Tax Changes for Families

Changes Proposed for 2014 Mean Tax Benefits for Families

NEW TAX CHANGES 

BENEFITING FAMILIES

Earlier this month there were a number of changes proposed expected to take effect in 2015 for the benefit of families. Two-thirds of the families benefiting these changes will be low and middle-income earning families.

Income Splitting Will be Available for Families

The new Family Tax Cut will allow income splitting for families as of the 2014 tax year, when previously this has only been available for seniors. This will allow a higher-income spouse to transfer up to $50,000 of taxable income to a spouse in a lower tax bracket. For example for a family that has a stay at home parent or one who works part time, and allowing them to divide the income for tax purposes. The credit will provide up to $2,000 of tax savings for couples with children under the age of 18, effective for the 2014 tax year.

Enhanced Universal Child Care Benefit replaces the Child Tax Credit and Increases UCCB

The Child Tax Credit is a $2000 tax credit applied to line 367 for a parent with a child 17 or under. This credit is being eliminated at the time of filing the 2014 tax return and replaced with the new Enhanced Universal Child Care Benefit as of January 2015. The credit being replaced can be worth up to $365 per year for each child to the parent claiming it, but only if their income is taxable. The credit goes to waste for many low income parents or single parents who don’t have enough income to make use of it.

The Enhanced Universal Child Care Benefit would increase the current $100 per month to $160 per month for children under 6 years old and will provide $60 per month for children 6 to 18. This benefit would apply regardless of income. In a year $1920 could be received per child.

While this change to the Universal Child Care Benefit is effective January 1, 2015 it cannot be paid until July 2015 after Royal Assent has been received. Until July 2015 regular payments will apply.

If you have applied for the UCCB or Child Tax Benefit in the past nothing further is required to receive this benefit, however if you have never applied you should submit form RC66.

Fitness Tax Credit Increased

While the Arts Credit remains at $500 per year, per child. The Fitness Tax Credit has increased to a maximum of $1000 for each child up to age 16 per year.

In addition to the increase of the current limit in the 2014 tax year, as of the 2015 tax year, the credit will be changed to a refundable credit. Meaning that the credit will result in a refund of a portion of the amount paid when no tax is owing rather than going to waste if the income is too low to owe any tax.

Increase to Child Care Expense Maximum

The current Child Care Expense limits for every age group will increase by $1000 per year.

Contact us at Pain Free Tax & Bookkeeping Service Ltd. to arrange a free analysis of how these changes may benefit your family. 

Why is the government auditing my tax return? Now what?

April 30th has come and gone and every good Canadian has dutifully sent in their Tax Return. Some still have their fingers crossed and many spent their refund long ago on bills, extravagant dinners, Tim Horton's, a little vacation... but wait, why did I get this letter asking me for more information? The questions that jump to mind are "Why am I being audited?" and "Am I going to owe the government my refund back?"

A Review is Really Just a Spot Check of your Return

Because Canada has a "Self-Reporting" tax system every tax return is pledged with a promise that we have done our best, but could be subject to a random check at a later date. Most of the 25 Million filed returns are submitted electronically or with paper forms that don't require sending most receipts. Instead of burying the government in all those receipts, and leaving them with a serious storage problem, you are supposed to retain proof of your claims for possible future review for 6 years. 

There is also a big difference between being selected for Review (spot checking of your claims for everyone) and an Audit (full scale review of your tax filing/records, normally for businesses). However, nobody likes being scrutinized by the government and it generally leads to nightmares, profuse sweating and severe stomach cramps. And no wonder we are scared with what we see of the American IRS on our mostly american TV programming. So any letter asking for information is often perceived as the ominous and frightening "audit".

In reality, a full Audit is quite rare and the most common thing is for taxpayers to receive one of 4 types of review letters: 

• Pre-assessment Review Program - before they process your tax return
• Processing Review Program - after processing your tax return
• Matching Program - checking your return against T-slips issued to you for missing ones
• Special Assessments Program - targeted reviews of certain types of income/claims, like Tips or employment expenses

Most common is the 2nd and 3rd... and you will receive a letter between May and December to spot check submitted claims or inquire about differences between your income slips reported and slips in their system.

The letter will request supporting documentation for whichever claim is being looked at. And the practice is not to ask for more than 3 years back unless there is real grounds for a more serious look. These are usually a simple look at your receipts, and no government ghoul will ever show up with a warrant... they will just request the appropriate supporting documents to prove your entitlement to the claim, and if for whatever reason the papers aren't acceptable or you have claimed something in error, the worst case scenario is that you pay back the tax owing on that item. 

