The Canadian tax system is in a constant state of change and evolution. New measures are introduced and existing ones are “tweaked” through a never-ending series of budgetary and other announcements. As a Kelowna accountant serving the Vancouver and Kelowna area, 2017 is a year in which I’ve seen more than usual tax changes affecting individual taxpayers. Unfortunately, most of those changes involve the repeal of existing tax credits which are claimed by millions of Canadian taxpayers.
The repeal of credits will show up for the first time on the individual income tax return for the 2017 tax year, to be filed in the spring of 2018.
For the most part, the changes mean the loss of existing credits. Not being able to make those credit claims will mean a higher tax bill for taxpayers who have claimed them in previous years. Knowing what lies ahead allows taxpayers to make an accurate assessment during the year of the true after-tax cost of any contemplated expenditures and make their spending decisions in light of that knowledge.
Some of the changes for 2017 have been implemented since the beginning of the year, while others will take effect part way through 2017.
Changes to existing tax credits in 2017 include:
Textbook and education tax credits repealed
Post-secondary education is expensive. For many years students and their families have been able to offset, to a degree, the costs to obtain an education through claims for federal non-refundable tax credits.
There are, effectively, four tax credits or deductions which have specific application to post-secondary students.
The education tax credit provides a non-refundable tax credit amount of $400 per month of full-time enrolment in a qualifying educational program and $120 per month of part-time enrolment at a designated educational institution.
The textbook tax credit provides a non-refundable tax credit amount of $65 per month of full-time enrolment in a qualifying educational program and $20 per month of part-time enrolment at a designated educational institution.
Both credit amounts are converted to tax credits by multiplying the total credit amount by 15%. There is also a federal tax credit claimable equal to 15% of eligible tuition fees paid during the year.
Finally, students who incur interest costs for student loans received from government student loan programs can deduct the cost of those interest payments, without limit.
As of January 1, 2017, the first two of those credits have been eliminated. Neither the textbook tax credit nor the education credit will be claimable for 2017 or subsequent years. Unused education and textbook credit amounts carried forward from years prior to 2017 will be available to be claimed in 2017 and subsequent years.
The claim for a tax credit for tuition amounts paid and the claim for a deduction for interest payments made on qualifying student loans are not affected.
Taxpayers should be aware that the provinces also offered tuition and education tax credits which could be used to reduce provincial tax payable. While changes similar to the federal ones have been made at the provincial level, those changes are not uniform.
Some provinces have chosen to repeal both the education and tuition tax credits, effective July 1, 2017.
Others have announced that only the education tax credit will be repealed, and not until 2018. Still, other provinces have indicated that no change is planned to their current system of tuition and education tax credits.
Consequently, taxpayers will need to determine whether, and to what extent, claims for provincial tuition and education tax credits remain available for 2017 in their province of residence.
As a Kelowna accountant, I am fully aware of what the changes mean for all of my clients living in and outside of British Columbia and am happy to discuss these with you.
Children’s fitness and arts tax credits repealed
For several years, parents have been able to claim a federal tax credit for expenditures made to enroll their children in fitness and arts-related activities. The federal government has been moving to cut back on the availability of that credit, generally by reducing the amount claimable.
For 2017, both the children’s arts and fitness tax credits have been repealed.
Public transit tax credit repealed
For several years, individual taxpayers have been entitled to claim a refundable federal tax credit for costs incurred in taking public transit on a regular basis.
The definition of what constituted public transit was extremely broad, covering everything from buses to ferries. It was possible to combine qualifying amounts incurred by all family members and claim them on a single return, maximizing the value of the credit.
As part of this year’s Federal Budget, the public transit tax credit will be repealed, effective July 1, 2017.
Taxpayers who have purchased an annual transit pass for 2017 (or who might be thinking of trying to beat the deadline by purchasing monthly passes for the rest of 2017 before July 1) will not escape the effect of the repeal.
The budget specifies that the cost of transit passes attributable to public transit use which occurs after June 30, 2017, will no longer be eligible for the credit, regardless of when the expenditure for those passes is incurred.
The public transit will be claimable on the 2017 return for qualifying expenditures made for travel on public transit before July 1, 2017. Taxpayers should keep receipts to support those claims.
Caregiver tax credits replaced
Individuals who live with or care for relatives in a variety of situations have been able to claim one or more caregiver tax credits to help offset the cost of providing such care.
The number of tax credits related to caregiver activities has expanded over the years and became a confusing patchwork of credits.
In this year’s budget, effective January 1, 2017, the federal government acted to replace the patchwork of credits with a single Canada Caregiver Credit.
The new single credit, for the most part, will provide caregivers with the same tax relief as the old system, with one major exception.
Many of my clients in Kelowna and Vancouver have a retired grandparent who lives with them and can help out with child care while the parents are at work. Sometimes, especially in more expensive real estate markets, having multiple generations under the same roof is a matter of economic necessity.
Prior to 2017, where an individual lived in the same residence with a parent or grandparent who was aged 65 or older, that individual could claim a caregiver tax credit with respect to the parent or grandparent.
There was no requirement that the senior parent or grandparent be disabled or infirm in any way.
As of 2017, no credit will be claimable in such situations. The new Canada Caregiver Credit will be claimable in a range of living situations and for individuals of various ages.
The one major exception? The requirement to qualify for the credit is that the person in respect of whom it is claimed must be infirm.
The credits outlined above are claimed by millions of taxpayers every year. Those who made such claims for 2016 will see an increase in his or her tax bill for 2017.
If any of these changes affect you and your family, please contact me to discuss. As your trusted Kelowna accountant, I will uncover any and all credits that you may claim. A plan is needed to avoid a costly and unwelcome tax bill next spring.