Claiming the HRTC - Home Renovation Tax Credit

The HRTC is a non-refundable tax credit equal to 15% of eligible renovation or alteration expenditures you incur in excess of $1,000, but not more than $10,000. For example, if you incur $7,000 in eligible expenditures, you will be entitled to claim a credit of $900 (i.e., 15% x ($7,000 - $1,000)). If you incur more than $10,000 in eligible expenditures, the credit is capped at $1,350 (i.e., 15% x $9,000).

The renovation or alteration work must be performed after 27 January 2009 and before 1 February 2010. Any renovation or alteration expenditures incurred under an agreement entered into before 28 January 2009 are not eligible.

The credit (including January 2010 expenditures) is to be claimed in your 2009 personal income tax return.

This includes any housing unit located in Canada that is eligible to be your principal residence. This may include, for example, any house, cottage or condominium unit that is owned by you and ordinarily inhabited by you, your spouse or common-law partner, or any of your minor children.

If you own a house and a cottage, both of which are used personally, you can split the credit between both properties by claiming eligible renovation and alteration expenses on both, up to a combined maximum of $10,000.

What renovation or alteration expenditures are eligible?
Specifically excluded from eligible expenditures are the following:

~ Property that can be used independently of the qualifying renovation
~ The cost of annual, recurring or routine repair or maintenance
~ Household appliances
~ Electronic home-entertainment devices
~ Financing costs in respect of the qualifying renovation
~ Costs incurred for the purpose of gaining or producing income from a business or property
~ Goods or services provided by a non-arm’s-length person if that person is not a GST/HST registrant

When planning your home improvement (or reviewing the expenses you have incurred), you’ll find that your improvements include clearly eligible expenditures (for example, painting the exterior of your home), those that are not (like a widescreen TV) and those for which clarification is required.

To assist you in completing your HRTC claim, we have prepared the accompanying table of eligible expenditures. This information has been gathered from the numerous related technical interpretations from the Canada Revenue Agency (CRA) and from the HRTC page on the CRA’s website.

Some examples of eligible expenses:
~ Renovating a kitchen, bathroom, or basement
~ Windows, exterior and/or interior doors, garage door
~ New carpet, hardwood floors or linoleum floors
~ New furnace, boiler, heat pump, woodstove, fireplace, water softener, water heater, or oil tank
~ Permanent home-ventilation systems
~ Central air conditioner
~ Permanent reverse osmosis systems
~ Septic systems
~ Wells
~ Electrical wiring in the home (e.g., changing from 100 amp to 200 amp service)
~ Home security system (monthly fees do not qualify)
~ Solar panels and solar panel trackers
~ Painting the interior or exterior of a house
~ Replacement of siding, eaves troughs, soffits, and facia
~ Re-shingling or replacing a roof
~ Building an addition, garage, deck, dock, garden/storage shed, or fence
~ A new driveway or resurfacing a driveway
~ Exterior shutters and awnings
~ Permanent swimming pools (in-ground and above ground)
~ Permanent hot tub and installation costs
~ Permanent sauna and installation costs
~ Pool liners
~ Solar heaters and heat pumps for pools (does not include solar blankets)
~ Landscaping: new sod, perennial shrubs and flowers, trees, large rocks, permanent garden lighting, permanent irrigation systems, permanent water fountain, permanent ponds, large permanent garden ornaments.
~ Retaining wall
~ Associated costs such as installation, permits, professional services, equipment rentals, and incidental expenses
~ Fixtures – blinds, shades, shutters, lights, ceiling fans, etc. Window coverings, such as blinds, shutters and shades, that are directly attached to the window frame and whose removal would alter the nature of the dwelling are generally considered to be fixtures (i.e., has become part of the home) and therefore would qualify for the HRTC.

Some examples of expenses that are NOT eligible:
~ Draperies and curtains in most circumstances. In some circumstances, draperies and curtains may qualify for the HRTC, if they would not keep their value or usefulness if installed in another dwelling. If these qualifying criteria are not met, it is likely that draperies and curtains would not qualify for the HRTC.
~ Furniture, appliances, and audio and visual electronics
~ Portable "plug-in" hot tubs
~ Window or portable air conditioners
~ Purchasing of tools
~ Carpet cleaning
~ House cleaning
~ Maintenance contracts (e.g., furnace cleaning, snow removal, lawn care, and pool cleaning)
~ Financing costs

Contact us if you want any additional information on how to claim the tax credit on your 2009 personal income tax return. Make sure that you have your receipts!

