Taxes on capital gains

When you buy a property, and if it is a home then you are probably saved from paying a tax on the same. However, there could be many other forms of capital gains on which it may not be possible for you to save yourself from making a tax payment.

The coverage on capital gains

According to Canada revenue Agency (CRA), when a property owned by a person is sold, it would certainly be done after a few years of buying the same. Under this condition there is likely to be an appreciation on the property prices. Therefore, when you sell the same you would be earning some profit and this is what attracts a tax in the name of capital gains. In case there is depreciation in the property prices it would be considered as capital loss.

Apart from property, even there are other commodities like stocks, mutual funds bonds, debentures and other securities would also be attracting taxes if you make a capital gain on them.

To add to this, you must be prepared to pay taxes for any farm or recreational building or property too, as these are also considered under capital gains it.

Calculation of taxes on capital gains

Capital gains meaning you have earned money, and if you have earned money then you need to pay taxes. Capital gains are generally taxed at half the marginal tax rate. No tax is levied on the property, even if it appreciates, until and unless you sell the same off.

The possible way out for saving taxes on capital gains

• In case you have bought condo for the purpose of making an investment and the same has been put on rent. You cannot think of saving taxes for the assessment bill you have. You can only save money if the prices have gone down and you have adequate evidence to show that you have incurred “capital loss” on the same.
• If a residence falls under “principal residence” of a family, then the taxes are not levied on the same. This clearly means you can think of getting an exemption on one property which you have chosen as principle residence“. For others you have to get prepared to pay taxes.
• Exemption is also given to a property meant for farming, or farm corporations and the shares you hold of a Small business which is qualified under the law.

Using Capital Loss to your benefit

In case you have incurred losses on a property, you may not use the same for getting a deduction or an exemption rather it can used to compensate against your capital gains when the taxes are calculated. The capital loss made in a year can be carried forward to the period of another three years, for the purpose of offsetting the claim of gains.

Taxes on Capital gains may not be saved directly, but, there are options and ways to avoid the same to some extent.

Tax Audit

Canada Revenue Agency (CRA) selects some files for the purpose of monitoring and inspection. When they intend to verify the income tax returns, the payrolls and the other documents which have been submitted by the tax filers, they send information to the selected people.

How are you being intimated about the same?

You will be receiving a phone call from CRA or you may receive a written document too wherein the details like the date and other relevant information would be sent.

What should you do when you are selected for the same?

You may take up the following steps when you receive the intimation:

• First of all maintain your cool and call up CRA officials to buy some time in case you have not been given enough length of notice.
• After you have sought for some more time, you must sit back with the file and the all the required documents which you have submitted while filing returns.
• Once you are through with this, you may start preparing for each and every paper on which you may be questioned.
• Ahead of Audit you must go through the Bill of Rights and know in details about your right as citizen. You will not be harassed unnecessarily for you have done nothing wrong.
• Never try to conceal or overdo any relevant information because this would only complicate your case.
• You can get back to your consultant who did the “filing job” for. In case you did not take help of any such consultant, you can now think of taking a help from a “tax lawyer” who can make you understand any pros and cons for any information which you forgot to share with CRA.
• You can also think of letting them about this “mistake” of yours before they pay you a visit.
• For any such Audit not only the primary date but also the secondary documents re equally important. In fact, everything should be available with you without any delay or confusion.
• You must be aware of the recent developments in the field of tax and this is generally released by CRA from time to time.
• Be prepared for any kind of question which may sound irrelevant to you.
• There are cases when the taxes have been reduced after audit, and even if you are not the lucky one, at least you can hope that it’s not increased.
• Never answer irrelevantly and try to show off that you have been honest in paying taxes because for those who submit their papers and taxes honestly it shows. Over talking may ruin the audit and the case may go against you.
• Avoid getting into an argument; try to explain with a cool brain. Arguments will only spoil your case and malign your reputation.

An Audit from CRA is something that may sound scary but it can be handled with a sound preparation on the front of papers and documents. And the most wanted art is to maintain calm interiors to avoid getting into any kind of conflict.

