October Canadian tax announcement

October Canadian tax announcement

This series of financial advice columns is provided by Philippe Pomerleau, F. Pl.
RBC Financial Planning

On October 30, 2014 Prime Minister Stephen Harper presented new tax measures to provide tax relief and benefits for families with children under 18.

Highlights of the proposed measures include:

– Income splitting up to $50,000 for families with children under 18, in the form of a federal non-refundable tax credit, effective for the 2014 taxation year. This credit will result in tax savings of up to $2,000.
– An enhanced Universal Child Care Benefit that would provide up to $1,920 per year (an increase of $720 per year) for children under age six, and a new benefit of up to $720 per year for children ages six through 17, effective January 1, 2015.
– A $1,000 increase in the maximum dollar amount that can be claimed under the Child Care Expense Deduction, effective for the 2015 taxation year.
– Doubling of the child fitness tax credit from $500 to $1,000, effective for the 2014 taxation year, and making it refundable effective January 1, 2015.

While it has been the long-standing practice of the Canada Revenue Agency (CRA) to allow taxpayers to file their tax returns based on proposed legislation, a taxpayer remains potentially liable for taxes under current law in the event that a fiscal update proposal is not ultimately passed.

Therefore, if proposed legislation does not become law, it is possible that CRA may assess or re-assess your tax return based on existing legislation. It is recommended that you consult a professional tax advisor to assist you in assessing the costs and benefits of proceeding with specific proposals as they relate to you.

New Income Splitting “Family Tax Cut”

The federal government proposes an income-splitting measure called the Family Tax Cut. Currently, federal personal income tax rates increase with the taxpayer’s level of taxable income. Therefore, a couple where one spouse earns significantly more than the other often pays more federal tax than a couple where the spouses have equal earnings, even though both families have the same combined amount of income. The new measure will benefit two-spouse families where one spouse has significantly lower income than the other, such as a stay-at-home spouse. It would not benefit couples with similar incomes or single parents. Beginning in 2014, couples who have dependent children under 18 years of age can claim a federal non-refundable tax credit to a maximum benefit of $2,000. This measure allows couples to income-split up to $50,000 of their household income for the purposes of determining their federal taxes payable. Either spouse may claim this credit.

Expanding the Universal Child Care Benefit (UCCB)

The UCCB currently provides parents a taxable payment of up to $1,200 per year for each child under the age of six. The federal government proposes to enhance the UCCB by increasing the
benefit from $100 per month to $160 per month. Parents would receive up to $1,920 per year for each child under the age of six, an increase of $720 per year. The federal government is also proposing a new benefit of $60 per month for children aged six through 17. Parents would receive up to $720 per child per year. The UCCB is taxed in the hands of the lower-income spouse and therefore the net after-tax benefit of the enhancement will depend on their marginal tax rate. The UCCB does not affect income-tested benefits and does not reduce the child care expense deduction. Enhanced payments for the UCCB would take effect as of January 2015 and would begin to be reflected in monthly payments to recipients in July 2015. The enhanced UCCB would replace the existing Child Tax Credit for the 2015 and subsequent taxation years.

Enhancing the Child Care Expense Deduction

The Child Care Expense Deduction allows a working parent to deduct child care expenses incurred to earn employment or business income, pursue education or perform eligible research. Generally, only the lower-income spouse can claim the deduction. To better reflect the cost of child care expenses, effective for the 2015 and subsequent taxation years, the federal government proposes a $1,000 increase in the maximum dollar amount that can be claimed under the Child Care Expense Deduction. This means that the maximum amount that can be claimed would increase to $8,000 (from $7,000) for each child under the age of seven, to $5,000 (from $4,000) for each child aged seven through 16 (and infirm dependent children over the age of 16), and to $11,000 (from $10,000) for children who are eligible for the Disability Tax Credit. Since this benefit is a deduction from income, the additional tax savings depends on the marginal tax rate of the lower-income spouse. The higher your marginal tax rate, the bigger the tax savings. If you are in the highest tax bracket, the additional federal tax savings is $290 per child.

Doubling the Children’s Fitness Tax Credit

The federal government previously announced on October 9, 2014 that they will double the value of the Children’s Fitness Tax Credit. Parents can now claim a 15% non-refundable tax credit
for up to $1,000 in the fees paid to register a child in an eligible program of physical activity. This translates into a maximum credit of $150 per child (up from $75 per child). Eligible programs of physical activity include many sports including hockey, swimming, golf lessons, sailing, and other activities that require a similar level of physical activity. Parents can claim the increased amount when they file their 2014 tax return. The credit can be split between spouses as long as both do not claim the same fees and the total amount claimed is not more than $1,000 per child. The credit will
become refundable in the 2015 tax year so lower-income families that pay little to no income tax will be able to receive a tax refund.

Prior to implementing any strategies contained in this article, individuals should consult with a qualified tax advisor, accountant, legal professional or other professional to discuss the implications specific to their situation.

For more information you can get in touch with Philippe via the contact details below or visit his website.

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Categories: Opinion

About Author

Philippe Pomerleau

Philippe Pomerleau has worked in the financial sector for years. He is based in Quebec City and speaks English and French.

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