ICAO Volunteer Tax Clinics

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ICAO Volunteer Tax Clinics

• 2008 Training Session
• Presented by
• Rita MacDonald, CA
• Tax Advisory and Compliance
• Elements LLP

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Agenda

• Introduction
• Tax Clinic Guidelines
• Overview of Clinic Issues
• Hypothetical tax return - Problem 1
• Hypothetical tax return - Problem 2
• TaxPrep

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Volunteer Tax Clinic Guidelines

• Income threshold (per household)
• with no dependents 17,000
• with dependents 25,000
• Exceptions, i.e. disabled
• No business income or rental income

4
Volunteer Tax Clinic Guidelines

• Assist in preparing return likely only for
  2007 some clinics may allow 2006 and 2005
• Do not associate with false, misleading or
  incomplete returns
• Do not give advice

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What To Bring - Taxpayer

• Information slips and receipts
• Prior years tax return and assessment
• Other necessary information
• Taxpayer responsible for filing return

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What To Bring - Volunteer

• Calculator, stapler, pens, pencils, etc.
• Blank paper (for schedules, i.e. list of medical
  expenses, donations)
• T1 guide
• Clinic Briefing Notes
• Extra blank returns
• Computer and printer (if using)

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Completing the Return

• Who must file a return?
• Which T1 form to use (Special, General)?
• Do lower income spouse first
• Need details of spouses income (if not preparing)

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The Income Tax and Benefit Return

• 4 pages
• Otherwise known as the Jacket
• Page 1 Personal Identification, elections
  Canada, GST
• Page 2 Total Income
• Page 3 Deductions from income to get to Taxable
  Income
• Page 4 Calculation of Refund or Balance Owing,
  Signature

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IDENTIFICATION Page 1

• Personal Information name, address, S.I.N.,
  D.O.B., marital status
• Must include spouses information (common-law
  too)
• PROVINCE OF RESIDENCE ONTARIO
• Elections Canada, NEW question on citizenship
• GST always answer yes!!!!! (one per couple)

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CALCULATING TOTAL INCOME Page 2

• Page 2 of the Jacket
• Record ALL taxable income here
• Next 9 slides

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Total Income Page 2

• SLIPS (add together if more than one)
• T4 Employment Income
• T4E Employment Insurance
• T5 Investment Income
• T4(P) Pension Income
• T4(OAS) Old Age Security AND Net Federal
  Supplements
• T5007 Social Assistance

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Total Income Page 2

• Interest refund from CRA
• include interest received on any tax refund in
  2006 (see NOA) (include on Line 121)
• Universal Child Care Benefit RC62 slip
• 100/month/child under the age of 6 (Line 117)
• Taxed on LOWER-income spouse return

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Total Income Page 2

• Eligible Dividends T5 T3 slips
• now two types of dividends (regular eligible)
• Each subject to different gross-up rates and
  credits
• Enter on schedule 4 taxable amount as indicated
  on slip
• Use guide and worksheet to calculate dividend tax
  credit on Schedule 1 and ON428

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Total Income Page 2

• Support Payments - SPOUSE
• support payments for SPOUSE DEDUCTIBLE to payer
  and taxable to recipient Line 156 and 128
• Must be court ordered periodic payments
• Support Payments - CHILD
• Support payments for CHILD NOT DEDUCTIBLE to
  payer and not taxable to recipient
• If agreement entered into prior to May 1, 1997,
  then may be deductible to payer and taxable to
  recipient

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Total Income Page 2

• Effects of Changes in Marital Status
• Common-law partner applies if 1) parent of your
  child, and/or 2) living together for 12
  continuous months
• Year of marriage breakdown you can claim either
  tax credit for spouse (see below) or support
  payments but not both

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Total Income Page 2

• Foreign Income
• Report all income earned in year from all
  sources, i.e. pension from United Kingdom
• Translated at the average exchange rate
• See briefing notes for treaty exempt countries
  and exemptions and exchange rates

