I. Income Tax Rates
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TAX tips Brought to you by the Professional Association of Internes and Residents of Ontario 2010 Edition This article, prepared by PAIRO’s auditors Rosenswig McRae Thorpe LLP, outlines some points to consider ii) Registered Retirement Savings Plan (RRSP) in preparing your income tax returns. Remember (Deducted on Line 208) that your tax returns are due April 30, 2010. Investing in an RRSP is a simple way to contribute towards your future, providing for tax-free growth of I. Income Tax Rates your money while reducing your current tax liability. The combined federal and Ontario marginal income tax The deadline for 2009 contributions was March 1, rates for 2009, allowing for the basic personal amount 2010. However, you should realize that it is more credit of $10,320 are as follows: beneficial to contribute to your RRSP as early in the year as possible to receive the greatest benefit from Taxable Income: tax-free compounding of your money. When deciding on what type of investments to hold in- $10,321 to $36,848 ............................21.1% side your RRSP remember that you only pay tax on 50% $36,849 to $40,726 ............................24.2% of capital gain earnings vs. 100% on interest income. $40,727 to $64,881 ............................31.2% Dividends also provide certain tax advantages because $64,882 to $73,698 ............................33.0% they may be taxed at 31.3% (or potentially less for cer- $73,699 to $76,442 ............................35.4% tain types of dividends) at the top bracket vs. 46.4% for $76,443 to $81,452 ............................39.4% interest. Due to this favourable tax treatment given to $81,453 to $126,264 ............................43.4% capital gains and dividends, it can be more beneficial Over $126,264 ............................46.4% to hold investments yielding this type of income outside Each year the marginal personal tax brackets change be- of your RRSP. This is because when you receive RRSP cause they are indexed for inflation. distributions they are taxed at the same rate as interest. For 2009 the maximum CPP contribution for the year If you do not know your contribution limit you can is $2,118.60 (2010: $2,163). The maximum CPP con- find out what it is as follows: tributions occur when employment income is at least 1. You can call 1-800-267-6999 for Canada Revenue $46,300 ($47,200 in 2010). The maximum EI contribu- Agency’s (CRA) calculation of your limit. tion for 2009 is $731.79 (2010: $747). The maximum contributions for EI occur when employment income is 2. You can also log on to CRA web site: http://www. at least $42,300 ($43,200 in 2010). cra-arc.gc.ca/, and go to “My Account”. Here you can sign up and receive a password to access your II. Ontario Health Tax personal tax information including your RRSP con- In addition to the tax rates described above, Ontario tribution limit, account balance, status of you re- charges the Ontario Health Tax as follows: turn, and it provides an easy means of changing the information that the government has on record Taxable Income Ontario Health Tax: such as your address and telephone number. All you need to receive your password is your Social $0-$20,000 ........................................$0 Insurance Number, date of birth, a copy of your $20,000-$48,000 ...............................$0-$450 prior year tax return, and your current postal code. $48,001-$72,000 ...........................$450-$600 $72,001-$200,600 .......................... $750-$900 Essentially, your RRSP contribution limit is the lesser Over $200,600 ................................... $900 of 18% of your prior year’s earned income and the limit for the year which is $21,000 for 2009. The 2009 RRSP limit of $21,000 is reached when 2008 earned III. Deductions From Income income reaches $116,667. The maximum RRSP lim- In computing taxable income, Canada Revenue Agency per- its are expected to increase to $22,000 for 2010. mits the deduction of certain expenditures. However, these Your limit is adjusted for any unused RRSP con- expenses are only deductible to the extent that you have not tribution room from prior years and your pension been fully reimbursed by your employer. adjustment for the previous year. Be careful not to i) Professional and Union Dues over contribute to your RRSP. The penalty for an (Deducted on Line 212) over contribution is 1% for each month of the over Mandatory annual PAIRO dues can be used as de- contribution. An over contribution of $2,000 is per- ductions on your income tax return. (The amount mitted; however, it cannot be deducted until there should be posted on your T4 slip.) is available RRSP contribution room. One strategy, for some individuals, may be to defer RRSP child care expenses is to be taken by the supporting contributions (or perhaps to make a contribution towards individual with the lower income. your RRSP but not claim a deduction), until your income becomes higher. The government allows taxpayers to Maximum yearly deductions are the lesser of two-thirds of carry forward the unused portion of their RRSP con- earned income and the total of $7,000 per child under 7 tribution limit indefinitely. As a basic example, if your and $4,000 per child aged 7 to 16. The overriding limita- contribution limit based on earned income was $7,000 tion is the actual amount paid for child care in the year. in 2008 and $8,000 in 2009 and you made a $2,000 There is a maximum deduction of $10,000 available for contribution in 2008, the unused contribution limit of children who are eligible for the disability credit. $5,000 from 2008 would be added to your 2009 limit This deduction is also available in the following cases: so that your limit becomes $13,000 for 2009. If your in- (i) to individuals whose spouse is a full-time or