2007 Personal Tax Returns —What’s New?
Yet another year has passed and it is once again that time of year to turn your attention to your personal tax return. The following is a summary of the more significant federal changes to consider when preparing your 2007 tax return.
New pension income splitting
The election to split pension income will be available when filing returns this year. Eligible taxpayers will be able to allocate up to ½ of their eligible pension income for 2007 to their lower-earning spouse or common-law partner by making the election on new form T1032, Joint Election to Split Pension Income.
The 2007 Economic Statement, the federal mini-budget delivered in October, included a personal tax rate reduction for the lowest tax bracket (taxable income not exceeding $37,178) from 15.5% to 15% for 2007.
Higher basic and spousal/partner personal tax credits
The 2007 Economic Statement also included an increase in the basic personal amount from $8,929 to $9,600 for 2007. There are corresponding increases to the spouse or common-law partner and wholly dependent relative credit amounts (as these credit amounts are equal to the basic personal amount). The actual federal tax credit for these items and the federal non-refundable tax credits discussed below are calculated by multiplying the applicable amount by 15% for 2007.
New children’s fitness tax credit
The widely publicized non-refundable tax credit announced in the 2006 budget is now available for eligible fees paid in 2007 that relate to the cost of registering your child (who is under 16 years of age at any time during the year) in an eligible fitness program. The maximum amount of fees that can be claimed is $500 per child.
There is an additional $500 amount for children (under 18 at any time during the year) with disabilities.
New child tax credit
There is a new non-refundable tax credit for parents with children under the age of 18 (born in 1990 or later for 2007 returns), based on an amount of $2,000 for each child. Either parent may claim the credit if the child resides together with the child’s parents throughout the year. In other cases, the parent who is eligible to claim the wholly dependent person credit will make the claim. The full amount of the credit is available in the year of birth, death, or adoption of a child.
Expanded public transit credit
The expanded non-refundable public transit credit now includes payments for electronic payment cards and weekly passes provided certain conditions are satisfied in each case. Electronic payment cards are eligible if used for at least 32 one-way trips during 31 consecutive days. Weekly passes are eligible if the passes can be used for unlimited travel within at least a five day period and enough passes are purchased to allow the taxpayer to travel on at least 20 days in a 28-day period.
Canada employment credit
This credit was implemented effective July 1, 2006 to provide recognition of work-related expenses incurred by employees. Taxpayers will be provided relief based on the lesser of $1,000 (increased from $250 for 2006) and the taxpayer’s employment income for the 2007.
New working income tax benefit (WITB)
The WITB is a new refundable tax credit for low-income earners over the age of 19 and is worth up to $500 per year for individuals and $1,000 for families (couples and single parents) and is equal to 20% of each dollar of earned income in excess of $3,000. When net family income exceeds certain thresholds ($9,500 for individuals and $14,500 for families), the credit is reduced by 15% of the net family income over the threshold. The WITB includes additional supplements for those with disabilities.
Extended mineral exploration tax credit for flow-through share investors
The 2007 budget extended this credit to apply to agreements entered into on or before March 31, 2008.
Donations to private foundations
Donations of publicly-listed securities to public charities have been eligible for a reduced inclusion rate on capital gains since 1997 and a complete exemption since May 2, 2006. The 2007 budget extended the zero inclusion rate for gains in respect of gifts of publicly-listed securities to eligible private foundations made on or after March 19, 2007.
Higher lifetime capital gains exemption (LCGE)
The LCGE on capital gains realized on the disposition of qualified small business corporation shares and qualified farm and fishing property was increased to $750,000 from $500,000 for dispositions of property that occur on or after March 19, 2007. Refer to “Have you taken advantage of the capital gains exemption?” from the 2007-02 edition of the Tax Factor.
Tax-exempt elementary and secondary school scholarships and bursaries
Scholarships and bursaries that are provided to attend elementary and secondary schools are no longer taxable.
Meal expenses of truck drivers
The deductible portion of the cost of food and beverages consumed by long-haul truck drivers during eligible periods of travel has increased to 60% from 50%. This rate will increase by 5% every year until 2011 when it reaches 80%.
RRSP changes
Previously, RRSPs, RPPs and DPSPs matured by the end of the year in which the taxpayer turns 69. This means that no further contributions or benefit accruals are permitted and that benefits under the plans must begin to be paid. The conversion age has been increased to 71 for individuals who turn 69 in 2007 or subsequent years. Individuals who turn 70 or 71 in 2007 can make RRSP contributions (subject to the usual rules) and waive RRIF withdrawals.
Instalment payments
The personal instalment threshold amount for the 2008 and subsequent taxation years increases to $3,000 ($1,800 for individuals resident in Québec). The CRA will continue to notify individuals who are required to remit instalments of the amount of each instalment, determined on the basis of tax information that is available to the CRA.
If you need more information on these changes or have any questions about how these changes may impact your 2007 tax return, contact your BDO advisor.
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