February 6th, 2007
Blurb: Completing your own returns? Farming them out? Either way, there are numerous tax changes you should know about.
Tax code changes for 2006
By Peter Diekmeyer • Bankrate.com
One of the biggest challenges facing Canadians who complete their own tax returns, is that because of the plethora of constant rule changes, each year they need to relearn the process. The good news it that according to one expert, many changes that have been implemented for the 2006 fiscal year will save taxpayers money.
According to Beatrice Fenelon, a spokesperson with the Canada Customs and Revenue Agency, measures were introduced last year that could benefit young families, tradesmen, transit users, investors and seniors. However there are also some pitfalls that filers need to watch out for.
While it’s impossible to list all of the changes that were made or have been proposed to the thousands of clauses and sub-clauses of the Income Tax Act and its accompanying volumes of interpretation documentation, we’ve highlighted a few key areas that Canadians should watch out for.
Investors and seniors will get a break
According to Sonny Barnard, a tax expert with Bessner Gallay Kreisman, investors in certain taxable Canadian corporations that pay dividends will get a break, to compensate for the fact that they pay tax corporate taxes at a high rate and to reduce the effects of double taxation. “It’s a bit complicated,” says Barnard. “It all comes down to whether the company you invest in is eligible for the reduced rate.”
According to Barnard, in general, dividends paid out by small businesses, (which pay lower rates of corporate taxes on their first $300,000 of income), and investment holding companies are not eligible. However investors in larger public companies with earning of more than $300,000 are, because their tax burden is already onerous. Seniors will also be big winners because many of have extensive retire holdings. Furthermore, the age amount that seniors can claim has been increased to $5,066 and they can now profit from income splitting opportunities under new registered retirement income fund payout rules.
To get the Universal Child Care benefit you need to apply
Starting in July of last year, eligible individuals who are responsible for looking after a child who is less than six years old, began receiving $100 per month for each qualified dependent. However those whose family income is too high, may not qualify for the benefit.
Tax filers need to be aware of two things. Those who already receive the child care benefit should be careful not too spend it all, because the benefit is taxable. That means those who receive it should put aside a bit of cash, just in case their employer did not make adequate payroll deductions to take into account the extra revenue. For those who did not receive the benefit, who believe that they may be eligible, it’s important to remember that you need to apply. To do this you need to complete Form RC66 Canada Child Tax Benefit Application.
Public transit passes are now deductible
Governments have been talking about encouraging public transportation for years. Recently the federal branch took a key step in that direction. Starting on July 1, 2006 public transit users can deduct the cost of their monthly passes as well as fees for passes with a longer duration. CRA includes buses, trains, local ferries, streetcars and subways as eligible transportation.
You or your spouse can deduct the costs, as well as those of your dependent children under the age of 19. It’s important that you keep copies of the receipts, though you do not need to mail them in when you are filing.
Education: Textbooks and scholarships
Governments are beginning to get wise to the fact that to compete with Indian programmers and Chinese engineers, Canadians are going to have to make significant improvements to their educational methods. This year, students who qualify for the education amount, can now also claim an amount to cover a part of the cost of their textbooks. The amount works out to $65 per month that you qualify as a full time student, or $20 a month that you qualify as a part-time student.
Students who, also qualify for the education amount, and who also receive certain scholarships, fellowships or bursaries also get a break. In the past, these items were included as part of taxable income however this year they are not.
A tax break for getting your kid off the couch
For parents who like to plan ahead, one of the most important tax changes announced last year that they need to know about was the Children’s Fitness Tax Credit. Parents who pay for their kids’ enrollment in an eligible program of physical activity during 2007, will be eligible for a non-refundable tax credit related to expenses of up to $500 per child who is under the age of 16 at any time during the year.
Although the tax credit will only apply to activities that take place during the coming year, the fact that the net after tax cost of these events is much lower than their list prices, is expected to hopefully encourage more Canadians to get their increasingly obese children off their couches and onto treadmills.
The sole complication is that the tax authorities have not yet come up with a precise list of which activities will be eligible to benefit from the tax credits. CRA is slated to work with individual organizations in the coming months to determine which programs qualify. In the meantime some common sense is required. For example in a country like Canada, hockey is likely to be included in the list. That said, those who consider chess to be a sport could be out of luck.
For more information on tax changes related to the 2006 taxation year, check out CRA’s Web-site at:
Peter Diekmeyer (www.peterdiekmeyer.com) is a freelance business and economics writer.
|© 2007 Peter Diekmeyer Communications Inc.|