December 13, 2018 – Personal Income Tax A wise old man said to me once, “A good deed a day is enough, and sometimes it doesn’t hurt to say, say a little prayer to God”. Apart from the reciprocating benefits of doing a good deed, and perhaps getting a nod from God, there are tax benefits too! As my old tax professor would say, “Tax is a microcosm of life”. Here is my list of good deeds this Christmas:
Good Deeds
Let someone know about the Tax Free Savings Account (TFSA)
If at any time in the calendar year you are 18 years old or older and a resident of Canada, you can contribute to a TFSA. The TFSA began in 2009 so nice Canadians can set money aside and invest tax-free throughout their lifetime. You will accumulate TFSA contribution room even if you do not file a tax return or open a TFSA account at your financial institution. For example, if you haven’t contributed to a TFSA yet, and you were 18 or older and a resident of Canada since 2009, you have accumulated $57,500 of TFSA room that you can contribute in 2018!
The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.
The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
The annual TFSA dollar limit for the year 2015 was $10,000.
The annual TFSA dollar limit for the year 2016 was $5,500.
The annual TFSA dollar limit for the year 2017 is $5,500.
The annual TFSA dollar limit for the year 2018 is $5,500.
Donate to your Favourite Charity
For 2018, the tax savings for an individual in Ontario is 20.05% on the first $200 of donations, and 40.16% on donations over $200. So if you made $500 in donations, the tax savings will be $40.10 on the first $200 (20.05% x $200), and $120.48 on the next $300 (40.16% x $300), for a total tax savings of $160.58. That’s about a third of a tax recovery on your $500 donation. If your taxable income is over $200,000 you get an ever bigger bang for your donation dollar over $200, at 48 cents on the dollar.
I read a tax article recently that our neighbours south of the border donate on average more than 3% of their income, whereas Canadians donate a half percent, so we’ve got some catching up to do!
Let someone know about the Adoption Credit
The tax savings for adoptive parents is 20.05% on eligible adoption expenses for a child under 18 years old. For 2018, the maximum adoption expenses per child is $15,905 ($12,632 in Ontario).
Eligible adoption expenses you can claim are:
Fees paid to an adoption agency licensed by a provincial or territorial government;
Court costs and legal and administrative expenses related to an adoption order for the child;
Reasonable and necessary travel and living expenses of the child and the adoptive parents;
Document translation fees;
Mandatory fees paid to a foreign institution
Mandatory expenses paid for the child’s immigration; and
Any other reasonable expenses related to the adoption required by a provincial or territorial government or an adoption agency licensed by a provincial or territorial government.
Pay for your Child or Grandchild’s Education for the Tuition Credit If you are a parent or grandparent of a student, you can recover taxes on your tax return up to 20.05% of $5,000 tuition paid for your child or grandchild, or about $1000. This is beneficial as the student typically does not have the income to recover any taxes on their return. Open a Registered Education Savings Plan (RESP) for a Child Anyone can open an RESP for a child; not only the child’s parent. The money in the plan grows tax-free to help pay full-time or part-time studies after high school in an apprenticeship program, a trade school, college or university. The child withdraws the money when it’s time to use it for their studies, and only then includes the money earned in the plan on his or her tax return, when there are no taxes to pay as they have little or no income during this time. The Canada Education Savings Grant provides 20 cents on every dollar contributed to an RESP, up to a maximum of $500, on a contribution of $2,500. Open a Registered Disability Savings Plan (RDSP) for a Disabled Beneficiary Anyone can open an RDSP for a beneficiary with a severe and prolonged physical or mental impairment. The money in the plan grows tax-free to help pay for the long-term financial security of the beneficiary. Contributions to an RDSP can be made until the end of the year the beneficiary turns 59. Contributions that are withdrawn are not included as income to the beneficiary when paid out of a RDSP. However, the Canada Disability Savings Grant (CDSG) is included in the beneficiary’s income for tax purposes when paid out of the plan. The CDSG matches $3 for every $1 contributed, $2 for every $1 contributed, and $1 for every $1 contributed to a RDSP depending on the beneficiary’s family net income. An RDSP can get a maximum of $3,500 in matching grants in one year, and up to $70,000 over the beneficiary’s lifetime. Notice to Reader Dean Constand CPA publishes this blog for information purposes only. Feel free to distribute to colleagues and friends. Although the material has been carefully prepared, it is not a substitute for professional advice.