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WHAT'S NEW FOR 2007 TAX SEASON

GENERAL

Year 2007 brought 2 Budgets with a mixed bag of goodies for taxpayers. Lowest Federal tax rate reduced from 15.5% to 15%. Personal amount, spouse amount and Age credit amount all increased; $2,000 per Child claim introduced; claim for Public Transit passes improved; Children Fitness claim introduced. For Seniors, income splitting introduced as well as age limit to convert RRSP into RRIF increased from 69 to 71. There were however, no changes in the tax rates other than mentioned above – but income brackets thresholds have increased and federal non-refundable credits have changed with indexation to inflation. Items of general interest are summarized below for your reading pleasure. For specific information, please discuss with your accountant or call us. The revised federal tax and income bracket thresholds are: 15.0% of taxable income up to $37,178; 22% from $37,179 to $74,356; 26% from $74,357 to $120,886 and 29% exceeding $120,887.

ONTARIO 

OHIP premiums which came into effect on July 1, 2004 remains the same for all taxpayers having taxable income above $20,000 annually. The rates are: taxable income under $20,000 – Nil; $20,000 to $36,000 - $300; $36,000 to $48,000 - $450; $48,000 to $72,000 - $600; $72,000 to $200,000 - $750 and over $200,000 - $900. Basic Property Tax for Seniors has is $625 – while maximum property/sales tax credit for seniors is $1,125. Ontario income bracket threshold and rates are: 6.05% of taxable income up to $35,488; 9.15% from $35,489 to $70,976 and 11.16% exceeding $70,977.

FEDERAL NON-REFUNDABLE CREDITS

2007 budgets have improved them–some are summarized here-2006 $ in brackets:
Basic Personal Amount - $9,600 ($8,839); Spousal/Eligible Dependent –$9,600 ($7,505); Age Credit – $5,177 ($5,066); Disability amount – $6,890 ($6,741); Caregiver Amount – $4,019 ($3,933); Infirm dependent amount – $4,019 ($3,933).

LUMP-SUM PAYMENTS

Lump sum payments such as arbitration awards (disability payment or spousal support for example) often resulted in higher taxes paid during the year they were received. Individuals who receive qualifying amount in excess of $3,000 after 1994, Revenue Canada (CRA) will use a special method of computing tax if it is advantageous to the taxpayers.

Refundable medical expense supplement increased from $1000 to $1,022 for family net Income between $2,984 and $43,067.

Other items of interest are listed below for information and reading enjoyment of the taxpayers.

RRSP

Maximum contribution limit for 2007 is $19,000; Unused RRSP amount carried forward indefinitely. For other changes, please contact us. How much to Buy? Call CRA to find out how much RRSP you can buy; or look at your 2006 Assessment Notice showing your RRSP Entitlement for the year 2007. Last day to buy RRSP is (tentative) February 29, 2008 How much you can save depends on your tax bracket – 4 Federal tax brackets – 15.0%; 22%, 26% & 29%. Do not forget Ontario tax rate also.

As a Rule of Thumb

if your income is under $37,000, RRSP contributions will save you 20% on taxes. If your income is, for example, $40,000, then buy at least $3,000 RRSP (assuming you have the entitlement) to bring your income down to $37,000 to maximize on tax saving by saving tax @ 31% on $3,000. Any excess RRSP will save tax @ 20%. Similarly, if your income is $80,000 and your RRSP entitlement is $20,000, buy only $6,000 to bring your taxable income down to $74,000 and saving tax @ 39% on $6,000. Any excess RRSP over $6,000 will save you tax @ 31% (assuming you have the entitlement). Government has added another tax bracket in the middle of highest and lowest. Call us for further details. All % numbers are rounded.

LABOUR-SPONSORED VENTURE CAPITAL CORPORATIONS

Commonly known as Working Venture Funds. These investments are normally handled by brokerage firms and not by the banks. LSVCC / Working Venture Funds (Labour Funds) are RRSP eligible – RRSP contributions entitle you tax savings at the tax rate that you are in. In addition, RRSP in working venture funds entitles you to save another 30% on taxes payable which is offered by both Federal and Ontario governments @ 15% each.
RRSP eligible
Holding time – years               8        Federal/Prov tax credit    15% each = 30% Total
Max. $ Limit W/Venture Funds           $5,000 per year.
Tax Savings – Minimum                  2,550         Your cost = 2,450                 (All numbers are approximate)
                        - Maximum                   3,508         Your cost = 1,492


HOME BUYERS’ PLAN/LIFELONG LEARNING

This plan allows the taxpayers to withdraw from their RRSP without tax penalty, upto $20,000 for each spouse to make a down payment for purchase of a home ($40,000 per couple). There are some conditions like First Home – that you return this money back to your RRSP plan in equal payments over 15 years. Similarly RRSP withdrawal for continuing education has to be repaid back into RRSP plan. Payments are shown on your Assessment Notices. Check with your real estate agent about waiting period for opening a new RRSP plan and cashing it for down payment.

