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Since the beginning of the pandemic in March 2020, the federal government has provided a wide range of pandemic benefit programs for individuals. In the main, those programs have acted to replace income lost where employment income was no longer available as businesses closed during lockdowns, or individuals were unable to work because of illness or because they were at home with young children when schools closed to in-person learning.

Since the beginning of the pandemic in March 2020, the federal government has provided a wide range of pandemic benefit programs for individuals. In the main, those programs have acted to replace income lost where employment income was no longer available as businesses closed during lockdowns, or individuals were unable to work because of illness or because they were at home with young children when schools closed to in-person learning.

As the pandemic waxed and waned over the past two years, pandemic benefit programs offered by the federal government for individual Canadians have been introduced, amended, and replaced, to fit the changing circumstances. Those ongoing changes have made it difficult for individuals to know, at any given time, what benefits are available to them, what the eligibility criteria for those benefits are, and, perhaps most critically, the deadline(s) by which application for such benefits must be made.

As of April 2022, there are three major federal pandemic programs still in existence: the Canada Recovery Sickness Benefit, the Canada Recovery Caregiver Benefit, and the Canada Worker Lockdown Benefit. Each has its own eligibility criteria and benefit amount obtainable, as outlined below.

Canada Recovery Sickness Benefit

As the name implies, the Canada Sickness Recovery Benefit (CRSB) is provided to individuals who have been unable to work due to COVID-19. That inability to work can arise because the person had COVID-19, was advised to self-isolate, or had an underlying health condition that put them at higher risk of contracting COVID-19.

The CRSB provides such individuals with a flat amount of $500 per week, for a week in which the individual was unable to work at least 50% of their normal work week. The benefit amount of $500 per week does not depend in any way on the amount of income the individual normally earns; however, in order to qualify, the individual must have earned at least $5,000 in the previous 12 months, or during 2019, 2020, or 2021.

The CRSB is payable for a maximum of six weeks, such that the maximum benefit receivable is $3,000.

Canada Recovery Caregiving Benefit

Millions of Canadians, while not ill themselves, lost income during the pandemic because they were needed to stay at home to care for children or other family members who required supervised care.

The Canada Recovery Caregiving Benefit (CRCB) provides income support to such individuals who were employed or self-employed. In order to qualify for the CRCB, individuals must have been unable to work because they were at home caring for their child who was under age 12 or another family member who needed such supervised care. Such at-home care must have been required because the school, regular program, or facility attended by the individual requiring care was closed or unavailable due to the pandemic, or because the person requiring care was sick, self-isolating, or at risk of serious health complications due to COVID-19. In addition, the applicant for the CRCB must have been unable to work at least 50% of their normal work week and he or she must have earned at least $5,000 in the previous 12 months, or during 2019, 2020, or 2021.

Like the CRSB, the CRCB pays eligible individuals a flat amount of $500 per week. Unlike the CRSB, however, the CRCB program will provide a weekly benefit to eligible individuals for a period of up to 44 weeks.

Canada Worker Lockdown Benefit

The Canada Worker Lockdown Benefit (CWLB) differs in a number of ways from the CRSB and the CRCB. The latter two benefits are available in all provinces and territories, with eligibility for such benefits based entirely on personal circumstances. In the case of the CWLB, however, eligibility depends, in the first instance, on the public health situation in an individual’s province of residence (or sometimes, on their location within a province or territory) at any given time.

The reason for the difference is that the CWLB is intended to help compensate individuals who have lost income due to public health orders issued in response to current pandemic conditions, and currently in force in their particular place of residence and work. Such orders can, of course, vary widely from place to place.

In order to be eligible for the CWLB, an individual must have earned at least $5,000 in the previous 12 months or in either 2020 or 2021. In addition, an applicant must have filed a tax return for the 2020 tax year and must also commit to filing his or her returns for 2021 and 2022 by the end of 2023. Additional eligibility conditions may also apply, and a list of those conditions can be found at https://www.canada.ca/en/revenue-agency/services/benefits/worker-lockdown-benefit/cwlb-who-apply.html.

The CWLB is $300 per week and there is no limit to the number of weeks during which benefits can be received. However, such benefits are only available during time periods when the area or province or territory in which an individual lives is designated as a COVID-19 lockdown region. In addition, such lockdown must have resulted in an individual losing his or her job, or experiencing a 50% reduction in average weekly income, as compared to the previous year.

COVID-19 lockdown regions are designated by the federal government, and a comprehensive listing of the dates during which each province and territory of Canada qualified as a COVID-19 lockdown region can be searched by postal code, on the federal government website at https://www.canada.ca/en/revenue-agency/services/benefits/worker-lockdown-benefit/cwlb-regional-lockdowns.html.

Making the application – critical dates and deadlines

It’s critical to remember that an application for benefits under the CRSB, CRCB, or the CWLB programs can be made up to 60 days after the end of a benefit week/period. Consequently, as of April 26, benefit applications still be made for any benefit period starting after February 19, 2022.

That 60-day application period is particularly important when it comes to the CWLB. As of April 26, there are no regions of Canada which are currently designated as COVID-19 lockdown regions. However, with the exception of British Columbia, Saskatchewan, Manitoba, and New Brunswick, and some areas of Québec and the Northwest Territories, all other provinces and territories were subject to such designation within the last 60 days, meaning that eligible applicants can still apply for CWLB benefits for those time periods. A listing of the COVID-19 lockdown designation periods for each province and territory (or locations within a province or territory) can be found on the federal government website at https://www.canada.ca/en/services/benefits/designated-covid-19-lockdown-regions.html.

The other critical date to be aware of is May 7, 2022: as of that date (under existing legislation), each of the CRSB, CRCB, or CWLB programs will come to an end. Notwithstanding, the 60-day rule for applications will continue, meaning that applications for benefits can still made, as long as the usual eligibility criteria are met and no more than 60 days has passed since the end of the particular benefit period for which the application is being made.

 While the number and variety of benefit programs and varying eligibility and application criteria can be confusing, the federal government has provided a comprehensive summary on its website of the rules governing these programs. That summary is available at https://www.canada.ca/en/department-finance/economic-response-plan.html#individuals.

Canada’s retirement income system has three major components – private savings through registered retirement savings plans or registered pension plans, and two public retirement income plans – the Canada Pension Plan and the Old Age Security program. The last of those – the Old Age Security program – is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the second quarter of 2022 (April to June 2022), that maximum monthly benefit is $648.67.

Canada’s retirement income system has three major components – private savings through registered retirement savings plans or registered pension plans, and two public retirement income plans – the Canada Pension Plan and the Old Age Security program. The last of those – the Old Age Security program – is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the second quarter of 2022 (April to June 2022), that maximum monthly benefit is $648.67. 

For many years, OAS was automatically paid to eligible recipients once they reached the age of 65. However, beginning in July 2013 Canadians who are eligible to receive OAS benefits have been able to defer receipt of those benefits for up to five years, to when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received increases by 0.6%. The longer the period of deferral, the greater the amount of the monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%.

It can, however, be difficult to determine, on an individual basis, whether and to what extent it would make sense to defer receipt of OAS benefits. Some of the difficulty in deciding whether to defer – and for how long – lies in the fact there are no hard and fast rules, and the decision is entirely dependent on each individual’s financial circumstances. Fortunately, however, there are a number of factors which each individual can consider when making that decision.

The first such factor is how much total income will be required, at the age of 65, to finance current needs. By that age many (although not all) Canadians are no longer making mortgage payments or saving for retirement and so the amount of income needed is reduced. It’s also necessary to determine what other sources of income (employment income from full- or part-time work, Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, annuity payments and withdrawals from registered retirement savings plans (RRSPs) and registered retirement income fund (RRIFs)) are available to meet those needs, both currently and in the future, and when receipt of those income amounts can or will commence or cease. Once income needs and the sources and possible timing of each is clear, it’s necessary to consider the income tax implications of the structuring and timing of those sources of income. The ultimate goal, as it is at any age, is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits.

In making those calculations, the following income tax thresholds and benefit cut-off figures (for 2022) are a starting point.

• Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2022, that second income tax bracket begins when taxable income reaches $50,197.
• The Canadian tax system provides a non-refundable tax credit of $7,898 for taxpayers who are age 65 or older at the end of the tax year. The amount of that credit is reduced once the taxpayer’s net income for the year exceeds $39,826.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2022, the full credit is payable to individual taxpayers whose family net income is less than $39,826.
• Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits, through a mechanism known as the “OAS recovery tax”, or “clawback”. Taxpayers whose income for 2022 is more than $81,761 will have a portion of their future OAS benefits “clawed back”.

What other sources of income are currently available?

More and more, Canadians are not automatically leaving the work force at the age of 65. Those who continue to work at paid employment and whose employment income is sufficient to finance their chosen lifestyle may well prefer to defer receipt of OAS. Similarly, a taxpayer who begins receiving benefits from an employer’s pension plan when he or she turns 65, may be in a financial position which enables him or her to postpone receipt of OAS benefits.

Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence?

Nearly all Canadians who were employed or self-employed after the age of 18 paid into the Canada Pension Plan and are eligible to receive CPP retirement benefits. While such retirement benefits can be received as early as age 60, receipt can also be deferred and received any time up to the age of 70. As is the case with OAS benefits, CPP retirement benefits increase with each month that receipt of those benefits is deferred. Taxpayers who are eligible for both OAS and CPP will need to consider the impact of accelerating or deferring the receipt of each benefit in structuring retirement income.  

Does the taxpayer have private retirement savings through an RRSP?

Taxpayers who were not members of an employer-sponsored pension plan during their working lives generally save for retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to then begin receiving income from those savings. There are a number of options available for structuring that income, and, whatever the option chosen (usually, converting the RRSP into a registered retirement income fund or RRIF, or purchasing an annuity) will mean that the taxpayer will begin receiving income amounts from those RRSP funds in the following year. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider that they will have an additional (taxable) income amount for each year after they turn 71.

 The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing of each of those income sources must be considered, and none can be considered in isolation from the others.

Individuals who are facing that decision-making process will find some assistance on the Service Canada website. That website provides a Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. To use the calculator, it is necessary to know the amount of Canada Pension Plan benefit which will be received, and the taxpayer can obtain that information by calling Service Canada at 1-800 277-9914.

The Retirement Income Calculator can be found at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

The difficulties faced by younger Canadians in buying a first home almost anywhere in Canada, owing to both the spiraling cost of real estate and, more recently, increases in interest rates, is a major concern for those individuals and their families. Not surprisingly, then, the issue of housing affordability was a major focus of the recent federal budget, and the following measures to address that problem were announced.

The difficulties faced by younger Canadians in buying a first home almost anywhere in Canada, owing to both the spiraling cost of real estate and, more recently, increases in interest rates, is a major concern for those individuals and their families. Not surprisingly, then, the issue of housing affordability was a major focus of the recent federal budget, and the following measures to address that problem were announced.

Tax-Free First Home Savings Account

The most significant housing affordability measure announced in the budget was the creation of a new program – the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save (within prescribed limits) toward the purchase of a first home.

Under the program terms, any resident of Canada who is at least 18 years of age and who has not lived in a home which he or she owns in any of the current or four previous years can open an FHSA and contribute to that plan annually.

Beginning in 2023, planholders will be able to contribute up to $8,000 per year to their plan, regardless of their income for that year. The $8,000 per year contribution limit cannot be carried over to future years – in other words, if a planholder makes less than the maximum allowable contribution in any year, his or her contribution limit for subsequent years is still $8,000. As well, there is a lifetime limit of $40,000 in contributions for each individual.

The real benefit of the FHSA program lies in the tax treatment of contributions. Individuals who contribute any amount in a year can deduct that amount from income, in the same manner as a registered retirement savings plan contribution. As well, investment income of any kind which is earned by contributed funds held in the plan is not taxed as it is earned. Finally, when the planholder withdraws funds from the plan to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.  

Given the generous tax treatment accorded contributions to an FHSA, there are inevitably some qualifications and restrictions placed on the use of the plans. First, amounts withdrawn from an FHSA are received tax-free only if those funds are used to make a qualifying home purchase. Amounts withdrawn and used for any other purpose are fully taxable.

Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. While this does place some pressure on planholders with respect to the timing of their home purchase, there is some flexibility. Specifically, planholders who have not made a qualifying home purchase within the required 15-year time frame must then close the FHSA plan, but are allowed to transfer funds held in the FHSA to their RRSP. Significantly, the amount which is transferred from an FHSA to an RRSP isn’t reduced or limited in any way by the individual’s RRSP contribution room. However, transfers made to an RRSP in these circumstances do not replenish FHSA contribution room – in other words, each eligible individual gets only one opportunity to save for a first-time home purchase using an FHSA. And, of course, any amounts transferred from an FHSA to an RRSP will be taxable on withdrawal, in the same way as any other RRSP withdrawal.

Finally, individuals who have managed to accumulate funds within an RRSP will be allowed to transfer (subject to the $8,000 annual and $40,000 lifetime contributions limits) such funds to an FHSA on a tax-free basis, where they would then be subject to the usual rules governing an FHSA. Such individuals would not, however, be entitled to replace those funds within the RRSP.

Our tax system already provides a means to save for home ownership on a tax-assisted basis – the Home Buyers’ Plan (HBP). Under that Plan, an individual can withdraw up to $35,000 from his or her RRSP and use those funds for the purchase of a first home. Any such funds withdrawn must then be repaid to the RRSP over the next 15 years. The Home Buyers’ Plan will continue to be available to Canadians – however, an individual will not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.

First-Time Home Buyers’ Tax Credit

First time home buyers in Canada can already claim a non-refundable federal tax credit of up to $750 (which can be shared between spouses) when purchasing a home which they will occupy as a principal residence.

The budget proposes to increase the amount of that Home Buyers’ Tax Credit to $1,500, and spouses and common-law partners will continue to be able to split the value of the credit.

The increase applies to acquisitions of a qualifying home made after 2021.

Details of each of these measures can be found in the 2022 Federal Budget papers, which are available on the federal government website at https://budget.gc.ca/2022/pdf/tm-mf-2022-en.pdf.

For the majority of Canadians, the due date for filing of an individual tax return for the 2021 tax year was Monday May 2, 2022. (Self-employed Canadians and their spouses have until Wednesday June 15, 2022 to get that return filed.) When things go entirely as planned and hoped, the taxpayer will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be derailed in any number of ways.

For the majority of Canadians, the due date for filing of an individual tax return for the 2021 tax year was Monday May 2, 2022. (Self-employed Canadians and their spouses have until Wednesday June 15, 2022 to get that return filed.) When things go entirely as planned and hoped, the taxpayer will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be derailed in any number of ways.

By April 11, 2022, just over 13 million individual income tax returns for the 2021 tax year had been filed with the Canada Revenue Agency. And, inevitably, some of those returns contain errors or omissions that must be corrected.

Over 93% of the returns which have already been filed for the 2021 tax year were filed through online filing methods, meaning that they were prepared using tax return preparation software. The use of such software significantly reduces the chance of making a clerical or arithmetic error, like entering an amount on the wrong line or adding a column of figures incorrectly. However, no matter how good the software, it can work only with the information that is provided to it. Sometimes taxpayers prepare and file a return, only to later receive a tax information slip that should have been included on that return. It’s also easy to make an inputting error when transposing figures from an information slip (a T4 from one’s employer, for instance) into the software, such that $69,206 in income becomes $62,906. Whatever the cause, where the figures input are incorrect or information is missing, those errors or omissions will be reflected in the final (incorrect) result produced by the software.

When the error or omission is discovered in a return which has already been filed, the question which immediately arises is how to make things right. The first impulse of many taxpayers is to file another return, in which the complete and correct information is provided, but that’s not the right answer. There are, however, several ways in which a mistake or omission on an already filed tax return can be corrected, including online options.

For several years now, taxpayers who file their tax returns online, whether through NETFILE or EFILE, have been able to notify the CRA of an error or omission in an already-filed return electronically, by using the Agency’s ReFILE service. That service, which can be found at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/refile-online-t1-adjustments-efile-service-providers.html, allows taxpayers to make corrections to an already filed return online, on the CRA website.

Essentially, taxpayers whose returns have been filed online (through NETFILE or EFILE) can make a correction using the same tax return preparation software that was used to prepare the return. Those taxpayers who used NETFILE to file their return can file an adjustment to a return filed for the 2018, 2019, 2020, and 2021 tax years. Where the return was filed using EFILE, the EFILE service provider can similarly file adjustments for returns filed for the 2018, 2019, 2020, or 2021 tax years.

There are limits to the ReFILE service. Regardless of who is using the service (i.e., the taxpayer or an EFILE service provider) the online system will accept a maximum of nine adjustments to a single return, and ReFILE cannot be used to make changes to personal information, like the taxpayer’s address or direct deposit details. There are also some types of tax matters which cannot be handled through ReFILE, like applying for a disability tax credit or child and family benefits.

It’s also possible to make a change or correction to a return using the CRA’s “My Account” service (through the “Change My Return” feature), but that choice is available only to taxpayers who have already become registered for My Account. Taxpayers who opt to become registered for My Account in order to access the broader options available through Change My Return should be aware that the registration process takes a few weeks, in order to satisfy the CRA’s security measures.

While using the CRA’s online services, whether through ReFILE or My Account, is certainly the fastest way to make a correction on an already-filed return, taxpayers who don’t wish to use an online method do still have a paper option. The paper form to be used is Form T1-ADJ E (20), which can be found on the CRA website at T1-ADJ T1 Adjustment Request – Canada.ca. Those who are unable to print the form off the website can order a copy to be sent to them by mail by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. There is no limit to the number of changes or corrections which can be made using the T1-ADJ E (20) form.

Hard copy of a T1-ADJ (20) (or a letter) is filed by sending the completed document to the appropriate Tax Center, which is the one with which the tax return was originally filed. A listing of Tax Centres and their addresses can be found on the reverse of the TD-ADJ (20) form. A taxpayer who isn’t sure which Tax Centre their return was filed with can go to https://www.canada.ca/en/revenue-agency/corporate/contact-information/tax-services-offices-tax-centres.html on the CRA website and select their location from the drop-down menu found there. The address for the correct Tax Centre will then be provided. 

Where a taxpayer discovers an error or omission in a return already filed, the impulse is to correct that mistake as soon as possible. However, no matter which method is used to make the correction – ReFILE, My Account, or the filing of a T1-ADJ in hard copy – it’s necessary to wait until the Notice of Assessment for the return already filed is received. Corrections to a return submitted prior to the time that return is assessed simply can’t be processed by the CRA.

Once the Notice of Assessment is received, and an adjustment request is made, it will take at least a few weeks, usually longer, before the CRA responds. The CRA’s goal is to respond to such requests that are submitted online within about two weeks, while those which come in by mail currently (as of April 2022) take about ten to twelve weeks. Not unexpectedly, requests which are submitted during the CRA’s peak return processing period between March and July will likely take longer.

Sometimes the CRA will contact the taxpayer, even before a return is assessed, to request further information, clarification, or documentation of deductions or credits claimed (for example, receipts documenting medical expenses claimed, or child care costs). Whatever the nature of the request, the best course of action is to respond promptly, and to provide the requested documents or information. The CRA can assess only on the basis of the information with which it is provided, and it is the taxpayer’s responsibility to provide support for any deduction or credit claims made. Where a request for information or supporting documentation for a claimed deduction or credit is ignored by the taxpayer, the assessment will proceed on the basis that such support does not exist. Providing the requested information or supporting documentation can usually resolve the question to the CRA’s satisfaction, and its assessment of the taxpayer’s return can then be completed.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #59 Corporate

Personal:

Issue #59 Personal

It is a sad fact that, every year, thousands of Canadians become the victims of scams in which fraud artists claim to be representatives of the federal government. Equally sadly, in most cases the money lost is never recovered.

It is a sad fact that, every year, thousands of Canadians become the victims of scams in which fraud artists claim to be representatives of the federal government. Equally sadly, in most cases the money lost is never recovered.

While fraud has always and will always exist, this time of year provides a perfect opportunity for scams, particularly those involving our tax system, for a number of reasons. First, of course, it’s tax-filing season, a time of year when receiving communications from the tax authorities wouldn’t strike most Canadians as being out of place, or suspicious – and when, in fact, the tax authorities do communicate with taxpayers for valid reasons. Second, most tax returns filed by individual Canadians result in the payment of a tax refund. Consequently, receiving an email or other communication indicating that the CRA has funds which are owed to you wouldn’t necessarily strike most recipients as a scam. As well, over the course of the past two pandemic years, many day-to-day financial dealings have had to be managed online or by phone, opening up opportunities for fraudsters to misrepresent themselves as government officials or government websites. All in all, it’s a perfect storm of opportunity for scammers and fraudsters.

Generally, there are two basic ways in which tax fraud artists prey on taxpayers. In a scam which has been around for years, if not decades, a telephone caller falsely informs the taxpayer that he or she owes money to the Canada Revenue Agency and that immediate payment must be made. A failure to pay, the taxpayer is told, will mean seizure of his or her assets, cancellation of his or her passport and/or social insurance card or other government-issued identification, deportation, or imprisonment. Further, such payment must be made only by wire transfer or pre-paid credit card or cryptocurrency. In a second type of scam, which is more common at this time of year, the taxpayer is contacted by e-mail or text and advised that he or she is owed money by the federal government. In order to receive the money owed, the taxpayer must click on a link in that e-mail or text. The link leads, not to a federal government website, but to a “dummy” site very closely resembling the actual Canada Revenue Agency website. The taxpayer must then, in order to have his or her “refund” processed, provide personal and financial information which can then be used by the tax scammer. A taxpayer may also be contacted by phone, told falsely that he or she is owed money by the CRA and asked to provide details – like a bank account number – so that the “refund” can be deposited to the taxpayer’s account.

There are, in fact, several things about such communications that should alert the recipient to the fact that they are not legitimate. First of all, if a taxpayer does owe money to the CRA, or is owed money by the CRA, he or she will be first advised of that fact in the Notice of Assessment issued by the CRA for every tax return that is filed – and never by telephone, email, or text. Second, the CRA would never suggest or require that a taxpayer send funds to the Agency by wire transfer or by using a prepaid credit card or cryptocurrency, and would never ask a taxpayer to click on a link in an email or text, or to provide financial details over the phone. Payments of money owed to the CRA are made online, through the CRA website, through the taxpayer’s financial institution (in person or online), or by mailing a cheque to the Agency. Any payment by the CRA to the taxpayer is made by direct deposit to a taxpayer’s bank account (using an already existing direct deposit arrangement), or by cheque, which is sent to the taxpayer by regular mail. Finally, any suggestion that the CRA would (or could) cancel a taxpayer’s passport or other government-issued ID for failure to make payment is simply ludicrous.

Although these scams are well known (and new ones appear frequently and are noted on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html), many such scams originate outside Canada, limiting the ability of the CRA and law enforcement authorities to monitor or stop them. For the most part, therefore, the onus will fall on individual taxpayers to protect themselves through a healthy degree of caution, even skepticism. At the end of day, the best protection from being scammed is being aware of the methods by which the CRA will (and, more importantly, will not) contact a taxpayer – in other words, being able to recognize when a scam attempt is being made.

The CRA suggests that, in order to avoid becoming a victim of such scams, taxpayers should keep the following general guidelines in mind.

A legitimate CRA employee will identify themselves when they contact you. The employee will give you their name and a phone number. Make sure the caller is a CRA employee before you give any information over the phone.

If you’re suspicious, this is how you can make sure the caller is from the CRA:

1. Tell the caller you would like to first verify their identity.
2. Request and make a note of their name, phone number, and office location.
3. End the call. Then check that the information provided during the call was legitimate by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. 

Similarly, where a caller claiming to be from the CRA leaves a voice mail the taxpayer should, instead of returning that call, call the 1-800 number above. Service agents at that line will be able to access the taxpayer’s tax records and provide accurate information on whether the Agency is indeed seeking to contact the taxpayer and, if so, for what reason.

Taxpayers should note as well that seeing a CRA 1-800 number or an Ottawa area code on their call display does not necessarily mean that the call is from the CRA. Scammers have been able to use technology to show false numbers on call display, as part of their attempt to seem legitimate.

Red flags that suggest a caller is a scammer include (but are not limited to):

• The caller does not give the taxpayer proof that the caller works for the CRA – for example, their name, phone number, and office location.
• The caller pressures the taxpayer to act now or uses aggressive language.
• The caller asks the taxpayer to pay with prepaid credit cards, gift cards, cryptocurrency, or some other unusual form of payment.
• The caller asks for information that the taxpayer would not enter on a tax return or that is not related to money which the taxpayer owes to the CRA – for instance, a credit card number.
• The caller says that he or she can help the taxpayer apply for government benefits. Such applications are made directly on Government of Canada websites or by phone – no one should give information to callers offering to apply for benefits on the taxpayer’s behalf.

Ironically, the extent to which most individuals are now comfortable transacting their tax and financial affairs online or over the phone, and the speed and anonymity of such transactions, has made it easier in many ways for fraud artists to succeed. As ever, the best defence against becoming a victim of such fraud artists is by refusing to provide personal or financial information, and especially never to make any kind of payment, whether by phone, e-mail, or online, without first verifying the legitimacy of the request.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know, until their return is completed, what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know, until their return is completed, what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers are, of course, hoping for a refund – the bigger the better. A lot would be happy to find that at least nothing is owed to the Canada Revenue Agency, or that an amount owing is not significant.

The worst-case scenario, for all taxpayers, is to find out that they are faced with a large tax bill and an imminent payment deadline, and that they just don’t have the money to make the required payment by that deadline. For those who don’t have the means to pay a tax bill out of existing resources, that likely means borrowing the needed funds. And, while that will mean paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the Canada Revenue Agency on the unpaid tax bill. 

However, if a tax bill can’t be paid in full out of either current resources or available credit, the Canada Revenue Agency is open to making a payment arrangement with the taxpayer. While, like most creditors, the CRA would rather get paid on time and in full, its ultimate goal is to collect the full amount of taxes owed. Consequently, the Agency provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement.

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 150 of the last tax return for which the taxpayer received a Notice of Assessment. For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2020 tax year. The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time.

Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657 or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

The CRA also provides on online tool, in the form of a Payment arrangement calculator (available at Payment Arrangement Calculator - Canada.ca), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances. That calculator includes interest charges since, no matter what payment arrangement is made, the CRA levies interest charges on any amount of tax owed for the 2021 tax year which is not paid on or before May 2, 2022. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates – the rate charged from April 1 to June 30, 2022 is 5.0%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the May 2, 2022 deadline.

Unfortunately, this year many taxpayers may be facing what might be termed a “tax hangover”. During 2020, millions of Canadian taxpayers applied for and received pandemic-related benefits. And, although those benefits represent taxable income to the recipients, no tax was deducted from the payments when they were made. Consequently, many benefit recipients, on filing their returns for the 2020 tax year in the spring of 2021, faced a larger than expected tax bill for 2020. In recognition of that fact, and the ongoing economic dislocation resulting from the pandemic, the Canada Revenue Agency provided some relief in the form of a one-year interest holiday. Specifically, taxpayers who received pandemic-related benefits during 2020, and whose income for that year was $75,000 or less, were not assessed interest charges on 2020 tax amounts which were owed but not paid in full by the deadline. Unfortunately for such taxpayers, that interest holiday ends on April 30, 2022. If outstanding tax amounts owed for 2020 are not paid by that date, the CRA will begin assessing interest charges on the debt. And, as outlined above, those interest charges will be levied at a rate of 5% – with interest compounded daily. Details of the interest holiday program and how outstanding amounts owed will be treated after April 30, 2022 can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes/interest-relief.html.

Finally, regardless of the taxpayer’s circumstances, there is one strategy which is, in all circumstances, a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount – and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed – and that doesn’t count the compound interest which is levied on all penalty amounts, as well as on all unpaid taxes. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Monday May 2, 2022. For self-employed taxpayers (and their spouses) the filing deadline is Wednesday June 15, 2022. However, for all taxpayers, the payment deadline for all 2021 income tax amounts owed is Monday May 2, 2022.

Detailed information on the options available to taxpayers who can’t pay their taxes on time and in full can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-taxes-owing.html#toc2.

Our tax system is complex and, understandably, its myriad rules and exceptions are a mystery to most Canadian taxpayers – and most are happy to leave it that way. There is however, one rule in the Canadian tax system which doesn’t really have any exceptions and of which most Canadian taxpayers are all too well aware. That is the rule that says individual income tax amounts owed for any tax year must be paid – in full – on or before April 30 of the following calendar year. This year, that means April 30, 2022 – although, since April 30, 2022 falls on a Saturday, the Canada Revenue Agency is providing an administrative concession by allowing taxpayers until Monday May 2 to pay their taxes without incurring any interest charges.

Our tax system is complex and, understandably, its myriad rules and exceptions are a mystery to most Canadian taxpayers – and most are happy to leave it that way. There is however, one rule in the Canadian tax system which doesn’t really have any exceptions and of which most Canadian taxpayers are all too well aware. That is the rule that says individual income tax amounts owed for any tax year must be paid – in full – on or before April 30 of the following calendar year. This year, that means April 30, 2022 – although, since April 30, 2022 falls on a Saturday, the Canada Revenue Agency is providing an administrative concession by allowing taxpayers until Monday May 2 to pay their taxes without incurring any interest charges.

It is very much in the CRA’s interest to make paying taxes as simple and as straightforward as it can be and so the Agency offers individual taxpayers a wide range of choices when it comes making that payment. There are, in fact, no fewer than seven separate options available to individual residents of Canada in paying their taxes for the 2021 tax year. The first four options outlined below involve payment by electronic means, while the last three describe those available to taxpayers who would prefer to make their payments in person, or by sending a cheque to the CRA.

Pay using online banking

Millions of Canadians transact most or all of their banking using the online services of their particular financial institution. The list of financial institutions through which a payment can be made to the Canada Revenue Agency is a lengthy one (available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-online-banking.html), and includes all of Canada’s major banks and credit unions.

The specific steps involved in making that payment will differ slightly for each financial institution, depending on how their online payment systems are configured. What’s important to remember is that the nature of the payment – i.e., current year tax return, as distinct from current year tax instalment payments – must be specified, and the taxpayer’s social insurance number must be provided, in order to ensure that the payment is credited to the correct account, for the correct taxation year.

It’s not necessary to access any particular CRA form in order to make an online payment of taxes through one’s financial institution.

Using the CRA’s My Payment

The CRA also provides an online payment service called My Payment. There is no fee charged for the service, and it’s not necessary to be registered for any of the CRA’s other online services in order to use My Payment.

What is necessary is that the taxpayer have an activated debit card with an Interac Debit, VISA Debit, or Debit MasterCard logo from a participating Canadian financial institution, as My Payment is set up to accept payment using only those cards. Anyone intending to use My Payment should also confirm that the amount of any payment to be made is within the transaction limits imposed by the particular financial institution.

A list of participating financial institutions for each type of card, and more details on this payment method, can be found at https://www.canada.ca/en/revenue-agency/services/e-services/payment-save-time-pay-online.html.

Payment by credit card, PayPal, or Interac e-transfer

While it’s possible to pay one’s taxes using a credit card, PayPal, or Interac e-transfer, such payments can only be made through third-party service providers (that is, payments by those methods cannot be made directly to the Canada Revenue Agency), and such third party service providers will impose a fee for the service.

There are only two such service providers – Pay Simply and Plastique - listed on the CRA website, and links to each such service are available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-credit-card.html.

Payment by pre-authorized debit

It’s possible to set up a pre-authorized debit (PAD) arrangement with the CRA, authorizing the Agency to debit the account for an amount of taxes owed, on dates specified by the taxpayer.

Individuals who make instalment payments of tax throughout the year may already have such an arrangement in place and can certainly use that existing arrangement to arrange a PAD of any balance of taxes owed for the 2021 tax year. However, any such arrangement must be made at least five business days before the payment due date of May 2. A taxpayer who makes a payment of taxes only once a year is likely better off using another of the available payment methods.

There is also another option for taxpayers who have their return prepared and E-FILED by an authorized electronic filer. Such taxpayers can have that E-FILER set up a PAD agreement on their behalf in order to make a “one-time” payment for a current year tax amount owed. Such an arrangement is only for the payment of a current year tax balance, and can’t be used for other payments like instalment payments of tax. Details on how to set up a pre-authorized debit arrangement, whether for a single payment or for recurring payments, are outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-authorized-debit.html.

Paying in person at your financial institution

For those who don’t use online banking, or simply prefer to make a payment in person, it’s possible to pay a tax amount owed at the bank. Doing so, however, requires that the taxpayer have a specific personalized remittance form – the T7DR, Amount owing Remittance Voucher

If the taxpayer has not received the required remittance form from the Canada Revenue Agency, it’s possible to download and print that form from the CRA website. Instructions on how to do so can be found on that website at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html.

Paying at a Canada Post outlet

All Canada Post outlets can receive payments of individual income tax balances owed, in cash or by debit card. Once again, however, it’s necessary to have a specific form to do so.

In this case, the taxpayer must have a QR code which contains the information needed for the CRA to credit the amount paid to the taxpayer’s account.

While a QR code is sometimes included on remittance forms sent to the taxpayer by the CRA, it’s also possible to generate a QR code online through the CRA website. A link to instructions on how to do so can be found on that website at https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/pay-canada-post.html.

Paying by cheque

While it’s not as common anymore, it’s still possible to pay any tax balance owed on filing by cheque, as outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-cheque.html.

Such cheques are made payable to the Receiver-General of Canada, and are mailed, together with the required remittance form, to the Canada Revenue Agency, using the address found on the back of the payment remittance form. As is the case with payments made at a financial institution, the taxpayer can print such a remittance form from the CRA’s website. Instructions on how to do so can be found at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html.

The CRA also suggests that, where payment of taxes owing is made by cheque, the taxpayer should include his or her social insurance number on the memo line found on the front of the cheque. Doing so will help ensure that the payment is credited to the correct account.

A decision on what method to use to pay one’s taxes includes another important consideration of which most taxpayers are unaware. Under longstanding Canada Revenue Agency policy, the CRA considers that a payment is actually made on the date on which it is received by the Agency. However, depending on the payment method chosen, that date of receipt often isn’t the same day the payment is made by the taxpayer, and it can be as much as several days later. And, of course, where payment is made close to the payment deadline, that delay can mean the difference between a timely payment and one that is late and incurs interest charges.

Helpfully, the Canada Revenue Agency provides information for each payment method on how the date of receipt is determined for that particular method. That information can be found on the CRA’s website at Canada Revenue Agency https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/make-payment.html.

Finally, once payment has been made by any payment method, the CRA provides taxpayers with an online method for confirming that a payment has been received and applied to the taxpayer’s account. That service is available at https://www.canada.ca/en/revenue-agency/services/payments-cra/confirm-payment.html.

Most Canadians don’t turn their attention to their taxes until sometime around the end of March or the beginning of April, in time to complete the return for 2021 ahead of the May 2, 2022 filing deadline.

Most Canadians don’t turn their attention to their taxes until sometime around the end of March or the beginning of April, in time to complete the return for 2021 ahead of the May 2, 2022 filing deadline.

While that approach leaves plenty of time to get the return prepared and filed, it also means that the most significant opportunities to reduce or minimize the tax bill for 2021 are no longer available. Almost all such tax planning or saving strategies, in order to be effective for 2021, must have been implemented by the end of that calendar year.

The fact that the clock has run out on most major tax planning opportunities for 2021 doesn’t, however, mean that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2021 – by claiming all available deductions and credits on the return and also by making sure that those deductions and credits are structured and claimed in the way which will give the taxpayer the greatest tax benefit.

In some cases, a claim for a tax deduction or credit can only be made on the return for the year in which the expense is incurred, while in other cases claims can be made for expenses incurred in the previous tax year or even as far back as five years previously. Consequently, getting the best tax result on one’s return requires an assessment of which deductions and credits are available to claim in the current year, whether some or all of them can be carried forward and claimed in a future year, and whether it makes sense to do so. It may seem counterintuitive, or even illogical, to not claim every available deduction and credit in order to obtain the best possible tax result for the year. However, in some cases (albeit for different reasons) there are situations in which it makes sense to defer an available claim to a future year, or to transfer the claim to another family member.

Political contribution tax credit

The federal government provides a non-refundable tax credit for contributions made to registered political parties and to candidates in federal elections. As a federal election was held in 2021, many Canadians may have made contributions which are eligible for that political contribution tax credit.

The restriction, however, is that a claim for that political contribution tax credit can only be made on the return for the year in which the contribution was made. Consequently, taxpayers who made qualifying contributions in 2021 must claim the credit for those contributions on the return for 2021: if that is not done, no credit can be claimed for that contribution on any future return. There is some flexibility, however, in that where one spouse has made a contribution which qualifies for the federal political contribution tax credit, that contribution, and the resulting credit, can be claimed instead by the taxpayer’s spouse on his or her tax return for that year.

Charitable donations

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2021) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to encourage higher donations.

That credit, at both the federal and provincial/territorial levels, is a two-tier credit. Federally, the first $200 in donations receives a credit of 15% of the total donation, or $30. However, donations above the $200 level receive a credit equal to 29% of the donation amount over $200.

Take, for example, a taxpayer who makes a regular contribution to a favourite charity of $100 each month, or $1,200 per year. Where he or she claims that donation on the annual return each year, that claim will result in a federal credit of $320 ($200 times 15%, plus $1,000 times 29%). Where, however, the same taxpayer defers the claim to the following year and claims a total of $2,400 in donations on a single return, he or she will receive a federal credit of $668. ($200 times 15%, plus $2,200 times 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,712 ($200 times 15%, plus $5,800 times 29%). Under each scenario, the total charitable donation made is the same, but the amount of credit received increases with each year that the claim is deferred. Since each of the provinces and territories provides a two-tier credit (at different rates, depending on the jurisdiction), the same result will be seen when calculating the provincial/territorial credit.

It's important to note as well that charitable donations made by either spouse can be combined and claimed on the return for one of those spouses, thereby increasing the amount of charitable donations available to claim and possibly the amount of credit which can be received.

Medical expenses

Notwithstanding our publicly funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs.

The federal credit for such expenses is 15% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, albeit at different rates.

