tax credits

Below is a summary of tax changes and credits that taxpayers should keep in mind while doing their 2016 taxes.

File a Tax Return

If you have earned income in 2016, you should file a tax return even if you think you won’t have to pay anything back to the CRA. Earnings up to $ 11,474 (2016) do not trigger any taxes but filing a return will create registered retirement-savings plan (RRSP) contribution room which can be utilized in future years. Additionally, if you are at least 19 years of age and file your tax return, you will receive a GST/HST credit of up to $ 276 this year.

Family Tax Credits:

Family Tax Cut: For 2016 and subsequent taxation years, your can no longer split income with your spouse or common-law partner to get a non-refundable tax credit of up to $ 2,000.

Children’s Fitness & Arts Tax Credits: 2016 is the last year taxpayers can claim the children’s fitness credit of up to $ 500 per child and arts tax credit of $ 250. The maximum credit amounts in 2015 were $ 1,000 and $ 500 for children’s fitness and arts credits, respectively.

Refundable Tax Credit for Eligible Teachers and Early Childhood Educators

Teachers and early childhood educators who pay expenses out of their pockets can now claim a 15% refundable tax credit based on an amount of up to $1,000 of purchases of eligible teaching supplies such as art materials, pens, pencils books, games, etc.. In other words, with this new refundable tax credit, they can get up to $ 150 back when they file their tax returns.

Tax Free Savings Account (TFSA)

The annual contribution limit to Tax Free Savings Account (TFSA) has been rolled back to $ 5,500 in 2016 from $ 10,000 in 2015. However, since these limits are cumulative, as at December 31, taxpayers could have a maximum unused contribution room of $ 46,500.

Sale of Principal Residence

Beginning in 2016, if you sold your principle residence during the year, you must report the sale on Schedule 3 of your tax return even though the gain will still be tax-free. Failure to do so may result in penalties of $ 100 per month late (up to a maximum of $ 8,000).

Transfer Credits to Spouse/Family Members:

If you don’t owe anything to the Canada Revenue Agency (CRA) or have already reduced your taxes to zero, you may consider transferring the following credits to your spouse or common-law partner: disability, tuition, education and textbook, age and pension. Students can transfer up to $ 5,000 of their tuition to their tuition and education amounts to a parent or grandparent if they don’t need it for themselves.

Charitable Donations: To calculate your charitable tax credit, you first need to determine the eligible amount (fair market of gifted property minus benefits received) of your charitable donations which is generally the amount for which a receipts has been issued by the registered charitable organization. A taxpayer may claim:

  • donations made by December 31, 2016;
  • any unclaimed donations made in the previous five years; and
  • any unclaimed donations made by your spouse or common law partner in the year or in the previous five years.

You can claim eligible amounts of gifts to a limit of 75% of your net income. Donations up to $ 200 will get you 15% ($ 30) in federal and $ 10.10 in provincial (Ontario) tax credits. Any donation amount exceeding $ 200 generates a 29% federal and 11.16%  provincial (Ontario)tax credit. The First-time donor’s super credit (FDSC) supplements the value of the charitable donations tax credit (CDTC) by 25% on donations made after March 20, 2013, by a first-time donor.

Up to 75% of a taxpayer’s net income can be claimed as donations, except in the year of death or the year preceding death, when 100% of net income can be claimed as donations. If a taxpayer is married or has a common law partner, a donation made by one of them in the current taxation year or any of the preceding 5 taxation years can normally be claimed by either spouse. To take the greatest benefit, all donations should be claimed by the higher-income spouse.

Eligible Medical Expenses

Eligible medical expenses should be claimed on the tax return of the lower-income spouse because savings kick in only when medical expenses exceed 3% of net income (line 236), or $2,237 (for 2016), whichever is less. Generally, you can claim all amounts paid, even if they were not paid in Canada as long as you have a payment receipt. If you incurred any expenses in 2015 but were unable to claim them in 2015 because they didn’t meet the minimum threshold, you can now claim them on your 2016 tax return.

Pension Income Splitting

Taxpayers receiving eligible pension income (excluding CPP benefits) in 2016 may report one-half of that income on their spouse or common-law partner’s tax return to minimize their tax liability.

If you have not done your taxes yet and would like us to prepare your return or have a question about any of the credits mentioned above, please feel free to call us at +1-905-507-0032 or contact us through our website or Facebook Page.

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