Table of Contents
Planning Your Financial Future
New Matters
E-File
Filing Due Date
RESP
RDSP
TFSA
Income
T-4 Slips
Late T-4 Slips
Tips & Gratuities
Non-Taxable Income
Rental Income
Capital Gains
Child Tax Benefit
Universal Child Care Benefit
Interest on Joint Accounts
Scholarships & Bursaries
Reporting Foreign Income
Foreign Property Information Reporting Requirements
Alimony or Maintenance
Pension Income
Deductions from Income
Investment Income Deductions
Support Payments
Moving Expenses
Student Moving Expenses
Maximum RRSP Contribution
Child Care Expenses
Part Repayment of EI Benefits
Disability Supports Deduction
Tradesperson’s Tool Expenses
Apprentice Vehicle Mechanics Tools’ Deduction
Tax on Old Age Security Benefits
Tax Credits
Personal Tax Credits
Canada Employment Credit
Child Tax Credit
Dependent Children Over 17 Years of Age
Disability Credit
Medical Expense Credit
Charitable Contribution Credit
Tuition and Education Credits
Textbook Tax Credit
Pension Income Credit
Public Transit Passes Credit
Large Corporation Dividends Credit
Student Loan Interest
Transferable Tax Credits
Goods and Services Tax Credit
Home Renovation Tax Credit
First Time Home Buyer’s Credit
Canada Revenue Agency
RRSPs and You
RRSP
Benefits
Contributions and Deductions
Over Contribution Limit
RRSP Contribution Room
Phase-in of Maximum Contribution Increases
Foreign Property
Pension Adjustment Reversal (PAR)
Age of Annuitant
Spousal RRSP
Earned Income
Borrowing Money for RRSPs
Home Buyers' Plan (HBP)
Features
Lifelong Learning Plan (LLP)
Retirement Options
At Death
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Page 1
Planning Your Financial Future
British Columbians today are taking more and more initiatives in preparing for their financial futures.
Tax planning, retirement planning, savings, and investment strategies are increasingly top priorities
for people who want to make the most of their hard earned incomes.
Developing Your Plan
The CGA - BC Tax Tips and RRSP Guide will
get you thinking beyond deductions, credits
and contributions.
The CGA Tax Tips and RRSP Guide is an easy to follow introduction to income tax and RRSP issues.
You'll find answers to commonly asked questions and the latest updates that will affect you this tax
and RRSP season, as well as general principles that will help you plan for 2010.
When it comes right down to it, taking charge of your finances means developing a solid plan. For
personalized solutions, determining the plan best suited to your financial needs requires knowing your
options. This handy booklet is a good starting point for tax and RRSP issues. A Certified General
Accountant can help you develop that plan and provide you with the specific financial advice you
need.
As professionally trained consultants and trusted advisors, CGAs have the skills to understand their
clients' goals, evaluate their finances and to set them on a realistic course towards meeting their
financial objectives. Whether it's making the most of tax credits, saving for a child's education,
developing a new business plan or securing a comfortable retirement, the expertise of a CGA is the
added edge you'll need to take charge of your future.
Call your local CGA. Check the Yellow Pages or your local newspaper.
To find a CGA near you, visit www.cga-bc.org and click on the Find A CGA Firm.
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New Matters
1) BC Tax Rates and Income Brackets
Are now determined separately by the BC Government; in contrast to the previous system of using
a BC determined percentage of Federal tax. The Federal Government allocates your BC tax to the
province, which still requires only one annual tax return.
FEDERAL PERSONAL TAX RATES AND INCOME BRACKETS
2009 Income Brackets
$0 - $40,726
$40,726 - $81,452
$81,452 - $126,624
Over $126,624
2009 Tax Rates
15%
22%
26%
29%
2010 Income Brackets
$0 - $40,970
$40,970 - $81,941
$81,941 - $127,021
Over $127,021
2010 Tax Rates
15%
22%
26%
29%
{Rate brackets and personal credits are fully indexed to inflation.}
BC PERSONAL TAX RATES AND INCOME BRACKETS
2009 Income Brackets
$0 - $35,716
$35,716 - $71,433
$71,433 - $82,014
$82,014 - $99,588
Over $99,588
2009 Tax Rates
5.06%
7.70%
10.50%
12.29%
14.70%
2010 Income Brackets
$0 - $35,859
$35,859 - $71,719
$71,719 - $82,342
$82,342 - $99,987
Over $99,987
2009 Tax Rates
5.06%
7.70%
10.50%
12.29%
14.70%
For reasons of editorial clarity, separate references to BC rates and credits are not always provided.
The BC Tax Credits generally correspond to the Federal Credits, except that the dollar amounts and
percentage rates differ.
The recent Federal Budgets provide for the following:
2)
Maximum CPP Pensionable Earnings
For 2010 is increased to $47,200 from $46,300. The basic exemption amount ($3,500) and
contribution rate (4.95%) will remain unchanged. The maximum employee contribution is
$2,163.15.
3)
Maximum EI Insurable Earnings
For 2010 is increased to $43,200 from $42,300. There is no basic exemption amount and the
premium rate for employees is 1.73%. The maximum employee contribution is $747.36.
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4) Home Buyer’s Plan (HBP)
Maximum withdrawal amount has increased from $20,000 to $25,000 for all purchases that close
after January 27, 2009.
5) Home Renovation Tax Credit (HRTC)
For Renovations & Alterations made to eligible dwellings after January 27, 2009, but before
February 1, 2010 there is a 15% non-refundable tax credit available for eligible expenses over
$1,000, to a maximum of $10,000 (i.e. maximum credit = $1,350 against taxes owing). There is
also a corresponding BC Tax Credit.
6)
First Time Home Buyer’s Tax Credit (HBTC)
Persons purchasing a housing unit in Canada for the first time are entitled to claim a nonrefundable tax credit worth $750 (or 15% on $5,000 of their investment).
Ask your CGA for details.
The BC Government also maintained certain economic measures in the wake of the
global economic slowdown which include the following:
1) A Personal Income Tax Cut
It includes the three percent reduction that to took effect January 1, 2009.
2) Climate Action Tax Credit
Individual with incomes of up to $30,600 in 2009 and BC families with incomes of up to $35,700
will receive the maximum annual amount of $105 for each adult and $31.50 for each child starting
July 2009. Single parent families will receive $105 for the first child and $31.50 for each
additional child.
