News & Views

Last week, on October 30^th 2014, the federal government announced a new so-called tax break.

The unveiled plan lets Harper use his “promise made, promise kept” mantra. However, is the plan itself good policy or good politics? What’s in it for YOU, the taxpayers?

Here are the 3 main points of the announcement:

• Income Splitting: Couples with children under 18 can share up to $50,000 of income, up to the maximum of $2,000 in non-refundable federal tax credit, effective for 2014 tax year.

• Universal Child Care Benefit (UCCB): Families with children under 18 will gain an extra $60 per month per child, effective for 2015 tax year.
• Child Care Expense Deduction: Families with children under 18 or infirmed children over 16 will have an extra deduction room of $1,000 per year per child in child care expense, effective for 2015 tax year.

Thoughts:

• Non-refundable tax credits are not equal to the actual cash value, so do not think of this as having an extra $2,000 in your pocket.

• For families with very low taxable incomes, no credit is available to transfer. This also does not work for families with two similar taxable incomes.
• The UCCB benefit is fully taxable. The existing child tax credit will be eliminated. Hence this $60 extra is looking more like $23 after taxes. Well, it is still better than nothing, I guess.
• Make sure to check with a tax professional to see how to claim (and indeed if you can claim) the benefit in the case where couples are separated or divorced and share custody of their children. You may even have to visit a family lawyer again to work this out with your child’s other parent.

 Final notes:

This plan is not as great as it appears to be and is not for everybody. The main beneficiaries will be middle class families with young children and uneven taxable incomes, which only account for a small segment of Canadians.

Personally, I would like to see a real broader tax cut that would benefit all taxpayers. I also would like to see plans to encourage entrepreneurship, cut government spending, balance the budget, and reduce debt, just to name a few.

For families who will benefit from this new tax cut, make sure you spend your new-found money wisely. May I suggest contributing towards your children’s education savings fund.

For those who got left out, make sure you claim all of your eligible tax credits when filling your income tax returns. You might want to consider various tax strategies that can be used to reduce your tax payable such as contributing to an RRSP, keeping fully-taxable investments inside a TFSA, or splitting pension benefits. Is your situation different from last tax year? If so, take a look at the tax guide to see if there is anything that might apply to you. When unsure, ask a professional to review it.

This note is written as a general source of information only. Should you have any questions, or wish to discuss your specific circumstances, please feel free to contact us directly at info@RetireRightCanada.ca.

The Canada Revenue Agency (CRA) today announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporations.

Income tax

• The interest rate charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums will be 5%.
• The interest rate to be paid on corporate taxpayer overpayments will be 1%.
• The interest rate to be paid on non-corporate taxpayer overpayments will be 3%.
• The interest rate used to calculate taxable benefits for employees and shareholders from interest free and low-interest loans will be 1%.
• The interest rate for corporate taxpayers’ pertinent loans or indebtedness will be 4.94%.

These rates are in effect from October 1, 2014 to December 31, 2014.

A comprehensive benefits program is a major component of any organization’s compensation package. It provides protection for an employer’s most important assets, its employees, and helps to attract top candidates in today’s competitive employment marketplace.

European Central Bank surprised the market with a cut to its key interest rate and deposit rate. In a bid to stimulate a flagging Euro-zone economy, the benchmark rate was cut by 10bps to a record low of 0.05%, from a previous 0.15%, and the rate at which the central bank charges large institutions to park up cash moved to -0.2% from -0.1% (deposit rate). President Draghi also announced a program of bond purchases from the private sector on both asset backed securities and covered bonds, to add further liquidity.