As the 2017 year draws to a close, I want to share with you some tax savings tips and upcoming changes in taxes.
New Canada Caregiver Credit
Effective 2017, the existing infirm dependant credit, the caregiver credit (for in-home care of a relative) and the family caregiver credit have been replaced by the Canada Caregiver Credit (CCC).
The CCC can be claimed for a person over the age of 18 who at any time in the year is dependent on you for support because of a mental or physical infirmity, and is:
– your or your spouse’s or common-law partner’s child or grandchild or;
– if they are resident in Canada at any time in the year, your or your spouse’s or common-law partner’s parent, grandparent, brother, sister, uncle, aunt, niece or nephew.
The maximum amount of the new CCC is $6,883 which translates to $1,032 in federal tax savings. The credit is reduced dollar-for-dollar by the amount of the dependant’s net income above $16,163
Note that a significant change to the new credit is that you are no longer required to live with the dependant to claim the Canada Caregiver Credit. More information is available on CRA’s website.
Public Transit Credit
The public transit credit (i.e. bus passes, Presto card) has been eliminated for amounts paid after June 2017. So, for 2017, you can still claim a tax credit for amounts paid for the period January to June 2017.
There is a new Ontario Seniors’ Public Transit Tax Credit for eligible transit expenses incurred on or after July 1, 2017. To qualify for the credit, you must be:
– 65 years or older as of January 1, 2017
– a resident of Ontario on December 31, 2017
Effective 2017, the Federal Children’s Art and Fitness Credits have been eliminated as well as the Ontario Children’s Activity Tax Credit.
Effective January 1, 2017, the federal education and textbook tax credits will be eliminated. This measure does not eliminate the tuition tax credit. Unused education and textbook credit amounts carried forward from years prior to 2017 will remain available to be claimed.
Starting in 2019, the Canada Pension Plan (CPP) will be gradually enhanced. You will receive higher benefits in exchange for making higher contributions. The CPP enhancement will only affect you if, as of 2019, you work and make contributions to the CPP.
Currently, the CPP retirement pension replaces one quarter of average work earnings. In 2019, the CPP will begin to grow to replace one third of average work earnings.
Currently, employees contribute 4.95% on these employment earnings to the CPP. Employers make an equal contribution. If you are self-employed, you contribute both the employee and employer portions, which is equal to 9.9%.
From 2019 to 2023, the contribution rate for employees will gradually increase by one percentage point (from 4.95% to 5.95%) on earnings between $3,500 and the earnings limit. By 2023, self-employed individual will have CPP contribution rate of 11.9% on net income in excess of $3,500 up to the earnings limit.
In 2024, employees will begin contributing 4% on an additional range of earnings and self-employed individuals will pay 8% on the additional earnings range.
There have been changes to the EI program including:
– earlier access to maternity benefits
– choice for parents to receive parental benefits over 12 months or 18 months
– new Family Caregiver benefit for children and adults
– medical doctors and nurse practitioners will now be able to sign all EI caregiving medical certificates.
For more information, see Employment Insurance Improvements
Make your tax payments at Canada Post
There are many ways to make your tax payments – using online banking, using CRA’s “My Payment”, taking a payment voucher to the bank or mailing or delivering a cheque to CRA. Now, taxpayers can make their individual or business tax payments at Canada Post using cash or debit. Each payment is limited to $1,000 and there is a $3.95 service fee. For more information, see CRA’s website.
Ontario Land Transfer Tax Changes
Starting January 1, 2017, individuals purchasing their first home will be to claim a higher refund of land transfer tax. The maximum refund has increased from $2,000 to $4,000.
Old Age Security Repayment
If your 2017 net income exceeds $74,788, you will have to repay part or all of your OAS pension. The amount that is repaid is 15% of the excess of your net income over the threshold amount.
Reporting the sale of your principal residence
2016 was the first year that CRA required all taxpayers who sold their principal residence to report the disposition even if the gain was fully exempt. It is important to keep in mind that deemed dispositions are also required to be reported. This can occur when a taxpayer dies because he or she is deemed to dispose of all property at time of death. This can also occur if you change the use of your home, such as converting it to a rental property.
If you sold your home, in 2017 you will need to report the date of acquisition and the proceeds of the sale.
Home Accessibility Tax Credit
A reminder about the Federal credit for 2016 for seniors and persons with disabilities for renovations that:
– allow the qualifying individual to gain access to, or to be mobile or functional within, the dwelling; or
– reduce the risk of harm to individual within the dwelling or in gaining access to the dwelling.
Maximum credit is $1,500 (15% of $10,000 of renovations). See CRA website for details.
