Tag Archives: tax credit

Deliberately Misleading Government Ads About Tax Breaks Anger No-Young-Children Canadians Needlessly

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Here we go again. The Federal Government has announced some new income tax changes in a way that grossly over-states what is really on offer. The ads and discussion will focus on some totally misleading numbers and will anger people who no longer have (or never had) children under 18: I get so tired of this.

Why Announce a $50 000 Tax Split If It Has No Meaning Whatsoever?

In this current round of misleading announcements, the Federal Government has said it is proposing a bill which will allow 2-parent families to move $50 000 of income from one spouse’s tax return to the other.

You can practically see the steam rising from the ears of the millions of Canadians who won’t be able to take advantage of this change.

But is the number $50 000 worthy of being announced?

NO. Because the impact of that shift is limited to a maximum benefit of $2 000!

The announcement should have been: Tax change allows families with children under 18 to save up to $2 000.

That’s it. It should not have ever quoted a misleading number like $50 000.

Here’s why.

Why the $50 000 Income Sharing Option is Totally Bogus

I only have access to 2013 tax software to run some tests with but here’s the case I reviewed:

  • One parent is earning $125 000 a year.
  • One parent is earning $25 000 a year.
  • Two children under 18.
  • Various normal types of deductions and small additional income amounts from Canada Savings Bonds etc.

How much should the higher-earning parent shift to the lower earning parent to save $2 000 in FEDERAL income tax?

(Note the proposed tax changes do not reduce provincial taxes at all.)

If they shift $18 000 in earnings from the higher earning spouse’s tax return to the lower, they save $1 667 in federal tax. (NOTE: The actual 2014 savings will vary depending on the 2014 tax return and some other factors.)

So they should keep going, right?

If they shift $30 000, they save $1 667.

What?!

If they shift $50 000 they still save $1 667.

Why??

Because after they shift $18 000 both of the family member’s are in the same tax bracket. Shifting who pays tax on it does nothing. (Many pensioners with near equal incomes are familiar with this.)

Here’s another case:

  • One parent is earning $125 000 a year.
  • The other parent is earning $0.

If they shift $50 000 to the lower earning spouse, they should get more than $2 000 back but they can’t.

So what do they have to shift to get $2 000 back?

For the example test case for 2013 taxes that I’m using, they only have to shift $18 500 to get the $2000 in federal tax savings.

So why announce you can shift $50 000 in income if it makes no difference!?

Because it sounds better! Because it might win votes! Because it’s a nice big sounding round number!

(And I suppose if I ran a few dozen cases, I’d probably find because it is the amount you need to shift between spouses under one or two circumstances to get the maximum $2 000 savings.)

I hate this kind of electioneering!

Why don’t they just announce, a new tax savings of up to $2 000 for parents of children under 18 who have very disparate incomes?

They don’t because $2 000 doesn’t sound that amazing, does it? It’s not even enough to top out one RESP contribution for a year.

Other Examples of an Inflated Unrealistic Tax Announcements

This is not the first outrageous announcement the government has made. How many people have seen ads telling them that families can use a $500 Children’s Fitness Tax Credit per child on their federal income tax return?

But what is the actual amount the parent saves? It sounds like $500. But the real savings is $75.

That is a $425 difference between what people THINK parents are getting and what they may be receiving.

It sounds like a family with three children could get $1500 back. In reality they get back at most $225 on their federal taxes.

Another example is the Adoption Tax Credit. It sounds amazing: $11 669! But that’s not what the parents get back. If they have $11 669 in applicable adoption expenses they can get back up to $1 750 on their federal income taxes. But again, announcing a savings of less than $2 000 isn’t the kind of big splashy number the political parties want to trumpet to the media.

What Is the Serious Negative Effect of these Intentionally Misleading Tax Announcements?

The real problem with this steady stream of misleading tax announcements is that it

  • doesn’t help parents that much
  • makes everyone who isn’t a parent at this time to children in that age group seethingly angry

The people who do not get any tax break see the big numbers:

  • $50 000 tax splitting!
  • $1000 per child sports tax savings!
  • $500 per child arts tax savings!
  • $10 000 (and more with inflation adjustments) per child for eligible adoption expenses!

And they think they are getting royally ripped off.

They don’t see

  • MAXIMUM $2 000 but most of you won’t get that much income splitting credit
  • $150 per child sports tax rebate
  • $75 per child arts tax rebate
  • $1 750 adoption expense tax rebate

Which would let them think, gee, is $150 back really going to pay for a kid’s skating, swimming, hockey and soccer fees for year?

Does $75 buy a lot of music lessons?

