Go Home and Go Green: Ways to Reduce Your Taxes While Saving the Environment


Did you know that in 1950, the global population was 2.6 billion people.  At the time we had 53 million cars.  That translates into about one car for every 50 people.  Today, there are over six billion people and 500 million cars.  In other words, there is one car for every twelve people on the earth.  That has resulted in an increase in the level of carbon dioxide in the air.  In 1958 we were at 313.4 parts per million in comparison to 2009 levels of 387.41 parts per million.  That is an increase of over 20%. I am also fascinated that the USA’s electricity consumption per capita at 12,343.098kWh per year.  Approximately 71% of that is generated by fossil fuel.  However, within 10 years with coordination between the government and private businesses and the support of regular citizens wind power could reduce this by about 20%. 


There are so many ways for each citizen to reduce their carbon footprint and become environmentally friendly.  But, until April 15 there is an easy way to do this when filing your taxes.  When you invest in energy-efficient products, you can save money on both your energy bills as well as your tax return.  Here are five


Residential Energy Property Credit:  This tax credit is for homeowners who make qualified energy efficient improvements to their existing homes.  This credit is 30% of the cost of all qualifying improvements.  The maximum credit is $1500 for improvements placed in service in 2009 and 2010 combined.  The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy efficient heating and air conditioning systems.


Residential Energy Efficient Property Credit:  This tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the US and geothermal heat pumps installed on or in connection with their main home located in the US.  The credit runs through h2016 and is 30% of the cost of qualified property.  


Plug-in Electric Drive Vehicle Credit:  This credit applies to manufacturers.  ARRA modifies this credit for qualified plug-in electric drive vehicles purchased after December 31, 2009.  The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014 is $2,500 and the credit tops out at $7,500, depending on batter capacity.


Plug-in Electric Vehicle Credit:  This is a special tax credit for tow types of plug-in vehicles.   It applies to certain low-speed electric vehicles and tow or thee wheeled vehicles.  The amount of the credit is 10% of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after February 17, 2009 and before January 1, 2012.  


Credit for Conversion Kits:  This credit is equal to 10% of the cost of converting a vehicle to a qualified plug-in electric drive mother vehicle that is placed in service after February 17, 2009.  The maximum credit, which runs through 2011, is $4,000.


Hopefully, you will be able to take advantage of some of these tax credits, if not this year, in future years.  It’s really a good thing when you can save the environment and save taxes.




Marsha Henry


The Return of the Late Filer: Tips for Getting the Return in by April 15th and Error Free


Ok.  I can’t believe I did it again!  I admit it.  I am one of those people.  You know, the people the IRS call the “late filers”.  I know.  I know.  I know.  I try to do better every year, but time just creeps up on me.  Wasn't it just April 1st a few days ago?  15 days does not seem last minute to me, does it?  Well, that 15-day cushion just turned into, hmmm, 5 days.  Where has the time gone? 

I don't feel so bad, though, because I hear that a few million other taxpayers are in the same boat as I am.  Whew!  There's no time to panic.  We simply need to come up with a plan and some guidelines of what to pay attention to in order to make sure we both maximize our benefits and avoid senseless errors.  Here are a few pointers to get you started.


1.  File Electronically:  Most tax returns are now filed electronically.  You can either do this yourself at home using purchased tax software, through a tax professional or through Free File. 

2.  Check for Errors:  Tax software finds common errors on electronically prepared returns.  However, if you file on paper, you can avoid delays in processing and follow-up questions by the IRS by double checking all your figures, ensuring your Social Security numbers are correct and signing forms where required. 

3.  Look for Updates:  A lot has changed in the tax code since last year.  There may be new tax credits that you may be able to claim and increase your return or reduce the amount that would otherwise be owed to the IRS.  Things to look for this year are: (i) First-Time Homebuyer Credit; (ii) energy efficiency tax credits such as the Residential Energy Property Credit and the Plug-in Electric Drive Vehicle Credit; and (iii) the American Opportunity Tax Credit.

