Personal Tax Changes for Younger Tax Filers

The March 21, 2013 federal budget made two significant personal tax changes for younger taxpayers: the adoption expense tax credit has been expanded and for new charitable givers, there is a super credit, plus there is a new penalty for schemers.

Adoption Expenses.  For taxation years after 2012, the adoption period for parents who qualify to claim the Adoption Tax Credit, a non-refundable credit found on Schedule 1 of the federal tax return, will be extended to begin at the earlier of

• The time the adoptive parent makes an application to register with a licensed adoption agency or province or
• The time the application is made to a Canadian court, if earlier.

This will make some expenses eligible that were not previously eligible for the credit.

New First Time Donor Tax Credit.  For taxpayers who have never  claimed the donation tax credit or those who have not done so for years after 2007, the donation credit will be increased from 15% to 40% for donations under $200 and from 29% to 54% for donations between $200 and $1,000.  Note however, that where the spouse of the taxpayer made a claim after 2007, the taxpayer is not considered to be a first-time donor.  The credit may otherwise be shared between spouses. This new credit will be available for taxation years 2013 to 2017.

Here’s an example:   The qualifying taxpayer makes a $500 Donation

• If a taxpayer is a first-time donor, the credit will be $200 x 40% plus $300 x 54% = $80 + $162 = $242.
• If a taxpayer is not a first-time donor, the credit will be $200 x 15% plus $300 x 29% = $30 + $$87 = $117.

Charity Schemers Beware:  Collection of Taxes in Dispute for Tax Shelters.  For 2013 and subsequent taxation years, where a taxpayer owes money and has participated in a tax shelter, CRA will be allowed to collect up to 50% of the taxes owing in respect of the tax shelter even if the taxpayer has filed a Notice of Objection.  This measure was particularly aimed at participants in donation tax shelters.