Earlier this month, we reviewed the process for taxpayers who have qualifying pension income to now be able to transfer up to 50 per cent of that pension income to the tax return of a spouse.
That generated a whole lot of mail and several new issues. We'll cover those in a second.
First, though, a clarification. I mentioned several tax preparation software packages and, since their names are trademarked and I respect those trademarks, I used the raised letters "TM" after their names.
Unfortunately, the letters did not retain their raised (or "superscript") status when published. So, we had a large number of calls from people (and Future Shop) trying to buy a version of the software that doesn't exist.
To be clear, we were recommending UFile 2007 for Windows ($30 for up to eight returns, expandable to 20 at $5 per return) or UFile.ca, where you can prepare one return for $16 or a family for $25.
If you are transferring pension income, this software is clearly superior to the others, both in simplicity and the way it automatically calculates the optimal amount.
We had a written response from the top selling software, QuickTax, which outlined a very convoluted process for just doing the transfer, and you were on your own to calculate the best amount to transfer.
If you are not eligible for the pension split, however, the two packages are pretty close, though Ufile's MaxBack Refund Analyzer is very slick.
(Remember, all of these names are registered trademark.)
The pension transfer process has an unexpected and unwanted side-effect, though. Since the transferred amount is added to the transferee's income at Line 116, and only deducted by the transferor at Line 210, it adds to family "total" income.
In Manitoba, this is the amount used for Pharmacare eligibility. The good news is that I am told by a source at Manitoba Finance that the Manitoba Government is "aware of the issue and will fix it before Pharmacare starts using 2007 tax returns to calculate deductibles, in April 2009."
Most other credits are calculated based on "net" income, so there is no effect.
For your 2007 tax return, don't forget the following items that are new this year or last:
Canada Employment Amount -- Line 363 on Schedule 1
Public Transit Passes Amount -- Line 364
Children's Fitness Amount -- Line 365
Textbook Amount -- Lines 323 and 324
These amounts all create a credit (as opposed to a deduction) and will reduce your taxes by about 26 per cent of the claim.
Other amounts to look for on Schedule 1 are Adoption Expenses, Interest Paid on Student Loans and Medical Expenses that exceed $1,926 or three per cent of your net income, whichever is less.
If your income is under $14,500 for an individual or $24,500 with a dependent, you may qualify for the Working Income Tax Benefit -- complete Schedule 6 to find out.
Tradespeople can now claim a deduction of up to $500 for tools purchased in excess of $1,000 which are required as a condition of employment.
Self-employed tradespeople can now claim capital cost allowance on $500 worth of tools, up to a $200 claim. Long haul truckers can now deduct a higher percentage of their food on the road.
This claim and some others are entered on form T777, Statement of Employment Expenses.
In all cases, see the tax guide for details, or let your software or accountant do the calculations. Might as well get that return done this weekend, with the continued cold weather forecast.
David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. You can e-mail him at dchristianson@wellwest.ca
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