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Stingy News: Cestnick

Consider the last great tax shelter
01/09/16 taxes Cestnick
"Self-employment is the last of the great tax shelters."

Boost after-tax returns
04/05/14 Taxes Cestnick
"If you happen to be an investor, you're no doubt looking for ways to increase your returns. Look no further than your own tax return. If you can achieve tax savings related to your investments, this will increase your after-tax returns. So, consider the following ideas when filing your tax return this year."

A clever way to beat the taxman
11/17/13 Taxes Cestnick
"Many seniors would like to have the opportunity to claim RRSP deductions even after age 71 when their RRSP is no longer around. You can do this by contributing to a spousal RRSP if your spouse has not yet reached at 71 and still has an RRSP. Or, you can consider a 'senior's overcontribution.'"

Help with unwinding loved one's estate
08/16/09 Taxes Cestnick
"We then started talking about the work that it can be to look after an estate after someone has passed away. Not the most uplifting conversation, I know, but Nancy had questions, because her mother had just passed away, leaving her and her brother to look after the estate. Here's a checklist of important financial issues to deal with when someone passes away."

Make interest tax deductible
01/25/09 Taxes Cestnick
"Take a look at your balance sheet. Do you have any debt? If so, are you entitled to deduct the interest? Chances are, you've got some debt that is costing you interest that is simply not deductible for tax purposes."

Opening the door to savings
08/17/08 Taxes Cestnick
"I'm commonly asked: "Now that I'm married, what tax benefits exist?" The fact is, having a spouse can come with some tax opportunities. And by the way, a spouse under Canadian tax law includes a common-law partner (same sex or not) that you've been living with in a conjugal relationship for 12 months or more. So, when I use the term "spouse" today, I'm referring to legally married couples, or those common-law partners I just mentioned. While there will be other ideas, the following are six of the key opportunities available to spouses."

Transfers can come with tax surprises
08/09/08 Taxes Cestnick
"Be aware that you'll be subject to the U.S. estate tax as any U.S. citizen if you're considered "domiciled" in the United States. Simply residing in the U.S. doesn't make you "domiciled" there. Domicile is a concept that involves an intention to permanently reside south of the border. And so, it seems that domicile is something to be avoided. Perhaps - but only if careful planning is undertaken before your transfer, because not being domiciled in the United States can lead to tax problems too. Let me explain."

The drawbacks of your assets being jointly owned
05/17/08 Taxes Cestnick
"The term "joint ownership" is used to loosely describe one of two common legal relationships: Tenants in common, or joint tenancy with right of survivorship (JTWROS). Tenants in common owners each hold separate ownership interests that can generally be sold or transferred without the consent of the other owners. But JTWROS is more common. In the case of JTWROS, the survivorship feature means that when an individual dies, the deceased person's interest is automatically distributed to the remaining joint tenants. Think of this as a "winner takes all" game. The asset will pass to the surviving owners outside of the deceased's estate. The result? Probate fees are avoided."

Curve balls raise red flags for CRA
03/09/08 Taxes Cestnick
"When filing your tax return this year, be aware that your past tax filings may have an impact on whether the CRA will accept this year's filing position. Consistency can be a good thing."

Dividend tax slides below budget radar
02/28/08 Dividends Taxes Cestnick
"The status quo will hold in dividend taxation until 2010, when a three-year phased adjustment begins. Myron Knodel, manager of tax and estate planning at Investors Group in Winnipeg, illustrated how this will work with an example involving $100 in dividends paid by a bank. The current federal tax rate on dividends means you'd net $85.46, assuming you were in the top tax bracket. By 2012, your net take on the same $100 would be $80.68, a decline of $4.78, or 5.6 per cent."

Deductions failed the smell test
11/11/07 Taxes Cestnick
"What about your tax planning? Does it pass the smell test? There are some court decisions where taxpayers have escaped the long arm of the Canada Revenue Agency by getting away with deducting certain costs, or gaining some other tax benefit, and I just conclude they got lucky. There are other cases where the taxpayer has lost the battle, and it comes as a surprise to no one. Here's a court decision that offers some valuable lessons in claiming tax deductions."

A strategy to keep your prized stocks
11/04/07 Taxes Cestnick
"William's advisers suggested that he consider an equity monetization strategy. Now, there are different strategies we could talk about. Today, let me share what is probably the most common."

The many benefits of monetizing
11/04/07 Taxes Cestnick
"But the story could help you to: lock-in accrued gains on an investment; defer tax on those accrued capital gains; create liquidity; diversify your portfolio; create a tax deduction for interest costs, and avoid margin calls on money borrowed to invest. These benefits could leave you laughing after all - all the way to the bank."

The skinny on pension splitting
10/14/07 Taxes Cestnick
"Take the announcement last year about pension income splitting. Canadian taxpayers have had many questions about how this is going to work. The Canada Revenue Agency issued an announcement on July 18 that answered some of the more common questions. Let me share some highlights."