Many taxpayers, with some justification, find the rules on the calculation of a medical expense tax credit claim confusing. First, there is an income threshold imposed. Medical expenses eligible for the credit are qualifying expenses which exceed 3% of net income, or (for 2021) $2,421, whichever is less. Put more practically, for 2021 taxpayers who have net income of $80,700 or more can claim medical expenses incurred over $2,421. Those with lower incomes can claim medical expenses which exceed 3% of that lower net income. For instance, a taxpayer having $35,000 in net income could claim qualifying medical expenses incurred over $1,050 (3% of $35,000).

The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, this rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and therefore the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed and, of course, any expenses which were claimed on a previous return cannot be claimed again. 

While only expenses which exceed the $2,421/3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for all children born in 2004 or later. While medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses is very likely (especially for a family that does not have private medical insurance coverage) to mean that total expenses will exceed the applicable threshold.

In determining who will make the medical tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income/$2,421 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower net income makes the claim for total family medical expenses. However, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit.

Finally, there are a huge number and variety of medical expenses which individuals and families may incur, and the rules governing which can be claimed and in what circumstances, are very specific. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. The very long list of medical expenses eligible for the credit, and any ancillary requirements, such as a prescription, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for last year show that the vast majority of Canadian individual income tax returns — just over 90%, or just over 28 million returns — were filed online, using one or the other of the CRA’s web-based filing methods. About 2.8 million returns — or just over 9% — were paper-filed.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for last year show that the vast majority of Canadian individual income tax returns — just over 90%, or just over 28 million returns — were filed online, using one or the other of the CRA’s web-based filing methods. About 2.8 million returns — or just over 9% — were paper-filed.

Clearly, electronic filing is the overwhelming choice of Canadian taxpayers, and those who choose electronic filing this year have two choices — NETFILE and E-FILE. The first of those — NETFILE (used last year by just under 33% of tax filers) — involves preparing one’s return using software approved by the CRA and filing that return on the Agency’s website, using the NETFILE service. The second method, E-FILE, involves having a third party file one’s return online. Almost always, the E-FILE service provider also prepares the return which they are filing. It seems that most Canadians want to have little to do with the preparation of their own returns, as last year just over 58% of all the individual income tax returns filed came in by E-FILE.

The majority of Canadians who would rather have someone else deal with the intricacies of the Canadian tax system on their behalf can find information about E-FILE on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/efile-individuals.html. That site will also provide a listing (searchable by postal code) of authorized E-FILE service providers across Canada, and that listing can be found at https://apps.cra-arc.gc.ca/ebci/efes/epcs/prot/ntr.action.

Those who are able and willing to prepare their own tax returns and file online can use the CRA’s NETFILE service (which is available as of February 21, 2022), and information on that service can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be filed using NETFILE (for instance, a return for a non-resident of Canada, or for someone who declared bankruptcy in 2020 or 2021), the vast majority of Canadians who wish to do so will be able to NETFILE their return.

At one time, it was necessary to obtain and provide an access code in order to NETFILE. While such a code is no longer a requirement, the CRA has provided tax filers with a taxpayer-specific code which can be included with the return for 2021. That eight-character alpha-numeric code is found (in very small type) in the top right hand corner of the first page of the 2020 Notice of Assessment, just under the Date Issued line for that Notice of Assessment. Including the code with your return is not mandatory; however, the taxpayer will be able to use information from the 2021 return when confirming their identity with the CRA only if the code was provided on that return.

A return can be filed using NETFILE only where it is prepared using tax return preparation software which has been approved by the CRA. While such software can be found for sale just about everywhere at this time of year, approved software which can be used free of charge, or for a nominal charge, is also available. A listing of free and commercial software approved for use in preparing individual returns for 2021 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview/certified-software-netfile-program.html.

Taxpayers who want to obtain hard copy of the tax return and guide package for 2021 can order that package online, at https://apps.cra-arc.gc.ca/ebci/cjcf/fpos-scfp/pub/rdr?searchKey=ncp%20, to be sent to the taxpayer by regular mail. Taxpayers can also download and print hard copy of the return and guide from the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html. Finally, the CRA will have sent, by regular mail, hard copy of the 2021 tax return and guide package to anyone who paper-filed a return for 2020 before November 12, 2021. That package should have arrived by February 21, 2022; taxpayers who should have received such a package but did not can call the CRA Individual Income Tax Enquiries line at 1-800-959-8281 to follow up and, if necessary, to request that a package be sent by mail.

 A minority of taxpayers will have the option of filing their returns using a touch-tone telephone. That option, called File my Return service will be available to eligible lower-income Canadians whose returns are relatively simple and whose tax situation remains relatively unchanged from year to year. For such taxpayers, it is important to file, even if there is no income to report, so that they receive the benefits and credits to which they are entitled. The telephone filing option is, however, available only to taxpayers who are advised by the CRA of their eligibility for the File my Return service, and letters advising those individuals of their eligibility were sent out by the CRA in mid-February 2022.

Finally, taxpayers who are not comfortable preparing their own returns, but for whom the cost of engaging a third party to do so is a financial hardship, have another option. During tax filing season, there are a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers. Once again this year, most such clinics have had to change their usual in-person operation and adopt alternate methods. Volunteers can prepare an individual’s return, for free, by videoconference, by phone, or through document drop-off. A listing of the available clinics (which is updated regularly throughout the filing season) and their method of operation this tax season can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/free-tax-help.html.

While there are a number of filing options available to Canadian taxpayers, there’s no element of choice when it comes to the filing and payment deadlines for tax returns for 2021. The deadline for payment of any balance of taxes owed for 2021 is April 30, 2022. As April 30 falls on a Saturday this year, the CRA has announced that payments of 2021 taxes owed will be considered to have been made on time if they are made on or before Monday May 2, 2022. There are no exceptions to this deadline and, absent very unusual circumstances, no extensions are possible.

For the majority of Canadians, the tax return for 2021 must also be filed on or before April 30. Here again, the CRA has extended that deadline to provide that returns will be considered filed on time if they are filed on or before Monday May 2, 2022. Self-employed taxpayers and their spouses have until Wednesday June 15, 2022 to file their returns for 2021 (but they too must pay any balance of 2021 taxes owing on or before May 2, 2022).

A summary of filing and payment due dates for returns for the 2021 tax year can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/important-dates-individuals.html.

The Canadian tax system provides individual taxpayers with a tax credit for out-of-pocket medical and para-medical expenses incurred during the year. Given that such expenses must be incurred at some time by virtually every Canadian, that credit is among the most frequently claimed on the annual return. Unfortunately, however, the rules governing such claims are detailed, somewhat complex, and frequently confusing.

The Canadian tax system provides individual taxpayers with a tax credit for out-of-pocket medical and para-medical expenses incurred during the year. Given that such expenses must be incurred at some time by virtually every Canadian, that credit is among the most frequently claimed on the annual return. Unfortunately, however, the rules governing such claims are detailed, somewhat complex, and frequently confusing.

Taxpayers who wish to make a claim for the cost of medical expenses must make the following determinations. Which, if any, of the medical expenses incurred qualify for the medical expense tax credit? For what time period should the claim be made? What documentation, if any, is required to support the claim(s) being made? And, finally, which family member should make the claim?

Even the basic “formula” with respect to the amount of medical expenses which may be claimed is not straightforward. That basic rule is that a taxpayer can make a claim for qualifying medical expenses incurred in any 12-month period which ends during the taxation year, to the extent that the amount of such expenses exceeds 3% of net income or $2,421, whichever is less. Each component of that formula clearly requires some explanation.

Qualifying medical expenses

While Canada has a publicly funded medical care system, there is nonetheless a large (and growing) number of medical and para-medical expenses which must be paid for by the individual on an out-of-pocket basis. The more common such expenses include the costs of prescription drugs, dental care, physiotherapy, medical equipment, and ambulance transport.

However, it’s not the case that all such expenses can be claimed for tax purposes, or can be claimed in all circumstances. Where an expense does qualify, additional requirements may be imposed before a claim for such expense can be made. Finally, the question of whether an expense is claimable for tax purposes, and the requirements which must be met, aren’t necessarily intuitive.

To assist taxpayers in that regard, the Canada Revenue Agency (CRA) publishes a very lengthy list of medical expenses which do qualify, together with information on any additional requirements (such as a doctor’s prescription) which must be met in order to make such a claim. That listing can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html#mdcl_xpns.

What documentation is required to support claims made?

It’s obvious that the number and kind of different medical expenses which might be incurred by individuals over the course of the year is virtually limitless. In all cases, whatever the expense, the taxpayer must be prepared to support and document the nature and cost of each such expense, as well as the date on which it was incurred, with receipts. While such documentation does not have to be filed with the return, the CRA can request it from the taxpayer. And, where the supporting documentation cannot be provided, the expense claim will be denied.

For what time period should the claim be made?

While it might seem logical that only medical expenses incurred during 2021 could be claimed on the return for that year, the rules are actually more flexible than that. Specifically, those rules allow a claim to be made on the return for 2021 for qualifying medical expenses which are incurred in any 12-month period which ends during 2021.

Taking advantage of that rule requires the taxpayer to identify the 12-month period ending sometime in 2021 during which the greatest amount of qualifying medical expense was incurred.

It’s sometimes the case that it makes better sense, from a tax perspective, to not make a claim in the first year that that claim is available. Take, for instance a taxpayer who must incur significant costs for dental care, with such costs being incurred between November 2021 and March 2022. In order to maximize the claim to be made, it could make sense not to make a claim for the expenses incurred in the fall of 2021 on the 2021 return, but instead to wait and make a claim on the return for 2022 for all costs incurred between November 2021 and March 2022.

There is, unfortunately, no formula or rule of thumb which can be used to determine the optimal 12-month period for a medical expense claim in all circumstances. Rather, the taxpayer must determine, on a case-by-case basis, the optimal time period in their particular circumstances. Tax return preparation software can be helpful in this regard, by running what-if scenarios to determine the optimal tax result.

Who will make the claim?

Medical expenses incurred by either spouse or any of their minor children can be combined and claimed on a single return. In some circumstances, medical expenses paid by the taxpayer for other relatives may also be combined and included in the taxpayer’s claim.

Since only the amount of medical expenses which exceeds 3% of net income or $2,421 (whichever is less) can be claimed, it usually makes the most sense to combine family medical expenses and for a single claim for those combined expenses to be made by the lower income spouse, as long as that spouse has tax payable equal to at least the amount of the credit to be claimed.

It’s readily apparent that determining, calculating, and claiming the medical expense tax credit for a particular tax year isn’t an easy or straightforward process. To assist taxpayers in that process, the CRA publishes a guide to the rules which govern medical expense claims, and the most recent issue of that Guide — RC 4065, Medical Expenses — can be found on the CRA website at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4065/rc4065-21e.pdf.

While the requirement that Canadians file an income tax return each year never changes, the actual content of that return is never the same year to year. While many of the changes — like inflation-related increases to income tax brackets and credit amounts — happen automatically and don’t require any particular awareness or action on the part of the taxpayer, this is not the case with all tax changes. In some cases, taxpayers who aren’t aware of the changes can miss out on newly available or expanded tax deductions or credits, even if they are using tax preparation software to prepare their return. While the Canada Revenue Agency (CRA) will usually catch arithmetic errors made on a return, the Agency does not (and cannot) ensure that a taxpayer has made all of the claims which are available to him or her. And perhaps the only thing worse than having to pay a tax bill is paying one that is higher than it needs to be because available deductions or credits were missed.

While the requirement that Canadians file an income tax return each year never changes, the actual content of that return is never the same year to year. While many of the changes — like inflation-related increases to income tax brackets and credit amounts — happen automatically and don’t require any particular awareness or action on the part of the taxpayer, this is not the case with all tax changes. In some cases, taxpayers who aren’t aware of the changes can miss out on newly available or expanded tax deductions or credits, even if they are using tax preparation software to prepare their return. While the Canada Revenue Agency (CRA) will usually catch arithmetic errors made on a return, the Agency does not (and cannot) ensure that a taxpayer has made all of the claims which are available to him or her. And perhaps the only thing worse than having to pay a tax bill is paying one that is higher than it needs to be because available deductions or credits were missed.

This year, there are three tax or tax-related changes on the return for 2021 which are likely to affect a broad range of Canadians, and they are explained below.

Home office expenses

During the 2021 tax year, millions of Canadians continued to work from home, at least some of the time, for pandemic-related reasons. It has always been the case that employees who work from home and who meet certain criteria can deduct a portion of certain expenses related to the use of a home office — including internet usage fees and a portion of utilities costs and rent. In order to make such a claim, the employee must provide a specified form (the T2200 or T2200S) signed by his or her employer, indicating that the employee works from home and bears those costs, without reimbursement by the employer. To make the claim, the employee was also required to calculate the specific costs incurred and be prepared to provide documentation of those costs, if asked.

In view of the fact that millions of Canadians have been working from home for the first time during the past two years, and recognizing the somewhat onerous extent of record-keeping required to claim home office expenses, the federal government offered employees a choice in the form of a flat rate deduction. Using that method, an employee can claim a deduction of $2 for each day that he or she worked from home, to a maximum of $500 (for 2021), without the need to provide receipts or to obtain a T2200 from the employer. In order to qualify for the flat rate deduction, an employee must have worked more than 50% of the time from home for a period of at least four consecutive weeks for pandemic-related reasons. An employee who was offered the option of working from home and chose to do so will also qualify for the flat rate deduction.

Employees who worked from home during 2021 and meet the eligibility criteria under both the new flat rate and older detailed method can choose which one to use. Those who want to determine which method gives a better tax result can calculate their actual costs on a T777 (available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t777.html) and then decide which is the better option for them.

Detailed information on the two methods, including eligibility criteria and required documentation, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html.

Climate action incentive payment

In this case, the change is not a change to the tax rules, but rather the means by which, and the schedule on which, the tax benefit is delivered. Eligible taxpayers who live in Alberta, Saskatchewan, Manitoba, or Ontario can receive a tax-free Climate Action Incentive (CAI) payment, which is intended to help offset the impact of federal pollution pricing. For 2022, the basic amount of that incentive is $360, with higher amounts available to taxpayers who live in rural areas.

On the return for 2020, the CAI was claimed, and the payment delivered, as part of the tax filing process, with eligible taxpayers claiming the incentive by completing Schedule 14 of the return. Any incentive amount to which the taxpayer was entitled would then create or increase the refund owed to the taxpayer. Conversely, where the taxpayer owed money on filing, that tax bill would be reduced by the amount of any CAI to which the taxpayer was entitled.

On the return for 2021, most taxpayers do not need to complete Schedule 14 or make a specific claim for the CAI. The exception is taxpayers who live in rural areas, who must complete Schedule 14 in order to indicate their eligibility for the CAI rural supplement. For taxpayers who are not eligible for that rural supplement, the CRA will determine a taxpayer’s eligibility, and the amount of any CAI payable, based solely on information contained in the taxpayer’s return for the year. The major change, however, is that payment of the incentive to eligible taxpayers is not delivered as part of the tax filing process – in other words, it won’t create or increase a tax refund and it will not reduce any tax payment required on filing. That’s because, starting in 2022, the federal government intends to deliver the CAI as a quarterly benefit payment. Under that new system, one-quarter of the CAI for the year will be paid to eligible taxpayers in each of April, July, October, and December of the year. Since the information needed to determine a specific taxpayer’s eligibility will not be available until the return for 2021 is filed, the July 2022 payment will include a retroactive payment for April 2022 — it will, in effect, be a “double-up” payment, covering the first six months of 2022.

For 2022, the CAI is $360 for an adult, plus $180 for a spouse, plus $89 for each eligible child. More information on the CAI for 2022 is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/cai-payment.html.

Canada Workers’ Benefit

The CWB is a refundable tax credit provided to lower income working Canadians. The CWB is not new, but changes have been made for the 2021 tax year which both increase the amount of the benefit and expand its availability.

The CWB is claimed by completing and filing Schedule 6 of the annual tax return. And, while the calculations to be made on that Schedule are somewhat complex, the amounts which are available to eligible taxpayers (as set out on the CRA website) are:

• $1,395 for single individuals — the amount is gradually reduced if your adjusted net income is more than $22,944; no basic amount is paid if your adjusted net income is more than $32,244.
• $2,403 for families — the amount is gradually reduced if your adjusted family net income is more than $26,177; no basic amount is paid if your adjusted family net income is more than $42,197.

An additional amount (the CWB disability supplement) is also provided to taxpayers who are eligible for the federal disability tax credit.

The changes made to the CWB for 2021 will expand the number of taxpayers who are eligible for the credit. Consequently, taxpayers who were not eligible for the CWB in previous years would be well advised to complete Schedule 6 this year to determine whether, as the result of the change in the rules, they can now receive it.

Detailed information on the CWB for 2021 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/witb-eligibility.html.

The list of financial assistance programs that have been provided by the federal government to support individual Canadians through two years of the pandemic is lengthy, detailed, and sometimes confusing. Unfortunately for the Canadian taxpayer, however, every one of those programs has one thing in common — benefits received are taxable income which must be reported on the return for the year in which they were received, and on which tax must be paid.

The list of financial assistance programs that have been provided by the federal government to support individual Canadians through two years of the pandemic is lengthy, detailed, and sometimes confusing. Unfortunately for the Canadian taxpayer, however, every one of those programs has one thing in common — benefits received are taxable income which must be reported on the return for the year in which they were received, and on which tax must be paid.

While fewer Canadians claimed and received such benefits during 2021 (as compared to 2020) there are still millions of taxpayers who will need to report pandemic benefits received during the year. It is possible, as well, that an individual taxpayer would have received pandemic benefits under more than one program during 2021, as the Canada Recovery Program (which included multiple types of benefits) ended in the fall of 2021 and was replaced by the Canada Worker Lockdown Benefit. The possible benefit programs from which benefits might have been received during 2021 therefore include the Canada Emergency Response Benefit (CERB), the Canada Emergency Student Benefit (CESB), the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), the Canada Recovery Caregiving Benefit (CRCB), and the Canada Worker Lockdown Benefit (CWLB). And, while tax was withheld from payments made under some (but not all) of these benefit programs, the amount withheld was a flat amount of 10% of the benefit, which was likely less than the amount of tax which will ultimately be payable on the benefit amount. The rules on how to determine the amount in taxable benefits received and how to report them on the return for 2021 are outlined below.

The good news is that those who received pandemic benefits of any kind during 2021 will not have to remember which benefit(s) they received or how much the payments were. Rather, such individuals will receive T4A slips from the Canada Revenue Agency (CRA), and those slips will summarize the amount in benefits received from each program.

Taxpayers who are registered to use the CRA’s online services will be able to access their T4A slips on the CRA website. Those who do not will have paper copies of the T4A slips mailed to them by the end of February 2022.

T4A slips issued will show, in separate boxes, the amount of benefit received during 2021 under each pandemic relief program. As a practical matter, however, the specific type of benefit doesn’t really matter when it comes to taxation of those benefits, since taxpayers must add up all of the benefit amounts listed on the T4A and report the total amount as a single figure on line 13000 of the 2021 income tax return.

It's somewhat confusing that line 13000 on the return doesn’t actually refer to pandemic benefits; rather, it is a line on which “other income” is reported. While there is a space on Line 13000 of the return on which taxpayers can specify the type(s) of “other income” being reported, filing instructions provided on the CRA website state only that taxpayers should “[E]nter the total amount you received on line 13000 of your tax return. If you are filing a paper return, specify the type of income you are reporting. Attach a list if you received more than one benefit.”

Among all of the benefit programs provided, tax was withheld from all benefits under the CRB, the CRSB, the CRCB, and the CWLB. Taxpayers who received such benefits will find an amount listed in Box 22 on the T4A. That number, which represents the amount of tax which the benefit recipient has already paid on those benefits, should be entered on Line 43700 of the return.

Taxpayers who received the Canada Recovery Benefit during 2021 and who had net income for the year of more than $38,000 may find themselves in the unenviable position of having to repay some of the CRB amounts received. The repayment rate is 50 cents of benefits received for every dollar of net income over the $38,000 threshold, to a maximum amount of total CRB benefits received. Where a taxpayer is preparing his or her return using tax preparation software, that software should do any required repayment calculation automatically and include any repayment amount in the total of tax payable for the year. Taxpayers completing a paper return will need to calculate any required repayment amount using a Worksheet (in the section under Social Benefits Repayment), which can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package/5000-d1.html.

While the number of different benefit programs under which benefits might have been received during 2021 is numerous, and the rules governing eligibility were certainly complex, reporting those benefits for tax purposes is really just a two-step process for taxpayers. First, add up all benefit amounts which appear in Boxes 197 to 199, Box 200, Box 211, and Boxes 202 to 204 on the T4A slip which was received. Take the total amount of such benefits and enter it on Line 13000 of the return. Next, if there is an amount appearing in Box 22 of the T4A, that number should be entered on Line 43700 of the return.

Detailed information on the taxation of pandemic benefits and how to report that income on the return can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes/t4a-report/report-amounts.html#h-1.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency (CRA). That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 15 of this year.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency (CRA). That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 15 of this year.

Receiving an Instalment Reminder from the CRA won’t be a surprise for many recipients who have paid tax by instalments during previous tax years. For others, however, the need to make tax payments by instalment is a new and unfamiliar concept. That’s because for most Canadians — certainly most Canadians who earn their income through employment — the payment of income tax throughout the year is an automatic and largely invisible process, requiring no particular action on the part of the employee/taxpayer. Federal and provincial income taxes, along with Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, are deducted from each employee’s income and the amount deposited to an employee’s bank account is the net amount remaining after such taxes, contributions, and premiums are deducted and remitted on the employee’s behalf to the CRA. While no one likes having to pay taxes, having those taxes paid “off the top” in such an automatic way is, relatively speaking, painless. Such is not, however, the case for the sizeable minority of Canadians who pay their income taxes by way of tax instalments.

The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an instalment reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2022) tax year and either of the two previous (2020 or 2021) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income throughout the year is at least $3,000 less than their total tax owed for 2022 and either 2020 or 2021. For residents of Quebec, that threshold amount is $1,800.

Such obligation arises on a regular basis for those who are self-employed, or course, and generally for those whose income is largely derived from investments. The group of recipients of a tax instalment reminder often also includes retired Canadians, especially the newly retired, for two reasons. First, while most employees have income from only a single source — their paycheque — retirees often have multiple sources of income, including Canada Pension Plan (CPP) and Old Age Security (OAS) payments, private retirement savings and, sometimes, employer-provided pensions. And, while income tax is deducted automatically from one’s paycheque, that’s not the case for most sources of retirement income. Relatively few new retirees realize that it’s necessary to make arrangements to have tax deducted “at source” from either their government source income (like CPP or OAS payments) or private retirement income like pensions or registered retirement income fund withdrawals, and to make sure that the total amount of those deductions is sufficient to pay the total tax bill for the year. It is that group of individuals, who may be surprised and puzzled by the arrival of an unfamiliar “Instalment Reminder” from the CRA. However, no matter what kind of income a taxpayer has received, or why sufficient tax has not been deducted at source, the options open to a taxpayer who receives such an Instalment Reminder are the same.

First, the taxpayer can pay the amounts specified on the Reminder, by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2022. If the total of instalment payments made during 2022 turn out to more than the taxpayer’s total tax liability for the year, they will of course receive a refund when the annual tax return is filed in the spring of 2023.

Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2021 tax year. Where a taxpayer’s income has not changed significantly between 2021 and 2022 and their available deductions and credits remain the same, the likelihood is that total tax liability for 2022 will be slightly less than it was in 2021, as the result of the indexation of both income tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which they will owe for 2022 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2021 to 2022, such that their tax bill will also be substantially reduced, this option can make the most sense.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no additional tax payable when the return for the 2022 tax year is filed in the spring of 2023. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2022 — until March 31, 2022 — is 5%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.

Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer’s best interests. Those who don’t wish to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the Reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required, and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above.

To help taxpayers make a decision on how to respond to an Instalment Reminder, detailed information on the instalment payment system is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-income-tax-instalments.html.

Income tax is a big-ticket item for most retired Canadians. Especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

Income tax is a big-ticket item for most retired Canadians. Especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

There is, however, another income tax saving strategy which is not nearly as well-known. Even more unfortunate is the fact that the benefits of that strategy (and the ease with which it can be accomplished) aren’t readily apparent from either the tax return form or the annual income tax guide. That tax saving strategy is pension income splitting and it’s likely the case that many taxpayers who could benefit aren’t familiar with the strategy, especially if they are not receiving professional tax planning or tax return preparation advice.

That’s a particularly unfortunate reality because pension income splitting has the potential to generate more tax savings among taxpayers over the age of 65 (and certainly those over the age of 71, for whom RRSP contributions are no longer possible) than just about any other tax planning strategy available to retirees. In addition, it’s one of the very few tax planning strategies which requires no expenditure of funds on the part of the taxpayer, and which can be implemented after the end of the tax year, at the time the return for that tax year is filed.

When described in those terms, pension income splitting can sound like one of those “too good to be true” tax scams, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for Canadian residents who are married (and, usually, where recipient spouse is aged 65 or older) to make a notional reallocation of private pension income between them on their annual tax returns, and to benefit from a lower overall family tax bill as a result.

Pension income splitting, like all forms of income splitting, works because Canada has what is called a “progressive” tax system, in which the applicable tax rate goes up as income rises. For 2021, the federal tax rate applied to about the first $49,000 of taxable income is 15%, while the federal rate applied to approximately the next $49,000 of such income is 20.5%. So, an individual who has $98,000 in taxable income would pay federal tax of about $17,395: if that $98,000 was divided equally between such individual and their spouse, each would have $49,000 in taxable income and federal tax payable of $7,350 each. The total federal family tax bill would be $14,700.

The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to their spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Government source pensions, like the Canada Pension Plan, Quebec Pension Plan, or Old Age Security payments do not qualify for pension income splitting, regardless of the age of the recipient.

The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income for 2021, with their annual tax return. That form, which is not included in the annual tax return package, can be found on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1032.html, or can be ordered by calling 1-800-959-8281.

On the T1032, the taxpayer receiving the private pension income and the spouse with whom that income is to be split must make a joint election to be filed with their respective tax returns for 2021. Since the splitting of pension income affects the income and therefore the tax liability of both spouses, the election must be made and the form filed by both spouses — an election filed by only one spouse or the other won’t suffice. In addition to filing the T1032, the spouse who is actual recipient of the pension income to be split must deduct from income the pension income amount allocated to their spouse. That deduction is taken on Line 21000 of their 2021 return. And, conversely, the spouse to whom the pension income amount is being allocated is required to add that amount to their income on the return, this time on Line 11600. Essentially, to benefit from pension income splitting, all that’s needed is for each spouse to file a single form with the CRA and to make a single entry on their 2021 tax return.

By the end of February or early March, taxpayers will have received (or downloaded) the information slips which summarize the income received from various sources during 2021. At that time, couples who might benefit from this strategy can review those information slips and calculate the extent to which they can make a dent in their overall tax bill for the year through a little judicious pension income splitting.

Those wishing to obtain more information on pension income splitting than is available in the 2021 General Income Tax and Benefit Guide should refer to the CRA website at http://www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available.

If there is one invariable “rule” of financial and retirement planning of which most Canadians are aware, it is the unquestioned wisdom of making regular contributions to one’s registered retirement savings plan (RRSP). And it is true that for several decades the RRSP was only tax-sheltered savings and investment vehicle available to most individual Canadians.

If there is one invariable “rule” of financial and retirement planning of which most Canadians are aware, it is the unquestioned wisdom of making regular contributions to one’s registered retirement savings plan (RRSP). And it is true that for several decades the RRSP was only tax-sheltered savings and investment vehicle available to most individual Canadians.

In 2009, however, that reality changed with the introduction of Tax-Free Savings Accounts (TFSAs). Since then, taxpayers have had a choice of which savings and investment vehicle better meets their short-term and long-term tax and personal finance objectives, and this is the time of year when most Canadians must make that choice.

It should be said that there’s nothing wrong, and a lot right, with making the maximum allowable contribution to both of one’s TFSA and RRSP every year. However, doing both assumes the availability of a level of discretionary income that just isn’t the financial reality in which most Canadians live and plan. In addition, there are circumstances in which making a contribution to one type of plan or the other is clearly the better choice, and sometimes the only choice. Some of those circumstances are as follows.

For Canadians over the age of 71, there is no choice. All individual Canadians must collapse their RRSPs by the end of the year in which they turn 71, and no RRSP contributions can be made after that time. A TFSA is the only tax-sheltered savings vehicle to which taxpayers over age 71 can contribute. Many of those taxpayers, however, have transferred their RRSP savings to a registered retirement income fund (RRIF) and are required to withdraw a specified percentage of funds from that RRIF each year. For taxpayers who are in the fortunate position of having such income in excess of current cash flow needs, that excess can be contributed to a TFSA. While the RRIF withdrawals must still be included in income and taxed in the year of withdrawal, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn in the future from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.

The minority of working taxpayers who are members of registered pension plans (RPPs) will also likely find savings through a TFSA the better or even the only option. The maximum amount which can be contributed to an RRSP in a given year is generally 18% of the previous year’s income, to a specified dollar amount ceiling. However, any allowable contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under their pension plan. Where the RPP is a particularly generous one, RRSP contribution room may be minimal, or even non-existent, and a TFSA contribution the logical alternative.

At the other end of the age spectrum, younger Canadians whose savings goals are likely more short-term are usually better off saving through a TFSA. Where savings are being accumulated for an expenditure which is likely to occur within the next five years (e.g., putting together money for a new car or for a down payment), the TFSA is clearly the better choice. Taxpayers in that situation are sometimes tempted to make an RRSP contribution instead, in order to get a tax refund, and then to withdraw the funds when the planned expenditure is to be made. However, while choosing that option will provide a deduction on this year’s return and probably generate a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP a year or two later. And, more significantly from a long-term point of view, using an RRSP in this way will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn from the plan cannot be replaced. While the amounts involved may seem small, the loss of compounding on even a relatively small amount over 25 or 30 years can make a significant dent in one’s ability to save for retirement.

The greatest tax benefit of contributing to an RRSP is realized when contributions are made when income (and therefore tax payable) is high, and the intention is to withdraw those funds when both income and the rate of tax payable on that income is lower. Where that’s not the case, saving through a TFSA can make more sense, as in the following situations.

Taxpayers who are expecting their income to rise significantly within a few years — e.g., students in post-secondary or professional education or training programs — can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, allowing the funds to compound on a tax-free basis, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted against income which would be taxed at the much higher rate, generating a tax savings. And, if a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

Lower income taxpayers, for whom there isn’t likely to be a great difference between pre-retirement and post-retirement income are likely better off saving through a TFSA. That’s especially the case where those taxpayers may be eligible in retirement for means-tested government benefits like the Guaranteed Income Supplement or tax credits like the GST/HST credit or age credit. Withdrawals made from an RRSP or RRIF during retirement will be included in income for purposes of determining eligibility for such benefits or credits, and lower-income taxpayers could find that such withdrawals have pushed their income to a level which reduces or eliminates their eligibility. On the other hand, monies withdrawn from a TFSA are not included in income for the purpose of determining eligibility for any government benefits or tax credits, so saving through a TFSA will ensure that receipt of such benefits is not put at risk.

As is the case with most tax and financial planning questions, there isn’t a universal right or wrong answer when it comes to decisions on contributing to a TFSA and/or an RRSP. What is certain, however, is that the best choice for any individual is the one which takes account of their particular tax and financial realities and prospects — both current and future.

As the pandemic continued past 2020 and through 2021, it is likely that employees who were able to work from home spent at least part of the 2021 tax year doing just that. And, as was the case in 2020, those workers may be entitled to claim a deduction on their 2021 tax return for home office expenses incurred.

As the pandemic continued past 2020 and through 2021, it is likely that employees who were able to work from home spent at least part of the 2021 tax year doing just that. And, as was the case in 2020, those workers may be entitled to claim a deduction on their 2021 tax return for home office expenses incurred.

Employees who work from home have always, assuming the requisite criteria are satisfied, been able to claim a portion of household expenses incurred. Doing so required the employee to obtain certification from the employer of the work from home arrangement, calculate household expenses incurred, determine the portion of such expenses which were attributable to the home office, and to claim that amount on the annual return. For 2020, however, the Canada Revenue Agency (CRA), recognizing the greatly increased number of taxpayers who would be claiming home office expenses for the first time, provided a new, temporary “flat rate” method of calculating the deduction for such expenses. The CRA has indicated that that flat rate method will continue to be allowed for both 2021 and 2022.

Although the flat rate method is widely available, taxpayers who wish to do so and who qualify are still entitled to use the pre-existing detailed method under which actual eligible expenses incurred during the year are tallied and a percentage of those expenses claimed on the 2021 tax return.

In order to claim a deduction for costs related to a work from home space using the detailed method, an employee must meet at least one of the following conditions:

• the employee worked from home during 2021 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); or
• the employee was required by their employer to work from home during 2021.

In addition, at least one of the following criteria must also be satisfied in order to claim work from home costs under the detailed method:

• the work at home space is where the individual mainly (more than 50% of the time) did their work for a period of at least four consecutive weeks during 2021; or
• the individual uses the workspace only to earn their employment income; they must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of their employment duties.

Once these threshold criteria are met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to their work space, such as rent, utilities costs like electricity, heating, water (or the portion of a condo fee attributable to such utilities costs), home maintenance, and minor repair costs and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses, and the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the work space is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html.

In all cases, the CRA can ask the taxpayer to provide documentation and support for claims made using the detailed method.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method. Each such employee must obtain either a Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, or Form T2200, Declaration of Conditions of Employment. On those forms, the employer must certify the work from home arrangement and confirm that the employee is required to pay their own home office expenses and is not being reimbursed for any such expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.

While the detailed method outlined above can create substantial deductions for employees who work from home, it is apparent that making such a claim involves considerable record keeping and paperwork. Taxpayers who would prefer not to undertake that task can instead avail themselves of the flat rate method.

Conversely, in order to claim a deduction for costs related to a work from home space using the flat rate method, an employee must meet the following conditions:

• the employee worked from home during 2021 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); and
• the employee worked from home for more than 50% of the time for a period of at least four consecutive weeks during 2021.

In addition, the following criteria must both be satisfied:

• the employee is not claiming any employment expenses other than home office expenses; and
• the employer did not reimburse all of the employee’s home office expenses for the year; where the employer reimburses only a portion of such expenses, the employee may still make a claim under the flat rate method, assuming the other criteria are met.

A taxpayer who meets all of the criteria for using the flat rate method can claim $2 for each day they worked from home during the four-consecutive-week qualifying period. They can then claim $2 per day for any additional days of working from home during the year. However, there is an overall cap on the amount of home office expenses which can be claim under the flat rate method. For 2021 the maximum which can be claimed is $500. There is no requirement that the employee obtain a T2200 or a T2200S from the employer in order to make a flat rate claim, and no requirement that the employee keep or provide receipts for any costs incurred.

There is no general rule of thumb which can be used to determine whether the flat rate method or the detailed method will give a better tax result — that determination can only be made where the available deduction is calculated under each method and a comparison made of the result. Taxpayers who don’t want to undertake that effort (or don’t have the records needed to calculate or support such a claim using the detailed method) and who meet the required criteria for the flat rate method can simply multiply the number of work-from-home days (up to a maximum of 250 days, or $500.) and claim the resulting figure on line 22900 of the 2021 tax return.

While calculating the expenses which qualify for a home office expense deduction isn’t particularly complicated, the eligibility criteria for the deduction and determining the percentage of expenses eligible for that deduction can be detailed, especially as the range of work from home arrangements and work from home work spaces is almost limitless. The CRA has provided on its website a very helpful summary of both the general rules for claiming home office expenses for 2021, as well as guidance with respect to particular situations — e.g., where two spouses share the same home office space. That information and guidance (including an FAQ document) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html.

The Employment Insurance premium rate for 2022 is unchanged at 1.58%.

The Employment Insurance premium rate for 2022 is unchanged at 1.58%.

Yearly maximum insurable earnings are set at $60,300, making the maximum employee premium $952.74.

As in previous years, employer premiums are 1.4 times the employee premium. The maximum employer premium for 2022 is therefore $1,333.84.

The Quebec Pension Plan contribution rate for 2022 is set at 6.15% of pensionable earnings for the year.

The Quebec Pension Plan contribution rate for 2022 is set at 6.15% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $64,900, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2022 will be $3,776.10 each.

The Canada Pension Plan contribution rate for 2022 is set at 5.7% of pensionable earnings for the year.

The Canada Pension Plan contribution rate for 2022 is set at 5.7% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $64,900, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2022 will be $3,499.80 each, and the maximum self-employed contribution will be $6,999.60.

Dollar amounts on which individual non-refundable federal tax credits for 2022 are based, and the actual tax credit claimable, will be as follows:

Dollar amounts on which individual non-refundable federal tax credits for 2022 are based, and the actual tax credit claimable, will be as follows:

                                                                       Credit amount                        Tax credit

Basic personal amount*                                         14,398                               2,159.70

Spouse or common law partner amount*                14,398                              2,159.70

Eligible dependant amount*                                   14,398                               2,159.70

Age amount                                                           7,898                               1,184.70

Net income threshold for erosion of age credit         39,826

Canada employment amount                                  1,287                                 193.05

Disability amount                                                  8,870                                1330.50

Adoption expenses credit                                      17,131                              2,569.65

Medical expense tax credit

Income threshold amount                                      2,479

*For taxpayers having net income for the year of more than $155,625, amounts claimable for the basic personal amount, the spousal amount, and the eligible dependant amount for 2022 may differ.

The indexing factor for federal tax credits and brackets for 2022 is 2.4%. The following federal tax rates and brackets will be in effect for individuals for the 2022 tax year.

The indexing factor for federal tax credits and brackets for 2022 is 2.4%. The following federal tax rates and brackets will be in effect for individuals for the 2022 tax year.

