My Writing > 2005 Tax Facts Updates for Processing 2004 T1 and T2 Returns


1 Jan 2005

Published online at ProConnection Newsletter, January 2005


2005 Tax Facts Updates for Processing 2004 T1 and T2 Tax Returns

The information provided in this article has been compiled as a REFERENCE TOOL ONLY.
Please refer to CRA updates and rulings prior to using the following material.

ProConnection would like to thank Eileen Reppenhagen, for her assistance in this research.


RRSP Reminder

2004 T1 RRSP contribution deadline is March 1 2005

Amounts that are NOT Taxed as Personal Income

You do NOT have to include certain amounts in personal income disclosure. The following is a list of some items NOT included in personal taxable income.

  • lottery winnings.
  • most gifts and/or inheritances you receive.
  • most amounts received from a life insurance policy following a death.
  • any GST/HST credit and Canada Child Tax Benefit payments, along with those from related provincial and territorial programs
  • the compensation you received from a province or territory; if you were a victim of a criminal act or a motor vehicle accident the compensation you received from a province or territory is not taxable.
  • Quebec family allowances and also the Allowances for Handicapped Children paid by the province of Quebec.
  • amounts paid by Canada or an ally on the condition that the amount is not taxable in that country, with regards to disability or death due to war service
  • most payments of the type referred to as "strike pay" that is received by a member from his/her union who is on strike or locked out, even if the member performs picketing duties as a requirement of that membership.
  • amounts received under the Income Tax Act Regulation 233(2). There is a list of exceptions for social assistance including medical expenses, child care expenses, funeral expenses, legal expenses, job training or counseling or paid in the year as a part of a series of payments the total of which in the year does not exceed $500 or is not part of a series of payments. But remember just because you received it tax free, doesn’t mean you can pay it to someone else tax free.
  • amounts received relating to foster children S. 81(1)(h).
  • Note: income earned on any of the above amounts is taxable (for example: if you deposit your lotto winning in a term deposit, the interest earned from it is taxable).

Employment Insurance

  • Effective January 1st 2005 the EI, employment insurance contribution rate is reduced from $1.98 per $100.00 to $1.95 per $100.00 of insurable earnings. This change was announced December 6, 2004. This change represents the 11th decrease in EI since 1994.
  • Compared to 1994, this current reduction indicates a savings of $485.00 to an employee who makes the maximum contribution.
  • This also includes a decrease in the employers rate paid from $2.77 per $100 down to $2.73 of insurable earnings.
  • As for the maximum insurable earnings, that remains the same: $39,000.

Canada Pension Plan

  • CPP – Canada Pension Plan pensionable earnings for 2005 is set at a ceiling of up to $41,100.00 announced October 20, 2004. This is an increase from 2004 when the ceiling was set at $40,500.00.
  • Employees who earn more that the ceiling of $41,100.00 in 2005 are not required or permitted to make extra contributions to the CPP.
  • For 2005 the basic exemption amount remains at $3,500.00. Employees who earn less than the basic exemption amount do not need to make contributions to CPP.
  • The maximum employee and employer contributions to the 2005 plan will be $1,861.20.
  • The maximum self employed contribution is set at $3,772.40 for 2005. The rate has stayed flat at 4.95% and 9.9% for self-employed people.

Benefits for Canadians

Announced by the Minister of Finance: Ralph Goodale on December 22, 2004

Note: The benefits for Canadians listed here are for information purposes only. Please refer to the CRA for the full indexation.

Personal Income Tax Levels
2004
2005
 
Amount for basic personal
8,012
8,148
Amount for spouse and/or common-law
6,803
6,919
     Net income threshold
681
692
Taxable income at which 22-per-cent bracket commences
35,000
35,595
Taxable income at which 26-per-cent bracket commences
70,000
71,190

Taxable income at which 29-per-cent bracket commences

113,804
115,739

 

Credit Amounts to Reflect Needs
2004
2005
 
Amount for infirm dependant
3,784
3,848
     Net income threshold
5,368
5,460
Caregiver amount
3,784
3,848
     Net income threshold
12,921
13,141
Disability amount
6,486
6,596
Supplement for children with a disability
3,784
3,848
Amount allowed for child care and attendant care before supplement reduction
2,216
2,254
Medical expense tax credit: 3% of the net income ceiling
1,813
1,844
Refundable medical expense tax credit supplement
562
571
     Minimum earnings threshold
2,809
2,857
     Family net income threshold
21,301
21,663
Age amount
3,912
3,979
     Net income threshold
29,124
29,619
Repayment threshold for Old Age Security
59,790
60,806

