Take Transit for Tax Break
Driving to work in the winter, especially with snow and ice grinding traffic to a halt, can be enough to inspire some commuters to give public transit another try. If this is one of your New Year's resolutions for 2013, be sure to hang on to those passes to ensure you can take maximum advantage of the tax credit available for public transit come tax time.
Under the Income Tax Act, you can claim the cost of monthly or annual public transit passes for travel within Canada on public transit. These passes must permit unlimited travel on either local buses, streetcars, subways, commuter trains or buses, or even local ferries.
While you may also be able to claim the cost of shorter-duration passes, this only applies if each pass entitles you to unlimited travel for an uninterrupted period of at least five days and you purchase enough that you are entitled to unlimited travel for at least 20 days in any 28-day period.
In some cases, electronic payment cards can also qualify, if the card is used to make at least 32 one-way trips during an uninterrupted period no longer than 31 days provided you can get a receipt that proves both the cost and usage of the card.
The Canada Revenue Agency also posted a note on its website that "ride/trip passes are not eligible for this credit as they do not provide for unlimited travel." That comment was the subject of a tax case decided this month involving a Toronto commuter.
The commuter, Darlene, used the GO transit system in the Toronto area to commute to and from work five times a week. While she generally purchased a monthly pass, in months during which she was planning to take vacation she instead purchased a series of 10-ride passes, as "this was the most cost-effective way to purchase tickets during this period." The total cost of all of the 10-ride passes Darlene bought in 2010 was $841.
On her 2010 tax return, Darlene claimed the public-transit tax credit with respect to both the monthly passes and the 10-ride passes. However, the CRA allowed her a credit only for the cost of the monthly passes.
Unfortunately for Darlene, the judge's hands were tied since the 10-ride passes do not permit an unlimited number of rides for a period of time. As the judge wrote, "This is fatal to her claim because this is a requirement of the legislation."
In Darlene's notice of appeal, she mentioned that she is aware of another GO Transit commuter whose claim for 10-ride passes was audited by the CRA and allowed. Again, the judge said, "It is not possible to provide relief to her on the ground that the (CRA) provided relief to another taxpayer. This court must apply the applicable legislation."
The lesson to be learned here is that the loss of the tax credit may be a necessary factor to consider in evaluating whether, at the end of the day, it's still cheaper to buy a series of weekly, non-eligible passes, then a more expensive, eligible monthly pass.