Helping your clients reduce their tax liability is key when you’re an accounting professional, and if you file tax returns for individuals in Nova Scotia, there are all kinds of deductions and credits that can help. Here’s a look at some of the most valuable nonrefundable deductions and credits your clients should be claiming.
The Basic Personal Amount
Every taxpayer is entitled to the basic personal amount. As of 2018, this amount is $8,481 for Nova Scotians. Essentially, that gets subtracted from your client’s income, and they only have to pay income tax on anything over that threshold. That said, it’s not actually calculated like a deduction on the tax return. Instead, you end up multiplying the basic personal amount by the province’s lowest income tax rate, and your client claims a tax credit worth that amount. Ultimately, the savings are the same. The calculations are just different.
Spousal, Common-Law-Partner, and Dependant Amounts
If your client has a spouse, they can also claim the basic personal amount on behalf of their spouse, but this amount gets reduced for every dollar your client’s spouse earns. For instance, if your client’s spouse earns over $8,481, your client can’t claim anything. In contrast, if your client’s spouse only earned $4,000 last year, your client can claim a spousal amount worth $4,481. That’s $8,481 minus $4,000.
If your client doesn’t claim the spousal amount and has a qualifying dependant, they can claim the dependant amount. Again, this is the same as the basic personal amount, and you have to reduce it if the dependant earned any income.
The Personal Amount Enhancement
As of 2018, your clients may be able to enhance the personal amount, the spousal amount, and the dependant amount by $3,000. To qualify for the entire enhancement, their income needs to be below $25,000. If their income is over that amount, you have to decrease the enhancement by 6% of the amount that’s over the threshold.
To explain, imagine a client has $40,000 in taxable income. That’s $15,000 over the $25,000 threshold, and 6% of $15,000 is $900. When you subtract this amount from $3,000, that drops the enhancement to $2,100. If your client wants to claim the spousal or dependant amount, you also have to do these calculations, and you have to take into account any income earned by the spouse or dependant.
Age Amounts and Credits
Clients who are 65 by the last day of the tax year qualify for the age amount. Worth $4,141, this credit works just like the basic personal amount, but as of 2018, your clients can receive an additional $1,465 if their income is less than $25,000. As their income increases, the age amount phases out by 2.93% of the amount over the threshold.
Say for example, a client has $26,000 in taxable income. As their income is $1,000 over the threshold, that reduces their extra amount by $29.30. That’s $1,000 x 0.0293. On top of that, there’s also an additional $1,000 nonrefundable tax credit that your senior clients can claim if their taxable income is below $24,000.
Low Income Tax Reduction
Introduced in 2011, the low income tax reduction may also help some of your clients lower their provincial tax liability. As of 2018, the reduction is worth up to $300 for the tax filer, $300 for their spouse, and $165 for each dependant child. There’s a special section of the Nova Scotia Tax and Credits form that takes you through these calculations.
In addition to helping your clients make the most of these programs, you should help them look for tax breaks for their businesses and refundable personal tax credits. While the above programs can reduce the tax your client owes, refundable credits put money back in their pockets.