Tag Archives: GST

Part 2: Tax deductions, credits you need to know about

If you are anticipating a large tax return you may have filed your income tax return as early as possible once you received all of your tax slips. The deadline for filing is April 30, 2018, but for Canadians who ran a business, or whose spouses ran a business, during the 2017 fiscal year, the tax deadline is pushed out to June 15.

However, for those of you who are still wading through the piles of paper on your desk to assemble the documentation you need to complete your 2017 income tax return, we present Part 2: Tax deductions, credits you need to know about. You can find Part 1 here.

    1. Line 212 – Annual union, professional dues: Claim the total of the following amounts related to your employment that you paid (or that were paid for you and reported as income) in the year:
      • Annual dues for membership in a trade union or an association of public servants.
      • Professional board dues required under provincial or territorial law.
      • Professional or malpractice liability insurance premiums or professional membership dues required to keep a professional status recognized by law.
      • Parity or advisory committee (or similar body) dues required under provincial or territorial law.
    2. Line 214 – Child care expenses: Canadian taxpayers can claim up to $8,000 per child for children under the age of 7 years at the end of the year, and $5,000 per child for children aged 7 to 16 years. For disabled, dependent children of any age who qualify for the disability tax credit, the amount to claim for that child is $11,000. More details about what expenses qualify, who can claim expenses and for whom expenses may be claimed can be found here.
    3. Line 219 – Moving expenses: To qualify, your new home must be at least 40 kilometres (by the shortest usual public route) closer to your new work or school. You can claim eligible moving expenses if you moved:
      • And established a new home to work or run a business at a new location; or
      • To be a student in full-time attendance in a post-secondary program at a university, college or other educational institution.
    4. Line 229 – Other employment expenses: Most employees cannot claim employment expenses. You cannot deduct the cost of travel to and from work, or other expenses, such as most tools and clothing. However, you can deduct certain expenses (including any GST/HST) you paid to earn employment income.You can do this only if your employment contract required you to pay the expenses and you did not receive an allowance for them, or the allowance you received is included in your income.If you are filing electronically, keep all your documents in case CRA asks to see them at a later date. If you are filing a paper return, you must submit a completed Form T777, Statement of Employment Expenses with your return. Keep all your other documents in case CRA asks to see them at a later date, including a completed copy of Form T2200, Declaration of Conditions of Employment signed by your employer.
    5. Lines 230 and 220 – Support payments made: If you are claiming deductible support payments, enter on line 230 of your tax return the total amount of support payments you paid under a court order or written agreement. This includes any non-deductible child support payments you made. Do not include amounts you paid that are more than the amounts specified in the order or agreement, such as pocket money or gifts that you sent directly to your children.
    6. Line 313 – Adoption expenses: As a parent, you can claim an amount for eligible adoption expenses related to the adoption of a child who is under 18 years of age. The maximum claim for each child is $15,670. You can only claim these incurred expenses in the tax year including the end of the adoption period for the child.
    7. Line 319 – Interest paid on your student loans: You may be eligible to claim an amount for the interest paid on your loan in 2017 or the preceding five years for post-secondary education if you received it under:

      Only you can claim an amount for the interest you, or a person related to you, paid on that loan in 2017 or the preceding five years.

      You can claim an amount only for interest you have not already claimed. If you have no tax payable for the year the interest is paid, it is to your advantage not to claim it on your return. You can carry the interest forward and apply it on your return for any of the next five years.

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Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Interview: Evelyn Jacks talks taxes*

 

Click here to listen
Click here to listen

Today I’m interviewing Evelyn Jacks for SavewithSPP.com. Evelyn is the founder and president of Knowledge Bureau, a virtual campus focused on professional development of tax and financial advisors. She was recently named one of Canada’s Top 25 Women of Influence. She is also one of Canada’s most prolific and best-selling authors of 51 personal tax and wealth management books, and a highly respected financial commentator and speaker.

Every year there are income tax changes and they impact individuals filing personal tax returns. First of all, I’d like to highlight some of 2017 changes that listeners should keep an eye on when they’re getting ready to complete their tax return.

