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moneysense.ca, 23/02/10
Get the most out of Ontario Sales Tax Transition Benefit
In the comments section of yesterday’s post, Returns Reaper reminded other readers that Ontario residents have an additional reason to make a RRSP contribution this year. Ontario residents may be able to reduce their net income below the threshold for receiving the Ontario Sales Tax Transition Benefit by making a RRSP contribution. Also, recall that families with children may be able to boost their CCTB payments by making a RRSP contribution in any year. The RRSP deadline is March 1, 2010. This post was originally published on April 15, 2009.
To help consumers cope with harmonization of Ontario’s Provincial Sales Tax with the Federal GST, the Ontario budget proposed that a one-time Sales Tax Transition Benefit be paid to eligible Ontario taxpayers aged 18 and over. The Benefit is worth a maximum of $300 for single individuals and $1,000 for couples or single parents and will be paid in three instalments (two in 2010 and one in 2011). To qualify for the maximum benefit the recipient’s previous year’s adjusted family net income should be less than $80,000 for single individuals and $160,000 for families.
If you read about the Transition Benefit in the mainstream media, you might be under the mistaken impression that the cut-off is based on Total Income (Line 150 in your tax return). But the budget clearly mentions that the Transition Benefit, like other income-tested benefits, is based on adjusted net income. “Adjusted net income” refers to the Net Income in line 236 of your return (and, for families, add the line from the spouse’s return) “adjusted” to exclude Universal Child Care Benefit (UCCB) payments.
If your (or your family’s) total income is above the cut-off, you may want to consider making enough RRSP contributions in 2009 and 2010 to bring your net income below the threshold. Other deductions such as Child care expenses and carrying charges and interest expenses will also lower your net income.
moneysense.ca, 23/02/10
Cool – we’ll easily make the cutoff for families since my wife doesn’t work.
$1000 – woohoo!
No mention yet, but I’m assuming these “transition” dollars are taxable like UCCB dollars? I haven’t read an article that says either way.
Mike: Don’t count your transition chickens yet. When the HST kicks in we’ll easily end up giving it all back in extra taxes in a few short years. Unless, of course, we collect the bribe and move to Alberta.
Jon: I believe this benefit will not be taxable like other income-tested benefits like CCTB, GST credit etc. The UCCB does not fall under the income tested category.
Could be a long time until we get anywhere near $160k.
Definitely worthwhile to make some extra RRSP contributions though if you are just over the mark – an additional 5% reward on that contribution, on top of the normal reduction based on your marginal tax rate. You’ll never get taxed on that extra 5% reward either, unlike the RRSP contribution that will be taxed at withdrawal.
While I’m thinking of tax efficiency, one thing that I’ve always found sorely lacking from Quicktax is a tool that tells me just how much an additional $x RRSP contribution will net me in tax refund. For example, Ontario surtaxes kick in at a certain point which does not coincide with the publicized marginal tax levels. That certain point is not well publicized, and while I intend to calculate them before next tax year rolls around, it would be nice if Quicktax had a tool that told you the next “step” in tax rates for your particular income case. One could then think about reducing taxable income to get down to that next step, and no less, for best tax efficiency. The RRSP contribution might be more tax-efficiently claimed in the following tax year.
I am considering creating an Excel spreadsheet that mimics the most common tax situations in Ontario, with the common deductions/credits, with tax efficiency tools etc. Has anyone seen such a tool out there so I don’t waste my time?
Ben: Does this nifty calculator help?
http://www.walterharder.ca/T1.html
At first glance, that does look rather handy – thanks! I’ll share this link around a bit too. Many will be glad to see this.
It does address tax efficiency somewhat indirectly by spelling out in separate line the amount of the surtax (and OHP). Little bit of goal seeking can answer the question of how much x$ RRSP contribution is worth in refund.