Income level                                            Federal tax rate

$14,398 – $50,197                                        15%

$50,198 – $100,392                                     20.5%

$100,393 – $155,625                                    26%

$155,626 – $221,708                                    29%

Over $221,708                                              33%

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #58 Corporate

Personal:

Issue #58 Personal

The past 18 months have been characterized by a steady stream of mostly bad news, relating to the pandemic and its harmful consequences. The human cost of the pandemic, in terms of illness and death, is paramount. But the reality is also that much economic and financial harm resulted, at an individual, community, and national level, as businesses closed and individuals lost jobs or saw their hours — and consequently their income — reduced.

The past 18 months have been characterized by a steady stream of mostly bad news, relating to the pandemic and its harmful consequences. The human cost of the pandemic, in terms of illness and death, is paramount. But the reality is also that much economic and financial harm resulted, at an individual, community, and national level, as businesses closed and individuals lost jobs or saw their hours — and consequently their income — reduced.

However, an exception to that steady stream of economic and financial bad news came recently in the form of a Statistics Canada report on state of Canadians’ indebtedness.

The rise in personal debt over the past 15 years, as individuals and families took advantage of record low interest rates, has been a source of concern to both financial advisers and the government. One measure of the indebtedness of an individual or family is the debt-to-income ratio, which measures the amount of debt (secured and unsecured) as a percentage of household income. In 2005, the debt-to-income ratio of the average household was 93%. By the end of 2019 that ratio had climbed to more than 180%.

As well, in the two decades prior to the pandemic, credit card debt of Canadians had risen, on average, by 20.7% each year. By the beginning of 2020, the outstanding balance of credit card debt owed by Canadians had reached $90.6 billion.

As outlined in the Statistics Canada report, that picture changed dramatically from the beginning of 2020 to the start of 2021. Over that period, the outstanding balance carried on credit cards fell from $90.6 billion to $74 billion, an 18.3% decline in less than one year. 

The StatsCan report, which can be found on its website at https://www150.statcan.gc.ca/n1/daily-quotidien/210823/dq210823c-eng.htm, attributes that change to two circumstances. As stated in the report “Canadian households began to see their disposable income rise during the pandemic, due in part to the limited opportunities to spend money during the lockdowns as well as the monetary support provided by governments …. to offset lost wages.” And, perhaps the best news of all is that the largest reductions in debt loads were seen in Canadians who had the lowest credit ratings.

Getting a post-secondary education, especially where that education includes graduate school or professional training, is an expensive undertaking. According to Statistics Canada, the average undergraduate tuition cost for the 2020-21 academic year was $6,580. Costs for graduate programs, particularly professional training, can go much higher, reaching as much as $50,000 per year. And those costs don’t factor in necessary expenditures on textbooks and other ancillary costs, to say nothing of general living expenses, like rent, transportation, and food.

Getting a post-secondary education, especially where that education includes graduate school or professional training, is an expensive undertaking. According to Statistics Canada, the average undergraduate tuition cost for the 2020-21 academic year was $6,580. Costs for graduate programs, particularly professional training, can go much higher, reaching as much as $50,000 per year. And those costs don’t factor in necessary expenditures on textbooks and other ancillary costs, to say nothing of general living expenses, like rent, transportation, and food.

What that means, in most cases, is that Canadians who want to pursue post-secondary education must go into debt to do so.  Financing through a bank loan or line of credit is possible, but most students who need financial assistance receive that assistance through a federal government program — the Canada Student Loan (CSL) program — as well as loan or grant programs provided by the particular province or territory in which the student resides.

Using a government-sponsored loan program to finance education has a number of advantages. Under the CSL program, any loans provided do not accrue interest while the recipient student is still in school and no repayment of the loan is required during that time. However, interest starts accruing once the student has graduated and, six months after graduation, those who received loans under the CSL program are required to make arrangements for repayment. Consequently, CSL loan recipients who graduated in the spring of 2021 must now consider what arrangements they wish to make for repayment of loan amounts received.

The onus is on the loan recipient to contact the CSL center to make required arrangements for repayment, and failing to do so will not delay repayment. In such cases, the federal government, as the loan issuer, has the right to automatically withdraw loan repayments from the same bank account where the loans were originally deposited.

While interest usually starts accruing as soon as the student has graduated, that’s not the case right now. As part of its pandemic relief measures, the federal government has suspended the accumulation of interest on Canada Student Loans, effective as of April 2021 and lasting until March 31, 2023. So, while graduates are still required to begin repayment of their loans no more than six months after graduation, those repayments will, at least until April 2023, not include an interest component. Once interest is levied on a loan, loan recipients can choose between a fixed interest rate on their loan (meaning that the interest rate stays the same until the loan is fully repaid) or a variable/floating rate of interest, which will change with changes in the prime rate.

The choice of whether to select a fixed or floating interest rate is, obviously, an individual one, which must take into account the size of the loan, the time period over which the borrower expects to make full repayment and, of course, one’s views on whether interest rates will be rising or falling over that expected repayment period.

Whatever the interest rate chosen or levied, borrowers who pay that interest can claim, on Line 31900 of the federal tax return, a student loan interest tax credit to help offset those costs. The student loan interest tax credit is a non-refundable credit, meaning that it applies to reduce any federal tax payable, but cannot create or increase a refund. That federal tax reduction is equal to 15% of the interest amount claimed, and interest amounts eligible for the credit are those paid in the current tax year or any of the previous five tax years, without limit. And, finally, the student loan interest tax credit can be claimed only by the former student who received the government student loan.

These criteria require former students who are eligible for the credit to consider the following factors in deciding whether to claim the credit, and in what amount.

• Individuals who do not have tax payable for the year will not benefit from claiming the student loan interest tax credit, as there is no tax which the credit can reduce.
• Individuals who have other available tax credits which must be claimed in the year the related expense is incurred should claim those credits first, as the student loan tax credit can be carried forward and claimed in any of the five years after the interest has been paid.
• Where the individual has remaining tax payable in the current year after all other available tax credits have been claimed, the student loan interest tax credit should be claimed only to the extent necessary to reduce tax payable to zero. Any additional claim should be carried forward to a future year or years where it is needed to reduce tax payable.

There is, as well, a very important caveat. Once a student has graduated (especially from a professional training program like law or medicine), financial institutions will frequently offer to loan that student sufficient funds to allow the former student to consolidate all outstanding debts which were incurred to finance his or her education. Often the interest rate to be provided is a preferential one, and can even be lower than the rate which the student borrower would pay under the CSL program.

That preferential interest rate, however, has a “cost” of which most graduates are unaware. The student loan interest tax credit is available only for interest paid on government-sponsored student loans. Borrowers cannot claim interest paid on any other kind of loan, even where that loan was used for financing post-secondary education. As well, no credit can be claimed for interest paid on an otherwise qualifying student loan that has been combined with any other kind of loan. If the borrower has obtained a loan from a bank or other financial institution, or has consolidated such a loan with government student loans which would otherwise qualify for the credit, none of the interest paid on that loan or consolidated loan will qualify for the student loan interest tax credit.

Consequently, borrowers who are considering a loan offer from a financial institution must include in their calculations not only the difference in interest rates, but whether any lower interest rate offered by the financial institution will compensate for the loss of any claim for the student loan interest tax credit.

When things work out after graduation in the way everyone hopes they will, the former student will have secured employment at an income sufficient to make repayment of student borrowings possible. Where that’s not the case, and the borrower cannot make repayment as required because of financial hardship, it is possible to reduce the required monthly repayment through the Repayment Assistance Program. Details of that program, and much more information on the Canada Student Loan Program generally, can be found on the federal government website at https://www.canada.ca/en/services/benefits/education/student-aid/grants-loans/repay/assistance/rap.html.

There are a number of income sources available to Canadians in retirement. Those who participated in the work force during their adult life will have contributed to the Canada Pension Plan (CPP) and will be able to receive CPP retirement benefits as early as age 60. Earning employment or self-employment income will also have entitled those individuals to contribute to a registered retirement savings plan (RRSP). A shrinking minority of Canadians will be able to look forward to receiving benefits from an employer-sponsored pension plan.

There are a number of income sources available to Canadians in retirement. Those who participated in the work force during their adult life will have contributed to the Canada Pension Plan (CPP) and will be able to receive CPP retirement benefits as early as age 60. Earning employment or self-employment income will also have entitled those individuals to contribute to a registered retirement savings plan (RRSP). A shrinking minority of Canadians will be able to look forward to receiving benefits from an employer-sponsored pension plan.

Each of those income sources requires that an individual have made contributions during his or her working life in order to enjoy benefits in retirement; the fourth major source of retirement income for Canadians — the Old Age Security (OAS) program — does not. Entitlement to OAS is based solely on the number of years of Canadian residence, and individuals who are resident in Canada for 40 years after the age of 18 can receive full OAS benefits. As of the third quarter of 2021, those full OAS benefits are equal to $626.49 per month.

The OAS program is distinct from other sources of retirement income in another, less welcome way, in that it is the only such income source for which the federal government can require repayment by the recipient. That repayment requirement comes about through the OAS “Recovery Tax”, which is universally known as the OAS “clawback”.

While the rules governing the administration of the clawback can be confusing, the concept is a (relatively) simple one. Anyone who receives OAS benefits during the year and has income for that year of more than (for 2021) $79,845 must repay a portion of the benefits received benefits. That repayment, or clawback is administered by reducing the amount of OAS benefits which the individual receives during the next benefit year.

For example, an individual who receives full OAS during 2021 and has net income for the year of $85,000 will be subject to the clawback. He or she must repay OAS amounts received at a rate of 15 cents (or 15%) of every dollar of income over the clawback income threshold, as in the following simplified example:

Total OAS benefit for the year — $7,500

Total income for the year — $85,000

OAS income clawback threshold — $79,845

Income over clawback threshold — $5,155 × 15% = $773.25

Repayment amount required — $773.25

The federal government becomes aware of an individual’s income for 2021 only once the tax return for that year is filed, usually by April 30 of 2022. At that time, it will become apparent that $773.25 in OAS benefits received must be repaid. Consequently, in the following benefit year (which will run from July 2022 to June 2023), OAS benefits received will be reduced by $64.44 per month ($773.25 ÷ 12 months).

The OAS clawback affects only individuals who have an annual income of at least $79,845, and it’s arguable that at such income levels, the clawback requirement does not impose any real financial hardship. Nonetheless, the OAS clawback is a perpetual irritant to those affected, perhaps because of the sense that they are being penalized for being disciplined savers, or good managers of their finances during their working years, in order to ensure a financially comfortable retirement.

While any sense of grievance can’t alter the reality of the OAS clawback, there are strategies which can be put in place to either minimize or, in some cases, entirely eliminate one’s exposure to that clawback. Some of those planning considerations are better addressed earlier in life, prior to retirement, However, it’s not too late, once one is already receiving OAS, to make arrangements to avoid or minimize the clawback.

In all cases, no matter what strategy is employed, the goal is to “smooth” one’s income from year to year, so that net income for each year comes in under the OAS clawback threshold and, not incidentally, minimizes exposure to the higher federal and provincial income tax rates which apply once income exceeds around $100,000.

The starting point, for taxpayers who are approaching retirement, is to determine how much income will be received from all sources during retirement, based on CPP and OAS entitlement, any savings accrued through an RRSP and any amounts which may be received from a private pension plan. Anyone who has an RRSP must begin receiving income from that RRSP in the year after that person turns 71. However, it’s possible to begin receiving income from an RRSP at any time. Similarly, an individual who is eligible for CPP retirement benefits can begin receiving those benefits anytime between age 60 and age 70, with the amount of monthly benefit receivable increasing with each month receipt is deferred. The same calculation applies to OAS benefits, which can be received as early as age 65 or deferred up until age 70.

Once the amount of annual income is determined, strategies to smooth out that income can be put in place. Those strategies can include receiving income from an RRSP prior to age 71, so as to reduce the total amount within the RRSP and so thereby reduce the likelihood of having a large “bump” in income when required withdrawals kick in at that time.

Taxpayers are sometimes understandably reluctant to take steps which they view as depleting their RRSP savings, but receiving income from an RRSP doesn’t mean spending that income. While tax has to be paid on any withdrawals (no matter what the taxpayer’s age), the after-tax amounts can be contributed to the taxpayer’s tax-free savings account, where they can compound free of tax. And, when the taxpayer has need of those funds, in retirement, they can be withdrawn free of tax and, they won’t count as income for purposes of the OAS clawback.

Taxpayers who are married can also “even out” their income by using pension income splitting, so that neither of them has sufficient income to be affected by the clawback. Using pension income splitting, the spouse who has income over the OAS clawback threshold re-allocates the “excess” income to his or her spouse on the annual return, and that income is then considered to be income of the recipient spouse, for purposes of both income tax and the OAS clawback. To be eligible for pension income splitting, the income to be reallocated must be private pension income, which is generally income from an RRSP or registered retirement income fund (RRIF), or from an employer-sponsored pension plan.

There are two reasons why pension income splitting is a particularly attractive strategy for avoiding or minimizing the OAS clawback. First, there is no need to actually change the source or amount of income received by each spouse, as the reallocation of income is “notional”, existing only the return for the year. Second, no decision has to be made on pension income splitting until it’s time to file the return for the previous year, meaning that spouses can easily calculate exactly how much income has to be reallocated in order to avoid the clawback, and to reduce tax liability generally. More information on the kinds of income eligible for pension income splitting, and the mechanics of the process, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html.

To win elections, politicians need votes. And to run the election campaigns needed to garner those votes, they need an organization, volunteers, and money — a lot of money. To wage the current federal election, the major political parties will need to raise and spend millions of dollars. Their task of raising that money is undoubtedly made somewhat easier by the fact that Canadian taxpayers who donate money to political parties or candidates can obtain some tax benefit from doing so.

To win elections, politicians need votes. And to run the election campaigns needed to garner those votes, they need an organization, volunteers, and money — a lot of money. To wage the current federal election, the major political parties will need to raise and spend millions of dollars. Their task of raising that money is undoubtedly made somewhat easier by the fact that Canadian taxpayers who donate money to political parties or candidates can obtain some tax benefit from doing so.

Individuals who donate to the political party or candidate of their choice may or may not be happy with the outcome of the election, but no matter which registered party or candidate they donated to, it will be possible for them to claim a federal tax credit for those donations when they file their returns for 2021 next spring.

The credit provided under the Income Tax Act is available with respect to funds contributed to either a registered political party or to candidates running in a federal election. Contributions can be made at any time, not just during an election campaign, as long as the donation is received by an official candidate or a registered federal political party or association.

While the parties which currently hold seats in the House of Commons are, of course, the most well-known, there are in fact 20 political parties registered and in good standing with Elections Canada for purposes of the 2021 federal election. They are as follows, in alphabetical order:

• Animal Protection Party of Canada
• Bloc Québécois
• Canada's Fourth Front
• Canadian Nationalist Party
• Christian Heritage Party of Canada
• Communist Party of Canada
• Conservative Party of Canada
• Free Party Canada
• Green Party of Canada
• Liberal Party of Canada
• Libertarian Party of Canada
• Marijuana Party
• Marxist-Leninist Party of Canada
• Maverick Party
• National Citizens Alliance of Canada
• New Democratic Party
• Parti pour l'Indépendance du Québec
• Parti Rhinocéros Party
• People's Party of Canada
• Veterans Coalition Party of Canada

Donations to any one of these registered parties, within prescribed limits, would qualify for the federal political contribution tax credit.

Official candidates can, of course, be running either as candidates for one of the registered parties or as independents. Elections Canada provides a list of confirmed candidates who are running in this year’s federal election and that information can be found on the Elections Canada website at https://www.elections.ca/scripts/vis/FindED?L=e&PAGEID=20.

The federal political tax credit is calculated as a percentage of donations given. However, the credit percentage decreases as contributions amounts increase, and no credit at all is given for donations in excess of $1,275. The credit percentages allowed at different contribution levels are as follows:

The maximum credit claimable in any taxation year by a single taxpayer is $650. Once the arithmetic is worked out, it becomes clear that the maximum credit obtainable is reached once contribution levels reach $1,275.

Contribution amount             Allowable tax credit

$400 × 75% =                                   $300

$350 × 50% =                                   $175

$525 × 33.3% =                                $175          

$1,275                                              $650

Where donations exceed $1,275 in any one taxation year, no tax credit can be claimed on the “excess” donation. As well, there is no provision which allows the taxpayer to carry over any “excess” contributions to a subsequent taxation year, meaning that no credit will ever be obtainable with respect to those “excess” contributions.

Many Canadians who are committed to a particular political party or candidate volunteer their time during a nomination or election campaign — canvassing for the candidate, putting up election signs, or telephoning voters to encourage them to vote for the candidate. However, in such cases, the work must be its own reward, as no income tax receipts can be issued for most such non-monetary contributions and consequently no credit can be claimed for the value of any non-monetary contribution (including volunteer hours) donated.

Where a qualifying contribution is made, an official receipt must be issued in order for the tax credit to be claimed. A receipt must be issued, in paper or electronic format, for every contribution over $20.

The actual credit for qualifying donations made is claimed on the tax return for the year in which the contribution was made. The amount of the credit is calculated (according to the formula outlined above) on the Federal Worksheet, and the amount of the actual credit entered on line 41000 of Schedule 1 of the federal tax return. By the time the 2021 return is filed, of course, the election will long since have been concluded, the newly elected government will be in place in Ottawa, and the taxpayer will be in a position to assess whether it was, in fact, money well spent.

Although it’s doubtful that anyone does so with any great degree of enthusiasm, each spring millions of Canadians sit down to complete their annual tax return for the previous calendar year (or, more often, they pay someone else to do it for them).

Although it’s doubtful that anyone does so with any great degree of enthusiasm, each spring millions of Canadians sit down to complete their annual tax return for the previous calendar year (or, more often, they pay someone else to do it for them).

The Canadian tax system is a “self-assessing system” which relies heavily on that voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required), to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed and remitting that amount to the federal government by a specified deadline. Whether they do it themselves or pay someone else to do it, the rate of compliance among Canadian taxpayers is very high — between February and July 2021, just over 29 million individual income tax returns were filed with the Canada Revenue Agency (CRA). Inevitably, however, there are those who do not meet their filing or payment obligations.

There are a lot of reasons why some Canadians don’t file their returns or pay their taxes on a timely basis, and almost all of them are based on a lack of understanding of how our tax system works, or on incorrect information about that system. In addition, each year there are some Canadians who file returns in which income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed.

While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate isn’t high, there are a lot of such returns when measured by absolute numbers. And, although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover that amount.

With all of that in mind, several years ago the CRA instituted a program — the Voluntary Disclosure Program (VDP) — intended to encourage non-compliant taxpayers to come forward and put their tax affairs in order. The incentive to do so arises from the fact that, in most cases, while taxpayers who participate in the VDP program have to pay outstanding tax amounts owed, plus interest, they avoid the penalties which would normally be imposed and, in addition, avoid the risk of criminal prosecution.

To qualify for relief under the VDP, an application made with respect to non-compliance with income tax filing and payment obligations must:

• be voluntary (meaning that it is done before the taxpayer becomes aware of any compliance or enforcement action by the CRA);
• be complete;
• involve the application or potential application of a penalty;
• include information that is at least one year past due; and
• include payment of the estimated tax owing.

The VDP program includes two separate “tracks” for income tax disclosures — the Limited Program and the General Program — and the kind and extent of relief available depends on the track to which a particular application is assigned.

While the CRA will ultimately make the determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the Limited Program to instances in which applications disclose non-compliance which appears to include intentional (as distinct from inadvertent) conduct on the part of the taxpayer. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

• the dollar amounts involved;
• the number of years of non-compliance;
• the sophistication of the taxpayer;
• how quickly the taxpayer acted to correct their non-compliance after becoming aware of it;
• whether there has been deliberate or wilful default or carelessness amounting to gross negligence on the part of the taxpayer; and
• whether the disclosure was made after the taxpayer became aware of the CRA’s intended specific focus on such area of taxpayer compliance.

Those whose applications are accepted under the Limited Program will not be subject to criminal prosecution and will be exempt from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer. Interest on outstanding tax balances will be payable, however, and other penalties will be levied.

Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance (i.e., for the years preceding the three most recent years of returns required to be filed). For example, a taxpayer who makes an application to the VDP and who has failed to file returns for the 2014 through 2019 taxation years may be provided with interest relief with respect to taxes owed for the 2014, 2015, and 2016 taxation years. Such relief is generally equal to 50% of interest owed — in other words, the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years. No interest relief will, however, be provided on tax amounts owed for the three most recent (2017, 2018, and 2019) taxation years. Since interest charges levied by the CRA are, by law, higher than current commercial rates (for instance, the rate levied for the third quarter of 2021 is 5%) and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

In order to benefit from the VDP, taxpayers must first make an application to the program. That application must include payment of the estimated taxes owing, as a condition of participation in the VDP. Where a taxpayer is financially unable to make that tax payment, he or she can request that the CRA consider a payment arrangement.

The decision to apply to the VDP and to “come clean” about all previous tax transgressions is something that most taxpayers will likely consider with considerable trepidation. Those who are unsure about whether they want to move forward with a VDP application have the option of using the CRA’s “pre-disclosure discussion service”. As the name implies, that service allows taxpayers to participate in preliminary discussions with a CRA official, on an anonymous basis, to gain some knowledge about the VDP program, the process involved, and the potential relief available.

Taxpayers who decided to move forward with an application to the VDP can complete and file Form RC199, Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. Once the application is received, the CRA will check to make certain that the applicant is eligible to apply and that all of the required information, documentation, and payment has been sent. The next step is for the CRA to evaluate the application to ensure that the criteria for participation in the VDP are satisfied and, if so, to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. At each step the taxpayer will be provided with written notice of the CRA’s decisions. The CRA’s advice is that taxpayers should contact them (for individual taxpayers, by calling the Individual Income Tax Enquiries line at 1-800-959-8281) if more than five weeks have passed since the application was submitted and no response has yet been received.

If the decision made is that the application is not eligible for the VDP, the taxpayer will also be advised in writing, with reasons, of the CRA’s decision to deny the application.

Where the decision made by the CRA is one with which the taxpayer does not agree, he or she is entitled to ask for a second review of the application. If that decision is also unfavourable, it is possible for a taxpayer to ask a court to review the decision and to direct the CRA to re-consider the VDP application. However, a taxpayer who wishes to pursue his or her application to the extent of filing such a court application is well advised to obtain legal advice before doing so.

Finally, taxpayers should recognize that the VDP Program can’t be used as a kind of “get out of jail free card” with respect to repeated failures to meet tax filing and payment obligations. The CRA website makes it clear that they expect taxpayers who have benefitted from the VDP to thereafter meet their tax obligations, and a second review will be provided for the same taxpayer only in unusual situations where the circumstances are beyond the taxpayer’s control.

Detailed information on the VDP program can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html.

Canadian drivers are used to seeing gas prices rise each spring as the weather gets warmer and more people take to the road for day trips, weekends at the cottage, and annual holidays. This year, that trend is accelerated for several reasons. The first, of course, is that as pandemic restrictions ease and the economy opens up, there are more and more reasons to be on the road. As well, employees who have worked from home for the past 16 months are starting to return to the daily commute, either part-time or full-time.

Canadian drivers are used to seeing gas prices rise each spring as the weather gets warmer and more people take to the road for day trips, weekends at the cottage, and annual holidays. This year, that trend is accelerated for several reasons. The first, of course, is that as pandemic restrictions ease and the economy opens up, there are more and more reasons to be on the road. As well, employees who have worked from home for the past 16 months are starting to return to the daily commute, either part-time or full-time.

Whatever their reasons for driving this spring and summer, Canadian drivers are experiencing “sticker shock” at the gas pumps to an unprecedented degree. When states of emergency were declared last spring and virtually everyone stayed at home, gas prices in Canada dropped precipitously. In April of 2020, the average cost of gasoline was around 79 cents per litre. That price has rebounded with a vengeance and, as of the end of July 2021, the average gas price in Canada was just under $1.40 per litre — an increase of more than 75% over April of 2020. In some provinces, gas prices have hit a new record high.

While in some cases Canadians can reduce the impact of gas price increases by reducing the amount of driving they do, the practical reality is that, even for those who wish to do less driving and to thereby reduce their carbon footprint, driving less just isn’t a realistic option. While major urban centres are usually well-served by public transit, it’s a different picture outside those centres, where in many cases the public transit option is either non-existent or impractical. As well, as housing prices in major urban areas either continue to increase (or are already out of the reach of the average Canadian), individuals and families must move further from their workplaces in search of affordable housing. Doing so means a longer commute to work, and that commute must often be done by car.

For a number of reasons, then, the cost of driving is often an unavoidable, non-discretionary expense. And, as that cost increases, many wonder whether there are any deductions or credits which can be claimed to help offset that cost.

Unfortunately, for many taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving to work and back home or the cost of driving that isn’t work-related. In both cases, such expenditures are considered a personal expense for which no deduction or credit can be claimed, no matter how great the cost. That said, there are some (fairly narrow) circumstances in which employees can claim a deduction for the cost of work-related travel.

Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might, as part of his or her job, be required to see clients at their own premises for the purpose of meetings or other work-related activities and be expected to use his or her own vehicle to get to such meetings. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from the employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses (and was not reimbursed for such expenses by the employer) and that the employer did not provide a tax-free allowance to cover such expenses, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include the following:

• fuel (gasoline, propane, oil)
• maintenance and repairs
• insurance
• licence and registration fees
• depreciation, in the form of capital cost allowance
• eligible interest paid on a loan to buy the vehicle; and
• eligible leasing costs.

In almost all instances, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the portion of expenses incurred for work-related driving can be deducted and the employee must keep a record of both the total kilometres driven and the kilometres driven for work-related purposes. And, of course, receipts must be kept to document all expenses incurred and claimed.

While no limits (other than the general limit of reasonableness) are placed on the amount of costs which can be deducted in the first four categories listed above, there are limits and restrictions with respect to allowable deductions for interest, eligible leasing costs and depreciation claims. The rules governing those claims and the tax treatment of employee automobile allowances and available deductions for employment-related automobile use generally are outlined on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html.

In larger urban centres, and in the nearby cities and suburbs which are served by inter-city transit, many commuters utilize that transit as a way of avoiding both the stress of a drive to work in rush hour traffic and the associated costs. And, for a time, such commuters were able to claim a tax credit to help mitigate the cost of using such transit. Unfortunately, the federal public transit tax credit was eliminated in 2017 and has never been reinstated.

Given current gas prices, no amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But, that said, seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.

By the time August arrives, nearly all Canadians have filed their income tax returns for the previous year, received a Notice of Assessment from the tax authorities with respect to that return, and either spent their refund or, more grudgingly, paid any balance of tax owing.

By the time August arrives, nearly all Canadians have filed their income tax returns for the previous year, received a Notice of Assessment from the tax authorities with respect to that return, and either spent their refund or, more grudgingly, paid any balance of tax owing.

It’s a surprise, therefore, when unexpected mail arrives from the Canada Revenue Agency (CRA) around the middle of August, and the information in that mail will likely be both unfamiliar and unwelcome. Specifically, the enclosed Instalment Reminder form will advise the recipient that, in the view of the CRA, he or she should make instalment payments of income tax on September 15 and December 15 of 2021 — and will helpfully identify the amounts which should be paid on each date.

No one particularly likes receiving unexpected mail from the tax authorities and correspondence which suggests that the recipient should be making payments of tax to the CRA during the year (instead of when he or she files the return for the year next April) is likely to be both perplexing and somewhat alarming. It is fair to say that most Canadians aren’t familiar with the payment of income tax by instalments, and are therefore at a loss to know how to proceed the first time they receive an Instalment Reminder.

The reason that the instalment payment system is unfamiliar to most Canadians is that most of us pay income taxes during our working lives through a different system. Every Canadian employee has tax automatically deducted from his or her paycheque (“at source”), before that paycheque is issued, and that tax is remitted by the employer to the CRA, on the employee’s behalf. Such deductions and remittances accrue on the employee’s behalf, and they are credited with those remittances when filing the annual tax return for that year. It’s an efficient system, but it’s also one which is largely invisible to the employee, and certainly one which operates without the need for the employee to take any steps on his or her own. When someone’s working life ends and retirement begins, it’s consequently not particularly surprising that the individual wouldn’t know that it is now his or her responsibility to make specific arrangements for the payment of income tax.

Adding to the potential confusion, most employees who are now moving into retirement have had only a single source of income throughout their working lives. Once in retirement, however, there are likely multiple such sources of income, including Canada Pension Plan benefits and Old Age Security payments, and perhaps monthly amounts received from an employer-sponsored registered pension plan (RPP) or a registered retirement income fund (RRIF). Unless the individual so directs, none of the payors of those kinds of income will deduct income tax from the payments and remit them to the federal government on the individual’s behalf.

Canadian tax rules provide that, where the amount of tax owed when a return is filed by the taxpayer is more than $3,000 ($1,800 for Quebec residents) in the current (2021) year and either of the two previous (2019 and 2020) years, that taxpayer may be subject to the requirement to pay income tax by instalments.

The reason that first instalment reminders are issued in August has to do with the schedule on which Canadians file their tax returns. The amount of tax payable on filing for the immediately preceding year can’t be known until the tax return for that year has been filed and assessed, and the tax return filing deadline for individuals is April 30 (or June 15 for self-employed taxpayers and their spouses). Consequently, by the end of July, the CRA will have the information needed to determine whether a particular taxpayer should receive a first instalment reminder for the current year.

Taxpayers who receive that first Instalment Reminder in August may also be puzzled by the fact that it is a “reminder” and not a “requirement” to pay. The reason for that is that those who receive it are not actually required by law to make instalment payments of tax. There are, in fact, three options open to the taxpayer who receives an Instalment Reminder.

First, the taxpayer can pay the amounts specified on the reminder, by the respective due dates of September 15 and December 15. A taxpayer who does so can be certain that he or she will not have to pay any interest or penalty charges even if he or she does have to pay an additional amount on filing in the spring of 2022. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2021, he or she will of course receive a refund on filing.

Second, the taxpayer can make instalment payments based on the total amount of tax which was owed and paid for the 2020 tax year (including any balance that was owed on filing). Where a taxpayer’s income has not changed between 2020 and 2021 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2021 will be the same or slightly less than it was in 2020, owing to the indexation of tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will actually owe for 2021 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2020 to 2021 and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this approach can obtain the information needed to estimate current year taxes (federal and provincial tax brackets and rates) on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#federal.

All of this may seem like a lot of research and calculation effort, especially when one considers that many Canadians don’t even prepare their own tax returns. And those who don’t want to be bothered with the intricacies of tax calculations can pay the amounts set out in the Instalment Reminder, secure in the knowledge that they will not incur any penalty or interest charges and that, should those amounts ultimately represent an overpayment of taxes, that overpayment will be recovered and refunded when the 2021 return is filed next spring.

Once they have resigned themselves to the realities of the tax instalment system, the next question that most taxpayers have is how such payments can be made. The options open to taxpayers in that regard are helpfully outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-income-tax-instalments/you-pay-your-instalments.html.

One or two generations ago, retirement was an event. Typically, an individual would leave the work force completely at age 65, and begin collecting Canada Pension Plan and Old Age Security benefits along with, in many cases, a pension from an employer-sponsored registered pension plan.

One or two generations ago, retirement was an event. Typically, an individual would leave the work force completely at age 65, and begin collecting Canada Pension Plan and Old Age Security benefits along with, in many cases, a pension from an employer-sponsored registered pension plan.

Much has changed in the intervening decades and one of those changes is that retirement is now more often a process than an event. Many of those who have reached the traditional retirement age of 65 are receiving CPP and OAS benefits while at the same time continuing to participate in the work force. Some stay at an existing full-time job but more commonly, such individuals take up part-time employment, out of financial need or simply from a desire to stay active and engaged in the work force.

At one time, beginning to receive CPP retirement benefits meant that, even for those who chose to remain in the work force, no further CPP contributions were allowed. In 2012 that changed, with the introduction of the CPP Post-Retirement Benefit. The availability of that benefit means that those who are aged 65 to 70 and continue to work while receiving CPP retirement benefits must decide whether or not to continue making CPP contributions. Such individuals who make the choice to continue to contribute to the Canada Pension Plan will see an increase in the amount of CPP retirement benefit they receive each month for the remainder of their lives. That increase is the CPP post-retirement benefit or PRB.

The rules governing the PRB differ, depending on the age of the taxpayer. In a nutshell, an individual who has chosen to begin receiving the CPP retirement benefit but who continues to work will be subject to the following rules:

• Individuals who are 60 to 65 years of age and continue to work are required to continue making CPP contributions.
• Individuals who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. To stop contributing, such an individual must fill out form https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html. A copy of that form must be given to the individual’s employer and the original sent to the Canada Revenue Agency. An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of the CPT30 form to each employer.

A decision to stop contributing can be changed, and contributions resumed, but only one such change can be made per calendar year. To make that change, the individual must complete section D of CRA form https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html, give one copy of the form to his or her employer(s), and send the original to CRA

• Individuals who are over the age of 70 and are still working cannot contribute to the CPP.

Overall, the effect of the rules is that CPP retirement benefit recipients who are still working and who are under aged 65, as well as those who are between 65 and 70 and choose not to opt out, will continue to make contributions to the CPP system and will continue therefore to earn new credits under that system. As a result, the amount of CPP retirement benefits which they are entitled to will increase with each successive year’s contributions.

Where an individual makes CPP contributions while working and receiving CPP retirement benefits, the amount of any CPP post-retirement benefit earned will automatically be calculated by the federal government (no application is required), and the individual will be advised of any increase in their monthly CPP retirement benefit each year. The PRB will be paid to that individual automatically the year after the contributions are made, effective January 1^st of that second year. Since the federal government doesn’t have all of the information needed to make such calculations until T4s and T4 summaries are filed by the employer by the end of February, the first PRB payment is usually made in a lump sum amount, in the month of April. That lump sum amount represents the PRB payable from January to April. Thereafter, the PRB is paid monthly and combined with the individual’s usual CPP retirement benefit in a single payment.

While the rules governing the PRB can seem complex (and certainly the actuarial calculations are), the individual doesn’t have to concern him or herself with those technical details. For CPP retirement benefit recipients who are under age 65 or over 70, there is no decision to be made. For the former, CPP contributions will be automatically deducted from their paycheques and for the latter, no such contributions are allowed.

Individuals in the middle group – aged 65 to 70 will need to make a decision about whether it makes sense, in their individual circumstances, to continue making contributions to the CPP. Some assistance in making that decision is provided on the federal government website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement/benefit-amount.html, which shows the calculations which would apply for individuals of different ages and income levels.

More information on the PRB generally is also available on that website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement.html.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #56 Corporate

Personal:

Issue #56 Personal

There’s a lot that is still unknown about the upcoming 2021-22 academic year for post-secondary students. It may be that such students will be back on campus, living in residence and once again attending classes in lecture halls. Less optimistically, they may (again!) be learning online and living off campus, or still at home with their parents. Most likely, they will be experiencing some combination of the two.

There’s a lot that is still unknown about the upcoming 2021-22 academic year for post-secondary students. It may be that such students will be back on campus, living in residence and once again attending classes in lecture halls. Less optimistically, they may (again!) be learning online and living off campus, or still at home with their parents. Most likely, they will be experiencing some combination of the two.

Whatever the physical reality will be for post-secondary students come September, there is a financial reality which has not and will not change. Regardless of how their learning is structured, there will be tuition costs to be paid. Fortunately there are also tax credits and benefits which can be claimed to offset such costs.

The tax credits and deductions which can be claimed by post-secondary students (or their spouses, parents or grandparents) in relation to the 2021-22 academic year are summarized below.

Tuition fees

The good news is that a tax credit continues to be available for the single largest cost associated with post-secondary education — the cost of tuition. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (which would include most Canadian universities and colleges) can still claim a non-refundable federal tax credit of 15% of such tuition costs. Many of the provinces and territories (excepting Alberta, Ontario and Saskatchewan) also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.

The charges imposed on post-secondary students under the heading of “tuition” include a myriad of costs which may differ, depending on the particular program or institution, and not all of those costs will qualify as “tuition” for purposes of the tuition tax credit. The following specific amounts do, however, constitute eligible tuition fees for purposes of that credit:

• admission fees
• charges for use of library or laboratory facilities
• exemption fees
• examination fees (including re-reading charges) that are integral to a program of study

• application fees (but only if the student subsequently enrolls in the institution)
• confirmation fees
• charges for a certificate, diploma or degree
• membership or seminar fees that are specifically related to an academic program and its administration
• mandatory computer service fees and
• academic fees.

The following charges do not, however, constitute tuition fees for purposes of the credit:

• extracurricular student social activities
• medical expenses
• transportation and parking
• board and lodging
• goods of enduring value that are to be retained by students (such as a microscope, uniform, gown, or computer)
• initiation fees or entrance fees to professional organizations including examination fees or other fees (such as evaluation fees) that are not integral to a program of study at an eligible educational institution
• administrative penalties incurred when a student withdraws from a program or an institution
• the cost of books (other than books, compact disks or similar material included in the cost of a correspondence course when the student is enrolled in such a course given by an eligible educational institution in Canada) and
• courses taken for purposes of academic upgrading to allow entry into a university or college program. These courses would usually not qualify for the tuition tax credit as they are not considered to be at the post-secondary school level.

Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, such fees and charges are limited to $250 unless the fees are required to be paid by all full-time students or by all part-time students.

At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where, as is often the case, a student doesn’t have tax payable for the year because his or her income isn’t high enough, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent or grandparent.

Personal and living expenses

As has always been the case, living costs incurred by a post-secondary student (whether on campus or off) are characterized as personal and living expenses, for which no tax deduction or credit is allowed.

Student debt

Most post-secondary students in Canada must incur some amount of debt in order to complete their education, and repayment of that debt is typically not required until after graduation. Once repayment starts, a tax credit can be claimed for the amount of interest being paid on such debt, in some circumstances.

Students who are still in school and arranging for loans to finance their education should be mindful of the rules which govern that student loan interest tax credit, since decisions made while still in school with respect to how post-secondary education will be financed can have tax repercussions down the road, after graduation. That’s because while all interest paid on a qualifying student loan is eligible for the credit, only some types of student borrowing will qualify. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.

