Did you know that last tax filing season, the average tax refund was just under $1,800, or about $150 a month? That’s a lot of money to give to the government on an interest-free basis. Yet that’s what almost 17 million tax filers did and CRA paid back approximately $30 Billion dollars. Astute tax filers will want to get that money back working for their own futures quickly this year. If that includes you, do file your tax return early and accurately. But make sure you have all your documentation, first.

Written by: Evelyn Jacks

The Canadian Income Survey for 2013 for 2013 was released by Statistics Canada on July 8.  While things are virtually unchanged from 2012, some interesting facts emerge about the income levels earned by Canadian families

The survey defines market income as “earnings, private pensions as well as income from investments and other sources such as support and disability payments”.  After-tax income is defined as the total of market income and government transfers, less income tax.  The survey also defines those who live in “economic families”, as groups of two or more people who live together in the same dwelling who are related by blood, marriage or common-law, adoption, or in a foster relationship.  For the purposes of this article, we’ll call all others, “singles”.

It is clear that when it comes to making ends meet, the numbers squarely favor economic families over singlehood:

 

The new form is available here.  Here’s how the calculations work:

1. Start with your TFSA contribution room as of January 1, 2014

2. Subtract any TFSA contributions made in 2014

3. Add any TFSA withdrawals made in 2014

4. Add $10,000 (your new  TFSA contribution limit for 2015)

5. If you’ve already made TFSA contributions for 2015, subtract those

Joni had  TFSA contribution room of $12,000 as of January 1, 2014, including the $5,500 of new contribution room for 2014. She made a $10,000 TFSA contribution in 2014 and withdrew $15,000 that same year. She has not made any contributions in 2015 yet.  Following the steps outlined above, her 2015 TFSA contribution room is:

1. $12,000

2. - $10,000

3. + $15,000

4. + $10,000

5. - $0

Total: $27,000

 

Beware of TFSA Traps:  The biggest trap, other than holding non-registered investments outside a TFSA when there is contribution room available, is recontributing to the TFSA in the same year as the withdrawal is made. Withdrawals do increase TFSA contribution room, but not until the beginning of the following year.

In the example above, after her $10,000 contribution, Joni’s TFSA contribution room for 2014 was reduced to $2,000. Her $15,000 withdrawal did not open up contribution room until January 1, 2015. If Joni had re-deposited the $15,000 in 2014, she would have had a $13,000 excess contribution. All excess contributions are subject to a 1% penalty tax for each month they remain in the TFSA.

For these reasons, it’s important for wealth advisors to encourage their clients to seek their assistance or consult with  A Tax Services Specialist  before withdrawing money or recontributing it to a TFSA.

 

 

 

 

 

The calculations for the Family Tax Cut have recently been adjusted to take into account the unused portion of tuition, textbook and education credits transferred from a spouse or common-law partner. The result is an additional refund of somewhere between $2 and $750, according to the CRA, which will do the calculation automatically if it looks like the family might qualify for the adjustment.

To be sure, however, qualified  Tax Services Specialist  should be consulted to review the calculations for their clients who  have made a tuition, textbook and education credit transfer to their spouse on line 326 of the 2014 T1 return and determine if any other adjustments should be made to the tax return.  Then, find out what your estimated Family Tax Cut will be in 2015 to maximize your investment planning opportunities.

The adjusted calculation can be found on line 499 on the new Schedule 1A, released on June 25:  http://www.cra-arc.gc.ca/E/pbg/tf/5000-s1a/5000-s1a-14e.pdf

 

 

Written by Sarah Milton

Einstein described compound interest as the eighth wonder of the world because he felt that those who understood it, earned it and those who didn’t, paid it. Compounding is what makes saving early and saving regularly such a powerful part of building wealth and it’s also what makes it so hard to get out from under the mountain of consumer debt that so many of us accumulate. In an nutshell, compound interest is earning (or paying) interest on interest. When you earn interest at a compounded rate, your money grows faster because you are earning interest on your total balance (principal + interest) rather than on the principal alone. Similarly, when you pay interest at a compounded rate (as you do with credit cards) your interest charges grow much faster and your debt load gets larger.

We can see the power of compounding in the table below, which shows how $1000 earning 5% annual interest grows over time. The first column shows how the $1000 would grow earning 5% simple interest (earned on just the $1000 principal) and the second column shows how it would grow earning 5% interest compounded annually (earned on the principal + interest).

