HBP (home buyer plan)
1. What is qualifying home?
Located in Canada
Acquired not more than 30 days before withdrawal under the RRSP HBP
Occupied as your principal place as residence within one year after buying or building it (new building or existing house)
2. RRSP repayment schedule?
Must be repaid over a period of not more than 15 years to retain your tax deferred status
If less than your scheduled repayments, the amount will include in your annual income for the tax purpose
3. Key points regarding HBP?
Repayment must made on or before 60 days after the end of the year
Start the second year following the year in which the withdrawal is made
The repayment does not need made to the same RRSP account (but should under same taxpayer name)
All the unpaid balance will include in deceased annual income report at the death year unless an election is made to have the liability assumed by the surviving spouse
Andy Liu withdrew $15,000 form his RRSP account in May of 2017 to purchase his matrimonial home the annual repayment for 2018?
The annual repayment for 2019 and what is the due date for keep the tax defer status?
$1000 ($15,000/15), due by March 1, 2020
If Andy Liu repaid $800 to his RRSP in 2019, what is the tax consequence regarding his repayment?
Based on the info give before, what’s the balance regarding Andy Liu`s HBP and his scheduled annual payment for 2020 will be?
Balance $14000 and $1000 ($14000/ 14 years)
If Andy Liu died at 2020, what will happen regarding this un-repaid amount? And is that any tax efficacy strategic can be apply to reduce the tax burden?
Un-repaid amount will include in Andy’s 2020 tax year return
The Andy’s spouse can elected to take over the balance to keep the tax defer status
U.S Estate Tax
1. What it is the taxable assets if it is located in USA?
Real estate, share in publicly traded U.S corp whether held in a brokerage account in Canada or outside Canada
Bonds, debentures and other debt obligation issued by U.S Corp or Government, deposit in U.S. Brokerage firm as non cash deposit
Estate tax based on the market value of their U.S. assets at death
Any U.S. situs (property located within the States) will subject to this tax
2. Exemption amount of U.S. assets estate?
For the non Amerasian Citizen owned U.S- situated assets under $60,000 FMV at death
New exemption amount for the U.S assets estate is $10 million until 2025, for this assets amount is based on your total globally assets
3. Tax rate and tax Credit?
40% and the a unified tax credit of $4,417,800
John Wen passed away 2020 year and owning a condo in DC of Waston that was worth 1.5 Million U.S dollars and non-U.S situs assets totaling $5 Million in U.S dollars, if the estate tax on the condo is deemed to be $412,800, calculate the net estate tax?
Net Estate tax = Tax – prorated tax credit
Total estate for John Wen = $1.5 Million + $5 Million = $6.5 Million
Net estate Tax = $412,800 – (1.5 / 6.5) ($4,417,800) = $0
Principal residence Rules
Have to used as the principal residence and is occupied by the taxpayer
Exemption =( # of year owned as principal residence + 1) / # years owned X ( sale or deemed FMV – ACB)
Calculate the taxable capital gain
Taxable capital gain = (Capital gain – Exemption ) X 50%
Your client has owned their home for 25 years and it has been elected as principal residence for only 15 years, the ACB is $450,000 and they sold it at 2020 for $700,000, what is the tax consequence for them?
Calculate the principal residence exemption amount ?
The exemption is ( 15+1) / 25 X ( $700,000 – $450,000) = $160,000
The capital gain amount?
The taxable capital gain is ?
50% X $90,000 = $45,000
Taxation of dividends
1. What is the eligible dividend?
Avoid the potential double taxation of dividends
Dividend paid by Canadian corporation (public corp)
2. What is the tax benefit for the eligible dividend, what is the taxable dividend amount and what is the DTC amount?
Have the special tax credit dividend treatment
Taxable dividend amount = gross-up 138%
DTC amount = federal 15.02%
Tony owns 200 share of the CIBC, CIBC paid a $2 /share dividend. Lets assume Tony`s MTR is 31%, please calculate the tax payable and after tax income?
Cash dividend: $2 X 200= $400
Gross up (38%) = $152
Taxable dividend amount = $552
Federal Tax (31%) = $171.12
Federal DTC (15.02%) = $82.91
Tax payable = $88.21
After tax income = $311.79
How to read the bond question?
Face value is $1000
Priced in 100`s as percentage fo the par value, ex: trading in 98, means bond trading at 98% of its par value ($1000), bonds value is $980
Coupon rate is the for calculate the PMT value
Bonds pay semi annual interest unless the exam stated
Your clients holds a Government bond 6% due May 15, 2025, current interest rate 8%, calculate the bond price
TVC: N=5X2=10, I=8%/2=4%, PMT= $60/2=$30, FV= $1,000, PV=? M=E