Budget 2016: What Previously Announced Tax Provisions Remain?

If you are confused by the numerous family tax changes over the past couple of years, you are probably not alone. Here is a summary of the tax preferences you enjoyed in 2015 that didn’t make the cut in the latest federal budget on March 22, 2016. They include:

UCCB – Universal Child Care Benefit. In 2015, this benefit rose to $160/month for children under age 6, and a new benefit of $60/month for children 6-17 was introduced. However, that’s now all been replaced by the new Canada Child Benefit, which will begin in July of 2016. On your 2016 tax return, (that’s the one you’ll file next year), the UCCB will appear for the last time, to account for payments received from January 1 to June 30, 2016, which are taxable.

The Non-Refundable CTC. The Child Tax Credit for minor children was eliminated on the 2015 tax return. Many taxpayers have been looking for it this year, but the only non-refundable amount that can be claimed for minor children on line 367 is if the child is infirm and qualifies for the Family Caregiver Amount. The 2016 budget maintained the status quo and made no further changes to this tax credit.

The Child Care Expense Deduction. In 2015, the maximum claim increased by $1,000 to $8,000 per child under age 7; to $5,000 for each child aged 7 to 16 as well as infirm dependent children over age 16; and to $11,000 for children who are eligible for the Disability Tax Credit. This deduction will be claimed on your 2015 tax return and will continue into 2016 and the foreseeable future.

Family Tax Cut Credit. It’s gone for 2016 and going forward. Make sure you optimize it in the 2014 and 2015 returns. And don’t forget that the pension income-splitting provision is still with us, for those who receive periodic pension income receipts.

Children’s Fitness Tax Credit. This doubled to $1,000 in 2014, and is a refundable credit as of 2015. Eligible parents can claim 15% of expenses for qualifying activities to a maximum of $1000. This credit will be cut in half to a maximum of 15% of $500 in 2016 and will be eliminated for 2017 and future years.

Children’s Arts Amount. The federal credit will be halved in 2016 and eliminated in 2017. Remember that this is a non-refundable credit, so it doesn’t help those who don’t pay federal taxes.

Family Caregiver Relief Benefit and Critical Injury Benefits are now non-taxable to Veterans, as per March 2015 announcements. These provisions remain intact.

Now History however. . .

Donations of Proceeds from the Sale of Private Corporation Shares or Real Estate. The 2015 budget announced that starting in the 2017 tax year, an exemption of the capital gains taxes would have been allowed as well as a charitable donation tax credit to individual donors (with a deduction available to corporate donors) when shares of a private corporation or real estate were sold and proceeds donated to qualified donees within 30 days of the disposition. . Unfortunately, this provision was completely cancelled in the 2016 budget.

Investors Breathe A Small Sign Of Relief, but Losers include Mutual Fund Holders, Small Businesses, Charities and Certain Families

The March 22, 2016 federal budget took Canadians into a new fiscal direction. After years of fiscal prudence, new deficit spending plans will bring our collective debt over $732 Billion by 2021 and in the meantime there are indications that revenues will grow more slowly despite the new spending:

  • Income tax revenues are projected to increase by $6.9 billion or 5.1% to $142.7 Billion in 2015-2016
  • By 2020-2021 that number will be $177 billion, indicating a slower average annual growth rate of 4.4%
  • Corporate tax revenues are expected to decline in 2017 rebounding to their 2014 level by the end of 2018. Oil prices have been the main culprit, and with loss carry back provisions available corporate tax revenues will grow in the period by only 2.8%.
  • GST revenues will post a higher growth rate of 5.6% in 2015-16 but slow to 3.8% in the remainder of the period

The good news is that the much rumored increase to the capital gains inclusions rate did not come to fruition in this budget, and the anticipated changes to stock option benefits have been deferred for now. But If you’ve invested in corporate class mutual funds, you ‘ll want to do any switching between funds on a tax free basis now until September as that special tax free treatment will disappear.

Charities will also wince at the cancellation of a provision expected to begin in 2017, introduced in the last Budget. That is, the donation of sales tax proceeds from a qualifying private corporate or real estate dispositions will no longer qualify for a capital gains exemption if proceeds are donated to charity.

