It’s here again. Tax season, that is. Most savvy Canadians are sighing deeply and scouring the Internet— and the brains of their accountants— to answer questions and find (legal) ways to keep more money from the taxman. And of course, MoneySense is here to help. Our experts have provided the answers to plenty of your tax questions. See if any of your queries were asked below.
1. So what exactly is capital gains tax?
Capital gains tax applies when you sell a taxable investment—such as stocks, ETFs, or a rental property—for a higher price than what you paid for it. But not your entire profit is actually subject to the tax. Here’s what that means.
2. Can I avoid paying capital gains tax?
Ah, the golden question. No, you can’t entirely avoid paying this tax when it’s applied. That’s called tax evasion. But there are smart ways to pay less of it and strategies to keep more of your money. Luckily, if you’re selling your home (and it’s your principal residence), you can claim an exemption and not pay any tax on the sale of the house. Here are your options if the land you’re selling isn’t your principal residence. There’s different advice if you’ve inherited a property. Are you selling a property that you were once living in and then rented out? There are a whole set of other factors to consider, so be mindful of what applies to your situation.
3. What tax changes should I be aware of for 2017?
The feds are nixing four child tax credits this year, as well as income splitting for families. There are also provincial changes to watch out for. Here are details.
4. How afraid should I really be of the CRA?
If you always pay your taxes and have nothing to hide, you shouldn’t be too afraid at all. But if you think you can get away with not reporting that income you’ve been making while renting out your home or rental condo through Airbnb (and the tax man sees a photo of you with a new Mercedes and wonders where you got the money) you just might have cause for concern.
5. What are the principal residence exemption changes?
The federal government made changes late last year to tighten principal residence tax rules. Good news is that the proceeds from the sale of your principal residence are still tax-sheltered. The bad—or maybe just inconvenient— news is that starting this year, you have to report the sale of your principal residence on your income tax return. You’re going to have to provide basic information like date of sale and proceeds. Here are the tax forms you have to complete to make the designation.
6. What happens when your partner hasn’t filed taxes?
If your boyfriend hasn’t filed his taxes, don’t worry, the CRA won’t necessarily come after you. But there are still some things to be concerned about. Also, if you’re married, then…you’re not going to be a fan of this answer.
7. What’s a tax-efficient way to earn dividend income?
Well, it depends on the type of dividend. A U.S. dividend, for instance, will get taxed at your marginal rate like your other income. A Canadian dividend, on the other hand, is taxed at an effectively lower rate due to the Dividend Tax Credit. Think you can avoid this taxation by reinvesting your dividend? Here’s what would happen.
8. Are divorce settlements taxed?
The answer depends on whether it was equalized for matrimonial property or spousal support and which province you live in. It definitely varies depending on your situation so talk to a divorce expert before filing your taxes this year.
9. What’s a tax-savvy way of withdrawing from my RRSP?
It depends on what stage of life you are in. Withdrawing earlier in life and paying tax sooner could mean you pay less tax overall—especially if you’re going to have a relatively high retirement income in later years. Be sure to split pension income, too if applicable as that will lower your overall taxable income. Those are just the basics. Get more details here.
10. What are the tax implications if I’m selling U.S. assets?
You have to pay Canadian taxes on a property sale along with U.S. taxes. Canadian capital gains taxes must be calculated using Canadian dollars. There are ways to lower the overall tax hit but first, you need to file a U.S. tax return. (You can claim withholding tax as a foreign tax credit in Canada).