October 2014 Important New Tax Changes
New Family Tax Cut Credit – Income Splitting
- The federal government has announced that beginning with the 2014 tax year, couples with children younger than 18 can effectively transfer up to $50,000 of income from the higher earner to the lower earner
- A non-refundable tax credit will be calculated as follows:
- The spouses first calculate the combined tax they would pay
- Then they calculate the combined tax they would pay as if the higher income spouse had transferred income of $50,000 to the lower income spouse
- The difference in the above two taxes payable will equal the Family Tax Cut credit that one of the spouses can claim, limited to $2,000.
- To be eligible:
- Must be Canadian resident at the end of the year
- Must have an eligible spouse or common law partner
- Must have a child under 18 at the end of the year who lives throughout the year with the individual or the spouse
- Both spouses must file an income tax return and cannot elect to split pension income
Universal Child Care Benefit – Changes
- Currently, for each child under six years old, Canadian residents receive a cheque for $100 per month.
- The government announced yesterday that this amount will increase to $160 per month.
- Also, a new benefit for children between the ages of 6 and 17 was announced
- This will be $60 per month sent by monthly cheques.
- These changes will take effect beginning January 1, 2015 and a single cheque for the first six months will be delivered in July 2015
Increase in Child Care Expense Deduction
- Parents can deduct child care expenses incurred to earn employment or business income
- The dollar limits for the deduction are going to be increased by $1,000 beginning in 2015.
- The new maximum deduction will be the least of:
- Total amount spent on child care expenses
- Two thirds of the lower income spouse`s earned income and
- The total of the maximum dollar limits for all children:
- $8,000 per child under age 7
- $5,000 per child age 7 to 16 (and infirm dependents over age 16)
- $11,000 per child who are eligible for the disability tax credit
New Small Business Job Credit
- If you are the owner of a small business who has employees on payroll, this will be welcome news for you.
- The federal government has announced that this credit will begin on January 1, 2015 and will be administered as an automatic credit through the Canada Revenue Agency.
- The effect of this will be to drop the E.I. (Employment Insurance) rate for employers from $1.88 per $100 of insurable earnings to $1.60. This will help 90% of Canadian business who pay EI on behalf of their employees.
New Ontario High Tax Brackets
- On July 24, 2014, the Ontario government passed into law the new Ontario personal income tax rates. These amounts will affect the 2014 tax year.
- If you earn income from $136,271 and $150,000 – the marginal tax rate is 46.41% on ordinary income.
- Income from $150,000 to $220,000 has a rate of 47.97%
- Income above $220,001 will be taxed at a rate of 49.53%.
- These are significant changes compared to 2013 and previous years, as the highest tax rate of 49.53% only applied to income above $509,001, whereas now it applies to income above $220,001.
- In 2013 income from $135,005 through $509,000 was taxed at a rate of 46.41%. However, the new rates have created a new tax bracket so that income from $150,000 through $220,000 will be subject to tax at a higher rate of 47.97%.
- If your annual income exceeds $150,000 and your tax withholdings from your paycheques have not been adjusted to reflect these new tax rates, then you might owe additional tax when filing your 2014 personal tax returns.
- Use from TD1 (http://www.cra-arc.gc.ca/E/pbg/tf/td1on/README.html) to request to have additional tax deducted throughout the year.
Do You Own Foreign Property? New T1135 Form
- If you (or your corporation, partnership, or trust) owns foreign property costing more than $100,000 Canadian at any time in the year, form T1135 must be filed with the government.
- Foreign property includes: stocks, bonds, investments, loans, real estate, life insurance policies and others.
- It does not include personal use property such as a condo in Florida that is not rented out
- The penalties for not filing this form are extremely onerous. The penalties for not filing could be $25 per day up to 100 days, $500 per month up to $12,000 or $1,000 per month up to $24,000 if CRA’s demands for filing are not met.
- The due date for filing the form is the same as the due date for your tax return.
- These forms can be complex to file and your tax professional should be consulted.
- These forms cannot be e-filed along with your tax return; they are a separate filing that must be mailed to the government.