Audits

In an attempt to save myself a ton of grief I am going to endeavor to explain how corporate and personal taxes work and the interaction between the two.  In order to properly explain all of this I will first give you some perspective.

Employees

When you are an employee you don’t get all your money.  Your salary may be $100,000 per year, but the total cash you actually receive is only $80,000.  The difference is sent to the government for payment of taxes.

So we now have a new government in Alberta.  Now what?  Well truth is no one knows.  If you are an NDP supporter you probably think it will be rainbows and lollypops and the province will now be a better place.  If you are NOT a fan of the NDP you will point out that the NDP totally messed up Ontario, Saskatchewan and BC, and that those provinces have still not recovered.  You are also fearful that the Alberta economy which relies on Oil and Gas corporations will be messed over by royalty reviews and higher taxes.

There are two types of dividends that you can receive.  If you invest in publically traded corporations you can receive what are called eligible dividends.  Owners of small business corporations usually receive what are called ineligible dividends (or other than eligible).  Both types of dividends are treated in a similar manner for individual tax purposes, the only difference is the percentages that are applied to gross up the dividend and the percentage that gets applied as a dividend tax credit.  I will be concentrating on ineligible dividends as this is where I get the most questions.

In an attempt to save myself a ton of grief I am going to endeavor to explain how corporate and personal taxes work and the interaction between the two.  In order to properly explain all of this I will first give you some perspective.

Employees

When you are an employee you don’t get all your money.  Your salary may be $100,000 per year, but the total cash you actually receive is only $70,000.  The difference is sent to the government for payment of taxes.

This is a very common problem that I hear way too often.  I would like to preach about the virtues of not overspending, sticking to a realistic budget, and things like that.  However, I want you to read my blogs and learn from them, so I will save this for another time.

This blog is directed specifically at those of you who have made charitable donations through Pharma gifts, Mission Life, UHT, CHT, ATCLAP, or other organizations that are commonly known as tax shelters.  The premise is that you make a cash donation which yields you a much larger income tax credit due to revaluations, gifts in kind, and other “schemes”.

Beliefs and terminology aside what you need to know is that you must pay attention to every piece of paper you receive from the CRA so you do not have your taxpayer right taken away from you without your knowledge.

Before you hand over your receipts to someone to do your taxes make sure you check them out.  Get references and do some due diligence.  If you have read my previous blogs on receipts you know that they should be treated like gold.  Now it is time for a horror story.  It’s not even Halloween yet, yikes.

I love to share what I know with my clients, and anyone else who wants to listen.  I don’t take it personally if you have doubts about what I say.  Please question me.  Ask for clarification.  Ask me for legislative references.  If you call the CRA and get a different answer then what I gave you call me and get clarification.   NEVER EVER ASSUME (ass-u-me) THAT I AM WRONG !!!!!! 

If you have concerns about your taxes DO NOT CALL the CRA.  The CRA don’t give tax advice, and will not try to give you alternatives.  If you call the CRA you will get an off the cuff answer from an inexperienced person that does not understand your specific situation.

If you have questions about what your accountant is telling you ask them for clarification.  If you don’t like the answer or don’t feel you are getting taken seriously ask another accountant.  Most accountants are happy to take on new business and will do an initial consultation for FREE!!