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Canadian Tax Tips 

The following are TAX TIPS in briefs for your general information.

For detailed information, you may call CCRA. Or if you have any question, contact us.

The above is for your information only. For specific reference, please consult Income Tax Act. E&OE

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CHILD CARE EXPENSES – You or your spouse may claim the expenses you have paid for someone to look after your child(ren) so that one of you could earn income, go to school or conduct research during the year. The expenses are deductible from your total income only if the child was under 16 years or had a mental or physical infirmity.

Generally only the spouse with the lower net income can claim these expenses.

The maximum limit of expenses allowed for children under 7 years of age is $7,000 while it is $4,000 for those over 7 years. For children under 7 years with mental or physical infirmity, the expenses allowed are $10,000 effective 2001 tax year and subsequent years.

You may be able to claim payments you made to a boarding school, sports school or camp. See Form T778.

From time to time, Canada Revenue Agency (CRA) asks 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.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

DONATIONS

CHARITABLE DONATIONS

You may claim your donations on your personal income tax return. However, please remember that you get 15.5% federal tax credit for the first $200 of donations. If you both made charitable donations of $200 each, it may be more beneficial to you to combine them and claim on one return as you will get 29% federal tax credit on amounts exceeding the first $200.  Note. You will also get Ontario tax credits on top of the above federal tax credits.

Also, if you did not claim donations made during the previous years, you can now combine them for the past FIVE years and claim them.

LIMITS: - Generally, you can claim all of such Charitable Donations to a maximum of 75% of your net income. For the year a person dies and the year before that, this limit is 100% of the person’s net income.

 

POLITICAL DONATIONS

FEDERAL – Federal political contribution is claimed in a graduated manner. CRA allows these three rates as follows:

On the first $400 - Claim 75% = $300

On the next $350 - Claim 50% = $175 (and a total of $475 on $750)

On the balance - Claim 33 1/3% to a maximum tax credit of $650 in one year.

 

LIMITS: - If total political contributions are $1,275 or over, you may have a maximum tax credit of $650.

 

ONTARIO – Provincial political contribution is also claimed in a graduated manner as follows:

On the first $336 - Claim 75% = $ 252

On the next $784 - Claim 50% = 392 (and a total of $644 on $1,120)

On the balance - Claim 33 1/3% to a maximum tax credit of $1,120 in one year.

 

LIMITS: - If total political contributions are $2,548 or over, you may have a maximum tax credit of $1,120.

 

NOTE: - CRA will not accept as proof of payment, cancelled cheques, credit card receipts, pledge forms or stubs. All donation receipts must have Registered Charity Number and show the tax year it relates to.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

  

Filing your First Return

You have to file an Income Tax Return if:

1. You have to pay tax for year 2006

2. CRA sent you a request to file a return

3. You have a taxable capital gain

4. You have to pay back Old Age Security or EI benefits

5. You have not repaid amount due under HBP/LLP etc.

 

Even if none of the above applies to you, you may still want to file a Tax Return if:

A. You want to claim a Refund

B. You want to apply for GST credit

C. You or your spouse want to begin or continue receiving Child Tax Benefit

D. You want to carry forward unused portion of your Tuition & Education amount

If you turned 19, had no income or became a Canadian resident during the year, you must file your tax return to receive the above mentioned benefits.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

Home Buyers' PlanThis plan allows each taxpayer to withdraw from RRSP without tax penalty, upto $20,000 for each spouse to make a down payment on purchase of a home - or $40,000 per couple. There are some conditions like First Home – that you did not own a house within the past 5 years and that you will return this money back to your RRSP plan in equal payments over a maximum period of 15 years.

If you plan to contribute to your RRSP this year and take advantage of that contribution for HBP, make sure that the money stays in the plan for at least 90 days before it is withdrawn for a down payment on your first home. If you plan it correctly, you can take advantage of both using this money for your RRSP for tax advantage as well as for your HBP.

Check with your real estate agent about waiting period for opening a new RRSP plan and cashing it for down payment.