Contribute by March 1, 2018 to deduct the RRSP on your 2017 return. If you have excess funds but do not need the deduction, you can still make a contribution but save the deduction for a future year, this way your funds can start growing now on a tax deferred basis.
In the year you turn 71 years old, you must collapse your RRSP by withdrawing, transferring to a RRIF or purchasing an annuity.
Home buyer’s plan – make your minimum repayment to your RRSP by March 1, 2018.
Spousal RRSPs – if both spouses are contributing, consider just having one spouse contribute in each of your RRPSs if he or she is in the higher tax bracket and has the deduction room.
Tax Free Savings Account (TFSA)
The amount you can contribute to your tax-free savings effective account January 1, 2018 is $5,500. If you have never contributed to your TFSA, the total amount you could contribute as of January 1, 2018 is $57,500.
Overcontributed? There are penalties for over contributing so make sure to track your contribution especially if using more than one financial institution.
Minimize income by deferring bonuses or severance pay to the new year.
Maximize deductions and credits by claiming employee expenses if your employer gives you a T2200; claim your bus passes or presto receipts; claim tuition costs if you took an educational course and receive a T2202A tax slip.
Minimize income by deferring any new jobs or contracts until 2018. Note that any income earned in 2017 must be reported, even if the amount is not received until 2018.
Maximize deductions by making capital purchases before the end of the year (e.g. computers, instruments); consider paying spouse or children reasonable salaries if they work in the business; develop a system for making sure all business related receipts are accounted for at tax time.
Record keeping: I am using a cloud based application called Hubdoc for my own business, that allows me to easily organize my receipts and reduce paper. I use Hubdoc to automatically fetch my bills such as Hydro, Enbridge, Bell and Rogers. For other bills, I drop the electronic copy of the bill to Hubdoc, or I take a picture of the receipt that automatically uploads to Hubdoc. There are similar cloud applications such as Receipt Bank that help you organize and file your receipts so you can reduce paper. Please contact me for more details.
If you have investments outside your RRSP, RRIF or TFSA, now’s a good time to check in with your financial advisor and see if you have significant capital gains. Consider selling loss securities to reduce capital gains for 2017, or to recover tax from gains in 2016, 2015 or 2014. If you have any loss carry forwards from prior years, they will help offset any 2017 gains.
Make sure your favorite charities receive your donations in time to issue a receipt for 2017.
If you are selling a public traded security that has a gain and also making a charitable contribution for a similar amount, consider donating the security directly to the charity. There is a special 0% inclusion rate for the capital gain, and you will receive a donation receipt for the market value of the security.
Private Canadian Corporations Tax Changes
As you no doubt have heard in the news, the Department of Finance proposed measures to change several tax planning strategies that are currently available to owners of private corporations in Canada. After taking into consideration the responses to the consultation paper, the Departments is going ahead with the following changes:
Tax on split income: under the current rules, family members can hold shares in a private corporation and receive dividends, and the family members do not have to be actively involved in the corporation. This allowed the family to split income to minimize the overall family taxes. Under the new rules, effective 2018, a reasonability test is introduced. Factors such as the amount of time and funds that the family member has contributed to the business will be taken into account. Where any dividends are considered unreasonable, they will be subject to the highest marginal tax rates.
Passive Investment Portfolios: Under the current rules, a private corporation can accumulate earnings and make passive investments. This allows for a tax deferral opportunity as the income is subject to the corporate tax return rate and not taxed to the owner-manager of the company until it is paid out of the corporation. While the Department has not specified how it will tax passive investment income, it did state that past investment and related income will fall under the current tax rules; businesses can continue to save for contingencies/future investments in growth and a $50,000 passive income threshold is available.
Voluntary Disclosure – what it is and upcoming changes
One of the services I list on my website is assistance with Voluntary Disclosure. As this puzzled many clients, I would like to shed a bit of light on this. Canada Revenue Agency has a program where, if you realized that you omitted reporting income, capital gains or have some other type of correction needed, you can submit this information to CRA under the Voluntary Disclosure Program. The advantage of using this program, is that if CRA accepts the submission, it will waive penalties and possibly reduce interest. Certain criteria must be met to use this program.
CRA has recently proposed changes to the Voluntary Disclosure Program. Starting in 2018, submissions will be processed under one of two tracks, the General Program and the Limited Program. The General Program is available where the correction is due to absentmindedness, and the Limited Program is for cases that involve major non-compliance such as using offshore means to avoid detection of unreported incomed.
If you wish to know more about the Voluntary Disclosure Program, please contact me.
Please contact me if you would like to discuss any of this information.
I hope you have wonderful holidays, and I wish you all the best for 2018.