Tax Evasion

Canada has stricter rules in place when someone is caught into “tax evasion”. One may invite either a penalty in the form of “fine” or it could be a combination of “fine and imprisonment” both.

The income Tax Act of the country enables all the residents to pay taxes according to given norms and this is calculated based on the income they make.

There are provisions to make claims legally and save taxes but there is no tolerance for evading the same.
When is a case regarded as “tax evasion”?

If one is found to be hiding the true information about his or her income and not making it as part of the document which is submitted to the CRA then it is a complete case of tax evasion. However, if someone, reports more of expenditure than he or she has actually spent and acclaims a higher amount of deductions then also it is a case of tax deduction. Any act which violates the “law spirit” is called as “tax evasion”.

What is the difference between “tax avoidance” and “tax evasion”?

When one intends to reduce the amount of taxable income then it is a case of tax avoidance. However, there are cases when people show “over expenditure” and claim more than required deductions or submit a false report or document to show a lower income so that they can pay less of taxes then it is known as “tax evasion”. Tax avoidance may not be observed as a “criminal act” in the eyes of law whereas tax evasion is a core criminal act and one can be prosecuted in the court for not abiding by the tax laws.

The Act which makes a part of “Tax evasion”

• Someone failing to file returns annually is certainly a crime in the eyes of the law. And this attracts punishment under Section 238 of Income Tax Act. If the charges are proved against a person then one may have to pay a monetary penalty of $1,000 and $25,000 and or along with this one may have to face imprisonment for up to a year or 12 months precisely.
• Someone who submits an income statement which is misleading or false then also the penalty attracts a minimum of 50% which would not exceed 200% of the amount of tax which ideally should have been paid by the convict. One may also receive an imprisonment of 2 years along with paying the fine.
• Claiming False Credits may also attract a huge fine and even imprisonment for up to two years under section 239(1.1) of the Income Tax Act.

Paying taxes on time is quite important and even more important is to pay the right amount of taxes. Those who make an attempt to pay “less” can attract severe penalties and imprisonment which may range from months to a couple of years. Hence, it is better to be honest and correct with the information one provides to CRA.

Payday Loan

Any reform in payday loan industry would be quite welcomed by the consumers as they have been facing quite tough consequences rather harassment from the lenders.

Pay day loans on one hand come as “big and instant help” for many who are in need, whereas on the other hand, they become a weapon for the lenders to extract more and more out of the principal amount paid to the borrowers.

The high interest rate in the payday loans

It has been observed that this short term loan has made the borrowers pay an interest rate of even three digits and if we convert this value into actuals it won’t be an exaggeration to say that people are made to pay even 300% of interest on the amount they borrow through this facility.

The operations of payday loans

There are more than 1200 payday lenders alone in Florida. There are banks which have attracted the attention of Comptroller of the Currency and Federal Deposit Insurance Corp for wrong reasons.

A glimpse of the reforms

• The first and foremost capping is proposed on the interest rate which extracts most of the consumers. Even for a small mount of borrowed principal, they have to pay an exorbitantly high amount of interest arte of more than 400% to the lender merely to get saved from any legal prosecution or consequences.
• The major reform is going to be there in the form of an evaluation process which would actually look into the capacity of the consumer to repay the loan he takes. And this evaluation will be for both the principal borrowing amount and the interest rate charged on it. Unless this step is met, the guesses are being that no one will be allowed to either make a payment or receive a loan. This step is majorly taken to ensure that no borrower who is a misfit gets caught into the crossfire of “loans and interest”.
• Cases are observed when a borrower takes another loan to meet up the interest on the previous pay day loan he has borrowed. To combat this issue, the regulators are proposing to maintain a “cooling off period” for a minimum of one month. This would be the period during which a borrower will not be given a second payday loan.
• Also, steps are being taken to ensure that a consumer understand the probable interest rate on the money he borrows.

The important features of the legislation passed in Texas

In order to bring more transparency to the process, Texas has passed a legislation which is to regulate the high interest rates collected from the consumers. Although a milder version of the legislation has been into existence but it has failed to controlled the “pain” for the consumers caught in “debt trap”.