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Total Income Page 2

• US Social Security
• Canadian residents are taxed on US social
  security received during the year
• Include 100 of Social Security on line 115 and
  deduct 15 on line 256 (only 85 of amount is
  taxable)

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Total Income Page 2

• Split Pension Income NEW FOR 2007
• If clients OVER 65 and therefore receiving the
  age amount WILL NOT BE BENEFICIAL AS ALREADY
  NOT TAXABLE TRANSFER NOT NECESSARY
• This is the majority of Tax Clinic Clients

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Total Income Page 2

• Spit Pension Income (continued)
• If the clients are under the age of 65 with
  eligible pension income (Line 115), transfer may
  be beneficial
• IF one spouse has majority of income and the
  other has NO pension income (Line 115), AND
• IF after entering all information, the client IS
  taxable, may want to split the pension income
• BOTH clients would need to complete and sign form
  T1032 (bring the forms with you)
• See Briefing Notes for more details
• THIS SCENARIO IS NOT LIKELY GIVEN THE INCOME
  CRITERIA AT THE TAX CLINICS

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Total Income Page 2

• Spit Pension Income (continued)
• The only other time it may be advisable to split
  income is if after calculating taxable income,
  one spouse has TAXABLE INCOME OVER 20,000.
• In this case split pension income to eliminate
  the Ontario Health Premium
• Again, you will need to bring the forms (T1032)
  with you and both clients will have to complete
  and sign

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Total Income Page 2

• Veterans
• Veteran disability payments, dependent
  pensioners payments and war veterans allowances
  are not taxable and not included in net income
• Child Tax Benefit
• Not taxable do not include
• Scholarships, bursaries and fellowships
• Not taxable do not include

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CALCULATING TAXABLE INCOME Page 3

• Page 3 of the Jacket
• Line 250 most important!
• The rest will likely not apply
• See next 3 slides

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TAXABLE Income Page 3

• Non-Taxable Income enter in calculating net
  income above
• GIS and SA (line 146)
• Welfare (line 145)
• Workers Compensation (line 144)
• Offsetting deduction in computing taxable income
  (LINE 250)!!!!
• Affects calculation of tax credits

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TAXABLE Income Page 3

• Childcare Deduction
• Must be claimed by lower income spouse (in most
  cases) using form T778
• Max claim of 7,000 per child who was not 7 at
  end of year, 4,000 each for other children under
  16 at any time during year, and 10,000 per child
  eligible for Disability Credit (max 2/3 of earned
  income)
• Limit on camp expenses
• Single parents in school can claim expenses
  against any source of income

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TAXABLE Income Page 3

• RRSP contributions Line 208 (Schedule 7)
• Union Dues Line 212 (from T4)
• Support Payments Made Line 220 (see slide above)

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CALCULATING REFUND OR BALANCE OWING Page 4

• Page 4 of the Jacket
• Calculate tax on Schedule 1 (Line 420) and ON428
  (Line 428)
• Lines 437 476 as applicable
• LINE 479 PROVINCIAL CREDIT ONE PER COUPLE
  most important form to complete (ON479)

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CALCULATING TAX - TIP

• NOTE a time saving tip
• If taxable income (Line 260) is less than 9,600
  Federal and 8,553 Ontario (basic personal
  amount) you do not need to fill in Schedule 1
  or ON428
• Just put 0 Line 420 Schedule 1 and Line 71
  ON428
• This does not apply to new immigrants, because
  credits prorated (see below)

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NON-refundable tax credits

• These are NON-refundable
• Only used to reduce taxes otherwise payable
• Different amounts available on Schedule 1
  (Federal) and ON428 (Ontario)
• Once you have enough credits (greater than or
  equal to taxable income) then you do not need to
  claim more
• See next 13 slides