part-time come becomes higher in the near future, it may make student, (ii) to single parents who are studying full-time sense to take a larger RRSP deduction during a year in or part-time, and (iii) to two-parent families where both which your tax rate is higher. Contact a tax consultant if parents are attending school at the same time on a full- you need assistance in this area or obtain the “RRSPs and time or part-time basis. Full-time and part-time educa- Other Registered Plans for Retirement” guide. (T4040) tional programs have to meet certain specific criteria. iii) RRSP Home Buyer’s Plan There are some other situations, which may arise that If you are buying a home in the next year there is a pro- will allow the higher income spouse to claim the child gram available which allows you to withdraw $25,000 care expenses. Please consult your accountant for fur- from your RRSP to use towards the down payment. Each ther information. A claim for child care expenses should person buying the home can withdraw $25,000 from be made on form T778, which is included in the “Child his or her own RRSP; therefore, when buying a home Care Expenses Guide”, published by Canada Revenue with your spouse a total of $50,000 can be withdrawn. Agency and found on their web site. The money you borrow must be returned to the RRSP in vi) Automobile and Other Travelling Expenses annual instalments over a 15-year period, starting with (Deducted on Line 229) the second year after the withdrawal. The RRSP repay- The cost of driving a car to work, even when on- ments made can be designated from either contribu- call, is not deductible as an automobile expense. tions you made during the year or from contributions Automobile/travelling expenses are only deductible you made during the first 60 days of the following year. if the employee is ordinarily required to work away For example, if you withdrew funds in 2009 you must from the office and is required to pay his/her own begin repayment by February 29, 2012. Generally, first travelling expenses. The deduction is the percentage time buyers and their spouses are eligible to make this of your total kilometres you drove for employment withdrawal. If you have owned a house in the past you purposes multiplied by your automobile expenses may also qualify but there are very strict criteria that you i.e. gas, maintenance, insurance, licence and reg- must meet. Please consult a professional tax advisor to istration, interest on your car loan. The maximum help you determine if you qualify. Only contributions amount of car loan interest you can deduct is $300 that have been in your RRSP for more than 90 days can per month. If you do not lease, but own your car, be withdrawn from your RRSP and still taken as a de- you can also deduct a portion of the car’s purchase duction on your tax return. For example as of January price each year. There are very strict guidelines that 1, 2009 your RRSP balance was $15,000. On April 1, must be adhered to when you deduct a portion of 2009 you contributed $2,000. On May 1, 2009 you your car. Please consult a professional tax preparer want to withdraw $17,000 under the home buyer’s plan. for these guidelines. In order to claim a deduction, The $2,000 contribution was not contributed more than a form T2200 must be certified by your employer. 90 days prior to May 1, 2009 and, therefore, will not be The T2200 does not have to be filed with your tax allowed as a deduction. return but should be kept on file in case Canada There are no immediate tax consequences if the Revenue Agency requests a copy of the form. simple Home Buyer’s Rules are followed. vii) Interest Expense iv) Moving Expenses (Deducted on Line 221) (Deducted on Line 219) For interest to be deductible, the purpose of the loan Moving to a new home can be an expensive process. must be to earn income. A good tax planning idea is to Fortunately, certain moving expenses incurred to move use current cash holdings to pay down debt (such as a to a new location for work or for full-time post secondary mortgage) on non-income producing assets. If you also education in Canada, are tax deductible if the individual want to invest in income producing assets, for example moves at least 40 kilometres closer to the new place of stocks, you can use new debt, instead of using your work, business or study. Eligible moving expenses can current cash holdings, to make this purchase. only be deducted from income earned at the new loca- tion and any excess deductible expenses can be carried IV. Non-Refundable Tax Credits forward and available to deduct in the following year. A percentage of the following items can be used as a A T1-M form (Claim for Moving Expenses) is available deduction from the tax you pay. These tax credits are un- from your district tax office and on the Canada Revenue like the expenses discussed above which are deductions Agency web site http://www.cra-arc.gc.ca/. from your income. v) Child Care Expenses i) Interest on Student Loans (Deducted on Line 214) (Claimed on Line 319) The cost of caring for children may be a deductible There is a tax credit available for interest paid on expense for a parent. Generally, the deduction for eligible student loans approved under the Canadian 2 or Provincial student loans programs. Your financial $10,000, you can donate the securities to a reg- institution will issue a receipt showing the interest istered charity and receive a donation receipt for paid on your eligible student loans. $10,000 and not pay any tax on the increased value of the shares. The credit may be claimed in the year the interest is paid or the five succeeding taxation years. Unlike v) Public Transit Passes Credit the tuition fee and education tax credits, this credit (Claimed on Line 364) is not transferable. Public transit passes must be for a duration of a 28 consecutive day period, and