Prince Edward Island offers a tax reduction program to residents with low incomes. The program offers tax credits that help to offset or eliminate provincial income tax. As of the 2016 tax year, PEI has increased the basic, spouse and dependant amounts by $50 each.
To qualify for the low-income tax reduction, you must be a PEI resident on the last day of the tax year for which you are filing. Additionally, you must be over the age of 18. However, if you have a child or if you are married or in a common-law partnership, you can qualify for this reduction even if you are 18 years old or younger.
If you were in prison on the last day of the year, you cannot claim this credit if you spent more than six months in prison throughout the year. However, if you were in prison on the last day of the year but you spent less than six months there, you can still qualify for this tax reduction. If you are filing a final tax return on behalf of a deceased person, you cannot claim this tax reduction on that individual’s return.
Special Rules for Married Couples or Common-Law Partners
If you are married or in a common-law partnership, only one of you may claim this credit. However, if that individual does not use the full credit, you may transfer the remaining amount to the other person.
For example, if you qualify for a $650 credit but you only owe $350 in provincial tax, you can use the $350 to cover your tax bill, and you can transfer the remaining $300 to your spouse’s return.
Amount of the Low-Income Tax Reduction
In 2016, PEI implemented a $50 increase to the basic reduction, the reduction for spouse or common-law partners, and the reduction for dependent children. As of 2016, you may claim a $350 basic reduction for yourself; if you are over the age of 65 by the last day of the year for which you are filing, you may claim an additional $250 age amount. If you have a spouse or a common-law partner, you may claim $350, and you may also claim $300 for each dependent child.
To explain, imagine you are 45 years old and married with three dependants. In this case, you receive $350 for yourself and $350 for your spouse. You also receive $300 for each of your children or the equivalent of $900. That creates a income tax reduction of $1,600.
To illustrate another scenario, imagine you are 67 years old and your spouse is 68 years old. As a result, you qualify for the basic amount of $350 and the spousal amount of $350. As both you and your spouse are over the age of 65, you may also claim an additional age amount of $250 each. That brings your credit up to $1,200.
Reduction for an Eligible Dependant
If you are a single parent, you may qualify for an additional amount for an eligible dependant. This credit is worth $300, and you can claim this amount in addition to the amount for a dependent child. However, you can only claim this amount if you have not claimed the spousal amount and if you qualified for the amount for an eligible dependant on your provincial and federal returns.
In particular, you must have claimed an amount for an eligible dependant on line 5816 of Form PE428 (Prince Edward Island Tax and Credits) as well as the corresponding amount on line 305 of your federal income tax return. This amount is reserved for single parents. To qualify, you must not be supported by a spouse or common-law partner, and you must support a dependant who lives with you.
To illustrate, imagine you are a single parent with two dependent children, and you qualified to claim an amount on line 5816 of your provincial return and line 305 of your federal return. In this case, you may claim the $350 basic reduction for yourself, the $300 reduction for an eligible dependant and $300 for each of your two children. That equates to a $1,250 income tax reduction.
How to Claim The Low-Income Tax Reduction
To claim the low-income tax reduction, you must complete Form PE428. This form guides you through reporting your income, claiming provincial deductions and calculating tax credits. If you qualify for the low-income tax reduction, you make a number of claims on lines 62 through 67. For example, you claim the basic reduction on line 62 and the spousal reduction on line 64.
If you have unused credits, you may complete an extra calculation on lines 86 to 88 of Form PE428. Then, you may transfer the remaining credits to line 53 of your spouse’s return.