4.  Ask for Help:  If filing on your own, don’t hesitate to contact the IRS for additional assistance if you are unsure about something.  For online information about filing your taxes, you can visit the Central link on IRS.gov.  You can also obtain important information in Publication 17, Your Federal Income Tax.  You can also order forms by phone at (800) 829-3676. 

Now get filing!  We only have a few more days to get this done.  Clock is ticking.... no pressure.

by Marsha Henry

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Ten Things the IRS Wants You to Know about the Making Work Pay Tax Credit

For many the changing economic environment has meant scaling back on hours, losing a job or simply missing out on a promotion.  At the most basic level, this means there is less cash flow to go around.  The government, fully aware of this trend, decided to introduce a few tax incentives to lighten the financial burden of the crisis.  For the unemployed, EI benefits eligibility was extended and increased.  However, for those remaining gainfully employed, the government introduced through the American Recovery and Reinvestment Act (2009) the Making Work Pay Tax Credit. 


If you are one of the lucky ones who still punches the clock everyday and logs those hours, the IRS has provided 10 tips to help you determine your eligibility for this tax credit and to ensure you receive the entire amount for which you are eligible.


1. In 2009 and 2010, the Making Work Pay provision provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns.


2. For taxpayers who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes.


3. Taxpayers receiving less than the full amount of the allowable credit through reduced withholding will be entitled to claim any remaining credit when they file their tax return.


4. The amount of the credit actually received during 2009 in the form of reduced withholding will be reported on your 2009 tax return. Taxpayers who do not have taxes withheld by an employer during the year can claim the credit on their 2009 tax return filed in 2010.


5. Taxpayers who file Form 1040 or 1040A will use Schedule M, Making Work Pay and Government Retiree Credits to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.


6. Taxpayers who file Form 1040-EZ will use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Tax Credit.


7. In 2010, you may notice that your paychecks are slightly lower than in 2009. The slight decrease may be because of the Making Work Pay Credit. Most of the credit for wage earners is distributed through reduced withholding. The credit – which was spread out over nine months last year – is being spread over 12 months this year.  A little less credit in each paycheck means slightly higher withholding.  But don’t worry, in the end it all adds up.


8. Certain taxpayers should review their tax withholding to ensure enough tax is being withheld in 2010.  Those who should pay particular attention to their withholding include: married couples with two incomes, individuals with multiple jobs, dependents, pensioners, Social Security recipients who also work, and workers without valid Social Security numbers.


Having too little tax withheld could result in potentially smaller refunds or – in limited instances – small balance due rather than an expected refund.


9. To ensure your current withholding is appropriate for your individual situation, you can review Publication 919, How Do I Adjust My Tax Withholding? You can also perform a quick check of your withholding using the interactive IRS Withholding Calculator on www.IRS.gov


10. If you find you need to adjust your withholding, submit a revised Form W-4, Employee's Withholding Allowance Certificate to your employer.


Visit IRS.gov for more information about the making Work Pay Tax Credit, Schedule M, Form W-4 or Publication 919. You can also call 800-TAX-FORM (800-829-3676) to order forms and publications.


January 22, 2010

Marsha Henry

Happy Tax Season!

Alright!  It’s getting to that time of year again.  Soon you will be receiving a flood of tax forms, tax records and advertisements for tax preparers in your mail box.  You probably have already noticed the increase in the number of television and radio advertisements detailing numerous tax rules that you may benefit from in order to grab your attention and get you thinking about who will be completing your taxes this year.  Well, before you do anything, you should do a little homework yourself so you know the right questions to ask your tax preparer and/or which documents to bring with you. 

In the spirit of the season, Tax Quarry will be bringing you tips on how to prepare yourself and your tax preparer for completing your return so you can optimize your results.  

Please remember to visit the blog regularly for updates or sign up for the RSS feed for automatic delivery of new posts.  Happy Tax Season!!!



