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Wilson Wong & Associates
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We've moved! The new address is #10, 5918 5th Street SE

Goodbye 9705 Horton Road, you were a great home to us and we enjoyed all the late nights you took care of us during the tax season. 

Same great staff.

Same  phone number.

Same fax.

Better location. 

See you at the new digs.

-Wilson.

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Beautiful shot of downtown calgary. I used to get this view directly from the office until they put in that large condo tower that now blocks the view of the Bow tower. 
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Looks like it's just my office now. Our neighbours moved out but we still have this joint sign. 
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Tax Consequences of Divorced Couples

About the Author: Wilson Wong PC, are Chartered Accountants in Calgary providing tax and accounting services to small and medium sized businesses and high networth individuals.

Divorce is a terrible situation to be in and often there is confusion on what to do with your taxes. You need to get a good accountant if you to proper advice but here are some common areas to know about.

The biggest aspect is kids. If you have children together one of you will take custody. The parent who takes custody will take a lot of the tax credits by default. In particular:

1) Amount for eligible dependant (equivalent to spouse) - this credit allows you to claim your child who is under 18 in the same way you can claim a spouse who doesn't work. Whoever has custody of the child gets this credit. If you share custody, and there are 2 children, then actually each parent may claim 1 child.

2) Amount for Children $2K - this one is claimed by the parent who claims the equivalent to spouse, they are tied together.

3) Children's fitness and arts amounts - these are not tied to custody, it is generally tied to who ever pays for it (more on this later).

4) Childcare expenses - if you've read this article Married Couples Tax Considerations - then you know that the higher income spouse receives the expenses as a deduction. In a divorce situation it becomes more complicated. Usually it's the parent who pays for the expenses, but I'll have more on this topic later.

5) Medical expenses - again it's usually the parent who paid for the expenses.

Now comes the complicated part, divorce is usually ugly and by default it is a breakdown of a relationship and will be complicated. With respect to ALL of the above tax credits, CRA has the right to revoke all of the above credits for BOTH parents if you cannot agree to who takes which credit. Yes, you may have paid for the Childcare expenses, but if the other parent doesn't agree to allow you to take this credit, then neither of you will get it. Same with the eligible dependant, if you can't agree to who claims which child, or worse you have 1 child and only 1 parent will claim this amount then CRA will revoke it for both parents. Very common scenario we see is both parents sit down once a year during tax time to talk about which credit they are each claiming and they agree to it via handshake.

Another big element of divorce is of course the divorce or separation agreement. Dictating what financial arrangements are to be commenced upon this marital breakdown. We don't usually see the above tax credits discussed in the agreement, but maybe this is something you can talk to your lawyer about, I don't think it is something put in writing.

If in your agreement you are paying for spousal support, these payments can be deducted from the paying spouse's income, and are also added to the receiving spouse's income.

Important note, if you have it in your agreement for child support payments, first of all these payments are not deductible, and second of all the equivalent to spouse credit becomes off the table. If you have a formal agreement to make support payments, then this credit is unavailable. If this is an important aspect for you then do remember to keep child support off the table in your agreement.

In our practice we often help individuals in this situation, we often recommend for us to talk to the ex-spouse to discuss which credits to share. We even perform a tax calculation of equalizing the tax credits between the 2 individuals. No matter what you do, I recommend you seek a professional accountant.

-Wilson Wong, Chartered Accountant

 

Wilson Wong Chartered Accountant
Calgary Accountants

Calgary: 403-253-0401 | Fax: 403-253-0220
Email:jennifer.smith@wwongaccounting.com
Calgary - 300C, 9705 Horton RD SW, T2V 2X5

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Married Couples Tax Consideration

About the Author: Wilson Wong PC, are Chartered Accountants in Calgary providing tax and accounting services to small and medium sized businesses and high networth individuals.

Getting married is a really big event in life. Strangely enough it has big impacts on your taxes. Even if you're not married and you're in a common law relationship this article will affect you.

In Canada all individuals file separate tax returns, but if you're married there are effects on both of your individual tax returns. You may choose to file "separately" with your own accountants or maybe one of you use Quicktax and the other uses a Chartered Accountant like myself but in the end the Accountant will be wise enough to tell you there are details that I will need from the other spouse's tax return even if I'm not filing for them.

The following is a discussion on some of those items that will affect the both of your individual tax returns:

1) Spousal Credit - the most basic of them all. If one spouse doesn't work and the other works (or at least 1 spouse is making less than $11K annually) then the other spouse can claim a tax credit as consideration for taking the other spouse as a dependant.

2) Amount for Children - Any parent can claim this $2K tax credit but only 1 of you may claim it. You would be surprised to know that when married parents decide to file separately on their own they both end up each claiming this credit.

3) Childcare Expenses - if you have kids and you have costs of childcare such as a nanny or daycare centre that you pay for, regardless of which parent paid for the amount the rule is the lower income spouse gets to deduct this from their taxable income. There is no choice in the matter.

4) Universal Child Care Benefit - Similar to the Childcare Expenses the spouse with the lower income is the one who must claim the amount on their income taxes, sometimes it is the higher income spouse who made the application for the UCCB and as a result the RC62 slip is in the name of the higher income spouse. It doesn't matter which spouse's name is on the RC62 slip it you should claim it on the lower income spouse, besides, it's more tax advantaged this way.

5) Medical expenses - you may claim eligible medical expenses for yourself, your spouse, or common law partner, and your kids under 18. The most tax advantaged way to administer this is to give all of the medical expenses to the lower income spouse. Again it doesn't matter which spouse paid for it.