It’s not uncommon (especially for students in professional programs, like law or medicine) to be offered lines of credit by a financial institution, often at advantageous or preferential interest rates. As well, financial institutions sometimes offer, once a student has graduated and begun to repay a government-sponsored student loan, to consolidate that student loan with other kinds of debt, also at advantageous interest rates. However, it should be kept in mind that interest paid on that line of credit (or any other kind of borrowing from a financial institution to finance education costs) will never be eligible for the student loan interest tax credit.

As explained in the Canada Revenue Agency (CRA) publication on the subject: “ [I]f you renegotiated your student loan with a bank or another financial institution, or included it in an arrangement to consolidate your loans, you cannot claim this interest amount”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit.

Students who are contemplating borrowing from a financial institution rather than getting a government student loan (or considering a consolidation loan which incorporates that student loan amount) must remember, in evaluating the benefit of any preferential interest rate offered by a financial institution, to take into account the loss of the student loan interest tax credit on that borrowing in future years.

Other credits and deductions

There are, as well, a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary students (for instance, deductions for moving costs). The CRA publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The current version of that guide, entitled Students and Income Tax, is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html.

As Canada begins to (slowly) transition back to a pre-pandemic way of life, one of the many opportunities which did not exist last summer is once again a possibility — that of sending the kids to summer camp. In most cases, Canadian children of school age have not had the opportunity to interact with their peers on a regular basis for nearly a year and a half. At the same time, parents across Canada have been coping with a situation in which they must work from home while simultaneously helping the kids with online learning. For both kids and parents, the possibility of going to summer camp must be particularly welcome this year.

As Canada begins to (slowly) transition back to a pre-pandemic way of life, one of the many opportunities which did not exist last summer is once again a possibility — that of sending the kids to summer camp. In most cases, Canadian children of school age have not had the opportunity to interact with their peers on a regular basis for nearly a year and a half. At the same time, parents across Canada have been coping with a situation in which they must work from home while simultaneously helping the kids with online learning. For both kids and parents, the possibility of going to summer camp must be particularly welcome this year.

When it comes to those summer camps, there are an almost limitless number of options for parents, but what each of those choices has in common is a price tag — sometimes a steep one. Some options, like day camps provided by the local recreation authority or municipality can be relatively inexpensive, while the cost of others, like elite level sports or arts camps, can run to the thousands of dollars.

The good news for families which incur such expenditures is that in many cases a deduction for part or all of the costs incurred can be claimed on the tax return for the year. And, since eligible expenditures can be deducted from income on a dollar-for-dollar basis, that means that income used to pay eligible child care expenses is income which is effectively not subject to income tax. That benefit is provided by our tax system through the general deduction provided for child care costs. The general rule for that deduction, which is not specific to summer child care or summer camp costs but is available year round, is that parents who must incur child care costs in order to work (whether in employment or self-employment) or, in some cases to attend school, to deduct those costs from income, within specified limits. In 2021, however, an exception is provided to that requirement. For this year, the requirement that the parent be working at employment or self-employment in order to claim a deduction for child care expenses does not apply where that parent was the recipient, during 2021, of taxable federal or provincial pandemic benefits (like the Canada Emergency Response Benefit, which was received by over 8 million Canadians), Employment Insurance Benefits or Quebec Parental Insurance Benefits.

The calculation process set out on Form T778, which is used to determine the amount of any allowable deduction from income for child care expenses incurred can seem quite complex. However, at the end of the day, the amount of child care expenses which can be deducted is simply the least of those three numbers, and only one of those numbers requires a calculation. The steps involved in doing so are as follows.

First, the amount of any deduction for child care expenses is limited to two-thirds of the taxpayer’s income for the year. The income figure used to calculate the two-thirds figure is, generally, the amount shown on Line 150 of the annual tax return. Where the family incurring child care expenses is a two-income family, it is the spouse with the lower net income who must make the claim and consequently his or her net income is used to determine the two-thirds of income figure.

The second figure to be determined is the amount actually paid for eligible child care costs during the year. While virtually any licensed child care arrangement will qualify, more informal arrangements may not. Specifically, no deduction is available for amounts paid to most family members to provide child care. So, it’s not possible for a working spouse to pay the stay-at-home parent to provide child care, nor is it possible to pay an older sibling who is under the age of 18 to provide such services, and to claim a deduction for those expenses incurred. As well, where a claim is made for a deduction for child care expenses on the annual return, the claimant must obtain (and be prepared to provide to the tax authorities) the social insurance number of the individual providing the care as well as a receipt showing the amounts paid, whether to an individual or an organization.

The third figure to be determined is the one which requires some calculation. Basically, the rules governing the deduction of child care expense impose a maximum deduction per child per year (referred to as the “basic limit”), with that basic limit dependent on the age of the particular child. As well, where expenses are incurred for overnight camps or boarding schools, the amount deductible for such costs is similarly capped.

For 2021, the following overall limits apply:

• $5,000 in costs per year for a child who was born in 2004 to 2013;
• $8,000 in costs per year for a child who was born after 2013;
• $11,000 in costs per year for a child who was born in 2020 or earlier, but for whom the disability amount can be claimed.

Similar restrictions are placed on the amount of costs which can be deducted for overnight camp or boarding school fees, and those are as follows:

• $125 per week for a child who was born in 2004 to 2013;
• $200 per week for a child who was born after 2013 or later; and
• $275 per week for a child who was born in 2020 or earlier, but for whom the disability amount can be claimed.

Taking all of these figures into account, the computation of a deduction for summer day camp expenses for a typical Canadian family would look like this.

A two-income family has two children and both parents are employed. One spouse earns $65,000 per year, while the other earns $55,000. In 2021, one child is age 9 and the other is age 5. Neither child is disabled. During July and August, both of the children attend a local full-day summer camp, for which the cost is $300 per week per child.

• The first step is to determine the two-thirds of income figure. Since it is the lower-income spouse who must make the deduction claim, that figure is two-thirds of $55,000, or $36,300. Consequently, any deduction for child care expenses for the year cannot exceed $36,300.

• The second calculation is the total amount of child care expenses paid for each child:

$300 per week for eight weeks of summer camp, or $2,400.

Total child care expenses for the year for each child is therefore $2,400.

• The last step is to determine the basic limit for child care expenses for each child, as follows:
• the limit for the 5-year-old (who was born after 2013) is $8,000, and so the entire $2,400 in summer day camp costs incurred can be deducted.
• the basic limit for the 9-year-old (who was born between 2004 and 2013) is $5,000, and so once again the entire $2,400 incurred for summer day camp costs can be deducted.

As well, since the camp is a day camp, the dollar amount cost limitations which apply with respect to overnight camps does not apply to limit the amount of expenses claimed by the family.

The total deduction available for child care expenses incurred for the 2021 tax year will therefore be $4,800. That deduction is claimed on Line 21400 of the tax return filed by the lower-income spouse for the year, reducing his or her taxable income from $55,000 to $50,200, and resulting in a federal tax savings of just under $1,000. A similar tax deduction is claimed as well for provincial tax purposes, and the amount of provincial tax saved will depend on the tax rates imposed by the province in which the family lives.

While the availability of a “subsidy” through the tax system should never be the sole determinant of what activity or camp is the best choice, there’s no denying that being able to claim a deduction for the costs involved can tip the balance toward one or choice or another, or bring a formerly unavailable option within a family’s financial reach.

Parents wishing to find out more about the child care expense deduction, and perhaps to calculate the maximum deduction which will be available to them for the 2021 tax year should consult Form T778 E (17). That form, which includes detailed information on the rules governing the deduction, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t778.html.

Between February 8 and June 21 of this year, the Canada Revenue Agency (CRA) received and processed just under 29 million individual income tax returns filed for the 2020 tax year. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and cannot possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

Between February 8 and June 21 of this year, the Canada Revenue Agency (CRA) received and processed just under 29 million individual income tax returns filed for the 2020 tax year. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and cannot possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

In addition, the CRA has, for many years, been encouraging taxpayers to fulfill their filing obligations online, through one of the Agency’s electronic filing services. This year, just over 26 million (or 91.5%) of those returns were filed by electronic means. While e-filing means that the turnaround for processing of returns is much quicker, there is, by definition, no paper involved. The Canadian tax system has always been what is termed a “self-assessing” system, in which taxpayers report income earned and claim deductions and credits to which they believe they are entitled. Prior to the advent of e-filing there were means by which the CRA could easily verify claims made by taxpayers. Where returns were paper-filed, taxpayers were usually required to include receipts or other documentation to prove their claims, whatever those claims were for. For the over 90% of returns which were filed this year by electronic means, no such paper trail exists. Consequently, the potential exists for misrepresentation of such claims (or simple reporting errors) on a large scale.

The CRA’s response to that risk is to conduct a variety of review programs, some of them before a Notice of Assessment is issued for the taxpayer’s return, and others after that Notice of Assessment has been issued and sent to the taxpayer. Regardless of the timing, in all cases the purpose of the review is to obtain from the taxpayer the information or documentation needed to support claims for deductions or credits made by the taxpayer on the return. The CRA also administers a Matching Program, in which information reported on the taxpayer’s return (both income and deductions) is compared to information provided to the CRA by third-party sources (like T4s filed by employers or T5s filed by banks or other financial institutions).

Being selected for review under either program means, for the individual taxpayer, the possibility of receiving unexpected correspondence, or a telephone call, from the CRA. Receiving such correspondence or call from the tax authorities is almost guaranteed to unsettle the recipient taxpayer, who may immediately conclude that he or she has done something very wrong and is facing a big tax bill — maybe even a tax audit. However, in the vast majority of cases, the contact is just a routine part of the Agency’s processing review mandate.

A taxpayer whose return is selected as part of a processing review program will be asked to provide verification or proof of deductions or credits claimed on the return -usually by way of receipts or similar documentation. The Matching Program, on the other hand, involves comparison by the CRA of information received from different sources (i.e., matching up the amount of employment income reported by a taxpayer with the amount showing on the T4 slip issued by that taxpayer’s employer). Where the figures match up, there is no need for the further action by the CRA. Where they don’t, the taxpayer will likely be contacted with a request for an explanation of the discrepancy.

Of course, most taxpayers are not concerned so much with the kind or program or programs under which they are contacted as they are with why their return was singled out for review or follow-up. Many taxpayers assume that it’s because there is something wrong on their return, or that the letter is the start of an audit, but that’s not necessarily the case. Returns are selected by the CRA for post-assessment review for a number of reasons. Canada’s tax laws are complex and, over the years, there are areas in which the CRA has determined that taxpayers are more likely to make errors on their return. Consequently, a return which includes claims in those areas (like dependant tax credit claims, claims for medical expenses, moving expenses or tuition tax credits) may have an increased chance of being reviewed. Where there are deductions or credits claimed by the taxpayer which are significantly different or greater than those claimed in previous returns that may attract the CRA’s attention. And, if the taxpayer’s return has been reviewed in previous years and, especially, if an adjustment was made following that review, subsequent reviews may be more likely. Finally, many returns are picked for the processing review programs simply on the basis of random selection.  

Regardless of the reason for the follow-up, the process is the same. Taxpayers whose returns are selected for review will be contacted by the CRA, usually by letter, identifying the deduction or credit for which the CRA wants documentation or the income or deduction amount about which a discrepancy seems to exist. The taxpayer will be given a reasonable period of time — usually a few weeks from the date of the letter — in which to respond to the CRA’s request. That response should be in writing, attaching, if needed, the receipts or other documentation which the CRA has requested. All correspondence from the CRA under its review programs will include a reference number, which is usually found in the top right-hand corner of the CRA’s letter. That number is the means by which the CRA tracks the particular inquiry and should be included in the response sent to the Agency. It’s important to remember, as well, that it’s the taxpayer’s responsibility to provide proof, where requested, of any claims made on a return. Where a taxpayer does not respond to a CRA request or does not provide such proof, the Agency will proceed on the basis that the requested verification or proof does not exist and will assess or reassess accordingly.

Taxpayers who have registered for the CRA’s online tax program My Account (or whose representative is similarly registered for the Agency’s Represent a Client online service) can usually submit required documentation electronically. More information on how to do so can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/review-your-tax-return-cra/submitting-documents-electronically.html.

Whatever the reason a particular return was selected for post-assessment review by the CRA, one thing is certain. A prompt response to the CRA’s enquiry, providing the Agency with the information or documentation requested will, in the vast majority of cases, bring the matter to a speedy conclusion, to the satisfaction of both the Agency and the taxpayer. The CRA website also includes more detailed information on the return review process, which is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/review-your-tax-return-cra.html.

According to Statistics Canada there were, as of July 2020, just under 7 million Canadians over the age of 65. While the age at which an individual retires can vary a lot (from “Freedom 55” to those who are still working in their 70s), it’s reasonable to assume that a significant percentage of those 7 million Canadians is fully or partially retired. It’s also a reasonable assumption that retirement looks a lot different for them than it did for their parents.

According to Statistics Canada there were, as of July 2020, just under 7 million Canadians over the age of 65. While the age at which an individual retires can vary a lot (from “Freedom 55” to those who are still working in their 70s), it’s reasonable to assume that a significant percentage of those 7 million Canadians is fully or partially retired. It’s also a reasonable assumption that retirement looks a lot different for them than it did for their parents.

First, as life expectancy continues to increase, current retirees (many of them baby boomers) can expect to spend a greater proportion of their life in retirement than their parents did. According to StatsCan figures, Canadians who are currently age 65 have an average life expectancy of about 20 years. Second, the financial picture for current retirees is likely to be different. Many of their parents benefitted, in retirement, from an employer-sponsored pension plan which ensured a monthly payment of income for the remainder of their lives. Today such pension plans, and the dependable monthly income they provide are, especially for those who spent their working lives in the private sector, more the exception than the rule. Where, however, baby boomers have the “advantage” over their parents in retirement, it’s in the value of their homes. Increases in residential property values over the past quarter century and, especially, the last decade in nearly every market in Canada have meant that for many Canadians who are retired or approaching retirement, their home — or more specifically, the equity they have built up in those homes — is their single most valuable asset.

While having a home which has greatly appreciated in value may provide a sense of security, what it doesn’t provide is an income. Most retired Canadians are eligible to receive Canada Pension Plan and Old Age Security payments and, while those two programs provide the “backbone” of retirement income in Canada, they are almost never enough on their own to provide for a comfortable life in retirement. The maximum combined CPP/OAS income for 2021 (not including federal or provincial/territorial supplements) is about $22,000 — not enough to provide more than a very basic standard of living, if that. Most retirees also have private retirement savings, usually through registered retirement savings plans (RRSPs), but once again, the amount saved by many Canadians through RRSPs falls short of what will be needed to generate a reasonable income over their remaining lifetime, especially where a retirement can last for twenty years or more, and when inflation over that time period is taken into account. Many retired Canadians are, in effect, “house rich and cash flow poor”.

In many cases, those approaching retirement opt to sell their current home — sometimes in order to move to a smaller, easier to maintain dwelling and sometimes simply to free up the capital represented by their accumulated equity. However, while selling and downsizing is the option chose by many retirees, not everyone wants to, or can, leave the family home at retirement. There are many situations in which moving and downsizing isn’t desirable or even possible. Especially for those living in smaller centres, where the types of available housing may be limited, downsizing or choosing to rent could mean having to move to another community. Moving and leaving behind friends and other social supports is difficult at any age, and especially difficult when it coincides with a major life change like retirement. As well, it’s increasingly the case, and especially over the past year, that adult children “boomerang” back to the family home after finishing their education. In many cases, such adult children are unable to find long-term employment or remuneration from available employment isn’t sufficient, or sufficiently secure, for them to take on the financial obligations of their own home, even as a tenant. Finally, in the 2021 real estate market many homeowners have found that, while it is relatively easy to sell a property, finding another one to purchase can be a lot more difficult. For a variety reasons, then, it may be that retirees need to stay, or choose to stay, in the current family home. Where that is their choice, and the only factor creating pressure for them to sell that home is the need to free up equity to create or increase cash flow during retirement, there are other options available.

One of those options which is currently receiving a lot of attention is the reverse mortgage. Reverse mortgages are better known, more widely used and have a much longer history in the U.S. than they do in Canada. However, such financial vehicles are now being advertised and promoted on a regular basis in the Canadian media, and it’s likely that by now most Canadians have at least heard of them.

Simply put, taking out a reverse mortgage allows individuals to obtain a sum of money based on the value of their home and the equity which they have accumulated in that home. It’s also possible, using a reverse mortgage, to structure the receipt of funds in different ways. The homeowner can choose to receive a lump sum amount, or can opt to receive a series of payments which will provide a regular income stream, or some combination of the two. And, with a reverse mortgage, no repayment of the funds advanced is required until the death of the homeowner, or until he or she leaves or sells the home.

When described in those terms, a reverse mortgage can sound like the perfect solution to a cash-strapped retiree. The ability to ease cash flow worries while remaining in one’s own home with no requirement to make any payments at all can sound like the best of all possible worlds. And it’s certainly true that taking out a reverse mortgage can make sense for retirees who are house rich but cash or cash-flow poor. But, as with all financial strategies, it’s necessary to understand both the benefits and the potential costs and risks of getting a reverse mortgage.

The potential downsides of a reverse mortgage start with the basic costs of obtaining one. Setting up a reverse mortgage involves a number of costs for the homeowner, including the need to have one’s property appraised, a set-up fee and interest rates which are higher than those charged for traditional mortgages. There will also be closing costs, and the homeowner will be required to obtain independent legal advice, and to pay the cost of obtaining such advice.

Once the reverse mortgage is taken out, interest will, of course, be levied on all amounts provided, and will accumulate from the time the funds are first advanced. Total interest costs can add up very quickly and reach significant amounts by the time the debt is eventually to be repaid, usually out of the proceeds from the sale of the house. And, of course, every dollar of funds advanced and interest levied eats away at the amount of equity which the homeowner has built up, on a dollar for dollar basis.

In order to obtain a reverse mortgage, the homeowner must be at least 55 years of age, and the amount which can be obtained through any reverse mortgage is limited to 55% of the current value of the home. And, where there is already a mortgage or other form of loan secured by the home (as is increasingly the case for retirees), the reverse mortgage lender will require that any such indebtedness first be paid off with the funds received from the reverse mortgage.

The major benefit of a reverse mortgage for many retirees is that they are not required to make payments while living in the home, putting much less of a strain on cash flow. Offsetting that benefit, however, is the fact that the interest rate charged on a reverse mortgage is usually higher than that which would be levied under a traditional mortgage or other similar financial products. As well, under the terms of many such arrangements, a prepayment penalty is levied where the homeowner moves or sells the house within a few years of obtaining the reverse mortgage — the exact time frame will depend on terms provided by the particular lender.

Many retirees who obtain a reverse mortgage do so with the thought that the debt will not need to be repaid until after their death, when the house will be sold. However, it’s necessary to consider the possibility that the homeowner/retiree will need to move from his or her home at some point in the future to an assisted living facility. Care in such facilities does not come cheap, and in many cases the retiree must shoulder all or a part of the cost of such care on an out-of-pocket basis. If the retiree is counting on his or her home equity to pay for such care, it’s necessary to consider the extent to which the reverse mortgage will reduce that accumulated home equity and consequently the funds available to pay for needed care.

For those who are considering whether a reverse mortgage is the right solution for them in retirement, Canada’s Financial Consumer Agency suggests getting answers from prospective lenders to the following questions:

• What are all the fees?
• Are there any penalties if you sell your home within a certain period of time?
• If you move or die, how much time will you or your estate have to pay off the loan’s balance?
• When you die, what happens if it takes your estate longer than the stated time period to fully repay the loan?
• What happens if the amount of the loan ends up being higher than your home’s value when it is time to pay the loan back?

More information on reverse mortgages in general can be found on the FCAC website at https://www.canada.ca/en/financial-consumer-agency/services/mortgages/reverse-mortgages.html.

Pandemic notwithstanding, the Canadian real estate market is booming, in terms of both house prices and sales activity. According to Canadian Real Estate Association statistics, the number of sales in March 2021 were at the highest level ever recorded — and the MLS Home Price Index rose by 23.1% in April 2021, as measured on a year-over-year basis.

Pandemic notwithstanding, the Canadian real estate market is booming, in terms of both house prices and sales activity. According to Canadian Real Estate Association statistics, the number of sales in March 2021 were at the highest level ever recorded — and the MLS Home Price Index rose by 23.1% in April 2021, as measured on a year-over-year basis.

There are undoubtedly many reasons why so many Canadians are currently seeking to sell and move, including spiralling house prices, historically low mortgage interest rates and, of course, the pandemic which has allowed many to work from home and therefore contemplate living further away from the office.

Whatever their reasons, ten of thousands of Canadians will be selling their homes and moving this spring. And, whatever the reason for the move or the distance to the new location, all moves have two things in common — stress and cost. Even where the move is a desired one, moving inevitably means upheaval of one’s life and the costs can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

While it’s common to refer simply to the “moving expense deduction”, as though it were available in all circumstances, the fact is that there is actually no across-the-board deduction available for moving costs. In order to be tax deductible, such moving costs must be incurred in specific and relatively narrow circumstances. Our tax system allows taxpayers to claim a deduction only where the move is made to get the taxpayer closer to his or her new place of work, whether that work is a transfer, a new job, or self-employment. Specifically, moving expenses can be deducted where the move is made to bring the taxpayer at least 40 kilometres closer to his or her new place of work. That requirement is satisfied where, for instance, a taxpayer moves from Toronto to Halifax to take a new job. It’s also met where a taxpayer is transferred by his or her employer to another job in a different location and the taxpayer’s move will bring him or her at least 40 kilometres closer to the new work location. It is not met where an individual or family move up the property ladder by selling and purchasing a new home in the same town or city, without any change in work location.

As well, it’s not actually necessary to be a homeowner in order to claim moving expenses. The list of moving related expenses which may be deducted is basically the same for everyone — homeowner or tenant — who meets the 40-kilometre requirement. Students who move to take a summer job (even if that move is back to the family home) can also make a claim for moving expenses where that move meets the 40-kilometre requirement.

It's important to remember, however, that even where the 40-kilometre requirement is met, it is possible to deduct moving costs only from employment or self-employment (business) income — there is no deduction possible from other types of income, like investment income or employment insurance benefits.

The general rule is that a taxpayer can claim reasonable amounts that were paid for moving himself or herself, family members, and household effects. In all cases, the moving expenses must be deducted from employment or self-employment income earned at the new location. Where the move takes place later in the year, and moving costs are significant, it’s possible that the amount of income earned at the new location in the year of the move will be less than deductible moving expenses incurred. In such instances, those expenses can be carried over and deducted from income earned at the new location in any future year.

Within the general rule, there are a number of specific inclusions, exclusions, and limitations. The following is a list of expenses which can be claimed by the taxpayer without specific dollar figure restrictions (but subject, as always, to the overriding requirement of “reasonableness”):

• traveling expenses, including vehicle expenses, meals, and accommodation, to move the taxpayer and members of his or her family to their new residence (note that not all members of the household have to travel together or at the same time);
• transportation and storage costs (such as packing, hauling, movers, in-transit storage, and insurance) for household effects, including such items as boats and trailers;
• costs for up to 15 days for meals and temporary accommodation near the old and the new residences for the taxpayer and members of the household;
• lease cancellation charges (but not rent) on the old residence;
• legal or notary fees incurred for the purchase of the new residence, together with any taxes paid for the transfer or registration of title to the new residence (excluding GST or HST);
• the cost of selling the old residence, including advertising, notary or legal fees, real estate commissions, and any mortgage penalties paid when a mortgage is paid off before maturity; and
• the cost of changing an address on legal documents, replacing driving licences and non-commercial vehicle permits (except insurance), and costs related to utility hook-ups and disconnections.

The Canadian real estate market is currently a seller’s market, so much so that individuals who have sold their homes can then find it difficult to purchase another home in their desired location or at their desired price. Prudent would-be sellers may therefore decide to purchase before selling, in order to avoid such difficulty. In most such circumstances, the taxpayer is entitled to deduct up to $5,000 in costs incurred for the maintenance of the “old” residence while it is vacant and on the market. Specifically, costs including interest, property taxes, insurance premiums, and heat and utilities expenses paid to maintain the old residence while efforts were being made to sell it may be deducted. If any family members are still living at the old residence, or it is being rented, no such deduction is available.

It may seem from the forgoing that virtually all moving-related costs will be deductible; however, there are some costs for which the Canada Revenue Agency (CRA) will not permit a deduction to be claimed, as follows:

• expenses for work done to make the old residence more saleable;
• any loss incurred on the sale of the old residence;
• expenses for job-hunting or house-hunting trips to another city (for example, costs to travel to job interviews or meet with real estate agents);
• expenses incurred to clean or repair a rental residence to meet the landlord’s standards;
• costs to replace such personal-use items as drapery and carpets;
• mail forwarding costs; and
• mortgage default insurance.

To claim a deduction for any eligible costs incurred, supporting receipts must be obtained. While the receipts do not have to be filed with the return on which the related deduction is claimed, they must be kept in case the CRA wants to review them.

Anyone who has ever moved knows that there are an endless number of details to be dealt with. For some types of costs, the administrative burden of claiming moving-related expenses can be minimized by choosing to claim a standardized amount for certain types of expenses. Specifically, the CRA allows taxpayers to claim a fixed amount, without the need for detailed receipts, for travel and meal expenses related to a move. Using that standardized, or flat rate method, taxpayers may claim up to $23 per meal, to a maximum of $69 per day, for each person in the household. Similarly, the taxpayer can claim a set per-kilometre amount for kilometres driven in connection with the move. The per kilometre amount ranges from 47 cents for Alberta to 59.5 cents for the Northwest Territories. In all cases, it is the province or territory in which the travel begins that determines the applicable rate.

These standardized travel and meal expense rates are those which were in effect for the 2020 taxation year — the CRA will be posting the rates for 2021 on its website early in 2022, in time for the tax filing season.

Once eligibility for the moving expense deduction is established, the rules which govern the calculation of the available deduction are not complex, but they are very detailed. The best summary of those rules is found on the form used to claim such expenses — the T1-M. The current version of that form can be found on the CRA’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1-m/t1-m-20e.pdf, and more information (including a link to rates for standardized meal and travel cost claims) is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21900-moving-expenses.html.

By the beginning of June, most Canadians have filed their individual income tax return for the 2020 tax year and received a Notice of Assessment (NOA) outlining their tax position for that year. Those who receive a refund will celebrate that fact or, less happily, those who receive a tax bill will pay the tax amount owed. Both groups of taxpayers are then likely to forget about taxes until it’s tax filing time again in the spring of 2022. The fact is, however, that mid-year is very good time to assess one’s tax position for the current year and is particularly a good idea for taxpayers who have received a large refund or a bill for tax owing.

By the beginning of June, most Canadians have filed their individual income tax return for the 2020 tax year and received a Notice of Assessment (NOA) outlining their tax position for that year. Those who receive a refund will celebrate that fact or, less happily, those who receive a tax bill will pay the tax amount owed. Both groups of taxpayers are then likely to forget about taxes until it’s tax filing time again in the spring of 2022. The fact is, however, that mid-year is very good time to assess one’s tax position for the current year and is particularly a good idea for taxpayers who have received a large refund or a bill for tax owing.

Although few Canadians have this perspective, the reality is that getting either a big tax refund or having to pay a large tax bill is a sign that one’s tax affairs need attention. A refund, especially a large refund, means that the taxpayer has overpaid his or her taxes for the previous year and has essentially provided the Canada Revenue Agency (CRA) with an interest-free loan of funds that could have been put to better use in the taxpayer’s hands. The other outcome — a large bill — means that taxes have been underpaid for the previous year and could mean paying interest charges to the CRA. Either way, it’s in the taxpayer’s best interests to ensure that tax paid throughout the year is sufficient to cover his or her taxes, without overpaying or underpaying. The best-case scenario is to receive an NOA which indicates that there is neither a refund payable nor any amount owing.

All of this makes the mid-point of the tax year a good time to assess one’s current-year tax situation, make sure that everything is on track, and put in place any adjustments needed to help ensure that there are no tax surprises when filing one’s tax return for 2021 next spring. As the calendar year goes on, the opportunities to make a significant difference to one’s current year tax situation diminish.

The first step in doing that review is to get a sense of how much tax one will have to pay for 2021. By mid-year, most taxpayers will have a good sense of what their income will be for 2021. Consequently, where income hasn’t changed much, the amount of tax which was paid for 2020 (a number which can be found on Line 43500 of one’s 2020 NOA) serves as a good starting point. (In most cases, owing to increases in tax brackets and credits, the amount of tax payable by taxpayers whose income doesn’t change significantly between 2020 and 2021 will decrease slightly.)

There are two ways of paying taxes throughout the year. The majority of Canadians (including all employees) have income taxes deducted from their paycheques and remitted to the federal government on their behalf — known as source deductions. Taxpayers who do not have income tax deducted at source — which would include self-employed individuals and, frequently, retired taxpayers — make tax payments directly to the federal government (four times a year, in March, June, September, and December) through the tax instalment system.

Once a rough idea of one’s tax liability for 2021 is arrived at, it’s necessary to figure out whether income tax payments made to date, either by source deductions or instalment payments, match up with that tax liability figure, recognizing that by this point in the year, approximately one-half of 2021 taxes should already have been paid. If they haven’t, and particularly if there is a shortfall which will mean a balance owing when the tax return for 2021 is filed next spring, the taxpayer will need to take steps to remedy that.

Where the individual involved pays tax by instalments, the solution is simple. He or she can simply increase or decrease the amount of remaining instalment payments made in 2021 so that the total instalment payments made over the course of this year accurately reflect the total tax payable for the year. The only caveat in that situation is that the individual should err on the side of caution to ensure that there isn’t a shortfall in instalment payments, which could result in interest charges being levied by the CRA.

The situation is a little more complex for employees, or anyone who has tax deducted at source. Often when such individuals discover that they are overpaying taxes through source deductions, it’s because other deductions which they claim on their return for the year — for expenditures like deductible support payments, child care expenses, or contributions to a registered retirement savings plan (RRSP) — aren’t taken into account in calculating the amount of tax to deduct at source. The solution for employees who find themselves in that situation is to file a Form T1213, Request to Reduce Tax Deductions at Source (available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html) with the CRA. On that form, the taxpayer identifies the amounts which will be deducted on the return for the year and, once the CRA verifies that those deductible expenditures are being made, it will authorize the taxpayer’s employer to reduce the amount of tax which is being withheld at source to take account of that deduction.

Where it’s the opposite situation and a taxpayer finds that source deductions being made will not be sufficient to cover his or her tax liability for the year (meaning a tax bill to be paid next spring) the solution is to have those source deductions increased. To do that, the employee needs to obtain a TD1A form for their province of residence for 2021, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html. On the reverse side of that Form TD1, there is a section entitled “Additional tax to be deducted”, in which the employee can direct his or her employer to deduct additional amounts at source for income tax, and can specify the dollar amount which is to be deducted from each paycheque, on a going-forward basis.

A final note: while no one likes getting a tax bill, there are taxpayers who simply like getting a tax refund and overpay their taxes through the year to create that result. Some of them view that approach as a kind of “forced” savings plan, while others simply like the idea of getting money from the tax authorities. There is nothing inherently wrong with that approach, so long as the taxpayer understands that a tax refund is simply money which was always theirs and is simply being returned to them by the CRA (without interest). Those who would rather not loan money to the CRA interest-free and who don’t want to face a tax bill each spring can avoid both scenarios by investing a couple of hours of time and a little paperwork to ensure that this year’s tax payments are on track.

Over the past decade, the rules governing mortgage lending in Canada have been repeatedly amended, each time to impose more stringent requirements on would-be mortgage borrowers. The latest such change is to the “mortgage stress test”, which imposes income and creditworthiness requirements on would-be borrowers, with the goal of ensuring that they will be able to manage (and repay) their mortgage debt, now and in the future. The change is effective as of June 1, 2021.

Over the past decade, the rules governing mortgage lending in Canada have been repeatedly amended, each time to impose more stringent requirements on would-be mortgage borrowers. The latest such change is to the “mortgage stress test”, which imposes income and creditworthiness requirements on would-be borrowers, with the goal of ensuring that they will be able to manage (and repay) their mortgage debt, now and in the future. The change is effective as of June 1, 2021.

As everyone knows, interest rates (and therefore mortgage lending rates) are near historic lows. Consequently, borrowing costs are minimal and those minimal borrowing costs are reflected in lower mortgage monthly payment requirements. However, interest rates will inevitably increase, in either the short or long term, and the amount of monthly mortgage payments will increase at the same time.

When an applicant seeks mortgage financing, lenders use two tests to determine the applicant’s ability to manage the borrowing sought. The first — the Gross Service Debt (GDS) — is a measure of housing costs, and includes mortgage payments, property taxes, heating, and (where applicable) condominium fees. Lenders want to see that no more than 39% of a household’s gross income is needed to meet the GDS. The second measurement, the Total Debt Service (TDS), includes housing costs plus all other debt obligations (student loans, car payments, etc.). When it comes to TDS, lenders want to see that payment of total debt obligations utilizes no more than 44% of the borrower’s gross household income.

The mortgage stress test requires would-be borrowers to meet the GDS and TDS ratios based on both the actual mortgage interest rate which the lender is providing and a notional higher rate. Where the prospective borrower has a down payment of at least 20%, he or she must meet the GDS and TDS ratios using the actual rate negotiated with the lender, plus 2%; or the notional rate set by the federal government, whichever is higher. Where the down payment is less than 20%, the prospective borrower must meet the GDS and TDS ratios using the higher of the actual lending rate or the notional rate set by the federal government.

On June 1, that notional higher rate will increase and prospective borrowers must show that they can meet the GDS and TDS ratios with an assumed notional mortgage interest rate of 5.25%. Prior to June 1, that notional higher rate was 4.79%.

By now, most Canadians have filed their income tax returns for the 2020 taxation year. Specifically, by May 17, 2021, the Canada Revenue Agency (CRA) had processed just under 27 million individual income tax returns filed for 2020. Just over 16 million of those returns resulted in a refund to the taxpayer, while about 6.6 million taxpayers received a bill for additional taxes owed.

By now, most Canadians have filed their income tax returns for the 2020 taxation year. Specifically, by May 17, 2021, the Canada Revenue Agency (CRA) had processed just under 27 million individual income tax returns filed for 2020. Just over 16 million of those returns resulted in a refund to the taxpayer, while about 6.6 million taxpayers received a bill for additional taxes owed.

No matter when or how a return is filed, or the outcome of the filing, all returns filed with and processed by the CRA have one thing in common — they result in the issuance of a Notice of Assessment (NOA) by the CRA, outlining the taxpayer’s income, deductions, credits, and tax payable for the 2020 tax year.

In most taxation years, the information contained in the NOA is usually the same as that provided by the taxpayer in his or her return, perhaps with a few arithmetical corrections made by the CRA. However, it’s likely that more than the usual number of returns filed for the 2020 tax year will result in some disagreement between the taxpayer and the CRA. Millions of Canadians received pandemic-related benefits (particularly the Canada Emergency Response Benefit (CERB) during 2020 and not all benefit recipients were aware that such benefits represented taxable income which had to be reported on the return for 2020. Consequently, many such taxpayers may receive an unpleasant surprise when the information presented in the NOA differs from that provided by the taxpayer in the return, and that difference includes additional tax amounts owed. When that happens, the taxpayer has to figure out why, and to decide whether or not to dispute the CRA’s conclusions.

Quite often such discrepancies are the result of an error made by the taxpayer in completing the return. A lot of information from a variety of sources is reported on even the most straightforward of returns and it’s easy to overlook (e.g., a T5 slip reporting a small amount of interest income earned). Even where tax software is used to prepare the return, errors can still occur. Such tax software relies, in the first instance, on information input by the user with respect to taxable amounts found on T4, T5, and other information slips. No matter how good the software, it can’t account for income —like pandemic benefits — which the taxpayer hasn’t input. In other cases, the taxpayer might transpose figures when entering them, such that an income amount of $26,353 on the T4 becomes $23,653 on the tax return. Once again, the tax software has no way of knowing that the information input was incorrect and calculates tax owing based on the figures provided.

Where there is additional tax owing because of an error or omission made by the taxpayer in completing the return (including a failure to report pandemic benefits received as income), and the CRA’s figures are correct, disputing the assessment doesn’t really make sense. There is, as well, a persistent tax “myth” that if a taxpayer doesn’t receive an information slip (T4 or T5, as the case might be) for income received during the year, that income doesn’t have to be reported and therefore isn’t taxable. The myth, however, is just that. All taxpayers are responsible for reporting all income received and paying tax on that income, and the fact that an information slip was lost, mislaid, or never received doesn’t change anything. The CRA receives a copy of all information slips issued to Canadian taxpayers, and its systems will cross-check to ensure that all income is reported — and done accurately.

There are, however, instances in which the CRA and the taxpayer disagree over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s tax credit claim for a dependant, or for a deduction claimed for moving expenses, which the taxpayer believes to be legitimate.

Whatever the nature of the dispute, the first step is always to contact the CRA for an explanation of the reasons why the change was made. While the information provided in the NOA is a good summary of the taxpayer’s tax situation for the year, it may not provide the detail needed to show precisely how and why the taxpayer and the CRA disagree on the actual amount of income tax which the taxpayer must pay for the year. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281, where agents who have access to the taxpayer’s return can explain any changes which were made during the assessment process. If that call doesn’t resolve the taxpayer’s questions, or there is still a disagreement, the taxpayer must decide whether to take the next step of filing a formal objection to the NOA.

Doing so formally advises the CRA that the taxpayer is disputing his or her tax liability for the taxation year in question. Not incidentally, the filing of an Objection also halts, in most cases, collection efforts undertaken by the CRA to collect taxes which it considers owing for the taxation year under dispute (although, if the taxpayer is eventually found to owe the amount in dispute, interest will have accumulated in the interim). Where the taxpayer files an Objection, the CRA’s collection efforts are, in most cases, suspended until 90 days after the date the CRA’s decision on that Objection is sent to the taxpayer.

