2013 Personal Tax Matters
As we mentioned last tax year, with the favourable amendments to the Income Tax Act (Act) over the last few years, we encourage individuals with a disability and their supporting family members to do a tax review to ensure that all eligible tax credits and deductions are being claimed, both currently and for prior years. As most credits are non-refundable (meaning you must have paid enough in taxes to claim the full credit), certain unused credits may be transferred to supporting family members to reduce their tax bill. Remember, you may be eligible to claim these unused credits, retroactively, in any of the previous 10 years.
There are at least 25 federal and provincial tax credits that may help reduce your tax liability. If you or a family member currently claim the disability tax credit, you may be eligible to enhanced credit amounts for expenses for children’s art or fitness classes, child care, and purchasing a home. As well, do not forget about the recent family caregiver amount (an ‘enhancement’ credit of $2,040 for 2013) that you may be able to claim for caring for a dependent with a mental or physical restriction.
2013 tax changes of interest
For individuals who have not made a charitable donation since 2007, a first time donor’s super credit is available that effectively allows a taxpayer a 40% credit on the first $200 in contributions, and 54% credit on the portion of the donation over $200 but not exceeding $1,000 (the donation must be cash to be eligible for the super credit). The super credit is a temporary credit that may be claimed only once between 2013 and 2017.
Beginning on July 1, 2013, an individual may voluntarily defer the start of their old age security (OAS) pension for up to five years (if for example, the individual chooses to work beyond age 65). For every month an individual defers receipt of their OAS, an increased amount of .6% is added to their OAS pension to a maximum increase of 36% by the time the individual reaches 70.
In 2013, the Government of British Columbia established the B.C. Training and Education Savings Grant for all children born on or after January 1, 2007. In order to receive the $1,200 grant when it becomes available in 2015, the child must be a B.C. resident and have a registered education savings plan (RESP) opened prior to their seventh birthday (as the grant is contributed to the RESP).
Do not forget that recent amendments to the Act allow for a tax deferred rollover of RRSP/RRIF amounts, upon the death of an individual, to a lifetime benefit trust of a beneficiary with a mental infirmity who was financially dependent upon the individual. The rollover requirements are stringent so it is a good idea to get professional advice.
2014 tax planning changes of interest
Starting January 1, 2014, the new proportional repayment rules will apply to withdrawals from a registered disability savings plan (RDSP). In simple terms, the new rules will require $3 in bonds or grants paid into the plan in the previous ten years to be repaid for every $1 that is withdrawn ( compared to the initial holdback rules that required the full amount of the bonds or grants from the previous ten years to be repaid upon a withdrawal).
U.S. citizens living in Canada who are contributors to, or beneficiaries of, an RDSP account will be exempt from the reporting requirements under the U.S. Foreign Account Tax Compliance Act (FATCA). However, as of the date of this article, there is no treaty exemption for RDSP income to be tax deferred, and it is unclear as to the Internal Revenue Service’s (IRS) tax treatment of the RDSP. If you are a U.S. citizen or a deemed U.S. citizen and you either are the beneficiary of an RDSP, or are contemplating opening a RDSP, it is a imperative you receive advice from a U.S. tax specialist.
In addition, the lifetime capital gains exemption (LCGE) increases from $750,000 to $800,000 in 2014.
Ability Tax Group LLP