2018 Personal Tax Planning Update
The power to tax is the power to destroy. (John Marshall)
Expenses eligible for deduction
Other Employment expenses
Are you aware that certain expenses in connection with employment income can be deducted? The prerequisite for this is that the need for the expense is regulated in your contract and has not been compensated through your employer. If your employer partly reimbursed your expenses, you can still claim the non-reimbursed amount. Your employer has to complete the form T2200 Declaration of Conditions of Employment in order to deduct employment expenses from your income. For instance, vehicle and mileage expenses, home office, etc
Carrying charges and interest expenses
Carrying charges such as investment counsel fees, bank fees etc. and interest relating to investment income earnings can be deducted as well. The prerequisite for claiming interest is that you take credit for investment purposes and try to earn investment income. If the only earning are capitals gains, the interest cannot be claimed. Please make sure that you can provide written documentation for loans and payments for the sake of evidence.
The above-mentioned expenses such as boarding school, day-care, babysitting, day camps etc. may be generally deducted to two-thirds from income by the lower income spouse or partner. For many working parents it is the most valuable deduction. The amount that can be deducted annually is $8,000 for each child age six and under and $5,000 for each child between seven and 16. If the child is eligible for the disability tax credit, $11,000 can be deducted regardless of the child’s age. Please make sure that you can provide written documentation for childcare payments, especially the Social Insurance Number of any person you paid to have someone look after your child(ren) to avoid lack of evidence.
The deduction for moving expenses can be claimed in general, if you moved during 2018 to be at least 40 kilometres closer to a new job, to run a business, or to attend a post-secondary educational institute full-time. The amount you can deduct is limited to the amount you earn at the new location in the year or up to the amount of award or scholarship income received in the year. Unused deductions can be carried forward and deducted in the following year.
Eligible moving expenses are:
- Travel, including vehicle costs
- Transportation and storage for household effects
- Accommodation and temporary living expenses near your new or old residence
- Reasonable meals
- Certain expenses related to purchasing your new residence
- Cost of cancelling a lease for your old residence
- Expenses for selling your old residence, such as real estate commissions and advertising
- The cost to maintain your old home when vacant (maximum of $5,000)
- Change of address costs, such as replacement of drivers’ licenses, non-commercial vehicle permits, and costs of connecting or disconnecting utilities
As with other deductible expenses you should maintain receipts, bills, cancelled checks, credit card statements, mileage logs and possibly statements of reimbursement from your employer.
Tax credits available for taxpayers
Charitable donations made by you or your partner during the year should generally be added together and claimed on the income tax return of one spouse. Higher credit is available for donations over $200, therefore it is beneficial to combine the donations and claim them on one return. However, if your total donations are less than $200 there is no impact from claiming on one return.
If you are donating certain publicly-listed securities, your donation credit is based on the fair market value of those securities. Furthermore, you will not pay tax on any accrued capital gains on the donated securities.
Donations can also be carried forward for up to five years. Furthermore, make sure that you can provide official tax receipts as a piece of evidence.
There is a possibility to claim medical expenses for yourself, your spouse, and dependent children such as dental bills, eyeglasses, private medical insurance (including certain travel medical insurance premiums), and certain travel costs such as travel to regional or provincial centres for treatment, but also expenses incurred after 2017 in respect of an animal specifically trained to perform specific tasks to assist with post-traumatic stress disorder.
For persons who qualify for the disability amount, attendant care expenses may be claimed for:
- Full-time attendant care in a nursing home (no limit on the total)
- Attendant care in homes for seniors, retirement homes, or other institutions
- Part-time or full-time attendant care in a self-contained domestic establishment
Attendant care expenses can be claimed as medical expenses to a maximum of $10,000 per year if the disability tax credit is claimed. However, there is no maximum amount if the disability tax credit is not claimed.
Disability tax credit (DTC)
This non-refundable credit is available to a person with a severe and prolonged impairment in physical or mental function. To be eligible, CRA must approve an application signed by a medical practitioner. Areas that may apply include the following:
- Life-sustaining therapy
- Impairment of performing the mental functions necessary for everyday life
- Impairment of physical functions such as walking, speech, hearing feeding
The person who is eligible for the disability tax credit may also be eligible for a Registered Disability Savings Plan.
Other tax credits
In case of support of family members who are dependent due to a physical or mental infirmity such as:
- The amount for infirm dependants age 18 or older
- Attendant care and nursing home expenses Canada Caregiver amount
Teacher and Early Childhood Educator School Supply tax credit
This tax credit is granted to a person who is employed as a teacher or early childhood educator. It is possible to claim a 15% refundable tax credit on up to $1,000 of purchases of eligible teaching supplies during the year.
Student loan interest
Interest paid on student loans received under the Canada Student Financial Assistance Act, the Canada Student Loans Act or similar provincial or territorial government legislation for post-secondary education, can be claimed as a tax credit. If the credit is not used in the year in which the interest is paid, the unused amount can be carried forward for up to five years.
Home buyers amount
You may be eligible to claim a tax credit up to $5,000, which will reduce the amount of federal tax you have to pay if both of the following apply:
- you or your spouse or common-law partner acquired a qualifying home; and
- you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years (first-time home buyer).
Home Accessibility tax credit (HATC)
The Home Accessibility tax credit is available for seniors (age 65 and older) and individuals who hold a valid disability tax up to $10,000 of expenses incurred to perform a qualifying renovation on their home. Such a renovation must allow the individual to gain access to, or be mobile or function within the home, or reduce the risk of harm to the individual within or gaining access to the home.
