No sooner has the RRSP deadline passed then along comes your T4, along with all the other slips you need for your 2011 tax return. While you may be tempted to toss them in a drawer for now, don’t give in. For many, filing a tax return is the most significant financial transaction of the year so it deserves some real attention. The deadline may be two months away on April 30, but it’s never too sooner to get started.
There are plenty of ways to file a tax return that is mathematically correct. But what you really want is to file a return that offers you the best benefit. The best way to do that is to file all the returns in your family at once so that the system works to the best benefit of the family unit.
I’ve counted close to 60 changes to this year’s general tax return, which is not unusual. Many of the changes are from such things as the indexing of tax credits, changing tax brackets and altering clawback ceilings. Notable for the 2012 tax filing season are federal tax changes for families with children, changes that affects students and investors and those of interest to pre and post-retirees. The best news is that there are only two new lines on the federal tax return, one related to volunteer firefighters and the other a tax credit for children’s arts programs.
For Ontario residents, there is a major change in how provincial refundable tax credits will be paid. That could significantly shrink the size of your refund now, in favor of increased monthly cash flow by the summer.
So let’s start there in our review of what’s new for you.
Ontario Trillium Benefit
On July 1, Ontario is introducing a new ‘super’ tax credit that combines the provincial sales tax credit, energy and property tax credit and the Northern Ontario energy credit. The amount varies by income, your rent or property taxes, energy costs and where you live. It will be paid on the 10th of each month. This will reduce your tax refund, but come July, your monthly cash flow will increase. Try to save that money in your RRSP or TFSA, to make it grow. Note, the credit cannot be discounted by tax discounters.
Children’s arts amount
This new federal tax credit of up to $500 is available for costs of registering children under 16 in a qualifying arts, cultural, recreational or developmental program. These include classes in the literary, performing or visual arts, music and language classes, as well as tutoring for academic subjects. An additional $500 is available for disabled children under 18 if at least $100 is spent.
The programs must run at least eight consecutive weeks or in the case of camps, five consecutive days, but cannot be part of the school curriculum.
Doubling up on claims won’t work either. Claim expenses that qualify for the child care expense provision first, then the leftover amounts under the Children’s Arts Amount.
The credit yields a tax savings of $75, or $150 if the child is disabled.
Changes for students
Students can now claim certain exam fees if the exams are written to get a professional status recognized by the federal or provincial governments or required to qualify as a licensed or certified tradesperson. The tuition amount is based on a calendar, not academic year, and fees must be over $100.
A related change sees the minimum qualifying time for a course for full-time students studying abroad falling from 13 to three consecutive weeks. This is for the purposes of claiming the tuition, education and textbook amounts and the Education Assistance Payments under a Registered Education Savings Plan (RESP).
Medical expense claims
This restriction on medical expenses claimed if you looked after a dependant adult has been waived. It was $10,000 per dependant. There are lots of things that can be claimed — from batteries in a hearing aid to home and driveway modifications to accommodate the newly disabled.
Be sure to save receipts. The per-kilometre rates used to claim mileage for accompanying a sick person to get medical treatment has also increased. The 2011 amount in Ontario is 57 cents per kilometre, up from 55.
Employees: Don’t miss these claims
Be sure to claim the private health care premiums you paid as medical expenses. If you paid these through work, you’ll find them on your T4 slip. If you made any charitable donations through work, you’ll find them on your T4 slip as well. Add those donations to the other donations you made. As an employee you’re also entitled to claim the Canada Employment Amount of $1,065 on Schedule 1.
Canada Pension Plan changes
The way you contribute to the Canada Pension Plan changed in January which affects 2012 tax filing. If you are between 60 and 64 you must continue to contribute to CPP even if you are drawing benefits from the plan. From age 65 to 70 you may elect to stop paying into the plan by filing a new form CPT30. The self employed will do this on Schedule 8. In either case, additional contributions will be saved in a “Post Retirement Benefit” account to bump up your monthly pension benefits on withdrawal. Your CPP contributions qualify for a non-refundable tax credit on the return.
Changes to reporting flow through shares
There are several changes for those who donated publicly listed flow through shares to charities after March 21, 2011. A portion of the donation may now be taxable. You’ll want to check this out with a professional tax advisor. In addition, where stock options were granted to qualified donees after March 21, 2011, don’t expect to receive the official donation receipt until the donee exercises or sells the option.
Transferring and splitting children’s benefits
If you’re a single parent with taxable income over $41,544 and you receive the Universal Child Care Benefit, you may be able to reduce your taxes by transferring that income to the return for the child you claim as an “eligible dependant.”
Also, if you have arranged for joint custody each parent can apply to receive equal shares of the Canada Child Tax Benefit (CCTB), the Universal Child Care Benefit and the GST/HST Credit the month following the change in marital status. File form RC 65 to inform the tax department of the change
Changes to German pension filing rules
If you receive German social security pension it’s reportable in Canada, but you may qualify to claim a partial exempt portion. You also have filing obligations in Germany. A German tax return is no longer necessary but a declaration of income is. A tax will automatically be applied, unless you are a low income earner. Check this new filing requirement with a tax advisor who is well versed in the new rules.
New credit for volunteer fire fighters
Check out new Box 87 on your T4 slip. This refers to income you received as a volunteer firefighter. You will include it in employment income if you intend to claim the new $3,000 Volunteer Firefighters Amount which you will find on Schedule 1.
Remember, it’s not what you have that counts, it’s what you keep. Therefore there is no such thing as a stupid tax question. Be proactive in asking about what qualifies to be claimed in your favour and what doesn’t. We don’t expect governments to stop taxing us anytime soon, so make it your business to pay only the correct amount of tax and not a cent more.
Tax expert Evelyn Jacks’ latest books are Essential Tax Facts 2012 and Financial Recovery in a Fragile World. She is president of The Knowledge Bureau which offers professional development to tax and financial services advisors.