Newsletters

For several generations, reaching one’s 65^th birthday marked the transition from working life to full retirement, and, usually, receipt of a monthly employee pension, along with government-sponsored retirement benefits. That is no longer the reality. The age at which Canadians retire can now span a decade or more, and retirement is more likely to be a gradual transition than a single event.

For several generations, reaching one’s 65^th birthday marked the transition from working life to full retirement, and, usually, receipt of a monthly employee pension, along with government-sponsored retirement benefits. That is no longer the reality. The age at which Canadians retire can now span a decade or more, and retirement is more likely to be a gradual transition than a single event.

Today, Canadians can choose to begin receiving benefits from government-sponsored retirement benefit programs between the ages of 60 and 70. Canada Pension Plan retirement benefits can begin as early as age 60, and taxpayers can start collecting Old Age Security benefits at age 65. Receipt of income from either of those government- sponsored retirement income plans can also be deferred until the age of 70, but no later.

As well, the employer-sponsored pension plan is no longer available as a source of guaranteed retirement income for the majority of retirees. Instead, such retirees have (hopefully) saved for retirement through a registered retirement savings plan (RRSP). Holders of such plans are required to collapse their RRSP by the end of the year in which they turn 71 years of age. And, the decision made on what to do with the funds within that RRSP will affect the individual’s income for the remainder of his or her life.

While the actual decision is a complex one, the options available to a taxpayer who must collapse an RRSP are actually quite few in number — three, to be precise. They are as follows:

• collapse the RRSP and include all of the proceeds in income for that year;
• collapse the RRSP and transfer all proceeds to a registered retirement income fund (RRIF); and/or
• collapse the RRSP and purchase an annuity with the proceeds.

It’s not hard to see that the first option doesn’t have much to recommend it. Collapsing an RRSP without transferring the balance to a RRIF or purchasing an annuity means that every dollar in the RRSP will be treated as taxable income for that year. In most cases, that will mean losing nearly half of the RRSP proceeds to income tax. And, while any amount left can then be invested, tax will be payable on all investment income earned.

As a practical matter, then, the choices come down to two: a RRIF or an annuity. And, as is the case with most tax and financial planning decisions, the best choice will be driven by one’s personal financial and family circumstances, risk tolerance, cost of living, and the availability of other sources of income to meet that cost of living.

The annuity route has the great advantages of simplicity and reliability. In exchange for a lump sum amount paid by the taxpayer, the annuity issuer agrees to pay the taxpayer a specific sum of money, usually once a month, for the remainder of the annuitant’s life. Annuities can also provide a guarantee period, in which the annuity payments continue for a specified time period (5 years, 10 years), even if the taxpayer dies during that time. The amount of monthly income which can be received depends, of course, on the amount paid in, but also on the gender and, especially, the age of the taxpayer. Currently, annuity rates for each $100,000 paid to the annuity issuer by a taxpayer who is 70 years of age range from $579 to $643 per month for a male taxpayer and from $515 to $572 for a female taxpayer (the actual rate is set by the company which issues the annuity). Those rates do not include any guarantee period.

For taxpayers whose primary objective is to obtain a guaranteed life-long income stream without the responsibility of making any investment decisions or the need to take any investment risk, an annuity can be an attractive option. There are however, some potential downsides to be considered. First, an annuity can never be reversed. Once the taxpayer has signed the annuity contract and transferred the funds, he or she is locked into that annuity arrangement for the remainder of his or her life, regardless of any change in circumstances that might mean an annuity is no longer suitable. Second, unless the annuity contract includes a guarantee period, there is no way of knowing how many payments the taxpayer will receive. If he or she dies within a short period of time after the annuity is put in place, there is no refund of amounts invested — once the initial transfer is made at the time the annuity is purchased, all funds transferred belong to the annuity company. Third, most annuity payment schedules do not keep up with inflation — while it is possible to obtain an annuity in which payments are indexed, having that feature will mean a substantially lower monthly payout amount. Finally, where the amount paid to obtain the annuity represents most or all of the taxpayer’s assets, entering into the annuity arrangement means that the taxpayer will not be leaving an estate for his or heirs.

The second option open to taxpayers is to collapse the RRSP and transfer the entire balance to a registered retirement income fund, or RRIF. A RRIF operates in much the same way as an RRSP, with two major differences. First, it’s not possible to contribute funds to a RRIF. Second, the taxpayer is required to withdraw an amount from his or her RRIF (and to pay tax on that amount) each year. That minimum withdrawal amount is a percentage of the outstanding balance, with that percentage figure determined by the taxpayer’s age at the beginning of the year. While the taxpayer can always withdraw more in a year, or make lump sum withdrawals (and pay tax on those withdrawals), he or she cannot withdraw less than the minimum required withdrawal for his or her age group.

Where a taxpayer holds savings in a RRIF, he or she can invest those funds in the same investment vehicles as were used while the funds were held in an RRSP and those funds can continue to grow on a tax-sheltered basis, in the same way as funds in an RRSP. While the ability to continue holding investments that can grow on a tax-sheltered basis provides the taxpayer with a lot of flexibility, and the potential for growth in value, those benefits have a price in the form of investment risk. As is the case with all investments, the investments held within a RRIF can increase in value — or decrease — and the taxpayer carries the entire investment risk. When things go the way every investor wants them to, investment income is earned while the taxpayer’s underlying capital is maintained but, of course, that result is never guaranteed.

On the death of a RRIF annuitant, any funds remaining in the RRIF can pass to the annuitant’s spouse on a tax-free basis. Where there is no spouse, the remaining funds in the RRIF will be income to the RRIF annuitant in the year of death, and any balance after tax is paid will become part of his or her estate, available for distribution to beneficiaries.

While the above discussion of RRIFs versus annuities focuses on the benefits and downsides of each, it is not necessary (and in most cases not advisable) to limit the options to an either/or choice. It is possible to achieve, to a degree, the seemingly irreconcilable goals of lifetime income security and the potential for capital (and estate) growth. Combining the two alternatives — annuity and RRIF — either now or in the future, can go a long way toward satisfying both objectives.  

For everyone, in retirement or not, all spending is a combination of non-discretionary and discretionary items. The first category is made up mostly of expenditures for income tax, housing (whether rent or the cost of maintaining a house), food, insurance costs, and (especially for older Canadians) the cost of out-of-pocket medical expenses. The second category of discretionary expenses includes entertainment, travel, and the cost of any hobbies or interests pursued. A strategy which utilizes a portion of RRSP savings to create a secure lifelong income stream to cover non-discretionary costs can remove the worry of outliving one’s money, while the balance of savings can be invested through a RRIF, for growth and to provide the income for non-discretionary spending.

Such a secure income stream can, of course, be created by purchasing an annuity. As well, although most taxpayers don’t necessarily think of them in that way, the Canada Pension Plan and Old Age Security have many of the attributes of an annuity, with the added benefit that both are indexed to inflation. By age 71, all taxpayers who are eligible for CPP and OAS will have begun receiving those monthly benefits. Consequently, in making the RRIF/annuity decision at that age, taxpayers should include in their calculations the extent to which CPP and OAS benefits will pay for their non-discretionary living costs.

As of June 2018, the maximum OAS benefit for most Canadians (specifically, those who have lived in Canada for 40 years after the age of 18) is about $590 per month. The amount of CPP benefits receivable by the taxpayer will vary, depending on his or her work history, but the maximum current benefit which can be received at age 65 is about $1,050. (Where receipt of either benefit is deferred past the age of 65, those amounts go up.) As a result, a single taxpayer who receives the maximum CPP and OAS benefits at age 65 will have just under $20,000 in annual income (just over $1,600 per month). And, for a married couple, of course, the combined total annual income received from CPP and OAS can approach $40,000 annually, or $3,200 per month. While $20,000 a year isn’t enough to provide a comfortable retirement, for those who go into retirement in good financial shape — meaning, generally, without any debt — it can go a long way toward meeting non-discretionary living costs. In other words, most Canadians who are facing the annuity versus RRIF decision already have a source of income which is effectively guaranteed for their lifetime and which is indexed to inflation. Taxpayers who are considering the purchase of an annuity to create the income stream required to cover non-discretionary expenses should first determine how much of those expenses can already be met by the combination of their (and their spouse’s) CPP and OAS benefits. The amount of any annuity purchase can then be set to cover off any shortfall.

While the options available to a taxpayer at age 71 with respect to the structuring of future retirement income are relatively straightforward, the number of factors to be considered in assessing those factors and making that decision are not. All of that makes for a situation in which consulting with an independent financial adviser on the right mix of choices and investments isn’t just a good idea, it’s a necessary one.

It’s something of an article of faith among Canadians that, as temperatures rise in the spring, gas prices rise along with them. Whether that’s the case every year or not, this year statistics certainly support that conclusion. In mid-May, Statistics Canada released its monthly Consumer Price Index, which showed that gasoline prices were up by 14.2%. As of the third week of May, the per-litre cost of gas across the country ranged from 125.2 cents per litre (in Manitoba) to 148.5 cents per litre (in British Columbia). On May 23, the average price across Canada was 135.2 cents per litre, an increase of more than 25 cents per litre from last year’s average on that date.

It’s something of an article of faith among Canadians that, as temperatures rise in the spring, gas prices rise along with them. Whether that’s the case every year or not, this year statistics certainly support that conclusion. In mid-May, Statistics Canada released its monthly Consumer Price Index, which showed that gasoline prices were up by 14.2%. As of the third week of May, the per-litre cost of gas across the country ranged from 125.2 cents per litre (in Manitoba) to 148.5 cents per litre (in British Columbia). On May 23, the average price across Canada was 135.2 cents per litre, an increase of more than 25 cents per litre from last year’s average on that date.

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, for most of us, driving a car every day can’t be avoided, and gasoline is consequently a non-discretionary expense. That’s especially true for those who must drive to work each day and, increasingly, that drive is becoming a longer and longer one, as individuals and families move further and further from their workplace location in search of affordable housing. Finally, for many Canadians a car is their only transportation option, when they live in places that are not served by public transit, or the available transit isn’t a practical daily option.

Unfortunately, for most taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving as the cost of driving to work and back home, as well as the cost of driving that isn’t work-related, is 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 his 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 that no tax-free allowance was provided by the employer for 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;
• license and registration fees;
• interest paid on a loan to purchase the vehicle;
• eligible leasing costs for the vehicle; and
• depreciation, in the form of capital cost allowance.

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 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, such that it could be claimed only for costs incurred for transit use before July 1, 2017. It was not possible to carry the credit over and claim it in a subsequent taxation year, so the last claim anyone could make for the public transit tax credit was on the 2017 annual tax return.

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 middle of May 2018, the Canada Revenue Agency (CRA) had processed just over 26 million individual income tax returns filed for the 2017 tax year. Just over 14 million of those returns resulted in a refund to the taxpayer, while about 5.5 million returns filed and processed required payment of a tax balance by the taxpayer. Finally, about 4.4 million returns were what are called “nil” returns — returns where no tax is owing and no refund claimed, but the taxpayer is filing in order to provide income information which will be used to determine his or her eligibility for tax credit payments (like the federal Canada Child Benefit or the HST credit )

By the middle of May 2018, the Canada Revenue Agency (CRA) had processed just over 26 million individual income tax returns filed for the 2017 tax year. Just over 14 million of those returns resulted in a refund to the taxpayer, while about 5.5 million returns filed and processed required payment of a tax balance by the taxpayer. Finally, about 4.4 million returns were what are called “nil” returns — returns where no tax is owing and no refund claimed, but the taxpayer is filing in order to provide income information which will be used to determine his or her eligibility for tax credit payments (like the federal Canada Child Benefit or the HST credit ).

No matter what 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 Agency, outlining the taxpayer’s income, deductions, credits, and tax payable for the 2017 tax year, whether the taxpayer will be receiving a refund or whether he or she has a balance owing and, in either case, the amount involved. The amount of any refund or tax payable will appear in a box at the bottom of page 1, under the heading “Account Summary”. On page 2 of the NOA, the CRA lists the most important figures resulting from their assessment, including the taxpayer’s total income, net income, taxable income, total federal and provincial non-refundable tax credits, total income tax payable, total income tax withheld at source and the amount of any refund or balance owing. Page 2 also includes an explanation of any changes made by the CRA to the taxpayer’s return during the assessment process and provides information on unused credits (like tuition and education credits) which the taxpayer had earned and can carry forward and claim in future years. On page 3 of the NOA, the taxpayer will find information on his or her total RRSP contribution room (i.e., maximum allowable RRSP contribution) for 2018. Finally, page 4 provides information on how to contact the CRA with questions about the information provided on the NOA, on how to change the return filed and on how to dispute the CRA’s assessment of the individual’s tax liability.

In most cases, the information contained in the Notice of Assessment is the same as that provided by the taxpayer in his or her return, perhaps with a few arithmetical corrections made by the CRA. In a minority of cases, the information presented in the Notice of Assessment will differ from that provided by the taxpayer in his or her return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a good day for the taxpayer. In some cases, however, the Notice of Assessment will inform the taxpayer of an unexpected amount of tax owed.

When that happens, the taxpayer must figure out why, and to decide whether or not to dispute the CRA’s conclusions. Many 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, for instance, a T5 slip reporting less than fifty dollars in interest income earned. Even though most returns are now prepared using tax software (for 2017 returns, over 87% of returns were prepared using such software) which minimizes the chance of arithmetical errors, mistakes can still occur. Such tax software relies, in the first instance, on information input by the user with respect to amounts found on T4, T5, and other information slips. No matter how good the software, it can’t account for income information which the taxpayer hasn’t included in the inputs. In other cases, the taxpayer might transpose figures when entering them, such that an income amount of $18,456 on the T4 becomes $14,856 on the tax return. Once again, the tax software has no way of knowing that the information input was incorrect and will calculate tax owing on the basis of the figures provided.

Where there is additional tax owing because of an error or omission made by the taxpayer in completing the return, 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 accurately reported.

There are, however, instances in which the CRA and the taxpayer are in disagreement over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s claim for a medical expense, or for a deduction claimed for a business expenditure, which the taxpayer believes to be legitimate. When that happens, the taxpayer must decide whether to dispute the assessment.

Before making that decision, and 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 always be clear to the taxpayer precisely why there is an increase in the amount of tax which he or she must pay for the year. It is no longer possible to have a face-to-face meeting with a CRA representative at a Tax Services Office to obtain such information, as in-person services were discontinued a few years ago. Taxpayers who want more information about their Notice of Assessment must now call or write to the CRA. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281, to obtain more detailed information. If that call doesn’t resolve the taxpayer’s questions, he or she can write to or fax the Tax Centre which processed the return. The name of that Tax Centre can be found in the top left hand corner of the first page of the Notice of Assessment, and fax numbers and mailing addresses for the Tax Centres are available on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html. Communication with a Tax Centre can only be done by fax or mail, as phone numbers for Tax Centres are not available to the public.

While the Canadian real estate market seems, by all accounts, to have retreated from the record pace it was setting in 2017, there is still plenty of activity. According the statistics released by the Canadian Real Estate Association (CREA), more than 35,000 homes were sold across Canada in the month of April alone. And that means that an equal number of households will be moving in the upcoming months.

While the Canadian real estate market seems, by all accounts, to have retreated from the record pace it was setting in 2017, there is still plenty of activity. According the statistics released by the Canadian Real Estate Association (CREA), more than 35,000 homes were sold across Canada in the month of April alone. And that means that an equal number of households will be moving in the upcoming months.

Individuals and families move for any number of reasons, and those moves can be local or long distance. 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 to attend university, or because of the purchase of a first home — moving represents the upheaval of one’s life and, where the move is for a long distance, or involves a large family home, 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 its common to refer simply to the “moving expense deduction”, as though it were available in all circumstances, the reality is that there is no general 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 Ottawa 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’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.

It’s 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 are moving 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 earned at the new location — 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 future years.

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.

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 deduction is available. As well, a claim for such home maintenance expenses is not allowed where the taxpayer delayed selling, for investment purposes or until the real estate market improved.

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. In some cases, 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 45 cents for Alberta to 60.5 cents for the Yukon Territory. 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 2017 taxation year — the CRA will be posting the rates for 2018 on its website early in 2019, 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, which was updated and re-issued by the CRA in January of this year. The current version of the 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 is available at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/menu-eng.html. Details of the allowable amounts which may be claimed for standardized moving-related meal and travel expenses can be found on the same website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/255/rts-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 #44 Corporate

Personal:

Issue #44 Personal

For almost a decade now, Canadians have been living, and borrowing, in an ultra-low interest rate environment. As of the end of April 2018, the bank rate (from which commercial interest rates are derived) stood at 1.5%. The last time that the bank rate was over 1.5% was in December of 2008. Effectively, adult Canadians who are under the age of 30 have had no experience of managing their finances in high (or even, by historical standards, ordinary) interest rate environments.

For almost a decade now, Canadians have been living, and borrowing, in an ultra-low interest rate environment. As of the end of April 2018, the bank rate (from which commercial interest rates are derived) stood at 1.5%. The last time that the bank rate was over 1.5% was in December of 2008. Effectively, adult Canadians who are under the age of 30 have had no experience of managing their finances in high (or even, by historical standards, ordinary) interest rate environments.

The prolonged period of low interest rates which followed the financial crisis of 2008-09 coincided, not surprisingly, with an explosion in the amount of debt owed by both individual Canadians and by families. In the fall of 2005, the ratio of debt to disposable income for an average Canadian family stood at 93%. In the third quarter of 2017 that ratio stood at just less than double that amount, or 171%.

For several years financial advisers and government and banking officials have been sounding warnings that the debt loads which Canadians were carrying were likely sustainable only at the extremely low interest rates then in effect. Their concern was that when, inevitably, those rates returned to historically “normal” levels the burden of repaying, or even servicing those debts, would be unsustainable.

Whether those warnings were or weren’t heeded is becoming a moot question, as the era of reliably ultra-low interest rates is effectively coming to an end. The Bank of Canada has raised interest rates three times in the past 10 months, in July and September 2017 and again in January of 2018. Prior to July 2017, the last interest rate increase took place in September of 2010. As well, as the Bank has made clear in its regular announcements on the subject, the longer-term interest rate trend is an upward one.

When talking about debt, and debt management, it’s important to remember that not all debt is created equal. Specifically, it’s necessary to draw a distinction between secured and unsecured debt. Put simply, the former is debt which is secured by the value of an underlying asset and, if the debtor fails to make payments on the debt, the lender is entitled to seize that underlying asset and sell it to satisfy any outstanding debt amount owed. The type of secured debt most familiar to Canadians is, of course, a mortgage. Unsecured debt, on the other hand, is provided solely on the strength of the borrower’s promise to repay, and credit cards are the most common example of unsecured debt owed by Canadians.

While any type of debt can cause problems for borrowers, when interest rates go up it’s usually those who are carrying unsecured debt who are the first to feel the pinch. Not only is the rate of interest payable on unsecured debt always higher than that levied on secured debt, the interest rate on unsecured debt is usually a “variable” rate, meaning that it will go up every time interest rates increase, and the monthly minimum payment required will increase proportionately. And, of course, debtors whose debt is secured by an underlying asset and who find that such debt is no longer manageable always have the “out” of selling that asset and using the proceeds to retire the outstanding balance of the loan, while those who owe unsecured debt have no such option.

It’s easy to assume from the overall figures respecting the debt load of Canadians that having an outstanding balance on one or more credit cards or lines of credit is the norm. However, an Ipsos Global News year-end poll discloses some perhaps unexpected results, with both good and bad implications. Those survey results, which can be found on the Ipsos website at https://www.ipsos.com/en-ca/news-polls/2017-year-end-debt, was done in December of 2017. It found that the average unsecured (i.e., non-mortgage) debt held by individual Canadians was $8,539.50. However, the survey also found that nearly half of Canadians (46%) had no consumer debt whatsoever. Consequently, when it comes to debt, Canadians seem to fall about evenly into one of two very distinct and different groups. The minority (by a small percentage) are free of any unsecured debt – no line of credit debt and no credit card balances. But it’s a very different picture for the other 54% who are carrying, on average, around $15,000 in unsecured debt per person. And, for 12% of those surveyed, the amount of unsecured debt owed was more than $25,000.

For anyone who is carrying outstanding unsecured debt, the obvious advice is to get the debt paid down as quickly as possible, especially when interest rates are rising. That is, however, easier said than done, especially when the interest component of the debt, and consequently the required monthly minimum payments, are steadily increasing. Between 19% and 22% of respondents in the IPSO Global News poll indicated that they were “not very comfortable” or “not at all comfortable” with their ability to meet their current monthly debt payment obligations and/or their ability to pay down their debt in a timely manner.

Even where repayment of the debt over the short term isn’t a realistic expectation, such individuals are not without options. The best strategy to be pursued by those carrying significant amounts of unsecured debt which can’t be paid off over the short-term would be to try to lower the interest rate on such debt. There are a couple of ways in which that can be done.

If the debtor owns an asset (usually a house) against which he or she can borrow, turning the debt from unsecured to secured, the interest rate payable on such borrowing will certainly be lower than the rate currently being paid. Where there is no such asset, the debtor can seek a consolidation loan from a financial institution, in which all of the outstanding debts from every source are combined into a single loan at a lower rate of interest, and a fixed repayment schedule. Much unsecured debt owed by Canadians is in the form of credit card debt, which carries some of the highest interest rates around.

If neither of those options are available, then the next step would be to try to obtain a lower credit card interest rate. If the debt is in good standing – that is, payments have been made on time and in at least the minimum amount – the credit card company may be willing to reduce the interest rate imposed, especially if it is clear that the borrower will not be able to continue to make payments at higher rates. If the credit card company is unwilling to do so, the debtor may be able to seek out better rates elsewhere. Credit card companies regularly seek to bring in new business by offering the opportunity to transfer in balances from other cards and to have those balances benefit from a very low (or even 0%) rate of interest for a period of time – usually 6 months to a year. Where a new card with a much lower interest rate can be obtained, regular payments made will reduce the outstanding balance more quickly, since less of that payment is going to meet interest charges.

Each of these options assumes a willingness and an ability on the part of the individual to make debt repayment a priority, working on his or her own. For some, that’s not easy, or even possible. As well, some individuals are already in financial difficulty - unable to make the minimum monthly required payment, or having missed payments and being pursued by collection agencies. In both those situations, obtaining help to deal with the debt repayment process is likely needed. That help is available through debt and credit counselling provided by any number of non-profit agencies. Those agencies work with individuals, and with their creditor(s), to create both a realistic budget and a manageable debt repayment schedule. More information on the credit counselling process, and a listing of such non-profit agencies can be found at http://creditcounsellingcanada.ca/.

The arrival of warmer weather signals both the start of spring and the approaching end of the school year. For many families, it also means the need to begin researching the availability of suitable child care or summer daytime or overnight camp arrangements for the summer months. There are many such options available to parents, but what each of those options have 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 summer-long residential camps or elite level sports or arts camps, can run to the thousands of dollars.

The arrival of warmer weather signals both the start of spring and the approaching end of the school year. For many families, it also means the need to begin researching the availability of suitable child care or summer daytime or overnight camp arrangements for the summer months. There are many such options available to parents, but what each of those options have 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 summer-long residential camps or elite level sports or arts camps, can run to the thousands of dollars.

The good news for families which must incur such expenditures is that in many cases a deduction for all or part 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 effectively not subject to income tax. The bad news is that some of the deductions or credits which could be claimed in recent years are no longer available.

This year, any offset provided by the tax system with respect to summer child care costs can only be claimed through the general deduction provided for child care costs. That deduction, which is not specific to summer child care costs but is available for such costs incurred year-round, allows 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.

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 the least of 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 “earned 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, and both spouses are working, the claim is made by the spouse with the lower net income, 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 expenses impose a maximum deduction per child per year (referred to as the “basic limit”), with that basic limit dependent on the age and health 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 2018, the following overall limits apply:

• $5,000 in costs per year for a child who was born from 2002 to 2011;
• $8,000 in costs per year for a child who was born in 2012 or later;
• $11,000 in costs per year for a child who was born in 2018 or earlier, 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 from 2002 to 2011;
• $200 per week for a child who was born in 2012 or later; and
• $275 per week for a child who was born in 2018 or earlier, for whom the disability amount can be claimed.

Taking all of these figures into account, the computation of a deduction for child care 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 $60,000 per year, while the other earns $45,000. In 2018, one child is nine years old and the other is five. Neither child is disabled. Both children are in full-day school and so, during the school year, the family pays $400 per month for each child for after-school care. During the eight weeks of summer school vacation, both of the children attend a local full-day summer camp, for which the cost is $250 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 $45,000, or $30,000. Consequently, any deduction for child care expenses for the year cannot exceed $30,000.

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

• $400 per month for 10 months of after-school care, or $4,000
• $250 per week for eight weeks of summer camp, or $2,000.

Total child care expenses for the year for each child is therefore $6,000.

• The last step is to determine the basic limit for child care expenses for each child, as follows:

The basic limit for the five-year-old (who was born in 2012 or later) is $8,000, and so the entire $6,000 in child care expenses incurred can be deducted.

The basic limit for the nine-year-old (who was born between 2002 and 2011) is $5,000, and so only $5,000 of the $6,000 in expenses incurred can be deducted for the year.

The total deduction available for child care expenses incurred for the 2018 tax year will therefore be $5,000 plus $6,000, or $11,000. That deduction is calculated on Form T778 and the deduction amount transferred to Line 214 of the tax return filed by the lower-income spouse for 2018 year, reducing his or her taxable income from $45,000 to $34,000, and resulting in a federal tax savings of about $1,650. The same 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.

In previous years, parents were also able to claim two other federal tax credits – the Children’s Fitness Tax Credit and the Children’s Arts Tax Credit – in respect of qualifying costs incurred. Unfortunately, those credits were reduced as of the start of the 2016 tax year and were entirely eliminated as of the beginning of 2017. Consequently, no such credits can be claimed for formerly eligible costs which are incurred during 2018.

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 2018 tax year should consult Form T778 E (17). That form, which includes detailed information on the rules governing the deduction and how to make the claim, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t778.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 and will be able to receive CPP retirement benefits as early as age 60. Earning income from employment or self-employment 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 and will be able to receive CPP retirement benefits as early as age 60. Earning income from employment or self-employment 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 has made contributions during his or her working life in order to receive 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 have been Canadian residents for 40 years after the age of 18 can receive full OAS benefits, as early as age 65. As of the second quarter of 2018, those eligible for full OAS benefits receive $589.59 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 simple one. Anyone who receives OAS benefits during the year and has income for that year of more than $75,910 (for 2018) must repay a portion of those benefits. That repayment, or clawback, is administered by requiring repayment when the tax return for that year is filed the following April.

For example, an individual who receives full OAS during 2017 and has net income for the year of $82,000 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 example for the 2017 tax year:

Total OAS benefit for the year — $6,900

Total income for the year — $82,000

OAS income clawback threshold for 2017 — $74,788

Income over clawback threshold — $7,212 × 15% = $1081.80

Repayment amount required — $1081.80

The federal government becomes aware of an individual’s income for 2017 only once the tax return for that year is filed, usually by April 30 of 2018. Consequently, the required repayment amount of $1081.80 will become apparent when the return for the year is prepared, and will be included in any amount which must be paid on filing. As well, in the following benefit year (which will run from July 2018 to June 2019), OAS benefits received will be reduced by the same amount as the OAS repayment from the previous year. In the case of the above example, the monthly reduction of benefits would be $90.15 ($1081.80 divided by 12 months).

As of 2018, the OAS clawback affects only individuals who have an annual income of at least $75,000, and it’s arguable that at such income levels, the clawback requirement is unlikely to impose significant 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 taxable income approaches the six-figure mark.

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 benefits which will be received from an employer-sponsored 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 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 the required withdrawal date of age 72, 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 age 72.

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 (whether the taxpayer is under or over the age of 71), after-tax amounts received can be contributed to the taxpayer’s tax-free savings account (TFSA), 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 towards income for purposes of the OAS clawback.

Taxpayers who are married can “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 qualifying income over the OAS clawback threshold can notionally re-allocate the “excess” income to his or her spouse on the annual return. 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 annuity or an employer-sponsored pension plan. More information on the kinds of income eligible for pension income splitting, and the mechanics of the process, can be found on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html.

It is not at all uncommon now for Canadians to continue to work full-time or, more commonly, part-time, past the age of 65. Where that’s the case, it may make sense to defer receipt of OAS benefits for a few years, until the individual leaves the workforce. That’s especially the case where income received from employment, together with other sources of income, pushes the taxpayer’s annual income over the OAS clawback threshold. And, where receipt of such OAS benefits is deferred, the monthly amount received will go up, meaning that the eventual OAS benefits can go further toward making up the difference when income from employment ceases.

Finally, as outlined above, where a taxpayer must repay OAS benefits on filing his or her return for the previous year, any such benefits paid in the current benefit year are automatically reduced by the same amount. That practice is based on the assumption that income will not vary significantly from year to year. Where that’s not the case, and the taxpayer‘s income for a particular year is significantly higher because of a one-time event (e.g., the taxable sale of property or investments), the taxpayer can take action to avoid having monthly OAS benefit payments reduced in the following year. To do so, he or she must file a Request to Reduce OAS Recovery Tax at Source (T1213 (OAS) E (17)), which can be found on the CRA website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1213_oas/t1213oas-17e.pdf. On that form, the taxpayer will provide information about his or her income sources and deductions for the current year, to show that he or she will not be subject to the OAS recovery tax for the year (or that such tax well be lower than the previous year’s). Once the Request is submitted, and it is approved by the CRA, it takes about two months for the change to be reflected in monthly benefit payments.

By the end of April 2018, more than 20 million individual income tax returns for the 2017 tax year will have been filed with the Canada Revenue Agency (CRA). And, inevitably, some of those returns will contain errors or omissions that must be corrected – last year the CRA received about 2 million requests for adjustment(s) to an already-filed return.

By the end of April 2018, more than 20 million individual income tax returns for the 2017 tax year will have been filed with the Canada Revenue Agency (CRA). And, inevitably, some of those returns will contain errors or omissions that must be corrected – last year the CRA received about 2 million requests for adjustment(s) to an already-filed return.

Most Canadians now prepare their returns (or have those returns prepared by a tax professional) using tax return preparation software. The use of such software significantly reduces the chance of making a clerical or arithmetical 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. 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 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. And this year, taxpayers have more options than were previously available to them in doing so.

The vast majority of Canadians either file their return online, using the CRA’s NETFILE service, or engage a tax return preparer to file the return using the Agency’s EFILE service. Last year, fully 86% of individual tax returns were filed using one or the other of those methods.

This year, taxpayers who filed online, whether through NETFILE or EFILE, can advise the CRA of an error or omission in an already-filed return electronically, 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, using the CRA website.

Essentially, taxpayers whose returns have been filed online (through NETFILE or EFILE) can file a correction to that already-filed return, 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 for 2017 or 2016. Where the return was filed using EFILE, the EFILE service provider can file adjustments for returns filed for the 2017, 2016, or 2015 tax years.

There are limits to the ReFILE service. 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” option), but that choice is available only to taxpayers who have already registered for the My Account service. As well, the changes/corrections which can be made using ReFILE are the same as those which can be done through My Account, without the need to become registered for My Account, a process which takes a few weeks.

Taxpayers who wish to make changes or corrections which cannot be made through ReFILE or My Account (or those who just don’t wish to use the online option) can paper-file an adjustment to their return. The paper form to be used is Form T1-ADJ E (2018), which can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html. 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 (2018) form.

The use of the actual T1-ADJ form 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 and two, 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 (or a letter) is filed by sending the completed document to the appropriate Tax Center, which is the one to which the tax return was originally mailed. A listing of Tax Centres and their addresses can be found on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html. A taxpayer who isn’t sure any more which Tax Centre his or her return was sent to can go to www.cra-arc.gc.ca/cntct/tso-bsf-eng.html on the CRA website and select his or her location from the listing found there. The address for the correct Tax Centre will then be provided. Similar information is also provided on the T1ADJ form.

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 Agency’s estimate is that such requests which are submitted online have a turnaround time of about two weeks, while those which come in by mail take about eight 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 (e.g., 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 proceed.

Virtually no one looks forward to dealing with the need to file a tax return each spring, and while some of that reluctance is undoubtedly due to the complexity of our tax system, there’s another factor at work.

Many (even most) taxpayers don’t know, until they have actually completed their return for the year, whether additional taxes will be owed. And, no matter what the taxpayer’s financial circumstances, finding out that money is owed to the tax authorities is bad news.

Virtually no one looks forward to dealing with the need to file a tax return each spring, and while some of that reluctance is undoubtedly due to the complexity of our tax system, there’s another factor at work.

Many (even most) taxpayers don’t know, until they have actually completed their return for the year, whether additional taxes will be owed. And, no matter what the taxpayer’s financial circumstances, finding out that money is owed to the tax authorities is bad news.

For many taxpayers that bad news can create a real cash flow crunch.  Statistics show that a substantial number of Canadians and Canadian families live paycheque to paycheque, and so would not be in a financial position to manage an unexpected tax bill, especially where that bill is due in the next few weeks. For a number of reasons, the better approach for such taxpayers is to try to obtain the necessary funds from private sources.  For those who don’t have the means to pay a tax bill out of existing resources, that likely means borrowing the needed funds. While that means paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the Canada Revenue Agency (CRA). 

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 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 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 2016 tax year). 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 Agency’s debt management call centre at 1-888-863-8657. That centre is open Monday to Friday from 7 a.m. to 11 p.m. EST.

No matter what payment arrangement is made, the CRA will levy interest charges on any amount of tax owed for the 2017 tax year which is not paid on or before April 30, 2018. 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 second quarter of 2018 (April 1 to June 30), that rate is 6%. 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.

Finally, 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. 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 April 30, 2018. For self-employed taxpayers (and their spouses) the filing deadline is Friday June 15, 2018. However for all taxpayers, the payment deadline for all 2017 income tax owed is Monday, April 30, 2018.

The reach of Canada’s system is broad – residents of Canada are taxed on their world-wide income, and the income or capital amounts that escape the Canadian tax net are few and far between.

One of the most significant of those exceptions, particularly for individual Canadian taxpayers, is the “principal residence exemption”. Plainly put, when a Canadian taxpayer sells his or her home, the proceeds of sale are not included in his or her income for the year (and therefore not taxed), no matter how much that home has appreciated in value since it was acquired. And, of course, given the real estate market conditions that have prevailed in recent years, especially in some urban centers, the difference between the original cost of the family home and its later sale price can be very substantial.

The reach of Canada’s system is broad – residents of Canada are taxed on their world-wide income, and the income or capital amounts that escape the Canadian tax net are few and far between.

One of the most significant of those exceptions, particularly for individual Canadian taxpayers, is the “principal residence exemption”. Plainly put, when a Canadian taxpayer sells his or her home, the proceeds of sale are not included in his or her income for the year (and therefore not taxed), no matter how much that home has appreciated in value since it was acquired. And, of course, given the real estate market conditions that have prevailed in recent years, especially in some urban centers, the difference between the original cost of the family home and its later sale price can be very substantial.

There are good reasons for the favourable tax treatment that is accorded family homes (or “principal residences, in tax parlance). A home is often the largest financial asset owned by an individual or a family, and for many Canadians, home ownership forms the basis of their overall financial plan and, often, their retirement plans.

 As is always the case in tax, definitions matter. And, for purposes of the principal residence exemption, such principal residence can be any one of the following types of properties:

• house;
• cottage;
• condominium;
• apartment in an apartment building;
• apartment in a duplex; or
• a trailer, mobile home, or houseboat.

In order to claim the principal residence exemption on the sale of one’s home, of whatever description, it’s also necessary that the taxpayer own the property (alone or jointly with another person, usually a spouse), has used that property as his or her principal residence at some point during the year, and designate the property as the principal residence on the tax return for the year of sale.

The reference to a tax return may be puzzling to taxpayers who have sold homes but never made any designation on their return for the year. However, concerns about speculation in the housing market led the federal government, in 2016, to make changes which would provide it with more information with respect to properties that were changing hands and on which the principal residence exemption was being claimed. As of 2016 (and subsequent years) taxpayers who sell their homes must complete and include Schedule 3 Capital Gains (or Losses) with their return for the year of sale. And, as of the 2017 tax year, they must also file Form T2091(IND) Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). That form, which is not included in the General Income Tax Return package for 2017, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2091ind.html.

On the T2091, the taxpayer must provide the following information:

• the address of the property;
• the year the property was acquired; and
• the amount for which the property was sold.

The taxpayer must also certify the number of years the property sold was used as a principal residence during the period of ownership. 

None of these new rules or requirements alter the basic tax treatment of the sale of a principal residence – the proceeds of sale of a property that was used throughout the period of ownership as the only principal residence of a Canadian resident remain tax-free. The only thing that has changed is the requirement to report on the sale, providing information on the number of years of ownership and the sale price, and certifying the number of those years of ownership during which the property was used as one’s principal residence.

Where the property sold was acquired after 1981 and was used during the entire period of ownership as a principal residence of a Canadian resident, the reporting requirements are relatively straightforward. There are, however, some other situations in which determining whether and to what extent monies received on the sale of one’s home will qualify for the principal residence exemption is more complex, and professional advice may be warranted.

First, prior to 1982, it was possible for each spouse in a marriage to claim the principal residence exemption. Typically, one spouse would claim the exemption on the family home, while the other spouse would claim the exemption with respect to the family cottage. The rules changed in 1982 to eliminate that practice. Consequently, where a married taxpayer is selling a property which was purchased prior to 1982 and a principal residence exemption was previously claimed on a second property which the taxpayer and his or her spouse owned, it would be prudent to obtain professional tax advice on the proper reporting of the current sale.

As well, the principal residence exemption is available only to residents of Canada. Where the person selling a principal residence was a non-resident at any time during the period of ownership, the amount of principal residence exemption claimable may be affected.

A taxpayer who sells a principal residence during the year must report that sale on Schedule 3 to the Return, and that Schedule is always filed as part of the Return, regardless of the filing method used. However, the filing requirements with respect to the T2091 form differ, depending on how the taxpayer files his or her return. Where a return is paper-filed, the T2091 must be completed, signed and filed with the return. Where the taxpayer uses any of the electronic filing requirements, the T2091 is not filed with the return, but must be kept and produced if the CRA requests it.

Finally, the requirement to report the details of the sale of a principal residence is a relatively new one. The obligation to do so is not particularly well known and there is nothing in the 2017 Income Tax Guide to alert taxpayers to that requirement. It is, therefore, entirely possible that an affected taxpayer will be unaware of such requirement and will fail to report. And, since the tax authorities have no way of knowing that a sale of a principal residence has taken place, it’s unlikely that they would ask for that information in the course of assessing the return. Such failure is, however, relatively easily remedied – the taxpayer need only (once the Notice of Assessment for the return has been received) file a T1 Adjustment in which the necessary information is provided. Generally, the CRA will accept that amendment to the return, but it does have the power to impose a penalty for the initial failure to report. That penalty is equal to $100 per month during which the reporting is late, to a maximum of $8,000.

More information on the new reporting requirements 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/personal-income/line-127-capital-gains/principal-residence-other-real-estate/sale-your-principal-residence.html.

While everyone knows that the best results are obtained when tax and financial planning take place on an ongoing basis, the reality is that most Canadians focus on their tax situation only once a year, at tax filing time. And the harsher reality is that, by then, the opportunity to take steps which will make a significant difference in one’s tax liability for 2017 is lost.

While everyone knows that the best results are obtained when tax and financial planning take place on an ongoing basis, the reality is that most Canadians focus on their tax situation only once a year, at tax filing time. And the harsher reality is that, by then, the opportunity to take steps which will make a significant difference in one’s tax liability for 2017 is lost.

Most actions needed to reduce one’s tax payable for the 2017 tax year – making political contributions, selling investments at a loss, or paying professional or union dues which qualify for a credit or deduction – must have been taken on or before December 31, 2017. And the last such opportunity – making an RRSP contribution to be claimed on the 2017 return – vanished after the RRSP contribution deadline of March 1, 2018.

That said, all is not lost for taxpayers seeking to reduce their tax burden for 2017. There are a number of factors to consider, and a few strategies to contemplate, when completing the return for 2017. Those considerations and strategies, which generally involve the timing of claims made (or not made) on the return can make a measurable difference in the amount of tax payable for the year.

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 (2017) 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 contributes $1,200 to a charity each 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%, plus $1000 × 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%, plus $2,200 × 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,712 ($200 × 15%, plus $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 find the rules on the calculation of a medical tax credit claim confusing, with some justification. First, there is an income threshold imposed. Eligible medical expenses are those expenses which exceed 3% of net income, or (for 2017) $2,268, whichever is less. Put in more practical terms, the rule for 2017 is that any taxpayer whose net income is less than $75,500 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 $75,500 will be limited to claiming qualifying expenses which exceed the $2,268 threshold.

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 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 $2,268/3% threshold may be claimed, it is 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 2000 or later. While medical expenses incurred by a single family member might not be enough to allow him or her to make claim, aggregating those expenses is very likely (especially for a family that does 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/$2,268 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower 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. A listing 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-330-331-eligible-medical-expenses-you-claim-on-your-tax-return.html#mdcl_xpns.

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. 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 2017 must be remitted to the Canada Revenue Agency (CRA) on or before Monday, April 30, 2018. No exceptions and, absent extraordinary circumstances, no extensions.

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. 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 2017 must be remitted to the Canada Revenue Agency (CRA) on or before Monday, April 30, 2018. No exceptions and, absent extraordinary circumstances, no extensions.

Perhaps not surprisingly, the CRA tries to make it as easy as possible for taxpayers to remit what they owe, by providing a wide range of methods by which payment can be made. There are, in fact, no fewer than seven separate options available to individual residents of Canada in paying their taxes for the 2017 tax year. The options open to taxpayers who must make a payment to the taxman are set out below.

Pay using online banking

Millions of Canadians do 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.

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

Paying at your financial institution

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

Since that remittance is specific to the taxpayer, it’s not possible to simply print that form from the CRA website. However, taxpayers who wish to obtain such a personalized remittance form can do so by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959 8281 and requesting that one be sent to them by mail.

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 InteracOnline 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 first 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

While it is possible to pay one’s taxes using a credit card, such payments can only be made through third-party service providers (that is, payments by credit card 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 listed on the CRA website, and links to each 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 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 2017 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.

This year, there is 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. Details on how to make that arrangement are outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-authorized-debit.html.

Payment by cash or debit card

It is still possible to pay one’s taxes in cash, or by using a debit card. Such payments are made, not at CRA offices, but at Canada Post outlets.

However, while a cash payment may be a low-tech option, the requirements for making a cash or debit card payment are not. In order to do so, the taxpayer will need a self-generated QR (quick response) code. Such code can be created by following a link found on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/pay-canada-post.html. The QR code created is provided to a clerk at a Canada Post outlet, who uses the information in the code to properly credit the payment made. Service fees are levied for this payment method.

It’s important for all taxpayers to realize that the payment deadline of April 30 requires that the CRA receive payment by that date. The Agency 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 to do so likely isn’t a good idea.

Those who make their payment in person at a financial institution (using a personalized 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.

The number and variety of tax payment methods available to individual taxpayers can, in and of itself, be somewhat confusing. The CRA provides a chart on its website identifying each possible payment method, and the kinds of payments which can be made through each. That chart can be found at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/determine-your-payment-method.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 #43 Corporate

Personal:

Issue #43 Personal

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.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues. They can be accessed below.

Corporate:

Issue #39 Corporate

Personal:

Issue #39 Personal

It has been nearly a decade now since the mortgage lending debacle in the United States caused a meltdown in real estate markets, which led in turn to a general crisis in the financial markets and eventually to the Great Recession of 2008-2009.

While no country was immune from the effects of that economic downturn, Canada did not experience the broad-based mortgage lending and real estate crash which occurred in the U.S. There were a number of reasons for that, but chief among them was likely the different regulatory environment of our banking system and in our mortgage lending practices.

It has been nearly a decade now since the mortgage lending debacle in the United States caused a meltdown in real estate markets, which led in turn to a general crisis in the financial markets and eventually to the Great Recession of 2008-2009.

While no country was immune from the effects of that economic downturn, Canada did not experience the broad-based mortgage lending and real estate crash which occurred in the U.S. There were a number of reasons for that, but chief among them was likely the different regulatory environment of our banking system and in our mortgage lending practices.

Even though Canada was spared the worst of the mortgage lending/real estate crisis, that crisis did lead Canadian financial and mortgage regulators to take a hard look at the state of mortgage lending in Canada. What they saw led them to make several sets of changes to mortgage lending requirements over the past decade. Without exception, those changes have tightened mortgage lending practices by mandating larger down payments, reducing allowable maximum amortization periods and requiring borrowers to meet increasingly stringent credit-worthiness requirements.

Part of the reason for increased concern on the part of financial regulators has been the combined effect, over the past decade, of a steady rise in real estate values and historically low interest rates on the amount of debt held by Canadian families. While residential real estate values have been on a steady upward trajectory, the actual cost of carrying the associated debt (i.e., the mortgage) was, starting around 2009, lower than it had been for decades. In effect, home purchasers could buy more at a lower debt-servicing cost. As well, there was significant growth in the use of a formerly little-known financing vehicle — the home equity line of credit, or HELOC — which allowed current homeowners to borrow against the accumulated equity in their home. (Between 2000 and 2010, HELOCs grew from just over 10% of non-mortgage consumer debt to nearly 40% of such debt.) An environment where residential real estate values continued to rise provided most homeowners with ever-increasing amounts of equity against which they could borrow. And, quite often, it was possible to make interest-only payments on such amounts borrowed through a HELOC, with no requirement to repay principal. The combined result of these and other developments was that, by the second quarter of 2017, the debt held by the average Canadian household had reached 168% of annual household disposable income. In 2005, that percentage was 108%.

In the face of all of these developments, and in light of the two interest rate increases which have been announced by the Bank of Canada in 2017, it was determined that further measures were needed to regulate the mortgage financing market.

When assessing the credit-worthiness of a would-be mortgage borrower, a financial institution looks at the percentage of household income that will be required to make the scheduled mortgage payments. There are, in fact, two ratios that are utilized to determine a would-be mortgage borrower’s “fitness” to borrow – the Total Debt Service (TDS) ratio and the Gross Debt Service (GDS) ratio. While each measures the amount of debt servicing and housing costs slightly differently, both seek to determine whether the prospective borrower can realistically manage the repayment of his or her mortgage debt, based on his or her income, the carrying costs (mortgage payments, including principal and interest, property taxes, and heating costs) for the property to be acquired, and the amount of any other existing debt which must be serviced.

