Important dates and other information about filing 2012 tax returns

Tax Preparation (Photo credit: agrilifetoday)

• Personal tax returns (except you or your spouse or common-law partner is self-employed) are due April 30^th 2013 and any balance due has to be paid that day and otherwise interest will be assessed. Tax returns for self–employed and their spouse or common-law partner is due June 15^th 2013 but balance due must be paid April 30^th 2013.
• You can file hard copy return or NETFILE or EFILE (EFILE can be done by tax preparer).
• TELEFILE option is not available.
• If you need a tax package (hard copy) you can order one from CRA and it will be delivered after February 4th 2013. The packages will also available to postal outlets and Service Canada offices from February 4th 2013.
• The NETFILE transmission service will be open from February 11, 2013, until November 30, 2013, for the electronic filing of your 2012 personal income tax and benefit return. Tax returns filed via NETFILE must first be prepared using one of the 2012 commercial tax preparation software packages or Web applications certified for NETFILE.
• List of certified software for NETFILE can be found here. 
• You employer has to provide your T4 slips by Feb 28^th 2013.
• Your investment provider or banks have to mail your T5 slips by Feb 28^th 2012 and T3 slips by March 31^st 2012.
• You can log in to My Account at CRA to find your RRSP contribution limit. RRSP contributions made in the first 60 days of 2013 (i.e. contributions made till March 1^st 2013) can be used in 2012 tax returns).

You may be eligible for Family Care Giver Credit from tax year 2012

This credit is available from year 2012 and subsequent years. This is not a standalone credit but enhances some of the other credits if you are eligible. You will get refundable credit of 15% of $2,000.

Here is the list of the credit that can be enhanced.

·         spouse or common-law partner amount (line 303 of the Schedule 1, Federal Tax);

·         amount for an eligible dependant (line 305 of the Schedule 1, Federal Tax);

·         amount for children under age 18 at the end of the year (line 367 of the Schedule 1, Federal Tax);

·         amount for infirm dependants age 18 or older (line 306 of the Schedule 1, Federal Tax); and

·         caregiver amount (line 315 of the Schedule 1, Federal Tax)

If you are eligible to claim the credit above then you are eligible for the Family Care Giver Credit provided the dependent meets one of the conditions below,.

·         For an individual age 18 or older, the individual must be dependent on you by reason of a mental or physical infirmity.

·         For a child under the age of 18, the child must have a medical or physical infirmity and as a result of that infirmity is, and is likely to be for a long continued period of indefinite duration, dependent on others for significantly more assistance in attending to the child's personal needs and care when compared to children of the same age.

You can get more information from CRA.

Ontario Trillium Benefit

Ontario Sales Tax credit (OSTC), Ontario Energy and Property Tax credit (OEPT) and Northern Ontario energy credit (NOEC) are credits for Ontarians earning low and moderate  income. These programs will be combined as Ontario Trillium Benefit (OTB) from July 2012. These benefits are now paid quarterly and will be paid monthly from July 2012.

Ontario Sales Tax Credit

You could get up to $265 for 2011 for each adult and child in your family to help with the sales tax you pay on goods and services. This amount is adjusted for inflation each year.

Ontario Energy and Property Tax Credit

If you pay rent or property tax, you could get up to $917 for 2011 to help with the sales tax you pay on energy and the property taxes you paid and qualifying seniors can get up to $1,044 for 2011.

Northern Ontario Energy Credit

Families living in Northern Ontario can get up to $204 for 2011 to help with their home energy costs, as it is often higher in the North due to more severe winters. If you are single, you can get up to $132.

These amounts will be adjusted for inflation each year.

Eligibility:

You must be eligible to at least one of the benefits (OSTC, OEPT or NOEC) to eligible to receive OTB.

Application:

 You must complete Ontario Form ON-BEN which is part of the 2011 T1 General Income Tax and Benefit Return package and file it with the Canada Revenue Agency (CRA).  If file your individual tax returns later than April 30th may result in delay in receiving OTB payments.  

Federal Budget June 6th 2011- Key measures affecting individuals

Finance Minister presented the Federal budget on June 6th 2011. Here is a list of key measures affecting individuals.