The credit is paid with GST credit in four equal quarterly payments. The credit is effective
July 2010 and the first payment made in October 2010 which included both the July and
October credits.
E-File
E-File is the Canada Revenue Agency’s (CRA) name for an electronic filing process. If you decide to
E-File your 2009 return it will to go directly from your CGA’s computer system to the CRA computer
over a secure internet connection.
Ask your CGA for details.
Filing Due Date
Most 2009 returns must be filed by April 30, 2010. However, if you or your spouse are self-employed
or are a partnership member, the filing due date is June 15, 2010. Nonetheless, unpaid tax balances
owing bear interest from May 1; even though filing is not required until June 15. Late Filing Penalties
and Arrears Interest are charged on any unpaid tax after the filing due date.
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RESP
REGISTERED EDUCATION SAVINGS PLAN
These plans allow participants to contribute up to $50,000 per child. Such contributions are not
deductible by the participant. However, the income earned on the contributions does not have to be
reported until paid out to the student. These plans have been made more attractive by providing for a
Canada Education Savings Grant (CESG) payable by the government directly to the RESP. There are
numerous rules and limitations on these grants.
The first $500 contributed to the RESP in the year will attract:
(a) A 40% grant matching rate, if the child’s family has qualifying net income in respect of the year
of $38,832 or less.
(b) A 30% grant matching rate, if the child’s family has qualifying net income in respect of the year
greater than $38,833 but not exceeding $77,664.
All other contributions eligible for the grant will continue to qualify for the 20% matching rate. The
$38,833 and $77,664 thresholds are in 2009 dollars and will be indexed to inflation for subsequent
taxation years.
The maximum annual RESP contribution qualifying for the 20-per-cent CESG is $2,500 for 2008 and
subsequent years. The maximum CESG for a year is $1,000 if there is unused grant room because of
contributions of less than the maximum CESG-eligible contributions for previous years. The $7,200
lifetime CESG limit is unaffected.
The following time limits have been extended effective January 1, 2008:
a) Number of contribution years after plan entered into: to 31 from 21 for ordinary beneficiary
plans; to 35 from 25 for Disability Tax Credit (DTC) beneficiary plans.
b) Deadline for plan termination: year that includes the 35th (from 25th) anniversary of the plan
for ordinary beneficiary plans; year that includes the 40th (from 30th) anniversary of the plan
for DTC beneficiary plans.
c) Contribution age limit for family plan: no contributions for a beneficiary who is 31(from 21)
years of age of older.
There is also a grace period of six months allowed for receiving Education Assistance Payments
(EAP) effective January 1, 2008.
The Canada Education Savings Act has established the Canada Learning Bond (“CLB”) for children
in low-income families. Generally, children born on or after January 1, 2004 will be eligible for a
CLB in each year that the child’s family is entitled to the National Child Benefit supplement, up to
and including the year in which the child turns 15 years of age.
Ask your CGA for details.
RDSP
REGISTERED DISABILITY SAVINGS PLAN
The Registered Disability Savings Plan (RDSP) with a Canada Disability Savings Grant (CDSG)
program and Canada Disability Savings Bond (CDSB) program was introduced and took effect in
2008. The RDSP is based generally on the existing Registered Education Savings Plan (RESP)
design. (Human Resources & Skills Development Canada administers both the CDSG and CDSB.)
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Generally, any person eligible for the disability tax credit (DTC) and resident in Canada, or their
parent or other legal representative, are eligible to establish an RDSP. The DTC-eligible individual
will be the plan beneficiary.
Contributions to an RDSP are currently limited to a lifetime maximum of $200,000 in respect of the
beneficiary, with no annual limit. There will be no restriction on who can contribute to the plan.
Contributions will be permitted until the end of the year in which the beneficiary attains 59 years of
age.
RDSP contributions made in a year qualify for CDSGs at matching rates of 100, 200 or 300 per cent,
depending on family net income and the amount contributed. There is a yearly matching limit of
$3,500; and a lifetime limit of $70,000 on CDSGs paid in respect of an RDSP beneficiary. An RDSP
is eligible to receive CDSGs until the end of the year in which the beneficiary attains 49 years of age.
CDSBs of up to $1,000 are paid annually to the RDSPs of low and modest-income beneficiaries and
families. CDSBs are not contingent on contributions to an RDSP. They are determined solely by the
Beneficiary’s Family Income. There is currently a lifetime limit of $20,000 on CDSBs paid in respect
of an RDSP beneficiary. An RDSP is eligible to receive CDSBs until the end of the year in which the
beneficiary attains 49 years of age.
There is also a mandatory collapse of the plan if the beneficiary’s condition has factually improved to
the extent that he/she no longer qualifies for the DTC.
Ask your CGA for details.
TFSA
Tax-Free Savings Account
(a) Starting in 2009, Canadian residents age 18 or older will be eligible to contribute up to
$5,000 annually to a TFSA, with unused room being carried forward.
(b) Contributions will not be deductible.
(c) Capital gains and other investment income earned in a TFSA will not be taxed.
(d) Withdrawals will be tax-free.
(e) Neither income earned within a TFSA nor withdrawals from it will affect eligibility for
federal or BC Net Income-tested benefits and credits.
(f) Withdrawals will create contribution room for future savings.
(g) Contributions to a spouse’s or common-law partner’s TFSA will be allowed, and TFSA
assets will be transferable to the TFSA of a spouse or common-law partner upon death.
(h) Qualified investments include all arm’s-length Registered Retirement Savings Plan (RRSP)
qualified investments.
(i) The $5,000 annual contribution limit will be indexed to inflation in $500 increments.
(j) The CRA Assessment Notice for 2009 and subsequent T1 Personal Tax Returns will contain
information as to the Taxpayer’s TFSA contribution limit.
Ask your CGA for details.
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Income
T-4 SLIPS
Question:
By what date should one have received all T-4 slips from employers.
Answer:
If you don’t have a T-4 slip by the second week in March, contact that employer immediately.
LATE T-4 SLIPS
Questions
What do I do about filing my 2009 tax return when my T-4 slips are not available?
Answer:
Estimate your income and deductions and mail the completed tax return with a letter explaining your
problem, your list of income and deductions, and the full name and address of your employer. If you
have any pay stubs, enclose them as well. Unless you or your spouse is self-employed, you must file
your 2009 tax return by April 30, 2010 to avoid a late filing penalty. As a precaution, always make
copies of any communication and original documents you send to the CRA.
