Accounting and Taxes Thread

[bizaro86]

Originally Posted by Shazam

And most people's finances are a mess, most people don't know how transfer payments work, most people have very little money saved up and think that an RRSP is a type of investment. Next thing you'll tell me people know how bond ETFs work.

If you made people build their own bond ETF if they wanted a fixed income investment a few people would know more about bonds than they otherwise would have, and a bunch more would say forget it and not buy a fixed income investment even if it was appropriate.

[PaperBagger'14]

Originally Posted by GGG

Don’t get me started on all the automation features on cars. Ban automatics transmissions.

But that aside I think there are civics issues when people don’t understand how taxation works. For example the number of people that don’t understand how a marginal bracket works and instead think they lose money going into a new tax braket is significant.

Oh absolutely there is a massive lack of understanding of finances among the average person. Hell I had a hair cut yesterday and my barber (early-mid 20s guy) was throwing around a whole ton of terminology but it made almost no sense in the context he was using it. I just had to nod my head and be happy he was cutting my hair and not managing my money lol.

I do think the vast majority of people with simple tax returns should be able to have it done automatically still. I agree with you that people should understand how taxes work, but I feel this opinion will turn into a “old man yells at cloud” viewpoint.

[Slava]

Originally Posted by bizaro86

If you made people build their own bond ETF if they wanted a fixed income investment a few people would know more about bonds than they otherwise would have, and a bunch more would say forget it and not buy a fixed income investment even if it was appropriate.

People know almost nothing about bonds and fixed income. I'm not convinced many advisors could construct a proper bond portfolio comprised of single securities, so to expect that people, in general, could do that is just hilarious. I know you know about these things, but people like you and me are not average in any respect.

Truthfully, bonds are way underappreciated as an investment, and that includes advisors. Most advisors do not buy single fixed-income securities, and I would guess that most never have. I would imagine that on platforms like Questrade, almost none of the transactions are bonds, save for the odd bond fund or ETF. I think those are the minority, though, and most people are purely trading stocks (and crypto, now).

This is a bit of a tangent, but we know that people's financial literacy is poor for the most part. And yet, we want to encourage people to manage their own money. Then we wonder why people are at retirement age with unrealistic expectations and insufficient money to support themselves.

[bizaro86]

Originally Posted by Slava

People know almost nothing about bonds and fixed income. I'm not convinced many advisors could construct a proper bond portfolio comprised of single securities, so to expect that people, in general, could do that is just hilarious. I know you know about these things, but people like you and me are not average in any respect.

Truthfully, bonds are way underappreciated as an investment, and that includes advisors. Most advisors do not buy single fixed-income securities, and I would guess that most never have. I would imagine that on platforms like Questrade, almost none of the transactions are bonds, save for the odd bond fund or ETF. I think those are the minority, though, and most people are purely trading stocks (and crypto, now).

This is a bit of a tangent, but we know that people's financial literacy is poor for the most part. And yet, we want to encourage people to manage their own money. Then we wonder why people are at retirement age with unrealistic expectations and insufficient money to support themselves.

Oh for sure - that was tongue firmly planted in cheek. That comes from ggg's assertion that we should make people do their own taxes so they understand how stuff works. I agree with the sentiment there, but there's a line somewhere where expecting the average person to do something is totally ridiculous. Building a bond portfolio is over that line for the vast, vast majority of people.

I could do it if I wanted to (I definitely don't) but for the average person even if liquidity wasn't an issue (ie individual portfolio vs build an etf) trying to understand duration, convexity etc is just not a good use of time.

Way off topic now, but I agree with you about bonds. I've bought plenty of individual fixed income securities for various reasons, although never a properly diversified fixed income portfolio. I think some features of fixed income are underappreciated.

[Cappy]

Question for the accountants in here.

My wife ended up having to pay CRA this year. First time she has had to.

She earns a salary and has modest investments (mostly RRSP).

She received two bonuses this year and asked for them to be put in her RRSP (tax deferred). They ended up on her T4 as income and then gets dinged for a few grand in taxes.

This seems wrong to me, no?

The upgrade in income from salary and bonus didn't push her into another tax bracket, so i don't see that account for being under-taxed. So i am assuming its because the Company paid the bonus tax free direct to her RRSP, then counted it as income on t4?

[bizaro86]

Originally Posted by Cappy

Question for the accountants in here.

My wife ended up having to pay CRA this year. First time she has had to.

She earns a salary and has modest investments (mostly RRSP).

She received two bonuses this year and asked for them to be put in her RRSP (tax deferred). They ended up on her T4 as income and then gets dinged for a few grand in taxes.

This seems wrong to me, no?

The upgrade in income from salary and bonus didn't push her into another tax bracket, so i don't see that account for being under-taxed. So i am assuming its because the Company paid the bonus tax free direct to her RRSP, then counted it as income on t4?

