For many Canadians, the filing of a personal income tax return is the most significant financial transaction of the year. In order the get the biggest bang for your buck when filing your personal tax return in 2009, it is important to know the various non-refundable tax credits that are available to you.
In the October 30, 2007 Economic Statement, the minister announced changes to the basic personal amount, the amount for spouse or common-law partner and the amount for an eligible dependant. For 2007 and 2008, these amounts are set at $9,600. For 2009, these amounts are set at $10,100. The income threshold at which these amounts are reduced is set at zero.
S. 118(1)(b) provides that a taxpayer who
and who supports and lives with a dependant in a home which the taxpayer maintains, may claim a specified amount for that dependant as a non-refundable tax credit against taxes payable.
This credit was previously referred to as the "equivalent-to-spouse" credit, and is typically claimed by a single parent with whom a dependent child resides.
The amount is identical to the Spouse or Common-Law Partner Amount. The claim is reduced by the dependant's net income for the year.
The amounts prescribed in the Income Tax Act are indexed annually under S. 117.1 to reflect changes in the average consumer price index. However, these amounts have been set at $9,600 for 2007 and 2008 and at $10,100 for 2009.
Use Schedule 5 Details of Dependant to list the dependant and the claim being made; calculate the amount on the Federal Worksheet; and claim the amount on line 305 of Schedule 1 Federal Tax.
To qualify, the dependant must be
These qualifications need not be met throughout the year but must be met at some time during the year.
S. 118(4) contains the following rules that apply to claiming the amount for an eligible dependant:
In addition, S. 118(5) provides that no amount may be claimed by a person who is required to pay support to a spouse or common-law partner, or former spouse of common-law partner with respect to the person for whom the claim would be made. This provision applies where either the person lives separate and apart from the former spouse, or claims a deduction for spousal support.
Example: Amount for an Eligible Dependant
Issue: John and Joan separated during the year. They have two minor children, Jessie and Julie, who live two weeks a month with Joan and two weeks a month with John. Under federal guidelines, John is required to make monthly payments to Joan for the maintenance of the children. John and Joan agree that she will claim Jessie as a dependant and that John will claim Julie. Will this work?
Answer: It will not. Joan is entitled to claim a credit for either Jessie or Julie as an eligible dependant, as she is married but not living with John, and she supports both children in the home she maintains. John also meets these tests, but he is required to make child maintenance payments to Joan and is therefore not eligible to claim the credit.
Definition of Infirmity
The term "infirm" is not defined in the Income Tax Act and CRA takes the position that the term takes on its ordinary meaning (see Appendix A of IT 513). The only guidance given is that the degree of the infirmity must be such that it requires the person to be dependent on the individual for a considerable period of time. Temporary illness is not classed as infirmity. Infirmity is not the same as disability.
Death of a Taxpayer
In the year of death, the Amount for Eligible Dependants may be claimed in full on the final return and on any of the optional returns filed for the deceased.
Part-year residents must pro-rate the Amount for Eligible Dependants under S. 118.91 according to the number of days they are resident in Canada divided by the number of days in the taxation year.
Where an individual becomes bankrupt in the year, the Amount for Eligible Dependants on the pre- and post-bankruptcy returns must be pro-rated according to the number of days in each period.
Deemed residents may claim the Amount for Eligible Dependants. Non-residents filing under S. 217 may be eligible for some or all of the amount. Other non-residents filing under S. 216 or S. 216.1 may not claim the Amount for Eligible Dependants.
Or attend The Knowledge Bureau's November Year End Tax Planning Workshop coming to a city near you November 14 to 21.