6) First time Homebuyer's Tax Credit - you can claim a $5000 amount for the purchase of buying a home, if neither of you have owned a home in the last 4 years. We've seen situations where 2 young individuals just got married, but one of the spouse actually owned a home previously either by inheritance or their parents thought it was a good idea to put their kid's name on it, and now these two young people are married and buying a home for the first time. Sorry tough luck you don't get to claim the $5000 amount now, neither of you.

7) Pension Splitting Election - You may split your eligible pension with your spouse. For example you may have a good pension and you're elapsing into higher tax brackets, but under this election you could literally "give" part of that income to your spouse's income tax return and be taxed at lower rates. There are many factors of consideration that go into optimizing your Pension splitting calculation, not just how much income you're making. There are considerations for Old Age Security, your Age relative to RRIF's, other tax credits only available to 1 spouse not the other, etc. I never recommend you try and accomplish this on your own, always have a professional accountant if you want the best optimization for your pension splitting.

These items here are just the tip of the iceberg for married couple's taxes. My recommendation is you should never file separately. Always take it to the same Accountant or always use the same tax software together. As you can also see certain rules are fairly complicated and niche and your software may not even be able to pick it up. If you're looking for Accountants in Calgary you know we're here for you.

-Wilson Wong, Chartered Accountant

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Remuneration for Owner Managers

About the Author: Wilson Wong PC, are Chartered Accountants in Calgary providing tax and accounting services to small and medium sized businesses and high networth individuals.

Chartered Accountants are asked this almost everyday "How do I pay myself if I am the owner of my company"? The truth is this article is only a starting point, and this question is answered differently for each owner.

In short there are two ways; it's either salary or dividends. There is a third way which I’ll explain why I don’t like it. There is a forth way which is basically off the table now.

Dividends are by definition the distribution of profits from the company. It is considered an investment income to you personally. Essentially it is the company who worked (or conducted business) and thus the Corporation pays corporate taxes on that amount. Subsequently you pay the dividends out to yourself and you in turn pay some taxes personally in addition to the corporate taxes. The Corporation pays 14% of taxes here in Alberta (13.5% - BC) and you pay 27.71% at the highest personal dividend tax rate (33.71% - BC).

Salaries are an expense to The Corporation. The owner manager is an employee of the company and while the company is earning business income it offsets this income with your salary. Therefore the tax burden is zero for the Corporation on the amounts you paid yourself, and you would be taxed at 39% at the highest tax rate personally in Alberta (43.7% - BC). The caveat to Salary is you will also pay for CPP. I won’t get into the technical side of CPP, instead think of it as on top of the 39% tax you will end up paying another 9.9% tax on the first $52,000 of salaries. You also have to make monthly payroll tax remittances which can be a cumbersome activity if you did not have guidance.

As you can see, whether you pay yourself dividends or salaries, in theory it should work out to be around the same range of taxes paid in a combination of corporate or personal taxes. So the biggest difference becomes really a question of how you want to retire, and rather not how you want to pay yourself. Most owner managers don't realize this, that the question on how to pay yourself is ultimately tied to your retirement. I will get into this further later in this article.

Your accountant may also recommend the management fee approach. I don’t like this approach because what this effective means is you, the owner manager, is a sole proprietorship that invoices the Corporation for your services. Therefore, the Corporation is a business and you as a person are also a business. You still pay CPP on management fee but you don’t have to do payroll remittances monthly, you pay all your taxes in April the next year one time. Two issues come to fruition on this one. If you were a business by yourself then you would also charge your corporation GST for the remuneration you take from the corporation. At the end of the year when you try to figure out how much you've taken out, you've likely not charged your corporation GST and unfortunately GST becomes assessed as an additional 5% tax on top of your normal taxes. The second issue is you're probably not a business as a person. After all, how can you and the corporation separately and jointly be independent businesses? Iif CRA assesses you as such, they will make your corporation liable for the payroll remittances and at this point you're considered late, so there would be interest and penalties on the amounts you pulled from the company. This is why I don't like the management fee approach.

The forth option is known as the Employee Profit Sharing Plan - EPSP. This was a great thing while it lasted. If you've checked out our other articles you'll know why this is off the table now - Changes to EPSP.

So is it salaries or dividends? The short answer to that is a little bit of both. Here's what happens if you paid yourself a little bit of both your entire working life, at age 65:

You've been contributing your excess salaries to your RRSP so this is now a source of retirement income to you.
You've been contributing to CPP for 30 some years now so you've maxed out your CPP and are entitled to receive today's maximum benefits of $10,000 a year.
You've built up a sizeable portfolio inside your corporation so you're going to slowly pay yourself these amounts over the next couple decades.
You're making less than $67,000 so you are also entitled to receive another $6,800 a year in Old Age Security pension from the Government of Canada.
If you paid yourself dividends, you won't have the ability to contribute into an RRSP. If you paid dividends you would not have contributed to your CPP so that's off the table as a source of retirement as well. Half your retirement plan is gone. The best thing to do is to sit down for a few minutes with your accountant and figure out the optimal amount of dividends and salaries you want to take. It's different for everybody. Here are some questions to bring to your accountant that will effect how they determine your salary or dividend mix:

Do you have kids? How many, and what are their ages?
Are your married? Is the spouse a shareholder? Are your sure?
How many years do you plan to work from now until retirement?
What did you do before you were self employed?
Have you completed all your major life asset purchases or not quite done?
As you can see it's a very complicated question and you need professional guidance to get through it all.

-Wilson Wong, Chartered Accountant

 

Wilson Wong Chartered Accountant
Calgary Accountants

Calgary: 403-253-0401 | Fax: 403-253-0220
Email:jennifer.smith@wwongaccounting.com
Calgary - 300C, 9705 Horton RD SW, T2V 2X5
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