What is Income Splitting?

Income splitting involves moving income from the hands of one family member to another resulting in tax savings. The tax savings arise because each taxpayer resident in Canada is entitled to the basic personal tax credit. As well, we have a progressive rate system, meaning that the lower your income, the lower the rate of tax you’ll pay.

When two people each pay tax on $50,000, the total tax paid result is less tax than one person paying tax on the full $100,000. If all family members are in the highest tax bracket, then shifting income from one person to the next is not effective, but if any family members are in a lower tax bracket due to a lower level of income, splitting income can be advantageous. We expect that the Conservative government will allow parents with dependent children to split their income for tax purposes detailing this in the upcoming mini budget. Seniors are already able to split their pension incomes.

In Canada we currently have attribution rules that will attribute the shifted income, and the taxes payable, back to the original recipient of the income. However there are legitimate exceptions that may be taken advantage of. Two of the popular scenarios are money lent or given to a family member for business purposes, and money lent to a family with a fair rate of interest charged. We will keep you up to date on any changes as the budget is released.

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Children’s Fitness Tax Credit Increases to $1000

The Prime Minister has announced an immediate doubling of the Children’s Fitness Tax Credit. effective for the 2014 tax year. The allowable maximum claim will now be $1,000.00. A motion was introduced in the House of Commons on October 8th, 2014. The new legislation will also make it a refundable tax credit beginning in 2015 so that taxpayers with little or no income can still take advantage of receiving the credit.

At an event in Whitby, Ontario Prime Minister Harper remarked: “For kids, we know it leads to other things: learning new skills, making new friends, gaining new confidence, building strong character, and we hope inspiring a passion for being active and healthy that lasts a lifetime,” Mr. Harper said. “As many of you know, getting kids into these activities can be a challenge for hard-working parents. The costs add up.” And: “For something this important, no child should be left out,” the Prime Minister said. “Everyone has heard the saying: ‘It doesn’t matter whether you win or lose, it’s how you play the game.’ But what’s even more important for our government is that kids get a chance to play in the first place.”

Is this a sign that the government will cut taxes before releasing its 2015 budget? We’ll need to wait and see. Wait for the mini budget at the end of October and you may be surprised that you’ll be able to claim your own fitness expenses.

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Senior Renovations are catching on.

No not renovating dad; renovating the home so that mom and dad can more comfortably live there for a longer time. Ontario and B.C. have introduced home renovation credits for older taxpayers or their families. The renovations have to improve accessibility or mobility in order to qualify and it is a refundable credit, which is unlike the old federal Home Renovation Tax Credit.

Ontario has the Healthy Homes Renovation Tax Credit which is reported on schedule ON S12. Eligible taxpayers may claim 15 per cent of their qualifying expenses, to a maximum of $10,000, which is a maximum credit amount of $1,500 per tax year.

In B.C., the Seniors Home Renovation Tax Credit (reported on schedule BC S12) can be shared between eligible residents of the principal residence and involve expenses incurred for qualified renovations of the home. The credit is calculated as 10 per cent of qualifying expenses, up to a maximum of $10,000 in expenses, which is a maximum credit of $1,000 per tax year.

Since this is a refundable tax credit you will receive the credit whether you pay income tax or not. Remember that not all renovations qualify. Renovation must assist a senior with an impairment by improving access, mobility or functions to or within the home, or reduce the risk of harm within the home.

Qualifying examples include grab bars in a bathroom, installing a walk-in bathtub, non-slip flooring, wheelchair ramps or stair lifts, hand rails in corridors, and widening doors for easier passage throughout the home. A list of qualifying expenses is available at the B.C. Seniors’ Home Renovation Tax Credit site and at the Ontario’s Finance Website.

Seniors considering renovations may want to check what qualifies first before proceeding. Both of province’s provincial credits require documentation of your renovations. Be sure that you save all of the receipts. As with other credits you should keep the handy in case your return is reviewed and you are requested to provide them.

Ontario and B.C. have taken these steps to allow their seniors to remain in comfortable and familiar surroundings and in a safe environment.



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