Monthly Archives: March 2012

Tuition fees keep rising and for many those costs play a growing role in the family budget.  Luckily there’s help. Today we’ll look at the different kinds of education tax relief, and whether or not you’re eligible to save when it comes time to year end tax planning.

If you paid tuition fees yourself, in Ontario in 2011 you qualify for a non-refundable, combined 20.05% federal and provincial tax credit. If you paid fees for your children or other dependents, you may be able to transfer part of this credit to your own return.

For this to work, the fees must be paid to a Canadian university, college or other post-secondary educational institution certified by Human Resources and Skills Development Canada. If the student studies abroad, foreign postsecondary fees may be covered too. A change in the 2011 budget lets someone studying at a foreign university claim the tuition credit if they’re enrolled in classes for three consecutive weeks, instead of 13.

Another beneficial change in the most recent budget: if you pay a fee for an exam necessary to obtain professional status or to be licensed to practice a profession in Canada, you can now claim it for tuition.

If you send your children to private school, unfortunately you won’t get a tax credit. But – and an important but – if there’s a religious component to that school, the institution may be able to give you a charitable donation tax receipt, for the part of tuition paid towards religious instruction.

Let’s get back to all the post secondary stuff. You’re entitled to an extra $80 credit for each month you attend a post-secondary educational institution full-time. Part-timers receive a $24 monthly credit as long as they attend an eligible program that’s at least three consecutive weeks long with at least 12 hours of instruction per month. Students with disabilities qualify for the full $80 credit, even if they’re part-time.

If you’re eligible for those education credits, you can also claim a non-refundable textbook credit. It’s worth $87 a month for full-timers, and $27 monthly for part-timers.

If you receive scholarship, fellowship or bursary income, that’s tax-free, as long as you’re eligible for the full-time education tax credit. This applies to courses up to and including doctoral degrees, but not post-doctoral fellowships.

If you earned a scholarship, fellowship or bursary in connection with a part-time program, the tax-free exemption is limited to the cost of tuition and course materials (unless you qualify for the disability tax credit).

For many students, loans are a big part of their financial picture. You can claim a credit for interest paid on student loans under the Canada Student Loans Act or equivalent provincial programs.

What happens when the parent is the student? Single parents and two-parent families where both parents attend school full-time can deduct extra child care expenses. Normally there’s a limit on how much you can claim – no more than two thirds of your net income. For single parents or two-parent families where both parents are full-time students, the weekly limit is $175 per child under age 7 and $100 per child ages 7 to 16. For part-time students, the dollar figure is the same, but it’s monthly, not weekly.

Once all the tax numbers are crunched, pay attention, parents: if your child or dependent can’t use the entire amount of their tuition, education and textbook credits because their income is too low, up to $1,002 of combined federal and Ontario credits can be transferred to you for your own use.

If there are still credits left over, they can be carried forward and claimed against the student’s taxable income in future years. But you can’t transfer them then – only students themselves can claim them later. If you plan well, this can come in handy when the student starts working and has a bigger income.

The list of education tax credits (and the list of rules) is a long one. But it’s one that can earn you big savings —–if you plan ahead and organize carefully.

It’s full blown tax season for us! Last week we looked at organization tips to lighten your year-end tax planning burden, and hopefully make the job more effective. We’re here to help all season long…we’ve got lots more ideas and suggestions up our sleeves.

This week we’ll look at medical expenses—something every person and family deals with.

Medical expenses that go over a minimum threshold give you a non-refundable tax credit. The threshold is 3% of your net income, and it maxes out at $68,400 or a flat $2,052. All qualifying medical expenses above this threshold will make you eligible for a 20.05% tax credit in Ontario.

There are a lot of qualifying medical expenses. If you’re not sure, you can look at this CRA bulletin: IT – 519R2 which provides all the details you could ever want about allowable expenses.

If you’re self-employed, premiums paid to drug or dental plans are deductible as a business expense. Business tax planning suggest that this is far better than claiming a tax credit, because the tax savings will be at your highest marginal tax rate rather than 20.05%.

Medical expenses can be claimed for yourself, your spouse and any of your close relatives dependent on you for support such as children, grandchildren, parents and siblings resident in Canada.

Medical expenses made on behalf of yourself, your spouse and dependent minor children can be pooled for purposes of the 3% expense threshold, or $2052—whichever is less.

If you paid for medical expenses for other dependent relatives, you can claim those that exceed the dependent’s 3% threshold. A new tax rule this year: there’s no limitation on the amount you can claim for each relative. In prior years the limitation was $10,000 per dependent.

Another recent tax change: money spent on purely cosmetic medical procedures is no longer claimable.

Here’s an interesting clause. When you claim medical expenses, you can pick any 12 month period as long as it ends in the current tax year. For example, if you had expenses you couldn’t claim in 2010 because your total was below the threshold, you can add them to expenses incurred in the early part of 2011 to make a bigger claim for 2011.

Because of the 3% threshold rule, it’s usually smartest to combine the whole family’s medical expenses on the return of the lower income spouse, who might have a lower threshold.

You can also affect your claim amount by playing with when you make medical payments. If you think you’ll have a big medical expense, you may want time the payments so it can be grouped with other costs in one particular tax year.

