DOUBLE DIP THAT CHIP! Plan Now For 2009 Tax Breaks
By Anita Nickerson
It's okay to double dip that chip in the 2009 tax dip!
In a Seinfeld TV episode, the character George Costanza got caught double dipping his chip in the dip. An observer approached George and in disgust said "When you take a chip just take one dip and end it." We don’t have to take this advice when it comes to tax credits. We can take our dip and double dip and in some instances, triple dip.
On Tuesday, January 27 2009 Finance Minister Jim Flaherty presented the 2009 budget. Designed to stimulate our economy by "helping Canadian families and businesses deal with short-term challenges” the budget has a number of new tax incentives, some of which you can use with existing Ontario programs. You’ll need to move quickly - some of these incentives* are time sensitive.
Do you have your chip ready to double dip?
The Home Renovation Tax Credit (HRTC)
If you plan on renovating your home, now is a great time to start. The budget proposes a 15% non-refundable tax credit for eligible individuals with expenditures exceeding $1,000 but capped for this purpose at $10,000. The value of this new federal credit equals a maximum of $1350 ([$10,000-$1,000] X 15%) The renovation work must be performed between January 27 2009 and January 31, 2010 and the renovation expenditure can include:
the cost of labour
professional services (designer, architect, engineer)
fixtures (toilets, tubs, etc.)
carpet, hardwood floors
However, some expenditures will not qualify for the Home Renovation Tax Credit (HRTC) such as: the cost of routine repairs and maintenance normally performed on an annual or more frequent basis, appliances, area rugs & drapery, audio-visual electronics, construction equipment and tools or financing costs (such as interest).
Get a bigger bang: Combine the HRTC with Green Incentives
Given the overall costs of an entire renovation job you may think the Home Renovation Tax Credit (HRTC) isn’t a huge tax credit. However, if you’re a homeowner planning a renovation think about combining it with energy grant incentives administered by the federal government. In addition to Federal grants and incentives you could be eligible for Provincial and Enbridge rebates. That’s good news. Even better: the funds received from these energy rebates are not taxable on your personal income. That’s tax free money.
A word of caution: prior to any renovation work you must obtain an energy audit by a certified energy advisor.
In addition, you can triple dip with the City of Toronto’s Toilet and Washing machine rebate programs.
First-Time Homebuyers Tax Credit
If you are a first-time home buyer after January 27, 2009 you may be eligible for a tax credit of 15% of $5,000 (this equates to $750 for 2009). To qualify as a first-time home buyer, you and your spouse or partner cannot have owned and lived in another home in the calendar year of the home purchased in any of the previous four years.
Home Buyers Plan
The Home Buyers Plan has been around for a while. Currently it allows a first-time buyer to withdraw up to $20,000 tax free from his or her RRSP to purchase or construct a new home. Effective January 27 2009 the maximum eligible withdrawal permitted increased from $20,000 to $25,000, provided you do not 'flip' your home: you must occupy and reside in this principal residence within one year after acquisition. Register your home under the applicable land registration system. Ensure you address this with your real estate lawyer prior to the transaction.
Small Business Tax Changes
There is a special dip available to small businesses increasing the amount small business income eligible for the reduced federal tax rate. The Small Business Deduction (SRD) allows private corporations to pay a low rate of federal tax (11%) on the first $400,000 of annual active non-investment income. The 2009 budget proposes to increase this amount to $500,000 for taxation years ending after December 31, 2008.
Corporations will need to adhere in the future to mandatory electronic filing of income tax returns with penalties up to $1,000. The e-filing rules include mandatory filing of T4s after 2009 with penalties of up to $2,500 for non-compliance.
Computers: Accelerated Tax Depreciation
To encourage investment by businesses in computer systems and related peripherals, the 2009 budget proposes a temporary 100% tax depreciation rate for eligible computers and software. These must have been acquired after January 27, 2009 and before February 2011. Since this write off rate won’t be subject to the traditional “half-year rule”, it means a business can write off the cost of an eligible computer in the year of acquisition – as long as it’s purchased before February 2011. Consult your tax accountant for advice.
Research and Development
There are some really great dips on the table for businesses in the area of Research and Development. Corporations may earn enhanced investment tax credits (ITCs) equal to 35% of the qualified R&D expenditures and 40% of qualified capital expenditures. The combined maximum amount of qualified expenditures cannot exceed $3 million. The biggest bang out of this tax credit (mix of refundable and non-refundable tax credits) is from the salaries of the employees working on a qualified R&D project. It may be more advantageous to claim your tax credit for capital expenditures such as computers under Capital Cost Allowance than through the R&D tax credit. Particularly since you can write-off 100% of in the first year you acquire and use eligible computers and software after January 27, 2009 and before February 2011.
For further information and expert advice contact Anita Nickerson, Tax Consultant, CATS (Canadian Accounting & Taxation Solutions) at 416-898-0700 or via email at firstname.lastname@example.org *Some items mentioned in this article from the budget have not been approved.
Budget: http://www.budget.gc.ca/2009/home-accueil-eng.asp Home Renovation: http://news.gc.ca/web/article-eng.do?m=/index&nid=432219