The Canada Revenue Agency starts accepting 2016 tax returns on February 20. It marks the official start of the Canadian tax season. T4 slips are due to be sent from employers by the end of the month, and you should already be receiving RRSP slips (though some investment slips are not distributed until mid-March).
Every year there are changes to your tax return, and the 2016 tax period is no different. Several credits have either been removed or are being phased out as a result of last year's federal budget, and there are new credits available. The biggest changes have probably been to the tax brackets, but you won't necessarily see a difference on your return. Your payroll department would have made the appropriate adjustments at the beginning of the year.
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This is the last year parents will be able to claim the Children's Fitness Credit and Children's Arts Credit. While these credits seemed to have the best intentions behind them when they were introduced -- just try to get kids active and interested in the arts -- they tended to really only be beneficial if you had sufficient income to claim them. While the last government did make the fitness credit refundable in 2015, it didn't seem to help kids from lower-income families get involved.
Rather than eliminate the credits immediately, the government reduced the credits by half this year before they are removed entirely next year. It means you can claim up to $500 for the Children's Fitness Credit and $250 for the Children's Arts Credit. There are a number of provincial fitness and activity credits, and they remain unchanged.
The Family Tax Cut has been eliminated for 2016. Benefiting mainly higher-income families with only one parent working, the $2,000 credit had allowed couples with children under 18 to claim a credit based on the idea of income splitting. Pension income splitting for seniors remains unchanged.
You can claim up to $10,000 in home renovation expenses that meet the accessibility criteria per year.
The new Canada Child Benefit (CCB) was introduced last July so it means parents will need to report the Universal Child Care Benefit (UCCB) for the last time on their 2016 return. The New CCB is not a taxable benefit so it does not get reported on your return. You will receive a RC-62 Form from the government with the UCCB amount you need to claim. Remember, the UCCB is always reported by the lower-income spouse.
Your principal residence exemption remains intact, but you are now required to report basic information on the sale of your home in 2016. Questions include the date you bought the house, a description of the property and the proceeds of the sale. While there has been speculation that this could signal the government changing the tax-exempt status of your home, it has been explained as a way to try and track house flippers and foreign buyers taking advantage of the principal residence exemption.
The government did introduce a new credit to help people stay in their homes longer. The Home Accessibility Tax Credit (HATC) is non-refundable, which means you have to have taxable income in order to claim the credit. You can claim up to $10,000 in home renovation expenses that meet the accessibility criteria per year, per dwelling. The credit can be split among more than one qualifying or eligible individual but cannot exceed the $10,000 limit.
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Teachers and early childhood educators can take advantage of another new credit. The credit for school eligible supplies is a refundable credit for up to $1,000 of eligible expenses so you do not need taxable income in order to claim it.
Investors will also be impacted by the changes. Until this year, you were able to do a tax-deferred "switch" of non-registered mutual funds from one corporate class fund to another corporate class within the same mutual fund corporation. For example, you could switch one bank mutual fund for another from the same bank and defer any taxes. Not anymore. Now these kinds of moves will be treated at the time of the switch as a disposition at fair market value for tax purposes.
Remember, the CRA holds you responsible for the information you provide no matter how your return was prepared.
Life insurance will also be treated differently depending on the policy. New universal life insurance policy holders will see a decrease in their ability to build up investment gains above death benefit premiums on a tax-free basis.
If you are impacted by any of these changes, make sure you understand how they will impact your tax return. Remember, once you sign the document, the CRA holds you responsible for the information you provide no matter how your return was prepared.
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