Credits not the same as refunds
How tax credits work and the age limit for Quebec Pension Plan dues were among the topics raised in the latest batch of reader letters. Here’s what they wanted to know.
Q: In one of your articles, you mentioned that if someone makes a donation to a Quebec political party or to charities, one should get back a refund. I did, but got nothing back when I sent in my income tax. I’m 61; my only income is Quebec Pension Plan of about $11,729 a year.
A: This is a common misunderstanding. Contributions to political parties and registered charities generate tax credits (which amount to a percentage of the money donated), not refunds. In general, tax credits serve only to reduce taxes payable. If there is no tax due (as in a situation like this, where your total income is very low), the credits serve no purpose. CEGEP and university students run into this sometimes with the federal publictransit credit; they don’t earn enough to make use of it. Your charitable contribution isn’t wasted; it can be carried forward as much as five years. If your income was to jump in the next few years (and it will when you start receiving Old Age Security at age 65), you may be able to then make use of the credit.
Q: If someone is currently collecting Canada Pension Plan benefits (as opposed to the Quebec Pension Plan) and older than 65, would they be required to pay Quebec Pension Plan dues if they returned to work in Quebec?
A: Yes. Pretty much anyone working in Quebec who earns more than $3,500 a year is obligated to pay QPP dues, regardless of age. In return, you’ll be eligible for a slight supplement to your monthly CPP pension, which will be calculated and added automatically to your CPP cheques the next year through an agreement between the pension providers. Workers older than 65 outside Quebec have the option of discontinuing additional CPP dues if they choose. For more information, see the Canada Revenue Agency website at cra-arc.gc.ca/tx/ndvdls/tpcs/ cpp-rpc/cpp-menu-eng.html or call 1-800-959-8281.
Q: My parents in the Netherlands put money in a tax-free retirement plan for me over the last 20 years. I will be eligible to receive this in a couple of years. Will I pay income tax here or is this considered a gift?
A: If the plan is equivalent to an RRSP in Canada, you’ll probably owe taxes when withdrawals are made. The question is where. If you’re a Canadian resident, you’ll declare it as part of your worldwide income and be taxed as other Canadian citizens are (with eligibility for a foreign tax credit for taxes paid in The Netherlands). If you’re not a Canadian resident, you will not be taxed on those payments in Canada, only in The Netherlands, the country of residence. The Gazette invites reader questions on tax, investment and personal finance. If you have a query you’d like addressed, send it to Paul Delean, Gazette Business Section, Suite 200, 1010 Ste. Catherine St. W., Montreal, Que., H3B 5L1, or to pdelean@montrealgazette.com