The Brass Tacks

The April 30 Filing Deadline

Are you confused about the April 30 Canadian tax deadline? Most of our clients are, so I thought I would make a blog post out of it!

If you are not self-employed your filing deadline is April 30. You can file your 2007 tax return late, but if you have a balance owing after April 30 interest and penalties will be added by Canada Revenue Agency.

If you can't get your tax return done on time, it's a good idea to estimate your balance owing and make a payment to CRA on or before April 30. See this page for instructions on how to go about paying CRA.

The amount of interest CRA charges varies every three months. Late penalties are typically 5% of the unpaid amount, plus 1% of the unpaid amount for each full month that it is late, to a maximum of 12 months (more information).

If you are self-employed filing after April 30 isn't so bad. If you owe money on your tax return CRA will charge interest on the overdue amount, but late penalties are not charged unless the amount is still unpaid on June 15.

If you are a GST Registrant, any GST remittances you owe CRA for last year are also due April 30. Interest and late penalties are applied to outstanding amounts after that date.

You have to make GST payments using Form GST34 (personalized) or GST62 (non personalized). These forms are available directly from CRA–they can't be downloaded from their website. You might have a form in your files that was sent to you by CRA. This page has instructions on paying GST amounts owing.

In certain situations CRA can assess an additional late filing penalty. For example, if you own foreign property that cost more than $100,000, and you don't file a return by April 30, CRA will penalize you $25/day up to a maximum of $2,500.

If you do make a payment of income tax or GST, it is important to let your tax preparer know how much you paid so he/she can include it as a credit on your return(s).

RRSP Contribution Deadline Approaches

February 29 is the deadline for making a contribution to a Registered Retirement Savings Plan (RRSP) that can be deducted on your 2007 Canadian income tax return. You can use an RRSP to save for retirement, education, or the purchase of a home. Your RRSP Deduction Limit is shown on your Notice of Assessment for 2006, and can also be obtained by logging into CRA's My Account service, or by contacting your income tax preparer.

Notable Canadian Tax Law Changes

The Government of Canada continues to make small but significant reductions in federal income tax, while targeting families and seniors for special tax relief.

Income Tax Reductions

The lowest personal income tax rate has been reduced from 15.5% to 15%.

Certain non-refundable tax credits have increased: the "Basic Personal Amount," "Spouse or Common-law Partner Amount," and "Amount for an Eligible Dependant" have all gone up to $9,600.

Tax Relief for Seniors

The much-anticipated pension income splitting provision comes into effect in 2007. Recipients of certain types of pension income will now be permitted to share that income between spouses, which should provide savings on a couple's overall tax bill. More Information.

Tax Relief for Families

Elementary and secondary school scholarships and bursaries are no longer taxable.

There is a new non-refundable tax credit called the "Amount for Children Born in 1990 or Later." You can claim $2,000 for each of your children under 18 years old at the end of the year, and you may be able to transfer this amount to your spouse. The new credit is claimed on Line 326 of Schedule 1 (which for some reason has been sandwiched in between Lines 305 and 306).

The Canada Employment Amount has increased from $250 to $1,000.

For all those parents who diligently saved their children's fitness receipts in 2007, you can now claim the new "Children's Fitness Credit" for fees paid to register your child in a prescribed fitness program, up to a maximum of $500 per child. Your child must have been under 16 at the beginning of the year. More Information.

GST Reduction

A tax measure to benefit all Canadians: the GST rate will be reduced from 6% to 5% on January 1, 2008. Note that if you live in New Brunswick, Nova Scotia, or Newfoundland and Labrador, the provincial tax (HST) remains at 8%. More Information.

Installment Payment Threshold Increased

The installment threshold for individuals has increased to $3,000 ($1,800 for residents of Quebec). Certain taxpayers who previously had to prepay their tax throughout the year will now be able to save their installment payments and earn interest on them until tax time! More Information.

Related Websites

Canada Revenue Agency revised it's website in 2007, making it more user-friendly. It is always worth visiting for highlights of Canadian tax changes.

What's New for 2007?

2007 Economic Statement

CRA Tax Alert

Canada Revenue Agency warns against investing in schemes that promise tax-free withdrawals from RRSPs and RRIFs.

Investing in such schemes could result in the loss of retirement savings to "unscrupulous promoters." CRA is aggressively pursuing taxpayers who attempt to avoid tax using these techniques (more information).

Tax Relief for Canadian Seniors

The Canadian government has implemented a "Tax Fairness Plan" that delivers some tax relief to seniors. The first part of the plan involved enhancing the Age Credit Amount in 2006.

The 2007 tax year brings something new (and I think historic) to Canadian taxation: recipients of certain types of pension income will be permitted to share that income between spouses to save on the overall tax bill. Income "splitting" has always been possible in the United States with the use of the "Married Filing Jointly " filing status, but it is something new to Canada. It should provide welcome relief to seniors who for the most part receive the worst kind of income for tax purposes, straight pension income with few deductions allowed.

There appears to be wide-spread confusion, at least among my tax clients, about what type of income can be split. According to the Department of Finance, RPP, RRSP, and RRIF income can be split, but payments from OAS, CPP, QPP, and certain RCAs will not qualify.

New Tax Break for Canadian Families

On June 30 the CanWest News Service reported on the new federal child tax break for families with children under 18 years old, effective July 1. The tax savings comes in the form of a refundable tax credit claimed on your income tax return, and is worth up to $310.

Employees can take advantage of the tax break now by having their income tax withholdings (slightly) reduced. You need to fill out a new TD1 form to give to your employer. The form is available on Canada Revenue Agency's website.