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Capital Cost Allowance and Rental Properties

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Capital Cost Allowance and Rental Properties

What Are The Capital Cost Allowance Deductions?

As a landlord, you may be able to deduct the capital cost of improvements to your rental property from your income taxes. This is known as the “capital cost allowance” (CCA).

The CCA allows you to write off a portion of the cost of certain capital improvements to your rental property over time. The different types of CCA include; depreciation of buildings, depreciation of leasehold improvements, and depreciation of furniture and equipment.

The CCA is an important tax deduction for landlords because it allows you to recover the cost of capital improvements to your rental property over time. The CCA can also help you generate cash flow during the early years of your investment when rental income may be low.

How Does the CCA Work?

The CCA is a depreciation deduction that allows you to recover the cost of certain capital improvements to your rental property over time. The CCA is claimed on Form T776, which must be filed with your income tax return.

To claim the CCA, you must first determine the “adjusted cost base” (ACB) of your rental property. The ACB is the original cost of your property, plus the cost of any capital improvements that have been made to the property.

The CCA is claimed on a “declining balance” basis, which means that the deduction is taken on the depreciation of the asset over time.

Limits on CCA

You can only deduct the CCA on capital improvements that are made to your rental property. You cannot deduct the cost of repairs or maintenance.

The CCA is also subject to a “half-year rule.” This rule stipulates that you can only claim the CCA on capital improvements that are made in the first half of the year.

For example, if you make a capital improvement to your rental property on July 1st, you can only claim the CCA on half of the cost of the improvement.

 

If you have any questions about Capital Cost Allowance and Rental Properties call BBS Bookkeeping today!

 

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Purchasing a Vehicle in your Business

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Purchasing a Vehicle in your Business

When purchasing a vehicle in your business, whether or not you should buy a passenger vehicle or lease one is entirely up to you.

If you buy a vehicle you can claim a capital cost allowance otherwise known as tax depreciation up to $34,000 over several years.

For eligible zero emission vehicles the capital cost limit is $59,000. There is no difference between buying the vehicle in full or financing, you will own the vehicle and are then eligible to claim a capital cost allowance. However, if you finance your vehicle, you can also deduct an interest expense up to $300 a month whereas if you were to lease that same vehicle, you would be able to deduct up to $900 per month starting January 1, 2022.

Ultimately the deciding factor between the two depends on your individual business, it depends on how long you need a car for, how much your business can afford, and so on.

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Extract Money Tax Free

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Extract Money Tax Free

There are 3 ways to extract money from your corporation tax free.

  1. Capital Dividends
  2. Return of Capital
  3. Shareholder Loan

1. Capital dividends 

If your corporation has a capital gain, only half of its taxable, the other half can be paid to the shareholder tax free 

2. Return of capital 

When you subscribe for shares of your own corporation, you are paid a proportionate amount of money. Through return of capital, you can receive that money tax free.

3. Shareholder Loan

This is a temporary solution because as a shareholder you have one year to pay back the loaned amount starting from the end of that calendar year. Although the money has to be paid back, a shareholder loan does give a shareholder access to the tax free money in the meantime

 

If you have any questions about the steps to extracting money from your business tax free call TTE Bookkeeping Services today!

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Tax Loss Harvesting Strategy

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If you are looking to implement a tax loss harvesting strategy, here are 3 restrictions for you to consider

  1. Repurchase the property within 30 days
  2. Reacquire the same property within 30 days using different brokerages
  3. Have an Immediate family members company acquire the same property within the holdover period

1. Repurchase the property within 30 days

You can not buy the same or identical property 30 days before or after the day you dispose of the property. This means that if you sell a property on December 29th, 2022, you can not buy that same property back on January 2nd, 2023 otherwise that loss will be denied.

2. Reacquire the same property within 30 days using different brokerages

You can not sell a property using one brokerage, such as Questrade, and then go and buy it back using a different brokerage like Wealthsimple, to get around the 30 day holdover period. Your loss will be denied.

3. Have an Immediate family members company acquire the same property within the holdover period

You can not have your corporation, your spouse, or your spouse’s corporation buy the same or identical property that you dispose of. 

If you have any questions about implementing a Tax Loss Harvesting Strategy call TTE Bookkeeping Services today!