YEAR

5% SIMPLE INTEREST

5% COMPOUND INTEREST

5

$1,250

$1,276

10

$1,500

$1,629

15

$1,750

$2,079

20

$2,000

$2,653

25

$2,250

$3,386

30

$2,500

$4,322

35

$2,750

$5,516

40

$3,000

$7,040

45

$3,250

$8,985

50

$3,500

$11,467

The rule of 72 is a simple way to estimate how long it will take your money to double in value at a given interest rate. If you divide 72 by the annual interest rate, the answer is the number of years it will take to double. For example, 72 divided by 5 is 14.4. This means that, as you can see in the table above, it takes just under 15 years for $1,000 to become $2,000. 15 years later (in year 30) the money has doubled again to be just over $4,000 and, 15 years after that (in year 45) it has doubled again to become more than $8,000. In year 60, it will have doubled yet again and become $16,000. Using this rule, it’s clear to see that both time and interest rate are two key factors in building wealth. At 8% interest, your money will double in 9 years (72 divided by 8 = 9) but it will take 36 years to double earning 2% interest. For a 20 year old, $100 invested at 7% is worth $2,100 at age 65. For a 30 year old, that same $100 invested at the same rate is only worth $1,068 at age 65 and for a 40 year old, $100 invested at 7% is worth just $543 at age 65. This means that, at 40 years old, even though I’m only twice the age of the 20 year old, I have to save four times as much each year in order to achieve the same level of wealth at age 65. It’s a concept that I wish I had understood as a teenager because I’m pretty sure it would have motivated me to manage my money differently!

At the end of the day, saving is always a very personal decision: the choices we make about whether to save, where to save and how much to save, vary enormously from person to person. However, all too often, I hear people in their twenties saying that they’ll wait to save until they’re older because then they’ll be earning more. When you consider how powerful a factor time is in the wealth building equation, it just doesn’t make sense (especially when you consider that just because you’re earning more doesn’t mean you have more discretionary income). If you can do as much with $25 at 20 as you can do with $50 at 30 or with $100 at 40, it makes sense to start the saving habit early.

Even if you feel like you’ve “missed the boat” because you should have started saving years ago, remember that whatever you save today has a greater power to grow than money you save next month, next year or 3 years from now. We can’t change our past choices but we always have the power to choose to change our financial future by making different choices today.

 

 

 

 

 

Written by Jim Yih

 

Most Canadians choose a Registered Retirement Income Fund (RRIF) as their retirement income option. A RRIF is a comfortable transition because of its similarity to an RRSP. A RRIF provides a high level of control over the investments in your retirement plan, the advantage of tax-free growth of assets within the plan, as well as maximum flexibility in establishing an income stream. RRIFs come in a number of shapes and sizes.

The first thing you will need to determine is how much income you need or want. This decision will have the greatest impact on the longevity of your money. If you spend too much too fast, you will run out of money. Even if you don’t need or want the extra income, you have the minimum income rules to contend with.

You can tailor your income to your needs, subject to minimums imposed by the federal government. If you need steady monthly, quarterly, or annual income, it’s available. If you require a large lump sum for a major purchase, travel, or some other purpose, that’s available too.

This table outlines the minimum withdrawals on RRIFs established after 1992, as set by the government. Before age 71, the minimum percentage payout is worked out in the following way: 1÷(90 – your current age).  RRIF minimums were once again changed in 2015

So if you’re 65, your minimum withdrawal would be 1÷(90-65)=4%. With a $100,000 RRIF, that amounts to $4,000. Once you reach age 69, the following schedule applies:

Age

2015 and later

1992 to 2015

Pre 1992

65

4.00%

4.00%

4.00%

66

4.17%

4.17%

4.17%

67

4.35%

4.35%

4.35%

68

4.55%

4.55%

4.55%

69

4.76%

4.76%

4.76%

70

5.00%

5.00%

5.00%

71

5.28%

7.38%

5.26%

72

5.40%

7.48%

5.56%

73

5.53%

7.59%

5.88%

74

5.67%

7.71%

6.25%

75

5.82%

7.85%

6.67%

76

5.98%

7.99%

7.14%

77

6.17%

8.15%

7.69%

78

6.36%

8.33%

8.33%

79

6.58%

8.53%

8.53%

80

6.82%

8.75%

8.75%

81

7.08%

8.99%

8.99%

82

7.38%

9.27%

9.27%

83

7.71%

9.58%

9.58%

84

8.08%

9.93%

9.93%

85

8.51%

10.33%

10.33%

86

8.99%

10.79%

10.79%

87

9.55%

11.33%

11.33%

88

10.21%

11.96%

11.96%

89

10.99%

12.71%

12.71%

90

11.92%

13.62%

13.62%

91

13.06%

14.73%

14.73%

92

14.49%

16.12%

16.12%

93

16.34%

17.92%

17.92%

94

18.79%

20.00%

20.00%

95+

20.00%

20.00%

20.00%

Financial institutions offer plans that can hold Guaranteed Investment Certificates (GICs), mutual funds, cash, or other financial instruments. Alternatively, you can establish a self-directed RRIF to include a combination of individual securities in your plan, such as stocks, bonds or Treasury bills (in addition to the investments mentioned above).

RRIFs offer investment flexibility. You can hold the same investments that are eligible for an RRSP. Shares of Canadian corporations, corporate and government bonds, Canada Savings Bonds, Treasury bills, mortgages, GICs, term deposits, covered call options, warrants, rights, and mutual funds that invest in eligible securities are all qualifying investments. You can also hold a limited percentage of your RRIF in foreign investments. Just like an RRSP, a RRIF lets you retain control over your investments, rather than handing over your money to a third party.

The longevity of your RRIF is simply based on how much money you make in investment return and how much you take out for income. It does not take a lot of mathematical know how to figure out that if you earn more money than you withdraw in income, the RRIF will grow.

For example, if you invest in a GIC RRIF at 6% and you take out the minimum (4.76%) at age 69, your RRIF should grow by 1.24%. At age 72 given the same investment return, the minimum is now 7.48%. This means your RRIF will deplete in value by 1.48% (7.48%-6.00%).

You can leave your remaining RRIF assets to your heirs upon your death by designating the proper beneficiary. Not all other retirement income options provide for this. Naturally, your desire to provide an estate for your spouse, beneficiaries or charities may have an impact on how you set up your RRIF. While this may or may not be an issue, income and investments should remain the priorities.

One of the benefits of the RRIF is the flexibility you have in dictating income. These are some common types of RRIFs.

Filing your income tax and benefit return and paying what you owe on time helps you avoid possible interest and penalty charges, and ensures that your benefits won't be delayed.

When you file your yearly tax return, you are letting the Canada Revenue Agency (CRA) know your current tax situation. Without that information, the CRA can't be sure that you are still eligible to receive certain benefit payments. If you don't file on time, your benefit and credit payments (for example, the Canada child tax benefit and the goods and services tax/harmonized sales tax credit) may be interrupted.

Also, if you have a balance owing and you don't file your return on time, we'll charge you a late-filing penalty. The penalty is 5% of your 2014 balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12 months. If we charged a late-filing penalty on your return for 2011, 2012, or 2013, your late-filing penalty for 2014 may be 10% of your 2014 balance owing, plus 2% of your 2014 balance owing for each full month that your return is late, to a maximum of 20 months.

In addition to the late-filing penalty, if you have a balance owing for 2014 you'll be charged compound daily interest beginning May 1, 2015, on any unpaid amounts owing for 2014.

Even if you can't pay all of your balance owing right away, you should still file your return on time. You can set-up a pre-authorized debit agreement using the My Account service, or call us at 1-888-863-8657 to make a payment arrangement. By filing on time, you'll avoid the late-filing penalty.

The CRA's online services are fast, easy, and secure. You can use them to file your income tax and benefit return, make a payment, track your refund, receive your notice of assessment, and more. Did you know that the Government of Canada is switching to direct deposit for payments that it issues? This includes your tax refund and benefits payments? Sign up for direct deposit today! For more information, go to www.cra.gc.ca/getready

 

 

 

A certain amount of folklore has developed over the years around the income tax system and the filing of tax returns, but many of those age-old perceptions are no longer accurate.

File by April 30 or face potential penalties.

Here are some common myths — and the corresponding facts that could mean extra money in your pocket or at least prevent you from running afoul of the Canada Revenue Agency's rules.

Not necessarily. "Income earned in joint accounts must be reported by the person who earned the capital in the account," says tax expert Evelyn Jacks in Jacks on Tax. "Where more than one person contributed capital in their own right, then the income in the account must be allocated based on the capital provided by each contributor."