Payday Loans may seem to be supportive at a glance, but quite often it leaves the borrower with a huge amount of money to be repaid. Hence, a regulation of the nature mentioned above would probably bring some relief to the borrowers by regulating things more than before.

Here are the steps to find it out.

Well, no doubt, it’s not so simple to do so. But knowing a few points can help us in this regard.

 Let see these—

• Find out check’s origin—You need to know the origin of the check. Were you expecting any such check from someone who is not known to you? No, then you ought to be suspicious of any such check.
• Smooth edges—In order to know whether a check is not a legitimate one, you need to see the edges of the check. Whether all edges are smooth? It is likely that the check is not a genuine one. Reason? Because a legitimate check must have one perforated side. Moreover, the paper of the check is usually heavier than the paper of the copier.
• Address and logo—Look for a bank logo. It must not be faded. And make sure the bank address appears to be accurate. If the address is incomplete, then you need to smell some trouble. There should not be any typos or misspellings (spelling mistake) in the printed information.
• Check number—Always have a look at the check number mentioned at the right (upper right) corner to see whether it matches the number mentioned in the MICR(Magnetic ink character recognition) line. Both areas must have check numbers. Moreover, the routing number needs to be nine digits.
• MICR lines—MICR line comprises a line of digits represented by the bank routing number, bank account number and check number. MICR is read by bank check sorting machines and check processing equipment.
• Signature—Signature ought to be forged if there are any gaps, stains or any digitized appearance. Make sure to check the signature against the ID of the check writer.
• Amount—If the amount is less than $5000, then it is quite obvious that the check is not a genuine one but a fake check. The reason is that federal government has instructions that banking customer must be provided any checks below five grand within a period of five days of deposit.

All such steps mentioned above can be of great help to determine the genuineness of the check at the earliest and save you from becoming a victim of a fake check.

Understanding Social Security System

Social Security System in Canada includes variety of aspects like “unemployment insurance, old age benefits, disability and health care benefits” and similar ones.

The first step towards Social Security System

The first step towards enjoying the benefit of social security system is to get a “Social insurance Number” which is of 9 digits and is the key to avail eh facilitates extended by the government.

Those who are there in the country on a temporary basis can produce their work permit and other relevant document to avail one. And the application can be made even online too.

The various facilities covered under this system

• Child Care Benefits: It enables a family to receive a monthly support from the Government to bring our children. The system says that a family can claim $100 per child per month, right from the first month of the child’s birth.
• Old Age benefits: A Canadian citizen can avail this facility provided he has stayed in the country for 10 years and he is above 65 years of age. He or she receives a monthly payment to maintain the needs.
• Disability benefit: Somebody who is physically disabled and is not able to work continuously or take up a full time job can avail this benefit to sustain himself. Some of them are long term benefits which are paid for a long period of time, whereas some may be paid for a short term basis too.
• Healthcare benefits: The healthcare support is extended by the facilities available in the provinces. And for this it is mandatory to hold a “healthcare card” issued by the relevant ministry. In some provinces one may have to pay an extra premium other than the taxes for enjoying this benefit.
• Employment benefits: it provides financial assistance to the Canadians who are unemployed or on maternity leave or even if one is looking after the peseta ND hence not being able to work. Even fishermen can claim this benefit as well.

The limits of the system

In order to enjoy the benefits provided under the system, one should be a Canadian citizen. Even if one is not, he may enjoy some of the benefits but needs to submit relevant and required documents for the same.

Also, one has to pay the taxes and sometimes premiums beforehand and regularly so that in times of need one can make the most of this facility.

There are agreements made with other countries which support the contributions made in other countries for calculating the eligibility of an applicant. However, one should not expect to enjoy all possible supports in such a case.

Life is full of responsibilities and uncertainties; today someone who is going to the office heartily may not be able to continue with his work for a longer period of time, due to various unforeseen reasons. If one is particular about making contributions to these plans at least the future will be secured to some extent and one may not find himself in a deep financial crunch during exigencies.

Credit Rating

When you approach a lender or a creditor for a loan, your credit rating has the capacity to make the process faster or even slow it down. Because, the first thing a lender whether it is an organisation or individual is going to interrogate is about your ‘credit rating’.