Under the most recent set of changes announced by the Office of the Superintendent of Financial Institutions (OSFI), which will take effect on January 1, 2018, lenders will continue to utilize the TDS and GDS ratios to determine a borrower’s qualifications to borrow. However, would-be borrowers will have to satisfy those ratios, not based just on the mortgage financing interest rate which will apply to the mortgage for which they applied, but on the higher of two “theoretical” rates as well. In effect, borrowers will have to qualify based both on their contractual mortgage rate and on two “what-if” scenarios, intended to measure the borrower’s ability to absorb a future interest rate increase. Most significantly, the new rules will apply to every person who applies for a mortgage on the acquisition of a property, regardless of the size of their down payment. (Renewals of existing mortgages are not affected by the new rules.)

As of January 1, 2018, anyone seeking mortgage financing on an acquisition of residential real estate will have to qualify for that mortgage at the greater of the contractual mortgage rate plus 2% or the five-year benchmark rate published by the Bank of Canada. That five-year benchmark rate is typically higher than current mortgage financing rates provided by Canadian financial institutions.

At the end of October, the lowest interest rate obtainable for a 5-year fixed rate mortgage from a major Canadian financial institution was 3%. By contrast, the Bank of Canada five-year benchmark rate for the same time period was 4.89%. Consequently, a buyer seeking mortgage financing approval under the new rules would be subject to the following calculation:

Contractual mortgage rate — 3%

Contractual mortgage rate plus 2% — 5%

Bank of Canada 5-year benchmark rate — 4.89%

The highest of these three numbers — 5% — is the rate which must be used, under the new rules, to determine the buyer’s eligibility for financing. In other words, any financial institution which might provide financing must assess creditworthiness (using the TDS and GDS ratios) based on a mortgage financing rate of 5%.

Using a rate which is higher than the contract mortgage rate to determine eligibility will clearly mean that the amount of mortgage financing available to a prospective buyer will, in all situations, be reduced. Buyers subject to the new rules will have, in effect, the choice of “downsizing” their expectations in relation to the purchase price (and therefore the size of the mortgage) of the property they wish to acquire, or of accumulating a larger down payment in order to reduce the amount of mortgage financing for which they need to qualify under these new rules.

There’s been a lot of debate on the merits of the upcoming rule changes, and the possible effect of those changes on the Canadian real estate market. That debate won’t likely be resolved any time soon. What is certain, however is everyone involved in a real estate transaction — agent, buyer, seller, and lender — is going to have to adjust to a new reality come January 1.

The baby boom generation, which is now in or near retirement, has always been able to factor receiving Old Age Security benefits, once they turn 65, into their retirement income plans. While receipt of such benefits can be still be assumed by the vast majority of Canadian retirees, the age at which such income will commence is no longer a fixed number. Rather, retirees are now faced with a choice about when they want those benefits to start. For the past four years, Canadians have had the option of deferring receipt of their Old Age Security benefits, for months or for years past the age of 65, and that election to defer continues to be available. The difficulty that can arise is how to determine, on an individual basis, whether it makes sense to defer receipt of OAS benefits and, if so, for how long. It’s a consequential choice and decision, since any election made to defer is irrevocable.

The baby boom generation, which is now in or near retirement, has always been able to factor receiving Old Age Security benefits, once they turn 65, into their retirement income plans. While receipt of such benefits can be still be assumed by the vast majority of Canadian retirees, the age at which such income will commence is no longer a fixed number. Rather, retirees are now faced with a choice about when they want those benefits to start. For the past four years, Canadians have had the option of deferring receipt of their Old Age Security benefits, for months or for years past the age of 65, and that election to defer continues to be available. The difficulty that can arise is how to determine, on an individual basis, whether it makes sense to defer receipt of OAS benefits and, if so, for how long. It’s a consequential choice and decision, since any election made to defer is irrevocable.

To make sense of the change, a bit of background is needed. The OAS program is one of the two federal government programs which provide income to Canadians during retirement, the other such program being the Canada Pension Plan (CPP). While the CPP is funded by contributions made by Canadians and their employers during the working lives of those Canadians, the OAS is a non-contributory plan, for which benefits are paid out of federal government general revenues. Eligibility for OAS benefits is based on an individual’s age and number of years of Canadian residence. 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. Those who were born on or before July 1, 1952 and who lived in Canada on July 1, 1977 can also receive full benefits. For the third quarter of 2017 (July to September 2017), that maximum monthly benefit is $583.74.

Under the rules now in place, Canadians who are eligible to receive OAS benefits can 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 would increase 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%.

The decision of whether to defer receipt of OAS benefits and for how long is very much an individual one — there really aren’t any “one size fits all” rules. There are, however, some general considerations which are common to most taxpayers.

The first consideration in determining when to begin receiving OAS benefits 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 (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. Once income needs and sources and the 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. In doing so, taxpayers need to be aware of the following income tax thresholds and cut-offs.

• Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2017, that second income tax bracket begins when taxable income reaches $45,916.
• The Canadian tax system provides (for 2017) a non-refundable tax credit of $7,225 for taxpayers who are over the age of 65 at the end of the tax year. That amount of that credit is reduced once the taxpayer’s net income for the year exceeds $36,430, and disappears entirely for taxpayers with net income over $84,597.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2017, the full credit is payable to individual taxpayers whose family net income is less than $36,429.
• 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. For the July 2017 to June 2018 benefit period, taxpayers whose income for 2016 was more than $73,756 will have a portion of their OAS benefit entitlement “clawed-back”. OAS entitlement for that time period is entirely eliminated where taxpayer income for 2016 was more than $119,615.

The goal, as always, 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, or the need to repay OAS benefits received. Taxpayers who are trying to decide when to begin receiving OAS benefits could, depending on their circumstances, be affected by one or more of the following considerations.

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.

Finally, not all of the factors in deciding how to structure retirement income are based on purely financial and tax considerations. There are other, more personal issues and choices which come into play. Those include the state of one’s health at age 65 and the consequent implications for longevity, which might argue for accelerating receipt of any available income. Conversely, individuals who have a family history of longevity and who plan to continue working for as long as they can may be better off deferring receipt of retirement income where such deferral is possible.

Many Canadians put off plans, like a desire to travel, until their retirement years. Realistically, from a health standpoint, such plans are more likely to be possible earlier rather than later in retirement. The early years of retirement are usually the most active ones, and consequently are the years in which expenses for activities are likely to be highest. Having plans for significant expenditures in the early retirement years might argue for accelerating income into those years, when it can be used to make those plans a reality.

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. Finally, taxpayers who have a Canada Pension Plan Statement of Contributions which outlines their CPP entitlement at age 65 will be able to determine the monthly benefit which would be payable where CPP retirement benefits commence at different ages between 60 and 70.

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

For most Canadians, having to pay for legal services is an infrequent occurrence, and most Canadians would like to keep it that way. In many instances, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences — a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

For most Canadians, having to pay for legal services is an infrequent occurrence, and most Canadians would like to keep it that way. In many instances, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences — a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

Unfortunately, while there are some circumstances in which such a deduction can be claimed, those circumstances don’t usually include the routine reasons — purchasing a home, getting a divorce, establishing custody rights, or seeking legal advice about the disposition of a family estate — for which most Canadians incur legal fees. Generally, personal (as distinct from business-related) legal fees become deductible for most Canadian taxpayers only where they are seeking to recover amounts which they believe are owed to them, particularly where those amounts involved employment or employment-related income or, in some cases, family support obligations.

The first situation in which legal fees paid may be deductible is that of an employee seeking to collect (or to establish a right to collect) salary or wages. In all Canadian provinces and territories, employment standards laws provide that an employee who is about to lose his or her job (for reasons not involving fault on the part of the employee) is entitled to receive a specified amount of notice, or salary or wages equivalent to such notice. In many cases, however, the employee can establish a right to a period of notice (or payment in lieu) greater than the statutory minimum. The amount of notice or payment in lieu of notice which is payable can then become a matter of negotiation between the employer and its former employee, and such negotiations usually involve legal representation and, consequently, legal fees. In that situation, legal fees incurred by the employee to establish a right to amounts allegedly owed by the employer are deductible by that former employee. If a court action is necessary and the Court requires the employer to reimburse its former employee for some or all of the legal fees incurred, the amount of that reimbursement must be subtracted from any deduction claimed. In other words, the former employee can claim a deduction only for legal fees which he or she was personally required to pay and for which he or she was not reimbursed.

In some situations, an employee or former employee seeks legal help in order to collect or to establish a right to collect a retiring allowance or pension benefits. In such situations, the legal fees incurred can be deducted, up to the total amount of the retiring allowance or pension income actually received for that year. Where part of the retiring allowance or pension benefits received in a particular year is contributed to an RRSP or registered pension plan, the amount contributed must be subtracted from the total amount received when calculating the maximum allowable deduction for legal fees. However, where all legal fees incurred can’t be claimed in the current year, they can be carried forward and claimed on the return for any of the 7 subsequent tax years.

The rules covering the deduction of legal fees incurred where an employee claims amounts from an employer or former employer are relatively straightforward. The same, unfortunately, cannot be said for the rules governing the deductibility of legal fees paid in connection with family support obligations. Those rules have evolved over the past number of years in a somewhat piecemeal fashion. The current rules are as follows.

Legal fees incurred by either party in the course of negotiating a separation agreement or obtaining a divorce are not deductible. Such fees paid to establish child custody or visitation rights are similarly not deductible by either parent.

Where, however, one former spouse has the right to receive support payments from the other, there are circumstances in which legal fees paid in connection with that right are deductible. Specifically, legal fees paid for the following purposes will be deductible by the person receiving those support payments:

• collecting late support payments;
• establishing the amount of support payments from a current or former spouse or common-law partner;
• establishing the amount of support payments from the legal parent of that person’s child (who is not a current or former spouse or common-law partner). However, in these circumstances the deduction is allowed only where the support is payable under a court order, not simply under the terms of an agreement between the parties;
• seeking an increase in support payments; or
• seeking an order making child support amounts received non-taxable.

On the payment side of the support payment/receipt equation, the situation is not so favourable, as a deduction for legal fees incurred will not generally not be allowed to a person paying support. More specifically, as outlined on the Canada Revenue Agency (CRA) website, a person paying support cannot claim legal fees incurred in order to “establish, negotiate or contest the amount of support payments”.

Finally, where the CRA reviews or challenges income amounts, deductions, or credits reported or claimed by a taxpayer for a tax year, any fees (which in this case includes accounting fees) paid for advice or assistance in dealing with the CRA’s review, assessment or reassessment, or in objecting to that assessment or reassessment, can be deducted by the taxpayer. A deduction can similarly be claimed where the taxpayer incurs such fees in relation to a dispute involving employment insurance, the Canada Pension Plan or the Quebec Pension Plan.

Tax-free savings accounts (TFSAs) have been part of the Canadian tax system now for nearly a decade, and millions of Canadians utilize them as a savings vehicle, whether for short-term or long-term purposes.

Of all of the tax-deferral or tax-savings plans available to Canadians, TFSAs undoubtedly provide the greatest flexibility, as the TFSA rules allow taxpayers to both carryover allowable contribution room to future years and to re-contribute amounts withdrawn. However, that very flexibility (especially the ability to re-contribute previous withdrawals) also has the potential to cause taxpayers to run afoul of the rules by getting into an inadvertent overcontribution position, resulting in the imposition of penalty taxes.

Tax-free savings accounts (TFSAs) have been part of the Canadian tax system now for nearly a decade, and millions of Canadians utilize them as a savings vehicle, whether for short-term or long-term purposes.

Of all of the tax-deferral or tax-savings plans available to Canadians, TFSAs undoubtedly provide the greatest flexibility, as the TFSA rules allow taxpayers to both carryover allowable contribution room to future years and to re-contribute amounts withdrawn. However, that very flexibility (especially the ability to re-contribute previous withdrawals) also has the potential to cause taxpayers to run afoul of the rules by getting into an inadvertent overcontribution position, resulting in the imposition of penalty taxes.

A brief recap of the TFSA rules: every Canadian aged 18 years of age and older can contribute a specified annual amount to a TFSA ($5,500 for 2017). Funds contributed to the TFSA are not deductible from income, but investment income earned by those funds is not taxed, either as it accrues or on withdrawal. Where a taxpayer does not contribute to a TFSA in a particular tax year, the contribution not made can be carried forward and that contribution made in any subsequent year. As well, TFSA holders can withdraw funds from their plan at any time, free of tax, and funds withdrawn can be re-contributed, but not until the following year. Therefore, each taxpayer’s contribution limit for a particular year is that year’s specified annual amount, plus any allowable contributions not made in previous years and carried forward, plus amounts withdrawn in any previous year but not yet re-contributed. Where, however, a taxpayer contributes more than maximum allowable contribution during a taxation year, a penalty tax of 1% per month of the excess is imposed.

It’s apparent that, especially where there are carryforward amounts and/or there have been withdrawals from a TFSA, calculating one’s current year contribution room can be complex. At one time the Canada Revenue Agency notified taxpayers of their current year TFSA contribution limit on the annual Notice of Assessment, but that is no longer the case. Now, the easiest way to find out one’s current year contribution limit is by calling the CRA’s Individual Income Tax Enquiries Line at 1-800-959-8281 or its automated Tax Information Phone Service (TIPS) line at 1-800-267-6999. Taxpayers who have registered for the Agency’s My Account online service can use that service to find the same information.

Once the taxpayer knows his or her contribution limit for 2017, it’s time to make sure that current contribution plans for the year will not put the taxpayer in an overcontribution position. Some taxpayers contribute on a regular, often monthly basis, while others are in the habit of depositing regular or irregular or periodic income receipts, like a tax refund or tax benefit amount, into their TFSA. Either way, after finding out one’s current year contribution limit, it’s necessary to calculate how much has already been contributed in 2017. The difference between those two figures represents the balance which can be contributed before the end of the year without getting into an overcontribution position and incurring penalties. And, it’s important to remember that if withdrawals have been or will be made during 2017, those amounts cannot be re-contributed until after the end of this year.

If it’s necessary to adjust regular contributions in order not to go “offside” by the end of the year, the best time to do it is obviously before getting into that overcontribution position. As soon as a taxpayer is in an overcontribution position, the 1% penalty tax is imposed for that month, even if the excess funds are withdrawn before the end of the month -  in other words, as explained in the Canada Revenue Agency guide to TFSAs “[I]f, at any time in a month, you have an excess TFSA amount, you are liable to a tax of 1% on your highest excess TFSA amount in that month.”

Especially where TFSA contributions are set up to occur regularly, by automatic deposit or bank transfer, it’s easy to assume that everything has been taken care of and nothing further needs to be done with respect to such arrangements. However, an “out of sight and out of mind” approach rarely makes for good financial and tax planning, and checking on the status of one’s TFSA on a periodic (at least quarterly) basis can help to ensure that everything is as it should be, and that unnecessary penalties are avoided.

As the Canada Revenue Agency (CRA) notes on its website, new tax scams are devised every single day of the week. And, despite the cautionary tales which appear frequently in the media and the warnings posted by the CRA on its website, Canadians continue, with regularity, to fall victim to each new (and old) tax scam and tax fraud.

As the Canada Revenue Agency (CRA) notes on its website, new tax scams are devised every single day of the week. And, despite the cautionary tales which appear frequently in the media and the warnings posted by the CRA on its website, Canadians continue, with regularity, to fall victim to each new (and old) tax scam and tax fraud.

While Canadians are contacted every day by would-be fraud artists, there seems to be something about a (purported) communication from the tax authorities which makes people especially vulnerable. Perhaps it is the fact that most Canadians are unfamiliar with the workings of a system with which they interact, in most cases, only once a year. It’s also possible that they are apprehensive about the real (or rumoured) powers of the CRA or the federal government to cause them grief, and therefore suggestible. Whatever the reason, it’s often the case that even those who would normally be able to discern that what they are being told doesn’t make sense seem to suspend their disbelief when dealing (by phone or by e-mail) with someone who they believe represents the CRA.

While tax scams are a year-round activity, such scams flourish during the spring and early summer. Tax returns are filed in the spring and the CRA then issues a Notice of Assessment to each tax filer. On occasion, the CRA will contact a taxpayer seeking clarification of income amounts reported or documentation of deductions or credits claimed on the annual return. Consequently, it wouldn’t necessarily strike taxpayers as unusual to receive, at this time of the year, a communication purporting to be from the CRA, with a message regarding that person’s taxes.

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 CRA 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.

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 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 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 – generally 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 the Agency 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 Agency. 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 www.cra-arc.gc.ca/scrty/frdprvntn/menu-eng.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 and even skepticism.

The CRA suggest 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;
• 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:

• Did I sign up to receive online mail through My Account, My Business Account, or Represent a Client?
• Did I provide my email address on my income tax and benefit return to receive mail online?
• 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?

Telephone scammers will often leave a voice mail with a phone number at which the taxpayer can reach them. Instead of calling that number, the taxpayer 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. 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 Anti-Fraud Center has the following advice.

Step 1: Gather all information about the fraud. This includes documents, receipts, and copies of emails and/or text messages.

Step 2: Report the incident to local law enforcement. This ensures that police in that jurisdiction are aware of what scams are targeting their residents and businesses. Keep a log of all your calls and record all file or occurrence numbers.

Step 3: Contact the Canadian Anti-Fraud Centre toll free at 1-888-495-8501 or through the Fraud Reporting System (FRS).

Step 4: 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).

Step 5: Victims of identity fraud should place flags on all their accounts and report to both credit bureaus, Equifax and TransUnion.

Finally, the Centre also warns that victims of fraud are often targeted a second or third time with the promise of recovering money previously lost. Their advice 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 in their scam attempts. 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.

The variety of amounts and kinds of income, deductions taken, and credits claimed on individual income tax returns filed by Canadians each spring is almost limitless. Each of those returns, however, has one thing in common, and that is that each will be assessed by the Canada Revenue Agency (CRA), which will then issue a Notice of Assessment summarizing the Agency’s conclusions with respect to the information filed by the taxpayer. Most important, from the taxpayer’s point of view, the CRA will communicate the amount of federal and provincial tax it believes the taxpayer is required to pay for the tax year just passed.

The variety of amounts and kinds of income, deductions taken, and credits claimed on individual income tax returns filed by Canadians each spring is almost limitless. Each of those returns, however, has one thing in common, and that is that each will be assessed by the Canada Revenue Agency (CRA), which will then issue a Notice of Assessment summarizing the Agency’s conclusions with respect to the information filed by the taxpayer. Most important, from the taxpayer’s point of view, the CRA will communicate the amount of federal and provincial tax it believes the taxpayer is required to pay for the tax year just passed.

In the majority of cases, the return filed by the taxpayer is “assessed as filed” (i.e., the CRA agrees (perhaps with a few arithmetical corrections, or a small overpayment of Canada Pension Plan contributions or Employment Insurance premiums) with the taxpayer’s summary of his or her income and tax situation for the year), and no further action is required by either the CRA or the taxpayer. Sometimes, the Notice of Assessment will show an unexpected refund payable, and when that’s the case it’s a happy day for the taxpayer. In a minority of cases, however, the Notice of Assessment will inform the taxpayer that additional tax amounts are owed to the CRA. When that happens, the taxpayer has to decide whether to just pay up, or to dispute the CRA’s conclusions.

In all cases, the first step is for the taxpayer to determine just how the discrepancy arose. In many cases, the cause is an inputting error made by the taxpayer in preparing the return. Even though the vast majority of taxpayers now prepare the annual tax return using tax return preparation software, errors can still occur. Most often, those errors are made when the tax filer inputs the income and deduction figures which the software will use in computing tax payable for the year. No matter how good the software, it cannot compensate for inaccurate or missing information (e.g., from a T4 or T5 slip). And, since all such information slips are filed with the CRA, in addition to being provided to the taxpayer, it’s likely that the Agency’s systems will pick up on the discrepancy.

It obviously makes no sense to dispute an assessment where the error in reporting is the taxpayer’s and the CRA’s figures are correct. In this regard, it’s also worth repeating that the persistent tax “myth” that says taxpayers aren’t responsible for paying tax on income if they haven’t received an information slip for that income is untrue and always has been. Taxpayers are responsible for keeping track of and reporting all income received, and the fact that an information slip was never received or was lost doesn’t change that fact.

Sometimes the issues which have led the CRA and taxpayer to reach different conclusions are more substantive, often arising out of deductions or credits claimed by the taxpayer to which the CRA believes that taxpayer is not entitled. Where the disagreement is a substantive one, the taxpayer has to decide whether to formally challenge the Notice of Assessment issued by the CRA. Before making that decision, however, 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 Notice of Assessment is a good summary of the taxpayer’s tax situation for the year, it may not always be clear from that summary precisely why the taxpayer and the CRA disagree on the amount of tax payable for the year. At one time it was possible for the taxpayer to have a face-to-face meeting with a representative of the CRA at the taxpayer’s Tax Services Office, but such in-person services were discontinued a few years ago, and taxpayers who want more information about their Notice of Assessment must now call or write to the CRA.

The first step to be taken would be a call to the Individual Income Tax Enquiries Line at 1-800-959-8281. If that call doesn’t resolve the taxpayer’s questions, he or she can write to or fax the Tax Centre which processed the return. The name of that tax centre can be found in the top left hand corner of the first page of the Notice of Assessment, and the address and fax number of each such tax centre is available on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html#summ. Communication with a Tax Centre by phone isn’t possible, as phone numbers for Tax Centres are not available to the public.

If communication with the Individual Enquiries line and with the Tax Centre isn’t sufficient for resolving the differences, and the taxpayer wishes to pursue the matter, the next step is the filing of a Notice of Objection, which formally starts the appeal process with the CRA. The process of pursuing that appeal process will be summarized in the next issue of this newsletter.

By now, halfway through the 2017 tax year, almost all Canadian individual taxpayers will have filed their income tax return for 2016, and most will have received the Notice of Assessment which summarizes their tax situation for that year – income, deductions, credits, and tax payable.

By now, halfway through the 2017 tax year, almost all Canadian individual taxpayers will have filed their income tax return for 2016, and most will have received the Notice of Assessment which summarizes their tax situation for that year – income, deductions, credits, and tax payable.

July also marks the halfway point for the payment of income tax by individual taxpayers for the current taxation year. Employees will have made six months of payments toward their income tax bill for the year, through deductions at source from each paycheque, and taxpayers who pay their income tax by instalment will already have made two of the four tax instalment payments due during 2017.

All of this makes the month of July 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 unpleasant tax surprises when filing one’s tax return for 2017 next spring. While those steps can be taken at any time before December 31 (or March 1, 2018 for registered retirement savings plans (RRSP) contributions) and still be effective for this taxation year, the reality is that an earlier start means more flexibility. As the calendar year goes on, the opportunities to make a significant difference to one’s current year tax and benefit situation diminish.

For the majority of individual taxpayers there are two basic steps involved in a mid-year tax checkup. First, all tax filing obligations, if not yet done, should be brought up-to-date. Second, it’s necessary to ensure that tax payment obligations for the current tax year are on track to be met, and to make any required adjustments if they are not.

For all taxpayers, the due date for filing of the return for 2016 has passed and any return not yet filed is now late. Most taxpayers know that filing on time is important in order to avoid late-filing penalties and interest charges. Many of them don’t realize, however, that a failure to file, even where no tax is owed, will mean losing access, at least temporarily, to federal and provincial refundable tax credits that are paid monthly to eligible taxpayers.

Eligibility for a number of such credits (the GST/HST credit and the Canada Child Benefit, for instance) are based, in part, on the taxpayer’s income and, of course, that income is determined from the annual tax return. The month of July 2017 marks the beginning of the 2017-18 benefit year for such credits, and benefits paid for that 2017-18 year are based on the taxpayer’s income for 2016. Where a taxpayer hasn’t filed a return for 2016, the federal government can’t determine whether the taxpayer is eligible for any benefits and, if so, what the amount of those benefits will be. Consequently, any payment of such benefits will cease as of July 2017. Once the return is filed and assessed, payment of credits owed can be made retroactively, but there will be a delay. 

Once the return for 2016 has been filed and a Notice of Assessment for that year has been issued by the Canada Revenue Agency and received by the taxpayer, the next step can be taken. In the best-case scenario, there will have been little or no tax owed on filing and little or nothing in the way of a refund. While many taxpayers view a big tax refund as “found money”, the reality is that in most cases a large tax refund means that the taxpayer has overpaid their taxes during the year, and thereby provided the government with an interest-free loan. (No interest is paid on overpayments of tax by the taxpayer prior to the return filing date). In the opposite scenario – a large tax balance owed on filing, the converse is true and generally the taxpayer has paid insufficient tax, whether by way of deductions at source or by tax instalments, through the year. Either way, it’s in the taxpayer’s best interests to make sure that that scenario doesn’t repeat itself for 2017.

To do that, the taxpayer has to come up with a reasonably good estimate of the amount of tax which will be owed for 2017. Most taxpayers, especially employees, will know by mid-year what their total income will be for 2017. Taxpayers whose income hasn’t changed much from 2016 to 2017 can get a good sense of what their tax liability for 2017 will be simply by using the 2016 income tax return form for their province of residence to make that calculation – using, of course, their anticipated income for 2017. (In arriving at that income amount, it’s important to remember to include, in addition to employment income, any other income receipts – e.g., interest received or withdrawal(s) from an RRSP.) If anything, a calculation done using a return form from 2016 will slightly overstate the taxpayer’s tax liability for 2017, owing to the indexation of tax brackets and tax credit amounts. For those who wish to be more precise in their calculation, information on the tax rate brackets and credit amounts which apply for 2017 can be found on the Canada Revenue Agency website at www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html#previousyears. There is no change in federal rates for 2017 and, among the provinces, only Saskatchewan has changed its individual income tax rates for 2017.

It’s worth noting that, this year, there are two caveats to using that 2016 federal return to estimate taxes which will be owed for 2017. In this year’s federal Budget, the system of federal tax credits available to caregivers was significantly revised, and any taxpayer who claimed one of the caregiver tax credits in previous years will need to determine whether he or she is still eligible to do so in 2017. Generally, in situations where a parent who is not infirm lives with his or her adult child, that adult child will likely not be able to claim a caregiver tax credit for 2017 and so tax payable for 2017 should be calculated without including a claim for that credit. More information the impact of the changes to the caregiver tax credit can be found on the CRA website at www.cra-arc.gc.ca/gncy/bdgt/2017/qa01-eng.html.

The other change made this year to federal tax credits is the elimination, as of July 2017, of the public transit tax credit. Taxpayers who claimed that credit for previous years need to take account of the fact that any credit claimable for 2017 will (assuming that the amount of the expenditure for public transit doesn’t change significantly) be approximately half of such claim made in previous years.

Once a rough idea of one’s tax liability for 2017 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 2017 taxes should already have been paid. If they have not, and particularly if there is a shortfall which will mean a balance owing when the tax return for 2017 is filed next spring, the taxpayer will need to take steps to remedy that. Employees can arrange to have the amount of tax withheld at source from each paycheque increased to make up for the shortfall, while those who pay by instalment can increase the amount of the instalment payments to be made in September and/or December to close the gap.

It’s also possible, especially where a taxpayer is making expenditures which will result in one of more large deductions from income for 2017 (for example, for child care expenses, deductible support payments, or an RRSP contribution) to find that taxes are being overpaid. Employees who find themselves in that situation can file a Form T1213, Request to Reduce Tax Deductions at Source, which is available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html with the Agency. 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. For taxpayers who pay tax by instalments, the process is a simpler one; such taxpayers can simply adjust the amount of instalment payments made in September and/or December to reflect their actual tax liability for 2017.

Most taxpayers, once the return for the past year is filed and assessed, are disinclined to deal with tax matters again before it is absolutely required. Notwithstanding, the investment of a couple of hours of time half way through the year to make sure that one’s current year tax payments are in order, can help avoid a big tax bill next spring.   

In recent years, it seems that the arrival of spring has coincided with a natural or man-made disaster somewhere in Canada. Spring is also, of course, tax return preparation and filing season for most Canadian taxpayers, but it’s likely taxes were the last thing on the minds of families and individuals affected by this spring’s floods. And, in most cases, those families and individuals will not be penalized for failing, in such circumstances, to fulfill their tax obligations in a timely way.

In recent years, it seems that the arrival of spring has coincided with a natural or man-made disaster somewhere in Canada. Spring is also, of course, tax return preparation and filing season for most Canadian taxpayers, but it’s likely taxes were the last thing on the minds of families and individuals affected by this spring’s floods. And, in most cases, those families and individuals will not be penalized for failing, in such circumstances, to fulfill their tax obligations in a timely way.

As it usually does when a natural disaster occurs, the Canada Revenue Agency (CRA) issued a press release reminding affected taxpayers that they could seek relief from any interest and penalties which might otherwise be imposed as the result of late filing or payment of taxes. Such relief is provided under the federal Taxpayer Relief Program and, although natural disasters are the most publicized instances in which the Program is utilized, it is in fact available to all Canadian taxpayers in a variety of circumstances.

The one commonality to all those circumstances is that the taxpayer has been prevented, due to circumstances beyond the individual’s control, and through no fault of his or her own, from meeting his or her tax obligations. Taxpayers who are eligible for the Program can have any interest and penalty charges which would otherwise be imposed for such failure waived. But, it’s important to note that it is only interest and penalty charges which are waived – the Minister has no authority, no matter how dire the taxpayer’s circumstances, to waive the payment of actual taxes owed.

The circumstances in which the Taxpayer Relief Program might apply range from a natural (or man-made) disaster, personal or family illness or death, or significant financial hardship. No matter what the reason for the need for relief, the process by which a request for such relief is made is the same.

The CRA issues a prescribed form – RC4288, Request for Taxpayer Relief, which can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/rc4288/README.html, and which can be used to file an application for relief. While use of the prescribed form isn’t mandatory – a letter to the CRA will suffice – using that prescribed form will ensure that all of the required information is included and that it is clear to the CRA that a request for relief is being made. For each request filed, the following information must be provided:

• the taxpayer’s name, address, and telephone number;
• the taxpayer’s social insurance number (SIN), account number, partnership number, trust account number, business number (BN), or other identification number assigned by the CRA;
• the tax year(s) or fiscal period(s) involved;
• the nature of the costs for which relief is requested, whether interest or penalty charges, or both, and the amounts involved;
• the facts or reasons supporting the belief that the imposition of interest or penalty charges were mainly caused by factors beyond the taxpayer’s control;
• an explanation of how the circumstances affected the taxpayer’s ability to meet his or her tax obligations;
• the facts and reasons supporting the inability to pay the penalties or interest assessed or charged;
• any relevant documents; and
• a complete history of events, including any measures taken (for instance, payments and payment arrangements) to resolve the non-compliance, and when they were taken.

If the reasons for the taxpayer’s inability to meet his or her tax obligations include financial hardship, the taxpayer must make a full financial disclosure, including statements of income and expenses. There is a form provided by the CRA  – Form RC376, Taxpayer Relief Request – Statement of Income and Expenses and Assets and Liabilities for Individuals, which can be used in such circumstances. That form can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/rc376/README.html.

All relief requests must be sent to the Tax Processing Center which serves the area where the taxpayer lives. A listing of the addresses of all such Centres is available on the CRA website at www.cra-arc.gc.ca/gncy/cmplntsdspts/sbmtrqst-eng.html and that listing is also included as part of Form RC4288. Taxpayers who have registered for the CRA’s online service My Account can submit their relief request online.

Once received, each relief request is assigned to a CRA official who may, if necessary, contact the taxpayer to obtain clarification of the information provided or to seek additional information. Once all the needed information is submitted, a determination will be made of whether the taxpayer’s request for interest and/or penalty relief is to be approved in full, approved in part, or denied. That determination will take into account the following factors:

• the taxpayer’s history of compliance with his or her tax obligations;
• whether or not the taxpayer knowingly allowed an arrears balance to exist upon which arrears interest has accrued;
• whether or not the taxpayer exercised a reasonable amount of care in conducting his or her tax affairs, and whether or not negligence or carelessness has been demonstrated; and
• whether the taxpayer acted quickly to remedy any delay or omission.

Where the decision is made that full relief will be provided, that decision will be communicated to the taxpayer, without reasons. Where, however, the decision is to deny relief, or allow such relief only in part, the taxpayer will be given the reasons for such decision. Along with those reasons, the taxpayer will receive information on his or her options where the CRA has made a decision with which he or she does not agree.

More detailed information on the CRA’s Taxpayer Relief Program can be found on the Agency’s website at www.cra-arc.gc.ca/gncy/cmplntsdspts/cnclwvpnlty/menu-eng.html.

For many years, post-secondary students have financed their educations in part through private savings and often in part through government student loans, which are generally interest-free while the student is in school. As well, the bulk of costs incurred to attend post-secondary education (or to finance it) have been eligible for a tax deduction or credit, at both the federal and provincial/territorial levels. Beginning in 2017, however, changes to that regime at both the federal level and in some provinces will mean changes to the way students (and their parents) pay for post-secondary education.  

For many years, post-secondary students have financed their educations in part through private savings and often in part through government student loans, which are generally interest-free while the student is in school. As well, the bulk of costs incurred to attend post-secondary education (or to finance it) have been eligible for a tax deduction or credit, at both the federal and provincial/territorial levels. Beginning in 2017, however, changes to that regime at both the federal level and in some provinces will mean changes to the way students (and their parents) pay for post-secondary education.  

Generally speaking, some (but not all) provincial governments are moving away from the system of tax breaks for education costs which are currently in place, in favour of a system of more generous direct financial assistance in the form of loans and grants. The availability and amount of those loans and grants are often tied to family income. And, to add to the potential confusion, the federal and provincial changes take effect at various times through 2017 and into 2018. The changes made at the federal level are relatively minor in dollar terms, but they have the broadest impact, as they affect post-secondary students across Canada, regardless of their province of residence or where they attend school.

Federal rules in place prior to 2017 allowed post-secondary students to claim a non-refundable tax credit (non-refundable meaning that the credit can reduce federal tax otherwise payable, but cannot create or increase a refund) for tuition fees paid. Two other federal non-refundable credits were also claimable, but those credits do not require any expenditure on the part of the student. An education tax credit of $60 per month of full-time attendance and $18 per month of part-time attendance in post-secondary education could be claimed. As well, as “textbook tax credit” of  $9.75 per month for full-time students and $3 per month for part-time students was claimable. Although the latter credit was called the “textbook tax credit” there was not, in fact, any requirement that the student have purchased textbooks, nor was the amount of the credit tied to any expenditure made on textbooks. Tuition, education, and textbook tax credits were claimable by the student himself or herself in the year in which they were incurred, or could be transferred to a spouse, parent, or grandparent. Where all such credits were not utilized during that year, they could be carried forward to a future year, in which they were claimable only by the student – carryforward credits could not be transferred to any other person. Finally, where students incurred debt under a government (federal or provincial) student loan program, the interest paid on such debt was deductible from the student’s income, without limit.

The federal Budget brought down in March 2016 made changes to these rules. The federal changes announced in that Budget were effective as of January 1, 2017, meaning that the former set of rules applied for purposes of the first (September to December 2016) term of the 2016-17 academic year, while the second (January to April 2017) term of that academic year is governed by the new rules.

Those rules will eliminate both the education and textbook tax credits and so, when post-secondary students file their return for 2017 next spring, such credits will not appear on the return form. Students will still be entitled to claim a tax credit for eligible tuition amounts paid, and the deduction for interest paid on government students loans is also unaffected by the changes.

Most post-secondary students do not, of course, have much income. Generally, their income for the year consists of amounts earned from a summer job and, perhaps, some income from part-time work during the school year. All of the tax credits related to post-secondary education costs are non-refundable credits, and students who don’t earn enough to have tax payable don’t claim any such credits earned during the year. Consequently, many if not most post-secondary students graduate with a significant amount of accumulated credits which can be claimed after graduation, when income is (hopefully) higher. The good news for such students is that the elimination of the education and textbook credits does not affect the ability to carry forward credits earned before 2017. In other words, tuition, education and textbook tax credits earned in 2016 and prior years can be claimed by the student in any subsequent year, without limit.

Before 2017, the tuition and education tax credits were available to post-secondary students at both the federal and provincial levels. The provinces have, however, in their 2016 and 2017 Budgets, taken some of the same steps as the federal government. The changes at the provincial level are not, however, uniform, and they do not take effect at the same time. What follows is a summary of the changes which have been announced by the provinces.

Ontario

The Ontario government announced, as part of its 2016 Budget, that it would be eliminating the provincial tuition and education tax credits, effective as of the fall of 2017.

The implementation date for those two changes is as follows: Ontario students will be able to claim the tuition tax credit for eligible tuition fees paid in respect of studies up to and including September 4, 2017, and would be able to claim the education tax credit for months of study before September 2017. (Ontario does not offer a textbook tax credit.) Consequently, students will be able to claim the tuition and education tax e credits for the January to April semester of the 2016-17 academic year, as well as for any qualifying programs taken during the summer of 2017. Note that it is the date of the studies and not the date of payment which determines eligibility for the credit – consequently, paying tuition for the fall 2017 (September-December 2017) term prior to September 4 will not enable the student to claim a tuition tax credit for that amount.

The Ontario changes also affect the ability of taxpayers to carry forward tuition and education credits earned prior to September 2017. Specifically, tax filers who are resident in Ontario on December 31, 2017, and have unused tuition and education tax credits available for carryforward, would be able to claim them in future years. Tax filers who move to Ontario from other provinces after December 31, 2017, would no longer be able to claim their accumulated tuition and education tax credits in Ontario.

New Brunswick

Changes announced in 2016 eliminated the provincial education and tuition income tax credits effective as of January 1, 2017, and no new tuition or education tax credits may be accumulated for the 2017 or future taxation years for provincial income tax purposes. However, any unused tuition and education credit amounts from years prior to 2017 will still be available to be claimed directly by the student in 2017 and subsequent taxation years.

The province of New Brunswick does not offer a textbook tax credit.

Saskatchewan

The province of Saskatchewan announced, as part of its 2017 Budget, that the provincial tuition and education tax credits would be eliminated as of July 1, 2017. However, unused amounts carried forward from previous taxation years will remain available to be claimed.

The province of Saskatchewan does not offer a textbook tax credit.

British Columbia

In its 2017 Budget, the province announced that the provincial education tax credit would be retained for the 2017 tax year, but would be eliminated effective as of January 1, 2018. Unused education amounts carried forward from previous years remain available to be claimed after 2017.

No changes were announced with respect to the provincial tuition tax credit. The province of British Columbia does not offer a textbook tax credit.

Manitoba

In its 2017 Budget, the Manitoba government announced that the provincial education and tuition tax credits would be retained.

Prince Edward Island

The province confirmed, as part of its 2017-18 Budget, that no changes would be made to provincial tax credits claimable by post-secondary students. Consequently, the tuition tax credit and the education tax credit continue to be available for provincial tax purposes. Prince Edward Island does not offer a textbook tax credit.

Many of the provincial changes to the tax treatment of post-secondary education costs have been made concurrently with enhancements to loan and grant programs administered by those provinces for post-secondary students. In some cases, and often dependent on family income, those grant programs can cover much of a student’s tuition costs.

Deciding which university or college to attend – whether close to home or in another province – is, of course, about much more than just the relative costs involved, and the tax treatment of those costs. However, it’s also undeniable that getting a post-secondary education means making a big financial commitment and, often, incurring significant debt. Students and their parents should be aware that there are new rules and programs, both federally and in many provinces, that will affect that financial commitment.

If spring is the season for real estate sales in Canada, then summer is the time when all those real estate buyers and sellers pack up their belongings and move to their newly purchased homes. And, while buying a new home and making that move is usually something home buyers are doing by choice, that doesn’t make the actual process of moving any less stressful or costly.

If spring is the season for real estate sales in Canada, then summer is the time when all those real estate buyers and sellers pack up their belongings and move to their newly purchased homes. And, while buying a new home and making that move is usually something home buyers are doing by choice, that doesn’t make the actual process of moving any less stressful or costly.

Many Canadians are aware that a tax claim of some kind can be made in respect of costs incurred in relation to a move, but few are aware that such tax claims can be made only in specific circumstances, or that there are detailed (and sometimes counter-intuitive) rules which govern what expenses can be claimed, and in what amounts.

The starting point in determining whether tax relief will be available for moving costs is an assessment of the reason for the move. The applicable tax rule is that eligible moving expenses will be deductible only where the move is made in order to bring the taxpayer at least 40 kilometres closer to his or her new work location. Put another way, a moving expense deduction will be available where the distance from the new home to the taxpayer’s new work location is at least 40 kilometres less than the distance from the former home to that new work location.   

Where that requirement is met, the taxpayer can claim a deduction (meaning that costs claimed reduce the taxpayer’s taxable income) for eligible costs incurred, but that deduction can be made only from income earned at the new location. So, a taxpayer who makes an eligible move at the beginning of October can deduct eligible moving costs only from income earned at the new location between the date of the move and December 31^st, which is the end of the tax and calendar year. Moving is expensive and there may well be situations, particularly where the move is a long distance one, where costs incurred are greater than income earned at the new location during the year of the move. In such circumstances, the taxpayer can carry forward any moving costs not claimed for that year and deduct them from income earned in that new work location in the following taxation year(s).

The kind and variety of expenses which are involved in moving can seem almost limitless, and the Canada Revenue Agency (CRA) has formulated a set of detailed rules which govern which moving-related expenses can or cannot be deducted.

The general rule is that a taxpayer can claim reasonable costs for expenses incurred in the following categories.

• Transportation and storage costs — Taxpayers can claim transportation and storage costs (such as packing, hauling, movers, in-transit storage, and insurance) for household effects, including items such as boats and trailers.

• Temporary living expenses — Costs incurred for a maximum of 15 days for meals and temporary accommodation near the old and the new residence for the taxpayer and members of his or her household can be claimed.

• The cost of cancelling a lease — Taxpayers can claim the cost of cancelling the lease for their old residence. However, it’s not possible to claim rental payments for any period prior to the cancellation of that lease, whether or not the taxpayer occupied the residence during this period.

• Incidental costs related to the move — Taxpayers can claim the cost of changing their address on legal documents, replacing driver’s licences and non-commercial vehicle permits (not including insurance), and the cost of utility hook-ups and disconnections.

• Costs to maintain the old residence when vacant — Taxpayers can claim up to $5,000 in costs for interest, property taxes, insurance premiums, and the cost of heating and utilities expenses paid to maintain their old residence when it was vacant after they moved, and during a period when reasonable efforts were being made to sell that residence. The costs must have been incurred when the old residence was not ordinarily occupied by the taxpayer or any of his or her family members, and cannot be claimed for a time period during which the old residence was rented.

• Costs involved in selling the old residence — Taxpayers can claim the cost of selling their old residence, including advertising, notary or legal fees, real estate commissions, and mortgage penalties incurred when the mortgage was paid off prior to maturity.

There is an equally long list of moving related expenses for which the CRA will not allow a deduction to be claimed, and those are as follows:

• expenses for work done to make the taxpayer’s old residence more saleable;
• any loss from the sale of the former home;
• travel expenses for house-hunting trips before the move;
• the value of items movers refused to take, such as plants, frozen food, ammunition, paint, and cleaning products;
• travel expenses for job hunting in another city;
• expenses to clean or repair a rented residence to meet the landlord's standards;
• expenses to replace personal-use items such as toolsheds, firewood, drapes, and carpets;
• mail-forwarding costs (such as with Canada Post);
• costs of transformers or adaptors for household appliances;
• costs incurred in the sale of the old residence if the taxpayer delayed selling for investment purposes or until the real estate market improved; and
• mortgage default insurance.

In most cases, taxpayers drive themselves and their families to the new location and the travel costs incurred in doing so qualify for the moving expense deduction. The range of costs which are included in “travel costs” for this purpose are quite broad, and include vehicle expenses and the cost of meals for the taxpayer and his or her family. In this area, taxpayers can choose one of two available methods for calculating those costs. Those who are willing to do so can obtain and keep receipts for each eligible travel cost incurred in the course of making the trip to their new home, and can claim the total amount paid. Those who don’t want the headache of accumulating and tallying dozens of receipts can use the “simplified method” provided by the CRA. That method allows taxpayers to claim vehicle and meal expenses based on a flat rate for each. The vehicle expense claim is a per-kilometer rate amount, with a specific rate set for each province. Where the move is an inter-provincial one, the applicable rate is always the one for the province from which the travel begins. The meal expense rate is, however, the same, regardless of the taxpayer’s province of residence.

The allowable flat-rate claims for both travel costs and meal costs are outlined on the CRA website at www.cra-arc.gc.ca/travelcosts/. And, as the CRA notes on that website, while taxpayers who claim the flat rate do not have to provide detailed receipts, the Agency does require that they provide “some documentation” to support their claim.

Even when a move represents a positive, desired change, there’s no escaping the fact that moving is disruptive, stressful, and expensive for everyone concerned. The tax system can’t do anything to lessen the stress of relocation, but it can and does mitigate the financial costs involved for taxpayers whose are entitled to claim a deduction from income for such costs.

Once they’ve completed and filed their 2016 tax return, most Canadians give a sigh of relief that the dreaded annual chore is done, and that income taxes will be out of sight and out of mind until the next filing deadline rolls around.

If all goes as planned, that is how events will unfold. In the best case scenario, the Canada Revenue Agency (CRA) will issue a Notice of Assessment which indicates that the Agency agrees with the taxpayer’s summary of his or her income, deductions, credits, and taxes payable for the past year, and that it has no further questions or concerns. And, for the vast majority of Canadians, that is exactly how things will unfold. For many others, however, there will be a few more questions to be answered or steps to be taken before the tax filing and assessment process for the year is finally completed.

Once they’ve completed and filed their 2016 tax return, most Canadians give a sigh of relief that the dreaded annual chore is done, and that income taxes will be out of sight and out of mind until the next filing deadline rolls around.

If all goes as planned, that is how events will unfold. In the best case scenario, the Canada Revenue Agency (CRA) will issue a Notice of Assessment which indicates that the Agency agrees with the taxpayer’s summary of his or her income, deductions, credits, and taxes payable for the past year, and that it has no further questions or concerns. And, for the vast majority of Canadians, that is exactly how things will unfold. For many others, however, there will be a few more questions to be answered or steps to be taken before the tax filing and assessment process for the year is finally completed.

