It’s the time of year that’s dreaded by Canadians who know they’re going to owe money to the federal government and eagerly anticipated by employees who can’t wait to get their hands on sizable refund cheques: tax season.
This year, however, some new tax changes could mean some pleasant surprises for students, single parents who share equal custody of their children, those who are disabled and self-employed people.
As of the 2011 tax year, changes that were introduced in the last federal budget are opening new opportunities to reduce your tax bill or to gain previously inaccessible benefits if you fall into certain categories.
Self-employed Canadians can now pay into the Employment Insurance (EI) Fund to receive benefits for maternity or parental leave, illness and care-giving, among other changes.
“There are a lot more self-employed people now than there was two or three years ago,” says Cleo Hamel, senior tax analyst with H&R Block Canada in Calgary.
She points to the recession as a key factor that propelled more people to become self-employed and who may not be aware of the new option to join EI.
“When you initially look at it, you think everyone who is selfemployed is going to jump right on it,” Hamel says. “However, there are limitations and that’s where things change.”
Self-employed individuals still cannot access regular EI benefits – you can’t lay yourself off, so it only applies to special EI benefits – but they do have the option to start paying premiums to get maternity and paternity, illness or care-giving benefits.
“Once you’re in, you’re in,” says Hamel. If you decide to join, you’ll be paying those premiums as long as you’re self-employed.
You also have to contribute for a year before you can access any benefits at all and generally receive only about 55 per cent of what you were earning before taking a leave from your business.
For 2011, the maximum insurable earnings is $44,200, so the premium in that case would be $786, or 1.78 per cent. One catch is that the self-employed will also have to pay the employer’s portion, so total premiums for the year amount to $1,572, or about $131 per month. The maximum benefit is about $450 per week.
“It’s not a lot, but it is still that extra help that for some moms could work,” Hamel says.
Murray Pituley, director of tax and estate planning with the Investors Group in Regina, says the changes – particularly EI changes for the self-employed – will probably not attract a large number of people and are very specifically targeted.
A 25-year-old person who plans to be self-employed until they’re 60 and have one or two children, for example, would be paying into the EI fund for decades but would only receive a small amount of benefits in comparison to the premiums paid.
“I don’t see a lot of folks . . . as seeing significant benefit in this,” says Pituley, who advises selfemployed individuals to consider setting up an emergency fund or some kind of other savings vehicle, such as a tax-free savings account.
There are also disability insurance, medical and dental plans that could also help offset some costs without having to pay EI premiums.
For students, a welcome move by the government has been to exempt eligible students’ scholarships. Originally, students were limited to a $500 tax exemption, which then moved up to $3,000 but which now is a complete exemption on the full value of the scholarship if you have a receipt from your institution.
“That is a huge step for a lot of students,” Hamel says.
Students were already eligible to receive a tax credit on their tuition and for the amount of courses they take in any given semester, plus the cost of books, she adds.
Single parents who share equal custody of their children will also now, for the first time, be able to receive their half of both the Universal Child Care Benefit and the Canada Child Tax Benefit – a move that’s worth a total of up to about $10,000 for each child up to age six and a $1,500 per year tax credit, Hamel says.
“It’s only fair,” she says. “Both parents are incurring costs for their children, but I think it will come as a surprise for some people when the next payments come out.”
Pituley says the government’s approach to tax changes has been a highly targeted one, as with the child fitness tax credit, as opposed to across-the-board reductions in the level of taxes paid.
“That’s to focus on where they think the need is and maybe that’s why they’re leading in that direction,” Pituley says. “With every (federal) budget that comes along, there are always little changes that will affect certain segments of the population.”
Persons living with disabilities are another segment to be eligible for changes to the Registered Disability Savings Plan (RDSP), first introduced in 2008.
They allow persons living with disabilities to carry over government grants and bonds dating to 2008 that were not previously used. However, there are some misconceptions. Family members who contribute into an RDSP do not receive tax deductions for those contributions, unlike an RRSP.
“You’re taking a hit today so the beneficiary doesn’t have to deal with it” when they start accessing the funds, Hamel says. However, the earnings within that plan are tax-free but cannot be accessed before age 30, she adds, when they are eligible to receive principal and interest payments.
“It’s something that is very unique,” Pituley says. “It’s a very good tool in the right circumstances, but it’s not as popular as many people think partly because of the restrictions of accessing the money.”
The bottom line is that if you’re uncertain, go talk to a tax professional and get advice about what changes apply to you. The CRA also has several guides available on its website that detail the exact limitations and eligibility criteria for each change.
“Try and take an active interest,” Pituley says, adding you have to consider it in a holistic way in relation to your other investments, debt management, estate planning and insurance planning. “All of these things fit together.”
Tax changes for the 2011 tax year:
– – Changes introduced to the Registered Disability Savings Plan (RDSP), first introduced in 2008, allow persons living with disabilities to carry over government grants and bonds dating to 2008 that were not previously used.
– – Students awarded scholarships in 2010 for post-secondary degrees focused mainly on research may be eligible for scholarship exemption and the cost of education for college diplomas and bachelor, masters or doctoral degrees.
– – Self-employed individuals are now eligible to contribute to the Employment Insurance Fund, a program that provides benefits for maternity or paternity leaves, illness or care-giving.
Single parents who share equal ? ? custody with children under six can now receive their half of the Canada Child Tax Benefit and the Universal Child Care Benefit.
Source: H&R Block Canada
Top 5 tax tips that are overlooked:
– – Medical expenses: If you pay a health-care premium through payroll deduction, this is considered a medical expense as well as any deductibles or out-of-pocket expenses not covered by your plan. Travel health-care insurance can also be claimed as a medical expense, all subject to maximum claim thresholds.
– – Disability tax credit: It may be worth asking your doctor to review the criteria on the T2201 medical disability form, which is submitted to the Canada Revenue Agency to determine eligibility.
– – Claim your income: Any child under 18 who works part time or full time during the summer months may be entitled to a refund of taxes paid if their income is below the basic personal amount. Even if no tax is deducted, reporting the income will increase the child’s RRSP contribution limit for future years.
– – Get your benefits: Those turning 19 before April 1, 2013 should file a 2011 tax return even if they had no income. This allows them to collect the GST/HST credit for the quarter following their 19th birthday.
– – Determine your dependents: If your parents live with you, are over age 65 and have a relatively low income, you may be able to claim them as dependents.
BY DEREK SANKEY, POSTMEDIA NEWS, FOR THE CALGARY HERALD JANUARY 29, 2012
derek.sankey@telus.net