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Restricted Stock Unit vs Stock Options

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Restricted Stock Units vs Stock Options

What’s the difference between Restricted Stock Units and Stock Options?

With RSU, you typically receive stocks or cash equivalent after vesting period. The benefit is, even if a share price drops after a vesting period, you will still receive some value. The drawback is that you have to pay a marginal tax rate on that benefit.

With stock options, you have a right to buy shares at an exercise price. The drawback is that if the current price is below the exercise price, then those options are worthless. The benefit is if those are worth more than the exercise price then you may qualify for 50% employee stock option deduction which means only half of the benefit will be taxed.

If you have any questions about the differences between Restricted Stock Units and Stock Options call TTE Bookkeeping Services today!

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Rental Property Tax Deductions

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Rental Property Tax Deductions

There are many Rental Property Tax Deductions. If you own a rental property or even if you rent out a portion of your house you can deduct these expenses:

You can also deduct a capital cost allowance on your property but it is not recommended if you hold that property personally.

Stay up to date on our blog to get you ready for next year’s tax season.

Feeling stuck or in need of help? A qualified and reputable accountant at TTE Bookkeeping Services would be your first option as their knowledge and experience enable them to thrive in this area.

Call us today!

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What is a Family Trust?

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What is a Family Trust?

The typical structure of a family trust is when you own the shares of your corporation in a holding company that acts as a third party between your family and your corporation. 

When you pass away, any properties that you own including shares, are deemed to be sold and reacquired at a fair market value. That means you have to pay taxes. However, if the shares are being held in a trust, then there will be no deemed disposition and no taxes are applied. 

Also, when the family trust sells shares to a third party, a capital gain can be allocated to each beneficiary meaning your spouse and children can also claim the lifetime capital gain exemption, not solely you as the business owner.

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Should you Incorporate?

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When should you Incorporate?

When should you incorporate your business? Generally, when your business incurs more money than required, then you should consider incorporating your business. In doing so you would benefit from the most tax advantages.

If you have a sole proprietorship that makes $200,000 in taxable income or more, you  will be subject to, between a 40 and 50% tax rate.

Any business that has a net income under $500,000 can essentially pay a tax rate of approximately 10%. You can take advantage of this in the tax planning phase when you execute on payroll and dividends; taking the opportunity to portion funds to be left in the business. By doing this and only paying yourself the bare minimum in dividends, without any other sources of personal income, the highest level of tax efficiency can be achieved.

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Tax Deduction vs Credit

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Tax Deduction vs Tax Credit

Many individuals are often confused on the exact differences between a tax deduction versus a tax credit. Simply put, a tax deduction reduces your taxable income whereas a tax credit reduces your tax liability dollar for dollar. 

An example would be if you have $100,000 in taxable income and your average tax rate is 30%, a tax deduction of $40,000 thousand dollars would reduce your taxable income to $60 000 and your tax liability from $30,000 to $18,000.

tax-deduction-versus-tax-credit

In a scenario with a tax credit of $40,000, your tax liability will be reduced from $30,000 to -$10,000. Meaning you will receive a $10,000 tax refund if that tax refund is a refundable tax credit. 

tax-deduction-versus-tax-credit

As you can see when a tax deduction and a tax credit are similar, then the tax credit will incur a greater tax break. 

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Turn Your Hobby Into A Small Business

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How To Turn Your Hobby Into A Small Business

When wondering how to turn your hobby into a small business there are  many ways one could go about doing so. One solution is incorporating and registering a business name, but there is also an alternative and here is what you should know.

If you have a few clients, or none at all, but you are actively seeking for new ones, you are considered a legitimate business. You do not need to set up a corporation, nor do you need to register a business name, the Canada Revenue Agency will consider you as a Sole Proprietor and there are many benefits associated with it.

Let’s say you’re into filmmaking and you spend money on a professional camera, video editing software, or you register for an online marketing course, all of these expenses are tax deductible.

Even if you did not have any sales or earn income in that tax year, you can use those expenses to reduce the income from other sources including your day job or carry that loss to the next year. 

Note it is important to keep track of all of your expenses, save all the receipts, and let your accountant know about your side business.