2007 FEDERAL BUDGET & 2006 TAX RETURNS

The March 19, 2007 Conservative federal budget offers something for everyone. There are benefits for all taxpayers but the emphasis is on families with children. As an election budget, the Conservatives are going after the suburban middle-class vote in Ontario while measures for the environment - ‘green’ issues - and increased transfers to the provinces improve Tory prospects in Quebec. Harper needs more seats in Ontario and Quebec to get a majority. Ontario transfer payments rose by $1.1 billion while Quebec got an extra $2.3 billion. You can smell an election.
Harper is co-opting the Green Party, NDPs and Liberals with meaningful environmental measures.The budget commits $4.5 billion for clean air, the development of renewable fuels and water improvements. Of special interest is a proposed surtax of up to $4,000 on ‘gas guzzlers’, and a maximum $2,000 rebate for fuel-efficient cars while $36 million is committed over 2 years to scrap fuel-inefficient ‘wrecks’.

2007 FEDERAL BUDGET HIGHLIGHTS

1. The national debt will be paid down by $9.2 billion this year then by $3 billion yearly.

2. The provinces will get an extra $16 billion in equalization payments over 7 years. Will this bolster Charest in Quebec?

3. There is $1.4 billion in new spending on health care.

4. Farmers, fishermen and owners of common shares of active small companies will enjoy an increase to the lifetime capital gains exemption to $750,000 from $500,000.

5. Manufacturers and processors get accelerated depreciation on computers and commercial buildings and any equipment purchased by December 31, 2008 can be written off at one-half deductible in each of the first 2 years. The auto industry will benefit and be more competitive.

6. A $2,000 new federal non-refundable child credit for those under 18 will save $310 in federal taxes. The spousal/married equivalency credit is increased to reduce federal taxes by $209.

7. The Conservatives have committed to personal tax reductions annually of at least $1 billion.

8. The annual RESP limit of $4,000 is eliminated with a $50,000 lifetime cap. For a $2,000 RESP in a year, the federal matching amount rises by $100 to $500.

9. The age limit for maintaining RRSP accounts rises from 69 to 71 years of age.

THE 2006 PERSONAL TAX RETURN

1. The Universal Childcare Benefit, paid to all parents as of July 2006, is $100 per month taxable benefit for each child under 6.

2. The pension credit is up $1,000 for 2006 to $2,000.OAS or CPP do not qualify but it can be used by those under 65 drawing a private pension or survivor annuity and at 65 years of age on RRIF payments and even foreign pensions.

3. There is a 15.5% tax credit for public transit passes purchased on July 1, 2006 and later.

4. Taxpayers can donate publicly-listed shares to charities and avoid capital gains tax on any increase in value. You get generous tax savings since the deduction amount is based on the value at the date of contribution.

5. Note that the splitting of private pensions between spouses is not available until the 2007 personal tax filing.

THE 2006 CHANGE IN THE GST RATE

On July 1, 2006 the GST rate dropped to 6% creating a huge bookkeeping headache for self-employed taxpayers. Self-employed taxpayers must track revenue and expenses for two six-month bookkeeping periods for 2006. The GST rate was 7% for the January 1 to June 30, 2006 period and 6% for the last 6 months of 2006. Our firm has prepared a spreadsheet which covers each 6-month period and which automatically totals annual amounts. It is free and can be downloaded at www.taxperts.on.ca.

 

PENALTIES AND INTEREST

Interest is charged on deficient installment payments and on
personal tax and GST balances unpaid at April 30th. As regards latefiling penalties, self-employed taxpayers who file GST annually and their spouses have until June 15th each year to file. For personal tax returns, whether your filing deadline is April 30th or June 15th, late-filing penalties are a maximum of 17% for a first late filing and for a subsequent late filing within 3 years can reach 50%.Taxpayers who file late can approximate taxes and make ‘top up’ payments to the Canada Revenue Agency by April 30th to reduce interest levied or before their spective filing deadlines to reduce balances owing upon which penalties are calculated.

 

TAX AUDITS

CRA audits are targeting rental statements which claim high repair costs and self-employed real estate agents. Note that late-filed returns are much more likely to be audited. Taxpayers must submit receipts and vouchers for expenses categorized by type and totalled on tapes or spreadsheets.
Self-employed taxpayers using their spouse as assistants MUST have the spouse on payroll and withhold taxes and CPP premiums but not EI premiums. Expenses are sallowed if the CRA concludes that they are “insufficiently documented” or “not connected to business”. Keep good records or you will be reassessed with substantial balances payable. The Quereshi decision allows self-employed taxpayers to claim a high proportion of business driving even lacking a car logbook. Realty agents can claim a home-office expense if their home is their “primary place of
business”. They qualify if they perform the majority of self-employed activities in the home. Agents became home-based once they set up their MLS service in their home.
The CRA has adopted an unfair new practice of demanding bank records for both business and personal accounts. The CRA is adding any large deposits into personal accounts to taxable income unless the taxpayer can PROVE the amount was personal in nature. Lunacy and unfair!!!! The answer is to deposit all commissions into a business account and pay all expenses from the business account. Our firm is refusing to provide personal accounts of real estate agents on the
basis that all commissions in real estate are paid from roker trust accounts and that the broker figures for income on a T4A slip or annual summary are reliable and accurate. Remember that business dinners and events including travel
dinners and the cost of attendance at sports or cultural events are limited to 50% deductibility and this applies even to gift certificates for dinners or events.