JBS BUSINESS SERVICES

“B U I L D I N G   S U C C E S S   T O G E T H E R” 

778 Rossland Ave, Trail, BC, V1R 3N3 

250 364 2235             info@jbsbiz.ca             www.jbsbiz.net

 

TAX PREP REFRESHER

Below is an overview of some of the more popular credits and changes for 2016 tax prep.  This list is NOT exhaustive.  Do your research.  Talk to a tax professional or visit the CRA website.

GONE for 2016 tax prep:

  • “Child born in XXXX” (line 367) dependant credit … gone.
  • The Family Tax Cut … gone.

GOING but still available for 2016 tax prep:

  • Children’s Fitness Credit – reduced (back) to $500.  Remains a refundable credit.  However, this credit is gone for next year’s tax prep.  The BC Provincial “equipment” top up remains for 2016 but will also likely disappear.
  • Children’s Arts Credit – reduced to $250 and remains a non-refundable credit.  It disappears next year.

NEW or recently new:

BC Education Coaching Tax Credit. This is a $500 ($25.30 “BC tax”) non-refundable credit. It requires 10 hours of extracurricular volunteering by a teacher, a teaching assistant, or an administrator doing just about anything with students. CRA will likely be asking for a letter from the school board.

BC Back-to-School tax credit. This is a new $250 ($12.65 “BC tax”) non-refundable tax credit for households with kids in school.  It appears to default when appropriately aged dependants are entered in tax prep software.

The claimable Childcare Expense has increased by $1,000/child (limit is now $8,000 and $5,000). This is a combined dollar amount for all children in the house under the age of 16 so if the expense is exceeded for a younger child, the amount not used by the older child factors in. If two parents, this expense must be entered on lower wage earner (some exceptions apply). Cannot be claimed if one parent is not working unless that parent is enrolled in full-time studies of at least 3 weeks. In the case of separated parents, both parents can claim the amount they paid for childcare, BUT one parent cannot claim the expense paid for the other parent.

Some new items have been added to the ever growing eligible Medical Expense list.  The cost to design a personal therapy plan in some situations is now deductible. And the costs for service animals to aid persons with severe diabetes are now allowable.  As always, check the CRA website for full disclosure.

Medical Expense Credit:    For adult dependants this has had its $10,000 annual limit removed, a change that could make thousands of dollars difference in tax liability.

Registered Disability Savings Plan:   A person who has a life expectancy of 5 years or less may now withdraw more from the plan annually without adversely affecting the tax situation.

Family Caregiver Tax Credit is an additional $2000 non-refundable tax credit available if you are supporting a disabled or infirm dependant as defined by a spouse or an eligible dependant.

The amount claimable for Adoption Expense has been increased to $15,000 per adopted child.  This is a non-refundable tax credit calculated by adding up eligible expenses and subtracting reimbursement received, if any. The net amount can be split between adoptive parents.

Senior’s (65+) Home Renovation Tax Credit is 10% of up to $10,000 in qualified renos (from installation of lever knobs/motion lights to door widening/cupboard lowering and also module items like ramps and tubs). This is a maximum $1,000 REFUNDABLE BC tax credit claimed by the senior or person paying for renos. No personal labour is permitted but family can be paid if the business is registered with GST.

New Home Buyer’s Credit:  This is a 15% non-refundable credit on $5000 = $750 max.  All sorts of “homes” qualify that were purchased since 2009.  However, to qualify the person must not have owned a home for the last five years. Also, if the home is purchased by a disabled person (or for a disabled person – as in a kid for a parent for example) who has their life style enhanced by that home, the credit kicks in for the purchaser without the 5 year non-ownership requirement

Tuition Tax Credit:   Has been expanded so that fees paid to an educational institution, professional association or government ministry for a required examination to obtain professional status recognized by provincial or federal statute or necessary for licensing or certification in order to practice a profession or trade in Canada are now an acceptable tuition expense.