TIPS AND GRATUITIES:
Question:
If I receive tips or gratuities from my clients, are those part of my income?
Answer:
Most definitely! Waiters, taxi drivers, bartenders, hair stylists, or anyone who received tips or
gratuities from clients must include them in the income tax return for the year in which they were
received.
NON-TAXABLE INCOME
Question:
What types of income are not taxable?
Answer:
The following incomes are not taxable, and do not have to be included in your income:
•
•
•
•
•
•
•
•
•
•
•
•
The Child Tax Benefit
Guaranteed Income Supplement
Lottery Winnings
Veterans' Disability
Dependent Pensioner’s payments
War Veterans’ Allowances
Welfare payments
Workers’ Compensation payments
Certain government grants
Scholarships
The employment income earned by Canadian Forces personnel and police while deployed on
high-risk international missions
Child Support Payments Received
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However, welfare payments, GIS and WCB payments, and similar injury compensation payments,
paid under various federal laws, are included in the family net income amount. This is the basis upon
which Child Tax Benefits (see page 8), Goods and Services Tax Credits (see page 19), and BC Sales
Tax Credits, are determined. Consequently, higher net income can reduce or eliminate credits even
though part of that net income was non-taxable.
RENTAL INCOME
Question:
When only a part of a residence is rented out can I claim any operation costs as deductions?
Answer:
First of all, you must report the total amount received in rent. You may claim reasonable expenses
incurred to earn that rent. Expenses which relate only to the rented area can be claimed in full.
However, overall expenses on the building, such as taxes and insurance, can only be claimed for the
rental proportion to the total building.
For more details consult your CGA.
CAPITAL GAINS
Question:
Are capital gains taxable?
Answer:
Yes. One-half of capital gains are included in income. Taxable capital gains on sales of qualified
farm property, qualified fishing property and the shares of qualified small business corporations are
still eligible for an exemption of up to $375,000.
NOTES:
1. Capital gains on a principal residence disposition are generally tax-exempt.
2. There are special rules for the taxation of capital gain arising from gifts in kind to a registered
charity. (See Charitable Contribution Credit, page 17)
CANADA CHILD TAX BENEFIT (CCTB)
Question:
Do I have to pay tax on my Child Tax Benefit?
Answer:
No. The Child Tax Benefit is tax-free. Neither you nor your spouse has to report the benefit as
income on any tax return
The basic benefit amount is calculated as follows, for July 2009 to June 2010.
a) A basic $1,340 per child (for July 2010 to June 2011 - $1,348)
b) An extra $93 per child for the third and each subsequent child (for July 2010 to June 2011 -$94)
The Child Disability Benefit (CDB) is included with the Child Tax Benefit payments. For July 2009
to June 2010 period, the maximum annual CDB is $2,455 ($2,470 for 2010). For more information,
see the CRA booklet, T4114, "Your Child Tax Benefit".
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NOTE:
In order to avoid a loss of child tax benefits, both parents must file T-1 returns even if one of them has
no income in 2009. Failure to file will normally result in loss of benefits in July 2010 and subsequent
months.
UNIVERSAL CHILD CARE BENEFIT
Question:
What is Universal Child Care Benefit (UCCB)?
Answer:
The UCCB is paid monthly to help eligible families provide child care for their children under six
years of age.
The UCCB provides families a $100 monthly payment (up to $1,200 annually) for each child under
six years of age. It is paid separately from the Canada Child Tax Benefit (CCTB). The UCCB is
taxable in the hands of the lower income spouse or common law partner.
Consult your CGA for details
INTEREST ON JOINT ACCOUNTS
Question:
Since there is no such thing as a “joint tax return” in Canada, how do you declare interest on funds in
a joint bank account?
Answer:
The bank will issue a T-5 slip showing interest paid to that account. If the money is deposited by both
you and your spouse, the interest must be divided in the same ratio as the funds deposited. In such
cases, the T-5 may be filed with either return as long as you attach a letter to each return showing the
division of the total amount on the T-5 slip.
SCHOLARSHIPS AND BURSARIES
Question:
What is the tax-free amount allowed for scholarships, bursaries or similar awards?
Answer:
The full amount is exempted from tax.
REPORTING FOREIGN INCOME
Question:
With the fluctuating Canadian dollar, how do you arrive at the amount in Canadian dollars when
reporting foreign pensions and other income?
Answer:
Foreign income must be reported in Canadian dollars. You must use the rate of exchange that was in
effect when the money was received. Report the amount of such income before deducting any tax
withheld at the source. Generally, a Foreign Tax Credit may be claimed.
NOTE:
To make reporting of income received in US dollars and in UK pounds easier for taxpayers, the CRA
publishes average exchange rates for the year in January of the following year.
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FOREIGN PROPERTY INFORMATION REPORTING REQUIREMENTS
Question:
What are the Foreign Property reporting requirements?
Answer:
The status of these rules is as follows:
a) If you transferred or loaned money to a foreign trust in 2009, or received a loan or distribution
from a foreign trust in 2009, you must file form T1141 or T1142. There is no minimum dollar
amount in the foreign trust reporting requirements. These forms are due on the filing due date
for the return. (See Filling Due Date).
b) If you have a “foreign affiliate” as defined, you must file form T1134 within 15 months
of the end of your tax year. For example, if you had a December 31, 2009 year end, the T1134
for that year would be required by March 31,2011.
c) Foreign assets costing over $100,000 must be reported for 2009, on form T1135, which
must be filed by April 30, 2010.
If you think you have to report, consult your CGA well ahead of the deadline.
ALIMONY OR MAINTENANCE
Question:
Do I have to report alimony or maintenance support payments I am receiving from my separated
spouse?
Answer:
Yes, if the amounts qualify for deduction by your spouse (See Support Payments).
PENSION INCOME
Question:
How does pension income splitting work?
Answer:
Beginning in 2007, up to 50% of eligible pension income may be transferred to a spouse for tax
purposes. Generally pensions, annuities and RRIF payments are eligible. However, if the recipient is
under 65, only annuity payments and amounts received as a consequence of the death of a spouse will
be eligible. Also, a single lump sum withdrawal from a pension plan may be considered to be an
annuity payment. The mechanism for this is that the spouses make a joint election (form T1032)
when filing their T1 returns each year.
