Banka: Changes to the 2010 tax code
This is the time of year to be thinking about what’s new for 2010 taxes.
The personal tax federal brackets have been changed slightly.
The 15 per cent bracket goes from 0-$40,970. The 22 per cent bracket is now $40,971 to $81,941.
The 26 per cent bracket is $81,942 to $127,021 and the 29 per pent bracket starts at $127,022.
There was also a corresponding change to the basic personal tax credit increasing it to $10,382.
The age credit has been increased to $6,446 and begins to be clawed back at an income of $32,506 and is totally gone with an income of $75,480.
The RRSP contribution limit for this year is up to $22,000 and in order to take advantage of the entire limit you would need to have had earned income of $122,222 in 2009.
The prescribed quarterly interest rates have stayed steady and aren’t expected to change anytime in the near future.
The base rate is one per cent, which is the rate used for loans between spouses for splitting income purposes and loans to companies.
The rate for refunds is three per cent and the rate for late tax payments is five per cent.
Effective July 1, 2010, the corporate taxpayers refund rate has been changed to be equal to the base rate of one per cent.
The reason for this is that the Canada Revenue Agency realized that it was providing refund rates better than the bank rate so corporations were deliberately creating tax refunds to get the higher interest rate.
Effective July 2011 and proposed in the 2010 budget is a provision whereby parents are living separately and have 50 per cent shared custody where the child lives equally with each parent, then 50 per cent of the Child Tax Benefit and HST in respect of a dependent will be paid to each parent.
Changes are also being made to the Universal Child Care Benefit (UCCB) for single parents as it was discovered that the single parent could be paying more taxes due to the inclusion of the UCCB in their income than a two parent family at the same income level.
The change will allow the single parent to either claim the income on their return, or to claim it on the return of the child for whom they are receiving the UCCB. This change came into effect for the 2010 tax year.
The medical expenses that are considered purely cosmetic procedures were to be eliminated from the medical expense tax credit except those that will qualify to be for medical or reconstructive purposes.
This change took effect March 4, 2010.
Several changes were made to the Registered Disability Savings Plan that are too numerous and complex to list here.
The main benefit is the ability for a parent to roll over their RRSP on death to their financially dependant’s RRSP or their disabled child’s RDSP without any tax consequences.
For 2010 and subsequent years CRA is narrowing what qualifies for the Education Tax credit.
If a program of studies is primarily for research, it must lead to a diploma or a degree to be eligible making sabbaticals and post doctoral fellowships no longer eligible.
Employee stock options are still in the news and this is still a complex area of personal tax.
Employees are taxable when they exercise their option if the shares are publicly traded and used to be able to defer the benefit but now need to include it income in the year received.
This may require that they sell off some shares to pay for the taxes owing.
There is also an issue with respect to the employer clawing back source deductions from the employee when the options are exercised, so the tax plan would be to only exercise an option if you are going to sell the shares so you will have enough money to pay the taxes.
The big buzz in taxes this year is the issue of Tax Avoidance Transactions.
The CRA is trying to crack down on aggressive tax avoidance transactions and require that these transactions be reported.
In order for a transaction to be considered aggressive two of the following three situations must take place:
1) the promoter gets a fee based on the amount of taxes saved
2) the promoter requires confidentiality regarding the transaction
3) that the taxpayer is entitled to an indemnity or some sort of protection.
The CRA is also looking at the amendment of the Acts to allow electronic emails of notices to the public that could be retrieved through the My Account or My Business Account services.
It’s a long time coming and just a small start of upgrading our Canadian tax system, which might save us some tax dollars in the long run.
There is tax relief for Canadians affected by earthquakes in Haiti and Chili and hurricane Igor.
So as we go into this tax season remember this: Doing your own taxes is like a “do it yourself mugging.”
Gabriele Banka is a Certified General Accountant and owner of Banka & Company Inc.