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Tax Tips

 

Tax Tips

Personal

Business & Professionals

PERSONAL

FILING DATES
For most individuals the 2005 income tax return has to be filed by April 30, 2006.  If you owe tax it is important to file on time to avoid interest and penalties. The late filing penalty is 5% on the balance owing and 1% on the balancing owing for each month. The exception is if you carried on a business in 2005 then the deadline is June 15, 2006 to file your return. However, if you owe tax this must be paid by April 30, 2006 to avoid interest charges. By filing after April 30, 2006 any GST or Child Tax Benefits and Old Age Security payments may be delayed.

It is a good idea to file you return as soon as possible even if you expect to receive a refund. It is your money! Interest on a refund is calculated from the 31st day after you file your return (May 31, 2006) or the date you overpaid your taxes (which ever date is latest).



FILING A RETURN
An income tax return is required to be filed under the following conditions:

  • if you have had an income (also applicable for non-residents) and tax is payable or you want to claim a refund
  • if you have an income you want to set your RRSP contribution and maintain future deduction limits
  • If you have not repaid from your RRSP which you withdrew under the Home Buyer's Plan
  • if you want to apply for GST or a Child Tax Benefit
  • if you want to apply for Old Age Security
  • if you sold or disposed of a capital asset (property)
  • if you incurred a non-capital loss you might want to apply to future years
  • If you want to carry forward the unused portion of your tuition and education amounts
  • if you have been requested to do so by the CCRA


GST
The GST credit for 2005 is as follows:
       MEMBER (S) AMOUNT
 Individual $227
 Spouse   227
 Children (2)   240
       TOTAL

$694


A family (with two children) with a combined income of $29,618 or less would qualify for a full credit of $694 - this credit is reduced by 5% as your combined adjusted income increases from $29,618 to $43,498. A family with a combined income above $43,498 would not be entitled to a GST credit.

For individuals who turn 19 before April 1, 2007, an income tax return should be filed in 2005 to attain a GST credit.

Generally, a GST refund less than $100 is issued in one payment in July. Otherwise, four equal instalment cheques will be issued in July, October 2006 and January and April 2007.



RRSP
The Registered Retirement Savings Plan (RRSP) contribution is tax deductible i.e. it reduces your taxable income. The benefit of the RRSP is increased tax savings especially if you are in a higher income tax bracket.

The limit of the RRSP contribution is set in your Notice of Assessment that the CCRA sends you when you filed your 2004 income tax return. Generally, you can contribute 18% of your 2004 earned income into this plan with a maximum set at $16,500. This means that your 2004 earned income will determine your 2005 RRSP contribution limit. 

To take maximum benefit it is better to contribute into RRSP at an early age thereby taking full advantage of the growing capital with compounding interest.



MEDICAL EXPENSES
Medical expenses have to be more than 3% of your net income or $1,844 whichever is less. Therefore it is better for the taxpayer who has the lower net income to claim the expenses.

You can choose any 12 month period which would maximize your tax credit, provided you have not used the medical expense in 2004. It is wise to keep your receipts for those expenses not currently claimed, as these can be used next year when filing the 2006 income tax return.



TUITION FEES
Most students can take advantage of the tax credit equal to 16% of the tuition fee paid for courses at a post-secondary institution. Students are entitled to an education credit of $400/month i.e. ($400 x16%) for the number of months in full time enrolment.

It is important to file the income tax return, even if no tax is payable, as this will ensure that any unused tuition and education amounts can be available in future years. An unused credit or a portion of that credit can be transferred to a spouse, parent or grandparent.



HOME BUYER’S PLAN (HBP)
The HBP allows a first time buyer to withdraw up to $20,000 from their RRSP as a loan towards the purchase of their home without paying any tax. Each spouse or common-law partner can withdraw up to $20,000 each or $40,000 (provided the property is bought jointly). However, this amount must be repaid within 15 years, and the required payment commences in the second year. If the buyer is unable to make this payment or makes a partial payment then the balance of the required payment must be shown as income on the income tax return. It is prudent that the home buyer budgets this repayment prior to withdrawing from a RRSP in order to avoid taxation.

                                                                                                                                    

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BUSINESS & PROFESSIONAL

CCA
For most businesses the cost of capital asset is not a deductible expense i.e. you cannot write-off the cost of the asset against the purchase, instead it has to be spread over several years as per Capital Cost Allowance (CCA).

The depreciable assets are grouped into classes according to the type and use and a fixed percentage is provided to claim the allowance on a declining balance. Some of the commonly used rates are as follows:

TYPE
 

CLASS
 
PERCENTAGE
 
  Automobile
10
30%
  Computer Software
12
100%
  Furniture & Equipment
8
20%


You have to use your discretion when claiming depreciation, if your business shows a loss, you do not have to claim depreciation for that filing period.



HOME OFFICE
Many self-employed individuals can deduct all expenses incurred in conducting their business from home. However, there are specific rules that must be followed i.e. the home must be a principal place of business or used exclusively to earn income for the business. Provided you qualify, you can deduct a proportionate percentage of the home office space with respect to the total floor area. Examples of business expenses include: mortgage interest, property taxes, heat, hydro, water, home insurance and maintenance. It is wise not to claim depreciation on the portion of your house used for business use as it may trigger tax implications, especially when you sell your home. However, any expense directly related to the business can be deducted at 100%.


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For further information visit the General Income Tax website.

© 2004 ACCTX Inc.