Acceptable supporting documentation
Eligible expenses must be supported by acceptable documentation, such as agreements, invoices, and receipts, and must clearly identify the type and quantity of goods purchased or services provided, including, but not limited to the following information:

•information that clearly identifies the vendor/contractor, their business address and, if applicable, the GST/HST registration number;
•a description of the goods and the date when the goods were purchased;
•the date when the goods were delivered (keep your delivery slip as proof) and/or when the work or services were performed;
•a description of the work performed including the address where the work was performed;
•the amount of the invoice;
•proof of payment (receipts and invoices) - invoices must indicate "paid" or be accompanied by other proof of payment, such as a credit card slip or cancelled cheque; and

Mark
http://www.majecaccounting.com/

TFSA Investments

Beware 696-year TFSA investments
Without equities, that’s how long a payoff may take
By Jonathan Chevreau, Financial PostJanuary 24, 2010

While the new tax-free savings accounts are proving to be popular, many Canadians are choosing only interest-bearing TFSA plans that pay so little that the accompanying tax savings are equally negligible.

Negligible is an understatement. Consider that in 2009, the median one-year yield for Canadian money-market mutual funds was 0.3%, according to Morningstar Canada. That would mean you’d double your money in 232 years, says Morningstar investment funds editor Rudy Luukko. Or, if you calculate it based on the 0.1% six-month yield, you’d double your investment in 696 years.

This is not quite as bad as in the United States, where the top 100 money-market funds have an average yield of 0.05%, which would take 1,000 years to double.

Three-month federal paper yields 0.20% in Canada, versus 0.05% in the United States, says Dan Hallett, a director with HighView Asset Management Inc. “It would only take just south of 350 years to double your money invested at 0.2% annually, but I’d guess yields would creep up a few years before that time frame is up.”

Now consider the tax savings on these paltry yields. We’ll be generous and juice the yield up to the 0.4% paid by Canada Savings bonds. A $5,000 TFSA investment in a CSB pays a grand total of $20 in interest after a year. Meanwhile, more adventuresome investors who put their TFSA contribution last March in stocks, equity funds or exchange-traded funds could easily be up 50% or more on the year.

Perhaps because the “S” in TFSA stands for “savings,” many TFSA newcomers don’t realize they can also serve as supercharged tax-free investment accounts. A study by BMO Financial in 2009 found a whopping 94% of TFSA accounts are in savings accounts or term deposits. Even by mid-January 2010, TFSAs are still 90% in such accounts, says director of retirement strategies Tina Di Vito.

People seem unaware they can invest their TFSA contributions in stocks, bonds and other financial assets, as well as in short-term deposits and GICs.

In this respect, average investors are repeating the mistake made when they first opened up registered retirement savings plans through bank-offered GIC RRSPs that severely limited their investment options. In either case, it makes more sense to choose self-directed RRSPs or TFSAs that let you invest in stocks, bonds, mutual funds and ETFs, as well as interest-bearing securities.

As of Jan. 1, Canadians could put a second $5,000 contribution into their TFSAs, assuming they put in their first $5,000 in 2009. If they did and later withdrew funds — perhaps to pay for a project to generate the soon-to-expire Home Renovation Tax Credit — they can repay that withdrawal back into their TFSA now that we’re in the new year.

So, for example, if you put in $5,000 early in 2009, then withdrew $3,000 in August, now that it is a new calendar year you can contribute $8,000: $3,000 to replace what you withdrew and $5,000 more in a “new contribution.”

The question remains how to invest it. Most financial advisors make emergency funds a priority, so it’s logical that families with few financial resources might keep at least some of their TFSA in short-term, liquid, interest-bearing vehicles, such as high-interest savings accounts, money-market funds or GICs.

The problem is the gap between short-term and long-term interest rates — the yield curve — has seldom been greater. So, if you want to be paid a decent rate of interest, you must commit the funds for a longer period.

Cashable one-year GICs are one possibility. You lose some yield for the privilege of being able to cash out. A similar dynamic exists between cashable CSBs and locked-in Canada premium bonds. Other alternatives include strip bonds and bond ETFs, which may pay more, but can be cashed out if necessary, possibly sustaining a loss.