Ni, it's supposed to still be reported in the T4 and then the big rrsp deduction offsets it. Did she get a report of the RRSP contribution to enter?

[BigNumbers]

Originally Posted by Cappy

Question for the accountants in here.

My wife ended up having to pay CRA this year. First time she has had to.

She earns a salary and has modest investments (mostly RRSP).

She received two bonuses this year and asked for them to be put in her RRSP (tax deferred). They ended up on her T4 as income and then gets dinged for a few grand in taxes.

This seems wrong to me, no?

The upgrade in income from salary and bonus didn't push her into another tax bracket, so i don't see that account for being under-taxed. So i am assuming its because the Company paid the bonus tax free direct to her RRSP, then counted it as income on t4?

Are you preparing your own taxes? If so, I'd get help from Locke.

The bonus should be on the T4. There is no such thing as being pushed "up a tax bracket" and under-taxed (see: marginal tax rates) - unless her employer doesn't use payroll software like ADP, etc, but in this day and age I wouldn't think that's the case. All payroll software looks at every marginal new dollar paid and taxes it appropriately (subject to your personal situation, etc).

The obvious non-professional answer here is you're not making the offsetting RRSP contribution deduction you should, if indeed you put it in an RRSP.

If you just said "put it in an RRSP" and they paid it to your bank account like a normal bonus, you're likely SOL for this year. If it is sitting in an RRSP account in cash or something in a brokerage account, then you need to make the RRSP deduction.

[DoubleF]

Originally Posted by Cappy

Question for the accountants in here.

My wife ended up having to pay CRA this year. First time she has had to.

She earns a salary and has modest investments (mostly RRSP).

She received two bonuses this year and asked for them to be put in her RRSP (tax deferred). They ended up on her T4 as income and then gets dinged for a few grand in taxes.

This seems wrong to me, no?

The upgrade in income from salary and bonus didn't push her into another tax bracket, so i don't see that account for being under-taxed. So i am assuming its because the Company paid the bonus tax free direct to her RRSP, then counted it as income on t4?

Assuming $100K salary, $10K bonus, $10K RRSP contribution...

T4 should show $110K in compensation because the $10K (although deferred) is actual compensation received during the year (it's legally her money)
Your wife should have a $10K RRSP contribution slip which is a deduction.
Taxable income should then basically be for those items $100K.

Now keep in mind, tax deferral is not the same as tax savings.

Use your RRSP correctly, you're reducing your taxable income in the higher tax brackets and withdrawing when retired (presumably) in the lower tax brackets. That spread is a tax savings.

But tax deferral (ie: pay taxes later) if used incorrectly, can often mean you pay more taxes than if you didn't defer at all. That's because the deferred amounts come into taxes all at the same time, which means it potentially is taxed in higher tax brackets than the bracket it was deferred from.

Like delaying a minor plumbing repair to preserve cashflow for a leak that's a few drips vs delaying too long and the damage is far worse than the cost of just doing the repair earlier when everything flushes out at once.


Now, I seriously have to ask... by "dinged a few grand in tax", what do you mean?

Total payable (line 43500) vs the amount you have to pay at year end (Total payable line 43500 minus Total credits line 48200) are different things. There's a difference for each line if you say, "How do I reduce my taxes owing?" I have run into this confusion many times.

For line 43500, it's basically to reduce your income or ensure you have all your appropriate deductions at year end. For balance owing, it's stuff like increasing deductions from slips, paying installments etc. to prepay your tax balance prior to filing your tax return.

Additionally... the income tax deducted on the tax slip is not a calculation of taxes. It is just an amount that is prepaid to the CRA for taxes that will be owed once the taxes are calculated with everything included.

So, it's not "bonus paid tax free to the RRSP account" then counted as income on the T4 slip. It's more like bonus transferred to the tax account with no prepayment of tax to the CRA before transfer.


On a side note. If people want the CRA to do more auto-filing of taxes for basic returns, my understanding is that many countries that do this are able to do this because many wages have a significantly higher amount withheld per year. Many people are in refund positions vs owing positions for this foreign government auto filing program to work as smoothly as it does. IDK how many people would be as happy if there was a requirement for an extra 10-20% withheld on basically everything. I guess it incentivizes people to review and approve an auto filed return ASAP?

[Cappy]

Originally Posted by BigNumbers

(1) Are you preparing your own taxes? If so, I'd get help from Locke.

The bonus should be on the T4. (2)There is no such thing as being pushed "up a tax bracket" and under-taxed (see: marginal tax rates) - unless her employer doesn't use payroll software like ADP, etc, but in this day and age I wouldn't think that's the case. All payroll software looks at every marginal new dollar paid and taxes it appropriately (subject to your personal situation, etc).