Q: Evelyn, taxpayers with children are going to see a major change in tax credits for 2017. Can you bring us up to date on what these changes are? 
A: Yes, absolutely. The most notable changes found in the past are that the children’s arts amount which was the non-refundable tax credit on the Federal tax return has been eliminated and in addition, the refundable tax credit for the children’s fitness amount is gone.

On the employer’s side, the government has also discontinued a 25% investment tax credit for child care spaces of March 22, 2017. These are quite significant changes, especially because on the federal return, there are no other places, with the exception of disabled children, to claim minor children.

Q: What has happened to tax credits for tuition, education, and textbook amounts?
A: Again here, we’re seeing some significant changes. As of January 1, 2017, only the tuition credit can be claimed on the Federal tax return and then only if the total exceeds $100 in the year. What’s happened is that the finance department has removed the monthly education amount of $400 for full time students and $120 for part-time students, as well as the monthly text book amount, which was $65 for full-time students and $20 for part-time students.

However, when you look at the tax return you are still going to see references to the tuition education and textbook amount found in Schedule 11. That’s important because, students can still carry forward any unused amount from all three components of this credit from prior years.

The other thing I should mention is that the provinces all have education credits but that’s changing too, so, in Saskatchewan, for example, there has been an elimination of both the tuition and education credits as of July 1, 2017. Therefore, on the Saskatchewan provincial return you can only claim those credits for half of the year.

Q: Now, the public transit credit is also gone. What’s the effective date on that? 
A: On the Federal side, we saw that credit eliminated as of July 1, 2017. So again, it’s a situation where you’re going to have to keep your receipts and make the claim, just for half the year in 2017.

Q: In your view, what was the Liberal government’s rationale for eliminating these credits, and what did taxpayers get in return?
A: Well, the government is really undergoing quite a significant tax reform at the moment. When they came in with their first tax changes after the election, one of the first things they did was reduce the middle-income tax rate, for income between about $46,000 and about $92,000, from 22% to 20.5%. In addition,  they created an upper income tax bracket increasing the tax rate from 29%-33% on income over $202,800. The third thing they did was they introduced the more generous child benefits.

In fact, that benefit has recently been indexed for the beneficiaries starting in July 2018. If your family net income is under $35,450 then you’ll be able to receive over $500 a month for each child under the age of 6, and around $450 a month for each child age 6-17. These are quite lucrative amounts but they require the filing of a tax return and the combining of net family income.

Q: The eligibility for medical tax credits for fertility treatments has been expanded retroactively. Please explain those changes and what actions taxpayers who are impacted should take to realize the full benefit of these changes.
A: Yes, starting in 2017 and subsequent years, the expenses for medical treatments to conceive a child will be deductible even if the treatments are not required because of a medical condition, which was the criteria in the past. If the expenses ocurred in a year from 2008 forward they can still be adjusted, because we have a 10 year adjustment period that we can take advantage of.

Q: What, if any, other surprises might tax payers have when they start filling out their 2017 tax return?
A: Well, there are a lot of things that change every year including indexing of various tax credits, tax rates and claw back zones. But I think the one big change that I’d really like to point out is the caregiver credit. It’s new for 2017, and it replaces three credits from the past: the family caregiver tax credit, the caregiver tax credit, and the tax credit for infirm dependents. So now one caregiver can get credit.

The second thing is that there are two different amounts: one that I call a mini-credit of $2,150, and one that I’m going to call the maxi-credit of $6,883. So on the mini-credit side you must claim this. It’s the only credit you can claim for an infirm or disabled minor child. But not necessarily one who receives a disability tax credit, but someone who is infirm as it relates to normal development of other children on both a physical or a mental basis.

A person that can claim this mini-credit is someone for whom you are a claiming a spousal amount or an equivalent to spouse amount. Now, the maxi-credit generally is claimed for an eligible dependent who is over the age of 18. But in some cases, if you have a spouse with a low income, you can claim a top-up credit of up to $1,683.

