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Lots of Canadians are bringing their investments back home these days. Because of this, the Canada Revenue Agency (CRA) is paying close attention. The CRA wants to make sure everyone is following the tax rules. Bringing investments back can be a good move, but there are some things that might make the CRA take a closer look. These could even lead to an audit, so make sure you’re avoiding these red flags.
What to avoid
One big thing the CRA cares about is if you’re not reporting income from investments you had outside Canada. The CRA has ways to see financial data from other countries. So, if you don’t report all that income, it’s easy for them to find out. Not reporting this income can lead to some pretty serious penalties and interest charges. It’s super important to tell the CRA about all your foreign income to avoid these problems.
Another red flag for the CRA is if you use capital losses too much to lower your taxable gains. It’s okay to use losses to reduce your gains, but if you do it a lot or claim really big losses repeatedly, it can look suspicious. The CRA might investigate to make sure those losses are real and not just a way to avoid paying taxes. So, if you’re claiming capital losses, make sure you keep good records to back them up.
The CRA also pays attention to people who use personal loans to make investments. You can deduct the interest you pay on a loan if you use that loan to earn investment income. But if you also used the loan for personal things, the CRA might not let you deduct the interest. It’s really important to keep your investment expenses separate from your personal expenses to stay on the right side of the rules.
Keep it simple
In this kind of environment, where the CRA is keeping a close watch, investors are looking for stable and easy-to-understand investment options. Constellation Software (TSX:CSU) looks like a strong possibility. This company buys and manages software businesses that focus on specific industries. These businesses provide software that’s really important for customers to run their operations.
As of writing, Constellation Software is a pretty big company with a market value of over $98 billion! In its most recent earnings report, the company announced that its total revenue was $6.6 billion. That’s a significant increase of 14% from the year before! This growth shows that the company’s business model is working well and that it’s able to deliver consistent results.
Constellation Software’s strategy of buying up these niche software businesses has been really effective. It allows the company to have a diverse portfolio of businesses and a steady flow of income. This approach not only helps the company grow but also provides a level of stability that can be appealing to investors who want to keep their risk in check.
Plus, Constellation Software seems to be focused on doing things the right way, which lines up well with what the CRA expects. By investing in Canadian companies like Constellation Software, investors can also simplify things when it comes to reporting foreign income and avoid some of those potential red flags.
Bottom line
As the CRA keeps a closer eye on investments that have come back to Canada, it’s really important for investors to be careful and make sure they’re following all the tax rules. By understanding what might raise red flags and by choosing stable and transparent investment options like Constellation Software, investors can feel more confident and have more peace of mind as they navigate the financial landscape.