Tax Quarry


Deducting Motor Vehicle Expenses Incurred for Servicing Rental Properties

In Canada Revenue Agency Document no. 2006-0191571I7 dated August 10, 2006, the CRA deals with the issue involving a taxpayer residing in City A and owning two adjacent rental properties in City B located 100 kilometres from City A.  According to the Technical Interpretation that was issued, the CRA was asked if the two properties should be considered one or two properties for the purpose of interpreting the administrative policy outlined under Line 9281 of Guide T4036 “Rental Income–Includes Form T776”.  Based on the summary provided, the policy essentially gives authorization to “taxpayers owning at least two rental properties to deduct reasonable motor vehicle expenses incurred to collect rents, supervise repairs, or manage the properties”.  The CRA takes the position that only taxpayers that own more than one rental property can benefit from this policy.  This is because it is the CRAs view that a taxpayer owning only one rental property does not carry on a business.  Therefore, if a taxpayer is not carrying on a business they cannot claim the motor vehicle expenses as a deduction pursuant to paragraph 18(1)(h) of the Act, which provides:

          In computing the income of a taxpayer from a business
          or property no deduction shall be made in respect of …
          personal or living expenses of the taxpayer, other than
          travel expenses incurred by the taxpayer while away from
          home in the course of carrying on the taxpayer’s business.

Accordingly, any motor vehicle expenses incurred in circumstances other than to carry on a business would be considered personal and not deductible. In the CRAs opinion, the rental properties must be located in at least two different sites away from the taxpayer's principal residence, even if they are close to each other.  The CRA takes this position because practically speaking “the collection of rents, the supervision of repairs and the general administration of the properties may require separate punctual traveling for each property”.

© TaxQuarry

Year-End Tax Planning Tips

(First published in SWAY Magazine)

Another year has passed and many of us are trying to recover from the financial hole we dug for ourselves into during the holiday season.  Some people are slowly paying down this debt by adding another monthly expense to their already meagre monthly income, while others are hoping for a cash windfall to get their head above water again.  This windfall for many will come in the form of a tax refund.  But for those who failed to plan, they may find that they are getting a smaller refund than they otherwise would have had coming their way.  To make sure that you don’t fall into this predicament again, follow these five tax planning tips:

1.                  Be a cheerful giver.  Individuals who contribute to a registered charity throughout the year can claim a charitable tax credit.  Donations do not have to be in the form of cash.  Contributions can be shares, bonds or insurance policies.  Where capital property such as shares or bonds are contributed, there are special rules that govern the treatment of capital gains.  Please consult a professional tax advisor for more information on how this works.

2.                  Benefit from your losses.  For those who invest in the stock market, if any of your stocks have accrued losses, consider selling them before the end of the year so that they can be used to offset any capital gains you may have.  Kurt Henry of Amasis Financial (http://www.amasisfinancial.com/Index-1.html) recommends tracking your gains throughout the year and carry-forward gains from previous year so that you are prepared to sell losing securities by the end of the year.  Obtain investment advice before making this decision, as there are rules that may deny the loss in certain situations. 

3.                  Invest in your children’s future.  To assist families with the cost of education for their children, the government offers a Canada Education Savings Grant (“CESG”) for contributions to Registered Education Savings Plans “RESP”.  The CESG is equal to 20% of the first $2,000 of contributions made for each child.  The rules have been modified to provide a higher CESG for families with lower incomes.  To be eligible for the grant, contributions must be made before December 31st.

4.                  Apply year-end bonuses to your RRSP.  Consider depositing bonuses received from your employment before the December 31st year-end.  Although, the RRSP deadline is not until around March 1st of the following year, direct payments will ensure the money is not spent on exorbitant Christmas expenses but instead it can be used to maximize tax returns to assist with the post-Christmas financial crunch.

5.                  Take the better way.  If you are able to commute using public transit rather than the car, you can take advantage of the Public Transit Tax Credit for monthly transit passes purchased by you, your spouse or common-law partner.  Remember to keep all receipts for passes purchased for travel on local busses, streetcars, subways, commuter trains, commuter buses or ferries.