There is a time limit by which any Objection must be filed, albeit a reasonably generous one. Individual taxpayers must file an Objection by 90 days from the mailing date of the NOA (the date found at the top of page 1) or one year from the due date of the return which is being disputed, whichever is later. So, for tax returns for the 2020 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2022 (or June 15, 2022 for self-employed taxpayers and their spouses). As with most things related to taxes, it’s best not to put it off. At the very least, if the taxpayer is ultimately found to owe some or all of the taxes assessed by the CRA, interest will have accrued on those taxes for the entire period since the filing due date. Certainly, if the deadline is imminent, it is necessary to file a Notice of Objection in order to preserve the taxpayer’s appeal rights, even if discussions with the CRA are still ongoing.

Taxpayers who have registered with the CRA’s online services feature My Account can file their Notice of Objection online at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html. The taxpayer provides information with respect to the assessment being disputed and the reasons why that assessment is being disputed, and submits those reasons online. Taxpayers who are disputing their tax assessment can also upload supporting documents relating to that dispute to the CRA’s website.

While filing a dispute through My Account is certainly faster than mailing hard copy of the Notice of Objection, not all taxpayers want to use that option. In particular, those who are not already registered with My Account may not wish to undertake the registration process simply in order to file a single Notice of Objection. Taxpayers who choose instead to mail hard copy of a Notice of Objection can find the most current version of the CRA’s standardized T400A Objection on the Agency’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t400a/t400a-09-18e.pdf.

Taxpayers are not obligated to use the CRA’s official Notice of Objection form — any communication which makes it clear that the taxpayer is objecting to his or her NOA will do. Nonetheless, there’s no reason not to use the standardized form, and there are benefits to doing so. Using the Form T400A will make it clear to the CRA that a formal objection is being filed, will present the necessary information in a format with which the CRA is familiar and will also mean that no required information is inadvertently omitted. It is also helpful to include a copy of the NOA which is being disputed. Taxpayers should also consider ensuring proof of both delivery and time of delivery by sending the form in a way which provides for tracking and proof of delivery (e.g., registered mail or courier).

Notices of Objection are sent to an Appeals Intake Centre, and the mailing address to which the Objection should be sent is provided on the NOA form. It’s also possible, once an Objection is filed, to call the Objection enquiries toll-free number at 1-800-959-5513 to obtain information on the current status of the Objection.

The time required for the CRA to consider the Objection and make its decision ranges from several weeks to several months, depending on the number and complexity of the issues involved. The CRA website indicates that, as of April 2021, most individual NOAs involving straightforward issues (which would comprise almost all such NOAs) are being resolved within an average of just over 3 months.

In the course of coming to its decision, the CRA may or may not contact the taxpayer for further discussions of the issues in dispute. Should the taxpayer be contacted, he or she may be asked to provide representations outlining his or her position, in writing or at a meeting. Through such representations and meetings, it may be possible for the taxpayer and the CRA to come to an agreement on the taxpayer’s tax liability. In either case, the CRA will either confirm its original assessment or change it. If the original assessment is changed, the CRA will issue a Notice of Reassessment outlining the changes. If the taxpayer continues to disagree with the CRA’s position, the next step is an appeal to the Tax Court of Canada, which must be filed within 90 days after the CRA issues its assessment or reassessment. While in many instances (generally where amounts in dispute are relatively small) taxpayers can represent themselves before the Tax Court, it’s generally a good idea, once things reach this point, to consult a tax lawyer before taking that next step.

The CRA also publishes a useful pamphlet entitled Resolving Your Dispute: Objection and Appeal Rights under the Income Tax Act, and the most recent release of that publication can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p148.html. More information on the objection process is also available on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/file-objection-cppei-appeal-minister/income-tax.html.

It is a sad fact that, every year, thousands of Canadians become the victims of scams in which fraud artists claim to be representatives of the federal government. Equally sadly, in most cases the money lost is not recovered.

Figures compiled by the Canada Anti-Fraud Centre show that, during 2020, just over 42,000 Canadians became victims of fraud, losing over $100 million. And the pace of such activity is accelerating. In the first three months of 2021, nearly 15,000 Canadians have already become victims of fraud and those individuals have lost, cumulatively, around $50 million. Scams relating solely to the pandemic and pandemic benefits are estimated to have cost Canadians over $7 million. Based on those figures alone, telephone and e-mail scams are clearly big business in Canada.

It is a sad fact that, every year, thousands of Canadians become the victims of scams in which fraud artists claim to be representatives of the federal government. Equally sadly, in most cases the money lost is not recovered.

Figures compiled by the Canada Anti-Fraud Centre show that, during 2020, just over 42,000 Canadians became victims of fraud, losing over $100 million. And the pace of such activity is accelerating. In the first three months of 2021, nearly 15,000 Canadians have already become victims of fraud and those individuals have lost, cumulatively, around $50 million. Scams relating solely to the pandemic and pandemic benefits are estimated to have cost Canadians over $7 million. Based on those figures alone, telephone and e-mail scams are clearly big business in Canada.

While fraud has always and will always exist, this past year — and this time of year — represent a perfect opportunity for such scams, for a number of reasons. First, of course, is the financial dislocation which has resulted from the pandemic — many Canadians have lost income and may be in real financial difficulty, making them especially vulnerable to fraudulent promises to “help” them out with those financial difficulties. Second, the federal government has instituted a great number of programs to provide financial assistance to those hit hard by the pandemic. The sheer number of those programs, however, and the fact that they have had to be revised frequently to account for changing conditions has resulted in an inevitable degree of confusion about just who is eligible for what and when, and when repayment of pandemic benefits previously received might be required. That confusion makes it easier for fraud artists to convince their victims of the validity of their “pitch”.

As well, the ongoing lockdowns required by the pandemic have made it necessary for Canadians to manage just about everything online or by phone, opening up opportunities for fraudsters to misrepresent themselves as government officials or government websites. Finally, it’s tax filing season, a time of year when receiving communications from the tax authorities wouldn’t strike most Canadians as being out of place, or suspicious, and when, in fact, the tax authorities do communicate with taxpayers for valid reasons. All in all, it’s a perfect storm of opportunity for scammers and fraudsters.

Generally, there are two ways in which fraud artists prey on taxpayers. In the first, the taxpayer is contacted by e-mail and advised that he or she is owed money by the federal government. In order to receive the money owed, the taxpayer must click on a link in that e-mail. The link leads, not to a federal government website, but to a “dummy” site closely resembling the actual Canada Revenue Agency (CRA) website. The taxpayer must then, in order to have his or her “refund” or “benefit” processed, provide personal and financial information which can then be used by the tax scammer.

The second approach, and one which has been used with great success over the past few years, is to falsely inform the taxpayer (this time, usually by telephone) that he or she owes money to the CRA or some other agency of the federal government, and that immediate payment must be made. A failure to pay, the taxpayer is told, will mean seizure of his or her assets, cancellation of his or her passport, and/or social insurance card or other government-issued identification, deportation, or imprisonment. Further, such payment must be made only by wire transfer or pre-paid credit card. This type of fraud has become so ubiquitous, in fact, that many businesses which provide money-transfer services now post warnings on their premises to would-be users of the need to be aware of the fraud risk.

There are, in fact, several things about such a phone call that should alert the recipient to the fact that it’s not legitimate. First of all, if a taxpayer does owe money to the CRA, he or she will be first advised of that fact by mail and never by telephone — most often in his or her Notice of Assessment for a tax return filed. Second, the CRA would never suggest or require that a taxpayer send funds to them by wire transfer or by using a prepaid credit card. Any payment of money owed to the CRA is made online, through the CRA website, through the taxpayer’s financial institution (in person or online), or by mailing a cheque to the CRA. Finally, any suggestion that the CRA would (or could) cancel a taxpayer’s passport or other government issued ID for failure to make payment is simply ludicrous.

There is almost no limit to the number and variety of scams and phishing attempts that are carried out using the CRA’s name and new ones, which appear frequently, are usually identified on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html and https://www.canada.ca/en/revenue-agency/campaigns/fraud-scams.html. Unfortunately, many such scams originate outside Canada, limiting the ability of the CRA and law enforcement authorities to monitor or stop them. For the most part, therefore, the onus will fall on individual taxpayers to protect themselves, through a healthy degree of caution, even skepticism.

The CRA suggests that, in order to avoid becoming a victim of such scams, taxpayers should keep the following general guidelines in mind.

The CRA will never:

• ask for personal information of any kind by email or text message (the CRA does not, in fact, ever use texts or any other instant messaging to communicate with taxpayers);
• request payment by prepaid credit cards;
• give taxpayer information to another person, unless formal authorization is provided by the taxpayer; or
• leave personal information on an answering machine.

When in doubt, a taxpayer should ask himself or herself the following:

• Am I expecting more money from the CRA?
• Does this sound too good to be true?
• Is the requester asking for information I would not provide in my tax return?
• Is the requester asking for information I know the CRA already has on file for me?
• Why is the caller pressuring me to act immediately? Am I certain the caller is a CRA employee?
• Did I file my tax return on time? Have I received a notice of assessment or reassessment saying I owe tax?
• Have I received written communication from the CRA by email or mail about the subject of the call?
• Does the CRA have my most recent contact information, such as my email and mailing address?
• Is the caller asking for information I would not give in my tax return or that is not related to the money I owe the CRA?
• Did I recently send a request to change my business number information?
• Have I received a statement of account about a government program I owe money to, such as employment insurance or Canada Student Loans?

While it was once possible, using call display, to see the number of any caller in order to verify that it was indeed a CRA number, that is no longer the case. Telephone scammers have taken advantage of technology which enables them to have the actual number of a CRA office or service displayed on the call recipient’s call display, making it that much more difficult to identify the caller as a scammer. As well, a scammer will often leave a voice mail with a phone number at which the taxpayer can reach them. In both cases, the correct response is the same. The recipient of the call should call the CRA Individual Income Tax Enquiries line at 1-800-959-8281. Service agents at that line will be able to access the taxpayer’s tax records and provide information on whether the taxpayer does indeed owe any funds to the CRA, or is entitled to a tax refund. As well, taxpayers who receive what seems to be a suspicious communication should report that by e-mail to info@antifraudcentre.ca — or they can call the Canadian Anti-Fraud Centre at 1-888-495-8501.

If the worst has already happened, and the taxpayer has been scammed, the best course of action is to report the scam to local law enforcement, to contact the Canadian Anti-Fraud Centre toll free at 1-888-495-8501 or through the Fraud Reporting System (FRS), and to report the incident to the financial institution where the money was sent (e.g., money service business such as Western Union or MoneyGram, bank, or credit union, credit card company, or internet payment service provider). It’s also prudent to place flags on one’s bank account and report the scam to both credit bureaus, Equifax and TransUnion.

Finally, the unfortunate fact is that victims of fraud are often targeted a second or third time with the promise of recovering money previously lost. The advice from the Canadian Anti-Fraud Centre is never to send money to recover money.

Ironically, the extent to which most individuals are now comfortable transacting their tax and financial affairs online or over the phone, and the speed and anonymity of such transactions, has made it easier in many ways for fraud artists to succeed. As ever, the best defence against becoming a victim of such fraud artists is by refusing to provide personal or financial information, and especially never to make any kind of payment, whether by phone, e-mail, or online, without first verifying the legitimacy of the request.

At the beginning of the pandemic, when states of emergency were declared across Canada, the federal government introduced a number of programs to provide financial relief and assistance to individuals and to businesses.

As the pandemic has worn on, those programs have been extended and revisions have been made to accommodate changing social and economic circumstances. In the recent federal Budget, additional changes like these were made, and an entirely new program was announced.

At the beginning of the pandemic, when states of emergency were declared across Canada, the federal government introduced a number of programs to provide financial relief and assistance to individuals and to businesses.

As the pandemic has worn on, those programs have been extended and revisions have been made to accommodate changing social and economic circumstances. In the recent federal Budget, additional changes like these were made, and an entirely new program was announced.

The major federal wage support program for employers was the Canada Emergency Wage Subsidy (CEWS), which had been scheduled to end as of June 5, 2021. Instead the CEWS has been extended by the budget to last until September 25, 2021, including a phase-out period. In addition, the federal government will be launching a new program — the Canada Recovery Hiring Program.

Canada Recovery Hiring Program

The new Canada Recovery Hiring Program (CRHP) announced in the 2021 federal Budget will provide eligible employers with a subsidy of up to 50% on incremental remuneration paid to eligible employees between June 6 and November 20, 2021. That incremental remuneration will be calculated using a baseline period of March 14 to April 10, 2021.

The CRHP is complementary to the existing CEWS, and eligible employers will be able to claim benefits under either program for a particular period, but not both.

Eligibility requirements for both programs are generally the same, in that the benefit may be claimed by eligible individuals, corporations (with the restriction that for-profit corporations must be Canadian-controlled private corporations), non-profit organizations, and registered charities. In all cases, an eligible employer must have had a payroll account open with the Canada Revenue Agency on March 15, 2020.

Like the Canada Emergency Wage Subsidy, the CRHP operates on the basis of qualifying periods, with the eligibility criteria and the percentage benefit changing in successive periods. For each period, the employer must demonstrate a revenue decline of at least a specified percentage, when compared to revenue from the applicable baseline period. That required revenue decline percentage will be 0% for the qualifying period of June 6 to July 3, 2021, and 10% for the qualifying period of July 4 to November 20, 2021. Subsidy rates will be as follows:

• 50% for qualifying periods from June 6 to August 28;
• 40% for the qualifying period from August 29 to September 25;
• 30% for the qualifying period from September 26 to October 23; and
• 20% for the qualifying period from October 24 to November 20.

Eligible remuneration for purposes of the CHRP will generally encompass salary and wages, together with any other remuneration for which employers are required to withhold income tax amounts. In all cases, eligible remuneration per employee will be subject to a weekly maximum of $1,129.

Extension of the Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy (CEWS) program was created to provide the means by which employer could re-hire employees who had been laid off for pandemic related reasons.

The wage subsidy under CEWS includes a base subsidy for employers who experienced revenue declines of a minimum specified percentage, as well as a top-up subsidy where that decline amounts to at least 50% of revenue. The combined subsidies receivable through the base and top-up subsidies is, through the qualifying period ending on June 5, 2021, 75% of wages.

As with the CHRP, the maximum weekly remuneration on which the percentage benefit is calculated is $1,129.

The Budget proposals extend the CEWS through to September 25, 2021. However, the subsidy rates will be gradually phased out beginning on July 4, 2021 and, as of that date, only employers with a decline in revenue of more than 10% will be eligible for the CEWS.

Finally, while no CEWS benefit is available for pay periods beginning after September 25, the Budget papers note that, should circumstances warrant, the federal government will have the authority to extend the CEWS program to be available until November 20, 2021.

Detailed information on both the CEWS and the new CHRP can be found in the 2021 federal Budget papers, which are available at https://www.budget.gc.ca/2021/report-rapport/anx6-en.html#emergency-business-supports and at https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy.html.

The Old Age Security (OAS) program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the second quarter of 2021 (April to June 2021), that maximum monthly benefit is $618.45.  

The Old Age Security (OAS) program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the second quarter of 2021 (April to June 2021), that maximum monthly benefit is $618.45.  

For many years, OAS was automatically paid to eligible recipients once they reached the age of 65. However, since July 2013, Canadians who are eligible to receive OAS benefits have been able to defer receipt of those benefits for up to five years, when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received increases by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%.

It can, however, be difficult to determine, on an individual basis, whether and to what extent it would make sense to defer receipt of OAS benefits. Some of the difficulty in deciding whether to defer — and for how long — lies in the fact there are no hard and fast rules, and the decision is very much an individual one. Fortunately, however, there are a number of factors which each individual can consider when making that decision.

The first such factor is how much total income will be required, at the age of 65, to finance current needs. It’s also necessary to determine what other sources of income (employment income from full-time or part-time work, Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, annuity payments, and withdrawals from registered retirement savings plans (RRSPs) and registered retirement income fund (RRIFs)) are available to meet those needs, both currently and in the future, and when receipt of those income amounts can or will commence or cease. Once income needs and the sources and possible timing of each is clear, it’s necessary to consider the income tax implications of the structuring and timing of those sources of income. The ultimate goal, as it is at any age, is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits.

In making those calculations, the following income tax thresholds and benefit cut-off figures are a starting point.

• Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2021, that second income tax bracket begins when taxable income reaches $49,020.
• The Canadian tax system provides (for 2021) a non-refundable tax credit of $7,713 for taxpayers who are age 65 or older at the end of the tax year. That amount of that credit is reduced once the taxpayer’s net income for the year exceeds $38,893.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2021, the full credit is payable to individual taxpayers whose family net income is less than $38,892.
• Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits, through a mechanism known as the “OAS recovery tax”, or clawback. Taxpayers whose income for 2021 is more than $79,845 will have a portion of their future OAS benefits “clawed-back”.

What other sources of income are currently available?

More and more, Canadians are not automatically leaving the work force at the age of 65. Those who continue to work at paid employment and whose employment income is sufficient to finance their chosen lifestyle may well prefer to defer receipt of OAS. Similarly, a taxpayer who begins receiving benefits from an employer’s pension plan when he or she turns 65, may be able to postpone receipt of OAS benefits.

Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence?

Nearly all Canadians who were employed or self-employed after the age of 18 paid into the Canada Pension Plan and are eligible to receive CPP retirement benefits. While such retirement benefits can be received as early as age 60, receipt can also be deferred and received any time up to the age of 70. As is the case with OAS benefits, CPP retirement benefits increase with each month that receipt of those benefits is deferred. Taxpayers who are eligible for both OAS and CPP will need to consider the impact of accelerating or deferring the receipt of each benefit in structuring retirement income.  

Does the taxpayer have private retirement savings through an RRSP?

Taxpayers who were not members of an employer-sponsored pension plan during their working lives generally save for retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to begin receiving income from those savings. There are a number of options available for structuring that income, and, whatever the option chosen (usually, converting the RRSP into a registered retirement income fund or RRIF, or purchasing an annuity) will mean that the taxpayer will begin receiving income amounts from those RRSP funds in the following year. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider that they will have an additional (taxable) income amount for each year after they turn 71.

The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing of each of those income sources must be considered, and none can be considered in isolation from the others.

Individuals who are facing that decision-making process will find some assistance on the Service Canada website. That website provides a Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. To use the calculator, it is necessary to know the amount of Canada Pension Plan benefit which will be received, and the taxpayer can obtain that information by calling Service Canada at 1-800 277-9914.

The Retirement Income Calculator can be found at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

For the majority of Canadians, the due date for filing of an individual tax return for the 2020 tax year was Friday April 30, 2021. (Self-employed Canadians and their spouses have until Tuesday June 15, 2021 to get that return filed.) In the best of all possible worlds, the taxpayer, or his or her representative, will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can go “off the rails” in any number of ways.

For the majority of Canadians, the due date for filing of an individual tax return for the 2020 tax year was Friday April 30, 2021. (Self-employed Canadians and their spouses have until Tuesday June 15, 2021 to get that return filed.) In the best of all possible worlds, the taxpayer, or his or her representative, will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can go “off the rails” in any number of ways.

By April 26, 2021, just over 20 million individual income tax returns for the 2020 tax year had been filed with the CRA. And, inevitably, some of those returns contain errors or omissions that must be corrected.

Over 93% of the returns which have already been filed for the 2020 tax year were filed through online filing methods, meaning that they were prepared using tax return preparation software. The use of such software significantly reduces the chance of making a clerical or arithmetic error, like entering an amount on the wrong line or adding a column of figures incorrectly. However, no matter how good the software, it can work only with the information that is provided to it. Sometimes taxpayers prepare and file a return, only to later receive a tax information slip that should have been included on that return. It’s also easy to make an inputting error when transposing figures from an information slip (a T4 from one’s employer, for instance) into the software, such that $58,479 in income becomes $54,879. Whatever the cause, where the figures input are incorrect or information is missing, those errors or omissions will be reflected in the final (incorrect) result produced by the software.

When the error or omission is discovered in a return which has already been filed, the question which immediately arises is how to make things right. The first impulse of many taxpayers is to file another return, in which the complete and correct information is provided, but that’s not the right answer. There are, however, several ways in which a mistake or omission on an already filed tax return can be corrected, including online options.

Since 2018, taxpayers who file their tax returns online, whether through NETFILE or EFILE, have been able to notify the CRA of an error or omission in an already filed return electronically by using the CRA’s ReFILE service. That service, which can be found at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/refile-online-t1-adjustments-efile-service-providers.html, allows taxpayers to make corrections to an already filed return online, on the CRA website.

Essentially, taxpayers whose returns have been filed online (through NETFILE or EFILE) can make a correction using the same tax return preparation software that was used to prepare the return. Those taxpayers who used NETFILE to file their return can file an adjustment to a return filed for the 2017, 2018, 2019, and 2020 tax years. Where the return was filed using EFILE, the EFILE service provider can similarly file adjustments for returns filed for the 2017, 2018, 2019 or 2020 tax years.

There are limits to the ReFILE service. Regardless of who is using the service (i.e., the taxpayer or an EFILE service provider) the online system will accept a maximum of 9 adjustments to a single return, and ReFILE cannot be used to make changes to personal information, like the taxpayer’s address or direct deposit details. There are also some types of tax matters which cannot be handled through ReFILE, like applying for a disability tax credit or child and family benefits.

It’s also possible to make a change or correction to a return using the CRA’s “My Account” service (through the “Change My Return” feature), but that choice is available only to taxpayers who have already become registered for My Account. Taxpayers who opt to become registered for My Account, in order to access the broader options available through Change My Return should be aware that that registration process takes a few weeks, in order to satisfy the CRA’s security measures.

While using the CRA’s online services, whether through ReFILE or My Account is certainly the fastest way to make a correction on an already filed return, taxpayers who don’t wish to use an online method do still have a paper option. The paper form to be used is Form T1-ADJ E (20), which can be found on the CRA website at T1-ADJ T1 Adjustment Request - Canada.ca. Those who are unable to print the form off the website can order a copy to be sent to them by mail by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. There is no limit to the number of changes or corrections which can be made using Form T1-ADJ E (20).

The use of the actual T1-ADJ (20) isn’t mandatory — it’s also possible to file an adjustment request by sending a letter to the CRA — but using the prescribed form has two benefits. First, it makes clear to the CRA that an adjustment is being requested. Second, filling out the form will ensure that the CRA is provided with all the information needed to process the requested adjustment. And, whether the request is made using the T1 Adjustment form or by letter, it’s necessary to include any relevant documents — the information slip summarizing the income not reported, or the receipt for an expense inadvertently not claimed.

Hard copy of a T1-ADJ(20) (or a letter) is filed by sending the completed document to the appropriate Tax Center, which is the one with which the tax return was originally filed. A listing of Tax Centres and their addresses can be found on reverse of the TD-ADJ (20) form. A taxpayer who isn’t sure any more which Tax Centre his or her return was filed with can go to http://www.cra-arc.gc.ca/cntct/tso-bsf-eng.html on the CRA website and select his or her location from the drop-down found there. The address for the correct Tax Centre will then be provided.

Where a taxpayer discovers an error or omission in a return already filed, the impulse is to correct that mistake as soon as possible. However, no matter which method is used to make the correction — ReFILE, My Account, or the filing of a T1-ADJ in hard copy, it’s necessary to wait until the Notice of Assessment for the return already filed is received. Corrections to a return submitted prior to the time that return is assessed simply can’t be processed by the Agency.

Once the Notice of Assessment is received, and an adjustment request is made, it will take at least a few weeks, usually longer, before the CRA responds. The CRA’s goal is to respond to such requests that are submitted online within about two weeks, while those which come in by mail currently take about ten to twelve weeks. Not unexpectedly, all requests which are submitted during the CRA’s peak return processing period between March and July will take longer.

Sometimes the CRA will contact the taxpayer, even before a return is assessed, to request further information, clarification, or documentation of deductions or credits claimed (for example, receipts documenting medical expenses claimed, or child care costs). Whatever the nature of the request, the best course of action is to respond promptly, and to provide the requested documents or information. The CRA can assess only on the basis of the information with which it is provided, and it is the taxpayer’s responsibility to provide support for any deduction or credit claims made. Where a request for information or supporting documentation for a claimed deduction or credit is ignored by the taxpayer, the assessment will proceed on the basis that such support does not exist. Providing the requested information or supporting documentation can usually resolve the question to the CRA’s satisfaction, and its assessment of the taxpayer’s return can then be completed.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know until their return is completed what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know until their return is completed what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers are, of course, hoping for a refund — the bigger the better. A lot would be happy to find that at least nothing is owed to the Canada Revenue Agency (CRA), or that an amount owing is not significant.

The worst-case scenario, for all taxpayers, is to find out that they are faced with a large tax bill and an imminent payment deadline, and that they just don’t have the money to make the required payment by that deadline. For those who don’t have the means to pay a tax bill out of existing resources, that likely means borrowing the needed funds.  And, while that will mean paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the CRA on the unpaid tax bill. 

If a tax bill can’t be paid in full out of either current resources or available credit, the CRA is open to making a payment arrangement with the taxpayer. While, like most creditors, the CRA would rather get paid on time and in full, its ultimate goal is to collect the full amount of taxes owed. Consequently, the CRA provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement.

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 150 of the last tax return for which the taxpayer received a Notice of Assessment. For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2019 tax year. The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern Time.

Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657, or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

The CRA also provides on online tool, in the form of a Payment arrangement calculator (available at Payment Arrangement Calculator — Canada.ca), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances). That calculator includes interest charges since, no matter what payment arrangement is made, the CRA levies interest charges on any amount of tax owed for the 2020 tax year which is not paid on or before April 30, 2021. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates — the rate charged from April 1 to June 30, 2021 is 5%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30 deadline.

This year, there is one exception to the usual rules with respect to interest charges levied on late or insufficient tax payments. During 2020, millions of Canadian taxpayers applied for and received pandemic-related benefits. And, although those benefits represent taxable income to the recipients, no tax was deducted from the payments when they were made. Consequently, many benefit recipients will be facing a larger than expected tax bill when they complete their return for 2020. And, given the continuing economic and employment fallout from the pandemic, it’s likely that many of them will be unable to pay those taxes on time and in full. In recognition of that fact, the CRA has indicated that it will be providing relief from the resulting interest charges in the form of a one-year interest holiday. Specifically, taxpayers who received pandemic-related benefits during 2020 and whose income for that year was $75,000 or less, will not have to pay any interest charges on 2020 tax amounts owed until May 1, 2022. More information on the interest relief program can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes/interest-relief.html.

Finally, regardless of the taxpayer’s circumstances, there is one strategy which is a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount — and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed — and that doesn’t count the compound interest which is levied on all penalty amounts, as well as on all unpaid taxes. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Friday April 30, 2021. For self-employed taxpayers (and their spouses) the filing deadline is Tuesday June 15, 2021. However, for all taxpayers, the payment deadline for all 2020 income tax owed is Friday April 30, 2021.

Detailed information on the options available to taxpayers who can’t pay their taxes on time and in full can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-taxes-owing.html#toc2.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2020 must be remitted to the Canada Revenue Agency (CRA) on or before Friday April 30, 2021. No exceptions and, absent extraordinary circumstances, no extensions.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2020 must be remitted to the Canada Revenue Agency (CRA) on or before Friday April 30, 2021. No exceptions and, absent extraordinary circumstances, no extensions.

It is very much in the CRA’s interest to make paying taxes as simple and as straightforward as it can be and so the Agency offers individual taxpayers a wide range of choices when it comes making that payment. There are, in fact, no fewer than eight separate options available to individual residents of Canada in paying their taxes for the 2020 tax year. The first five options outlined below involve payment by electronic means, while the last three describe those available to taxpayers who would prefer to make their payments in person, or by sending a cheque to the CRA.

Pay using online banking

Millions of Canadians transact most or all of their banking using the online services of their particular financial institution. The list of financial institutions through which a payment can be made to the CRA is a lengthy one (available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-online-banking.html), and includes all of Canada’s major banks and credit unions.

The specific steps involved in making that payment will differ slightly for each financial institution, depending on how their online payment systems are configured. What’s important to remember is that the nature of the payment (i.e. current year tax return, as distinct from current year tax instalment payments) must be specified, and the taxpayer’s social insurance number must be provided, in order to ensure that the payment is credited to the correct account, for the correct taxation year.

It is not necessary to access any particular CRA form in order to make an online payment of taxes through one’s financial institution.

Using the CRA’s My Payment

The CRA also provides an online payment service called My Payment. There is no fee charged for the service, and it’s not necessary to be registered for any of the CRA’s other online services in order to use My Payment.

What is necessary is that the taxpayer have a debit card with a VISA Debit, Debit MasterCard, or Interac logo from a participating Canadian financial institution, as My Payment is set up to accept payment using only those cards. Anyone intending to use My Payment should also confirm that the amount of any payment to be made is within the daily or weekly transaction limits imposed by the particular financial institution.

A list of participating financial institutions for each type of card, and more details on this payment method can be found at https://www.canada.ca/en/revenue-agency/services/e-services/payment-save-time-pay-online.html.

Payment by credit card, PayPal, or Interac e-transfer

While it’s possible to pay one’s taxes using a credit card, PayPal, or Interac e-transfer, such payments can only be made through third-party service providers (that is, payments by those methods cannot be made directly to the CRA), and such third party service providers will impose a fee for the service.

There are only two such service providers — Pay Simply and Plastique — listed on the CRA website, and links to each such service are available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-credit-card.html.

Payment through a service provider

There are a number of third-party service providers which will accept payments and remit them on the taxpayer’s behalf to the CRA. However, the majority of such services are more oriented toward providing services to businesses, and most of those listed on the CRA website do not handle payments of individual income tax amounts owed.

The full listing of third-party service providers, and the types of payments they handle, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-a-service-provider.html.

Payment by pre-authorized debit

It’s possible to set up a pre-authorized debit (PAD) arrangement with the CRA, authorizing them to debit the account for an amount of taxes owed, on dates specified by the taxpayer.

Individuals who make instalment payments of tax throughout the year may already have such an arrangement in place and can certainly use that existing arrangement to arrange a PAD of any balance of taxes owed for the 2020 tax year. However, any such arrangement must be made at least five business days before the payment due date of April 30. A taxpayer who makes a payment of taxes only once a year is likely better off using another of the available payment methods.

There is also another option for taxpayers who have their return prepared and E-FILED by an authorized electronic filer. Such taxpayers can have that E-FILER set up a PAD agreement on their behalf in order to make a “one-time” payment for a current year tax amount owed. Such an arrangement is only for the payment of a current-year tax balance, and can’t be used for other payments like instalment payments of tax. Details on how to set up a pre-authorized debit arrangement, whether for a single payment or for recurring payments, are outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-authorized-debit.html.

Paying in person at your financial institution

For those who don’t use online banking, or simply prefer to make a payment in person, it’s possible to pay a tax amount owed at the bank. Doing so, however, requires that the taxpayer have a specific remittance form.

If the taxpayer has not received the required remittance from the CRA, it is possible to download and print that form from the CRA website. Instructions on how to do so can be found on that website at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html.

Paying at a Canada Post outlet

All Canada Post outlets can receive payments of individual income tax balances owed, in cash or by debit card. Once again, however, it is necessary to have a specific form to do so.

In this case, the taxpayer must have a QR code which contains the information needed for the CRA to credit the amount paid to the taxpayer’s account.

While a QR code is sometimes included on remittance forms sent to the taxpayer by the CRA, it’s also possible to generate a QR code online, through the CRA website. The link to do so can be found on that website at https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/pay-canada-post.html.

Paying by cheque

While it’s not common anymore, it’s still possible to pay any tax balance owed on filing by cheque, as outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-cheque.html.

Such cheques are made payable to the Receiver-General of Canada, and are mailed, together with the required remittance form, to the CRA, using the address found on the back of the payment remittance form. As is the case with payments made at a financial institution, the taxpayer can print such a remittance form from the CRA’s website. Instructions on how to do so can be found at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html.

The CRA also suggests that, where payment of taxes owing is made by cheque, the taxpayer should include his or her social insurance number on the memo line found on the front of the cheque. Doing so will help ensure that the payment is credited to the correct account.

It’s important for all taxpayers to realize that, whatever form of payment is used, the payment deadline of April 30 requires that the CRA receive payment by that date. The CRA considers that a payment has been made only when it actually receives that payment, or the payment is received by a member of the Canadian Payments Association (which would include most Canadian financial institutions).

The majority of payment options now available to Canadians involve online transactions or the use of third party service providers. Both such methods can mean some delay in receipt of the payment by the CRA, as a result of the time required for processing of the payment by the financial institution or third party. Consequently, taxpayers who make their tax payments online or using a third party service provider are well advised to consider that time lag in deciding when to make their payment – waiting until April 30, especially late in the day, to do so  isn’t a good idea.

Those who make their payment in person at a financial institution (using a remittance form, as outlined above) can make their payment on April 30, as the date stamped on the remittance form is considered to be the date on which such payment is received by the CRA.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2020, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2020, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 1, 2021 in order to be deducted on the return for 2020.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2020, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2020, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 1, 2021 in order to be deducted on the return for 2020.

The fact that the clock has run out on most major tax planning opportunities for 2020 doesn’t mean, however, that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2020 — by claiming all available deductions and credits on the return and also by making sure that those deductions and credits are claimed in the way which will give the taxpayer the most “bang for the buck”.

Everyone’s tax situation — and, therefore, tax return — is different, but most taxpayers make claims on their annual returns for medical expenses incurred and/or charitable donations made. It may seem counterintuitive or even illogical to not claim every available deduction and credit in order to obtain the best possible tax result for the year. However, for both medical and charitable tax credit claims, albeit for different reasons, there are situations in which it makes sense to defer an available claim until a future year, or to transfer the claim to another person.

Claiming charitable donations

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2020) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to encourage higher donations.

That credit, at both the federal and provincial/territorial levels, is a two-tier credit. Federally, the first $200 in donations receives a credit of 15% of the total donation, or $30. However, donations above the $200 level receive a credit equal to 29% of the donation amount over $200.

Take, for example, a taxpayer who makes a regular contribution to a favourite charity of $100 each month, or $1,200 per year. Where he or she claims that donation on the annual return each year, that claim will result in a federal credit of $320 ($200 × 15%, +  $1,000 × 29%). Where, however, the same taxpayer defers the claim to the following year and claims a total of $2,400 in donations on a single return, he or she will receive a federal credit of $668. ($200 × 15%, + $2,200 × 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,712 ($200 × 15%, + $5,800 × 29%). Under each scenario, the total charitable donation made is the same, but the amount of credit received increases with each year that the claim is deferred. Since each of the provinces and territories provide a two-tier credit (at different rates, depending on the jurisdiction), the same result will be seen when calculating the provincial/territorial credit.

Medical expense tax credit

Notwithstanding our publicly funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs.

The federal credit for such expenses is 15% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, albeit at different rates.

Many taxpayers, with some justification, find the rules on the calculation of a medical tax credit claim confusing. First, there is an income threshold imposed. Medical expenses eligible for the credit are qualifying expenses which exceed 3% of net income, or (for 2020) $2,397, whichever is less. Put more practically, for 2020 taxpayers who have net income of $79,900 or more can claim medical expenses incurred over $2,397. Those with lower incomes can claim medical expenses which exceed 3% of that lower net income. For instance, a taxpayer having $35,000 in net income could claim qualifying medical expenses incurred over $1,050 (3% of $35,000).

The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, such rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and therefore the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed and, of course, any expenses which were claimed on a previous return cannot be claimed again. 

While only expenses which exceed the $2,379/3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for all children born in 2003 or later. While medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses is very likely (especially for a family that does not have private medical insurance coverage) to mean that total expenses will exceed the applicable threshold.

In determining who will make the medical tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income/$2,379 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower net income makes the claim for total family medical expenses. However, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit.

Finally, there are a huge number and variety of medical expenses which individuals and families may incur, and the rules governing which can be claimed and in what circumstances, are very specific. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. The very long list of medical expenses eligible for the credit, and any ancillary requirements, such as a prescription, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

When the pandemic was declared just over a year ago, the federal government announced a wide range of benefits to help mitigate the financial stress experienced by those who lost jobs or saw their hours (and income) reduced.

When the pandemic was declared just over a year ago, the federal government announced a wide range of benefits to help mitigate the financial stress experienced by those who lost jobs or saw their hours (and income) reduced.

The most broad-based of those programs was the Canada Emergency Relief Benefit (CERB), which was received by nearly 9 million Canadians. The rollout of the program was rapid—generally speaking, recipients could obtain benefits by direct deposit within days after completing an online application questionnaire. Inevitably, the rapid rollout of CERB gave rise to some confusion, among recipients and those who were administering the program. That confusion meant that some individuals who were not actually eligible for the CERB nonetheless received benefit payments—in some cases substantial benefit payments.

A year later, such recipients are faced with the requirement that benefits which they received but to which they were not entitled must be repaid. Nonetheless, the federal government has announced that as a matter of administrative policy, relief from such repayment obligations may be provided, mainly in circumstances where erroneous information was provided to applicants.

The beneficiaries of the relief measure announced are self-employed individuals. When the CERB program was rolled out, one of the criteria for benefit eligibility was that the applicant must have had income of at least $5,000 during the previous 12 months. For most individuals determining that figure is straightforward, but for the self-employed, the calculation is more complex.

Information given to some self-employed applicants last spring was the $5,000 threshold referred to gross self-employment income, not net income. That information was incorrect, and self-employed individuals who indicated on the application form that they had at least $5,000 in income from self-employment in the previous 12 months generally received the CERB (assuming all other criteria were met). Where, however, they had less than $5,000 in net self employment income during the qualifying period, such individuals were subsequently found not to been eligible, after all, and were required to repay CERB amounts received.

In February of this year, the federal government determined that, in light of the fact that such individuals had acted in reliance on information provided by CERB program administrators, repayment should not be required. Consequently, the government announced that:

“ … self-employed individuals who applied for the Canada Emergency Response Benefit (CERB) and would have qualified based on their gross income will not be required to repay the benefit, provided they also met all other eligibility requirements. The same approach will apply whether the individual applied through the Canada Revenue Agency or Service Canada.

"This means that, self-employed individuals whose net self-employment income was less than $5,000 and who applied for the CERB will not be required to repay the CERB, as long as their gross self-employment income was at least $5,000 and they met all other eligibility criteria.”

