Tax Questions

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Income Tax Penalties

Postby Donut » 07 May 2008 13:41

I have almost no tax deducted at source but I do pay quarterly installments. This year, when I e-filed, I found I owed them a balance of $935. Now I have a notice from CRA that I also owe them $50.17 interest because my installments didn't cover my total tax owing.

This is a shock to me as I had based my installments on an estimate of tax owing and was of the understanding that if I got within $2,000 of being correct, there was no interest or penalty charged. I now seems this rule has changed.

I have filed an objection on the grounds that, because of the changes in tax rules such as increased tax free pension allowance, pension splitting etc, it is not realistic to expect one to be able to make totally accurate guestimates.

In the end, I know I will still have to pay the $50.
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Postby Chuck » 07 May 2008 15:00

Did you pay the $935 before Apr 30? Then you should be OK. Nobody should expect the installments to be bang on. I thought the $2000 rule was used to determine if you have to pay installments in the first place.
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Postby brucecohen » 07 May 2008 15:02

Same thing happened to me a few years ago. In my case, I was bang on for the first 3 quarters but had an unanticipated income surge in Q4. IIRC, they said they assume all income was spread evenly over the year and expect 1/4 of the liability to be paid each quarter. Since then I've simply paid the amounts they billed and have actually benefitted since I've had a sizeable amount owing each April.

Pay your $50 now to turn off the interest meter. They'll refund it if you win.
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Postby kcowan » 07 May 2008 15:20

If they ask for quarterly installments, just pay them. Don't get confused by facts.
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Re: Income Tax Penalties

Postby marty123 » 07 May 2008 15:24

Donut wrote:This is a shock to me as I had based my installments on an estimate of tax owing and was of the understanding that if I got within $2,000 of being correct, there was no interest or penalty charged. I now seems this rule has changed.


There is no method called "estimate". There has been no change in rule.

You pay based on the (1) no calculation method (CRA's estimate based on past 2 years), on the (2) prior-year method (exactly what you paid last year) or on the (3) current year method (your accurate prediction of the exact amount you'll have to pay). There is no such "arriving within $2,000" rule. You have to be bang on. The $2,000 rule (now $3,000) is used to determine whether you'll have to make installments. Interest is due on the entire amount you had to pay, unless it's less than $25.


I have filed an objection on the grounds that, because of the changes in tax rules such as increased tax free pension allowance, pension splitting etc, it is not realistic to expect one to be able to make totally accurate guestimates.


Their answer will be: that's why you should have chosen the no-calc or prior-year method. It's very clear from P110 that you're on the hook for exactly estimating your total, and paying interests on any amount by which your guestimate missed the mark (unless the total interest is less than $25).

In the end, I know I will still have to pay the $50.


That would be my guess too :-(.

Always use prior-year or no-calc unless you know you'll be owing substantially less than either of these methods. Then, if you use the current year method, make sure you overestimate your liability by a reasonable amount.

If you have underpaid your first installment for 2008 already, covering the difference now will reduce your interest charges, and prepaying the next installment can further reduce it (CRA credits you interest against late payments when you make other payments early).
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Postby Knowsitall » 07 May 2008 19:24

Pay the installments as billed in future

In your case pay this year $50 penalty at once as the interest is climbing.

Next year use creative tax prepartion to ensure you get an extra $100 back.

That is the 10% way
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Postby like_to_retire » 07 May 2008 19:29

Since then I've simply paid the amounts they billed

And that's the only way to do it to be sure you pay no penalty.

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Postby Donut » 11 May 2008 10:43

Thanks for your posts. In the end, I took brucecohens advice and sent the $50 cheque.

For many, many years I have operated under the delusion that as long as my quarterlies were not more than $2000 short of the year end amount owing there would be no penalty. As a plan, my wife and I always left nearly $2000 owing which we paid up by April 30. We never were assessed interest of penalties while doing that - - - Until last year (2006 return) when I owed some $2500 at year end and they assessed me $75. interest. I expected that would happen. This year they nailed me $50 on a $935. shortage. I didn't expect that to happen

I guess they have my number and I will have to play by their rules from now on.
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Postby gossg » 11 May 2008 20:57

So it's a $3K cutoff? For 2006, I owed just under $3K because of a payment after Christmas.

For 2007, I had a summer single item capital gain when I finally decided to trim down a single gold junior that had grown to over 10% of my portfolio. But I finally decided to stop rolling over an RRSP deposit that I've been carrying forward waiting for a high-tax year since 2003. With the RRSP amount, the payable was just under $2K.

I'm waiting for them to tell me to make quarterly payments. It hasn't happened yet.
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Postby Arby » 12 May 2008 16:09

gossg wrote:So it's a $3K cutoff?


From CRA:

- you are required to pay by installments if your net tax owing is more than $3000

- you are charged interest for late/missing installment payments if your payment differs from the required payment by more than $25

- you are charged a penalty if your late/missing installment interest charges are more than $1000
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Postby Chuck » 12 May 2008 16:34

Arby wrote:- you are required to pay by installments if your net tax owing is more than $3000

-


Under proposed changes, you have to pay your income tax by instalments for 2008 if your net tax owing is more than $3,000:

in 2008; and
in either 2007 or 2006.

Technically, it has to be 2 out of the last 3 years.
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Postby westinvest » 13 May 2008 00:46

SOT, but still a tax penalty question:

A few months after filing my 2006 return in April 2007, CRA sent me a request for more information re a foreign tax credit that I had claimed. I sent them the info and heard no more about until March of this year (about 7 months after I sent the info), and they ruled that they were disallowing the original deduction and asked me for an additional payment.

