This tax season, begin with the end in mind: pay only the correct amount of tax and nothing more. File early for your refund. But if you owe, be sure to file before midnight April 30 to avoid late filing penalties and interest. Even better: file early and post-date payments, or make arrangements to pay over time. Unincorporated small business owners and spouses have until June 16 to file before late filing penalties apply, but file by April 30 to avoid interest charges on balances due. Common misses:
❑ Province of residence. Everyone in Canada must file a federal tax return. In all provinces but Quebec, the provincial taxes are included on the federal return, based on province of residence on December 31.
❑ Barter. The bushel of apples, gaggle of geese or services of great variety, paid to settle a debt instead of cash—all have a commercial value that may have tax implications. They are income to recipients and may be deductible by presenters. The onus of proof is on the taxpayer to justify the value; under-reporting leads to penalties.
❑ Exempt income. Income received by foster parents is exempt, as is strike pay, income exempt by statute, certain war veterans’ allowances and pensions, life insurance benefits, inheritances, lottery winnings and gains calculated as exempt on the sale of a principal residence.
❑ Group health plans. Employer contributions to group accident/sickness plans that result in future lump-sum payments are taxable this year; contributions for wage-loss replacement benefits payable on a periodic basis remain non-taxable. Report employee premiums to a wage-loss replacement plan on new Line 103. Claim Blue Cross premiums as medical expenses.
❑ Artists and musicians. Artists and musicians may claim expenses for costs specific to their profession. This includes supplies like ballet shoes, body suits, drum sticks, and computer supplies or home office costs, plus rental, maintenance, insurance and capital cost allowance on instruments. Claims are limited to lesser of $1,000 and 20% of employment income.
❑ Overseas workers. If you worked outside Canada six consecutive months beginning or ending in 2013 for certain Canadian employers or Canadian-owned foreign affiliates, claim the lucrative Overseas Employment Tax Credit. You can exempt 60% of income up to $60,000. This used to be 80% of income to $80,000 a year. The credit phases out by 2016.
❑ Home workspace. Home office expenses are common for the self-employed; employees may claim them only if employers certify the requirement. You must work in this space over 50% of the time or it must be used exclusively to earn income from office or employment on a continuous basis to meet customers while performing duties. Carry-forward applies if expenses exceed income.
❑ Babysitting costs. Expenses for care of dependent children under 16 (any time of year) or who are physically or mentally infirm may be claimed. This includes you or your spouse’s natural or adopted child. Qualifying expenses include payments for babysitting or nanny care, nursery schools, day camp or sports school. Payments to a child’s parent won’t qualify but related persons over 18 do.
❑ Moving expenses. If you moved at least 40 km closer to a new work location or place of self-employment, claim costs of selling your home, including real estate commissions. Removal, storage and transportation costs count, as does a maximum $5,000 for the costs of keeping a vacant residence while trying to sell.
❑ Stock options. There are no tax consequences when options are granted to employees, but a taxable benefit occurs when options are exercised. This is the difference between the market value of shares purchased and the exercise price—their worth when granted. While an income inclusion results on the T4, take a Stock Option Deduction. Rules differ if shares are from private Canadian corporations. See your tax adviser for help.
Families and children
❑ Check out Schedule 1. Federal tax brackets and most non-refundable personal amounts were indexed by 2% in 2013. The Family Caregiver Amount was raised to $2,040. This is added to the spouse and eligible dependant (equivalent-to-spouse) amounts ($11,038), the amount for minor children ($2,234) and the caregiver amount ($4,490) if the dependant has mental or physical infirmity confirmed by a doctor.
❑ First-time donor’s super credit. There is an extra 25% credit for cash donations up to $1,000 made after March 20, 2013, but neither you nor your spouse can have claimed the donation credit since 2007. This amount can be shared between spouses and is available only until 2017. Sadly, unclaimed earlier donations won’t qualify. Because the credit’s value increases with donations over $200, combine amounts on one spouse’s return. Carry forward smaller donations up to five years (but no later than 2017).
❑ Claim medical travel costs. Costs of medical care not available to patients in their home community can be claimed as medical expenses. Keep a log of travel distances and claim either your receipts for gas or use the simplified “cents per kilometre” method. The amount is 55 cents in Ontario for travel in 2013. You must travel at least 40 km outside your home area; 80 km to claim meals and lodging. Claims are based on receipts.
Changes for investors
❑ Maximize RRSP. Your Notice of Assessment reveals your personal RRSP Contribution Room. The amount now includes contribution room for PRPPs—Pooled Retirement Pension Plans. Employer PRPP contributions are reported on Line 205, reducing RRSP room. The maximum room you could have earned in 2013 was the lesser of $24,270 or 18% of your earned income. Your room can be used for 2014 RRSP contributions. Your room will be higher if you missed contributing in the past but excess contributions—over RRSP room plus $2,000—are subject to 1% per month penalty, payable March 31. Form T1-OVP is a nightmare: see a tax pro.
❑ Report offshore assets. Check Form T1135 Foreign Income Verification. Report the cost (not fair market value) of funds in foreign bank accounts, foreign equity interests in brokerage accounts or mutual funds and real estate used at least 50% of time for business or rental purposes. File the form whether or not you file a tax return by the normal due dates.
❑ Report capital losses. Offset this year’s capital gains with investment losses in current or prior years from 1972 to 2012. If you have no capital gains this year, carry capital losses back (up to three years) using form T1A or carry them forward.
Changes for business owners
❑ Business loss rules. Unclaimed losses from unincorporated small businesses offset all other income in year; unabsorbed losses may be carried back three years or forward 20 years (to 2033) to offset other income in the year.
❑ ABILs are lucrative. When shares in or debts to a qualifying small business corporation become worthless, claim an Allowable Business Investment Loss to offset income from current tax year. Unabsorbed balances can be carried back three years to offset all other income or carried forward up to ten years to 2023. Unabsorbed losses become capital losses after this, and can be carried forward indefinitely to offset future capital gains.
Changes for seniors
❑ Reporting OAS. Annual full-year OAS benefits reportable as income in 2013 are $6,579.06. Deferral of OAS to age 70 was possible as of July 2013: a great way to boost future benefits up to 36%. This makes sense for those who lose OAS to high-income clawbacks, which kick in when net income hits $70,954. OAS is completely clawed back if net income exceeds $114,815. RRSP contributions can help if the taxpayer is eligible.
❑ CPP changes. The first PRB (Post-Retirement Benefit) was paid in 2013 to those who kept working and contributing to CPP after age 60 while receiving a retirement benefit. The maximum PRB for 2013 was $25.31/month ($303.72/year). Remember you can opt out of paying CPP premiums at 65 if you’re already receiving a CPP retirement pension. File form CPT30 with your employer a month before you want to stop; self-employed taxpayers should use the opt-out declaration on Schedule 8.
❑ Pension splitting. Splitting private pension income with a spouse pays. Split private pension benefits from an RPP (at any time) and RRSP (at age 65 or later). Adjust prior-filed returns now if you didn’t do so in last three years. The 2010 election to split pension income expires April 30, 2014. Use form T1032 Election to Split Pension Income.
Adapted from the 2014 edition of Jacks on Tax, Your Do-It-Yourself Guide to Filing Taxes Online, available at www.knowledgebureau.com and bookstores.