Between this past weekend and next, millions of Canadians will be taking a day to enjoy much-deserved time with their families. While it's nice to have a stat holiday dedicated to families, it is not as if we ignore them the rest of the year. We all know that our families need our attention year-round and coincidentally, so do taxes.
There are many ways that your family situation impacts your tax return. Did you recently marry or have a child? Did you go through a divorce or the death of a spouse? Family status changes like these directly affect your tax return. Start now and make sure you understand how you will be affected and what credits or deductions may now be accessible to you.
Married or in a Common-Law Relationship
Your marital status has a direct impact on your return. The most important thing you and your partner should do is make sure to file at the same time. This will ensure you are able to take full advantage of all the benefits and credits available to your household.
Some credits like charitable donations, transit passes and medical expenses can be combined and you want to make sure you claim them on the return that gives you the maximum benefit.
Not sure what your marital status is? You're not alone. When asked if they could decide whether or not to claim themselves as common-law on their tax return, more than one-third (34 per cent) of Canadians said they did not know, according to a recent survey.
In Canada all taxpayers file individually, but that doesn't mean you file as a single person. You are required by law to mark the correct marital status box on your tax forms -- that's how the government tracks marital status to calculate household incomes, which is then used to calculate benefits like the GST/HST credit and the Canada Child Tax Benefit (CCTB).
Parents of Children Aged 17 or Younger
If you had a baby last year or this year and want to know how recent changes will affect your child benefits for your 2015 return, here are a few things you need to know.
For your 2015 tax return, you will still receive an RC62, Universal Child Care Benefit (UCCB) statement which is taxable income. For single parents, the UCCB income can be designated as income to the child for which they are also claiming the amount for an eligible dependant.
You may also qualify for the Family Tax Cut in 2015. This federal credit allows eligible families to claim an additional credit of up to $2,000. Households where one spouse earned the majority of the family income will benefit the most from this credit.
The government has indicated that it will end UCCB benefits in July 2016 and incorporate them into the Canada Child Tax Benefit (CCTB) program, which is non-taxable and calculated based on income. We do not know the full details yet, but while the UCCB awarded $160 each month for each child under the age of six and $60 per month per child aged six through 17, regardless of income, the new CCTB will be calculated based on your tax return, with benefits paid over a 12-month period from July of one year to June of the next year.
For the coming year, the government will use your 2015 tax return to calculate CCTB payments that will be paid out from July 2016 to June 2017. Payments will be based on the number of children living with you, their ages, your province or territory, your adjusted family net income and your child's eligibility for the child disability benefits. Please note that these changes will only impact your 2016 tax return.
Separated or Divorced
Filing your taxes can be confusing after a separation or divorce, especially if spousal support or child support payments are involved.
If you were considered separated or divorced by Dec. 31, 2015, you need to file with your updated marital status on your 2015 tax return.
Make note that, once you've claimed as married on a tax return, you never claim as single again. Until your divorce has been finalized, you'll file your tax return as "separated." Once the divorce agreement has been finalized, you can file your tax return as "divorced." If you have been claiming the spousal amount, your claim will be based on your spouse's income earned prior to separation this year.
If you separate or divorce after Dec.r 31, 2015, you must still file your tax return as "married" for 2015. If you are in a common-law relationship, you are only considered separated if the period of separation lasts 90 days or more.
That means if you separated on New Year's Eve, you would indicate "separated" on your tax return if you are preparing it 90 days later or if you still expect to be separated when the 90 days is past. If one spouse moved out for a shorter period of time during the year it would not be considered a separation.
After the Loss of a Spouse
Losing a spouse is difficult emotionally, financially and legally. If your spouse passed away in 2015, you must inform the CRA of the date of their death as soon as possible. For your 2015 return, you will file as a widow or widower. If your spouse was receiving the Universal Child Care Benefit payments for a child and the surviving spouse or common-law partner is the child's parent, the CRA will usually transfer payments to that person.
In terms of any potential inheritance, it is important to note that there are no inheritance taxes in Canada. It is assumed that taxpayers have disposed of all their capital properties at the time of death. This means that any accumulated gains are taxed on their final return -- although in the case of a spouse the resulting capital gain can be deferred.
When there is a change to your family situation it is important to let the CRA know by filing specific forms for each situation. Don't wait to let them know on your tax return. If your marital status changes you must file a RC65 by the end of the month following the month of change. If you are receiving child benefits and the child no longer lives with you, you must also let them know.
Every family situation is unique, and you will go through many changes to your family status throughout your life. Understanding how these changes impact your tax return now will go a long way towards letting you focus more on enjoying your time with your family, and less time ensuring that the CRA has the correct information for your next tax return.
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Keep a copy of every investment account in which you have non-registered funds and make sure you have a T-slip for all the investment income (dividends, interest, capital gains) you earned during the year.
Locate your notice of assessment from the year before to see the exact amount of RRSP contribution you can make this year. Also, check if there are any unclaimed contributions.
From that same notice of assessment document, check to see if there are any expenses that have been carried forward that you may use this year.
If your income is going to be substantially higher next year, do not claim your RRSP contribution this year. Wait until the following year when you are in a higher tax bracket to claim it.
If you have children currently enrolled in post secondary education, consider transferring the tuition credit to your own tax return.
If you or anyone in your family has a medical condition that restricts your daily activities, consider filing for the disability tax credit. You may be able to recover this tax credit as far back as 10 years – which is equal to about $1,500 a year.
If applicable, don't forget to record the capital gain on the sale of your cottage in Canada or vacation property outside the country. However, you may not always have to declare your summer home. Talk with your accountant to see what makes better financial sense. If the cottage, for example, has increased substantially more in value than the house you currently reside in, it may make sense to declare the summer home as your principal residence. Remember, this move does not attract capital gains and defers paying capital gains on the home you reside in.
If you need to travel outside of your region for medical care, don't forget to claim meals and travel for yourself and your spouse.
If you live in a household with two taxpayers, consolidate donations and have one taxpayer claim them all. This way the tax credit increases substantially on donations over $200.
If your income is low, don't forget to report your rent or property taxes in order to qualify for provincial tax breaks for rent and/or an HST refund, for example.
Stuck? Get in touch with an accountant. To be extra cautious, ask if they attend tax update seminars through the year to stay current. Avoid people who strictly rely on tax software.
This year, keep a file handy to hold all of your receipts and other documents required for filing taxes. This way, everything will be in the same spot come April of 2015.
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