When to pull trigger on a loss
09/23/07 Taxes Cestnick
"It makes most sense to sell to trigger a capital loss when at least one of the following is true: (1) you don't want to own the investment any more, or (2) you have capital gains in the current or a prior year that you'll be able to apply the losses against. Otherwise, think twice before selling."

The naked truth about tax shelters
09/09/07 Taxes Cestnick
"There's no shortage of promoters in Canada today who are happy to provide tax opinions on their strategies, written by reputable legal and accounting firms, and may even provide other evidence supporting the tax deductions or credits being claimed. The problem? Those opinions and that evidence is not worth the paper it's written on if the strategy should have been registered as a tax shelter with Canada Revenue but wasn't. If you're considering a tax strategy that's being marketed by a promoter, it's just as important to ask for a legal opinion on whether the strategy is defined to be a tax shelter (if no TSIN has been applied for) as it is to read the tax opinion on the strategy itself."

The perils of joint ownership
08/05/07 Taxes Cestnick
"What you should avoid, however, is giving the last laugh to someone who, against your intentions, inherits some of your assets when you're gone. If you're not careful, joint ownership can cause this problem. Let me share three stories to help explain."

Company cars: Perk or penalty?
07/30/07 Taxes Cestnick
"Whether it makes sense to drive a vehicle provided by your employer or to provide your own vehicle for use in your work comes down to a number-crunching exercise. Your best bet is to have an accountant do the math for you, but there are some general guidelines that apply."

Income transfers can backfire
07/07/07 Taxes Cestnick
"The only thing that might hurt more than paying double the cost is being double-taxed. Subsection 56(4) of Canadian tax law can cause this problem if you're not careful."

It's intent that counts in loss claims
07/01/07 Taxes Cestnick
"My four-year-old son Michael set up a lemonade stand at the end of our driveway and made $2.75 (selling lemonade to my wife Carolyn and me ). Excitedly, he asked: "Dad, can we go to the store to buy some candy?" "Wait a minute," I replied. "You earned $2.75, but the lemonade cost $1.75, and the plastic cups cost $2. By my calculations that means you actually lost $1. And to make matters worse, when you claim that loss on your tax return, Canada Revenue might say you weren't carrying on a commercial activity, and deny the loss." Michael looked at me with a blank stare."

Filing 101: Canada Revenue waits for no one
04/29/07 Taxes Cestnick
"In case you were thinking of allowing the deadline to come and go without so much as lifting a finger, I've got a few things to keep in mind. Avoid penalties for filing your return late. Filing your tax return by the April 30 deadline is important if you owe taxes. Failing to file on time will mean a penalty of 5 per cent of the tax balance owing, plus 1 per cent for each month your return is not filed, to a maximum of 12 per cent. And the penalties could double if it's your second time failing to file on time in the past three years."

Ensure your property is deemed a principal residence
01/20/07 Taxes Cestnick
"Selling a home can be one of the most tax-efficient asset dispositions you'll ever make -- if your place qualifies as a principal residence, that is. But will it qualify?"

Beware the minefields of a property 'change in use'
01/20/07 Taxes Cestnick
"Where a property is initially used as a residence, but you later completely or partly convert it to an income-producing property (such as a rental property), a "change in use" takes place. Likewise, where a property was income-producing and you later convert it completely or partly into a residence, the same "change in use" happens. A change in use will generally cause a deemed disposition of the property (or a portion of it) at fair market value under Canadian tax law. If the property has appreciated in value, there may be tax to pay on the capital gain."

Keep the taxman at bay
01/20/07 Taxes Cestnick
"If you're concerned about CRA applying income rather than capital treatment to your transactions, there may be a good solution. On Nov. 30, CRA issued a technical interpretation (document 2006-0185041E5; you'll need to visit a tax pro if you hope to obtain a copy -- CRA won't be any help), which clarified that it's possible to segregate your portfolio into two parts: One part that may be treated on income account, and one that may be treated on capital account."

Tax changes that may be in store for us
12/17/06 Taxes Cestnick
"Today, let's peek at the potential tax changes coming in the federal budget expected in late February. You see, on Dec. 7, the finance committee released its prebudget report detailing, among other things, recommendations as to what tax changes should be considered. So, let's unwrap these recommendations."

Gift to income-splitting pensioners
11/04/06 Taxes Cestnick
"How much tax can this save you? Consider a senior couple. Assume the husband has $60,000 of income, $50,000 of which is eligible pension income that he will split with his wife. She has $10,000 of her own income before the allocation from him. If he allocates one half, or $25,000, of his pension income to her, the couple will save $4,196 in taxes (assuming 2006 Ontario tax rates, and assuming the allocation of income to her also qualifies her for the pension tax credit). This tax savings represents 6 per cent of their total income of $70,000. Not too shabby. This new change could affect retirement planning for some by making it more desirable to create eligible pension income that can be easily split than to earn other types of investment income in retirement."

