Common Tax Questions
1. How does the tax department choose returns to audit?
Forgetting income slips. The tax department gets copies of all the slips, so if you forget a slip the CRA matching program will uncover this and send you a request for additional money. If you make a habit of this the penalties can be substantial, 50% of the taxes owing on the missing slip.
Certain credits will invariably be audited. If the credit or deduction is for a substantial amount you will be asked for documentation. The most common would be moving expenses, foreign income details, tuition transfers, and claims for eligible dependents.
Incorrect claims for credit of the most common would be support payments for children and day care expenses claimed by two different persons.
Claiming substantial rental property losses or self-employed business losses.
CRA understands that a new venture might not make a profit in the first year or two, however, if you claim losses over a number of years you can be sure that you will be audited. Let’s face it, no one works for nothing.
If you have been audited in the past and ended up paying additional tax rest assured that your return will be revisited. From CRA’s point of view you are a significant risk to repeat your past mistakes.
Claiming expenses that do not match the business profile (for example, high entertainment expenses, and unreasonable auto expenses). These are the first items that CRA will examine. You will be asked for a log book for your automobile and details of who you entertained, when you entertained and what was the business purpose of the meeting.
2. My kids are costing me a fortune! Is there any tax relief?
Children’s Fitness Tax Credit: This recognizes up to $500 for each child for fitness activities for children under the age of 16. This is worth $75.00.
Children’s Art Tax Credit: If your child participates in artistic, cultural, recreational or developmental activities, you can qualify for this federal tax credit which off sets the costs of participation. Costs of instruction, equipment, uniforms, facility rental and administration costs included in the registration or membership fees all qualify for the credit. It covers music, language lessons and the literary, visual and performing arts.
Public transportation: Don’t forget to save those transportation travel passes for a federal non-refundable tax credit of 15% of your monthly expenditures. One parent can claim the travel pass costs for the whole family.
Child care expenses: In addition to normal child care expenses, expenses for sending children to camp may also be claimed.
Medical expenses: Glasses, braces, sports medicine, travel to health-care services not available in your local community and a host of prescription drugs qualify as medical expenses on federal/provincial tax returns.
3. First Time Home Buyers Tax Credit
You can claim an amount of $5,000 for the purchase of a qualifying home.
This results in a non-refundable credit of up to $750.00 can be claimed (this means your federal taxes are reduced by $750.00). You or your spouse can claim if you did not live in another home owned by either of you in the year of acquisition or the four preceding years.
A qualifying home must be registered in your and/or your spouse’s or common-law partner’s name in accordance with the applicable land registration system, and must be located in Canada. It includes:
- Single family houses
- Semi-detached houses
- Mobile homes
- Condominium units and
- Apartments in duplexes, triplexes, fourplexes, or apartment buildings
4. Public Transit Tax Credit
A 15% non-refundable tax credit.
You can claim the cost of monthly transit passes or passes of longer duration such as an annual pass for travel within Canada on public transit. These passes must permit unlimited travel on local buses, streetcars, subways, commuter trains or buses, and local ferries.
Only you or your spouse or common-law partner can claim the cost of transit passes. You can claim for yourself, your spouse or common-law partner, and your or your spouse’s or common-law partner’s children who were under 19 years of age on December 31st of the year.
5. Adoption Expenses
You can claim an amount for eligible adoption expenses related to the adoption of a child who is under 18 years of age. The maximum claim for each child is $11,128.
6. I made very little money. Should I bother filing?
If you are over 19 years of age, you certainly should file to obtain your GST credit. In Manitoba you would be eligible a cost of living credit. If you had medical expenses there is a refundable tax credit for working individuals with low incomes and high medical expenses.
7. Canada Pension Plan changes for individuals aged 60 to 70 – January 2012
Significant changes to the Canada Pension Plan (CPP) will occur in January 2012.
Contribution changes (what you will pay):
- All workers aged 60 to 65 will be required to make CPP contributions – even if they are receiving a CPP or QPP retirement pension.
