Cost-plus health plans (top of the page)

In 1998, the government introduced new provisions allowing owners of unincorporated businesses to deduct premiums paid for private health services plans (PHSP) provided they are actively engaged in their business or profession. However, according to a recent Revenue Canada interpretation, some plans, namely “cost-plus” plans, are not considered to be a PHSP if purchased by an unincorporated business, rendering the premiums non-deductible. This restric- tion would not apply to “cost-plus” plans purchased by a corporation.

Tips on tax-loss selling (top of the page)

As the year end approaches, many of our clients are reviewing their tax position for 1999. One area to focus on is investment returns. If you earned capital gains in 1999, you can reduce your taxes by selling investments which will generate capital losses to off- set the capital gains.

A typical strategy is to sell the “loser” to generate a capital loss and then buy it back later at a lower price. Revenue Canada will disallow the loss if you repurchase the investment within 30 days of the sale. However, you can avoid this problem by selling or transferring the investment to children, parents or siblings.

December agenda (top of the page)

Before you pop open that special bottle of champagne on December 31st, consider these important year end tax planning strategies:

• Pay all personal expenses that are deductible, includ- ing childcare fees, medical, tuition, donations, politi- cal contributions, investment counsel fees before December 31st.

• Estimate your investment gains and losses (see our section on Tax-loss Selling)

• For self-employed businesses with a December 31st year end, consider purchasing depreciable assets before 2000 to qualify for a depreciation charge in 1999. Conversely, consider delaying the sale of assets to 2000.

• New RRSP contribution room will open up on January 1, 2000 for year 2000, based on 1999 earned income. Try to maximize your 1999 earnings from employment or business to generate the maximum RRSP contribution room of $13,500 (you will need earned income of $75,000).

1999 tax changes (top of the page)

Tax initiatives included in last February’s Federal Budget helped reduce the maximum tax rates for 1999 to the following approximate levels: dividends (33%), capital gains (37%), other income (49%). Furthermore, most personal tax credits were increased. Examples include the basic personal credit, spousal credit and credits for tuition fees.

Automobiles-1999 Tax Rules (top of the page)

The maximum amounts deductible in respect of automobiles for 1999 are as follows:

• Cost of car: $26,000 (plus GST and PSI)

• Monthly lease cost: $650

• Monthly interest cost: $250

• Mileage allowance: $0.35/km (first 5,000 kin); $0.29 thereafter

Remember, these amounts are subject to a reduction for kilometers driven for personal use. Contact us to receive a complimentary Automobile Log book.

U.S. business activities (top of the page)

Canadian businesses selling to U.S. customers may be considered to be carrying on a business in the United States if they are actively soliciting business, possibly through advertising, a commissioned sales agent, or by setting up an office in the U.S. The Canada-U.S. Tax Convention exempts the income from U.S. taxation if it is not earned through a permanent establishment (eg.: office, branch, factory) in the U.S. In this instance, you may still be required to file a U.S. income tax return claiming treaty protection.
Canada Millennium Scholarships (top of the page)

Beginning in 2000, scholarships will be awarded to Canadian post-secondary students through the Canadian Millennium Scholarship Foundation. Scholarships will average $3,000 per year and will be awarded to individuals who need help in financing their studies and demonstrate merit. Access will be through the provincial student financial assistance program (OSAP, in Ontario). For more information, visit the web site at www.millenniumscholarships.ca

Automobiles-lease or buy ? (top of the page)

Is leasing a vehicle better than buying? Generally overall, the cheapest way is still to buy the vehicle outright. When one requires financing, the picture changes. If cash flow considerations are important, a lease may be attractive and a person may be able to drive a more expensive automobile for relatively lower monthly payments. Leasing a vehicle and subsequently buying it when the lease ends makes the transaction more expensive than bank or dealer financing. By leasing a vehicle a person has the ability to match the length of the lease with the vehicle warranty.

In summary, leasing may be a better way as compared to financing the purchase of a vehicle but each situation has different variables which should be analyzed.

Here are some useful tips you should consider when shopping for your next vehicle:

• Negotiate the lowest possible vehicle price before you discuss financing options

• Plan for how long you intend to keep the vehicle

• Contact your bank to learn about their flexible “car loans”

• Calculate the monthly payment—go for the lowest monthly payment possible

• Educate yourself—insist on full disclosure of all terms—down payment, residual value, interest rate, term, monthly payment

• Bargain on all the terms—everything is negotiable

• Beware of extra charges arid mileage allowances on leases

• Learn about the tax advantages of each option

• Navigate the web and check out these interesting sites: www.i-money.com and www.cfla-acfl.ca/lights for leasing calculators and interesting information about this topic.

See previous issue

Fall 1999
Summer 2000
January 2001
Fall 2001
December 2003
February 2004
December 2004
December 2005
June 2006
December 2006
August 2007
December 2007