WHAT'S NEW FOR 2007 PERSONAL INCOME TAXES!

Originally published on December 13, 2007

 

To quote Benjamin Franklin, “Certainty? In this world nothing is certain but death and taxes”.  We are soon to arrive at the end of the 2007 calendar year and with it the certainty of income tax filing.  There are some new tax rules which will provide income tax relief to Canadian taxpayers and I thought I’d use this column to highlight those changes which have some definite appeal.

1.  You can now split your pension income with your spouse

Beginning in 2007, any eligible pension income can be split between spouses.  For some couples where one spouse earns substantially more income than the other, this will prove to be a real tax break. For example, a high income spouse who is currently subject to a claw-back of Old Age Security benefits may be able to eliminate the claw-back by transferring up to one-half of the eligible pension income to his or her spouse.  After transferring the pension, this taxpayer may also be able to claim an age amount (non-refundable tax credit) which had been previously reduced or eliminated by the high income.

Couples who are in the same tax bracket might still want to split their regular pension income, particularly if one of the spouses isn’t receiving any eligible pension income.   Remember Canadian taxpayers are able to receive up to $2,000 of pension income virtually tax-free by claiming a pension amount.   If one spouse has no pension income they are not able to claim the $2,000 pension credit, so by transferring $2,000 of eligible pension income they are now able to claim this credit.

2.  You can now claim a lifetime capital gains exemption of $750,000

Beginning in 2007, the lifetime capital gains deduction limit has been increased from $500,000 to $750,000 for any gain arising on the sale of eligible farming or fishing assets and qualified small business corporation shares.

If you have already crystallized or used up your previous $500,000 gains exemption then you should speak to your accountant to see if any further planning can be done to take advantage of this new exemption limit to use up future gains.

 

 

3.  You can claim more for your kids

Beginning in 2007 there is a new federal tax credit of $2,000 for each child under 18 or a tax savings of $300 per kid.  You can also claim a new Children’s Fitness Tax Credit of up to $500 per year paid in eligible fees for a program that offers physical activities for a child who is under 16 at any time during the year.  This fitness tax credit will save you $75 per kid.

While kids remain a poor investment for tax purposes, the government is going in the right direction.

4.  You receive a $1,000 credit just for being an employee

If you are self-employed and you are not receiving any employment income then you may want to rethink the way you are getting paid by your neighbor for your custom work services.  For 2007, all employees are entitled to a non-refundable tax credit of $1,000 just for having a T4.

If you’re paying your wife as subcontract wages then you may want to reconsider whether this should be employment income instead.

5. Saskatchewan graduates receive a break

For all farmers in Saskatchewan who are considering going back to school and getting that trade certificate or degree, there has never been a better time.   The new Post-Secondary Graduate Tax Credit offers the graduate a $10,000 provincial exemption each year for five years.   This translates into a provincial tax savings of up to $5,500.

Considering Benjamin Franklin’s alternative to taxes, I’d much rather face the Tax Man early in 2008 than the Grim Reaper.   With these new tax rules in place, Canadian taxpayers may find that there is more money left in their wallets after the Tax Man’s regular and certain visit.

 

Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan.  The opinions expressed in this column are for information only.