One time tax tips

Given all the tax changes advisors expect under the Harper administration, it’s easy to forget about the tax changes that will affect this year’s filings. This week, tax expert Evelyn Jacks walked a packed room of advisors and tax planners through a line by line assessment of the tax changes for 2005.

Few are as adept as Jacks, founder and president of with the Winnipeg-based Knowledge Bureau, at rhyming off tax line numbers and dissecting their meaning. One of the topics Jacks discussed at a tax workshop in Toronto was a change that impacts parents of children with disabilities.

Parents who spend at least 14 hours a week administering medication or caring for a child will now be able to claim child disability benefit. The child disability benefit is a supplement of the Canada Child Tax Benefit, which is payable in respect of children in low and modest income families.

The 2005 budget increased the maximum credit to $2,000 from $1,681 per child beginning in July 2005. The plan proposes to increase this amount again this summer to $2,300. To qualify, a family must have a net income below the amount at which the National Child Benefit supplement is fully phased out ($36,378 in July 2003 for families with three or fewer children). This credit is also available after death.

“Any of these new things is a really great marketing idea,” Jack says. “Send a letter to your families where you might know where there is a child on kidney dialysis or someone who has asthma so bad that they are confined to a bed, and make sure they come in to see you.”

There are also several new medical expenses that have been approved for 2005. They include drugs that have not been approved for sale in Canada as well as home renovation costs, although Jacks warns the CRA is particular about the types of modifications to a residence it will accept.

“Lets say you have to accommodate a disabled person and you put on a whole addition and increase the value of your house by $100,000, they are not going to allow that,” she says. “They’ve become more sticky about the exuberance of these home renovations.”

It’s a grey area. Hardwood floors and hot tubs are no longer going to be allowed, unless it is absolutely necessary and prescribed, Jacks explained. You want to at least inform your client and mark it on their file that you’ve discussed that with them incase they decide to try to claim it anyway.

When meals can and cannot be claimed was another popular topic, particularly when it relates to truck drivers. Several people in the room disputed the amount of time that a truck driver must be away from home before being able to claim a meal expense. In some cases, tax planners reported the claims are being rejected by the CRA for the first time this year.

However, according to the CRA there is no reported change to the amounts deductible for meals for transport employees. The last update to this section was made in 2003. According to the Income Tax Act, the amount they may deduct in respect of food or beverages consumed is limited to 50% of the lesser of either the actual cost less reimbursements and non-taxable allowances or an amount that is considered reasonable in the circumstances.

The Act continues, “Where the shorter journey is scheduled for 10 hours or less, the [CRA] would expect the transport employee to eat breakfast and dinner meals at home, as is the case with most other employees. Accordingly, only one meal per day, namely lunch, will be permitted in these circumstances.”

Another change new in 2005 was to allow investment grade gold and silver coins, bars and certificates on these investments to be included in RRSPs and RRIFs. To qualify, the gold must have a purity of at least 99.5% and silver must be at least 99.9% pure. The investment must be bought through either a producer of the investment or from a registered financial institution.

Jacks reminds her audience that the average tax refund is $1,200. “Your clients are paying an average of $100 a month too much to the government,” she says. Now imagine, she adds, if that over-contributing of over $1,000 a year, over 40 years of a productive income would be a great benefit to a client.

“Eighty percent of your clients will not want to reduce their source deductions and turn them into RSPs over a monthly basis, but push them,” she stresses. “Show them that if they do it over a productive lifetime of 40 years, it could add $40,000 plus compounded investment earnings on those RSP deposits.”

Some of the other proposed measures introduced in the November fiscal update include increasing the basic personal amount on line 300 to $8,646 from $8,148; lowering the personal tax rate to 15% from 16%; upping the spouse or common-law partner amount at line 303 to $7,344 from $6,919 and boosting the amount for an eligible dependent at line 305 by the same amount.

Memorize those numbers this year; just don’t count on them staying the same if the new government is able to push its budget plan through the House.

Happy tax season.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(01/25/06)