Boutique tax credits made returns more complicated than it should be to file.
As Canada gets ready to welcome a new government to power, we can also prepare for changes to our tax returns. The Liberal platform promised a number of changes that will make an impact on your return. And while we are still waiting for the detailed plan on how and when they are going to roll out the changes, it should mean a simpler return for almost every Canadian and a little more fairness at tax time.
The Harper government was big on boutique tax cuts. Over the last nine years, the Textbook Tax Credit, Children's Fitness Credit, First Time Homebuyers Credit, Children's Arts Credit, Child Tax Credit (which he also ended for 2015) and the Family Tax Cut are some of the credits added to the list. And the Home Renovation Tax Credit was certainly popular when it was available for a couple of years.
While these sound like a good idea, tax credits tend to sound better than they actually are. For example, you could claim up to $10,000 for the Home Renovation Tax Credit. You can easily spend that much on renos. But you had to subtract $1,000 and then the rest was multiplied by 15 per cent for an actual tax savings of $1,350. Now I wouldn't turn down a cheque for $1,350, but it is a far cry from $10,000.
And tax credits are only useful if you have earned enough to pay income tax. The majority of the credits Harper introduced during his tenure were non-refundable. This means you can only use them if you have earned enough money to pay tax on it. The credits could not create a refund on their own. So seniors with little to no taxable income who decided to take advantage of the Home Renovation Tax Credit were very disappointed at tax time when their receipts resulted in no tax savings.
This also held true for postsecondary students. While they get some of the most tax credits, they usually do not have enough income to actual claim them when they are students. Yes, they can carry forward the credits to use in future years but if you have graduated and find yourself unemployed with student debt looming, the $20,000 worth of carry forward education and tuition credits aren't much use. And that $20,000 translates to $3,000 worth of tax savings -- as long as you have earned enough money to claim them.
Under the Liberal platform, the Family Tax Cut will be abolished. This was Harper's half-hearted attempt at income splitting to make good on an election promise. It was not true income splitting and caused a great deal of confusion last tax season. As a tax professional, it was hard to explain to clients because it wasn't really income splitting and relied on spouses' tax brackets.
Based on the Liberal platform, your tax return should become easier. Compared to the average U.S. tax return, Canadian forms are simple. If you have a couple of slips, you should be able to prepare your own tax return easily. By adding all these extra credits, it just made things harder and easier to miss tax savings. Changes to the income tax brackets do not complicate your return and the average Canadian should be able to prepare their own return.
Not everyone is or should be a do-it-yourselfer. For some business owners, corporations and dual citizens, tax situations can be more complex and need specialized assistance. There are some situations where hiring a professional can actually save you money or help you avoid penalties. And some people just don't want to deal with their tax return. But a basic personal return should not be so complex that you need to pay someone to prepare it for you, especially with multiple free software options available. Try Simple Tax -- it is free and Canadian.
There are many expectations for this new government and we are all anxious to see how they deliver on their platform. Saying goodbye to boutique tax cuts that only benefit the few should help more of us and make the whole process of filing your tax return less painful.
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