 

Labour-Sponsored - Venture Capital Corporations

 

More commonly known as Working Venture Funds. The investment in LSVCC shares may be used for purposes of Home Buyers’ Plan and the Lifelong Learning Plan just like RRSP’s.

LSVCC - Working Venture Funds – These 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. Please note that the banks normally do not deal in these funds (called Labour Funds also). There are some other funds which offer tax credit of more than 30%. Call us for info.

 

RRSP Eligible  (you must have RRSP contribution entitlement - check your Assessment Notice of previous tax year).)

Holding time – years 8   Federal/Prov tax credit 15% each = 30% Total

Max. $ Limit W/Venture Funds $5,000 per year.

Tax Savings (All numbers are approximate)

- Minimum 2,565 Your cost = 2,435      - Lowest Tax Bracket

- Maximum 3,508 Your cost = 1,492     - Highest Tax Bracket

If you cash the above shares before 8 years, then you will have to refund the above 30% tax credit back to the government.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

Lump-Sum Payments such as arbitration awards (disability payment or spousal support for example) have often resulted in higher taxes paid during the year they were received as they normally covered a time period of more than a year. Individuals who received qualifying amount in excess of $3,000 after 1994, Revenue Canada (CRA) could use a special method of computing tax if it is advantageous to the taxpayers.

Canada Revenue Agency (CRA – formerly Revenue Canada) will automatically use this special method of computing tax by breaking this award into related tax years and compute tax for those years only if it of advantage to the taxpayers.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

 

Registered Educational Savings Plans (RESP)

 Starting 1998, the Federal government has offered a grant of 20% of contributions towards an RESP with a maximum of $400.00 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.

There is also a lifetime contribution limit of $42,000 to any one RESP.

Although there is no income tax benefit to the contributing parent or grandparent, however, the growth in the plan is sheltered from tax and not attributed to the contributor.

RESP Enhancement -

Federal Budget 2004 has enriched this plan. Effective January 1, 2005, the government contribution will increase by:

      -  40% on first $500 of your contribution if your annual family income is less than $35,000;

      -  30% on first $500 of your contribution if your annual family income is $35,001 to $70,000;

      -  20% current rates applies for annual family income over $70,000.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

Canada Learning Bonds (CLB)Improved savings for Children's Education – To assist lower-income taxpayers save towards their children’s education, the Federal 2004 Budget introduces 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 and have an RESP account opened for the child..

For 2006, Child Tax Benefit is $1,255 per year for each child under 18. This benefit is reduced @ 2.0% for family net income in excess of $36,378. In addition, National Child Benefit (NCB) of $1,945 annually is also available to low income families. Ont. Govt. also pitches in for Child Care Expenses for children under 7 years.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

RRSP – Registered Retirement Savings Plan is the best vehicle for tax deferral. Ideally, the government encourages you to save taxes now at a higher tax rate and pay it back upon retiring at a lower tax rate as income during retirements falls sharply for most Canadians.

The government allows the taxpayer to accumulate RRSP Entitlement if not used.

Maximum contribution limit $18,000 or 18% of your earned income of the previous year whichever is lower. For 2006 check your income for 2005, and calculate 18% of it. However, some incomes such as EI benefits are excluded from this calculation. Rule of thumb is – the income which you earned "without any effort" such as Welfare Payments, Workers Compensation or Employment Insurance benefits received will be excluded from your total income for RRSP Entitlement calculation.

Better still, call Revenue Canada to find about your RRSP Entitlement for 2006 by calling the telephone number given below; or look at your 2005 Assessment Notice that shows your RRSP Entitlement for the year 2006. This year, the last day to buy RRSP is (tentative) March 1, 2007.

 

How much to Buy? Plan your RRSP in the amount to optimize your tax refund. And how much you can save depends on your tax bracket. This year there are 4 tax brackets......20%, 30%, 35% and 41%.

