Personal Canadian Tax Returns

As a Chartered Professional Accountant (CPA), Donovan has extensive experience in assisting clients with personal Canadian tax returns (both Resident and Non-Resident). He works with each client individually in an effort to gain a better understanding their tax situation, in turn he can best utilize available deductions and credits to minimize the taxes they owe.

This can range from discussing the advantages and disadvantages of well known tax saving strategies (such as Tax-Free Savings Accounts, RRSPs, RIFs, RESPs, RDSPs, incorporating, etc.) or it can involve preparing and analyzing financial information to assist with investment and/or retirement decisions.

Tax residents of Canada are required to report and pay federal and provincial tax on their worldwide income. This is accomplished through the filing of their annual T1 Canadian Personal Tax Return. Although each Canadian is entitled to non-refundable personal tax credits with each tax returns (for which unused credits can be transferred to your spouse/common-law partner), various mechanisms in the Income Tax Act can have a large impact on the deductibility and taxability of various forms of income and expenses.

As such, Donovan assists clients in assessing their current personal financial situation to better understand the drivers of their personal taxes owing and how to better align their decisions with current tax legislation to maximize their tax savings and deductions. This can be especially important for self-employed individuals, who often have little time to tend to and sometimes a limited understanding of the financial side of their business. By working with business owners to identify risks and opportunities as they present themselves, this frees up the owner’s time to dedicate to the heart and soul of their business.

In many instances, non-residents are taxed at 25% of their gross income from Canadian sources. This amount can vary widely depending on one’s country of residence as a result of Income Tax Treaties held with the respective resident country. The treaties are in place in order to limit situations where income is double taxed (taxed by both the non-resident and resident country). This is typically achieved through a foreign tax credit mechanism where taxes paid are subtracted from taxes owing on your foreign income.

The non-resident taxes withheld from the Canadian sourced income received represent your final tax liability in Canada. Therefore, in some situations, no advantages are gained by filing a Canadian tax return. This is not always the case, as with Section 216 and 217 tax returns and other elective non-resident tax return filings.

Any non-resident disposing of real property in Canada (regardless of whether or not it is rented), are responsible for a separate tax filing within 10 days of disposing of the Canadian property. Failure to file this separate filing can result in a penalty of up to $2,500 ($25/day) regardless of whether taxes are owing on the sale.

The amount of tax withheld (should a Clearance Certificate not be received prior to the date of sale) can range from 25% to up to 50% of the gross sales price. This withholding can be reduced (or refunded to you prior to remitting to the CRA) should the non-resident file Form 2062 timely. Form 2062 calculates the non-resident’s tentative tax gain (minus some allowable deductions) to allow withholdings to be based on 25% of this gain.

In Canada, capital gains are only taxed at 50%, as such an additional refund of monies can be obtained by filing a non-resident tax return. By filing this tax return, the individual is allowed the full deduction of all expenses incurred on the sale and an take advantage of the reduced capital gain tax rate.

Except in limited circumstances, tax returns are required annually by all U.S. citizens or resident aliens. In many instances, where there is no income from the United States, these filings do not result in any taxes owing to the United States. This is due to the ability to offset U.S. taxes with taxes paid in Canada and the tendency for Canadian tax rates to be higher than the U.S. Certain benefits, such as the foreign earned income exclusion or other various provisions within the Canada – U.S. Tax Treaty can prove quite beneficial to U.S. Citizens as well.

In addition to the traditional income tax filings, there are additional informational reporting requirements that may be required. Examples of this include contributors and/or beneficiaries of foreign trusts, certain owners of foreign corporations and Foreign Bank Account Reports.

Over the years, the U.S. has ramped up their enforcement of the requirement to file a tax return for U.S. citizens living abroad. This has been done through legislation such as FATCA increasing their ability to obtain personal tax information on U.S. Citizens from countries around the world. Recently, the IRS was granted powers to withhold passport renewals for U.S. citizens with tax debts exceeding $50,000. As such, compliance has become more important than ever.

A Non-resident tax return is required for any person with U.S. sourced income who is not a resident or citizen of the U.S.. This can come about for a variety of reasons such as:

• Sale of real property
• Operating of a vacation rental property
• Pension/Annuity/Royalty income
• Trust/Estate Income

In some instances, taxes may be withheld from the income you receive from the U.S. to cover taxes owing upon filing. Despite these withholdings (in many cases) covering your tax liabilty, the Canada Revenue Agency expects you to file a U.S. tax return to establish the right to offset your Canadian tax liability. Careful consideration should be paid when completing your W-8BEN as the U.S. withholds refunds for a minimum of 180 days from the later of June 15th (in year of filing) or when the return is actually filed. Donovan can assist in determining the correct withholding percentages under the Treaty and completion and filing of the W-8BEN form.

Although, as a non-resident, you are not entitled to a standard deduction, specific income is given preferential tax treatment in the U.S. Also, certain expenses incurred in order to produce this income may be eligible to be deduct. Donovan works with each client, ensuring all relevant deductions are explored.