Of course, many self-employed individuals who would be eligible for that relief had already repaid CERB amounts received, after being advised of their ineligibility. The federal government announcement (which can be found at https://www.canada.ca/en/revenue-agency/news/2021/02/government-of-canada-announces-targeted-interest-relief-on-2020-income-tax-debt-for-low--and-middle-income-canadians.html) indicates that such amounts repaid to the federal government will be returned to those individuals. No details have yet been released on how and when that will occur.

To date, the relief to be provided to qualifying self-employed CERB recipients is the only broad-based repayment forgiveness program which has been announced by the federal government. In any other circumstances, relief of any kind may be provided only on a case-by-case basis.

Those who believe that they are required to repay CERB amounts received (or have received a communication indicating that they must do so) should also be aware of the existence of CERB repayment scams, and know to recognize such a scam. Sadly, but predictably, individuals have been contacted by scammers purporting to be from the federal government who insist that repayment of CERB amounts received must be made immediately, often by unconventional means, like pre-paid credit cards. The federal government has issued a warning with respect to such scams, advising Canadians to beware of fraudulent emails, texts or calls claiming to be from the CRA about repaying the CERB or requesting personal information. The best way to avoid becoming a victim of such scams is to be knowledgeable about the ways in which the CRA does and does not communicate with taxpayers on such matters. For instance, the CRA will never demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards, or gift cards from retailers such as iTunes or Amazon, and will never threaten a taxpayer with arrest or a prison sentence. As well, the CRA never uses text messages or instant messaging such as Facebook Messenger or WhatsApp to communicate with taxpayers about tax-related issues under any circumstance. Any text or instant message purporting to be from the CRA is a scam.

More information on how to avoid falling victim to a CERB repayment scam (or any other kind of tax scam) is outlined in detail on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html.

While the obligation to file a tax return recurs annually, that return form is never exactly the same from year to year. Tax brackets and allowable deduction and credit amounts change each year and, more significantly, new deductions are provided for and new credits allowed or eliminated.

While the obligation to file a tax return recurs annually, that return form is never exactly the same from year to year. Tax brackets and allowable deduction and credit amounts change each year and, more significantly, new deductions are provided for and new credits allowed or eliminated.

The changes on the individual income tax return for 2020 are perhaps not as numerous or as significant as in some prior years, but there are new credits and deductions which may be claimed, and changes to some existing filing procedures. What follows is an outline of some of the more important changes affecting individual tax filers for 2020, and where those changes can be found on the T1 return form.

Home office expense deduction claims by employees — line 22900 and Form T777S

For many years, employees who work from home more than 50% of the time or who use their home as a place to hold client meetings on regular basis have been able to deduct certain expenses when calculating taxable income for the year.

Obviously, during 2020, the number of employees who work from home increased dramatically, and the Canada Revenue Agency (CRA) has made changes to the rules governing home office expense deductions to accommodate that reality.

In previous years, a home office expense deduction was calculated by totalling all eligible expenses and claiming the percentage of those expenses which corresponded to the size of the home office relative to the entire home. For example, an individual whose home work space used 15% of the total square footage of his or her home would be able to claim 15% of eligible home office expenses.

The CRA has added a new cost to the list of eligible home office deduction expenses. Effective for the 2020 and subsequent tax years, eligible employees can include reasonable monthly home internet access fees in tallying home office expenses.

While it’s still possible to calculate and claim home office expenses for 2020 using the detailed method outlined above, the CRA has also made available a simpler method for those who don’t wish to do all of the required calculations involved in the detailed method. Using the CRA’s “quick method”, taxpayers who are eligible to claim home office expenses can simply claim $2 per day, for a maximum of 200 days. The total allowable claim using the quick method is, therefore, a deduction of $400.

Home office expenses are claimed on line 22900 of the return, and taxpayers making this claim must also complete Form T777S.

For anyone who claims home office expenses for 2020, regardless of the method used, there are rules with respect to who is eligible to make such a claim, what expenses can be claimed and what documentation is required to support those claims. Those rules, together with information on how to calculate the claim under various scenarios, are set out on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/work-space-home-expenses/work-space-use.html.

Non-refundable digital news subscription tax credit — line 31350

It’s common knowledge that the field of publishing, especially the publication of news, is in a state of flux, as traditional print media adapts to the online dissemination of such news. In recognition of this reality, the federal government will be providing (for the years 2020 to 2024) a digital news subscription tax credit.

For 2020, individual taxpayers can claim up to $500 for amounts paid for qualifying subscription expenses. Generally, such qualifying expenses are those paid to Canadian print journalism organizations (i.e., not broadcast media) for a digital news subscription to content that is primarily original news.

While the maximum amount which can be claimed for such a subscription is $500 per year, that amount can be split between taxpayers, as long as the total claim does not exceed $500.

The digital news subscription tax credit is claimed on line 31350 of the 2020 tax return.

Refundable training tax credit — line 45350

Canadian taxpayers aged between 26 and 66 years of age may be able to claim a refundable tax credit for eligible tuition and other fees paid in 2020 in relation to occupational, trade, or professional training.

To qualify for the credit, such tuition fees must generally have been paid to a Canadian university or college, or to a certified Canadian institution offering occupational training. Individuals wishing to claim the credit must also have been resident in Canada throughout 2020 and must meet certain income requirements and limitations for 2020.

Each of those requirements is outlined in more detail on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-training-credit/who-can-apply.html.

Providing the NETFILE access code

The vast majority of Canadian taxpayers file their returns electronically, using NETFILE or E-FILE. At one time it was necessary, in order to NETFILE, to obtain an access code from the CRA in order to file electronically. That’s no longer the case, as the CRA now uses a taxpayer’s date of birth and social insurance number to satisfy their online filing security requirements.

This year, however, taxpayers who are using NETFILE have the option of including an access code as part of the return filed, for a different purpose. Some background is required to understand that purpose.

Taxpayers frequently contact the CRA (often through the individual’s income tax enquiries line at 1-800-959-8281) with questions about their particular tax situation. CRA representatives must, of course, confirm the identify of the person they are speaking to, in order to establish that that person is entitled to the information sought. To do so, the caller is required to answer questions beginning with their name, social insurance number, and date of birth, followed by questions which are specific to the information provided in their tax returns filed for previous years.

This year, taxpayers who include their particular access code in their return filings will be able to use information from the 2020 return as identifying information in any future contacts with the CRA, while those who choose not to provide the access code will not. (Note that such taxpayers should still be able to fulfill information security requirements by providing information filed in returns from other tax years.)

The access code which taxpayers can choose to include with the 2020 return filed was provided by the CRA on the taxpayer’s 2019 Notice of Assessment. That eight-digit alpha-numeric code can be found on page 1 of that Notice of Assessment, in the top right-hand corner.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for the 2020 filing season show that the vast majority of Canadian individual income tax returns — nearly 90%, or almost 28 million returns were filed online, using one or the other of the CRA’s web-based filing methods, or by telephone. The remaining 10% of returns were paper-filed.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for the 2020 filing season show that the vast majority of Canadian individual income tax returns — nearly 90%, or almost 28 million returns were filed online, using one or the other of the CRA’s web-based filing methods, or by telephone. The remaining 10% of returns were paper-filed.

Clearly, electronic filing is the overwhelming choice of Canadian taxpayers, and those who choose electronic filing this year have two choices — NETFILE and E-FILE. The first of those, NETFILE (used last year by just under 33% of tax filers), involves preparing one’s return using software approved by the CRA and filing that return on the Agency’s website, using the NETFILE service. The second method, E-FILE, involves having a third party file one’s return online. Almost always, the E-FILE service provider also prepares the return which they are filing. And, it seems that most Canadians want to have little to do with the preparation of their own returns, as last year 57% of all the individual income tax returns filed came in by E-FILE.

The majority of Canadians who would rather have someone else deal with the intricacies of the Canadian tax system on their behalf can find information about E-FILE on the CRA website at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/fl-nd/menu-eng.html. That site will also provide a listing (searchable by postal code) of authorized E-FILE service providers across Canada, and that listing can be found at https://apps.cra-arc.gc.ca/ebci/efes/epcs/prot/ntr.action.

Those who are able and willing to prepare their own tax returns and file online can use the CRA’s NETFILE service (which is available as of February 22, 2021), and information on that service can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be NETFILED (for instance, a return for a non-resident of Canada, or for someone who declared bankruptcy in 2019 or 2020), the vast majority of Canadians who wish to do so will be able to NETFILE their return.

At one time, it was necessary to obtain and provide an access code in order to NETFILE. While such a code is no longer a requirement, the CRA has provided tax filers with a taxpayer-specific code which can be included with the return for 2020. That 8-digit alpha-numeric code is found (in very small type) in the top right-hand corner of the first page of the 2019 Notice of Assessment, just under the Date Issued line for that Notice of Assessment. Including the code with your return is not mandatory; however, the taxpayer will be able to use information from the 2020 return when confirming their identity with the CRA only if the code was provided on that return.

A return can be filed using NETFILE only where it is prepared using tax return preparation software which has been approved by the CRA. While such software can be found for sale just about everywhere at this time of year, approved software which can be used free of charge, or for a nominal charge, is also available. A listing of free and commercial software approved for use in preparing individual returns for 2020 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview/certified-software-netfile-program.html.

Copies of the 2020 tax return and guide package can also be ordered online, at https://apps.cra-arc.gc.ca/ebci/cjcf/fpos-scfp/pub/rdr?searchKey=ncp%20, to be sent to the taxpayer by regular mail. Taxpayers can also download and print hard copy of the return and guide from the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html. In previous years, the CRA made some tax packages available in hard copy at Service Canada offices and post offices across the country. This year, however, there is no reference on the CRA website to such a distribution. Finally, the CRA will send, by regular mail, hard copy of the 2020 tax return and guide package to anyone who paper-filed a return for 2019 before November 30, 2020.

 A minority of taxpayers will have the option of filing their returns using a touch-tone telephone. That option, called File my Return service will be available to eligible low-income Canadians whose returns are relatively simple and whose tax situation remains relatively unchanged from year to year. For such taxpayers, it is important to file, even if there is no income to report, so that they receive the benefits and credits to which they are entitled. The telephone filing option is, however, available only to taxpayers who are advised by the CRA of their eligibility for the File my Return service, and those individuals will have been notified by letter during the month of February.

Finally, taxpayers who are not comfortable preparing their own returns, but for whom the cost of engaging a third party to do so is a financial hardship, have another option. During tax filing season, there are a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers. This year, most such clinics have had to change their usual in-person operation and adopt alternate methods. Volunteers can prepare an individual’s return, for free, by videoconference, by phone, or through document drop-off. A listing of the available clinics (which is updated regularly throughout the filing season) and their method of operation this tax season can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/free-tax-help.html.

While there are a number of filing options available to Canadian taxpayers, there’s no element of choice when it comes to the filing and payment deadlines for 2020 tax returns. All individual Canadians must pay the balance of any taxes owed for 2020 on or before Friday April 30, 2021 — no exceptions and, absent very unusual circumstances, no extensions.

For the majority of Canadians, the tax return for 2020 must also be filed on or before Friday April 30, 2021. Self-employed taxpayers and their spouses have until Tuesday June 15, 2021 to file their returns for 2020 (but they too must pay any balance of 2020 taxes owing on or before Friday April 30, 2021).

Income tax is a big-ticket item for most retired Canadians. Especially for those who are happily free of the requirement to make mortgage payments, the annual tax bill may be the single biggest annual expenditure they are required to make. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

Income tax is a big-ticket item for most retired Canadians. Especially for those who are happily free of the requirement to make mortgage payments, the annual tax bill may be the single biggest annual expenditure they are required to make. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

There is, however, another income tax saving strategy which is not nearly as well-known. Even more unfortunate is the fact that the benefits of that strategy (and the ease with which it can be accomplished) aren’t readily apparent from either the tax return form or the annual income tax guide. That tax saving strategy is pension income splitting, and it’s likely the case that many taxpayers who could benefit aren’t familiar with the strategy, especially if they are not receiving professional tax planning or tax return preparation advice.

That’s a particularly unfortunate reality because pension income splitting has the potential to generate more tax savings among taxpayers over the age of 65 (and certainly those over the age of 71, for whom RRSP contributions are no longer possible) than just about any other tax planning strategy available to retirees. In addition, it’s one of the very few tax planning strategies which require no expenditure of funds on the part of the taxpayer and which can be implemented after the end of the tax year, at the time the return for that tax year is prepared and filed.

When described in those terms, pension income splitting can sound like one of those “too good to be true” tax scams, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for Canadian residents who are married (and, usually, where recipient spouse is aged 65 or older) to make a notional reallocation of private pension income between them on their annual tax returns, and to benefit from a lower overall family tax bill as a result.

Pension income splitting, like all forms of income splitting, works because Canada has what is called a “progressive” tax system, in which the applicable tax rate goes up as income rises. For 2020, the federal tax rate applied to about the first $48,000 of taxable income is 15%, while the federal rate applied to the next $49,000 of such income is 20.5%. So, an individual who has $97,000 in taxable income would pay federal tax of about $17,320; however, if that $97,000 was divided equally between said individual and his or her spouse, each would have $48,500 in taxable income and the total federal family tax bill would be $14,550 — a federal tax savings of almost $2,800.

The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to his or her spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Government source pensions, like the Canada Pension Plan or Old Age Security payments, do not qualify for pension income splitting, regardless of the age of the recipient.

The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income for 2020, with their annual tax return. That form, which is not included in the annual tax return package, can be found on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1032.html, or can be ordered by calling 1-800-959 8281.

On the T1032, the taxpayer receiving the private pension income and the spouse with whom that income is to be split must make a joint election to be filed with their respective tax returns for 2020. Since the splitting of pension income affects the income and therefore the tax liability of both spouses, the election must be made and the form filed by both spouses — an election filed by only one spouse or the other won’t suffice. In addition to filing the T1032, the spouse who is actual recipient of the pension income to be split must deduct from income the pension income amount allocated to his or her spouse. That deduction is taken on Line 21000 of his or her 2020 return. And, conversely, the spouse to whom the pension income amount is being allocated is required to add that amount to his or her income on the return, this time on Line 11600. Essentially, to benefit from pension income splitting, all that’s needed is for each spouse to file a single form with the CRA and to make a single entry on his or her 2020 tax return.

By the end of February or early March, taxpayers will have received (or downloaded) the information slips which summarize the income received from various sources during 2020. At that time, couples who might benefit from this strategy can review those information slips and calculate the extent to which they can make a dent in their overall tax bill for the year through a little judicious income splitting.

Those wishing to obtain more information on pension income splitting than is available in the 2020 General Income Tax and Benefit Guide should refer to the CRA website at http://www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available.

Over the past month, millions of Canadians have received what was probably an unexpected (and unwelcome) communication from the Canada Revenue Agency (CRA), in the form of a T4A slip. That T4A slip lists the amount of pandemic benefits which were received by the individual in 2020 and represents, more significantly, the amount which must be reported on that individual’s income tax return for 2020 — and on which tax must be paid.

Over the past month, millions of Canadians have received what was probably an unexpected (and unwelcome) communication from the Canada Revenue Agency (CRA), in the form of a T4A slip. That T4A slip lists the amount of pandemic benefits which were received by the individual in 2020 and represents, more significantly, the amount which must be reported on that individual’s income tax return for 2020 — and on which tax must be paid.

When a public health emergency was declared in March of 2020, the focus for both the federal government and benefit recipients was getting benefits into the hands of eligible recipients as quickly as possible, to help mitigate the sudden financial crisis faced by so many. No income tax was deducted from the first round of benefit payments made, and it’s likely that not many recipients were focused on the fact that tax would eventually have to be paid on the amounts received.

However, tax filing time is now upon us, and the general rule is that all benefits received during 2020 under any of the following federal programs must be reported as taxable income on the return for 2020, and tax paid on that income:

• Canada Emergency Response Benefit (CERB)
• Canada Emergency Student Benefit (CESB)
• Canada Recovery Benefit (CRB)
• Canada Recovery Caregiving Benefit (CRCB)
• Canada Recovery Sickness Benefit (CRSB)

The first program — the Canada Emergency Response Benefit — was utilized by nearly one quarter of the Canadian population, as nearly 9 million Canadians applied for partial or full CERB benefits. CERB was payable at a flat rate of $500 per week for a maximum of 28 weeks between March and September of 2020, meaning that the maximum benefit which could be received by one individual during 2020 was $14,000.

The Canada Emergency Student Benefit paid $1,250 every four weeks, for a maximum of 16 weeks, to post-secondary students who were unable to find summer or post-graduation employment due to the pandemic. The total amount payable to any one individual under the CESB program was generally $5,000, although higher amounts were paid to students who were disabled or who had dependants.

No income tax was deducted from any payments made under the CERB or CESB programs.

The last three programs — the Canada Recovery Benefit (CRB), the Canada Recovery Caregiving Benefit (CRCB) and the Canada Recovery Sickness Benefit (CRSB) — replaced the CERB and CESB benefit programs, starting in September 2020. The benefit payable under each of those programs is $500 per week, but the amount of time for which that benefit is paid varies by program. Under the CRB, which is an income replacement program, the $500 per week benefit can be paid for up to 26 weeks. Benefits can be paid for a similar time period to those who must stay home for at least 50% of the week because they must care for a child under the age of 12 or other family member because schools, daycares, or care facilities are closed due to the pandemic, or because the child or family member is sick and/or required to quarantine, or is at high risk of serious health implications. Since these benefits became available starting on September 27, 2020, the maximum benefit which could have been paid to an individual in 2020 under either program was $7,000.

The final benefit — the CRSB — is available to individuals who are ill or who are required to quarantine, but only for a two-week period, meaning that the maximum CRSB benefit payable is $1,000.

The tax treatment of CRB, CRCB, and CRSB benefits paid out does differ slightly from CERB or the CSRB, in that the federal government deducted 10% withholding tax from CRB, CRCB, and CRSB benefits paid.

Whatever the source or amount of pandemic benefit received, the tax consequences are the same. All such benefits must be reported on line 13000 of the income tax return for 2020, and included in taxable income for that year. On that line of the tax return, there is a space provided in which the kind of benefit received should be specified.

The amount of tax payable on those benefit amounts will depend on the province of residence of the recipient and the amount of other income he or she received during 2020. As a basic rule of thumb, the federal tax on benefit amounts received will be at least 15%, while provincial tax payable can range from 4% (for residents of Nunavut) to 15% (for residents of Quebec). Where the total 2020 income of benefit recipients exceeds approximately $45,000, those tax rates will be higher.

Of course, the pandemic and the resulting financial stresses and losses have not yet ended. Many Canadians are still in a precarious financial position and it’s entirely possible that paying tax on benefits received during 2020 will be difficult for such taxpayers. Where paying such tax poses a real financial hardship, there are alternatives. The CRA is willing to enter into a payment arrangement with Canadians to pay their taxes over a period of time (generally through monthly instalments) where, owing to financial hardship, those taxes can’t be paid in full as required on April 30, 2021. In addition, the federal government has announced that interest relief on late tax payments will be provided to individuals who received pandemic benefits during 2020 and have income for that year of less than $75,000.

More information on the taxation of pandemic benefits, and the relief which may be available to those who can’t pay their 2020 taxes on time and in full can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes.html.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency (CRA). That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 15 of this year.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency (CRA). That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 15 of this year.

Receiving an Instalment Reminder from the CRA won’t be a surprise for many recipients who have paid tax by instalments during previous tax years. For others, however, the need to make tax payments by instalment is a new and unfamiliar concept. That’s because for most Canadians — certainly most who earn their income through employment — the payment of income tax throughout the year is an automatic and largely invisible process, requiring no particular action on the part of the employee/taxpayer. Federal and provincial income taxes, along with Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, are deducted from each employee’s income and the amount deposited to an employee’s bank account is the net amount remaining after such taxes, contributions, and premiums are deducted and remitted on the employee’s behalf to the CRA. While no one likes having to pay taxes, having those taxes paid “off the top” in such an automatic way is, relatively speaking, painless. Such is not, however, the case for the sizeable minority of Canadians who pay their income taxes by way of tax instalments

The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an Instalment Reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2021) tax year and either of the two previous (2019 or 2020) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income for the year is at least $3,000 less than their total tax owed for 2021 and either 2019 or 2020. For residents of Quebec, that threshold amount is $1,800.

Such obligation arises on a regular basis for those who are self-employed, of course, and generally for those whose income is largely derived from investments. The group of recipients of a tax instalment reminder often also includes retired Canadians, especially the newly retired, for two reasons. First, while most employees have income from only a single source — their paycheque — retirees often have multiple sources of income, including Canada Pension Plan (CPP) and Old Age Security (OAS) payments, private retirement savings and, sometimes, employer-provided pensions. And, while income tax is deducted automatically from one’s paycheque, that’s not the case for most sources of retirement income. Relatively few new retirees realize that it’s necessary to make arrangements to have tax deducted “at source” from either their government source income (like CPP or OAS payments) or private retirement income like pensions or registered retirement income fund withdrawals, and to make sure that the total amount of those deductions is sufficient to pay the total tax bill for the year. It is that group of individuals who may be surprised and puzzled by the arrival of an unfamiliar Instalment Reminder from the CRA. However, no matter what kind of income a taxpayer has received, or why sufficient tax has not been deducted at source, the options open to a taxpayer who receives such an Instalment Reminder are the same.

First, the taxpayer can pay the amounts specified on the Reminder, by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2021. If the total of instalment payments made during 2021 turn out to more than the taxpayer’s total tax liability for the year, he or she will, of course, receive a refund when the annual tax return is filed in the spring of 2022.

Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2020 tax year. (Generally speaking, such amount will be known once the taxpayer has completed his or her return for 2020). Where a taxpayer’s income has not changed significantly between 2020 and 2021 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2021 will be slightly less than it was in 2020, as the result of the indexation of both income tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2021 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2020 to 2021, such that his or her tax bill will also be substantially reduced, this option can make the most sense.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no tax payable when the return for the 2021 tax year is filed in the spring of 2022. However, should instalments paid have been late or insufficient in amount, the CRA will impose interest charges, at rates which are higher than current commercial rates (the rate charged for the first quarter of 2021 — until March 31, 2021 — is 5%). As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It is also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.

Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer’s best interests. Those who don’t wish to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the Reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required, and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above.

To help taxpayers make a decision on how to respond to an Instalment Reminder, detailed information on the instalment payment system is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-income-tax-instalments.html.

One of the biggest pandemic-related changes in the day-to-day lives of Canadians was the abrupt change to work-from-home arrangements. While such arrangements aren’t new — employees and the self-employed have been working from home for decades, ever since the available technology made such arrangements feasible — what changed in 2020 was the sheer number of Canadians who were working from home for the first time.

One of the biggest pandemic-related changes in the day-to-day lives of Canadians was the abrupt change to work-from-home arrangements. While such arrangements aren’t new — employees and the self-employed have been working from home for decades, ever since the available technology made such arrangements feasible — what changed in 2020 was the sheer number of Canadians who were working from home for the first time.

Even without a pandemic, such work-from-home arrangements have a number of advantages — no one really misses the daily commute, or the costs of that commute and other unavoidable work-related expenses. And, as many Canadians will discover when preparing their tax return for 2020, those advantages include the ability to deduct, for tax purposes, some of the expenses incurred to maintain a home office.

Many if not most employees who worked from home in 2020 will, in fact, have a choice of how to calculate and claim such home office expense deductions. Canada’s tax system already has rules in place to govern the tax treatment of expenditures and reimbursements related to home office work by employees. While those rules aren’t particularly complex, there is some record keeping and calculations required. With that in mind, and in light of the likely millions of taxpayers who will be in a position to claim home office expenses for 2020, the federal government has made available a more straightforward “flat rate” method.

The new temporary flat rate method simplifies the employee’s claim for home office expenses to a significant degree. An employee is eligible to use this new method if he or she worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to the pandemic. Where an employee was provided by his or her employer with the option of working from home and chose to do so, he or she will still be eligible for the flat rate method deduction, assuming the 50%/four week criteria are met.

An eligible employee can claim $2 for each day he or she worked from home in 2020 due to the pandemic. However, the maximum that an individual can claim for the 2020 tax year using the new temporary flat rate method is $400 (200 working days). There is no requirement to document any actual expenses incurred, and no requirement that the employer provide any kind of certification of the work-from-home arrangement.

In many households both spouses worked from home during 2020. Assuming that all of the criteria above are met, both spouses can make a claim for home office expenses using the flat rate method.

Although the new temporary flat rate method is widely available, taxpayers who qualify are still entitled to use the pre-existing detailed method under which actual eligible expenses incurred during the year are tallied and a percentage of those expenses claimed on the 2020 tax return.

In order to claim a deduction for costs related to a work-from-home space using the detailed method, an employee must meet at least one of the following conditions:

• the employee worked from home during 2020 as a consequence of the pandemic; or
• the employee was required by his or her employer to work from home during 2020.

In addition, at least one of the following criteria must also be satisfied in order to claim work-from-home costs under the detailed method:

• the home work space is where the individual mainly (more than 50% of the time) did his or her their work for a period of at least four consecutive weeks during 2020; or
• the individual uses the workspace only to earn his or her employment income—he or she must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of his or her employment duties.

Once these threshold criteria are met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to his or her workspace, such as the cost of rent or condo fees, electricity, heating, water, and home maintenance. For 2020, the list of eligible expenses has been expanded to specifically include internet access fees.

There is no specific formula provided for determining the proportion of eligible costs which can be deducted for qualifying home office expenses. The employee can determine that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home, or he or she can make that calculation based on the number of rooms in the house or apartment relative to the number of rooms used for work-related purposes. Whichever method is chosen, the most important consideration is that the approach taken (and the expenses claimed) be reasonable. In all cases, the CRA can ask the taxpayer to provide documentation and support for claims made using the detailed method.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method. Each such employee must obtain either a Form T2200S, Declaration of Conditions of Employment for Working at Home Due to Covid-19, or Form T2200, Declaration of Conditions of Employment. On those forms, the employer must certify the work-from-home arrangement and confirm that the employee is not being reimbursed for any home office expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.

There is no real rule of thumb to determine which of the two methods outlined above would produce a better tax result in each employee’s circumstances. The choice is, however, that of the employee. Those who are willing to do the necessary calculations to determine whether a greater deduction can be obtained by using the more detailed method can certainly do so. Those who would rather avoid all of that required record keeping and those calculations can simply claim the standard amount allowed by the CRA.

To help employees decide whether they can claim home office expenses for 2020 and, if so, which method they want to use, the CRA has provided an extremely useful summary of the available methods, together with an online calculator for such expenses. All of that information can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/work-space-home-expenses/what-changes.html.

Under Canadian tax law, the general rule is that all amounts paid by an employer to his or her employees are treated as taxable income. That rule holds whether those amounts are paid as cash remuneration, or in the form of non-cash benefits. However, in some circumstances, that general rule is altered to permit employees to receive certain non-cash benefits on a tax-free, or tax-advantaged, basis.

Under Canadian tax law, the general rule is that all amounts paid by an employer to his or her employees are treated as taxable income. That rule holds whether those amounts are paid as cash remuneration, or in the form of non-cash benefits. However, in some circumstances, that general rule is altered to permit employees to receive certain non-cash benefits on a tax-free, or tax-advantaged, basis.

Like so much else during 2020, the usual structure of working arrangements and employee compensation was displaced, and those changes have led the Canada Revenue Agency (CRA) to take another look at the tax treatment of the kinds of compensation and benefits paid during 2020. The CRA has now released information on some of the benefits or allowances which many employers have paid for the first time during 2020, and on how those benefits and allowances will be assessed for income tax purposes on the 2020 individual income tax return.

The announcements made by the CRA generally deal with compensation, benefits, or allowances paid by an employer to allow his or her employees to work partially or fully from home, as has been required under public health orders.

Home office equipment

In March of 2020, millions of employees were suddenly required to work from home during public health states of emergency. Doing so required, of course, that those employees have (or acquire) the necessary tools and equipment to allow them to do so — including, but not limited to, computers, desks, desk chairs, and, in many cases, upgraded Internet connections.

To allow their employees to work from home, many employers furnished the necessary equipment or provided their employees with the funds to do so themselves. The CRA has now indicated that in some — but not all — circumstances, there may be no taxable benefit to the employee from any such assistance. The general rule is as follows: where an employer pays for, or reimburses an employee for, the cost of computer or home office equipment to enable the employee to carry out his or her employment duties, there is no taxable benefit to the employee.

As is always the case in tax, there are limitations and exceptions to this rule. First, the maximum amount which can be provided to an employee (whether through direct purchase by an employer or reimbursement of expenses incurred by the employee) is $500. Any amount received over that $500 limit will be treated as a taxable benefit to the employee, to be reported on the return for 2020 and taxed as income.

Second, the way in which the employer assistance was structured makes a difference. Where the needed equipment or resources is furnished by the employer or the employer reimburses the employee for such purchases, there is no taxable benefit. Where the employee is provided with an advance to make such purchases and is required to provide an accounting (with receipts) for funds spent, and to return any unspent amount to the employer, there is similarly no taxable benefit received. (In both cases, of course, the amounts received or reimbursed are subject to the $500 limit outlined above.)  Where, however, the employee receives an allowance but is not required to account to the employer for amounts spent, there will be a taxable benefit assessed equal to the amount of that allowance.

Commuting and parking costs

The CRA’s longstanding policy is that costs incurred by an employee to get to and from work, including parking costs, are a personal expense. Where those personal expenses are paid by an employer, the employee is considered to have received a taxable benefit.

The Agency recognizes, however, that employees who do continue to commute to work under current conditions may incur additional expenses, in order to minimize their risk of illness. For instance, an employee could choose to drive to work, rather than incurring the additional risk posed by taking public transit. As well, employees who are working from home may need to “visit” the workplace in order to obtain needed equipment or for other employment-related purposes.

In light of those realities, the CRA is prepared, as a matter of administrative policy, to relax the usual rules relating to employee taxable benefits for commuting. Where an employee continues to go to a workplace on a regular basis, and the employer pays for, reimburses, or provides a reasonable allowance for additional commuting costs incurred, no taxable benefit will be assessed for such reimbursement or allowance. The CRA has indicated, as well, that this administrative concession is extended to situations in which an employer-owned motor vehicle is provided for the commute, provided that this represents a change, in that the employee did not, pre-pandemic, commute to work using an employer-provided vehicle.

Where the workplace is closed and employees work from home but must “visit” the workplace for any purpose that enables them to continue to perform their employment duties from home, a similar policy will apply. Specifically, where the employer pays for, reimburses or provides a reasonable allowance for the commuting costs involved in doing so, there will be no taxable benefit to the employee. Once again, this policy is extended to apply to the use of employer-owned motor vehicles.

Finally, where an individual has an employer-provided parking space at his or her workplace, but that workplace is closed, no taxable benefit will be assessed to the employee.

While there are no dollar limits imposed on the amounts outlined above, there are administrative restrictions and requirements. Most important, the administrative concessions exist to account for costs incurred by an employee only for reasons related to the pandemic and the need to comply with resulting public health measures and restrictions. Second, the overriding requirement of reasonableness will continue to apply and, finally, both employers and employees will be required to maintain records — both to demonstrate the reasonableness of any allowance or reimbursement provided, and to account for the kilometres driven for work-related purposes.

Cell phones and meal allowances

The CRA has existing policies with respect to payment by an employer of costs incurred for employment-related use of an employee’s cell phone, and to the payment of meal allowances, and the CRA has indicated that such policies will continue to apply for 2020.  More information on those policies can be found in CRA Guide T4130, Employers’ Guide — Taxable Benefits and Allowances, which can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4130.html.

The changes to the CRA’s policies with respect to employee taxable benefits are outlined in a Backgrounder which is available on the CRA website at https://www.canada.ca/en/revenue-agency/news/2020/12/employer-provided-benefits-and-allowances-cra-and-covid-19.html.

That Backgrounder indicates that all such administrative policy changes are effective only from March 15, 2020 to December 31, 2020.

For most taxpayers, the first few months of the year are a seemingly unending series of bills and payment deadlines. During January and February, many Canadians are still trying to pay off the bills from holiday spending. The first income tax instalment payment of 2021 is due on March 15 and the need to pay any tax balance for the 2020 tax year comes just 6 weeks after that, on April 30. Added to all of that, the deadline for making an RRSP contribution for 2020 falls on March 1, 2021.

For most taxpayers, the first few months of the year are a seemingly unending series of bills and payment deadlines. During January and February, many Canadians are still trying to pay off the bills from holiday spending. The first income tax instalment payment of 2021 is due on March 15 and the need to pay any tax balance for the 2020 tax year comes just 6 weeks after that, on April 30. Added to all of that, the deadline for making an RRSP contribution for 2020 falls on March 1, 2021.

The best advice on how to avoid a cash flow crunch, at least as it relates to RRSP deadlines, is to make RRSP contributions on a regular basis throughout the year. That is, however, more of a goal than a reality for the majority of Canadians, especially given the job and income losses experienced by so many during 2020 and into 2021.

All that notwithstanding, Canadians who wish to deduct an RRSP contribution on their income tax return for 2020 must make that contribution on or before March 1, 2021.  The maximum allowable current-year contribution which can be made by any individual taxpayer for 2020 is 18% of that taxpayer’s earned income for the 2019 year, to a statutory maximum of $27,230.

Those are the basic rules governing RRSP contributions for the 2020 tax year. For most Canadians, however, those rules are just the starting point of the calculation, as millions of Canadian taxpayers have what is termed “additional contribution room” carried forward from previous taxation years. That additional contribution room arises because the taxpayer either did not make an RRSP contribution in each previous year, or made one which was less than his or her maximum allowable contribution for the year. For many taxpayers that additional contribution room can amount to tens of thousands of dollars, and the taxpayer is entitled to use as much or as little of that additional contribution room as he or she wishes for the current tax year.

It’s apparent from the foregoing that determining one’s maximum allowable contribution for 2020 will take a bit of research. The first step in determining one’s total (current year and carryforward) contribution room for 2020 is to consult the last Notice of Assessment which was received from the Canada Revenue Agency (CRA). Every taxpayer who filed a return for the 2019 taxation year will have received a Notice of Assessment from the CRA, and the amount of that taxpayer’s allowable RRSP contribution room for 2020 will be summarized on page 3 of that notice. Taxpayers who have discarded (or can’t find) their Notice of Assessment can obtain the same information by calling the CRA’s Telephone Information Phone Service (TIPS) line at 1-800-267-6999. An automated service at that line will provide the required information, once the taxpayer has provided his or her social insurance number, month and year of birth, and the amount of income from his or her 2019 tax return. Those who don’t wish to use an automated service can call the CRA’s Individual Income Tax Enquiries Line at 1-800-959-8281 and speak to a client services agent, who will also request such identifying information before providing any taxpayer-specific data. Finally, for those who have registered for the CRA’s My Account service, the needed information will be available online.

One question that doesn’t often get asked by taxpayers is whether it actually makes sense to make an RRSP contribution. The wisdom of making annual contributions to one’s RRSP has become an almost unquestioned tenet of tax and retirement planning, but there are situations in which other savings vehicles — particularly the Tax-Free Savings Account (TFSA) — may be the better short-term or long-term option or even, in some cases, the only one available.

When it comes to making a contribution to one’s TFSA, the good news is the timelines and deadlines are much more flexible than those which govern RRSP contributions. A contribution to one’s TFSA can be made at any time of the year, and contributions not made during the current year can be carried forward and made in any subsequent year.

On the other hand, determining one’s total TFSA contribution room is significantly more complex than figuring out one’s allowable RRSP contribution amount, for two reasons. First, the maximum TFSA amount has changed several times (increasing and decreasing) since the program was introduced in 2009. Second, and more important, individuals who withdraw funds from a TFSA can re-contribute those funds, but not until the year following the one in which the withdrawal is made. Especially where a taxpayer has several TFSA accounts, and/or a history of making contributions, withdrawals, and re-contributions, it can be difficult to determine just where that taxpayer stands with respect to his or her current maximum allowable TFSA contribution amount.

In this case, there’s no help to be had from a Notice of Assessment, as the CRA does not provide TFSA contribution information on that form. Information on one’s current year TFSA contribution limit can, however, be obtained from the CRA website, from the TIPS line at 1-800-267-6999 or its Individual Income Tax Enquiries line at 1-800-959-8281, as outlined above. It should be noted, however, that information on one’s current (i.e. 2021) TFSA contribution limit won’t be available through the TIPS line until mid-February 2021.

Determining which savings vehicle is the better option for a particular taxpayer will depend, for the most part, on the taxpayer’s current and future tax situation, the purpose for which the funds are being saved, and the taxpayer’s particular sources of retirement income.

Taxpayers who are saving toward a shorter-term goal, like (hopefully!) next year’s vacation should direct those savings into a TFSA. While choosing to save through an RRSP will provide a tax deduction on that year’s return and, possibly, a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP in a year or two. And, more significantly from a long-term point of view, repeatedly using an RRSP as a short-term savings vehicle will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn cannot be replaced. While the amounts involved may seem small, the loss of contribution room and the compounding of invested amounts over 25 or 30 years or more can make a significant dent in one’s ability to save for retirement.

Taxpayers who are expecting their income to rise significantly within a few years – for example students in post-secondary or professional education or training programs – can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, allowing the funds to compound on a tax-free basis, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted from income which would be taxed at that higher tax rate. And, in a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

Canadians aged 71 and older will find the RRSP vs. TFSA question irrelevant, as the last date on which taxpayers can make RRSP contributions is December 31 of the year in which they turn 71. Many of those taxpayers will, however, have converted their RRSP savings to a registered retirement income fund (RRIF) and anyone who has done so is required to withdraw (and be taxed on) a specified percentage of those RRIF funds every year. Particularly where required RRIF withdrawals exceed the RRIF holder’s current cash flow needs, that “excess” income can be contributed to a TFSA. Although the RRIF withdrawals made must still be included in income for the year and taxed as such, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn in the future from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.