NOTE:
These rules do not apply to the CPP pension splitting regime.
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Deductions From Income
Question
Are retiring allowances still available?
Answer:
Yes, but only for service rendered to employers in 1995 and prior years. A retiring allowance may be
transferred directly from the employer to your RRSP thereby deferring the tax otherwise payable.
Consult your CGA for details.
INVESTMENT INCOME DEDUCTIONS
Question:
What are some of the deductions from taxable income often overlooked in a tax return by a small
investor?
Answer:
The following are some of the deductions permitted: interest on money borrowed to earn investment
income; fees for the management or safe custody of investments; safety deposit box charges;
accounting fees for recording investment income and investment counsel fees.
SUPPORT PAYMENTS
Question:
Can spousal support payments be claimed as a tax deduction?
Answer:
In order to be deducted, support payments must be in a series of payments payable on a periodic basis,
pursuant to a written agreement. If you separated during 2009, you may claim either the support
payments or the personal tax credits for your estranged spouse, whichever is more beneficial to you.
Question:
What are the rules on child support and do they change a pre May 1, 1997 agreement?
Answer:
Beginning May 1, 1997 child support payments pursuant to written agreements or court orders dated
after April 30, 1997 are non-deductible and non-taxable. Existing child support agreements and orders
are not affected until and unless they are revised. There are three types of situations which could
impose the new rules on an old agreement or order.
a) A pre-May 1, 1997 order is varied by the court as to the amount of child support.
b) A pre-May 1, 1997 agreement is amended as to the amount of child support by mutual consent
of the spouses or former spouses.
c) A T1157 form is filed with CRA by the spouses or former spouses on which they elect to apply
the new rules.
NOTE:
Payments to spouses remain deductible and taxable. There are rules concerning whether an amount is spousal
support or child support. If in doubt as to how this might affect you, consult your CGA.
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MOVING EXPENSES
Question:
What conditions make moving expenses a valid tax deduction?
Answer:
You may deduct certain moving expenses if you move within Canada at least 40 kilometres closer to
your new work place to earn wages or income through self-employment, at the new location. You
may not claim expenses which have been or will be reimbursed. There are many moving expenses
which are commonly overlooked.
For more details contact your Certified General Accountant.
NOTE:
The straight-line method of measuring the 40 km minimum distance has been replaced by 40 km measured over
the shortest practical route.
STUDENT MOVING EXPENSE
Question:
Can students claim moving expenses as a tax deduction?
Answer:
Students who move from full-time post-secondary school attendance to take a job in Canada, including
a summer job, may be able to deduct the moving expenses from that employment income.
MAXIMUM RRSP CONTRIBUTION
Question:
What is the maximum contribution allowed as a tax deduction for Registered Retirement Savings
Plans?
Answer:
If you are NOT covered by a pension plan, the deduction limit is the lesser of either $21,000 or 18
percent of your 2008 earned income, plus any RRSP contribution room carried forward from previous
years.
However, if you’re employed and covered by a pension plan, your maximum RRSP contribution is
reduced by the amount of the pension adjustment which appears in Box 52 of your 2009 T-4 slip.
See Contributions and Deductions for more information.
CHILD CARE EXPENSES
Question:
Who may claim child care expenses?
Answer:
A single working parent can deduct receipted childcare expenses. Otherwise usually only the parent
who has the lower net income may claim the deduction. The allowable deduction is the lesser of:
a) $7,000 per child under 7, and $4,000 per other eligible child who was under 16 at any time in
the year, or, $10,000 per child eligible for the disability tax credit, or,
b) The amount of receipted childcare expenses.
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As well, Childcare expenses are now permitted to parents who are full-time or qualifying part-time
students:
1) A working parent is now able to claim childcare expenses while his/her spouse is a full-time high
school student.
2) A single parent who is a full-time student is now able to claim childcare expenses against all
types of income.
3) Two-parent families, where both are full-time students are also now able to claim child care
expenses against all types of income.
4) The dollar limits applicable to 2) and 3) above are $175 per week per child under seven, $100 per
week per older eligible child and $250 per week per child eligible for DTC.
PART REPAYMENT OF EMPLOYMENT INSURANCE BENEFITS
Question:
If your 2009 net income exceeded a certain amount, you must repay part of Employment Insurance
Benefits received. What is that amount and how much must be repaid?
Answer:
If your net income exceeded $52,875 during 2009 and you received EI benefits, you must repay either
30% of the EI benefits OR 30% of your net income over $52,875 (= 1.25 times the Maximum
Insurable Benefits Amount per year) whichever is LESS. The calculation of the repayment is in the
General Tax Guide. The amount of the repayment is deductible in calculating taxable income. Do
NOT confuse this with paying back an “over-payment by EI.”
DISABILITY SUPPORTS DEDUCTION (previously Attendant Care
Expenses)
A disabled person may claim a deduction for qualifying expenses paid to unrelated persons over 17
years of age. The deduction is the lesser of the following amounts:
a) actual eligible disability supports expenses; or
b) an individual’s earned income (generally employment income) for the year.
Note: (1) The cost of an attendant is included in disability supports expenses.
(2) Qualifying students may be able to claim an extra amount if earned income is lower than the
total disability supports expenses amount.
(3) These expenses may no longer be claimed for the medical expense tax credit.
Starting in 2004, the Disability Supports Deduction is permitted to a disabled person who has incurred
Eligible disability supports expenses during the year.
Consult your CGA for further information.
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TRADESPERSON’S TOOL EXPENSES
Question:
What are the rules for tradespeople’s tools deduction?
Answer:
Starting May 2, 2006, the total cost of new tools acquired by an employed tradesperson in a taxation
year, in excess of $1,019, will be deductible up to maximum of $500 for that year. Employer
certification that new tools are required for the job is required.
NOTE:
For Apprentices in eligible programs administered by the BC Industry Training Authority, there is a
BC Tax Credit available which ranges from $1,000 to $2,500 (as well as a corresponding one for their
employers). Obtain a form T1014 to claim this credit on your T1 Personal Tax Return.
The Training Tax Credit is also available (on a one-time basis) to qualified tradespersons, residing in
BC as of December 31, 2009, who have earned their qualifications outside of BC and have been
certified to work in BC by the BC Industry Training Authority.
APPRENTICE VEHICLE MECHANICS’ TOOLS DEDUCTION
Question:
What are the rules for the apprentice vehicle mechanics tools deduction?
