Bakhsh and Associates Accounting Bookkeeping and Income Tax Services for Small Medium and Large Business Newmarket Ontario Canada

Taxpayers in receipt of qualifying pension income in 2008 will be able to split up to 50% of that income with their spouse or common law partner. There is no age restriction for partner who will be reporting the split pension income and some interesting potential new outcomes and pitfalls in developing tax efficient strategies arise in maximizing the opportunity for each household.

Following are some facts for you to consider in planning to use this new transfer which should be covered off when pre-retirees come in for tax preparation assistance in the next few months. In cases where pension benefits are currently being drawn by one or both spouses, a phone call to evaluate pension splitting opportunities now before the busy tax season gets under way will be appreciated by clients.

Qualifying pension income recipients must be resident in Canada and allocate split income to spouses (or common-law partners) resident in Canada.
Amounts allocated to be split will be deducted from the income of the recipient and added to the income of the spouse to whom the amount is allocated.
Both persons must agree to the allocation.
The allocated amount will be treated as the spouse’s income for all purposes of the Act. Splitting may therefore not only reduce current taxes but may increase access to the OAS and means-tested refundable and non-refundable credits
Pension income allocated will qualify for the pension income amount on the return of the recipient of the allocation.
Eligible pension income includes the following:
A. For individuals aged 65 years and over:
Pension benefits from a registered pension plan (RPP),
Annuity income from a registered retirement savings plan (RRSP),
Payments under a registered retirement income fund (RRIF).
B. For individuals under 65 years of age income from pension benefits from a registered pension plan or any of the other amounts described above received as the result of the death of a spouse.

Ineligible amounts: Benefits from public pension plans like the OAS and CPP, certain RCAs (Retirement Compensation Arrangements).

Planning Checklist for Pension Income Splitting

A variety of provisions are affected on the personal tax return as a result of the opportunity to split up to 50% of eligible pension income with the spouse. Consider this checklist in planning for tax efficiency:

CPP Assignment: Is it still advisable the CPP benefits are split between spouses?
Income Allocation: A rethinking of who should draw income from RRSPs and RRIFs first and in what amount is required. The same is true of income allocation for interest and dividend sources.
Realization of Taxable Gains: With income split off to the spouse, does it make sense to tap into some taxable gains this year? How does that affect tax loss utilization? Intergenerational transfer of cottage properties?
Small Business Owners: Should family and owner/manager compensation structures be altered? Should net income levels for the purposes of CPP contribution stay the same?
Interspousal Loans: Should more or less capital be transferred from the higher earner to the lower by drawing up interspousal loans for investment purposes?
Instalment Payments: These could decrease for the higher earner, possibly put the lower earner into the quarterly instalment profile. Review this before the first instalment for 2007 (March 15) is required. It’s possible there will be more cash flow and a smaller tax liability this year. If so, base instalments on an estimation of current year taxable income.
OAS Clawbacks for each taxpayer may be reduced in cases where individual net income levels fall between $63,511 and approximately $102,865 in 2007.
Age Amounts: The 2007 Age Amount is $5,177, which is reduced when individual net income exceeds $30,936.
Spousal Amount: The 2007 Spousal Amount is $7,581 which is reduced when net income exceeds $759.
Transfers from Spouse on Schedule 2: Claims to the higher earner could decrease.
Medical Expenses: Claims could increase if the lower income earner becomes taxable as a result of the transfer of the eligible pension income.
Charitable Donations: Who should make the claim now to maximize benefits? Remember, a better tax result occurs when charitable donations claimed exceed $200. Spouses can claim each other’s gifts, providing receipts are available.
Political Contributions: Again, spouses can act as agents of one another for these purposes when making claims. Where is the best benefit after pension income is split?
Refundable Medical Supplements: A maximum of $1,022 can be claimed when earned income sources exceed $2,984 in 2007. Addition of split pension income could put the lower earner over the maximum clawback range of $22,627 or allow the recipient to enter the qualifying zone.

NEW INFORMATION ABOUT CANADA FITNESS CREDIT

Winnipeg, Manitoba.

The federal government has released new information to guide parents who are saving receipts to claim the Canada Fitness Credit, in amounts up to $500 for eligible physical activities, effective January 1 of this year.

The actual dollar amount is multiplied by 15.5% in 2007, which is the lowest marginal federal tax rate.

The credit is claimed in the year the fees are paid, not the year the activities are taken.
Receipts are required.
Eligible children are those under 16 in the year.
Eligible activities must relate to the cost of registration or membership in an eligible program of physical fitness activity.
An eligible program of prescribed physical activity, will be defined as “an ongoing, supervised program, suitable for children, in which substantially all of the activities undertaken include a significant amount of physical activity that contribute to cardio-respiratory endurance, plus one or more of:
- muscular strength,
- muscular endurance,
- flexibility, and
- balance
Length of programs must be at least eight weeks with a minimum of one session per week.
Children’s camps will qualify if they run for a minimum of five consecutive days, provided more than 50 per cent of the program time is devoted to physical activity.
Children’s memberships in a club, association or other organization for two months or more would also be considered participation in an eligible program if more than 50 per cent of the programs are in the nature of an "eligible program", or more than 50 per cent of the available time is devoted to activities in an "eligible program". Where the eligible portion of the programs constitutes 50 per cent or less of available programs can be pro-rated for the purposes of the credit. Family memberships must be prorated for the child's portion of the membership fees.
Registration and membership costs can include the costs of administration, instruction, and the rental of facilities. However, payments for accommodation, travel, food, or beverages (for example, room and board at a fitness camp) must be deducted –they do not qualify for the tax credit.

For background information see:
http://www.fin.gc.ca/news06/06-084e.html#Backgrounder and
http://www.cra-arc.gc.ca/fitness/

Tax Credit for Public Transit Passes

The tax credit for public transit passes is a nonrefundable tax credit for the cost of buying a monthly (or longer duration) pass for commuting on buses, streetcars, subways, commuter trains and local ferries. You will be able to claim the tax credit for public transit passes for

amounts that occurred after June 30, 2006. You will need to keep your expired monthly transit passes to support your claim. For additional information visit CRA’s website:

http://www.cra-arc.gc.ca/whatsnew/items/transit-e.html