The New Tax Return - What you need to know
With tax season now officially underway, there’s no better time to review the new 2007 tax return, highlighting some of the new changes that appear there for the first time.
T1 Return — Page 1
The first thing you will notice is the new question on page 1 under the heading “Elections Canada” in which the Canada Revenue Agency (CRA) asks whether you are a Canadian citizen. If you answer “yes,” you will then be asked whether you authorize the CRA to give only your name, address, date of birth and citizenship status to Elections Canada, which allows the National Register of Electors to be updated.
This is particularly useful in a year that you move since once you advise the CRA of your new address (assuming you have given the authorization discussed above), the CRA automatically advises Elections Canada (on a monthly basis) to update the register with your new address. This is even more important this year given the possibility of a spring federal election.
T1 Return — Pages 2 & 3
Line 116 & Line 210 — Pension income splitting
Line 116, entitled “Elected split-pension amount” is the new line that’s used to report the split-pension income allocated from your spouse or partner. This corresponds with new Line 210, entitled “Deduction for elected split-pension amount,” where the amount to be transferred to a (presumably) lower income spouse or partner is deducted.
Note that new Form T1032, “Joint Election to Split Pension Income,” which is available in the tax packages as well as online on the CRA website (www.cra-arc.gc.ca), must also be completed and signed by each spouse or partner.
The ability to split pension income is likely the most significant change for affected individuals on the entire 2007 return and could not only end up saving a couple a substantial amount of income tax, but may also permit a doubling of the pension income credit as well as a potential reduction in Old Age Security clawbacks.
For a full discussion of pension income splitting, please see my November 2007 FORUM column.
Lines 117 & 213 — Universal Child Care Benefit
Although not new this year, 2007 will be the first full calendar year that the Universal Child Care Benefit (UCCB) has been in place. If you have children under the age of six in 2007, you should have been receiving and thus reporting $1,200 per child ($100 monthly) of UCCB income. Note that the UCCB must be reported on the lower-income spouse’s or partner’s return, regardless of which spouse or partner actually received the payments.
This past year, if you had to repay UCCB income that was received and reported in 2006, a deduction for the repaid amount can be claimed on Line 213. The amount of any UCCB repaid can be found in Box 12 of the RC62 slip.
Line 254 — Capital gains deduction
If you sold qualified farm or fishing property or qualified small business corporation shares during 2007, you may be entitled to claim the newly enhanced lifetime capital gains exemption (LCGE). The previous limit of $500,000 was increased to $750,000 last year, but the extra $250,000 of exemption will only apply to dispositions of qualifying property on or after March 19, 2007.
Schedule 1 — Calculation of Federal Tax
Several changes were announced on October 20, 2007, as part of the federal government’s economic update. These include:
Federal tax rate — The lowest personal income tax rate has been reduced to 15 per cent from 15.5 per cent.
Line 300 — Basic personal amount — The basic personal amount has been increased (beyond the normal inflation indexing) to $9,600.
Line 303 — Spouse or common-law partner amount — The amount that can be claimed for a spouse or partner has been increased to match the basic personal amount and therefore is also $9,600 for 2007 (it’s still reduced, however, based on the spouse’s or partner’s income).
Line 365 — Children’s fitness amount — If you had a child who was under 16 at the beginning of 2007 and who was enrolled in a prescribed program of physical activity, you can claim up to $500 of registration fees per child for such a program.
Line 367 — Amount for children born in 1990 or later — This line represents the newly introduced child tax credit equal to $2,000 per child under the age of 18 at the end of the year. The amount may be claimed by either parent. Note that the full $2,000 amount may be claimed regardless of when a child was born or adopted in 2007 — no pro-ration is required.
Paying tax in instalments
Finally, if you need to pay taxes in instalments, you’ll be pleased to know that the instalment threshold for 2008 has been increased to $3,000 ($1,800 for Quebec residents). For a detailed discussion on the mechanics of the instalment system, please refer to my column “Paying Tax in Instalments,” which appeared in the February 2003 issue of FORUM.