Answer:
Qualifying individuals are allowed to deduct the cost of new tools, exceeding the greater of, $500 plus
the Canada Employment Amount claimed and 5% of their apprenticeship income. The deduction is
available to employee apprentices registered in a federal, provincial or territorial program leading to
certification as a vehicle mechanic, for tool costs certified by the employer as having been incurred as
a condition of the apprenticeship.
Note:
Apprentice vehicle mechanics may also be eligible to claim the tradesperson’s tools deduction.
TAX ON OLD AGE SECURITY BENEFITS
(Known as the “Clawback Provision”)
Question:
How does the Old Age Security clawback work?
Answer:
For 2009 the special tax payable by individuals who receive Old Age Security benefits and whose net
income exceeds $66,335 is as follows.
The tax is the lesser of:
a) The amount of Old Age Pension received; and
b) 15% of the amount by which net income, including OAS receipts, is greater than $66,335.
Tax is now being withheld from OAS cheques in order to minimize the amount which must be repaid
when the T-1 return is filed.
Note: For 2010 the net income level increases to $66,733.
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Personal Tax Credits
Question:
What are personal tax credits?
Answer:
They are reductions in Federal and Provincial Tax available to eligible persons. The 2009 and 2010
amounts are listed in the following table.
For 2009
BC
Federal
$474
$1,548
65 and over -Note (2)
213
961
Married and married equivalent - Note (3)
406
1,548
Infirm dependants
208
630
Disability
356
1,079
Children with disabilities
208
630
Adoption expense (up to maximum)
552
1,636
0
160
208
630
0
313
51
300
Basic personal
Refundable medical expense supplement (4)
Caregiver - Note (5)
Child
Pension income maximum
For 2010
BC
Federal
$557
$1,557
65 and over -Note (2)
214
967
Married and married equivalent - Note (3)
488
1,557
Infirm dependants
208
633
Disability
357
1,086
Children with disabilities
208
633
Adoption expense (up to maximum)
555
1,646
0
161
218
633
0
315
51
300
Basic personal
Refundable medical expense supplement (4)
Caregiver - Note (5)
Child
Pension income maximum
NOTES:
(1) The Federal Tax Credit amount is calculated as 15.00% of the dollar amounts, which appear in the
Non- refundable Tax Credits section of the T-1 return, on Schedule 1.(For 2010, 15.00%).
(2) This credit is reduced where the net income exceeds $32,312 (In 2010 – $32,506).
(3) For 2001 and subsequent years, “common law partner”, as defined for income tax purposes, includes a
same-sex partner.
(4) This credit is reduced if net family income exceeds $23,633 (in 2010 - $23,775).
(5) This credit is fully phased out where the disabled dependant’s net income exceeds $18,534 (in 2010 $18,645). A particular caregiver can receive one credit per person where more than one qualifying
individual is being cared for.
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CANADA EMPLOYMENT CREDIT
Question:
What is Canada Employment Credit?
Answer:
Effective July 1, 2006, an individual who has employment income for the year can claim this credit.
The maximum amount on which the credit is calculated will be $1,044 for 2009 ($1,051 for 2010) and
will continue to be indexed in subsequent years.
CHILD TAX CREDIT
Question:
What is Child Tax Credit?
Answer:
Effective January 1, 2007, if the child is under 18 years old, either parent may claim $2,089 per child
(for 2010 - $2,101). Any unused portion can be transferred to that parent’s spouse or common law
partner. If the child does not reside with both parents throughout the year, the parent who is entitled to
claim the amount for an eligible dependent can claim the child amount. The credit is $313 for 2009
($315 for 2010).
DEPENDENT CHILDREN OVER 17 YEARS OF AGE
Question:
Are there tax credits for children over 17?
Answer:
Yes, but only if the child is infirm. The tax credit is $630 (for 2010, the amount is $633) as long as
his or her net income does not exceed $5,959 (for 2010 the amount is $5,992). This credit is fully
phased out where the child’s net income exceeds $10,154 (for 2010 the amount is $10,215).
DISABILITY CREDIT
Question:
What are the rules dealing with the deductions for disabled persons?
Answer:
A federal tax credit of $1,079 will be allowed if the disability markedly restricts the person in
activities of daily living and if the disability has lasted, or can reasonably be expected to last, for a
continuing period of at least 12 months. CRA Form T2201, signed by a physician, must be submitted
to support this claim. (The amount for 2010 is $1,086.)
A BC tax credit of $356 is also allowed to taxpayers qualifying for the federal credit ($357 in 2010).
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MEDICAL EXPENSE CREDIT
Question:
How is the amount and timing of a medical expense claim determined?
Answer:
Medical expenses may be claimed for any 12-month period ending in 2009. That period may change
each year provided the same expenses are not claimed twice. You may claim a tax credit for 15.00%
of those allowable expenses that are greater than 3% of your net income, or, if net income exceeds
$67,056; greater than $2,011. Receipts must be submitted. Cancelled cheques are NOT acceptable.
(The figures for 2010 are $67,433 and $2,023, respectively.)
Question:
What are the rules regarding caregiver expenses about?
Answer:
Medical expense claims made on behalf of minor children are pooled with the medical expenses of
the taxpayer and his or her spouse or common-law partner, subject
to the taxpayer’s minimum expense threshold, without regard to the income of the minor child.
For other dependent relatives, the taxpayer may claim qualifying medical expenses paid on behalf of
such a dependent that exceed the lesser of 3% of the dependent’ s net income and $2,011 ($2,023 for
2010). The maximum eligible amount that can be claimed on behalf of dependent relatives other than
minor children is $10,000.
CHARITABLE CONTRIBUTION CREDIT
Question:
What amounts qualify for the charitable tax credit?
Answer:
Donations become eligible up to a maximum of 75% of net income if receipts bearing an official
registration number have been received. Tax credits are then calculated at 15.00% of the first $200
and 29% of any excess. Cancelled cheques are unacceptable. Unused amounts may be carried
forward for a maximum of five years.
In the year of death and in the prior year, the charitable donation limit is increased to 100% of net
income.
There are special rules regarding the donation of appreciated property which will allow the donor the
100% limit, to the extent that a taxable capital gain is triggered by the donation.
If you are
considering such a donation, consult your CGA beforehand.
Question:
What are the rules for donations of publicly-listed securities to public charities ?
