Individuals who : owe taxes,claim a refund or GST/HST credit,want to continue to receive Canada Child Tax Benefit payments & who disposed of capital property are among those who are obliged to file a tax return.
Tax Year
Individuals who have a duty to file a tax return should follow the calendar year as their tax year.Tax returns must be filed on or before April 30 of the following year.
Self employed individuals may file their tax returns by June 15. However,the income tax due must be paid by April 30.
Accounting Method
An employed taxpayer should follow the accrual accounting method in preparing his/her tax return. The same rule applies to self employed taxpayers with the exception of Farmers,Fishers and Commission Salespersons who can follow the cash method.
Tax Rates
* Federal Rates :
First $ 36,378 15%
Next $ 36,378 22%
Next $ 45,529 26%
Over $ 118,285 29%
* Provincial Rates :
Ontario income tax rates for individuals are as follows :
First $ 34.758 6.05%
Next $ 34,759 9.15%
Over $ 69,517 11.16%
Taxable Income
All income from Canadian and Foreign sources will be taxable in Canada if earned by an individual resident in Canada.Any foreign tax paid on the foreign source income may be eligible for a foreign tax credit.
Non-residents are only taxed on the income they earn from a Canadian source.Any individual spending 183 days or more during a calendar year in Canada is considered as a resident in Canada for tax purposes.
Taxable income would normally include income from the following sources : salaries and wages,fees,employee benefits, alimony,annuity payments , benefits received under registered retirement saving plan, interest, loans by Corporations to shareholders, profit from business rental income and other sources. Gambling winnings are exempt from tax.
Deductions & Credits
Many deductions are available to taxpayers including a child care expenses which are deductible at the lower of :
- the actual amount paid,
- $ 10,000 for each child on whose behalf a disability tax credit may be claimed,regardless of age, plus $4,000( $7,000 per child under age 7) for each eligible child .
- two thirds of the taxpayer's earned income.
Generally,the parent with the lower net income claims the deduction.
Qualified moving expenses may also be deductible including up to $ 5,000 for maintaining a vacant home.
RRSP contribution deduction limit for 2006 will be 18% of the individual's earned income in 2005 to a maximum of $ 18,000. This limit is subject to other adjustments.
A basic personal non-refundable federal credit of $ 1,347 ( $507 provincial) is available to all taxpayers,in addition to a spousal credit of $ 1,144 ( $430 provincial). This credit may be reduced if the spouse earns net income in excess of $ 751 and will be eliminated if the spousal net income is 8,256 or more.
A single ,divorced or widowed individual ,at any time of the year, may claim an equivalent to spouse amount if he/she supported a dependent and such dependent meets the requirements of the Tax Code.
Old age amount credit is available to individuals who are 65 years or older on December 31,2006. the credit amount is based on the individual's net income and is eliminated when income of $ 64,043 is attained.
Foreign Income Reporting
A resident taxpayer owning or holding foreign property in excess of $ 100,000 (at cost) should report such property when preparing his/her tax return. Foreign property includes : funds, tangible assets ,interest in a non- resident fund, shares in non-resident Corporations and debts owed or issued by a non -resident.
Foreign property does not include property held for personal use or property used exclusively in the course of carrying on an active business.
Minimum tax
Minimum tax is payable when it is more than the federal tax as calculated in the usual manner. There is a special formula for the calculation of the tax which takes into consideration a basic exempt amount of $ 40,000.
Interest & Penalties
A late filing penalty at 5% of any tax due will be imposed if the tax return is not filed on time. There is also a 1% penalty for each month of delay to a maximum of 12 months.
Any unpaid balance of due taxes for 2006 will be subject to a compound daily interest starting May 1,2007. The interest will also apply to any penalty that a taxpayer have to pay starting the day after the return is due.
This write-up as prepared by Bibi Consulting ,Inc. is intended as a general guide only. It is strongly recommended that you obtain a professional advice before any action is taken.
Bibi Consulting no longer provides tax return preparation service. However,should you have any specific tax question we will be happy to answer it.
