2016 Tax Year

Where did the year go!  It seems just yesterday that we were swimming in 2015 T4’s, T5’s and RRSP slips.  It’s now time to get organized for the 2016 tax year.

Once again MMC is offering tax return e-file service or, if you prefer, we can use submit your return using paper.

Important dates to remember

Last day to file your 2016 tax return:  Monday May 1, 2017, because April 30 falls on Sunday this year.

If you or your spouse carried on a business in 2016 your return is due on or before June 30, 2017.  Any balance owing, however, is due on April 30 2017.

Installment dates:  March 15, June 15, September 15 and December 15.

Deductions and credits that may be available

Family and child care

Education and textbook credits

Disability

Pensions and RRSP’s

Employment expenses

Children’s fitness and arts amounts – 2016 is the last year for this credit

Home accessibility costs – must be over 65 of age

School supply tax credit – if you’re an eligible educator, 2016 is the first year you can claim – maximum $1, 000.00 for teaching supply costs.

 

New tax credits for 2014

By now, most people have received the slips required to proceed with preparing their individual tax returns. We know, the deadline for people who are not self-employed, to file their 2014 tax return is not until April 30, so why do today what can be put off until tomorrow? By figuring out whether you owe money or are owed money, you can plan accordingly. If you will be receiving a refund, file now because it takes less time for the Canada Revenue Agency to process returns than it does closer to the deadline date. You will also receive your refund more quickly. If you owe money, absolutely wait until the end of April to file. Just be aware that you could be assessed for penalties and interest for missing the filing deadline.

For 2014, there have been some changes to tax credits available for families with children.

Children’s Fitness Tax Credit
Families can claim up to $ 1,000 per child under 16 for activities that promote physical activity. These programs must be supervised, require significant physical activity and ongoing. Ongoing is defined as lasting at least 8 weeks or 5 consecutive days in the case of summer camps. The lowest tax rate of 15% is used to calculate the credit, so the maximum tax credit per child in 2014 is $ 150.

Children’s Art Tax Credit
This tax credit remains the same as last year. Parents can claim up to $ 500 per child under 16 for registration in eligible artistic, cultural, recreational or developmental activities. Full details can be found on the Canada Revenue Agency’s website.

Family Tax Credit
This controversial tax credit allows couples with children under 18 to split their income. Couples will be able to transfer up to $ 50,000 from one partner to another, which would allow that income to be taxed at a lower amount. This initiative benefits families earning the highest amounts of money at the expense of families earning lower amounts and in most need of tax cuts.

Personal Financial Health in 2015

According to surveys, improving financial health is a top ten resolution, year after year. There are only two things that you can do to increase the amount of money that you have: increase your income; decrease your expenses. The first step is to calculate your household budget, a process which those of you with form aversion would prefer not to do. However, there are resources to help you with this.  The Financial Consumer Agency of Canada provides both an online household budget calculator and a downloadable excel file  (Scroll down to the end of the second paragraph to download the budget)

Because increasing your income (winning the lottery at some future date does not count) can be more difficult than decreasing expenses, the following outlines a few fairly painless ways to cut costs:
1. Reduce energy use. Hydro costs more at different times of the day and in different seasons. For the exact costs, see Toronto Hydro.  Get into the habit of turning off lights and appliances when they’re not in use. Invest in LED light bulbs. They do cost more but the savings are considerable. Hydro One and Toronto Hydro distribute coupons to households. Clothes dryers use about six percent of a household’s energy, probably the highest use of all household appliances. Buy a retractable clothes line to hang in your laundry area or outside.

2. Eat out less. Restaurant food is expensive. Junk food is expensive. Make a menu for a few days and buy the ingredients that you need in one shopping trip. Look for recipes online that replicate your favourite restaurant meals.

3. Gas prices appear to be in free fall but the decline is relative. At the time of writing, a litre of gas is just under .90 cents compared to $ 1.26 this time last year. But take a look at this  chart to see historical gas price fluctuations. Now is not the time to take out a bank loan in order to buy a gas guzzling vehicle. See Toronto Gas Prices for hints that can reduce your  gasoline use and reduce expenses.
Although January is almost over, you can add one or two of the above to your resolution list and save some money this year. My 2015 resolution, after looking over the lack of blogs in 2014, is to write more and exercise regularly.

Pay down debt or contribute to RRSP

We know, many Canadians just don’t contribute to their Registered Retirement Savings Plan.  Once all of your bills are paid, you’ve signed up the kids for extra-curricular activities, helped post secondary offspring financially and spent a bit of money to have fun, there is very little cash left over to put into an RRSP.   In fact, one of the most enduring debates among financial experts is whether it is better to use extra money to pay down debt or contribute to an RRSP. 

Thinking about the following might help you to make a decision that you are comfortable with:

·         If the interest rate on your debt is higher than the return you make on your RRSP, then it probably makes more sense to pay off your debt.  This is particularly true if your debt is a high interest credit card.  This calculator, at Get Smarter about Money, might help you decide.

·         After you’ve paid off your debt, how will you spend the extra cash?  If you are not certain that the money will be put into retirement savings, a better financial decision might be to start saving for retirement before paying down debt.  However, keep in mind the point above. 

·         Do you worry about debt repayment or retirement income?  If your debt levels keep you awake at night, paying off your liabilities will make you will feel better and reduce stress. 

·         If you are in a high tax bracket and are still working, contributing to an RRSP will reduce the amount of tax owing.  But if you will be in a high tax bracket once retired, paying down debt while still employed makes more financial sense. 

This is a complex issue and there is not a one size fits all answer.  The following sites provide more information, which can help you decide what is best for you.   

http://www.theglobeandmail.com/globe-investor/personal-finance/retirement-rrsps/should-i-pay-down-my-mortgage-or-save-for-retirement/article8709241/

http://business.financialpost.com/2012/02/14/the-debt-vs-rrsp-dilemma/

http://www.talbotstevens.com/Resources/RRSPs/Releases/2011JA-TheBiggestDilemmaThisRRSPSeason.htm

Paying income tax by instalments

Paying tax on earned income is a fact of life.    Most people have their tax taken directly from their paycheque by their employer (tax deducted at source).   If you are self-employed, receive investment income or rental income, you will probably need to pay personal income tax instalments.   When the total amount of tax that you owe, less any deductions made at source, exceeds $ 3,000.00 for the current taxation year and either of the two preceding years, it is likely that you will have to send regular tax payments to the Canada Revenue Agency (CRA).

The CRA examines prior year’s tax returns and sends out instalment reminders to people who are required to submit instalment payments.  In 2013, instalment payments are due on March 15, June 15, September 15 and December 15.  According to CRA, instalment interest will apply if ALL of the following conditions apply:  

  • ·         You receive an instalment reminder;
  • ·         Are required to pay instalments;
  • ·         You fail to make a payment or payments were late or less than the required  amount. 

 However, reminders are based on last year’s income information.  If you are certain that your tax liability for the current taxation year will be less than $ 3,000, you do not need to submit an instalment payment.   As well, if you become self employed in a taxation year, CRA will not charge interest because of a failure to pay tax instalments.    In order to avoid a tax surprise in April, though, we recommend that those who are newly self-employed or recipients of income that has not had tax deducted,  either start to submit quarterly tax instalments to CRA or deposit money throughout the year in a savings account, in order to have enough cash in hand when the tax department calls. 

For complete information on instalments, see:    http://www.cra-arc.gc.ca/E/pub/tg/p110/p110-12e.pdf