Talking to clients: Tax changes for 2006 & 2007

(January 2007) Are your clients paying the government too much tax? There is a good chance they are. According to a recent poll conducted by Environics Research Group for H&R Block Canada, more than half of Canadians are unaware of new tax credits made available in 2006.

For example, less than 5% of Canadians surveyed were aware of changes like the employment, transit users or textbook tax credits.

Use this checklist, a summary of all recent tax changes, to help uncover any additional savings that might otherwise be missed.

Click here to download this pdf document.

PERSONAL

1. Legislating a permanent reduction in the lowest personal income tax rate Effective: January 1, 2006 The tax rate changed from 16% to 15.5% for taxable incomes under $36,378 (for 2006).

2. Increasing the basic personal amount Effective: January 1, 2006 The basic personal amount that an individual can earn without paying federal personal income tax for 2006 is $8,839. In 2007, this amount will be $8,929.

3. Canada Employment Credit Effective: January 1, 2006 This new tax credit gives Canadians a break on what it costs to work, recognizing expenses for things such as home computers, uniforms and supplies.

4. Income splitting for pensioners Effective: January 1, 2007 The measure will allow pensioners to allocate to their resident spouse (or common-law partner) up to one-half of their pension income. For example, a typical senior couple with a single pension income of $30,000 will save some $1,100 in federal taxes, or 27%.

5. Increasing the age credit amount Effective: January 1, 2006 The measure increases the age credit amount by $1,000 to $5,066 from $4,066.

6. Increased pension income limit Effective: January 1, 2006 This measure increases to $2,000 from $1,000 the maximum amount of eligible pension income that can be used in calculating the pension income credit.

7. Children’s Fitness Tax Credit Effective: January 1, 2007 This credit will cover eligible fees up to $500 for enrolment in a physical activity program.

8. Tax credit for public transit passes Effective: July 1, 2006 This credit allows individuals to claim a non-refundable tax credit for the cost of monthly public transit passes, or those passes of a longer duration.

9. Measures for tradespeople Effective: May 2, 2006 Employees can claim a new $500 deduction to offset the cost of tools in excess of $1,000 that they must acquire as a condition of employment, and the self-employed can benefit from an increase, to $500 from $200, in the limit on the cost of tools eligible for the 100% capital cost deduction.

10. Textbook tax credit Effective: January 1, 2006 The textbook tax credit amount will be $65 for each month of full-time post-secondary study and $20 for each month of part-time postsecondary study. Eligibility rules will be the same as those for the education tax credit.

11. Full exemption of scholarship and bursary income from taxes Effective: January 1, 2006 This measure will apply to more than 100,000 post-secondary students.

12. Measures for Canadian fishers Effective: May 2, 2006 These measures include: extending the 500,000 lifetime capital gains exemption to Canadian fishers; and allowing a tax deferral in certain circumstances where an individual’s fishing property is transferred to the individual’s child or grandchild.

13. Full exemption of donations of publicly listed securities to public charities Effective: May 2, 2006 Donations of publicly listed securities to public charities are exempt from capital gains tax.

14. Increasing the maximum amount of the refundable medical expense supplement Effective: January 1, 2006 This measure raises the maximum amount of the refundable medical expense supplement to $1,000 from $767. The maximum amount is indexed to inflation. The supplement starts to be reduced when income above $21,663.

15. Full exemption of donations of ecologically sensitive land from capital gains tax Effective: May 2, 2006 Donations of ecologically sensitive land under the Ecogift program are exempt from capital gains tax.

16. Reintroducing the mineral exploration tax credit Effective: May 2, 2006 The mineral exploration tax credit for flow-through share investors was reintroduced for the period from May 2, 2006 until March 31, 2007. The one-year “look-back” rule will allow funds raised with the benefit of the credit in 2007 to be spent on eligible exploration activity up until the end of 2008.

SALES AND EXCISE

1. Reducing the GST to 6% Effective: July 1, 2006 Matching excise levy adjustments also came into force July 1, 2006

2. Repealing the excise tax on jewellery Effective: May 2, 2006 Applies to jewellery manufactured and sold in, or imported into, Canada.

3. Reducing the excise tax on Canadian vintners and small brewers Effective: July 1, 2006 These two measures will provide $20 million in tax relief in 2006-07.