By Heather Compton and Dennis Blas
Welcome back to Part 2 of our tax strategies series. Last time we looked at tax deductions (such as RRSP contributions and Carrying Charges) which allow us to reduce the amount of income that is subject to taxation: this time our focus is tax credits that reduce the amount of tax paid.
First, our usual detour for the fine print – it is important to get qualified advice on your personal tax situation – what follows is a general guide. See the Canadian Revenue Agency web site or Tax Tips.ca for some helpful resources.
Taxpayers aged 65 and over at the end of the year are eligible for this credit (federal credit of $6,446) provided their net income is below a threshold amount (there are provincial and federal thresholds).
Check the CRA web site for current levels. The federal credit begins to be clawed back at incomes over $32,506 and is completely lost at incomes over $75,480. Ah yes, this should increase your interest in effective income-splitting strategies.
Pension Income Amount
This is a federal tax credit (provincial credits may also apply) of up to $2,000 that applies to eligible pension income which at age 65 and over includes employer pension payments, annuity payments from registered funds and payments from RRIFs, LIFs, and LRIFs.
Under age 65, only employer pension-plan payments qualify (unless other eligible payments are received because of the death of the partner or spouse). Although we are not required to RIF before age 71, some will do so at age 65 with at least a portion of retirement assets in order to qualify for this credit.
If a qualified person (usually a medical doctor) certifies that you have a severe and prolonged mental or physical impairment that markedly restricts your ability to perform certain defined basic activities of daily living, then a disability amount may be claimed.
Regretfully, my Aunt suffered from dementia and after a fall my Uncle required extra care. Both qualified for a Disability Credit. CRA form T2201, Disability Tax Credit Certificate must be completed and filed. There are federal and provincial credits.
Caregivers should get information on Caregiver Tax Credits which may be relevant while providing care to a dependant adult (not a spouse) residing in your home.
This tax credit is not only available for retired persons or seniors but you may have found yourself ineligible for the deduction during your working life because your income was too high or the share of medical expenses paid from your own pocket was too low. Chances are this tax credit will become increasingly important as older taxpayers because we tend to incur more eligible expenses and have less third-party coverage.
Eligible expenses include bathroom aids such as hand rails, mobility aids such as wheelchairs, scooters and walkers, vision and hearing aids, homecare services and dentures to name a few. Should you claim medical expenses for full-time care in a nursing home, you may be ineligible to claim the disability amount.
Details are available on the CRA website and Interpretation Bulletin IT519R2 Consolidated, Medical Expense and Disability Tax Credits and Attendant Care Expense Deduction may be useful. Don’t forget premiums for private health coverage including healthcare coverage while travelling!
The lower-income spouse can claim eligible medical expenses for both partners and can choose any 12-month period ending in the tax year in order to maximize the expenses. The federal tax credit is for medical expenses incurred over and above a threshold amount of $2,024 (2010) or 3% of net income, whichever is lower.
Donations can be claimed by either spouse but it is more tax effective if the higher-income earner claims all contributions. The federal credit is calculated at the lowest marginal rate for the first $200 and 29% on any amount over that (plus provincial credits). You can carry the contributions forward for five years to earn a bigger credit.
Tuition, Education and Textbook Credits
Many of us will contemplate a return to school in our later years. Fees must be a minimum of $100 per course and the institution must issue either a T2202 or T2202A. Federal credits may be available for full- or part-time studies and students may qualify to claim tuition and education expenses incurred outside Canada! See the CRA’s web site for further details on claiming tuition and textbooks.
If you have been a renter for at least four years and then made the decision to purchase a home in 2010 you may qualify to claim $5000 for the Home Buyers’ Tax Credit. Sorry, the Home Renovation Credit was for 2009 and wasn’t carried over to the 2010 tax year.
Many tax filers don’t claim all the credits they are eligible for – be sure you aren’t one of them!
Continue reading Part 3 of our Tax Strategies series covering Tax Shelters and Income Splitting.
About the Authors: Heather Compton has presented seminars on financial and retirement lifestyle issues for over 30 years. She retired as Vice President and Senior Investment Advisor with a major financial services company. Heather and husband Dennis Blas co-present retirement seminars for a variety of corporate clients and are the co-authors of Retirement Rocks! Canadian Boomers Invest in Life. You can find their book online or in independent bookstores. See more of their advice at Retirement Rocks.