Tuesday, January 10, 2012

Basic Personal Amount

In 2011 you are not taxed on income earned up to $10,527. That is the basic personal amount and it has been increasingly slightly every year to keep up with inflation.

This amount is important when you start getting into things like income splitting.

Keep in mind: If you are a part-year resident this amount is pro-rated. If you die during the tax year you are still eligible for the full amount.

Total Income, Net Income and Taxable Income

Total Income - all income

Net Income - Total income minus exempt income

Taxable Income -

I'll fill in this post later.

Exempt Income

Some income is exempt from taxation. There are MANY categories of exempt income: if you are a foreign soldier stationed in Canada, if you volunteer in the emergency response field (volunteer firefighter, etc), or if you earned interest from a tax-free savings account (TFSA). Credits such as the Child Tax Benefit and GST Tax Credit are also exempt.

The most common example of exempt income might be the income of an "Indian" if that income is earned on a reserve.  More details on this are below.

S. 87 of the Indian Act exempts the personal property of an Indian situated on a reserve from taxation. The courts have decided that, for purposes of S. 87 of the Indian Act, an Indian's employment income is personal property.
Therefore, if an Indian earns employment income, what must be determined is whether that income is situated on a reserve.
An Indian's employment income will usually be exempt from income tax in any of the following situations:
  • when at least 90 % of the duties of an employment are performed on a reserve,
  • when the employer is resident on a reserve and the Indian lives on a reserve,
  • when more than 50% of the duties of an employment are performed on a reserve and the employer is resident on a reserve, or the Indian lives on a reserve,
  • when the employer is resident on a reserve and the employer is:
    • an Indian band which has a reserve,
    • a tribal council representing one or more Indian bands which have reserves, or
    • an Indian organization controlled by one or more such bands or tribal councils, if the organization is dedicated exclusively to the social, cultural, educational, or economic development of Indians who for the most part live on reserves, and the duties of the employment are in connection with the employer's non-commercial activities carried on exclusively for the benefit of Indians who for the most part live on reserves.
When less than 90% of the duties of an employment are performed on a reserve and the employment income is not exempted by another guideline or disposition of the Act, the exemption must be prorated. The exemption will only apply to the portion of the income related to the duties performed on the reserve.
The receipt of EI benefits, retiring allowances, CPP (or QPP) payments, RPP benefits or wage loss replacement plan benefits will usually be exempt from income tax when received as a result of employment income that was exempt from tax. If a portion of the employment income was exempt, then a similar portion of these amounts will be exempt.

Monday, January 9, 2012

Where am I a considered a "resident"?

Which country and province am I a resident of? The answer depends on factors such as residential ties (where you, your spouse, your kids live) and secondary ties (property, memberships, employment, etc).

- If you're a resident of Canada, you're taxed on your world income and eligible for all personal amounts.

- Even if you've lived/worked/traveled abroad during the year, you may be considered a factual resident of Canada. In this case, you're still considered a resident. Keep in mind the Overseas Employment Tax Credit which shelters you from double taxation (80% of foreign earnings).

- Dual residents complete tax returns in both countries. This is if the individual is a resident of both countries. See Example 1 below.

- If you've moved to or from Canada during the year, pro-ration rules apply to make sure you are not double-taxed. You would be considered a part-year resident. If at least 90% of their world income is earned in Canada they get full amounts. If less than 90% no personal amounts may be claimed.

- Deemed residents are foreigners who have lived in Canada for at least 183 days. Members of the armed services serving overseas are also considered deemed residents.  If income can't be allocated to a province, it goes to the federal government again (48% of federal tax).

- Non-residents have not established residential ties to Canada, but still have to file Canadian tax returns IF they earned income, received scholarships, grants, etc in Canada. Income is subject to a 25% withholding tax.

Example 1Example 1: Sojourner - Visitor from the United States
Tannis has been visiting in Canada from her home in Iowa for 235 days. Under Canada's law, Tannis is deemed to be a resident of Canada because she was physically present here for 183 days or more during the year. She must, therefore, file a Canadian tax return and report world income in Canadian funds.
However, Tannis will also be subject to tax on her worldwide income under US domestic law. In this case, the tie-breaker rules under the Canada-US Tax Treaty will be invoked, which will determine Tannis' residency. If Tannis maintains a permanent home in the U.S., she will almost certainly be found to be resident of the U.S., notwithstanding her extended stay in Canada.
Even if Tannis is found to be a resident of the US, she may still be subject to tax in Canada. For example, if she earned employment income in Canada, that income would likely be subject to tax in Canada. (The Canada-US Tax Treaty provides only limited exceptions to the rule which generally allows the host country to tax employment income.)

For more details see

Marital status

A spouse is: someone you're married to. duh.

A common-law partner: lived together for 12mo. continuous period. OR... is the parent of your child.

The amount for spouse or common-law partner is set at $10,527 for 2011 ($10,382 for 2010). If the spouse earns ANY money that amount is decreased accordingly.
For 2012 and subsequent years, the amount for spouse or common-law partner will be increased by a $2,000 caregiver amount if the spouse is dependant upon the taxpayer because of mental or physical infirmity.  If the spouse is not infirm, the maximum claim for 2012 is $10.822.  If the spouse is infirm, the claim is $12,822.