A Notice of Assessment is just the result of a quick assessment that will have fixed mathematical mistakes you may have made, but it doesn’t mean that the CRA has examined and OK'd everything you’ve submitted. "The fact that a particular claim is allowed at this point does not mean that the CRA … is 'letting' you claim it," notes KPMG in its annual tax planning guide. "It merely means that the CRA has not addressed the issue in any detail." The tax agency generally has three years after the Notice of Assessment is sent to review your file.       

Myth 3: Gifts from your employer are never taxable.

Modest gifts from the boss do escape the tax collector's attention but only within strict limits. Non-cash gifts worth a total of less than $500 a year aren't taxable if they're given to mark birthdays, holidays or similar special occasions. Your boss can also give an employee up to $500 in a non-cash gift once every five years to mark long service or an employment anniversary with no tax consequences to the employee. The boss can also provide a tax-free party or social event worth up to $100 per employee. Cash gifts are always taxable.   ​

Federal tax brackets - 2014 tax year:

​​Source: CRA

Canadians face four federal tax brackets and up to six brackets provincially. But "bumping into the next bracket" means just that one's income in the higher bracket will be taxed at the higher rate – not that the higher rate will apply to all of the person's income.

"All of the money you earned below the new tax bracket remains taxed at the lower rates," points out Edmonton-based financial educator Jim Yih in his Retire Happy blog. "The bottom line is you should never, ever, ever turn down money. Enjoy every pay increase you receive without tax worries, and remember that those higher paycheques mean more money in your pocket."

The U.S. does not recognize the registered status of TFSAs so any dividends paid by U.S. stocks will face a withholding tax of up to 30 per cent. Retirement accounts like RRSPs and RRIFs are exempt from U.S. withholding taxes.    

Not true. All EI benefits, including maternity benefits, are taxable. "In most cases, Service Canada withholds less than the lowest tax rate so you may have tax obligations at the end of the year," says Cleo Hamel, a senior tax analyst with H&R Block.

Since it's not possible to file paper receipts or tax slips online, the Canada Revenue Agency does sometimes ask people who file online to send in supporting documents. But the CRA says this is just "routine verification" and not an audit. "When the CRA flags a file for audit, the criteria are broad, complex and not based on filing method," the agency says.  

The tax department has always encouraged reliable tips about Canadians who might not be paying what they should. But it has never rewarded tipsters whose information led to recovered taxes — until now. In 2014, the CRA announced it would start to pay people whose tips pan out cash rewards of five to 15 per cent of the extra tax collected. For now, the new snitch line (1-855-345-9042) is just aimed at those whose funnelling of money offshore results in unpaid tax revenue of at least $100,000.  

Ottawa requires users of the Home Buyers' Plan to be "first-time buyers." But it defines this as people (and their spouses) who have not owned a principal residence in the five calendar years up to and including the current year. For those who owned a home more than five years ago, they can still withdraw up to $25,000 tax-free from their RRSPs ($50,000 for a couple) to help them buy a home.     

Not true, if the pollsters are correct. A 2013 survey commissioned by Thomson Reuters and the maker of a tax software program asked 1,009 Canadians if they liked filing their taxes. A significant minority — 41 per cent — said yes.  It's worth noting that the survey did not ask if people liked paying their taxes.     

Claiming medical expenses can itself be painful: There are so many receipts and tiny numbers involved with making the claim!

 

Nonetheless it’s definitely worthwhile for taxpayers and their advisors to be aware of how they can save money in this area. Medical expenses themselves are common, yet most of us don’t know exactly what’s deductible, so there are lots of misses when claiming these common costs. Get ready for some “aha moments” as we look closely at claiming medical expenses. 

Most people know, for example, that they can claim medical expenses for their nuclear family: mom, dad and their minor children; but you can also claim for others who are dependent on you: children over 18, grandchildren, parents, grandparents, siblings, even uncles, aunts, nephews and nieces if they are resident in Canada.  

There are also a host of interesting costs that are deductible, provided they are unreimbursed by a medical plan. So, for example, if you are on a medical plan at work, and it covers 80% of all these costs, you can claim the 20% that is not covered by the plan.

Furthermore, the premiums for private medical plans are claimable too, including those provided by an employer. Check pay stubs and Box 40 of the T4 slip for the premiums in this case.