So you’re going to have to take a close look at Schedule 5 on the tax return and at net income allowance, particularly for low income earning spouses, to make a complicated tax calculation. What you need to remember is that your dependents no longer need to live with you. You cannot claim this amount for someone age 65, who is healthy, which is what you could do before under the caregiver amount.

Q: It sounds very complicated. Can taxpayers typically rely on their tax software to guide them and ensure they get all the credits and deductions they are entitled to? In what circumstances do you think that they should seek professional advice?
A: Well, you know, I’m a big fan of tax software because these programs, first of all, take the worry out of the math for you, and some of the math calculations, particularly as you are calculating federal and provincial taxes is very complicated. But the tax program is not necessarily going to prepare the tax return to your best advantage. There are lots of ways to do the math correctly. What you are aiming for is to calculate to your family’s overall benefit, and to do some tax planning as well.

For example, there are a number of carry-forward provisions that people may not be aware of, or they don’t enter properly. You can carry forward charitable donations to up to five years. You can carry forward capital losses in stock market investments indefinitely to offset capital gains in your future.

The other thing is that starting in 2017, you absolutely have to file the refund titled T2091, a designation of principle residence form, even if you sell a tax-exempt principle residence. Anyone who sells property starting in 2017 has to fill in this complicated form. The tax software may or may not tell you about that, and if you miss it you could be issued a penalty of up to $8000. That could really hurt.

Q: What are the most frequent errors or omissions tax payers typically make when completing or filing their income tax return?
A: Any expense that is discretionary, so, I’m thinking of child care expenses and other kinds of expenses where people have out-of-pocket costs. Moving expense are really lucrative, for example. Also, missed medical expenses are very common.

Q: If you had three pieces of advice to offer tax payers to help ensure they file a correct tax return, and get all the credits and deductions they are entitled to, what would they be?
A: The first thing is to catch up on any delinquent filed returns. The option to benefit from the long available disclosure program is actually changing and it will close for some people, effective March 1, 2018. So if you chronically ignore your filing obligations, not only will you be unable to avoid tax-evasion policies, you may not be able to avoid interest relief in some harsher cases. That’s really important. Catch up if you’re behind.

The second thing is to make a RRSP contribution by March 1st this year because that RRSP contribution will reduce your family net income, which will increase things like your child’s health benefits, your GST credit or other refundable or non-refundable tax credits. The RRSP contribution is your ticket to bigger benefits or bigger tax refunds.

The last thing I would say, the average income tax refund in Canada is $1,735, which is a lot of money. That’s just your overpayment of taxes. Most people don’t realize that’s an interest-free loan that you give to the government. Turn that around, and put that money to work for you. Invest it in a TFSA because that’s going to allow you to earn tax- free investment savings for your future, or if you have children in the family, why not take advantage of the lucrative Canada Education Savings Grants and the Canada Learning Bonds by investing in an RESP. There’s lots of ways for people to leverage the money that they pre-paid to the tax department.

That’s really helpful Evelyn. Thank you very, very much. It was a pleasure to chat with you today.

Thank you so much for giving me the opportunity.

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This is an edited transcript of an interview recorded 2/07/2018.

Canadians can receive easy-to-understand interpretations of breaking tax and investment news by subscribing to Knowledge Bureau Report at www.knowledgebureau.com.   Look for the Newsroom Tab. You can also follow Evelyn Jacks on twitter @evelynjacks.

 

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Tax tips from Tim Cestnick

By Sheryl Smolkin

Click here to listen
Click here to listen

Today I am interviewing Tim Cestnick, Managing Director of Advanced Wealth Planning at Scotia Wealth Management for savewithspp.com. Tim also writes a personal finance column called, “Tax Matters” that has appeared every Thursday for almost twenty years in Canada’s national newspaper, The Globe & Mail. We’re going to talk about some of the things you need to know to complete and file your income tax return.

Welcome Tim and thanks for joining me today.

