You can make use of the lifetime $750,000 capital gains deduction if you dispose of shares in a qualified small business corporation, a qualified farm property, or a qualified fishing property. If you have already claimed the $100,000 personal capital gain exemption (ended in 1994) then this reduces the available lifetime capital gains to $650,000. You must also verify whether you have claimed allowable business investment losses (ABIL) in prior years or have cumulative net investment losses (CNIL) as of December 31, 2013, as these items will also affect the amount of exemption that can be claimed. The limit rises to $800,00 on January 1, 2014.
You can use your 2013 capital losses to reduce your current year’s income taxes by applying such losses against your 2013 capital gains. You must however be careful of the superficial loss rules preventing you from claiming a capital loss on an identical asset that you reacquired 30 days before or after the sale date.
If capital gains were realized in the years 2010 to 2012 and net capital losses were incurred in 2013 then you can carry these losses back against previous years’ capital gains. You can carry the unused 2013 losses forward to future capital gains.
The last 2013 transaction date effective for publicly traded securities is December 23, 2013.
The most popular tax tool available to taxpayers is investing in a registered retirement saving plan (RRSP).
Contributions to RRSP’s are tax deductible and the income earned within the plan grows tax deferred until retirement. You can claim a contribution of up to 18% of 2013 earned income to a maximum of $23,820. Earned income is defined as income from employment, from business, net rental income from real estate, CPP disability pension, certain types of royalty, and spousal or child support payments that are included in your income.
The contribution limit may be subject to the year 2013 pension adjustment reversals. Pension adjustments reflect, in most cases, your employer’s contributions to a pension plan or actuarial commitments to such plans in the year 2013. The age limit for contributing to an RRSP is 71. The age limit for converting an RRSP to an annuity or RRIF is also 71.
Don’t over contribute; a severe penalty will be the result.
The 2013 federal budget extended the hiring credit for small business (HCSB), a credit intended to stimulate new employment and support small businesses. The HCSB provides small businesses relief from the employer’s share of employment insurance (EI) premiums paid in 2013. The credit does this by paying up to $1,000 based on increases in an employer’s EI premiums paid in 2013 compared to those paid in 2012.
The HCSB is for employers and business that pay the employer’s share of EI premiums to a payroll (RP) account.
If your total employer EI premiums in 2012 were $15,000 or less you may qualify provided your total premiums increased in 2013.
If you opened, closed or restructured your business in 2013 you may still qualify for the HCSB.
If your business is eligible, the CRA will automatically calculate the amount of the HCSB using the EI information from the T4 slips you filed with your 2012 and 2013 T4 information returns. The amount to be credited to your payroll account will be greater than $2 and not more than $1,000.
A will specifies your instructions as to how your assets will be distributed on your death. In the will, you name an executor to act as your personal representative and to deal with all the tax, investment, administrative, and other duties involved in distributing and overseeing your assets as per your instructions.
Some people feel honored to be named as the executor, in that it suggests respect and trust in their abilities. However, most people fail to realize how much responsibility is required, the amount of time and effort that the appointment often necessitates, and the family conflicts that might arise.
Here are some of the responsibilities of an executor:
Pay the bills, obtain death certificates, make the funeral arrangements if required,
Locate and list all the assets of the deceased,
Arrange the probate of will if applicable,
Take control of the assets and contact financial institutions to change the name on the accounts to “the estate of”,
Ensure the applicable trust laws are complied with at all times,
Manage the assets of the deceased as the trustee,
Assess the tax situation and file any required returns,
Prior to distributing assets to heirs, settle any outstanding debts.
Conflicts often arise between the executors and the heirs. The beneficiaries may be suspicious of the executor because he or she does not have enough knowledge or skills, is insensitive, is too hasty, shows favoritism, etc. Anyone who is appointed as an executor should be aware that these are common situations during emotional times.
An executor requires many skills. One of the most important is the ability to know when outside expertise is required. An executor frequently hires a lawyer, accountant or trust company for assistance. Sometimes, appointing an independent outside party, such as a trust company as the executor may be the best choice, especially when a family conflict can be expected, although it can be costly.
Parents quite often make loans to their adult children to help them purchase a car, a home, or for other reasons. A loan is different from a gift. The parent can charge interest so that the loan will earn some investment income. The loan can be set up for blended payments of principal and interest or to pay interest only. There is no requirement for the parent to charge interest.
For a long term loan used to purchase a house, for example, it is quite possible that the loan will not be repaid during the parent’s lifetime. The parent could provide in her or his will that any remaining balance of the loan will be forgiven or instead become part of the child’s inheritance. Such an arrangement does not cause any adverse tax consequences because the “debt forgiveness” rules in the Income Tax Act do not apply to the settlement of loans by inheritance or bequest.
Giving your child this type of “soft” loan is similar to giving them a part of their inheritance early, during your lifetime.
Estate planners often suggest that the RRSP/RRIF holder designate a beneficiary of the plan. There are many advantages:
Probate fees can be avoided because the funds transfer direct to the beneficiary.
The funds are not exposed to the liabilities of the deceased’s estate.
No elections are required for the “refund of premiums” status.
Premium refunds allow a tax-deferred transfer of funds.
Reporting on the transfers to a surviving common-law partner or a spouse can be avoided.
It avoids the exposure where a beneficiary will not sign the agreement which would require the estate to pay tax on the account value.
It avoids the situation where the executor overlooks the situation entirely.
There may be advantages to leaving the funds to the estate instead of the individual.
There may be additional planning opportunities because the elections allow precise amounts to be reflected as a “refund of premiums” or reported on the terminal tax return.
The executors can use elections to provide flexibility to determine how “refund of premiums” and other assets will be allocated between the eligible beneficiaries. The refund of premiums might be directed to lower income beneficiaries and/or beneficiaries who could make use of the advantages while designating other assets to other beneficiaries.
A spouse who does not transfer the funds to his or her RRSP/RRIF but instead uses the money for other purposes, forces the deceased’s estate to pay the tax. This might not please some of the beneficiaries.
A testamentary trust could be funded. This is advantageous where “refund of premiums” and/or rollovers are not available. It is also useful if the plan holder does not want an amount left to those beneficiaries.
In a 2013 Technical Interpretation, CRA was questioned about door prizes received by all attendees at a company social function.
CRA commented that their tax-free $500 gifts and awards policy would apply to all attendees including the employee, the employee’s spouse, and all other non-arm’s length individuals that received a gift.
It was suggested that gift cards might be given as door prizes. CRA stated that these near cash gifts would not be included in the $500 gifts and awards policy. Instead, the near cash gifts would be taxable benefits to the employees. Additional details related to CRA’s gifts and awards policy are available at www.cra.gc.ca/gifts.