Marital status: For tax purposes, your marital status is determined on December 31 of the tax year. So if you are separated on December 31, 2021, you would put “separated” as your marital status. If you were in a common-law relationship, you are only considered separated if the period of separation lasts 90 days or more, so if you separated on December 1, you will not be considered separated on December 30 unless you remain separated on March 1.
Inform the CRA: Breaking the news to the Canada Revenue Agency may not be high on your list of priorities. However, since your GST/HST Credit and Canada Child Benefit is now based solely on your income, it may be to your advantage. Use Form RC65 Marital Status Change to advise them and they will recalculate your entitlement effective for the next payment date.
File a Return: You will have to file a tax return in order to continue receiving the GST/HST Credit and Canada Child Benefit for the next benefit period.
Claim the Spousal Amount one last time: If you supported your spouse or common-law partner while you were together, you can still claim the spousal amount for one last time. The credit will only be reduced by the amount he or she earned before you separated.
Child Support and Alimony: If your ex is paying child support, it is not taxable to you. Nor can they claim a deduction for it. However, periodic spousal support payments are taxable to the recipient and deductible to the payer as long as they are made pursuant to a court order or written separation agreement.
Education Property Tax Credit: This credit is available to qualifying individuals who paid rent or property tax on a principal residence in Manitoba and have not received the advance. The basic credit for 2021 is $525 but certain conditions must be met. If your income is below a defined level, or you are a senior, you may qualify for an additional amount.
TAX TIPS FOR THE SINGLE PARENT
Eligible dependants: In 2021 single parents are allowed to claim $13,808 the amount for an eligible dependent (previously referred to as equivalent to spouse), for one of their children. You have to support your child in a dwelling which you live in and maintain.
Joint custody: If there are two children and the parents share joint custody, then each parent can claim the eligible dependent amount for one child. But if you are required to pay child support, you cannot claim this credit.
Canada Child Benefit: Your CCB payments are calculated for the period of July of one year to June of the next year using the following information:
The number of children that live with you
The ages of your children
Your adjusted family net income
Your child’s eligibility for the child disability benefit
In joint custody situations, the benefit can be split.
Child Support: If your agreement is dated after May 1, 1997 then child support payments are neither taxable nor deductible although you do need to report them on your tax return.
Child Activities: Both the Children’s Fitness Amount and the Children’s Arts Amounts have been eliminated as of 2017, however you may still be able to claim a provincial amount for fitness and arts for your child.
Child Care: Child care expenses can add up but you must have receipts from your daycare or babysitter. If you are paying a family member to look after your children, this can be claimed as long as they are 18 or over and provide a receipt with their SIN. They will also need to report this income on their tax return. The maximum dollar limits in the calculation of the deduction for child care expenses are as follows:
$8,000 for children under 7;
$5,000 for children aged 7 to 16 and infirm children over 16;
$11,000 for disabled children
Changing status: If you move in with the other parent of your child, you are considered common-law for tax purposes immediately. If you move in with someone else, you are only considered common-law after you have lived together for a year. If you get married or become common-law, you need to report the change to the Canada Revenue Agency using a RC65 Form. This will affect your ability to claim the eligible dependent amount as well as your Child Tax Benefit calculation.
Credit for being active: Although the Children’s Fitness Amount has been eliminated for 2017 and subsequent tax years, you may still be able to claim a Manitoba provincial fitness credit. Make sure you keep your receipts.
Artistic credit: Although the Children’s Art Credit has been eliminated for 2017 and subsequent tax years as well, you may still be able to claim a Manitoba provincial arts credit. Again, keep your receipts to make the claim.
Canada Child Benefit (CCB): Upon the birth of a child, parents should complete Form RC66, Canada Child Benefit Application and send it to the CRA. This form will register their child for the GST/HST Credit as well as the Canada Child Benefit.
Child Care Expenses: The maximum dollar limits in the calculation of the deduction for child care expenses are as follows:
$8000 for children under 7;
$5,000 for children aged 7 to 16 and infirm children over 16;
$11,000 for disabled children
Save for future education: Designed to help save for a child’s post-secondary education, parents can make up to $50,000 RESP lifetime contribution. Canada Education Savings Grant (CESG) per year is a maximum of $500 depending on income and contributions.
