Why read this?
Your client is a B.C. logger or resident.
What to do
Claim the Logging Tax Credit
If your client paid provincial logging tax, she may be able to claim a federal credit. The credit is the lesser of either 6.6667% of her logging income for the year, or two-thirds of the provincial logging tax paid for the year.
“What’s considered to be logging in B.C. is actually fairly broad,” says Craig Berg, accountant at Berg Lehmann in Nelson, B.C. (see “Paying B.C. Logging Tax”).
- Write “Federal logging tax credit” and the total below Line 55 on Schedule 1.
- Subtract the total credit from the amount on Line 55 and from any recapture of the investment tax credit.
- Enter your client’s net federal tax from Line 64 of Schedule 1 on Line 420 of the return.
Claim the Working Income Tax Benefit
In B.C., this benefit has higher income thresholds than in other provinces (see “Working Income Tax Benefit rates”).
Your client is eligible for the WITB if she meets all the following criteria:
- is resident of Canada for the entire year;
- has not been in prison for 90 days or more in the year;
- was not exempt from tax that year as a foreign diplomat, a foreign diplomat’s family member or tax-exempt employee;
- was not enrolled as a full-time student at a designated educational institution for a total of more than 13 weeks in the year, unless she had an eligible dependant at the end of the year;
- has earned income from employment or business; and
- is at least 19 years old at the end of the year or lives with a common-law partner, spouse or child.
- Use the version of Schedule 6: Working Income Tax Benefit for British Columbia to calculate your client’s benefit.
- Enter the amount on Line 42 of Schedule 6 on Line 453 of the return.
Paying B.C. Logging Tax
To be eligible for the federal logging tax credit, your client must have paid B.C. logging tax and filed Form 542S: Logging Tax Return of Income within six months of the end of the tax year in which the income was earned. Clients who sell or export logs, standing timber or timber rights must pay the tax.
One taxable situation that’s sometimes overlooked is when a tree farmer sells land, says accountant Craig Berg. “When you sell that tree farm, you have to allocate a portion of the proceeds to [paying tax on] the standing timber, because you’re selling the standing timber with the land,” he explains.
The provincial tax and the federal credit work in tandem, effectively shifting revenue from the federal government to the province, notes Berg. For example, on $15,000 of logging income, the logging tax rate of 10% means a client pays $1,500 to the province. When the client files her income tax return, she’ll get a federal credit of $1,000 and a provincial credit of $500, calculates Berg. “In the end, you’ve just shifted it from one return to another,” he notes.
Working Income Tax Benefit rates
This refundable credit is meant to supplement the earnings of low-income workers. Beneficiaries are typically single people, the Department of Finance notes. Further, 42% are under 30 years old, and many have recently finished post-secondary school or occupational training. About 1.5 million people received the credit in 2013, the most recent year for which figures are available, for a total benefit of about $1.2 billion.
The federal government allows provinces and territories to customize the WITB, as long as the changes are revenue neutral. In 2015, B.C., Quebec, Alberta and Nunavut introduced customized credits. B.C. introduced higher income eligibility thresholds, higher clawback thresholds and greater clawback rates. For instance, while single people under the default regime are eligible if their working income exceeds $3,000, it’s $4,750 in B.C.; and while other provinces begin to reduce the credit once someone’s income reaches $11,525, in B.C. the reduction starts at $12,662. In practice, this means a taxpayer who is single is eligible for a maximum credit in B.C. of $1,227, compared to $1,015 in other provinces.
WARNING: Only one person per couple may claim the benefit. If one person is eligible for the disability benefit, CRA says he or she should be the one to claim. If both people are eligible for the disability benefit, both should file Schedule 6 with their returns.
Sources: Craig Berg, CA, Berg Lehmann in Nelson, B.C.; CRA
by Jessica Bruno, Toronto-based financial writer.
Originally published in Advisor's Edge Report