The contribution of past and present

Role of past: the way you have been making your past payments and clearing your bills or dues will constitute almost 35% of your credit rating. And this is going to play a major role in determining your report on credit. People who are alert and sincere and making payments would be getting a better score than those who have not been doing so.

Role of present:  your present payment status or dues will constitute 30% of the credit rating. This includes the various loans and dues you owe to pay in the present. So, someone with too many loans will certainly expect a lower score than somebody who does not have too many of them.

Role of time length: if the credit continued for quite a prolonged period then it will be reflected in your credit rating and will constitute almost 15% of the same.

Need of credit: If you have applied for a new credit, only recently then the rating will certainly will go low and it will make almost 10% of the same.

Kind of credit: this will make 10% of your credit rating and depends on the kind of loan you are into, whether it is revolving one or instalment one.

The various factors

• Time

If it was too long back that you failed to make payments on time and you have learnt a lesson since then, and you showed improvement then you can be relieved. While preparing your credit rating people will look into the history of payment after you delayed making a payment in the past. If there is a regular occurrence then your score and rating will go down or else it may improve considerably, if you have been sincere after making mistake once.

• Frequency of missing payments

If you are in the habit of missing payments quite often then you can’t expect the agency to give you a good score. And this is quite natural too. A low frequency will save you from getting a bad rating.

• Length of time

If you kept on delaying the payments beyond a tolerable limit then your rating will be lower than you expect.

• Your promptness

If you have been prompt to let the creditors know about your delay in not being able to make payments or you have been sitting tight will reflect your attitude towards the whole issue.

Credit rating is an important financial component which can make or break things at financial front. One must be prompt in making payments on time and even getting into too much of loan as well. This will help the credit rating to improve and save from a lot many hassles too.

Interest Only Mortgage

People have been experiencing turmoil when it comes to “mortgages” and “using a home’. Sometime, back there were changes made in the amortization period and down payment which held people back from buying a house according to their plans.

And now, the new challenge before them is the “interest rate on the mortgages”.

The challenging state

A recent study indicates that more than 2.5 million people will not be able to pay their loans even years later and this is owing to the high interest rate levied on mortgages.

The system of interest only mortgage

About 75% of the UK home owner’s population seems to be spending a lot of money on paying the interest on the mortgage. Unfortunately, the principal amount remains as it is without getting reduced with every payment.

The challenge ahead

The homeowners are supposed to pay the entire amount of loan when the term of mortgage matures. And this maturity could come even after 25 years. If you calculate the age of a person getting into this kind of a loan after 25 years then it would be somewhere near 60 if he is 35 now.

The popularity of the mortgage

Till two decades back, people were quite keen to take this mortgage because they calculated the rise in the property value which was expected to cover the cost of the mortgage.

The study on the matter

For the interest only mortgages which would be maturing between now and 2041, will leave more than 35% of the holders into a deep financial insecurity and crunch as well. This percentage of people fear that they won’t be able to pay ask the huge amount of home loan when the term arrives maturity.

People consider this loan to be a “piled up debt” which is creating pressure more than giving even slight comfort to them.

FCA estimates about 45% people facing a shortfall due to this loan.

The impacted lot

For people who are approaching retirement and the maturity of this loan, are supposed to be the worst affected ones. Amid all this, if there is somebody who is already into other kids of loans would be facing the worst of circumstances on financial front.

Those with almost nil repayment strategy would be badly affected too.

The viable way

Those who would be approaching in another 10 years’ time can think of viable plan to escape the worsening situation. Banks and Societies have started working out a plan to save people. In the process, Santander offers fifty present of the value their property holds.

FCA also forces the lenders to explain the risk waiting in the future to the borrowers so that they can gear up for repayment and can work out a plan for themselves.

They say that more than 60% of the home owners could not understand the impact on future due to such a loan. And hence, today when they have realized it, they worry about the repayment.

Penalized for filing returns late

Every year more than 25 million Canadians pay taxes to the Government. They have now crossed the date of 30^th April when they were supposed to pay the taxes and file their returns. About 8% of them fail to file returns on time.  Now it is time for them to sit and wait for the evaluation or feedback coming from CRA on the files they have submitted.

