This is a good time to plan for summer camps for your children. The options are numerous and the prices vary widely. Some offer day camps where you drop off your children (or they take a bus). Other camps, especially the ones in the country, offer overnight camps that last several weeks. Fitting the interests of your children to the camp is a challenge in itself. Getting the maximum tax break is another.
The Income Tax Act allows a deduction for child care expenses. The maximum amounts per year that can be claimed for all child care are:
$7,000 per child for children under the age of 7;
$4,000 per child for children under the age of 17;
$10,000 per disabled child up to the age of 17.
For any type of boarding school or camp, the maximum amount allowed per week (these amounts are included in the maximum amounts shown above), per child are:
$175 per child under the age of 7;
$100 per child from age 8 to 17;
$250 per disabled child up to 17 years of age.
The deduction must be claimed by the lower income spouse, in most circumstances, and is limited to two-thirds of earned income (basically income from employment and business).
The higher income spouse can claim the deduction if the lower income spouse is disabled, in prison or hospital, confined to a bed or wheelchair (for at least two weeks), attending full time high school or post secondary school, or is separated.
Make sure you obtain receipts and keep your cancelled cheques. Auditing childcare expenses is a favourite activity of the CRA. The receipt should show the name of the camp (or person), the date and number of weeks attended, the amount paid and the nature of the camp. Most of the well-known camps produce acceptable receipts.
This question is asked with some regularity – but only by golfers. There is a lot of “coffee talk” about whether or not golf memberships are deductible. The deduction of dues is rarely a reason for joining a golf club. Many golfers enjoy playing regardless of whether there is a tax or business benefit. This is a good philosophy since the rules look pretty solid in preventing a deduction.
The Income Tax Act denies a deduction for amounts paid for the use or maintenance of property, including a yacht, a camp, a lodge or a golf course or facility. It also prohibits a deduction for any expense incurred in respect of membership dues (whether initiation or otherwise) that entitle the taxpayer, the taxpayer’s employees or anyone else, to use the facilities of any club of which the main purpose is to provide dining, recreational or sporting facilities for its members.
For you last minute shoppers the deadline for RRSP contributions is February 29, 2012. Contributions made on or before this date are deductible in 2011 or later years.
RRSPs are great for high income earners (over about $130,000 of taxable income) since they get a tax refund at about 46%. For middle class taxpayers the refund is less – likely in the range of 30% – 40%. For those in the lowest tax bracket (Less than about $40,000 of taxable income) the refund rate is in the low 20% range.
Watch you don’t overcontribute. Check your 2010 Notice of Assessment to see your RRSP contribution limit. Penalties of 1% per month apply to overcontributions.
Tax audits are a nuisance but in some cases they lead to serious taxes and penalties. The tendency to panic is not uncommon, and the growing army of auditors (many of whom are inexperienced), working on the assumption everyone is a crook, helps feed the anxiety.
Despite the perception you’ll go to jail very few audits result in criminal penalties. Most are resolved by working with the tax authorities in a professional manner. Contrary to the image promoted by some advisors, most auditors are cooperative, friendly and willing to resolve issues early in the process. With the right approach a workable solution is possible without incurring thousands of dollars in legal fees.
There are only two paths an auditor can pursue – criminal and civil. A civil action involves taxes, interest and penalties. A criminal action is much more serious and can result in substantial fines and a prison sentence on conviction.
Before you hire a lawyer consult your accountant. They know you best. Few accountants are lawyers but they are experts in interpretation and application of tax legislation – they work with it every day. Often they know if legal advice is needed. If you or they suspect you’ve committed a criminal offence you should immediately retain a criminal lawyer. But 99.9% of the cases are civil and are manageable by your accountant.
If you’re unsuccessful resolving the issue at the auditor level there are processes, outside the court system, that can help resolve the problem. Going public with your issue is unwise. It forces tax authorities into a rigid position and your chances of a speedy resolution decrease dramatically.
Every tax authority has an appeal process. Staff are usually experienced, and knowledgeable, and their mandate is to review issues objectively. They’re not 100% objective but the odds are good you’ll get a fair review. A majority of appeals are successful saving you legal costs. Consult with your accountant before filing an appeal and never try to do it yourself.
If you hit a roadblock at the appeals level you can go to court. You can represent yourself but it is advisable to hire a lawyer. Hire an experienced tax lawyer, but before you do, consult your accountant. Your accountant can advise you of the likelihood of success and estimate the legal costs. You may be right, but if the cost of defending yourself exceeds the tax bill, it’s wiser to pay the tax and move on.
If you still want to go ahead then find an experienced and competent tax lawyer to represent you.
The best advice is never panic and consult with your accountant early. Accountants are still the most trusted business advisors and always consult them first.
The Tax Free Savings Account (“TFSA”) was introduced to Canadians a few years ago. The principle is simple – contribute up to $5,000 per year per person and there is no income tax on the growth. Not a dime of tax, ever. This is good but with low contribution limits of $5,000 per year, no tax deduction for the contribution, and low rates of return in the market the value is questionable.
Let’s look at a year in isolation. Assume you contribute $5,000 and the growth rate on the money is 5%. The first year you earn $250 which is tax free. Had the income been earned outside the TFSA income tax applies in the range of $60 – $125. Most of us spend more on coffee.
In year two you have $5,000 from the first year, assume you add another $5,000, and the $250 you earned in year one stays in the plan. You now have a total of $10,250 in the plan. At 5% you’ll earn $512.50 and save tax of about $125 – $250. Yawning yet?
Continue contributing for the next 10 years and you have $50,000, plus tax free income of about $16,000, for a total of $66,000. The tax saved on the $16,000 income is about $4,000 to $8,000. It’s a lot of work to save this small amount of tax. But on the positive side…at least you’ve saved some money.
So why do financial institutions promote this so vigourously? It’s all about volume. They stand to gain large amounts of deposits which are likely to sit in low yielding cash accounts. Looking good to the government can’t hurt either.
The real question is whether it’s worth your time and effort. There are few things tax free these days. Although the savings are low it is another tool in the tax saving kit. The days of big and safe tax saving vehicles are gone so it’s better to squeeze the nickels than look for big dollars. Saving twenty nickels is as good as saving a buck.
My advice is don’t get stressed about making the contribution or spending time analyzing the pros and cons of a TFSA. Set one up when you can and contribute sometime in the year – earlier in the year is better. Try to earn a decent return on the investment and remember income is not taxable but losses are not deductible. The worst that can happen is you increase your savings.