be in respect of transit ii) Education Tax Credit by bus, train, subway, or ferry. Documentation for (Claimed on Line 323) the public transit expenses claimed does not have to There is a tax credit available for students who have be submitted with the tax return but, it must be kept received a T2202A education tax credit slip from a in case the government asks to see it. Proper docu- university. You can receive a credit for education mentation means that the transit passes indicate a and textbooks of $465 per month of full time study period of use of a 28 day continuous period or great- and $140 for part time study. For example, a student er, the date or period for which the pass is valid, the who was in full time study for 12 months in 2009 name of the transit authority, the amount paid for the would receive an education and textbook credit to- pass, the identity of the rider by name or by unique talling $837 ($465 x 12 months @ 15%). identifier. Monthly passes as well as four consecu- Should a student not need their entire amount of tive weekly passes would qualify for the credit. education credit to reduce their tax liability to zero, vi) Canada Employment Expense any remaining credit amount can be transferred to (Claimed on Line 363) an eligible individual (ie. spouse or common-law The amount of the credit is the lesser of $1,044 and partner, or under certain circumstances, a parent or the employment income for the year and is available grandparent). To make this designation, you must to anyone with employment income. complete and sign the back of the T2202A. A copy of the signed form should be kept as it does not have vii) Adoption Tax Credit to be filed with the return, but may be requested at a (Claimed on Line 313) later time by CRA. A credit is available for up to $10,909 of expenses. Eligible expenses include: adoption agency fees, Students are allowed to indefinitely carry forward any court and legal costs, and travel expenses. unused education credits. This will allow you to use the credit when you do have sufficient income to do so. viii) Child Credit Any amount not used in the current year, and not trans- (Claimed on Line 367) ferred to an eligible person, will automatically be car- Taxpayers with children born in 1992 or later may ried forward to the next year. Once you earn enough claim a $2,089 credit for each such child. income to use the credits, they must be used. ix) Children’s Fitness Tax Credit iii) Medical Expenses (Claimed on Line 365) (Claimed on Line 330) Parents with children under the age of 16 may claim A medical tax credit can be claimed on qualifying a credit of up to $500 per child in respect of the costs medical expenses paid for you, your spouse, or your of certain fitness programs. It is up to the programs dependants. You can only deduct medical expenses to determine whether they qualify for the fitness tax over a particular threshold. The threshold is the lower credit. Make sure to ask for a receipt and to enquire of 3% of your net income and $2,011. Total eligible from fitness programs if they qualify. medical expenses paid within any 12-month period ending in 2009 can be claimed. So it may be optimal x) Home Renovation Tax Credit to choose a 12- month period in which the greatest (Claimed on Line 368) amount of eligible medical expenses is incurred. In ad- This non-refundable tax credit applies to eligible dition, it is generally more advantageous to have the expenses of more than $1,000, but not more than lower income spouse claim the medical tax credit. $10,000, resulting in a maximum non-refundable tax credit of $1,350 [($10,000-$1,000) x15%]. Ex- iv) Charitable Donations penses eligible for this credit are expenses on a prin- (Claimed on Line 349) cipal residence that renovate or alter the dwelling Donations made to registered Canadian chari- which can include, the cost of labour, building ma- ties by you or your spouse are eligible for a tax terials, fixtures, equipment rental, but does not in- credit. The credit has a combined federal and clude repairs and maintenance. The work must be provincial effect of approximately 22% on the started and completed after January 27, 2009 and first $200 and 46% on the remainder of eligible prior to February 1, 2010 to claim the expense on donations up to 75% of the taxpayer’s net in- the 2009 personal tax return. A professional tax pre- come for the year. Unused donations can be car- parer should be consulted for details on what items ried forward up to 5 years. may be claimed. Publicly-listed securities that are donated to a xi) First-Time Home Buyers’ Tax Credit registered charity or other qualified donee (other (Claimed on Line 369) than a private foundation) do not result in paying This is a non-refundable tax credit of $5,000 for first tax on any gain on the securities donated. For time home buyers that purchase their home after Jan- example, if you own shares of a publicly-listed uary 27, 2009. This credit has a potential savings of security which cost $5,000 but are now worth $750 ($5,000 x $15%) in taxes. 