ToddsTaxTipsTraps,PC.. - Professional Credit and Financial

M. Todd Achen, C.A.
Chartered Accountant
Todd’s Tax Tips and Traps
PCFAC Presentation
Tuesday, October 19, 2010
Todd’s Tax Tips and Traps
• Every individual or company is unique, as are
their planning goals
• Please seek your own expert financial advise
prior to implementing any good tax plan
• Avoid tax schemes, as if it sounds to good to
be true, it likely is and should be avoided
• Plan and understand your tax and enjoy the
more effective after tax cash flow
Credit Professionals
• Booking of a bad debt – specific write off and
use of a contra AFDA
– Tip: get cash back for your company, as tax
deductible if done correctly @ over 25% cash
– Trap: Completely writing off the books, loses place
maker for debt on books. General provision is not
tax deductible. Long term nature, and reversals.
Credit Professionals
• Recovery of 5% GST from a bad debt write off
• As GST was remitted on the invoiced amount, you
can claim a GST ITC to get 5% tax back to assist with
the mitigation of your bad debt
• Book keeper may book it wrong unless asked, as
$50k GST to claim on every $1 Million bad debt
– Tip: Ensure that accountant books correctly, as not to
offset your loss with a 5% cash back
– Trap: must be properly booked into regular GST returns,
and ITC claimed within 2 years (4 years for smaller co’s)
Credit Professionals
• Crossborder Performance or Financial Guarantee
Fees should be charged for at FMV rates
• Larger credit spread, so of higher value now
• Canadian corporate tax 10% less than USA
• CRA Precedence setting GE Case here in Canada,
where an inherent guarantee is discounted
– Tip: Work with Tax Professionals to get 10% cash flow for
company if US guarantees, as Canada’s tax rate is lower
– Trap: Could be a CRA tax penalty for your company, had
the crossborder transfer price should have been in place
Small Business
• If you are a Canadian Private Controlled
Corporation, there is up to $0.75 Million in
free capital gains exemption:
• 750k Capital gain = $375 Taxable capital gain = up to $150k cash savings
– Tip: Seek professional assistance, as need to
perfectly “purify” the company for sale at least 2
years prior
– Trap: Small self-employees contractors may not
qualify as a professional corporation needs at least
5 employees
Small Business
• Use of a Health Plan, for extended coverage, and
seeking expanded coverage on a wider list of
medical items for family member employees
– Tip: Tax deductible, can extend to Health Spending
accounts (see next section)
– Traps: Managing administration and premium costs,
seek experienced advice
Individual Tax Tips
• Health Spending Account (HSA):
• Allows you to spend pre tax dollars, instead of tax
paid cash, saving the effective tax value of up to 40%
• Just like the CRA tax deduction for medical expenses,
but no minimum threshold to surpass
• E.g. 2 kids with braces
• 2 Xs $7.5k = $15k, less $2.5k X 2 max benefit cap, less $4k HSA (40%
tax savings on remaining $10k), = $6k actual net cash outlay, not $15k
– Tip: Save 40% tax value by having large medical events
covered by topping up your employment HSA limits
– Trap: Have a plan to deposit monthly for estimated
amounts, only have 1 year to catch up
Individual Tax Tips
• Spousal RRSPs:
• Attribution of income between spouses, if not
done in proper format E.G. buy shares
• Tip: Get caught up one year, usually put in Feb/11
for 2010, should be putting in the 2011 value too
• Trap: While PM Harper now allows certain
pension and RRIF income to be shared, it is not
until the youngest spouse is 65. So need to plan
to take out RRSP’s before 65 if planning to retire
Individual Tax Tips
• 1% Spousal Loan
• Do for life or 20 or 25 years
• Once in a life-time opportunity, as first time ever
this rate has been so low
• CRAs approved rate
– Tip: Just like gifting tax free earning potential to your
– Trap: Attribution of income between spouses, if not
done in proper format, so interest MUST be paid by
Jan 30 of the year following each year
Individual Tax Tips
• CPP Double Dip
• Collect early at age 60, and also then cease
future CPP contributions
– Tip: CPP values or age limits are sure to change, so
double dip your CPP as you deserve it.
– Trap: Ensure that you are not working for at least
2 full months, 1 before applying, 1 after
• Get your personal CPP update with on line
Individual Tax Tips
New, but if you have not started, you should:
2009/10/11 = $15k Xs 2 = $30k TFSA
A rare gift from the government as no tax
attribution to split with spouse or kid >18
– Tip: Top up amounts to wife, or start a fund for
your kids to buy a house, as grows over time
– Trap: only redeposit the annual limit “once per
year” to avoid over contribution penalties
Individual Tax Tips
• Top up if not already done so, as free 20%:
– Tip: Have the grandparents fund the RESP via gift to
the parents, as education is a great gift to give and tax
– Tip: If kids are in high school, now is the time to
consider changing over to secured investments like
GIC’s to protect capital to ensure that you have cash
for them
– Trap: Lots of paper work for RESP withdrawals, so
plan a head and have GIC’s mature in the summer
prior to school starting
Individual Tax Tips
• The Forgotten Tax Credits
• Worth thousands if qualified, as the government
has them there to support their policies:
– Tip: If separated from spouse, ensure that you use
the “equivalence to spouse” credit as better than a
child credit
– Tip: If disabled spouse, child or parent, seek a medical
certificate “one-time” for disability credit
– Tip: If parent has new medical and living costs, seek
disability credit and medical costs e.g. apportioned
nurse care on monthly bill. Up to $10k per child is
deductible, so good to have a tax efficient plan
Individual Tax Tips
• Self-Directed RRSP house mortgage. Not a tax
deductible mortgage or HELOC on investment income.
• Why have the bank lend to you, if you can lend it to
• Why be concerned to be in the market, if you can not
afford market losses?
• Every major bank does it, but not ATB. Some CMHC fees
• Tip: great way to get premium (twice a GIC rate) returns,
and consolidate service providers and safeguard assets
(as loan is to yourself)
• Trap: ensure to reinvest the RRSP once it is cash RRSP on
the portion of the loan paid.
Individual Tax Tips
• If it sound too good to be true, it is:
– E.g. Offshore Swiss bank accounts
– E.g. Artwork Charity donations
– Canadian government is closing the door on tax avoidance
schemes with new 2010 anti-avoidance reporting requirements
and penalties
– Matter of policy, as still allow for flow through shares. But
remember just having a tax shelter does not make it a good
• Do your research for what fits you, understand it.
• Everyone has the right to efficiently manage your tax affairs
• Have a Tax Plan as Taxes are likely your highest living expense
@ 40% and a good plan can lead to better after tax cash flow
• Questions ??
M. Todd Achen, CA
• Been a Chartered Accountant for over 20 years
• Graduated of U of Saskatchewan, BComm w Majors in
Accounting and General Business
• Articled with PwC Calgary and also E&Y Toronto
• Crossborder comptroller, credit and risk management, and
taxation experience in natural gas, oil, NGL’s, electricity and
services, while at companies like:
• Novagas, ATCO, TransAlta, and Encana for the last 10 years
• Loves international travelling ever since a year long honey-moon
around the world (in part from taxes saved from RRSP’s),
• Gives international travel tips and also saves individuals with:
• Todd’s Tax Tips and Traps.
• [email protected]
403 645-6542
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