CHILD CARE EXPENSES

Childcare expenses allowed for children under 7 years of age is $7,000 and $4,000 for those over 7 years. Claim for disabled child is up to $10,000. From time to time, CRA may ask you to provide a receipt for such expenses. If an individual issued this receipt, then it must contain the name, SIN number and the year these expenses relate to. If the child attended a Day-Care Centre, no SIN is required. Claim Child Fitness amount $500 if a child is registered in an approved fitness program.

REGISTERED EDUCATION SAVINGS PLANS – (RESP)

Federal government grant of 20% of contributions towards an RESP with a revised maximum of $500.00 per year. This grant, called CANADIAN EDUCATION SAVING GRANT (CESG) will be invested directly into the Plan. This grant has a lifetime limit of $7,200. This grant must be repaid to the government if the student does not use the funds for education. Federal Budget 2004 has enriched this plan. Effective January 1, 2005, the above will be increased by: 40% on the first $500 of your contribution if your annual family income is less than $37,178; or 30% on the first $500 of your contribution if your annual family income is $37,178 to $74,356. For income over $74,357, current 20% applies.

IMPROVED SAVINGS FOR CHILDREN’S EDUCATION

To assist lower-income taxpayers save towards their children’s education, the Federal 2004 Budget introduced a new “Canada Learning Bonds”. The government will pay “CLB” of $500 into the RESP of children born in 2004 and following years. An additional $100 will also be paid into their RESP each year until the child turns 15. In order to receive this, you must be entitled to the National Child Benefit component of the Child Tax Credit.
For 2007, Child Tax Benefit is $1,283 per year for each child under 18. This benefit is reduced @ 2.0% for family net income in excess of $37,178. In addition, National Child Benefit (NCB) of $1,988 annually is also available to low-income families. Ont. Govt. also pitches in for Child Care Expenses for kids > 7 years.

PUBLIC TRANSIT PASSES (monthly/weekly) amount can now be claimed on line 364 of your tax return. (Federal only).

EDUCATION – TUITION & BOOKS

Education amount to claim is $400 per month ($120/month for part-timers) in 2007 while claim for books is $65 per month ($20/month for part-timers). The maximum amount of Tuition & Education amount transferable to spouse, parents or grandparents is $5,000. Students are allowed to carryover unused amount to be used in future years (Sorry Mom & Dad). Remember - Interest paid on student loans is also deductible. Scholarship/Bursaries are now tax-exempt.

AUDIT REQUESTS

From time to time, Revenue Canada will ask for certain documentary evidence for payment of an expense you claimed on your income tax return? Don’t panic. Number of such requests has been increasing substantially. Don’t worry. When you receive such a notice in a brown envelope, first thing you do is Sit Down and Take 3 Deep Breaths – then read it Twice and try to understand what they are requesting. Send them the receipts they are requesting, returning with the letter from Revenue Canada. DO NOT DELAY. If you have difficulty understanding these letters, contact us immediately. You must respond within 30 days normally, otherwise they will disallow the expense, re-assess you and ask you to pay more tax.

NO INCOME - STUDENTS - NEW IMMIGRANTS - FIRST RETURN:

People included in this group should call to find out how they can get refund for the first return and/or if you had No income during the year. You must file to get benefits.

EMPLOYED/UNEMPLOYED/SELF-EMPLOYED:

We service only these 3 categories. Call us to find out how we can help you save taxes. Do you have any problem with prior years’ returns or audits or missed a claim? We can help. Just call us. Special service to businesses such as Doctors, Dentists, Health Clinics, Pharmacies, Real Estate Reps, Commission Salespersons, Taxi & Limo Operators, Contract workers, Donuts & Pizza, Courier, Printing, Grocery or any other Businesses.


CIVIL PENALTIES FOR MISREPRESENTATION

There are civil penalties against third parties who knowingly, or under gross negligence, make false statements or omissions in respect of another person’s tax matters.

 

 


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Last modified: 14/02/08