March 14, 2017
What’s New this 2016 Personal Income Tax Season
This year, there are a number of amendments that must be considered when preparing your 2016 personal income tax returns. When the Liberals swept into power in 2015, they followed up with some sweeping changes affecting personal taxes. In addition, the Conservatives had also passed new legislation that may have a significant impact. The following summarizes some of the more noteworthy proposals.
Sale of Principal Residence
Thinking of selling your home? Moving out and renting your condo? The Canada Revenue Agency wants to know! In previous years, the CRA did not require these changes to be reported on your tax return. Commencing in 2016, you are required to report basic information in respect of the sale of your principal residence on your tax return in order to claim the full principal residence exemption.
The information required is the date of acquisition, the proceeds on disposition and the address of the property sold.
You will also need to report a disposition should you change the use of your residence during the year; such as converting a personal residence to a rental property. The principal residence would be deemed to be sold by you at fair market value and immediately reacquired at that same value.
Real Estate Sales?
Metro Vancouver and other major Canadian cities have been a hotbed of real estate activities and the CRA is taking an interest in all sales with a view to finding unreported income! Beginning with taxation years ending after October 2, 2016 (this includes a personal taxpayer’s 2016 tax year), the CRA may at anytime reassess a taxpayer – even beyond the normal reassessment period – if there are any unreported direct or indirect real estate transactions.
Home Accessibility Tax Credit (HATC)
To enable seniors and persons with disabilities to continue living at home, Budget 2015 introduced the HATC. It provides a non-refundable tax credit of 15% on up to $10,000 of eligible expenses to improve accessibility, safety and security of the individual. A similar program has existed in BC for seniors since 2012 and has been expanded to include persons with disabilities.
HATC may be claimed by a family member of the individual if they live together subject to certain conditions. Expenses must be supported by proper documentation such as contracts, invoices and receipts. These documents must clearly state the cost, services or goods provided, dates and authorizations to perform the work.
Eligible Educator School Supply Tax Credit
The government recognizes the dedication of teachers and early childhood educators in teaching our children. Many of them pay for school supplies and materials out of their own pocket to ensure students receive a quality education. The government introduced the School Supply Tax Credit, a refundable tax credit of 15% based on a maximum of $1,000 of eligible teaching supplies.
To qualify, expenses must be paid out of pocket during the year and used in a classroom setting. Expenses can only be claimed by teachers with a valid teaching certificate or by an early childhood educator that holds a certificate or diploma from a recognized institution.
Receipts for supplies must be retained and the CRA may ask for certification from your employer that these supplies were eligible in performing your duties.
Changes to Tax Credits
Budget 2016 eliminated several tax programs introduced by the Conservative government. The Family Tax Cut of $2,000 is eliminated for 2016. The maximum expenses eligible for the Children’s Arts Tax Credit has been reduced from $500 to $250 per child and the maximum Children’s Fitness Tax Credit has been reduced from $1,000 to $500 per child. Both the Children’s Arts and Fitness Tax Credits will be phased out in 2017.
As you may have noticed, the Liberals have made some significant changes to the child benefit you are receiving. As of July 1, 2016, the Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit (UCCB) have been replaced by the Canada Child Benefit (CCB). The CCB is a tax-free monthly payment that started July 20, 2016.
For those who have received UCCB payments in 2016, they must be reported as income on your 2016 tax return. If you failed to apply for the CCTB and UCCB, you may still sign up for retroactive payments to July 1, 2016.
Overseas Employment Tax Credit (OETC)
For residents of Canada who work abroad, the OETC is now completely phased out for 2016.
Changes to Tax Rates
When elected in 2015, the new Liberal government pledged to make changes to personal tax rates and proposed the following changes in Budget 2016:
New top tax bracket of 33% on income over $200,000
Tax on split income of a child under 18 (the “kiddie tax”) has been increased to 33%
A tax rate reduction from 22% to 20.5% on the second tax bracket for taxable income between $45,282 to $90,563 for a maximum savings of $679
To align with the tax rate changes, the donation tax credit for income taxed at 33% has also been increased to 33%. All carried forward donations will be at a rate of 29%, the previous top tax rate.
Labour Sponsored Venture Capital Corporations (LSVCC) Tax Credit
Two governments – two credits.
The Conservative government was phasing out the LSVCC tax credit on federally registered LSVCCs. This credit is a 5% tax credit on the purchase of federally registered LSVCCs; to a maximum of $5,000. The Liberal government announced in Budget 2016 that the tax credit would be restored.
There is a 15% tax credit on provincially registered LSVCCs, which was the original rate on federally registered LSVCCs. This credit applies to the purchase of provincially registered LSVCCs, to a maximum of $5,000.
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The above content is believed to be accurate as of the date of posting. Canadian Tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.