2010 Tax Tips

  Do you have:

  • A valid and current will?
  • A legal Power of Attorney?
  • At least one joint bank account?

 Tax Free Savings Account (TFSA)

  • Beginning in 2009, ever Canadian over 18 can open a TFSA.
  • Up to $5,000.00 can be deposited annually.
  • Contributions to a TSFA will not be deductible for income tax purposes but investment income, including interest, dividends and capital gains earned in a TFSA will not be taxed, even when withdrawn.
  • Unused TFSA contribution room can be carried forward to future years.  (If you didn’t open an account in 2009, you can contribute $10,000 in 2010)
  • You can withdraw funds from the TFSA at any time for any purpose.
  • The amount withdrawn can be put back in the TFSA at a later date without reducing your contribution room.
  • Neither income earned in a TFSA nor withdrawals will affect your eligibility for federal income-tested benefits or credits.
  • Contributions to a spouse’s TFSA will be allowed and TFSA assets can be transferred to a spouse upon death.

 Note:       Consider estate planning matters before opening an account.


Benefit Programs

Canada Pension Plan (CPP)

  • Types of benefits: retirement, survivor, disability, death, child benefits.
  • You can elect to share CPP with spouse for tax savings
  • Early CPP benefits?  New rules starting 2012 affect birth years 1946-1951
  • Ladies – child rearing provision

Old Age Security (OAS)

  • Basic OAS pension for those 65+ with at least 10 years as legal resident
  • Guaranteed Income Supplement (GIS) -those with little or no other income
  • $658.00/mth if no other income than the OAS
  • Pro-rated for incomes up to $29,232 (excluding OAS)
  • Allowance – for spouses 60-64) of those receiving GIS
  • Survivor – for those 60-64 with low income and whose partner has died
  • Clawback – higher earners may have their OAS benefits clawed back

BC Housing SAFER Grant (Shelter Aid for Elderly Renters)

This is a provincial program to assist seniors with low to moderate incomes.  A monthly non-taxable subsidy to reimburse part of the difference between 30% of your income and your rent. 

MSP Premium Assistance

Reduction in monthly BC Medical premiums is available to seniors with low to moderate incomes.

BC Fuel Tax Refund

Persons with certain disabilities are eligible for a refund of the provincial tax they pay on fuel for their vehicles (maximum $500.00 annually)

DVA Benefits

Veterans Affairs provides financial assistance to qualified vets and spouses.  You can apply to have the housekeeping portion of your monthly fees paid for.


2010 MARGINAL TAX RATES

  • 20.06%   first $35,859.00 (less total personal credits)
  • 22.70%   $35,859.00 – 40,970.00
  • 29.70%   $40,970.00 – 71,719.00
  • 32.50%   $71,719.00 – 81,941.00
  • 36.50%   $81,941.00 – 82,342.00
  • 38.29%   $82,342.00 – 99,987.00
  • 40.70%   $99,987.00 – 127,021.00
  • 43.70%   over $127,021.00

OAS Clawback – essentially an extra 15% tax on income between $66,733.00 and 108,152.00

2010 PERSONAL TAX CREDITS

Calculates the dollars you can earn before attracting the first dollar of tax

Unused personal credits may be transferred to your spouse (on Schedule 2)

OTHER CREDITS THAT REDUCE TAXES

Disability Tax Credit

Have your doctor sign Canada Revenue Agency form T2201 for up to $7,239 non-refundable personal tax credit.  If you care for a person that qualifies you may be able to use their tax credit and medical expenses on your tax return.

Medical expenses

Usually family medical expenses should be combined and claimed by the spouse with the lower Net Income.  (Schedule 1 line 330)

Consider claiming unused medical expenses for other dependents (ie you support a child at college or a parent in a nursing home) (Sched 1 line 331)

Donations to Registered Charities

  • First $200.00 donations will save approximately 20.06% tax
  •  Over $200.00 could save approximately 43.7% tax

   New after 2006 – avoid tax on capital gains by donating investments

OTHER RETIREMENT INCOME

 Work Pensions

Choosing the right option – The choice between whether your spouse will receive any or a certain percent of your pension benefits needs careful consideration.  Basically it is a life insurance decision and it might make more sense to buy that privately rather than from your pension.  Seek professional advice.

RRSPs

You have set aside funds into RRSPs to finance your retirement, deferring taxes until that time.  Since 2007, these savings (RRSPs) must be converted to an income producing RRIF by the end of the year in which you turn 71. 

Tax Tip–Convert at least $2,000 of your RRSPs at age 65 to take advantage of the pension credit and pension income splitting with your spouse.

