What’s new for your 2013 income tax return
It’s a good year to file your own tax return. There are fewer tax changes than in prior years, but you still have to be careful.
The Urban Dictionary defines “intaxication” as the euphoria of getting a tax refund, which lasts until you realize it was your own money to start with.
Intaxicated people give up control of the money they earn. Take charge people, on the other hand, make it their business to keep more money, so they “detax” if you will.
It’s a good year to file your own tax return. There are fewer tax changes than in prior years — but there’s lots of change in the filing procedures themselves.
Canada Revenue Agency (CRA) is encouraging Canadians to file electronically, so they have stopped mailing out personalized tax return forms, hoping you’ll join the over 5 million people who NETFILE. You can still pick the T1 up at Canada Post or Services Canada if you don’t have access to a computer and the internet or call for one at 1-800-959-8281.
It always pays to file an audit-proof tax return. CRA is aggressively in pursuit of tax evaders and those who fail to file, charging expensive late filing and gross negligence, and in some cases tax evasion penalties. No one needs summer interrupted in such a grim way.
The moral: Hang on to the hard copy CRA may want to see. File your return — stamp or no stamp — on time. CRA will still charge interest starting May 1, if you have a balance due as of April 30.
Last year, the average tax refund was close to $1,700, a number that gets bigger every year, and squeezes out saving room. Take the time to understand your tax deductions and credits. Do that and invest your tax refund wisely — perhaps in an RRSP or a TFSA — and you’ll be sure to keep more of your income. That’s intoxicating, financially speaking, of course.
Here are the eight things to look for this year:
1. Ontario healthy homes renovation tax credit. A new refundable tax credit of 15 per cent of eligible expenses is available for Ontario residents over age 65 who spent money to make their home safer. The deduction is also available to those who live with a family member who is a senior.
The type of eligible expenses includes changes to make a first-floor or secondary suite for a senior. It also includes grab bars and handrails, wheelchair ramps, walk-in bathtubs, no-slip flooring and hands free taps and hand held showers. Wheelchairs or walkers are not deductible, nor are general repairs incurred to increase the value of the home.
2. Maximize OAS. As of July 1, seniors will have the option to defer their Old Age Security (OAS) pension for up to five years. If you elect to do so, you will receive a proportionately larger pension when you do start to receive it. It’s good retirement planning, too, as you might decide to withdraw other taxable amounts first, like deposits in an RRSP.
Try to avoid a clawback of your OAS which happens when net income exceeds $69,562. Pension splitting with your spouse can help.
3. Changes to EI. If you collected Employment Insurance (EI) benefits last year, you may have to pay some of them back when you file your tax return. This happens when your net income exceeds $57,375.
There are also changes to the interpretation of who is insurable. If you are working in a family business, you may not be insurable, as you are not dealing at “arm’s length”. You will want to check with your accountant before paying into a plan in which no benefit will accrue, in order to ensure your contract and remuneration fits the criteria.
4. CPP premium opt out. The way you contribute to the Canada Pension Plan (CPP) changed in January 2012. If you are between 60 and 64, you must continue to pay premiums if you work, even if you are drawing benefits from the plan. That makes you a “Working Beneficiary.” Any such additional contributions to the CPP will be saved in a “Post Retirement Benefit” (PRB) account and will increase your monthly pension benefit entitlements beginning the following year.
Note that if you continue to work from age 65 to 70, you may elect to either continue to pay premiums or opt out by filing a new form. The primary reason for opting out is the premium expense, which you may wish to put to another use; to pay medical insurance premiums or costs, for example.
There is some interesting math if you revoke your election and continue to pay premiums. Help from a tax pro is recommended to report premiums properly on your tax return.
5. New Family Caregiver Amount. This is a $2,000 bump to the normal credits if your spouse, child, or other adult dependant has a mental or physical infirmity. Don’t forget to record the number of children you are claiming the FCA for. A doctor’s verification is required to indicate when the condition started and its expected duration. Make that appointment quickly to file your returns in time, and remember, if the doctor charges you a fee, claim it as a medical expense.
6. New medical expense claims. For those who travelled out of their local communities for medical care, a “simplified method” of claiming auto expenses is possible. The per kilometre rates have changed: For Ontario the rate is 55 cents per kilometre (in Quebec its 57 cents and Manitoba it’s 47). You can also claim the costs of blood coagulation monitors used by people who require anti-coagulation therapy. This includes associated things such as pricking devices, lancets and test strips if they are prescribed by a doctor.
7. Employee profit sharing tax. If you are related to your employer, or have a significant interest in the company, you could be paying a new tax on contributions to an employee profit sharing plan. You will be considered a “specified employee” if contributions to the plan exceed 20 per cent of the salary you received in the year. You’ll claim an offsetting deduction in this case on a new form.
8. Executors: Watch out for high income surtaxes. Income is subject to progressively higher tax rates until it hits $132,406. At this level, you’re at the top marginal rate as far as the federal government is concerned. However, your provincial taxes are added to this and unfortunately, if you have a taxable income over $500,000 in Ontario, there will be a new high income surtax, bringing marginal tax rates to about 48 per cent. Single seniors should to do some retirement income planning. Remember, remaining RRSP or RRIF balances are reported on the final return in full, meaning unspent balances could be subject to the new tax. That will leave less for heirs.
Other changes: There are also changes to most of the federal and provincial non-refundable and refundable tax credits due to indexing, the dividend tax credit calculations, taxation of Individual Pension Plans withdrawals, and the mechanics behind the RDSP rules.
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