The first indication that a taxpayer may have that there is more to be done is the receipt of a letter from the CRA. Despite what most taxpayers think, the arrival of such a letter doesn’t mean that the Agency necessarily doubts the information the taxpayer provided on his or her return, or that claims made for deductions or credits on that return are going to be denied. Most often, such communication from the CRA is part of the Agency’s standard return review process. This year, between mid-February and late May, the Agency received over 26 million individual income tax returns. For several years, the CRA has encouraged taxpayers to file their returns online, and Canadians have clearly received the message. This year, nearly 23 million of those 26 million returns were filed online

There are, clearly, a lot of advantages to online filing. It’s much quicker and taxpayers can use tax return preparation software which does much of the calculation work, once the required figures are input. What online filing lacks, by definition, is a paper trail. While the CRA will have received copies of T-slips documenting employment income, pension income, or investment income received by taxpayers, claims made by taxpayers for child care expenses incurred or medical costs paid during the year are received by the CRA without any form of documentation. And, while the returns filed by most Canadians are accurate and complete, there will inevitably be exceptions, whether inadvertent or deliberate. The CRA clearly can’t seek out and review documentation for every deduction claimed on every return filed, but it does carry out its return review process as a way of minimizing those exceptions. Often, a letter received as part of the return review process will simply ask the taxpayer to provide documentation, by way of receipts, for amounts (like medical expenses or child care costs) claimed on the return.

In other cases, the CRA will contact a taxpayer before issuing a Notice of Assessment where figures reported on the return don’t match those which appear on information slips filed by employers, pension plans, or financial institutions. Quite often, this is the result of an input error by the taxpayer, who has received $32,546 in pension income but inadvertently enters that amount as $32,456 in completing the return. While tax return preparation software correctly calculates the tax payable by an individual, it does so based on the figures with which it is provided and any input error will be incorporated into its calculations.

Queries issued by the CRA before a Notice of Assessment is issued for a particular return are part of what is known as the Agency’s Pre-Assessment Review Program.  And, at this stage, most such queries are raised either on a random basis, or to clarify what seems to be an obvious error or inconsistency which appears in the information provided on the taxpayer’s return. Such queries are not, contrary to what most taxpayers think, a clear sign that the  taxpayer involved is going to be audited in the near future.

What is the case, however, is that where the CRA asks a taxpayer for confirmation or  clarification of information provided on his or her return, the taxpayer is required to respond. In most cases, providing a prompt response is also in the taxpayer’s best interests. While taxpayers aren’t required to provide receipts or other documentation when they file their returns, the CRA does have the right to ask for such documentation.

Where a request for documentation is received from the Agency, the taxpayer should follow the following instructions in responding:

• include the reference number found at the upper right corner of the CRA’s letter;
• send the reply to the address in that letter within the time frame indicated; and
• provide all receipts and/or other documents requested.

Finally, it should be noted that the Agency can only assess on the basis of the information with which it is provided. Where a taxpayer ignores the CRA’s request for documentation of an amount claimed by way of credit or deduction, the CRA is entitled to and will assess on the basis that such documentation does not exist, and the taxpayer’s claim will be denied.

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 #40 Corporate

Personal:

Issue #40 Personal

Older taxpayers who have recently completed and filed their tax returns for 2016 may face an unpleasant surprise when that return is assessed. The unpleasant surprise may come in the form of a notification that they are subject to the Old Age Security “recovery tax” – known much more familiarly to Canadians as the OAS clawback.

Older taxpayers who have recently completed and filed their tax returns for 2016 may face an unpleasant surprise when that return is assessed. The unpleasant surprise may come in the form of a notification that they are subject to the Old Age Security “recovery tax” – known much more familiarly to Canadians as the OAS clawback.

The OAS clawback is a product, in part, of the way in which Canada’s government-sponsored retirement income system is structured. OAS is one of the two main components of that system – the other being the Canada Pension Plan (CPP). While many retired Canadians receive both OAS and CPP benefits, the two plans are quite different. The amount of CPP benefit received by an individual Canadian is the product of an actuarial calculation based largely on the amount of contributions made by that individual throughout his or her working life – other sources of income or the recipient’s overall income level are irrelevant. Eligibility for OAS, on the other hand, is based on the number of years of Canadian residency and the amount received is set by law. Canadians who are at least 65 years old and have lived in Canada for at least 40 years after they turned 18 are eligible for full OAS pension (the maximum OAS pension payable for the second quarter of 2017 is $578.53). Where the length of Canadian residency is less than 40 years, a pro-rated amount of OAS pension may be received.

The differences between the CPP and the OAS extend to how each program is financed. The CPP, like all contributory pension plans, is financed out of contributions made by plan members and by investment income resulting from the investment of those contributions. Although the federal government administers the CPP, no tax revenues are used to support it. OAS, on the other hand, is paid from general federal government revenues.

As the Canadian population ages, the cost of the OAS program to the federal government has continued to increase. Although there was no universal agreement on the long-term effect of those demographics on federal government finance, the federal government determined, several years ago, that it was not prepared to maintain OAS as a program of universal entitlement. The decision made was that priority would be given to seniors whose income from all other sources fell below a set threshold, and that seniors having income above that threshold would be required to repay some OAS benefits received. That repayment is the OAS “recovery tax” or clawback.

The operation of the clawback is simple in concept. An individual who has income over the threshold (which increases each year) is required to repay 15% of that income, up to the total of OAS amounts received during the year.

For 2016, the prescribed income ceiling for the OAS clawback was $73,756 and the clawback calculation looks like this for a recipient who had income for that year of $80,000.

$80,000 ˗ $73,756 = $6,244

$6,244 × 0.15 = $936.60

In this case, the OAS clawback amount for 2016 is $936.60. Where a taxpayer is subject to the OAS clawback, his or her OAS benefits for the next benefit year (which runs from July to June) will be reduced by the amount of that clawback. So, for example, a retiree who is subject to the clawback because his or her income for 2016 was greater than the clawback threshold, OAS benefits payable from July 2017 to June 2018 will be reduced. If, as in the above example, the clawback amount for 2016 was $936.60, then $78.05 ($936.60 ÷ 12) will be deducted from each OAS payment starting in July 2017.

However, it’s also possible, especially where a senior is living on investment returns from savings, or wages from part-time employment, that fluctuations in income can occur. Where the taxpayer’s income for the current year is reduced to the point that any required clawback will be significantly reduced or even eliminated, the excess amount clawed back will be returned to the taxpayer when he or she files the tax return for that year the following spring. However, it’s also possible to have the clawback reduced before then, by notifying the CRA and making a request to reduce or eliminate the deductions being taken. The way to do so is to file a prescribed form — the T1213 (OAS), Request to Reduce Old Age Security Recovery Tax at Source for Year ____, which can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1213_oas/README.html.

As just about everyone knows, individual income tax returns for the 2016 tax year must be filed, by most Canadians, and any tax balance owed must be paid by all individual Canadians, on or before May 1, 2017. And, most Canadians do file that return, and pay any tax balance owed, on or before the deadline. As of April 24, 2017, the Canada Revenue Agency (CRA) had received just over 18 million individual income tax returns for the 2016 tax year. There are, however, a significant minority of Canadians who don’t file a return, or pay taxes owed (or both) by the annual deadline. The reasons for that are as varied as the individuals involved. In some cases, taxpayers are unable to pay a tax balance owing by the deadline and they think (wrongly) that there’s no point to filing a return where taxes owed can’t be paid. They may even think that they can fly “under the radar” and escape at least the immediate notice of the tax authorities by not filing the return. In other cases, it is just procrastination – virtually no one actually likes completing their tax return, especially where there’s the possibility of a tax bill to be paid once that return is done.

As just about everyone knows, individual income tax returns for the 2016 tax year must be filed, by most Canadians, and any tax balance owed must be paid by all individual Canadians, on or before May 1, 2017. And, most Canadians do file that return, and pay any tax balance owed, on or before the deadline. As of April 24, 2017, the Canada Revenue Agency (CRA) had received just over 18 million individual income tax returns for the 2016 tax year. There are, however, a significant minority of Canadians who don’t file a return, or pay taxes owed (or both) by the annual deadline. The reasons for that are as varied as the individuals involved. In some cases, taxpayers are unable to pay a tax balance owing by the deadline and they think (wrongly) that there’s no point to filing a return where taxes owed can’t be paid. They may even think that they can fly “under the radar” and escape at least the immediate notice of the tax authorities by not filing the return. In other cases, it is just procrastination – virtually no one actually likes completing their tax return, especially where there’s the possibility of a tax bill to be paid once that return is done.

One of the difficulties resulting from a failure to file a return or pay taxes owed is that it is a problem which tends to compound itself. Once the taxpayer is in arrears of filing or payment obligations, it becomes more difficult to file and pay in subsequent years, as such filing will certainly bring the previous default to light.

Taxpayers who are in arrears with respect to their filing and/or payment obligations may envision charges of tax evasion, fines, and even incarceration for their previous defaults. The CRA, on the other hand, obviously wants taxpayers to file and pay on time, but would rather not incur time and costs to chase down delinquent taxpayers, especially where the amounts involved are relatively small. The CRA’s solution to that problem is its Voluntary Disclosure Program (VDP), which allows taxpayers who are in default of their filing or payment obligations to come forward and set things right. The incentive for taxpayers to do so is that while all taxes owed will have to be paid, along with accrued interest, no fines will be levied and no criminal charges will be brought. For taxpayers who want to get out from under their self-imposed tax problems, however they came about, and to get a fresh start, it’s generally a good deal.

The range of taxpayer errors and omissions for which the CRA will accept a voluntary disclosure is quite broad, and includes errors, omissions, or defaults made relating to the following:

• failing to fulfill tax filing and payment obligations;
• failing to report taxable income received;
• claiming ineligible expenses on the tax return;
• failing to remit employees’ payroll deductions;
• failing to report an amount of GST/HST (including undisclosed liabilities or improperly claimed refunds or rebates, unpaid tax, or net tax from a previous reporting period);
• failing to file required information returns; and
• failing to report foreign income that is taxable in Canada.

There is a much shorter list of taxpayer circumstances for which a voluntary disclosure under the VDP cannot be made, but those won’t apply to most taxpayers. A VDP application can’t be made for bankruptcy returns, income tax returns with no taxes owing or with refunds expected, or taxpayer elections (in which the taxpayer chooses to have a particular tax provision apply).

Generally speaking, in order for a VDP application to be made, four circumstances must be present. The disclosure must be completely voluntary (meaning that it can't be made after the CRA has already taken compliance action of any kind against the taxpayer, or the taxpayer is aware that such compliance or enforcement action will be taken) and must be complete – any VDP application must be in respect of all tax years where filing or payment is in arrears or an error or omission has been made, not just some of those years. In addition, the taxpayer making the disclosure must be liable to a penalty and the information to be disclosed must be at least one year overdue, but must also relate to tax years which ended within the previous 10 calendar years.

That one- year requirement means that taxpayers who are now late in filing their return for 2016 can’t apply to the VDP in respect of that return. The best advice for taxpayers who haven’t yet filed or paid for 2016 is to file and pay as soon as possible. Where the taxpayer can’t pay taxes owed, in full or in part, he or she should contact the CRA to make arrangements to pay such amounts over time. A taxpayer who hasn’t filed for 2016 and one or more previous years, can still make a VDP application in respect of any or all of those previous years within the last decade.

That application can be made in one of three ways – through the CRA’s My Account service on its website, by fax, or by regular mail. The form used for disclosures is Form RC199, Voluntary Disclosures Program (VDP) Taxpayer Agreement, which is available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/rc199/README.html. Where the completed form is faxed or sent by mail, the destination address and fax number is as follows:

Voluntary Disclosures Program
Shawinigan-Sud National Verification and Collections Centre 
4695 Shawinigan-Sud Boulevard
Shawinigan QC  G9P 5H9
Fax: 1-888-452-8994

The CRA now handles all VDP matters through this one centralized office. It previously provided VDP fax service through one of its B.C. offices, but that service was discontinued in February 2017.

Once the CRA has received the taxpayer’s VDP application, it will review that application and respond in writing with its decision. A notice of assessment or reassessment will then be issued to the taxpayer setting out the decision and amounts owed by that taxpayer.

It’s also possible that the CRA, in the course of reviewing the VDP application, will have need of further information. That request for information will be made by means of a letter to the taxpayer, and that letter will provide both a reference number for the application and a telephone number which the taxpayer can call.

Taxpayers are understandably somewhat nervous about disclosing past tax transgressions to the tax authorities. One of the better features of the VDP program is that it gives taxpayers the right to make a “no-names” disclosure, in which all of the relevant information, excepting the taxpayer’s personal identifying information, is provided to the CRA. Once the CRA has reviewed the initial information provided by the taxpayer, it will provide a preliminary determination of whether the taxpayer’s situation qualifies for a VDP application (that is, whether the conditions outlined above are met and there is nothing in the taxpayer’s situation which would disqualify him or her from making a VDP application) and provide its opinion on the possible tax implications of the disclosure. If the taxpayer’s situation does qualify for a VDP application, then the taxpayer has 90 days in which to provide his or her personal identifying information and proceed with that VDP application. If the taxpayer doesn’t do so, the file is closed. If the taxpayer decides that he or she wishes to go forward with the voluntary disclosure, then the matter proceeds in the same way as outlined above for a “named” disclosure.

“Coming clean” with the tax authorities where tax is owing or returns haven’t been filed as required is a difficult decision to make, and the financial cost, depending on the circumstances, can be significant. However, the cost of not coming forward can be greater. Where tax is owed to the CRA it charges, by law, interest at higher than commercial rates, and such interest is compounded daily (meaning that every day interest is charged on the previous day’s interest). As well, where penalties are levied, interest is charged on unpaid penalty amounts. Making a voluntary disclosure and coming to a resolution with the CRA will allow the taxpayer to avoid both the penalties and the interest which would have accrued on such penalties, and to stop the interest clock running on the amount of any unpaid taxes.

The Canadian tax system is in a constant state of change and evolution, as new measures are introduced and existing ones are “tweaked” through a never-ending series of budgetary and other announcements. However, even by normal standards, 2017 is a year in which there are larger than usual number of tax changes affecting individual taxpayers. And, unfortunately, most of those changes involve the repeal of existing tax credits which are claimed by millions of Canadian taxpayers.

The Canadian tax system is in a constant state of change and evolution, as new measures are introduced and existing ones are “tweaked” through a never-ending series of budgetary and other announcements. However, even by normal standards, 2017 is a year in which there are larger than usual number of tax changes affecting individual taxpayers. And, unfortunately, most of those changes involve the repeal of existing tax credits which are claimed by millions of Canadian taxpayers.

The repeal of the affected credits will show up for the first time on the individual income tax return for the 2017 tax year, to be filed in the spring of 2018. And, since the changes do, for the most part, mean the loss of existing credits, not being able to make those credit claims will mean a higher tax bill for taxpayers who have claimed them in previous years. Knowing what lies ahead, however, means that taxpayers make an accurate assessment during the year of the true after-tax cost of any contemplated expenditures and make their spending decisions in light of that knowledge.

Some of the changes for 2017 are already in place, having been implemented as of the beginning of the year, while others will take effect part way through 2017. What follows is a listing of the changes to existing tax credits which will be implemented for part or all of the 2017 tax year.

Textbook and education tax credits repealed

Post-secondary education is expensive, and for many years students and their families have been able to offset, to a degree, the costs related to obtaining that education through claims for federal non-refundable tax credits.

There are, effectively, four tax credits or deductions which have specific application to post-secondary students. The education tax credit provides a non-refundable tax credit amount of $400 per month of full-time enrolment in a qualifying educational program and $120 per month of part-time enrolment in such an educational program at a designated educational institution. The textbook tax credit provides a non-refundable tax credit amount of $65 per month of full-time enrolment in a qualifying educational program and $20 per month of part-time enrolment in such an educational program at a designated educational institution. Both such credit amounts are converted to tax credits by multiplying the total credit amount by 15%. There is also a federal tax credit claimable equal to 15% of eligible tuition fees paid during the year. Finally, students who incur interest costs for student loans received from government student loan programs can deduct the cost of those interest payments, without limit.

Effective as of January 1, 2017, the first two of those credits have been eliminated, and neither the textbook tax credit nor the education credit will be claimable for 2017 or subsequent years. Unused education and textbook credit amounts carried forward from years prior to 2017 will be available to be claimed in 2017 and subsequent years.

The claim for a tax credit for tuition amounts paid and the claim for a deduction for interest payments made on qualifying student loans are not affected.

Taxpayer should be aware, as well, that the provinces also offered tuition and education tax credits which could be used to reduce provincial tax payable. While changes similar to the federal ones have been made at the provincial level, those changes are not uniform. Some provinces have chosen to repeal both the education and tuition tax credits, effective July 1, 2017, while others have announced that only the education tax credit will be repealed, and not until 2018. Still other provinces have indicated that no change is planned to their current system of tuition and education tax credits. Consequently, taxpayers will need to determine whether and to what extent claims for provincial tuition and education tax credits remain available for 2017 in their province of residence.

Children’s fitness and arts tax credits repealed

For several years, parents have been able to claim a federal tax credit for expenditures made to enroll their children in fitness and arts-related activities. The federal government has been moving over the last couple of years to cut back on the availability of that credit, generally by reducing the amount claimable. For 2017, both the children’s arts and fitness tax credits have been repealed.

Public transit tax credit repealed

For several years, individual taxpayers have been entitled to claim a refundable federal tax credit for costs incurred in taking public transit on a regular basis. The definition of what constituted public transit was extremely broad, covering everything from buses to ferries. As well, it was possible to combine qualifying amounts incurred by all family members and claim them on a single return, maximizing the value of the credit.

However, as part of this year’s federal Budget, it was announced that the public transit tax credit would be repealed, effective as of July 1, 2017. Taxpayers who have purchased an annual transit pass for 2017 (or who might be thinking of trying to beat the deadline by purchasing monthly passes for the rest of 2017 before July 1) will not escape the effect of the repeal. The budget measures specify that the cost of transit passes attributable to public transit use which occurs after June 30, 2017 will no longer be eligible for the credit, regardless of when the expenditure for those passes is incurred.

Notwithstanding, the public transit will be claimable on the 2017 return for qualifying expenditures made for travel on public transit before July 1, 2017, and so taxpayers should keep receipts to support those claims.

 Caregiver tax credits replaced

Individuals who live with or care for relatives in a variety of situations have been able to claim one or more caregiver tax credits to help offset the cost of providing such care. The number of tax credits related to caregiver activities has expanded over the years and had become a somewhat confusing patchwork of possible credit claims.

In this year’s budget, and effective as of January 1, 2017, the federal government acted to replace the current patchwork of credits with a single Canada Caregiver Credit. The new single credit, for the most part, will provide caregivers with the same tax relief as the old system did, with one major exception. Members of more than one generation of a family live under the same roof for a variety of reasons. Sometimes, a retired grandparent who lives with his or her children and grandchildren can help out with child care while the parents are at work. Sometimes, especially in more expensive real estate markets, having multiple generations under the same roof is a matter of economic necessity. Prior to 2017, where an individual lived in the same residence with a parent or grandparent who was aged 65 or older, that individual could claim a caregiver tax credit with respect to the parent or grandparent. There was no requirement that the senior parent or grandparent be disabled or infirm in any way.

As of 2017, no credit will be claimable in such situations. The new Canada Caregiver Credit will be claimable in a range of living situations and for individuals of various ages. However, the one constant requirement to qualify for that credit is that the person in respect of whom it is claimed be infirm. As stated in the federal Budget papers “The Canada Caregiver Credit will no longer be available in respect of non-infirm seniors who reside with their adult children.”

The credits outlined above are claimed by millions of taxpayer every year. And, every taxpayer who made such claims for 2016 will see an increase in his or her tax bill for 2017, when those claims will no longer be available. Planning now for that reality will enable such taxpayers to avoid an unexpected and unwelcome tax bill owed when the return for 2017 is filed next spring.

For the majority of Canadians, the due date for filing of an individual tax return for the 2016 tax year is May 1, 2017. (Self-employed Canadians and their spouses have until June 15, 2017 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 be “short-circuited” in a number of ways.

For the majority of Canadians, the due date for filing of an individual tax return for the 2016 tax year is May 1, 2017. (Self-employed Canadians and their spouses have until June 15, 2017 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 be “short-circuited” in a number of ways.

Not infrequently, the taxpayer realizes, after the return is filed, that information has been inadvertently misstated, or perhaps amounts have been omitted where an information slip was received (or located) after the return was filed. In such situations, the taxpayer is often at a loss to know how to proceed, but the process for amending a return is actually quite straightforward. Occasionally, the first thought in such circumstances is that another —corrected — return should be filed, but that is not the right course of action. Instead, the taxpayer should wait until a Notice of Assessment has been received in respect of the return already filed, and then file a T1 Adjustment Request with the CRA, outlining the needed corrections.

The easiest and quickest way of requesting an adjustment is through the CRA website’s “My Account” service, but that option is available only to taxpayers who have already registered for that service. While doing so isn’t difficult (the steps involved are outlined on the website at www.cra-arc.gc.ca/myaccount/, it does take a few weeks to complete the process.

Taxpayers who don’t want to deal with the CRA through its website, or who don’t think it’s worth registering for My Account just to deal with the CRA on a single issue, can obtain a hard copy of the T1 Adjustment form from the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html. Those who are unable to print the form from 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. The use of the actual form isn’t mandatory – the third option of sending a letter to the CRA is an acceptable alternative – but using the prescribed form has two benefits. First, it makes clear to the CRA that an adjustment is being requested, and secondly, 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 is necessary to include any relevant documents – the information slip summarizing the income not reported, or the receipt for an expense inadvertently not claimed.

A listing of Tax Centres and their addresses can be found on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html. An Adjustment request should be sent to the same Tax Centre with which the original tax return was filed. A taxpayer who isn’t sure where that is can go to www.cra-arc.gc.ca/cntct/tso-bsf-eng.html on the CRA website and select his or her location from the listing found there. The address for the correct Tax Centre will then be provided.

Where an Adjustment request is made, it will take at least a few weeks, usually longer, before the CRA responds. The Agency’s estimate is that such requests which are submitted online have a turnaround of about two weeks, while those which come in by mail take about eight 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 the return is assessed, to request further information, clarification, or documentation of deductions or credits claimed (e.g., 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 proceed.

Many Canadians are called upon to act as a caregiver for a family member who either cannot live independently or who requires varying degrees of assistance in order to be able to continue to live on their own. Sometimes that family member is a disabled adult child, while in other cases it’s an aging parent who needs help.

Many Canadians are called upon to act as a caregiver for a family member who either cannot live independently or who requires varying degrees of assistance in order to be able to continue to live on their own. Sometimes that family member is a disabled adult child, while in other cases it’s an aging parent who needs help.

Whatever the circumstances, caregiving is a demanding and often stressful role. And, while such caregiving imposes demands on caregivers in a number of areas, one of those demands is almost always financial. Sometimes that takes the form of financial support, or disability-related costs incurred for the dependent relative, while in other cases a caregiver’s income is reduced because of the need to re-allocate time from paid employment to unpaid caregiving.

The Canadian tax system recognizes the financial costs which are borne by caregivers and has, for many years, provided those caregivers with the opportunity to claim tax credits which seek to mitigate those financial costs. Unfortunately that system of credits has grown over a number of years into an often confusing patchwork system. Particularly for the taxpayer who encounters that system only once a year, at tax filing time, it can be difficult to understand which credits are available in which circumstances, and how the credits interact.

For this reason, the federal government has announced, as part of the 2017 federal Budget, that the current system of multiple caregiver credits is being eliminated, effective as of the 2017 tax year, with those multiple credits replaced by a single consolidated Canada Caregiver Credit.

The basic rule for the new credit is that it will be claimable by individual Canadians who provide care for infirm dependants who are parents/grandparents, brothers/sisters, aunts/uncles, nieces/nephews, or adult children of the taxpayer making the claim, or that taxpayer’s spouse or common law partner. The credit amount claimable for infirm dependants who fall into any of those categories is $6,883 per year.

A smaller credit amount will be claimable by individual Canadians who provide care for:

• an infirm dependant spouse or common law partner for whom the caregiver has claimed the spousal/common-law partner amount;
• an infirm dependant for whom the caregiver has claimed the eligible dependent credit; and
• an infirm child who is under the age of 18 at the end of the tax year.

The Canada Caregiver Credit amount for individuals who fall into any of these categories is $2,150 per year.

As is the case under current rules, the credit will be reduced dollar-for-dollar where the dependant’s net income exceeds a prescribed amount. For 2017, that prescribed income amount is $16,163, which represents a significant increase in some cases from the prescribed income limit set under current rules.

In all cases, regardless of the family relationship, the new Canada Caregiver Credit can be claimed only in respect of an individual who is infirm. Under pre-budget rules, adult children who provided in-home care for parents or grandparents who were over the age of 65 could claim a caregiver credit with respect to those relatives. Beginning with the 2017 tax year, however, no credit will be claimable in respect of non-infirm senior relatives who are dependent upon their adult children or grandchildren.

While it is necessary, in order to claim the new credit, that the dependant be infirm, there is no requirement that the infirm individual actually reside with the person making the Canada Caregiver Credit claim. As long as the infirm individual is dependent on the caregiver (and assuming that the other relationship and income criteria outlined above are met) that caregiver can claim the Canada Caregiver Credit.

While only one Canada Caregiver Credit can be claimed in respect of a single infirm dependant, that credit can be shared among multiple caregivers who support the same dependant. So, for instance, a married couple on whom an infirm parent is dependent could divide the credit between them, in whatever proportion they wish.

It should be emphasized that the changes announced in the Budget will have no effect on tax returns for the 2016 taxation year which are now being filed. The Budget measures affecting caregiver tax credits took effect as of January 1, 2017 and will be reflected for the first time on the 2017 tax return which will be filed a year from now.

That said, those taxpayers who are affected (for better or for worse) by the changes may want to take a look at how their tax situation for 2017 has changed as a result. For instance, an individual who provided in-home care to a non-infirm parent or grandparent and who claimed a caregiver tax credit in respect of that parent or grandparent should realize that no such claim will be available for the 2017 tax year. And, for each such claim not made, the individual’s federal tax payable for 2017 will increase by about $700.

Conversely, taxpayers who have not been able to claim a caregiver tax credit because the income of an infirm adult family member who was dependent on them was too high should reexamine their eligibility under the new rules. The dependant income threshold for full eligibility for the (former) infirm dependent credit was $6,902. The dependant income threshold for full eligibility for the new Canada Caregiver Credit is (for 2017) $16,163. Consequently, in many cases, claims for a caregiver tax credit may become available for the first time. In addition, it will be possible for dependants to receive higher income amounts (for instance, by making higher withdrawals from an RRSP or RRIF), without eroding their caregiver’s ability to claim the new Canada Caregiver Credit.

More information on the changes creating the new Canada Caregiver Credit can be found in the 2017-18 federal Budget papers, available on the Finance Canada website at www.budget.gc.ca/2017/docs/tm-mf/si-rs-en.html#_Toc476839165.

For several years, the Canada Revenue Agency (CRA) has been encouraging taxpayers to manage their taxes and benefits online, through the CRA website, and has been largely successful in that effort. More recently, the Agency has taken the next step, by creating mobile apps which taxpayers can use to obtain most of the same information, and carry out many of the same tasks, as can already be done online.

For several years, the Canada Revenue Agency (CRA) has been encouraging taxpayers to manage their taxes and benefits online, through the CRA website, and has been largely successful in that effort. More recently, the Agency has taken the next step, by creating mobile apps which taxpayers can use to obtain most of the same information, and carry out many of the same tasks, as can already be done online.

For individuals, there are currently two such apps – MyCRA and MyBenefits CRA. The former gives users access to a range of information about their own tax affairs, as well as more general information about the CRA’s services, as follows:

• personal tax information, including the following:
• view return status and notices of assessment,
• view benefit and credit payment amounts and dates,
• view TFSA and RRSP contribution limits,
• sign up for email notification of correspondence,
• update address and phone numbers,
• add or update direct deposit information,
• request a proof of income statement (option C print),
• view or update marital status, and
• view or adjust the list of children in the individual’s care;
• making a payment to the CRA (opens in new browser window);
• a list of certified EFILE tax professionals (opens in new browser window);
• a list of CRA-certified software (opens in new browser window);
• a list of community volunteer income tax clinics (opens in new browser window);
• a charitable donation tax credit calculator (opens in new browser window); and
• a list of registered charities (opens in new browser window).

As the name implies, MyBenefits CRA allows users to obtain both general and taxpayer-specific information about federal and provincial refundable tax credits which they are receiving or may be eligible to receive. Those credits include the harmonized sales tax (HST) credit and the Child Tax Benefit (CTB), and the specific services provided are as follows:

• non-personalized benefit dates;
• benefits calculator;
• the following secure services
• view next benefit/credit payments,
• view last benefit/credit payments,
• view or update marital status,
• view or adjust the list of children in the individual’s care, and
• check application status (if applicable) for Canada child benefits.

Because both mobile apps allow access to confidential taxpayer information, it is necessary to register in advance in order to use them. The process involved is essentially the same as is required in order to use the CRA’s online services through its website. And, while the process for doing so can seem a bit detailed and lengthy, once registration is effected, signing in to use the apps is relatively simple thereafter. The initial process of registration is as follows.

The starting place is the CRA’s registration page for online services at www.cra-arc.gc.ca/esrvc-srvce/tx/psssrvcs/pss_fq/cnd-eng.html#hlp1b. Once there, click on the link to MyCRA mobile app or MyBenefits CRA mobile app, where the following instructions will appear.

Step 1 – Provide personal information

• Enter your social insurance number.
• Enter your date of birth.
• Enter your current postal code.
• Enter an amount you entered on one of your income tax and benefit returns. (Please note: You should have a copy of your returns handy. The line amount requested will vary. It could be from the current tax year or the previous one. To register, a return for one of these two years must have been filed and assessed.)
• Create a CRA user ID and password.
• Create a series of security questions and answers.

After the taxpayer completes Step 1 of the registration process, he or she will have access to some information in MyCRA. A CRA security code will then be sent by regular mail and should arrive within 5-10 days. That CRA security code has an expiry date, which will be indicated in the letter. The taxpayer can then return to MyCRA mobile app, select "Log in", and enter his or her CRA user ID and password. When prompted, the user should enter his or her ID and the CRA security code. Once that is done, the user will have access to all of the available services in MyCRA.

The wide availability of information and services online has meant that most Canadians have a large and ever-increasing number of user ids and passwords to remember. The CRA has made using its online services (and mobile apps) somewhat easier in this regard, as it is possible to register for and access those services and apps by using an ID and password already set up with a Canadian financial institution. More information on the how the “sign-in partner” process works is available at www.cra-arc.gc.ca/esrvc-srvce/tx/psssrvcs/snp_fq/menu-eng.html.

Whether it’s done using a CRA ID and password or using the sign-in partner option, once registration is completed, that registration is effective for both mobile apps – MyCRA and MyBenefits, as well as for the CRA’s online service MyAccount. The services provided are, however, different.

My Benefits CRA provides taxpayers with quick access to personalized benefit and credit information in a format specifically designed for mobile devices. MyCRA allows mobile users to view their recent tax information, and update contact information, direct deposit, and more. My Account, the online service, provides taxpayers with a more extensive list of options, and that list can be found at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/bt-eng.html.

For most Canadian taxpayers, income tax is an “out-of-sight, out-of-mind” subject, with most taxpayers giving serious thought to their tax situation only when it’s time to file the annual tax return. And, too often, that approach leads to an unexpected (or higher than expected) tax amount owing when the return is filed – and seemingly no way to fix that problem.

For most Canadian taxpayers, income tax is an “out-of-sight, out-of-mind” subject, with most taxpayers giving serious thought to their tax situation only when it’s time to file the annual tax return. And, too often, that approach leads to an unexpected (or higher than expected) tax amount owing when the return is filed – and seemingly no way to fix that problem.

While it is true that nearly all tax planning and tax saving strategies need to be implemented before the end of the calendar year in order to be effective for that year (the RRSP contribution deadline of 60 days after year-end being the only major exception), it’s not the case that nothing can be done at tax filing time to minimize the tax bill payable.

The available strategies are better characterized as tax filing rather than tax planning techniques. While it’s not possible, after the RRSP contribution deadline has passed, to create any expenditure-based deductions or credits for 2016, the taxpayer can realize some tax savings through the strategic use of deductions and credits for expenditures already made, either in 2016 or in previous years. And, many of those expenditures are ones which are incurred by millions of Canadian taxpayers every year.

Medical expense tax credit

While many medical expenses incurred by Canadians (like doctor’s visits and hospital care) are covered by public health care plans, there is a very long list of such expenses (like prescription drugs and dental care) which must be incurred on a regular basis and which must be paid out-of-pocket. Some individuals, of course, have such costs covered by an employer-sponsored benefits plan, but they are a diminishing group – for many Canadians, there is no private or public coverage for such costs.

Taxpayers who must pay out of pocket without reimbursement for medical costs do, however, have the option of claiming a federal credit equal to 15% of qualifying medical expenses. Each of the provinces and territories also offers a medical expense tax credit, with the percentage amount varying by jurisdiction.

In all cases, the credit for medical expenses can be claimed only on such expenses which exceed 3% of the taxpayer’s net income, or $2,237 (for 2016), whichever is less. It is possible, however, for all medical expenses of both spouses and all children who were born in 1999 or later, to be combined and claimed by either spouse. So, while the medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses may well mean that total expenses are enough to get over the 3% of net income/$2,237 threshold.

Similarly, it’s also possible to claim, on the 2016 return, expenses which were incurred prior to 2016. Taxpayers are entitled to claim all qualifying expenses incurred in any 12-month period which ends during the taxation year for which the return is being filed. So, if the taxpayer and his or her family incurred medical expenses during 2015 which did not exceed the 3% of net income threshold, they can combine such expenses with qualifying expenses incurred in 2016 in making their claim on the 2016 return. The only restrictions on doing so are that all such expenses must have been incurred within a single 12-month period ending in 2016 and, of course, any expense claimed can only be claimed once.

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 3% of net income or $2,237, 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 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.

There are a huge number and variety of medical expenses which can be incurred. Some of those will qualify for the medical expense tax credit whenever a qualifying expenditure is made, while in other cases, it is necessary to have a doctor’s prescription certifying that the particular product, service, or equipment are necessary. A listing of medical expenses eligible for the credit, and any requirements (such as a doctor’s prescription) which must be obtained, can be found on the Canada Revenue Agency website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330-331/menu-eng.html#mdcl_xpns.

Charitable donation tax credit

Canadians who make donations to registered charities are entitled to claim a non-refundable charitable donations tax credit for those donations, for both federal and provincial/territorial tax purposes. The amount of the provincial/territorial credit will vary by jurisdiction: the federal credit is calculated as 15% of donations up to $200 and 29% of donations over that amount.

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2016) year, or in any of the previous five years. While it may seem counter-intuitive not to claim a contribution made during the year, in some cases a better tax result may be obtained by waiting.

For taxpayers whose total charitable donations made during 2016 are more than $200, the full claim should be made on the 2016 return – there is no benefit to such taxpayers in delaying the claim. Where, however, total charitable donations made during the year do not exceed that $200 threshold, it may be better to wait. For example a taxpayer who contributes $150 to a charity in a year and claims that amount on the return will receive a 15% federal credit. Where the same taxpayer makes a similar $150 donation in the next year and claims the entire $300 in donations on that year’s return, he or she will receive a credit of 15% on the first $200 and 29% on the balance of $100 in donations.

Pension income splitting

Each of the tax filing strategies outlined above require that the taxpayer make some kind of expenditure in order to claim the related credit. That’s not the case for pension income splitting, which can provide eligible taxpayers with significant tax benefits.

Pension income splitting effectively allows spouses to split private pension income (generally, income from an employer-sponsored pension plan, from a registered retirement savings plan or a registered retirement income fund) between them for tax purposes. So, a taxpayer who receives $40,000 a year in qualifying pension income can report $20,000 of that income on his or her return, with the remaining $20,000 reported by his or her spouse. There’s no need for any actual transfer of funds – the “transfer” is simply a notional one done for tax reporting purposes only.

The mechanics of pension income splitting are relatively simple. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032E(12), Joint Election to Split Pension Income, with their annual tax return. That form, which is unfortunately not included in the general tax return package issued by the CRA, can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1032/README.html. There is relatively little information in the General Income Tax Guide on pension income splitting; much more extensive and detailed information on qualifying income, mechanics, benefits, and tax results of the strategy can be found on the CRA website at www.cra-arc.gc.ca/pensionsplitting/.

The Canada Pension Plan (CPP), together with the Old Age Security (OAS) program, forms the cornerstone of Canada’s retirement income system. There are other retirement savings options available to Canadians, but the CPP is unique in that it is Canada’s only compulsory retirement savings program.

The Canada Pension Plan (CPP), together with the Old Age Security (OAS) program, forms the cornerstone of Canada’s retirement income system. There are other retirement savings options available to Canadians, but the CPP is unique in that it is Canada’s only compulsory retirement savings program.

Canadians can, of course, contribute to registered retirement savings plans (RRSPs) and individuals who were residents of Canada for at least 20 years of their adult lives will be able to receive OAS benefits after age 65. And, an ever-decreasing minority of Canadians can look forward to receiving payments from an employer-sponsored registered pension plan (RPP). However, despite the availability of these options, the hard fact is that many Canadians now in the work force will not have enough income from all sources, public and private, to ensure a financially comfortable retirement – or even, in some cases, to provide a reasonable standard of living. While most Canadians will receive Old Age Security payments, even the maximum benefit receivable (currently less than $7,000 per year) isn’t enough to live on. Most Canadians will not be receiving benefits from an RPP. And, while changes have been made in recent years to encourage taxpayers to accumulate private retirement savings through an RRSP, the fact is that many working Canadians do not make RRSP contributions each year and those who do usually contribute much less than the allowable maximum.

The Department of Finance estimates that one-third of Canadian families who are nearing retirement and do not have workplace pension plans are at risk of having their current after-tax family income drop by more than 40% following retirement. Faced with that reality, the federal and provincial governments have moved to make changes which would increase the amount of retirement income received by Canadians. Those changes will come about through enhancements to the CPP, which will mean higher CPP retirement benefits for the next generation of Canadian workers.

The benefit of increasing Canadians’ retirement income through changes to the CPP is that, unlike contributions made to an RRSP, saving for retirement through the CPP isn’t voluntary. Working Canadians are required by law to make contributions, with the contribution amount set by the CPP, deducted from the employee’s gross pay and remitted to the federal government on their behalf. And, all contributions made by an individual Canadian worker are matched by his or her employer and similarly remitted to the federal government on his or her behalf. Once the employee chooses to begin receiving CPP retirement benefits (anytime between age 60 and age 70), the amount of monthly benefit received will depend, for the most part, on the amount of contributions made over the individual’s working life.

The changes to be made to the CPP, which will be implemented over a seven year period beginning in 2019, are significant. The goal of increasing the amount of CPP benefits which can be received by retired Canadians will be achieved through both an increase in the percentage of income contributed by Canadians each year and in the maximum amount of income on which those percentage contributions are based.

Right now, Canadian workers are required to contribute 4.95% of their gross income, to a maximum income (known as the “year’s maximum pensionable earnings”, or YMPE) of $55,300. In calculating CPP premiums, the first $3,500 of income is excluded. Consequently, the maximum premium payable by an employee is $51,800 ($55,300 minus $3,500), times the contribution rate of 4.95%, or $2,564.10. With the employer’s matching contribution, the maximum total contribution amount credited to the employee’s CPP “account” for the year is $5,128.20. (Self-employed taxpayers are required to pay both the employer and employee portions of CPP contributions for the year.)

The current goal of the CPP program is to provide a retirement benefit equal to a maximum of 25% of earnings up to the YMPE, which is itself intended to approximate the average Canadian wage. However, given that contribution amounts are limited by the YMPE, individuals earning more than that amount will not be contributing at a rate which will provide the desired income replacement of 25% of average lifetime earnings. As well, although the maximum annual CPP retirement benefit in 2016 was $13,110, most individuals do not receive that amount. The average annual CPP retirement benefit received in 2016 was about $7,500.

The changes to the CPP intended to address these concerns will be implemented over a seven-year period starting in 2019. Percentage contribution rates will be increased, with the goal of raising the income replacement level to one-third of earnings. As well, a new, separate contribution will be payable in respect of earnings above the YMPE.

The changes will be implemented over the following time frame.

• Increased contribution rates for the CPP will be phased in, starting in 2019. Figures released by the federal government indicate that an individual who earns at least the YMPE will pay about $6 per month in additional premiums in 2019. By 2025, that individual will be paying an additional $43 per month in premiums. Expressed as a percentage, the CPP contribution rate will increase by 1% for both employers and employees between 2019 and 2023.

• Beginning in 2024, a separate contribution rate, which is projected to be 4% each for employers and employees, will be payable for earnings above the YMPE, to an upper earnings limit. The federal government expects that, upon full implementation in 2025, that upper income limit will be about $82,700. Both employers and employees who are required to make this additional contribution will both be able to claim a deduction for such contribution made when calculating taxable income.

Other, consequential, changes will also be made to the tax system. To help mitigate the impact of increased CPP contribution rates on lower-income Canadians, increased benefits will be provided under the Working Income Tax Benefit, a refundable tax credit that supplements the income of individual Canadians earning less than about $20,000 annually.

More details of the upcoming changes to the CPP can be found in a Backgrounder issued by Finance Canada, which is available on their website at www.fin.gc.ca/n16/data/16-113_3-eng.asp.

Costs incurred for child care expenses are among the most frequent deductions claimed by Canadian taxpayers on their annual tax returns. And, for many Canadian families, especially those with more than one child, or those who live in large urban centres, the cost of child care can consume a significant percentage of their annual budget.

Costs incurred for child care expenses are among the most frequent deductions claimed by Canadian taxpayers on their annual tax returns. And, for many Canadian families, especially those with more than one child, or those who live in large urban centres, the cost of child care can consume a significant percentage of their annual budget.

For all families who incur child care expenses, the good news is that most such costs can be claimed as a deduction (as opposed to a refundable or non-refundable credit) on the annual return, meaning that those costs reduce taxable income on a dollar-for-dollar basis. The tax treatment of expenses related to child care can, however, vary, depending on the kinds of expenses incurred and their purpose.

The basic rule is that child care expenses will be deductible when they are incurred in to order to allow a parent to earn income from either employment or self-employment, or to attend school. However, while those criteria for claiming the expense are broad, there are limitations on the amounts which may be claimed, no matter how large the actual expenditure.

For 2016, those dollar figure limitations are as follows:

• up to $8,000 in child care expenses incurred for a child or children who are 6 years of age or under at the end of 2016; and
• up to $5,000 in child care expenses incurred for a child or children who are between 7 and 16 years of age at the end of 2016.

Where a child is disabled, higher limits apply, and up to $10,000 in child care expenses can be claimed for 2016.

The total amount claimed for child care expenses, regardless of the age of the children or the number of children for whom such claims are made, is also subject to an overall limit of two-thirds of the income for the year of the parent making the claim. As well, in a two-parent family, any claim for child care expenses must generally be made by the spouse with the lower net income.

While amounts paid for day care or after-school care comprise the majority of child care expenses incurred by families, those aren’t the only costs. Where family finances allow, children may attend an overnight summer camp or a sports school, and a portion of the costs incurred for such camps may also be claimed as child care expenses. As is the case with the basic child care expense claim, there are limitations on the amounts which can be claimed and deducted, as follows:

• up to $200 per week in such costs incurred for a child or children who were 6 years of age or under at the end of 2016; and
• up to $125 per week in such costs incurred for a child or children who are between 7 and 16 years of age at the end of 2016.

And, as with the basic child care expense deduction, higher limits apply in the case of a disabled child, for whom up to $275 per week in such costs may be claimed.

There is a third category of expenses which many families incur for children, and those expenses are subject to different tax treatment. That category includes costs incurred to enroll children in extracurricular athletic or arts-focused activities.

While other child care costs are deductible from income, costs incurred for extracurricular activities are eligible for a non-refundable tax credit. Essentially, the federal income tax payable for the year by the parent who claims the credit is reduced by 15% of the amount paid to enroll a child or children in those activities.

Once again, there is a limit on the amount of eligible costs for which a credit can be claimed, and those limits have been reduced for 2016. The 2016 limits are as follows:

• where a child is engaged in athletic or sports activities, a parent can claim a non-refundable credit on up to $500 of costs incurred for such activities;
• where a child is enrolled in arts or cultural-related activities, a parent can claim a non-refundable credit on up to $250 of costs incurred for such activities.

It’s readily apparent that costs which are eligible for either of these credits could also qualify, in the right circumstances, for the child care expense deduction. The rule in such circumstances is that where an amount would qualify for both, such amount must first be claimed as a child care expense, with a tax credit then claimable on any unused remainder.

The number and variety of extracurricular activities available for children is, of course, enormous, and so the Canada Revenue Agency (CRA) has prescribed rules which apply to determine whether a particular activity qualifies for either of these credits. Information on those rules, and on the credit generally, can be found on the CRA website at www.cra-arc.gc.ca/fitness/ and www.cra-arc.gc.ca/artscredit/.

A deduction for child care expenses is claimed on line 214 of the annual tax return, but details of child care expenses incurred, and the computation of the available deduction, is done on Form T778, and that form also includes a useful summary of the applicable rules. The T778 is not included in the General Income Tax Return and Guide Package, but is available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t778/README.html.

It’s not news that the Canadian tax system is complex and that most Canadians, especially those who only encounter it once a year at tax-filing time, would rather not have to deal with that complexity. Consequently, over the next couple of months, it’s likely that more than 16 million Canadian taxpayers will seek out the services of professional tax return preparers and tax discounters, in order to get their 2016 returns completed and EFILED on time.

It’s not news that the Canadian tax system is complex and that most Canadians, especially those who only encounter it once a year at tax-filing time, would rather not have to deal with that complexity. Consequently, over the next couple of months, it’s likely that more than 16 million Canadian taxpayers will seek out the services of professional tax return preparers and tax discounters, in order to get their 2016 returns completed and EFILED on time.

