2011 Personal Income Tax
Getting ready for your 2011 personal income tax return preparation
As of the time of writing, the personal tax return filing due date is only a month and a half away (unless you are a self-employed person). Although collecting the various slips and documentation may not be fun, getting ready early may alleviate your (and your accountant’s) stress. Before you finish with your documentation gathering, you may want to be familiar with the following tax credits so that you are getting the maximum tax break.
1. Children’s Arts Tax Credit (CATC)
CATC is a new non-refundable tax credit for eligible expenses paid for your children under 16 years of age. The allowed maximum credit is $500 per child.
Eligible CATC activities include development of creative skills or expertise in artistic or cultural activities; providing of substantial focus on wilderness and a natural environment; helping children develop and use particular intellectual skills; structured interaction among children where supervisors teach or help children develop interpersonal skills; and providing enrichment or tutoring in academic subjects.
A program that is part of a regular school curriculum and expenses paid for travel, meals and accommodation is not eligible for CATC.
2. Medical Expense Tax Credit for Other Dependants
If you pay medical expenses for an eligible dependent, the expenses may qualify for a medical expense tax credit on your personal tax return. Prior to 2011, there was a $10,000 limit for medical expenses for each eligible dependent. This limitation has been removed for 2011 and subsequent years. You can now claim eligible medical expenses paid for your dependent who is age 18 or older, grandchild, your and your spouse’s parent, grandparent, brother, sister, uncle, aunt, niece, or nephew who was a resident of Canada at any time in the year without any dollar limit.
3. Tuition Tax Credit Examination Fees
Certain examination fees paid in 2011 and subsequent years are now eligible for the tuition tax credit. Qualifying fees include those paid to an educational institution, professional association, and provincial ministry to take an occupational, trade or professional examination that is required to obtain a professional status recognized by federal or provincial statute, or to be licensed or certified as a tradesperson.
Specifically, eligible expenses include:
- Admission fees
- General enrolment fees
- Examination fees
- Charges for the use of library or laboratory facilities
- Academic fees
- Mandatory computer service fees
- Application fees
- Charges for a certificate, diploma or degree
- Charges for orientation, academic information, learning assistance
- Issuance/replacement of student cards
The following expenses, on the other hand, do not qualify for tuition credit:
- Medical expenses
- Student’s association fees
- Transportation and parking
- Meals and lodging
- Initiation and entrance fees to a professional organization
- Cost of books
- Administrative penalties incurred for withdrawing from a program or the institution
- Ancillary fees and charges not payable by all students
- Fees for social or athletic student activities
Please do not hesitate to contact Martyn, Dooley & Partners to discuss how these changes can be applicable to you.
Compliance Headaches – T4A
Compliance Headaches –
T4A Information Slip – The confusion of Box 048
While January does not guarantee snow, it marks the beginning of the busiest season for most accountants, especially tax accountants… the preparation of the various information slips (T4, T4A, T5 etc), trust returns, and of course personal tax returns.
To make things more complicated, Canada Revenue Agency (CRA) redesigned the T4A slip last year and introduced new Box 048 – “fees paid for services”.
By way of background, a T4A slip is traditionally used to report income exceeding $500 that does not fit into other T-slips, or when income tax has been withheld. For example, pension, self-employed commissions, annuities, RESP payments and scholarships are to be reported on T4A slips.
However, the description provided by CRA regarding the new Box 048 is troublesome.
“Any person who makes a payment for fees for services should report these amounts in box 048 of the T4A slip. Payers of these fees are responsible for providing copies of this slip to both the recipient and the CRA.”
Being a “person” myself, I pay for all sorts of fees for services on a daily basis – dental, hair salon, cleaning, cab, service charges at restaurants etc. Does this mean I am now responsible for issuing T4A slips to all these people when the amount is over $500? From a business perspective, does this Box 048 requirement apply to the legal bills, courier, and web services?
To ease (postpone?) the pain in compliance, CRA made the following announcement on its website (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4a/slps/cmpltng/bx48-eng.html) as of December 16, 2011:
Until such time as the CRA undertakes a review for the purposes of clarifying the types of fees for services that are to be reported on the T4A slip, taxpayers will not be penalized for failing to complete Box 048.
In the meantime, all fees for services that were previously reported in Box 28 on the original version of the T4A slip should continue to be reported on the redesigned T4A slip.
We will need to revisit this issue next year, I guess.
Posted in Tax
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Tagged Kevin Wong, T4A
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US Residency
Do you plan on taking an extended vacation to the United States? Have you spent significant time in the U.S. over the last three years? If so, you will want to read on.
As the cold weather sets in, many Canadians venture to warmer surroundings. As our closest neighbour, the United States is a logical choice. Canadians spending extended time in the U.S. should be aware of a couple of residency tests.
The first test is fairly straight forward and is commonly known as the 183 Day Rule. If you spend more than 183 days in the United States the Internal Revenue Service (I.R.S.) will consider you a resident alien for U.S. tax purposes. As a resident alien you would be subject to U.S. income tax on your worldwide income. However if you are also a Canadian resident for Canadian tax purposes the Canada-U.S. Tax Treaty’s “tie-breaker rules” determine which country has the right to tax your worldwide income. You will still have U.S. filing obligations even as a Canadian resident. A U.S. non-resident income tax return (Form 1040-NR) and Form 8833 must be filed with the I.R.S. to claim treaty protection.
The second test is slightly more complex and is called the “substantial presence test”. This test looks at your presence in the United States over a three year period. You would be considered a U.S. resident for tax purposes if you spent more than 31 days in the U.S. in any calendar year and your presence in the U.S. was greater than 183 days over three years as determined by the calculation that follows:
All the days present in the U.S. in the current year plus;
1/3 the number of days present in the U.S. in the previous year plus
1/6 the number of days present in the U.S. in the second previous year.
