Lucrative Tax Breaks for Families with Children

An often under-claimed and misunderstood tax deduction is the claim for babysitting or child care expenses. Make the claim on auxiliary tax form T778 and generally you will do so on the return of the spouse with the lowest net income. However, there are cases where the higher earner can make the claim. Here are the rules:

Eligible child care expenses. Claimed on line 214 of the tax return, eligible child care expenses include costs of care that apply in order to allow a parent or caregiver (living with and primarily responsible for the child) to do the following:

  • Earn income from employment
  • Carry on a business either alone or as an active partner
  • Attend school under the conditions identified under Educational program
  • Carry on research or similar work, for which you or the other person received a grant

Note that Employment Insurance benefits and passive investment income sources don’t count for these purposes.

Claiming child care expenses. Receipts documenting child care costs must be kept.Child care expenses must normally be claimed by the lower-income spouse. However, they may be claimed by the higher-income spouse during a period where the taxpayer was separated from the other supporting person due to a breakdown in their relationship. This must have occurred for a period of at least 90 days, as long as they were reconciled within the first 60 days after the taxation year.

If the taxpayers were not reconciled within 60 days after the taxation year, then each spouse may claim any child care expenses they paid during the year with no adjustment for child care expenses claimed by the other taxpayer.

In addition, the higher earner may make the claim if the lower earner was a full time student, incapacitated or incarcerated.  

Other tax credits and benefits for families with children. The child care expense deduction is particularly lucrative not just because it reduces taxes payable, but because it also reduces net income, the figure upon which other refundable and non-refundable tax credits are calculatedOther benefits and credits eligible families will want to ensure they receive include:

  • Canada Child Benefit (CCB) which was enhanced in July of 2018 to increase accessibility to Canadians.
  • GST/HST credit.
  • Provincial benefits and credits.
  • Child Disability Benefit.
  • Working Income Tax Benefit (now called the Canada Worker’s Benefit)
  • Children’s special allowances.

These credits and benefits don’t need to be re-applied for annually, but to ensure they’re received continuously by eligible families, taxpayers need to file their yearly tax returns even if they made no income during the year.

Child care expenses can also be used to reduce withholding taxes, along with RRSP contributions, moving expenses, deductible employment expenses, medical expenses, interest on investment loans, tuition fees, and charitable donations. This is something that most people aren’t aware of, and all it takes is filing form T1213 Request to Reduce Tax Deductions at Source, for taxpayers to see that money appearing back on their monthly paycheques!

Planning ahead, all child care expense receipts for 2018 should be in order and filed for audit purposes, while 2019 receipts for January to April are ripe for assembly as well. New parents in 2019, in particular, should seek extra help with their tax filing rights with a visit to their professional tax specialist for specific questions and advice.

Be sure to get your copy of Essential Tax Facts 2019, by Evelyn Jacks, available May 24! This new book will help you prepare for the 2019 tax season, and is integral resource to help educate and inform taxpayers. Pre-order yours today by calling 1.866.953.4769!

14 Income Sources that Attract No Tax

Canadians pay a lot of tax! In fact, tax is the single greatest lifetime expense: an average two-income earning family could pay in excess of $1 million over their lifetime. While meeting with clients to file their 2018 taxes, it’s a great strategy to discuss the tax exempt income sources. Planning to earn more of them will help with cash flow and paying less tax next season.

The most common types of exempt income include the following.

  1. TFSA (Tax-Free Savings Account) income earnings and withdrawals
  2. Inheritances
  3. Lottery winnings
  4. Capital gains on the sale of a home used as a tax exempt principal residence (although you must file Form T2091 (IND) Designation of a Property as a Principal Residence by an Individual to report the disposition)
  5. Capital gains on publicly traded shares donated to a registered charity or private foundation
  6. Income exempt by virtue of a statute including the Indian Act
  7. Canadian Service Pensions, War Veterans Allowance Act Allowances
  8. Proceeds from accident, disability, sickness or income maintenance plans where the taxpayer has made all the (non-deductible) premiums
  9. Social Assistance Payments received for providing foster care
  10. Scholarships and Bursaries for certain qualifying full-time post- secondary students or that relate to elementary or secondary programs
  11. RCMP Pension or Compensation received in respect of an injury, disability or death arising directly out of, or directly connected with, the service of a member in the RCMP
  12. MLA and Municipal Officers Expense Allowances but only until the end of 2018, when unaccountable allowances become taxable
  13. Service Pensions from Other Countries on account of disability or death arising out of war service received from a foreign country that was an ally of Canada at the time of the war service
  14. Tax-free benefits of employment, including transportation to a special worksite, certain transportation passes, uniforms supplied to the employee, education taken in order to benefit the employer, etc.

It’s also essential to ensure that income isn’t over-reported, and that you find the above tax-exempt opportunities by conducting thorough interviews with your clients. Not just once – but annually – to ensure you capture new opportunities as they arise.

This list of tax exempt income sources was excerpted from the 2018 edition of Essential Tax Facts by Evelyn Jacks. The 2019 version will be available this May! It’s a great resource to share with your clients, to make them more tax-savvy. Pre-order your copies by calling 1.866.953.4769.

Thought Leadership: Developing Brand Loyalty at Tax Time

Although many of you are in the midst of the hustle and bustle of tax season, this is actually a great time to develop brand loyalty with your clients. After all, you may be seeing many of them for the first time all year. This creates an opportunity for you to set yourself apart from your competitors and get that valuable referral business. But what does brand loyalty mean, and how do you establish it?

