Vancouver Tax Tips

$1400 average refund for 2007 tax season

2008-05-30T09:55:00.000-07:00

Canadians are getting $200 more refund from last year.

With the filing season now complete for most Canadians, the CRA would like to remind self-employed individuals, and their spouses or common-law partners, that they have until midnight on Monday, June 16, 2008, to file their income tax returns. If they had an outstanding balance for 2007, it had to be paid on or before April 30, 2008, to avoid interest. A late-filing penalty on amounts owing will apply to returns received or postmarked after June 16, 2008.

2008 Tax Filing Season Statistics as of May 28, 2008

	2008	2007	Change
Total received	23,687,417	23,099,964	+2.5%
NETFILE	4,150,737	3,957,938	+4.9%
TELEFILE	478,023	505,966	-5.5%
EFILE	9,014,295	8,259,416	+9.1%
Paper	10,044,362	10,376,644	-3.2%

CRA: EFile system outage

2008-04-30T11:52:00.000-07:00

DOS attack by the tax payers :-)

From CRA:

We are currently experiencing intermittent technical difficulties that are affecting electronic filers.

However, many transactions are successful. We recommend that you continue trying to access our systems on a periodic basis.

We apologize for the inconvenience and assure you we are doing what we can to remedy the situation as soon as possible. Electronic filing continues to be the fastest method of processing tax returns. Further updates to follow.

Please note: All returns accepted by midnight (local time) on Tuesday, May 6, 2008 will be considered on time, and no filing penalty will be assessed.

For clients with self-employment income and their spouses or common-law partners, you have until midnight Monday, June 16, 2008 (filing due date) to file their tax return.

Please remember, to avoid interest charges the balance owing must be paid or post marked April 30, 2008. A nice a little break for the efilers :-)

Nonresident Aliens May Claim the Child Tax Credit for a Nondependent Child

2008-04-21T15:45:00.000-07:00

For tax years beginning after Dec. 31, 2004, nonresident aliens may claim the child tax credit on Form 1040NR, U.S. Nonresident Alien Income Tax Return, for a nondependent child. Attach Form 8901, Information on Qualifying Children Who Are Not Dependents (For Child Tax Credit) to the return. File amended returns for those who were eligible but didn’t claim the credit for 2005 or 2006, and attach Form 8901.

British Columbia Training Tax Credit

2008-04-10T08:17:00.000-07:00

CRA Tax Tips:

Did you know...

That the Government of British Columbia has introduced the British Columbia Training Tax Credit to attract people to apprenticeship programs, and to encourage those already enrolled to complete their program. This tax credit is available to both apprentices who were residents of British Columbia at the end of the year and employers of apprentices enrolled in a Red Seal or other program recognized by the Industry Training Authority who carried on a business in British Columbia during the year.

Apprentices

As an apprentice, you may qualify for up to $9,000 in tax credits as you progress through your training, and additional funding is available to qualified apprentices under the Enhanced Tax Credit. To claim the training tax credit, complete Form T1014 and include it when filing your personal income tax return.

Employers

By employing an apprentice, you may qualify for up to $12,500 in tax credits as the apprentice progresses through training. Additional tax credits are available to employers through the Enhanced Tax Credit if the apprentice is eligible for the federal disability tax credit or is registered as an Indian under the Indian Act.

Proprietors can claim the credit by completing Form T1014-1 and including it when filing their personal income tax return. Corporations claiming the credit must complete Schedule T2SCH428 and include it with their corporate income tax return.

If you need help on your tax return or have questions on BC training tax credit, please contact a tax professional. As always, staff from YY Consulting Tax Services would love to hear from you.

From IRS: Basic Information on the Stimulus Payments

2008-03-31T11:58:00.001-07:00

Updated March 17, 2008 — new 1040A-3 package

You've heard about it. Now find out how to get yours.

What is it? It's an economic stimulus payment that more than 130 million households will receive starting in May. It's not taxable, and it won't reduce your 2007 or 2008 refund or increase the amount you owe when you file your 2008 return.

