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Instalments Required on Taxes

If you owed over $3,000 when you filed your 2013 tax return, and you owed over $3,000 in either 2011 or 2012, you will be required to make instalment payments.

You will receive a letter in late July if you are required to make these payments.

In the first year, you will be required to make payments equal to one half of the tax owing in September and December, and then one quarter in March and June of next year.

You will be charged interest if you miss your instalment payment, or do not pay the entire amount, at the CRA’s current rate of interest. The interest will be charged from the date the instalment was supposed to have been made.

There are no direct penalties for missing an instalment payment. However, if the interest owing on your instalment payments is over $1,000 for the year, the government will charge you a penalty based on the amount of interest you ended up owing.

If you have underpaid one instalment, you can reduce your instalment interest by paying a future instalment early.

Did You Know…Collecting GST

You can start collecting the Goods and Services Tax Credit (GST) starting with the first quarterly payment that is issued after you have turned 19. For instance, if your 19th birthday falls in August, your first payment will be issued in October. You must file a tax return for the previous year in order to receive the credit. A student earning less than $8,965 in the previous year will receive a total quarterly credit of $95.87, included the British Columbia Low Income Climate Action Tax credit (BCLICATC).

Student Tax Reporting

Students must file their tax returns in order to get full advantage of credits available to them.

Students must file their tax returns in order to get full advantage of credits available to them.

With the start of the university year approaching, many parents with children entering post secondary institutions for the first time are unsure how to report their child’s education expenses on their tax return.

It is not necessary to save receipts from the school in order to claim deductions to report on your tax return. Virtually all of the allowable expenses related to post secondary education can be determined using the T2202A form that is issued by the institution in February of the following calendar year.

You may want to retain the receipts which break down the largest payments to the institution, as they may be used to report a medical credit for the extended health benefit plan in which the students are enrolled.

Tuition credits can add up very quickly for a student. Eligible tuition fees are calculated using the actual dollars paid for your tuition and the other deductible expenses paid on enrolment.

Additional credits are available for the number of full time or part time months of attendance at school. If you attend school full time, you are eligible for an education and text book credit of $465 per month for each month of attendance. If you attend part time, you are eligible for a credit of $140 per month.

Because they can only transfer $5,000 of tuition credits to their parent or grandparent, it is important that students file their own tax returns each year to ensure they receive the remaining credit in future years.

If you attend school full time for eight months, the education credit alone is $3,720, before even considering the cost of tuition. Not filing a tax return every year could result in thousands of dollars of lost credits.

You can deduct expenses to move your child to university against taxable scholarships received. However, most scholarships to attend post secondary school are now tax free, particularly for full time students, so often times, this moving expense is not usable.

Tax Planning: Care Home Fees

8As each year passes, many seniors face rising health expenses, especially when it comes to nursing home fees. Personal care homes equipped with government-subsidized beds charge fees based on each resident’s personal tax return. Therefore, in years of medical need, the greater the income you report on your tax return, the greater the fees you will pay at your nursing home residence.

In essence, the government will charge you 80% of your after -tax income for residential care home fees. This amount is determined using your net income (line 236 of your tax return), less your Registered Disability Savings Plan income, Universal Child Care Benefit income, and any income taxes paid.

For example, if your net income was $30,000, and you paid $3,000 in income tax, your after-tax income would be $27,000. Eighty per cent of this amount would be $21,600. Dividing this total by 12 would result in a monthly personal care home charge of $1,800.

There are allowances for lower income individuals who have an after-tax income less than $19,500. If you were in this situation, you would deduct $3,900 from your after-tax income to determine your monthly fee. The final fee would be subject to a minimum monthly amount that is set each year. This year, British Columbia’s minimum monthly public personal care home fee has been set at $958.90.

There are several strategies you may wish to consider in order to keep your residential care home costs down. One of the most important strategies would be to split your pension with your spouse. Ordinarily, the higher income spouse would want to split their pension with the lower income spouse, allowing for lower income tax rates. However, the nursing home fees are essentially an 80% tax, compared to a maximum 43.70% income tax rate. Therefore, it may make more sense for the lower income spouse to split their pension with the higher income spouse, if the lower income spouse is living in a nursing home.

In other tax-planning situations, pension-splitting percentages could allocate a maximum income to the lower-income spouse/resident which would still result in the minimum monthly fees.

In addition, if you are planning on transferring investments to your adult children in the future, it may make sense to transfer them now. This step could reduce the amount of investment income realized on your personal return, potentially allowing for a reduction in residential care home fees.

If this applies to you or your family, contact your Kemp Harvey Group professional.

Share Losses Deductible

Many people are unaware that losses they incur from the sale of shares are deductible as a capital loss. This includes investments of shares in companies which have gone defunct and are now worthless. You may claim one half of the loss from the sale of those shares as a deduction against gains that you have earned on sales of other investments, or against any of your income in the year you pass away. If you forgot to report these amounts on your tax return in a prior year, you can still report them in the current year.

You can also re-file a previous year tax return, if it helps to reduce your income tax for that year.