H&R Block Insight

[Introducing the Tax Advisory at H&R Block Canada]

Every tax season, H&R Block tax professionals answer thousands of tax questions in our offices across Canada. Now, we are offering taxpayers the opportunity to ask their questions online.

The Tax Advisory at H&R Block Canada is a group of seasoned tax professionals who average 18 years of experience. They will be answering questions year round at www.hrbtaxtalk.ca. The site also features resources and blog posts from voices within the Tax Advisory.

We encourage Insight readers to check out the new service and ask their tax questions.

[Insight Readers already thinking about tax season]

Our December issue of Insight generated more than 30 reader questions on various tax topics. With the tax deadline approaching, the Insight editors thought it would be useful to highlight some of the common questions from other readers.

1. I am employed and living in a two bedrooms condo with my wife.
This year, my wife opened a small shop in one bedroom of our condo,
where she is manufacturing small souvenirs. She is projecting sales of
about $6,000 per year. However, until now, she has been in the "red",
spending more on tools and materials then revenue. I have two
questions:

Do I need to register her business name?
Is any possibility to claim some losses for this year on her
tax return?

According to the Canada Revenue Agency's GST/HST General Information guide (RC4022) a small supplier with sales of less then $30,000 per year is not required to register for the GST. However, your wife may still decide to register, as she will be able to claim Input Tax Credits (GST/HST paid out by the business) on her expenses. Before she registers, she will want to look at the benefits of claiming Input Tax Credits (ITCs) against the need to charge GST on her sales and the increased paper work involved in submitting a GST return at least once a year. We are assuming there are no employees, so there is no need to register for a payroll number. Depending on the province where you reside, she may need to register her business with the provincial government, as she may be required to collect provincial taxes on her sales.

As long as your wife started her business in 2009, she may be able to claim some losses on her 2009 tax return. She'll either use these losses to offset other income earned in the year or carry them forward to a future year when her net income is higher. She may also be able to claim some In-home expenses as part of the business. She cannot create or increase a business loss with in-home expenses so these would carry forward to a future year. Chapter 3 of CRA's Business and Professional Income Guide (T4002) provides an excellent source of the type of expenses which may be claimed, as well as a description of what may be considered "Capital" expenses rather then "Current" expenses. Capital expenses are claimed over a period of years, rather than all in one year.

2. I want to claim the Home Renovation Tax Credit this year. I have
$10,000 in expenses and I think I should qualify for the full $1,350
credit. Who should claim this in a married couple - the higher or lower
earner?

This credit can be claim by either spouse or by both spouses as long as you don't exceed the maximum credit amount. The HRTC is a non-refundable credit - this means it cannot create a tax refund; it can only lower your tax bill. So the benefit is not necessarily linked to how much income you earned. It is about the tax payable. So the spouse with a balance owing should claim the credit. If you both owe taxes, then you can split the HRTC credit between the two returns.

3. Can you tell me how much I can earn before paying tax? Would
making a political donation help reduce my taxes? Any other way to
reduce taxes owed - besides donations? How can buying RRSPs help? I
am over 65.

The basic personal amount for the 2009 year is $10,320 - this is the amount of income you can earn before you start paying income tax. There are not many ways you can legally shelter your income in Canada. Registered Retirement Saving Plans (RRSPs) allow you to deduct your contribution from your taxable income to help lower your tax payable. But your contribution amounts are tied to your income - up to a maximum amount per year depending on how much you earn. Your 2008 Notice of Assessment will show how much you are able to contribute.

Political donations do provide a tax credit equal to 75 per cent of the first $400, plus 50 per cent of the next $350, plus 33.33 per cent of the remainder, to a total maximum credit of $650. This means that the maximum credit is reached when contributions total $1,275. Also, charitable donations provide 15 per cent credit on the first $200 and 29 per cent over $200. It will help to reduce your tax bill to a point. You may also want to include any medical expenses you have incurred since this could also be a deduction.

4. I arrived in Canada in November 2009 as a landed permanent
resident but I am not covered by my provincial healthcare plan until
February 2010. My wife is expecting a baby in Dec 2009 and we are
planning to go back home to finish some business. Am I entitled to
claim all hospital and doctors expenses that I'll incur during my stay? I
haven't received any income in Canada during that time.

Unfortunately, you have no Canadian income this year so there will be no claim for the medical expenses. However, you should hold on to the receipts in case you have income next year. You could claim the expenses by using a non calendar year (for example, Dec 2009 - Nov 2010).

5. I retired but I am still paying a monthly premium to a group medical
insurance plan with my former employer. I want to know if I can claim
the premium as a tax deduction.

Medical plan premiums do qualify as a medical expense and should be added to your other receipts. Whether or not you can claim your medical expenses as a credit depends on your income. The calculation is either three per cent of your net income or $2,011 - whichever is less.