Families will be happy with the introduction of a more generous Canada Child Benefit, which is a refundable credit based on family net income. Specifically, the new Child Tax Benefit provides a maximum benefit of $6400 per child under age of 6 and $5400 per child age 6 to 17. The clawback zones are what we need to watch:

Family Net Income
Number of Children Under $30,000 $30,000 to $65,000 Over $65,000
1 0% 7.0% $2,450 + 3.2%
2 0% 13.5% $4,725 + 5.7%
3 0% 19.0% $6,650 + 8.0%
4+ 0% 23.0% $8,050 + 9.5%

This provision is based on 2015 family net income, which is determined on the tax return (2015) currently being filed.  Therefore, RRSP planning for families is extremely important as clawback zones can bring marginal tax rates over 50% for taxpayers with income under $65,000.  Foreign born individuals who are Indians and not Canadian citizens and permanent residents under the Immigration and Refugee Protection Act may legally reside in Canada and receive the CCB. A new limitation is being introduced with regard to eligibility for retroactive payments. Currently individuals may apply for CCTB and UCCB as far back as to introduction of programs; income-tax based credits however, are limited to a 10-year limitation.   Retroactive application of UCCB and CTB will align after 2016, to the 10-year limitation. Unfortunately, there is no non-refundable tax credit for minor children for those who do not qualify for the income-tested benefits. This was removed when the previous government introduced the Universal Child Care Benefit enhancements and the Family Tax Cut.

Other non-refundable tax credits will be removed as well:  the education/textbook amounts will disappear, as will the refundable children’s fitness credit and the children’s arts credit.

The balance of the tax can be reviewed in detail by subscribing to Knowledge Bureau Report at www.knowledgebureau.com under the Newsroom Tab.

Six Tax Concepts for Newcomers To Canada

Tax filing time is confusing for most Canadians, but for newcomers it can be completely bewildering. If you have the opportunity to help with this most important financial document of the year for many families, including new immigrants, consider broaching the following six concepts as a conversation-starter in your role as financial educator.

  1. In Canada Taxpayers File as Individuals.  Understanding Canada’s “progressive tax system” (the more you earn, the more you pay) and its effects on family wealth provides for a multitude of planning opportunities. First, everyone benefits from the Basic Personal Amount and tax brackets, that determine taxes payable when taxable incomes rise. For these reasons, family income splitting, when possible, provides better results, after tax.  However, be sure to discuss the Attribution Rules, which provide restrictions on what income and capital may be split.
  2. Family Income Counts for Credits, Too. Newcomers need to grasp that rising incomes will affect eligibility for refundable tax credits, like the Canada Child Tax Benefit or the GST/HST Credit.  Here “family net income” is used to determine eligibility.  Common law unions as well as married couples must share the information about each person’s net income to comply.
  3. Really Dig for Tax Deductions and Credits that Reduce Your Income.  Know that most refundable tax credits are determined by adding family net income – the income of both spouses – together, but that this figure can be reduced by common tax deductions like an RRSP contribution, union and professional dues, child care, investment carrying charges and moving expenses.  Really digging for every deduction you are entitled to makes a big difference in refundable and non-refundable tax credits the family will qualify for.
  4. Know Marginal Tax Rates on Different Income Sources.  Not all income sources are taxed alike.  Ordinary income from employment or pensions, interest, dividends and capital gains all affect different tax rates.   When you know your marginal tax rate on the next dollars you earn, you can make better choices about planning your income sources and choose tax-preferred investments to reduce the overall tax rate you’ll pay on both income and capital.  The result – more money for you over the long run!  Newcomers will appreciate help understanding their options.
  5. File and Pay on Time. Sage counsel includes the following:  Always be sure to file your return before midnight April 30 (this year that falls on a weekend so the deadline is May 2) to avoid late filing penalties. Then if you owe, pay the bill promptly to avoid and expensive interest charges.  Do know that you can voluntarily comply with the law to correct errors or omissions you may have made?  If you do so before CRA finds you negligent, you will avoid penalties and additional interest charges and, in severe cases of fraud, jail.
  6. Record Retention is for Six Years. Keep your books and records to justify the numbers on your tax returns for a minimum retention period of six years after the end of the taxation year to which those records relate and make sure they are in good order and that you can find them if CRA wants to see them.

Taxpayers in Canada have appeal rights and for these reasons must act promptly, based on the date on their Notice of Assessment. Newcomers must also report their official date of entry and determine the fair market value of their taxable assets, held worldwide, at that time.

Tax Services Specialist can help with required appraisals, the application for refundable tax credits and special tax provisions, like the proration of certain tax credits on the T1 return.

Evelyn Jacks is a best-selling Canadian author of 52 books including her latest, Family Tax Essentials. Evelyn is the Founder and President of Knowledge Bureau, a national educational institute. To learn more about professional tax preparation and tax-efficient wealth management, see www.knowledgebureau.com.

Precise March 15 Instalments Lead to 5 Wealth Enhancers

It’s important that fragile investments stay intact as markets recover. For this reason, it makes absolutely no sense to overpay any personal income taxes in advance on the March 15 quarterly instalment remittance deadline. Astute tax and financial advisors will make sure their clients encroach on only the right amount of capital for these purposes, especially if they are retirees.