Answer:
Effective May 2, 2006, the capital gains inclusion rate for such donations will be reduced to zero
from the former 25% inclusion rate.
Question:
What are the rules for donations of ecologically-sensitive land to approved conservation charities?
Answer:
Effective May 2, 2006, the capital gains inclusion rate for such donations will be reduced to zero from
the former 25% inclusion rate.
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TUITION AND EDUCATION CREDITS
Question:
Who can claim tuition fees and the education deduction as a tax credit? Is there a minimum amount?
Answer:
Tuition fees which exceed $100 can be claimed by the student as a tax credit at the rate of 15.00% of
tuition fees paid. An education deduction can also be claimed by the student as a tax credit in the
amount of 15.00% of $400 per month in full time attendance at a qualifying educational program.
Both these credits are available for transfer to a supporting spouse, parent or grandparent once the
student has reduced tax payable to nil. The maximum transfer is $5,000, for a maximum credit of
$750.
Question:
What if the tuition and education credits can’t be used by the student or are not transferred to a
supporting spouse, parent or grandparent?
Answer:
Credits earned in 1997 and subsequent years may be carried forward indefinitely for eventual use by
the student.
Question:
How much is the credit for part time and/or disabled students?
Answer:
Part time students enrolled in a qualifying program, receive an education credit of $18 (= 15% x $120
base amount for part-time studies) per month.
Special rules apply to allow disabled students to access the credit more readily.
TEXTBOOK TAX CREDIT
Question:
What is the rule regarding the Textbook Tax Credit?
Answer:
Starting in 2006, the Textbook Tax Credit can be claimed by students who pursue post-secondary
education which entitles them to the education and tuition tax credits. The amount on which the
textbook tax credit is calculated will be:
(a) $65 for each month for which the student qualifies for the full-time education tax credit amount
(b) $20 for each month for which the student qualifies for the part-time education tax credit amount
Unused textbook tax credit amounts will be added to unused tuition and education tax credit amounts
for the purposes of the carry forward to a future year as well as the transfer of unused amounts to a
spouse or common-law partner, parent, or grandparent.
Note: Form T2202-A is issued by the educational institution to permit tuition, education and textbook
tax credit claims.
If you need more information, consult your CGA.
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PENSION INCOME CREDIT
Question:
Is there any change to the credit?
Answer:
Yes. Starting 2009, the maximum amount on which the federal pension income credit is calculated,
will be increased to $2,000 from $1,000. The BC credit amount continues to be $1,000.
PUBLIC TRANSIT PASSES TAX CREDIT
Question:
What is the rule for public transit passes?
Answer:
Since 2007, individuals have been able to claim a non-refundable tax credit for the cost of “eligible
public transit passes”, which is a defined term. Receipts or passes should be retained for verification
purposes.
If you need more information, consult your CGA
INCREASED DIVIDEND CREDITS
Question:
What are the rules for the increased dividend tax credits?
Answer:
Starting 2006, individuals who receive Eligible Dividends will include 145% of the eligible dividend
amount in income (that is, a 45% gross-up), and the federal dividend tax credit with respect to eligible
dividends will be approximately 19% of the grossed-up amount. Residents of BC can also claim a
provincial dividend tax credit of 12% for dividends eligible for the federal enhanced dividend tax
credit. The notification of eligible dividends will be made by the paying corporation on Form T5.
In keeping with the previously announced reductions to the federal corporate income tax rates, it was
proposed in the 2008 Federal Budget to reduce the gross-up to 44% on dividends eligible for the
enhanced dividend tax credit, and to reduce the dividend tax credit rate to approximately 18% ,
beginning in the 2010 tax year.
If you need more information, consult your CGA
STUDENT LOAN INTEREST
Question:
What are the rules for claiming a tax credit for student loan interest?
Answer:
A student is entitled to a 15.00% credit in respect of interest paid after 1997 on a loan under federal or
provincial student loan programs. Unused credits may be carried forward up to five years.
NOTE:
If student loans are refinanced by another lender, the interest credit is lost.
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TRANSFERABLE TAX CREDITS
Question:
What tax credits are transferable from one spouse to another?
Answer:
If a spouse has NO tax to pay, any unused portion of the following credits may be transferred to the
other spouse’s tax return: age credit for persons 65 and over; disability credit; tuition and education
credit; textbook credit; and the pension credit.
The dividend tax credit may be transferred provided the dividend income is also transferred to the
other spouse’s income.
GOODS AND SERVICES TAX CREDIT
Question:
What is the maximum amount paid by the federal government for the Goods & Services Tax Credit?
Answer:
The tax credit is $248 per individual and $248 for his/her spouse with whom he/she resides (for 2010
the figure is $250) and $130 (2010 - $131) for each dependent under 19 years of age. However, if
the net family income exceeds $32,312 (2010 - $32,506), 5% of the excess is deducted.
Certain low income, single people may qualify for an additional credit of up to $125. The application
is part of your income tax return. Quarterly cheques are issued separately to qualifying applicants.
Certain items of non-taxable income are included in family net income, which can cause a reduction
in your GST credit.
HOME RENOVATION TAX CREDIT (HRTC)
The Home Renovation Tax Credit is a non-refundable tax credit based on eligible expenses for
improvements to your house, condo or cottage*. It can be claimed on your 2009 income tax return. It
applies to work performed or goods acquired after January 27, 2009, and before February 1, 2010
under an agreement entered into after January 27, 2009.
The HRTC applies to eligible expenses of more than $1,000, but not more than $10,000, resulting in
a maximum non-refundable tax credit of $1,350 [($10,000 − $1,000) × 15%].
The expenses are eligible when they are incurred in relation to a renovation or alteration to an eligible
dwelling (including the land that forms part of the eligible dwelling) and are of an enduring nature and
integral to the dwelling. As a general rule, if the item you purchase will not become a permanent part
of your eligible dwelling, it is not eligible.
Examples of eligible expenses:
•
•
•
•
•
•
Renovating a kitchen, bathroom, or basement
Windows and doors
New flooring - carpet, linoleum, hardwood, floating laminate, etc.