Generally, the costs of visiting the following medical practitioners are eligible:

• dentist or dental hygienist • medical doctor or practitioner

• optometrist • pharmacist

• psychologist or psychoanalyst • chiropractor

• naturopath • therapeutist or therapist

• physiotherapist • chiropodist (or podiatrist)

• acupuncturist • dietician

• nurse, including a practical nurse whose full-time occupation is nursing • audiologist
 
Eligible medical treatments include:

• medical and dental services, eyeglasses, hearing aids and their batteries • attendant or nursing home care

• ambulance fees • guide dogs or dogs to manage severe diabetes, including care and travel for training

• prescribed alterations to the home to accommodate disabled persons • cost of training a person to provide care for an infirm dependant

• lip reading or sign language training • tutoring services for a patient with a learning disability or mental impairment

• drugs and lab tests prescribed by a medical practitioner and recorded by a pharmacist • private health plan premiums, including group insurance premiums, Blue Cross premiums, and travel insurance costs

 

 

 

 Make the most of tax time and get the biggest return possible with these often missed credits and deductions.

Taxes aren’t fun to deal with at the best of times, but you may find yourself even more irked if you get a T4 amendment in the mail.

The good news is that it’s not uncommon to receive such a notice.

“Amended T4s are generally sent out to correct errors,” says James Bell, director of Tax Solutions Canada, who worked at the Canada Revenue Agency for 22 years before starting his company in 2013. Those errors are on behalf of the employer, which means there’s nothing you can do to prevent getting one.

“T4s get amended because of an oversight on the part of the employer,” Bell says. “It’s a routine occurrence,” he adds. “It happens all the time.”

Reasons a “Statement of Remuneration Paid” could be amended are wide-ranging; examples include improper classification of an amount (such as the under- or over-reporting of income), improper calculation of benefits to employees who participate in a stock-purchase plan, or the lack of inclusion of other taxable benefits or an incorrect tally of those benefits.

While amendments are common, they can still make people nervous.

“Amendments are straightforward, and it’s very routine for people to receive these things, but it can cause a lot of confusion and upset and misunderstanding,” Bell says. “Most people are puzzled about why they would get an amended T4.”

Caroline Battista, a senior tax analyst at H&R Block, says that it helps to understand what your taxable benefits are should you ever be faced with an amendment.

“I would hazard a guess that at least 50 per cent of the time if you ask people what their taxable benefits are, they don’t know,” Battista says. “Know what your taxable benefits are, especially when you’re getting a new job.”

Here are some examples: let’s say you win a $10,000 trip or NHL playoff tickets through work. “You’re still paying tax on the value of that trip or those tickets,” Battista says.

The parking spot that’s you get as a perk? You have to pay tax on the value of that, too.  

Battista notes that if you’ve already filed your taxes but then receive an amended T4, you need to submit an adjustment with that new slip. She says it’s easy to do electronically via the CRA’s My Account. Those forms can be mailed in too.

If you don’t understand or disagree with the amendment, Bell suggests talking to your office’s payroll or HR department first.

If you still don’t agree with the amendment, then you can file a notice of objection to dispute it.

“The CRA has a formal dispute mechanism in place for you,” Bell says. “It’s important to make sure that, if there is a dispute and you don’t understand it or disagree with what employer has done, you protect yourself by filing that notice of objection. It’s the only formal way to protect your rights, and that’s what you should do. You do have a formal legislative process to go through to make your case with the CRA.”

Whatever you do, if you receive an amendment, make sure you get it sorted out.

"There’s no need to panic at all,” Bell says. “However, it’s something that shouldn’t be ignored; they really do have to deal with it.”

The sooner the better: “Deal with it right away,” Battista says. “An amendment doesn’t mean it’s been done or that the CRA has refiled for you. Don’t just think the CRA will process it; deal with it because you will be charged interest from the time you get that slip. Once you get an amended slip it’s considered your responsibility.”

 

 

 

 

 

 

 

 

 

 

 

 

 

Although submission of a TD1 form is not required each year, it’s always a good idea to ensure that your employer is not withholding more taxes than absolutely necessary – after all, it’s your money.

 

 

The TD1 form – 2015 Personal Tax Credits Return – along with its provincial counterpart, determines how much tax your employer (or other payer) will withhold from your payments. To ensure that you get the money all year long rather than a year from now when you file your tax return, update your TD1 whenever your family situation changes and check it at least once a year.  January is a good time to make that check.

