Income Tax Tips Options

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Answering some taxing questions about tax time
With RRSP season ending tonight, it's time to think about filling out your tax return to your maximum advantage, says Sun money columnist Michael Kane

Vancouver Sun - Monday, March 03, 2003

Goodbye RRSP season, hello tax season. You have until midnight tonight to make a contribution to a registered retirement savings plan that will reduce your 2002 taxes -- and you have until midnight April 30 to settle your accounts with Ottawa and Victoria for the previous year.

Self-employed individuals and their spouses can wait until June 15 to file a tax return but must pay any amounts owing by April 30.

With income statements coming in and to ensure you don't pay any more tax than necessary, we asked Rana Sangha, a certified general accountant with the Surrey office of Johnsen Archer, to review the major tax deductions and tax credits.

For middle and higher income earners, tax deductions are a lot more valuable than tax credits. That's because a tax deduction will reduce your taxable income and save you tax based on the marginal (highest) tax rate that you will pay on your last dollar of income.

If you pay tax at the highest marginal rate in B.C. -- 43.7 per cent for 2002 -- you will get back 43 to 44 cents of every deductible dollar.

In contrast, the total of your tax credits is that amount of income you can earn before you start paying tax. Sangha says this ensures that the credits are worth the same to all taxpayers -- in British Columbia about 22 per cent of any amounts you claim.

So let's start with the major tax deductions as they appear on the tax return:

RRSP

LINE 208

An RRSP is a retirement savings plan registered with the federal government. The plan is designed to encourage you to save for retirement by having you set aside a portion of your income in return for an immediate tax deduction. The contributions and growth are not subject to tax until the money is withdrawn, usually on retirement.

CHILD CARE EXPENSES

LINE 214

Child care expenses are amounts you, or another person supporting the children, pay to enable you or that other supporting person, to:

- Earn income from employment or self-employment.

- Attend an educational program, either full-time or part-time, offered by a secondary school, college, university or other designated educational institution.

- Carry on research or similar work for which a grant was received.

The maximum child care expenses that can be claimed for 2002 are $10,000 if the child is disabled, regardless of age; $7,000 if the child was under seven at Dec. 31; and $4,000 if the child was aged seven to 16.

Child care expenses include baby sitters, day care, schools where part of the fee is for child care such as before and after school care, boarding school, day camp and sports camp.

To claim child care expenses, complete Form 778.

MOVING EXPENSES

LINE 219

Moving expenses are the amounts you pay to move yourself, your family and your household effects to a new home which is at least 40 kilometres closer to your new workplace or school than your old home.

You can only claim these expenses against either income you earn at the new work location or award income you receive to attend school. If you are unable to claim all your expenses in the year of the move, you can claim the remaining expenses against income you earn at the new location in subsequent years.

Eligible moving expenses include:

- Travelling costs, including meals and lodging.

- Transportation and storage for household effects.

- The cost of up to 15 days of meals and temporary lodging near either the old or new home.

- Lease cancellation costs.

- The cost of selling your former home, including legal fees and real estate commissions, as well as legal fees for the purchase of a new home.

- The cost of changing your address on legal documents and replacing automobile permits and driving licences.

- Utility hook-ups and disconnections.

- Up to a maximum of $5,000 for interest, property taxes, insurance, heat and utilities paid to maintain your old home after you moved if it was vacant and while reasonable efforts were being made to sell it.

As a student, you can claim moving expenses if you move to get a summer job.

To claim moving expenses, complete Form T1-M.

OTHER EMPLOYMENT EXPENSES

LINE 229

You may be entitled to tax deductions if your employer signs a Form 2200 to verify you pay various expenses as a condition of your employment.

Typical employment income deductions include travel expenses, parking (but not at the workplace), supplies such as stationery and maps, salaries paid to an assistant (including spouses and children if fair market value is paid for work actually performed), and office rent or certain home workspace costs.

Claims are made on Form T777 Statement of Employee Expenses.

Tax credits:

Credits that may be transferred from one spouse to another are the age credit, the disability credit, the pension credit and the tuition and education credits.

INFIRM DEPENDENTS AGED 18 OR OVER

LINE 306

You can claim up to $3,605 for those dependent on you by reason of mental or physical infirmity. The credit is reduced by the dependent's income above $5,115 and eliminated when the dependent's income reaches $8,720.

CAREGIVER AMOUNT

LINE 315

If you maintained a dwelling where you and a dependent lived, you may be able to claim this $3,605 credit. The credit is reduced dollar for dollar by your dependent's income above $12,312 and is eliminated if the dependent earns $15,917 or more.

STUDENT LOAN INTEREST

LINE 319

You can claim most of the interest you, or a person related to you, paid after 1997 on a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act, or similar provincial or territorial laws for post-secondary education.

You cannot claim interest paid on any other kind of loan, or on a student loan that has been combined with another kind of loan. Nor can you claim interest paid in respect of judgment obtained after you failed to pay back a student loan.

TUITION AND EDUCATION AMOUNTS

LINE 323

You can claim tuition fees in excess of $100 paid for courses you took in 2002. A course qualifies if it was taken at the post secondary level or (if you were 16 or older at the end of the year) develops or improves skills in an occupation.

You cannot claim other expenses such as books, board or lodging. However, you can claim education credits of $120 per month for part-time attendance and $400 per month for full-time attendance.

You may transfer up to $5,000 of your tuition and education amounts to a spouse, parent or grandparent, or you can carry forward unused amounts to a future year.

MEDICAL EXPENSES

LINE 330 AND 331

You can claim medical expenses that you or your spouse paid for yourselves or family members if they are more than either $1,728 or three per cent of your net income, whichever is less.

mkane@png.canwest.com

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MORE TAXING MATTERS

While the Feb. 18 federal budget didn't introduce any broad based personal tax relief, best-selling tax author Evelyn Jacks says specific provisions to watch for in 2003 include:

- Employment Insurance payments for employees who take time off to give palliative care.

- An increase to the national child benefit for low-income families this July and a new benefit that will bring a $1,600 bonus to modest-income families with a disabled child.

- More RRSP contribution room for higher-income individuals. The limit stays at 18 per cent of last year's earned income but climbs to a maximum of $18,000 by 2006 from $14,500 in 2003, $15,500 in 2004 and $16,500 in 2005.

- The income threshold for a financially dependent disabled child to receive tax-free RRSP or RRIF rollovers from a deceased parent or grandparent is increased by $6,180 to $13,814 (to be indexed after 2003).

- New eligible medical expenses include real-time captioning services for individuals with a speech or hearing impairment, note-taking services for someone with a mental or physical impairment, and medically required voice-recognition software. Also claimable will be the incremental cost of acquiring gluten-free food products for a person suffering from celiac disease.

- The disability tax credit will no longer be available to those who must spend extra time finding or preparing food due to dietary restrictions. The government will be conducting an evaluation of the disability tax credit over the next 18 months.

- Employees will be able to reduce the taxable standby charge for the personal use of an employer-provided vehicle if personal use is less than 20,004 kilometres per year, provided the vehicle is used primarily for work.

- The government will move to strike down recent court decisions that make interest expense deductible in situations where there is no reasonable expectation of profit. Public consultations are promised.

Ran with fact box "More taxing matters", which has been appended to the end of the story.

© Copyright 2003 Vancouver