New furnace, woodstove, boiler, fireplace, water softener, water heater, or oil tank
Permanent home ventilation systems
Central air conditioner
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Examples of ineligible expenses:
•
•
•
•
•
•
Furniture, household appliances, and electronic home-entertainment devices
Purchasing of tools
Carpet cleaning
House cleaning
Maintenance contracts (e.g., furnace cleaning, snow removal, lawn care, and pool cleaning)
Financing costs
*It is important to remember that this credit only applies to dwellings in which the taxpayer (or
immediate family member) lives and/or uses primarily for their own purposes. Housing units,
cottages, etc that are rental properties or are used for business are not eligible for this credit. If a
taxpayer rents out a part of their home, renovation costs relating to the rental part of the housing unit
do not qualify for this credit; as those expenses are deductible against rental income.
If you need more information, consult your CGA
FIRST TIME HOME BUYER’S TAX CREDIT (HBTC)
For 2009 and subsequent years, a non-refundable tax credit based on an amount of $5,000 is available
for certain home buyers* that acquire a qualifying home** after January 27, 2009 (i.e., closing after
this date).
The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in
2009) by $5,000. For 2009, the credit will be $750.
An individual will qualify for the HBTC if:
•
•
They acquire a qualifying home; and
Neither the individual nor the individual’s spouse or common-law partner owned and lived in
another home in the year of purchase or any of the four preceding years.
*If you are a person with a disability or are buying a house for a related person with a disability, you
do not have to be a first time home buyer. However, the home must be acquired to enable the person
with a disability to live in a more accessible dwelling or in an environment better suited to the
personal needs and care of that person. As well, you or the related person with a disability must
intend to occupy the home as a principal place of residence no later than one year after buying it.
**A qualifying home is a housing unit located in Canada. This includes existing homes and those
being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes,
condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings, all
qualify. A share in a co-operative housing corporation that entitles you to possess and gives you an
equity interest in a housing unit located in Canada also qualifies. However, a share that only provides
you with a right to tenancy in the housing unit does not qualify.
If you need more information, consult your CGA
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Canada Revenue Agency
The CRA has several pamphlets and leaflets on a number of tax topics available. These publications,
written in non-technical terms, can be obtained from your Tax Services Office.
Among the available titles are the following:
P102
P105
P110
P113
P119
P134
P151
RC4064
RC4092
RC4460
RC4135
RC4466
T1-M
T1014
T778
T4002
T4011
T4036
T4037
T4040
T4044
T4056
T4114
T4133
Support Payments
Students and Income Tax
Paying Your Income Tax by Instalments
Gifts and Income Tax
When You Retire
Using Your Home for Day Care
Canadian Residents Going Down South
Medical and Disability-Related Information
Registered Education Savings Plan (RESP)
Registered Disability Savings Plan (RDSP)
Home Buyers’ Plan (HBP)
Tax-Free Savings Account (TFSA)
Moving Expenses Deduction
British Columbia Training Tax Credit
Child Care Expenses Deduction
Business and Professional Income
Preparing Returns for Deceased Persons
Rental Income
Capital Gains
RRSPs and Other Registered Plans for Retirement
Employment Expenses
Emigrants and Income Tax
Canada Child Benefits
Are You a Newcomer to Canada?
A great deal of information is also available on the Canada Revenue Agency Website, www.cra-arc.gc.ca
RRSP’s and You
Millions of Canadians contribute to a Registered Retirement Savings Plan (RRSP) every year. These
plans play an important role in ensuring that individuals have adequate financial resources in their
retirement years. Surveys show that a majority of Canadians do not have a financial plan to reach their
goals.
In order to promote better financial and retirement planning, and to help you understand RRSPs,
the following section covers a variety of issues relating to RRSPs. Topics include the benefits of
owning a plan, the role of a spousal plan, and what to do with your plan when your reach
retirement.
Remember, it’s designed as a guide, so it should not be relied upon to replace more specific
professional advice. Financial and retirement planning should be ongoing and not left until the end
of the year.
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RRSP
An RRSP is a savings contract registered with the CRA between you and a financial institution such
as a bank, trust company, credit union or life insurance company. Your contributions, and the income
they earn, compound tax-free while sheltered in the RRSP. Thus, you accumulate a larger investment
fund. Investment decisions can be made by you, yourself through a self-directed RRSP.
Benefits
• The amount you contribute to an RRSP may be deducted from your income on your tax return.
• The income is tax-free on your contributions as long as your savings remain in the plan.
• Under special conditions, this tax-free income may include mortgage interest you may be paying
on your personal residence.
• A spousal RRSP can split retirement income between a husband and wife.
• Your retirement income is increased above the amount non- RRSP investments could provide.
• Cash may be withdrawn for any purpose before retirement. It is taxable in the year of the receipt
and therefore should only be withdrawn in a low income year.
Contributions and Deductions
•
To obtain a deduction for 2009, your contribution must be made by February 28, 2010.
•
If you are self-employed or your employer does not operate a registered pension plan or
deferred profit sharing plan (DPSP) for your benefit, you may deduct 18% of your previous
year’s earned income up to a maximum of $21,000; or
•
If your employer operates a registered pension plan or DPSP into which you or your employer
contributes on your behalf, and from which, by reason of membership, you are or may become
entitled to benefits, you may deduct 18% of your previous year’s earned income up to a
maximum of $21,000, minus the value of your pension benefits (RPP) accrued during the year in
the employer pension plan or DPSP.
•
In special circumstances you may transfer amounts in excess of the above limits into your RRSP.
These include:
(i) Lump sum payments from a company pension plan or DPSP;
(ii) Lump sum payments from foreign pensions and a United States IRA, under certain
conditions;
(iii) Spousal transfers;
(iv) Retiring allowances; and
(v)
•
RRSP proceeds from your spouse’s estate.
Contributions can be made at any time during the year as long as they meet the abovementioned
deadline.
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OVER-CONTRIBUTION LIMIT
A word of warning: Cumulative over-contributions that exceed your cumulative contribution limit by
over $2,000 are subject to a severe monthly penalty on the excess portion.
Over-contributions made before February 27, 1995 remain penalty-free, provided the former limit of
$8,000 was not exceeded.
Consult your CGA before contributing if you are uncertain whether you may be over-contributing.
RRSP Contribution Room
Your notice of assessment for your 2008 T-1 Return provides a dollar maximum which you may
contribute to an RRSP and claim as a deduction on your 2009 return. This advice has the title “2009
RRSP Deduction Limit Statement”. Any unused contribution room is carried forward indefinitely.
Phase-In of Maximum Contribution Increases
The RRSP maximums rose to the lesser of $21,000 or 18% of Earned Income for 2009. There will be
an increase of $1,000 for 2010. These amounts are indexed for inflation after 2010.
