Ah ha! It's just as I suspected -- we need to review the 2007 changes to tax rules, to make sure everyone takes advantage of the new opportunities.
Mackenzie Financial just completed a survey of Canadians to measure their knowledge about tax issues. We failed miserably, as my colleague Geoff Kirbyson reported in the Free Press last Sunday.
The survey had 10 questions, each with a true or false answer. The average result was only three correct.
Many of the questions could only be answered correctly if you were aware of the recent changes. I had suspected we needed to review these things, so that's what we'll do today.
Here are a few of the 2006 and 2007 changes. Each note will be brief, so be sure to get more details on any of the items that affect you or your family.
1. Pension splitting -- For 2007, pensioners are able to transfer up to 50 per cent of income that is eligible for the Pension Income Credit to the return of the spouse or common-law partner. This can reduce combined taxes and clawback of OAS.
We will explore this in more detail before year end, as I've had a lot of questions about the application and the potential benefits. (I heard you Nick.)
2. RRSP & RRIF conversion age -- For 2007 and beyond, you have until the end of the year in which you turn age 71 to convert your RRSP or LIRA into a RRIF, LIF, or annuity. You can contribute to your own RRSP up to age 71 (or beyond that, if you have earned income and a spouse who is age 71 or younger at Dec. 31.)
If you are 69 or 70 and already receiving RRIF or LIF income, you can commute your RRIF or LIF back into an RRSP or LIRA. You can also re-contribute any withdrawals you made between Jan. 1, 2007 and the date of the budget, March 14, 2007, and get a deduction. However, any withdrawals since then are yours to keep and pay tax on.
If you don't need the money, you can still ask your financial institution to "turn off" the payments until you are forced to take them. This defers tax.
3. RESP -- The federal government will now provide a 20 per cent grant on the first $2,500. The annual maximum contribution of $4,000 has been removed and RESP withdrawals can now be made for a part-time student, not just full time.
4. Children's fitness tax credit -- Parents can claim up to $500 of physical activity registration and membership fees per child, and earn a federal credit of about 23 per cent of the fees.
5. Canada employment amount -- This provides up to a $1,000 credit for taxpayers with employment income of more than $1,000, for employment expenses like work uniforms, supplies and home computers.
6. Tradespeople -- Can now claim a deduction of up to $500 for tools purchased in excess of $1,000 which are required as a condition of employment. Self-employed tradespeople can now claim capital cost allowance on $500 worth of tools, up to a $200 claim. Long haul truckers can now deduct a higher percentage of their food on the road.
7. Apprentices -- Are eligible for the Apprenticeship Incentive Grant of up to $1,000 and employers can claim a credit for hiring apprentices in an approved program.
8. Textbook credit -- Add this on to your familiar tuition and education credits, if you or your children is in post-secondary education.
9. Transit pass credit -- This is available for those who buy transit passes (not for daily cash fares) and amounts can be claimed for spouse and minor children. Keep your receipts.
10. Medical expenses -- Be sure to include the cost of your medical marijuana, as it is now an allowable medical expense, along with the cost of drugs purchased under the Special Access Program.
There have been a lot of small changes to the Income Tax Act over the last two years.
If you qualify for the pension splitting, be sure to stay tuned to this space for more information.
If you have been doing your own tax return by hand, this may be the year you either purchase software or hire a professional.
David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. His column appears Fridays. You can e-mail him at dchristianson@wellwest.ca.