On the TD1 you can claim your own personal amount ($11,327 for 2015), the amount for your spouse or common-law partner, amounts for eligible dependants, the caregiver amount, amount for infirm dependants, amount for pension income, tuition, education and textbook amounts, as well as amounts you are eligible to transfer from your spouse. Parents should note that the exemption for children under 18 is eliminated for 2015 unless the child is infirm.  Even for infirm children, the claim is reduced to $2,093 for 2015 (down from $4,313 for 2014).

A sister form to TD1: Form T1213 Request to Reduce Tax Deductions at Source for Year(s) ______ can also be used to reduce tax withholding for taxpayers who have RRSP contributions, Child Care Expenses, deductible support payments, employment expenses, carrying charges, charitable donations, rental losses or other significant tax deductions. For all expenses except deductible support payments which may be authorized for two years, you’ll need to file Form T1213 each year.  The form must first be sent to CRA for their approval before your employer is authorized to reduce your withholding tax.  Approval may take four to six weeks so the earlier you submit the form the better.

 

 

 

Here is the basic information regarding withdrawals from a tax-free savings account:

Withdrawals will create additional contribution room equal to the amount of the withdrawal, for deposits in future years (not in the year of the withdrawal).

Income earned in  and withdrawals from a TFSA will not affect eligibility for federal income-tested benefits and credits such as

guaranteed income supplement (GIS)

old age security (OAS)

age exemption tax credit

Any fees paid related to the TFSA will not be tax-deductible.

In kind withdrawals can be made, with the investments being transferred to a non-registered account, or as a contribution to an RRSP, subject to available RRSP contribution room.  When in kind withdrawals are made, the value of the transaction will be the current market value of the investment.  This will be the contribution amount if the investment is transferred to an RRSP.  If the investment is transferred to a non-registered account, the current market value at time of withdrawal will be the cost basis for the non-registered investment.  Any subsequent capital gain or loss when the investment is sold will use this value as the cost basis.

If the maximum has been contributed to a TFSA, and then a withdrawal is made, no further amount can be contributed (without penalty) until the following year.  On January 1st of the following year, the withdrawal amount from the previous year will be used to increase your regular annual contribution room.

 

 

 

 

 

 

It’s always a good idea to re-evaluate the requirement to make the December 15 quarterly tax instalment payment (December 31 in the case of farmers) but this year end it’s even more important because the introduction of the Family Tax Credit for 2014, which has the potential to reduce family taxes by up to $2000.

Who has to pay taxes by instalment?  Those taxpayers whose net taxes owing is more than $3000 in 2014 and in either 2013 or 2012.  Net taxes owing include personal income taxes plus CPP and EI premiums owing on self employment.

What’s different this year is that couples with children at home (under age 18) where one spouse is in a higher tax bracket than the other are likely to benefit from the Family Tax Cut of up to $2,000.  The credit will be calculated on new form Schedule 1-A.

 

 

 

 

 

 

 

 

 

 

 

 

 

This new federal non-refundable credit will provide up to a maximum of $2,000 in tax relief to benefit one-earner or two-earner couples where one spouse’s income is taxed at a higher rate.

 

 

The higher income spouse can transfer up to $50,000 to the lower- income spouse. To qualify for the Family Tax Cut the taxpayer must

• be a resident of Canada at the end of the taxation year;

• have a spouse or common-law partner;

• have a child who is under the age of 18 at the end of the year and who resided with the taxpayer or their spouse or common-law partner; and

• not be confined to prison or similar institution for 90 days or more during the taxation year.

To claim the Family Tax Cut credit, couples must file income tax returns. Either parent can claim the credit but not both. However, if the parents of a child are divorced or separated, and have remarried or have a new common-law partnership, one parent in each of the new family may claim the credit of up to $2,000. The child must reside with each couple during the year in that case. If the parents have joint or shared custody, there may be cases where it is the same child who resides with each parent.

The Family Tax credit cannot be claimed for a year in which the couple does not file an income tax return; elects to split pension income; or in cases where one of the spouses becomes bankrupt.

The Family Tax Credit will be calculated as the difference between

·         the combined taxes payable (after all credits are claimed) by the couple, and

·         the combined taxes that would be payable by the couple, if the higher income spouse could have notionally transferred taxable income to the lower income spouse.

If the difference exceeds $2,000, then the credit would be limited to $2,000.