Of course, information about anyone’s tax affairs is confidential and is protected, by law, from disclosure to any third party – even to a spouse, parent or child of the taxpayer. Consequently, any taxpayer who wants someone else to deal with the Canada Revenue Agency (CRA) on their behalf – whether it’s a family member, a friend, or a commercial tax return preparation service or tax discounter – must provide the Agency with permission to provide such access. And, although taxpayers are not required to provide such permission in order to have a third party prepare and EFILE their tax return, it’s not unusual for tax return preparers or tax discounters to ask their clients for such an authorization. In many cases, having that authorization will give the tax return preparer access to information – like the amount of available carryforward amounts of tuition or education credits, or the amount of RRSP contribution room – which is needed to complete the return.

That said, the vast majority of taxpayers who are asked to sign a form granting such permission to the person or firm preparing their tax return will likely do so without hesitation, and in most cases without reviewing that form carefully. That’s not the best approach, as a decision to grant anyone access to one’s confidential tax information is a significant step, and the consequences can be more far-reaching than might be apparent at first glance.

The CRA provides a prescribed form – the T1013(E), Authorizing or Cancelling a Representative (available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1013/README.hml), which can be used by anyone to name any other person or company as their representative. It is also possible, for those who are already registered for the CRA’s My Account service, to authorize a representative online.

No matter how the authorization is given, the first question for the taxpayer who is granting authorization is to consider the purpose for which such authorization is being provided.

The CRA’s T1013(E) form provides for two levels of access to an individual’s tax accounts and tax information. Broadly speaking the first, Level 1, provides the named representative with the right to receive information, while the higher Level 2 access enables that representative to make changes to the individual’s tax accounts.

The specific rights granted to a representative at each level are as follows.

Where a representative has been provided by the taxpayer with Level 1 access, the CRA can disclose information about the following to that representative:

• information included on the taxpayer’s income tax return;
• adjustments made to the taxpayer’s income tax return;
• information about the taxpayer’s registered retirement savings plan (RRSP), Home Buyers’ Plan, Tax-Free Savings Account (TFSA), and Lifelong Learning Plan (LLP);
• accounting information with respect to the taxpayer’s tax account, including balances, payments on filing, and instalment payments or transfers;
• information about the taxpayer’s benefits and credits, including the Canada child benefit (CCB), goods and services/harmonized sales tax (GST/HST) tax credit, and the working income tax benefit (WITB); and
• the taxpayer’s marital status (but not information related to the taxpayer’s spouse or common-law partner).

A representative who has been provided by the taxpayer with Level 2 access has all the powers of a Level 1 as well as the right to request adjustments to the taxpayer’s income, deductions, and non-refundable credits, and to effect accounting transfers. A Level 2 representative is also able to obtain personalized tax remittance forms in the taxpayer’s name, submit a request for relief from interest or penalty charges under the Taxpayer Relief Program, and to file a Notice of Objection from an assessment or a Notice of Appeal from a decision of the Minister.

There are some actions which cannot be taken by either a Level 1 or a Level 2 representative who has been authorized to act under a Form T1013(E). Such representatives are not allowed to change the taxpayer’s address, marital status, or direct deposit information, to authorize, view, or cancel other representatives on the taxpayer’s file, to get information about the children who are in the taxpayer’s care, or to apply for child benefits.

Where another person is engaged in preparing a taxpayer’s return or otherwise dealing with tax matters on their behalf, it can obviously be useful for that person to be able to obtain relevant tax-related information about that taxpayer. Taxpayers who are contemplating providing authorization to another person or company should, however, consider the following potential issues and potential pitfalls when deciding how much access to grant and, consequently, how to complete the T1013(E).

First, it’s possible to deal with the CRA through a number of avenues – by telephone, in writing, in person, and online. A taxpayer who is authorizing a representative has to decide, specifically, whether to grant that representative the ability to deal with his or her tax affairs online (through the CRA website) or to limit that access to contacts with the CRA by telephone, in writing, or in person. It is an important decision for this reason. Where the taxpayer completes Part II, Section B of the T1013(E), he or she is granting the representative access only by telephone, writing, or in-person (and not including online access), and the taxpayer can, on the same form, specify the tax years for which access is being authorized, and the level of authorization (Level 1 or 2) being granted for each year. Where, however, the taxpayer completes Part II, Section A, he or she is also providing his or her representative with online access through the CRA website, and such access must be provided for all taxation years, without limit, although the taxpayer can still specify whether such access is at Level 1 or 2.

Second, where a taxpayer engages the services of a tax return preparation service or a tax discounter, it is frequently the case that the business itself, rather than an individual, is named as the taxpayer’s representative on the T1013. Taxpayers should be aware, however, that where a business is named as the representative, everyone employed by that business will, as a result, have access to the taxpayer’s confidential tax information. If the taxpayer wants to limit such access solely to the person with whom they are dealing in relation to their tax return preparation or other tax matter, it is necessary to specify, on the T1013, the name of both the business and the specific individual for whom such authorization is being provided.

Third, when a taxpayer signs a T1013(E) appointing a representative, that T1013(E) does not expire, unless the taxpayer specifies a termination date, or subsequently cancels the appointment, or the CRA is notified of the taxpayer’s death. Taxpayers who have been asked to sign an authorization when engaging a tax return preparation firm or a tax discounter often assume that such authorization will be in effect only until the return is done. Unless a termination date is specified in the authorization, that is not the case.  A representative named in a T1013(E) in which no termination date is specified will have the continuing right to obtain information from the CRA about that taxpayer, even after the taxpayer has finished his or her dealings with the representative. (The CRA does provide a measure of protection for the taxpayer by cancelling inactive authorized representatives after a period of two years.) The good news is that cancelling the representative’s authorization can be done quite easily over the phone. The taxpayer need only call the CRA’s Individual Income Tax Enquiries Line. In order to satisfy the CRA’s information security requirements, the taxpayer will be asked to provide identifying information – at a minimum, his or her name, social insurance number, address, and data from a recently filed tax return. The T1013(E) authorization can then be cancelled.

It’s readily apparent that naming someone as your representative with the CRA, even at the lowest level of authorization for a limited period of time gives that person access to an enormous amount of personal tax and financial information. Taxpayers should be aware, when providing an authorization, exactly what they are agreeing to and for what length of time. When it is determined that providing such access is necessary, careful consideration should be given to the level of access the representative will need, the tax year or years for which such access is required and, possibly most important, providing a date on which that authorization will expire.

The time is fast approaching when the annual chore of gathering together the various pieces of information needed to complete one’s annual tax return, and getting that return completed and filed can’t be delayed any longer. For those wishing to put that chore off as long as possible, there is one (very small) bit of good news. Individual Canadians (other than the self-employed and their spouses) are required to file the annual return by April 30 of the following year, and to pay any tax amount owed by the same deadline. This year, since April 30 falls on a Sunday, the Canada Revenue Agency (CRA) has extended that filing and payment deadline to the following day, Monday May 1, 2017. Self-employed taxpayers have until Thursday June 15, 2017 to file their returns for 2016, but they too must pay any outstanding tax amounts owed for that year by Monday May 1, 2017.

The time is fast approaching when the annual chore of gathering together the various pieces of information needed to complete one’s annual tax return, and getting that return completed and filed can’t be delayed any longer. For those wishing to put that chore off as long as possible, there is one (very small) bit of good news. Individual Canadians (other than the self-employed and their spouses) are required to file the annual return by April 30 of the following year, and to pay any tax amount owed by the same deadline. This year, since April 30 falls on a Sunday, the Canada Revenue Agency (CRA) has extended that filing and payment deadline to the following day, Monday May 1, 2017. Self-employed taxpayers have until Thursday June 15, 2017 to file their returns for 2016, but they too must pay any outstanding tax amounts owed for that year by Monday May 1, 2017.

Aside from that administrative concession, there aren’t a lot of changes this year to the process of completing and filing the annual return. If the trend of the past several years continues, as it likely will, the vast majority of taxpayers will file their returns electronically, either by paying someone else to prepare and file the return, or by doing it themselves through the CRA website.

The CRA has for several years been encouraging taxpayers to move away from paper-filing of returns to online filing, and those efforts have been overwhelmingly successful. Last year, 84% of returns filed were filed online, while only 16% of taxpayers continued to paper-file.

Taxpayers who want to paper-file their returns have found it more difficult in recent years, as the CRA has discontinued its practice of mailing personalized returns to Canadians who had used the paper-filing option in the past. However, it is still possible to obtain and use a paper return. Tax return forms and guides (including a return envelope for mailing) are available from Service Canada offices and post offices across the country. If those sources run out of return packages (as has happened in previous years), taxpayers can have a return package mailed to them, by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281 and making a request. As well, a printable version of the return can be found on the CRA’s website at www.cra-arc.gc.ca/formspubs/t1gnrl/menu-eng.html.

The majority of taxpayers who choose to file online have two options – NETFILE and E-FILE. The first of those – NETFILE – 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, and the group of service providers which are authorized by the CRA to E-FILE individual income tax returns include both tax return preparation services and tax discounters.

It seems that most Canadians prefer to have someone else prepare and file their tax returns. Last year, 56% of individual income tax returns filed came in by E-FILE, while exactly half that number, or 28% of returns were filed using NETFILE, and the balance of 16% were paper-filed. (A fourth option – TELEFILE – which allowed Canadians to file using a touch-tone phone was discontinued by the CRA several years ago and is no longer available.)

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 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.

Those who are more comfortable preparing their own tax returns and filing online can use the CRA’s NETFILE service, and information on that service can be found at 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 taxpayer who died in 2016), the vast majority of Canadians who wish to do so will be able to NETFILE their return. As well, while it was once necessary to obtain an access code in order to NETFILE, that is no longer the case. The CRA’s NETFILE security procedures can be satisfied by providing specific personal identifying information, including social insurance number and date of birth.

NETFILE can only be used where a return 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 this time of year, approved software which can be used free of charge is also available. A listing of both free and commercial software approved for use in preparing individual returns for 2016 can be found on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/crtfdsftwr/menu-eng.html.

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, the CRA runs a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers. A listing of such clinics (which is regularly updated during tax filing season) can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/vlntr/clncs/menu-eng.html.

Although individual Canadians file the same T1 Income Tax Return form each year, the rules governing the information to be provided on that return form and the tax consequences flowing from that information is in a constant state of change. And, it’s a safe bet that very few taxpayers read the annual Income Tax Guide carefully to find out what’s changed on this year’s return.

Although individual Canadians file the same T1 Income Tax Return form each year, the rules governing the information to be provided on that return form and the tax consequences flowing from that information is in a constant state of change. And, it’s a safe bet that very few taxpayers read the annual Income Tax Guide carefully to find out what’s changed on this year’s return.

As a result, it’s easy for a situation to arise in which taxpayers to fail to report income received, or in which they miss out on newly available deductions or credits, both due to a lack of knowledge. And, it’s worth noting that while the Canada Revenue Agency (CRA) will almost certainly pick up on a taxpayer’s failure to report income as required, the CRA does not (and, in fact, cannot) provide the taxpayer with deductions or tax credits to which he or she is entitled, but has failed to claim on the return.

There were a significant number of tax changes which took effect during the 2016 tax year which affected individuals, and which are reflected on the 2016 return to be filed this spring. Some of the more important of those changes are outlined below.

Changes to child and family benefits

As of July 1, 2016, the child and family benefits paid to Canadian families underwent a significant change. Prior to July 1, the federal child and family benefit program consisted of the Canada Child Tax Benefit (which was not taxable), the National Child Benefit Supplement (which was not taxable) and the Universal Child Care Benefit (which was taxable). All of those benefits were replaced, effective July 1, with the Canada Child Benefit, which is not taxable.

What all of that means from the perspective of a family which received child and family benefits from the federal government during 2016 is that the only amount which must be reported on a return for 2016 (generally, on the return of the parent with the lower net income) is any Universal Child Care Benefit which was received between January and June 2016. Any and all other child and family benefits received during the year are not taxable and so do not need to be included in income on the return for 2016.  

Changes to children’s fitness and arts credits

For several years, parents have been able to claim a non-refundable tax credit to help offset the cost of enrolling their children in fitness or arts-related activities.

Those credits may still be claimed on the return for 2016, but they have been reduced. For 2016, the maximum eligible fees per child for purposes of the children’s fitness tax credit has been reduced to $500. Eligible fees per child for purposes of the children’s arts credit have been reduced even further, to $250.

Looking ahead, it’s worth noting that both credits have been entirely eliminated as of 2017, so parents should not plan on claiming either credit when they file their returns for the current taxation year in the spring of 2018.

Elimination of Family Tax Cut

In 2014 and 2015, families with children under age 18 were able to engage in income splitting, through the notional reallocation of income from a higher earning spouse to the spouse with the lower income. That strategy, known as the “Family Tax Cut”, generally allowed up to $50,000 in taxable income to be notionally reallocated to the lower earning spouse, and taxed (at a lower rate) in his or her hands. The maximum tax savings which could be claimed was $2,000.

However, taxpayers who search the 2016 return form for a place to claim the Family Tax Cut won’t find it, as it has been eliminated for 2016 and subsequent taxation years. 

New home accessibility expense tax credit claim

Beginning with the 2016 taxation year, taxpayers can claim a non-refundable tax credit for changes made to a home in order to make it safer or more accessible for a senior or for someone who is disabled. The credit is equal to 15% of qualifying costs incurred, to a maximum of $10,000 in such costs.

The home accessibility tax credit is claimable, not just by the person for whom the qualifying renovations are made but, generally, by family members who support that individual.

In order to be claimed on the return for 2016, any eligible renovations must of course have been done before the end of that year, so the deadline for making such renovations claimable on the 2016 has passed. However, as many common home “renovation” projects do qualify for the credit (for example, installing a grab bar in a bath or shower), it’s worth checking to see whether any such expenditures were made during 2016.

And, of course, such qualifying expenditures made during 2017 will be claimable on the return next spring. More information on the kinds of home renovation expenses that will or won’t qualify for the credit is available on the Canada Revenue Agency website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/398/398-eng.html#R_lgbl_HATC.

Reporting the sale of a principal residence

For many years, Canadian taxpayers have received a tax exemption (the “principal residence exemption”) on any profit (or “gain”) they make on the sale their home, as such amounts are not included in taxable income. Until now, it hasn’t even been necessary to report the sale of one’s home on the annual tax return. As of the 2016 tax year, that has changed.

An individual taxpayer who sells his or her home must now report the sale on Schedule 3 to the annual return. On that Schedule 3, the taxpayer is required to certify the year the property was acquired, the number of years during which the property was his or her principal residence during the period of ownership and the amount for which the property was sold.

There is a related change with respect to the CRA’s ability to enforce the new reporting requirement. Also effective as of 2016, the Agency can at any time (meaning that the usual time limits for reassessments don’t apply) reassess your income tax return if you fail to report a sale of real estate.

Claiming a labour-sponsored funds tax credit

Taxpayers who invest in the shares of federally or provincially (or territorially) registered labour-sponsored venture capital corporations (LSVCCs) can claim a federal tax credit for that investment. Changes have been made, effective for the 2016 tax year, to the percentage claims which can be made.

For 2016 and subsequent years, the federal credit rate percentage for investments in provincially or territorially registered LSVCCs has been restored to 15%.

Conversely, the federal tax credit for the purchase of shares of federally registered LSVCCs has decreased to 5% for 2016. As well, 2016 is the last year for which a credit can be claimed for investments in federally registered LSVCCs, as the federal credit is eliminated for 2017 and later tax years.

For retired Canadians (and almost certainly for those who are no longer paying a mortgage) the annual income tax bill can represent the single largest expenditure in their budgets. 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) to help minimize that tax burden. One of the most valuable of those strategies —  pension income splitting — isn’t particularly familiar to many taxpayers who could benefit from it, especially those who do not receive professional tax planning or tax return preparation advice.

For retired Canadians (and almost certainly for those who are no longer paying a mortgage) the annual income tax bill can represent the single largest expenditure in their budgets. 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) to help minimize that tax burden. One of the most valuable of those strategies —  pension income splitting — isn’t particularly familiar to many taxpayers who could benefit from it, especially those who do not receive 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 filed.

Those attributes can make pension income splitting sound like a “too good to be true” tax scam, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for married taxpayers over the age of 65 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 2016, the federal tax rate applied to about the first $45,000 of taxable income is 15%, while the federal rate applied to the next $45,000 of such income is 20.5%. So, an individual who has $90,000 in taxable income will pay federal tax of about $16,000; if that $90,000 was divided equally between said individual and his or her spouse, the total federal family tax bill would be $13,500.

The general rule with respect to pension income splitting is that taxpayers who receive private pension income during the year are entitled to allocate up to half that income (without limit) with a spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is over the age of 65, 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 2016, 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 www.cra-arc.gc.ca/E/pbg/tf/t1032/README.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 2016. 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 the 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 210 of his or her 2016 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 116. 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 her 2016 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 2016. 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 2016 General Income Tax and Benefit Guide should refer to the CRA website at www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available.

As everyone knows, the Canadian tax system is a complex one, and that complexity is reflected on the annual tax return filed by individual Canadian taxpayers. The T1 Individual Income Tax Return itself is only four pages long, but the information on those four pages is supported by 13 supplementary federal schedules, dealing with everything from the calculation of capital gains to determining required Canada Pension Plan contributions by self-employed taxpayers.

As everyone knows, the Canadian tax system is a complex one, and that complexity is reflected on the annual tax return filed by individual Canadian taxpayers. The T1 Individual Income Tax Return itself is only four pages long, but the information on those four pages is supported by 13 supplementary federal schedules, dealing with everything from the calculation of capital gains to determining required Canada Pension Plan contributions by self-employed taxpayers.

All of this complexity makes it easy for the majority of individuals who only deal with our tax system once each year to overlook valuable deduction and credit claims which may be available to them. One such deduction is that available for payments made during the taxation year for annual union, professional, or similar dues.

It’s particularly easy to overlook an available claim for that deduction because of where it appears on the annual return. Although there are forms used by self-employed taxpayers to claim business-related costs and forms used by employees to claim allowable employment expenses, the deduction for union or professional dues doesn’t appear on either type of form. Rather, it shows up as a single line (Line 212) on page 3 of the T1 annual return.

The general rule for claiming such a deduction is described in the annual income tax return guide as follows:

Line 212 - Claim the total of the following amounts related to your employment that you paid (or that were paid for you and reported as income) in the year:

• annual dues for membership in a trade union or an association of public servants;
• professional board dues required under provincial or territorial law;
• professional or malpractice liability insurance premiums or professional membership dues required to keep a professional status recognized by law; and
• parity or advisory committee (or similar body) dues required under provincial or territorial law.

There are, of course, limitations on the kinds of expenses which may be claimed and the circumstances in which a taxpayer is entitled to claim those expenses. The most important such restriction is that amounts paid must be those which are necessary in order for the taxpayer to obtain or maintain his or her professional standing. Every profession and trade has licensing and similar requirements which mandate that an individual maintain membership in a professional or similar association in order to practice his or her profession or trade. The costs of maintaining required membership in those organizations is deductible. The cost of maintaining membership in other, voluntary associations, even if related to one’s trade or profession, is not. So, for example, if membership in a given association does not affect professional status, dues for it are not deductible even if they entitle the individual to a designation of letters after his or her name. If, on the other hand, membership is necessary to maintain professional status, the dues for it are deductible.

As well, invoices received for annual membership costs can cover a number of different charges and levies, and not all of those costs will be deductible. The Canada Revenue Agency’s (CRA) policy is that annual membership dues do not include initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs. A taxpayer cannot claim charges for pension plans as membership dues, even if receipts received show them as dues.

Where a claim for a deduction for professional membership or union dues is made by an employee, some other considerations arise. Generally, while it’s not necessary that having a particular professional designation be a requirement of the employee’s position in order for that employee to claim a deduction for related professional dues, the CRA does require that there be some connection between the employment and the professional association in question. The CRA provides the following example.

A chemical engineer who is employed by a company to sell chemical products or who is the president of a company that processes chemicals satisfies this requirement in respect of engineering dues. On the other hand, an architect, who is working full-time as president of a clothing manufacturing business and who is not a practising architect does not satisfy the requirement and, accordingly, is not entitled to deduct dues paid to maintain professional status as an architect.  

In some cases, an employer is willing to cover the cost of an employee’s professional dues as part of the employee’s benefit package. Where that’s the case, and the employer’s payment of those dues does not appear on the employee’s T4 as a taxable benefit, no deduction for those costs can be claimed by the employee. Where, however, there is a taxable benefit which accrues to the employee, he or she can claim an offsetting deduction for eligible dues or fees paid, on Line 212 of the return.

General information on the deduction of professional membership fees or union dues is available in the 2016 General Income Tax and Benefit Guide. More detailed information, for both the self-employed and employees, can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/212/menu-eng.html.

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. 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 Canada Revenue Agency (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.

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. 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 Canada Revenue Agency (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, and February is the month in which they are reminded of that obligation by the arrival of the first tax instalment reminder for 2017 from the CRA. A reminder received this month will identify the amounts for two instalments payments of tax to be made — the first on March 15, 2017, and the second on June 15, 2017.

Generally, a taxpayer will receive a tax instalment reminder when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an instalment reminder will usually 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 (2017) tax year and either of the two previous (2015 or 2016) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income is at least $3,000 less than their total tax owed for 2017 and either 2015 or 2016.

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, who have not arranged to have tax deducted “at source” from either their government source income (like CPP or Old Age Security payments) or private retirement income like pensions or registered retirement income fund withdrawals. 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 2017. If the total of instalment payments made during 2017 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 2018.

Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2016 tax year. Where a taxpayer’s income has not changed significantly between 2016 and 2017 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2017 will be slightly less than it was in 2016, 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 2017 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2016 to 2017, 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 2017 tax year is filed in the spring of 2018. 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 2017 – until March 31, 2017 – 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.

There’s little likelihood that the average Canadian taxpayer can fail to notice that it is, once again, registered retirement savings plan (RRSP) season, given the number of television, radio, and online RRSP-related advertisements and reminders which invariably appear at this time of year. This year taxpayers must, in order to deduct an RRSP contribution on their income tax return for 2016, make that contribution on or before Wednesday, March 1, 2017. The maximum allowable current year contribution which can be made by any individual taxpayer for 2016 is 18% of that taxpayer’s earned income for the 2015 year, to a statutory maximum of $25,370.

There’s little likelihood that the average Canadian taxpayer can fail to notice that it is, once again, registered retirement savings plan (RRSP) season, given the number of television, radio, and online RRSP-related advertisements and reminders which invariably appear at this time of year. This year taxpayers must, in order to deduct an RRSP contribution on their income tax return for 2016, make that contribution on or before Wednesday, March 1, 2017. The maximum allowable current year contribution which can be made by any individual taxpayer for 2016 is 18% of that taxpayer’s earned income for the 2015 year, to a statutory maximum of $25,370.

Those are the basic rules governing RRSP contributions for the 2016 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 that 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 forgoing that determining one’s maximum allowable contribution for 2016 will take a bit of research. The first step in determining one’s total (current year and carryforward) contribution room for 2016 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 2015 taxation year will have received a Notice of Assessment from the CRA, and the amount of that taxpayer’s allowable RRSP contribution room for 2016 will be summarized on page 2 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 Individual Income Tax Enquiries toll-free telephone line at 1-800-959-8281. 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 2015 tax return. Those who don’t wish to use an automated service can 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, or TFSA — may be the better short or long-term option or even, in some cases, the only one available.

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

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 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.

Taxpayers who are saving toward a shorter-term goal, like next year’s vacation or even a down payment on a home 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 currently in the workforce and who are members of a registered pension plan (RPP) may find that saving through a TFSA is their only practical option. As outlined above, the starting point for calculating one’s current year contribution limit maximum amount which can be contributed to an RRSP is calculated as 18% of earned income for 2015. However, the maximum allowable contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under that pension plan. Where the RPP is a particularly generous one, RRSP contribution room may, as a result, be minimal, and a TFSA contribution the logical savings alternative.

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^st 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 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 savings vehicles available to Canadian taxpayers, and both have a place in most financial and retirement plans. To help taxpayers to 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 www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html and www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html.

The Employment Insurance premium rate for 2017 is 1.63%.

The Employment Insurance premium rate for 2017 is 1.63%.

Yearly maximum insurable earnings are set at $51,300, making the maximum employee premium $836.19.

As in previous years, employer premiums are 1.4 times the employee contribution. The maximum employer premium for the year is therefore $1170.67.

The Canada Pension Plan (CPP) contribution rate for 2017 is unchanged at 4.95% of pensionable earnings for the year.

The Canada Pension Plan (CPP) contribution rate for 2017 is unchanged at 4.95% of pensionable earnings for the year.

The maximum pensionable earnings for the year will be $55,300, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2017 will be $2564.10 each, and the maximum self-employed contribution will be $5128.20.

Dollar amounts on which individual non-refundable federal tax credits for 2017 are based, and the actual tax credit claimable, will be as follows:

Dollar amounts on which individual non-refundable federal tax credits for 2017 are based, and the actual tax credit claimable, will be as follows:

The indexing factor for federal tax credits and brackets for 2017 is 1.4%.  The following federal tax rates and brackets will be in effect for individuals for the 2017 tax year.

The indexing factor for federal tax credits and brackets for 2017 is 1.4%.  The following federal tax rates and brackets will be in effect for individuals for the 2017 tax year.

Income level                                Federal tax rate

$11,635 - $45,916                               15%

$45,917 - $91,831                              20.5%

$91,832 - $142,353                             26%

$142,354 - $202,800                           29%

Over $202,800                                    33%

Each new tax year brings with it a new list 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 2017 are listed below.

Each new tax year brings with it a new list 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 2017 are listed below.

RRSP deduction limit increases to $25,370

The RRSP contribution limit for the 2016 tax year (for which the contribution deadline is Wednesday March 1, 2017) will increase to $25,370. In order to make the maximum contribution for 2016, it is necessary to have had income of $140,950 in 2015.

TFSA contribution limit for 2017

The TFSA contribution limit for 2017 is unchanged at $5,500. The actual amount which can be contributed by a particular individual includes both the current year limit and any carryover or re-contribution amounts from previous taxation years.

Individual tax instalment deadlines for 2017

Millions of individual taxpayers pay income tax by quarterly instalments, which will be due on the following dates in 2017:

Wednesday March 15;

Thursday June 15;

Monday October 16; and

Friday December 15.

Individual tax filing and payment deadlines for 2017

For all individual taxpayers, including those who are self-employed, the deadline for payment of all income tax owed for the 2016 tax year is Monday May 1, 2017. Taxpayers (other than the self-employed and their spouses) must also file a tax return for the 2016 tax year on or before Monday May 1, 2017. Self-employed taxpayers and their spouses must file their tax returns for 2016 on or before Thursday June 15, 2017.

Planning for – or even thinking about – 2017 taxes before the New Year has even been rung in may seem more than a little premature. However, most Canadians will start paying their taxes for 2017 with the first paycheque they receive in January, and it is 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 – 2017 taxes before the New Year has even been rung in may seem more than a little premature. However, most Canadians will start paying their taxes for 2017 with the first paycheque they receive in January, and it is 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 (CRA) 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 2017 (which will be released before the end of the year and will be available on the Forms and Publications page of the CRA’s website at www.cra-arc.gc.ca/formspubs/menu-eng.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 government.

While the TD1 completed by the employee at the time employment will have accurately reflected the credits claimable by the employee at that time, everyone’s circumstances change. Where a baby is born, or a son or daughter starts post-secondary education, 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 is 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.

Where the taxpayer has available deductions which cannot be recorded on the TD1 (e.g., RRSP contributions, deductible support payments, or child care expenses), it makes things a little more complicated, but it’s still possible to have source deductions adjusted to accurately reflect the employee’s tax liability for 2017. The way to do so is to file Form T1213, Request to Reduce Tax Deductions at Source (available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1213/t1213-16e.pdf) 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 at source.

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. Consequently, the sooner a T1213 for 2017 is filed with the CRA, the sooner source deductions can be adjusted, effective for all paycheques subsequently issued in that year. Providing an employer with an updated TD1 for 2017 at the same time will ensure that source deductions made during 2017 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 is 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 it’s certainly the case that employers who provide such extras don’t intend to create a tax liability for their employees. Unfortunately, it is the case that a failure to properly structure such gifts or other extras can result in unintended and unwelcome tax consequences to those employees.

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

For the tax authorities, dealing with the tax treatment of employer-provided holiday gifts is something of a no-win situation. On an individual or even a company level, the amounts involved are usually 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 on holiday gifts and celebrations. Notwithstanding, the potential exists for employers to disguise what would otherwise be taxable remuneration as such holiday gifts, and it’s the responsibility of the Canada Revenue Agency (CRA) to ensure that such situations are caught by the tax net.

There is, as a consequence, a detailed set of rules which outline the tax consequences of gifts and awards provided by the employer, and even in relation to annual holiday celebrations sponsored (and paid for) by an 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, 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 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.

This time of year, the tax treatment of the annual employee holiday party also must be considered. The CRA’s current policy in this area is that no taxable benefit will be assessed in respect of employee attendance at an employer-provided social event, where attendance at the party was open to all employees, and the cost per employee was $100 or less. The $100 cost is meant to cover the party itself, not including any ancillary costs, such as transportation home, taxi fare, or overnight accommodation. Where the total cost of the event itself exceeds the $100 per person threshold, the CRA will assess the employee as having received a taxable benefit equal to the entire per person cost (i.e., not just that portion of the cost that exceeds $100.)

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 surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if a few basic principles are kept in mind.

• If the employer is planning to hold a holiday party, dinner, or other social event, it is imperative that such an event is open to all employees. Restricting attendance in any way will mean that the CRA’s concession with respect to the non-taxable status of such events does not apply. The cost of the event must, as well, be kept below $100 per person. While the CRA’s policy does not specify, it seems reasonable to calculate that amount based on the number of employees invited to attend the event, rather than on the actual attendance, which cannot be accurately predicted in advance.

• 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.

Most Canadians are aware that the deadline for contributing to one’s registered retirement savings plan (RRSP) is 60 days after the calendar year end – in order to be claimed on the return for 2016, such contributions must be made before March 2, 2017. Many also know that contributions to a tax-free savings account (TFSA) can be made at any time during the year. Consequently, when Canadians start thinking about year-end tax planning or saving strategies, RRSPs and TFSAs aren’t often top of mind. The fact is, however, that there are some situations in which planning strategies involving TFSAs and RRSPs must be put in place by the end of the calendar year. In other situations, acting before the end of the calendar year, while not required, will produce a better tax result. Some of those situations are outlined below.

Most Canadians are aware that the deadline for contributing to one’s registered retirement savings plan (RRSP) is 60 days after the calendar year end – in order to be claimed on the return for 2016, such contributions must be made before March 2, 2017. Many also know that contributions to a tax-free savings account (TFSA) can be made at any time during the year. Consequently, when Canadians start thinking about year-end tax planning or saving strategies, RRSPs and TFSAs aren’t often top of mind. The fact is, however, that there are some situations in which planning strategies involving TFSAs and RRSPs must be put in place by the end of the calendar year. In other situations, acting before the end of the calendar year, while not required, will produce a better tax result. Some of those situations are outlined below.

Accelerate any planned TFSA withdrawals into 2016

Each Canadian aged 18 and over can make an annual contribution to a Tax-Free Savings Account (TFSA) – the maximum contribution for 2016 is $5,500. 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 within the next few months, perhaps to pay for a winter vacation or to make an RRSP contribution, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA before December 31, 2016 will have the amount withdrawn added to his or her TFSA contribution limit for 2017, which means it can be re-contributed as of January 1, 2017. If the same taxpayer waits until January of 2017 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2018.

Make spousal RRSP contributions before December 31

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 2016, the contributor can claim a deduction for that contribution on his or her return for 2016. The spouse can then withdraw that amount as of January 1, 2019 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2017, the contributor can still claim a deduction for it on the 2016 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2019. 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 an unanticipated withdrawal become necessary.

When you need to make your RRSP contribution on or before December 31

While most RRSP contributions to be deducted on the return for 2016 can be made anytime up to an including March 1, 2017, there is one important exception to that rule. 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 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 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.

While tax planning is best approached as an ongoing, year-round activity, the fact is that for most Canadians the subject of taxes becomes top of mind only a few times a year. Typically, that happens when the annual tax return is due, when the annual RRSP contribution deadline is looming, and for some, at the end of the calendar year.

There is, in fact, good reason to spend some time considering one’s tax situation as the end of the calendar year approaches. With the notable exception of (in most cases) contributing to one’s RRSP, any steps taken in order to reduce one’s income tax bill for 2016 must be finalized by December 31^st of this year.

While tax planning is best approached as an ongoing, year-round activity, the fact is that for most Canadians the subject of taxes becomes top of mind only a few times a year. Typically, that happens when the annual tax return is due, when the annual RRSP contribution deadline is looming, and for some, at the end of the calendar year.

There is, in fact, good reason to spend some time considering one’s tax situation as the end of the calendar year approaches. With the notable exception of (in most cases) contributing to one’s RRSP, any steps taken in order to reduce one’s income tax bill for 2016 must be finalized by December 31^st of this year.

What follows is a list of the most common tax considerations that arise as the end of the calendar year approaches.

Timing of medical expenses

Where Canadians incur medical expenses which aren’t covered by government health insurance or by a private medical insurance plan, they can often claim a tax credit to help offset those expenses. Unfortunately, the computation of such expenses and, in particular, the timing of making a claim for the credit, can be confusing. The basic rule is that qualifying medical expenses (a list of which can be found on the Canada Revenue Agency (CRA) website at www.cra-arc.gc.ca/medical/#mdcl_xpns) in excess of 3% of the taxpayer’s net income, or $2,237, whichever is less, can be claimed for purposes of the medical expense tax credit.

Put in practical terms, the rule for 2016 is that any taxpayer whose net income is less than $74,600 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 $74,600 will be limited to claiming qualifying expenses which exceed the $2,237 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 2016 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, dependent children who were born in 1999 or later, and certain other dependent relatives – can be added together and claimed by one member of the family. In most cases, it is 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 approaches, it is a good idea to add up the medical expenses which have been incurred during 2016, as well as those paid during 2015 and not claimed on the 2015 return. Once those totals are known, it will be easier to determine whether to make a claim for 2016 or to wait and claim 2016 expenses on the return for 2017. And, if the decision is to make a claim for 2016, knowing what and when medical expenses were paid will enable the taxpayer to determine the optimal 12-month waiting period for the claim.

Finally, it is a good idea to look into the timing of medical expenses which will have to be paid early in 2017. It may make sense, where possible, to accelerate the payment of those expenses to December 2016, where that means they can be included in 2016 totals and claimed on the 2016 return.   

Charitable donations

The federal and all provincial governments provide a two-level tax credit for donations made to registered charities during the year. To claim a credit in a particular tax year, donations must be made by the end of that calendar year. There is, however, another reason to ensure donations are made by December 31. 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.

As a result of the two-level credit structure, it makes sense to aggregate donations in a single calendar year where possible. A qualifying charitable donation of $400 made in December 2016 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 2016 and January 2017, the total credit claimable is only $60 ($200 × 15% + $200 × 15%), and the 2017 donation can’t be claimed until the 2017 return is filed in April 2018. 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’s also possible to carry forward, for up to five years, donations which were made in a particular tax year. So, if donations made in 2016 don’t reach the $200 level, it’s 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 2011, 2012, 2013, 2014, or 2015 tax years can be carried forward and added to the total donations made in 2016, and then the aggregate claimed on the 2016 tax return.

When claiming charitable donations, it’s 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.

For Canadians who have not been in the habit of making charitable donations, there is now an additional incentive to make a cash donation to charity. In the 2013 Budget, the federal government introduced a temporary (before 2018) charitable donations super-credit. That super-credit (which can be claimed only once) allows individuals who have not claimed a charitable donations tax credit in any tax year since 2007 to claim a super-credit on up to $1,000 in cash donations made during the year. The super-credit works by providing an additional 25% credit for cash donations. Consequently, when the super-credit is combined with the regular charitable donations tax credit, the total credit claimable is equal to 40% (15% + 25%) of donations under $200 and 54% (29% + 25%) of donations over the $200 threshold.

Reviewing tax instalments for 2016

Millions of Canadian taxpayers (particularly the self-employed and retired Canadians) 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 Thursday December 15, 2016. By that time, almost everyone will have a reasonably good idea of what his or her income and deductions will be for 2016 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 before March 2, 2017. While the tax return forms to be used for the 2016 year haven’t yet been released by the CRA, it is possible to arrive at an estimate by using the 2015 form. Increases in tax credit amounts and tax brackets from 2015 to 2016 will mean that using the 2015 form will likely result in a slight over-estimate of tax liability for 2016.

Once one’s tax bill for 2016 has been calculated, it is possible to compare that figure with the total of tax instalments already made for 2016, (that figure can be obtained by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281) and to determine whether the tax instalment to be paid on December 15 can be adjusted downward.

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 #38 Corporate

Personal:

Issue #38 Personal

The budgetary cycle of the federal government follows a regular schedule. The Budget for the upcoming fiscal year (which runs from April 1 to March 31) is brought down by the Minister of Finance in late winter or early spring. About six months later, or half way through the fiscal year, the revenue, expenditure, and deficit/surplus numbers announced and projected in the budget (for both the current and future fiscal years) are updated by the Minister in the Fall Fiscal and Economic Update. On occasion, the federal government will use the Fiscal and Economic Update to announce new taxation and expenditure measures.

The budgetary cycle of the federal government follows a regular schedule. The Budget for the upcoming fiscal year (which runs from April 1 to March 31) is brought down by the Minister of Finance in late winter or early spring. About six months later, or half way through the fiscal year, the revenue, expenditure, and deficit/surplus numbers announced and projected in the budget (for both the current and future fiscal years) are updated by the Minister in the Fall Fiscal and Economic Update. On occasion, the federal government will use the Fiscal and Economic Update to announce new taxation and expenditure measures.

The first such Fall Economic Update issued by the current federal government was announced on November 1 by Minister of Finance Bill Morneau. There were no taxation measures included in the Update, but some plans for future government expenditures, generally related to economic growth, were announced.

The news with respect to current year revenue and expenditure figures and the resulting deficit was not especially positive. While better than expected results were recorded for the 2015-16 fiscal year, those results were not sufficient to outweigh the effect of lower projections for 2016-17.

Both income tax and sales tax revenue are now expected to be lower than forecast. The government attributed the higher personal income tax revenues for 2015-16 to “tax planning behavior of individuals to recognize income in the 2015 tax year before the new 33% tax rate came into effect in 2016”, and noted that that such behavior will impact personal income tax revenues in both 2016-17 and future years. The reasons for the drop in sales tax revenue were more broad-based, and were attributed by the Minister to a weaker outlook for nominal GDP. 

On the expenditure side of the equation, major transfers to persons (which include Old Age Security, the Canada Child Benefit and Employment Insurance) are now projected to be lower in 2016-17 than was originally stated in this year’s Budget, once again as the result of the carryforward of better-than-expected 2015-16 results. However, the government expects the amount of such expenditures to be higher over the remainder of its forecast period, as the weaker economic outlook leads to projected increases in such costs.

Little change is expected in the cost of major transfers to other levels of government over the short term, but those costs are expect to decline over the longer term. A similar short-term pattern is forecast for direct program expenses, which are projected to remain largely unchanged in 2016-17, but the government expects those costs to increase over the remainder of its forecast horizon.

The numbers which Canadians are most interested in are the deficit or surplus figures for the current and upcoming fiscal years. That news, at least over the short and medium term is not positive, as the government is projecting deficits from now through the 2021-22 fiscal year. Specifically, the government anticipates a deficit of $25.1 billion for the current (2016-17) fiscal year, $27.8 billion for 2017-18, $25.9 billion for 2018-19, $19.3 billion for 2019-20, $16.8 billion for 2020-21, and $14.6 billion for 2021-22.

The full Fall Economic Statement papers can be found on the Finance Canada website at www.budget.gc.ca/fes-eea/2016/docs/statement-enonce/toc-tdm-en.html.

Changes in technology and the Canadian workplace over the past quarter century have made the option of working from one’s home, at least on an occasional or part-time basis, almost the norm among Canadian employees. For most, the opportunity to take a break from sitting in traffic gridlock or rushing to catch the commuter train is a valued employment perk.

Changes in technology and the Canadian workplace over the past quarter century have made the option of working from one’s home, at least on an occasional or part-time basis, almost the norm among Canadian employees. For most, the opportunity to take a break from sitting in traffic gridlock or rushing to catch the commuter train is a valued employment perk.

While such advantages would likely, even on their own, be enough to make working from home an attractive option, there is another even more compelling benefit. That benefit is in the form of tax deductions claimable for home-related expenses by qualifying individuals who work from home.

Of course, as with any tax deduction, there are conditions which must be met in order to qualify. Employees, regardless of whether they earn a salary or are paid by commission, must meet one of the following conditions in order to claim any home office deduction:

• 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 their employment duties.

Once that threshold criterion is 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 work space, including the cost of electricity, heating, and home maintenance.

Where an individual who qualifies under 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.

Generally, the percentage of costs which can be deducted is based on square footage, and the employee can determine that percentage by calculating the square footage of the workspace as a percentage of the overall square footage of the home.  Whatever the percentage claimed, the Canada Revenue Agency can ask the taxpayer to provide documentation and support for claims made.

For example, an employee who lives in a 2000 square foot house and uses a 200 square foot room as a home office can (assuming the basic criteria outlined above are satisfied) claim 10% of his or her costs for electricity, heat, and home maintenance incurred during the tax year.  If that employee works on commission, he or she can also deduct 10% of costs incurred for property taxes and home insurance.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office, in that each such employee must have a Form T2200 completed by his or her employer. On that form, the employer must certify that the employee was required to use a portion of his or her home for work-related purposes, indicate what percentage of the employee’s duties were carried out at that home office and, finally, indicate whether the employee is or is not being reimbursed for any home office expenses incurred. Where there is some degree of reimbursement, 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.

In order to make a claim for home office expenses, there is clearly some paperwork involved. All employees seeking to make such a claim must total the amount of bills paid over the course of the year for electricity, heat and any of the inevitable home maintenance costs. Those working on commission must also verify amounts paid for property taxes and home insurance. However, given that such efforts will produce a deduction from income for tax purposes for costs which would have been incurred in any case, it’s likely that most employees would consider the return on that investment of time well worth it.

Once daily weather reports begin to include wind chill factors or frost warnings, the thoughts of many Canadian turn to the idea of spending part of the Canadian winter somewhere much warmer – most often, in one of the southern U.S. states. And, while the anemic state of the Canadian dollar has required Canadians to downsize some of those plans, it is still the case that thousands of Canadian “snowbirds” fly south every winter.

Once daily weather reports begin to include wind chill factors or frost warnings, the thoughts of many Canadian turn to the idea of spending part of the Canadian winter somewhere much warmer – most often, in one of the southern U.S. states. And, while the anemic state of the Canadian dollar has required Canadians to downsize some of those plans, it is still the case that thousands of Canadian “snowbirds” fly south every winter.

Wherever they are going, and however long they are staying, it’s safe to say that none of those snowbirds are thinking of any possible income tax ramifications to their travel plans. And, for the vast majority of them, there are no such issues to consider. However, it’s never a bad idea to make sure that all contingencies are considered – no one wants a pleasant winter vacation to create tax or financial headaches down the road.

All Canadians who spend time out of Canada must address the need to obtain travel medical insurance, as there are no circumstances in which it makes sense to leave Canada without such insurance in place. A lucky few may already have the needed coverage through their employer or, for retirees, their former employers. For those who don’t (and those who do but wish to augment such coverage), there is a need to obtain a travel medical insurance plan. There is no shortage of companies which offer such plans and the terms and conditions of different plans vary greatly. Consequently, it’s not really possible to provide one-size-fits-all advice with respect to obtaining such policies, with two exceptions. First, it is critical to determine the extent of the coverage provided, particularly when it comes to pre-existing medical conditions. Coverage exclusions in travel medical insurance policies almost always relate to conditions from which the applicant already has – and, of course, those are the conditions which are most likely to give rise to the need for out-of-country medical treatment. Second, anyone applying for travel medical insurance should be clear on whether the issuer of a particular policy will pay out-of-country medical expenses directly, as they are incurred, or will require the insured to make payment upfront, and seek reimbursement after the fact. While the cost of a trip to an emergency department for a few stitches may be within the financial reach of most snowbirds, the cost of medical care for more serious events – like a heart attack – can quickly run into the tens or even hundreds of thousands of dollars. Few individuals have the financial means to cover such costs out-of-pocket, even by using available sources of credit.

For snowbirds who are seeking the sun for only a few weeks, obtaining travel medical insurance is the biggest item on their to-do list before leaving. For those who are planning extended stays down south for a few months, or even the whole winter, other considerations can come into play.

On a very practical level, such snowbirds need to think about how they will access funds needed to live out of the country for an extended period. Many snowbirds are eligible to receive monthly payments from both the Canada Pension Plan (CPP) and the Old Age Security (OAS). Fortunately, it’s relatively easy to arrange for payment of both while down south, as payments of both CPP and OAS benefits can be made by direct deposit to an account at a US bank where the Canadian recipient is located. Funds deposited in this way are converted to U.S. dollars prior to deposit, and the exchange rate used by the Canadian government will typically be better than most which can be obtained locally.

The other issue which snowbirds who are planning extended stays down south must consider is that of Canadian residency. Canada, unlike the United States, taxes individuals on the basis of residency, and individuals who spend a significant amount of time out of Canada during the year need to consider the effect that might have on their status as Canadian residents.

Fortunately, most snowbirds, even those who spend the whole winter down south, won’t have a problem since most of them will continue to be what’s called “factual residents of Canada”. There is no single test for whether an individual is a factual resident of Canada – rather, the determination is made based on a number of factors which measure the extent to which an individual has continued to maintain “residential ties” to Canada. The most significant of those factors include keeping a residence (whether owned or rented) in Canada, and having a spouse or dependents here. Where any of those three such ties are in place, that’s usually enough for the Canadian tax authorities to conclude that an individual remains a factual resident of Canada. So, for example, in a typical scenario in which a retired couple spends three or four months each winter in Florida, leaving their Canadian home to be looked after by their children, there’s no question but that the retirees are factual residents of Canada, and their annual stay down south has no effect on their Canadian tax rights and obligations.