RRIFs

How much to withdraw?  A minimum amount must be withdrawn from the RRIF annually.  Monthly or annual withdrawals are possible. Amounts in excess of this minimum will have income tax withheld. 

Beware of the RRSP/RRIF time bomb!  Although they may be transferred to a spouse without tax consequences at death, retirement funds are fully taxable upon the death of the second spouse.  If there is $300,000.00 left in a registered plan, this amount will be included as income in the year of death and taxes at whatever marginal rate this fall in. (Ouch!)

Pension Sharing

New since 2007 is the ability for pensioners to split their pension for tax purposes with a spouse.  The tax savings could be considerable.  It is advisable to have a tax professional assist with determining the optimum savings from this provision.

INVESTMENT INCOME

Capital gains and dividend income are treated differently than other types.

2010 MARGINAL TAX RATES (for various types of investments)

                                         Non-

Other      Capital    Eligible    Eligible

Income   Gains      Dividends Dividends

20.06%   10.03%   -12.59%  4.16%     first $35,859.00

22.70%   11.35%   -8.79%  7.46%     $35,859.00 – 40,970.00

29.70%   14.85%     1.29%   16.21%   $40,970.00 – 71,719.00

32.50%   16.25%     5.32%   19.71%   $71,719.00 – 81,941.00

36.50%   18.25%   11.08%   24.71%   $81,941.00 – 82,342.00

38.29%   19.15%   13.66%   26.95%   $82,342.00 – 99,987.00

40.70%   20.35%   17.13%   29.96%   $99,987.00 – 127,021.00

43.70%   21.85%   21.45%   33.71%   over $127,021.00

TAX LOSS SELLING

If you will realize capital gains in 2010, or reported capital gains in any of the last 3 years, you may consider selling securities that have gone down in values and are held in a non-registered account. You can then apply the realized capital loss firstly against any capital gains realized in 2010.  If you have capital losses that cannot be used to offset gains in the current year, you can carry the loss back to offset net gains in any of the three previous years for a possible refund.  Capital losses can be carried forward indefinitely.

Ask your broker – what your year-to-date gains/losses are.

Tell your broker – net capital gains for 2007, 2008 and 2009

All tax loss trades must settle in 2010, so must be done prior to Dec 24th

DIVIDEND INCOME AND LOWER INCOME EARNERS

Eligible Dividend income may not be suitable for low income seniors.  The Dividend Tax Credit is wasted.  Also the grossed-up income might reduce benefits and increase the cost of prescriptions and public cares services.
CARRYING CHARGES

  • Accounting fees
  • Investment Counsel Fees
  • Interest Paid (look at supplementary info that comes with your T5s)
  • Safety deposit box rental fee (see your January bank statement)

INCOME TAX INSTALMENTS

You will be asked to make quarterly income tax instalments when you owe more than $3,000.00 in tax.

Consider having tax withheld from your CPP or OAS cheque (there are special forms)

HELPFUL WEBSITES

 Ernst & Young tax calculator:

 www.ey.com/CA/en/Services/Tax/Tax-Calculators-2010-Personal-Tax

 Canada Revenue Agency:

 www.cra-arc.gc.ca/menu-e.html

 Service Canada (OAS, Guaranteed Income Supplement, CPP):

 www.servicecanada.gc.ca 

 BC Housing SAFER Grants :

 www.bchousing.org/programs/SAFER 

 MSP Premium Assistance forms :

 www.health.gov.bc.ca/exforms/msp/119fil.pdf 

 BC Programs for Persons with a Disability

 www.sbr.gov.bc.ca/documents_library/brochures/DisabilityTaxBenefitPrograms.pdf

 LIFE CHANGES

 Selling the family home?

 Give thought to how to deal with the proceeds of the sale of a personal residence to go into a rental or care facility situation. 

1) Consider the implications of additional investment income – loss of benefit programs (GIS, free MSP, etc.) and increased cost of health care (prescription costs, public care)

2) Financial & Estate Planning – Consider things like joint ownership to eliminate having to probate a will.  Consider gifting proceeds to adult children and have them pay health costs (transferring the tax benefit of claiming medical expenses.

Moved??

 Don’t forget to contact all parties who will be issuing tax slips.  Just because you are still having funds direct deposited to the bank doesn’t mean that they know you have moved.  Canada Post will usually only redirect your mail for 6 months.

Do you “support” a dependant adult (child over 18, parent, etc.)?

Support means that you contribute financially towards their basic needs (food, clothing, shelter). Direct financial support is the easiest to prove a dependent relationship. 

If so, you might be eligible to claim certain of their unused personal credits (eg medical expenses or Disability Amount) and save up to $3,500.00 per year on your own tax return.

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