Why were you chosen? Well its really nothing personal. All returns are scanned by a computer system and the factors are:

• random selection - they will select 150,000 people with a specific claim for example
• comparison of information on returns to information received from third-party sources, such as T4 information slips - so something may not appear to match your slips
• types of deductions or credits claimed and an individual's review history - something that seems out of the ordinary for you or an unusual amount for you that could be an error, like a large claim for Spousal Support deductions, and you were never married... or something that you have had rejected before and claim again

Usually a review gives you 30 days to submit the paperwork, but if you need more time, call and ask for an extension. You can usually be granted one or two extensions with a simple phone request. If you fail to respond, expect a reassessment of your claim and to pay back any related tax owing. There are no penalties for the tax assessed resulting from this, but you will have to pay interest backdated to April 30th.

Keep in mind if you miss the deadline and get Reassessed, or if the government doesn't agree with your receipts its doesn't mean its the end and you have to pay... you can still request an adjustment to put it back in later with the proper paperwork for up to 10 years. Hopefully it won't take that long to find the right receipts wherever you stored them! 

If you are still not sure how to deal with a review or you have had your claim rejected, seek out help. Ignoring the letter or not sending correct documentation will result in a loss of tax credits that you may still be entitled to. 

Pain Free Tax & Bookkeeping handles reviews as part of the cost of doing your taxes, but we also help people who filed their own taxes or at other firms. We are very experienced in handling reviews and successful in getting valid claims reinstated after a rejection. And where the individual really isn't entitled, perhaps the tax return requires other changes because of it - such as changing the best amount for a pension split, medical, RRSP's, etc.

If you haven't yet filed your return, do so now to avoid being cut off of benefits such as Child Tax Benefit or Guaranteed Income Supplement.

What do Day-Camp, Babysitting, Preschool, Summer Camp, Nannies and Boarding School have in common?

Childcare Expenses are Deducted Dollar for Dollar
from your income saving more tax than other expenses.

Besides providing wildly entertaining activities designed to amuse your kids... and give you a moments peace... all of these are types of Childcare that could be valuable Tax Deductions you aren't fully taking advantage of.

Childcare Expenses are deducted off your earned income dollar for dollar for tax purposes, so essentially that income is cancelled out. That is why it's more valuable to you than other types of Tax Credits like Bus Passes or Medical Expenses.

While most people are aware that they can claim Licensed Daycare or After School Care when it comes to some of the other eligible Childcare Expenses it can get confusing. But the rule of thumb is if the activity you have enrolled your child in is allowing you or your partner to go to school or do an income earning activity, in general, it can be claimed. The expenses are eligible where the primary goal is childcare for earning income but if the expenses don't line up with your specific work hours that doesn't mean they aren't eligible... they still allow you to keep your sanity after all. The total expenses for the year are claimed against your annual income, not on a day by day or month by month basis. It is accepted that you may not always be "at work" while your child is in paid care, but being free to do other activities during that time may allow you to work "overall" so CRA doesn't get involved in those personal choices so as long as your are earning eligible income to deduct it from, that is sufficient.

Under CRA's rules, if you are married or common-law, childcare must be claimed by the person who has the lower net income. Except if that person was incarcerated, incapacitated by illness, or in school. If those situations apply then the higher income person can claim those weeks which usually results in a bigger deduction. See form T778.

Eligible Expenses (up to annual combined limit of $4000-$7000 for each child based on age/disability). The age limit for the child being eligible is 16 unless the dependant is disabled.This cannot be money paid to a blood-relative under 18 or a spouse.

• Daycare of After School Care costs, Licensed or not. Individuals must provide their name and SIN if they are not a Daycare Center. If the daycare is a business, no SIN is needed.
• Babysitting costs. You need the individuals name and SIN number (note sometimes people are hesitant to declare the income but for teenagers with no other job, this is unlikely to be enough income to be taxable and exceed their personal exemptions). 
• Nannies. The cost of their Salary, plus taxable benefits and expenses such as CPP/EI.
• Preschool fees, including mandatory registration costs. 
• Summer Camps/Overnight Camps/Overnight Sports Schools. Subject to a weekly limit based on age of $100-$250.
• Day Camps/Day Sports Schools: The most frequently misunderstood and neglected expenses. This is treated as normal daycare, even if its a super fun activity centered camp like golf, laser tag, dancing, sports, etc. If its more than 5 days long, see below.
• Educational Institution Fees, for the part that relates to childcare and not education if you can be provided a receipt that details supervision costs during recess and lunch, etc.
• Advertisement and Placement Agency Fees may also qualify if needed in order to find a suitable childcare provider or nanny for your situation.