Q: What are some of the tax credits or deductions that many people aren’t aware of or that they may miss?
A: There are so many kinds of tax credits now. It’s important to really check to make sure you’re not missing something that you haven’t claimed in the past that is now available. Some of the things we see people missing are for example, interest deductions. Interest is deductible where you borrow the money for the purpose of earning income from a business or from an investment.

Also, I think fitness tax credits and tax credits for children are another area that people sometimes overlook. Don’t forget if you’ve paid for any kind of sports activities for your kids or even artistic classes like music or piano lessons, you can claim a tax credit for these amounts.

The amounts have actually been increased for fitness tax credits. You can claim up to a thousand dollars of eligible activities. It would get you pretty decent tax relief, probably two hundred and fifty dollars in tax relief federally plus maybe in total about four hundred dollars in tax relief from local and federal governments together, so it’s worth claiming those credits.

People also sometimes forget about the education and textbooks tax credits. But based on the March 2016 budget this will be the last year for many of these tax credits. 

Q: Are receipts required in all cases?
A: Yes, you do need receipts. You don’t have to turn them in with your tax return when you file electronically, but you have to keep them on file.

Q: Why should tax returns be filed for children, even if they don’t have any taxable income?
A: There are a couple of reasons why it might make sense to file a return for a child, even a minor child. Some people don’t even realize you can do this. If your child has earned any type of income at all from babysitting, or cutting grass, or delivering papers, report that income on a tax return because they’re not going to pay tax anyway if their total income is under $11,400 for 2015. However, they will create RRSP contribution room for later when they graduate and are working full-time.

Also, once your child reaches age 19 there’s good reason to file even if they have no income because they will be entitled a GST or HST credit which results in cash back to them of almost $300. 

Q: If taxpayers own stock in an unregistered portfolio, what are the advantages of making a charitable donation using stock instead of selling the shares and donating cash?
A: You’ll be better off donating securities that have appreciated in value than donating cash. You get a full donation tax credit for the value of the shares you are donating and on top of that, the government eliminates the capital gains tax on the securities. 

Q: What is the advantage to taxpayers of filing electronically instead of submitting paper forms?
A: There are a couple of reasons why you might want to do this. First of all, if you’re expecting a refund, you will get it faster by filing your return electronically. They can process it sooner and you will get your money much faster.

Also, it’s just simple to not have to send in all the paperwork. Some tax returns would be two inches thick if taxpayers had to send in all their receipts and what not. It’s just easier and quicker. 

Q: Do slips and receipts always have to be sent in with a paper filing?
A: Yes, you do have to send a number of slips and receipts. However, there are things you don’t necessarily have to provide. For example, if you’re an employee and you are claiming a certain employment expenses like use of your car, you don’t have to file a Form T2200 signed by your employer to say you had to pay for those costs. But you have to keep it handy. 

Q: Why is it getting a big tax return not necessarily a good thing?
A: A tax refund is not necessarily a good thing because what it really means is that you’ve been lending money to the government over the course of the year and they’re only now going to give it back to you. The perfect scenario is that you file a return and you owe nothing and you receive nothing back. The reality is most people actually owe or get a refund of some kind. You just want to make sure the refund is not too big. 

Q: If an individual is reporting self-employment income and wants to deduct expenses, what are a couple of things that they should do to ensure that the expenses are allowed if CRA comes knocking?
A: The first thing is to make sure amounts you’re claiming are allowed. That includes any kind of expenses you have incurred for the purpose of earning income from your business but expenses also have to be reasonable in amount. In most cases, as long as you’re paying a third party for some of these expenses that shouldn’t be an issue.

You also have to make sure that you do keep any receipts or invoices that you paid as part of your expenses just in case CRA asks for them. There was a court decision that was handed down a number of years ago which established that if you don’t have a receipt for something it may still be deductible if you can demonstrate you paid that amount and the cost is reasonable. But it’s just easier if you keep all of your receipts. 