If the above calculation gives a result of 183 or great you would be considered a U.S. resident for tax purposes under the substantial presence test. In order to be considered a non-resident a Closer Connection Exception Statement (Form 8840) must be filed with the I.R.S. by June 15 of the following year.
Any individual concerned about the “substantial presence test” should file Form 8840. The form is straight forward and available online at the I.R.S. website – www.irs.gov.
Each individual’s tax situation is different and as always you should speak with your tax professional concerning your affairs.
Divorce – Lawyers, Accountants and CDFA(TM)
To best meet the needs of a divorcing client a blend of two ideologies was needed. To meet this need a new professional designation was created – the Certified Divorce Financial Analyst(TM). The role of the CDFA(TM) is to help both client and lawyer understand how the financial decisions made today will impact the client’s financial future, based on certain assumptions.
A CDFA(TM) is generally an individual who comes from a financial planning, accounting or legal background and goes through a training program to become skilled in analyzing and providing expertise related to the financial issues of divorce. The CDFA(TM) becomes part of the divorce team, providing litigation support for the lawyer and client, or becomes a member of a Collaborative Law team.
Among other issues, the CDFA(TM) will
- identify the short-term and long-term effects of dividing property
- integrate tax issues
- analyse pension and retirement plan issues
- bring an innovative and creative approach to settling cases
- provide data that shows the financial effect of any given divorce settlement
- appear as an expert witness if necessary
The CDFA(TM) is a relatively new designation, but has quickly become widely accepted in the financial and judicial system. If it is indeed the courts intent to treat both parties in a divorce in a financially equitable manner the services of a CDFA(TM) are essential. Financial, income tax, contractual and corporate matters are complex, the blend of ideologies and methodologies provided by the CDFA(TM) provide assurance that the financial interests of the settling parties are properly and adequately addressed.
For more information, please contact Terence A Dooley, CA, CFP, CDFA
Ontario Child Activity Credit
Ontario Child Activity Tax Credit
In 2010, the Ontario Government introduced a new “Ontario Child Activity Tax Credit” (CATC). This is a refundable tax credit for “eligible expenses” pertaining to a child’s extra-curricular activities.
Parents and guardians may claim a tax credit calculated at 10% of eligible expenses incurred with respect to children under the age of 16, up to a maximum of $500. Parents and guardians of disabled children under the age of 18 can claim an additional $500 provided that at least $100 of eligible expenses were incurred. For example, if the parent of a disabled child aged 17 incurs $300 of expenses relating to an eligible child activity program, the parent may claim a tax credit for the original $300 spent, plus an additional $500.
The expenses must have been incurred after January 1, 2010 and before Dec 31, 2010. Costs relating to memberships, registration fees, uniform costs, facility rentals, incidental supplies and administration costs are considered to be eligible expenses. Fees relating to travel, food or accommodations while participating in these activities are not eligible for the CATC.
Some activities may be eligible for not only the CATC but also federal childcare and child fitness credits. In circumstances where the activity is eligible for more than one of these classifications, special ordering rules will apply. Please contact us for more information if you think this may apply to your family.
For more information please visit the following links:
http://www.rev.gov.on.ca/en/credit/catc/index.html
http://news.ontario.ca/mof/en/2010/09/ontario-childrens-activity-tax-credit.html
Change – The One True Constant
The past year has been one of change for corporations and accountants. July 1 brought the change to the new HST, on December 14 new audit standards were brought in which will impact how audits and reviews are conducted in the future and, effective January 1, 2011, we now face a change in the accounting basics. Privately held companies with fiscal year ends beginning on or after this date must transition to a new set of financial reporting standards. Canadian Generally Accepted Accounting Principles (GAAP) are now a thing of the past and a choice must be made between adopting the International Financial Reporting Standards (IFRS) or the new Accounting Standards for Private Enterprises (ASPE).
Unless the company is planning on going public, has a parent or affiliated company that will be using IFRS or needs to be compliant with IFRS for purposes of international financing or contracts, most will be choosing to adopt the new ASPE. The good news is that ASPE is based on existing Canadian GAAP and has been designed to simplify rather than complicate the accounting standards and reporting. No change is without its challenges, however, and there are several transitional requirements and options that must be dealt with. Once the options are chosen and the initial year completed the subsequent years’ reporting should be simpler.
One of the more interesting transition elections is a one time opportunity to increase the value of the company’s property, plant and equipment to its fair market value as at the transition date and use that fair market value as its deemed cost. The offset would be a bump up in the retained earnings. This may have a favourable impact on certain key financial statement ratios and debt covenant calculations; however, it will also result in an increase in future depreciation expenses and may have a negative impact on the small business deduction limit and Scientific Research and Development claims. It would, of course, also mean the additional cost of having the appropriate valuations done.
One other change is that investments in publicly traded stocks will be required to be disclosed at their fair market value with a bump to retained earnings at the transition date and any subsequent changes in value being recognized in net income. Currently these investments are required to be held at their cost with note disclosure indicating their fair value and generally no impact on income until the stocks are sold.
Other changes include the elimination of the need for unanimous shareholder consent for differential reporting options – the options are now available with no consent requirements, changes to the accounting for employee future benefits, and more streamlined note disclosure requirements.
This transition will impact companies for who review or audit engagements are performed and will require additional work and statement disclosure in the transition year. As discussed above, the changes may impact income calculations and covenant or profit sharing calculations which may be based on different assumptions. Do not hesitate to call Martyn, Dooley & Partners to discuss just how these changes will impact your company and what we should be considering during this transition period.
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