A few common pitfalls and tips for Day-Camps and other Childcare:

• If you have no eligible income to use Childcare against (EI or Social Assistance for example) it cannot be carried forward and may be wasted, but consider if it is also eligible for the Fitness or Arts Credits instead or if your situation allows the higher income spouse to claim it instead.
• If the lower income person is non-taxable but has income, it can reduce their income to qualify for more child tax benefit or increase spousal credits for their spouse.
• 5 day camps are also allowed to be claimed as a Fitness or Arts expense when it would be more valuable to claim it as Childcare and not be subject to the respective $500 limits per child for those Tax Credits. Sometimes the issuer will "helpfully" stamp it as being an eligible fitness credit, but won't mention it may be more beneficial to claim it as childcare.
• Claiming Day Camps as "Camps". Sleep away/Summer camps and Boarding School costs are limited to a weekly Maximum in order to exclude all the other components that aren't eligible, but Day Camps are not. This is a most common error when using software where people enter the expense as a Camp instead of Daycare, which adds the limitation. This limitation does not apply to Day Camp activities you enroll your children in and should be claimed in FULL.
• If you have reached your maximum for Childcare, consider 5 day camps as Fitness Expenses instead of allowing them to be wasted, for example if you have a nanny as well.
• If you have reached your childcare limit on other expenses and have your child in preschool, consider using the preschool expense as the Arts Credit instead rather than wasting it.
• If you have a child with a disability, and do not have other Arts and Fitness Credits over $100 each but also have a 5 day camp that could also qualify, use one worth at least $100 to receive the "bonus" supplemental $500 increase to your expense for fitness or arts to $600 or more. This is the one exception where it can be more than valuable than Childcare if you have income.

Pain Free Tax is a BBB A+ Company that offers free reviews of your tax returns to see if you might be eligible for adjustments to anything you may have missed on your last 10 tax returns. Contact us at service@painfreetaxes.ca for help. We offer mobile service and helpful advice.

$4638 Recaptured by Claiming Selling Costs of House

We recently helped a couple who moved from Nanaimo to Victoria in 2011 and rented the house out. In 2013 they sold the home after waiting for market conditions to improve a bit.

We advised these clients they should be claiming the selling costs as a Moving Expense and the adjustment request we submitted for them resulted in a reassessment and saved them $4638 of tax they otherwise would not have received.

Often moving expenses are not all incurred in the same year, and some of the costs eligible to be claimed are not as obvious as others, such as Realty Commissions, Legal Fees, and Land Transfer Tax. If they cannot be applied in the year that you moved, as there was no income earned in the new location yet (or you haven't found the job yet), then you can apply them in a future year.

The expenses must be reported on the tax return in the year they are incurred. So in this case there were expenses in 2011 and 2013 from the same move.

Keep in mind if you move again and haven't claimed them in the location of where you moved, they will be cancelled at that point.

Single Parents with Children Under 6 - The UCCB can be claimed on your child

One of the most frequently overlooked tax savings available to a Single Parent for the past few years is the ability to claim the UCCB Benefit ($100 per month for each child under 6) as the income of an eligible child rather than including it in their own income.

If the parent is claiming an Amount for an Eligible Dependant (claiming the Child for additional credits instead of a spouse), the UCCB income has to be used for that specific child and their credit reduced by the income.

If the parent is not claiming the Amount for Eligible Dependant, the income can be claimed as the income of the child for whom you are receiving the benefit instead.

The child does NOT need to a file a tax return to take advantage of this option.

Either way, taking advantage of this reduces the taxable income of the parent and in most cases results in some tax savings even if the Amount for Eligible Dependant is reduced. In some provinces it makes more difference than others because of the provincial tax calculations.

For example, with a single parent in BC with a taxable income of $60,000 it can mean a savings of an approximately $180.

To do this, instead of reporting the UCCB on line 117 of your tax return, report it on line 185.If you haven't been taking advantage of this, it's not too late. You can go back and adjust your tax returns for the last 10 years using form T1 Adj.

Feel free to contact us at service@painfreetaxes.ca or 1-844-EZ-TAXES for a free consultation about this or other potential missed credits.

Another $5000 Back in Our Clients Hands

Today we got confirmation of a combined $5000 that was put in the hands of some of our new clients by adjusting tax returns for them for 2011 and 2012 where credits were missed by other tax firms.

In one case, they paid an extremely low fee to have their taxes done but it cost them nearly $3,000 in lost refund due to missed credits and poor advice... and this also led to problems with Canada Revenue Agency that are still being worked out and being appealed.

In another case, they paid $300 for a couple to have their taxes prepared and items were missed, costing them $1,200 as well as incorrect advice about another credit they could have claimed.

We review prior year returns at no charge to look for any missed credits. We only charge for the work required to help you get back money you are entitled to.

Commonly Missed Tax Credits for Families

T4's are due out by the end of February and as "Tax Time" gets rolling it seems like a suitable time to review the most commonly missed Tax Credits for families:

Childcare

More than "Daycare" counts as Childcare. Don't forget preschool, babysitters, day camps, overnight camp, boarding school, or Nannies. Some receipts for Arts or Fitness could also qualify as Childcare, which is worth more.

