TAX CHANGES

Increased Depreciation on Computers 

Computers equipment purchased after March 24, 2004 can now be depreciated at 45% per annum (was 30% per annum). As with most tax depreciation, in the year of purchase you only get half that rate, so 22.5% (to allow for the fact that they don't know when you bought it in the year).

Reasonable Expectation of Profit

On October 31, 2003, the federal government tabled some proposed legislation, including requirements that all businesses be profitable. This seems to be sour grapes on teir part on several recent cour cases where the judge ruled that unless there was a personal nature to the business, the profitability of the business was not a relevant consideration in CRA's audits. This legislation has since been for the most part withdrawn, so the court cases would remain the precedent.

GST Credit Adjusted Quarterly Starting July 2002

Rather than waiting until the previous year's tax return is filed to adjust the GST credits for low-income individuals, these will be adjusted in the following quarter for events such as the birth of a child, a 19th birthday, a change in marital status, new or returning residents to Canada. The basic annual credit amounts for 2006 are $232 per adult and $122 per child, and a supplement of up to $122 for single individuals and single parents. It begins to be phased out at a net family income of $30,270.

Disability Tax Credit & Court Cases

The disability tax credit for 2006 is $6,741 ($6,596 for 2005). The caregiver, infirm dependant, and disabled child tax credits are $3,933 for 2006 ($3,848 - 2005). There were a number of court cases in the summer of 2000, where CCRA (Canada Customs and Revenue Agency, formerly Revenue Canada) had disallowed home renovations to accommodate a disability, and the judges ruled in favour of the taxpayer.  Some of these costs were in the range of $70,000. Some of these were for hot tubs. The government has since passed legislation so that hot tubs are not a deductible medical expense.

Education Tax Credits

The October 18, 2000 budget also increased the education tax credit to $400 per month for full-time students and $120 for part-time students, from $200 and $60, respectively. These have not been increased for inflation since then.

Vehicle Charges

CRA increased the limits on the rates it prescribes for you to charge your business for the use of your vehicle from $0.45 in 2005 to $0.50 in 2006 for the first 5,000 kilometres in a year, and from $0.39 in 2005 to $0.44 in 2006 for kilometres over 5,000. This is supposed to reflect all the costs of owning a vehicle - depreciation, financing, gas, maintenance, insurance, licenses, etc. The limit on the cost of passenger vehicles was also increased from $26,000 prior to 2000 to $27,000 in 2000 to $30,000 from 2001 until 2006 (plus applicable federal and provincial sales taxes). The ceiling on deductible leasing costs was increased from $650 prior to 2000 to $700 in 2000 to $800 per month from 2000 until 2006 (plus applicable federal and provincial sales taxes). The maximum allowable interest deduction for amounts borrowed to purchase an automobile increased from $250 in 2000 to $300 for loans related to vehicles acquired after 2000 until 2006. The taxable benefit for the personal portion of automobile operating expenses paid by employers was been increased to $0.22 for 2006.

Moving Costs

Starting in 1999 you have a simplified option for your moving costs, rather than reporting your actual costs, you can claim a flat rate of $15/meal in 2006 to a maximum of $33 per day, and vehicle expenses using the kilometre rates noted above.

Prescribed Interest Rates

CRA has been charging 9% interest per annum, compounded daily (which actually works out to a pretty high interest rate, because it is compounded daily) on overdue taxes, instalments and GST from October 1, 2006 to December 31, 2006. They review the rates every quarter, so it may change again in January 2007. Up to December 31, 2006, they charged 6% per annum, compounded daily, penalty on overdue GST and GST instalments.

Information on this website is not intended to be a definitive analysis of tax laws or cases and should not be used in such a manner. The information provided on this site should not be relied upon to replace professional advice specific to your situation.

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