As a Rule of Thumb – if your income is under $36,000, RRSP contributions will save you approximately 20% on taxes, i.e. if your have the RRSP Entitlement of $10,000 and you buy RRSP of this amount, then you could save approximately $2,000. If your income is, for example, $44,000, then you should buy at least $8,000 RRSP (assuming you have the entitlement) to bring your income down to $36,000 to maximize on tax saving by saving tax @ 31% on $8,000. Any excess RRSP will save tax @ 20%. Similarly, if your income is $84,000 and your RRSP entitlement is $20,000, buy only $12,000 to bring your taxable income down to $72,000 and saving tax @ 39% on $12,000. Any excess RRSP over $12,000 will save you tax @ 31% (assuming you have the entitlement).

Note: If you contribute to RRSP more than your entitlement, the government will allow an Overcontribution of $2,000. There is a penalty for Over-contribution on amount exceeding $2,000.

(Revenue Canada General Inquiry telephone Number 1-800-959-8281)

 

Tuition  Education & Books  Amounts

Students enjoy a number of tax benefits – some with tax refunds and others with tax deferrals. For details, please see below:

TUITION FEES – If you attended University/College and paid tuition fees, you may claim the tuition fee from the earnings that you received by working during the year. However, if you had no income, then you have two options:

1. Claim these expenses on your tax returns. The amounts will be carried forward for use by you against the future income; or

2. You may transfer these expenses to your spouse, parents or grandparents to claim. You may transfer a maximum amount of $5,000 in any tax year. Any leftover expenses will be carried forward to the next year for you to claim.

Each year, the educational institution issues a form T2202A (Tuition and Education Amounts Certificate) which indicates the name of the taxpayer, the amount of tuition fee paid during the year and the month and year of attendance, commonly shown in number of months. Tuition fees of less than $100 is not deductible.

EDUCATION AMOUNTS - In addition to claiming the tuition fee, the student may also claim $400 time the number of month the taxpayer attended the school. This amount is also subject to accumulation or transfer. For part-time students, the education amount is $120.00 per month of attendance.

BOOKS - Effective tax year 2006, students can claim cost of books @ $65 per month ($20/month for part-timers) times the number of month the taxpayer attended the school and reported on Form T2202A.

Tuition - Education - Books amounts must first be used by the taxpayer to reduce the federal income tax to zero. The remaining amount can be transferred to spouse, parent/grandparent or either spouse. However, the carried-over amounts cannot be transferred.

BURSARY, SCHOLARSHIP ETC – If you were in receipt of any bursary, scholarship or education grants, the whole amount is now tax free.

INTEREST ON EDUCATION LOANS – If you paid interest on your education loan during the year, then every financial institution would issue a letter to the taxpayer indicating the interest amount paid during the year. You can claim this amount if not previously claimed. Or you can carry it forward and apply it on your return for any of the next five years. This amount is non-transferable.

RESP – Please see under RESP.

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

 

 

 

 

 

AUDIT REQUESTS -

Canada Revenue Agency (CRA – formerly Revenue Canada) has embarked on the project of paperless filing since 1995, called Electronic Filing of Income Tax Returns (Efile). CRA recommends all taxpayers to keep their receipts and documents that MUST be submitted if and when CRA requests. If any document so requested by CRA is not submitted within the time frame, then CCRA will re-assess the tax return disallowing that claim.

Have you received a letter from Revenue Canada recently asking you to provide certain documentary evidence for payment of an expense you claimed on your income tax return? Don’t panic. Number of such requests over the last 3-4 years has increased substantially. Don’t worry. When you receive such a notice, 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. If you have difficulty understanding these letters, contact us immediately. You must respond within 30 days normally, otherwise they will re-assess you, which normally means more tax payable.

CCRA reserves the right of inspecting any document(s) for a tax year within THREE YEARS FROM THE DATE OF ASSESSMENT NOTICE. So please, keep all receipts and records in a safe place for at least FOUR years, just in case.

During the last year, the most common items that were requested by CCRA included receipts for:

        RRSP

        Tuition & Education Amount (and interest paid)

        Childcare Expenses

        Donations

        Carrying Charges

The above is for your reading pleasure only. For specific reference, please consult Income Tax Act. E&OE

 

 

 

 

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Last modified: 03/12/05