The vast majority of snowbirds who winter out of the country do maintain sufficient residential ties to Canada to be considered factual residents. Consequently, when they file their tax returns for the year, they follow all the same rules as year-round Canadian residents, reporting all income received during the year from both inside and outside Canada and claiming all available deductions. And, as an added “perk”, travel medical insurance premiums paid to allow the snowbird to winter down south without worry are deductible from income for Canadian tax purposes.

During the financial crisis that took place in 2008 and 2009, the Canadian mortgage and real estate market didn’t experience the kind of meltdown which occurred south of the border. That result was attributable, in many respects, to the fact that Canadian lending practices, and the rules governing those practices, were much more conservative and stringent than the corresponding rules in place in the United States.

During the financial crisis that took place in 2008 and 2009, the Canadian mortgage and real estate market didn’t experience the kind of meltdown which occurred south of the border. That result was attributable, in many respects, to the fact that Canadian lending practices, and the rules governing those practices, were much more conservative and stringent than the corresponding rules in place in the United States.

Even though mortgage lending in Canada never reached the excesses which characterized the U.S. market at that time, the previous federal government made five separate sets of changes to the rules governing Canada’s mortgage lending practices, as a further safeguard against such an eventuality. The current federal government has followed in that practice, and the latest such tightening of those rules took effect on October 17, 2016.

To understand how the latest changes work, a bit of background is necessary. Anyone who buys a home in Canada must make a down payment of at least 5%. Where that down payment is less than 20%, however, the purchaser must obtain (and pay the premiums on) mortgage default insurance from the Canada Mortgage and Housing Corporation. Once such insurance is in place, the mortgage lender is effectively protected, ultimately by the federal government, from any default by those purchasers on the mortgage loan.

It’s also the case that, when an individual or couple apply for mortgage financing (no matter what the size of their down payment), the lender uses two debt-servicing ratios to determine the credit-worthiness of those prospective borrowers. Those metrics, known as the Gross Debt Service (GDS) ratio and the Total Debt Service (TDS) ratio, represent the following:

• Gross Debt Service (GDS) ratio—the carrying costs of the home, including the mortgage payment and taxes and heating costs, relative to the homebuyer’s income;
• Total Debt Service (TDS) ratio—the carrying costs of the home and all other debt payments relative to the homebuyer’s income.

To qualify for mortgage insurance, a homebuyer must have a GDS ratio no greater than 39% (meaning that the carrying costs of the home would be no more than 39% of the applicant’s income) and a TDS ratio no greater than 44% (meaning that the total carrying costs of all debts were no more than 44% of the applicant’s income). 

Canada’s interest rates, including mortgage lending rates are, of course, at historic lows. And, under the former rules, a mortgage loan applicant’s GDS and TDS ratios were determined using only the interest rate which would be levied for the kind of mortgage for which he or she had applied. While that practice ensured that the prospective borrowers could handle their new mortgage at current interest rates, it didn’t necessarily mean that they could manage their debt obligations in the event of an increase in such interest rates. Consequently, the federal government decided to implement a “stress test” for such prospective borrowers, and it is that change which took effect as of October 17.

Under the new rules, all insured homebuyers must qualify for mortgage insurance at an interest rate which is the greater of their contract mortgage rate (i.e., the rate of the mortgage for which they are applying) or the Bank of Canada's conventional five-year fixed posted rate.  Typically, that five-year rate is higher than the rate most buyers currently pay. Specifically, as of September 28, 2016, the Bank of Canada’s conventional five-year fixed posted mortgage rate was 4.64%. In effect, prospective buyers will have to “prove” that their financial means are such that their GDS and TDS ratios will still fall within acceptable limits if their mortgage financing rate was increased to the five-year posted mortgage rate that was in effect at the time they applied for such financing.

It is important to note that the new rules will have no effect whatsoever on homeowners who have an existing mortgage, even when it comes time to renew that mortgage. That is the case even for homeowners with an existing high-ratio mortgage, including those renewing or transferring an existing high-ratio insured mortgage to another lender, as high-ratio mortgage insurance spans the entire life of the mortgage.

The change to the mortgage lending rules which took effect on October 17 was announced only two weeks before the implementation date of that change. Consequently, many mortgage applications made in connection with home purchases to take effect after that date would already have been in process. The federal government has announced a number of transitional rules which will apply in such circumstances. Those transitional rules, and a detailed explanation of the changes, can be found in three federal government press releases or backgrounders, which are available on the Finance Canada website at www.fin.gc.ca/n16/16-117-eng.asp, www.fin.gc.ca/n16/data/16-117_1-eng.asp, and www.fin.gc.ca/n16/data/16-117_2-eng.asp.

Canada Pension Plan (CPP) retirement benefits are available to virtually any Canadian who has participated in the work force and made contributions to the CPP and for most retirees, that monthly CPP benefit represents a substantial percentage of their income. Consequently, knowing what to expect in the way of CPP retirement benefits is crucial to an individual’s retirement income planning.

Canada Pension Plan (CPP) retirement benefits are available to virtually any Canadian who has participated in the work force and made contributions to the CPP and for most retirees, that monthly CPP benefit represents a substantial percentage of their income. Consequently, knowing what to expect in the way of CPP retirement benefits is crucial to an individual’s retirement income planning.

Unfortunately, it’s also a safe bet that most Canadians don’t know much they can expect to receive each month from the CPP – or even how to find out that amount. The relevant information is available on each individual’s Statement of Contributions, a document prepared annually by the federal government. However, while the federal government used to mail a Statement of Contributions to each contributor to the CPP annually, such statements are now automatically sent only to Canadians who are aged 59 to 65. Anyone else who wants to obtain a copy of their Statement of Contributions must take the initiative to obtain it from the federal government by making a specific request.

Such a request can be made by telephone, mail, or online, in the following ways:

• A telephone request for a Statement of Contributions is made by calling Service Canada at 1-800-277-9914;
• A paper copy of an Application for Statement of Contributions to Canada Pension Plan can be obtained online at hrsdc.gc.ca/cgi-bin/search/eforms/index.cgi?app=profile&form=isp2000&lang=e; or
• to view and print an individual’s Statement of Contributions online, from the Service Canada website, it is necessary to first request a Service Canada access code at servicecanada.gc.ca/eng/online/pac/pacinfo.shtml. That access code, which is sent to the individual by mail, can then be used to obtain online access to information about a number of federal government benefits, including CPP benefits.

It’s apparent that, whatever the method used, it takes a few weeks before a Statement is obtained.

Once the Statement of Contributions is obtained, however, the recipient will have all the information needed to determine his or her CPP entitlement. 

A hard copy of the Statement of Contributions has three sections. The first outlines the individual’s name, the address that Service Canada has on file for that individual, the individual’s date of birth and the date that the Statement of Contributions was prepared. That last date is important because, as additional contributions are made in successive years by the individual to the CPP, the amount of benefits receivable will change.

The second section of the Statement outlines the contributions made by the individual to the CPP and pensionable earnings received each year since the age of 18, which is the first year that contributions can be made.  There is generally a lag time before contributions made show up on the Statement of Contributions – for instance, a Statement of Contributions issued during 2016 will likely show contributions made up until the end of 2015.

The third section of the Statement of Contributions is the one in which the amount of CPP benefits which may be received are summarized. And, while the CPP is generally thought of primarily as a source of retirement income, there are in fact three types of CPP benefits:

• retirement benefits;
• disability benefits (payable, as the name implies, to individuals who have contributed to the CPP but are no longer able to work because they have a severe and prolonged disability); and
• survivor benefits (payable to surviving relatives of a CPP contributor who has died).

The summary of retirement benefits shows, firstly, the amount of CPP benefits which would be payable to the individual if he or she were 65 years old at the time the statement was prepared (remembering that that amount can change, depending on the amount of CPP contributions made in future years).  That figure is followed by two figures. Where the individual is under age of 60, the statement will show the amount of benefit which would be receivable by the same individual if he or she chose to receive the CPP retirement benefit at the ages of 60, 65, or 70. Where the individual is already over the age of 60, the statement will show how much benefit would be receivable if payment were to start immediately, and also the amount of monthly benefit which would be receivable at age 65 and at age 70. The earlier the CPP retirement benefit is received, the lower the monthly benefit amount payable. For example, a person who is 62 years of age in 2016 and could receive a monthly CPP retirement benefit of $744 if benefits were started the following month would be eligible for a monthly benefit of $964 if receipt was deferred to the age of 65. Changes announced in recent years will increase the “gap” between those figures, as those who elect to begin receiving CPP retirement benefits before the age of 65 will see their benefits reduced to a greater degree than is currently the case.

Where an individual who has contributed to the CPP dies, his or her surviving spouse or common law partner is generally entitled to receive CPP survivor benefits. The amount of the survivor’s benefit payable is determined by both the amount of contributions made by the deceased contributor and by the age and circumstances of the surviving spouse or common-law partner. Continuing with the individual example above, a surviving spouse or partner of that individual who is aged 65 or over could receive a survivor’s pension of $578 per month. Where the surviving spouse or partner is aged 45 to 65, or is under the age of 45 but has dependent children, or is disabled, the monthly survivor benefit amount is reduced slightly to $545. Further reductions in the survivor benefit are taken where the surviving spouse or partner is under the age of 45 but does not have dependent children and is not disabled. Finally, dependent children of a CPP contributor are entitled to receive a monthly survivor’s benefit until the age of 18, or up to age 25 if they remain full-time students.

The amounts contributed by an individual to the CPP throughout his or her working life determine the amount of CPP benefits which will be payable to that individual later in life. Consequently, it is important to ensure that the contribution information on file with the federal government, as well as the personal information like birth date, address, and the like, is accurate and up-to-date. The birth date information on the CPP Statement of Contributions is the one registered on the individual’s Social Insurance Number record. If that information is incorrect, the individual should contact the Social Insurance Registration Office at 1-800-206-7218 to determine how to correct it. Where there is an error on the Statement of Contributions with respect to CPP contributions made or the amount of pensionable earnings received, it is necessary to write to the CPP, providing supporting documentation for the needed correction. The address to which such correspondence is sent can be found on the back of the Statement of Contributions form.

Finally, the federal government provides a great deal of information on its website with respect to the CPP and Canada’s retirement income system generally. A good starting point is the Service Canada website at www.esdc.gc.ca/en/cpp/index.page.

The start of fall marks a lot of things, among them a number of runs, walks, and other similar events held to raise money for a broad range of Canadian charities. And, in a few months, as the holiday season approaches, charities will launch their year-end marketing campaigns.

The start of fall marks a lot of things, among them a number of runs, walks, and other similar events held to raise money for a broad range of Canadian charities. And, in a few months, as the holiday season approaches, charities will launch their year-end marketing campaigns.

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, at both the federal and provincial/territorial levels, 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. The tax credit provided by the provinces and territories works in much the same way, in that a tax credit is provided on the first $200 in donations at the lowest tax rate imposed by that province or territory, and a credit on donations above the $200 level at the province or territory’s highest tax rate. The only exceptions are the provinces of Alberta and Quebec. Alberta provides a credit of 10% on the first $200 in donations, and an enhanced credit of 21% on the balance. Quebec provides a charitable donations tax credit on the first $200 of donations at the 20% rate applicable to its middle income bracket. Donations above the $200 threshold are eligible for credit at the province’s top tax rate of 24%.

As is the case with most expenditures that benefit from favourable tax treatment, in order to make a claim for the charitable donations tax credit in a year, a donation must be made by the end of that calendar year. And, this year and next, there is an additional incentive to maximize donations made, in the form of a “First-Time Donors Super Credit”.

The name of the program is somewhat misleading, as the credit is not available just to first-time donors, but to anyone who has not claimed a charitable donations tax credit in recent years. Specifically, where neither a taxpayer nor his or her spouse has claimed a charitable donations tax credit for any year after 2007, either will be able to claim the “super credit” for donations made in 2016 or 2017.

The name “super credit”, however, is not a misnomer. While the usual federal tax credit rate for donations under and above the $200 threshold is 15% and 29% respectively, the super credit supplements the value of such credit by 25%, as shown in the following example provided on the CRA website:

An eligible first-time donor claims $700 of charitable donations in 2016, of which $300 are donations of money. The charitable donations tax credit (CDTC) and the first-time donor's super credit (FDSC) would be calculated as follows:

• On the first $200 of charitable donations claimed, the CDTC is ($200 x 15%) = $30.
• On the donations claimed in excess of $200, the CDTC is [($700 − $200) x 29%] = $145.
• On the donations that are gifts of money, the FDSC is ($300 x 25%) = $75.
• The total of the CDTC and FDSC is $250.

There are a couple of restrictions on donations which qualify for the super credit. Only donations of money (not goods) will qualify for the super credit. As is the usual rule for charitable donations tax credit claims, the super credit can be claimed by one spouse for donations made by either, or can be shared between spouses. However the super credit is divided, it can be claimed on only $1,000 in total donations. As well, the super credit can be claimed only once.

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. That advice applies especially to taxpayers who are eligible to claim the super credit, which can only be claimed once.

The super credit will be claimable only for donations made to registered charities. 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 www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html, and information on the charitable donations tax credit and the super credit is available on the same website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/349/menu-eng.html.

It has become something of a dreary chorus over the past decade, as financial advisers, central bankers and even Ministers of Finance remind, warn, and even scold Canadians about the risks associated with their ever-increasing levels of household debt.

That chorus was renewed this month, as statistics issued for the second quarter (April to June) of 2016 showed that the amount of household debt held by Canadians, expressed as a percentage of disposable income, had set yet another record. At the end of that quarter, as reported by Statistics Canada, Canadians households held $1.68 in credit market debt for every dollar of disposable income.

It has become something of a dreary chorus over the past decade, as financial advisers, central bankers and even Ministers of Finance remind, warn, and even scold Canadians about the risks associated with their ever-increasing levels of household debt.

That chorus was renewed this month, as statistics issued for the second quarter (April to June) of 2016 showed that the amount of household debt held by Canadians, expressed as a percentage of disposable income, had set yet another record. At the end of that quarter, as reported by Statistics Canada, Canadians households held $1.68 in credit market debt for every dollar of disposable income.

Credit comes in many forms, of course, and it’s important to make a distinction between, in particular, secured and unsecured credit. In the first type – secured debt – the lender “secures” the debt against an asset owned by the borrower, meaning that if the debt is not repaid as agreed, the lender has the right to seize and sell the underlying asset in order to be repaid. Although any asset can serve as security for money loaned (car loans being one example), the kind of secured debt most familiar to Canadians is, of course, a mortgage. Unsecured debt, by contrast, is money provided to a borrower on no more than the strength of the borrower’s promise to repay – and the best example of that type of debt familiar to most Canadians is a credit card.

The figures released by StatsCan for the second quarter of 2016 with respect to household debt figures includes all “credit market debt”, which includes consumer credit and mortgage and non-mortgage loans. In virtually every Canadian household that has outstanding debt, the largest such debt is their mortgage, and much of the borrowing which has place in recent years has been in the form of mortgage or home equity line of credit (HELOC) borrowing, both of which are secured against the value of the home. A household which has a mortgage or a home equity line of credit therefore also has an asset – their home – which is worth more than the amount of the mortgage or HELOC and which, if necessary, be sold to pay off that mortgage or HELOC debt. There are, however, two risks to such borrowing. The first is that a downturn in the residential real estate market could mean that the value of the home drops below the amount of the mortgage or HELOC.  The second is that while the increased mortgage or HELOC debt of such households is manageable at current interest rates, those rates are at historic lows and will inevitably increase at some (unknown) point in the future.  

Canadians who are carrying significant amounts of debt secured against their home do at least have the security of an asset which could be sold to pay that debt. That’s not the case for those carrying unsecured debt, and the amount of such debt is, in almost all categories, on the increase.

The credit reporting agency TransUnion recently issued a report summarizing non-mortgage debt held by Canadians during the second quarter of 2016. That report, which is available at https://www.transunion.ca/, indicated that Canadians had reached a non-mortgage debt balance of $21,580 in the second quarter of 2016, up by just under 3% from the balance amount recorded in the second quarter of 2015.

The non-mortgage debt held by Canadians was broken down in the TransUnion report into four categories: bankcard (credit card) debt; auto loans, lines of credit, and installment loans, and the average balances held in each category were as follows:

Bankcard …………………  $3,925 (up by 2.03% year-over-year)

Auto …………………………   $19,896 (up by 3.20% year-over-year)

Lines of credit …………… $29,649 (down by 0.03% year-over-year)

Installment loans ………  $24,021 (up by 6.31% year-over-year)

It’s easy to become complacent, perhaps, when the amount of Canadian household debt, both in dollar terms and as a percentage of household net income, has increased in a series of small quarterly and annual increments, none of which may seem particularly remarkable on their own. However, a look at the longer-term trend paints a different picture.

 In 1990, the amount of debt held by Canadian households as a percentage of disposable income stood at 93%. Over the next 15 years, that percentage rose by an average of 1% per year, until it stood at 108% in 2005. Five years later, in 2010, debt held by Canadian households was, on average, equal to 150% of their disposable income, meaning that such debt had risen by an average of just over 8% per year between 2005 and 2010. And, of course, as of the second quarter of 2016, that debt to disposable income percentage has reached a new high of 168%.

And, one final number which may help to put the amount of debt held by Canadian households in context: a country’s gross domestic product, or GDP, is the total value of all of the goods and services produced by that country in a given time period; for the second quarter of 2016, the amount of household debt held by Canadians exceeded, for the first time, Canada’s total GDP.

At the Canada Revenue Agency (CRA), taxes are a year-round business. During the spring and early summer, the CRA is busy processing the millions of individual tax returns filed by Canadians for the previous tax year. The volume of returns filed and the Agency’s self-imposed processing turnaround goals mean that the CRA cannot possibly do an in-depth review of each return filed. Once the season of processing and assessing tax returns is for the most part complete, however, the CRA moves to the next phase of its activities – specifically, the start of its annual post-assessment tax return review process.

At the Canada Revenue Agency (CRA), taxes are a year-round business. During the spring and early summer, the CRA is busy processing the millions of individual tax returns filed by Canadians for the previous tax year. The volume of returns filed and the Agency’s self-imposed processing turnaround goals mean that the CRA cannot possibly do an in-depth review of each return filed. Once the season of processing and assessing tax returns is for the most part complete, however, the CRA moves to the next phase of its activities – specifically, the start of its annual post-assessment tax return review process.

What that means for the individual taxpayer is 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. But, it’s an experience which will be shared this fall by millions of Canadian taxpayers.

In 2016, Canadians filed over 28 million individual income tax returns with the CRA. The vast majority of those returns – about 24 million – were filed by electronic means (either EFILE or NETFILE), while only just over 4 million paper returns were filed. For several years, the CRA has encouraged taxpayers to take advantage of its electronic filing options, and its efforts have clearly been a success.  As the CRA has always noted, filing electronically means faster turnaround (and quicker refunds!) but, when returns are filed by electronic methods 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. There have, however, always been means by which the CRA can verify claims made by taxpayers. Where returns are paper-filed, taxpayers must usually include receipts or other documentation to prove their claims, whether those claims are for dependent tax credits, charitable donations, medical expenses, or other similar deductions and credits. For the 85% 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 post-assessment review process, in which the Agency asks taxpayers to back up or verify claims for credits or deductions which were made on the return filed this past spring.

That post-assessment review process starts in the month of August. There are two components to the review process – the Processing Review Program and the Matching Program. The former is a review of various deductions or credits claimed on returns, while the latter compares information included 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. The time periods during which the two programs are carried out overlap, as the peak time for the Processing Review Program is between August and December, while the Matching Program is carried out from October to March.

While the two programs are carried out more or less concurrently, they are quite different. The Processing Review Program asks the taxpayer to provide verification or proof of deductions or credits claimed on the return, while the Matching Program deals with discrepancies between the information on the taxpayer’s return and information filed by third parties with respect to the taxpayer’s income for the year.

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 a precursor to an audit, but that’s not usually 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’s likely that the CRA will want to follow that up to find out the reason for the discrepancy. Canada’s tax laws are complex and, over the years, the CRA has determined that there are areas in which taxpayers are more likely to make errors on their return, so a return which includes claims in those areas 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 on a random basis.  

Regardless of the reason for the follow-up, the process is the same. Taxpayers whose returns are selected for review will receive a letter from the CRA, identifying the deduction or credit for which the CRA wants documentation or the income 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.

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 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.

Regardless of the means by which requested documents are submitted, it is possible that the CRA will send a follow-up letter, or the taxpayer may be contacted by telephone, with a request from the Agency for more information.

One word of caution – as most Canadians have heard by now, there is a persistent tax scam operating in which taxpayers are contacted by telephone by someone falsely claiming to be from the CRA (or, more recently, from the “Federal Tax Court”, which does not exist). Such fraudulent callers generally indicate that a review of the taxpayer’s return shows that additional taxes are owed, and insist that immediate payment is required, by wire transfer of funds or pre-paid credit card. Taxpayers should be aware that payment of taxes is never requested in this way, or by either of those methods. While the CRA can and does contact taxpayers by phone, any CRA representative will have the reference number which appeared in the CRA’s initial letter and should be prepared to quote that number to the taxpayer in order to establish that the call is an authentic one. As well, the CRA does not correspond with taxpayers on confidential tax matters by e-mail. The only legitimate e-mail which a taxpayer might receive from the CRA is one which advises that there is a new message for that taxpayer in his or her online account with the CRA – and only taxpayers who have previously registered for the CRA’s My Account service would receive such an e-mail. Any other type of e-mail claiming to be from the CRA is not authentic and should be deleted without opening.

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.

Having access to mobile communication is useful and practical for any number of reasons and Canadians who don’t have a cell or smart phone are likely now the exception rather than the rule. It’s also the case, however, that cell phone rates payable by Canadians are among the highest in the world, and so having an employer provide that cell phone (and pay the associated costs) is consequently a valued employment benefit. That said, Canadians who enjoy such an employment benefit should be aware that, while they may not have to pay a monthly cell phone bill, there still can be a cost in the form of a taxable benefit which must be reported on the annual return. 

Having access to mobile communication is useful and practical for any number of reasons and Canadians who don’t have a cell or smart phone are likely now the exception rather than the rule. It’s also the case, however, that cell phone rates payable by Canadians are among the highest in the world, and so having an employer provide that cell phone (and pay the associated costs) is consequently a valued employment benefit. That said, Canadians who enjoy such an employment benefit should be aware that, while they may not have to pay a monthly cell phone bill, there still can be a cost in the form of a taxable benefit which must be reported on the annual return.  

The general rule set out by the Canada Revenue Agency (CRA) is that where an employer provides his or her employee with a cell phone to be used in the course of their employment duties, the business use of that phone is not a taxable benefit to the employee. Where part of the use of the phone is personal (as it inevitably is), the value of that personal use must be included in the employee’s income as a taxable employment benefit. The employer is required to calculate the amount of that taxable benefit, based on the fair market value of the service (basically, the employer’s cost, assuming that cost reflects current market value of the service), minus any amounts reimbursed to the employer by the employee. 

While such an approach may be theoretically correct, it’s not particularly practical for every employer to make such a calculation for each and every employee to whom a cell phone is provided. The CRA’s assessing policy is therefore that an employee’s personal use of an employer-provided cell phone will not be a taxable benefit if all of the following apply:

•   the plan’s cost is reasonable;
•   the plan is a basic plan with a fixed cost; and
•   the employee’s personal use of the service does not result in charges that are more than the basic plan cost.

When an employer wants to provide cell phone service as a benefit of employment, the alternative to providing the cell phone itself is to give the employee an allowance which he or she can then use to acquire a phone and plan. While that approach gives the employee more flexibility, it’s not a great option from a tax perspective. The CRA’s assessing policy with respect to that approach is that any such allowance provided by an employer must be included on the employee’s T4 for the year and taxed as income. 

Based on the CRA’s assessing policies and criteria, it seems that the most tax-effective option for employees when it comes to employer-provided cell phones is for the employer to buy the fixed-cost plan which provides the most generous terms that can be reasonably justified by the employee’s business-related use of the phone, and for the employee to avoid running up any additional charges related to personal use (for example, for excess minutes, long distance or roaming charges) which will result in charges in excess of the basic monthly bill for that plan.

When it comes to questions around personal finance, two issues tend to dominate current discussions. The first is whether and to what extent Canadians are financially prepared for retirement, and the second is the seemingly inexorable increase in the value of residential real estate. For many retired Canadians, those two issues are very much interlinked.

When it comes to questions around personal finance, two issues tend to dominate current discussions. The first is whether and to what extent Canadians are financially prepared for retirement, and the second is the seemingly inexorable increase in the value of residential real estate. For many retired Canadians, those two issues are very much interlinked. 

Most Canadians are eligible to receive Canada Pension Plan and Old Age Security payments in retirement. 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 standard of living in retirement. A generation ago, retirees could often count on income from an employer-sponsored pension plan, but now only a minority of retirees and those approaching retirement have that option. Private retirement savings, usually through registered retirement savings plans (RRSPs) are the third “leg” of Canada’s retirement income system, but once again, the amount saved by many Canadians through RRSPs falls short of what will be needed, especially where a retirement can last for twenty or more years, and when inflation over that time period is taken into account. The reality for many Canadians who are retired or approaching retirement is that their single most valuable asset is their home – or more specifically, the equity which they have built up in that home. 

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 built-up equity. However, while selling and downsizing is the option chose by many retirees, not everyone wants to 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 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. For a variety of 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 homeowner 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 tools, it is 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. 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.

The amount which can be obtained through a reverse mortgage is also 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 must first be paid off with the funds received under 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 repayment penalty is levied where the homeowner moves or sells the house within three years of obtaining the reverse mortgage.

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 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 www.fcac-acfc.gc.ca/Eng/forConsumers/manage/mortgages/Pages/reverse-mortgages.aspx.

While our health care system is not without its problems, Canadians are fortunate to benefit from a publicly funded system in which individuals are not required to pay personally for the cost of necessary medical care. Generally speaking, acute care provided in a hospital setting is covered by that system, as is more routine care provided by physicians in their offices.

Canadians who, as the result of illness or accident, require care in our medical system are nonetheless often surprised to find that there is a long and ever-increasing list of expenses which are not covered by government-sponsored health care, or for which the individual is required to make at least a partial payment. In some cases, individuals will have private health care coverage to help offset those costs but for most, such costs must be paid on an out-of-pocket basis. For those who must bear such costs personally, some recovery of costs incurred is possible by claiming a medical expense tax credit on the annual return. The federal medical expense tax credit is equal to 15% of the cost of qualifying medical expenses claimed, and each of the provinces and territories also provide for a medical expense tax credit, at varying rates.

While our health care system is not without its problems, Canadians are fortunate to benefit from a publicly funded system in which individuals are not required to pay personally for the cost of necessary medical care. Generally speaking, acute care provided in a hospital setting is covered by that system, as is more routine care provided by physicians in their offices. 

Canadians who, as the result of illness or accident, require care in our medical system are nonetheless often surprised to find that there is a long and ever-increasing list of expenses which are not covered by government-sponsored health care, or for which the individual is required to make at least a partial payment. In some cases, individuals will have private health care coverage to help offset those costs but for most, such costs must be paid on an out-of-pocket basis. For those who must bear such costs personally, some recovery of costs incurred is possible by claiming a medical expense tax credit on the annual return. The federal medical expense tax credit is equal to 15% of the cost of qualifying medical expenses claimed, and each of the provinces and territories also provide for a medical expense tax credit, at varying rates. 

There are an almost limitless number and variety of such expenses and it’s not, unfortunately, possible to provide a general rule as to which such expenses qualify for the credit and which do not. As well, the rules governing the credit for qualifying expenses can seem illogical and baffling, in that some expenses require a doctor’s prescription, while others do not and seemingly similar expenses can receive very different tax treatment. For instance, in order to claim a medical expense tax credit for the cost of a “walking aid”, a prescription is required: however, no prescription is needed in order to claim the cost of a wheelchair. The list of expenses eligible for the credit provided by the Canada Revenue Agency (CRA) on its website includes 134 categories of such expenses, each with its own qualification criteria. 

That said, it is possible to outline in a general way the categories or kinds of expenses which will qualify for the medical expense tax credit. Some of the most frequently incurred out-of-pocket medical expense for which a credit can be claimed are as follows:

• payments made to a medical doctor, dentist, nurse, or certain other medical professionals or to a public or licensed private hospital (while most medical services provided by doctors are covered by public health plans, others must be paid for out-of-pocket and a credit can generally claimed for such costs);
• the cost of obtaining non-cosmetic care from a dentist or a denturist, including the cost of dentures;
• the cost of medical devices including pacemakers, hearing aids and artificial limbs;
• the cost of assistive mobility equipment and devices, including crutches, wheelchairs and walkers;
• the cost of prescription medications;
• the cost of obtaining eye care, including the cost of prescription eyeglasses or contact lenses; and
• payments made for ambulance services for transport to or from a public hospital.

Individuals who find it advisable to obtain coverage under a private health services plan in order to help with the cost of necessary medical expense will similarly be able to claim a medical expense tax credit for premiums paid for that coverage. 

Given the frequency with which Canadians claim the medical expense tax credit, it’s unfortunate that the rules governing that credit can be somewhat confusing. The first thing to note is that the credit is a non-refundable one (i.e., any medical expense tax credit claims made can reduce tax otherwise payable, but cannot create or increase a refund). For 2016, the general rule for the credit is that is that a taxpayer may claim medical expenses paid that were more than 3% of the taxpayer’s net income (the amount that appears on line 236 of the taxpayer’s tax return), or $2,237, whichever is less. That’s not a formula which is easily understood, but there is a rule of thumb. If the taxpayer’s 2016 income is more than $74,575, then that taxpayer can claim medical expenses paid which were over the $2,237 threshold. If his or her net income for 2016 is less than $74,575, then it’s necessary to calculate 3% of that net income number, and claim medical expenses which were over the 3% figure. 

As well, there is some strategy involved in structuring the medical expense claim for a particular year. Qualifying medical expenses incurred can be claimed for any 12-month period ending in the taxation year for which the claim is being made. There is, unfortunately no hard and fast rule, or even a rule of thumb, which can be used to determine just which 12-month period will produce the best tax result, as each case is different, depending on the income of the taxpayer claiming the credit, the amount of medical expenses incurred, and just when those bills were paid. The optimal claim period must be worked out each year when filing the annual tax return. 

Out-of-pocket medical expenses are a fact of life for most Canadians, and an increasingly costly one. While claiming the available tax credit for such expenses can take a bit of calculation and effort, getting at least some relief from those out-of-pocket expenses is worth that effort. The CRA provides a great deal of information on its website to help taxpayers make such claims (including a lengthy list of qualifying medical expenses), and that information can be found at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330-331/menu-eng.html#mdcl_xpn and www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f1/s1-f1-c1-eng.html.

Each spring, Canadians are required to fulfill two tax obligations. The first is the requirement to file an individual income tax return providing details of income earned, deductions and credits claimed, and the amount of income tax payable for the previous calendar year. The second such obligation is to pay any amount of income tax owed for that year which is still outstanding. And although the Canadian tax system is for the most part a voluntary self-reporting and self-assessing one, most Canadians do comply with those two obligations in a timely way.

Each spring, Canadians are required to fulfill two tax obligations. The first is the requirement to file an individual income tax return providing details of income earned, deductions and credits claimed, and the amount of income tax payable for the previous calendar year. The second such obligation is to pay any amount of income tax owed for that year which is still outstanding. And although the Canadian tax system is for the most part a voluntary self-reporting and self-assessing one, most Canadians do comply with those two obligations in a timely way.

According to Canada Revenue Agency (CRA) statistics, nearly 28 million individual income tax returns for 2015 had been filed by the end of August 2016. Despite those figures, there nonetheless remains a significant minority of taxpayers who have not yet filed a return for 2015, either out of procrastination or because they believe they owe taxes and don’t have sufficient funds available to pay those taxes. Whatever the reason, there is a financial cost attached to that non-compliance. 

For those who have still not filed for 2015, the best strategy is to file as soon as possible. No matter what one’s tax or financial situation is, it won’t be helped by not filing a return. In fact, where taxes are owed, there is an automatic penalty imposed for failure to file on time – even if the return is only one day late. The tax filing deadline for most individuals for 2015 tax returns was May 2, 2016, while self-employed taxpayers and their spouses were required to file on or before June 15, 2016. No matter which filing deadline applied, a taxpayer who failed to file by that deadline was assessed an immediate penalty of 5% of the tax amount owing. So a taxpayer who owed $1000 in taxes and didn’t file on time will have had a penalty of $50 added to his or her bill the day after the filing deadline. As well, an ongoing penalty of 1% of the taxes owed is assessed for each full month the return is late, to a maximum of 12 months. A taxpayer who doesn’t get his or her return is during that 12 month period will therefore be assessed a penalty of 17% of the amount of tax owed (in this case, $170). 

The news is worse for taxpayers who have a recent history of not filing on time. Where the CRA has assessed a late-filing penalty within the past three years, and the taxpayer fails to file on time for 2015, the failure to file penalty is increased to 10% of any taxes owed for 2015, plus 2% of that amount for each full month the return is late, to a maximum of 20 months. A bit of arithmetic will show that in a worst-case scenario, the late-filing penalty imposed can be as much as 50% of the taxes owed (in this case, $500). Clearly, any taxpayer who hasn’t yet filed his or her tax return for 2015 and owes taxes for that year should file as soon as possible, to stop the accumulation of late-filing penalties. 

While paying tax penalties isn’t anyone’s idea of a good use of their money, it’s not the end of the story. The CRA charges interest on any taxes owed, starting the day after payment was due, which was April 30, 2016 for all individual taxpayers. (Although self-employed individuals and their spouses did not have to file a return until June 15, all taxes owing for 2015 were nonetheless due and payable no later than April 30, 2016.) It also charges interest on any penalty amounts levied. And, although interest rates remain near historic lows, the CRA, by law, charges interest at levels higher than normal commercial rates. The interest rate charged by the CRA on overdue or insufficient tax payments is set quarterly. For the third quarter of 2016, covering the months of July, August, and September, the interest rate charged on taxes owing is 5%. 

While that 5% rate is still lower by far than, for instance, the interest rate charged on most credit card balances or even lines of credit, it is the interest calculation method used by the CRA which can really inflate the interest cost of incurring tax debts or penalties. Where an amount is owed to the CRA, interest charged on that amount is compounded daily, meaning that on each successive day, interest is being levied on the interest charged the day before. Not surprisingly, interest costs calculated in that way can add up quickly. 

Contrary, perhaps, to popular belief, the CRA is prepared to be flexible with respect to tax payments. When the amount of taxes owing can’t be paid, or can’t be paid in full, it’s in the taxpayer’s best interests to contact the CRA and let them know of that fact. Not surprisingly, the CRA tries to make it easy for taxpayers who owe the Agency money to enter into a payment arrangement. Such taxpayers have two options. The first is a call to the CRA’s TeleArrangement service at 1-866-256-1147. To use this service, a taxpayer will need to provide his or her social insurance number and date of birth, and the amount he or she entered on line 150 from the last return for which a notice of assessment was received. TeleArrangement is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern Standard Time. Alternatively, the taxpayer can call the CRA’s debt management call centre at 1-888-863-8657 to speak to an agent. That service is available Monday to Friday (except holidays) from 7 a.m. to 11 p.m., Eastern Standard Time. 

The taxpayer can propose a payment schedule based on his or her ability to pay, and the CRA, if it is satisfied that the inability to pay is genuine, will generally be amenable to entering into some type of payment arrangement. Entering into such a payment arrangement does not, of course, stop the interest clock from running, as interest will continue to be assessed at the current rate, and compounded daily. And, one additional blow: neither interest paid on tax debts nor penalties paid to the CRA are deductible.

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 #37 Corporate

Personal:

Issue #37 Personal

Home renovations are big business right now in Canada, as many homeowners opt to make changes and/or additions to their current residences rather than try to find a new home in the current real estate market. And, while the cost of renovating one’s home is usually considered a personal expense which doesn’t qualify for any tax credit or deduction, starting this year there is an exception to that rule.

Home renovations are big business right now in Canada, as many homeowners opt to make changes and/or additions to their current residences rather than try to find a new home in the current real estate market. And, while the cost of renovating one’s home is usually considered a personal expense which doesn’t qualify for any tax credit or deduction, starting this year there is an exception to that rule.

For 2016 and subsequent taxation years, a non-refundable tax credit can be claimed for home renovation work done to make it easier and/or safer for a senior or disabled individual to live in their home. In most cases, such renovations are done to enable such individuals to continue to live in their existing homes, but claims for the new credit – the Home Accessibility Tax Credit, or HATC – are not limited to those individuals. Eligible family members (generally, a spouse, common-law partner or supporting relatives) of a senior or disabled person can similarly claim the HATC for qualifying renovations made.

In practical terms, those rules mean that any person who can claim the federal disability tax credit or who is over the age of 65 and who makes eligible renovations to his or her home can claim the credit. In addition, where such a person moves in with a family member because that person can no longer live on their own, eligible renovations made by the family member to their own home will similarly qualify for the credit.

The HATC can be claimed, at a rate of 15%, on up to $10,000 in qualifying renovations carried out in a year. Consequently, a taxpayer who spends the maximum amount on qualifying renovations in a year will have his or her tax bill for that year reduced by $1,500.

A number of other provisions governing the HATC program are particularly generous in nature. Where financial assistance by way of grants, forgiveable loans, or other tax credits is available from the federal or provincial governments, the HATC rules provide that such assistance, of any kind, does not reduce the amount which can be claimed for purposes of the HATC. In addition, where a homeowner receives a rebate or incentive from the vendor providing goods or services in connection with the home renovation, eligible expenses for purposes of the HATC are not reduced by the amount of such incentive or rebate. Finally, it’s almost always the case in our tax system that a particular expense can only be claimed once. The HATC is a rare exception to that rule, in that expenses which qualify for both the HATC and the medical expense tax credit can be claimed for both, in the same year.

There are, of course, rules setting out the kinds of expenses which will be eligible for the HATC. Generally, in order to qualify, home renovation expenses must be of a nature that increases a qualifying individual’s access, mobility or functioning within the home, or increases that individual’s safety within that home. As well, any changes made must be of a permanent nature, in the sense that they become a permanent part of the home. Consequently, the purchase of a portable shower seat would not qualify for the credit, but the installation of a permanent shower seat affixed to the wall or floor of a tub or shower would. On a larger scale, the cost of renovations done to add a ground floor bedroom for a senior who can no longer climb stairs (or do so safely) should also qualify for the HATC.

While the Canada Revenue Agency (CRA) website does not provide much detail on the specific types of expenses which will qualify for the HATC, it does list examples of ineligible expenses, are some of those are as follows:

• amounts paid to acquire a property that can be used independently of the qualifying renovation;
• the cost of annual, recurring, or routine repair or maintenance;
• household appliances;
• electronic home-entertainment devices;
• the cost of housekeeping, security monitoring, gardening, outdoor maintenance, or similar services;
• financing costs for the qualifying renovation; and
• renovations made primarily for the purpose of increasing or maintaining the value of the dwelling.

The HATC rules also address the question of who can carry out qualifying renovations. Such renovations performed by qualified tradespeople — electricians, plumbers, carpenters etc. — will qualify for the credit. Where an individual claiming the credit does the work himself or herself, a credit will be available for the cost of building materials, fixtures, equipment rentals etc., but no credit is claimable for the cost of labour. Finally, neither labour nor materials expenses are eligible for the HATC where otherwise eligible renovations are done by a family member.

In all cases, any expenses claimed must be supported by agreements or contracts, invoices and receipts, and such documents must include the following information:

• information that clearly identifies the vendor/contractor, their business address, and, if applicable, the GST/HST registration number;
• a description of the goods and the date when the goods were purchased;
• the date when the goods were delivered (keep your delivery slip as proof) and/or when the work or services were performed;
• a description of the work performed, including the address where the work was performed;
• the amount of the invoice; and
• proof of payment, including receipts or invoices that show that they are paid in full or are accompanied by other proof of payment, such as a credit card slip or cancelled cheque.

In order to be eligible for a claim for the HATC on the 2016 tax return, qualifying renovations must be contracted for, carried out, and paid for before the end of this calendar year. Since 2016 is the first year for which the HATC can be claimed, the forms used to make that claim are not yet available, but more information on the credit itself can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/398/398-eng.html#hwtclm.

The fact that the cost of residential real estate in Canada’s largest cities has reached unaffordable levels for most Canadians, especially young families, isn’t really news any more. What’s relatively new, however, is that significant price increases are now being seen in cities which are within daily driving range of those major cities, presumably as individuals and families move further and further out in search of affordable housing. The trade-off for moving further from work in order to be able to purchase an affordable home is, of course, the daily commute. And, while gas prices aren’t currently at the levels seen a year or two ago, commuting is never inexpensive, leading many to wonder whether our tax system provides any relief for unavoidable commuting costs incurred.

The fact that the cost of residential real estate in Canada’s largest cities has reached unaffordable levels for most Canadians, especially young families, isn’t really news any more. What’s relatively new, however, is that significant price increases are now being seen in cities which are within daily driving range of those major cities, presumably as individuals and families move further and further out in search of affordable housing. The trade-off for moving further from work in order to be able to purchase an affordable home is, of course, the daily commute. And, while gas prices aren’t currently at the levels seen a year or two ago, commuting is never inexpensive, leading many to wonder whether our tax system provides any relief for unavoidable commuting costs incurred.

The bad news for most taxpayers is that the cost of driving to work and back home, as well as the cost of most non-work driving is considered a personal expense, for which no tax deduction or credit is allowed, no matter how great the cost. The news is not, however, uniformly bad. The self-employed, of whom there are an increasing number, can claim a deduction for business-related driving expenses. There are some circumstances (outlined below) in which employees can claim driving-related costs. And, finally, for those who decide that the daily drive has just become too costly or too stressful and turn to available public transit (which includes everything from subways to suburban commuter trains to ferries) as an alternative, a tax credit is available to help offset the cost of taking that transit.

The one circumstance in which an employee can claim a deduction for driving costs incurred is where that 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 their 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 his or her 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 that no tax-free allowance is provided by the employer for such expenses, the employee can deduct actual expenses incurred for such work-related travel, including the following:

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

In the majority of cases, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the percentage 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 the expenses claimed.

The rules governing the taxation of employee automobile allowances and available deductions for employment-related automobile use are outlined on the Canada Revenue Agency (CRA) website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html.

In other circumstances, where a taxpayer has the option of taking public transit, the after-tax cost of getting to and from work each day can be reduced by claiming the public transit tax credit. That credit is offered by the federal government and by several of the provinces, and there is no limit on the amount which may be claimed. The federal credit is calculated as 15% of the cost of public transit, and while provincial credit amounts vary, an average would be around 7%. A taxpayer would therefore be able to claim a credit (and reduce taxes which would otherwise be payable for the year) by 22% of eligible public transit costs incurred during that year.

As well, the public transit tax credit isn’t limited to costs incurred for transit use to and from work. Costs incurred by either spouse and by any dependent children under the age of 19 who regularly purchase a weekly or monthly transit pass which provides for unlimited travel – for example high school or university students who use transit to get to and from school – can be aggregated and claimed on the return filed by either parent for the year. So, a family of four which incurs an average of $700 a month in transit costs (not difficult to do where an inter-city commuter pass can cost up to $400 a month and city transit passes, even for students, can cost over $100) can claim $8,400 in eligible transit costs per year, for which they would be able to reduce their tax bill for the year by just under $1,850. Details of the costs which qualify for the public transit tax credit are summarized on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/364/menu-eng.html.

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 this summer reached the halfway mark, most Canadian taxpayers had filed a tax return for 2015, received a Notice of Assessment with respect to that return, and considered that their income tax obligations for this year were complete. For a significant number of those taxpayers, however, the filing of that return will trigger the issuance of a 2016 Tax Instalment Reminder from the Canada Revenue Agency (CRA), and that reminder will show up in their mailboxes sometime during the month of August. On that form, the CRA will suggest to the recipient that he or she should make instalment payments of income tax on September 15 and December 15, 2016, and will identify the amount which should be paid on each date.

By the time this summer reached the halfway mark, most Canadian taxpayers had filed a tax return for 2015, received a Notice of Assessment with respect to that return, and considered that their income tax obligations for this year were complete. For a significant number of those taxpayers, however, the filing of that return will trigger the issuance of a 2016 Tax Instalment Reminder from the Canada Revenue Agency (CRA), and that reminder will show up in their mailboxes sometime during the month of August. On that form, the CRA will suggest to the recipient that he or she should make instalment payments of income tax on September 15 and December 15, 2016, and will identify the amount which should be paid on each date.

Unexpected correspondence from the tax authorities is always unsettling and where a first instalment reminder is issued in August, it is almost certainly being sent to someone who has never before received an instalment reminder and, quite possibly, doesn’t even know what a tax instalment is. And, in any case, for someone who thought their tax obligations for the year were already met, receiving mail from the CRA suggesting that tax amounts are owed is likely to evoke both surprise and worry. The fact is, however, tax instalments are just another way of paying tax throughout the year, rather than when the tax return for that year is filed.

The reason that most Canadians are unfamiliar with instalment payments of tax is that most of them work as employees throughout their working lives and income tax is automatically deducted from their pay “at source”. Their employer deducts an amount for income tax from their gross pay, before any paycheque is issued, and remits that amount to the CRA on their behalf. When the individual files a tax return the following spring, he or she is credited with those tax payments which were remitted to the CRA on his or her behalf throughout the year. However, for those who are self-employed or, frequently, those who are retired (especially recently retired), no such deduction is automatically made from their income, and the issuance of an instalment reminder by the CRA may be the result.

Canadian tax rules provide that where the amount of tax owed when a return is filed by a taxpayer is more than $3,000 ($1,800 for Quebec residents) in the current year and either of the two previous years, that taxpayer may be required 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. Any tax amount payable on filing for the immediate prior year can’t be known until the tax return for that year has been received and assessed by the CRA. 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 owed taxes on filing for 2015 or 2014 and, if so, the amount that was payable on filing for each year.