 

G.S.T. Goods and Service Tax Credit
2004
2005
 
The maximum for an Adult
224
227
The maximum for an Child
118
120
Single supplement
118
120
The phased-in threshold for the single supplement
7,253
7,377
The credit starts to phase out at a family net income of:
29,123
29,618
NOTE: Benefits paid on a year cycle commencing in July include: Good & Service Tax, Canadian Child Tax Benefit and the Child Disability Benefit

 

C.C.T.B. (Canada Child Tax Benefit)
2004
2005
 
Base amount (benefit)
1,208
1,228
Additional benefit for a third child
84
86
Plus, additional benefit for a child under seven years old
239
243
The family net income at which point the base benefit commences to phase out
35,000
35,595

 

N.C.B. (National Child Benefit Suplement)
2004
2005
 
For the 1st child
1,511
1,722
For the 2nd child
1,295
1,502
For the 3rd child
1,215
1,420
The family net income at which point the supplement commences to phase out
35,000
35,595

 

Child Disability Benefit
2004
2005
 
The maximum benefit
1,653
1,681
The family net income at which point the benefit commences to phase out
35,000
35,595

 

The Benefits listed here are for information purposes only. Please refer to the CRA for the full indexation.

CRA Interest Rates

  • On December 3, 2004 the CRA released the new prescribed annual interest rates that apply to amounts owing to the CRA and vice versa. Rates are calculated quarterly in accordance with the appropriate legislation and commence January 1, 2005 through to March 31, 2005
  • Income Tax: The interest rate charged on all taxes overdue, CPP contributions and Employment Insurance Premiums is set at: 7%. the interest rate paid on overpayments is set at: 5%. The interest rate to calculate employee taxable benefits and/or shareholders from interest free and/or low interest loans is set at: 3%.

Business Registration

  • The CRA now requests that all new registrants provide the social insurance number of at least one of the owners and/or directors of the corporation when registering, along with the activity of the business.

Business Limits

A corporation’s business limit gradually increases from the point of $200,000 to $300,000 providing that the corporation is not associated with another corporation.

When a taxation year straddles a calendar year the maximum allowable limit for a business is then prorated based on the number of days in each of the calendar years.

When a (CCPC) Canadian Controlled Private Corporation is ‘associated’ with one or more corporations during the year, they must file Schedule 23 (Agreement among Associated CCPC to allocate the business limit available).

  • On Schedule 23 a % of the business limit is allocated to each of the corporations involved in the association and the total percentage cannot be greater than 100%

The allowable maximum business limit is as follows:

  • 200,000 providing the calendar year is 2002 or prior
  • 225,000 if the calendar year is 2003
  • 250,000 if the calendar year is 2004
  • 275,000 if the calendar year is 2005
  • 300,000 if the calendar year is 2006 or subsequent

Arm’s Length

The Income Tax Act deems some entities and/or people to be arm’s length. Two entities and/or people are said to be at arm’s length with one another, if they are independent and have no undue influence of the other.

Non Arm’s Length

Entities and/or people are considered at non arm’s length when the parties are ‘related persons’ who are connected by blood, marriage and/or common-law partnership or adoption. Blood relationships normally do not include: aunts, uncles, cousins, nieces, and/or nephews for the purpose of the Income Tax Act. See Interpretation bulletin IT419R2 on the CRA web site’s list: ‘Interpretation Bulletins’.

