Personal Tax Changes to be Aware of for 2015

As we approach April, we approach the season for filing our individual tax returns.   To assist those who want to be update to date on the latest and greatest changes impacting our personal tax regime, I’ve summarized below What’s New in the world of Personal Tax:

Family Tax Cut – Up to $2,000 per Year in Savings
The October 30, 2014 Federal Budget introduced the Family Tax Cut, a new non-refundable tax credit up to a maximum of $2,000 for eligible couples with minor children (under the age of 18 at the end of the tax year you are filing).  The measure is based on the concept of income splitting, permitting a higher income spouse to pretend that that they have allocated up to $50,000 of their income to their lower income spouse. The would-be reduction in income taxes is then realized in the form of the higher income spouse claiming an additional tax credit, which would offset higher federal taxes otherwise payable.

For example*, if one spouse earns $80,000 of taxable income and the other spouse earns $20,000 of taxable income, the combined Federal Taxes owing for 2014 would be approximately $13,000 (approximately $12,000 on the $80,000 of taxable income and approximately $1,000 on the $20,000 of taxable income) on the combined $100,000 of taxable income ($80,000 + $20,000).  If we could file a tax return that evenly split the $100,000 of combined income as $50,000 to one spouse and $50,000 to the other spouse, the combined Federal Tax owing would be approximately $11,000 (approximately $5,500 to each taxpayer).  That is $2,000 less Federal Taxes payable than the first scenario!   The splitting of the income between the spouses took advantage of the lower tax rate applicable to the $20,000 spouse (Federal Marginal Tax Rate of 15%)  versus the tax rate applicable to the $80,000 spouse (Federal Marginal Tax Rate of 22%).

In practice, the $2,000 of Federal Tax Credit savings available as highlighted in my example above would be claimed by the $80,000 higher income spouse as one of his/her available tax credits.  The couple’s reported taxable income would remain $80,000 and $20,000 respectively, but the aggregated Federal Tax owing would be reduced from $13,000 to $11,000 by the higher taxable income spouse claiming the available Family Tax Cut.  A new form, entitled Schedule 1-A Family Tax Cut, would be completed by the higher income spouse in order to claim the available credit.

While the Federal Budget that proposed the above Family Tax Cut has not be ratified into law, Canada Revenue Agency has already prepared to allow all eligible couples to claim the new tax credit for the 2014 tax year.  For more information, please review http://www.cra-arc.gc.ca/gncy/bdgt/2014/qa10-eng.html.

* Example for the Family Tax Cut assumes a BC resident couple earning salary income.  The Federal tax rate estimate includes available tax credits for Canada Pension Plan and Employment Insurance premiums, but ignores all other available tax credits (e.g. donation tax credit, medical tax credit, child care tax credit, etc).

Safety Deposit Box Deduction –  No More
Starting in 2014, taxpayers will no longer be able to deduct the cost of renting a safety deposit box.  The cost of a safety deposit box was historically considered deductible if the safety deposit box held investments, such as investment share positions in the form of printed certificates. The March 2013 Federal Budget eliminated this deduction, presumably as most people hold their stock positions in electronic form.

GST/HST Tax Credit – Automatic
In the 2014 tax year, taxpayers who would be eligible for the GST/HST Tax Credit will be automatically eligible upon filing their personal tax return.  Prior to 2014, a taxpayer needed to apply for this credit by checking “Yes” in the GST/HST Credit box on Page 1 of your Personal Tax Return Jacket.

Direct Deposit Promotion
Canada Revenue Agency (CRA) is promoting the use of Direct Deposit for the 2014 tax year.   While their release does not appear to mandate the use of Direct Deposit, the language and tone would suggest this may be the case soon enough (“As you may know, the Government of Canada is switching to direct deposit payments).  All payments that you are eligible for would be paid via direct deposit, including income tax refunds, child tax benefits, universal child care benefits, GST/HST credits, and any associated provincial/territorial credit.   Your tax return software, or your tax preparer, will likely be asking you for direct deposit information this year to ensure that you are appropriately registered for direct deposit.

Your will need the bank number, transit number and bank account information to complete the Direct Deposit set up within the personal tax return.  If you have already set up a direct deposit and have recently moved your banking, you will need to update CRA on your new banking information as soon as possible.  For more information and ways in which you can start or change your direct deposit arrangement, visit http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/drct_dpst-eng.html.

Manage Online Mail – New Service
As of February 9, 2015, Manage Online Mail is being offered by CRA to electronically deliver your tax return or refundable credit related correspondence.   To register, you (or your tax preparer) will need to enter your personal email address on Form T183 – Information Return for Electronic Filing of an Individual’s Income Tax and Benefit Return.

After registration, you can access your online mail using My Account at www.cra.gc.ca/myaccount.  You will receive emails from the CRA when new notices have been posted to your My Account.  The emails from CRA are not to include any sensitive or private information, but simply will ask you to log into My Account, a secure CRA online service, to view and, if required, print your correspondence.

If you want more personal tax return tips and highlights, check out my other blogs:

·         Select Personal Tax Tips – http://www.mgfadvisory.ca/personal%20tax%20tips.html

·         Select Person Tax Tips (Part II) – http://www.mgfadvisory.ca/personal-tax-tips2.html

 Need help?  Call me at 604-789-3888.