January 24th, 2005

Blurb: Tax season is here again, and as usual there are changes you should be aware of.

Tax code changes for 2004 you should know about

By Peter Diekmeyer o Bankrate.com

We are now well into the New Year, and Canadians are starting to think about their April 15th tax return filing deadlines. Each year, Canada Revenue Agency (formerly Canada Customs and Revenue Agency) publishes a slew of revisions, updates and policy changes and tax experts are forced to relearn their trade to keep abreast.

"Fortunately this year the number is fairly moderate," says Bill Braun, a Senior Tax Manager, at Grant Thornton, where he overseas personal and corporate tax planning as well as preparation services. While it's impossible to list all the changes in one article, following are several that are likely to affect ordinary Canadians.

Personal exemptions and amounts

To ensure that rising inflation doesn't artificially increase Canadians' tax burdens, the federal government periodically adjusts various deduction limits, personal amounts and credits.

For example, for the taxation year 2004, the basic personal amount increases to $8,012 from $7,756. In other words any earnings up to $8,012 will not be taxed. The age amount, a break extended to those who are 65 years or older, increases from $3,787 to $3,912, as does the eligible dependent amount, which jumps from $6,586 to $6,803.

Tax brackets are up again

The percentage of federal income tax charged on your taxable earnings depends on which bracket those earnings fall into. There are four tax brackets, and the more money you earn, the higher your tax rate. The 2004 brackets have all been adjusted to prevent inflation from artificially generating tax increases.

Under the new brackets your first $35,000 of taxable income is taxed at 16%, the amount between $35,000 and $70,000 is taxed at 22%, you'll pay 26% on earnings between $70,000 and $113,804. Earnings in excess of $113,804 are taxed at 29%.

Disability supports deduction (Formerly attendant care expense)

The disability supports deduction, formerly known as attendant care expenses, has been broadened. In the past, if you had a disability and you paid an attendant to help with your personal care, such as bathing, feeding and so on, you were allowed to deduct those expenses (if you were in school or earning employment or self-employment income).

The provision is still applicable but has been broadened. This year you are also allowed to deduct certain equipment related to your personal care, such as the cost of purchasing and taking care of a seeing-eye dog, buying a Braille-reader or of hiring a sign language interpreter.

Education amounts

Full time students can claim a $400 a month education amount, from which they can collect a tax credit. For part time students, this amount is $100 a month. However in the past, students could not claim this amount if they were receiving a salary or wages while studying in program related to their job. This restriction has been eliminated starting in the taxation year 2004.

Medical expenses related to your spouse or dependents

Canadians with significant medical cost are generally eligible to a tax credit (16% in 2003) on a portion of those expenses. There is a long list of expenses that are eligible including private health and dental plan fees. The eligibility amount is reduced by the lessor of $1,813 or 3% of your net income.

In the past, you could also include expenses related to your spouse or other eligible dependents. However this year, if the spouse or dependent for whom you are deducting those expenses also earns income, then the amount of his expenses you may claim on your own return is also reduced by the lessor of $1,813 or 3% of your net income.

Filing your return online

This year, an increasing number of Canadian will be filing their returns online. But according to one expert, while the process may save time and money over the long run, it takes patience to learn the ins and outs.

"You should not force the computer to accept data if it's giving you error messages," says Jean-Luc Beauregard, a senior Tax manager at Deloitte & Touche.

Tax software has evolved quite a bit over the years and is now quite sophisticated. If the software won't perform the operation you want it to, there's a good chance that you are interpreting the tax code incorrectly. This is a good indication that you should re check your software or tax manuals Beauregard said.

Beauregard also advises filers who earn employment income from several sources to be careful not to "lose" T-4s. The Canada Revenue Agency's computers have become increasingly sophisticated and can easily cross-verify the amount of earned income reported on your T-1s against the amount of T-4s filed in your name by your employer.

"The Canadian tax code is based on the honor system," Beauregard said. "And today it's much easier to find out who is honorable."

Other changes

An article such as this one can only list a general description of some of the changes made to the tax code. For a more detailed description of the various provisions and a more expansive list, you can check out the General Income Tax and Benefit Guide - 2004, which is available on Canada Revenue Agency's Web-site at: (http://www.cra-arc.gc.ca/E/pub/tg/5000-g/README.html)

 

peter@peterdiekmeyer.com

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