Tax Tweets: Tidbits of Canadian Tax Info
Recently I met a gentleman who has been divorced for some time. He is a seemingly kind and considerate person who has prepared his own tax returns for several years. Being divorced with three children, he shared custody with his ex-spouse. Early in our conversation, I became aware that he did not utilize deductions and/or tax credits available to his situation. For several years, he has not benefited from the tax laws available to his situation.
Sometimes as a tax accountant, I take for granted the level of knowledge that the average Canadian has for our complex tax system. At times I can get wrapped up in the complexities of tax planning and laws that I assume the basics are known by all. It is a shortfall on my part, for sure. So I decided to start a series of Tax Tweets that cover some basic tax information, partly to educate or remind us of some important aspects of our tax system, and partly to ensure I do not overlook the obvious. So I welcome you to read, participate and invite others. I look forward to learning more about you.
The very first Tax Tweet is on the topic of separated of divorced individuals who may not be aware of some benefits to them in our tax laws. Why this topic? Well, I am not sure exactly. Perhaps it is because it relates to the gentleman I recently met or maybe it is because my wife is a Collaborative Law Lawyer and she has many clients that may use this knowledge. Regardless, I have to start somewhere, so why not here…
Tax Tweet #1: Amount for Eligible Dependent
For some situations, separated or divorced parents who have not lived common law over the previous tax year may be eligible to claim the amount for an eligible dependent. This claim can be huge. In 2011, the non-refundable tax credit was $10, 527 which would result in a reduction of federal tax payable of $1579 as well as an additional provincial tax credit, depending on your province or territory. In New Brunswick the provincial tax credit is about $958 for a combined tax reduction of $2537.
There are certain criteria to qualify for this claim such as the custody and living arrangements, any child support involved, is the child claimed by another parent, ect. So please consult a tax professional to find out if you are eligible for this credit. More details can be found on CRA website entitled “Can You Claim the Amount for An Eligible Dependent?” and What are the situations in which you cannot claim the amount for an eligible dependant?
Tax Tweet #2: Children born after 1994 (for Tax Year 2011)
Parents of children born after 1994 receive a federal tax credit of $2131 in the tax year 2011. This results in a federal tax reduction of $320. Although your children may not live with you full time, you may still be eligible to receive this federal tax credit, assuming no one else is claiming it for the child.
Tax Tweet # 3: Ensure only one Person is Claiming the Child
One main criteria of Tax Tweet #1 and #2 is that only one parent can claim the tax credit for the child. If you are separated and have only one child together, this could be difficult as both parents may want to claim the tax credit. In this case, CRA will revert to the court ordered divorce or separation agreement to see if it is stipulated in the agreement. If a determination is not provided for in the agreement, and the parties cannot agree on who claims the child, then CRA has ruled that neither party can use the deduction. It would be a shame if this was to happen so please ensure you and your ex-spouse discuss this and come to an agreement.
These tax tweets are meant to promote alerts that may potentially affect the reader’s situation. It is not meant as tax advice and should not be taken as such.
Gerard is an experienced accountant located in Rothesay, just outside Saint John, NB. He established CG Jones CGA in 2011 to offer expert services in Tax, Finance, Project Management and Consulting. His intention is to provide these expert services, usually affordable only to large corporations, to small and medium businesses as well as Professionals and business owners at rates more in line to what this group can manage. Gerard is just a call or email away if you would like to discuss ways your firm can look at tax savings, finance options, or project management needs. He can be reached at (506) 849-0913 or by email.
