Be aware of changes to the income tax rules that will affect your 2017
For those already thinking about their 2017 income taxes, the following
summarizes some of the changes from 2016.
The child tax credit for arts and fitness is gone. Since this tax credit
was capped at a maximum of $500 for fitness and $250 for arts per child in
2016, its removal will not likely have a major impact on most people’s 2017
The tax credit for education and textbooks for full- or part-time students
was eliminated effective December 31, 2016. Taxpayers with unused tax
credits from 2016 or prior years will be able to carry them forward and
apply them against future taxes.
The tuition tax credit is, however, still in effect.
In recognition of the need to support education in technical skills, the
number of courses eligible for the tuition tax credit will be increased.
Occupational courses provided by post-secondary institutions within Canada
will be granted the tax credit. If a bursary is provided, the amount will
likely qualify for either the full or basic scholarship exemption.
Examination fees paid to take an occupational, trade, or professional
examination to obtain a professional status recognized by federal or
provincial statute, or to be licensed or certified as a tradesperson, to
allow you to practise in Canada, may also be eligible for the tuition tax
credit. However, if your fees were paid by your employer or the employer of
one of your parents, or by a government program and not included in your
income, you cannot claim the credit.
Those who invested in labour-sponsored venture capital corporations will no
longer be able to apply for the federal tax credit. Prior to 2017, a
taxpayer would receive a federal tax credit of 15% of the investment up to
a maximum of $750. Taxpayers should confer with their Chartered
Professional Accountants (CPAs) to determine whether a provincial tax
credit will be available in 2017 should they choose this investment
Income splitting is gone.
RRSP contributions, tax brackets, and various tax credits will increase in
2017 to reflect the adjustment for inflation as measured by the Consumer
Price Index (CPI). The percentage increase for 2017 has been pegged at 1.4%
(i.e., the 2017 personal exemption will increase to $11,635 from $11,474 in
2016). To capture information on the new levels for all tax credits and
other deductions that have been indexed, you should visit the CRA website
page: “Indexation adjustment for personal income tax and benefit amounts”
The notable exception to the inflationary increase is the Tax Free Savings
Account that will continue to have a $5,500 per annum maximum contribution
Work in Progress
Prior to March 22, 2017, unbilled work in progress was allowed to be
deferred until billed to clients. This deferral allowed certain designated
professionals (i.e., lawyers, dentists, doctors, and accountants) to delay
the recognition of income until the year when the work was invoiced to
clients. Effective March 22, 2017, this deferral of work in progress was
eliminated, resulting in an immediate income inclusion of work in progress.
A transitional relief will be available over a two-year period to help
mitigate the tax impact of this change.
Prior to 2017, three credits were available for those in need of
- caregiver credit
- infirm dependant credit
- family caregiver tax credit.
To simplify the process and to recognize the need to provide financial
support to caregivers, a new Canada caregiver credit will provide a 15%
non-refundable tax credit maximizing at $6,883 of expenses for the care of
parents, brothers and sisters, adult children and other specified relatives
who have infirmities. An additional tax credit up to $2,150 on expenses is
available for the care of a dependent spouse, a common-law partner, or a
minor child with infirmities. The tax credit will be calculated using a
formula that reduces the credit dollar for dollar once the dependant’s net
income exceeds $16,163.
Prior to 2017, any gain from the disposition of intangibles such as
goodwill or trademarks, was treated as regular business income and was not
subject to the capital cost allowance rules. Now, any gain from the
disposition of goodwill and trademarks will become fully taxable as
investment income. Companies will now be required to transfer the
cumulative eligible capital pool as at December 31, 2016, to a new capital
cost allowance class 14.1. This pool will be depreciated at 7% annually on
the declining balance for the first 10 years, then at 5% annually
thereafter. For the expenditures incurred after December 31, 2016, a 5%
depreciation rate will apply.
Prior to 2017, employers were able to supply employees with their T4
information slips electronically if the employee gave permission. Effective
2017, the employer will not need permission. The employer must, however,
have safeguards in place to ensure confidentiality and provide paper copies
to former employees or employees on leave or upon request. Employees must
ensure the information received is correct in order to avoid penalties and
interest if they file an incorrect T1 tax form.
Possible Changes Ahead
While the changes noted in the 2017 Federal Budget were not as significant
as those in the Liberals’ first budget introduced in 2016, it signalled the
government’s intention to review the tax planning techniques that are
currently available to the owners of private corporations. Specifically,
the review will include the tax advantages provided to the business owners
- income sprinkling
- holding passive investments via a corporation
- converting regular income into capital gains.
Unfortunately, the budget did not include much detail. The government is
expected to issue policy papers on this topic sometime during the summer of
2017, however. Any changes could impact the business owners significantly.
Contact Argento CPA today!
Source: BUSINESS MATTERS
Disclaimer: BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.