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ICAO Volunteer Tax Clinics

ICAO Volunteer Tax Clinics. 2012 Training Session for 2011 Returns Presented by: Rita MacDonald, CA Rita MacDonald Professional Corporation Elements LLP Tax Advisory and Compliance. Agenda. Tax Clinic Guidelines Introduction to the Return

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ICAO Volunteer Tax Clinics

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  1. ICAO Volunteer Tax Clinics 2012 Training Session for 2011 Returns Presented by: Rita MacDonald, CA Rita MacDonald Professional Corporation Elements LLP Tax Advisory and Compliance

  2. Agenda • Tax Clinic Guidelines • Introduction to the Return • Understanding the Changes to the Ontario Credits • Hypothetical tax return - Problem 1 • Hypothetical tax return - Problem 2 • Using TaxPrep

  3. Volunteer Tax Clinic Guidelines • Income threshold per household, less than: • with no dependents $20,000 • with dependents $30,000 • Exceptions, i.e. disabled • No business income or rental income

  4. Volunteer Tax Clinic Guidelines • Assist in preparing return – likely only for 2011; some clinics may allow 2010 and 2009 • Do not associate with false, misleading or incomplete returns • Do not give advice

  5. What To Bring - Taxpayer • Information slips and receipts • Prior year’s tax return and assessment • Other necessary information • Taxpayer responsible for filing return

  6. What To Bring - Volunteer • Calculator, stapler, pens, pencils, etc. • Blank paper (for schedules, i.e. list of medical expenses, donations) • T1 guide • Clinic Briefing Notes • Extra blank returns • Computer and printer (if using)

  7. What To Expect • Each location different – know where you are going and arrive early to set up – DON’T FORGET!! • Taxpayer’s have been pre-screened and booked into ½ hour slots (a husband and wife would be 2 returns so 1 hour) • Typically 3 hour clinics so you will be preparing 6 returns • Sort the slips by type and review for completeness • If taxpayer does not qualify (i.e. business income, over income threshold), do not complete and bring to the attention of the location coordinator

  8. What to Expect (2) • No where to print (unless you bring your own printer) so be prepared to complete by hand • Review tax T1 General (tax forms) prior to attending • May use Taxprep to calculate first • Complete two copies, one signed and in envelope to CRA and one for taxpayer

  9. Completing the Return • Who must file a return? Everyone! • Which T1 form to use (Special, General)? • Do lower income spouse first • Need details of spouse’s income (if not preparing)

  10. The Income Tax and Benefit Return • 4 pages - Otherwise known as “the Jacket” • Page 1 – Personal Identification, elections Canada, GST • Page 2 – Total Income • Page 3 – Deductions from income to get to Taxable Income • Page 4 – Calculation of Refund or Balance Owing, Signature

  11. IDENTIFICATION – Page 1 • Personal Information – name, address, S.I.N., D.O.B., marital status • Must include spouse’s information (common-law too) • PROVINCE OF RESIDENCE – ONTARIO • Elections Canada, Question on Citizenship • GST – always answer yes!!!!! (one per couple/family)

  12. IDENTIFICATION (cont’d) • Effects of Changes in Marital Status • Common-law partner applies if 1) parent of your child, and/or 2) living together for 12 continuous months • Year of marriage – claim spousal amounts and transfers from spouse, if applicable • Year of marriage breakdown – you can claim either tax credit for spouse (see below) or support payments but not both

  13. CALCULATING TOTAL INCOME – Page 2 • Page 2 of the Jacket • Record ALL income here • Next 9 slides

  14. Total Income – Page 2 • SLIPS (add together if more than one): • T4 – Employment Income • T4E – Employment Insurance • T5 – Investment Income • T4(P) – Pension Income • T4(OAS) – Old Age Security ANDNet Federal Supplements • T5007 – Social Assistance

  15. Total Income – Page 2 • Universal Child Care Benefit – RC62 slip • $100/month/child under the age of 6 (Line 117) • Taxed on LOWER-income spouse return • IF you were a single parent on Dec 31, 2011 can include ALL UCCB amounts on eligible dependant’s return • Report on Line 185 of Jacket – page 2 • Deduct from eligible dependant amount as net income – Schedule 1 and ON428 • Taxprep – RC62 – Check Option #2

