Tax changes to be aware of before filing this year
Rewards for turning in tax cheats kick in, but overseas tax credit being phased out
Every year, the government introduces budget items and changes to federal programs that can affect how much tax you pay and what credits you can claim. We highlight some of the main changes that affect your 2013 tax return and beyond.
Overseas employment tax credit — This is a credit claimed by employees of Canadian companies with operations abroad that work in certain sectors such as natural resources, engineering, construction, installation, agriculture and some support activities for those industries. The government announced in the 2012 budget that it would be phasing out the credit starting in the 2013 tax year.
The credit would usually be equal to the tax payable on 80 per cent of an individual's qualifying foreign employment income or $80,000, whichever is less. As the credit gets phased out, that percentage will decrease, going down to 60 per cent in 2013, until it is at 0 in 2016.
New income amount — In January 2013, the federal government introduced a new grant called Federal Income Support for Parents of Murdered or Missing Children. The program provides financial support to parents who take time off work to cope with the death or disappearance of a child that occurred as a result of a crime. The money parents get is subject to federal and provincial tax, which means it must be declared as income. This amount would be entered on Line 130 of your federal tax return. Read more about the eligibility requirements and conditions of the grant here.
Adoption expenses tax credit — In its 2013 budget, the government extended the period during which individuals can claim expenses related to an adoption. The eligible period now begins right when an application is made for registration with a provincial or territorial ministry responsible for adoption (or with an adoption agency licensed by a provincial or territorial government rather than when an adoption file is actually opened. The eligible period can also begin when an application related to the adoption is made to a Canadian court if this date is earlier than the initiation of the application with adoption authorities. Adoption expenses are claimed on Line 313 of your federal return.
First-time charitable donation — The government has introduced a temporary "first-time donor's super credit" for the first $1,000 donated by individuals who have never claimed a credit for charitable donations. The super credit supplements the usual value of the charitable donation tax credit by 25 per cent. The supplement applies to gifts of money up to $1,000 donated in one tax year between March 20, 2013, and the end of 2017.
It can be shared with a spouse or common-law partner as long as the combined total doesn't exceed $1,000. You're considered a first-time donor if neither you nor your spouse or common-law partner have claimed and been allowed a charitable donation tax credit for any year after 2007. The credit can only be claimed once in the tax years 2013 to 2017. Read more about this credit here.
Last year for safety deposit box deduction
Mineral exploration tax credit — The government has extended its 15 per cent tax credit for investors in flow-through shares of mineral exploration companies to all flow-through share agreements entered into before April 1, 2014. Flow-through shares are a way for junior mining companies that have trouble raising capital to finance exploration and development to shift these expenses onto shareholders.
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The temporary credit was introduced in the October 2000 budget update and has since been extended several times. The aim of the credit, according to Natural Resources Canada, is to "assist junior mining companies in raising new equity through flow-through shares" in order to help "maintain or increase the amount of exploration activity in Canada." The credit is a non-refundable tax credit that can be carried back three years and carried forward 20 years.
Tax-free savings account — The annual limit on what you can contribute to your TFSA increased last year from $5,000 to $5,500 and remains at that amount for the 2014 contribution year.
Family caregiver amount — In 2012, the government introduced a $2,000 credit that can be claimed on top of the credits that individuals claim if they have a dependant with an impairment in physical or mental functions. For the 2013 tax year, the family caregiver amount you can claim has increased to $2,040.
Safety deposit box deduction — Individuals and corporations will no longer be able to deduct the cost of renting a safety deposit box that is used to store papers related to their investment portfolio. For corporations, the new rule kicks in as of March 21, 2013, and for individuals, it begins in the 2014 tax year. Experts suggest the government decided to eliminate this deduction in the March 2013 budget because it realized that the increasing use of electronic records makes it less likely that the safety deposit boxes are being used to store the kind of documents intended in the original deduction.
Snitch rewards kick in
Individuals who provide the CRA with "specific and credible details of major international tax non-compliance" that lead to the collection of unpaid taxes of at least $100,000 will receive a reward of five to 15 per cent of the federal tax collected. The CRA will enter into a contract with informants if it deems that a case has merit.
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Lifetime capital gains exemption — Under the government's 2013 economic action plan, the exemption will be increased from $750,000 top $800,000 as of the 2014 tax year. In subsequent years, it will also be indexed to inflation. The new lifetime exemption limit will apply even to individuals who had previously reached the exemption limit.
Pooled Registered Pension Plans — The 2013 tax year is the first full tax year that federally regulated pooled pension plans have been allowed — although none is yet operational. The government passed legislation in December 2012 regulating the voluntary retirement savings plans. PRPPs are aimed at people who don't have workplace pension plans.
The plans pool workers' contributions and are managed by third-party administrators such as banks or insurance companies that have been licensed to do so by the Office of Superintendent of Financial Institutions. Manulife Financial and Standard Life have been licensed to administer PRPPs but neither has yet registered a plan.
- For more information on PRPPs click here.
PRPPs resemble defined-contribution plans in that all of the returns on contributors' investments are earned from the market, and there is no guarantee of benefits as with a defined-benefit plan. Employers don't have to participate but are responsible for selecting the PRPP administrator and remitting contributions. Currently, PRPPs are available only for employees of federally regulated businesses everywhere except in the Yukon, Northwest Territories and Nunavut, where employees in any industry as well as self-employed individuals can participate. Quebec, Alberta and Saskatchewan have all passed legislation approving PRPPs, but none has yet enacted it. Quebec plans to start offering them as of July 1, 2014, and will make it mandatory for businesses of a certain size to make them available to employees.
The CRA's full list of tax changes for 2013 is here.