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Non-refundable Tax Credits

• Use worksheets/guide when needed
• Basic Amount
• Everyone gets a basic credit of 9,600 (Fed) and
  8,553 (Ont)
• Spouse/Common Law Amount
• If the spouse has low income or no income claim
  spouse amount
• Available credit of 9,600 (Fed) and 7,262 (Ont)

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Non-refundable Tax Credits

• Eligible Dependent Schedule 5 (formerly
  Equivalent to Spouse)
• consider for single, divorced, separated, widowed
  taxpayers
• Must support dependent who was
• under 18 at any time or parent, grandparent, or
  physically/mentally infirm
• Related to taxpayer
• Living with taxpayer (except dependent children
  at school)
• Residing in Canada
• 9,600 (Fed) and 7,262 (Ont)

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Non-refundable Tax Credits

• Amount for children born in 1990 or later
• NEW
• 2,000 per child who is under 18 at the end of
  the year
• Claim the full amount in the year of birth, death
  or adoption
• Federal only, not provincial credit
• CPP paid (from all T4s (Line 272)
• EI paid (from all T4s (Line 212)

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Non-refundable Tax Credits

• 65 (born 1941 or earlier)
• claim age amount 5,177 (Fed) and 4,176 (Ont)
• Pension Amount
• receipt of pension income (lines 115,129) - CPP,
  OAS, death benefits not eligible
• claim pension amount 2,000 (Fed) and 1,183
  (Ont)
• Transfer Credits to Spouse
• complete schedule 2
• Transfer age amount, pension amount, disability
  amount, tuition in certain cases, and amount for
  children born in 1990 or later

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Non-refundable Tax Credits

• Canada employment amount Federal Credit
• 1,000.00 (Line 363 Sch 1)
• Available if they have employment income
• Public Transit Passes Federal Credit
• Line 364 Sch 1
• Credit for monthly (or longer) public transit
  passes
• Or passes for at least 5 days uninterrupted
  travel x 4 (total 20 days purchased within a 28
  day period)
• Claim for you, your spouse, common-law spouse or
  dependent children under 19

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Non-refundable Tax Credits

• Childrens fitness amount
• NEW
• Maximum 500 per year per child for enrolment in
  a program of prescribed physical activity
• Child must be under 16 at beginning of the year
  or under 18 if disabled

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Non-refundable Tax Credits

• Disability Credit
• 6,890 (Fed) 6,910 (Ont) non-refundable tax
  credit
• plus 4,019 (Fed) 4,031 (Ont) for disabled
  children under 18 yrs
• Markedly restricted in their daily activities for
  a substantial period of time
• Must file T2201 if 1st year of claim

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Non-refundable Tax Credits

• Infirm Amount Line 306 schedule 5
• for dependents 18 with mental/physical infirmity
• for child, grandchild, brother, sister, niece,
  nephew, parent, grandparent, aunt or uncle
  resident in Canada
• maximum credit 4,019 (Fed)/4,031 (Ont)
• Use worksheet to calculate
• NOT available if eligible dependent or caregiver
  credit claimed

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Non-refundable Tax Credits

• Caregiver Credit Line 315 schedule 5
• for dependents 18 with mental/physical infirmity
  or aged 65
• for child, grandchild, brother, sister, niece,
  nephew, parent, grandparent, aunt or uncle
  resident in Canada
• maximum credit 4,019 (Fed)/4,031 (Ont)
• Use worksheet to calculate
• NOT available if eligible dependent or infirm
  amount claimed

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Non-refundable Tax Credits

• Students Complete Schedule 11
• Tuition - receipts must be gt100 for tuition,
  T2202A
• Education Credit and Textbook credit calculated
  based on FT or PT status (see T2202A)
• Unused tuition fees and education credit can be
  transferred up to 5,000 (Fed) and 5,914 (Ont)
  to supporting person
• Students should always complete Schedule 11 even
  if credits not used to keep carryforward
• Interest paid on Canada Student Loans is eligible
  for a credit (Line 319 Fed only) (or
  carryforward 5 years)

