TIME TO ENJOY YOUR SUMMER!

If you have too much work and not enough play, we can do the work for you.

At Cope, Barrett and company, Certified General Accountants, we do your bookkeeping, data entry, HST reporting, financial statements and tax returns.

Summer is short, enjoy it while it lasts

Let us take the heat, while you enjoy a cool one.

Call us today at 613-476-2150

Cope Barrett and company Certified General Accountants

Your one- stop business solution.  Your County Accountants! 

Get a tax break for summer child care costs (July 2012)

As July arrives and the school year has ended, families that do not have a stay-at-home parent have to make plans for keeping the kids busy and supervised over the school summer vacation. There is no shortage of options—at this time of year, advertisements for summer camps and summer activities abound—but nearly all the available options have one thing in common, and that’s a price tag. Some choices, like day camps provided by the local recreation authority can be relatively inexpensive, while the cost of others, like summer-long residential camps or elite-level sports or arts camps, can run into the thousands of dollars.

Whatever the cost, all parents would welcome some assistance with meeting those costs.

Until 2007, the only tax “break” which could be claimed to help offset such costs was the general child care expense deduction. In that year, however, the federal government introduced the Children’s Fitness Tax Credit. While the child care deduction is available (within set parameters) for most child care arrangements, the Children’s Fitness Tax Credit may be claimed only for activities or camps which involve a minimum degree of physical activity. Specifically, when claiming the credit, parents are entitled to claim a non-refundable credit equal to 15% of the first $500 in qualifying costs per child per year. So, in other words, a camp which would have cost parents $500 per child will instead have a net cost of $425 ($500 minus 15%, or $75.), after the credit is claimed on the parent’s tax return for the year.

Parents whose children’s interests run to less active pursuits, like art, music, theatre, or writing may have felt, with some justification, that such activities were getting short shrift from our tax system. Perhaps in response to the perceived inequity, the federal government introduced the Children’s Arts Tax Credit. Very similar in structure to the Children’s Fitness Tax Credit, this credit provides a non-refundable 15% tax credit on up to $500 in eligible expenses per child per year. Claiming either credit requires a minimum expenditure of $100 per child per year on qualifying activities.

Given the enormous range of activities available for children, it’s not surprising that the federal government has found it necessary to provide detailed rules on what types of activities will and won’t qualify for the two credits. And, while the possibility of a tax benefit should never drive the decision on which program or activity a child should be enrolled in, the availability of the credit might tip the balance between similar programs, or might make a program, camp, or activity that seemed financially out of reach more feasible.
In assessing whether a particular camp or program might qualify for either of the two credits, the first thing to note is that both credits are available only in respect of fees paid for children who are under the age of 16 at the beginning of the year. In other words, the last year for which the credit can be claimed is the year in which the child turns 16, assuming that all other criteria are met. Those criteria are as follows:

• the program must last for a minimum of 8 weeks, with at least one session per week or, in the case of children’s camps, must run for 5 consecutive days;
• the program or activity must be supervised;
• the program or activity must be suitable for children; and
• more than 50% of activities offered must include a significant amount of qualifying activities or, in the case of a program, camp, or membership in which participants can choose from a variety of activities, more than 50% of those activities must include a significant amount of eligible activities or more than 50% of the available program time must be devoted to eligible activities.

It’s clear from the foregoing that the concept of “eligible activities” looms large in the determination of whether a particular cost may be claimed under either of the credits. For both credits, the rules provide a specific definition of eligible activities, as follows:

For purposes of the Children’s Fitness Tax Credit, eligible activities are limited to those that require a significant amount of physical activity that contributes to cardiorespiratory endurance, plus one or more of: muscular strength, muscular endurance, flexibility, and/or balance.
Information provided on the Canada Revenue Agency (CRA) Web site indicates that “physical activity includes strenuous games like hockey or soccer, activities such as golf lessons, horse-back riding, sailing and bowling as well as others that require a similar level of physical activity.”
Similar rules are provided for the purpose of defining eligibility for the Children’s Arts Tax Credit. Those rules are quite broad and extend to activities like academic tutoring or the development of interpersonal skills. To be eligible for the credit, such activities must:

• contribute to the development of creative skills or expertise in an artistic or cultural discipline, including the literary arts, visual arts, performing arts, music, media, languages, customs, and heritage;
• provide a substantial focus on wilderness and the natural environment;
• help children develop and use particular intellectual skills;
• include structured interaction among children where supervisors teach or help children develop interpersonal skills; or
• provide enrichment or tutoring in academic subjects. 