Registered Disability Savings Plan: The RDSP is a savings plan that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit (DTC). There are great incentives provided to encourage people to open RDSPs like Canada Disability Savings Grant and the Canada Disability Savings Bond, which will pay matching grants depending on the beneficiary’s family income and the amount contributed.
Canada Learning Bond: Designed to help lower income families the Government provides $500 in a CLB at birth for children whose families are entitled to the National Child Benefit Supplement. As long as the family is still entitled to the supplement, they will receive an additional $100 CLB each year until the age of 15.
Get a SIN: Apply for a social insurance number upon a birth of the child. You will need this in order to open an RESP. It will also be required even for minor jobs such as babysitting or paper routes. Money earned from this type of employment qualifies for the calculation of an RRSP deduction limit.
Education Property Tax Credit: This credit is available to qualifying individuals who paid rent or property tax on a principal residence in Manitoba and have not received the advance. The basic credit for 2021 is $525 but certain conditions must be met. If your income is below a defined level, and you are a senior, you may qualify for an additional amount.
Income split and save: Seniors are allowed to split up to half of their eligible pension income with a spouse or common-law partner. Income splitting allows some seniors to enjoy a significant tax reduction. In the situation where the lower-income spouse has very little income, the tax savings are substantial.
Get your benefits: Any senior receiving Guaranteed Income Supplement (GIS) through Old Age Security should file on time to ensure their benefits continue uninterrupted.
Transfer amounts: If your spouse is unable to completely offset his or her age amount, pension income and disability amount against tax payable, he or she may transfer the unused portion to your return.
Canada Caregiver amount: If you are dependent on your children for support due to an infirmity, even if you are not living with them, they may be able to claim the Canada Caregiver Credit.
Foreign pension income: Pensions from foreign countries may be subject to special tax treatment under the terms of a tax treaty. Always check with a tax professional to find out if the pension you receive from a foreign source is taxable in Canada.
Split your CPP and save: You may be able to split part of your CPP retirement benefits with your spouse depending on how long you lived together when you were contributing to the plan. This is an advantage if one senior is in a higher tax bracket than the other. However, to do so, you must apply to Human Resources & Social Development Canada using Form ISP-1002. It cannot be done at the time of tax preparation.
Medical expenses can add up: If you purchase medical insurance for a trip or wintering in another country, it is considered a medical expense. Medical expenses are calculated based on income so the lower income spouse should usually claim them. And if you have to travel to obtain medical treatment that was not available where you live, you may be able to claim the cost of transportation, meals and accommodation.
Education Property Tax Credit: This credit is available to qualifying individuals who paid rent or property tax on a principal residence in Manitoba and have not received the advance. The basic credit for 2021 is $525 but certain conditions must be met. If your income is below a defined level and you are a senior, you may qualify for an additional amount.
Enjoy a tax-free scholarship: Scholarships and bursaries are tax free if the related program qualifies for the full time education amount. This includes scholarships at the elementary and secondary school level, but not post-doctoral.
Get the GST credit: Students turning 19 before July 1, 2022 should file a 2021 tax return even if they had no income. This will allow them to collect the GST/HST credit for the first payment period following their birthday.
Tuition credits add up: No matter who paid the tuition, the student will receive a T2202A for the amount of tuition paid for 2021. If you do not receive a T2202A, you cannot claim tuition.
Sharing education credits: A student must use their tuition amounts on their tax return first to reduce their tax payable to zero before deciding whether to transfer an amount to a parent, grandparent or spouse. The student can transfer up to $5,000 in one year and any amount remaining is carried forward to use in future years. Once the credits are carried forward, they cannot be transferred.
Moving credits: If you move more than 40 kilometers to take a summer job, you may be able to claim moving expenses against your employment income at the new location. Deductible expenses include travel, transportation, storage and the cost of meals and temporary accommodation for up to 15 days.
Loan interest: Interest on government and provincial student loans that you are repaying is deductible. Loans and credit lines outside of the government program are not deductible.
Education Property Tax Credit: This credit is available to qualifying individuals who paid rent or property tax on a principal residence in Manitoba and have not received the advance. The basic credit for 2021 is $700 but certain conditions must be met. If your income is below a defined level you may qualify for an additional amount. If you shared accommodation with one or more tenants, only one of you can claim an education property tax credit for the residence for the entire period for the entire amount paid during which you shared the accommodation. If one person received a shelter allowance, that person has to claim the education property tax credit.