Are you eligible? The vast majority of people who file a 2007 income tax return qualify, and many who don't regularly file a tax return may qualify as well. You're eligible if you have a valid Social Security Number (SSN), can't be claimed as a dependent on a tax return and have either an income tax liability or "qualifying income" of at least $3,000. Qualifying income includes any combination of earned income and certain benefits from Social Security, Veterans Affairs or Railroad Retirement. Additional information is below, and a full legal description is available in Revenue Procedure 2008-21.

Both people listed on a "married filing jointly" return must have valid SSNs to qualify for the payment — if only one has a valid SSN, neither can receive the payment.

Can you use an ITIN instead of an SSN? Taxpayers with an Individual Taxpayer Identification Number (ITIN) instead of an SSN are not eligible to receive a stimulus payment. Both people listed on a "married filing jointly" return must have valid SSNs to qualify for the payment — if only one has a valid SSN, neither can receive the payment.

Not eligible at the current time? If your circumstances change and you become eligible after you file your 2007 federal tax return, you can always file an amended return using Form 1040X. File the form after April 14, 2008, and allow 8-12 weeks of processing time before making any inquiries about your payment. See a sample with instructions.

If you're not eligible this year but you become eligible next year, you can claim the economic stimulus payment next year on your 2008 tax return.

How do you get it? Just file a a federal tax return for 2007, even if you normally don't have to because your income usually doesn't meet the filing threshhold. You can't get it if you don't file.

How much will you get? The actual amount depends on the information contained on your tax return. Eligible individuals will receive between $300 and $600. Those who are eligible and file a joint return will receive a total of between $600 and $1,200. Those with children will get an additional $300 for each qualifying child. To qualify, a child must be eligible under the Child Tax Credit and have a valid Social Security number. We have various examples for you check out.

The payments phase out at certain income levels, so those with higher incomes may receive a reduced payment or even no payment.

Can you estimate your payment? The IRS has created an online calculator that will allow you to answer a few questions and get a quick estimate of your payment amount.

How will you receive the payment? Be sure to choose direct deposit when you file your tax return, even if you aren't due a regular tax refund on your tax return. That way, the stimulus payment will go right to your bank account. Otherwise, we'll mail you a check.

When will you get your payment? Starting May 2, payments will be electronically transmitted to direct deposit accounts. Paper checks will be mailed starting May 16. The payments are based on the last two-digits of the mail filer's Social Security number. The IRS has issued a schedule for payments as direct deposits or paper checks.

What if some or all of your income consists of Social Security, veterans' or other benefits? The economic stimulus law allows Social Security recipients and recipients of certain veterans' benefits and Railroad Retirement benefits to count those benefits towards the qualifying income requirement of $3,000. Supplemental Security Income (SSI) does not count as qualifying income for the stimulus payment. To get the payment, you have to file a 2007 tax return using either Form 1040 or the short Form 1040A. For more information, see:

Information for Recipients of Social Security Benefits
Information for Recipients of Veteran's Benefits
FS-2008-16, Stimulus Payments: Instructions for Low-Income Workers and Recipients of Social Security and Certain Veterans’ Benefits.

Tax Package 1040A-3 and Form 1040A

Those who normally don't have to file a tax return and can use the short form for the stimulus payment can check out tax package 1040A-3 to see information on, and an example of how to fill out, Form 1040A.

Learn More about the Economic Stimulus Payments

For more information, check out our:

Warning — Scam Artists Are Calling Taxpayers about the Stimulus Payments

If someone claiming to be from the IRS calls or e-mails you about the payments and asks you for a Social Security, bank account or credit card number, it's a scam. The scammers are trying to get your personal and financial information so they can empty your bank account, run up charges on your credit card and more. Find out more — see IR-2008-11, IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting.

Good to be a student

2008-03-25T11:20:00.001-07:00

Tips from CRA:

That as a student, you may be able to claim a tax credit for the tuition fees you paid for post-secondary level courses you attended during the year? You may also be able to claim an education amount of $400 as a full-time student and $120 as a part-time student for each whole or part month you were enrolled in a qualifying program. In addition, you may be able to claim the non-refundable textbook credit to help with the cost of your textbooks.

