker on a T5008 slip and RRSP withdrawals are tracked on T4RSP slips.
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The taxman has no place in the bedrooms of the nation, unless you claim it as a home office
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“There is no place for the state in the bedrooms of the nation,” quipped the elder Trudeau back in 1967, when, as justice minister, he announced reforms to the Criminal Code that, among other measures, would decriminalize homosexuality.
But that famous statement doesn’t necessarily hold true when it comes to the taxman, who may indeed have a keen interest in what goes on in your bedroom, especially if you try to write it off as a home office.
Take the recent case, decided earlier this month, involving employment expenses. The taxpayer, a former Toronto-based marketing and communications consultant who now lives in Boston, was employed by a private company of which she was the sole director. Her job was to procure clients for the company’s advertising business.
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Loan interest is still deductible on your tax return, even if your investment or business goes belly up
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If you borrow money for the purpose of earning investment or business income, the interest you pay on that debt is generally tax deductible. But what if your investment turns out to be a dud and goes to zero — or you’re forced to shutter your business — while you still owe money on your loan? Should interest continue to be deductible for tax purposes long after the original source of that income has disappeared?
The answer, fortunately, comes in the form of a little-known rule in our Income Tax Act sometimes known as the “loss of source” rule. The rule, which has been in force since 1994, applies when the borrowed money no longer has the potential to generate income because the source of that potential income has disappeared. The rule, therefore, essentially permits you to continue to write off previously deductible interest expenses, even after the source of the investment or business income has disappeared.
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Deducting personal expenses as business ones lands taxpayer in hot water years later
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It may be tempting for some taxpayers to write off personal expenses as tax-deductible ones, especially under the guise of a business, but doing so could get your expenses denied by the Canada Revenue Agency and could even expose your prior years’ tax filings to reassessment beyond the “normal reassessment period.”
Indeed, this is exactly what happened in a recent Tax Court of Canada decision released last week in a case involving a taxpayer who was reassessed by the CRA in November 2018 for his 2013, 2014 and 2015 taxation years. The 2013 taxation year was reassessed after the expiry of the applicable normal reassessment period and thus would generally be considered to be “statute-barred.”
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Have foreign property? The CRA issues harsh penalties if you don't file this form
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If you own foreign property whose total cost exceeds more than $100,000 at any point in the year, you must complete Form T1135, Foreign Income Verification Statement, and file it along with your annual income tax return.
When we think of foreign property, our minds may turn to that offshore Swiss bank account or, perhaps, a Florida rental property. But, believe it or not, a T1135 must be filed if you own foreign stocks, such as Apple Corp., Ford Motor Co. or Bank of America, in your Canadian, non-registered brokerage account.
I’ve always wondered why self-reporting one’s such foreign securities is even necessary to ensure proper tax compliance given that the Canada Revenue Agency already gets a copy of your brokerage firm’s T5 slip, which reports any foreign dividends or interest income paid into your account. The CRA also gets a copy of the T5008 slip, which reports any dispositions of securities (including foreign securities) you held in your account and disposed of in the prior year to ensure you are reporting your capital gain (loss). What new information could the CRA possibly get from the T1135 that it’s not already getting via tax reporting?
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