  16. Total Income – Page 2 • Support Payments - SPOUSE • support payments for SPOUSE DEDUCTIBLE to payer and taxable to recipient – Line 156 and 128 • Must be court ordered periodic payments • Support Payments - CHILD • Support payments for CHILD NOT DEDUCTIBLE to payer and not taxable to recipient • Rules changed May 1, 1997

  17. Total Income – Page 2 • Foreign Income • Report all income earned in year from all sources, i.e. pension from United Kingdom • Translated at the average exchange rate • See briefing notes for treaty exempt countries and exemptions and exchange rates

  18. Total Income – Page 2 • US Social Security • Canadian residents are taxed on US social security received during the year • Include 100% of Social Security on line 115 and deduct 15% on line 256 (only 85% of amount is taxable) • IF started collecting prior to January 1, 1996 may be eligible for 50% deduction

  19. Total Income – Page 2 • Veterans • Veteran disability payments, dependent pensioners’ payments and war veterans allowances are not taxable and not included in net income • Canada Child Tax Benefit & Ontario Child Benefit • Not taxable – do not include

  20. Total Income – Page 2 • Scholarships, Bursaries and Fellowships • FULL-TIME STUDENTS – not taxable if full-time in current year, previous year or subsequent year • PART-TIME STUDENTS – exemption equal to the amount of tuition paid plus costs of program-related material • Taxprep - To calculate exempt portion for part-time students enter tuition fees & costs on Form J130

  21. Total Income – Page 2 • Split Pension Income • If clients OVER 65 and therefore receiving the age amount – WILL NOT BE BENEFICIAL AS ALREADY NOT TAXABLE – TRANSFER NOT NECESSARY • This is the majority of Tax Clinic Clients • If in doubt and using Taxprep go to Form T1032 and use “calculate” button to determine if beneficial

  22. Total Income – Page 2 • Split Pension Income (continued) • If clients are under the age of 65 with eligible pension income (Line 115), transfer may be beneficial • IF one spouse has majority of income and the other has NO pension income (Line 115), AND • IF after entering all information, the client IS taxable, may want to split the pension income • BOTH clients would need to complete and sign form T1032 (bring the forms with you) • See Briefing Notes for more details • THIS SCENARIO IS NOT LIKELY GIVEN THE INCOME CRITERIA AT THE TAX CLINICS

  23. Total Income – Page 2 • Split Pension Income (continued) • The only other time it may be advisable to split income is if after calculating taxable income, one spouse has TAXABLE INCOME OVER $20,000 • In this case, split pension income to eliminate the Ontario Health Premium • Again you will need to bring the forms (T1032) with you and both clients will have to complete and sign

  24. CALCULATING TAXABLE INCOME – Page 3 • Page 3 of the Jacket • Line 250 most important! • The rest will likely not apply • See next 3 slides

  25. TAXABLE Income – Page 3 • Non-Taxable Income – entered in calculating net income above • GIS and SA (line 146) • Welfare (line 145) • Worker’s Compensation (line 144) • Offsetting deduction in computing taxable income (LINE 250)!!!! • Affects calculation of tax credits

  26. TAXABLE Income – Page 3 • Childcare Deduction • Must be claimed by lower income spouse (in most cases) using form T778 • Only deductible against earned income (in most cases) • Max claim of $7,000 per child who was not 7 at end of year, $4,000 each for other children under 16 at any time during year, and $10,000 per child eligible for Disability Credit (max 2/3 of earned income) • Limit on camp expenses for overnight camps • Use Jumpcode “Care” to enter in Taxprep

  27. TAXABLE Income – Page 3 • RRSP contributions – Line 208 (Complete Schedule 7) • Union Dues – Line 212 (from T4) • Support Payments Made – Line 220 (see slide above)

  28. CALCULATING REFUND OR BALANCE OWING – Page 4 • Page 4 of the Jacket • Calculate FEDERAL tax on Schedule 1 (Line 420) and ONTARIO tax on ON428 (Line 428) • Lines 437 – 476 as applicable • LINE 479 – Provincial Credit (see below)