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Non-refundable Tax Credits

• Medical expenses - can claim amounts for
• Claim entire familys expenses on same return
  eligible amount must be over 3 of net income
• Can claim for any 12-month period ending in 2007
• Medical expenses Other dependents
• Claim for expenses paid on behalf of other
  dependent relatives, such as grandparents or
  nieces/nephews, may be claimed on line 331 of
  Schedule 1/liine 5872 of ON428
• Claim is subject to dependents minimum threshold
  (gt 3 of net income)
• Maximum claim 10,000 (Fed) and 10,435 (Ont.)

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Non-refundable Tax Credits

• Donations claim entire familys donations on
  same return
• Federal receive credit of 15 on first 200 and
  29 on balance
• Complete Schedule 9
• If credit not needed then carryforward up to 5
  years
• Tell client to keep receipts until needed

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Non-refundable Tax Credits

• New Immigrants
• considered part-time residents from the time they
  enter Canada, i.e. moved to Canada on March 31,
  2007 then resident for 275 days or approximately
  9 months
• pay tax on all income received since moving to
  Canada, i.e. 9 months
• Non-refundable credits are pro-rated, i.e.
  275/365
• Pro-rate the following federal and corresponding
  Ontario amounts Line 300, 301, 303, 305, 367,
  306, 315 to 318.

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Ontario Health Premium Tax

• For individuals with TAXABLE income (line 260)
  greater than 20,000
• Calculated and entered on ON428 Line 70
• Non-refundable credits listed above are not used
  to reduce
• Tax Clinic patrons will not likely be subject to
  this premium due to their taxable income level

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REFUNDABLE CREDITS!!! Page 4

• Claimed on page 4 of Jacket
• Unlike non-refundable credits you should ALWAYS
  see if these are available
• They create refunds for the clients
• Use separate schedules and worksheets to
  calculate
• Next 3 slides

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Ontario Refundable Tax Credits Page 4

• ON 479 Ontario Credits
• ALWAYS complete this form (one per family)
• Claim property tax credit (rent)
• Claim sales tax credit (dont forget dependents)
• 65 - Receive higher amounts!!!!

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Federal Refundable Tax Credit Page 4

• Refundable Medical Expense Supplement up to
  1,022
• if eligible for medical expense credit (line 332
  on schedule 1)
• must have at least 2,984 employment income
• complete federal worksheet Line 452 to calculate

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Federal Refundable Tax Credit Page 4

• Working income tax benefit (WITB) NEW
• Available if employment or business income and
  over 18
• Complete Schedule 6 and enter results on Line 453
• One per family
• The spouse with the higher working income should
  claim
• Available if single with income under 14,500 or
  have a spouse/dependent and family income under
  24,500

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Refund or Balance Owing

• Calculated on page 4 of Jacket
• Calculate taxes as per above
• Calculate credits as per above
• Dont forget to include taxes withheld at source
  (T4s, etc.) entered on line 437
• Total payable less total credits results in
  refund or amount owing
• 99 of clients owe nothing or get a refund
• Have client sign and date
• Do not complete tax preparer section

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GST REBATE

• GST
• One claim per family
• Always complete front page of T1
• Calculation not done on return calculated by
  CRA
• Should be available to all Tax Clinic patrons

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CHILD TAX BENEFIT

• NOT calculated on return separate department
• Inform new parents and new immigrants to apply
  for the CTB
• Forms - www.cra.gc.ca/forms
• or 1-800-959-2221
• Enquiries www.cra.gc.ca/benefits
• or 1-800-387-1193
• Used to calculate Universal Childcare Benefit

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Example Returns

• Problem 1 Joan Wilson - a single mother
• Problem 2 The Browns an elderly couple
• Using Taxprep to complete a return (see Tax Prep
  TIPS!!)