Chapter 5: Families

2019 Tax Tips

Crowe Soberman Tax Team
Client Tool
| 12/4/2019
Tax Tips for Families

Our annual Tax Tips Guide is here to assist you in your tax planning, presenting some quick ideas and strategies for you to consider.

 

If you have young children

Save for your child or grandchild's education with a Registered Education Savings Plan (RESP) 

An RESP is a trust arrangement that earns tax-free income to be used to fund the cost of a child or grandchild’s post-secondary education. Contributions to an RESP are not deductible for tax purposes and withdrawals of capital from the RESP are not taxed. The beneficiary is taxed on the income portion when withdrawn from the RESP for the purpose of funding his or her post-secondary education. While at school, the child or grandchild tends to have relatively low sources of other income, and, as a result, the income is usually taxed at lower rates, if at all.

For RESP contributions in 2019:

  • There is no annual contribution limit;
  • The lifetime contribution limit is $50,000 per beneficiary; and
  • A federal Government grant of 20% of annual RESP contributions is available for each beneficiary under the “Canada Education Savings Grant.” The maximum annual RESP contribution that qualifies for the federal Government grant is $2,500.
Maximize child-care expense deduction

The maximum amounts deductible for child-care expenses are $11,000 for a disabled child, $8,000 for children under age seven, and $5,000 for other eligible children (generally, children aged 16 and under). In most cases, the spouse with the lower net income must claim the child-care expenses against his or her earned income.

Apply for the Canada Child Benefit (CCB)
The Government merged the Universal Child Care Benefit (UCCB) and Canada Child Tax Credit (CCTB) in to a new Canada Child Benefit (CCB). The CCB is a tax-free payment based solely on the family’s income from the previous year. The program provides parents with monthly benefits of up to $553.25 ($6,639 annually) for children aged six and under and up to $466.83 ($5,602 annually) for children aged 6 to 17.

It is expected that families making below $150,000 will receive more in monthly child-benefit payments than they were otherwise receiving under the UCCB and CCTB programs. However, the benefit is gradually clawed back for families making over $30,000 and fully eliminated for families making over $200,000 annually.

The application for the CCB can be made online through the CRA “My Account” when you complete your child’s provincial birth registration form or by completing Form RC66. More information can be found at here.
Tax Tips for Families

If you have disabled or infirm dependents

The Registered Disability Savings Plan (RDSP) is a savings plan that is intended to help parents and others save for the long-term financial security of a person who is eligible for the Disability Tax Credit.

  • Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age.
  • To help you save, the Government pays a matching grant of up to $3,500. You can carry forward unused grant entitlements for up to ten years.
  • Contributions that are withdrawn are not included in the income of the beneficiary, although the Canada disability savings grant, Canada disability savings bond, and investment income earned in the plan will be included in the beneficiary’s income for tax purposes when paid out of the RDSP.
  • There is no annual limit on amounts contributed to an RDSP of a particular beneficiary, but the overall lifetime limit is $200,000.
  • A deceased individual’s RRSP or RRIF can be transferred tax-free into the RDSP of a financially dependent infirm child or grandchild.

For 2016 and subsequent tax years, the Government implemented a new non-refundable Home Accessibility Tax Credit.

The tax credit is available for eligible expenses incurred in making a home more accessible to individuals aged 65 or older or to individuals who are disabled or infirm.

Either the individual who incurred the expenses or the individual for whom the expenses are made can claim the tax credit. The individual who incurred the expenses can only claim the tax credit in respect of expenses incurred for his or her spouse or common-law partner, or for disabled or infirm dependants.

You can claim up to $10,000 in eligible expenses under the Home Accessibility Tax Credit, resulting in a non-refundable tax credit worth up to $1,500. Expenses eligible for the claim must be permanent and non-routine renovations to the home. The alterations must allow the individual for whom the expenses were incurred to be mobile within the home and/or reduce the risk of harm to the individual within the home.

chapter-5-tax-tips-family-2

Did you know?

On January 1, 2018, the changes to the tax on split income (TOSI) rules which impact the ability to split dividend and other types of income (generally applicable to dividends paid by private corporations) with adult family members came into effect. If TOSI applies, the income is taxed in the hands of the recipient individual at the highest marginal tax rate, regardless of his/her income level. The TOSI rules aim to curtail the splitting of income with related family members who have not otherwise made a meaningful contribution to the business, be it labour, capital, and/or an assumption of business risks. The TOSI rules are complex. Contact your Crowe Soberman advisor for more information on the application of the rules and potential exceptions.

Income splitting with family members - other opportunities

Consider the following legitimate means of shifting income to family members whose taxable income is below the lowest tax bracket, approximately $45,916. This will allow them to take advantage of certain non-transferable credits as well as lower tax rates.
Income splitting with children over the age of 17 (“adult children”)
  • Shift investment income by gifting money to your adult children or to a trust for their benefit, if you wish to maintain control.
  • Lend funds (at the prescribed interest rate) to or purchase shares in a corporation whose shareholders are your adult children.
Income splitting with adult or minor children
  • Purchase appreciating assets in the names of your children regardless of their ages. Capital gains will be taxed in their hands, not yours.
  • Lend money to your children with actual interest payable at the prescribed rate. Earnings in excess of this rate will be taxed in their hands.
  • Consider reorganizing the shareholdings of your private corporation to have your adult children (over the age of 24) own shares directly that give them 10% of the votes and value (i.e., “excluded shares” for purposes of the TOSI rules). Dividends can be paid by the corporation on these shares to your adult children without the TOSI applying. This planning is beneficial if your adult children are not otherwise active in the business and not already earning income that puts them at the highest marginal tax bracket. Note that this planning only works if the corporation earns business income, is not a professional corporation and is not in the provision of services.
Income splitting with your spouse or common-law partner
  • Lend money to your spouse or common-law partner to earn business income.
  • Have the higher-income spouse or common-law partner incur all household expenses, thus allowing the lower income person to acquire investments, which could be taxed at a lower rate.
  • Lend money to your spouse or common-law partner with actual interest payable at the prescribed rate. Earnings in excess of this rate will be taxed in your spouse or common-law partner’s hands.
  • Consider reorganizing the shareholdings of your private corporation to have your spouse (over the age of 24) own shares directly that gives him/her 10% of the votes and value. Dividends can be paid by the corporation on these shares to your spouse without TOSI applying. This planning is beneficial if your spouse is not otherwise active in the business and not already earning income that puts him/her at the highest marginal tax bracket. Note, this planning only works if the corporation earns business income, is not a professional corporation and is not in the provision of services.
File and pay your taxes on time
  • Even if you are receiving a refund, you should file your taxes on time. Filing on time avoids the possibility of late- filing penalties that may be applicable on CRA reassessments.
  • The deadline for filing your 2019 personal tax return is Thursday, April 30, 2020. If you, or your spouse or common-law partner, are self- employed, the deadline for filing your tax return for 2019 is extended to Monday, June 15, 2020. Regardless of your filing due date, if you have a tax balance owing for 2019, you still must pay the balance due on or before April 30, 2020.
  • The penalty for late filing your return is 5% of the unpaid taxes, plus an additional 1% for each complete month your return is late (up to 12 months). Penalties are higher for repeat offenders or gross negligence omissions.

Watch more here.

Contact Us

Silvia Jacinto
Silvia Jacinto
Partner, Tax