You may also be eligible to claim moving expenses, child care expenses, and a tax credit for interest paid on your student loans, as well as the non-refundable tax credit for public transit passes.

Remember, a professional accountant can help you with this and other tax issues you may encounter. Just give us a call or email us at tax@yyconsulting.com. As a student, you may be eligible for $10 off our regular fee.

IRS released the 2008 Filing Season Stats

2008-03-24T13:04:00.000-07:00

2008 FILING SEASON STATISTICS
Cumulative through the weeks ending 3/16/07 and 3/14/08
Individual Income Tax Returns	2007		2008		% Change
Total Receipts	67,705,000		71,028,000		4.9%
Total Processed	63,799,000		66,656,000		4.5%

E-filing Receipts:
TOTAL	49,401,000		53,359,000		8.0%
Tax Professionals	35,105,000		36,771,000		4.7%
Self-prepared	14,296,000		16,588,000		16.0%

Web Usage:
Visits to IRS.gov	88,834,000		100,660,000		13.3%

Total Refunds:
Number	57,434,000		59,199,000		3.1%
Amount	$141.680	Billion	$149.621	Billion	5.6%
Average refund	$2,467		$2,527		2.5%

Direct Deposit Refunds:
Number	42,057,000		45,023,000		7.1%
Amount	$117.429	Billion	$126.127	Billion	7.4%
Average refund	$2,792		$2,801		0.3%

IRS has $1.2 Billion in Unclaimed Refund

2008-03-24T09:35:00.000-07:00

WASHINGTON — Unclaimed refunds totaling approximately $1.2 billion are awaiting about 1.3 million people who failed to file a federal income tax return for 2004, the Internal Revenue Service announced today. However, to collect the money, a return for 2004 must be filed with an IRS office no later than Tuesday, April 15, 2008.

Those due a refund who did not file a 2004 tax return could collect even more money by also filing a 2007 tax return to claim the economic stimulus payment. To receive a payment, taxpayers must have a valid Social Security number, $3,000 of qualifying income and file a 2007 federal tax return. Millions of retirees, disabled veterans and low-wage workers who usually are exempt from filing a tax return must do so this year in order to receive the stimulus payment. Eligible people will receive up to $600 ($1,200 for married couples), and parents will receive an additional $300 for each eligible child younger than 17.

Bush on cross border tax issues

2008-03-23T15:35:00.000-07:00

In a March 13 statement, President Bush announced he has sent to the Senate a U.S.-Canada protocol that would eliminate withholding taxes on cross-border interest payments and coordinate tax treatment of pension benefits for cross-border workers, with his recommendation that the Senate approve the protocol.

Do Your Tax Today and Save!

2008-03-07T23:26:00.000-08:00

YY Consulting Tax Service is offering an exclusive discount for tax tips blog readers. Use coupon blog08 to get 10% discount off our standard rate. This offer ends on March 27, 2008.

Please give us a call at 604-764-9456 or email us at tax@yyconsulting.com.

US 2008 Presidential Candidates On Tax Issues

2008-01-22T14:08:00.000-08:00

TAXES:

Clinton: Raise income taxes on wealthiest and keep estate tax on them. Higher tax breaks for college.

Edwards: Raise income taxes on wealthiest and their capital gains tax. $25 billion a year in tax cuts for non-wealthy, including tripling the Earned Income Tax Credit for singles and $500 tax credit for families making up to $75,000.

Obama: Raise income taxes on wealthiest and their capital gains and dividends taxes. Raise corporate taxes. $80 billion in tax breaks mainly for poor workers and elderly, including tripling Earned Income Tax Credit for minimum-wage workers and higher credit for larger families.

Giuliani: Cut corporate tax rate to 25 percent from 35 percent, eliminate estate tax, establish a permanent child tax credit.

Huckabee: Replace income and investment taxes with 23 percent national sales tax, with help for poor and rebates for essential purchases.

McCain: Opposed some of Bush's tax cuts because they were not tied to spending cuts, now says the tax cuts should be permanent.

Romney: Tax breaks to those earning less than $200,000, eliminating capital gains, interest and dividend taxes for most.

