30 Jan Tax Credit Updates for the 2016 Tax Season

By Nasima Kothiwala and Ash Jamshidpour

As we head into the 2016 tax season, there are a number of important updates to be aware of. Here is a quick look at some important changes you need to know:

Principle Residence Exemption

It’s safe to say that the changes relating to the principal residence exemption is generating the most buzz amongst tax preparers. This is mainly because it is a major change in administrative practice and will affect most tax returns. The proposed changes will alter the calculation of the principal residence exemption by eliminating the ‘one plus’ year in the calculation of the principal of residence exemption (“PRE”) for non-residents.

Up until 2016, when an individual taxpayer disposed of their principal residence, no gain was taxable because the property was their principal residence. Thus, the disposition did not have to be reported on their tax return. However, this is no longer the case.

As of 2016, all dispositions of a principal residence must be reported in the tax year in which the property was sold. This means, even if the property was the taxpayer’s residence during each year of ownership, it must still be reported. Therefore, Schedule 3 of the personal tax return has been amended for 2016 to add a new section in which taxpayers must indicate any dispositions of a principal residence. In this section, CRA will be asking for the address, but they are not asking for the cost information.

It is important to note that the PRE is only available if the sale is reported in the year of the disposition. CRA has also stated that starting 2016, they will assess a late penalty of up to $8,000 in the most excessive cases, where the disposition has not been reported.

Home Accessibility Tax Credit

The Home Accessibility tax credit was introduced in the 2015 federal budget for eligible home renovations that improve accessibility, safety, or security for a senior or person with disabilities. A non-refundable credit of 15% on up to $10,000 of expenditures may be claimed on the Schedule 12 of the taxpayer, and their family members, if the qualifying individual resides with the family member. It is important to note that CRA may ask for receipts to validate the claim – please keep them on hand in case you need them.

Eligible Educator School Supply Tax Credit

The Eligible Educator School Supply tax credit was introduced in the 2016 federal budget to provide a refundable tax credit of up to $150 for teachers and early childhood educators who purchase supplies out of their own pocket for classroom use/daycare. If this applies to you, please keep all receipts as the CRA may request for validation on the purchases. Furthermore, CRA may also request a written confirmation from the taxpayer’s employer certifying the eligibility of the expenses.

Tax Credits Reduced and Eliminated

There are a number of tax credit rules that have been reduced or eliminated for the 2016 tax year:

• The tax credit for children’s arts amounts has been reduced to $250 from $500.
• The maximum amount eligible for children’s fitness has been reduced to $500 from $1,000.
  • Furthermore, both credits noted above will be eliminated effective in 2017.
• Lastly, the Overseas Employment Tax Credit, which began in 2013, has also been eliminated effective for 2016.

New Tax Bracket and Charitable Donations

Starting 2016, the federal budget introduced a new 33% federal tax bracket for individuals earning income in excess of $200,000. Tax payers in the 33% federal tax bracket will now have a tax credit for charitable donations which allows a credit of 33% for donations over $200. However, donations carried forward from 2015 or prior years will only be given a 29% credit.

For more information, please contact us at we_are@clearlinecpa.ca .