John Tomaselli
The birth of my first child came with so many surprises. Who knew such a tiny person could bring so much joy, so much laundry – and such a wallop at tax time?
Just as there's no instruction manual for a baby, no one warns new parents that Service Canada often does not withhold enough tax from employment insurance (EI) benefits. That means many women on maternity leave end up owing money at tax time when they are out of work and can least afford it. Surprise!
I got another tax surprise with the birth of my second child in 2006. The federal government had just introduced the Universal Child Care Benefit, a $100-a-month benefit for every child under the age of six. I should have guessed that I would be taxed on this benefit, but with the amount of sleep I was getting, I wasn't paying much attention to taxation issues.
Cleo Hamel, senior tax pro at H&R Block Canada, calls these changes the "new parent surprise" – one of several events that can result in a higher-than-expected tax bill.
If you are a repeat EI claimant and your personal net income is more than $55,250, you may also have to repay some of your regular EI benefits, Ms. Hamel adds. For this reason, some new mothers find they owe tax even though they can claim the child amount for the newborn.
"It comes as a gut-wrenching shock," Ms. Hamel said in an interview. "It's not like they say you have so much time to pay it back. It's part of your tax return."
New parents aren't the only ones who may be getting a smaller return than they expected, Ms. Hamel said. The taxman has surprises in store for Canadians of all ages.
Newly retired?
Recently retired seniors often don't realize no tax is withheld from their Old Age Security (OAS) or Canada Pension Plan (CPP) retirement benefits unless they specifically requested it. They won't figure this out until they file their first return after retirement.
Got a teenager?
Even if they're still watching your TV, cleaning out your fridge and using all your hot water, once your child turns 18, they are no longer considered a dependant for tax purposes.
Spouse went back to work?
If one spouse earned little or no income in 2010, the other could claim the spousal amount for about $1,500 in federal tax savings. However, if that spouse went back to work in 2011 and each spouse earned more than $10,527, the credit no longer applies.
Chose your TFSA over RRSP?
A Tax-Free Savings Account does not result in a tax deduction, so if you chose to top up that account instead of making your usual RRSP contributions, your refund will reflect this.
Self-employed?
If you earn more than $3,500 in self-employed income, you will need to pay both the employer and employee portions of the Canada Pension Plan premium. You do not pay EI premiums unless you sign up for the program.
Ontario resident?
New this year, Ontario residents are no longer receiving the Ontario Energy and Property Tax Credit, Sales Tax Credit or Northern Residence credits as part of their tax refund. These credits will be combined into the new Ontario Trillium Benefit and paid in monthly instalments starting in July, 2012.
Ms. Hamel said she's heard a lot of complaints about this change, especially from seniors and low-income families who are used to getting a tax refund to compensate for taxes owing. It can come as a shock when they realize their tax bill is due now, but their tax refund has been delayed.
She recommends people in any of these categories set aside some money each month so they won't face the additional hardship of having to pay interest on their tax owing.