Summer Tax Changes
Public transit passes and universal child care
by Jamie Golombek
Been in hibernation all summer long? If so, you'd better take a few minutes to catch up on a couple of new tax changes that came into force over the summer that could impact your clients.
Tax credit for public transit passes
The 2006 federal budget announced a new tax credit "to encourage individuals to use public transit, ease traffic congestion in urban areas and improve the environment". The new non-refundable tax credit is equal to 15.25 per cent for 2006 (15.5 per cent for 2007 and subsequent years) multiplied by the cost of monthly (or longer) public transportation passes. The credit applies to transit passes valid for travel on or after July 1, 2006.
To illustrate the potential tax savings, let's say Donna purchases monthly passes costing $100 per month throughout the year. She will receive about $180 in federal tax relief annually (calculated as approximately $100 x 12 x 15.5%).
Nearly all types of public transit are covered, including 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).
Remind clients that they need to retain their receipts and/or passes for tax verification purposes. In June, the Canada Revenue Agency (CRA) issued a press release detailing the types of information clients will need to retain for tax purposes to substantiate the new credit.
Specifically, if the transit pass displays the following information, the pass itself will be sufficient to support the new credit:
an indication that it is a monthly (or longer duration) pass;
the period for which the pass is valid;
the name of the transit authority issuing the pass;
the amount paid for the pass; and
the identity of the rider.
If the pass does not contain all of this information, the CRA advises transit users to obtain a dated receipt, or at least retain cancelled cheques or credit card statements, to support their claims.
The Universal Child Care Benefit
The other major program that came into force this summer was the new Universal Child Care Benefit (UCCB), a government initiative "designed to assist Canadian families, as they seek to balance work and family life, by supporting their child care choices through direct financial support". The UCCB payment is equal to $100 per month per child under the age of six. By now, clients with children under the age of six should have already received their July and August payments.
In order to receive the UCCB, your client must meet certain conditions:
he or she must live with the child and the child must be under the age of six;
he or she must be the person who is primarily responsible for the care and upbringing of the child. This means that he or she is responsible for the child's daily activities, medical care and child care arrangements, when necessary; and
he or she must be a resident of Canada.
Note that to receive the UCCB, your client must apply by completing the Canada Child Tax Benefit (CCTB) application form. If they already receive the CCTB, they don't have to re-apply and should already have received their first two payments. The CCTB application form can be downloaded from the Canada Revenue Agency's website, www.cra-arc.gc.ca. It may be a good idea to have a stack of them handy in your office for clients who have yet to apply.
While the initial July 2006 payment was issued by cheque, in the future, recipients will have the option to ask that the payments be deposited directly into their bank account.
The government has stated that you should receive your first payment by the end of the second month after it receives the completed CCTB application. For example, if the government receives the application in September, your client should receive her first payment by the end of November. Once the application is processed, the government will send all the retroactive payments to which the applicant is entitled.
Finally, note that the UCCB will be considered taxable income and is reportable by the lower income spouse or partner, regardless of which spouse or partner actually received the payments. To this end, the CRA will provide UCCB recipients with an RC62, Statement of Universal Child Care Benefit, information slip in early February 2007.
Note that the UCCB will be excluded as income when calculating the CCTB and the Goods and Services Tax/Harmonized Sales Tax (GST/HST) credit "in order to maximize the benefits payable to low and modest income earners".