In many cases, a first instalment reminder is triggered where an individual has retired within the past two years Take, for instance, the example of an individual who retired at the end of 2014 from employment in which tax deductions were automatically taken from his or her paycheque. Beginning January 1, 2015, that individual’s sources of income changed from employment income to Canada Pension Plan and Old Age Security benefits, and monthly withdrawals from an RRSP or RRIF, or pension payments from the former employer. In order for the amounts withheld from such income to match the taxpayer’s actual tax liability for the year, the taxpayer would have to have calculated the amount of that tax liability and made arrangements for withholdings to be made from one or more of the three or four income sources, to total that overall tax liability amount. For most taxpayers, that’s not a very likely scenario. Consequently, it would be almost inevitable that correct withholdings would not be made and that tax of more than $3,000 would be owed when the 2015 tax return was filed. Where the taxpayer’s income levels and withholding amounts are unchanged for 2016, and it is expected that once again, more than $3,000 will be owed on filing the tax return for 2016, the criteria for the instalment requirement would be met, and a first tax instalment reminder would be issued for the taxpayer this month.

There is a reason that the form received by taxpayers is entitled Instalment Reminder, as those who receive it are not actually required to make instalment payments of tax. There are, in fact, three options open to the taxpayer who receives an Instalment Reminder, each with its own benefits and risks.

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 face any interest or penalty charges. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2016, 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 paid for the 2015 tax year. Where a taxpayer’s financial and living situation is relatively unchanged, and there hasn’t been any significant change in income or available deductions and credits, the likelihood is that total tax liability for 2016 will be the same or slightly less than it was in 2015, owing to the indexation of tax brackets and tax credit amounts. A taxpayer who chooses this option should pay 75% of the total amount owed in September 2016 and the remaining 25% in December 2016.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2016 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2015 to 2016 and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this approach can use the tax instalment calculation tool available on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/pymnts/nstlmnts/Instalment_chart_fill-16e.pdf, or can obtain information on federal and provincial tax rates and brackets for 2016 on the CRA  website at www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html. And, once again, taxpayers who choose this option should pay 75% of the total amount owed in September 2016 and the remaining 25% in December 2016.

Many taxpayers who receive an Instalment Reminder are less than pleased about the fact that they are being asked to, as they see it, pay their taxes “early”. However, the reality is that most of them have been paying income taxes “early” throughout their working lives, by means of source deductions. Source deductions are, however, more or less invisible to the taxpayer, as they are taken before any paycheque is issued, and actually writing a cheque or making an online payment to the CRA for taxes owing feels much different.

While no one actually likes paying taxes, by any method, making tax payments by instalments can actually help taxpayers, particularly those who are juggling multiple income sources for the first time, with budgeting and managing cash flow. Because most Canadians don’t have to think about setting money aside for income taxes during their working lives, they don’t always include them (or include them in sufficient amounts) when planning a budget when they first retire. As well, for those retirees who receive Canada Pension Plan or Old Age Security income and want to have their taxes paid “automatically”, as they were during their working years, there is another option. The federal government will deduct income tax amounts from CPP and OAS benefits and remit them to the CRA, in the same way that an employer does for employees. It is relatively simple to set up such withholdings and remittances, and the taxpayer can specify the amount to be withheld for income tax from each type (CPP or OAS) of payment. To do so, he or she completes Form ISP3520, which is available on the CRA website at www.servicecanada.gc.ca/fi-if/index.jsp?app=prfl&frm=isp3520cpp&dept=sc&lang=e, and files that form with Service Canada. A listing of Service Canada offices can also be found on the CRA website at www.servicecanada.gc.ca/tbsc-fsco/sc-hme.jsp?lang=eng.

There are few financial surprises more unwelcome than finding out that there is a balance owing when the tax return for the year is filed. For most, it’s an annoyance and an aggravation. For those who live on a fixed income, however, being faced with an unexpected bill for taxes owed on filing can create a significant financial crisis. Receiving an Instalment Reminder serves to give notice that taxes are not being withheld (or not being withheld in sufficient amounts) from income amounts paid to the taxpayer throughout the year and that it is necessary to make some provision for those taxes — whether by paying instalments or arranging for withholdings at source. Doing either will avoid the scenario in which a taxpayer has to come up with the entire tax amount owing for the year when the return for that year is filed the following spring.

As the summer starts to wind down, both students returning this fall to their post-secondary institutions and those just starting post-secondary education must focus on the details of the upcoming school year: finding a place to live, choosing courses, and — perhaps most important — arranging payment of tuition and other education-related bills.

As the summer starts to wind down, both students returning this fall to their post-secondary institutions and those just starting post-secondary education must focus on the details of the upcoming school year: finding a place to live, choosing courses, and — perhaps most important — arranging payment of tuition and other education-related bills.

For many years post-secondary students (and their parents) have benefited from an “assist” through our tax system, which provides deductions and credits for some of the many costs associated with obtaining a post-secondary education. Starting with the 2016-17 academic year, however, some of those deductions and credits will no longer be available.

The biggest cost of post-secondary education is, of course, tuition, and the tax credit provided for eligible tuition costs continues to be available for the upcoming (and subsequent academic and taxation years). 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 claim a non-refundable federal tax credit of 15% of such tuition costs. The provinces and territories also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction. 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, any credits earned can be carried forward and used in a subsequent year, or transferred, for the current year, to a spouse, parent, or grandparent.

For several years, post-secondary students have also been able to claim two other federal tax credits – the education tax credit and the textbook tax credit. Both, unfortunately, are being eliminated.

Both the education and textbook tax credits are set at a fixed amount, irrespective of any actual expenditure made by the student. For the 2016 tax year, the federal education credit is equal to $60 for each month of full-time attendance and $18 per month of part-time attendance. The amount of federal textbook tax credit claimable is $9.75 per month of full-time attendance and $3.00 per month of part-time attendance. As is the case with the tuition tax credit, the provinces and territories provide education and textbook tax credits based on the same criteria, but with the amount of the credit varying by jurisdiction. Both the federal and provincial/territorial education and textbook tax credits are non-refundable, meaning that they apply to reduce federal or provincial/territorial tax otherwise payable, but cannot create or increase a tax refund.

In this year’s federal Budget, it was announced that the federal education and textbook tax credits would be eliminated, effective as of January 1, 2017. Consequently, post-secondary students will still be able to claim those federal credits with respect to the first term of the 2016-17 school year (September to December 2016) when filing their return for 2016 in the spring of next year. However, no federal education or textbook credit will be available to be claimed for any school term which starts after December 31, 2016.

The reality for most Canadians pursuing post-secondary education is that, notwithstanding parental savings or student summer jobs, most students will have incurred some debt to pay for the cost of that education — sometimes a lot of debt. Where that debt is in the form of government-sponsored student loans (generally, loans provided under the Canada Student Loans program or the equivalent provincial program), the student can claim a tax credit for both federal and provincial tax purposes for interest paid on those loans, and that credit is unaffected by the recent changes. It’s important to remember, however, that only interest paid on loans extended under government-sponsored programs qualifies for the credit. Loans provided by private lenders (for example, through a student line of credit) do not qualify.

Most government student loans are provided on an interest-free basis while the student is in school. However, interest starts to be levied, and repayment of the principal amount of the loan must begin, usually 6 months after the student graduates. Consequently, last year’s graduates will soon have to arrange a repayment schedule for their outstanding student loans. It’s also likely that they will receive an offer or offers from financial institutions to provide financing which will allow the graduate to consolidate all education-related debts into a single loan or line of credit, usually at a preferential interest rate. While such offers can be tempting, graduates should, when determining the best structure for their education loans, remember both the fact that interest paid on private sources of financing will not qualify for any tax credit and, equally important, that any mingling of government student loan balances with private sector lending will disqualify the student from claiming a tax credit for interest paid on that government student loan. In other words, a student who takes out a line of credit or loan to consolidate all education-related debt will lose the ability to claim any federal or provincial tax credit on the portion of that debt that was originally a government student loan.

Obtaining a post-secondary education never has been — and likely never will be — an inexpensive proposition. And, while some of the tax breaks available for those who are pursuing such an education are being eliminated, it’s well worth claiming, to the maximum extent possible, those that remain. As well, students can often take advantage of tax deductions or credits which, while not specifically targeted for them, are often available for the kinds of expenditures made by students. Those kinds of claims, which would include the moving expense deduction and the tax credit for public transit costs, are summarized in the Canada Revenue Agency publication Students and Income Tax, which is available at www.cra-arc.gc.ca/E/pub/tg/p105/README.html.

For most of the year, taxpayers live quite happily without any contact with the Canada Revenue Agency (CRA). During and just following tax filing season, however, such contact is routine – tax returns must be filed, Notices of Assessment are received from the CRA and, on occasion, the CRA will contact a taxpayer seeking clarification of income amounts reported or documentation of  deductions or credits claimed on the annual return. Consequently, it wouldn’t necessarily strike taxpayers as unusual to be contacted by the CRA with a message that a tax amount is owed or, more happily, that the taxpayer is owed a refund by the Agency. Consequently, it’s the perfect time for scam artists posing as representatives of the CRA to seize the opportunity to defraud taxpayers.

For most of the year, taxpayers live quite happily without any contact with the Canada Revenue Agency (CRA). During and just following tax filing season, however, such contact is routine – tax returns must be filed, Notices of Assessment are received from the CRA and, on occasion, the CRA will contact a taxpayer seeking clarification of income amounts reported or documentation of  deductions or credits claimed on the annual return. Consequently, it wouldn’t necessarily strike taxpayers as unusual to be contacted by the CRA with a message that a tax amount is owed or, more happily, that the taxpayer is owed a refund by the Agency. Consequently, it’s the perfect time for scam artists posing as representatives of the CRA to seize the opportunity to defraud taxpayers.

Changes in technology have vastly expanded and multiplied the number of ways in which communication can take place, and tax scammers use all of them. The CRA has posted on its website examples of fraudulent communications by those claiming to be from the Agency, carried out by telephone, letter, e-mail, text, and online, and all of those can be found at www.cra-arc.gc.ca/scrty/frdprvntn/menu-eng.html.

While the communication method may vary, the message contained in that communication almost always takes one of two approaches. In the first, the taxpayer is advised that he or she is owed money by the federal government, and told that, in order to receive the funds, a form must be completed, with that form generally accessed through a link. The link leads, not to a federal government website, but to a “dummy” site closely resembling the actual CRA webpage. The taxpayer is then required, in order to have his or her “refund” processed, to provide personal and financial information which is then available to be used by the tax scammer.

The second approach, which has been particularly prevalent in the past few years, is to tell the taxpayer that he or she owes money to the CRA, and threaten him or her with dire consequences, including seizure of the taxpayer’s assets and/or imprisonment if the alleged debt is not paid immediately. Often, payment must be made by a pre-paid credit card – a payment method which is never used by the CRA. The threats used in such communications are, of course, ridiculous – there are no circumstances in which the CRA would or could seize an individual’s assets or in which anyone could be imprisoned, without prior notice and due process of law.

Where a telephone call is received from someone purporting to be from the CRA, it is perfectly reasonable for the taxpayer to request a callback number at which the caller can be reached.

Where the communication is in writing – whether by text, e-mail or letter, the taxpayer should ask themselves the following questions:

• Am I expecting additional money from the CRA?
• Does this sound too good to be true?
• Is the requester asking for information I would not include with my tax return?
• Is the requester asking for information I know the CRA already has on file for me?
• How did the requester get my email address?
• Am I confident I know who is asking for the information?
• Is there a reason that the CRA would be calling; do I have a tax balance outstanding?

E-mails which are ostensibly from the CRA should be viewed with caution, as the CRA does not communicate with taxpayers by email except in very specific circumstances, and never discusses confidential tax matters in an email. Where a taxpayer contacts the CRA to request a form or a link for specific information, a CRA agent will forward the information requested to the taxpayer’s email, but such email will be sent during the phone call. There are no other circumstances in which the CRA will send an email containing links and consequently, any other email purporting to be from the CRA and directing the recipient to click on a link to another website should be deleted. As well, the CRA notes that fraudulent e-mails containing such links can contain embedded software that can harm the recipient’s computer, or put personal information at risk.

Taxpayers who are contacted by someone purporting to be from the CRA should also remember the following. The CRA:

• will not request personal information of any kind from a taxpayer by e-mail;
• never requests information from a taxpayer about a passport, health card, or driver’s license;
• never leaves any personal information on an answering machine or asks taxpayers to leave a message with their personal information on an answering machine; and
• will not divulge taxpayer information to another person unless formal authorization is provided by the taxpayer.

It may seem that only naïve or gullible individuals could be victims of a tax scammer, but that’s not the case. Fraudulent communications sent by those purporting to be representatives of the CRA have become increasingly sophisticated and very difficult to differentiate from legitimate correspondence issued by the Agency, even by those familiar with such documents.

A taxpayer who receives what seems to be a suspicious communication should report that to the Canadian Anti-Fraud Centre online at www.antifraudcentre-centreantifraude.ca/reportincident-signalerincident/index-eng.htm, or by telephone at 1-888-495-8501. If the worst happens and an individual has been tricked into providing personal or financial information, the following course of action is suggested:

Step 1 - Contact your bank/financial institution or credit card company.

Step 2 - Contact credit bureaus and have fraud alerts placed on your credit reports.

Step 3 - Contact your local police.

Step 4 - Always report phishing. If you have responded to one of these suspicious e-mails, report it to info@antifraudcentre.ca.

Fraud isn’t new, and it isn’t going away any time soon. However, the speed and anonymity of electronic communication, and the extent to which most people are now comfortable transacting their tax and financial affairs online, makes it easier in many ways for fraud artists to succeed. The best defence against becoming a victim of such scams is a healthy degree of caution, even skepticism, and a refusal to provide any personal or financial information – whether by phone, e-mail, text or online – without first verifying the legitimacy of the request.   

By the end of June all individual taxpayers have filed their 2015 income tax returns and most will have received a Notice of Assessment outlining the Canada Revenue Agency’s (CRA’s) conclusions with respect to that taxpayer’s income and tax position for the year. In most cases, the Notice of Assessment won’t vary a great deal from the information provided by the taxpayer in his or her return. Where it does, and the change is to the taxpayer’s detriment, taxable income assessed is greater than the amount reported by the taxpayer, or a deduction or credit is denied, then the taxpayer has to decide whether to dispute the CRA’s assessment.

By the end of June all individual taxpayers have filed their 2015 income tax returns and most will have received a Notice of Assessment outlining the Canada Revenue Agency’s (CRA’s) conclusions with respect to that taxpayer’s income and tax position for the year. In most cases, the Notice of Assessment won’t vary a great deal from the information provided by the taxpayer in his or her return. Where it does, and the change is to the taxpayer’s detriment, taxable income assessed is greater than the amount reported by the taxpayer, or a deduction or credit is denied, then the taxpayer has to decide whether to dispute the CRA’s assessment.

Where the amounts in issued are significant enough and the taxpayer genuinely believes that the CRA’s assessment is in error, the next step to take is the filing of a Notice of Objection. 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 brings to a halt most 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).  There are two major exceptions to the deferred collection rule.  Tax collection efforts by the CRA are not deferred where the amounts in dispute are those which the taxpayer was required to withhold and remit to the CRA, such as employee income tax deductions at source. As well, the CRA is required to postpone collection action on only 50% of the amount in dispute, where that dispute involves a charitable donation tax credit or deduction claimed in connection with a tax shelter arrangement.

There is a time limit by which any Objection must be filed, albeit a reasonably generous one. Individual taxpayers must file an Objection by the later of 90 days from the mailing date of the Notice of Assessment (the date found at the top of page 1) or one year from the due date of the return which is being disputed. So, for tax returns for the 2015 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2017 (or June 15, 2017 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 and, if the filing of the Objection is delayed, the CRA may well have already commenced its collection efforts. Certainly, if the deadline is imminent, it’s 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 www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html.The taxpayer provides information with respect to the assessment being disputed and the reasons why the assessment is being disputed and submits those reasons by clicking on the Submit button at the bottom of the "Register my formal dispute – review" page.

Enhancements to the My Account mean that taxpayers who are disputing their tax assessment can now scan and send supporting documents relating to that dispute to the Agency. If the CRA has requested that the taxpayer provide specific documents, he or she will have been provided with a case or reference number which is used to submit the document or documents. Where that’s not the case, and the taxpayer doesn’t have a case or reference number, it is still possible to submit documents online. In either case, there are some technical requirements which must be met when scanning and sending documents to the CRA. Each file submitted must have a unique name and must be in one of a number of file formats, many of which will already be familiar to most taxpayers (e.g., .doc, .pdf, and .jpg). As well, the total size of the documents submitted can’t exceed 150 MB. Once documents are successfully submitted, the taxpayer will receive a confirmation number and a reference number.  That reference number (or the one previously provided by the CRA) can be used at any time to submit additional documents.

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 a hard copy of a Notice of Objection can find the CRA’s standardized form – the T400A Objection – on the Agency’s website at www.cra-arc.gc.ca/E/pbg/tf/t400a/README.html).

Taxpayers aren’t 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 Notice of Assessment will do. Nonetheless, there’s no reason not to use the standardized form, and there are benefits to doing so. Using 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 Agency is familiar and will also mean that no required information is inadvertently omitted. It’s also helpful to include a copy of the Notice of Assessment 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). The CRA has two appeal intake centres, which are as follows:

Western Intake Centre                                              Eastern Intake Centre

Vancouver Tax Service Office                                    Sudbury Tax Service Office

9737 King George Boulevard                                     1050 Notre-Dame Avenue

PO Box 9070, Station Main                                        Sudbury ON P3A 5C1

 Surrey BC V3T 5W6

Taxpayers having a postal code starting with letters A to P should send their objection to the Eastern Intake Centre, while those with a postal code starting with the letters R to Y should send their objection to the Western Intake Centre.

Eventually (at least several weeks being the usual time frame) the CRA will respond to the Objection. In the course of making its decision, the Agency 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 are allowed by law to 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 www.cra-arc.gc.ca/E/pub/tg/p148/README.html.                      

By now, most Canadians are familiar with the use and the benefits of a tax-free savings account (TFSA), which have proven to be a very popular savings vehicle since they were introduced in 2009. What’s proven to be harder to do is keeping track of one’s annual TFSA contribution limit. The annual TFSA contribution limit contribution allowed by law has been something of a moving target, subject to change after change by successive governments. As well, withdrawals made from a TFSA are added to one’s annual contribution limit, but not until the following taxation year – a fact that has escaped many TFSA holders and sometimes even their financial advisers. And finally, the Canada Revenue Agency (CRA) used to provide information on a taxpayer’s current year TFSA contribution limit on the annual Notice of Assessment, but that’s no longer the case, meaning that the taxpayer has to make an extra effort to obtain that information.

By now, most Canadians are familiar with the use and the benefits of a tax-free savings account (TFSA), which have proven to be a very popular savings vehicle since they were introduced in 2009. What’s proven to be harder to do is keeping track of one’s annual TFSA contribution limit. The annual TFSA contribution limit contribution allowed by law has been something of a moving target, subject to change after change by successive governments. As well, withdrawals made from a TFSA are added to one’s annual contribution limit, but not until the following taxation year – a fact that has escaped many TFSA holders and sometimes even their financial advisers. And finally, the Canada Revenue Agency (CRA) used to provide information on a taxpayer’s current year TFSA contribution limit on the annual Notice of Assessment, but that’s no longer the case, meaning that the taxpayer has to make an extra effort to obtain that information.

The quickest starting point to determining one’s TFSA contribution limit for 2016 is to call the CRA’s Individual Income Tax Enquiries Line at 1-800-959-8281. Once that contribution limit number is known, the taxpayer will need to determine how much, if anything, has been contributed to a TFSA (or TFSAs – there is no limit to the number of plans which an individual taxpayer can have, only a limit on the amount of the overall contributions made to such plan or plans during the year) already in 2016. Some taxpayers contribute on a pre-planned, often monthly basis, while others are in the habit of depositing regular or irregular or periodic income receipts, like a tax refund or monthly tax benefit amount into their TFSA. Either way, after finding out what one’s current year contribution limit is, it’s necessary to calculate how much has already been contributed. The balance represents the amount which can be contributed before the end of 2016 without going offside and incurring an over-contribution penalty. That’s especially important this year for those who contribute on a recurring basis, often through automatic transfers from another bank account. For 2015, the maximum allowable annual TFSA contribution amount was $10,000. That limit was reduced, effective January 1, 2016, to $5,500. Consequently taxpayers who set up automatic contributions to a TFSA when the $10,000 limit was in effect may find themselves going offside where such arrangements were not changed earlier this year to reflect the new, lower annual contribution limit.

A similar calculation will need to be made for contributions to an RRSP, but in this case the information needed is easier to come by. Every taxpayer who filed a return for 2015 will be able to find the amount of their maximum RRSP contribution for 2016 on page 4 of the Notice of Assessment which they received after filing. Once that number is known, the only remaining step is to ensure that contributions already made for 2016 and those which are planned to be made on or before March 1, 2017, stay within that annual contribution limit.

Especially where, as financial advisers often counsel,  an individual makes contributions to an RRSP or TFSA (or both) throughout the year by automatic deposit or bank transfer, it’s easy to assume that everything has been taken care of and nothing further needs to be done with respect to such plans. However, an “out of sight, out of mind” approach rarely makes for good financial and tax planning, and checking on the status of one’s RRSP and TFSA on a periodic basis can help to ensure that everything remains onside, and unnecessary penalties aren’t incurred.

There has been much discussion in recent years about whether Canadians are adequately prepared for retirement and, more specifically, whether Canadians are saving enough to ensure a retirement free of undue financial stress. While the financial health of current and soon-to-be-retirees (essentially, the baby boomers) is a concern, the focus is more on the question of whether our current system is such that younger Canadians can expect to have some degree of financial security in retirement. The workplace has altered dramatically in the past quarter century and many of the retirement income options which were relied upon by previous generations – especially an employer-sponsored defined benefit pension plan – are all but unknown to private sector workers under the age of 30 or even 40.

There has been much discussion in recent years about whether Canadians are adequately prepared for retirement and, more specifically, whether Canadians are saving enough to ensure a retirement free of undue financial stress. While the financial health of current and soon-to-be-retirees (essentially, the baby boomers) is a concern, the focus is more on the question of whether our current system is such that younger Canadians can expect to have some degree of financial security in retirement. The workplace has altered dramatically in the past quarter century and many of the retirement income options which were relied upon by previous generations – especially an employer-sponsored defined benefit pension plan – are all but unknown to private sector workers under the age of 30 or even 40.

There’s no shortage of opinions on how financial security in retirement for younger Canadians can best be achieved – one school of thought argues for changes which will enhance the ability of Canadians to accumulate private savings, generally through RRSPs, while others take the position that enhancements to public pension plans, or the creation of new ones, is the solution.

Those in the latter group will be heartened by a recent announcement from the federal Department of Finance, indicating that the federal government and (most of) the provinces have reached an agreement in principle on changes which will expand and enrich the Canada Pension Plan.

A brief bit of background: virtually everyone who works in Canada, whether as a employee or in self-employment, contributes to the CPP, generally through payroll deductions. Such contributions are set at a percentage of the employee’s pensionable earnings for the year. Employers are required to match employee contributions dollar for dollar, and to remit all contributions to the federal government on the employee’s behalf. Contributions are structured such that an employee can receive a CPP retirement benefit equal to about 25% of his or her average annual pensionable earnings and, although the formula for determining entitlement is complex, the amount of CPP retirement benefit which can be received generally depends for the most part on the amount contributed during a person’s working life.  A recipient can choose to begin receiving his or her CPP pension at any time between the ages of 60 and 70, with the monthly pension benefit increasing with each year that receipt is deferred past the age of 60.

The agreement in principle reached by the federal government and 8 of the provinces calls for a number of changes, which will begin to be implemented in January 2019, and all of which are directed at increasing the amount that Canadians can receive from the CPP in retirement.

Increase in CPP maximum pensionable earnings

Under the CPP, working Canadians contributed a percentage of their income (or pensionable earnings) to their CPP “account” each year. The amount of those pensionable earnings is, however, capped by a figure known as the maximum pensionable earning amount, and contributions on income amounts over that cap are not permitted.

The maximum pensionable earning amount for 2016 is $54,900. As a result, Canadians who earn less than that amount are contributing to the CPP in an amount which should provide them with a CPP retirement benefit which equals 25% of their average annual pensionable income during their working life. However, individuals who earn more than the maximum pensionable earning ceiling in any given year cannot make contributions on the “excess”, and so their CPP benefit in retirement will fall short of the 25% income replacement goal. The proposed changes to the CPP will see the maximum pensionable earnings amount increase. That increase will be phased in between 2019 and 2025, with the expectation that maximum pensionable earnings will reach about $82,700 in 2025.

Increasing CPP income replacement

Using the current formula which aims to provide contributors with 25% of annual pensionable earnings in retirement, a contributor who earns $50,000 in pensionable earnings will receive a CPP retirement benefit of $12,000 per year. The new CPP proposals would increase that income replacement percentage to 33%, such that the same contributor earning that $50,000 in pensionable earnings would receive $16,000 in CPP retirement benefits. Of course, an increase in retirement benefits has to be financed through an increase in the annual contribution made by the employee (and an equal contribution by his or her employer) during the years of employment or self-employment. However, no details have yet been provided on just what those increased amounts will be.

Allowing deduction for “excess” CPP contributions

As the maximum pensionable earnings amount and the replacement income percentage are increased, the result will be higher contribution amounts. The CPP proposals provide that where employees must make higher contributions because of the enhanced portion of the CPP, they will be able to deduct any such additional contributions from income earned in that year. In effect, contributors will not pay tax on any income which is used to make those additional CPP contributions for the year.

It should be emphasized that the changes to the CPP which have been agreed to in principle will have absolutely no impact or effect on individuals who are retired and currently receiving CPP retirement benefits or, indeed, on those who plan to leave work and begin receiving such benefits before January 1, 2019. These changes are long-range in nature, and will have the greatest impact on those who are 20, 30, or even 40 years away from retirement. The information released to date by the Department of Finance with respect to the proposals can be found on its website at www.fin.gc.ca/n16/16-081-eng.asp.

The forest fires affecting Northern Alberta and the Canada’s Revenue Agency’s (CRA’s) offer of administrative tax relief to those affected by the fires and the resulting evacuations has highlighted a federal government program of which few taxpayers are aware – the CRA’s Taxpayer Relief Program. In a nutshell, that program offers relief from interest charges, penalties, and collection actions for those who are unable, due to circumstances outside their control, from fulfilling their tax filing and/or payment obligations.

The forest fires affecting Northern Alberta and the Canada’s Revenue Agency’s (CRA’s) offer of administrative tax relief to those affected by the fires and the resulting evacuations has highlighted a federal government program of which few taxpayers are aware – the CRA’s Taxpayer Relief Program. In a nutshell, that program offers relief from interest charges, penalties, and collection actions for those who are unable, due to circumstances outside their control, from fulfilling their tax filing and/or payment obligations.

The most publicized instances in which such relief is offered by the federal government (and, usually, by the government in the particular province affected) occur in instances of a disaster, whether natural or man-made. Those are not, however, the only circumstances in which relief can be made available. Such administrative relief can also be provided where the taxpayer has experienced serious illness or an accident, or a death in his or her immediate family, or is suffering from significant financial hardship. Whatever the reason for the application, it’s important to note that only interest and penalty charges can be waived. The Minister has no authority, no matter how dire the circumstances, to waive the payment of actual taxes owed.

Whether the inability to meet tax obligations arises from disasters affecting thousands of taxpayers or from individual circumstances, the process by which a request for relief is made is the same. The CRA issues a prescribed from – RC4288, Request for Taxpayer Relief, which can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/rc4288/README.html. While use of the form is not mandatory – a letter to the CRA will suffice – using the prescribed form will ensure that all of the information needed by the CRA to make a decision on the request for relief is provided. For each such request, that information includes:

• the taxpayer’s name, address, and telephone number;
• the taxpayer’s social insurance number (SIN), account number, partnership number, trust account number, business number (BN), or any other identification number assigned to the taxpayer by the CRA;
• the tax year(s) or fiscal period(s) involved;
• the facts and reasons supporting that the interest or penalty were mainly caused by factors beyond the taxpayer’s control;
• an explanation of how the circumstances affected the taxpayer’s ability to meet his or her tax obligations;
• the facts and reasons supporting the inability to pay the penalties or interest assessed or charged, or to be assessed or charged;
• any relevant documentation; and
• a complete history of events including any measures that have been taken (e.g., payments and payment arrangements, and when they were taken to resolve the non-compliance.

If the taxpayer’s request for relief relates to financial hardship, he or she must provide full financial disclosure, including statements of income and expenses. All relief requests are to be sent to a particular Tax Processing Centre, depending on where the taxpayer lives. A listing of the addresses of all such Centres is available on the CRA website at www.cra-arc.gc.ca/gncy/cmplntsdspts/sbmtrqst-eng.html, and the same information is included on the RC4288 form. The request cannot be e-mailed, as the CRA does not communicate taxpayer-specific information by e-mail.

Each relief request is assigned to a CRA official, who may, if necessary, contact the taxpayer to obtain clarification of the information provided, or to seek additional information. In any case, a determination will be made of whether the taxpayer’s request for interest or penalty relief is to be approved in full, approved in part, or denied, based on the following considerations:

• the taxpayer’s history of compliance with his or her tax obligations;
• whether or not the taxpayer knowingly allowed an arrears balance to exist upon which arrears interest has accrued;
• whether or not the taxpayer exercised a reasonable amount of care in conducting his or her tax affairs, and whether or not negligence or carelessness has been demonstrated; and
• whether or not the taxpayer acted quickly to remedy any delay or omission.

The decision made will be communicated to the taxpayer, with reasons provided where the request is only partially approved, or is denied. At the same time, the taxpayer will be given information on the options available where the CRA has made a decision with which the taxpayer does not agree.

More information on the Taxpayer Relief Program can be found on the CRA website at www.cra-arc.gc.ca/taxpayerrelief/.

By the beginning of June, most taxpayers have filed their annual return for the previous year and have most likely received a Notice of Assessment in respect of that return, containing the good or bad news about their tax situation for the year. At this point, most Canadians are probably happy to put taxes out of sight and out of mind until next year’s filing season rolls around. For a number of reasons, however, that’s not the best strategy.

By the beginning of June, most taxpayers have filed their annual return for the previous year and have most likely received a Notice of Assessment in respect of that return, containing the good or bad news about their tax situation for the year. At this point, most Canadians are probably happy to put taxes out of sight and out of mind until next year’s filing season rolls around. For a number of reasons, however, that’s not the best strategy.

The mid-point of the year is in fact a very good time to take a look at one’s current year tax situation, with a view to determining whether things are on track for the year or, if not, how to make things right while there’s still time to do so. There are a few basic steps which require no more than a few hours’ time to make sure of just that.

Bring tax filings up to date

It may seem obvious that there is a need to file one’s tax return each year, but every year millions of Canadians fail to do so, for a variety of reasons. Often it is because money will be owed (or is already owed from previous years) to the Canada Revenue Agency (CRA). In other cases, taxpayers who have no balance of taxes owing but also aren’t expecting a significant refund assume that completing and filing a return is just unnecessary work and aggravation. In both situations, not filing is the wrong answer, but for different reasons.

Taxpayers who owe money to the CRA but who do not file on time are automatically assessed a penalty of 5% of the outstanding amount owed, plus 1% for each complete month where the failure to file continues, for a maximum of 12 months. Such penalties double where a penalty has been assessed for a previous failure to file within the past three years, and can continue for a maximum of 20 months. Interest on any outstanding tax amount owed has also been accruing since May 3 of this year, at a rate of 5%, compounded daily. Even where a taxpayer doesn’t have the funds to make payment in full, or at all, it is in his or her best interests to file a return, explain the situation to the CRA, and agree on a payment arrangement to get the outstanding amount paid over time. Doing so will stop the late-filing penalties from accruing and will limit the amount of interest payable, as the debt is gradually paid off.

Not filing because there’s nothing owed is a mistake of a different kind. Both the federal and provincial governments provide taxpayers with a variety of refundable tax credit programs, generally administered by way of direct monthly payments to qualifying taxpayers. Unlike the tax year, the benefit year for such programs generally runs from July 1 of one year to June 30 of the following year, for good reason. Entitlement to benefits for almost all such programs is based on the taxpayer’s financial and family circumstances – starting with his or her income. In most cases, entitlement to benefits and the amount of any benefits receivable between July 1, 2016 and June 30, 2017 is based on the taxpayer’s income for 2015. Where a taxpayer has filed by the April 30 deadline, it’s possible for the federal and provincial governments to assess his or her return, determine income for 2015 and to calculate the amount of federal and provincial benefits that the taxpayer will be entitled to receive, all in time for the first such benefits to be paid when the benefit year starts in July 2016.

Where a taxpayer doesn’t file by the April 30 deadline, that process is obviously short-circuited and taxpayers who would otherwise begin receiving benefits at the start of the 2016-17 benefit year in July 2016 will be disappointed. The problem is easily solved – once a taxpayer files a return for 2015, an assessment of income and benefits entitlement for the year can be done and benefits to which the taxpayer is entitled can be provided. The later the taxpayer files, however, the longer payment of such benefits will be delayed.

Making sure source deductions are correct

Taxpayers don’t only pay taxes when they file an income tax return each spring – the majority of taxpayers who are employees pay taxes throughout the year, by means of amounts deducted from their paycheques, technically known as deductions at source.

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 individual taxpayer. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by every employee, sometimes at the start of each tax 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 resides and works. Federal and provincial TD1 forms for 2016 (which are available on the CRA website at www.cra-arc.gc.ca/menu/AFAF_T_TD-e.html#ti) list the most common statutory credits and deductions 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 government.

That said, every individual’s circumstances can change, and sometimes those changes mean a change in their tax liability for the year. Most important changes in life have tax consequences, and it’s worth making sure that one’s family and financial circumstances are accurately reflected in the deductions being made from one’s paycheque. The best way to do so is by checking the federal and provincial TD1Forms currently on file with one’s employer. Where one’s circumstances have changed such that source deductions also need to change, the easiest way to ensure that is to provide the employer with new federal and provincial TD1Forms which reflect those changed circumstances.

Where the taxpayer has available deductions which cannot be recorded on the TD1, it makes things a little more complicated, but it’s still possible to have source deductions adjusted to accurately reflect tax liability. The way to do so is to file a Form T1213, Request to Reduce Tax Deductions at Source (available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html) with the CRA. Once that form is filed with the CRA, the Agency will authorize the employer to reduce the amount of tax being withheld at source to more accurately reflect the taxpayer’s actual tax owing for the year. In most cases, taxpayers who file a Form T1213 do so because they are incurring expenditures which, while deductible for tax purposes, don’t show up on the TD1. Most commonly, those are expenditures like deductible support payments, child care expenses incurred or contributions to a registered retirement savings plan (RRSP).

As the end of the school year draws closer, and with it the start of two months of summer holidays, families who don’t have a stay-at-home parent (and likely some who do) must start thinking about how to keep the kids supervised and busy throughout the summer months. There is no shortage of options — at this time of year, advertisements for summer activities and summer camps abound — but nearly all the available options have one thing in common, and that’s a price tag. Some choices, like day camps provided by the local recreation authority can be relatively inexpensive, while the cost of others, like summer-long residential camps or elite level sports or arts camps, can run to the thousands of dollars.

As the end of the school year draws closer, and with it the start of two months of summer holidays, families who don’t have a stay-at-home parent (and likely some who do) must start thinking about how to keep the kids supervised and busy throughout the summer months. There is no shortage of options — at this time of year, advertisements for summer activities and summer camps abound — but nearly all the available options have one thing in common, and that’s a price tag. Some choices, like day camps provided by the local recreation authority can be relatively inexpensive, while the cost of others, like summer-long residential camps or elite level sports or arts camps, can run to the thousands of dollars.

In many cases, part of the cost of those activities or camps can be offset, to a degree, by claiming an associated tax deduction or tax credit. 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 or credit 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. In 2016, however, there are new considerations, as the tax rules which govern such deductions and credits have changed.

 There are, essentially, two kinds of tax measures or programs which allow parents to claim a deduction or credit (depending on the program) for the cost of obtaining summer child care: the first is the general deduction provided for child care costs and the second is specialized credits which are available for costs incurred in relation to particular types of programs or activities. As might be expected, different eligibility criteria and claim amounts are provided for each.

The deduction with the fewest restrictions is the child care expense deduction. That deduction also offers the greatest potential for tax savings (especially for parents in higher income and therefore higher tax brackets) as the amount of eligible child care expenses is claimed as a deduction from income rather than as a credit. Consequently, the taxable income of the parent claiming the deduction is reduced by the entire amount of expenses claimable. There are limits imposed on the maximum weekly cost of a residential camp (ranging from $125 to $275), as well as restrictions on the total amount of child care expenses which may be deducted in a year. However, those overall annual limits, which range from $5,000 to $11,000, depending on the age and health of the child, with an overall cap of two-thirds of the parent’s income for the year, are higher than those available under any other credit or deduction program available to help offset the cost of children’s activity programs. Two other such programs are also available.

Parents can claim the Children’s Fitness Tax Credit for activities or camps which involve a minimum degree of physical activity. Prior to 2016, parents were entitled to claim a refundable credit equal to 15% of the first $1,000 in qualifying costs per child per year. So, in other words, a camp which would have cost parents $800 per child will instead have a net cost of $680 ($800 – 15%, or $120), after the credit is claimed on the parent’s tax return for the year. For 2016, the maximum cost which can be claimed for purposes of the Children’s Fitness Tax Credit is $500 per year, regardless of the actual expenditure. Consequently, this year, where parents pay the same $800 for a camp, the refundable tax credit received will be 15% of only the first $500, or $75, leaving them with a net cost of $725.

Parents whose children’s interests run to less athletic pursuits like art, music, theatre, or writing can claim the Children’s Arts Tax Credit. The Arts Credit is very similar in structure to the Children’s Fitness Tax Credit, but has always been less generous in terms of amount. The changes made for 2016 continue that pattern. Formerly, the credit was a non-refundable 15% tax credit on up to $500 in eligible expenses per child per year. For 2016, the maximum amount claimable for purposes of the Children’s Arts Tax Credit has been reduced to $250. The credit continues to be non-refundable, meaning that it can reduce tax otherwise payable by the parent who claims it, but cannot create or increase a tax refund.

Claiming either the Arts of Fitness credit requires a minimum expenditure of $100 per child per year on qualifying activities.

Given the enormous range of activities available for children, it’s not surprising that the federal government has found it necessary to provide detailed rules on what types of activities will and won’t qualify for the two credits.

In assessing whether a particular camp or program might qualify for either of the two credits, the first thing to note is that both credits are available only in respect of fees paid for children who are under the age of 16 at the beginning of the year. In other words, the last year for which the credit can be claimed is the year in which the child turns 16, assuming that all other criteria are met. Those criteria are as follows:

• the program must last for a minimum of eight weeks or, in the case of children’s camps, must run for five consecutive days;
• the program or activity must be supervised; and
• the program or activity must be suitable for children.

The concept of “eligible activities” looms large in the determination of whether a particular cost may be claimed under either of the credits. For both credits, the rules provide a specific definition of eligible activities, and those definitions are outlined on the Canada Revenue Agency website at a www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns409-485/458-459/rgnztns-eng.html and www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/370/rgnztns-eng.html.

Often, particularly in the case of residential camps or sports or arts camps, charges are levied for such costs as accommodation, travel, or food, or parents must incur costs to outfit the child with required equipment to use at camps. Costs paid by parents for non-activity related charges, like food, travel, and accommodation do not qualify for either of the credits and must be subtracted from the total fee paid. As well, the cost of equipment purchased by parents from third-party suppliers is not a qualifying cost for purpose of the credits.

It’s easy to see that expenditures made for summer activities could qualify for both the child care expense deduction and for one or the other of the Children’s Fitness or Children’s Arts credits. It’s not, however, possible to double or triple dip when it comes to expenses related to children’s activities. Expenses which are claimed under any of the three possible categories (child care expenses, Children’s Fitness Tax Credit, and Children’s Arts Tax Credit) can be claimed only once, even if they might, by definition, qualify under more than one provision.

Where the same expenditure will qualify for both the child care expense deduction and the Children’s Fitness or Arts Tax Credit, the CRA requires that the parent first claim that amount as a child care expense. Any part of the expenditure which is not claimed as a child care expense (perhaps because the maximum limit for such expense claim has been reached) can be claimed for the Children’s Fitness or Arts Tax Credit, as long as the usual requirements for the particular credit are met.

The reduction in credit amounts claimable for 2016 is not, unfortunately, the only bad news for parents when it comes to claiming a tax credit for summer child care costs. Those reductions are, in fact, the first step in a two-stage phase-out of both the Children’s Fitness Tax Credit and the Children’s Arts Tax Credit. After 2016, both credits will be eliminated, leaving the general child care expense deduction as the only deduction or credit which can be claimed for child care costs incurred at any time of the year.

By May 23, 2016, the Canada Revenue Agency (CRA) had processed just under 26 million individual income tax returns filed for the 2015 tax year. About half of those returns (56%) resulted in a refund to the taxpayer. About 18% of returns filed and processed required payment of a tax balance by the taxpayer. Slightly over 20% were what are called “nil” returns – returns where no tax is owing and no refund claimed, but the taxpayer is filing in order to provide income information which will be used to determine his or her eligibility for tax credit payments (like the Canada Child Tax Benefit or the HST credit ).

By May 23, 2016, the Canada Revenue Agency (CRA) had processed just under 26 million individual income tax returns filed for the 2015 tax year. About half of those returns (56%) resulted in a refund to the taxpayer. About 18% of returns filed and processed required payment of a tax balance by the taxpayer. Slightly over 20% were what are called “nil” returns – returns where no tax is owing and no refund claimed, but the taxpayer is filing in order to provide income information which will be used to determine his or her eligibility for tax credit payments (like the Canada Child Tax Benefit or the HST credit ).

No matter what 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 2015 tax year.

The NOA issued by the CRA to all taxpayers who file a return has undergone significant revisions, with the goal of making the information provided easier to understand. Consequently, the NOA received by taxpayers for 2015 will look very different than the one received last year. The first page of the revised NOA will explain whether the taxpayer will be receiving a refund or whether he or she has a balance owing and, in either case, the amount involved. The same information will appear in a box at the bottom of page 1, entitled Account Summary. On page 2 of the NOA, the CRA lists the most important figures resulting from their assessment, including the taxpayer’s total income, net income, taxable income, total federal and provincial non-refundable tax credits, total income tax payable, total income tax withheld at source, and the amount of any refund or balance owing. Page 3 of the NOA includes an explanation of any changes made by the CRA to the taxpayer’s return during the assessment process and provides information on unused credits which the taxpayer may have from prior years and which can be carried out and claimed in future years. On page 4 of the NOA the taxpayer will find information on his or her total RRSP contribution room (i.e., maximum allowable RRSP contribution) for 2016 and finally, page 5 provides information on how to contact the CRA with questions about the information provided on the NOA, on how to change the return filed, and on how to dispute the CRA’s assessment of the individual’s tax liability.

In most cases, the information contained in the NOA is the same as that provided by the taxpayer in his or her return, perhaps with a few arithmetical corrections made by the CRA. In a minority of cases, the information presented in the NOA will differ from that provided by the taxpayer in his or her return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a happy day for the taxpayer. In some cases, however, the NOA will inform the taxpayer that additional amounts are owed to the CRA.

When that happens, the taxpayer has to figure out why, and to decide whether or not to dispute the CRA’s conclusions. Many 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, for instance, a T5 slip reporting less than ten dollars in 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 amounts found on T4, T5, and other information slips. No matter how good the software, it can’t account for income information which the taxpayer hasn’t provided. 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 on the basis of the figures provided.

Where there is additional tax owing because of an error or omission made by the taxpayer in completing the return, 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  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 accurately reported.

There are, however, instances in which the CRA and the taxpayer are in disagreement over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s claim for a medical expense, or for a deduction claimed for a business expenditure, which the taxpayer believes to be legitimate. When that happens, the taxpayer has to decide whether to dispute the assessment.

Before making that decision, and 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 always be clear on precisely why the taxpayer and the Agency disagree on the actual amount of income tax which the taxpayer must pay for the year. It is no longer possible to have a face-to-face meeting with a CRA representative at a Tax Services Office (TSO) to obtain such information, as in-person services were discontinued a few years ago. Taxpayers who want more information about their NOA must now call or write to the CRA. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281. If that call doesn’t resolve the taxpayer’s questions, he or she can write to or fax the Tax Centre which processed their return. The name of that Tax Centre can be found in the top right hand corner of the first page of the NOA, and fax numbers and mailing addresses for the Tax Centres are available on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html. Communication with a Tax Centre can only be done by fax or mail, as phone numbers for Tax Centres are not available to the public.

If the situation still isn’t resolved by these communications with the CRA, and no matter what the basis for the disagreement is — a disallowed deduction or a dispute over the amount of income for the year — the next step is the filing by the taxpayer of a Notice of Objection. The steps involved in doing so will be outlined in the July 2016 issue of this newsletter.

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 #36 Corporate

Personal:

Issue #36 Personal

Canada’s tax system is a self-assessing and self-reporting one, in which taxpayers are expected (and required) to provide the tax authorities with an annual summary of their income and any deductions and tax credits claimable, along with payment of any tax amount owed. Although no one really likes doing their taxes, or paying those taxes, the vast majority of Canadians nonetheless do file their returns on time, and pay up. For a significant minority, however, completing and filing the return is something that just doesn’t get done. Sometimes the cause is just procrastination, while in other cases, a taxpayer is worried that there will be a large balance owing and he or she avoids completing and filing the return for that reason.

Canada’s tax system is a self-assessing and self-reporting one, in which taxpayers are expected (and required) to provide the tax authorities with an annual summary of their income and any deductions and tax credits claimable, along with payment of any tax amount owed. Although no one really likes doing their taxes, or paying those taxes, the vast majority of Canadians nonetheless do file their returns on time, and pay up. For a significant minority, however, completing and filing the return is something that just doesn’t get done. Sometimes the cause is just procrastination, while in other cases, a taxpayer is worried that there will be a large balance owing and he or she avoids completing and filing the return for that reason.

Of course, once a taxpayer fails to file an annual return, that taxpayer is in a quandary which only gets worse over time. Filing a return in a subsequent tax year will surely draw the attention of the tax authorities to the year or years in which a return wasn’t filed. Worse, if there was a balance of taxes owed, that amount can only have gotten larger with the addition of interest charges and it’s likely that penalties will have been levied as well. Consequently, a failure to file, for whatever reason, tends to become an ongoing, multi-year problem.

