As I write this (March 13) for the April issue of the James Bay Beacon, a date – March 22 had been announced for the Federal Budget. I will look at any tax changes from the budget in the May issue.
Credits Vs Deductions
A Tax Credit is either a Refundable or a Non-Refundable Credit. A Non-Refundable Credit, for example the Pension Income Amount, is an amount that reduces the amount of tax you have payable. If you did not have any tax deducted, or you did not make Installment Payments, a Non-Refundable Credit cannot create a Refund. An example of a Refundable Tax Credit is the BC Sales tax credit. This provides a refund of up to $75 per person for low income British Columbians.
A Deduction is an amount that is taken off your income. Examples are: Registered Retirement Savings Plan (RRSP) or Pension Plan contributions, Employment Expenses (for people who have to pay some of their employment related expenses themselves), Child Care Expenses, Moving Expenses and Investment Expenses. Self-employed people may also deduct half of their Canada Pension Plan Premiums.
Some Common Deductions
The best known is the RRSP deduction. This enables you to lower your income, save for retirement and lower the amount of taxes you have to pay. As the Canadian Tax System is built on ‘brackets’, each of which has its own tax rate, deducting the right amount is important. Lowering your income to the previous bracket results in the greatest savings. Since not all of your RRSP contribution needs to be deducted in one year, the balance can be carried forward to be used in future years.
Child Care Expenses are another common deduction. This helps to pay for the cost of child care. The main drawback is that, in most cases, in two parent families the lower income spouse is the one who must make the claim. This can lower the value of this deduction. Moving Expenses are a deduction that is available to people who move more than 40 km closer to a new place of employment or self-employment. The amount not needed to reduce your taxes payable to zero can be carried forward to the next year.
Some Common Credits
All resident taxpayers are entitled to the Basic Personal Amount. If your spouse has no income there is a Spousal Amount; no spouse but children, what was called the Equivalent to Spouse is available. As part of their overhaul of the Child Benefit system the Trudeau Government has eliminated the Dependant Amount that was formerly available. There is the Age Amount, which declines when your income reaches $35,927, and is gone at an income of $83,427. Hint: Pension Splitting can preserve much of the Age Amount.
The Public Transit Amount allows you to take all of the Bus Passes, Compass Cards and the like, as long as each of them cover a period of at least twenty days. One member of a family may claim all of the amount. Tuition and Education Credits are available for post-secondary students. If the student has no need of the credits, up to $5000 may be transferred to a supporting person. The rest is carried forward until the student needs it. Hint: The year a student graduates will often see all of these credits used, causing a large refund; the next year, without the credits, the student will not be seeing the benefit and the larger refund is history.
At my March presentation at the James Bay New Horizons, the credits that attracted a lot of interest were the Federal Home Accessibility Expenses, and the BC Home Renovation Tax Credit for Seniors and Persons With Disabilities. Both are available for Seniors and People who have the Disability Tax Credit. They both provide for up to $10,000 in renovation expenses. However, the Federal Credit is Non-Refundable, while the BC is Refundable up to $1,000. Both are transferrable to a spouse or other supporting person. Another credit that is transferrable to a spouse or supporting person is the Disability Tax Credit. It can provide a reduction in taxes of approximately $1,400. Medical Expenses are another credit that either spouse or a supporting person may claim. All of the family’s medical, dental, private health insurance premiums and other eligible costs, subject to a 3% of Net Income deduction, create a Non-Refundable Tax Credit.
The two most common Refundable Tax Credits are the Working Income Tax Benefit (WITB), and the Refundable Medical Expense Supplement. The WITB is available to low income taxpayers who have a significant attachment to the workforce. In BC the ‘sweet spot’ is total income of $10,900 to $12,750, which yields a Refundable Tax Credit of $1,242. The Refundable Medical Expense Supplement requires a minimum of $3,465 of employment or self-employment income. The credit is up to 25% of the total medical and disability supports amounts, to a maximum of $1,187. Because of the employment income required, Seniors (who have the highest medical expenses) are usually not eligible for either of these Refundable Credits.
In the May issue of The Beacon an update on the Federal Budget. I will devote most of my article to people with self-employment income. The self-employed have a filing deadline of June 15, but any tax owing is payable on May 1. As always, my dear readers, I look at taxes from my perspective of Helping You to Keep More of YOUR Money!