- Workers who are 65 to 70 years of age and who are receiving a CPP or QPP retirement pension will be required to contribute unless they have elected to stop their CPP contributions. To elect to stop contributing to the CPP, workers will have to be at least 65 years of age and do the following:
- Employees (who may also have self –employment income) will have to complete Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election and give a copy to their employer. IN addition, employees should send the original to the Canada Revenue Agency (CRA). The election will take effect on the first day of the month after the employee give the form to their employer.
- Self-employed workers will have to complete Schedule 8, CPP Contributions on Self-employment and Other Earnings, when they file their income tax and benefit return for 2012 or an subsequent year. The election will be effective on the first day of the month referred to in Schedule 8.
Benefit changes (what you will receive):
- Changes to CPP retirement pension benefits began in 2011 and will continue to be phased in until 2016. If you are retired, or are planning your retirement, go to www.servicecanada.gc.ca/cppchanges for tools and information on how the changes to CPP retirement pension benefits may affect you.
- Since 1998, Canada’s average retirement age has been increasing.
- From a low of 22% in 1996, the employment rate of individuals 55 and older climbed steadily to 34% in 2010.
8. Getting close to retirement -- what are all these proposed changes to CPP and Old Age Pension?
- Age eligibility for Old Age Security (OAS) and Guaranteed Income Supplements (GIS) will be gradually increased to 67 from 65, starting in April 2023 with full implementation by January 2029.An 11 year notification period, followed by a six year phase-in period, is being provided to ensure that individual have sufficient advance notification to plan their retirements and make adjustments.
- The proposed legislative change to the age of OAS/GIS eligibility will not affect anyone who is 54 years of age or older as of March 31, 2012 (that is, those born on March 31, 1958 or earlier). Those who were born on or after Feb. 1, 1962 will be eligible for OAS at 67.
- Those born between April 1, 1958, and January 31, 1962, will have an age of eligibility between 65 and 67. Someone born in April 1960 – one year and one month after the minimum eligibility age of March 31, 1958 - will be eligible for OAS/GIS at age 66 and one month – one year and one month later than the age 65 start date in place today.
- In line with the increase in age of OAS/GIS eligibility, the ages at which the Allowance and the Allowance for Survivor are provided will also gradually increase from 60 and 64 today to 62 and 66 starting in April 2023.
- The government will discuss the impact of the OAs changes on Canada Pension Plan (CPP) disability and survivor benefits with provinces and territories who are joint stewards of the CPP, in the course of the next triennial review.
- To improve flexibility and choice in in the OAS program, starting on July 1, 2013, the government will allow for the voluntary deferral of the OAS pension for up to five years, allowing Canadian the option of deferring take-up of the OAs pension to a later time and receiving a higher, actuarially adjusted, annual pension. GIS benefits which provide additional support to the lowest income seniors, will not be eligible for actuarial adjustment.
- The government will improve services for seniors by putting in place a proactive enrolment regime that will eliminate the need for many seniors to apply for OAS and GIS. This measure ill reduce the burden on seniors of completing application processes and will reduce the government’s administrative costs.
9. Disability Tax Credit – how does this work, can it save me money?
You do not need to pay a percentage of your refund, typically 20 to 30% from companies who say they specialize in doing this.
Claiming this credit is generally straight forward. The forms are available online and the process is not difficult. The refunds obtained on a Disability Tax Credit can easily total thousands of dollars. (The request for an adjustment go back ten years under CRA’s Taxpayer Relief Provision.)
The Disability Tax Credit has medical criteria you must meet in order for you to quality. In general your disability must make it difficult for you to carry out the basis activities of daily living. Since this is a medical determination ask your doctor whether you qualify. He/she will advise you. Your doctor is the important person in this claim – not the firm making the claim on your behalf.
You need to have your doctor complete the appropriate form and send the form to the Disability Tax section of CRA. Once approved, you can claim this non-refundable amount on your tax return. Non-refundable means that this will reduce the amount of tax you have to pay. If you have no taxes to pay the credit will not benefit you (except in Manitoba where you would get a small Manitoba credit).
If you do not need the Disability Tax Credit to reduce your taxes it can be transferred to a spouse. Disability Tax Credits for dependents can also be claimed by parents, grandparents. Your tax preparer should be able to advise you.