New tax savings and programs won't happen until 2016
After weeks of waiting, we finally know how the Liberals are starting to roll out their tax-related election promises. The previous government was notorious for introducing last minute, retroactive tax changes that it was hard to predict if the new government would follow suit.
And now we have our answers. Any changes that are being introduced will affect your 2016 tax year rather than be retroactive for 2015. For people looking for an unexpected tax refund, it may be a bit disappointing but it does mean less chaos around your tax return.
So without any major new tax changes impacting your 2015, what should you expect when you file?
For parents with children, you are probably going to feel the most tax pain. When the enhanced Universal Child Care Benefit was announced last year, the Child Tax Credit was eliminated. This credit gave you about $330 in tax savings per child under 18.
And you will receive a RC62, Universal Child Care Benefit statement which is taxable income. The slip must be claimed by the lower income spouse with a few exceptions. So while getting a big cheque in July thanks to UCCB payments was a probably a nice surprise, you may find it adds to your tax liability. For single parents, the UCCB income can be reported by the child for which they are also claiming the amount for eligible dependant.
The UCCB will be phased out in 2016 and the Canada Child Tax Benefit program will be enhanced. The CCTB is non-taxable and calculated based on income. The UCCB gave the same amount for every child no matter what the household income. The new Child Tax Benefit will give more money to lower income families.
The Family Tax Cut did survive for another year though it could be the last one. This was the notional income splitting credit that allowed some families to claim an additional credit up to $2,000. Households where one spouse earned most of the income benefit the most from this credit but as long as your household incomes are in different tax brackets, you could see some tax savings.
The Tax Free Saving Account (TFSA) limit will be adjusted back to $5,500 for 2016. The new government did not change the $10,000 contribution limit for 2015. And even if you did not contribute the $10,000 maximum in 2015, you still get to carry the unused amount forward. Though there was speculation that they could roll the limit back for 2015, it would have been an administrative nightmare so changing it for 2016 was the easier solution. The TFSA limit will be indexed in future years to account for inflation.
As for tax changes next year, you will receive your savings if you have income subject to withholding tax rather than boutique tax cuts. Remember, a refund is money that you have overpaid the government during the year so you are receiving your own money back. By lowering the tax rate, the savings will come through your payroll so don't expect it to result in a refund once you file next year.
For the income you earn between $44,700 and $89,401, you will pay less tax on it. The income tax rate moves to 20.5 per cent from 22 per cent. One and a half per cent doesn't sound too impressive but if you are earning $60,000, you will save about $230 next year. While you may have been hoping for more, every taxpayer receives the savings. It is not a tax credit for families or seniors. It benefits everyone in this income range.
Canadians earning more than $200,000 a year will have income taxed at a new 33 per cent tax bracket to help pay for the tax cut. Based on the government's own numbers, this cut will not be enough to cover the middle income tax cut so it will be interesting to see how the government handles this short fall.
If you were hoping a tax cut in 2015 would create a refund for you, you will be disappointed. Though RRSP contributions can create tax savings, there are some options before the end of the year that can have a positive impact on your tax return. Waiting until you file to figure out your tax plan usually doesn't result in the best 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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