HEALTH INSURANCE:

Clinton: $110 billion a year for mandatory universal coverage in first term. Tax credits to make insurance more affordable. Raise taxes on wealthy.

Edwards: Up to $120 billion a year for mandatory universal coverage in first term. Tax credits for affordability. Raise taxes on wealthy.

Obama: No universal coverage mandate for adults but one for children. More than $65 billion a year to make universal coverage affordable. Raise taxes on wealthy.

Giuliani: Income tax deduction of $7,500 per taxpayer to defray insurance costs.

Huckabee: Spend more on prevention, let market and states expand insurance.

McCain: $2,500 tax credit per taxpayer to help pay for insurance.

Romney: Incentives for states to expand affordable coverage. As governor, signed law aimed at ensuring universal coverage.

SOCIAL SECURITY:

Clinton: Noncommittal on raising $97,500 income cap on payroll taxes. Proposes a federal match of up to $1,000 to help set up 401(k) plans.

Edwards: Subject the portion of income over about $200,000 to Social Security taxes.

Obama: Raising cap with unspecified "small adjustment" that would subject a portion of higher incomes to Social Security taxes.

Giuliani: Rules out tax increase to save Social Security.

McCain: Would consider "almost anything" in a compromise to save Social Security, yet rules out higher payroll taxes for now.

Huckabee: Higher benefits for people who delay retirement past 70. Let retirees choose to get benefits or a payment at death for heirs.

Romney: Higher taxes are "wrong way to go."

Who is your favorite candidate? Do you agree with where they stand on the tax issues? Who will lead the lost country in the time of uncertainties?

Tax Tips from CRA

2008-01-22T13:37:00.000-08:00

Take it to the limit!

Did you know…

That February 29, 2008, is the deadline for making a contribution to a registered retirement savings plan (RRSP) for the 2007 tax year? With RRSPs, you can start saving now for your retirement, education, or the purchase of a home.

Beginning in 2007, RRSP must mature before the end of the year in which the annuitant turns 71 years of age (previously 69 years of age). Similarly, registered pension plans and deferred profit sharing plans will generally be required to commence the payment of benefits to members by the end of the year in which the members turn 71 years of age.

Begin the New Year with a clean slate and a clear conscience!

2008-01-03T11:59:00.000-08:00

Ottawa, Ontario, January 3, 2008… Did you fail to file an accurate tax return or not file at all, but should have? The Canada Revenue Agency's (CRA) Voluntary Disclosures Program may be able to help. The program allows people to come forward and correct their tax information and avoid being penalized, criminally investigated and prosecuted.

Last year the CRA processed 8,244 disclosures for taxpayers who used the Voluntary Disclosures Program and got a second chance to comply with their tax obligations. Coming clean saved these taxpayers from an audit or a criminal investigation, which can result in penalties, fines, and even jail time. Their valid disclosures involved more than $525 million in taxes.

By encouraging taxpayers to come forward and correct the information they filed with the CRA, the Voluntary Disclosures Program helps protect the tax base and makes tax administration fair for all Canadians.

If you make a full disclosure before we start any compliance action or investigation, you may only have to pay the taxes owing, plus interest. If we come to you first, you could end up paying penalties and fines, and even face jail time.

For more information about the Voluntary Disclosures Program or need to file your tax returns, contact your tax accountant for advise.

Tax Savings for Canadians

2007-12-30T16:07:00.000-08:00

Average Canadian taxpayer will see a reduction of $223 in 2007, a savings that will rise to an average of $272 in 2008.

"Due to retroactive tax changes announced in the fall, coupled with changes that take effect in the new year, almost all taxpaying Canadians will pay the tax man less in 2007 and 2008," said John Williamson, Canadian Taxpayers Federation federal director.

Families will save even more on average thanks to a new child credit worth $300 per child and a higher spousal exemption, which were also enacted for the '07 tax year, the organization added.

And that doesn't include the savings in 2008 from the one-point reduction in the GST, which will save the typical Canadian family anywhere from $150 to $200 a year.

