TAXFlash News from IncomeTaxCanada.net

Jim Maroney

:: Frustration and preparing your income tax return go hand in hand

:: Maroney on Money for April 27, 2002

Witness the numerous advertisements in the media depicting stressed out taxpayers on the verge of a nervous breakdown while preparing their tax returns. These images are in stark contrast to the relaxed, cheerful taxpayers pictured on CCRA’s General Income Tax Guide. Which characterization is correct often depends on the complexity of your financial affairs and, in many cases, how intertwined your tax return is with your spouse’s return and the returns of other dependants.

Consider, for example, the transfer of various credits between tax returns – an area taxpayers find very confusing and often overlook, deliberately or otherwise. It’s also an area where I’ve frequently found mistakes when reviewing tax returns prepared in prior years.

In Canada, each individual taxpayer files a separate tax return regardless of marital status; there is no provision available that allows spouses to file a combined return. Although you may be separated from your spouse in the eyes of CCRA, there are certain things that can be shared or transferred between spouses and there are lucrative tax benefits to be had in doing so.

For example, certain non-refundable income tax credits can be transferred from one spouse to another. Consider the following list:

• if your spouse was 65 years of age or older in 2001 you may be able to transfer up to $3,619 of their age credit;

• if your spouse received pension income during the year there is a $1,000 pension credit which may be eligible for transfer. If your spouse is 65 or older and doesn’t currently have a source of pension income you should talk to your investment advisor about purchasing an investment that will generate income that qualifies for this tax credit;

• if your spouse is eligible for the disability amount you may be able to transfer all or part of this $6,000 disability tax credit to your income tax return. Form T2201, which describes your spouse’s disability, will have to be completed by his or her doctor or optometrist to support your claim, and

• if your spouse attended school during the year, you may be able to transfer the tax credit for tuition fees paid and also the education amount to your tax return to a maximum of $5,000. The transferring spouse will need to complete Schedule 11 to determine the amount eligible for transfer. Since a taxpayer can carry-forward any unused tuition/education credits, the transferring spouse should be very careful not to transfer more credits than are required to avoid wasting potential benefits down the road.

Transfer credits to your dependants

In each case, the amount of the above tax credits that can be transferred depends upon your spouse’s income. Actually it’s a little more complicated than that – the starting point is your spouse’s taxable income reduced by their personal credit, CPP/EI credits with a further adjustment for tuition/education credits where these items are involved. The technical calculation is encapsulated in Schedules 2 and 11 where tuition/education credits are a concern. You’ll need to complete one or both of these schedules to determine the value of the tax credits that can be transferred from your spouse.

Where children are involved, probably the most common credits that are transferable to a parent are those concerning tuition and education. Tuition and education amounts not needed by a student to reduce their federal tax payable to zero can be transferred to one parent (and only one parent) of the student or even a parent of that student’s spouse. The maximum amount that can be transferred by each student is $5,000 minus the amount claimed by the student. If the student is married, these credits can only be transferred to a parent where the student’s spouse has not claimed the spouse or common-law partner amount. Note that tuition and education credits transferred to a parent must be used in the year of transfer and cannot be carried-forward to a future year.

As in the case of a spousal transfer, Schedule 11 needs to be completed by the student to designate the amount to be transferred. Any amount not designated for transfer to a parent can be carried-forward by the student for use in 2002 so it’s important for the student to pay attention when completing this calculation to ensure that they don’t designate for transfer more credits than are allowed or necessary.

Finally, if your child is disabled and entitled to the $6,000 disability tax credit, you may be able to claim all or part of this amount on your income tax return. Where the disabled dependant was under the age or 18 at the end of 2001, a further supplement of $3,500 is also available for transfer. The amount eligible for transfer will depend on the dependant’s taxable income in the year. As with all disability claims, you will need to have the child’s medical doctor or optometrist complete the Disability Tax Credit Certificate Form T2201 and attach it to your income tax return.

You may be alone in filing your personal tax return but don’t overlook the ability to transfer credits from your spouse or other dependants - you could be missing out on some lucrative tax savings.

...for more Canadian Tax Information

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Free Tax Advice Article Submitted to Income Tax Canada.net exclusively by Jim Maroney
CA Canadian Chartered Accountant with Brown, Andrews & Maroney in Maple Ridge, BC, Canada

Official details about this and other topics on income taxes can be found in English & Francais at www.ccra-adrc.gc.ca
Canada Revenue Agency (CRA) / l'Agence du revenu du Canada (ARC) offers bilingual information on its website for
NetFile, deductions (benefits - credits), interpretation bulletins, income tax forms (returns) and tax tables (brackets).

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