Taxpayers who find themselves in a situation in which they have failed to file a return in a previous year (or who have filed a return or returns in which they failed to report income or claimed deductions or credits to which they were not entitled) do have a option other than just hoping that their failings never come to light. The Canada Revenue Agency (CRA) offers an administrative program which allows such taxpayers to “come clean” with respect to past errors or omissions, pay any back taxes owed (plus interest) while avoiding the imposition of penalties or, in the worst-case scenario, prosecution. That option is the CRA’s Voluntary Disclosure Program.

The CRA will accept a voluntary disclosure and provide relief with respect to a wide range of taxpayer errors and omissions, including the following:

• failure to fulfill obligations under the tax legislation;
• failure to report taxable income received;
• claiming of ineligible expenses on the tax return;
• failure to remit employees’ source deductions;
• failure to report an amount of GST/HST (which may include undisclosed liabilities or improperly claimed refunds or rebates or unpaid tax or net tax from a previous reporting period);
• failure to file information returns; or
• failure to report foreign-sourced income that is taxable in Canada.

There are also situations in which a voluntary disclosure cannot be made, but relatively few of those would relevant to most individual taxpayers. Individual taxpayers cannot make a voluntary disclosure with respect to bankruptcy returns or with respect to income tax returns with no taxes owing or refunds expected.

Most taxpayers are understandably nervous about taking the initiative to come clean with the CRA about past transgressions. For those taxpayers, the CRA provides the option of an anonymous or “no-name” disclosure which, in effect, allows the taxpayer to test the waters. In a no-name disclosure, the taxpayer provides the information which would usually be made available to the CRA in a voluntary disclosure, except for his or her identity. (The taxpayer must, however, provide the first three characters of his or her postal code.) Following the no-name disclosure, a VDP officer from the CRA can confirm that there is nothing set out in the information provided that may immediately disqualify the taxpayer from further consideration under the VDP. If all the required information for a complete disclosure, except for the identity of the taxpayer, has been submitted, the CRA can also, upon request, review the information provided and advise on the possible tax implications of the disclosure.

After a no-name disclosure is made, the taxpayer has 90 days to provide his or her identity. If the taxpayer decides not to disclose that identity, the file is closed. If, based on the discussions which have taken place with the CRA, the taxpayer decides to provide identifying information and continue with the disclosure, the CRA will make a decision on the submission and inform the taxpayer of that decision.

Whether the initial contact with the CRA is on a no-names basis or not, there are four conditions which the CRA imposes before it will consider a disclosure to be eligible for the VDP.

1. The disclosure made must be truly voluntary, meaning that it must take place before the taxpayer is aware of any compliance or enforcement action which the CRA is taking against him or her, including a simple “Request to File” an outstanding return or returns. That restriction also applies where the taxpayer is aware of compliance or enforcement action taken against another person (like the taxpayer’s spouse or an unrelated third party) which is related to the information the taxpayer is disclosing.
2. The disclosure must involve the application of a penalty. Since the purpose of the VDP is to allow a taxpayer to come forward and pay outstanding taxes plus interest, while still avoiding the imposition of penalties, it would make no sense to go through the VDP where no penalties are involved.
3. Any information to be disclosed must be at least one year overdue.
4. The CRA will consider a voluntary disclosure only where the taxpayer provides full information on all outstanding errors or omissions — specifically, as described by the Agency, “[t]he taxpayer must provide full and accurate facts and documentation for all taxation years or reporting periods where there was previously inaccurate, incomplete or unreported information relating to any and all tax accounts with which the taxpayer is associated.” The CRA is not interested in receiving disclosures in respect of only some but not all taxation years or only some but not all errors or omissions made on prior year returns.

Making a voluntary disclosure to the CRA is a significant step, particularly where the disclosures affect multiple taxation years, or significant sums of money are involved. However, the availability of the “no-name” disclosure process does allow taxpayers to get a sense of what their liabilities might be before they take the step of identifying themselves to the tax authorities. And, as the late filing or other penalties which can be imposed by the CRA can be substantial, the opportunity to avoid the imposition of such penalties can itself serve as an incentive to come forward.

More information on the Voluntary Disclosures Program can be found on the CRA website at www.cra-arc.gc.ca/voluntarydisclosures/.

Springtime and early summer is moving season in Canada. The real estate market is traditionally at its strongest in the spring, and spring house sales are followed by real estate closings and moves in the following late spring and early summer months. All of this means that a great number of Canadians will be buying or selling houses this spring and summer and, inevitably, moving. Moving is a stressful and often expensive undertaking, even when the move is a desired one — buying a coveted (and increasingly difficult to obtain) first home, perhaps, or taking a step up the property ladder to a second, larger home. There is not much that can diminish the stress of moving, but the financial hit can be offset somewhat by a tax deduction which may be claimed for many of those moving-related costs.

Springtime and early summer is moving season in Canada. The real estate market is traditionally at its strongest in the spring, and spring house sales are followed by real estate closings and moves in the following late spring and early summer months. All of this means that a great number of Canadians will be buying or selling houses this spring and summer and, inevitably, moving. Moving is a stressful and often expensive undertaking, even when the move is a desired one — buying a coveted (and increasingly difficult to obtain) first home, perhaps, or taking a step up the property ladder to a second, larger home. There is not much that can diminish the stress of moving, but the financial hit can be offset somewhat by a tax deduction which may be claimed for many of those moving-related costs.

It’s a somewhat common misconception that all moves will qualify for a moving expense deduction. The reality is that the deductibility of moving-related costs is actually determined by whether the move brings the taxpayer closer to his or her place of work.  Since many of those who move do so for work-related reasons, it is often the case that moving costs will be deductible; however, there are in all cases a set of criteria which must first be satisfied. Our tax system allows taxpayers to claim a deduction only 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 Calgary to Vancouver 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.  Finally, moving expenses will be deductible where a taxpayer moves at least 40 kilometres to become self-employed by starting a new business at the new location.  As well, it’s not necessary to be a homeowner in order to claim moving expenses. The list of moving-related expenses which may be deducted is the same for everyone — homeowner or tenant — who meets the 40-kilometre requirement. Students who are moving 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.

The general rule is that a taxpayer can claim reasonable amounts that were paid for moving him 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 amount of that income earned at the new location in the year of the move is less than deductible moving expenses incurred, those expenses can be carried over and deducted from such income in future years.

Within that general rule, however, there are a number of specific inclusions, exclusions and limitations, which are not necessarily intuitive. 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”).

• travel 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, haulage, movers, in-transit storage, and insurance) for household effects, including items such as boats and trailers;
• costs for up to 15 days for meals and temporary accommodation near the old and the new residences for the members of the household;
• lease cancellation charges (but not rent) on the old residence;
• legal 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 (but excluding GST or HST and property taxes); 
• 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.

Although it is not as common in the current real estate market, it can happen that a move to the new home has to take place before the old residence is sold. In 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 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 deductions are available.

It may seem from the forgoing that virtually all moving-related costs will be deductible — however, there are some costs for which the 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.

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. In some cases, 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 44.5 cents for Alberta to 61.5 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 2015 taxation year — the CRA will be posting the rates for 2016 on its website early in 2017, in time for the tax filing season.

The rules which govern the deduction of moving expenses 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, which was updated and re-issued by the CRA in January of 2016. The current version of the form can be found on the CRA’s website at www.cra-arc.gc.ca/E/pbg/tf/t1-m/README.html, and more information is available at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/menu-eng.html. Details of the allowable amounts which may be claimed for standardized moving-related meal and travel expenses can be found on the same website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/255/rts-eng.html.

By now, most Canadian taxpayers (excepting the self-employed and their spouses, who have until June 15) will have filed their 2015 income tax returns. Once the Canada Revenue Agency (CRA) has processed those millions of returns, over the next few weeks and months, taxpayers across Canada will begin to receive Notices of Assessment for 2015. In most cases, the Notice of Assessment issued will simply confirm the information which the taxpayer provided on the return, perhaps with some minor arithmetical corrections. However, not infrequently, the Notice of Assessment will indicate that the CRA has disallowed or changed the amount of certain deductions or credits, or has included in income amounts not declared by the taxpayer on his or her return. When that happens, it’s time for the taxpayer to decide whether to dispute the CRA’s assessment of their tax situation.

By now, most Canadian taxpayers (excepting the self-employed and their spouses, who have until June 15) will have filed their 2015 income tax returns. Once the Canada Revenue Agency (CRA) has processed those millions of returns, over the next few weeks and months, taxpayers across Canada will begin to receive Notices of Assessment for 2015. In most cases, the Notice of Assessment issued will simply confirm the information which the taxpayer provided on the return, perhaps with some minor arithmetical corrections. However, not infrequently, the Notice of Assessment will indicate that the CRA has disallowed or changed the amount of certain deductions or credits, or has included in income amounts not declared by the taxpayer on his or her return. When that happens, it’s time for the taxpayer to decide whether to dispute the CRA’s assessment of their tax situation.

The CRA’s return review process, whatever the filing method used by the taxpayer, is to do an initial review based on the information provided by the taxpayer and to issue a Notice of Assessment to that taxpayer. In some cases, the Agency will make changes or corrections (of an arithmetical nature — the CRA does not alter a return to add credits or deductions not already claimed by the taxpayer) while in other instances the return is “assessed as filed” — that is, the CRA agrees with the information filed by the taxpayer, and no changes to the return are needed. In either case, unless the taxpayer disagrees with and wishes to dispute the Notice of Assessment issued by the CRA, his or her tax filing obligations for the year are complete.

That process of initial review by the CRA, followed by the issuance of a Notice of Assessment can, however, be “short-circuited” in a couple of ways. First, the taxpayer sometimes realizes that the already-filed return contains an error. Second, the CRA can determine that its initial review of the return cannot be completed until it obtains more information or documentation from the taxpayer.

In most cases, it’s the taxpayer who discovers, after the return is filed, that information has been inadvertently misstated, or perhaps amounts have been omitted where an information slip was received after the return was filed.  In such situations, the taxpayer is often at a loss to know how to proceed, but the process for amending a return is actually quite straightforward. The first reaction in such circumstances is sometimes simply to file another, corrected return, but that’s not the right course of action. Instead, the taxpayer should wait until a Notice of Assessment is received in respect of the return already filed, and then file a T1 Adjustment Request with the CRA, making the necessary corrections. That request for an adjustment to an already-filed return can be done in any one of three ways, once the Notice of Assessment is received. The available methods are outlined on the CRA website, as follows:

• use the “change my return” option found on the CRA website in My Account at www.cra.gc.ca/myaccount;
• send a completed Form T1-ADJ, T1 Adjustment Request, to the taxpayer’s tax centre; or
• send a signed letter to the taxpayer’s tax centre asking for an adjustment to the return.

The easiest and quickest way of requesting an adjustment is through the CRA website’s “My Account” feature, but that option is available only to taxpayers who have already registered for that service. While doing so isn’t difficult (the steps to be taken to do so are outlined on the website at www.cra-arc.gc.ca/esrvc-srvce/tx/psssrvcs/pss_fq/cnd-eng.html#hlp1a), it does take a few weeks to complete the process.

Taxpayers who don’t want to deal with the CRA through its website, or who don’t think it’s worth registering for My Account just to deal with the Agency on a single issue, can obtain a hard copy of the T1 Adjustment form from the CRA website. The most recent (2015) version of the form can be found at www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html. Taxpayers who are unable to print the form off from the website can order a copy to be sent to them by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. The use of the actual form isn’t mandatory — the third option of sending a letter to the CRA signed by the taxpayer is an acceptable alternative — but using a standardized form has two benefits: (1) it makes it clear to the CRA that an adjustment is being requested, and (2) filling out the form will ensure that the CRA is provided with all the information needed to process the requested adjustment.  Once the form or letter is completed, it (along with any supporting documents) should be mailed to the Tax Centre to which the original return was sent. A taxpayer who isn’t sure any more where that was can go on the CRA website at  www.cra-arc.gc.ca/cntct/tso-bsf-eng.html and, by selecting his or her location from a drop-down menu of provinces and cities, can obtain the address of the Tax Centre to which the adjustment request should be sent.

Sometimes the CRA will contact the taxpayer even before the return is assessed, to request further information or documentation of deductions or credits claimed (for example, information on the custody of a child where one parent has claimed an equivalent to spouse deduction, or receipts documenting child care expenses claimed). In all cases, the best thing to do is respond to such requests 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 where a request for information or supporting documents for a deduction or credit claimed is ignored by the taxpayer, the assessment will proceed on the basis that that such support does not exist. Providing the requested information or supporting documents can usually resolve the question to the CRA’s satisfaction, and the assessment of the taxpayer’s return can then proceed.

In recent years, there has been a great deal of public discussion about the availability (and the viability) of federal income support programs for retirees. It’s not news that Canada’s population is aging, and the demands placed on government-sponsored retirement income programs will of course increase as greater numbers of Canadians reach the age at which they will be entitled to receive monthly benefit payments from those programs.

In recent years, there has been a great deal of public discussion about the availability (and the viability) of federal income support programs for retirees. It’s not news that Canada’s population is aging, and the demands placed on government-sponsored retirement income programs will of course increase as greater numbers of Canadians reach the age at which they will be entitled to receive monthly benefit payments from those programs.

There are, essentially, three federal retirement income programs which are generally available to Canadians. The first, the Canada Pension Plan (CPP), is a contributory program, meaning that individuals make contributions to their own CPP “accounts” throughout their working lives. Those contributions are matched by employers and the total of contributions made after the age of 18 is used to determine an individual’s CPP entitlement later in life. An individual who is eligible to receive the CPP retirement benefit can choose to begin receiving it anytime between age 60 and age 70, with the amount of monthly benefit increasing for each year that receipt of that benefit is deferred.

The second major retirement income program – the Old Age Security (OAS) Program – is funded from general government revenues, and no contributions from individual Canadians are required. Eligibility for the OAS benefit is determined by how long one has lived in Canada after the age of 18. Generally speaking, an individual who has been a Canadian resident for 40 years after turning 18 will receive the full OAS benefit, while a pro-rated benefit can be received by those whose period of Canadian residency is shorter.

Finally, for lower-income seniors who are eligible for OAS benefits, the federal government provides the Guaranteed Income Supplement (GIS) and Allowance. The amount of the GIS and Allowance varies, depending on whether the recipient is or is not married, and how much income the individual or couple is receiving from other sources.

The three components of the federal government retirement income programs have been subject to a number of changes over the past several years. Generally, those changes have increased the age at which individuals can begin to receive benefits (as with the OAS program) or have created an incentive for individuals to defer receipt of benefits in order to increase the amount of monthly benefit to be received (as with the CPP.). In this year’s federal Budget, more changes to federal retirement income programs were announced; however, this round of changes will generally be welcomed by retirees and soon-to-be-retirees.

Likely the most significant change announced in the recent federal Budget is the restoration of eligibility for Old Age Security benefits at age 65. For many years, Canadians who were eligible to receive benefits under the Old Age Security Program were able to start receiving those benefits when they turned 65. A measure implemented by the previous government, however, increased the age of eligibility for OAS benefits to 67, with the change to be phased in between 2023 and 2029. This year’s Budget cancels that measure. All Canadians who are eligible to receive OAS benefits will be able to begin receiving such benefits the month after they turn 65.

Changes have also been announced to the Guaranteed Income Supplement and Allowance program. The GIS and Allowance is a needs-based benefit, in which an individual’s income, or the combined income of a couple, is used to determine eligibility for and the amount of any benefit entitlement. There are many instances in which a senior couple must, for reasons beyond their control, live apart, such as when one member of a couple requires nursing home care. Inevitably, that means higher living costs for such couples. Changes will be made to current rules to ensure that couples in such circumstances will receive Guaranteed Income Supplement and Allowance benefits based on their individual incomes, which will mean higher benefits, better reflecting their increased cost of living.

Finally, the federal government announced in the Budget that a public consultation process will be held beginning later in 2016 with respect to the Canada Pension Plan.  Fewer and fewer Canadians are covered by workplace pension plans, meaning a greater degree of financial insecurity after retirement. The federal government began discussions with the provinces in December 2015 on the question of whether enhancements to the Canada Pension Plan were needed in light of current workplace realities and the fact that Canadians are living longer in retirement. The federal government’s intention is that that inter-governmental consultation, together with the upcoming public consultation process, will lead to a decision on such enhancements before the end of this year.

These changes to Canada’s retirement income system were all announced in the 2016 federal Budget, and are outlined in more detail in the Budget Papers, which can be found on the Finance Canada website at www.budget.gc.ca/2016/docs/plan/ch5-en.html#_Toc446106782.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2015, 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 2015, must have been implemented by the end of the 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 February 29, 2016 in order to be deducted on the return for 2015.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2015, 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 2015, must have been implemented by the end of the 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 February 29, 2016 in order to be deducted on the return for 2015.

The fact that the clock has run out on most major tax planning opportunities for 2015 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 2015 — 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”.

The Canadian tax system, and therefore the Canadian income tax return form, is complex and subject to constant revision. It’s not surprising, therefore, that it’s easy to miss out on deductions or credits which are available, or to fail to recognize that the way in which such deductions or credits are claimed can have a significant effect on how much tax is saved. Realistically, most Canadians deal with taxes only once a year, when filing the annual return, and spend as little time as possible doing so. Almost no one reads the annual tax guide thoroughly, or reviews the information on the Canada Revenue Agency’s (CRA’s) website closely, looking for opportunities for tax savings.   

Everyone’s tax situation — and, therefore, their tax return — is different, of course, but what follows is an outline of deductions and credits which are commonly claimed by Canadians, and the ways in which structuring those claims properly can maximize the tax benefit.

Splitting income within the family unit

Income splitting is likely the strategy which has the greatest potential to create tax savings within a family. Briefly stated, income splitting works because Canada has a “progressive” tax system, meaning that tax rates increase as income rises. So, a family which has a single income earner earning $100,000 per year will pay more in tax than a family in which two income earners make $50,000 each, even though total family income is the same in both cases.

Of course, every dollar of tax saved by Canadian taxpayers means one dollar less of revenue for federal and provincial governments, so the ability to split income is tightly regulated. On the 2015 tax return, there are two broadly available income splitting opportunities.

The first is the so-called “Family Tax Cut”, which allows one spouse to transfer (on paper only — no actual transfer of funds is required) up to $50,000 in taxable income to his or her spouse, and have that income taxed in the hands of the spouse. The amount of tax which can be saved through this income splitting mechanism is, however, capped at $2,000 per family per year. The Family Tax Cut is claimed on Schedule 1-A, which is provided as part of the 2015 General Income Tax and Benefit package. More information on the Family Tax Cut is available on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns409-485/423-eng.html.

Taxpayers who may be able to claim the “Family Tax Cut” should be aware that this year’s return will be their last opportunity to do so. In the recently released 2016 federal Budget, it was announced that the Family Tax Cut would be eliminated, effective as of the 2016 tax year.

The second income splitting opportunity for 2015 is available to older married Canadians who receive private pension income during the year. Those taxpayers are entitled to allocate up to half that income to a spouse for tax purposes. Unlike the Family Tax Cut, there is no absolute dollar limit or cap on the amount of income which can be transferred or the amount of tax which can be saved through pension income splitting. For purposes of pension income splitting, private pension income generally means a pension received from a former employer and, where the income recipient is over the age of 65, also includes payments from a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Government source pensions, like payments from the Canada Pension Plan, Quebec Pension Plan, or Old Age Security payments do not qualify for pension income splitting.

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 plan administrator.
Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032E(12) Joint Election to Split Pension Income with their annual tax return. That form, which is unfortunately not included in the general tax return package issued by the CRA, can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1032/README.html.  As well, the General Income Tax Guide provides only a minimal amount of information on pension income splitting: much more extensive and detailed information on qualifying income, mechanics, benefits, and tax results of the strategy can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/pnsn-splt/menu-eng.html.

Determining when to claim a credit for charitable deductions

Canadians who make donations to registered charities are entitled to claim a non-refundable charitable donations tax credit for those donations, for both federal and provincial/territorial tax purposes. The amount of the provincial/territorial credit will vary by jurisdiction: for 2015, the federal credit is calculated as 15% of donations up to $200, and 29% of donations over that amount.

Canadians are entitled to make a claim on the annual return for charitable donations made in the current (2015) year, or in any one of the previous five years. While it may seem counter-intuitive not to claim a contribution made during the year, in some cases a better tax result may be obtained by waiting.

For taxpayers whose total charitable donations made during 2015 amount to more than $200, the full claim should be made on the 2015 return — there is no benefit to such taxpayers in delaying the claim. Where, however, total charitable donations made during the year do not exceed that $200 threshold, it may be better to wait. For example, a taxpayer who contributes $150 to charity in a year and claims that amount on the return will receive a 15% credit. Where the same taxpayer makes a similar $150 donation in the next year and claims the entire $300 in donations on that year’s return, he or she can receive a credit of 15% on the first $200 and a higher rate on the balance of $100 in donations.

Aggregating medical expenses within a family

While many medical expenses of Canadians (doctor’s visits and hospital care) are covered by public health care plans, there is a long list of such expenses (like prescription drugs and dental care) which must be paid for out-of-pocket. For some Canadians, those costs are covered by an employer-sponsored plan, but for many others there is no public or private coverage.

What there is for such taxpayers is the ability to claim a federal tax credit equal to 15% of qualifying medical expenses. Each of the provinces and territories also offers a medical expense tax credit, with the percentage amount varying by jurisdiction.

In all cases, the credit for medical expenses can be claimed only on such expenses which exceed 3% of the taxpayer’s net income, or $2,208, whichever is less. It’s possible, however, for all medical expenses of both spouses and all children who were aged 17 and under at the end of 2015 to be combined and claimed by either spouse. So, while the medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses may well mean that total expenses are enough to go over the 3% of net income/$2,208 threshold.

In structuring the medical expense claim, there are two points to remember. Since total medical expenses claimable are those which exceed 3% of net income, or $2,208 —whichever is less — the most 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 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.

More information on the kinds of expenses which qualify for the medical expense tax credit and on how to best structure the claim for that credit can be found on the CRA website at www.cra-arc.gc.ca/medical/.

Over the next academic and calendar year, post-secondary students will find that a number of changes are taking place with respect to the rules governing the financing side of post-secondary education. Some of those changes will be welcome, and others will not.

Over the next academic and calendar year, post-secondary students will find that a number of changes are taking place with respect to the rules governing the financing side of post-secondary education. Some of those changes will be welcome, and others will not.

First, the bad news. Under current rules, post-secondary students are eligible to claim an education credit and a textbook credit on their annual tax returns. The amounts which may be claimed for each credit are set by law, with higher amounts available to be claimed by full-time students. All such amounts claimable are then converted to tax credits at a rate of 15%. The credits are non-refundable, meaning that they can reduce tax otherwise payable but cannot create or increase a tax refund. Where the student does not have tax payable for the year, the credits can be transferred to a spouse, parent, or grandparent, or can be carried forward to be claimed in a future taxation year.

In this year’s federal Budget, it was announced that both the education and textbook tax credits are to be eliminated, effective with the 2017 tax year. Carryforwards will not be lost, however, as students who have earned such credits in previous years (or who earn them in 2016) will be able to continue to carry them forward and make a claim in future years.

The good news is that the revenue gained by the federal government in cancelling the education and textbook credits is to be used, at least in part, in order to make more welcome changes to other aspects of financing of post-secondary education.

First, the current system under which a student’s income and financial assets are assessed in order to determine a student’s eligibility for financial assistance will be replaced. The federal government proposes to introduce a flat-rate student contribution to determine eligibility for Canada Student Loans and Grants, and intends to work with the provinces to finalize the new model in time for implementation with the 2017-18 academic year. As outlined in the Budget Papers, the change is intended to allow students to work and gain labour market experience without having to worry about a reduction in their level of financial assistance.

Second, the loan repayment threshold under the Canada Student Loans Program’s Repayment Assistance Plan will be increased to better reflect minimum wages currently in place. Generally the new rules will provide that students will not have to repay their Canada Student Loan until they are earning at least $25,000 per year.

More details of the budgetary changes affecting post-secondary students can be found at www.budget.gc.ca/2016/docs/plan/ch1-en.html#_Toc446106647.

For even the most determined of procrastinators, the deadline for filing an individual income tax return for the 2015 tax year is imminent. That deadline will come on Monday May 2, 2016 for most Canadians, and on Wednesday June 15, 2016 for the self-employed and their spouses.

For even the most determined of procrastinators, the deadline for filing an individual income tax return for the 2015 tax year is imminent. That deadline will come on Monday May 2, 2016 for most Canadians, and on Wednesday June 15, 2016 for the self-employed and their spouses.

Canadian taxpayers have a choice of three methods for filing of 2015 tax returns – paper filing, NETFILING, or EFILE. For the ever-decreasing minority of taxpayers who wish to file a paper return, that option is still available, although not as easy as it was in previous years. A few years ago, the Canada Revenue Agency (CRA) ceased its long-standing practice of mailing personalized income tax return forms to Canadians. That change had two consequences. First, taxpayers who wish to use a paper form to file must now obtain one themselves, either by picking up a form and income tax guide at a Canada Post location or at a Service Canada office (a listing of such offices can be found at www.servicecanada.gc.ca/cgi-bin/sc-srch.cgi?ln=eng, or by ordering a form and guide to be sent by mail, by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. It’s also possible to print off hard copy of the tax return form from the CRA website at www.cra-arc.gc.ca/formspubs/t1gnrl/menu-eng.html.

The second, more significant, consequence of the CRA’s decision to no longer provide personalized tax returns is the loss of specialized tax forms. At one time, there were several versions of the individual income tax return, each tailored to a specific group of taxpayers. For instance, the CRA once provided a specialized form for seniors, and also a simplified form for taxpayers who had relatively straightforward tax situations. Those specialized forms are no longer available and all taxpayers must now use the lengthier and more complex T1 General return form.  

The majority of Canadian taxpayers (82%, according to the CRA) do now file their income tax returns electronically. Those wishing to do so have two options: they can file the return themselves using the CRA’s NETFILE service, or they can choose to pay someone (generally, a professional tax preparation service or a bookkeeper or accountant) to prepare and EFILE the return for them.

While EFILE is the most-used method of filing, millions of Canadians do choose to do their own returns using the NETFILE option. In order to use NETFILE, it is necessary to prepare one’s tax return using tax preparation software. While there are any number of such software packages available to purchase this time of year, taxpayers should also be aware that the necessary software can be obtained, free of charge in most cases, from the CRA website. A listing of software authorized for use in the preparation of tax returns for the 2015 tax year can be found on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/crtfdsftwr/menu-eng.html.

The NETFILE service for filing of returns for 2015 started on February 15, 2016 and will be available until January 20, 2017. It’s not necessary to have an access or security code in order to NETFILE a return; instead, all software programs available this year allow taxpayers to submit their returns directly to the CRA, without the need to log onto the CRA's NETFILE website. The NETFILE service is available 21 hours a day, 7 days a week, on the following schedule.

The CRA also provides a help function for anyone who encounters difficulty or problems when trying to NETFILE. The toll-free number for the e-Services help desk number is 1-800-714-7257, and their service hours are as follows.

The e-Services help desk provides assistance only with queries or problems encountered while NETFILING a return, and not with questions on how to complete the return. Taxpayers who have questions about how to complete their return (no matter which filing method they choose to use) can call the CRA’s individual income tax enquiries line at 1-800-959-8281.

While tax return forms and filing methods have changed and changed again over the years, there is one constant – the filing and payment deadlines. The usual deadline for the filing of individual income tax returns by the majority of Canadians is April 30. However, this year April 30 falls on a Saturday and so the individual income tax filing deadline is extended to Monday May 2, 2016. Self-employed taxpayers and their spouses have until June 15, 2016 to file their returns. For all taxpayers, however, where there is a tax amount still to be paid for the 2015 tax year, that amount is due and payable in its entirety on or before May 2, 2016. Where payment is not made on time and in full, the interest clock starts running on May 3, 2016. For the second quarter of 2016 (April 1 to June 30), interest is levied by the CRA at a rate of 5%. That rate is compounded daily, meaning that on each successive day, interest is levied on interest charged the day before.  

One last thing – there is a common misconception among Canadian taxpayers that if a balance is owing and the money to pay that balance isn’t available, it is better to put off filing. That is, in all circumstances, a mistake. Where a balance is owed and a return isn’t filed on time, there is an automatic penalty imposed equal to 5% of the outstanding amount owed, plus 1% per month for every full month that the return is late. Higher penalties apply where there have been late-filings for any of the past three tax years. Even where payment can’t be made, or can’t be made in full, filing on time is always the best strategy.

For several decades, Canadian families have received financial assistance from the federal government to help offset the cost of raising children, through a range of benefits and allowance programs. Those programs have taken a variety of forms, from direct payments to parents to credits provided on the annual tax return. Some amounts provided under some such programs were taxable, while others were not. The one constant throughout those decades is that such programs are in a continual state of change and revision, resulting in a sometimes confusing patchwork of entitlements.

For several decades, Canadian families have received financial assistance from the federal government to help offset the cost of raising children, through a range of benefits and allowance programs. Those programs have taken a variety of forms, from direct payments to parents to credits provided on the annual tax return. Some amounts provided under some such programs were taxable, while others were not. The one constant throughout those decades is that such programs are in a continual state of change and revision, resulting in a sometimes confusing patchwork of entitlements.

The latest iteration of child and family benefits was announced recently in the 2016 federal Budget, on March 22. There will be little time to adjust to the change, as the new Canada Child Benefit will take effect in July 2016, with existing programs eliminated as of the same month.

Those existing programs are the Canada Child Tax Benefit (CCTB) and the Universal Child Care Benefit (UCCB). The former is a non-taxable payment made monthly to Canadian families, based on family size and income. The latter, as the name suggests, is a payment made to all Canadian families having children under the age of 16, with the amount of the payment based on the age of the child or children. The full amount of the UCCB is included in income and taxed as income to the recipient parent.

Beginning July 1, both of those programs will be replaced by a single program, the Canada Child Benefit. That program will provide Canadian families who have children aged 17 or younger with a monthly benefit. The amount of benefit payable will be based on the number of children in the family, their ages, and the amount of net family income. All amounts received will be non-taxable.

Details of the new program, as outlined in the Budget Papers, are as follows.

The Canada Child Benefit will provide a maximum benefit of $6,400 per child under the age of 6 and $5,400 per child aged 6 through 17. On the portion of adjusted family net income between $30,000 and $65,000, the benefit will be phased out at a rate of 7% for a one-child family, 13.5% for a two-child family, 19% for a three-child family and 23% for larger families. Where adjusted family net income exceeds $65,000, remaining benefits will be phased out at rates of 3.2% for a one-child family, 5.7% for a two-child family, 8% for a three-child family and 9.5% for larger families, on the portion of income above $65,000.

To recognize the additional costs of caring for a child with a severe disability, Budget 2016 proposes to continue to provide an additional amount of up to $2,730 per child eligible for the disability tax credit. The phase-out of this additional amount will be made to generally align with the Canada Child Benefit. Specifically, it will be phased out at a rate of 3.2% for families with one eligible child and 5.7% for families with more than one eligible child, on adjusted family net income in excess of $65,000, effective July 1, 2016. This additional amount will be included in the Canada Child Benefit payments made to eligible families.

Entitlement to the Canada Child Benefit for the July 2016 to June 2017 benefit year will be based on adjusted family net income for the 2015 taxation year.

Families who want to determine the amount of Canada Child Benefit which they will begin receiving in July of this year can do so using an online calculator provided by the federal government and available at www.budget.gc.ca/2016/tool-outil/ccb-ace-en.html?utm_source=CRA&utm_medium=Carousel&utm_content=Calc&utm_campaign=CAbdgt16  As well, additional details of the overall program can be found on the Finance Canada website at www.budget.gc.ca/2016/docs/tm-mf/si-rs-en.html.

There’s no denying that the Canadian tax system is complex, even for individuals with relatively straightforward tax and financial circumstances. As well, significant costs can follow if a taxpayer gets it wrong when filing the annual tax return. Sometimes those costs are measured in the amount of time needed to straighten out the consequences of mistakes made on the annual return; in a worst case scenario, they can involve financial costs in the form of interest charges or even penalties levied for a failure to remit taxes payable on time or in the right amount. Whatever the reason, fewer and fewer individuals are willing to brave the annual trip through the 488 lines of the federal tax return (plus seemingly innumerable related federal schedules and provincial tax forms), and that means that the percentage of Canadians who have their return prepared by someone who has, presumably, more expertise, has continued to rise.

There’s no denying that the Canadian tax system is complex, even for individuals with relatively straightforward tax and financial circumstances. As well, significant costs can follow if a taxpayer gets it wrong when filing the annual tax return. Sometimes those costs are measured in the amount of time needed to straighten out the consequences of mistakes made on the annual return; in a worst case scenario, they can involve financial costs in the form of interest charges or even penalties levied for a failure to remit taxes payable on time or in the right amount. Whatever the reason, fewer and fewer individuals are willing to brave the annual trip through the 488 lines of the federal tax return (plus seemingly innumerable related federal schedules and provincial tax forms), and that means that the percentage of Canadians who have their return prepared by someone who has, presumably, more expertise, has continued to rise.

Whether that someone else is a willing family member or friend, or a professional tax preparer and/or tax filing service, having someone else prepare the return means, in most cases, that the taxpayer will be dealing with the Canada Revenue Agency (CRA) through a representative.

It sometimes comes as a surprise to taxpayers that the CRA will not — and, in fact, cannot — provide a taxpayer’s personal tax information to anyone other than that taxpayer, unless written authorization has been provided in advance, or the taxpayer him or herself is there to provide verbal authorization. While it may seem reasonable for a spouse who does the tax returns for the entire family or for an adult child completing a return for an elderly parent to be given access to information needed to complete that return, the restrictions on the release of such information are, in fact, very much in the best interests of the taxpayer. Most such requests for another individual’s personal tax information are genuine and well-intentioned, but that is not always the case, unfortunately.

The CRA provides a prescribed form — the T1013(E), Authorizing or Cancelling a Representative, (available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1013/README.html) — which can be used by anyone to name any other person as their representative. It’s also possible, for those who are already registered for the CRA’s My Account service, to authorize a representative online.

No matter what the process, the first decision which must be made by a taxpayer who is authorizing a representative is the level of authority he or she wants to grant to a representative and that, in turn, will depend on what he or she wants the representative to be able to do. The CRA provides for two levels of authorization on the T1013, and broadly speaking, the first — Level 1 — provides the representative with the right to receive information, while the higher Level 2 access enables the representative to make changes to the taxpayer’s account. Where a taxpayer does not specify a level of access when authorizing a representative, the CRA will automatically assign the lower Level 1 access to that representative. The specific rights granted to a representative at each level are as follows.

Level 1 Access

Where a representative has been provided by the taxpayer with Level 1 access, the CRA can disclose the following information to that representative:

• information given on the taxpayer’s income tax return;
• adjustments to the taxpayer’s income tax return;
• information about the taxpayer’s RRSP, Home Buyers' Plan, TFSA, and Lifelong Learning Plan;
• the taxpayer’s accounting information, including balances, payment on filing, and instalments or transfers;
• information about the taxpayer’s benefits and credits (Canada child tax benefit, universal child care benefit, GST/HST credit, working income tax benefit); and
• the taxpayer’s marital status (but not information related to his or her spouse or common-law partner).

A Level 1 representative is not allowed to request changes (adjustments and transfers) to the taxpayer’s account.

Level 2 Access

A representative who has been provided by the taxpayer with Level 2 access has all the powers of a Level 1 representative, as well as the right to ask for adjustments to the taxpayer’s income, deductions, non-refundable tax credits, and accounting transfers. A Level 2 representative is also able to submit a request for taxpayer relief, and to file a notice of objection or an appeal on the taxpayer’s behalf.

There are some actions which cannot be taken by either a Level 1 or a Level 2 representative. A representative authorized by the filing of a T1013, regardless of level of authorization, will not be allowed to change the taxpayer’s address, marital status, or direct deposit information, or to authorize, view, or cancel other representatives on the taxpayer’s file.

A taxpayer naming a representative must also decide whether he or she wants the representative to have online access to the taxpayer’s account, or to be able to deal with the CRA on his or her behalf only by telephone, in person, or by mail. Where the authorization provides only for the latter (no online access), the taxpayer can specify the tax years for which access is being authorized, and the level of authorization granted for each such year. Where online access is authorized, however, that access must be for all tax years, although the taxpayer can still specify the level (Level 1 or Level 2) of access to be allowed. It’s also important to note that where a taxpayer names a firm or business (as opposed to a specific individual) as the representative, he or she is authorizing the CRA to deal with any representative from that business.  Finally, the taxpayer can also specify a date on which the authorization will expire, if he or she wishes to do so.

It is readily apparent that naming someone as your representative with the CRA, even at the lowest level for a limited period of time, gives that person access to an enormous amount of personal tax and financial information. Taxpayers should be aware, when providing an authorization, exactly what they have agreed to and for what length of time. Where a taxpayer engages the services of a tax return preparation service, for instance, that service will frequently ask the taxpayer to sign an authorization enabling them to act as the taxpayer’s representative with the CRA. It is a reasonable request, given that the tax return preparer may need to contact the CRA to obtain information (e.g., from prior year returns) which is needed to prepare the tax return for the current year. Taxpayers who authorize a representative in such circumstances should, however, be careful to ensure that the authorization is limited, usually to the specific time during which the return will be prepared. Not infrequently, taxpayers have been asked to sign an authorization which does not specify any time frame and are surprised to find that such an authorization is still in effect, giving the representative the right to obtain information about that taxpayer, even years later, long after the taxpayer had finished his or her dealings with the tax return preparation service.

The need to designate a representative to deal on one’s behalf with the CRA is fairly commonplace. However, giving another person access to your personal tax information, even for a limited purpose or a limited time, is a significant step which should not be taken without some thought. Where it is determined that providing such access is necessary, careful consideration should be given to the level of access needed, the tax years for which access is required and, possibly most important, providing a date on which that authorization will expire.

Any taxpayer told of a strategy that offered the possibility of saving hundreds or thousands of dollars in tax and increasing his or her eligibility for government benefits while requiring no advance planning, no expenditure of funds, and almost no expenditure of time could be forgiven for thinking that what was proposed was an illegal tax scam. In fact, that description applies to pension income splitting which is a government-sanctioned strategy to allow married taxpayers over the age of 65 (or, in some cases, age 60) to minimize their combined tax bill by dividing their private pension income in a way which creates the best possible tax result.

Any taxpayer told of a strategy that offered the possibility of saving hundreds or thousands of dollars in tax and increasing his or her eligibility for government benefits while requiring no advance planning, no expenditure of funds, and almost no expenditure of time could be forgiven for thinking that what was proposed was an illegal tax scam. In fact, that description applies to pension income splitting which is a government-sanctioned strategy to allow married taxpayers over the age of 65 (or, in some cases, age 60) to minimize their combined tax bill by dividing their private pension income in a way which creates the best possible tax result.

Many Canadians, even those in a position to benefit from pension income splitting, have never heard of it. That’s because the strategy gets very little coverage in the media. While Canadians are inundated during the first two months of the year with advertisements extolling the virtues of making contributions to registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs), pension income splitting is never mentioned. The reason for that is that it is one of the very few tax planning strategies in which no one but the taxpayer gains a financial benefit.

The information provided with the annual tax return form also doesn’t highlight the benefits of pension income splitting, and the form needed to carry out a pension income splitting strategy isn’t included in the General Income Tax Return package. The Guide issued by the Canada Revenue Agency (CRA) for 2015 returns does flag the pension income splitting option, in the same manner as all other deductions and credits which may be of particular relevance to seniors. However, the material on income splitting included in the Guide addresses only the mechanics of filing — which number goes where — with no significant explanation of the tax-saving benefits which can be obtained. Consequently, unless a taxpayer is getting good tax planning or tax return preparation advice, it’s likely that he or she could overlook a significant opportunity to reduce his or her tax burden.

Dividing income between spouses makes for a lower overall tax bill because of the way our tax system is structured. Canada’s tax system is what is known as a “progressive” tax system, in which the rate of tax imposed increases as income rises. In very general terms, for 2015, the first $45,000 of taxable income attracts a combined federal-provincial rate of around 25%. The next $45,000 of such income, however, is taxed at a rate of just under 35%. When taxable income exceeds about $140,000, the tax rate imposed can approach 50%. While those percentages and income thresholds will vary by province, provincial and territorial tax rates will, in every province or territory, increase as taxable income goes up. Dividing income allows a greater proportion of that income to be taxed at lower rates. Of course, that means that the total tax payable (and therefore government tax revenues) will be reduced. Consequently, our tax laws include a set of rules known as the “attribution rules” which seek to prevent strategies to divide income in this way. Pension income splitting is a government-sanctioned exception to those attribution rules.

The general rule with respect to pension income splitting is that taxpayers who receive private pension income during the year are entitled to allocate up to half that income with a spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is over the age of 65, also includes payments from an annuity, an RRSP, or a registered retirement income fund (RRIF). Government source pensions, like payments from 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 plan administrator.
Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032-15e, Joint Election to Split Pension Income, with their annual tax return. That form, which is not included in the annual tax return package, can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1032/README.html, or can be ordered by calling 1-800-959 8281.

On the T1032-15e, 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 the particular tax year. 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 T1032-15e, the spouse who actually receives the pension income must deduct from income the pension income amount allocated to his or her spouse. That deduction is taken on line 210 of his or her return for the year. And, conversely, the spouse to whom the pension income is being allocated is required to add that amount to his or her income on the return, this time on line 116. Essentially, to benefit from pension income splitting, all that’s needed is to for each spouse to file a single form with the CRA and to make a single entry on his or her tax return for the year.

Generally, when taxpayers sit down to complete their income tax returns this spring, it will be too late to take any action which will reduce taxes payable for the 2015 tax year — in most cases, such actions needed to be taken before the end of the 2015 calendar year. One of the best attributes of pension income splitting as a tax planning strategy is that it doesn’t have be addressed until it’s time to file the return for 2015. By the end of February or early March, taxpayers will have received the information slips which summarize their income for the year from various sources. 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 can be found in the General Income Tax Guide should refer to the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/pnsn-splt/menu-eng.html, where detailed information is provided.

For several years, the Canada Revenue Agency (CRA) has been seeking to convince Canadian taxpayers of the benefits of filing their annual tax return online, and it seems that their efforts have been successful. Last year, over 80% of Canadian taxpayers filed their returns by electronic means. The change has been a rapid one, as nearly 40% of tax filers filed a paper return in 2011, with that number dropping to less than 20% in 2015.

For several years, the Canada Revenue Agency (CRA) has been seeking to convince Canadian taxpayers of the benefits of filing their annual tax return online, and it seems that their efforts have been successful. Last year, over 80% of Canadian taxpayers filed their returns by electronic means. The change has been a rapid one, as nearly 40% of tax filers filed a paper return in 2011, with that number dropping to less than 20% in 2015.

There are, in fact, two methods by which online filing can be accomplished — NETFILE and EFILE. The first of those — NETFILE — 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 — EFILE — involves having a third party file one’s return online. Almost always, the EFILE service also prepares the return which they are filing.

Most Canadians do seem to prefer having someone else prepare and file their tax return, as 55% of returns filed during the 2015 filing season came in by EFILE. About one-quarter of Canadians (26%) filed using NETFILE and the balance (19%) chose to file using the traditional paper return. A fourth option — TELEFILE — which allowed Canadians to file a tax return using a touch-tone phone was discontinued by the CRA a few years ago and so is no longer available.

The majority of taxpayers who wish to have someone else prepare and file their return can find information about E-FILE on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/fl-nd/menu-eng.html. It’s also possible to do a search on that site, using one’s postal code, to locate an approved E-FILE service provider.

The one-quarter of Canadians who are comfortable with preparing their own returns and filing them using the CRA’s NETFILE service can find information about that service on the Agency’s website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. At one time it was necessary to have a NETFILE access code in order to NETFILE, but that is no longer the case. Taxpayers who wish to NETFILE will simply have to provide some personal identifying information including their name, social insurance number, and date of birth, in order to satisfy the CRA’s security requirements.

NETFILE can only be used where a return is prepared using tax return preparation software which has been approved by the CRA, and such software can be found for sale just about everywhere this time of year. It’s also possible to find approved software which can be used free of charge, as a listing of such software is provided on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/crtfdsftwr/menu-eng.html.

For the still significant minority of taxpayers who wish to file a paper return, individual income tax return packages for 2015 can be obtained at Canada Post outlets or Service Canada locations.

Each of these methods requires that the taxpayer either complete the return himself or herself, or pay a fee to have someone else do so. Taxpayers who are not comfortable preparing their own returns but for whom the cost of third-party preparation is a barrier do have another option. A number of Volunteer Tax Preparation Clinics, where volunteers prepare returns without charge, operate during tax filing season. A listing of such clinics is available on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/vlntr/clncs/menu-eng.html.

Finally, no matter who prepares the return or how it is filed, the filing and payment deadlines are the same. This year taxpayers get a bit of break, as the payment and filing deadline for the majority of Canadians falls on a weekend, and so is extended. Consequently, all individual income tax amounts payable for the 2015 tax year must be paid on or before Monday May 2, 2016. All individual taxpayers (except those who are self-employed and their spouses) must file their return for 2015 on or before Monday May 2, 2016. Self-employed taxpayers and their spouses must file on or before Wednesday June 15, 2016, but are required to pay any tax owing by the May 2, 2016 deadline. No exceptions and, absent exceptional circumstances, no extensions.

While filing a tax return is an annual event for just about every Canadian, the return that is filed, and sometimes the process of filing it, changes each year. Differences in the return itself arise from changes made in our tax laws, which occur on a regular basis. Changes to the filing process generally come about because of changes in the Canada Revenue Agency’s (CRA) administrative procedures, which themselves are usually the result of improvements in technology. The process of filing returns for 2015 includes both types of changes.

While filing a tax return is an annual event for just about every Canadian, the return that is filed, and sometimes the process of filing it, changes each year. Differences in the return itself arise from changes made in our tax laws, which occur on a regular basis. Changes to the filing process generally come about because of changes in the Canada Revenue Agency’s (CRA) administrative procedures, which themselves are usually the result of improvements in technology. The process of filing returns for 2015 includes both types of changes.