TAX TIPS FOR PARENTS WITH STUDENTS
Only students receive tuition receipts: Even if you paid the tuition, colleges and universities issue the T2202A Form to the student. The T2202A Form allows a student to claim tuition.
Transfers are not automatic: The student is required to use their tuition and education tax credits to reduce their taxable income to zero. Once they have used the credits they need, they can either carry the balance forward to future years or transfer up to $5,000 to a parent, grandparent or spouse.
Calculating transfers: If the student did require some of their education credits to reduce their taxable income, the amount available for transfer will be correspondingly reduced.
Signed paperwork: You cannot automatically claim the education credit transfer. You need to have the student sign their T2202A form acknowledging the transfer. Tuition transfers are reviewed by the Canada Revenue Agency and without a signed T2202A, your transfer credit will be refused.
RESP income: If you opened a Registered Education Savings Plan for your child, the earned portion of any withdrawals is reported as income by the student.
Understanding carry forwards: Even with a transfer, most students will not use all their tuition and education credits. Any amounts not used can be carried forward to be used in years when they are earning more income. Once the credits are carried forward, they cannot be transferred.
FINISHED SCHOOL AND ENTERING THE WORKFORCE?
– THINK ABOUT YOUR TAXES
Employee expenses: Most regular employees are not allowed to deduct expenses related to their jobs – services such as dry cleaning or haircuts. But anyone who earns employment income during the tax year can claim the $1,257 Canada Employment Credit.
Tuition credits: If you carried forward unused tuition credits, you can claim it against your employment income and it could result in a refund.
Save for the future: Retirement may seem like a long way off but even if you do not contribute the maximum amount allowed to your Registered Retirement Savings Plan, you can carry forward your available deduction limit for future years. It means you can save more when you are earning more income.
Claim the interest: If you are paying back government student loans, the interest is tax deductible.
Get all your credits: Some provinces have rent or property tax credits available depending on your level of income. Keep rent receipts or invoices in case you qualify. Some provinces have Sales Tax Credits for lower income earners but you have to file a tax return in order to receive it.
Medical expenses: Healthcare premiums withheld by your employer are considered a medical expense and could be tax deductible. And keep receipts for anything that you think might be a medical expense; the paper work may come in handy at tax time.
Get the GST credit: Most students receive the GST credit on a quarterly basis. Once you start working, you may still qualify for this credit but you need to file your tax return. The GST credit amount is determined by your income.
Canada Caregiver Credit: The CCC is available in respect of an individual’s spouse or common law partner, minor child or eligible relative who is dependent on the individual because of a mental or physical infirmity at any time in the year. Depending on your situation, you may be able to claim the amount for an eligible dependent in respect of your parent or grandparent even if they are not infirm.
Support from afar: Under the new Canada Caregiver Credit, a dependent does not have to live with you, however they must have been a resident of Canada at some time in the year and must be dependent on you for support by reason of infirmity.
Disability Tax Credit: If your parent qualifies for the Disability Tax Credit but does not have sufficient taxable income to take advantage of it, they may be able to transfer the unused amount to you. They must depend on you for all or some of the basic necessities of life for the transfer to be allowed.
File their tax returns: Your parent or parents should still file their tax returns to take advantage of tax credits and deductions. Also, if they qualify for the Guaranteed Income Supplement (GIS), they need to file in order to keep receiving it.
Nursing home expenses: If you pay for your parents’ nursing home fees, you may be able to claim them as a medical expense. However, because you cannot claim both nursing home fees and the disability tax credit, it may be more beneficial to restrict your claim to the attendant care portion of the fees to the extent that they do not exceed $10,000.
People entering Canada can be classified as: non-residents, deemed residents or part-year residents. Although the tax treatment and deductions differ for each classification, part-year residents are the most common type. Here are some important tax tips that will help part-year residents:
In Canada, residents are taxed based on their world income. Part-year residents must report all income from anywhere in the world after their arrival in Canada.
New Canadians are entitled to the GST credit after their arrival. If they qualify, the amount received is based on their world income for the preceding year.
