Some tax changes overlooked

In the current political environment, most parties have realized that nothing goes further with voters than tax-cuts. Of course, to get the most bang for their political buck, politicians usually trumpet the most wide-ranging changes to the tax code — those tax cuts that benefit the greatest number of voters.

Items like increasing the Basic Personal Amount, or lowering tax rates, will always attract the most attention, but there are a handful of lesser-known tax changes coming into effect for 2005, which are focused on much narrower segments of the population.

Parents who adopted a child in 2005 may claim a federal tax credit for up to $10,000 on certain costs associated with the process. The caveats on this credit are that the adopted child must be under the age of 18 when the adoption is finalized and that the credit must be claimed in the year it is completed.

“The provisions dealing with the deduction for adoption expenses are quite open to interpretation,” says Murray Pituley, senior specialist, tax and estate planning with Investors Group. “They define ‘eligible expenses’ as any amount paid in respect to the adoption.”

For greater certainty, the tax code offers examples such as legal fees, payments made to registered adoption agencies and travel expenses.

Children with Type 1 Diabetes (formerly known as Juvenile Diabetes) may claim the disability tax credit for 2005 and following years. In certain circumstances, the credit can be claimed for 2004 as well. These credits are transferable to the parents of the child.

The disability credit is now more widely available as well. In the past, tax-filers were required to prove their disability restricted their ability to perform any one basic activity of everyday life. For 2005, however, the rules now consider the cumulative effect of a physical impairment on multiple activities.

“There has been a very low take-up rate on the tax relief that is available for someone with a disability,” says Murray Pituley, senior specialist, tax and estate planning with Investors Group. “When you start looking at what qualifies for tax relief, it is quite complex. There are lots of people out there who qualify, but don’t know they qualify.”

Form T2201 includes a self-assessment questionnaire to help individuals determine if they qualify for the expanded definition for the disability tax credit.

Of course, into every tax story, some rain must fall. In this case, it falls upon German ex-pats collecting social security pensions from Germany. Due to provisions in the tax treaty between Canada and German, changes in their tax law have resulted in increased taxation of pension payments made to Canadian residents.

“In the last two years, before 2005, they were taxed, but at a lower rate,” Pituley explains. “The big difference in 2005 is that the percentage of taxable portion compared to non-taxable portion has changed significantly, so the taxable portion will be higher.”

Under the new rules for 2005, 50% of the pension benefits will be taxable and 50% will not taxable. The taxable portion is scheduled to increase for pensions commencing after 2005.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.