The obvious non-professional answer here is you're not making the offsetting RRSP contribution deduction you should, if indeed you put it in an RRSP. (3)

(4) If you just said "put it in an RRSP" and they paid it to your bank account like a normal bonus, you're likely SOL for this year. If it is sitting in an RRSP account in cash or something in a brokerage account, then you need to make the RRSP deduction.

1) no, we have accountants. We use different accountants though (last time this year)

2) Thats not what i meant. but they were bigger bonuses so would have made her income extend into another bracket where that amount would have been taxed higher (i know how tax brackets work)

3) This is what i thought maybe happened? i have not yet seen her T1

4) not what happened. Was paid directly in.


As i admit above, i have not seen the her T1 and the amount isn't huge which made me think her end of year bonuses just got taxed at the higher bracket than the software taxed her at - the extra 1-3% on 5 figures could produce that.

In terms of a T4, do contributions to RRSP show up in employment income or under another line item?

[Locke]

Originally Posted by BigNumbers

Are you preparing your own taxes? If so, I'd get help from Locke.

The bonus should be on the T4. There is no such thing as being pushed "up a tax bracket" and under-taxed (see: marginal tax rates) - unless her employer doesn't use payroll software like ADP, etc, but in this day and age I wouldn't think that's the case. All payroll software looks at every marginal new dollar paid and taxes it appropriately (subject to your personal situation, etc).

The obvious non-professional answer here is you're not making the offsetting RRSP contribution deduction you should, if indeed you put it in an RRSP.

If you just said "put it in an RRSP" and they paid it to your bank account like a normal bonus, you're likely SOL for this year. If it is sitting in an RRSP account in cash or something in a brokerage account, then you need to make the RRSP deduction.

I appreciate the vote!

Originally Posted by Cappy

1) no, we have accountants. We use different accountants though (last time this year)

2) Thats not what i meant. but they were bigger bonuses so would have made her income extend into another bracket where that amount would have been taxed higher (i know how tax brackets work)

3) This is what i thought maybe happened? i have not yet seen her T1

4) not what happened. Was paid directly in.


As i admit above, i have not seen the her T1 and the amount isn't huge which made me think her end of year bonuses just got taxed at the higher bracket than the software taxed her at - the extra 1-3% on 5 figures could produce that.

In terms of a T4, do contributions to RRSP show up in employment income or under another line item?

Okay, there are actually a number of different ways this could have gone. I dont mean to be disparaging but it can be difficult to ascertain the circumstances based on message board information.

In general with bonuses though, one is usually given a number of different ways to receive it and how it is accounted for.

Often though the bonus is paid out and a corresponding RRSP slip is issued. Income in and then directly out. They balance each other.

If! If thats the directed method. There are many others as well.

And again, not to be disparaging because you seem like you know your stuff, but I can empathize with some of the Accountants on here, you probably dont realize how many people do not understand how Tax Brackets work.

Again though, as Accountants, we kind of hedge our bets on that topic. We get that one a lot.

[Cappy]

Originally Posted by DoubleF

Assuming $100K salary, $10K bonus, $10K RRSP contribution...

T4 should show $110K in compensation because the $10K (although deferred) is actual compensation received during the year (it's legally her money)
Your wife should have a $10K RRSP contribution slip which is a deduction.
Taxable income should then basically be for those items $100K.

Now keep in mind, tax deferral is not the same as tax savings.

Use your RRSP correctly, you're reducing your taxable income in the higher tax brackets and withdrawing when retired (presumably) in the lower tax brackets. That spread is a tax savings.

But tax deferral (ie: pay taxes later) if used incorrectly, can often mean you pay more taxes than if you didn't defer at all. That's because the deferred amounts come into taxes all at the same time, which means it potentially is taxed in higher tax brackets than the bracket it was deferred from.

Like delaying a minor plumbing repair to preserve cashflow for a leak that's a few drips vs delaying too long and the damage is far worse than the cost of just doing the repair earlier when everything flushes out at once.


Now, I seriously have to ask... by "dinged a few grand in tax", what do you mean?

Total payable (line 43500) vs the amount you have to pay at year end (Total payable line 43500 minus Total credits line 48200) are different things. There's a difference for each line if you say, "How do I reduce my taxes owing?" I have run into this confusion many times.

For line 43500, it's basically to reduce your income or ensure you have all your appropriate deductions at year end. For balance owing, it's stuff like increasing deductions from slips, paying installments etc. to prepay your tax balance prior to filing your tax return.

Additionally... the income tax deducted on the tax slip is not a calculation of taxes. It is just an amount that is prepaid to the CRA for taxes that will be owed once the taxes are calculated with everything included.