Good tax planning is proactive rather than reactive, and the rules are constantly changing so consult a tax professional to assist you with the process early in the year.  This will help to reduce your taxes, maximize your income and start with a clean slate in the New Year.

Seniors Find Relief in the Government’s Tax Changes

All Canadians were able to get a handout from the new government in the form of a tax relief.  In an earlier press release dated October 31, 2006, that included Canada’s Tax Fairness Plan the government attempted to build on the tax cuts announced in the budget by proposing significant positive measures to help Canadian seniors by:

Increasing the age credit amount by $1,000 retroactive to January 1, 2006.

Introducing income splitting for pensioners to increase the rewards from retirement saving effective as of the 2007 taxation year.

Capital_gains Following the October announcement, on November 23, the Advantage Canada: Building a Strong Economy for Canadians strategy was released. According to the release, a key element of the strategy is to provide a tax back guarantee to Canadians by dedicating all interest savings from reducing the federal debt to personal income tax reductions.  Minister Flaherty stated that “as debt reduction continues and interest savings accumulate, so too will the tax reductions for Canadian families and taxpayers-less debt means less interest means less taxes”.  For example, debt reduction in 2005-06 will result in ongoing interest savings of $660 million per year and, combined with interest savings from planned $3-billion annual debt reduction, will climb to $800 million in 2007-08 and $1.4 billion per year by 2011-12, resulting in significant personal income tax reductions.

In addition to these strategic benefits that will allow seniors to keep more of their hard earned money invested for retirement, all personal income tax amounts will be adjusted by 2.2 per cent, effective January 1, 2007, to ensure that inflation does not cause people to pay more income tax. 

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Summary of Personal Tax Relief Measures for 2006/2007 Tax Year

Construction_workerl With the changing of the guard in Government comes the expectation of tax changes that sometimes are favorable to the average Canadian and other times are quite unfavorable.  This past year as a pleasant surprise, the 2006 Budget boasted many favorable changes that will allow Canadian families, students, workers and seniors to keep more of their hard-earned money in 2006 and 2007. In a recent press release the government provided a summary of the substantial and immediate tax relief measures that were made.

Budget 2006 personal tax relief measures which will have an immediate impact on Canadians, include:

ü     A 1-percentage-point reduction in the goods and services tax (GST) beginning on July 1, 2006. This benefits all Canadians, including those who do not earn enough to pay personal income tax.

ü     Increasing the basic personal amount-the amount that an individual can earn without paying federal personal income tax-so that it grows each and every year and remains above previously legislated levels in 2006 and 2007. The basic personal amount will be $8,929 in 2007 and will continue to increase incrementally, reaching at least $10,000 in 2009.

ü     Permanently reducing the lowest personal income tax rate from 16 per cent to 15.5 per cent effective July 1, 2006.

ü     Providing all Canadians a break on work-related expenses under the new Canada Employment Credit. This measure took effect July 1, 2006, and recognizes the cost of work-related expenditures such as home computers, uniforms and supplies.

ü     Creating a Children’s Fitness Tax Credit to cover eligible fees up to $500 for enrolment in a physical activity program, effective January 1, 2007.

ü     Providing students with a new textbook tax credit, effective January 1, 2006, to provide better tax recognition for the cost of textbooks for students.

Minister Flaherty’s contends that while he feels great strides have been made Canadians still pay too much tax, and our government will continue to look at new ways to ease the tax burden and create a real Canadian tax advantage.

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Using Professional Corporations To Provide Services

The main legislation governing Professional Corporations (PCs) are sections 3.1 to 3.4 of the Ontario Business Corporations Act (OBCA).  The OBCA defines a PC as “a corporation incorporated under this Act that holds a valid certificate of authorization or other authorizing document issued under an Act governing a profession”.  Accordingly, depending on the profession in which you practice direct reference must be made to the governing body legislation and regulations.  For example, lawyers should refer to the Law Society of Upper Canada and the Law Society Act.