Q: What are the penalties if Canadians file their tax returns late?
A: If you don’t owe taxes then there’s no penalty for filing late. Of course you won’t get your refund as soon as you should so it’s nice to file on time. If you owe money and don’t file your return on time, there is a five percent penalty on the tax owing the day after the due date. The key is to make sure you file your tax return on time even if you don’t have the money to pay your taxes immediately. By doing that you’ll avoid any penalties.

Q: If you do file on time and you owe money, when do you have to pay it?
A: The money is owing  as of the due date of your tax return. Typically, for most people that would be April 30th. If it’s not paid by that time, you will end up paying some interest on the outstanding tax balance — not a penalty, just interest. 

Q: If CRA sends a notice requesting quarterly tax installments is it ever safe to ignore it?
A: You should never exactly ignore it. The reason they send you the statement is because they expect that you probably owe installments for the coming year. What you need to do is to evaluate whether or not the amount  they’re asking for is correct.

If you’re receiving a lot of investment income or you are a senior and don’t have employment income, you may end up  owing taxes when you file your return. Your best bet is to take a look at your income for the coming year, assess whether or not you think your taxes will be less or more than they were in the past year and actually do the math on your installments. When CRA sends you a statement you don’t have to abide by it, but don’t ignore it because you may actually owe  quarterly payments.

Q: So if you think your earnings will be lower, you do not necessarily have to remit the whole amount?
A: There have been situations where people have been asked to pay installments because they had a certain amount of income that was a one-time event. In that case, you may not have to make installments next year at all. You have to know really what your income is going to look like in this coming year compared to where it was last year to be able to make a decision about whether you can ignore a request for installments or pay a smaller amount.

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This is an edited transcript of a podcast interview with Tim Cestnick recorded in March 2016.

How hiring a professional organizer can save you money

By Sheryl Smolkin

If you have been meaning to clean out the garage, tackle the mess in your home office or ream out the cupboards under the kitchen sink for years but haven’t gotten around to it, maybe it’s time to hire a professional organizer.

While many organizers charge an hourly fee, others work on a project or package basis. Fees typically depend on the organizer’s area of expertise, geographical location, how far he/she has to travel and what competitors are charging. As a result, professional organizing fees can range anywhere from $50 to $175 per hour plus GST and provincial sales tax.

That may seem steep until you think about how paying someone to get you organized can actually save you money. For example:

  1. If your desk is so cluttered that credit card bills and utility bills are buried, you may be paying hundreds of dollars or more in fines or late payments on overdue payments.
  2. Lost receipts and warranties could mean that when your appliances or latest tech toys break down you may have to bite the bullet and get new ones instead of getting free repairs or replacements.
  3. Avoid having to make last minute visits to the store to buy ingredients for your favourite recipe, only to find that you have several open and unopened packages in the back of your pantry.
  4. Because archived unopened packages and cans of food quickly become stale-dated you may find yourself regularly pitching pricey unused ingredients after their “best before” dates.
  5. Time is money. How much time do you waste every week looking for the sweater that goes with your outfit, only to give up and wear something else because you have no idea where you saw it last?
  6. If you have several children close in age, clothing in good condition can be handed down to the next child. That’s if you can find what you need when you need it. Unless items are washed, sorted by size and carefully packed away, you will end up buying the same thing all over again for the next baby.
  7. Finding a newer, bigger place to live is expensive and disruptive. If you can only get the basement cleaned up and organized you may find you actually have lots of space for a home office or a playroom for your children.

Until recently in both our current home and the previous one, organizing my husband’s workroom seemed like an insurmountable challenge. There were large pieces of equipment he never used and it seemed impossible to safely and neatly store his amazing collection of tools acquired over many years.

Because it was so cluttered he found it very difficult to do any creative wood working and I got irritated every time I went downstairs to do the laundry. We finally hired a professional organizer last spring because my son was moving back home temporarily and we had to free up as much space as possible for his stuff.

In about 12 hours on three separate days he worked with my husband to organize both the work room and the garage. As a result, my son did not have to pay to store his boxes because we found room for them. The organizer carted off several pieces of useful equipment and found them a new home. Also, he put a kiln and a wheel from Joel’s pottery-making days on Kijiji and managed the replies.