RRSPs and TFSAs are the most significant tax-free or tax-deferred savings vehicles available to Canadian taxpayers, and both have a place in most financial and retirement plans. To help taxpayers make informed choices about their savings options, the CRA provides a number of dedicated webpages about both RRSPs and TFSAs, and those can be found on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html and http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #54 Corporate

Personal:

Issue #54 Personal

The Employment Insurance premium rate for 2021 is unchanged at 1.58%.

The Employment Insurance premium rate for 2021 is unchanged at 1.58%.

Yearly maximum insurable earnings are set at $56,300, making the maximum employee premium $889.54.

As in previous years, employer premiums are 1.4 times the employee premium. The maximum employer premium for 2021 is therefore $1,245.36.

The Quebec Pension Plan contribution rate for 2021 is set at 5.9% of pensionable earnings for the year.

The Quebec Pension Plan contribution rate for 2021 is set at 5.9% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $61,600, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2021 will be $3,427.90 each.

The Canada Pension Plan contribution rate for 2021 is set at 5.45% of pensionable earnings for the year.

The Canada Pension Plan contribution rate for 2021 is set at 5.45% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $61,600, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2021 will be $3166.45 each, and the maximum self-employed contribution will be $6,332.90.

Dollar amounts on which individual non-refundable federal tax credits for 2021 are based, and the actual tax credit claimable, will be as follows:

Dollar amounts on which individual non-refundable federal tax credits for 2021 are based, and the actual tax credit claimable, will be as follows:

                                                                 Credit amount                        Tax credit

Basic personal amount*                                   13,808                               2,071.20

Spouse or common law

   partner amount*                                          13,808                               2,071.20

Eligible dependant amount*                             13,808                               2,071.20

Age amount                                                    7,713                                1,156.95

Net income threshold for erosion of 

age credit                                                      38,893

Canada employment amount                           1,257                                  188.55

Disability amount                                           8,662                                 1,299.30

Adoption expenses credit                               16,729                                2,509.35

Medical expense tax credit

Income threshold amount                               2,421

*For taxpayers having net income for the year of more than $151,978, amounts claimable for the basic personal amount, the spousal amount, and the eligible dependant amount for 2021 may differ.

The indexing factor for federal tax credits and brackets for 2021 is 1.0%. The following federal tax rates and brackets will be in effect for individuals for the 2021 tax year.

The indexing factor for federal tax credits and brackets for 2021 is 1%. The following federal tax rates and brackets will be in effect for individuals for the 2021 tax year.

Income level                                          Federal tax rate

$13,808 - $49,020                                        15%

$49,021 - $98,040                                       20.5%

$98,041 - $151,978                                      26%

$151,979 - $216,511                                    29%

Over $216,511                                             33%

Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax planning strategies. Some of the more significant dates and changes for individual taxpayers for 2021 are listed below.

Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax planning strategies. Some of the more significant dates and changes for individual taxpayers for 2021 are listed below.

RRSP deduction limit and contribution deadline

The RRSP current year contribution limit for the 2020 tax year is $27,230. In order to make the maximum current year contribution for 2020 (for which the contribution deadline will be Monday March 1, 2021), it will be necessary to have earned income for the 2019 taxation year of $151,278.

Tax-free savings account (TFSA) contribution limit

The TFSA contribution limit for 2021 is unchanged at $6,000. The actual amount which can be contributed by a particular individual includes both the current-year limit and any carryover of uncontributed or re-contribution amounts from previous taxation years.

Taxpayers can find out their personal 2021 contribution limit by calling the Canada Revenue Agency’s (CRA) Individual Income Tax Enquiries line at 1-800-959-8281. Those who have registered for the CRA’s online tax service My Account can obtain that information by logging into that service.

Individual tax instalment deadlines for 2021

Millions of individual taxpayers pay income tax by quarterly instalments, which are due on the 15^th day of March, June, September, and December 2021.

The actual tax instalment due dates for 2021 are as follows:

Monday March 15, 2021

Tuesday June 15, 2021

Wednesday September 15, 2021

Wednesday December 15, 2021

Old Age Security income clawback threshold

For 2021, the income level above which Old Age Security (OAS) benefits are clawed back is $79,845.

Individual tax filing and payment deadlines in 2021

For all individual taxpayers, including those who are self-employed, the deadline for payment of all income tax owed for the 2020 tax year is Friday, April 30, 2021.

Taxpayers (other than the self-employed and their spouses) must file an income tax return for 2020 on or before Friday, April 30, 2021.

Self-employed taxpayers and their spouses must file a 2020 income tax return on or before Tuesday June 15, 2021.

Planning for – or even thinking about – next year’s taxes when it’s not yet even mid-December may seem more than a little premature. However, most Canadians will start paying their taxes for 2021 with the first paycheque they receive in January, and it’s worth taking a bit of time to make sure that things start off – and stay – on the right foot.

Planning for – or even thinking about – next year’s taxes when it’s not yet even mid-December may seem more than a little premature. However, most Canadians will start paying their taxes for 2021 with the first paycheque they receive in January, and it’s worth taking a bit of time to make sure that things start off – and stay – on the right foot.

For most Canadians, (certainly for the vast majority who earn their income from employment), income tax, along with other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums, are paid periodically throughout the year by means of deductions taken from each paycheque received, with those deductions then remitted to the Canada Revenue Agency on the taxpayer’s behalf by his or her employer.

Of course, each taxpayer’s situation is unique and so the employer has to have some guidance as to how much to deduct and remit on behalf of each employee. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by each employee, sometimes at the start of each year, but certainly at the time employment commences. Each employee must, in fact, complete two TD1 forms – one for federal tax purposes and the other for provincial tax imposed by the province in which the taxpayer lives. Federal and provincial TD1 forms for 2021 (which have not yet been released by the Canada Revenue Agency but, once published, will be available on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html) list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount and the age amount. Adding amounts claimed on each form gives the Total Claim Amounts (one federal, one provincial) which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on his or her behalf to the federal government.

While the TD1 completed by the employee at the time his or her employment commenced will have accurately reflected the credits claimable by the employee at that time, everyone’s life circumstances change. Where a baby is born, or a son or daughter starts post-secondary education, a taxpayer turns 65 years of age, or an elderly parent comes to live with his or her children, the affected taxpayer will be become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.

Consequently, it’s a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to him or her. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.

As well, it’s often the case that a taxpayer will have available deductions which cannot be recorded on the TD1, like RRSP contributions, deductible support payments or child care expenses. While such claims make things a little more complicated, it’s still possible to have source deductions adjusted to accurately reflect those claims, and the employee’s resulting reduced tax liability for 2021. The way to do so is to file Form T1213 - Request to Reduce Tax Deductions at Source (available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html) with the Agency. Once that form is filed with the CRA, the Agency will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld from the employee’s paycheque. 

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. While a T1213 can be filed with the CRA at any time of the year, the sooner it’s done, the sooner source deductions can be adjusted, effective for all subsequent paycheques. Providing an employer with an updated TD1 for 2021 as soon as possible, along with filing the T1213 with the CRA, will ensure that source deductions made starting January 1, 2021 will accurately reflect all of the employee’s current circumstances, and consequently his or her actual tax liability for the year.

During the month of December, it’s customary for employers to provide something “extra” for their employees, by way of a holiday gift, a year-end bonus or an employer-sponsored social event. And while the annual office holiday party definitely won’t be happening in 2020, employees may still be able to look forward to something additional in the way of compensation during the last month of the year.

During the month of December, it’s customary for employers to provide something “extra” for their employees, by way of a holiday gift, a year-end bonus or an employer-sponsored social event. And while the annual office holiday party definitely won’t be happening in 2020, employees may still be able to look forward to something additional in the way of compensation during the last month of the year.

It’s certainly the case that employers who provide such extras don’t intend to create a tax liability for their employees. Unfortunately, it’s also the case that a failure to properly structure such gifts or other extras can result in unintended and unwelcome tax consequences to those employees.

Trying to formulate and administer the tax rules around holiday gifts is something of a no-win situation for the Canada Revenue Agency. On an individual or even a company level, the amounts involved are usually small, or even nominal, and the range of situations which must be addressed by the related tax rules are virtually limitless. As a result, the cost of drafting and administering those rules can outweigh the revenue generated by the enforcement of such rules, to say nothing of the potential ill will generated by imposing tax consequences on holiday gifts. Notwithstanding, the potential exists for employers to provide what would otherwise be taxable remuneration in the guise of holiday gifts, and it’s the responsibility of the tax authorities to ensure that such situations don’t slip through the tax net.

There is, as a result, a detailed set of rules which outline the tax consequences of gifts and awards provided by the employer. The starting point for the rules is that any gift (cash or non-cash) received by an employee from his or her employer at any time of the year is considered to constitute a taxable benefit, to be included in the employee’s income for that year. However, the CRA makes an administrative concession in this area, allowing non-cash gifts (within a specified dollar limit) to be received tax-free by employees, as long as such gifts are given on religious holidays such as Christmas or Hanukkah, or on the occasion of a significant life event, like a birthday, a marriage or the birth of a child.

In sum, the CRA’s administrative policy is simply that non-cash gifts to an arm’s length employee, regardless of the number of such gifts, will not be taxable if the total fair market value of all such  gifts (including goods and services tax or harmonized sales tax) to that employee is $500 or less annually. The total value over $500 annually will be a taxable benefit to the employee, and must be included on the employee’s T4 for the year, and on which income tax must be paid.

It’s important to remember the “non-cash” criterion imposed by the CRA, as the $500 per year administrative concession does not apply to what the CRA terms “cash or near-cash” gifts and all such gifts are considered to be a taxable benefit and included in income for tax purposes, regardless of amount. For this purpose, the CRA considers anything which could be easily converted to cash as a “near-cash” gift. Even a gift or award which cannot be converted to cash will be considered to be a near-cash gift if, in the CRA’s words, it “functions in the same way as cash”. So, a gift card or gift certificate which can be used by the employee to purchase his or her choice of merchandise or services would be considered a near-cash gift, and taxable as such. It’s not hard to see that drawing a firm line between cash and non-cash gifts can be difficult. The CRA provides the following information and examples to help clarify that difference.

You give your employee a voucher (which may be a ticket or a certificate) that entitles the employee to receive an item for a set value at a store. For example, you may give your employees a voucher for a turkey valued up to $30 as a Christmas gift, and for convenience, you arrange for your employees to go to a particular grocery store and exchange the voucher for a turkey. The employees can only use the voucher to receive a turkey valued up to $30 (no substitutes). Such vouchers are generally considered non cash gifts.

You give your employee a $100 gift card or gift certificate to a department store. The employee can use this to purchase whatever merchandise or service the store offers. We consider the gift card or gift certificate to be an additional remuneration that is a taxable benefit for the employee because it functions in the same way as cash.

It may seem nearly impossible to plan for employee holiday gifts and other benefits without running afoul of one or more of the detailed rules and administrative policies surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if the following rules are kept in mind.

Any cash or near-cash gifts should be avoided, as they will, no matter how large or small the amount, create a taxable benefit to the employee. Although gift certificates or pre-paid credit cards are a popular choice, they aren’t a tax-effective one, as they will invariably be considered by the CRA to create a taxable benefit to the employee.

Where non-cash holiday gifts are provided to employees, gifts with a value of up to $500 can be received free of tax. The employer must be mindful of the fact that the $500 limit is a per-year and not a per-occasion limit. Where the employee receives non-cash gifts with a total value of more than $500 in any one taxation year, the portion over $500 is a taxable benefit to the employee.

While the rules around employer gifts aren’t complex, it is necessary to consider carefully the kinds of gifts which are given and to be mindful of the annual $500 per employee limit on non-cash gifts. At the end of the day, a gift which results in unintended and unwanted tax consequences to the employee will leave the employer looking a lot less like Santa and a lot more like Scrooge!

While Canadians benefit from a publicly funded health care system, there are nonetheless a significant (and increasing) number of medical and para-medical expenses which are not covered by provincial health care plans. As well, an increasing number of Canadians – who may work on contract or who hold several part-time jobs - do not have private insurance coverage for such costs through their employer.

While Canadians benefit from a publicly funded health care system, there are nonetheless a significant (and increasing) number of medical and para-medical expenses which are not covered by provincial health care plans. As well, an increasing number of Canadians – who may work on contract or who hold several part-time jobs - do not have private insurance coverage for such costs through their employer.

In many instances, therefore, Canadians have to pay for such unavoidable expenditures – including dental care, prescription drugs, ambulance trips and many other para-medical services, like physiotherapy, on an out-of-pocket basis. The good news is that where such costs must be paid for partially or entirely by the taxpayer, the tax system provides a medical expense tax credit to help offset those costs. The bad news is that the computation of such expenses and, in particular, the timing of making a claim for the credit, can be confusing. In addition, the determination of what expenses qualify for the credit and which do not isn’t necessarily intuitive, nor is the determination of when it’s necessary to obtain prior authorization from a medical professional in order to ensure that the contemplated expenditure will qualify for the credit.

The basic rule is that qualifying medical expenses (a lengthy list of which can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html) over 3% of the taxpayer’s net income, or $2,397, whichever is less, can be claimed for purposes of the medical expense tax credit on the taxpayer’s return for 2020.

Put in more practical terms, the rule for 2020 is that any taxpayer whose net income is less than $79,900 will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income over $79,900 will be limited to claiming qualifying expenses which exceed the $2,397 threshold.

The other aspect of the medical expense tax credit which can cause some confusion is that it’s possible to claim medical expenses which were incurred prior to the current tax year, but weren’t claimed on the return for the year that the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending in 2020 will produce the greatest amount eligible for the credit. That determination will obviously depend on when medical expenses were incurred so there is, unfortunately, no universal rule of thumb which can be used.

Medical expenses incurred by family members – the taxpayer, his or her spouse, children who were born in 2003 or later, and certain other dependent relatives - can be added together and claimed by one member of the family. In most cases, it’s best, in order to maximize the amount claimable, to make that claim on the tax return of the lower income spouse, where that spouse has tax payable for the year.

As December 31^st approaches, it’s a good idea to add up the medical expenses which have been incurred during 2020, as well as those paid during 2019 and not claimed on the 2019 return. Once those totals are known, it will be easier to determine whether to make a claim for 2020 or to wait and claim 2020 expenses on the return for 2021. And, if the decision is to make a claim for 2020, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for that claim.

It’s worth noting that, for many Canadians, 2020 has been a year in which income was reduced, owing to temporary layoffs or even permanent job loss. Where income is lower (assuming such income is below the $79,900 threshold), the extent to which qualifying medical expenses incurred during the year will be claimable for purposes of the medical expense tax credit increases. Take, for example, an individual who was laid off for three months during 2020 and who has incurred $2,500 in eligible medical expenses. If that individual’s income for 2020 is $30,000, he or she will be able to claim $1,600 of those expenses for purposes of the medical expense tax credit. If the individual returns to full employment in 2021 and earns $40,000, he or she will be able to claim only $1,300 of those eligible medical expenses on the return for 2021.

Finally, it’s a good idea to look into the timing of medical expenses which will have to be paid early in 2021. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis) it may make sense, where possible, to accelerate the payment of those expenses to December 2020, where that means they can be included in 2020 totals and claimed on the 2020 return.

Canadian Emergency Response Benefit

In March of this year, in response to the pandemic, the federal government announced and rolled out a number of benefit programs to assist individuals who had experienced a pandemic-related interruption in earnings.

Canadian Emergency Response Benefit

In March of this year, in response to the pandemic, the federal government announced and rolled out a number of benefit programs to assist individuals who had experienced a pandemic-related interruption in earnings.

The most widely used of those benefits was the Canada Emergency Response Benefit, or CERB, which was received by over 8 million individual Canadians. That CERB benefit, of $500 per week, ran from mid-March until the end of September, meaning that those who were eligible for CERB for that entire period could have received as much as $14,000.

When the CERB program was launched, the priority for the federal government was getting the benefit into the hands of Canadian as quickly as possible. Consequently, although the CERB represented taxable income to those who received it, no tax was deducted from the benefits paid. As a result, anyone who received CERB (and did not repay it) will receive a T4A slip for that income, will need to report it on their income tax return for 2020 and will have to pay tax on that income when the return is filed in the spring of 2021.

While that filing and payment deadline is still months away, it would be prudent for CERB recipients to at least determine how much tax will be payable and to start to make provision for setting that money aside. The amount of tax owed on CERB benefits will depend, of course, on the amount of benefit received, but also on the taxpayer’s total income for 2020 and on the province or territory in which the taxpayer resides.

Taxpayers can arrive at a rough estimate the amount of federal tax payable on their CERB benefits as follows:

• For taxpayers having income for 2020 from all sources of less than $50,000, the percentage of tax payable on CERB received will be 15%.
• For taxpayers having income for 2020 from all sources of between $50,000 and $100,000, the percentage of tax payable on CERB received will be 20.5%.
• For taxpayers having income for 2020 from all sources of between $100,000 and $150,000, the percentage of tax payable on CERB received will be 26%.
• For taxpayers having income for 2020 from all sources of between $150,000 and $214,400, the percentage of tax payable on CERB received will be 29%.
• For taxpayers having income for 2020 from all sources of more than $214,400, the percentage of tax payable on CERB received will be 33%.

Of course, in each case, provincial or territorial tax must be added to arrive at the total tax payable on CERB amounts received. The provincial and territorial tax rates which apply for 2020 at different income levels can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#provincial.

Home office expenses

One of the hallmarks of 2020 has been the number of Canadians working from home. A  work-from-home arrangement has many benefits, and one of the less known of those benefits is the ability to claim a tax deduction on the 2020 tax return for household costs that would have been incurred in any event.

In order to claim a deduction for costs related to a work from home space, employees must meet at least one of the following conditions.

• The home work space is where the individual mainly (more than 50% of the time) does their work; or
• the individual uses the workspace only to earn his or her employment income. He or she must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of his or her employment duties.

To establish that the required circumstances exist, and that the employee is not receiving an allowance or a reimbursement for home office expenses from the employer it’s necessary to have a particular form completed and signed by that employer. That form, the T2200, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2200.html.

Once the requisite criteria are met, and certified by the employer on the T2200, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to his or her work space, such as the cost of electricity, heating and home maintenance.

Where an individual who qualifies under either of the criteria outlined above is a commission employee, an even broader range of costs become deductible. In addition to costs for electricity, heating and home maintenance, a commission employee can also deduct a proportionate share of costs incurred for property taxes and home insurance.

There is no specific formula provided for determining the proportion of eligible costs which can be deducted for qualifying home office expenses. The employee can determine that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home, or he or she can make that calculation based on the number of rooms in the house or apartment relative to the number of rooms used for work-related purposes. Whichever method is chosen, the most important consideration is that the approach taken (and the expenses claimed) be reasonable. In all cases, the Canada Revenue Agency can ask the taxpayer to provide documentation and support for claims made.

In order to determine the amount of any deduction for eligible home office expenses which can be claimed on the return for 2020, it’s necessary to gather together bills and receipts for the various expense categories (utilities bills, property tax notices etc.). It’s a tedious and sometimes time-consuming task, but necessary both in order to determine the amount of any available deduction and to have the required documentation for that deduction available should the CRA ask to see it. The T2200 signed by the employer does not have to be filed with the return, but should also be kept as part of that documentation.

RRSP contributions to be made by the calendar year-end

Most Canadians, even those who aren’t particularly familiar with our tax system, know that contributions to one’s registered retirement savings plan (RRSP) must be made by the end of February to be claimed as a deduction on the return for the previous calendar year.

There are, however, two instances in which making an RRSP contribution before the end of the calendar year is either necessary or advisable.

The first such instance affects Canadians who turn 71 years of age during 2020. Each of those individuals must collapse their RRSP by the end of 2020 – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31^st is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31^st of that year.

The other instance in which it is advisable to make the contribution before December 31 relates to spousal RRSP contributions. Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plans (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2020, the contributor can claim a deduction for that contribution on his or her return for 2020. The spouse can then withdraw that amount as early as January 1, 2023 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2021, the contributor can still claim a deduction for it on the 2020 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2024. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively new future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should the need for an unplanned withdrawal arise.

Adjusting the final individual income tax instalment

It’s also possible for some taxpayers to adjust the amount of remaining tax they will pay for 2020. The majority of Canadians pay their taxes by having those taxes deducted by their employer from their regular paycheque and submitted to the Canada Revenue Agency on their behalf. However, there are millions of taxpayers who pay income taxes by quarterly instalments, with the amount of those instalments representing an estimate of the taxpayer’s total liability for the year.

The final quarterly instalment for this year will be due on Tuesday December 15, 2020. By that time, almost everyone will have a reasonably good idea of what his or her income and deductions will be for 2020 and so will be in a position to estimate what the final tax bill for the year will be, taking into account any tax planning strategies already put in place, as well as any RRSP contributions which will be made on or before March 1, 2021. While the tax return forms to be used for the 2020 year haven’t yet been released by the Canada Revenue Agency, it’s possible to arrive at an estimate by using the 2019 form. Increases in tax credit amounts and tax brackets from 2019 to 2020 will mean that using the 2019 form will likely result in a slight over-estimate of tax liability for 2020.

Once an estimate of one’s tax bill for 2020 has been calculated, that figure should be compared to the total of tax instalments already made during this calendar year (that figure can be obtained by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281). Depending on the result, it may then be possible to reduce the amount of the tax instalment to be paid on December 15 – and thereby free up some funds for the inevitable holiday spending!

Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing a tax credit for qualifying donations made.

Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing a tax credit for qualifying donations made.

 Federally, taxpayers can claim a credit of 15% of the first $200 in donations plus 29% of donations over the $200 threshold. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year — there are no exceptions.

There is, however, another reason to ensure donations are made by December 31. The credit provided by the federal government is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. Where the taxpayer making the donation has taxable income (for 2020) over $214,368, charitable donations above the $200 threshold can receive a federal tax credit of 33%.

As a result of the two-level credit structure, the best tax result is obtained when donations made during a single calendar year are maximized. For instance, a qualifying charitable donation of $400 made in December 2020 will receive a federal credit of $88 ($200 ×15% + $200 × 29%). If the same amount is donated, but the donation is split equally between December 2020 and January 2021, the total credit claimable is only $60 ($200 ×15% + $200 × 15%), and the 2021 donation can’t be claimed until the 2021 return is filed in April 2022. And, of course, the larger the donation in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level.

It is also possible to carry forward, for up to 5 years, donations which were made in a particular tax year. So, if donations made in 2020 don’t reach the $200 level, it is usually worth holding off on claiming the donation and carrying forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2015, 2016, 2017, 2018, or 2019 tax years can be carried forward and added to the total donations made in 2020, and the aggregate then claimed on the 2020 tax return.

When claiming charitable donations, it is possible to combine donations made by oneself and one’s spouse and claim them on a single return. Generally, and especially in provinces and territories which impose a high-income surtax — currently, Ontario and Prince Edward Island — it makes sense for the higher income spouse to make the claim for the total of charitable donations made by both spouses. Doing so will reduce the tax payable by that spouse and thereby minimize (or avoid) liability for the provincial high-income surtax.

Since the charitable donations tax credit is a two-level credit, in which the credit percentage increases once donations made in a year exceed $200, it always makes sense to aggregate donations in a single year, so as to maximize the amount of credit claimable.

Any charity seeking or receiving a donation should be able to provide a registered charitable number, and a searchable current listing of registered charities can be found on the Canada Revenue Agency website at https://apps.cra-arc.gc.ca/ebci/hacc/srch/pub/dsplyBscSrch?request_locale=en. Information on the charitable donations tax credit is available on the same website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/349/menu-eng.html.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required), to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed and remitting that amount to the federal government by a specified deadline. Although the rate of compliance among Canadian taxpayers is very high — just over 30 million individual income tax returns for the 2019 tax year were filed with the Canada Revenue Agency (CRA) between February and October of 2020 — there are, inevitably, those who do not either file or pay on time.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required), to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed and remitting that amount to the federal government by a specified deadline. Although the rate of compliance among Canadian taxpayers is very high — just over 30 million individual income tax returns for the 2019 tax year were filed with the Canada Revenue Agency (CRA) between February and October of 2020 — there are, inevitably, those who do not either file or pay on time.

There are a lot of reasons why individual Canadians don’t file their returns or pay their taxes on a timely basis, and almost all of them are based on a lack of understanding of how our tax system works, or on incorrect information about that system. In addition, there are a number of Canadians who file returns in which income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed.

While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate isn’t high, there are a lot of such returns when measured by absolute numbers. And, although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since, in many cases, the amount recovered may be less than the costs which must be incurred to recover that amount.

With all of that in mind, several years ago the CRA instituted a program — the Voluntary Disclosure Program, of VDP — intended to encourage non-compliant taxpayers to come forward and put their tax affairs in order. The incentive to do so arose from the fact that, in most cases, while taxpayers who participate in the VDP program have to pay outstanding tax amounts owed, plus interest, they avoid the penalties which would normally be imposed and, in addition, avoid the risk of criminal prosecution.

To qualify for relief under the VDP, an application made with respect to non-compliance with income tax filing and payment obligations must:

• be voluntary (meaning that it is done before the taxpayer becomes aware of any compliance or enforcement action by the CRA);
• be complete;
• involve the application or potential application of a penalty;
• include information that is at least one year past due; and
• include payment of the estimated tax owing.

The VDP program includes two separate “tracks” for income tax disclosures — the Limited Program and the General Program — and the kind and extent of relief available depends on the track to which a particular application is assigned.

While the CRA will make a determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the Limited Program to instances in which applications disclose non-compliance which appears to include intentional (as distinct from inadvertent) conduct on the part of the taxpayer. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

• the dollar amounts involved;
• the number of years of non-compliance; and
• the sophistication of the taxpayer; and
• whether efforts were made to avoid detection through the use of offshore vehicles or other means.

Those whose applications are accepted under the Limited Program will not be subject to criminal prosecution and will be exempt from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer. Interest on outstanding tax balances will be payable, however, and other penalties will be levied.

Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance — i.e., for the years preceding the three most recent years of returns required to be filed. For example, a taxpayer who makes an application to the VDP and who has failed to file returns for the 2013 through 2018 taxation years may be provided with interest relief with respect to taxes owed for the 2013, 2014, and 2015 taxation years. Such relief is generally equal to 50% of interest owed — in other words, the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years. No interest relief will, however, be provided on tax amounts owed for the three most recent (2016, 2017, and 2018) taxation years. Since interest charges levied by the CRA are, by law, higher than current commercial rates (for instance, the rate levied for the fourth quarter of 2020 is 5%) and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

In order to benefit from the VDP, taxpayers must first make an application to the program. That application must include payment of the estimated taxes owing, as a condition of participation in the VDP. Where a taxpayer is financially unable to make that tax payment, he or she can request that the CRA consider a payment arrangement.

The decision to apply to the VDP and to “come clean” about all previous tax transgressions is something that most taxpayers will likely consider with considerable trepidation. Those who are unsure about whether they want to move forward with a VDP application have the option of using the CRA’s “pre-disclosure discussion service”. As the name implies, that service allows taxpayers to participate in preliminary discussions with a CRA official, on an anonymous basis, to gain some knowledge about the VDP program, the process involved, and the potential relief available.

Taxpayers who decide to move forward with an application to the VDP can complete and file Form RC199, Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. Once the application is received, the CRA will check to make certain that the applicant is eligible to apply and that all of the required information, documentation, and payment has been sent. The next step is for the CRA to evaluate the application to ensure that the criteria for participation in the VDP are satisfied and, if so, to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. At each step the taxpayer will be provided with written notice of the CRA’s decisions. The CRA’s advice is that taxpayers should contact them (for individual taxpayers, by calling the Individual Income Tax Enquiries line at 1-800-959-8281) if they have not heard from the CRA within four or five weeks of submitting an application.

If the decision made is that the application is not eligible for the VDP, the taxpayer will also be advised in writing, with reasons, of the CRA’s decision to deny the application.

Where the decision made by the CRA is one with which the taxpayer does not agree, he or she is entitled to ask for a second review of the application. If that decision is also unfavourable, it is possible for a taxpayer to ask a court to review the decision and direct the CRA to re-consider the VDP application. However, a taxpayer who wishes to pursue his or her application to the extent of filing such a court application is well advised to obtain legal advice before doing so.

Finally, taxpayers should recognize that the VDP Program can’t be used as a kind of “get out of jail free card” with respect to repeated failures to meet tax filing and payment obligations. The CRA website makes it clear that the CRA expects taxpayers who have benefitted from the VDP to thereafter meet their tax obligations, and a second review will be provided for the same taxpayer only in unusual situations where the circumstances are beyond the taxpayer’s control.

Detailed information on the VDP program can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html.

One of the more unexpected effects of the current pandemic has been the impact on the Canadian real estate market. In each of July, August, and September 2020 the number of home sales, especially in major cities, has set a year-over-year record and, in many of the same places, the vacancy rate for rental accommodation has gone up.

One of the more unexpected effects of the current pandemic has been the impact on the Canadian real estate market. In each of July, August, and September 2020 the number of home sales, especially in major cities, has set a year-over-year record and, in many of the same places, the vacancy rate for rental accommodation has gone up.

There are a number of possible explanations for the surge in real estate sales. Interest rates are at historic lows — a five-year mortgage can be obtained for a rate of less than 2%. As well, pre-pandemic, Canadians generally sought to live as close as possible to their workplaces, in order to minimize the cost and time involved in the daily commute. Now that millions of Canadians are working from home (and the likelihood that such arrangements will continue for some time to come, or even become permanent) it’s become possible for them to move further out from the major urban centres, where it’s also usually possible to buy a bigger house for less money.

The other driver of changes in the real estate market is less positive — as many Canadians have lost their jobs or had their hours and therefore their income reduced, their changed financial circumstances have forced a move to find new employment.

For any number of reasons, a lot of Canadians will be moving this fall. And, whatever the reason for the move or the distance to the new location, all moves have two things in common — stress and cost. Even where the move is a desired one, moving inevitably means upheaval of one’s life and the costs can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

While it’s common to refer simply to the “moving expense deduction”, as though it were available in all circumstances, the fact is that there is actually no across-the-board deduction available for moving costs. In order to be tax deductible, such moving costs must be incurred in specific and relatively narrow circumstances. Our tax system allows taxpayers to claim a deduction only where the move is made to get the taxpayer closer to his or her new place of work, whether that work is a transfer, a new job, or self-employment. Specifically, moving expenses can be deducted where the move is made to bring the taxpayer at least 40 kilometres closer to his or her new place of work. That requirement is satisfied where, for instance, a taxpayer moves from Toronto to Halifax to take a new job. It is also met where a taxpayer is transferred by his or her employer to another job in a different location and the taxpayer’s move will bring him or her at least 40 kilometres closer to the new work location. It’s not met where an individual or family move up the property ladder by selling and purchasing a new home in the same town or city, without any change in work location.

It is not, as well, actually necessary to be a homeowner in order to claim moving expenses. The list of moving-related expenses which may be deducted is basically the same for everyone — homeowner or tenant — who meets the 40-kilometre requirement. Students who move to take a summer job (even if that move is back to the family home) can also make a claim for moving expenses where that move meets the 40-kilometre requirement.

It is important to remember, however, that even where the 40-kilometre requirement is met, it is possible to deduct moving costs only from employment or self-employment (business) income — there is no deduction possible from other types of income, like investment income or employment insurance benefits.

The general rule is that a taxpayer can claim reasonable amounts that were paid for moving himself or herself, family members, and household effects. In all cases, the moving expenses must be deducted from employment or self-employment income earned at the new location. Where the move takes place later in the year, and moving costs are significant, it is possible that the amount of income earned at the new location in the year of the move will be less than deductible moving expenses incurred. In such instances, those expenses can be carried over and deducted from income earned at the new location in any future year.

Within the general rule, there are a number of specific inclusions, exclusions, and limitations. The following is a list of expenses which can be claimed by the taxpayer without specific dollar figure restrictions (but subject, as always, to the overriding requirement of “reasonableness”).

• traveling expenses (including vehicle expenses), meals, and accommodation, to move the taxpayer and members of his or her family to their new residence (note that not all members of the household have to travel together or at the same time);
• transportation and storage costs (such as packing, hauling, movers, in-transit storage, and insurance) for household effects, including such items as boats and trailers;
• costs for up to 15 days for meals and temporary accommodation near the old and the new residences for the taxpayer and members of the household;
• lease cancellation charges (but not rent) on the old residence;
• legal or notary fees incurred for the purchase of the new residence, together with any taxes paid for the transfer or registration of title to the new residence (excluding GST or HST);
• the cost of selling the old residence, including advertising, notary or legal fees, real estate commissions, and any mortgage penalties paid when a mortgage is paid off before maturity; and
• the cost of changing an address on legal documents, replacing driving licences and non-commercial vehicle permits (except insurance), and costs related to utility hook-ups and disconnections.

When real estate markets are slow, or a move must be made in a short time frame, it sometimes happens that a move to the new home takes place before the old residence is sold. In most such circumstances, the taxpayer is entitled to deduct up to $5,000 in costs incurred for the maintenance of that residence while it is vacant and efforts are being made to sell it. Specifically, costs including interest, property taxes, insurance premiums, and heat and utilities expenses paid to maintain the old residence while efforts were being made to sell it may be deducted. If any family members are still living at the old residence, or it is being rented, no such deduction is available. As well, a claim for such home maintenance expenses on a vacant house can be claimed only where reasonable efforts are being made to sell the property and is not permitted where the taxpayer delayed selling for investment purposes, or until the real estate market improved.

It may seem from the foregoing that virtually all moving-related costs will be deductible — however, there are some costs for which the Canada Revenue Agency (CRA) will not permit a deduction to be claimed, as follows:

• expenses for work done to make the old residence more saleable;
• any loss incurred on the sale of the old residence;
• expenses for job-hunting or house-hunting trips to another city (e.g., costs to travel to job interviews or meet with real estate agents);
• expenses incurred to clean or repair a rental residence to meet the landlord’s standards;
• costs to replace such personal-use items as drapery and carpets; and
• mail forwarding costs; and
• mortgage default insurance.

To claim a deduction for any eligible costs incurred, supporting receipts must be obtained. While the receipts do not have to be filed with the return on which the related deduction is claimed, they must be kept in case the CRA wants to review them.

Anyone who has ever moved knows that there are an endless number of details to be dealt with. For some types of costs, the administrative burden of claiming moving-related expenses can be minimized by choosing to claim a standardized amount for certain types of expenses. Specifically, the CRA allows taxpayers to claim a fixed amount, without the need for detailed receipts, for travel and meal expenses related to a move. Using that standardized, or flat rate method, taxpayers may claim up to $17 per meal, to a maximum of $51 per day, for each person in the household. Similarly, the taxpayer can claim a set per-kilometre amount for kilometres driven in connection with the move. The per-kilometre amount ranges from 48 cents for Alberta to 64.5 cents for the Northwest Territories. In all cases, it is the province or territory in which the travel begins which determines the applicable rate.

These standardized travel and meal expense rates are those which were in effect for the 2019 taxation year — the CRA will be posting the rates for 2020 on its website early in 2021, in time for the tax filing season.

Once eligibility for the moving expense deduction is established, the rules which govern the calculation of the available deduction are not complex, but they are very detailed. The best summary of those rules is found on the form used to claim such expenses — the T1-M. The current version of that form can be found on the CRA’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1-m/t1-m-17e.pdf, and more information (including a link to rates for standardized meal and travel cost claims) is available at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/menu-eng.html.

Since the pandemic began early in 2020, and especially after many non-essential businesses were required to close temporarily as a public health measure, the federal government has brought forward a broad range of financial relief programs for both individuals and businesses.

Since the pandemic began early in 2020, and especially after many non-essential businesses were required to close temporarily as a public health measure, the federal government has brought forward a broad range of financial relief programs for both individuals and businesses.

Some of those programs, like the Canada Emergency Response Benefit, or CERB, were used by millions of individual Canadians to bridge a time of unemployment or reduced income. Other programs — like the Canada Emergency Commercial Rent Assistance Program — attracted less interest, for a variety of reasons.

As most of the country has now entered the second wave of the pandemic, the federal government has re-tooled, expanded, or extended three different relief programs for businesses — the Canada Emergency Rent Subsidy, the Canada Emergency Wage Subsidy and the Canada Emergency Business Account. While the type of assistance varies by program, the underlying purpose is the same —providing businesses with the financial assistance needed to keep their bills paid and keep their employees on the payroll until better times return.

Canada Emergency Rent Subsidy

While a fortunate few small businesses own their own premises, it is more often the case that the business premises are rented from a landlord and that, consequently, rent must be paid regardless of the open or closed state of the business.

In April of this year, the federal government announced the creation of the Canada Emergency Commercial Rent Assistance (CECRA) program. That program was structured such that the landlord was the one who applied for the benefit and, as a condition of receiving that benefit, was required to reduce the rent payable by the commercial tenant by a specific percentage over a specific time period. The CECRA program did not attract the level of participation sought and so the federal government has made some changes and re-introduced the benefit, effective September 27, 2020, as the new Canada Emergency Rent Subsidy, or CERS.

The most important change is that application for the CERS is now made by the tenant (which can include a business, non-profit organization, or charity) and the benefit is paid directly to that tenant. The amount of benefit payable will be based on the percentage of revenue loss experienced by the business, up to a maximum of 65% of eligible expenses, until December 19, 2020.

As the pandemic enters its second stage, required business closures are being implemented on a more localized and targeted basis, as distinct from the general lockdowns which were mandated in the spring of 2020. Recognizing that reality, the CERS program will provide a top-up subsidy of 25% for organizations temporarily shut down by a mandatory public health order issued by a qualifying public health authority. Such top-up is in addition to the general subsidy of up to 65%.

Canada Emergency Wage Subsidy

The CEWS program, which was introduced in March of this year, provides eligible employers with a direct subsidy of up to a maximum of 65% of employee wages. The CEWS program was scheduled to end on December 19, 2020 but has instead been extended to be available until June 2021.

Canada Emergency Business Account (CEBA)

The CEBA program, as originally announced in April of this year, provided businesses and not-for-profits which have been seriously impacted by the pandemic with an interest-free loan of up to $40,000.

The program has now been expanded to allow for an additional interest free loan amount of $20,000. Where the business is able to repay that additional $20,000 by the end of 2022, half of that loan amount (i.e., $10,000) will be forgiven.

