Tax Lesson 9 YOURLOGO Start Lecture Note: This screen has no script. Static page. YOURLOGO Start Lecture

Childcare and Moving Expenses The lower income spouse (if there are 2 spouses) can deduct childcare expenses (e.g., daycare, babysitting and summer camps). The maximum deduction per year is limited to the least of: (a) the actual amount spent on childcare; (b) 2/3 of the taxpayer’s earned income; and (c) $8,000 per child aged 6 and under (at the end of the year); plus $5,000 per child aged 7 to 16 (technically the child must be under 16 at any time in the year) Expenses for camp or boarding school are further limited to $200 per week per child aged 6 and under (i.e., $8,000/40); and $125 per week per child aged 7 to 16 (i.e., $5,000/40). (This limitation applies when computing “(a) the actual amount spent on childcare”) Earned income, for purposes of the childcare expense deduction, is essentially employment income (including taxable benefits) plus business income No childcare expenses are allowed for children 17 and older (unless they are eligible for the mental or physical impairment credit) If a taxpayer moves at least 40 km closer to his/her new work location (or post-secondary school) he/she can deduct moving expenses. The moving expense deduction is limited to income from the new work location (but any excess costs can be deducted in any future year, if there is sufficient income from the new work location)

Personal Tax Credits Most personal tax credits will not be discussed in these notes (since there are so many) except for the following. Note: personal tax credits are multiplied by the lowest tax bracket (15%) Spousal Credit/Equivalent to Spousal Credit- This tax credit is available to married taxpayers, but it is reduced by the income of the spouse. The maximum amount of the credit is $11,474 (in 2016). This maximum amount is reduced by the spouse’s net income for tax purposes. For every dollar of income earned by the spouse, the spousal credit is reduced by one dollar. If a taxpayer is not married then he/she can get this same credit (which is reduced by the dependent’s net income) if they support a dependent: (a) related person who is under 18; (b) parent or grandparent; or (c) related person of any age who is dependent due to a mental or physical infirmity. (The dependant must live with the taxpayer, at least for part of the year, to be eligible for this tax credit) Age Credit- This tax credit is available to individuals who are 65 years of age or older (on December 31st). The maximum amount of this credit is $7,125 (in 2016). This credit is reduced by 15% of the individual’s net income for tax purposes in excess of $35,927

Personal Tax Credits (cont) Pension Credit- This tax credit is available to individuals earning pension income. The amount of the tax credit is the lesser of: (a) $2,000; and (b) the amount of eligible pension income. For individuals who are 65 or older, most forms of pension income qualify. Individuals under the age of 65 can typically only claim the pension credit on income from a work registered pension plan. Lump sum withdrawals from an RRSP do not qualify as eligible pension income. (Unlike most personal tax credits, the pension credit does not increase with inflation) Family Tax Cut (Started in 2014 and eliminated as of January 1, 2016)- This is a federal tax credit with a maximum value of $2,000 per year. This credit has been eliminated in 2016 and hence is only available in 2014 and 2015. The higher income spouse can get this tax credit if the married person has a child under 18 This tax credit is computed by notionally transferring up to $50,000 of income from the high income spouse to the lower income spouse and re-calculating federal income tax for both spouses. If the federal taxes paid would be lower after “transferring” the income then the higher income spouse gets a credit equal to the reduction of tax that would occur if the income were transferred (to a maximum of $2,000). (This credit is not multiplied by 15%)

Personal Tax Credits (cont) Note: no income is actually transferred. The credit is computed as if the income were transferred. If the spouses are in the same tax bracket then they will not benefit from this tax credit (since there will not be any tax savings from “transferring” income) Refundable Child Fitness Tax Credit (2016, eliminated as of January 1, 2017)- For 2016 this credit has a $500 maximum per child under 16 and it is refundable. It was a higher amount in 2015. The credit will equal the lesser of: the amount spent on the child’s sporting activities (excluding equipment and travel) and $500. Refundable means that even low-income taxpayers can get a tax refund. Recall that personal tax credits are multiplied by the lowest tax bracket; hence a $500 credit equals $75 in federal tax savings (or a tax refund; i.e., 15% x $500). This credit will be eliminated in 2017 (as per the March 22, 2016 federal budget) Children’s Arts Tax Credit (2016, eliminated as of January 1, 2017)- For 2016 this credit has a $250 maximum per child under 16. This credit is not refundable. It was a higher amount in 2015. The credit will equal the lesser of: the amount spent on the child’s artistic and cultural activities (excluding the cost of musical instruments and travel) and $250. This credit will be eliminated in 2017 (as per the March 22, 2016 federal budget)

Personal Tax Credits (cont) The March 22, 2016 federal budget has eliminated the education and textbook tax credits as of January 1, 2017. The tuition tax credit will remain. (Any existing education and textbook tax credits can still be carried forward) Starting in 2016 there is a new non-refundable federal Home Accessibility Tax Credit equal to 15% of eligible home renovation expenses per year up to a maximum of $10,000 of eligible expenses per year. To qualify the renovation expenses must be to help a senior (i.e., aged 65 or older) or a person eligible for the mental or physical impairment tax credit be more mobile, safe or functional within their home (e.g., ramps, accessible bathrooms, etc.) The March 22, 2016 federal budget has created a new non-refundable federal tax credit called the Teacher and Early Childhood Educator School Supply Tax Credit (starting January 1, 2016). This credit is for certified teachers and early childhood educators who pay for school supplies (e.g., paper, art supplies, science experiments etc.) This credit equals 15% of the lesser of: (a) the school supply expenses (paid by the teacher) in the year; and (b) $1,000

Example Problem Personal Tax Your client, Robin, wants you to compute her 2016 net income for tax purposes. You learn the following: Robin earned an annual salary of $100,000. In 2016 her employer provided her an automobile throughout the entire year. In the year she used the car 8,000 km for work purposes and 4,000 km for personal use. Her employer purchased the car for $25,000 (this amount includes HST) In 2016 Robin contributed $22,000 to her RRSP. Robin has unused RRSP contribution room carried forward from previous years of $8,500, and her 2015 income consisted of the following: salary of $90,000; and taxable capital gains of $10,000 Robin incurred the following expenses in 2016: daycare expense for her 11 year old son of $12,000; and moving expenses of $2,000. Robin is a single parent. The moving expenses relate to the costs of travel and moving her furniture, and she moved in early 2016 to a house that is 40 km closer to her new work location (all of her 2016 income is from the new work location)