If your child has just started Kindergarten, don't forget to request receipts from January to September.

The lower income spouse normally must claim the childcare, but there are exceptions, so check before letting it go to waste.

The Family Caregiver Amount

If your child or spouse is Infirm or Disabled, you may be entitled to this new credit. If there is a Disability Tax Credit in place, go ahead and make the claim, otherwise you may need a doctors note. For a Child they must need more support than another child the same age and be likely to continue going forward, but it is not required that they have the Disability Credit.

Caregiver, Infirm Amounts and Disability Transfers

If you help with the Activities of Daily Livings for an Elderly, Infirm (Physical or Mental Challenges) or Disabled Relative over 18 you may qualify to claim their Disability Tax Credit, the Caregiver Amount if they Live with you, or the Infirm Amount if they don't.

Fitness and Arts Credits

If your child is in a Sports/Fitness program or in any Arts/Tutoring program for at least 8 continuous weeks or a camp for 5 consecutive days then you can claim up to $500 for each of these categories, plus additional Provincial Credits in many provinces. If your child has a Disability Tax Credit, you get up to $1000 for each because you get an extra $500 credit for any fees over $100.

Transit Passes for Unlimited Bus, Ferry or Trains

Weekly (5 day min), Monthly or Annual Bus Passes (and Discounted Student Bus Passes through BC Transit) can be used for a Transit credit. Often Post Secondary Students assume their passes are included in their Tuition receipt but you must print the school fees breakdown to get their Transit and Medical Insurance Amounts.

Medical Expenses

Often people are under the impression they don't have enough medical to make a claim because you have to subtract 3% of your income. They forget items like Extended Health and Dental Plans deducted from their pay, or don't think about other types of medical claims besides Prescriptions (such as Glasses, Chiropractors, Naturopaths, Braces, Medical Travel, Out of Province/Country Health Insurance for Vacations, etc). Even if you don't have enough to make a claim, you can save them for next year because you can claim the best 12 consecutive months ending in the current tax year. Also, the 12 months selected can be different for each family member. If you lost them, you can usually get Summaries for the entire year from your Health Practitioner or Pharmacy.

Medical Expense Supplement

Often the medical claim itself makes no difference to a person with low income, however there is also a Medical Expenses Supplement which gives back 25% of the Medical Expenses paid to low income taxpayers as a Refund.

Charitable Donations

Many people don't realize they can claim a donation receipt up to 6 years. This means you can save up all your small donation receipts because you get more credit for amounts over $200 total, or keep them if they make no difference this year for the future. Also if you forgot to claim them in the past, you can gather them up and use them for the current year.

For 2013 there is also a new “First Time Donor's Super Credit” allowing individuals who have never claimed donations before to get extra value for Donations from 2013.

If you think you have missed any of these credits on past returns contact a Tax Professional for Advice. Our company will assist with a free review to help you decide if you could be getting money back by making adjustments.

Do You Know the Difference Between Camp and Daycamp Expenses? - Frequently Missed Child Expenses

In the midst of a proposed school strike, people are signing their children up for Day-camps at local Recreation Centres. Also a co-worker was doing early registration for her child's summer camp. It's come up quite a bit that these ARE considered valid Childcare Expenses and are frequently overlooked.

Because of the word "Camp" people often doing think of these as "Daycare" but as far as your taxes are concerned, they still are valid expenses for Childcare.

Even though both use the word "Camp" they are treated differently for your taxes.

A DAY camp is no different than any other daycare expenses. You can claim the full amount subject to the same rules as any other Childcare expenses (as far as maximum claim amounts and the lower income parent has to claim it unless they are a student or have an illness).

A SUMMER or "OVERNIGHT" Camp is subject to a weekly maximum limit of between $100, $175 or $275 depending on the ages of the child and whether or not they have a disability.

If you child was in a "camp" in 2013, don't forget to claim this expense. If you missed claiming this expense in the past, your tax returns can be adjusted for up to 10 years. Most facilities can easily provide replacement receipts on request.

If you use software to prepare your tax return, keep this distinction in mind when preparing your tax return about the word "camp". If you mark the expense as a Camp in the software, it will apply the weekly limits. But unless it was an OVERNIGHT camp you should NOT do this. Any camps that don't have an overnight portion, are not really considered a camp. They are just considered ordinary day care.

Also keep in mind that if your child is in a sports camp, make sure to include this as DAYCARE and NOT as a Fitness expense.


Pain Free Tax & Bookkeeping Service provides free reviews and advice for tax questions about adjustments. If you have any question please contact us at service@painfreetaxes.ca