By Fin MacDonald

Fin Tax Service

Fin MacDonald has over 20 years’ experience providing retirement and Income tax planning advise. Readers are however cautioned that responsibility falls on the taxpayer to ensure that all information is adequate and correct.

Last day for year-end tax loss selling is December 24. If you have losers in your portfolio, now may be the time to sell. Net Capital Losses may be carried back up to three years, and forward until needed. Income splitting for those without pension income is possible. Spouses in different tax brackets can take advantage by having higher income spouse loan money to lower income partner. This can then be invested, with taxes on returns paid at lower bracket rate. The Prescribed Interest Rate, for loans made in the fourth quarter of 2016, is only 1 percent. This interest must be paid by January 30 of the following year or the income is ascribed to the higher income spouse.

Sale of Principal Residence

I was going to deal with the changes to the Principal Residence Exemption (PRE) in this issue of the Beacon, but as I write this (November 10), there have been no further announcements from Finance Minister Bill Morneau. Gains on the sale of your Principal residence are still exempt from tax under the PRE; however, for 2016 they will need to be reported. So, I will set out some of the preparation that can be done if you sold or changed the use of your principal residence in 2016, or are looking towards selling in 2017.

Collecting and Organizing Documents

If you sold your residence (or a rental property, for that matter) it is necessary to gather all the relevant documents from both the original purchase and the sale. From the purchase you will need the Agreement to Purchase, the Statement of Adjustments, the Contract of Purchase and Sale, the Order To Pay, a Copy of the Title, and the Letter from Your Lawyer. Similar documents will be needed from the sale as well.

Capital Gains are determined by looking at the cost of a property and the other amounts that were paid, such as Property Transfer Tax, prepaid taxes or strata fees, and prepaid utility bills. Taken all together these amounts form the Adjusted Cost Base (ACB) of the property. On both the purchase and sale are other amounts that must be taken into account. Examples are the realtor(s)’ commission(s) and accounting and legal fees. These are referred to as Outlays and Expenses.

Your Total Capital Gain is the Amount of the Sale Price minus the ACB and the Outlays and Expenses. Because only half of capital gains are taxable, the Taxable Capital Gain is half of the Total Capital Gain.

In the case of a change in use of the property, from your principal residence to rental for example, the most recent BC Assessment Property Assessment Notice may serve as a basis for the Sale Price. There are options and elections that may be pursued in these cases, not something for a general audience however.

Medical Expenses

Medical expenses can be used to reduce the amount of tax you otherwise have payable. Medical expenses can be claimed for you and your spouse, your non-adult children and children who are in full time post-secondary school attendance, and other relatives who rely on you for support. Medical expenses can be claimed by either spouse. There is a 3 percent of Net Income amount that is deducted from the medical expense claim. Therefore, it may be more advantageous to have the lower income spouse make the claim – as long as they have tax payable, because this is a non-refundable tax credit.

Any date in the year may be chosen to be the end date of the claim; the claim goes back 365 days. An example: a child had $1500 in dental work done in October 2015, but this was not enough for a claim. If someone else in the family had medical expenses in 2016 before October, the non-calendar year claim would make sense. The year a person passes way, a claim may be made for up to two years.

What kind of paperwork is needed? For expenses paid by an insurance company, the statement showing the charges, the insurance payments and the net amount that you paid would be needed. For prescriptions, the receipt must show the date, patient name, drug name, and cost. Expenses paid to medical practitioners must have the date, patient name, and amount on them. Fees paid for medical insurance must show the date on them. Only non-MSP premiums qualify for the credit.

For low income families with at least $3,421 (2015 amount) in employment or self-employment income, there is a Refundable Medical Expense Supplement of up to approximately $1,200. Unfortunately very few seniors who have such high medical expenses qualify.

Charitable Donations

One change readers may have noticed is that KCTS 9, Seattle Public Television, will no longer be issuing receipts for donations made by Canadians.

There have been a large number of scams in relation to the donation credit; this has caused the Canada Revenue Agency (CRA) to bring more scrutiny to donations. A donation receipt MUST have the Charitable Registration Number, Charity Name, where receipt issued, donor’s name and address, total amount of gift, eligible amount of gift, date of gift and the authorized signature.

Provincial and Federal non-refundable tax credits are available to taxpayers who make donations to registered charities. Charitable donations are claimed on a calendar year basis, and may be carried forward for up to five years. The structure for claiming the tax credit for donations allows for a joint federal/BC credit of 20.06 percent on the first $200 and a joint claim for $43.7 percent on all amounts above $200. There is also a First Time Credit, for those who have not made donations since before 2007, of an additional 25 percent. So, saving the donations up for a number of years can make financial sense!

For the next issue of the Beacon, for February 2017, I will continue with preparing to file the 2016 tax return. Hopefully there will be more information from Minister Morneau on the reporting of principal residence dispositions that I may share.

I’d like to wish all my readers and clients a wonderful Christmas and New Year’s; and I look forward to further sharing my knowledge on tax matters through my lens of Helping You To Keep More Of YOUR Money.