Income Tax Help - Tax Information

1. Do you have to file income tax?

There are a number of situations that you are required to file a tax return. Most important ones are:

You have any tax payable
You disposed of any capital property such as rental or stocks in the year
You are under demand by CRA to file a tax return
You have Home Buyers Plan or Life Long Learning Plan or are Self Employed and have or CPP payable
You or your spouse wish to receive GST or Universal Child tax Benefit child tax benefits

2. Dependents

You may be able to claim this amount if you at some time during the year supported a dependent who usually lives with you. Two types of these deductions are:

Spousal amount: if you supported a spouse or common law partner who was a Canadian resident at some time during the year, you can claim them as a dependent. However, your spouse’s earnings will limit your claim. For spouses who are out of the country, proof of support is required.
Eligible Dependent: If you were single, divorced, separated or widowed at some time during the year, and supported a child under 18 who is related to you by adoption or in fact, your parents, grandparents, brother or sister over 18 but infirm or disabled, you may claim an eligible dependent amount for that dependent. The dependent’s income however, could affect your claim.

3. Taxable vs. Nontaxable Income

Most of the income earned by the individuals is subject to tax. Some examples of these are:

Employment income
Tips & gratuities
Research grants
Certain support payments
Interest & dividends and other investment income
Regular or lump sum pensions
Income from business, farming, rental or fishing
Old age security or Canada Pension Plan payments
Capital gains
Employment Insurance payments
Universal Child Tax Benefit.

However, some of the incomes received in Canada are exempt from income tax. Some examples are:

GST / HST credit or Canada Child Tax Benefit payments
Quebec family allowances and Allowances for Handicapped Children paid by the Quebec
Lottery or gambling winnings
Most gifts and inheritances
Social assistance and Worker’s Compensations Board payments
Most of the civic settlements and insurance company proceeds such a death & health benefits
Strike pay
Military Disability Pension
Status Indian income situated on a reserve
Profits from the sale of the principal residence

4. Filing Deadlines & Related Issues

You should file your income tax by April 30th of the next year. If either you or your spouse is self employed, then your due date will be June 15th of the next year. If you are late and have any balance owing on your tax return, you may be subject to penalty of 5% and interest of 1% per month for any outstanding balance.

You have normally two types of taxes to calculate; Federal and Provincial taxes. The determination of whether you pay any taxes in Canada or not is based on the “residency” unlike U.S. which is “citizenship”. Meaning that you may be a Canadian citizen by law but a non-resident for tax purposes. The rules governing the residency are quite complex and should be discussed with your Round House Tax Consultant. If it was determined that you are a Canadian resident, then the province that you resided on December 31st of the tax year, is the province that you pay your provincial taxes to.

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New rules for the 2007 tax Year.

1. Personal, Spousal and Eligible Dependants amounts.
For 2007 tax year, the personal amount is set at $9600.00.
A major change in calculating spousal and eligible dependant amount is the elimination of the threshold for those two credits. Thus, every dollar earned by the spouse or the dependant will reduce those credits.

2. Pension Splitting.
Effective 2007 tax year, under a joint election, tax payers who are eligible for the $2000.00 pension income credit, will be able to split up to 50% of the pension income to a resident spouse/common law partner.
There are limitations on the Pension Splitting.

3.New Child Tax Credit.
For 2007 and subsequent years, the Budget proposes to introduce a non-refundable Child Tax Credit of $2000.00 per child under the age of 18 at sometime during the year for parents. Where a Child resides with both parents throughout the year, either parent would be entitled to claim the Child Tax. Any unused portion could be transferred to that parent's spouse or common-law partner.

An interview with a Round House Tax Consultant will help determine if you are eligible for any of the new deductions and tax credits.

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