Claiming your child as a dependent

“Kids. Exactly when do they stop being your dependent?” – mother of a 20 year old still living at home

In this economy, many young people continue to live at home while in university, or receive financial assistance from their parents past age 18. Sadly, for tax purposes, after the end of the year they turn 18, they can no longer be claimed as a dependent on your taxes unless they are disabled or infirm.

In short:

Turning 18- In the year your child turns 18, (unless they are disabled or infirm ) they are a dependent until Dec. 31 of that year. On Jan. 1, as far as CRA is concerned, they are on their own.

Disabled or infirm-If your child is older than 18 and needs ongoing support for medical reasons, you will need to provide a letter from a doctor in order to claim your child as a dependent.

Young earners (under 18)- A single parent who claims the amount for an eligible dependent must deduct the child’s income from the amount that can be claimed.

Attending University – Over 18 years, you can not claim your child as a dependent, but you can claim up to $5000 in tuition credits. See my post on tuition credits for more information.

 

Do I really have to keep all these receipts for 7 years?

“I am trying to cut down on stored paper (and ideally to have none) but would like to have all my business receipts on file for next tax season. I’m wondering – is it acceptable to store the receipts in digital format? For example could I just take a photo of each receipt? And what about the tax return papers that are supposed to be stored for 7 years? Are digital photos good enough in the case of an audit or must I keep all this paper clutter?” – Jesse, Musician

Unfortunately, no, digital files are not currently accepted by the Canada Revenue Agency in the case of audit. The chap I spoke to at CRA insisted that you must keep all your receipts. When you are self employed, it can turn into a pile of paperwork, but a small accordion file for each year is often a good solution. There are bookkeeping apps that photograph your receipts, which you may find helpful when out and about, but you will want to keep the paper originals as a back-up.

And regarding what to save for tax returns: basically your Notice of Assessment, your return and any supporting documents for this year and the preceeding 6 years.

Love and taxes

People keep asking me when they have to file as common law for tax purposes. Today I called CRA and this is what the friendly phone person told me. You have to file as common law when you have been living together for 12 months or when a couple (who share a home) have a baby together, or share custody of a child.

If you get married or become common law during the year, and you receive UCCB or GST/HST Credits, be sure to let the tax man know or expect to be asked to pay back over-payments.

EI for the self-employed

“I am thinking about applying for EI. How will they calculate how much I have to pay?”

-Kyla Hubbard, Cyclona Designs, Victoria, B.C.

Your EI premiums will be calculated based on your income tax and benefit return for the year in which you apply. For example, if you register in 2012 , your EI premiums will be calculated based on your 2012 income tax and benefit return and will be payable by April 30, 2013.

Regardless of when you register during a given year, EI premiums are payable based on your self-employed income for the entire year. See calculation of premiums page for more information.

See my blog post on EI for the self-employed for more information.

 

 

Subcontractors

“If you contract to another business, how do you deal with that on your taxes?”

– Mat Davy, Smiling Dog Gardening and Landscaping, Victoria, B.C.

If you subcontract to another business, and you bill the client for the work they do, this is still part of your income. Make sure you have that subcontractor invoice you so you have the paperwork you need to claim their fees as an expense. If you are working in the trades, discuss who will pay the subcontractor’s WorksafeBC coverage. If they do not have a clearance letter showing that their account is up to date, you must pay for their WorksafeBC coverage.