If the new resident has investment income abroad, they may be required to notify the payers of their Canadian residency status. Certain tax treaties provide for a reduced rate of withholding in the originating country.
Moving expenses to Canada are not deductible with one exception. If the immigrant is a student studying at a post-secondary level, moving expenses may be deducted against the taxable portion of any scholarships, bursaries fellowships, prizes or research grants he or she received.
Personal amounts and dependant claims may have to be pro-rated depending on the period of residence in Canada.
Immigrants with children may qualify to begin receiving Child Tax Benefits shortly after they arrive if they meet certain conditions. Form RC66 (Canada Child Benefits Application) should be completed shortly after arrival.
New Canadians who own capital property such as buildings, art, gold and stocks should determine their Fair Market Value (FMV) on the day they established residence. This constitutes the deemed cost for calculating any future capital gains and will ensure that when the property is sold they will only be taxed on the difference between the sale price and the value when they arrived in Canada. However, this does not apply to taxable Canadian property owned at the time of entry.
Am I really self-employed? – Self-employment is determined by the amount of control you have over your work. If you are in any doubt about your relationship, you can request a ruling from the CRA using Form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act.
What is the per kilometer rate? – Unless you have already submitted a logbook to the CRA for a previous year, you cannot use a simplified method to calculate your auto expenses. You need to have a detailed logbook for the year to report your expenses correctly.
Does a sign on my car mean I can claim 100% of my mileage? – You can claim the sign cost as an advertising expense but it does not mean every kilometer you drive is for your business. You still need to record your kilometers in a logbook.
Can I write off my mortgage? – The answer is no. Self-employed Canadians are allowed to claim a portion of their mortgage interest based on the amount of space used for the business in their home. Mortgage principal is not a deduction.
Can I claim my home phone? – If you only have one phone line into your home, you cannot claim 100% of the expenses for business. The CRA will expect you to have some personal use so you will need to calculate the percentage used for business and personal. The same applies to your internet connection.
Are credit card statements enough? – No. The CRA will want to see a receipt with a breakdown of the cost and taxes paid. Self-employed Canadians are more likely to be audited, so make sure you keep your receipts and other documentation to support your business expenses.
Do I have to make instalments? – If you owe $3,000 or more in taxes in any two of the last three tax years, the Canada Revenue Agency will request that you make quarterly instalments rather than an annual payment. Failing to make instalment payments could incur an interest charge.
Do I need a GST number? – If your annual gross revenues are more than $30,000, you have to register for GST/HST. However, even if your revenues are less than this, it may be advantageous to register so that you can claim input tax credits for the GST/HST you pay.
Many qualifying taxpayers miss claiming the Disability Tax Credit because they don’t think it applies to their situation. Here is some advice for Canadians who may qualify for the Disability Tax Credit:
Review your situation: The Disability Tax Credit has criteria you must meet in order for you to qualify. In particular, your disability must make it extremely difficult or time-consuming to carry out basic activities of daily living even if you are undergoing therapy and using appropriate devices and medications.
Duration of disability: The impairment must last or be expected to last 12 months and severely restrict your ability to see, walk, speak, hear or perform personal care activities or seriously affect your mental capacity to manage your personal affairs.
Multiple impairments: The disability definition has been expanded to allow for the cumulative effect of multiple impairments that individually would not be severe enough to qualify. For example, a taxpayer with multiple sclerosis who constantly experiences fatigue, depression and balance problems may qualify.
Complete paperwork before you file: You need to be approved by the Canada Revenue Agency before you can claim the Disability Tax Credit on your tax return. Your doctor needs to complete a T2201 (Disability Tax Credit certificate) and mail it to the CRA. Once you are approved by the CRA, you can claim the non-refundable amount on your tax return. You cannot claim the credit without CRA approval.
Non-refundable credit: The Disability Tax Credit cannot generate a refund on its own. It can only be used to reduce your tax payable. The 2021 federal credit is $8,662 and works out to $1,299 in tax savings.
Transfer to spouse: If you cannot use all of your Disability Tax Credit on your return, you may be able to transfer the unused amount to a spouse or adult child.
Retroactive claims: If you did not realize you were eligible for the credit when you filed your return, you can request adjustments for up to 10 years under the CRA’s Taxpayer Relief Provisions. You will need to file a T1 Adjustment form for each year you need to amend.