3 V. Tax Saving Plan Tax Free Savings Account and any income earned i) Registered Education Savings Plans (RESP) on these funds can be withdrawn at any time in the RESPs are plans which enable individuals to save for a future. Contribution room for the following year is child’s education. Up until 2008, the annual contribution increased for any net amount withdrawn from the was limited to $4,000 per beneficiary with the total life- account in the previous year. For more information time maximum cumulative contribution of $42,000 per on Tax Free Savings Account, please visit the govern- beneficiary. This policy has now been abandoned and ment website at www.tfsa.gc.ca replaced with a lifetime contribution limit of $50,000 iv) Ontario Tax Credits with no annual restrictions. Contributions can only be Some people may be able to qualify for Ontario made to the plan during the first 31 calendar years of the property and sales tax credits if their family in- plan’s existence and the plan cannot exist for more than come is not too high. Refer to your General In- 35 years. come Tax Forms to see if you qualify. The federal government will pay a 20% Canada Educa- tion Savings Grant (CESG) on the first $2,500 of annual VI. Other Items contributions made to all eligible RESPs of a qualifying i) Province of Residence beneficiary, up to and including the year in which the You must file a tax return for the province in child attains age 17. The maximum total CESG that can which you resided at December 31, 2009. Your be paid in respect of any child born after 1998 will be province of residence is determined by the $7,200. Unlike RRSPs, there is no deduction for contri- strength of your residential ties to a particular butions. However, income earned on plan assets is not location. If you are a resident in one province taxed until received as education support payments by but are receiving self-employment income from the student. Eligible investments are the same as those a permanent establishment in another province, for RRSPs and other deferred income plans. Contact a multiple returns may need to be filed, contact a tax consultant if you need assistance in this area. tax consultant for more information. ii) Tax-free RRSP withdrawals for education ii) Marital Status A Canadian resident may withdraw funds from an If you were married (or living common-law) at RRSP, free of immediate income tax, in order to fi- any time during the taxation year, and either you nance full-time training or education for the taxpayer or your spouse earned less than $10,320, claim- and his/her spouse. This program is similar in con- ing a “spousal amount” could result in a fed- cept to the RRSP Home Buyers’ Plan. eral tax savings of up to $1,548. Additionally, if your spouse has little or no taxable income, you Withdrawals can be made for four successive cal- could possibly use some of his/her tax credits endar years to a maximum of $10,000 for a given (disability amount, tuition and education, etc.) calendar year. The maximum aggregate RRSP with- that would otherwise be unused on their return. drawal for the four years is $20,000. More than one Refer to Schedule 2 of your Income Tax Return withdrawal may be made in any given year from any for information on which non-refundable cred- number of specific RRSP accounts, provided the an- its may be transferred from one spouse (or com- nual and maximum limits are not exceeded. mon-law partner) to the other. RRSP withdrawals under this plan must be repaid iii) Universal Child Care Benefit (UCCB) without interest to an RRSP in equal instalments over Effective July 1, 2006, all families in Canada be- a period of 10 years commencing no later than 60 came eligible to receive $100 per month for each days after the fifth year following the withdrawal. child under the age of 6 for whom they were the primary caregiver. Please be aware that if you To qualify, the individual or his/her spouse must enrol as or your spouse receive this amount, it must be a full-time student in a qualifying educational program included in income for the lower income earn- of at least three months duration at an eligible educa- ing spouse. tional institution. Where funds are withdrawn before the enrolment, the enrolment must occur in the year iv) Scholarships and Bursaries of the withdrawal or in January of the following year. In 2009, similar to 2008, all amounts received Special rules apply where funds are withdrawn and the on account of scholarships, fellowships, and student does not finish the qualifying program. bursaries may be excluded from income if they are received in connection with the student’s en- iii) Tax Free Savings Account (TFSA) rolment at a designated educational institution. Starting in 2009, all Canadian residents at least 18 years of age and with a valid SIN could open a Tax Free Savings Account. Up to $5,000 could be contribut- VII. Residents with Independent ed to the account during 2009 and the contribution Practice Licences room for 2010 was $5,000 as well. The contribution These residents should obtain a Business and Professional room will be indexed to inflation each year. Any Income Tax Guide, which has plenty of useful informa- income earned within the account is not taxed. Also tion. They must complete a form T2124 on which they re- the higher income spouse can contribute to the low- port their income and expenses. Sound advice for anyone er income spouses TFSA. The funds contributed to a with mixed income sources is to consult an accountant. Tax Tips is intended to provide comments for Internes and Residents of Ontario. Comments are general in nature and are not intended to provide specific tax advice. 4 Additional information from PAIRO on CMPA dues Under the Collective Agreement, residents must pay CMPA fees as a condition of employment. Canada Revenue Agency (CRA) has permitted some employed physicians to deduct CMPA fees from their taxable income under “other deductions” (found on line 232 of the return) where a com- pleted CRA Form T2200 has been filed with the return. Note that CRA Form T2200, “Declaration of Conditions of Employment”, requires the employer to certify that the expense to be deducted is required as a condition of employment, and that the employee received no repayment for the amount in question (any amount rebated to you by OHIP would therefore not be claimed). (Please also note that at most sites the payroll office acts for the employer.) We should add, however, that our lawyers and accountants have advised us that there is no certainty that CRA will permit the deduction of CMPA fees, even though CMPA fees are required as a condi- tion of employment.