Foreign Property
There is no longer any limit on the foreign content in an RRSP.
Pension Adjustment Reversal (PAR)
For individuals who leave Registered Pension Plans (RPPs) or Deferred Profit Sharing Plans (DPSPs)
before retirement, and after 1996, there is a PAR which will restore lost RRSP contribution room
which can result if an individual leaves a RPP or DPSP before retirement. The PAR will be added to
the individual’s contribution room and be reflected in the “Registered Retirement Savings Plan
Contribution Limit Statement” provided by CRA.
Age of Annuitant
(The “Annuitant” is the person who will eventually benefit from the RRSP)
The RRSP/RPP maturation age limit is 71 years of age. A taxpayer who is over 71 can still claim a
deduction for a spousal contribution where his spouse is under 72 provided the contributor has unused
RRSP contribution room.
Spousal RRSP
Any portion of your allowable contribution may be allocated to a spousal RRSP, regardless of
whether your spouse had earned income, as long as the total amount you contribute does not exceed
your unused contribution limit. This could enable you to split your retirement income. An additional
tax saving could be gained by both you and your spouse being eligible, after 65, for the tax credit
based on pension income.
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Common-law spouses are now treated the same as married spouses for this purpose. If funds are
withdrawn from a spousal RRSP within three years of the last contribution, the person who claimed
the deduction may be taxed on the amount withdrawn. If you are uncertain as to who will be taxed,
consult your CGA prior to making a withdrawal.
Earned Income
Some of the more common components of earned income include the following:
•
•
•
•
•
•
•
Salaries, wages and other remunerations, subject to certain deductions prescribed by the CRA
(See your Personal Tax Guide or your Certified General Accountant);
Business and professional net income from a proprietorship or partnership;
Net rental income from real property;
Alimony and maintenance receipts which are taxable;
CPP/QPP disability benefits received in the year;
Less losses from business or rental property; and
Less alimony and maintenance payments which are tax deductible.
Borrowing Money for RRSPs
Loan interest is not deductible. However, the tax benefits may outweigh the interest costs of the loan
if you must borrow to maximize your contributions.
Now that the unused contribution room is carried forward indefinitely, there are a number of
additional factors to consider when deciding whether to borrow.
Consult your CGA about your particular situation.
Home Buyers’ Plan (HBP)
The HBP now allows an eligible individual to borrow up to $25,000 (up from $20,000 in 2008)
interest free and tax free, from his/her RRSP, to acquire an owner occupied principal residence in
Canada. This means that each of two or more joint owners may use the HBP for the purchase of the
same residence.
Use of the HBP more than once is possible if you meet certain qualifications. In general, you or your
spouse can not have owned a principal residence in the four immediately preceding calendar years and
the previous HBP withdrawal must have been repaid in full prior to the calendar year of the current
withdrawal.
A disabled person (someone eligible for the disability credit) or a supporting individual is able to
access the HBP regardless of the above time limits, provided the other conditions are met.
The “Statement of Account -- Home Buyers’ Plan” (provided by the CRA), allows you to designate
the appropriate portion of your current RRSP contribution as your Home Buyer’s Plan repayment for
the year. The result is that your current RRSP contribution is reduced by the HBP repayments to
determine the deductible RRSP contribution. In the event that no current contribution is made, or the
current contribution is less than the required repayment, the difference is added to taxable income. In
effect, it becomes a taxable RRSP withdrawal.
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HBP FEATURES:
(a) Repayment
A qualifying home must be acquired by October 1 of the year after the year of withdrawal.
Repayments must commence no later than the second year after the year of withdrawal. The
$25,000 (or lesser amount) must be repaid in annual instalments over 15 years. Repayments are
designated on schedule 7 of your T-1 return.
(b) Deduction of RRSP Contributions
If an individual makes a contribution within 90 days of an HBP withdrawal, it will not be
deductible to the extent that, the contribution exceeds the RRSP balance after the withdrawal.
This provision prevents individuals from obtaining current year tax deductions for money they
plan to spend on homes by routing it through an RRSP.
For more details consult your CGA.
Lifelong Learning Plan (LLP)
An individual is able to withdraw, tax-free, up to $10,000 per year from his RRSP where the
individual or his spouse is in full time training or higher education for at least three months during the
year. A maximum of $20,000 is permitted to be withdrawn over as many as five years. Repayments
similar to those under the HBP are required. The maximum repayment period is 10 years, beginning
the year after the last year the student was a full time student, or in the sixth year following the first
withdrawal, whichever is earlier.
Retirement Options
•
•
•
Lump sum cash withdrawals, which are taxed in the year of receipt.
Convert to an annuity (fixed term or life)
Take out a Registered Retirement Income Fund (RRIF) or any combination of these.
ANNUITY
An annuity purchase provides a pre-determined dollar amount of taxable monthly income, which
remains fixed for the life of the annuitant. The amount payable is determined by interest rates in
effect at the time of purchase. Generally, a higher market interest rate at the time of purchase will
result in higher periodic income from a given amount of capital.
RRIF
A Registered Retirement Income Fund is similar, in most respects, to a Registered Retirement Savings
Plan, except that a minimum annual withdrawal is determined by regulation. This amount is included
in the annuitant's income each year. There is no requirement to change investments within an RRSP
when it is converted to an RRIF.
At Death
Upon your death, the proceeds will be added to your income for the taxation year of your death and
will be taxable unless you designate a beneficiary.
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The tax consequences then depend upon who the beneficiary is:
•
A spouse may “roll-over” or transfer all or part of the plan to his or her own RRSP;
•
For a dependent child or grandchild, the proceeds are taxed in the recipient’s hands subject to
certain limitations; and
•
For any other beneficiary, the entire plan is taxed as your income in the year of your death.
***REMEMBER***
1. An RRSP only defers the taxes until the funds are withdrawn - it is not a tax haven!
2. As in any other investment, the quality of the investment should be the primary consideration.
3. The Tax Free Savings Account (TFSA) has been available since January 2009; whether to buy
RRSPs or simply invest in the TFSA will depend on your specific situation.
4. For further information and/or clarification, consult your Certified General Accountant.
5. To access this guide online, please visit the Certified General Accountants Association of B.C.’s
Website. You can also use our Website to find a CGA in your area.
www.cga-bc.org
THINK CGA
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