Archive for April, 2017

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Universal Child Care Benefits Are Subject to Tax for The Last Time

There are a number of omissions that can occur in the rush at the end of tax season. One of them is missing the reporting of income benefits received by families in 2016. It’s important to remember that for the first six months of 2016 the UCCB (Universal Child Care Benefits) were received and they are taxable. That’s a double whammy for many upper-middle-income families who also lost the family income-splitting provisions. There are now no child tax supports at all for them.

Here’s what you need to know: Until June 30, 2017, the federal government paid to all families $160 per month for each child under the age of 6, and $60 per month for children aged 6 to 17. There was no income-testing in order to receive the benefits.

The UCCB was discontinued and replaced by the new Canada Child Benefit (CCB) on July 1, 2016, and this new tax-free amount was based on family net income of the 2015 tax year. Likewise, for the benefit year that begins on July 1, 2017, the CCB will be based on net family income that is reported on the 2016 tax return.

Therefore, it’s most important to file that tax return before May 1, and claim all the deductions the taxpayer is otherwise entitled to in order to reduce family net income—things, like child care expenses, investment carrying charges or moving expenses. And, if the taxpayer forgot to report the UCCB on a previously filed tax return, or missed any of these important deductions that determine the size of the CCB for the next benefit year, an adjustment should be made to those tax returns from previous years.

Families particularly affected by these recent tax changes are those with one stay-at-home parent and a high-income working parent. These parents now have no supports for raising minor children starting in 2017, when even the Children’s Arts and Fitness Amounts have been cancelled. In these cases, an RRSP investment strategy can be very helpful, as this deduction reduces net income. Depending on size of family net income, the RRSP deduction may initiate a partial claim under the CCB next year.

Alternatively, taxpayers most affected by these changes can consider saving for their child’s education within an RESP (Registered Education Savings Plan) to take advantage of another form of government support: the Canada Education Savings Grant. It’s 20% of the contribution made to the RESP, up to a maximum contribution of $2500 per year. That sweetener is not income-tested.

Planning to reduce family net income may increase your monthly cash flow from refundable tax credits like the CCB. Check this out with a DFA – Tax Services Specialist as tax season wraps up, especially if you find your tax refund is significantly lower than last year’s, or if you are unsure whether you could qualify for more.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.


Manitoba Budget Hints at Tax Reform

Manitobans were spared tax increases in the April 11, 2017, budget, but the breadth of change to its complicated and voluminous tax credit structure hints at more tax reforms to come. In a province where 134,000 top earners pay 58% of all personal income taxes, the best news was that the government did not introduce any high-income surtaxes and appeared to be on track to drop 1% of the sales tax by 2020. The worst news was handed to graduates and caregivers. Here are the changes:

  1. For Graduates: The Tuition Fee Income Tax Rebate will be capped at 10% of eligible tuition fees to a maximum of $500 in 2017 (this was previously $2500). It will be eliminated completely in 2018 and all unclaimed rebates will lapse. It’s therefore important to make the claim in full, if eligible, on the 2016 and 2017 tax returns.
  2. The Tuition Fee Income Tax Rebate Advance was immediately cancelled for terms that begin after April 2017.
  3. The Tuition Fee and Education Amounts will stay untouched in Manitoba, as will the Children’s Arts and Cultural Tax Credit and the Fitness Tax Credit; the federal government eliminated these in the March 22, 2017, budget. Also spared are the Adoption Tax Credit, the Fertility Treatment Tax Credit, the Senior’s School Tax Rebate, the Education Property Tax Rebate and the Farmland School Tax Rebates.
  4. The Primary Caregiver Tax Credit, which is a refundable credit for caregivers who assist disabled spouses, relatives, neighbors or friends in their own homes will be capped at $1400 starting in 2017. Retroactive claims will be disallowed for years prior to 2017.
  5. The Political Contributions Tax Credit will increase starting in the 2018 tax year. The maximum contribution will rise from $1275 to $2325, which computes to a maximum credit of $1000 as follows:
Contribution Tax Credit Maximum Dollar Credit Cumulative Credit
$0 – $400 75% $300 $300
$401 – $750 50% $175 $475
$751 – $2325 33.3% $525 $1000

 

6.  For all Manitobans:  Indexing of personal amounts will affect tax brackets as follows, reflecting indexing factors of 1.5%, 1.8%, 2.0% and 2.0% respectively from 2017 to 2020:

Year Basic Personal Amount Second Bracket Third Bracket
2017 $9271 $31,465 $68,005
2018 $9438 $32,031 $69,229
2019 $9627 $32,672 $70,614
2020 $9819 $33,325 $72,026

 

Under the Business Tax regime, the following changes arose in the budget:

  • Research and Development Tax Credit – this was reduced for expenditures after April 11, 2017, to a rate of 15% from 20%.
  • The Manufacturing Investment Tax Credit – was reduced from 2% to 1% on qualified property acquired after April 11, 2017.
  • The Corporate Capital Tax Deduction on small financial institutions was eliminated for fiscal years ending after April 30, 2017.
  • The Mineral Exploration Tax Credit was extended until December 31, 2020.
  • The Book Publishing Tax Credit was extended to December 31, 2018.
  • The Interactive Digital Media Tax Credit was extended to December 31, 2022.

Tax Credits that were immediately eliminated included the following:

  • Co-operative Development Tax Credit
  • Odour Control Tax Credit
  • Nutrient Management Tax Credit
  • Riparian Tax Credit
  • Neighborhood Alive Tax Credit
  • Date Processing Investment Tax Credit

The changes in spending in the budget position Manitoba towards deficit reduction and debt retirement. The province’s economic growth numbers look good: nominal GDP is expected to increase to 3.6% in 2017 and to 3.8% in 2018. The population has grown steadily over the last 7 years to 1,318,128 people, which represents a 1.7% increase.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.