• Children’s Art Tax Credit: The budget proposes a new 15% non-refundable Children’s Art Tax Credit for eligible expenses up to $500. The credit will be available in respect of a child who is under 16 years of age at the beginning of the year who is enrolled in an eligible artistic, cultural, recreational or developmental activity. This credit will be structured in the same manner as the existing Children’s Fitness Tax Credit. The credit will apply to eligible expenses paid in the 2011 and subsequent taxation years, and will be able to be claimed by either parent, or shared by both parents.
• Family Caregiver Tax Credit: A Family Caregiver tax credit is proposed for a caregiver of a dependent person who has a mental or physical infirmity. The credit will be integrated into the existing dependency-related credits and will be based on an amount of $2,000. The credit will apply beginning in 2012.
• Medical Expense Tax Credit cap removal: The Medical Expense Tax Credit in respect of a dependent relative (other than a child who has not reached the age of 18 years before the end of the taxation year) is proposed to be amended to remove the current $10,000 limit on eligible expenses that can be claimed. This measure will apply to the 2011 and subsequent taxation years.
• Increased Flexibility with Registered Education Savings Plan (RESP) allocations: The budget proposes to allow for greater flexibility with respect to the allocation of RESP assets among siblings by expanding the ability to transfer between individual RESPs for siblings, without tax penalties or triggering the repayment of Canada Education Savings Grants, to individuals who are not connected by blood or adoption, such as aunts or uncles. This proposal will apply to asset transfers that occur after 2010.
• Tuition Tax Credit expansion: The Tuition Tax Credit is proposed to be amended to include certain occupational, trade or professional examination fees and ancillary fees and charges as eligible fees for the credit. This amendment will apply to eligible amounts paid in respect of examinations take in the 2011 and subsequent taxation years.
• Tuition, Education and Textbook Credits amendment: The Tuition, Education and Textbook Tax Credits, as well as eligibility for Educational Assistance Payments (EAPs) from an RESP, are proposed to be amended to accommodate the fact that many programs at foreign universities are based on semesters that are shorter than 13 weeks. The minimum course duration for these purposes is proposed to be reduced from 13 weeks to three consecutive weeks. This amendment will apply with respect to tuition paid for courses taken in the 2011 and subsequent taxation years and to EAPs made after 2010.
• Changes to RRSP rules to limit abuses: The RRSP rules are proposed to be amended to address certain perceived abuses, a number of which involved accessing RRSP without a corresponding income inclusion. Measures similar to those recently implemented in respect of TFSAs are proposed to be introduced for RRSPs. Subject to certain exceptions, these measures are proposed to apply to transactions occurring and investments acquired after March 22, 2011. (For these purposes investment income earned after March 22, 2010 on previously acquired investments will be considered a transaction occurring after March 22, 2010.)
• Clarification of Pension Tax Rules for Lump Sum Payments: The Canada Revenue Agency (CRA) will clarify the application of the pension tax rules with respect to the tax treatment of lump sum amounts received by former employees in lieu of their rights to health and dental coverage from employers who have become insolvent and whose underfunded pension plans were wound up. These amounts will not be treated as income for tax purposes in relation to insolvencies arising before 2012.
• New Volunteer Firefighters Tax Credit: A new 15% non-refundable Volunteer Firefighters Tax Credit is introduced. This credit is based on an amount of $3,000 and is proposed to be available to individuals who perform at least 200 hours of volunteer firefighting in a taxation year. Volunteer service hours will not qualify if the firefighter also performs non-volunteer services to a particular fire department. An individual who claims this credit will not be eligible for the current $1,000 tax exemption for honoraria paid in respect of firefighting. This credit will apply to the 2011 and subsequent taxation years.
• Child Tax Credit modification: Eligibility for the 15% non-refundable Child Tax Credit (based on an indexed amount - $2,131 in 2011) is proposed to be modified to eliminate the restriction that only one credit may be claimed per domestic establishment. This will ensure that where two or more families share a home, each eligible parent will still be entitled to claim the credit. This measure will apply to the 2011 and subsequent taxation years.  
• Charitable Donations Tax Credit or Deduction clarification: The budget proposes to clarify that the Charitable Donations Tax Credit or Deduction is not available to a taxpayer in respect of the granting of an option to a qualified donee to acquire a property of the taxpayer until such time that the donee acquires the property that is the subject of the option. The taxpayer will be allowed a credit or deduction at that time based on the amount by which the fair market value of the property exceeds the total amount, if any, paid by the donee for the option and the property. This measure will apply in respect of options granted on or after March 22, 2011.  
• Renewal of Two EI Pilot Projects: The government intends to renew two EI pilot projects for one year. The Working While on Claim pilot project, available across Canada, will allow EI claimants to earn additional money while receiving income support. It will be renewed until August 2012. The Best 14 Weeks pilot project, which allows claimants in 25 regions of higher unemployment to have their EI benefits calculated based on the highest 14 weeks of earnings over the year preceding a claim, will be renewed until June 2012.