There have been several cases where Joel couldn’t find things after the organizer left because they were carefully put away in a place that intuitively made no sense to him. But overall, we are delighted with the result and there is one less thing for me to grumble about.

You can find a professional organizer using the search tool on the Professional Organizers in Canada website. If you have the inclination to organize other people’s messes for a living, you can also find information about training and accreditation as a professional organizer.

Tax tips for seniors

By Sheryl Smolkin

SHUTTERSTOCK
SHUTTERSTOCK

Retirement income has to last a long time and stretch to cover the increasing need for care required by disabled or older seniors. That’s why it is important for seniors, their children and their advisors to fully understand and take advantage of available tax exemptions and deductions.

Here are two tax breaks you may not know about.*

1.    Disability tax credit (DTC)

The disability amount is a non-refundable tax credit that a person with a severe and prolonged impairment in physical or mental functions can claim to reduce the amount of income tax he/she has to pay in a year. In 2013 the maximum tax credit for people over 18 is $7,697.

To be eligible for the DTC, The Canada Revenue Agency must approve Form T2201, Disability Tax Credit Certificate. You can apply for the DTC at any time during the year. Retroactive payments may be made if the individual was disabled for several years before applying for the tax credit. Last year we got over $9,000 back for my mother.

If you qualified for the disability amount for 2012 and you still meet the eligibility requirements in 2013, you can claim this amount without sending in a new Form T2201. However, you must send one if the previous period of approval ended before 2013, or if requested to do so by CRA.

You may be able to transfer all or part of your disability amount to your spouse or common-law partner or to another supporting person.

If you received attendant care and you are eligible for the DTC, there are special rules that apply for claiming those expenses. For more information, see Attendant care or care in an establishment.

CRA has an interactive online quiz you can take to find out if you or your family member may qualify for the DTC. Also see Who is eligible for the disability tax credit? for all of the requirements that must be met to qualify for the DTC

2.    GST/HST for homecare expenses 

The goods and services tax (GST) in Saskatchewan (or the harmonized sales tax (HST) in Ontario, Nova Scotia, New Brunswick, and Newfoundland and Labrador) is not payable on publicly subsidized or funded homecare services.**

However, if an individual is not approved for municipal or provincial homecare services, a private agency must charge GST/HST.

Nevertheless, if a government agency approves even a small amount of subsidized homecare services (i.e. 2 hours/week), then ALL public and private homecare services become GST/HST exempt.

That’s why Lorne Lebow, a partner in the accounting firm Stern Cohen LLP recommends that in any situation where an individual requires home care services, an application should be made to the relevant government agency for subsidized or free services before or at the same time a private home care worker is retained.

“Even if a government agency authorizes services for only one or two hours a week, it’s enough to trigger the GST/HST exemption for additional privately-retained home care services. With GST/HST rates ranging from 5% (Saskatchewan) to 15% (Nova Scotia), that can quickly add up,” Lebow says.

He also advises individuals receiving both public and private home care services to inform the agency they are working with and request that invoices do not include GST/HST.

In the event that someone you know has inadvertently paid GST/HST you can apply to the CRA for a rebate going back two years.  Saskatchewan residents must send the completed General Application for rebate of GST/HST CRA (Form 189) three-page form with a letter from the government agency confirming the client is receiving subsidized care plus copies of the original invoices to Summerside Tax Centre 275 Pope Road Summerside PE C1N 6A2. 

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*Also see Guide RC4064, Medical and Disability-Related Information and discuss your family’s situation with your accountant or other financial advisor.

** Effective March 21, 2013 the definition of “homemaker service” in the GST/HST legislation has been expanded to include cleaning, laundering, meal preparation and child care provided to an individual who, due to age, infirmity or disability, requires assistance in his/her home plus  personal care services such as bathing, feeding, and assistance with dressing and taking medication.

Also see:
Tax tips for seniors – getsmarteraboutmoney.ca‎
TaxTips.ca – Saskatchewan Income Tax
TaxTips.ca – Seniors Income Tax and Government Benefits