Staff from YY Consulting Tax Division want to thank our friends, clients and blog readers who have supported and contributed to our success in Year 2007! Happy new year, everyone!

AMT Patch to Delay Tax Filling For Some Americans

2007-12-27T23:01:00.000-08:00

The IRS expects to begin processing returns for the vast majority of taxpayers in mid-January. However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law. The IRS has targeted Feb. 11, as the potential starting date.

Only Last week, the law makers approved a one-year repair, or "patch," of the AMT, which had threatened to increase taxes on about 20 million middle- and upper-middle-income households. It is a good news that they finally passed the patch, but it is so late that IRS has not enough to adjust their systems. However, probably only a portion of the people is expected to be affected since many people won't file in the first four weeks. A little bummer for those who are expecting a refund, though.

For overseas Americans, however, due to the weakened US dollar, you may pay more tax even though your local income stays the same. Please consult with their professional tax advisor regarding any recent changes in tax law that may have a bearing on the calculations of Alternate Minimum Tax.

Canadian Tax Cut Updates

2007-10-30T16:30:00.000-07:00

Tax Cut highlights:

• The Goods and Services Tax will be cut an additional 1 per cent as of Jan. 1, leaving the federal consumption tax at 5 per cent. The GST cut will cost the government about $5.5-billion. But the GST credit for low-income Canadians will remain at its current level, said Mr. Flaherty

• The basic personal income-tax exemption will increase to $9,600 from the current $8,929, retroactive to 2007. And it will increase again to $10,100 as of Jan. 1, 2009.

• The government is reducing the lowest personal income-tax rate to 15 per cent from 15.5 per cent, a retroactive change that will also be felt at tax-time this coming year.

• There will be a cut to corporate taxes of 1 per cent in 2008 with on-going reductions that will see business taxes fall down to 15 per cent by 2012 from 22 per cent today. That will leave Canada with one of the lowest corporate tax rates among the industrialized economies.

• The government will still have $10-billion in surplus cash to apply to the national debt.

Canada Child Tax Benefit (CCTB)

2007-10-19T09:59:00.000-07:00

The October payment is out today. If you are expecting a benefit payment and haven't received it by the end of the month, please contact CRA.

In order to receive CCTB payments, you and your spouse or common-law all need to file a tax return even if there is no income.

You can still file your 2006 tax return if you haven't done so. Contact us if you have questions about Child Tax Benefit (CCTB) or need help with your tax return.

Higher Canadian Dollar Random Thoughts

2007-10-16T23:26:00.000-07:00

Canadians are getting a 20% raise! More people are driving down the south to pick up bargains. Crazy lineups these days.

However, if you are an American living in Canada or green card holder, you may encounter an unexpected surprise. If you haven't filed your US tax return, the border crossing guards now have access to these information and they may bar you from entry. It is no secret that CRA and IRS have been sharing tax information for years. But for the first time, these information are made available to the Homeland Security.

As a dual citizenship of Canada and US or a US green card holder, you have the obligation to file US tax return every year! We have a client who was born in the US and moved to Canada 25 years ago when he was 2. He found out the hard way when he was having trouble to apply for his US passport.

If you need help on filing your tax return, staff from YY consulting are specializing in the Canada-US cross border tax. And remember to check the border wait times before you go.

US Tax Payer Tax-filling Extension deadline: Oct 15

2007-10-09T21:32:00.000-07:00

Just a reminder that Oct. 15 is the US tax-filling extension deadline. Please consult your accountant if you haven't done your tax yet.

Our Readers' Status In Canada and US

2007-10-07T00:23:00.001-07:00

Canadian	18 (42%)
US citizen	7 (16%)
US Green card	6 (14%)
Canada PR	6 (14%)
Working visa in US	3 (7%)
Working visa in Canada	5 (11%)
others	3 (7%)

Votes so far: 42

Thanks for all your inputs! We have a decent number of votes to reflect the demographics of our readers. Staff of YY Consuting Tax would love to hear from you!

US Internet Tax debates

2007-09-30T22:43:00.000-07:00

US consumers may have to pay an Internet access tax if the US decides on Nov 1 to lift the federal ban.