Courtesy: Deloitte

Which tax package should I use?

I received a question from one of my friends last week and thought of sharing my response here. He has worked in two provinces during the year and wanted to know which tax package he should use.

In general you determine the tax package of the province or territory you lived on Dec 31st of the year. But if you had residential ties in more than one province or territory on December 31^st, you should use the province or territory where you had most important residential ties.

Residential ties include where your home (owned or rented) and personal property are and where your spouse or common-law partner or dependants reside. Other ties that may be relevant including social ties, driver's license, bank accounts or credit cards, and provincial or territorial hospitalization insurance.

Here are some other exceptions.

§         If you are filing a return for a person who died in during the year, use the package for the province or territory where that person resided at the time of death

§         If you emigrated from Canada during the year, use the package for the province or territory in which you resided on the date you left.

§         If you lived outside Canada on December 31, but maintained significant residential ties with Canada, you may be considered a factual resident of Canada. Use the package for the province or territory where you kept your residential ties.

Tax deduction for qualified home buyers - Home Buyer’s amount

Image via WikipediaAre you a first time home buyer? You may be able to get a non refundable tax credit for 5K for your home purchase.

If you meet the following qualifications, you can claim the 5K tax credit in your tax return.

• you or your spouse or common-law partner bought a qualifying home; and
• you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years (first-time home buyer).

The amount can be claimed in Schedule 1 (line 369) of your tax return. The amount can be shared but the total amount cannot exceed $5K.

Here is the definition of Qualifying home from CRA website

A qualifying home must be registered in your and/or your spouse's or common-law partner's name in accordance with the applicable land registration system, and must be located in Canada. It includes existing homes and homes under construction.

The following are considered qualifying homes:

• single-family houses;
• semi-detached houses;
• townhouses;
• mobile homes;
• condominium units; and
• apartments in duplexes, triplexes, fourplexes, or apartment

TFSA and tax slips

I received a question from a reader whether he would receive tax slip for his TFSA contributions or withdrawals or income earned in TFSA. No there will not be any tax slips for TFSA except for some estate beneficiary scenario. Any contribution to TFSA is not tax deductible either. That means you will not get a contribution receipt. Any growth within the plan is tax exempt and withdrawals are not taxable either.

Summary

1.TFSA contributions are not tax deductible.

2. Income earned in the TFSA plan is tax exempt (except certain estate beneficiary scenario).

3. TFSA withdrawals are not taxable.

If your spouse is successor holder of your TFSA, your plan will be changed to your spouse’s name after your death. No tax consequence to you , your estate or your spouse and it will not affect your spouse’s contribution room.  But if you have named a beneficiary in the plan other than successor holder then any income earned after the date of death is taxable to the beneficiary and beneficiary will receive a T4A. If the beneficiary contributes to his or her TFSA it will use up his or her contribution room (except for spouse as beneficiary and not successor holder).  You can read about what happens to your TFSA at death here.

Are you planning to Net File your income tax return for 2010? – Here are the software options

CRA each year publishes the certified softwares available for each year.  When you click the each tax software product, it lists restrictions as well. It helps you to choose the proper software for your needs. The list has different sections fo Windows, Mac and web applications.  

Windows:
AceTax, eTaxCanada, FutureTax 2010, GenuTax Standard, H & R Block At Home, Impôt Professionnel, myTaxExpress, StudioTax 2010, TaxFreeway, Taxnic, Taxtron, TurboTax (previously QuickTax), UDoTaxes 2010, UFile

Web applications: (for Windows and Macintosh)
5dollarTax, AceTax Online, EachTax.com, easyCTax, eTaxCanada Online, FileTaxOnline.ca, H & R Block At Home, TaxChopper 2010 from CuteTax, Taxnic.ca, TurboTax (previously QuickTax), UFile Online, WebTax4U.ca

Macintosh:
TaxFreeway, TaxTron

iPad:
TaxFreeway

Here is some the  recents blog posts about  Canadian Personal Tax Softwares available

TurboTax Review  by Canadian Finance blog

Top Canadian Tax Software Reviews by  iSoftwareReviews

CD & Download Tax Software by Canadian Tax Resource Blog

Common mistakes made in the personal income tax returns

 

1. Small income amounts not included in the income

Some financial institutions will not issue T3 or T5 slips, if the income amount is small but you still have to include it in your income tax return. Example: BMO will not issue T3 if your income from the fund is less than $50.00 and the income is other income. Some times you will not get T5 slips for interest earned in your savings accounts but those need to be added to under interest income in your tax return.

