By Maurice Walch
Time to pull out those shoeboxes full of receipts and try to make sense of the changes to the tax legislation from the most recent Budget. Here are some things to keep in mind while you prepare to complete your tax return.
What’s New in the Zoo?
Selling your house? Big Brother is Watching
Starting in 2016 Canadians need to report the sale of a principal residence on Schedule 3 of the tax return. If you own more than one property, you can only get the preferred tax treatment on one of them. If you decide to sell the one you are designating as your primary residence, you will need to file Form T2091 and detail the period-of-time you are identifying it as such. There are significant penalties if you fail to report the sale of your home.
Income Splitting for Working Families – Gone
Starting in 2016 the Trudeau government eliminated the ability for couples to split income with each other when calculating their total family tax bill.
Children’s Fitness Credit – Gone by 2017
This $1000 refundable credit was reduced to $500 for 2016 and will be eliminated next year.
Kids can Help
The Canada Child Benefit was introduced in 2016 to replace and consolidate several existing child benefits. The bottom line is if you earn over $70,000 this is a marginal benefit and it diminishes rapidly the more you earn. If you earn under $70,000 this tax-free income resulting from having children can be quite beneficial to the total household income.
TAX PLANNING TIPS
Child Labour
If your kids are working and earned less than $11,474 for 2016 they won’t have to pay any taxes. However, if they file a return they will create RRSP contribution room for later years when they are in a higher tax bracket.
Consolidate Credits on one Return
If you can, claim all medical expenses on the tax return of the lower-income spouse. As you can only claim medical expenses once they exceed three per cent of income (or $2,237), using the lower income results in being able to deduct a greater portion of your medical expenses. Check the list of medical expenses allowed. You might be surprised what you can include. As for donations, add them all together and have one spouse report them on their tax return as the tax relief for donations increases when they exceed $200.
Pass those Credits on (But Don’t Pass on the Credits!)
If you can’t use tax credits to reduce your taxes, transfer them to your spouse. If you’re a student and can’t use the tuition and education credits, transfer up to $5,000 of them to your parents or grandparents.
Advantages of Getting Older
Age Credit
If you’re 65 or older and earning less than $83,427, this credit could save you up to $1,068 in federal tax for 2016. If you can’t use all the credit you can transfer the unused portion to your spouse.
Split Pension Income
We can’t split income while working anymore, but once you retire you can split eligible pension income with your spouse. You simply report up to one half of that income on their tax return.
Costs of Home Accessibility – New this year
If you will be 65 or older at the end of 2016, and/or eligible for the disability tax credit you may be entitled to claim a credit for home renovation costs incurred to make your home more accessible. The allowable costs can be used up to a maximum of $10,000.
One thing to recognize is that many Canadians choose to do their own taxes, as tax planning software has made it easier to do basic tax returns. If, however, you have a slightly more complex situation, such as owning rental properties or are self-employed, it may be wise to consider engaging a professional tax preparer. They may well save you more than they cost.
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