Foreign Income Verification Statement (Form T1135)

Canada Revenue Agency announced a change to form T1135 Foreign Income Verification Statement for taxation years ending after June 30, 2013. The purpose of this move is to crack down on international tax evasion and aggressive tax avoidance as laid out in the 2013 Economic Action Plan. Individuals, corporations, trusts, and certain partnerships, that, at any time during a year, own specified foreign investment property costing more than $100,000 must file a Form T1135 by the filing due-date of their income return . This applies even if the taxpayer has no tax payable during the year. If you own specified foreign property in excess of $100,000 and fail to file Form T1135, you could be subject to late filing penalties of $25 per day to a maximum of $2,500 per year. For more information read here

B.C. Early Childhood Tax Benefit

Budget 2014 proposes to introduce the B.C. early childhood tax benefit (BCECTB) as a tax-free monthly payment, effective April 1, 2015. Benefits from this program will be combined with the federal Canada Child Tax Benefit (CCTB) and the B.C. family bonus program into a single monthly payment.

The BCECTB provides a benefit of up to $55 per month per child under age 6. Benefits are based on the number of children in the family and the family's net income. The BCECTB will be reduced if the family's net income exceeds $100,000 and will be zero once the family's net income exceeds $150,000.

Complete budget www.gov.bc.ca/budgettaxchanges

Medical expenses for tax purposes

An individual may claim a medical expense tax credit for the amount determined by the formula in subsection 118.2(1) in Income Tax Act. Under the formula, the lowest tax rate percentage (15% for 2012) is multiplied by the total of two calculated amounts. The first calculated amount relates to medical expenses paid in respect of the individual, the individual’s spouse or common–law partner and children under 18 years of age. The second calculated amount relates to medical expenses paid in respect of other dependents of the individual.

Say for example, that you have incurred $3,000 in total eligible medical expenses and your total income on line 236 is $51,000 from all the sources so according to the formula:

Medical expenses                                                                         $3,000

Minus lesser of 3% of 51,000 or $2,109 (annual threshold)                  -1,530
Subtotal                                                                                     1,470

Allowable medical expenses credits 15% of 1,470 = $220.50    

                  

Subsection 118.2(2) describes the types of medical expenses that are eligible for the medical expense tax credit. Additional requirements for paragraphs 118.2(2)(m) and (n) are provided in sections 5700 and 5701 of the Regulations, respectively. If a particular expenditure is not described in subsection 118.2(2) (or does not satisfy the additional requirements in sections 5700 or 5701 of the Regulations, here paragraphs 118.2(2)(m) or (n) as applicable, are relevant), the expenditure is not eligible for purposes of claiming a medical expense tax credit, even though the expenditure may have been incurred for medical reasons.

Gluten-free food

The incremental cost of acquiring gluten-free food products compared to the cost of comparable non-gluten free food products may be eligible medical expenses under paragraph 118.2(2)(r). The cost must be incurred on behalf of a patient who has celiac disease and who has been certified in writing by a medical practitioner to be a person who, because of that disease, requires a gluten-free diet. 

Medical marihuana

If a patient is authorized to possess marihuana for medical purposes under the Marihuana Medical Access Regulations orsection 56 of the Controlled Drugs and Substances Act, the cost of the medical marihuana or marihuana seeds may qualify as medical expenses under paragraph 118.2(2)(u).

Cosmetic Procedures

An amount that may otherwise be an eligible medical expense described under subsection 118.2(2) may be denied pursuant to subsection 118.2(2.1) if the service was provided purely for cosmetic purposes. 

Receipts

Generally, all expenses claimed as eligible medical expenses must be supported by proper receipts. A receipt should indicate the purpose of the payment, the date of the payment, the patient for whom the payment was made and, if applicable, the audiologist, dentist, medical doctor, medical practitioner, nurse, occupational therapist, optometrist, pharmacist, physiotherapist, psychologist, or speech-language pathologist who prescribed the purchase or gave the service. A cancelled cheque is not acceptable as a substitute for a proper receipt. In addition to receipts, proof of payment or proof of support may be required in situations where an individual claims the medical expenses tax credit for amounts paid in respect of a dependant who is 18 years of age or older at the end of the year.

A complete list of eligible medical expenses is available on Canada Revenue website http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/llwbl-eng.html

Home office expense against employment income

Some employees are allowed to deduct home office expenses on their tax returns if employers allowed and complete T2200 form, declaration of condition of employment expenses. You can include a portion of the rent, utilities bills in proportion to your office space. In some cases office supplies and cell phone bills are also allowed. Your deductible home office expense cannot exceed your income from the employment.

Keeping track of vacation property cost

When selling a vacation home, the gain on that property may be taxable in the future. It is important to keep track of the cost to acquire the property; the higher the documented cost, the lower the gain when the property is sold. It is also important to keep track of capital costs to the property, as they further increase the cost of the property. A capital cost is for a lasting improvement to the original condition of the property,
for example, replacing carpets with hardwood floors.

First-Time Donor’s Super Credit

The budget proposes to introduce a temporary supplement to the existing non-refundable tax credit for charitable donations by individuals. The new credit can be claimed once from the 2013 to 2017 taxation years.

Here is how it works - if you have donated $500 in 2013 to a registered charity, under the normal calculation you can claim NRTC ($200 x 15%) + ($300x29%) = $117, and the first time donor can claim an additional 25% of $500 = $125; a total of $242. For the 2013 taxation year, an individual will be considered a first-time donor if neither the individual nor the individual’s spouse or common-law partner has claimed the CDTC in any of the five preceding tax years.

Rental Income as ABI

Can rental income be claimed as Active Business Income (ABI)?

In most cases, income from the property will be considered as passive income and would not qualify for a small business deduction. For example, rental income is considered a passive income (income from property) unless the company has 5 full-time employees. However, in a rare circumstance it can be treated as ABI and eligible for small business deduction limit without hiring more than five full-time employees as described below:

A corporation may derive income from holding property in Canada (e.g., income in the form of real estate rentals, interest, or royalties). If such income is received or receivable from an associated company and the amount is or may be deductible in determining the associated company's income from an active business carried on by it in Canada, then paragraph 129(6)(b) deems the income in the recipient's hands to be income from an active business carried on by it in Canada.

If subsection 129(6) deems rental income to be active business income and capital cost allowance on the rented building was deducted in calculating active business income, any recapture of capital cost allowance on the disposition of the building would also be considered to be active business income.