Paying a percentage of your refund: Claiming the Disability Tax Credit is a straightforward process and all the paperwork is available online or through the Canada Revenue Agency. You should have your own physician complete the T2201 since they know your condition best. You do not need to pay a percentage of your refund to take advantage of this program.
Beat the deadline: The deadline for making a contribution to a Registered Retirement Savings Plan (RRSP) that can be deducted on your 2021 tax return is March 1, 2022.
Know your limit: The maximum annual dollar limit for RRSP contributions in 2021 is $27,830. You would need to earn more than $154,611 in 2020 in order to be able to contribute the maximum amount.
Over the limit rules: Contributions up to $2,000 in excess of RRSP limits can be made without being subject to a penalty tax.
Spousal support: A spouse in a higher tax bracket may consider income-splitting opportunities for the future by contributing to a spousal RRSP. However, the contributing spouses are limited to their own personal deduction limits.
Contribution room: RRSP contributions can be carried forward if claimants foresee being in a higher tax bracket in future years. This will help maximize the tax deduction.
Age restrictions: If you turn 71 in 2021, you must convert your RRSPs into a form of retirement income before the end of this year or be taxed on the Fair Market Value of the plan. Be sure to discuss your options with a tax professional.
RRSP withdrawals: With few exceptions, RRSPs withdrawals are taxed. However, there are federal programs allowing contributors to borrow from their RRSP for putting a down payment on a first house or financing education. The special rules and restrictions should be discussed with a tax professional.
WITHDREW MONEY FROM YOUR RRSP IN 2021?
YOU MIGHT HAVE AN UNEXPECTED TAX BILL
With the economy still uncertain, some Canadians have turned to their Registered Retirement Savings Plan (RRSP) as a source of funds. But there could be tax consequences on your 2020 tax return.
Lose your tax shelter: RRSPs are designed to help Canadians save for retirement and provide a tax shelter for the funds. You lose the sheltering benefits when you make a withdrawal.
Withholding may not be enough: When you request a withdrawal from your RRSP, the financial institution is required to withhold a certain percentage of tax based on the amount of the withdrawal:
10 per cent on amounts up to and including $5,000
20 per cent on amounts over $5,000 up to and including $15,000
30 per cent on amounts over $15,000
The amount withheld at source is not usually sufficient to cover your final tax liability.
Withdrawal is considered income: The money withdrawn from an RRSP is considered income in the tax year it was received. You will have to add it to the other income you earned during the year on your tax return.
Contribution room lost: Once you withdraw money from your RRSP, the contribution room is lost. You cannot replace the funds at a later date.
Withdrawals without penalties: The Home Buyers Plan (HBP) and Lifelong Learning Program (LLP) do allow you to withdraw funds from your RRSP without penalty as long as they are paid back within the appropriate time frames. If the funds are not repaid, they will be considered income.
DID YOU OVERCONTRIBUTE TO YOUR RRSP?
You can over contribute to your RRSP by up to $2,000 without being penalized. However, you cannot claim a deduction for the excess amount.
If you over contribute by more than $2,000, you are subject to a one per cent penalty tax for each month you are in excess of that. You have to complete a T1-OVP Individual Tax Return for RRSP Excess Contributions to calculate the amount of the over contribution and penalty tax. This form must be filed, and the tax remitted, within 90 days from the end of the year.
You can request a waiver of the penalty tax if:
- the excess amount arose as a consequence of reasonable error; and
- you can demonstrate that you are taking reasonable steps to eliminate it.
If you discover that you have over contributed, you should try and withdraw the excess amount as soon as possible. Although you must include the withdrawal in income on your tax return, you can claim an offsetting deduction as long as the following conditions are met:
- You reasonably expected to be able to claim a deduction for the contribution, either in the year you made the contribution or the year before; and
- You did not make the contribution with the intention of later withdrawing it and deducting the offsetting amount.
You can ask the Canada Revenue Agency (CRA) to certify the amount of the excess contribution using Form T3012A. The financial institution will release the funds without withholding tax with this certified form.
Without a T3012A, you can still withdraw the excess amount but the financial institution will withhold tax. Use Form T746 when you file your tax return to claim the offsetting deduction and a credit for the tax withheld.