Currently the lines that provide Internet access in the US are virtually tax-free but this could change soon if local government has anything to say about it.

Within the industry the idea of imposing additional taxes on Internet access is extremely unpopular and organizations like Google, AT&T and Timer Warner have banded together to form a group called “Don’t Tax our Internet”.

Changing Internet usage has complicated the issue, threatening to derail an extension and raising the specter of local officials engaging in a land-rush-like race to enact new taxes for surfing the Web.

In the forthcoming weeks it will be interesting to see how this matter plays in the US and who will win out – US government or the industry players

Are you in the top 5?

2007-09-24T14:35:00.000-07:00

An annual income of $89,000 was enough to place a Canadian among the top five per cent of individual tax-filers in 2004, according to the most recent data released Monday by Statistics Canada.

The top one per cent of earners was limited to those who raked in $181,000 a year, while membership in the super-elite club consisting of the richest 0.01 per cent of Canadians required an annual paycheque of $2.8 million.

Three-quarters of the top five per cent of earners were men, StatsCan reports, even though men comprise a minority (48 per cent) of individual income tax-filers. The group becomes even more male-heavy at the top end of the income spectrum: just one in nine of the top 0.01 per cent of earners was a woman.

Though their membership in the very highest-earning group hasn’t increased over the last two decades, women made gains among the top five per cent, with their ranks increasing by 10 per cent since 1982.

Almost half (48 per cent) of the top five per cent of taxpayers live in Ontario, followed distantly by Quebec (18 per cent), Alberta (15 per cent) and British Columbia (13). Three out of 10 families with incomes above $250,000 lived in Toronto, followed by Montreal (11 per cent), Vancouver and Calgary (both eight per cent).

Differences between Canada and the U.S. are most striking at the upper end of the income scale, StatsCan found. In Canada, the top five per cent of earners made at least $89,000 in 2004, while the cut-off for that group in the U.S. was $165,000. The threshold for the top 0.01 pr cent in Canada was $2.8 million, but an American would need to make $9.4 million to belong to that same club. With Canadian dollar reached parity with US dollar, the gap may be narrowed a little now.

The study used tax returns and survey data to trace the characteristics of the richest Canadians.

Foreclosure Tax Relief Available to Many

2007-09-24T14:13:00.000-07:00

The IRS unveiled a new section of their website today that is dedicated to Foreclosure Tax Planning those who have lost their homes due to foreclosure. They are also reassuring homeowners that there are special relief provisions which can often reduce or eliminate the tax bite for financially strapped borrowers who lose their home. As you may be aware of, some mortgage workouts and foreclosures can have tax consequences and these provisions will help keep the burden to a minimum.

The section includes a worksheet designed to help borrowers determine whether or not any foreclosure related relief provisions apply to them. If a homeowner finds they owe additional tax, it also includes a form they can use to request a payment agreement with the IRS or even settle their tax debt for pennies on the dollar using an offer-in-compromise.

Under tax law, any debt that is wiped out through foreclosure (or a short sale) that exceeds the value of the property, the difference in considered taxable income. The IRS urges homeowners to consider their options carefully before giving up their homes.

There is a special rule that allows insolvent borrowers to offset income to the extent their liabilities exceed their assets. However, under tax law, relief may be limited or unavailable due in some situations such as using part or all of a home for business or rented out.

Homeowners who have debt reduced or eliminated will receive a From 1099-C from their lender. By law, the form will show the amount of debt forgiven and the fair market value of the property. Keep in mind that the winning bid at a foreclosure auction may not reflect the true value of the property.

If you receive a 1099-C, review it carefully and notify the lender immediately of any incorrect information. Pat particular attention to Boxes 2 and 7 as they are the amounts forgiven and fair market value.

Also, if you are facing foreclosure or have already been foreclosed upon, don't wait until the end of the year to start tax planning. Visit the www.irs.gov now or consult an accounting professional and start researching your options.

Canada, U.S. to scrap cross-border tax in treaty

2007-09-18T11:28:00.000-07:00

OTTAWA, Sept 18 (Reuters) - Canada and the United States are expected to sign a new tax treaty this month that could increase Canadian companies' access to U.S. financing, experts said on Tuesday.

