Many Happy Returns
What's new on the 2006 tax form
By Jamie Golombek
The countdown is on to the April 30, 2007, filing deadline for most clients' 2006 personal income tax returns. (The self-employed, and their spouse or partner, have until June 15th to file but still must pay any anticipated balance owing by April 30th.) Here's a quick guide of what's new on the 2006 return.
T1 Return - Page 2
Line 117 - Universal Child Care Benefit
This is likely the most significant benefit announced in 2006 for clients with young children and equal to $100 per month per child under the age of six.
Of course, to receive the UCCB, your client must have applied by completing the Canada Child Tax Benefit (CCTB) application form. If they already receive the CCTB, they don't have to reapply and should already be receiving payments.
The UCCB must be reported on the lower-income spouse's or partner's return, regardless of which spouse or partner actually received the payments.
Line 120 - Taxable amount of dividends (eligible and other than eligible) from taxable Canadian corporations
As a result of changes in 2006, there are now two types of dividends: "eligible" dividends and "other than eligible" dividends.
Eligible dividends will basically consist either of public company dividends received from Canadian equity holdings (either directly or through a mutual fund) as well as dividends received from a Canadian-controlled private corporation (CCPC) that were paid out of active business income not eligible for the small business deduction (which was any income greater than $300,000 in 2006).
It follows that other than eligible dividends will then consist primarily of dividends received from CCPCs that were paid out of active business income taxed at the favourable small business rates.
Line 120 reports both types, with eligible dividends grossed up by 145 per cent and other than eligible dividends grossed up at only 125 per cent.
New Line 180 (an information line as it's not added twice) asks taxpayers to include only the portion of non-eligible dividends that was already included in Line 120, as discussed above.
Line 130 - Other Income
This is the line that students generally use to enter the taxable portion of scholarship income. The May 2006 budget, however, exempted all post-secondary scholarship, fellowship or bursary income from tax.
The full exemption will only apply to amounts received while the student is enrolled in programs that entitle him or her to claim the education tax credit. This includes most programs at the post-secondary level as well as programs at educational institutions certified by the minister of human resources and social development as providing occupational skills.
Schedule 1 - Calculation of Federal Tax
Line 301 - Age Amount
The age credit is available to seniors 65 years of age and older. The amount eligible for this credit was increased by $1,000 to $5,066. The credit, however, is phased out when net income reaches $30,270 at 15 per cent of any excess, meaning that the credit is fully phased out for 2006 when net income reaches $64,043.
Line 363 - Canada employment amount
The Canada employment was also introduced last year to give "Canadians a break on what it costs to work, recognizing expenses for things such as home computers, uniforms and supplies".
No receipts are required to justify any actual employment-related expenses. For 2006, the employment amount is equal to the lesser of $250 and the total employment income reported on lines 101 and 104.
Line 364 - Public transit passes amount
Last year's budget also introduced the new tax credit for public transit. The total cost of all monthly (or longer) public transportation passes purchased and valid for travel on or after July 1, 2006, should be included on this line.
Eligible public transit includes bus, streetcar, subway, commuter train, commuter bus and local ferry. The credit can be claimed by the public transit user for his or her own costs and for costs of his or her spouse's or common law partner's passes as well as for any children (under 19 years old).
Line 314 - Pension income amount
Last year saw the doubling of the pension income credit to $2,000 from $1,000 for "qualified pension income". For those 65 and over, this includes not only registered pension plan (RPP) income but also lifetime annuity payments under an RRSP or a deferred profit sharing plan or RRIF payments. For those under 65, the definition of "qualified pension income" typically only includes RPP payments.
Lines 323 and 324 - Tuition, education and textbook amounts
The new textbook amount for students is claimed on Line 323 and is equal to $65 for each month for which the student qualifies for the full-time education tax credit amount or $20 for each month the student qualifies for the part-time education tax credit amount.
Just like with education and tuition amounts, Line 324 allows any unused textbook amounts transferred from a spouse, common-law partner, parent or grandparent to be claimed.