With careful planning and enough forethought, you can substantially impact and reduce the amount of taxes you might otherwise have to pay.

We’re chartered accountants. We’re probably the only people in the universe allowed to use an exclamation mark after the phrase “tax time.” But we do – because this is our time to shine, and to help you get the most from your income whether personal or business tax services are needed.

March is here…you can feel that spring is just around the corner. Warmer temperatures, longer days, fewer layers of down…the nice signs that winter is on its way out.

And tax season…is on its way in. Now is the time to start getting ready to organize and prepare your income taxes. We’re here to help.

By now, you should have already received most of your employer and investment slips. To make sure your returns are prepared as efficiently as possible, you need to organize your information now. This will let us minimize your 2011 income taxes as much as possible.

Here are a few things to start thinking about:

• Personal life. Were there changes in your personal situation in 2011? That could be an address or phone number change…or a new job, new business or investment. The same goes for anyone in your family. Did they get married, start university, have or adopt a child, start a new business or acquire new investments? Did you turn 71 in 2011?
• Slips. Little pieces of paper with big importance. Make sure you have all the necessary information slips from your various sources of income: employment, interest and dividends, pensions, employment insurance, registered retirement savings plans and tax shelters.
• Deductible expenses. If you’re self-employed, own rental properties or are required to incur expenses as part of your employment have you started assembling your deductible expenses and summarizing all your income?
• Other income. If you received income with no information slips, such as tips, business income, partnership income, rental income, taxable alimony or child support, interest or directors fees, you need to summarize it for the year.
• Capital gains/losses. If you sold any assets in 2011 that may give rise to capital gains or losses (ie. stocks and other investments, real estate, businesses) you need to have information available about the original costs, any additional costs you incurred while you owned it, and what you received for the asset when it was sold.
• Other deductibles. There are a whole lot of deductible expenses out there – make sure you keep track of things like: RRSPs, professional or union dues, employment expenses, interest on money borrowed for investment purposes, investment counsel fees, moving expenses, childcare expenses, business investment loss and deductible alimony or support payments.
• Tax credits. Have you made payments that make you eligible for a tax credit? These include rental property taxes, student loan interest, adoption, tuition fees, charitable donations, medical expenses, political contributions, children’s fitness programs, children’s recreation programs, monthly transit passes and more.
• Foreign property. If you own any foreign property that has total original costs greater than $100,000, it needs to be disclosed annually to the CRA.

But wait…there’s more. You need to make yourself aware of changes to the income tax act since last year. To help you with this, we have a summary of recent tax changes in the 2011 budget on our website.

Once you have assembled and organized all this information you can start preparing your returns. To help you with your year-end challenges, we also have a complete income tax organizer on our website that we hope will help make the process a little less daunting and stressful.

Oh…and we thought of one other group that’s allowed to say “Tax Time!” so excitedly…the CRA. So make sure you’re ready for them.

If you read my blog last week, “How to Reduce Probate Fees in Ontario”, you’re basically an expert in probate. At least, you know why you should care about minimizing probate fees. One of the ways we discussed involved setting up an “alter ego” or “joint partner” trust. It’s not as exciting as a Dr. Jeckyll/Mr. Hyde scenario, but it has some great benefits (as well as lowering those expensive fees).

Any Canadian resident 65 or older can transfer assets into an Alter Ego Trust or a Joint Spousal or Common-Law Partner Trust without triggering any immediate gain for tax purposes. Assets held by such trusts don’t count as part of your estate planning, so they’re not subject to probate fees, therefore it minimizes probate fees overall.

Other benefits of this type of trust include:

• avoid power of attorney problems for mental capacity issues if they arise
• reduce wills variation exposure
• confidentiality for assets held in the trust at the time of death, since they don’t form part of the estate
• creditor proofing
• avoid claims under dependant’s relief legislation
• protects elderly persons’ assets from unscrupulous acts of others

To be eligible to use the trust the contributor or settlor(s) must be:

• over 65 years of age
• the only people entitled to any income from the trust up to the date of death
• no other person can receive income or capital from the trust during the settlors’ lifetime

There are always some cons to go with a list of pros. When using a trust like this, there are complicated income tax consequences. All the trust’s assets will be disposed of by the trust, for tax purposes, at their fair market value when the settlor dies (or the later death of the settlor and their spouse or common-law partner). Any gains or losses accrued in the trust assets are triggered at this time and taxed in the trust.

Those triggered gains will be taxed at top marginal rates, rather than at personal marginal rates, since a non-testamentary trust pays federal tax at the highest rate on all of its income. Any loss carry forward balances available to the individual can’t be used to shelter capital gains realized by the trust.

Assets held in the trust aren’t eligible for the capital gains exemption, even though they might otherwise qualify.  Donations made through the trust can’t be carried back to the year before death, as they could if the donations were made by the individual.

If the trust holds a property that qualifies for principal residence exemption, it may be difficult to use this exemption. Making this claim in the trust impacts not only the settlor and their spouse, but also the ultimate beneficiaries of the trust.

Don’t try this at home…given the complexity and implications here, tax planning and minimization probate fees technique like this should only be done with appropriate professional advice.