For income tax purposes, section 248 of the Income Tax Act (1995 Amendment) defines a professional corporation as “a corporation that carries on the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor”.  Further, Interpretation Bulletin 189R2 entitled “Corporations Used by Practicing Members of Profession” provides CRA’s policy on when to recognize a professional as carrying on business through a PC.

A professional corporation must satisfy the following conditions before being incorporated under the OBCA:

1.         All of the issued and outstanding shares of the corporation shall be legally and beneficially owned, directly or indirectly by one or more members of the same profession.

2.         All of the officers and directors of the corporation shall be shareholders of the corporation

3.         The name of the corporation shall include the words “Professional Corporation” or “Societe professionelle” and shall comply with the rules respecting the names of professional corporations set out in the OBCA regulation.  Name must also comply with rules of the governing body.

4.              The corporation cannot be a numbered company

5.         The articles of incorporation of the professional corporation must be worded to prevent the corporation from carrying on business other than the practice of the profession.  Certain activities that are “related to or ancillary” to practices are permitted.  For example, investment of surplus funds earned by the corporation, or holding real estate.

However, with respect to medical professionals, the requirement that all shareholders must be members of the same profession has been relaxed.  Effective January 2006, the Ontario government amended the legislation for the medical profession to permit family members of physicians to become non-voting shareholders of the professional corporation.  Trust for minor children can also hold shares in the corporation.  These changes have not been made for lawyers or accountants.

Continue reading "Using Professional Corporations To Provide Services" »

Effect on a Beneficiary’s Right to Designate a Separate Property as a Principal Residence if Property Already Designated by an Alter Ego Trust

Sometimes when a widow has inherited the family home as a life tenant and eventually remarries she may want to change the way the family home is held in order to benefit her new spouse after her death.  One option that is often considered is a transfer of the house to an alter ego trust (the “Trust”).  The transfer of the house to Trust raises some potential tax issues.  In particular, there is a concern that if the Trust designates the home as a principal residence the children as beneficiaries to the Trust might be precluded from designating their own homes as a principal residence. 

Under the Income Tax Act (Canada) (the “Act”) an alter ego trust can designate a property as a principal residence, with certain exceptions.  A trust is prevented from designating a property as a principal residence where a “specified beneficiary”, or a member of the specified beneficiary’s family unit, has already made the designation with respect to another property.  A specified beneficiary is a person who was beneficially interested in a trust that designated a property as a principal residence and who ordinarily inhabited the home.  A person may be beneficially interested in the home although they do not have an income or capital interest.  It is the CRA’s view that an individual with a life interest would be considered beneficially interested in a trust that provided the use of the property. 

Where the trust designates the property as its principal residence no other property can be designated as a principal residence by a member of the specified beneficiary’s family unit.  A family unit includes the specified beneficiary’s spouse or common-law partner and children under 18 years old.  The CRA has expressed the opinion that while a family unit does not generally include an adult child, or a married child, a parent who is beneficially interested in the trust but does not ordinarily inhabit the home will be treated as a specified beneficiary if the housing unit held by the trust is inhabited by the child of that individual regardless of the age or marital status of the child.  This is intended to prevent an individual from making two principal resident designations where they are part of one family unit.  In this situation, the parent or the trust can make a designation but not both. 

The CRA has also provided further clarification in response to an issue that was raised about whether beneficiaries of a trust who do not reside at the home will be prohibited from designating their homes as their principal residence.  The CRA’s view is that where a trust owns a property which is occupied by a life tenant the principal resident designation by the trust will not prevent capital beneficiaries from making a principal resident designation on the house where they reside, provided they do not live in the same house as the life tenant.

Therefore, it is likely that if an individual resides in the house with their new spouse and none of the children who are beneficially interested in the trust will reside there, in light of previous CRA published opinions on this issue, the trust will be entitled to designate the house as its principal residence without affecting the children’s ability to designate their own homes as their principal residence.

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