What are the Canadians going to wait for?

Now, they have to wait for the pale penalty they may come across. The story doesn’t stop here, rather it moves on to the penalties for the lapses and consequently the benefits which the government may compromise upon.

There would be yet another set of filers who would be waiting to get a refund on the taxes they have submitted.

What will be the probable structure of penalty?

• If somebody gets delayed in filing returns for a few days only then he may get prepared to pay an extra amount of 5% as penalty. Another 1% will be added to this penalty for a delay of every one month till 12 months.
• If there is someone who forgets or intentionally does not file returns for months then he may have to face serious consequences. He will certainly have to get prepared for paying a penalty and at the same time he will have get prepared to miss upon quite a few opportunities he may have received from the government.
• Repeated failure in paying the taxes and filing returns will make you pay a penalty of 10% to the federal as well as provincial/territorial government.

However, those who inform the tax department voluntarily about not being able to pay the taxes then he or she may expect a waiver too.

What are the benefits you may lose upon?

You may lose upon major benefits like GST and child tax credits which can help you save a major chunk of your money. The other loss for you could be the guaranteed income supplement and even the assistance programs offered by the provincial government.

Child tax credit could be a major source of saving for many people belonging to middle class strata or even lower income group of the society.

An expert opines that you will keep missing upon these major benefits and many such ones till the time you pay your dues on taxes and get back to the normal system. And it also means that the benefits which you could have enjoyed in July would not be coming your way if you miss the deadline of April 30.

One must understand that the taxes have to be field either sooner or later because Government has its way to keep a track on the same. So, a delay from the payers end will only cause discomfort and loss of benefits for those who are reluctant or less alert to pay the same. Making payment on time would secure a lot of advantages from the Government’s end too.

Cheating on Taxes

Those who have been thinking of escaping taxes and paying less to the Government should be aware now. There is a strong message from the Government that they won’t be spared.

The new regulation

The Government would now be able to reach the accounts a Canadian citizen holds with any other country too. And this is a new strategy adopted to catch upon the tax cheats.

Finance Minister, Jim Flaherty, made this announcement that the information about any individual can be swapped to retrieve the details of bank account.

The new regulation is completely in coherence with the law passed in 2009, which allows bureau gather information from any of the foreign counterparts.

Carlo Carg, Finance Undersecretary informed that, “tax evaders now have nowhere to hide.”

The precursor to the regulation

Rey Mari, Internal revenue bureau spokesperson says, ”The Government would take every step to catch the Tax evaders. ”

The statistical analysis

Bureau of International revenue suggests that only 5 million people file their returns and hence pay their taxes. Ultimately this leads to deficit in revenue generation and hence restricts the Government from delivering even the basics of the services.

The impact of the Regulation

Carag further informs that with the help of this regulation Organization for Economic Cooperation and development to categorize Philippines as a “white list” of countries. This is because it has implemented the tax standards.

Philippines have the authority now to request any country to get the details of bank account of any individual.

Criminal charges are being framed against high profile personalities and even companies who are suspected of evading taxes, especially on “import duty”.

The catch by the Canadian Government

CRA has caught upon 1,700 names from Canada who hold account in HSBC. And this is done with the help of an informant who is supposed to be a former IT employee of HSBC private Bank in Geneva. At the same time the Revenue Minister expresses concern about the privacy rights of the people paying taxes. He is of the opinion that the rights of the taxpayers should be reserved even if there is a bilateral confidential deal between Canada and France.

In spite of making such a big hue and cry about the matter, there are hardly 7 cases a year which lead to conviction in court.

The way out for the tax payers

The taxpayers holding account in HSBC Bank can make a “voluntary disclosure” about the income which they revealed before. They have the option of paying the pending taxes along with interest and can avoid facing any kind of penalty or charges.

Cheating on taxes could be a major case one can be convicted for, when caught with enough evidence. There is always a better way to handle the situation by owning up and clearing the dues. Government has to get strict on this issue because it needs revenue to provide basic facilities to the people.