  29. NON-refundable tax credits • These are NON-refundable • Only used to reduce taxes otherwise payable • Different amounts available on Schedule 1 (Fed) and ON428 (Ont) • TIP: Once you have enough credits (greater than or equal to taxable income) then you do not need to claim more • See next 13 slides

  30. Non-refundable Tax Credits • Use worksheets/guide when needed • Basic Amount • Everyone gets a basic credit of $10,527(Fed) and $9,104 (Ont) • Spouse/Common Law Amount • If the spouse has low income or no income claim spouse amount (spouse must still file own return) • Available credit of $10,527(Fed) and $8,503(Ont) less spouse’s net income

  31. Non-refundable Tax Credits • Eligible Dependent (Line 305) – Schedule 5 • consider for single, divorced, separated, widowed taxpayers • Must support dependent who was • under 18 at any time or parent, grandparent, or physically/mentally infirm • Related to taxpayer • Living with taxpayer (except dependent children at school) • Residing in Canada • $10,527 (Fed) and $8,503 (Ont) less net income • Remember to deduct UCCB, if applicable (see above)

  32. Non-refundable Tax Credits • Amount for children born in 1994 or later • $2,131 per child who is under 18 at the end of the year • Claim the full amount in the year of birth, death or adoption • Federal only, not provincial credit • CPP paid (from all T4s (Line 308) • EI paid (from all T4s (Line 312)

  33. Non-refundable Tax Credits • 65+ (born 1946 or earlier) • claim age amount $6,537 (Fed) and $4,445 (Ont) • Pension Amount • receipt of pension income (lines 115, 129) - CPP, OAS, death benefits not eligible • claim pension amount $2,000 (Fed) and $1,259 (Ont) • Transfer Credits to Spouse (Schedule 2) • Transfer age amount, pension amount, disability amount, tuition in certain cases

  34. Non-refundable Tax Credits • Canada employment amount – Federal Credit • $1,065 (Line 363 – Sch 1) • Available if they have employment income • Public Transit Passes – Federal Credit • Line 364 – Sch 1 • Credit for monthly (or longer) public transit passes • Or passes for at least 5 days uninterrupted travel x 4 (total 20 days purchased within a 28 day period) • Claim for you, your spouse, common-law spouse or dependent children under 19

  35. Non-refundable Tax Credits • Federal Children’s fitness amount (Line 365) • Maximum $500 per year per child for enrolment in a program of prescribed physical activity • Child must be under 16 at beginning of the year or under 18 if disabled • Additional $500 available if paid for disabled child

  36. Non-refundable Tax Credits • Federal Children’s art amount (Line 370) - NEW • Maximum $500 per year per child for enrolment in an artistic, cultural, recreational or developmental program • Does not have to be physical, i.e. tutoring, piano lessons, Girl Guides • Child must be under 16 at beginning of the year or under 18 if disabled • Additional $500 available if paid for disabled child

  37. Non-refundable Tax Credits • Disability Credit • $7,341 (Fed) $7,355 (Ont) non-refundable tax credit • Additional amounts available for disabled children under 18 yrs • Markedly restricted in their daily activities for a substantial period of time • Must file T2201 if 1st year of claim

  38. Non-refundable Tax Credits • Infirm Amount – Line 306 • for dependents 18+ with mental/physical infirmity • for child, grandchild, parent, grandparent, brother, sister, aunt, uncle, niece or nephew resident in Canada • Dependent’s net income must be less than the threshold (see guide) • Use worksheet to calculate and complete Schedule 5

  39. Non-refundable Tax Credits • Caregiver Credit – Line 315 • for dependents 18+ with mental/physical infirmity - for child, grandchild, parent, grandparent, brother, sister, aunt, uncle, niece or nephew resident in Canada • OR 65+ parent or grandparent (not necessarily infirm) • Dependent’s net income must be less than the threshold (see guide) • Use worksheet to calculate and complete Schedule 5 • NOT available if infirm amount claimed