Foreign Courses:   For those who enrol in educational courses offered in foreign countries, the 13 consecutive week full-time enrolment rule has been reduced to only 3 weeks to qualify for the Tuition and Education Tax Credits.

Registered Education Savings Plans:   There is now greater flexibility with the sharing of funds from between siblings without tax implications and repayment of federal education grants.

Check out the CRA website if you have anything to do with mineral exploration credits, LSVCC credits, synthetic dispositions, character conversion transactions, loss-trading in trusts, accelerated capital cost allowance, restricted farm losses, or corporate control provisions.

CRA CHANGES:

  • Effective April 1, 2016 – YES 2016 – the Government of Canada is switching to direct deposits for all federal payments to individuals so if you aren’t set up yet, it’s simple to do during tax prep using form T1-DD.  By the way, it appears that the Government is maintaining a lenient position on that April 1, 2016 date … but it will eventually be enforced.
  • Speaking of banking, CRA is now offering Preauthorized Direct Debit for payments TO CRA.  Yes, you can now give CRA permission to directly remove cash from your bank.
  • CRA is pushing taxpayers to email communications.  You have to set-up your CRA “My Account” because CRA, for security reasons, will send you an email directing you to check your in-box in your CRA “My Account”.
  • Coming soon to an App Store near you, a mobile application for your smart phone so you can access CRA anytime, anywhere!  Lucky you.
  • T2091 Sale of Principal Residence – this is a form that’s been around for years but now with new CRA enforcement in 2016.  You are required to report the sale of your home (principal residence). CRA is likely trying to identify house flippers escaping taxation by claiming the principal residence exemption.
  • T5008 Statement of Securities Transactions – started appearing for 2015 tax prep and will likely increase this year as a result of CRA increased reporting requirements for investors. This shows a summary of trading information completed by a professional manager.
  • RC62 Canada Child Tax Benefit – this slip reports the taxable child benefit received from January to June 30/16.  After that date the payments became tax free and this form will disappear for 2017.

Pension Income Splitting (not new but surprisingly still unused by some)

Since 2007, Canadian residents were allowed to split certain pension income with their resident spouse or common-law partner.  This can be done if the following conditions are met:

  • the pensioner and spouse or common-law partner were not, because of a breakdown in marriage or common-law partnership, living separate and apart from each other at the end of the year and for a period of 90 days commencing in the year (if living apart at the end of the year for medical, educational, or business reasons, pension income can still be split)
  • the pensioner and spouse or common-law partner are residents of Canada on December 31 of the year; or
  •           if deceased in the year, resident in Canada on the date of death; or
  •           if bankrupt in the year, resident in Canada on December 31 of the calendar year in which the tax year (pre- or post-bankruptcy) ends.
  • the pensioner received pension income that is eligible for the pension income amount tax credit.
  • definitions:  pension transferor – the one who receives qualified pension income;  pension transferee – the one to whom the split-pension is transferred (the recipient of the transfer).

No funds are actually transferred using pension splitting.  It’s simply a method for reducing the taxable income of one spouse by allocating income on the tax return, to the other spouse.  The transfer must be agreed upon by the spouses and form T1032 filed with each spouses’ return.  And both spouses have to sign both forms.

Up to 1/2 of eligible pension income may be allocated to the pensioner’s spouse when the tax returns are filed.  Doing the pension split shares the income between the two spouses, effectively reducing the overall household tax liability if the two spouses would have been in different tax brackets without the split.

In addition, there is a federal pension income tax credit on the first $2,000 of eligible pension income*. The pension split may increase, or even create, a pension tax credit for the transferee – definitely a bonus to the pension split itself.

Notably, even if the spouses are in the same tax bracket and pension splitting doesn’t provide the benefit of a reduction in the marginal tax rate, the pension split may still be financially beneficial if it creates or increases a pension tax credit for the transferee.

* Pension splitting will only create a pension income tax credit for a pension transferee who is under age 65 if the pension transferor has received qualified pension income, which is eligible for the pension income tax credit for a taxpayer of any age.