Fair enough, I paid the additional tax due, but they also charged me interest back to the original filing. Since the vast majority of the delay was due to CRA's internal process (this was a complex technical issue), it didn't seem fair that I should pay interest on their delay - I could have paid at the time the original question came up if they had ruled at that time.

Does this sound right?
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Postby AltaRed » 13 May 2008 01:11

westinvest wrote:Does this sound right?


Unfortunately, I believe the answer is yes. What they would argue is you were incorrect in the first place and thus should have paid the tax at that time. You have thus had the use of that money (rather than CRA) during the intervening period. I don't consider CRA's interest rates very onerous anyway and while I might be annoyed, I wouldn't get upset over it either.
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Postby Knowsitall » 13 May 2008 19:04

Of course it is INCORRECT.

That is why they have a fairness section.

Get in touch with them

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Postby bribarb » 16 May 2008 10:10

When they are charge you interest and a penalty for not making your quarterly instalments. Dont the interest and penalty qualify as a deduction against investment income. ie you wouldnt have the money to invest if you had paid the installments ?
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Postby Bylo Selhi » 16 May 2008 10:42

bribarb wrote:Dont the interest and penalty qualify as a deduction against investment income?

Nope. Interest CRA charges you isn't deductible. Interest CRA pays you is fully taxable.

If you find this inconsistent and/or unfair then let your MP know how you feel. Don't hold your breath waiting for any "reform."
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Tax help maybe legal issue??

Postby Dingo » 23 May 2008 09:06

Another tax questions for the experts here. Forgive the long explenation.

Ok here goes. My FIL is just buried his brother a while back. His son has mental maybe drug issues. So the money that his father left for him he did not want.

So he rerquested that my FIL look after it for him. Here comes the questions.

Could he set up an instituion to handle this money? Remebering that the son has been on the streets for 15 years.

How will he handle this money for tax purposes?

What reponsibilty or documentation should be keeping or supplying to his nephew to midigate legal responsibility?

Thanks for any help in this.
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Postby Knowsitall » 23 May 2008 10:40

I think you need the services of a lawyer and a tax expert on this one.

Dangerious to proceed without it.
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Postby Rickdl » 22 Jun 2008 08:51

brucecohen wrote:Also there are "attribution" rules that curb your ability to avoid tax by giving money or property to family members. If you give investment money to your spouse, income earned on that money is attributed back to you for tax purposes. If you give investment money to a minor child, interest and dividends are attributed back to you for tax purposes but capital gains are not.
What if you have a son (minor) who receives a cheque from his great-grandmother payable directly to him as a gift (birthday). Can you open a mutual fund account at TD or some bank in his name and deposit it there?

Where would future dividends, interest, etc be attributed to for tax purposes? Assume not the great-grandmother, hoping not myself. If it's a gift to a minor but not from the direct parents, can the interest & dividends etc be taxable to the minor? I understand when he's 18 the account would be his to do with, but I'm fine with that, it's a gift to him so meant to be his money not ours.

If the answer is yes (as a I hope it is) do I need any proof to show the gift was not from us (his parents) but from great-grandparents? photocopy of the cheque maybe?

Posting this question in this thread because the topic was touched on in here (did a forum search for attribution / gift / minors).
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Postby epson600 » 22 Jun 2008 09:06

If i remember correctly.

Capital gains would be taxed to the minor.
Interest & divies would be taxed to the gift giver.

The grandparent opening up an "Informal Trust" should be enough to show who the minor is and who the trustee (gift giver) is. I dont think a minor would be allowed to open up a securities trading account by themselves.
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Postby izzy » 22 Jun 2008 12:22

epson600 wrote:If i remember correctly.

Capital gains would be taxed to the minor.
Interest & divies would be taxed to the gift giver.

The grandparent opening up an "Informal Trust" should be enough to show who the minor is and who the trustee (gift giver) is. I dont think a minor would be allowed to open up a securities trading account by themselves.



However remember that the attribution only applies during the lifetime of the giver.e.g. if the grandparent is 95 attribution is not likely to apply for many years ,also attribution usually ceases when the child acheives majority in the case of a gift but interestingly not in the case of an interest free loan.
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Postby twa2w » 22 Jun 2008 23:23

If more than $10k is transferred between accounts, then FINTRAC must be notified by your bank

Actually not true. Cash transactions of 10M or greater are reported or a series of cash transactions totalling 10M within a short period of time. These must be reproted and there is a penalty for not doing so.
Unusual transactions are reported but transfers between accounts are not tracked unless they are 'unusual'. This is up to the local branch to report and if the tranaction makes sense it won't likely get reported. Some transactions are flagged through predictive modelling triggers but this is not a common occurence.
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Postby kcowan » 23 Jun 2008 08:14

twa2w wrote:
If more than $10k is transferred between accounts, then FINTRAC must be notified by your bank

Actually not true. Cash transactions of 10M or greater are reported or a series of cash transactions totalling 10M within a short period of time. These must be reproted and there is a penalty for not doing so.
Unusual transactions are reported but transfers between accounts are not tracked unless they are 'unusual'. This is up to the local branch to report and if the tranaction makes sense it won't likely get reported. Some transactions are flagged through predictive modelling triggers but this is not a common occurence.
Don't worry, big brother is not watching, yet.
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It depends on whose big brother you are concerned about. The banks decide what to report. So they must be watching. And they will err on the side of caution, iow report rather than not report.
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Tax questions

Postby Dingo » 14 Jul 2008 12:52

Here is my question can a marrieed couple declair each other as dependants when the other is in school?

I was on a work term in winter my wife was in school. Now Vice Versa. Are we allowed to claim the other as a dependant when the other was working?

Thanks for the help.
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Postby brucecohen » 14 Jul 2008 13:58

There's a spousal credit that's income tested. Also, the tuition and education credits are transferable between spouses.
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