The threat of an imminent rise in interest rates is why some investors are buying high-yielding dividend paying stocks, income trusts or preferred shares. These can be sold when you want but, as with bond ETFs, there’s no guarantee you won’t experience a short-term loss.

Since TFSAs are extremely versatile, so should the investments you want to hold in them. Limiting them to interest-bearing investments when rates are so low is unwise. So switch to a self-directed TFSA: It can still own interest-bearing vehicles, but you’ll have the best of all worlds.

Unless, of course, you’re content to double your money every few centuries.

Mark
www.MajecAccounting.com

Home Reno Tax Credit News

By MARKUS ERMISCH, Calgary Sun
Tuesday Jan 19

With the deadline of the home renovation tax credit approaching in less than two weeks, it’s still unclear whether Ottawa plans to extend the hugely popular program.

Just before Christmas, Premier Stephen Harper had vaguely hinted he’d like to extend the program as part of the government’s plan to stimulate the economy.

But then Harper suspended Parliament. And any added clarity about the fate of the home reno tax credit was suspended along with it.

“We have no word on (the future of the home reno tax credit). As it stands now, it’s running out at the end of the month,” said Finance spokesman David Barnabe when asked about a possible extension, and whether Parliament would be needed to do so.

“It wouldn’t really be proper for me to speculate on something hypothetical.”

Calgary’s city hall, however, would like to see the program continue beyond the Jan. 31 deadline.
“I think it’s a great program,” said David Watson, general manager of planning, development and assessment at city hall. “So sure — I think it would be a great idea if they could extend it,”

The home reno tax credit was introduced last year to infuse Canada’s ailing economy with cash during the recession. Eligible renovation expenses could be deducted from taxes, leading to savings of up to $1,350.

In Calgary, the program has bolstered the residential construction sector during one of the worst recessions in recent memory. City hall issued building permits worth $3.66 billion last year, down 9% from 2008. But the tax credit has helped support the construction sector last year, Watson said, and helped prevent it from dipping further. Watson pointed out that low interest rates were also an important factor.

Linda Duncan, an Edmonton NDP MP, said her party is still discussing whether it would support an extension of the home reno tax credit should Finance Minister Jim Flaherty include it in his next budget. “This is, obviously, not the biggest item on the agenda for the budget,” she said. “The biggest is unemployment. But it’s an aspect of employment. So it will be one of many items that we’ll take a look at, and chances are a lot of people will be supportive of it.”

Mark
www.MajecAccounting.com

Interest Expense and Debt Management

For financial planning purposes, there are two kinds of debt; good debt, and bad debt. When money is borrowed with the purpose of earning income and the interest is tax deductible this is good debt. Borrowing money to pay for purchases such as vacations, vehicles, recreational items where the interest is not tax deductible is bad debt. Please note that this is a discussion on good debt versus bad debt and not on the appropriateness of any particular investment or purchase.

In our accounting business, I had a client very pleased that the $100,000 debt he incurred to purchase his business was paid off. On the surface, this may be a good thing, but in the background were over $60,000 of outstanding personal loans for recreational vehicles. The $4,200 (at a 7% interest rate) interest that this individual will continue to pay on his personal loans is not tax deductible. If he had paid off his personal loans and had $60,000 remaining on his business debt, the $4,200 would have been tax deductible. Assuming a marginal tax rate is 25%, the tax savings would have been $1,050! This tax savings could then be used in any way the individual sees fit.

A similar situation would exist where a person was investing in real estate, the stock market, or other types of passive income potential. It is a better tax and wealth building strategy to use whatever funds are available to pay off personal debt where the interest is not tax deductible. Then you can borrow money for the investment you were going to make anyway and then be able to use the interest expense as a deduction from your income. The tax savings to you can be substantial.

Your banker should have no problem with what you are doing and many are likely doing this sort of arrangement themselves already. For tax write off purposes, it doesn't matter what the loan collateral is, it does matter what the actual item purchased is. So if you put up your personal debt-free car as collateral, the interest can still be deductible if used for appropriate business or other investments.