More Details:

Year of Marital Change
In the year that taxpayers become married or begin cohabiting in a common-law relationship, the spouse's net income for the entire year is used in calculating the allowable credit.
If the spouses or common-law partners are living apart at the end of the taxation year, then only the spouse's income for the period while the couple were not separated is used in the calculation of the credit.
If one spouse is required to pay support for the other spouse in the year of change, the payor may claim either the amount for spouse or common-law partner or take the deduction for spousal support paid, but not both.
To ensure proper assessment of the return, the date of marital change should be supplied. For an electronically filed return, this forms part of the electronic record.
More Than One Spouse or Common-Law Partner
S. 118(4)(a) and 118(4)(a.1) restrict the clam for a spouse or common-law partner so that no taxpayer may make the claim in respect of more than one spouse or common-law partner and so that only one individual may make the claim in respect of another individual.
Where two (or more) individuals are qualified to make the claim in respect of another, then those two individuals must agree on who will make the claim or neither will be allowed the claim.
Death of a Taxpayer
In the year of death, the Spouse or Common-Law Partner Amount may be claimed in full on the final return and on any of the optional returns filed for the deceased. See Death of a Taxpayer.
Part-year Residents
Part-year residents must pro-rate the Spouse or Common-Law Partner Amount under S. 118.91 according to the number of days they are resident in Canada divided by the number of days in the taxation year (see Part-Year Residency).
Where an individual becomes bankrupt in the year, the Spouse or Common-Law Partner Amount on the pre- and post-bankruptcy returns must be pro-rated according to the number of days in each period (see Bankruptcy).
Deemed residents may claim the Spouse or Common-Law Partner Amount (see Deemed Residency for details). Non-residents filing under S. 217 may be eligible for some or all of the spousal personal amount (see Non-Residency for details). Other non-residents filing under S. 216 or S. 216.1 may not claim the spousal amount.
Non-Resident Spouses
In order for an individual to claim the amount for a spouse or common-law partner for a non-resident spouse, it is necessary that such non-resident person be supported by or be dependent for support on the individual. The question of support or dependency is determined by the facts of each case.
If the non-resident spouse or common-law partner has enough income or assistance for a reasonable standard of living in the country in which they live, they are not considered to be supported by or be dependent for support on the individual. Also, gifts which merely enhance or supplement the already adequate lifestyle of the non-resident person do not constitute support.
In determining if the non-resident spouse or common-law partner is supported by the individual, CRA will consider such factors as:
  • the income of the spouse or common-law partner from all sources;
  • any support provided to the spouse or common-law partner by government agencies of the country in which such person resides, such as pensions, medicare, housing, etc.;
  • the cost of living in the particular country and the ability of the spouse or common-law partner to provide self-support; and
  • any support provided to the spouse or common-law partner by other persons.
To support a claim for a non-resident spouse or common-law partner, an individual has to provide (with the income tax return on which the tax credit is claimed) proof of the amounts contributed by the individual as support of the spouse or common-law partner. Such proof will usually consist of receipts for post office or bank money orders, cancelled cheques that were payable to and negotiated by the spouse or common-law partner, or receipts from private agencies established for the purpose of transferring money or goods to residents of other countries. Receipts for cash or goods transferred directly from an individual to a non-resident spouse or common-law partner are not considered acceptable proof of support.
Documents submitted as proof of support should show:
  • the name and address of the non-resident spouse or common-law partner,
  • the name of the transferor,
  • the date of the transfer, and
  • the amount of money transferred or, where goods were provided, their nature and fair market value.

Tuesday, February 8, 2011

Tax Tip for Renters

Did you rent during 2010? Its worth a generous tax rebate so make sure you claim it on your return this spring!

Your rent is eligible for a tax refund and this is great news (I got $130 from this alone last year) - but only if you live and pay rent in Manitoba. Other provinces don't have this allowance.

So, if you rented...

1. Make sure you claim your rent.
2. Make sure you claim your rent properly.

Don't worry, it's pretty easy.

If you have an accountant do your return just tell him/her your rental information (address, # of roommates, monthly rent, # of months renting there in the current year).

If you do your own taxes you'll want to find the form "T1C-479". Its the provincial credits form. Should be on page two.

*Important*: If you live with roommates, only ONE of you should claim this on your return. That person should claim the full rent amount and split the proceeds from that refund. To do otherwise is a bad idea.

As always, fire away with any questions - all questions are good!


Karen and Tiffany share an apartment and split the rent evenly. They shared the apartment for the all of 2010. Between the two of them this is $950/mo.

They decide that since Karen will be the one to claim the rent. She enters their basic rental information including
the number of months they lived at the apartment and the total rent for the year ($11400) on her tax software. Karen will receive $650 on her return and pass on Tiffany's share ($325) to her.

Another Example:

Sam shared a house with his roommates Brett and Jake for most of 2010. The rent was $1200/mo split evenly. On September 1, he moved out to live in his own apartment where he paid $600/mo in rent. At that time, Kyle took Sam's place with his old roommates.

When tax time comes, Sam and his former roommates agree that Jake will claim their rent and reimburse everyone accordingly.

When Sam files, he claims the entire 2010 rent ($14400) and receives a $650 credit. He calculates everyone's share as follows:

Brett: $216.66 (1/3 of $650)
Jake: $216.66
Sam: $162.50 (216.66*9/12)
Kyle: $54.17 (216.66*3/12)

What about Sam's rent at his new place? Since Kyle claimed the rent at his old place, Sam is able to claim 100% of his rent at his new place (the $2400 he paid in 2010 is worth $230) and keep that to himself. Thus he has made the most advantageous use of this credit. Had Sam claimed the rent on behalf of his former roommates instead of Kyle, Sam still would have only received $650 since that's the maximum allowed on a tax return.