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By Gigi Suhanic
National Post
FP Money
Saturday, March 22, 2003
Question: I have group life insurance coverage
through my employer. I contribute the premiums
for this coverage. Am I able to claim this
as a deduction on my tax return?
Answer: Generally, employee-paid premiums
on a group policy are not deductible for tax
purposes. The bigger question is what types
of carrying charges are deductible for 2002,
says Adrian Mastracci, a financial advisor
with KCM Wealth Management in Vancouver.
Adrian
Mastracci, president of Vancouver based ‘fee-only’ KCM
Wealth Management, says, “You may also
have incurred accounting, management, investment
counsel and safety deposit box fees which
are deductible.”
Start with Schedule 4 of the tax return. Interest
costs are generally deductible if incurred
to earn "income from property." Income is defined
to include interest, dividends, rentals and
royalties.
Interest can also be incurred on money borrowed
to earn other investment income, to acquire
an interest in a limited partnership, and to
acquire a partnership in which you are not
an active
partner.
Interest charges may also appear on T5013 slips.
Oil and gas investments give rise to exploration
and development expenses. Flow-through shares
give rise to resource expenses.
Examine your brokerage and margin accounts
for interest charges. Interest paid on Canada
Savings Bond payroll purchase plans is also
deductible.
You may also have incurred accounting, management,
investment counsel and safety deposit box fees
which are deductible. Some life insurance premiums
may be deductible where the policy is required
to be assigned as collateral to the lender.
However, group policies are usually not assignable.
Question: I am currently in the U.S. Armed
Forces, and am married to a Canadian citizen.
Upon retirement, my plans are to move to Canada,
but maintain my United States citizenship.
When I move to Canada, I am concerned how my
retirement pension, individual retirement accounts
and other investments will be taxed. As it
stands, I am in the 15% annual tax bracket,
as outlined by the Internal Revenue Service.
I plan on getting another job once I move
to Canada, to supplement my retirement. Can
you provide any information as to how this
income will be taxed? Will I file a Canadian
tax return and report my pension as foreign
income?
Answer: Unfortunately, you're going to see
a pretty big tax hit coming to Canada. When
all is said and done, all of your U.S. income
will be subject to tax at Canadian rates --
and we don't have anything as low as a 15%
bracket, says Kevyn Nightingale.
More importantly, our personal amount (the
amount you can earn tax-free) is only $7,756.
The U.S. equivalent for a single person is
almost $12,000. And that doesn't count the
other U.S.
benefits like mortgage interest, state tax,
and property tax deductibility, or the mother
of all benefits for most married couples --
joint filing.
Don't forget, as a U.S. citizen, you still
have to file a U.S. tax return no matter where
you live. Then you have to file a Canadian
return, reporting your worldwide income again.
If you pay U.S. tax on some income (and since
some comes from the U.S., you probably will),
you'll get a "foreign tax credit" on
your Canadian return.
The total of the two taxes will usually be
equal to what a regular Canadian would pay.
The process is just more complicated, and may
require a professional.
Question: We have declared a capital gain
for taxation years 1999, 2000 and 2001. For
the year 2002, a substantial capital loss will
be reported. Is it more of an advantage to
claim this loss against prior gains or to be
used in future year possible gains?
Answer: Generally, it is best to carryback
to 1999 as the inclusion rate for that year
was 75% whereas the rate for 2001 and 2002
is only 50%, says Ryan Beebe.
Therefore the individual should get more value
for the loss in 2002. Also, marginal rates
have come down since 1999 so a further benefit
would be realized. Depending upon the individuals
effective capital gains inclusion rate in 2000,
it may also be of more value to apply loss
carryback to that year. Rates were somewhat
of a mishmash that year with 75%, 66 2/3% and
50% being effective at different times of the
year. The years 2001 and 2002 have the same
inclusion rate (50%) so carryback or carryforward
might well be a saw-off.
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