2017 Personal Tax takeaways
The following insight will help you ensure that your personal filing is in compliance with the CRA requirements.
File on time
You are forced to pay a penalty of 5% of the due balance and 1% monthly for a period of 12 months for failing to file your tax returns in time. You can avoid these penalties by ensuring you file your returns within the deadline which is April 30th for the previous year returns. If you or your spouse are self-employed, this deadline is extended up to June 15th. If you fail to file your returns for three years in a row, the penalties can accumulate to more than double of what you are supposed to file. You should also be aware that tax interest and penalties are not eligible for tax deductions and can add up really quickly since the CRA charge higher rates.
You are penalized for failing to report and income
When preparing your tax returns, ensure that you include all sources of your income. Leaving out some sources when filing in the current year and the preceding three can cause you to face federal or provincial penalties which are based on the omitted tax income.
Tax Installments
If you are required to pay quarterly income tax requirements, ensure you do so on time to avoid facing interest charges. You can minimize the offset interest charges by making catch-up payments.
How to affect your 2017 personal tax bill
Accounting fees and legal fees
Some legal fees such as tax disputes and representation cost are deductible in the year they are paid. Make sure you pay these costs at the end of the year.
Charitable and political donations
If you plan on making any charitable or political donations, do so before December 31 of each year and make your tax credit claim the following year.
Equipment purchase
If you plan on buying a business related equipment for use in the following year, make sure you purchase it before December 31 or before the end of your corporate year. This has the advantage that the tax depreciation for the equipment starts when the equipment is available for use.
Family trust
If you failed to pay any distributions to or from the family trust by December 31, 2017, then any payments made in 2018 are eligible for the new tax rules proposed by the Department of Finance.
Home office
In case you have a home office that takes 50% of your working time or earn your exclusive business income on a continuous basis, then you are eligible for home expense deductions. These deductions include; mortgage interest, rent, tax properties, insurance, repairs, utilities, and telecommunications.
Investment
Consider reducing your tax bills on capital losses by selling all your investment with unrealized capital losses at the end of the year. This strategy ensures you trigger losses so that the last settlement day of the year is considered.
Old age security (OAS) clawback
You are required to pay part or your entire OAS benefits if you have an annual income exceeding $74,788. The “clawback” amounts to 15% of your net income above $74,788 and is lesser your OAS benefit received at the end of the year. The OAS clawback is calculated solely on your net income and is not combined with that of your spouse. You are required to repay your OAS benefit in full if your annual income is over $121,314 and you are not entitled to an increased OAS. In case you are eligible to receive OAS but at the same time subject to claw back, you can defer receiving your OAS until your clawback reduces.
Pension income splitting
You can split your up to 50% of your pension income with your spouse or common-law partner. The splitting excludes Old Age Security and Canada Pension Plan. Income splitting helps in reducing tax deductions if your spouse is in the lower tax bracket. However, you must file for a joint election with your income tax return. This allows your spouse or common-law partner to claim the pension income tax credit on the amount he/she would have received.
Pension tax credit
If you make an eligible pension income from a registered retirement income fund or registered pension plan, you are entitled to a pension tax credit of up to $2,000. If you are 65 years old or above but not receiving any pension income, you should consider converting some of your RRSP to RRIF to help you receive a pension income which is eligible for a tax credit.
Registered disability savings plan
The RDSP is a savings plan for people with specific disabilities and is eligible for disability tax credit. The contributions can be made by a family membered, an authorized contributor or by a beneficiary. There is no limit to how much must be contributed annually but there is a lifetime limit of $200,000. The contributions are not tax deductible but income earned inside the plan is not taxed until the beneficiary withdraws the money. RDSP has two income-based programs, the Canada Disability Savings Bond and the Canada Disability Savings Grant.
Registered education savings plan
Ensure you make all your RESP contributions by December 31 and you will be eligible for the following year’s grants. The government makes an annual 20% contributions to all eligible RESPS up to a maximum of $500. If you have unused grant or come from low net income family, you are eligible for an additional grant,
Registered retirement savings
You can make your regular and spousal contributions for last year up to March 1, 2018. Also, ensure you pay your Home Buyers Plan or Lifelong Learning Plan within the same dates.
Shareholder loans
If you have a shareholder loan, ensure it is paid before or by December 31 to prevent it from showing in two consecutive balance sheets.
Spousal loans
Ensure you pay all your spousal loans interest by January 30, 2018, using the documented method. Such loans that have an interest as low as 1% can be used for income splitting if your family have large investments exceeding $1 million.
Tax-free saving account
All Canadian residents aged 18 years and above are allowed to open a tax free savings account which is not taxable as it is earned or when withdrawn. However, contributions to the account are not eligible for tax deductions.
Taxable benefits
- Auto benefit– you are eligible for a taxable benefit if you use an automobile owned or leased by your employer for your personal use. You can reduce the taxable benefit by reimbursing the employer the amount paid for your personal use. If you used the automobile in 2017, the deadline for reimbursement is February 14, 2018.
- Interest benefit– you are subject to an interest benefit if your employer gave you an interest-free loan or at an interest lower than that prescribed by the CRA. You can reduce the interest benefit by paying the employer at the prescribed interest rate of 1% and ensure you make your payments January 30, 2018.
What’s New for 2017?
-
Capital gains exemption– Capital gains for small business in 2017 rose from $824,177 to $835,175. The exemption was indexed on inflation on the subsequent years. However, the capital gains for farm and fishing property remained at $1,000,000.
-
Charitable donations– al first-time donors who made $1,000 donations were given the super credit with an increased tax credit of 25%. This tax credit, however, is only eligible for cash donations only and only limited to individuals who neither their spouses have made donation tax credit in the last five years.
-
Canada caregiver credit – The 2017 Federal Budget consolidated the three caregiver credits; the Family Caregiver, Infirm Dependent Credit, and the Caregiver Credit, and came up with the Canada Caregiver Credit. The credit was made effective in 2017 and is availed in respect to an eligible relative, minor child, spouse or common-law partner who is dependent on the individual to either physical or mental disability.