So, it's not "bonus paid tax free to the RRSP account" then counted as income on the T4 slip. It's more like bonus transferred to the tax account with no prepayment of tax to the CRA before transfer.
?

Ok, so your still paying tax on the total income ($110,000 in your example) but you are getting a deduction on RRSP contribution to reduce your net income correct?

So, owing no other deductions, my income is $110,000, with 10k in RRSP deductions, would give me a net income for tax purposes of $100,000?

The only reason i ask is she has done this now for 3-4 years and always pretty much ends with no refund or balance as she is basically earning a consistent salary then using bonuses for RRSP. First time it's happened where she owes anything.

[Cappy]

Originally Posted by Locke

I appreciate the vote!



Okay, there are actually a number of different ways this could have gone. I dont mean to be disparaging but it can be difficult to ascertain the circumstances based on message board information.

In general with bonuses though, one is usually given a number of different ways to receive it and how it is accounted for.

Often though the bonus is paid out and a corresponding RRSP slip is issued. Income in and then directly out. They balance each other.

If! If thats the directed method. There are many others as well.

And again, not to be disparaging because you seem like you know your stuff, but I can empathize with some of the Accountants on here, you probably dont realize how many people do not understand how Tax Brackets work.

Again though, as Accountants, we kind of hedge our bets on that topic. We get that one a lot.

I didn't mean to come off disparaging lol; i get it. My comment was unclear and came off as one of those "dont work overtime as you will pay more in taxes" comments

[Locke]

Originally Posted by Cappy

I didn't mean to come off disparaging lol; i get it. My comment was unclear and came off as one of those "dont work overtime as you will pay more in taxes" comments

Okay, I can probably help you, but I kind of need to see the documents themselves to determine what happened.

Like I said, theres a lot of different ways this could have gone. If you want you can PM me and I can have a look.

[Locke]

Originally Posted by Cappy

Ok, so your still paying tax on the total income ($110,000 in your example) but you are getting a deduction on RRSP contribution to reduce your net income correct?

So, owing no other deductions, my income is $110,000, with 10k in RRSP deductions, would give me a net income for tax purposes of $100,000?

The only reason i ask is she has done this now for 3-4 years and always pretty much ends with no refund or balance as she is basically earning a consistent salary then using bonuses for RRSP. First time it's happened where she owes anything.

That could be a payroll issue. Sometimes when companies issue bonuses that are elected to go straight to RRSPs they deliberately withhold less tax knowing that the RRSP deduction is coming.

However, when thats done the payroll department is essentially guessing. They withhold less tax assuming the RRSP is going to cover the reduced withholdings.

Otherwise in your $110K/$100K scenario you are essentially correct, assuming no other factors.

[Shazam]

That’s why you should never take bonuses.

[accord1999]

Originally Posted by Cappy

The only reason i ask is she has done this now for 3-4 years and always pretty much ends with no refund or balance as she is basically earning a consistent salary then using bonuses for RRSP. First time it's happened where she owes anything.

Does she have interest, dividend or capital gains income? 2024 was a great year for most of that and in general, accounting departments don't account for possible non-work income for withholding.

[Julio]

Originally Posted by Locke

Well said.

Largely my experience as well.

They need to take the Minister of Finance out back with a blindfold and a cigarette.

Then fire everyone who works for CRA, burn it to the ground and salt the Earth behind them and start over.

Make me the Minister of Finance. I will sort this nonsense.

Strictly speaking, the Minister of National Revenue is in charge of the CRA...well since Feb. they were just renamed the minister responsible for the CRA. Much more focused job for you Locke, that way you wouldn't have to be bothered with the other, less important parts of the finance job

[Locke]

Originally Posted by Julio

Strictly speaking, the Minister of National Revenue is in charge of the CRA...well since Feb. they were just renamed the minister responsible for the CRA. Much more focused job for you Locke, that way you wouldn't have to be bothered with the other, less important parts of the finance job

One day....one day...there will be a 'Vote for Locke' sign on your lawn.

And when that day comes...it shall be a grim day.

[Julio]

Originally Posted by Locke

One day....one day...there will be a 'Vote for Locke' sign on your lawn.

And when that day comes...it shall be a grim day.

I didn't imagine there would be any voting at all, rather all of us plebes checking a box on our returns because folks like you told us to, and BAM!

Black CPA helicopters everywhere.

[Locke]

Originally Posted by Julio

I didn't imagine there would be any voting at all, rather all of us plebes checking a box on our returns because folks like you told us to, and BAM!

Black CPA helicopters everywhere.

When the Accountants mount a Coup upon the Government...we'll all be better off...trust me.

Granted, all of the Helicopter fuel is not going to do wonders for our Carbon Emission numbers, thats going to cause some problems of its own but...but it cant be helped.