Does a child eat and require fewer clothes than $2000 a year provides?

If it costs over $11 000 to adopt a child is saving $1 750 really going to open more homes to children?

It just builds resentment against young Canadian families without really giving them much.

I wish there was a law against it! Some kind of “truth in advertising” law that would stop the government from playing this head-game with Canadians and setting us against each other.

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Charitable Tax Receipts

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As our final T-slips arrived last week, I’ve started pulling together the massive pile of paper that I’ll need to calculate our taxes. The stack of dental and eye doctor receipts are generally useless but the stack of charitable receipts is worth a good ka-ching. That’s what gives me the incentive to make sure that I’ve found them all.

The Danger of E-Receipts for Charitable Donations

I can understand charities trying to cut costs by not mailing out paper receipts. If the banks can tell me that it costs them $2 to send a bill, then a charity that has to send out receipts could waste thousands of dollars a year.

The danger is that most charities send e-receipts or send a link to a website with an e-receipt, almost as soon as you make a donation. Even if the donation was made January 1. That means you have to remember to find them all when tax time comes the following spring.

Try to make it easier on yourself. Set up a folder called either Taxes or Charities on your email account. Move the notes to that folder as soon as you receive them.

Similarly, for paper charitable receipts, try to keep a folder or a binder with a “page protector” folder in it. File the receipt as soon as it arrives so you can find it when you want it.

What *Me* Give? I Don’t Donate. Or Do I?

You may think you don’t donate much. If you’re like many of us, though, you probably give $20 here or there without even thinking about it, especially if you work in a large office or other place where co-workers are canvassing for their causes.

Here are some of the receipts we had to remember to find:

  • Run for the Cure (Sept/Oct)
  • Daffodil Days (April)
  • Red Cross Appeals
  • Heart and Stroke Skip-a-Thons
  • Ride for Heart (May/June)
  • Camps (May-August)
  • In Memorium Donations (for friends and relatives who died and requested donations to charities)
  • Movember (October/November)
  • Social Outreach Charities
  • United Way (especially if your workplace coerces you into giving even if you wouldn’t otherwise)
  • Nursing and Palliative Care
  • War Amps (March-May)

I’m sure I’ve missed a few. We’re always being hit up for donations to support our children’s, nieces’ and nephews’, siblings’, extended families’ and friends’ charities of choice. Hopefully, though, this list will get you thinking, and maybe checking your email archives.

What If I Miss a Receipt from a Charity?

Fortunately, the CRA let’s you claim charity receipts from any donations made during the current tax year and the previous 5 years. So on your 2013 return, for example, you can claim charitable contribution receipts from 2008, 2009, 2010, 2011, 2012, and 2013.

Why Might I Give My Charitable Donation Receipts to My Spouse or Partner?

Unlike many circumstances where the CRA seems determined to treat married and legally-common-law couples as if they are single, for charitable giving they are willing to admit you’re in a partnership. They are willing to treat a donation made by either spouse or partner as a joint donation. Consequently, one person can claim all of the charitable contributions made by both parties.

Why bother?

The benefit is because there is a different tax credit for the first $200 you contribute and for each dollar given above $200.

If both spouses or partners claim their charitable receipts separately, the $200 hurdle has to be jumped twice. If the receipts are combined, up to an additional $200 benefits from the maximum tax credit.

Here’s an example:
Imagine Sarmud and his wife Noor both donated $200 each in 2013.
They live in Newfoundland.
If they claim their receipts separately, each one will get a tax credit (combined federal and provincial) of $45.40.
If one of them claims the full $400, the tax credit is $130.
That’s $39.20 more tax credit.

Why Might I Choose to Wait to Claim my Charitable Contributions?

Around here there is no benefit in waiting. We donate well over the $200 hurdle each year. However, for some people there may be an advantage in waiting a year or two to claim their charitable givings.

Jumping the $200 Hurdle
The impact of charitable donations on your taxes varies. The first $200 donated gets you less back than all amounts above $200.

Because of this 2-tiered system, it may be worth gathering your receipts for 2 or more years before claiming them to maximize how many dollars are claimed above the $200 level.

For example, using the CRA calculator:
For a person living in B.C., if you claim a $200 donation, your total tax credit is $40.12.
If the donation was $400, the total tax credit is $127.52.
That means waiting until you have $400 gets you $47.28 more in tax credit

So what are you waiting for? Go out there. Give money. Then claim it in the best way to get the best tax credit.

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Will you be eligible for the First-Time Donor’s Super Credit? Do you resent the fact that only new givers are getting a reward? Please share your insights with a charitable comment.