Note that if the balance due on your personal income tax return is $3,000 or more for the last year and one of the two previous years, you’ll be required to make instalments quarterly. You’ll get a reminder from the tax department outlining the details once your return is assessed. If you find that your balance due exceeds $3,000 this year, you should consider adjusting your withholding so that it doesn’t happen a second time.

Also, if you’re making instalments and your income decreases, be sure to adjust your instalments downward as well. Check out the Knowledge Bureau Income Tax Estimator to assist with this calculation.

Your accountant uses tax software to help you choose the alternative instalment payment options. You don’t necessarily have to follow CRA’s billing method. But do know that if your alternative instalment payment schedule is deficient, you’ll be charged interest.

Under CRA’s billing method, instalment payments for March and June 2016 are based on the balance due on the 2014 return and your September and December payments will be based on your 2015 return. If your income is changing, use an estimation of the 2016 year’s income instead of CRA’s billing method.

Now, instead of loaning that money at no interest to the government with your overpayment, only to have to wait to get it back next April 2017, consider five ways to put your money to better use o increase your own net worth:

  • Pay down non-deductible debt if you have it.
  • Make an RRSP contribution if you are eligible.
  • Make an RESP or RDSP contribution if are eligible to do so.
  • Make a TFSA contribution.
  • Add the money to your non-registered investment account.

Additional Educational Resources: Advanced Tax-Efficient Retirement Income Planning course; Tax Strategies for Financial Advisors, Tax Planning for Corporate Owner-Managers.

Save Receipts to Qualify for Home Accessibility Tax Credit

“I told you so. . . .” The four dreaded words that often apply at this time of the year, and that tax practitioners politely try to resist when their clients end up with higher taxes payable than they should, simply because their tracking of receipts is skimpy to non-existent. This is an easy problem to avoid and no tax practitioner can emphasize enough how critical it is for taxpayers to keep receipts for their expenses throughout the year. For example, to qualify for a new non-refundable credit available in 2016 for home renos that allow a disabled taxpayer better access and/or mobility in a home, you absolutely need to retain all the receipts for the costs associated with those renovations.

The Home Accessibility Tax Credit was introduced and passed into law by the former Conservative government. It is designed to provide tax relief for taxpayers who are 65 or older or who are eligible for the disability amount, who must renovate their homes to gain access to, or be more mobile or functional within the dwelling. The maximum credit is 15% of $10,000, or $1,500. Where more than one taxpayer in a family qualifies for this credit, the credit may be split between taxpayers so long as the maximum $10,000 claim is not exceeded.

The requirements for the renovations are similar to the criteria for claiming renovations for disabled individuals as a medical expense. And here’s the good news: Where the expenditure qualifies for both credits, both credits may be claimed.

To qualify for the Home Accessibility Tax Credit, an eligible dwelling must be a housing unit owned and ordinarily inhabited, or reasonably expected to be ordinarily inhabited, at any time during the taxation year by a qualifying individual, or an “eligible individual” (that is, a spouse or common-law partner, or caregiver who was eligible to claim the disabled individual for the spousal, eligible dependant, caregiver or infirm dependant amount) so long as the qualifying individual does not own and ordinarily inhabit another housing unit in Canada throughout the year. Where the qualifying individual’s income is too high to be claimed, their caregiver will still be an “eligible individual” and may still claim the credit.

An eligible dwelling includes the land subjacent to the housing unit and up to 1/2 hectare of contiguous land (or more if necessary for the use and enjoyment of the housing unit as a residence).

A “qualifying renovation” is defined to mean a renovation or alteration of an eligible dwelling of a qualifying individual or an eligible individual in respect of a qualifying individual. It must be of an enduring nature, integral to the dwelling and undertaken to enable the qualifying individual to gain access to, or to be mobile or functional within, the eligible dwelling, or reduce the risk of harm.

A “qualifying expenditure” can be an outlay or expense incurred during the taxation year, including the cost of goods acquired or services received during the year, the cost of permits required, and costs for the rental of equipment used in the course of the qualifying renovation.

Amongst the expenses not allowed are financing costs; household appliances (excluding furnaces and other heating systems); electronic home-entertainment devices; annual, recurring or routine repairs or maintenance; the costs for housekeeping, security monitoring, gardening, outdoor maintenance services; and costs incurred to gain or produce income from a business or property. You can’t pay any of the renovation expenses to a relative or other non-arm’s length person unless that person is registered for the GST/HST. Finally, you can’t claim expenses that are reimbursed, other than government assistance amounts.