Often, particularly in the case of residential camps or sports or arts camps, charges are levied for such costs as accommodation, travel, or food, or parents must incur costs to outfit the child with required equipment to use at camps. Costs paid by parents for non-activity related charges, like food, travel, and accommodation do not qualify for either of the credits and must be subtracted from the total fee paid. As well, the cost of equipment purchased by parents from third-party suppliers is not a qualifying cost for purposes of the credits.

Qualifying child care expenses are claimed as a deduction from income, rather than a credit, meaning that the entire amount of qualifying expenses is effectively not taxed as income in the hands of the parents. There are limits imposed on the maximum weekly cost of a residential camp (ranging from $100 to $250), as well as restrictions on the total amount of child care expenses which may be deducted in a year. However, the overall annual limits, which range from $4,000 to $10,000, depending on the age and health of the child, with an overall cap of two-thirds of the parent’s income for the year, are much higher than the allowable amount for the Children’s Fitness or Arts Tax Credit. It’s not, however, possible to double or triple dip when it comes to expenses related to children’s activities. Expenses which are claimed under any of the three possible categories (child care expenses, Children’s Fitness Tax Credit, and Children’s Arts Tax Credit) can be claimed only once, even if they might, by definition, qualify under more than one provision.

5 ways to spend your tax refunds...

The average income tax refund last year was $1,500, according to the Canada Revenue Agency, and it's likely many of those lucky recipients are hard pressed to remember where it went.
If you're one of the three in four Canadians to get one this year here are five ways to make your tax refund — or any windfall for that matter - the seed that blossoms:
Pay down debt
Imagine an investment that is guaranteed to return thirty per cent, compounding annually, with no risk and no tax consequences. That's basically what you're getting if you pay down the balance owing on retail credit cards like those offered by The Bay, which can charge as much as 29.9 percent. Any investor would drool at that sort of return yet thousands of consumers carry balances at those rates.
Even basic credit cards like Visa and MasterCard charge rates on balances in the upper teens.
Putting your tax refund against debt, even consumer loans nearing ten per cent, can prevent a lifetime of financial stagnation. You won't have much to show for it right away but you'll thank yourself down the road.
Paying down low interest car loans, secured lines of credit or mortgages may be less fruitful but there are more effective ways to invest your tax refund.
Open up a TFSA
At the start of 2012 over eight million Tax Free Savings Accounts had been opened up since the Federal government introduced them four years ago.
The TFSA provides a unique opportunity for savers to grow their money tax free. All gains made from a long list of eligible investment stay in your pocket and not the government's.
For many Canadians on a tight budget finding extra cash to start a TFSA is elusive but it only takes a few hundred dollars to get the ball rolling. Afterward a hundred here and a hundred there can turn into significant savings.
Even if you're one of the eight million plus TFSA holders it wouldn't hurt to top it up. The total contribution limit will increase by $5,000 (plus inflation) each year in addition to the current $20,000 maximum built up over the past four years.
Make an early RRSP contribution
While you're topping up your savings consider putting your tax return in a Registered Retirement Savings Plan. An RRSP contribution allows the investor to deduct the full contribution amount from his or her taxable income.
It's the contribution that keeps on giving. By contributing your tax return to an RRSP you avoid the last-minute rush before next year's March deadline and get an early start building next year's tax refund.
It's important to know that while contributions are tax deductable, the contributions and any gains from investments in an RRSP are fully taxed when they are withdrawn - but that usually occurs in retirement when the plan holder is in a lower tax bracket.
Buy more of what you like
If you're a prudent investor you probably hold a few good stocks in your TFSA or RRSP that pay dividends, or you feel are poised to rise when the broader markets turn up.
Good stocks are good stocks and the more you own, the better. Using your tax return to buy more can bulk up your holdings.
Even better, good stocks that are down from your original purchase price provide an opportunity to buy more at a better price — lowering your average cost per share and your break-even point.
Roll the dice
Why do investment advisors go on and on about diversification? Because a diversified portfolio opens up a wide range of growth opportunities while spreading out overall risk.
Diversification most commonly applies to sectors and geographic regions, but it should also apply to risk itself.
A well diversified portfolio includes low-return potential/low-risk investments at one end of the risk spectrum and high-return potential/high risk investments at the other end. As a result, losses at the high-risk end will be cushioned by the low risk investments, and gains will pull up the low risk investments.
If you have a good low-risk anchor you owe it to yourself to take on more risk at the opposite end — and that's where you can have some fun with your tax refund.
Do your homework and shop for a high risk stock with strong growth potential. A great starting point is the TSX Venture Exchange, which is packed full of what are considered penny stocks - small companies that trade on low volume.
Good examples are start-up resource firms sitting on huge reserves that are poised to either strike it rich or get bought up at a premium from bigger resource companies.
http://www.copebarrett.ca/

