What tax changes mean for your wallet
Over the last few months, the Federal government announced changes to the tax system that have significant impact on what you can on your tax return. Whether you’re a parent, student, or small business owner, staying in the know is the best way to avoid surprises and keep more money in your pocket.
The good news:
1.5% increase to the Canada Child Benefit.
For 2018, the Canada Child Benefit will increase 1.5% for July 2018 – June 2019 benefits. This means more than $80 annually per child with those who qualify for Canada Child Benefits, and $41 more annually for those who qualify for the Child Disability Benefit. These changes had been scheduled for 2020, but were moved ahead two years. And don’t forget – the Canada Child Care Benefits are not included in income on your tax return.
More people now qualify for the Canadian Forces and Police personnel deduction.
The Canadian Forces and Police personnel deduction applies now to all members on an overseas mission, regardless of the assessed risk factor. Before, only those classified as being on a high-risk mission were eligible. The legislation is retroactive to January 1, 2017 and if you qualify, any income earned during an international operation will be tax exempt.
Drop in Federal tax rates for Small Business.
Canadian entrepreneurs spoke out about the proposed Federal tax changes and the impacts on small business. It seems they’ve been heard. The first change to the plan will start on January 1, 2018 when the small business corporate tax rate will be reduced 0.5% from 10.5% to 10%. The government also promises a further reduction to 9% by January 1, 2019.
The not-so-good news:
Mark your calendars! The CRA starts accepting 2017 tax returns on February 26th.
Six days later than last year, the CRA has moved the tax filing date to February 26. A later start date means that refunds will not be sent until March, which can hurt those who rely on their refunds in February. Please note: you could get your refund on the spot at H&R Block offices in February.*
Federal children’s fitness tax credit and arts amount is no more.
For 2017, the children’s fitness tax credit and arts amount are now fully eliminated. The impact of this change amounts to $75 worth of tax savings for anyone who maxed out the fitness credit, and $37.50 tax savings for those who maxed out the art amounts, per child. Although the Federal children’s fitness tax credit and arts amounts are gone, British Columbia, Manitoba, the Yukon and Quebec offer credits for children’s activities in fitness and art.
Public Transit amount takes a back seat.
The public transit amount was removed and riders can only claim public transit passes purchased in the first six months of 2017. This change will affect you differently, depending on how much you spend on transit passes and which city you live. For example, in Toronto, a monthly pass costs $146.25 per month. In this case, the reduced tax savings for six fewer passes would be $131.63, calculated as $877.50 x 15% tax credit.
Students, take note.
For 2017, full- and part-time students will no longer be able to claim their education/textbook amounts, federally. A typical full-time student who claimed these amounts for 9 months would have reduced their personal claim amount by $4,185 for 2017. Some provinces are also following suit, including Ontario, Saskatchewan, and New Brunswick, which are also eliminating the credit for tuition fees. Fortunately, the federal credit for tuition fees continues and you’ll still be able to carry forward unused education/textbook amounts from previous years.
Incorporated? Hold the sprinkles.
Until recently, income sharing or “sprinkling” allowed owners to split income earnings between adult family members, even if they didn’t work for the corporation. This allowed the family to take advantage of allocating income to lower earners and reduce the family’s overall tax bill. Under the new rules, family members will need to prove that they made a reasonable contribution to the business before they’re able to claim any income. These contributions include labour, investment or other financing to the business, or financial risks such as a co-signing a loan. With all the recent discussion in the media, please note that these changes do not apply to your 2017 tax year.
Pending changes to passive income.
Since corporations are taxed less than an individual tax payer, they have more after-tax income with which to make investments.. The government feels this gives corporations an unfair advantage and proposes to level the playing field by increasing the tax rate on investment income earned by corporations. These changes are still pending, but willapply only to corporations with more than $50,000 of investment). Similar to the income sharing changesthese changes will not take effect for the 2017 tax year.
An H&R Block Tax Expert can help you navigate the tax law changes announced on the Federal budget.