Hit with a loss? Your spouse can ease the pain
10/30/06 Taxes Cestnick
"If you own investments that have lost value, it might make sense to trigger the capital loss so that you can apply the loss against capital gains this year, or in one of the three prior years (losses can be carried back up to three years if you can't use them this year). If you haven't got capital gains now or in the past, you can also carry forward your loss to use in any future year. But, if your spouse has capital gains this year, or in the three prior years, it may make sense to transfer the capital loss to your spouse so that he or she can use it instead. This way, the loss is used up sooner."

Charity + tax-free dividends = win-win
10/03/06 Taxes Cestnick
"Thanks to the changes in the last federal budget, a donation of flow-through shares to a registered charity will result in the taxable capital gain on those shares being eliminated. So, you won't face tax on the capital gain, and you'll be entitled to a donation tax credit for the value of the shares when you donate them. In the end, it's possible that your donation will cost you just 8 cents for each $1 donated (if the value of your flow-through shares remains unchanged, and you're in the top marginal tax bracket. Savings will vary by province)."

Location is key to tax breaks on risky assets
09/25/06 Taxes Cestnick
"The Amaranth debacle should remind us that there's a best place to hold risky investments -- and that is outside your registered retirement savings plan or registered retirement income fund. The reason is simple. If you hold an investment inside your RRSP or RRIF and it drops in value, you'll get no tax relief from the loss."

Self-employment can pay for your child's education
09/10/06 Taxes Cestnick
"Here's the overall result: Mike claims a deduction for the $15,000 in wages paid to Rick, which will save Mike $6,900 in tax (assuming a marginal tax rate of 46 per cent). Rick has $15,000 in his bank account, pays no tax on the amount, and now uses the $15,000 to pay for school. In effect, Mike has claimed a deduction for the amount used to pay for his son's education. And it doesn't really matter what costs Rick uses the $15,000 to cover; the amount is still deductible to Mike regardless."

How students can ease the cost pain
09/02/06 Cestnick
"So, now that you're convinced your child needs an education, let's talk about 10 smart strategies for students."

An annuity can brighten your golden years
08/19/06 Taxes Cestnick
"As Canadians get older, two of the biggest challenges we face are memory loss, and how to generate income. I can't help much with the first problem. But let me share an idea that might just result in more income for you in retirement. This idea is a cousin to the idea I shared in my article on July 15 that applied to those with holding companies. This idea is called a "back-to-back prescribed annuity" because it involves buying an annuity and insurance "back-to-back.""

Uncle Sam wants you ... to file
08/14/06 Taxes Cestnick
"When it comes to U.S. citizens living in Canada, many have bad memories -- or simply don't want to remember -- about tax obligations south of the border. Since there are so many of you, let me remind you of some of the rules you should be aware of."

Life insurance can be a saviour if you own a holding company
08/05/06 Taxes Cestnick
"The truth is, life insurance can be an effective tool. Today, I want to look at a "corporate insured annuity," which can make sense for those with holding companies."

Flow-through shares produce charitable bonanza
07/11/06 Taxes Cestnick
"You'll also be entitled to a donation tax credit for the $10,000 value of the shares, which will save approximately $4,600 in tax. So, you paid $10,000 for the shares, got $4,600 back in tax savings from the deduction, and $4,600 from the donation tax credit, leaving a net out-of-pocket cost of just $800. That is, a $10,000 donation to charity cost you just $800. That's what I call charitable arbitrage."

Naming the kids' guardians is no child's play
07/02/06 Taxes Cestnick
"If you're the parent or guardian of minor children, here are some thoughts to keep in mind about naming guardians for your children."

When writing your will, make sure your intentions are clear
06/25/06 Taxes Cestnick
"Things can move from mere confusion to costly legal battles if you leave your heirs uncertain about your intentions when you're gone. And few things can cause greater problems than joint ownership."

Estate planning for the wise
06/18/06 Taxes Cestnick
"Another challenge of aging is deciding how to deal with your children in your will. Some of your kids may disappoint you, some may have special needs, and some may have no idea how to handle money. Today, I want to talk about dealing with your children in your will."

Understand the rights of your spouse upon your death
06/10/06 Taxes Cestnick
"Fact or fiction, it kind of makes you want to have some fun in your own will, doesn't it? Just be careful. Your beneficiaries may have certain rights. Today, let's talk about your spouse."

Landscaping may be beheld in the deductibles
05/30/06 Taxes Cestnick
"Tax deductions can be like chocolate. The more the better -- if we can get away with it. Sometimes Canadians misunderstand the rules around certain deductions. Landscaping comes to mind. Sometimes these costs are deductible, sometimes they're not."

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