Tax deduction often missed...the First Time Home Buyer Tax Credit

A qualifying home must be registered in your and/or your spouse's or common-law partner's name in accordance with the applicable land registration system, and must be located in Canada. It includes existing homes and homes under construction.
The following are considered qualifying homes:

• single-family houses;
• semi-detached houses;
• townhouses;
• mobile homes;
• condominium units; and
• apartments in duplexes, triplexes, fourplexes, or apartment buildings.

Note
To qualify you must be a First Time homebuyer only. 

You can claim an amount of $5,000 for the purchase of a qualifying home made in 2011, if both of the following apply:

• You or your spouse or common-law partner acquired a qualifying home.
• You did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years (first-time home buyer).

questions?  Contact us today!

Tax tips for getting the full benefit of childcare claims

What payments can you claim?
You can claim payments for child care expenses made to:

• caregivers providing child care services;
• day nursery schools and daycare centres;
• educational institutions, for the part of the fees that relate to child care services;
• day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school); or
• boarding schools, overnight sports schools, or camps where lodging is involved (read the note in Part A of Form T778, Child Care Expenses Deduction).

Advertising expenses and placement agency fees paid to locate a child care provider may also qualify as child care expenses. For more details, see Interpretation Bulletin IT-495, Child Care Expenses.
When the child care services are provided by an individual, the individual cannot be:

• the child's father or mother;
• another person;
• a person for whom you or another person claimed an amount on line 305, 306, 315, or 367 of your Schedule 1; or
• a person under 18 who is related to you. A person is related to you if he or she is connected to you by a blood relationship, marriage or common-law partnership, or adoption. For example, your brother, sister, brother-in-law, sister-in-law, and your or your spouse's or common-law partner's child are related to you. However, your niece, nephew, aunt, and uncle are not.
  Notes
  You may have paid an amount that would qualify for the child care expenses deduction and the children's fitness amount or the children's arts amount (lines 365 and 370 of your Schedule 1). If this is the case, you must first claim this amount as child care expenses. Any unused part can be claimed for the children's fitness amount or the children's arts amount as long as the requirements are met.
  
  If you paid an individual to provide child care in your home, you may have some responsibilities as an employer. If you are not sure of your situation, contact us.
  
  You can claim payments for child care expenses that you paid for the parental contribution set ($7.00 per day) by the government of Québec.

The individual or organization who received the payments must give you a receipt showing information about the services provided. When the child care services are provided by an individual, you will need the social insurance number of the individual. The receipt can be in your name or that of your spouse or common-law partner.

Note
You cannot carry forward unclaimed expenses to a subsequent taxation year.

Pension Income Splitting

Each January and February, there is a flurry of television, radio, and online advertisements and phone calls and e-mails from financial advisers and financial institutions encouraging Canadians to contribute to a registered retirement savings plan (RRSP) or a tax free savings account (TFSA). One thing you won’t see in all that activity is promotions or incentives to split pension income. In fact, the mention of such a tax-planning strategy will likely draw a blank look from most Canadians.

