Volunteer Firefighters to get New Tax Credit
Posted July 18th 2011
One of the more popular measures in the 2011 budget is the introduction of a tax credit for volunteer firefighters. Based on a flat amount of $3,000, it will provide tax relief of $450 when converted into a non-refundable tax credit. It will take effect for the 2011 taxation year.
The Canadian Association of Fire Chiefs had been lobbying the government for some time to provide a tax incentive that would encourage new recruits and had organized an online petition to this end. According to figures provided by the association in 2009, 91 per cent of the 3,492 fire departments in Canada rely on unpaid volunteers and there are 84,314 firefighters in Canada who will be eligible for this credit.
In order to qualify for 2011, you will need to have completed a minimum of 200 hours of eligible volunteer firefighter services in the year. The services may be performed with more than one fire department but cannot include a fire department for which you also performed services other than as a volunteer. Eligible services include training and attending meetings as well as responding to and being on call for fires.
The CRA may ask for a written certificate from the fire chief or a delegated official attesting to the number of hours services were performed. We recommend you get this before they ask for it and keep it on file.
A disappointing feature of the new rules is that you will not be able to claim both the new tax credit and the existing tax exemption on the first $1,000 of honoraria that most municipalities give their volunteer firefighters at the end of the year. Unless you have a marginal federal/provincial tax rate of 45% or more, the tax credit will always be more advantageous. In most provinces, the highest marginal rate is lower than this. Nevertheless, the value of your credit will still be substantially reduced. For example, a taxpayer with a marginal tax rate of 30% will lose $300 by foregoing the tax exemption on the first $1,000 of honoraria. That will reduce the value of his or her tax credit from $450 to $150. A resident of Ontario or British Columbia with a taxable income of $60,000 would have a marginal rate of around 30%.
It should also be emphasized that the tax credit is non-refundable. This means that it only has value to the extent that you can use it to offset federal tax payable. If you do not have any federal tax payable (which would be the case if your other non-refundable tax credits exceed your taxable income), it will be of no value to you. In the event that you have provincial tax payable, but no federal tax payable, it will obviously be more advantageous to continue claiming the $1,000 exemption instead of the tax credit.
Nova Scotia has had a refundable provincial tax credit for volunteer firefighters since 2007 which is currently worth $500. The credit was expanded to include ground search and rescue workers in 2008. It is not clear whether the omission of these workers from the new federal credit is intentional.
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