  40. Non-refundable Tax Credits • Students - Complete Schedule 11 - Tuition • Tuition - receipts must be >$100 for tuition (T2202A) • Education Credit and Textbook credit – calculated based on FT or PT status (see T2202A) • Unused tuition fees and education credit can be transferred up to $5,000 (Fed) and $6,295(Ont) to supporting person • Students should always complete Schedule 11 even if credits not used to keep carryforward • Interest paid on Canada Student Loans is eligible for a credit (Line 319 – Fed only) or carryforward 5 years

  41. Non-refundable Tax Credits • Medical expenses • Claim entire family’s expenses on same return • Eligible amount must be over 3% of net income • Can claim for any 12-month period ending in 2011 • List on blank sheet & Include receipts • TIP – check if over 3% of net income and needed to reduce taxes or claim the refundable medical expense supplement first

  42. Non-refundable Tax Credits • Medical expenses – other dependents: • Claim for expenses paid on behalf of other dependent relatives, such as grandparents or nieces/nephews • may be claimed on line 331 of Schedule 1/liine 5872 of ON428 • Claim is subject to dependent’s minimum threshold (> 3% of net income) • No maximum (new for 2011)

  43. Non-refundable Tax Credits • Donations (Complete Schedule 9) • claim entire family’s donations on same return • Federal receive credit of 15% on first $200 and 29% on balance • If credit not needed then carryforward up to 5 years • Tell client to keep receipts until needed

  44. Non-refundable Tax Credits • New Immigrants • considered part-time residents from the time they enter Canada, i.e. moved to Canada on March 31, 2011 then resident for 275 days or approximately 9 months • pay tax on all income received since moving to Canada, i.e. 9 months • Non-refundable credits are pro-rated, i.e. 275/365 • Pro-rate the following federal and corresponding Ontario amounts: Line 300, 301, 303, 305, 367, 306, 315 to 318. • Taxprep – enter date of entry for automatic proration

  45. Ontario Health Premium Tax • For individuals with TAXABLE income (line 260) greater than $20,000 • Calculated and entered on ON428 – Line 69 • Non-refundable credits listed above are not used to reduce • Tax Clinic patrons will not likely be subject to this premium due to their taxable income level

  46. REFUNDABLE CREDITS!!! – Page 4 • Claimed on page 4 of Jacket • Unlike non-refundable credits you should ALWAYS see if these are available • They create refunds for the clients • Use separate schedules and worksheets to calculate • Next 5 slides

  47. Ontario Refundable Tax Credits • ON BEN – New in 2010 – ONE PER FAMILY • ALWAYS select box 6118 to claim the OEPTC (Ontario Energy and Property Tax Credit) • ALWAYS Select box 6113 IF age 64 or older and paid property tax to claim the OSHPTG (Ontario Senior Homeowners’ Property Tax Grant) • Enter rent paid (Line 6110) or property tax paid (Line 6112) or check box (6114) if student in residence in 2011 • Complete declaration – Part B • SEE SEPARATE HANDOUT

  48. Ontario Refundable Tax Credits – Page 4 • ON 479 – ONE PER FAMILY • BIG changes for 2011 • VERY IMPORTANT – see separate handout • Only used now to claim refundable credit for Children’s Activity Tax Credit (next slide) • Other credits not typically applicable to Tax Clinic clients

  49. Ontario Refundable Tax Credits – Page 4 • ON 479 – Ontario Chiidren’s Acitivity Tax Credit • Claim fitness and art program receipts (same as Federal – see above) • Maximum $509 in eligible expenses (additional $509 if disabled) per child • Maximum refundable credit $51 per year per child or 10% of total • Child must be under 16 at beginning of the year or under 18 if disabled • Complete Line 6309 of Form ON479 and transfer to Line 479 of the Jacket

  50. Federal Refundable Tax Credit – Page 4 • Working income tax benefit (WITB) – ONE PER FAMILY – IMPORTANT CREDIT • Available if employment or business income & over 18 • Employment/business income must be > $3,000 • Not for full-time students unless single with dependent • Complete Schedule 6 and enter results on Line 453 • Maximum $944 (single) or $1,714 (with dependent)!!!

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