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Tax Tips – Helpful information you should know

The following are a few new or enhanced tax changes that you may wish to consider when planning for not only this year, but also future tax years. Among other things, these tips may allow you to reduce the taxes you pay, more efficiently manage your family income and use certain expenses to your best advantage.

CANADA EMPLOYMENT CREDIT

This new tax credit gives Canadians a break on employment-related purchases, recognizing expenses for things such as home computers, uniforms and supplies. This tax credit provides tax relief on the lesser of $500 or the individual’s employment income for the year. No receipts are required to qualify and therefore no expenditures need actually be made.

TRADESPEOPLE’S TOOL EXPENSE

Employed tradespeople can claim a deduction for the cost of eligible new tools in excess of $1,000 up to a maximum of $500 for the year. The employer has to certify that the employee is required to acquire the tools as a condition of, and for the use in, his or her employment. This deduction is in addition to the Canada Employment Credit.

TEXTBOOK TAX CREDIT

In recognition of the high cost of textbooks for postsecondary education, students are now entitled to a non-refundable Textbook Tax Credit. Full-time students can claim $65 and part-time students $20 for each month the student qualifies for the Education Tax Credit. Any unused textbook tax credit amounts will be added to unused Tuition and Education Tax Credit amounts and can be carried forward to a future year or can be transferred to a spouse, common-law partner, parent or grandparent.

SCHOLARSHIP AND BURSARY INCOME

Previously, only the first $3,000 of scholarship, fellowship or bursary income received by a student with respect to their post-secondary education or occupational training was not included in income. Now, all such scholarship, fellowship or bursary income is exempt from tax. The full exemption only applies to amounts the student receives in connection with his or her enrollment in a program that entitles the student to claim the Education Tax Credit.

FITNESS TAX CREDIT ( 2007 )

Beginning with the 2007 tax year, parents can claim a non-refundable Fitness Tax Credit of up to $500 in eligible fees for the enrolment of a child under age 16 in an eligible program of physical activity. The credit can be claimed by either parent. Note that receipts are required to support the claim and that expenses claimed under the Child Care Expense Deduction are not eligible to be claimed under the Fitness Tax Credit.

INCREASED REFUNDABLE MEDICAL EXPENSE SUPPLEMENT

To offset the loss of coverage for medical and disability-related expenses when individuals move from social assistance to the paid labour force, the amount of the Refundable Medical Expense Supplement (RMES) has been increased from $767 to $1,000 for the 2006 tax year and indexed thereafter. The RMES will start to be reduced when income exceeds $22,140 (for 2006 and indexed thereafter).

TAX CREDIT FOR TRANSIT PASSES

Individuals can claim a non-refundable tax credit for the cost of public transit passes, that are valid for at least one month. Public transit includes transit by local bus, streetcar, subway, commuter train, commuter bus and local ferry. The credit can be claimed by either spouse/common-law partner for themselves and/or any dependent children under 19 years of age. This credit applies to the portion of eligible transit passes for transit on or after July 1, 2006.

DONATIONS OF PUBLICLY-LISTED SECURITIES

The capital gains inclusion rate on donations of publicly-listed securities (which include mutual funds and segregated funds) to charitable organizations or public foundations made on or after May 2, 2006 has been reduced to zero and is therefore exempt from tax. Publicly-listed securities acquired through employee stock options are also eligible for the reduced capital gains inclusion rate. If you normally give cash to a charity, consider giving securities (that are in a gain position) and then using cash to repurchase the securities. This increases your adjusted cost base and reduces the amount of tax due when you sell the securities in the future.

MEASURES FOR CANADIAN FISHERS

Effective May 2, 2006, fishers now receive tax benefits similar to those available to farmers. The $500,0001 lifetime capital gains exemption has been extended to capital gains arising on a disposition by an individual (or in certain circumstances, a personal trust) of qualified fishing property. Qualified fishing property includes real property, fishing vessels and eligible capital property used in a fishing business carried on in Canada. It also includes shares of family fishing corporations and interests in family fishing partnerships.

Also, the new rules allow for a tax-deferral where an individual transfers fishing property to a child or grandchild. With the new rollover provision, the proceeds on the transfer and the cost to the child/grandchild are at the transferor’s cost. This rollover can occur during the lifetime or on death of the parent/grandparent.

Where a taxpayer realizes a capital gain in a taxation year and is permitted to claim a reserve in respect of amounts not yet received, the maximum reserve period is extended to 10 years for transfers of fishing property to the taxpayer’s child/grandchild.

UNIVERSAL CHILD CARE BENEFIT (UCCB)

Designed to assist Canadian families achieve a work/life balance, individuals can apply to receive $100 per month for each child under the age of six. You must apply for this credit. If you have not previously applied to receive the Child Tax Benefit, forms are available online at http://www.universalchildcare.ca This benefit is considered taxable income and must be reported by the lower income spouse/common-law partner. This benefit will not reduce certain income-tested benefits, such as Old Age Security or Employment Insurance Benefits.

1 The 2007 budget has proposed an increase to this amount.

Content provided courtesy of Manulife Investments

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Mark Huber is a certified financial planner, author, speaker, coach and successful online entrepreneur. Marks philosophy: "The best way to predict your future is to create it...." Marks top requested titles: "The 8 Top Simple Ways To Get More Leads & Sales For Your Business On LinkedIn" "How To Blog To Make Money" "How To Get Rid Of Credit Card Debt Fast" "How To Get Rid Of Your Mortgage And Create Wealth - The UnCanadian Way" Marks mission: "To teach, support and empower people as they transform their lives!"