With the tax-filing deadline approaching, the most important guidance you can give to your clients — arguably, beyond any other tax tip — is that they file a tax return, and that they file it on time.
“If you’re due a refund, you want to file on time or earlier,” says Aurèle Courcelles, director of tax and estate planning with Winnipeg-based Investors Group Inc. “And if you owe taxes, there are serious penalties attached to missing the filing deadline.”
Failing to file a return on time results in a penalty of 5% of any amount owing, plus another 1% a month on the unpaid balance for the first 12 months. In addition, there’s interest charged on the total amount owing at a rate of 4% above the government’s prescribed rate. If you do file a return on time but don’t pay the taxes owing, you’re still assessed interest but avoid the penalties.
The deadline to file a 2011 tax return is April 30 for the employed and June 15 for those who are self-employed. The cutoff to pay taxes on 2011 income is April 30 for all.
Here are a few significant federal tax changes your clients should know about:
> Children’s Arts Tax Credit
Introduced in the 2011 federal budget, this is a non-refundable tax credit that is similar in structure to the children’s fitness tax credit, introduced in 2007. With the arts tax credit, parents of children younger than 16 years old (18, if the child is disabled) at the beginning of the tax year can claim a 15% federal tax credit on up to $500 in qualifying expenses incurred for an eligible program of artistic, cultural, recreational or developmental activities. Examples of eligible activities include art, languages, music, photography, Scouting and chess, among others.
To qualify, the program must be “ongoing” — either a minimum of once a week for at least eight consecutive weeks or five consecutive days. The program also must be supervised and suitable for children.
> Volunteer Firefighter Tax Credit
Starting with the 2011 taxation year, volunteer firefighters who have completed at least 200 hours of eligible volunteer firefighting service can claim $3,000, for a 15% non-refundable tax credit of $450.
> Medical Expenses Tax Credit
Previous to the 2011 taxation year, a caregiver could claim the eligible medical expenses of a dependent relative over the age of 18 that were higher than the lesser of either 3% of the dependent relative’s net income or $2,052 for 2011 — to a maximum of $10,000. Starting in the 2011 taxation year, the $10,000 cap has been eliminated.
> Exam Fees
Starting in 2011, fees paid to an educational institution, professional association or provincial ministry toward an examination leading to a professional status or licence will be eligible for the non-refundable 15% tuition tax credit.
> Studying Abroad
Before the 2011 taxation year, Canadians who studied at foreign universities had to be enrolled in a program lasting at least 13 consecutive weeks to be eligible for the tuition, education and textbook tax credits, or to receive educational assistance payments from RESPs.
Starting in 2011, the minimum duration of a program of study at a foreign university has been reduced to only three weeks to be eligible for the education and textbooks credits. The minimum duration for the tuition credit and the EAP also has been reduced to three consecutive weeks for students enrolled full-time at a foreign university. IE