The reason that nobody is promoting pension income splitting is that it’s one of those rare tax-planning strategies which benefits absolutely no one but the taxpayer who uses it. In some cases, like RRSP or TFSA contributions (and likely soon, the benefits of pooled registered pension plans, or PRPPs), financial institutions explain and promote the benefits of such plans because it represents increased business for them. In other cases, the government advertises or promotes programs which advance economic policy objectives, like investments in lagging sectors of the economy or depressed areas, or which further social policy goals. But pension income splitting remains a relatively unknown tax planning strategy.

That’s unfortunate for a couple of reasons. First, the splitting of pension income can provide significant tax savings to those able to utilize it—those people generally being older taxpayers who in many cases are living on a fixed income and can really benefit from the tax savings received, especially in the current low interest rate environment. Second, unless you’re getting good tax planning advice, it’s very easy to overlook pension income splitting as a way of reducing your tax burden. The only references to pension income splitting on the annual return are two entries, one on line 116 and the other on line 210 and, unless you are already aware of the significance of those entries, there’s really nothing to alert you to it. The Income Tax and Benefit Guide provides very little in the way of explanation and no indication at all of the benefits which may be obtained. In addition, the form which must be filed with the return to effect a pension income splitting strategy (Form T1032) isn’t part of the standard tax return package provided to taxpayers by the Canada Revenue Agency (CRA); taxpayers must obtain it separately.

The general rule is that taxpayers receiving private pension income (including a pension received from a former employer and, where the recipient taxpayer is over the age of 65, payments from an RRSP or a registered retirement income fund) are entitled to split up to half that income with a spouse for tax purposes. (Government source pension income, like payments from the Canada Pension Plan or Old Age Security payments do not qualify for pension income splitting). A number of the provinces have also indicated that they will adopt the federal rules for provincial tax purposes.

The mechanics of pension income splitting are relatively simple. There is no need transfer any funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify the pension plan administrator. In addition, the decision of whether and to what extent to split pension income for tax purposes does not have to be made until the return for the year is being completed. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income, with their annual tax return.

For help with your tax return and pension income splitting call us in Bancroft, Belleville or Picton
613-332-2150 or 613-962-2151 or 613-476-2150

Commonly missed tax deductions 2012...

We are well into our tax season and keeping quite busy at that!
Still we're not too busy to bring some important reminders about your tax deductions for 2012.
To keep the list concise I want to bring to your attention some most commonly missed tax deductions, so here is a list.  Take a look and if you have so much as an inkling that you may qualify, call us right away.  We have the knowledge and experience to help you determine your eligibility for any credits you may be missing out on...

1. Always first on my list is the disability tax credit as I have helped many, many taxpayers recieve this credit and claim back up to ten years - resulting in many thousands of dollars of tax savings.  This to me is the single most misunderstood tax credit, and unfortunately those who miss out are also usually those who need these benefits the most!
2. Caregiver tax credit - goes hand in hand with the above.  A dependant child over 18 who qualifies for the disability tax credit and lives at home... means caregivers (often parents) can benefit from this tax credit. 
3. Carryforward credits from Canada Revenue Agency Notice of Assesment in prior year.... are far too often missed.  When I meet with a client, I always ask them to bring their prior tax year notice of assesment.  Often there are "goodies" there which we can use to reduce their tax payable or increase a refund amount.   Too often I see unused RSP contributions which could have provided valuable tax relief!
4. Last for this blog - but surely very important is the pension income splitting opportunity.  Too often I meet new clients who in the past have been "do-it-yourself" tax preparers or used out of the box tax software and did NOT get the maximum benefit of the pension split.  Maximum allowable does not equal maximum tax benefit...so misunderstood!  Our sophisticated software is designed to run through all the variables and determine the absolute maximum benefit in terms of taxes payable when determing amounts for income split.  This is another of those times when we refile tax returns from prior years to help new clients get their correct tax benefits.

So that does it for another blog...keep watching for more valuable tax news and tax tips...I'll try to get some in before April 30 filing deadline!  Always, you are welcome to phone me with questions...www.copebarrett.ca  for contact information, Belleville, Picton and Bancroft