2005 Automobile Deduction Limits and Expense Benefit Rates for Business Entities

Minister of Finance Ralph Goodale announced on December 17, 2004 the automobile expense deduction limits and the prescribed rates for the automobile operating expense benefit that will apply in 2005, which include:

  • The ceiling on the capital cost of a passenger vehicle for capital cost allowance (CCA) purposes will remain $30,000 along with the applicable federal and provincial sales taxes for acquisition after 2004. This ceiling restricts the cost of a vehicle for which CCA may be claimed.
  • The limit on deductible leasing costs will remain $800 per month along with the applicable federal and provincial sales taxes for leases entered into after 2004 which ensures that the level of deductions for leased and purchased vehicles stays consistent. Another restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
  • The maximum allowable interest deduction for amounts borrowed to purchase an automobile will stay at $300 per month for loans related to vehicles acquired after 2004. reflecting the reasonable cost of financing a vehicle for business purposes.
  • The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes will be 45 cents, an increase of 3 cents per kilometer for the first 5,000 kilometers driven and 39 cents for each additional kilometer.
    • For the Yukon Territory, Northwest Territories and Nunavut, the tax-exempt allowance will rise to 49 cents for the first 5,000 kilometers driven and 43 cents for each additional kilometer. The allowance amounts reflect the cost of owning and operating an automobile, which considers financing, insurance, maintenance and fuel costs and amortization.
  • The taxable benefit relating to the personal portion of automobile operating expenses paid by employers will increase to 20 cents per kilometer.
    • For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will be 17 cents per kilometer.
    • The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is classified as deemed income on the employee’s T4.

Joint Ventures versus a Partnership

A Partnership is considered a ‘person’ for registration purposes; whereas a joint venture is not. Thus, a Partnership can have a business number (BN), but a Joint Venture cannot

A Joint Venture is limited in scope, whereas a Partnership is considered to be an ongoing business relationship that exists between people carrying on a common business.

In a Joint Venture, one of the candidates involved is chosen to be the ‘Participatory Partner’ and is responsible to remit the GST. etc. This person assumes the administrative role in the venture.

Markevich Amendment

The Markevich amendment to the Income Tax Act, Bill C 30, was passed in Parliament on May 30, 2004. This amendment creates a ten year limitation period on the collection of tax debts within certain circumstances.

This new limitation period on the collection of debt from taxes is retroactive since it affects all income tax debts equally that occur prior to and subsequent to March 4, 2004.

Child Disability Benefit (CDB)

  • The (CDB) Child Disability Benefit is a monthly tax-free benefit paid to a maximum of $137.75 per month or $1,653 annual paid to low and modest-income earning families, who care for a child under the age 18 who has a severe and a prolonged mental and/or physical impairment.
  • This CDB is paid monthly as a supplement to the Canada Child Tax Benefit (CCTB) and Children’s Special Allowances (CSA) payments.
  • It is paid monthly as a supplement to the CCTB and CSA payments.
  • Who can receive the CDB?
    • Families eligible for the CCTB for a child will receive the CDB only if their child also qualifies for the Disability Tax Credit, disability amount, and detail of this information on the disability amount; can be found in the Information Concerning People with Disabilities (RC4064) guide. Eligibility is explained on Form T2201, Disability Tax Credit Certificate.
  • How to apply?
    • If you receive the CCTB but have not filed the Form T2201, Disability Tax Credit Certificate, for a child that may qualify as eligible, you must complete this form and have it signed by a qualified person (Doctor), then send it to the CRA tax center nearest to you. Note that the Disability Tax Credit is not only for children, it is for all taxpayers.
    • CRA will than determine if you are eligible to receive the child disability benefit.

    Medical Expenses

    Times were that you could claim your total eligible medical expenses on line 330. Under proposed legislation you can now claim only the total eligible medical expenses that you or your spouse or your common-law partner paid for on line 330:

      • You yourself;
      • Your spouse or your common-law partner; or
      • You or your spouse or your common-law partner's children born in 1987 or later and who depended on you for support.

    For all other dependants, medical expenses must be claimed on line 331

    You are eligible to claim medical expenses paid in any 12-month period ending in 2004 so long as they were not claimed for 2003. Normally you can claim all amounts paid, even if they were not paid in Canada. Your total expenses have to be more than $1,813.00 or 3% of your net income, whichever is less and is claimed on line 236.

    For deceased persons who passed away in 2004, a claim may be made for expenses paid during any 24-month period that includes the date of death, but only if they were not claimed during any other year.


The information in this article has been compiled as a REFERENCE TOOL ONLY.
Please refer to CRA updates and rulings prior to using the above material

ProConnection would like to thank Eileen Reppenhagen, [eileen.reppenhagen@gmail.com], for her assistance in this research.

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