The CEBA program is intended to benefit those businesses which have been most affected by the pandemic and, in order to qualify for CEBA loans, such businesses will be required to provide an “attestation” of the impact which the pandemic has had on them.

The application deadline for CEBA has also been extended to December 31, 2020.

The rules governing eligibility for benefits and the amount of benefits which can be obtained under the numerous federal business pandemic relief programs are undeniably complex. In addition, the frequent changes made to such programs to adapt to changing circumstances have led to confusion, creating an additional hurdle to participation. To assist those businesses wishing to participate, the federal government has created program-specific webpages outlining in detail the rules and requirements of each such program and has also set up toll-free telephone lines which business owners can call to obtain clarification or answers to questions.

The starting point to obtain such information is the main webpage for business pandemic relief programs, which includes both links to more detailed information on each such program and specific toll-free numbers to call for additional information or clarification. That webpage can be found on the federal government website at https://www.canada.ca/en/services/business/maintaining-your-business.html.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #53 Corporate

Personal:

Issue #53 Personal

The year 2020 has been one of significant personal and economic dislocation for Canadians. The ongoing pandemic and the resulting impact to everyone’s way of life has led many to reassess their current circumstances and, often, to make changes. For older Canadians, one of those changes is likely to be consideration of whether it makes sense to accelerate retirement plans. Like the rest of the workforce, many older Canadians have lost jobs or faced reduced hours — and, therefore, reduced income — as a result of the pandemic. Older Canadians have reason to feel particularly vulnerable to the risk of falling seriously ill during the pandemic, and many of those who are nearing retirement are likely considering, as the pandemic continues with no certain end in sight, whether it makes sense to return to full-time work (if and when that work becomes available again) and continue to incur such risks.

The year 2020 has been one of significant personal and economic dislocation for Canadians. The ongoing pandemic and the resulting impact to everyone’s way of life has led many to reassess their current circumstances and, often, to make changes. For older Canadians, one of those changes is likely to be consideration of whether it makes sense to accelerate retirement plans. Like the rest of the workforce, many older Canadians have lost jobs or faced reduced hours — and, therefore, reduced income — as a result of the pandemic. Older Canadians have reason to feel particularly vulnerable to the risk of falling seriously ill during the pandemic, and many of those who are nearing retirement are likely considering, as the pandemic continues with no certain end in sight, whether it makes sense to return to full-time work (if and when that work becomes available again) and continue to incur such risks.

Of course, wanting to accelerate one’s retirement date and being financially able to do so aren’t the same thing. Therefore, the first task faced by anyone contemplating retirement in the very near future is to determine what financial resources they will have to live on, and whether those resources are sufficient.

For most Canadians, income in retirement will come from three sources. The first two sources — a Canada Pension Plan retirement pension and Old Age Security benefits — will be received by nearly all retirees. The fortunate minority who are members of an employer-sponsored registered pension plan will also receive a monthly benefit from that plan. For the majority of Canadian retirees who will not receive a pension from their employer, the balance of their income in retirement (after CPP and OAS) will come from private retirement savings accumulated in registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). The real question for most Canadians is how to determine the amount of annual income which all those sources of income will generate during their retirement years, and that’s not a simple calculation.

Money can be withdrawn from an RRSP or TFSA at any age, a CPP retirement pension can start anytime from age 60 to age 70, and Old Age Security benefits can be received as early as age 65 or as late as age 70. For both CPP and OAS, benefits will rise with each month that receipt of such benefits is deferred. As well, income from the different types of retirement income may be subject to different tax treatment, meaning that the after-tax amount received on $100 of income may vary widely, depending on the nature and source of that income.

The number of factors to consider and, especially, the complexity which results from the interaction of those factors could reasonably lead the average Canadian to conclude that it’s just not possible to make an accurate determination of the best way to structure their income in retirement, in order to ensure a reasonable income throughout their retirement years. But help is at hand — and it’s free!

That help is in the form of a Retirement Income Calculator which is available on the Government of Canada website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

Using that calculator, individual Canadian taxpayers can enter their personal data, including their date of birth, gender, and planned age of retirement, without the need to provide any personal identifying information. The user is then asked to provide information on income amounts which will be received from various sources, including any employer pension and Canada Pension Plan amounts and the age at which the user plans to begin receiving such income. Information is requested on the user’s period of residency in Canada, in order to determine whether he or she will be eligible to receive Old Age Security benefits and the amount of OAS benefits which will be provided at different ages. The calculator also allows the user to input the total amount of savings accumulated to date. Finally, information is requested on any other sources of income which will be available during retirement.

Using that data, the calculator estimates the amount of income which will be available to the individual from each source during each year of his or her retirement and generates a bar graph and a table showing those income amounts.

The real benefit of the calculator, however, lies in the individual’s ability to vary the inputs — to create “what-if” scenarios in order to determine the effect any changes made will have on retirement income at various ages. Users can change the age at which they choose to receive government-sponsored retirement benefits like CPP and OAS, or can specify a different rate of return (pre- or post-retirement) earned on retirement savings. They can also change the period of time (i.e., life expectancy) over which retirement income will be spread. That way, the user can obtain answers to frequently asked questions like the following:

How much more will I receive if I accelerate — or delay — receipt of Canada Pension Plan or Old Age Security benefits, or both, for one, two, or more years?

What if I work an additional year or two after age 65 before starting RRSP withdrawals?

What if I earn income from part-time employment during retirement?

What if I choose to begin receiving CPP and OAS as soon as I am eligible, but defer making RRSP withdrawals?

What if I live longer than the average life expectancy?

For each of these what-if fact scenarios, the calculator will determine the effect that particular change will have on the amount of income receivable from each different retirement income source, and will provide a summary of income for each year of retirement from all such sources under each fact scenario created by the user.

There are, of course, some factors which can’t be incorporated into any calculator because they cannot be predicted or planned for. No one can predict how long their retirement will last (although the calculator does project retirement income based on average life expectancy for individuals of the age and gender of the user). Similarly, it’s never possible to know what investment returns will be earned on retirement savings during retirement, or what the rate of inflation will be. The calculator’s ability to estimate future income data based on a number of different fact patterns does, however, allow users to create retirement income projections under both “best-case” and “worst-case” retirement income scenarios. And, based on those income projections, an individual can determine whether retirement in the near future is financially possible.

Each year, the due date for payment of all income tax amounts owed for the previous year falls on April 30. In 2020, however, that payment deadline has been something of a moving target. Earlier this year, the federal government, in recognition of the financial disruption and hardship caused by the pandemic, extended the payment deadline by four months, to September 1, 2020. In mid-September that date was extended again, such that all individual income taxes owed for 2019 were due and payable by Wednesday September 30. There has been no further extension.

Each year, the due date for payment of all income tax amounts owed for the previous year falls on April 30. In 2020, however, that payment deadline has been something of a moving target. Earlier this year, the federal government, in recognition of the financial disruption and hardship caused by the pandemic, extended the payment deadline by four months, to September 1, 2020. In mid-September that date was extended again, such that all individual income taxes owed for 2019 were due and payable by Wednesday September 30. There has been no further extension.

Each year, for any number of reasons, there are taxpayers who cannot pay the tax amount they owe by the required deadline. This year, that number is likely to be higher than usual, because many Canadians have suffered a loss in income as the result of the pandemic and, for many, income has not returned to pre-pandemic levels. As well, benefits payable under the federal government’s major individual income replacement program — the Canada Emergency Response Benefit — came to an end at roughly the same time that final tax payments were due on September 30.

Where a taxpayer is unable, owing to financial difficulties, to pay their final tax balance as required, the Canada Revenue Agency (CRA) is willing to enter into a payment arrangement. Under such an arrangement, the outstanding amount owed can be paid over time, as the taxpayer’s financial circumstances allow.

There are two avenues available to taxpayers who want to avail themselves of such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 15000 of the last tax return for which the taxpayer received a Notice of Assessment. (For taxpayers who are up to date on their tax filings, that will likely be the Notice of Assessment for the return for the 2018 tax year, or perhaps 2019, depending on when the return for 2019 was filed). The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m. EST.

Taxpayers who would rather speak directly to a CRA employee can call the CRA’s debt management call centre at 1-888-863-8657, or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

The CRA also provides on online tool, in the form of a payment arrangement calculator (available at https://apps.cra-arc.gc.ca/ebci/recc/pac/prot/welcome?request_locale=en_CA), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances). That calculator includes interest charges since, no matter what payment arrangement is made, the CRA will levy interest charges on any amount of tax owed for the 2019 tax year which is not paid on or before September 30, 2020. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates. For the fourth quarter of 2020 (October 1 to December 31), that rate is 5%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the September 30 deadline.

Taxpayers who are unable to pay their taxes on time are sometimes inclined to simply put off dealing with the problem, but that’s not a good strategy. Where amounts are owed, payment has not been made and no payment arrangement has been entered into, the CRA will ultimately commence collection actions. Where a taxpayer has communicated with the CRA with respect to the outstanding debt and reached an agreement on eventual payment, such collection action (and the possible repercussions to the taxpayer’s financial standing and credit rating) can be avoided.

Notwithstanding the ongoing pandemic, the real estate market in most of Canada continues to thrive and home prices continue to rise. Some of that may be attributable to the fact that, while prices are rising, the cost of financing a home purchase is near historic lows.

Notwithstanding the ongoing pandemic, the real estate market in most of Canada continues to thrive and home prices continue to rise. Some of that may be attributable to the fact that, while prices are rising, the cost of financing a home purchase is near historic lows.

Typically, first-time buyers trying to get into the real estate market face two hurdles. The first is the need to put together a sufficient down payment, and the second is their financial ability to meet ongoing mortgage repayment obligations (i.e., the monthly mortgage payment). Increases in the cost of homes in Canada mean that, even at near record low mortgage lending rates, the size of the mortgage (and, therefore, mortgage payment amounts) can be prohibitive.

Adding to that difficulty is the fact that the rules governing mortgage lending practices and mortgage repayment requirements have become increasingly stringent over the past decade. While it was for a brief time possible to purchase a home in Canada without making a down payment, and to stretch the mortgage amortization period (the length of time over which the mortgage is repaid) to 40 years, that is no longer the case. Today, prospective homeowners must provide a down payment of at least 5% of the purchase price of a home, where that purchase price is $500,000 or less. Where the purchase price exceeds $500,000, the required down payment is $25,000, plus 10% of the portion of the purchase price which is over $500,000. And, where the purchase price is $1,000,000 or more (as it could well be in Toronto or Vancouver) the required down payment is 20% of the purchase price, or at least $200,000. In addition, where the down payment amount is less than 20% of the purchase price (which is almost always the case for first-time home buyers) the maximum amortization period for a mortgage is 25 years.

Some prospective home buyers have other sources from which a down payment can be put together — often a loan from family members or even, for a fortunate few, the gift of a down payment from parents or grandparents. For those not in such a position, however, there are a couple of alternatives. The first provides assistance with putting together a down payment, while the second reduces the amount of monthly mortgage payment for first-time buyers.

Home Buyer’s Plan

The Home Buyer’s Plan, or HBP, allows first-time home buyers to borrow funds, tax and interest free, from their registered retirement savings plan (RRSP) to serve as, or to augment, their down payment.

Under the HBP, a first-time home buyer who has entered into an agreement to purchase or build a home can withdraw up to $35,000 from his or her RRSP to purchase that home. The amount withdrawn is not taxed on withdrawal, as it usually would be, but must be repaid to the RRSP over the subsequent 15 years, with the amount of each annual repayment prescribed by law. Where the first-time home buyer is married, and his or her spouse is also a first-time home buyer, the spouse can also withdraw up to $35,000 from his or her RRSP and both withdrawals can be pooled to come up with a down payment.

The borrower (and his or her spouse, where applicable) must intend to occupy the home as the principal place of residence within one year after its purchase — the HBP is not intended to provide funds to purchase or build rental residential accommodation.

The concept of a “first-time home buyer”, while seemingly self-explanatory, is in fact more flexible than it first appears. For purposes of the HBP, a first-time home buyer can actually be someone who has previously owned and lived in a home, as long as that home ownership ended more than four full calendar years prior to the time a withdrawal under the HBP is made. For instance, an individual who wishes to participate in the HBP by making a withdrawal of funds on October 31, 2020, will be considered a first-time home buyer if he or she had not owned and occupied a home after the end of 2015, the four full calendar years being the period between January 1, 2016 and September 30, 2020. Where the prospective homeowner is married (including a common-law partnership), the same requirement applies to the person’s spouse.

Whatever the amount withdrawn from the RRSP under the HBP, that amount must be repaid within a maximum of 15 years. The first repayment is required in the second year following the year of withdrawal so, in the case of the example above, where the withdrawal is made in 2020, the first repayment must be made in 2022. Each repayment is generally 1/15^th of the amount withdrawn so, a maximum withdrawal of $35,000 would mean an annual repayment amount of $2,333. (Such repayments are, of course, in addition to regular required mortgage payments.)

The taxpayer doesn’t have to keep track of where he or she stands with respect to the repayment schedule — each year, a Statement of Account is sent to the taxpayer with his or her Notice of Assessment, after the annual return is filed. That Statement will summarize amounts repaid to date, the current HBP balance and the amount of the next repayment which must be made. Such repayments are made by making a contribution to the taxpayer’s RRSP during or within 60 days after the end of the year for which the repayment is due, and designating part or all of that contribution as an HBP repayment on Schedule 7, which is then filed with the tax return for that year. If the taxpayer does not make the repayment when and in the amount required, any outstanding amount is added to income for the year and taxed at the taxpayer’s top marginal rate.

Like all investment and tax planning strategies, borrowing money from an RRSP to put together a down payment on a first home has both upsides and downsides. The biggest downside is the permanent loss of investment gains on the money temporarily withdrawn from the RRSP during that period of withdrawal. However, it’s also possible that the real estate purchased with the withdrawn funds will enjoy a greater increase in value over that period than would have earned by the funds had they remained in the RRSP. Like all investment and tax planning decisions, it comes down to a personal decision based on one’s own circumstances.

The rules governing HBP are detailed and can be complex, and it is important to be aware of the ins and outs of those rules before deciding to commit to the program. More information on the HBP can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html.

First-Time Home Buyer Incentive

The second option open to first-time home buyers reduces the amount of monthly mortgage payments which they are required to make, through a kind of shared financing program with the federal government. This program, the First-Time Home Buyer’s Incentive (FTHBI), which was introduced by the federal government in the 2019 Budget and became available about a year ago, has two advantages. First, it does not require the prospective home buyer to temporarily deplete RRSP funds (or to even have sufficient funds in an RRSP) and, in addition, does not require any repayment by the homebuyer until the home is sold (or 25 years later, whichever comes first).

Under the FTHBI, a portion of the mortgage principal amount on the purchase of a first home can be financed through a shared equity mortgage with the Canada Mortgage and Housing Corporation (CMHC). Essentially, CMHC will provide partial financing for the home purchase but will not require payments to be made on the financing portion which it provides for the first 25 years of home ownership, or until the house is sold.

That CMHC portion will be 5% for purchases of existing properties and 10% on purchases of newly built homes. An example provided by CMHC illustrates the calculation, as follows.

A borrower purchases a new $400,000 home with a 5% down payment of $20,000, which would mean a mortgage of $380,000. With 10% of financing ($40,000) provided by CMHC, the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing monthly mortgage costs by as much as $228.

There are, of course, limitations and criteria which apply to those seeking to take advantage of the new program. First, it is available only to those who are first-time home buyers (as defined for purposes of the HBP) and who have total household income of less than $120,000 per year. As well, in order to qualify for the shared equity program, the mortgage amount (including the shared equity portion) cannot be more than four times the purchaser’s annual household income. Since the upper income limit to qualify for the program is $120,000, a qualifying mortgage therefore cannot total more than $480,000.

It is important to note, as well, the rules that apply with respect to repayment of the CMHC portion of the mortgage financing amount. That repayment amount is not the original amount advanced, but rather 5% or 10% (depending on the percentage of the purchase price originally advanced by CMHC) of the home’s value at the time of repayment. In other words, CMHC, having provided financing for the home purchase, shares proportionately in any increase in the value of the home over the borrowing period.

More detailed information on the First-Time Home Buyer Incentive can be found on the federal government website at https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive.

Both the HBP and the FTHBI have the potential to provide first-time home buyers with an entry into the housing market which might otherwise have been out of reach. That said, both programs involve significant long-term financial consequences which should be clearly understood by prospective home buyers before making a commitment to participate in either program.

Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February. There are, however, some circumstances in which an RRSP contribution must be (or should be) made by December 31, in order to achieve the desired tax result.

Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February. There are, however, some circumstances in which an RRSP contribution must be (or should be) made by December 31, in order to achieve the desired tax result.

The rules around TFSAs are more flexible, in that a contribution to a TFSA can be made at any time during the calendar year. Nonetheless, there are advantages which can be obtained by careful timing of TFSA withdrawals and recontributions based on the calendar year end.

What follows is an outline of steps which should be considered, before the end of the 2020 calendar year, by Canadians who have an RRSP and/or a TFSA.

Timing of RRSP contributions

Making a spousal RRSP contribution

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plan (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2020, the contributor can claim a deduction for that contribution on his or her return for 2020. The spouse can then withdraw that amount as early as January 1, 2023 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2021, the contributor can still claim a deduction for it on the 2020 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2024. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively near future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should there be an unforeseen need to withdraw funds.

Turning 71 during 2020

Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age — usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31^st is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31^st of that year. Once that deadline has passed, no further RRSP contributions are possible.

Planning for TFSA withdrawals and contributions

Each Canadian aged 18 and over can make an annual contribution to a Tax-Free Savings Account (TFSA) — the maximum contribution for 2020 is $6,000. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount can be re-contributed, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned (or the need to make such a withdrawal might arise) within the next few months to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA before December 31^st, 2020 will have the amount which is withdrawn added to his or her TFSA contribution limit for 2021, which means it can be re-contributed, where finances allow, as early as January 1, 2021. If the same taxpayer waits until January 2021 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2022.

The month of December is a busy time for most Canadians, and usually not a time when the details of making contributions to an RRSP or withdrawals from a TFSA are top of mind. The deadlines for taking such actions are inflexible, however, and taking the time to take necessary steps now means one less thing to remember as the December 31 deadline looms.

When the Canada Pension Plan was introduced in 1965, it was a relatively simple retirement savings model. Working Canadians started making contributions to the CPP when they turned 18 years of age and continued making those contributions throughout their working life. Those who had contributed could start receiving the CPP retirement benefit at any time between the ages of 60 and 65. Once an individual was receiving retirement benefits, he or she was not required (or allowed) to make further contributions to the CPP, even if that individual continued to work. The CPP retirement benefit for which that individual was eligible therefore could not increase (except for inflationary increases) after that point.

When the Canada Pension Plan was introduced in 1965, it was a relatively simple retirement savings model. Working Canadians started making contributions to the CPP when they turned 18 years of age and continued making those contributions throughout their working life. Those who had contributed could start receiving the CPP retirement benefit at any time between the ages of 60 and 65. Once an individual was receiving retirement benefits, he or she was not required (or allowed) to make further contributions to the CPP, even if that individual continued to work. The CPP retirement benefit for which that individual was eligible therefore could not increase (except for inflationary increases) after that point.

Retirement looks a lot different now than it did it 1965, and the Canada Pension Plan has evolved and changed to recognize those differences. What that means for the average Canadian is much more flexibility in determining how to structure both their contributions to the CPP and the receipt of CPP retirement benefits.

While greater flexibility in retirement income planning is always a good thing, having more choices brings with it the need to determine which choices are the right ones in one’s particular circumstances. And, when it comes to CPP, many Canadians must decide on when it makes sense to stop making CPP contributions.

The need to make that choice arises where a decision is made to continue to stay in the work force, whether part-time or full-time, even after beginning to receive CPP retirement benefits. While it has always been possible to work while receiving such benefits, it was, until 2012, not possible to make CPP contributions related to that work. A change made in that year, however, allowed individuals who continued to work while receiving the CPP retirement benefit to also continue to contribute to the Canada Pension Plan and, as a result, increase the amount of CPP retirement benefit they received each month. That benefit is the CPP Post-Retirement Benefit or PRB.

The rules governing the PRB differ, depending on the age of the taxpayer. In a nutshell, an individual who has chosen to begin receiving the CPP retirement benefit but who continues to work will be subject to the following rules:

• Individuals who are 60 to 65 years of age and continue to work are required to continue making CPP contributions.
• Individuals who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. To stop contributing, such an individual must fill out form https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html. A copy of that form must be given to the individual’s employer and the original sent to the Canada Revenue Agency (CRA). An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of Form CPT30 to each.

A decision to stop contributing can be changed, and contributions resumed, but only one change can be made per calendar year. To make that change, the individual must complete section D of CPT30 (found at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html), give one copy of the form to his or her employer, and send the original to the CRA.

• Individuals who are over the age of 70 and are still working cannot contribute to the CPP.

Overall, the effect of these new rules is that CPP retirement benefit recipients who are still working and who are under age 65, as well as those who are between 65 and 70 and choose not to opt out, will continue to make contributions to the CPP system and will continue therefore to earn new credits under that system. As a result, the amount of retirement benefits which they are entitled to will increase with each year’s contributions.

Where an individual makes CPP contributions while working and receiving CPP retirement benefits, the amount of any CPP post-retirement benefit earned will automatically be calculated by the federal government, and the individual will be advised of any increase in that monthly CPP retirement benefit each year. The PRB will be paid to that individual automatically the year after the contributions are made, effective January 1 of every year. Since the federal government needs information about employer contributions made, the first annual payment of the PRB is usually issued in early April and includes a lump sum amount representing benefits back to January of that year. Thereafter, the PRB is paid monthly and the PRB amount is added to the individual’s CPP retirement benefit amount and issued as a single payment.

While the rules governing the PRB can seem complex (and certainly the actuarial calculations are), the individual doesn’t have to concern himself or herself with those technical details. For CPP retirement benefit recipients who are under age 65 or over 70, there is no decision to be made. For the former, CPP contributions will be automatically deducted from their paycheques and for the latter, no such contributions are allowed.

Individuals in the middle group — aged 65 to 70 — will need to make a decision about whether it makes sense, in their individual circumstances, to continue making contributions to the CPP. Some assistance in making that decision is provided on the federal government website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement/benefit-amount.html, which shows the calculations which would apply for individuals of different ages and income levels.

More information on the PRB generally is also available on that website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement.html.

Between mid-February and mid-August of this year, the Canada Revenue Agency (CRA) received and processed just over 29 million individual income tax returns filed for the 2019 tax year. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and cannot possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

Between mid-February and mid-August of this year, the Canada Revenue Agency (CRA) received and processed just over 29 million individual income tax returns filed for the 2019 tax year. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and cannot possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

In addition, the CRA has for many years been encouraging taxpayers to fulfill their filing obligations online, through one of the Agency’s electronic filing services. This year, just over 26 million (or 90%) of the returns were filed by electronic means. While e-filing means that the turnaround for processing of returns is much quicker, there is, by definition, no paper involved. The Canadian tax system has always been what is termed a “self-assessing” system, in which taxpayers report income earned and claim deductions and credits to which they believe they are entitled. Prior to the advent of e-filing there were means by which the CRA could easily verify claims made by taxpayers. Where returns were paper-filed, taxpayers were usually required to include receipts or other documentation to prove their claims, whatever those claims were for. For the 90% of returns which were filed this year by electronic means, no such paper trail exists. Consequently, the potential exists for misrepresentation of such claims (or simple reporting errors) on a large scale.

The CRA’s response to that risk is to carry out a number of review programs, in which they seek to verify claims made by taxpayers on their returns. While the CRA conducts a variety of such review programs, the ones most likely to affect individual taxpayers are the Processing Review Program and the Matching Program, both of which are carried out in the fall of each year. The Processing Review Program, as the name implies, is a review of various deductions or credits claimed on returns, while the Matching Program compares information reported on the taxpayer’s return with information provided to the CRA by third-party sources (like T4s filed by employers or T5s filed by banks or other financial institutions).

Being selected for review under either program means, for the individual taxpayer, the possibility of receiving unexpected correspondence from the CRA. Receiving such correspondence from the tax authorities is almost guaranteed to unsettle the recipient taxpayer, even where there’s no reason to believe that anything is wrong. It is an experience which is shared by each of about 3 million Canadian taxpayers.

A taxpayer whose return is selected as part of the Processing Review Program will be asked to provide verification or proof of deductions or credits claimed on the return —usually by way of receipts or such documentation. The Matching Program, on the other hand, involves comparison by the CRA of information received from different sources (i.e., matching up the amount of employment income reported by a taxpayer with the amount showing on the T4 slip issued by that taxpayer’s employer). Where the figures match up, there is no need for the further action by the CRA. Where they don’t, the taxpayer will likely be contacted with a request for an explanation of the discrepancy.

Of course, most taxpayers are not concerned so much with the kind or program or programs under which they are contacted as they are with why their return was singled out for review. Many taxpayers assume that it’s because there is something wrong on their return, or that the letter is the start of an audit, but that’s not necessarily the case. Returns are selected by the CRA for post-assessment review for a number of reasons. Under the Matching Program, where a taxpayer has filed a return containing information which does not agree with the corresponding information filed by, for instance, his or her employer, it is likely that the CRA will want to follow up to find out the reason for the discrepancy. As well, Canada’s tax laws are complex and, over the years, there are areas in which the CRA has determined that taxpayers are more likely to make errors on their return. Consequently, a return which includes claims in those areas (like medical expenses, support payments and legal fees) may have an increased chance of being reviewed. Where there are deductions or credits claimed by the taxpayer which are significantly different or greater than those claimed in previous returns that may attract the CRA’s attention. And, if the taxpayer’s return has been reviewed in previous years and, especially, if an adjustment was made following that review, subsequent reviews may be more likely. Finally, many returns are picked for post-assessment review simply by random selection.  

Regardless of the reason for the follow-up, the process is the same. Taxpayers whose returns are selected for review will be contacted by the CRA, usually by letter, identifying the deduction or credit for which the CRA wants documentation or the income or deduction amount about which a discrepancy seems to exist. The taxpayer will be given a reasonable period of time — usually a few weeks from the date of the letter — in which to respond to the CRA’s request. That response should be in writing, attaching, if needed, the receipts or other documentation which the CRA has requested. All correspondence from the CRA under its review programs will include a reference number, which is usually found in the top right-hand corner of the CRA’s letter. That number is the means by which the CRA tracks the particular inquiry and should be included in the response sent to the Agency. It is important to remember, as well, that it’s the taxpayer’s responsibility to provide proof, where requested, of any claims made on a return. Where a taxpayer does not respond to a CRA request and does not provide such proof, the CRA will proceed on the basis that the requested verification or proof does not exist, and will reassess accordingly.

Taxpayers who have registered for the CRA’s online tax program My Account (or whose representative is similarly registered for the CRA’s Represent a Client online service) can submit required documentation electronically. More information on how to do so can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rvws/sbmttng-eng.html.

Whatever the reason a particular return was selected for post-assessment review by the CRA, one thing is certain. A prompt response to the CRA’s enquiry, providing them with the information or documentation requested will, in the vast majority of cases, bring the matter to a speedy conclusion, to the satisfaction of both the CRA and the taxpayer. The CRA website also includes more detailed information on the return review process, which is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/review-your-tax-return-cra.html.

When the state of emergency was declared in March of this year, the federal government extended the usual deadlines for both the filing of individual tax returns and payment of taxes owed, for both 2019 and 2020. Sometimes those deadlines (like the deadline for filing of individual income tax returns for 2019) were put off until June, but most such deadlines were deferred until September 30. A summary of the federal individual income tax deadlines which will fall this year on September 30 is set out below.

When the state of emergency was declared in March of this year, the federal government extended the usual deadlines for both the filing of individual tax returns and payment of taxes owed, for both 2019 and 2020. Sometimes those deadlines (like the deadline for filing of individual income tax returns for 2019) were put off until June, but most such deadlines were deferred until September 30. A summary of the federal individual income tax deadlines which will fall this year on September 30 is set out below.

Final payment of income taxes due for 2019

While the return for 2019 had to have been filed by June 1 (or June 15 for self-employed individuals and their spouses), payment of any income tax balance owed for 2019 is due on or before September 30. Where that payment deadline is not met, interest and penalty charges will be imposed.

As well, although the filing deadline for returns was in June, the Canada Revenue Agency (CRA) has indicated that late-filing penalties will not be imposed, as long as the required individual income tax return for 2019 is filed on or before September 30.

The payment deadline extension also applies to amounts owed with respect to final returns filed for individuals who died between January 1 and October 31, 2019. Where an individual died after October 2019 and before June 16, 2020, final payment is due by September 30, 2020, or six months after the date of death, whichever is later.

Finally, income tax balances and instalments due by trusts or corporations on or after March 18, 2020 and before September 30, 2020 are due on or before September 30.

Payment of income tax instalments for 2020

Canadian taxpayers who pay tax by quarterly instalments usually make those payments by the 15^th day of March, June, September, and December.

Earlier this year, the CRA announced that the June 15 and September 15 instalment due dates would be postponed, and that both such instalment payments would be due and payable by September 30. Interest charges will not be levied where that September 30 payment deadline is met.

End of interest-free period

As part of its pandemic response, the CRA also announced that it was suspending the accumulation of interest charges on existing income tax debts effective as of April 1, 2020. That interest-free grace period ends on September 30 and the usual interest charges will once again be imposed (and begin to accumulate) as of October 1, 2020.

It is worth noting that interest on debts owed to the CRA is levied at higher than commercial rates, and that such interest charges are compounded daily, meaning that each day interest is levied on interest charges imposed on the previous day.

A full listing of the filing and payment deadlines for 2020 is provided on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html#extend.

Of all the many financial relief programs introduced by the federal government to address the economic impact of the pandemic, probably none has had a bigger impact than the Canada Emergency Relief Benefit (CERB). As of August 16, nearly 9 million Canadians had applied for and received payments under the CERB program, and the program had paid out just over $70 billion.

Of all the many financial relief programs introduced by the federal government to address the economic impact of the pandemic, probably none has had a bigger impact than the Canada Emergency Relief Benefit (CERB). As of August 16, nearly 9 million Canadians had applied for and received payments under the CERB program, and the program had paid out just over $70 billion.

As the country emerges from the near complete economic lockdown which was in effect in the spring, the current financial situation of those who received CERB benefits will vary widely. Some may be back at work and earning the same income as they did pre-pandemic. Others may be back at work with reduced hours and, consequently, reduced income. Still others may still be waiting for their employer to call them back to work and some, unfortunately, may have worked for businesses which will never re-open.

Given the sheer number of CERB recipients, the economic impact of the termination of the CERB program on October 3, 2020 will be significant. In recognition of that fact, the federal government has announced three new programs intended to allow Canadians to transition from CERB. In addition, changes will be made to the Employment Insurance (EI) program which will make it easier for individuals to receive EI benefits.

The three new programs will allow Canadians whose income loss resulting from the pandemic continues to claim benefits, within prescribed limits, up until September 27, 2021. The particular program under which an individual may qualify depends on his or her particular circumstances — the programs and the qualifying criteria, as outlined on the federal government website, are summarized below.

Canada Recovery Benefit (CRB)

The CRB will provide $400 per week for up to 26 weeks to individuals who are self-employed or who are otherwise not eligible for EI and who still require income support, if they are available for and looking for work.

The CRB benefit would be available to Canadian residents who:

• are at least 15 years old and have a valid Social Insurance Number (SIN);
• have stopped working due to the pandemic and are available and looking for work, or are working but have had a reduction in their employment or self-employment income for pandemic-related reasons;
• are not eligible for Employment Insurance;
• had employment and/or self-employment income of at least $5,000 in 2019 or in 2020; and,
• have not quit their job voluntarily.

There is provision for a clawback of CRB benefits received where the income of a recipient (excluding CRB payments) is greater than $38,000. In such circumstances, the recipient will be required to repay 50 cents of the benefit for each dollar of their annual net income above $38,000 in the calendar year, to a maximum of the amount of benefit they received.

The CRB would be payable (subject to the weekly maximum claim period of 26 weeks) until September 27, 2021.

Canada Recovery Sickness Benefit (CRSB)

As the name implies, the CRSB will be paid to individuals who must quarantine or self-isolate for two weeks for pandemic-related reasons. The benefit will be $500 per week for that two-week period.

To qualify for the benefit, an individual must:

• be a Canadian resident who is at least 15 years of age and has a valid SIN;
• be employed or self-employed at the time of the application; and
• have earned at least $5,000 in 2019 or in 2020.

Like the CRB, the CRSB will be paid (for a maximum two-week period) anytime before September 27, 2021.

Canada Recovery Caregiving Benefit (CRCB)

Once again, the name is self-explanatory. The CRCB will provide $500 per week, for up to 26 weeks, per household to eligible Canadians whose work availability has been reduced by at least 60% resulting from the need to provide caregiving services to their children or to disabled family members. The CRCB recognizes that the upcoming school year will look very different and that grade school children who would normally attend school on a full day, every day basis may well have a different schedule for pandemic-related reasons.

In order to be eligible for the CRCB, an individual must:

• reside in Canada;
• be at least 15 years of age on the first day of the benefit period for which they are applying;
• have a valid Social Insurance Number;
• be employed or self-employed on the day before the start of the benefit period;
• have earned at least $5,000 in 2019 or in 2020;
• have been unable to work for at least 60% of their normally scheduled work within a given week because they must take care of a child who is under 12 years of age on the first day of the benefit period because that child’s school or daycare is closed or operates under an alternative schedule for reasons related to the pandemic, or where that child cannot attend school or day care due to medical risks, or because the child’s usual caregiver is not available for pandemic related reasons;
• have been unable to work for at least 60% of their normally scheduled work within a given week because they are providing care to a family member with a disability or dependent because the dependent’s day program or care facility is closed or operates under an alternative schedule for reasons related to COVID-19, or the dependent cannot attend their day program or care facility due to medical risks, or because the dependant’s usual caregiver is not available for pandemic-related reasons;
• not be in receipt of paid leave from an employer in respect of the same week; and
• not be in receipt of the CERB, the EI Emergency Response Benefit, the CRB, the CRSB, short-term disability benefits, workers’ compensation benefits, or any EI benefits or Quebec Parental Insurance Plan benefits in respect of the same week.

In some cases, individuals who have lost jobs or had their income reduced as the result of the pandemic can qualify for Employment Insurance benefits. However, the EI system has very specific requirements and those requirements have the potential to exclude large numbers of workers, including those who were working part-time or on a short-term contract, or who live in areas of low unemployment. The changes which will be made to the EI system will provide greater flexibility and consequently allow more individuals to qualify for EI benefits.

Generally speaking, in order to qualify for EI benefits, an individual must have worked for a specified number of hours within a prescribed time frame (the qualifying period). The number of hours required depends on the unemployment rate in the location where the individual lives and, where the local unemployment rate is lower, the number of work hours required to qualify for EI increases. Finally, the amount of EI benefit which may be received is calculated as a percentage of weekly earnings received during the qualifying period. In order to ensure that EI benefits can be claimed by more Canadians, and that greater benefits can be received, the following changes will be made.

• The minimum unemployment rate for purposes of the EI program will be set at 13.1% in all locations, effective as of August 9, 2020; and
• Canadians who have at least 120 hours of insurable work will be able to qualify for EI benefits, as they will be provided with a temporary, one-time credit of:
  • 300 insurable hours for those claiming EI regular benefits
  • 480 insurable hours for those claiming EI special benefits (maternity, parental, sickness, compassionate care, and family).

Under the new rules, individuals who qualify for EI benefits will receive a minimum benefit of $400 per week in regular benefits and $240 per week for extended parental benefits.

The federal government’s intention is that individuals who need financial support as the result of a pandemic-related loss of income should turn first to the Employment Insurance program. Where EI benefits are not available to them, they may be eligible for one of the three new programs — the CRB, the CRSB, and the CCRB — which can provide a comparable level of financial support. It is important as well for recipients of any of these benefits, or of EI, to recognize that all such income received is taxable income, which must be reported as income on the tax return filed for the year in which it is received.

More detailed information on each of these programs, and the changes to the EI system is available on the federal government website at https://www.canada.ca/en/department-finance/economic-response-plan.html#individuals.

Most Canadians who participate in the paid work force do so as employees. Consequently, they receive a regular paycheque from their employer and they pay income taxes by means of amounts deducted from that paycheque and remitted to the federal government on their behalf.

Most Canadians who participate in the paid work force do so as employees. Consequently, they receive a regular paycheque from their employer and they pay income taxes by means of amounts deducted from that paycheque and remitted to the federal government on their behalf.

There are, however, a significant number of Canadians who fall outside that group — like retirees, or the self-employed — who must pay their taxes by some other method. That method is the payment of income tax through the instalment payment system.

The rule is that an individual is subject to the instalment payment requirement where his or her tax owed on filing for the current year and either of the two previous years is more than $3,000. In other words, the amount of tax collected from that individual throughout the year was at least $3,000 less than the actual tax owed for that year.

Canadian taxpayers who thus fall into the tax instalment payment system remit an amount to the federal government four times a year, by the 15^th of March, June, September, and December. Where the amount remitted ends up being more than their actual tax liability for the year, the excess is returned to them in the form of a tax refund when they file their income tax return for the year. Where instalment amounts remitted are less than the taxpayer’s tax liability for the year, the balance owing must be paid when the return is filed.

Where a taxpayer is subject to the instalment requirement, the Canada Revenue Agency (CRA) sends them two “Instalment Reminders” each year (one in February, the second in August), setting out the amounts to be paid on each upcoming due date. Regardless of the type or amount of his or her income for the year, or the amount of any instalment payments, the options available to the recipient of an Instalment Reminder are the same. On its website, the CRA describes the three different payment options open to taxpayers, and outlines the benefits and risks of each option in different circumstances, as follows:

No-calculation option

This option is best for you if your income, deductions, and credits stay about the same from year to year.

We will give the no-calculation option amount on the instalment reminders that we will send you. We determine the amount of your instalment payments based on the information in your latest assessed tax return.

Prior-year option

This option is best for