As we can see from this example, it is important to consider the tax consequences of our debt related decisions. Simply put, personal debt where the interest is not tax deductible should be paid off first. Then, a decision to pay off business or investment debt must include consideration for alternate uses of the money. This can only be done on an individualized basis and a financial advisor or accountant should be brought into your team.

Debt management for tax purposes is only a portion of what should be examined. Other considerations, not discussed include this like debt servicing abilities, ratios, cash flows, debt vehicles, and perhaps most important is the individuals attitude toward debt.

The benefits of including tax planning with your debt planning is one indication of the importance of paying attention to all aspects of a home business, even the so-called mundane tasks. If you are not an expert yourself or don't have time to become an expert, then hire an advisor to your business team and focus on making the profits.

Mark
www.MajecAccounting.com

Canadian Real Estate Investments - Is now the time?

Are you thinking of investing in Canadian real estate? If so, this article may be of some interest to you. I don't know if I agree with it but it is quite interesting. We should remember to always do our homework.
Mark

Real Estate Market May Be Too Hot To Handle
John Morrissy, Financial Post Published: Friday, January 08, 2010

As Canada's red-hot real estate market shows no signs of slowing down in 2010, analysts are beginning to caution some buyers that their best move may be to step to the sidelines.
"If you're somebody in a situation that you have only 5% down and you're stretching to get in the market with a 35-year amortization, I think that would be a very precarious situation right now,"said BMO Capital market economist Robert Kavcic.

Conversely, he said, "if you're sitting on a pile of cash and looking to move into the real estate market, it would almost be a no-brainer to just wait for lower prices."

Notes of caution simmered to the surface this week after realtor Royal LePage forecast home prices would continue to "appreciate significantly" during the early months of the year. Already in 2009, they're up 19%, according to the Canadian Real Estate Association.

The trouble is that while prices are rising, incomes are not.

Yet rock-bottom borrowing costs continue to lure buyers, and investors are rushing in - despite a shortage of listings - for fear that if they don't get into the market now, they'll miss their chance.

"It's absolutely not debatable that housing prices cannot rise faster than incomes over the long term," said Will Strange, professor of real estate and urban economics at the Rotman School of Management.

Sooner or later, incomes have to rise, or home prices fall, for balance to be attained.

Many analysts argue that home prices are not yet out of line with the incomes it takes to pay for them, Mr. Strange said. Yet with the job market still weak, and unlikely to drive new employment and higher wages, odds are that if something's got to give, it will be prices.

"If I didn't personally have most of my wealth tied up in housing, this would not be the time that I would choose to jump in," Mr. Strange cautioned.

At the same time, interest rates have nowhere to go but up, which could leave some buyers in a position similar to U.S. homeowners, who had houses worth less than their mortgages after the subprime bubble burst and prices crashed.

"We're certainly urging people to err on the side of caution," said Bruce Cran, president of the Consumers' Association of Canada.

"If you're paying an amount of money, whatever that might be, that you couldn't sustain if interest rates rose by say 25 or 30% - I can see that being a problem for a lot of people."

Canada's not headed for anything similar to the U.S. subprime mess because lending standards here are higher and because people can't just walk away from their homes as they can in the U.S., other than in Alberta.

But there may yet be an economic impact if home prices turn down, as home values relate directly to the economy, fuelling spending as they rise and tightening personal budgets as they fall, Mr. Strange said.

For now, many observers are predicting, as does Royal LePage, that the market will find its balance later this year as rates rise and more listings come on the market.

In the meantime, there are still many good reasons to buy a house, Mr. Strange said, "but don't buy it because you think the price is going to go up."

Mark
http://www.majecaccounting.com/

Employment Insurance Benefits for Self-Employed People

Beginning in January 2011, self-employed Canadians will be able to access Employment Insurance (EI) special benefits. There are four types of EI special benefits:

~ maternity benefits;
~ parental benefits;
~ sickness benefits; and
~ compassionate care benefits.

Eligibility information
You may be eligible to access EI special benefits beginning in January 2011 if you:

~ are a self-employed person; and
~ are a Canadian citizen or a permanent resident of Canada; and
~ have entered into an agreement with the Canada Employment Insurance Commission through Service Canada.

Dates and deadlines
Self-employed persons will be able to enter into an agreement beginning January 31, 2010.

