Share Losses Deductible

Many people are unaware that losses they incur from the sale of shares are deductible as a capital loss. This includes investments of shares in companies which have gone defunct and are now worthless. You may claim one half of the loss from the sale of those shares as a deduction against gains that you have earned on sales of other investments, or against any of your income in the year you pass away. If you forgot to report these amounts on your tax return in a prior year, you can still report them in the current year.

You can also re-file a previous year tax return, if it helps to reduce your income tax for that year.

Farm Losses Restricted

2For many Canadian producers, periodic farming losses have become the norm, although not all of those losses have translated into tax deductions.

This year, the Canadian government reaffirmed that the deductibility of farm losses will depend on the taxpayer’s non-farm related income and activities.

This recent ruling was in response to a 2012 Supreme Court of Canada decision, which briefly expanded the number of farmers who could claim their entire farm loss as a deduction on their tax return.

The federal government amended the legislation to clarify that farming must be the major occupation of the taxpayer, and the taxpayer’s other source of income must be subordinate to farming, in order for farming losses to be fully deductible against income from those alternate sources.

The Canada Revenue Agency (CRA) has determined there are three different types of farming activities for taxpayers:

1) A taxpayer for whom farming may reasonably be expected to provide the bulk of income, and be the centre of their work routine. Such a taxpayer, who looks to farming for his or her livelihood, can deduct the full loss in the years in which he or she sustains a farming loss.

2) The taxpayer who does not look to farming, or to a combination of farming and some subordinate source of income, for his livelihood, but continues farming as a sideline business. Such a taxpayer is entitled to deduct farming losses on a restricted basis.

3) The taxpayer who does not look to farming, or to a combination of farming and some subordinate source of income, for his livelihood and who carries on some farming activities as a hobby. The losses sustained by such a taxpayer on his non-business farming are not deductible at all.

Some producers will be able to claim additional farm losses this year. The government has increased the maximum restricted farm loss to $17,500 for 2013. Previously, the maximum amount of restricted farm loss that a taxpayer could claim was $8,750. The taxpayer can now claim 100% of the first $2,500 of farm losses, then 50% of an additional $30,000 of farm losses.

Contact your Kemp Harvey Group professional to further discuss these issues.

Higher Incomes, Taxes

A temporary tax measure has been introduced for the 2014 and 2015 tax years, in order to increase the amount of tax paid by those earning the highest incomes in British Columbia.

Taxes, money

Currently, the highest tax rate in BC is 43.7% on income earned over $135,034. Starting in 2014, an additional tax bracket will be added with a tax rate of 45.8%, for those people earning over $150,000. This follows a global trend to increase the amount of tax paid by the highest income earners.

Because it is a temporary tax measure, and one not planned for the current year, it does offer some tax planning opportunities. If you know that your income will be over $150,000 in both 2014 and 2015, it may make sense to hold off on claiming your RRSP deduction in 2013, reporting it in 2014, instead.

In 2012, Ontario added a tax bracket for incomes earned over $500,000, and, in Europe, the French government has been attempting to implement a 75% tax on annual earnings exceeding one million euros.

If you are going to claim an RRSP deduction of $10,000, the deduction will be worth an additional $210 if you claim it on your 2014 tax return rather than your 2013 tax return.

If you are going to report dividends from your company, it may make sense to report those dividends in 2013 or 2016, if they would otherwise bump your income over $150,000 in 2014 or 2015.

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Repeated failure to report income penalty is a hefty one.

Think it doesn’t matter if you report that $30 of income? Think again. Repeated failure to report income penalty is a hefty one.

If you fail to report an amount on your return for 2010 and you also failed to report an amount on your return for 2007, 2008 or 2009, you may have to pay a federal and provincial repeated failure to report income penalty. This penalty consist of a federal and provincial portion both of which are 10% of the amount that you failed to report on your current year return.

For example:
Joanne has been a resident of British Columbia all her life. At the time she filed her 2007 return she forgot to report $50 of interest income she received that year. In 2008, Canada Revenue Agency (CRA) reassessed her return to include the unreported income. When Joanne filed her 2009 tax return, she failed to report $2,500 of employment income she earned. Later that year when CRA reassessed her 2009 return to include the unreported employment income, Joanne was charged a $500 penalty ($250 federal + $250 provincial) for repeated failure to report income. The penalty was charged because Joanne failed to include on her 2009 return income that was required to be reported and one of her tax returns for the three previous years was reassessed for the same reason.

If you realize you have failed to report an amount, and CRA has not yet reassessed, you can voluntarily report the missing income through the Voluntary Disclosure Program. As a result CRA may waive these hefty penalties.

For more information or help in filing under the Voluntary Disclosure Program contact your local KHGroup office.