Filing on time
Individuals and most business owners must file their income tax returns by April 30 of the year following the tax year for which the return is being filed. This filing deadline is extended to June 15 in case of self-employment of you or your spouse, but CRA begins assessing interest on your tax due on April 30. The information return for specified Foreign Property with costs over $100,000 CAD at any time during the year (Form T1135) must be filed by the individual’s filing deadline. Be aware of significant late-filing penalty fees and take into account the fact, that interest on the penalty and penalties are not tax deductible. To avoid them file always on time, even if you cannot pay the taxes due.
Penalties for failing to report income
Make sure to report income for all sources to avoid federal and provincial /territorial penalties based on a percentage of the unreported income or the understated tax liability on the unreported income.
If you are required to make instalment payments on your income tax, your payments are due four times throughout the year on the 15th of March, June, September, and December. To avoid interest charges, pay on time. To learn more about the possibility of making catch-up payments and reducing them, get professional advice.
How to impact your 2018 tax bill
Accounting and legal fees
Certain legal or accounting fees such (for example cost of representation on tax disputes) are deductible in the year paid. Having those costs be sure to proceed with payment before the end of the year. For more information, get professional advice.
Charitable or political donations
Certain donations to a political party or to a charity are deductible as well if there are made before the end of the year. Donations made by one spouse / common-law partner can be claimed by either one.
You may be able to deduct a portion of the cost of business equipment if you can prove the amount of business use. However, the purchase should be played with your business credit card or bank account. Think about investing in business equipment before the calendar or corporate year end, to be able for deduction in 2018. Recently some rules regarding the first-year depreciation on certain assets have been introduced by the Department of Finance. For more information, get professional advice.
Any allocations to or from a family trust must be paid by year-end. In the case of planned distributions at least the dividends must be paid by December 31, 2018. For more information, especially regarding “tax on split income” rules valid from 2018 that can reduce the tax burden, please get professional advice.
Self-employed individuals and qualified employees using a home office as their principal place of business (more than 50%), or exclusively for earning business income, are able to deduct home expenses related to the home office. Such expenses include the business portion of rent, mortgage interest, property taxes, utilities, insurance, repairs, and telecommunications. The excess expenses can be carried forward and in most cases can be applied to future years.
Having capital gains in the current business year it could be profitable to sell investments with unrealized capital losses before year-end to be able to reduce the tax burden. In this case, the capital loses can be offset against capital gains. Please contact us for further details.
Transfer of dividend income to a Spouse
In some cases, the transfer of the dividend income from Taxable Canadian Corporations of a spouse or common-law partner to the taxpayer can be very beneficial. However, the transfer should be considered only be made if it results in lower overall taxes.
Old Age Security (OAS) clawback
If you’re 65 years or older and receive OAS, a certain amount of this payment can be taken back if the annual threshold has been exceeded. If your net income in 2018 is over $75,910, your “clawback” is 15% of your net income that is over this amount. If your net income is $123,386 or greater, you will be required to repay all of your OAS benefits. There are some strategies to reduce the OAS “clawback” such as the right timing of capital gains, tax-free accounts, clever borrowing methods. Get professional advice, that will help you maximize your tax deductions.
You may transfer up to 50% of your eligible pension (excluding Old Age Security, Canada Pension Plan, and certain foreign pension income) to your spouse or common-law partner. This can result in significant tax savings. We can provide you with the information regarding the best possible pension splitting amount.
Pension tax credit
If you earn eligible pension income (income from a registered retirement income fund (RRIF), income from a registered pension plan and annuity payments from an RRSP) you can claim a federal non-refundable tax credit on up to $2,000.
Registered Disability Savings Plan (RDSP)
A registered disability savings plan (RDSP) is a special long-term saving program that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit (DTC). Contributions may be made by the beneficiary, a family member, or by any other authorized contributor.
Contributions to an RDSP are not tax-deductible and can be made until the end of the year in which the beneficiary turns 59. There is no annual limit on contributions; however, there is a lifetime contribution limit of $200,000. Income earned inside the plan is not taxed until it is withdrawn by the beneficiary. Contributions that are withdrawn are not included as income to the beneficiary when they are paid out of an RDSP.
As there are two RDSP –Models (The Canada Disability Savings Grant Program and the Canada Disability Savings Bond Program) make the right decision by choosing the most beneficial program for you and get professional advice.
Registered Education Savings Plan (RESP)
Make any contributions to an RESP by December 31, 2018, to qualify for any 2018 grants you may be eligible for. ESDC will pay a Canada Education Savings Grant of 20% of annual contributions you make to all eligible RESPs for a qualifying beneficiary to a maximum of $500 in respect of each beneficiary, independent from your income. If there is unused grand from a previous year, $1,000 in CESG are possible. Canada Education Savings Grants have a lifetime maximum of $7,200. There are two different types of RESP available: family plans and specified plans.
Registered Retirement Savings Plan (RRSP)
A Registered Retirement Savings Plan (RRSP) is retirement savings and investment plan for employees and the self-employed in Canada to encourage saving for retirement. Pre-tax money is placed into an RRSP and grows tax-free until withdrawal, at which time it is taxed at the marginal rate. The payment of taxes is delayed until retirement when their marginal tax rate will be lower than during their working life.
The deadline for regular and spousal contributions for the 2018 taxation year is March 1, 2019. The same deadline is applicable for payments for Home Buyers Plan or your Lifelong Learning Plan. Note that RRSP-payments, made after the deadlines will be considered as your income 2018. To learn more about the opportunity to income- split with your spouse or common-law partner get professional advice.