Need a little tax tutorial before plunging into another RRSP season? Bring yourself up to speed on this year's tax changes with this succinct overview.

2007 tax brackets and personal tax credits

On October 30, 2007, as part of the federal government's mini-budget," the Conservatives announced that the lowest bracket income up to $37,178) would be dropped to 15% from 15.5%, retroactive to January 1, 2007.

There was also a continuation of full inflation indexing of the federal tax brackets...

Range                             Rate
$0 – $37,178                 15%
$37,178 – $74,357         22%
$74,357 – $120,887       26%
$120,887+                      29%

Note that the above rates are federal tax brackets; each province other than Alberta (which has adopted a flat tax) also has its own set of brackets, which may vary significantly from the federal numbers.  Maximum CPP contributions for 2007 are $1,989.90, while the maximum employment insurance premium for 2007 is $720. The year's maximum pensionable earnings (YMPE) for 2007 is up $1,600 to $43,700.

The maximum annual RRSP contribution limit is up to $19,000 from $18,000 in 2006.

As part of the mini-budget, the government announced that the basic personal amount, as well as the spousal or partner amounts, would be increased to $9,600 from $8,929, retroactive to January 1, 2007.

he March 2007 federal budget introduced a new Child Tax Credit calculated on a base amount of $2,000 per child under the age of 18. The credit can be claimed on the 2007 tax return by either spouse or partner and is not income-tested.

Pension splitting

This is the first year that the new pension splitting rules come into play, which allow someone receiving pension income to split up to half of that income with his or her spouse or common-law partner. This is accomplished using the new CRA Form T1032.

So, does this spell the end of spousal RRSPs? Not if you still want to pension split before age 65.

RESP changes

The 2007 federal budget eliminated the annual RESP contribution limit and, instead, increased the lifetime limit to $50,000 per beneficiary  (from $42,000) and increased the annual Canada Education Savings Grant (CESG) by $100 to $500 per year per beneficiary. If the  beneficiary has carry-forward CESG room from prior years (retroactive to 1998), the maximum CESG that will be paid in one year is now $1,000.

RRSP deadline for clients turning 71

The RRSP conversion deadline has been increased to age 71 from 69. Individuals who turned 71 in 2007 have only until December 31, 2007, to make their final RRSP contributions. Since someone who turns 71 in 2007 must convert his or her RRSP either into an RRIF or an annuity by the end of the year, this individual does not have the additional 60 days to make his or her 2007 RRSP contribution.

Donation tax shelters

Tax shelters are most heavily marketed during the last few weeks of the year, so caution your clients who may be approached by tax shelter promoters. In August 2007, the CRA issued a warning about donation tax shelters saying, "If it sounds too good to be true, don't
fall for it. Taxpayers need to know that the CRA is auditing all tax shelter gifting arrangements."

To date, the CRA has audited over 26,000 individuals who have participated in these tax shelters, and, as a result, about $1.4 billion in  claimed donations have been denied. The CRA will soon complete audits of another 20,000 taxpayers, involving close to $550 million
in donations, and is about to begin auditing another 50,000 taxpayers who have participated in tax shelter gifting arrangements.
Be sure clients get independent legal and tax advice before investing in any new tax donation scheme.

Beware the Singleton shuffle

If you've got clients who have used a Singleton-type plan to replace non-deductible debt with tax-deductible debt, they may want to pay close attention to the March 2007 General Anti-Avoidance Rule (GAAR) decision in Lipson (2007 FCA 113) where the Federal Court of Appeal shut down a Singleton-type of tax planning arrangement, calling it "abusive."

On October 25, 2007, the Supreme Court of Canada granted leave and will hear the case on April 23, 2008. Stay tuned

Exercise caution with joint ownership

Clients who insist on re-registering their accounts as "joint with right of survivorship" with adult children ought to pay close attention to two recent Supreme Court of Canada decision cases, Pecore v. Pecore and Madsen Estate v. Saylor, decided in May 2007.

Each case involved a dispute about who was the "true" owner of joint investment account assets. In each case, true ownership was  called into question by survivors once the parent passed away. (For more on both cases, click here to read Golombek's analysis of the
Supreme Court decisions.)

Tax-loss selling

For tax-loss selling, to guarantee that a trade is settled in 2007, the trade date must be December 24, 2007, or earlier. This will make sure that the settlement takes place in 2007and that any losses realized are available to the taxpayer this year. Any trade made after December 24, 2007, will not settle until 2008 and therefore those losses would not be available until next year

Tax-gain donating

Last year's 2006 federal budget eliminated tax on "in-kind" donations of securities, mutual funds and segregated funds to registered  charities. December is the ideal time to sit down with philanthropic clients and remind them of this significant opportunity to donate appreciated securities to charity, producing a tax receipt equal to the fair market value of the investment donated, while at the same time eliminating any capital gains tax otherwise payable. If done by December 31, a 2007 tax receipt can still be obtained.

Other payments required by year-end

December 31 is the final payment date to claim a 2007 tax deduction for various items including

• alimony payments;
• charitable donations;
• child care expenses;
• interest expense on money borrowed to earn investment income; and
• investment counselling fees.

Jamie Golombek, CA, CPA, CFP, CLU, TEP, is the vice-president, taxation & estate
planning, at AIM Trimark Investments in Toronto. Contact : This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

(11/29/07)
Copyright: "Copyright 2007. Advisor.ca All Rights Reserved"

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