2. Joint account income not allocated according to contribution

Usually joint account incomes are allocated equally but it should be allocated according to the contribution made by each person. For example David and his dad opened a GIC and dad contributed $8K and David contributed 2K and they earned $200 income for 2010. David’s portion of the income is $40 (20% of the income) and dad’s portion of income is $160.00 ( 80% of the income). David should only include $40.00 in his income.

3. Allowable deductions or tax credits not claimed 

There are some expenses that can be claimed as deduction from your income.

Here are some examples (I have provided summary description but there are detailed rules regarding deductions.):

Childcare expenses - Incurred due to parents working or going to school. Spouse with lower income must claim the amount unless it meets the exception rules.

Moving expenses – You moved more than 40 Km to be closer to your new work. Business. You can deduct certain expenses related to moving against the income earned in the new location. The amount that can’t be deducted can be carry forward to the next year.

Carrying charges and interest expenses – Fees paid to management of investment, interest paid on investment loan (provided investment income is not 100% capital gains) and safety deposit box charges.

There are some tax credits that can be claimed. Here are some examples:

Public transit amount – You can claim the amount if you have purchased monthly pass, weekly pass or electronic payment cards that meets the CRA requirement.

Children’s fitness amount  - Amount paid for eligible fitness programs can be claimed up to maximum amount $500/ child.

4. Any info received after filing the income tax return not adjusted

If you receive any tax slips for income that you did not include in the income tax return the return  can be adjusted by filing T1 Adjustment Request.

Daycare business – How to do the Personal Income Tax Return?

I have seen many home daycare providers do not know how to report their income and expenses. Gross income has to be reported in line 162 and net income in line 135 of T1 General Return (I have chosen Ontario Link). Make sure the software you buy has T2125 form. You can deduct business related expenses to arrive at net income.

Image by neuroskeptic.blogspot.com

Here is a list of some expenses that can be deducted:

Supplies

Kids meals

Business use of home office

Field trip expenses

Professional fees (accountant, lawyer etc)

Office expenses

Salaries.

Keep your receipts incase CRA comes for audit.

CRA site has wealth of information on this

Ways to reduce withholding taxes withheld from the salary

If you are an employee with periodic salary, your withholding taxes are determined by the information you filled in TD1 Personal Tax Credits Return form. But TD 1 form does not take into consideration expenses listed below.

• RRSP contributions – other than contributions through your employer
• Child care expenses
• Support payments paid
• Employment expenses
• Carrying  charges and interest expenses
• Charitable donations and rental losses

If you incur these expenses and if those are substantial amount, you can complete T1213 Request to Reduce Tax Deductions at Source for Year(s)  form to request CRA to authorize your employer to reduce the withholding taxes. You will less withholding taxes withheld during the year rather than getting a refund when you file your tax return. It is always better to get it during the year than lending an interest free loan to CRA.

Capital loss

I had to advise a friend on how to report capital loss. I thought of sharing that advice.

You incur capital loss when you sell your investments (stocks, mutual funds etc) for less than cost you bought it.  You capital loss can only applied to reduce capital gain and not any other income (there is exception capital loss in the year of death)

Let’s say you have a capital loss in 2010 for 15K and your capital gains for 2010 is 5K. Then your net capital loss is 10K. You have to apply to the current year gain before carrying back or carry forward the loss.

This can be carried back three years (2007, 2008 and 2009) or carried forward indefinitely. In order to apply to another year, you should have reported net capital gain in those years.  Lets say you have reported following capital gains in the prior years

2007 – 5K

2008 – 15K

2009 –10K

The allocation of capital loss will be based on your net income in the prior years. This way you will get higher refund.  For example if your income in 2008 is low and 2007 and 2009 high. Then the loss will be allocated to 2007 and 2009.  If you did not have any tax paid in the prior three years, it will be beneficial to carry forward the loss to future years.

The net loss 10K should be reported in the 2010 tax return and then if you are carrying back to prior years, you should complete a section III of  the T1A form  to apply the loss to the prior years.

Check CRA website for further information.