If you enter into an agreement between January 31, 2010 and April 1, 2010, you will be able to make a claim for EI special benefits as early as January 2011. However, if you enter into an agreement with the Canada Employment Insurance Commission after April 1, 2010, you will have to wait 12 months before you will be able to make a claim for EI special benefits.

Follow this link for Q & A on EI for Self Employed People

Mark
www.MajecAccounting.com

Debt May Drive Taxes

A rebound in the global economy is set to kick off the beginning of this decade. But this return to growth may be accompanied by a surge of another sort -- in the amount you, the taxpayer, are about to pay to government.

The great global recession exacerbated the state of budget balances in much of the developed world. The debt burden among Group of 20 nations is expected to rise to over 120% of GDP, up from roughly 80% before the onset of the recession.

Legislators have to restore fiscal order or risk credit downgrades, such as Greece has sustained in recent weeks. Spending restraint is an option, but history dictates politicians find this hard to do -- especially with an aging population that's expecting social security and health care.

"Countries like Japan, Britain and the U.S. with large public deficits and growing debt are painting themselves into a corner whereby tax increases will be a necessity in order to stabilize debt burdens," says Jack Mintz, a leading tax expert and a professor at the University of Calgary's school of public policy.

"While governments will look to raise taxes in the most politically acceptable way, which often means imposing higher levies on the rich and corporations, there is little room for manoeuvre."

Source: Paul Vieira, Financial Post

Happy New Year

I hope that you enjoy the article below, as much as I did. The predictions may or may not come about but at least we are continuing to gather information.

Huge gains of 2009 will give way to modest ones, experts predict
By SHARON SINGLETON, QMI AGENCY

Canadian stock investors are likely to see gains in their portfolios in 2010 though it may be a bumpy ride as markets adjust to the prospect of higher interest rates and government stimulus taps are turned off, investment managers say.

This year proved to be a bonanza year for anyone who got into the markets for the first time, with the main S&P/TSX index gaining about 30% year-to-date. Those who were able to pinpoint the March bottom in the markets more accurately would have seen a bounce of almost 60%.

As the global financial crisis eased, a combination of record-low interest rates, government spending and rock-bottom stock prices triggered a massive rebound in equity markets. Stocks in China have soared 82%, while the U.K.'s main index is up 20%.

Next year's gains are unlikely to be so spectacular, investment managers say.

"The markets will go up, but not as strongly as in 2009," said Gareth Watson, senior equity advisor at ScotiaMcLeod. "Among the G7 countries, it's possible that Canada will outperform based on strength in the resource sector."

Watson said the market could see double-digit gains of between 10% and 20% next year.

Canadian and global markets also are expected to be more volatile as governments stop stimulus spending and focus on reducing massive debt. That will be a key test for the underlying strength of the economies.

Also, while the worst of the crisis has passed, analysts say it will take many years for the credit mess to be fully untangled and there still is scope for some nasty surprises along the way. Take, for example, Dubai World, which sent markets tumbling last month after it asked to delay repayment on some of its $60-billion US debt.

Interest rates also are expected to begin rising from the second half of next year, with RBC predicting a gain of one percentage point by the end of 2010.

"There will be more volatility," said Sadiq Adatia, chief investment officer of Russell Investments Canada. "There will be very careful scrutiny of figures and people are more optimistic now than they were a year ago, so there is a lot more room for disappointment if expectations aren't met."

On the upside, Canada is seen as benefiting from its strong weighting in the resource sector, which is forecast to be one of the best-performing next year.

According to a recent Russell Investment Manager survey, 83% of investment professionals predict stocks will rise in 2010, with the majority seeing double-digit gains. Energy was the favoured sector.

About 71% of managers were bullish towards energy, compared with 14% who were bearish.

"With the shares of Canadian oil producers priced for roughly $65/barrel, the recent trading range in the area of $75-plus implies continued upside potential for the energy sector," Adatia said.

Financial stocks are also forecast for another strong year with 61% of managers bullish and 21% bearish, the survey found, while some of the more defensive sectors such as utilities and consumer staples are expected to fall out of favour as the economic recovery gains pace.

Gold is also forecast to continue to rise after hitting records of above $1,200 in 2009.

"The gold story isn't going away," Watson said. "The U.S. dollar will remain depressed and although things are improving on the economic front, they are not improving as fast as people think."

Be Wise
Mark