I’d still like to see a simple graph with “effective marginal tax rate” on y-axis, and net income on the x-axis. It would be a series of step-functions, an upward climbing set of stairs. I did a quick look just now, and found something close, but not quite (blue line).
http://www.finplans.net/documents/Tax%20Alert%20-%20Issue%203-03.pdf
I’d like not the smooth interpolated line, but the discrete steps. The graph might be thrown off by a lump sum tax like OHP – maybe a net tax vs net income graph might be better. I’ll give it some thought before next tax year.
Seems strange that a couple, without children, could get $1000 ($500) per person —–while a single living alone, like many seniors, widows and widowers, adult students, etc, can only get a max of $300 dollars.
LEB: It doesn’t seem very fair at all. Perhaps they should have had three levels: singles, couples w/o children and couples with children.
Is this for the 2009 tax year and we will include it next year? Or was I supposed to claim it this year?
[...] Capitalist reported on the Ontario sales tax transition benefit. I’ll be lining up for this [...]
[...] in Ontario will be $2 and the average loss will be $37, excluding the impact of the one-time Ontario Sales Tax Transition benefit. To the extent that the facts have a bearing on the politics of the issue, the government’s HST [...]
Ben… it’s a bit of a kludge with Quicktax, but if you have the summary window open on the left, the one that lists your taxes payable and gives you little bar charts of your refunds as you work, right up near where it tells you your average tax rate and your marginal tax rate there is a number called Change which is usually at 0. If you then pull up the RRSP tool, it lets you play around with additional contributions. As long as you jump back to 0 additional contribution between the levels you want to test, it will tell you the change in taxes. For example, you might plug in $10,000 into the additional contribution box, and then the change box might say 4,230… which means that for that $10,000 you’d save 42.3% (4230/10000). You still have to work out the percentage on the calculator, so it isn’t great, but it helps a bit.
Based on what you said…I think my software is making a mistake.
T1
Line 150 Total Income $89,900
Line 236 Net Income $59,725
and the program is telling me my Ontario Sales Tax Transition Benefit will be $665.00 (not $1000.00) – single parent with two kids.
Will this be the amount I get, or will it be corrected by Rev Can when I file? (any ideas what might happen).
@noname: Please read the post again. I did not say that the entire benefit will be paid in 2010. The Benefit will be paid in three installments. Two of those installments will be paid in 2010 based on net income for 2009. So, the tax software is correct. You’ll get the rest of the benefit in 2011 based on your net income for 2010.
Thanks…I knew I had left out an important detail
[...] Get the most out of Ontario Sales Tax Transition Benefit @ Canadian Capitalist [...]
How do I calculate the Ontario Sales Tax Transition Benefit (my wife is a dependant with no income) and where do I place it on the manual T1 form? On what LINE do I place it? My Net Income is $62,753 (Line 236). Any help would be extremely helpful!
@Joe: I don’t believe you need to apply for the Ontario Sales Tax Transition Benefit. If you file your taxes, the benefit will be automatically paid.
I’m using the standard quick tax, will it indicate that I will receive the Ontario Sales Tax Transition Benefit? How will I know if I will be receiving it? I’m a single parent making less than the $80 I assume I do qualify?
[...] Get the most out of Ontario Sales Tax Transition Benefit @ Canadian Capitalist [...]
[...] cut the tax rate on the lowest income bracket by 1 per cent, will increase transfer payments, will provide an one-time transition benefit payment for most families and will cut corporate income taxes. Though there are some sane voices (see post Not a Tax Grab [...]
[...] cut the tax rate on the lowest income bracket by 1 per cent, will increase transfer payments, will provide an one-time transition benefit payment for most families and will cut corporate income taxes. Though there are some sane voices (see post Not a Tax Grab [...]
I came to Canada as permanent resident on 4th June 2010. I applied for Universal child tax and Child tax benefit. Along with that, I got Ontario sales tax transition benefit payment of 330 dollars for June 2010. Today, I received OSTTB December 2010 payment( direct deposit). But this is only 5 dollars. My family income is much less than 160,000 both in 2009 and 2010. My other personal circumstances are also same. So why december payment is only 5 dollars…………….