The two governments will eliminate the 10 percent withholding tax on interest payments made by borrowers in one country to lenders in the other.

The measure would mainly benefit Canadian companies that borrow from U.S. banks. Ottawa estimates it will cost the federal government an estimated C$250 million ($245 million) in the 2007-08 and 2008-09 fiscal years.

Finance Minister Jim Flaherty said in a speech on Sunday that the signing of a revised Canada-U.S. tax treaty would be "soon." Finance officials would not give details.

Tax lawyers who consulted with the Department of Finance said they had been told the revised treaty would be signed by the end of September.

Nancy Hughes Anthony, president of the Canadian Bankers Association, also believes an announcement is imminent.

"We understand that they are on the verge of being able to actually sign the tax treaty, which would be tremendous," she said.

The withholding tax is applied to the interest income of nonresident lenders. Canadian law obliges the Canadian borrower to withhold the tax from its interest payment to a U.S. lender and remit it directly to Ottawa.

In practice, the tax becomes a premium on capital because most sophisticated U.S. lenders require clients to "gross up" their payment so that they pay the full interest plus the tax.

"There's a very keen interest in this," said Michael Friedman, a tax lawyer with McMillan Binch Mendelsohn LLP. "The cost of obtaining capital will be reduced because borrowers won't face the demands to gross up and the ability to borrow capital will be increased."

He added: "It also reduces the legal complexity of borrowing transactions."

The 2007 federal budget said the withholding tax on arm's-length debt -- where borrower and lender are unrelated entities -- with the United States would be eliminated in the first year after the new treaty goes into effect. For non-arm's-length debt, the tax will be phased out over three years.

Ottawa also said it would then unilaterally extend the exemption to arm's-length debt with lenders in all countries.

The risk to Canadian banks is that they lose their competitive edge. But bankers have been pushing for the policy change for years and see more benefits than pitfalls.

"Anything that loosens up the free flow of capital between the two countries will be good for banks because it will be good for their customers," she said. "We hope it will result in increased foreign investment and other things that will be good for the bottom line."

Donations and Tax-Exempt Organizations: US version

2007-09-12T22:35:00.000-07:00

Taxpayers who make donations to tax-exempt organizations, such as charities and churches, have some new rules to follow regarding the deductibility of their donations. And, tax-exempt organizations themselves are faced with sweeping changes that affect donations as well as filing and record-keeping requirements. Here is some information to help you learn more about how the new rules may affect you:

Q. What do I need to do in order to claim a deduction for money I donate to charity?
A. For any cash contribution – which includes donations made via cash, check, electronic fund transfer or credit card – you must obtain and keep either a written communication from the charity or a bank record (such as a bank statement, cancelled check or credit card statement) that includes the date, the amount of the donation, and the name of the charity.

Q. How about donations of used clothing or household goods? How do I make sure I can claim a deduction when I donate these items?
A. In order to qualify for a tax deduction, the clothing or household goods you donate to a tax-exempt organization must be in good used condition. The exception to this rule is an item for which a deduction of more than $500 is claimed if you submit a qualified appraisal of the item along with your tax return.

Q. When do I need a “qualified appraisal” for an item I donate?
A. For a contribution of property with a claimed value over $5,000, a qualified appraisal is required. Under the new tax laws, a qualified appraisal must be conducted in accordance with generally accepted appraisal standards, by a qualified appraiser who has either earned an appraisal designation from a recognized professional appraisal organization or has minimum education experience. The appraiser must also have experience in appraising the type of property in question.

Q. I am responsible for a small charity run by a handful of volunteers. In past years, we had no federal filing requirement. Has that changed?
A. Yes. Now, all tax-exempt organizations except churches are required to file some version of Form 990 annually. Small charities may only have to file the e-postcard version of this form. Keep in mind that the penalty for non-filing can be serious: a tax-exempt organization that fails to file for three years can have its tax-exempt status revoked.

Remember, a professional accountant can help you with this and other tax issues you may encounter. Just give us a call or email us at tax@yyconsulting.com.