Defining brand loyalty. Consumers are far more likely to choose a brand that they recognize over something they are unfamiliar with, which is why many of the products and services we purchase today come from national or internationally branded chains. But this applies with smaller businesses as well. Specialty or boutique services can also establish brand loyalty if their brand clearly defines who they are in their market space, which increases their appeal with the public.  

When customers recognize and use your brand, it begins to build your brand equity in several ways. Firstly, it starts the process of creating customer loyalty and return business. Secondly, it starts to build your customer referral base. These are the people who use your service and share their positive experiences with their family and friends. With the lightning speed of social media communication, your brand equity begins to develop the moment your first customer posts something complimentary about you online.

The more recognition you receive and the more you build your brand, the more your company will be viewed as a leader in the marketplace by not only your customers, but also by your suppliers, and potential current and future stakeholders.

This dictates that when building your brand, you must consider both the short-term value and the sustainability of the brand over time. How do you do this? 

The following steps are discussed in Knowledge Bureau’s new certificate course Business Leadership, Culture and Continuity which is part of the MFA™ – Executive Business Growth Specialist program. 

  1. Identify: start by clearly identifying what you stand for. Product-based companies can usually easily identify this by the quality of what the products they offer. However, for service-based companies it can become more complex. 
  2. Explain: once you have a sense of your brand pillars, you can begin to describe and explain your brand’s value proposition. This is basically your “elevator pitch”. In one short statement, it tells your prospective customers both what you do and what values you bring to the people you serve.
  3. Share: the next step in building out your brand is to begin the sharing process. Unfortunately, this is often where most business owners “jump the gun” and begin to share their brand story prematurely. The story of why/how they started their business gets woven and tangled into a confusing array of communication through a variety of tools. This confuses the market about who you really are.
  4. Validate: this step in your brand development is focused on establishing credibility to what you claim to offer. You accomplish this by incorporating customer referrals, testimonials, and the like into your communication channels.
  5. Grow: once you have validated your brand and your positioning in the marketplace, it is time to turn it up and grow your distribution.

Why is brand loyalty an especially timely issue? Due to the sweeping tax changes in the US, Canadian companies are deemed to be at a marked disadvantage, comparatively speaking. Reforms such as reductions of corporate tax rates, caps on small business tax, and deductions for capital investments have the Canadian business community increasingly concerned that our more stringent regulatory environment and higher taxes will make us less competitive.

The Canadian Chamber of Commerce has developed its most comprehensive policy position requesting that the federal government strike a royal commission on tax reform to help with Canadian economic competitiveness issues. Including that the Canadian tax system hampers investment and the ability of business owners to attract talent. 

Any tax reform will take time and consultation. In the meantime, Canadian business owners have to find ways to stay as competitive as possible despite a series financial obstacles that take money out of consumers’ pockets:  new taxes, economic uncertainty, debt management . Creating brand loyalty is one tool in your arsenal to ensure your business will grow in the future and be able to weather any storm!

Good News for Seniors: GIS Clawbacks Reduced

Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits payable were released on April 1 for the second quarter –  but unfortunately, seniors won’t be getting a raise. However, there is some good news about Canada’s public pension system, especially for low-income seniors who have employment or self-employment earnings, and for tens of thousands of seniors who haven’t been getting their CPP benefits.

First, for the second quarter of 2019 (April to June), the benefit rates remain as follows:

Family Situation Maximum Income (excluding OAS) Maximum Amount Reduction Rate*
Single, widowed, or divorced senior $18,240 $898.32 $1/$24
Spouse receives full OAS $24,096* $540.77 $1/$48
Spouse does not receive OAS $43,728* $898.32 $1/$96 over $4,096
Spouse receives the Allowance $43,728* $540.77 $1/$48

*The benefit is reduced by one dollar for each multiple of income level shown (e.g. $1 for each $24 of income for a single senior). Note that the first $3,500 of employment income does not count.
** This refers to combined income of both spouses

How are OAS and GIS rates determined? Rates are indexed quarterly based on the Consumer Price Index (CPI) for the most recent three months ending in the last increase compared to the CPI for the previous three months.  The CPI for November 2018 to January 2019 was lower than the CPI for August to October 2018 so the indexation factor, if implemented, would actually reduce the OAS payment amounts. However, when the indexation factor is negative, the payment rates do not change.

The basics on GIS eligibility. The allowance is available to low-income seniors aged 60 to 64 who are married to a pensioner or are the surviving spouse of a senior.

Changes to GIS clawbacks. There is some good news for GIS recipients starting in July 2020.  Currently, GIS recipients can earn up to $3500 of employment income without affecting their GIS pension. However, if they earn more, the GIS is reduced by 50% of the excess earnings.   That’s a steep clawback.

Beginning with the July 2020 to June 2021 benefit year, which are based on income earned in 2019, GIS recipients can earn up to $5,000 from employment or self-employment before their GIS is reduced. In addition, 50% of the next $10,000 of employment or self-employment income will also be exempt.

These changes would allow working seniors to earn up to $10,000 more in 2019 while still receiving benefits under the Guaranteed Income Supplement.

Automatic CPP enrolment. In the March 19, 2019 federal budget, it was proposed that eligible seniors age 70 and older would be automatically enrolled in the CPP program. It’s an important change when so many seniors continue to miss accessing public pension programs that can help significantly with financial security throughout retirement.

It’s an issue made evident by statistics relating to the GIS, which is missed by more than one in ten seniors, per a Statistics Canada report we covered in January.

Once implemented in 2020, the automatic enrollment process promises to bring CPP to 40,000 eligible seniors currently missing it, over a twenty-year period.

By Knowledge Bureau writers Walter Harder & Beth Graddon