On the administrative side, the CRA has introduced a new feature which it calls “Auto-fill my return”. That feature allows certain parts of a tax filer’s return for 2015 to be automatically completed using information which the CRA already has on file. Most tax filers will know that, even though the use of tax preparation software minimizes the need to manually input a lot of figures, it is still necessary to gather a great deal of information from a number of sources in order to complete the return. Auto-fill my return, which is available only to tax filers who file online using certified tax preparation software and who are registered for the CRA’s online service My Account, automatically completes those lines of the return which include information relating to the following:

• T3, T4, and T5 slips;
• Registered retirement savings plans (RRSPs);
• Home Buyers’ Plans;
• Lifelong Learning Plans;
• Non-capital losses;
• Capital gains and losses;
• Capital gains deductions;
• Federal and provincial tuition, education, and textbook carryover amounts; and
• Instalment payments.

Changes will also be seen on the 2015 return when it comes to income to be reported and deductions and credits to be claimed. Many of those changes affect families and while some of the changes will be welcome, others may come as an unpleasant surprise.

On the good news side, families which incurred deductible child care expenses during 2015 will find that the maximum amount which can be deducted per child has increased by $1,000. Consequently, the basic limits for 2015 are $8,000 for children born in 2009 or later and $5,000 for those born from 1999 to 2008. The annual limit for child care expenses claimable for a child for whom the disability amount can be claimed is $11,000. 

Parents whose child or children are involved in fitness related activities have been able, for the past several years, to claim a non-refundable tax credit to help offset the cost of those activities. As a non-refundable credit, the credit could reduce or eliminate tax otherwise payable, but could not create or increase a refund. For 2015, however, the credit has been made refundable. Parents should also be aware that the same change has not been made to the parallel credit for qualifying arts-related activities, which remains a non-refundable credit.

On the negative side, the tax cost of recent changes to federal benefits and credits for families will become apparent. The previous federal government introduced measures which increased the amount of the Universal Child Care Benefit (UCCB) and provided a new benefit of $60 per month for children aged 6 to 17. Families eligible for the new or increased benefits received a lump sum amount last summer which included all such amounts payable for the first six months of 2015. Thereafter, the monthly amounts payable to qualifying families were increased to reflect the new or increased benefits. However, whether received as a lump sum or on a monthly basis, all such new or increased amounts are subject to tax, and that tax will have to be paid when the return for 2015 is filed.

That is not, unfortunately, the only bad tax news to be found for families on the 2015 tax return. At the same time the UCCB was increased and the new benefit introduced, the existing child tax credit was eliminated. That child tax credit allowed a parent to make a claim, on his or her tax return for the year, for a non-refundable tax credit of $338 for each child under the age of 18. Each such credit claimed reduced the parent’s overall tax bill for the year by $338. Since there will be no child tax credit claim allowed on the return for 2015, every Canadian parent who claimed that credit in previous years will, as a result, see their federal tax bill increase by $338 per child.

Another change provides a benefit to taxpayers who have pursued apprenticeships as part of their education. Students who receive funds from government student loan programs for approved post-secondary education programs have for several years been able to deduct the cost of interest paid on those loans. For 2015, a deduction for interest paid will be provided to registered Red Seal apprentices who have paid interest on a Canada Apprentice Loan.

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 #35 Corporate

Personal:

Issue #35 Personal

The early months of the new calendar year can feel like a never-ending series of bills and other financial obligations. Credit card bills from holiday spending, or perhaps a mid-winter vacation, are due or coming due. The RRSP deadline of February 29, 2016 is approaching, and the May 2, 2016 deadline for payment of any final balance of 2015 income taxes owed is not far behind.

The early months of the new calendar year can feel like a never-ending series of bills and other financial obligations. Credit card bills from holiday spending, or perhaps a mid-winter vacation, are due or coming due. The RRSP deadline of February 29, 2016 is approaching, and the May 2, 2016 deadline for payment of any final balance of 2015 income taxes owed is not far behind.

As if that series of financial hits wasn’t enough, many Canadians must also contend with an instalment reminder received from the Canada Revenue Agency (CRA) around the middle of February. While many of those who receive such reminders are already familiar with the tax instalment process, that doesn’t make the reminder any more welcome. For others, the idea of paying taxes by instalment is unfamiliar and often puzzling.

For most Canadians, income taxes they owe are deducted by their employer from their paycheques and remitted to the CRA on their behalf. While that system is efficient, it’s also largely invisible to the individual employee/taxpayer. Consequently, taxpayers, especially the newly retired, are sometimes surprised to find that they must make arrangements to ensure that taxes are paid throughout the year, in order to avoid having a large tax balance owed when the return for 2015 is filed in the spring of 2016.

The instalment payment system is one way in which those taxes can be paid throughout the year. Generally, a taxpayer will receive an instalment reminder when deductions made at source (that is, deductions made by the payor and remitted on the individual payee’s behalf to the CRA) are not made at all (as in the case of self-employment income) or are not sufficient to cover the individual’s income tax bill for the year (as often occurs with retirees, especially the newly retired). However, no matter what kind of income one receives, or the reason that sufficient tax has not been deducted at source, the options available to a taxpayer who receives such a reminder are the same.

 Canadian federal tax rules provide that a taxpayer may be required to pay income tax by instalments where the amount of tax which was or will be owed on filing is more than $3,000 for the current year (2016) and either of the two previous years (2014 or 2015). Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income is at least $3,000 less than their total tax liability for the current and either of the two previous years. Such instalment payments of tax are then due on March 15, June 15, September 15, and December 15 of each year.

An Instalment Reminder issued by the CRA in February 2016 will specify two amounts—one to be paid by March 15, and the other to be paid by June 15. Each of these amounts represents the Agency’s best estimate, based on the taxpayer’s return filed for the 2014 taxation year, of one quarter of the net tax will which be payable by the taxpayer for 2016. The taxpayer then has the following three options.

First, the taxpayer can pay the amounts specified on the Reminder, by the respective due dates of March 15 and June 15. A taxpayer who chooses this option can be certain that he or she will not face any interest or penalty charges, even if the amount paid turns out to be less than the taxes actually payable for the 2016 tax year. If the instalments paid turn out to be more than the taxpayer’s net tax liability for 2016, he or she will of course receive a refund on filing.

Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2015 tax year. Where a taxpayer’s income has not changed significantly between 2015 and 2016, and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2016 will be slightly less than it was in 2015. That reduction in tax payable results from both the lowering (from 22% to 20.5%) of a federal individual income tax rate for 2016 and from the indexation of tax brackets and personal tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2016 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease from 2015 to 2016 and there will consequently be a reduction in tax payable, this option may be worth considering.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges where there is no tax payable when the return for the 2016 tax year is filed in the spring of 2017. 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 2016—until March 31, 2016—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 impose penalties, but this 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 have 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.

Millions of Canadians receive Old Age Security (OAS) benefits, meaning that millions of Canadians may be subject to the OAS “recovery tax” or, as it is more commonly referred to, the clawback. Unfortunately, very few Canadians are familiar with that tax or how it works, and even fewer incorporate the possibility of having to pay the tax into their retirement income planning. There are, however, strategies which allow taxpayers to minimize or avoid the OAS clawback in retirement.

Millions of Canadians receive Old Age Security (OAS) benefits, meaning that millions of Canadians may be subject to the OAS “recovery tax” or, as it is more commonly referred to, the clawback. Unfortunately, very few Canadians are familiar with that tax or how it works, and even fewer incorporate the possibility of having to pay the tax into their retirement income planning. There are, however, strategies which allow taxpayers to minimize or avoid the OAS clawback in retirement.

For taxpayers who are not yet retired, the start of such planning (as it would be in any case) is to get a sense of what one’s income from all sources will be in retirement. Where the total amount of that income approaches the level at which the clawback could apply (for 2016, that income threshold is $73,756), it is necessary to consider some planning strategies. The overall goal of those strategies is to arrange the timing and character of income received in a way which keeps the total income figure each year below the OAS clawback threshold.

The first such strategy is to use tax-free savings accounts (TFSAs) to accumulate savings which will be tapped into in retirement. Amounts withdrawn from a registered retirement savings plan (RRSP) or registered retirement income fund (RRIF), or paid to a taxpayer in the form of an annuity are included in the total income figure used to calculate the clawback. Withdrawals from a TFSA are not. While no deduction is available for TFSA contributions, such as can be claimed for contributions to an RRSP, it may still be advisable to contribute to a TFSA rather than an RRSP. Depending on the taxpayer’s circumstances, it’s possible that the tax payable by forgoing a current deduction may be less than the combined effect of tax payable and loss of OAS benefits (and other federal and provincial credits) which would result from withdrawing those funds from an RRSP or RRIF after retirement.

Taxpayers who may be subject to the clawback should also carefully consider the age at which they want to begin receiving OAS and Canada Pension Plan benefits. It’s now possible to defer receipt of such benefits anytime up until the time the taxpayer turns 70 and the later the start date, the higher the annual benefit. The taxpayer should consider whether that higher benefit obtained from deferring the receipt of benefits (especially when combined with required withdrawals from RRSP savings which will begin at age 71) will push total annual income over the OAS clawback income threshold.

Other strategies will come into play once the taxpayer is retired and receiving OAS. Taxpayers who are over the age of 71 must withdraw income from their retirement savings at a prescribed rate. While those withdrawals will be included in income for purposes of the clawback, they can be contributed to a TFSA if not needed to meet current expenses. Once in the TFSA, any investment income earned by the funds will be sheltered both from income tax and from being counted for purposes of the clawback.

Taxpayers who are married and have private pension income (generally meaning income from an employer pension, an RRSP or RRIF or an annuity, but not government source pension income) may benefit from pension income splitting. Such pension income splitting allows the higher income spouse to reallocate up to 50% of such private pension income to his or her spouse, on a “notional” basis, meaning that no actual transfer of funds is required. The transferred income is then taxed in the hands of the lower income spouse and counts as that spouse’s income (and not that of the transferor) for purposes of the OAS clawback.

There are a lot of considerations which go into structuring income in retirement, and everyone’s financial and tax situation is different. That said, however, the overall goal for most taxpayers will be to create a relatively level flow of income from year to year, sufficient to meet current cash flow needs and maximize eligibility for available tax credits and benefits, but below the threshold at which those credits and benefits will be eroded or clawed back.

Canadian taxpayers don’t need a calendar to know that the registered retirement savings plan (RRSP) contribution deadline is approaching — the glut of television, radio and internet ads which fill the airwaves and screens this time of year are reminder enough. And, while RRSP planning and retirement planning generally are best approached as an ongoing, year-round activity, it is true that an imminent deadline tends to focus the minds of taxpayers on such issues

Canadian taxpayers don’t need a calendar to know that the registered retirement savings plan (RRSP) contribution deadline is approaching — the glut of television, radio and internet ads which fill the airwaves and screens this time of year are reminder enough. And, while RRSP planning and retirement planning generally are best approached as an ongoing, year-round activity, it is true that an imminent deadline tends to focus the minds of taxpayers on such issues

This year, an RRSP contribution for 2015 can be made any time up to and including Monday February 29, 2016. The allowable current year contribution to be made by any individual for 2015 is equal to 18% of income earned in 2014, to a maximum contribution of $24,930. However, many if not most Canadian taxpayers have contribution “room” carried over from previous years, and such carryover amounts can also be added to the 2015 contribution amount and deducted from income for 2015 .

Every taxpayer who filed an income tax return for 2014 received a Notice of Assessment from the Canada Revenue Agency (CRA), and the total amount of one’s allowable RRSP contribution for 2015 (including any carryover amounts) can be found on page 2 of that Notice of Assessment. Taxpayers who didn’t keep or can’t find their Notice of Assessment can call the CRA individual enquiries line at 1-800-959-8281 to obtain that information. When making that call, it’s important to have a copy of the last return filed on hand, as the CRA representative who takes the call will request information from the return, as part of the Agency’s information security procedures. At a minimum, a taxpayer will be asked to provide his or her social insurance number, date of birth, and the figure which was entered on line 150 of the previous year’s tax return.

Any amount contributed to an RRSP for the 2015 tax year is deducted from income for that year and then is allowed to grow, tax-free, once it’s in the RRSP. It doesn’t matter how the funds in the RRSP are invested or what kind of investment income (interest income, dividend income, etc.) is earned by those funds— no tax is payable on such investment income as it accumulates. However, when a withdrawal is made from the RRSP, all amounts withdrawn, whether original contributions or investment income earned, are subject to tax.

While RRSPs have been around for a long time, a newer tax savings vehicle in the form of Tax Free Savings Accounts (TFSAs) became available to Canadians starting in 2009. TFSAs are, in many ways, the mirror image of RRSPs. No deduction from income is permitted for contributions made to a TFSA, but investment income earned within such a plan is not taxed as it is earned, and amounts withdrawn from a TFSA (whether original contributions or investment income earned) are received free of tax. As is the case with RRSPs, where a contribution is not made to a TFSA for a particular taxation year, the contribution amount is carried forward and may be contributed by the taxpayer in any future year. However, TFSAs have one feature which completely distinguishes them from RRSPs: where an amount is withdrawn from a TFSA, that amount is added to the taxpayer’s contribution room and may be re-contributed in any subsequent taxation year. Finally, while an RRSP contribution for 2015 must be made on or before February 29, 2016, there is no such deadline for TFSA contributions—such contributions for 2015 can be made at any time during 2015 or, given the very flexible carryforward rules which apply to such plans, at any time in the future.

There is also a new “wrinkle” to TFSA planning in 2016 since the maximum annual TFSA contribution has, for the first time, been reduced. When TFSAs were introduced in 2009, the maximum yearly contribution amount was set at $5,000. That limit was increased in 2013 and 2014, and nearly doubled for 2015. However, for 2016, the contribution limit returns to pre-2015 levels.

Overall, the list of annual contribution limits looks like this:

The annual TFSA dollar limit for the years 2009, 2010, 2011, and 2012 was $5,000.

The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.

The annual TFSA dollar limit for 2015 was $10,000.

The annual TFSA dollar limit for 2016 is $5,500.

It’s understandable, given the frequent changes in TFSA contribution limits, to say nothing of the calculations required to deal with the re-contribution of withdrawn amounts, that taxpayers would be confused about just what their total current and carryforward contribution amount limit is at any given time. Fortunately, the CRA keeps track of that information, and information on one’s current overall limit can be obtained by calling the CRA’s individual income tax enquiries line at 1-800-959-8281.

A decision about making a contribution isn’t, and shouldn’t be, an either/or choice, as it’s perfectly possible for Canadians to contribute to both an RRSP and a TFSA in the same year. The financial and cash flow limitations faced by most Canadians, however, mean that making the maximum contribution to both kinds of plans in the same year just isn’t a realistic possibility. Where that’s the case, it’s necessary to decide which kind of contribution, or combination of contributions makes the most sense. As is almost always the case in tax planning, there is no one “right” answer for everyone and no “one-size-fits-all” solution. That said, there are some general considerations which may help in determining which savings/investment vehicle is preferable for a particular individual for 2015/16.

• The minority of taxpayers working in the private sector who are members of registered pension plans (RPPs) will likely find the TFSA option particularly attractive. The maximum amount which can be contributed to an RRSP for the 2015 tax year is calculated as 18% of earned income for 2014, to a maximum contribution of $24,930. However, that maximum contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under the pension plan. Where the RPP is a particularly generous one, RRSP contribution room may be minimal, and a TFSA contribution the logical alternative.
• For younger taxpayers, where the savings goal is short-term—for example, a down payment on a home or paying for next year’s vacation or a new car, the TFSA is clearly the better choice. While choosing to save through an RRSP will provide a deduction on that year’s return and, probably, 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 small amount over 25 or 30 years 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 (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.
• For taxpayers aged 72 and older, the RRSP vs. TFSA question is simply irrelevant, as taxpayers who are older than 71 years of age cannot make RRSP contributions. Many of those taxpayers, however, have savings accumulated in a registered retirement income fund (RRIF) and are required to withdraw a specified percentage of funds from that RRIF each year. Particularly in cases where the required RRIF withdrawals exceed the RRIF holder’s current needs, that income can be contributed to a TFSA. While the RRIF withdrawals must 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.
• Lower income taxpayers who are in a position to put some money aside are likely better off using a TFSA for those savings. A major benefit of saving for retirement through an RRSP results from the assumption that one’s income—and therefore one’s tax rate—will be lower after retirement than it was before, meaning that a permanent tax savings will be achieved. Where that’s not the case—where there isn’t likely to be a great difference between pre- and post-retirement income—that benefit is lost. As well, lower income taxpayers who would otherwise be eligible for means-tested government benefits like the Guaranteed Income Supplement or tax credits like the GST credit or age credit could find that making withdrawals from an RRSP pushes their income to a level which reduces or eliminates eligibility for such benefits or credits. Since monies withdrawn from a TFSA are not included in income for the purpose of determining eligibility for any government benefits or tax credits, saving through a TFSA will ensure that receipt of such benefits is not put at risk.

There are, clearly, a number of factors, both present and future, to consider when deciding which savings vehicle best suits one’s circumstances. To meet the need for information in making that determination, the CRA has dedicated sections of its website to information about both TFSAs and RRSPs. That information can be found at www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html and www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/rrsps-eng.html.

As the time for the traditionally strong spring housing market approaches, the current state of Canadian real estate is on the minds of a lot of Canadians these days. It’s also a concern for Finance Canada, which has made a change to Canadian mortgage financing rules which will take effect on February 15, 2016, in time for that spring housing market.

As the time for the traditionally strong spring housing market approaches, the current state of Canadian real estate is on the minds of a lot of Canadians these days. It’s also a concern for Finance Canada, which has made a change to Canadian mortgage financing rules which will take effect on February 15, 2016, in time for that spring housing market.

For a number of reasons, Canada’s mortgage financing market never experienced the excesses which occurred in the United States, and which culminated in the mortgage and financial market meltdown in 2008-09. Nonetheless, the Canadian government was sufficiently concerned that it made a series of changes to the rules governing Canadian mortgage financing between 2008 and 2012. Those rules, all of which were aimed at ensuring that Canadians could actually afford the homes they wanted to buy, included the following:

• increasing the minimum down payment to 5%;
• decreasing the maximum amortization period to 25 years;
• limiting the maximum insurable house price to below $1 million;
• applying maximum debt service-to-income ratios; and
• applying a mortgage rate stress test for mortgages with terms of less than 5 years or variable rates.

The latest change in mortgage financing rules, announced in December 2015, is more targeted in nature. Specifically, the change affects only homes sold for more than $500,000. Since the average price of a home sold in Canada in October 2015 through the Multiple Listing Service was $453,000, this latest change will likely have the greatest impact in major metropolitan markets, particularly Toronto and Vancouver.

While the minimum down payment for purchasing a home in Canada is 5%, mortgage insurance is required where that down payment is less than 20% (The exception is homes purchased for $1 million or more, where the minimum down payment is 20%.) Such mortgage insurance is provided through a federal government agency, the Canada Mortgage and Housing Corporation, and backed by the federal government.

 The Department of Finance press release announcing the change can be found on the Finance website at www.fin.gc.ca/n15/15-088-eng.asp, and that press release includes a link to a Backgrounder providing additional details of mortgage financing rules in Canada.

Planning for 2016 taxes when the year has barely started and the filing deadline for 2015 returns is still months away may seem more than a little premature. Nonetheless, taking some time to review one’s tax situation—and perhaps putting a few strategies in place—at the beginning of the year can help avoid a cash flow crisis or other financial shock when the RRSP contribution deadline looms or it is tax filing (and tax payment) time in the spring of 2017. And, while many tax planning and tax saving strategies can be implemented throughout the tax year, getting an early start on such planning usually leads to the best results.

Planning for 2016 taxes when the year has barely started and the filing deadline for 2015 returns is still months away may seem more than a little premature. Nonetheless, taking some time to review one’s tax situation—and perhaps putting a few strategies in place—at the beginning of the year can help avoid a cash flow crisis or other financial shock when the RRSP contribution deadline looms or it is tax filing (and tax payment) time in the spring of 2017. And, while many tax planning and tax saving strategies can be implemented throughout the tax year, getting an early start on such planning usually leads to the best results.

One tax planning step that is best taken early in the year is to ensure that the right amount of tax is being paid throughout the year. Most Canadians love getting a tax refund – the bigger the better. Receiving a refund after filing the annual tax return feels like getting “free” money from the federal government. In fact, except in very narrow circumstances, the reality is the opposite—it’s the taxpayer who has provided the federal government with the interest-free use of the taxpayer’s money. Getting a tax refund often indicates a failure to plan one’s tax payments properly at the beginning of the year.

To understand why that is so, it’s necessary to understand how and when the tax authorities collect taxes from individual taxpayers. Canada’s tax system is a self-assessing one, in which individual taxpayers file an annual return at a prescribed time, usually by the end of April in the following year, reporting their income from all sources and calculating the amount of federal and provincial tax which they must pay on that income. Of course, very few taxpayers would be able to pay their entire tax bill for the year at one time and the tax authorities are equally disinclined to wait until past the end of the tax year to receive income taxes owed by Canadians. So, for most Canadians (certainly for the vast majority who receive their income from employment), income tax, along with other statutory deductions like Canada Pension Plan and Employment Insurance contributions, are paid periodically throughout the year by means of deductions taken from their paycheques, with those deductions then remitted to the Canada Revenue Agency (CRA) 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 individual taxpayer. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by every employee, sometimes at the start of each tax 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 resides and works. Federal and provincial TD1 forms for 2016 (which are available on the CRA website at www.cra-arc.gc.ca/menu/AFAF_T_TD-e.html#ti) list the most common statutory credits and deductions 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 government.

While this system makes fundamental sense, it can go awry when too much tax is withheld from the employee’s paycheque, and then returned to him or her at the end of the tax year in the form of a tax refund. Generally, this happens when the employee does not correctly indicate on the TD1 forms all of the personal tax credit amounts to which he or she is entitled. In other cases, too much tax may be withheld where the employee has deductions or credits which cannot be claimed on the TD1 forms. In either case, the amount withheld from the employee’s paycheque throughout the year will be greater than the amount of tax he or she actually owes—thereby providing the tax authorities with an interest-free loan of what is ultimately the taxpayer’s money.

Where the taxpayer simply isn’t claiming on the TD1 all of the amounts to which he or she is entitled, the solution is a simple one. Only the basic personal tax credit which all Canadian resident taxpayers are entitled is automatically taken into account in determining a taxpayer’s deductions at source—all others must be specified by the taxpayer. So, if a taxpayer is entitled to claim a particular tax credit amount, like the spousal amount or the age amount that should be identified on the TD1. Assuming that employment income is, as is the case for most Canadians, the taxpayer’s only significant source of income, claiming all amounts to which he or she is entitled on the TD1 will mean that the source deductions made will accurately reflect tax liabilities for the year. At the end of the year, the individual will have paid the taxes for which he or she is responsible, without under or overpaying.

Where the taxpayer has available deductions which cannot be recorded on the TD1, it makes things a little more complicated, but it’s still possible to have source deductions adjusted to accurately reflect tax liability. The way to do so is to file a Form T1213, Request to Reduce Tax Deductions at Source (available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html), with the CRA. Once that form is filed with the CRA, the Agency will authorize the employer to reduce the amount of tax being withheld at source to more accurately reflect the taxpayer’s actual tax owing for the year. In most cases, taxpayers who file a Form T1213 do so because they are incurring expenditures which, while deductible for tax purposes, don’t show up on the TD1. Most commonly, those are expenditures like deductible support payments or contributions to a registered retirement savings plan (RRSP).

Many taxpayers like getting a tax refund because they see it as a kind of forced savings plan, and it’s true that if your money is being held throughout the year by the tax authorities, you can’t spend it. And it’s also true that a reduction in the amount of source deductions, while it can amount to a significant sum over the course of a year, is likely to be a relatively small amount per paycheque. Even the most financially self-disciplined among us find it difficult not to spend what seems like a fairly insignificant amount of money when it’s made available to us, especially when it feels like “found” money. The solution on both counts is to have the “excess” amount represented by reduced source deductions transferred into a TFSA or, even better, an RRSP as soon as it appears in the taxpayer’s bank account.  Even $20 a week will amount, not including interest, to just over $1000 per year. And, if that $1,000 is transferred into an RRSP, then the taxpayer will have a $1,000 deduction to claim on his or her tax return for the year—and will avoid, in whole or in part, that end-of-February scramble to come up with funds for an RRSP contribution. For a taxpayer who has a marginal tax rate of 40%, a $1,000 RRSP contribution and deduction will reduce the tax bill for the year by $400.

As with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes some time—the CRA’s estimate is four to six weeks. Consequently, a T1213 filed in early January should take effect, at the latest, by the middle of February—well in time to have the required effect on one’s source deductions for 2016.

Finally, even where the employer already has a TD1 on file for the employee, it’s easy and often advisable to provide the employer with a new one at the beginning of the tax year. Everyone’s circumstances change over time—a son or daughter starts post-secondary education, or an elderly parent comes to live with his or her children—and it’s likely that many individuals become entitled to make tax credit claims which aren’t reflected on a TD1 completed years previously. And, where the employee will have deductions in 2016 which can’t be recorded on the TD1, this would be a good time to prepare and file a T1213 for the year. Doing either, or both, as the case may be, will ensure that source deductions made during 2016 accurately reflect the employee’s current circumstances and consequently his or her actual tax liability for the year.

The Employment Insurance premium rate for 2016 is 1.88%.

Yearly maximum insurable earnings are set at $50,800, making the maximum employee premium $955.04.

As in previous years, employer premiums are 1.4 times the employee contribution. The maximum employer premium for 2016 is therefore $1337.06.

The Employment Insurance premium rate for 2016 is 1.88%.

Yearly maximum insurable earnings are set at $50,800, making the maximum employee premium $955.04.

As in previous years, employer premiums are 1.4 times the employee contribution. The maximum employer premium for 2016 is therefore $1337.06.

The Canada Pension Plan contribution rate for 2016 is unchanged at 4.95% of pensionable earnings for the year.

The Canada Pension Plan contribution rate for 2016 is unchanged at 4.95% of pensionable earnings for the year.

The maximum pensionable earnings for the year will be $54,900, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2016 will be $2,544.30 each, and the maximum self-employed contribution will be $5,088.60.

Dollar amounts on which individual non-refundable federal tax credits for 2016 are based, and the actual tax credit claimable, are contained herein.

Dollar amounts on which individual non-refundable federal tax credits for 2016 are based, and the actual tax credit claimable, will be as follows:

                                                                        Credit amount                       Tax credit

Basic personal amount                                             11,474                               1,721

Spouse or common-law partner

   amount                                                                11,474                               1,721

Eligible dependant amount                                        11,474                               1,721

Age amount                                                              7,125                               1,069

Net income threshold for

   erosion of credit                                                    35,927

Infirm dependant amount (over 18)                            6,788                               1,018

Net income threshold for                                            6,807

   erosion of credit

Caregiver amount (for parent

 or grandparent)                                                       4,667                                700

Net income threshold for                                          15,940

   erosion of credit

Disability amount                                                     8,001                               1,200

Adoption expenses credit                                         15,453                              2,318

Medical expense tax credit

   threshold amount                                                  2,237

Maximum refundable medical

   expense supplement                                             1,187

Old Age Security clawback

   Income threshold                                                 73,756

Credit amounts are converted to a non-refundable credit by multiplying the amount by the federal rate applicable to the lowest income bracket, which is 15% for 2016.

The indexing factor for federal tax credits and brackets for 2016 is 1.3%. Contained herein are the federal tax rates and brackets will be in effect for individuals for the 2016 tax year.

The indexing factor for federal tax credits and brackets for 2016 is 1.3%. The following federal tax rates and brackets will be in effect for individuals for the 2016 tax year:

Income level                           Federal tax rate

$11,327–$45,282                            15%

$45,283–$90,563                           20.5%

$90,564–$140,388                          26%

$140,389–$200,000                         29%

Above $200,000                              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.

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 2016 are listed below.

RRSP deduction limit increases to $24,930

The RRSP contribution limit for the 2015 tax year (for which the contribution deadline is Monday, February 29, 2016) will increase to $24,930. In order to make the maximum current year contribution for 2015, it will be necessary to have had earned income for the 2014 taxation year of $138,500.

TFSA contribution limit for 2016 reduced

The TFSA contribution room limit for 2016 is reduced to $5,500. The actual amount which can be contributed by a particular individual includes both the current year limit and any carryover or recontribution amounts from previous taxation years.

Individual tax instalment deadlines for 2016

Millions of individual taxpayers pay income tax by quarterly instalments, which are will be due on the 15^th day of each of March, June, September, and December 2016.

Individual tax filing and payments deadlines for 2016

For all individual taxpayers, including those who are self-employed, the deadline for payment of all income tax owed for the 2015 tax year April 30, 2016.

Taxpayers (other than the self-employed and their spouses) must file an income tax return for 2015 on or before April 30, 2016. As April 30, 2016 falls on a Saturday, payments and returns will actually be due this year on or before Monday, May 2, 2016. Self-employed taxpayers and their spouses must file a 2015 income tax return on or before Wednesday, June 15, 2016.

The Canadian income tax system, as it applies to individuals, operates on a calendar year basis. While there are a few exceptions (RRSP contributions and pension income splitting being the important ones), the general rule is that, in order to be effective for a particular taxation year, tax planning strategies must be implemented before the end of that year.

The Canadian income tax system, as it applies to individuals, operates on a calendar year basis. While there are a few exceptions (RRSP contributions and pension income splitting being the important ones), the general rule is that, in order to be effective for a particular taxation year, tax planning strategies must be implemented before the end of that year.

Although most taxpayers don’t give a lot of thought to their tax situation until it’s time to file the annual return, by then it’s usually too late to put any desired strategies in place. So, while individual tax returns for 2015 don’t have to be filed, at the earliest, until April 30, 2016, it’s worth taking the time now to evaluate one’s tax situation, consider possible strategies to reduce the tax bill for 2015, and execute those strategies before December 31, 2015. No one wants to be in the position of completing a tax return and discovering that money is owed to the government, while at the same time realizing that steps that could have been taken to reduce or eliminate that tax bill are no longer possible.

What follows is a list of some of the more common tax deductions and credits which are claimed by Canadian taxpayers, and the year-end considerations that apply to each.

Claiming medical expenses

While most out-of-pocket medical expenses incurred by Canadians may be claimed for purposes of the medical expense tax credit, the rules governing the computation of that credit can be confusing. The basic rule is that qualifying medical expenses (a list of which can be found on the Canada Revenue Agency (CRA) website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/llwbl-eng.html) in excess of 3% of the taxpayer’s net income or $2,208—whichever is less—can be claimed for purposes of the medical expense tax credit.

Put in practical terms, the rule for 2015 is that any taxpayer whose net income is less than $73,600 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 $73,600 will be limited to claiming expenses which exceed the $2,208 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 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 during 2015 will produce the greatest credit amount. That determination will obviously depend on when medical expenses were incurred, so there is, unfortunately, no universal rule of thumb.

Medical expenses incurred by all family members can be added together and claimed by one member of the family. In most cases, it is 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 approaches, it is a good idea to add up the medical expenses which have been incurred during 2015, as well as those paid during 2014 and not claimed on the 2014 return. Once those totals are known, it will be easier to determine whether to make a claim for 2015 or to wait and claim 2015 expenses on the 2016 return. And, if the decision is to make a claim for calendar year 2015, knowing what medical expenses were paid when will enable the taxpayer to determine the optimal 12-month period for the claim. Finally, it’s a good idea to look into the timing of medical expenses which will have to be paid early in 2016. It may make sense, where possible, to accelerate the payment of those expenses to December 2015, where that means that they can be included in 2015 totals and claimed on the 2015 return.

Making charitable donations

The federal and all provincial governments provide a two-level tax credit for donations made to registered charities during the year. To claim a credit in a particular tax year, donations must be made by the end of the calendar year. There is, however, another reason to ensure donations are made by December 31. For federal 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.

As a result of the two-level credit structure, it makes sense to aggregate donations in a single calendar year where possible. A qualifying charitable donation of $400 made in December of 2015 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 2015 and January 2016, the total credit claimable is only $60. ($200 × 15% + $200 × 15%), and the 2016 donation can’t be claimed until the 2016 return is filed in April of 2017. 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% rather than the 15% level.

It’s also possible to carry forward, for up to five years, donations which were made in a particular tax year. So, if donations made in 2015 don’t reach the $200 level, it’s 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 2010, 2011, 2012, 2013, or 2014 tax years can be carried forward and added to the total donations made in 2015, and then the aggregate amount claimed on the 2015 tax return.

When claiming charitable donations, it’s 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—Ontario, Prince Edward Island, and the Yukon—it makes sense for the higher income spouse to make the claim for the total of charitable donations made by both spouses.

For Canadians who have not been in the habit of making charitable donations, there is now an additional incentive to make a cash donation to charity. In the 2013 Budget, the federal government introduced a temporary (before 2018) charitable donations super-credit. That super-credit (which can be claimed only once) allows individuals who have not claimed a charitable donations tax credit for any taxation year after 2007 to claim a super-credit of 25% on up to $1,000 in cash donations made during the year. The super-credit, in combination with the regular charitable donations tax credit claimed, is therefore equal to 40% of donations under $200 and 54% of donations over the $200 threshold.

Reviewing tax instalments for 2015

Millions of Canadian taxpayers (particularly the self-employed and retired Canadians) pay income taxes by quarterly instalments, with the amount of those instalments representing an estimate of the taxpayer’s total tax liability for the year.

The final quarterly instalment for this year will be due on Tuesday, December 15, 2015. By that date, almost everyone will have a reasonably good idea of what his or her income and deductions will be for 2015, and will therefore be in a position to estimate what the tax bill will be for the year, taking into account any tax planning strategies put in place. While the tax return forms to be used for the 2015 tax year haven’t yet been released by the CRA, it’s possible to arrive at an estimate by using the 2014 form. Increases in tax credit amounts and tax brackets from 2014 to 2015 will mean that using the 2014 form will result, if anything, in a slight overestimate of tax liability for 2015.

Once one’s tax bill for 2015 has been calculated, it’s possible to compare that figure with the total of tax instalments already made for 2015 (that figure can be obtained by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281) and to determine whether the tax instalment to be paid on December 15 can be adjusted downward.

Old Age Security (or OAS) is one the two main components of Canada’s government-sponsored retirement income system—the other being the Canada Pension Plan (CPP). There are also federal and provincial supplements which are available to lower-income seniors. While many retired Canadians receive both OAS and CPP benefits every month, the two plans are quite different. The only determinants of the amount of Canada Pension Plan benefits receivable are one’s contribution amount and the age at which one elects to begin receiving benefits; other sources of available income or one’s overall income level are not considered. Eligibility for OAS, on the other hand, is based on Canadian residency. Essentially, a person aged 65 and older who has lived in Canada for at least forty years after the age of 18 is eligible for full OAS benefits. Where the length of Canadian residency after age 18 is less than forty years, a partial pension is earned at the rate of 1/40th of the full monthly pension for each full year lived in Canada. OAS benefits are fully indexed to inflation.

Old Age Security (or OAS) is one the two main components of Canada’s government-sponsored retirement income system—the other being the Canada Pension Plan (CPP). There are also federal and provincial supplements which are available to lower-income seniors. While many retired Canadians receive both OAS and CPP benefits every month, the two plans are quite different. The only determinants of the amount of Canada Pension Plan benefits receivable are one’s contribution amount and the age at which one elects to begin receiving benefits; other sources of available income or one’s overall income level are not considered. Eligibility for OAS, on the other hand, is based on Canadian residency. Essentially, a person aged 65 and older who has lived in Canada for at least forty years after the age of 18 is eligible for full OAS benefits. Where the length of Canadian residency after age 18 is less than forty years, a partial pension is earned at the rate of 1/40th of the full monthly pension for each full year lived in Canada. OAS benefits are fully indexed to inflation.

The differences between the CPP and OAS extend to how each program is financed. The CPP, like all contributory pension plans, is financed out of contributions made and income earned from the investment of those contributions. OAS, on the other hand, is paid from general federal government tax revenues. And, as the Canadian population ages, the cost of OAS to the federal government has continued to increase.

Several years ago, the federal government determined that it was no longer willing to maintain OAS as a program of universal entitlement. The conclusion reached was that the priority for benefits would be Canadian seniors whose income from all sources fell below a government-determined ceiling. That change meant that many Canadians, whose residence history would otherwise qualify them for full OAS benefits, must repay some benefits received.

The mechanism through which that limitation of benefits was to be achieved was the OAS “recovery tax”. The “clawback”, as it is known to virtually everyone but the federal government, is simple in concept. Where a person receiving OAS benefits has income for the year over a prescribed ceiling, 15% of that excess is deducted from the recipient’s OAS entitlement, up to the full amount of any OAS benefit otherwise receivable. For 2015, that income ceiling is $72,809, and the clawback is calculated as follows:

If the OAS recipient’s income in 2015 is $85,000, then the repayment would be 15% of the difference between $85,000 and $72,809:

$85,000 – $72,809 = $12,191

$12,191 x 0.15 = $1828.65

In this case, the OAS recipient would have to repay $1828.65 of benefits received in 2015. Where a taxpayer is subject to the OAS clawback, amounts owed are deducted from his or her OAS payments in the following benefit year. So, for example, a retiree who is subject to the clawback because his or her income for 2015 was greater than the OAS clawback threshold of $72,809 will have his or her benefits reduced during the “recovery tax period” from July 2016 to June 2017. The deduction will be spread over those 12 monthly pension payments, and the retiree will receive an Advisory Letter informing him or her of any recovery tax deductions which will be withheld from their OAS payments.

If, as in above example, the clawback amount for 2015 is $1828.65, a deduction of approximately $153 per month would be deducted from OAS pension payments starting in July 2016.

It seems not entirely in the spirit of the upcoming holidays to be talking about potential tax liability arising from holiday gifts. And it should be noted that, in the vast majority of cases, there are no tax consequences to such gifts. Where, however, gifts are provided by an employer to employees, unintended (and unwelcome) employee tax liability can be the result.

It seems not entirely in the spirit of the upcoming holidays to be talking about potential tax liability arising from holiday gifts. And it should be noted that, in the vast majority of cases, there are no tax consequences to such gifts. Where, however, gifts are provided by an employer to employees, unintended (and unwelcome) employee tax liability can be the result.

The holiday season is the time when many employees can expect to receive something “extra” from their employer, whether by way of a cash bonus, a non-monetary gift or even an annual holiday party. And, it’s certainly possible to structure such extras in a way that doesn’t attract the unwanted attention of the taxman. To do so, however, a little advance planning is required.

The tax treatment of employer-provided gifts and awards has always been something of a headache for the revenue authorities, for a few reasons. The amounts involved on an individual, or even a company level, are usually relatively small, and the variety of situations which the rules must address are virtually limitless, meaning that the cost required to draft and administer those rules can outweigh any revenue gained from their enforcement. As well, on occasion, the enforcement of those rules—as in the now infamous case in which the Canada Revenue Agency (CRA) taxed an employee Christmas party—can create a cost to the government in ill will and potential non-compliance that can similarly outweigh the benefit of any revenue raised. However, in the aggregate, the sums involved can be considerable and, in the absence of any rules, the potential exists for employers to provide their employees, on a tax-free basis, with “gifts” or “awards” which are simply disguised remuneration. And, at the end of the day, it’s the CRA’s job to make sure that doesn’t happen.

To meet that responsibility, the CRA has formulated a detailed set of rules which outline the tax consequences of gifts and awards provided by an employer to his or her employees, both during the holiday season and at other times of the year. Those rules are subject to frequent revision; however, the current set of rules governing the tax status of such gifts and awards, which are outlined below, have been in effect since 2010.

The starting point of the rules for taxation years starting in 2010 is that any gift (cash or non-cash) received by an employee from his or her employer is considered to constitute a taxable benefit, to be included in the employee’s income in the year the gift is received. 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 policy is simply that non-cash gifts and non-cash awards to an arm’s length employee, regardless of the number of such gifts or awards, will not be taxable if the total fair market value of all such gifts and awards to that employee is $500 or less annually. The total value over $500 annually will be a taxable benefit to the employee, which must be included on the T4 for the year, and on which income tax (and Canada Pension Plan contributions) 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 cost or fair market value. For this purpose, the CRA considers anything which could be easily converted to cash as a “near-cash” gift, which includes such things as gift certificates, gift cards, or points which can be redeemed for air travel or other rewards. Even a gift or award which cannot be converted to cash will be considered to be a near-cash gift if, in the words of the CRA, it “allows the employee a wide selection of choice in the item they receive”. So, a pre-paid credit card would likely be considered a “near-cash” gift, and taxable as such.

This time of year, the tax treatment of the annual employee holiday party also needs to be considered. The CRA’s current policy in this area is that no taxable benefit will be assessed in respect of employee attendance at an employer-provided social event, where attendance at the party was open to all employees, and the cost per employee was “reasonable”. In this case, “reasonable” cost is considered by the CRA to be $100 or less per person. The $100 cost is meant to cover the party itself, not including any ancillary costs, such as transportation home, taxi fare or overnight accommodation. Where the total cost of the party itself exceeds the $100 per person threshold, the CRA will assess the employee as having received a taxable benefit equal to the entire per person cost (i.e., not just that portion of the cost that exceeds $100).

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 surrounding the taxability of such gifts and benefits. However, designing a tax-effective plan is possible, if a few basic principles are kept in mind.

• Any cash or near-cash gifts should be avoided, as they will create a taxable benefit to the employee, no matter how large or small the amount. Although gift certificates are a popular choice, they aren’t a tax-effective one, as they will invariably be considered by the CRA as taxable income of 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.
• If the employer is planning to hold a holiday party, dinner, or other social event, it’s imperative that the event be open to all employees. Restricting attendance in any way will mean that the CRA’s rules on the non-taxable status of such events do not apply. The cost of the event must, as well, be kept below $100 per person. While the CRA’s policy doesn’t specify, it seems reasonable to calculate that amount based on the number of employees invited to attend the event, rather than on the actual attendance, which can’t be accurately predicted in advance. It’s important to remember, as well, that the employer can provide transportation home, taxi fare, or overnight accommodation without the need to include such costs in the $100 per person amount. 

Generally speaking, and absent extraordinary circumstances, the federal government issues two major economic and fiscal documents each year. The first is the federal Budget, which is usually delivered in the late winter or early spring, and outlines the government’s plans and projections with respect to federal government revenues and expenditures for the upcoming (April 1 to March 31) fiscal year, along with any new tax measures which the government intends to implement. About halfway through the fiscal year, usually during month of October, the federal government releases its Economic and Fiscal Update. As the name implies, this release updates the information announced in the federal Budget, especially with respect to revenue and expense projections, the overall state of the Canadian economy, and whether a change is required to the surplus or deficit projection provided in the Budget for the current fiscal year.

Generally speaking, and absent extraordinary circumstances, the federal government issues two major economic and fiscal documents each year. The first is the federal Budget, which is usually delivered in the late winter or early spring, and outlines the government’s plans and projections with respect to federal government revenues and expenditures for the upcoming (April 1 to March 31) fiscal year, along with any new tax measures which the government intends to implement. About halfway through the fiscal year, usually during month of October, the federal government releases its Economic and Fiscal Update. As the name implies, this release updates the information announced in the federal Budget, especially with respect to revenue and expense projections, the overall state of the Canadian economy, and whether a change is required to the surplus or deficit projection provided in the Budget for the current fiscal year.

This past year was something of an extraordinary year, in that the month during which the Economic and Fiscal Update would ordinarily been issued was largely given over to the federal election campaign. The newly elected government promised, however, that it would nonetheless be issuing an Update of Economic and Fiscal Projections for the 2015-16 fiscal year and, on November 20, 2015, it did so.

The new Minister of Finance indicated that the Update would not include or consider any of the fiscal plans or measures which the new government would be proposing or implementing, and it did not. The document stated specifically that the figures provided were “the fiscal projections inherited by this Government”, and the overall message of those projections, at least for the 2015-16 fiscal year could be summarized in six words: lower revenue, higher expenditures, no surplus.

Put more formally, the federal government’s conclusions are that revenue projections, when compared to those provided in the 2015-16 federal Budget, are lower “across the forecast horizon”. Similarly, projected expenses are higher than outlined in this year’s Budget, over the same time horizon. Although public debt charges are lower, those savings only partially offset the increase in direct program expenses, especially higher expenditures under the Employment Insurance program. The cumulative effect of those figures is that the $2.4 billion surplus originally projected for the 2015-16 fiscal year has instead become a $3 billion deficit.

On the economic side, the government noted that the Canadian economy contracted in the first half of 2015, with real GDP declining by 0.8% in the first quarter and by 0.5% in the second quarter. The government’s projections for the second half of the year are for real GDP to grow by 2.2% on average and to continue to grow at a “modest” pace in 2016. In addition, the inflation outlook has been revised downward, largely as a result of lower-than-expected crude oil prices.

The new government anticipates there will be an increased deficit of $3.9 billion for the upcoming 2016-17 fiscal year. The numbers improve somewhat for the 2017-18 and 2018-19 fiscal years, where the deficits are expected to come in at $2.4 and $1.4 billion, respectively. Finally, in 2019-20, the government expects to return to a surplus position and post a surplus of $1.7 billion. All of these figures are based on the current economic and fiscal situation, and do not include any revenue or expenditure measures to be implemented by the new government. Some of those measures will likely be announced in the 2016-17 federal Budget, to be delivered in the New Year.

The Update of Economic and Fiscal Projections 2015 document can be found on the Finance Canada website at www.budget.gc.ca/efp-peb/2015/pub/efp-peb-15-en.pdf.

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

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

Two quarterly newsletters have been added—one about personal issues, and one about corporate issues. They can be accessed below.

Corporate:

Issue #34 Corporate

Personal:

Issue #34 Personal

The Canadian tax system is a complex one, and while there are some deductions and credits—like RRSP contributions or charitable donations—which are familiar to just about every taxpayer, others are not so well known. One of those is the deduction which can be claimed by any taxpayer who must pay union dues or professional fees or professional liability insurance premiums.

The Canadian tax system is a complex one, and while there are some deductions and credits—like RRSP contributions or charitable donations—which are familiar to just about every taxpayer, others are not so well known. One of those is the deduction which can be claimed by any taxpayer who must pay union dues or professional fees or professional liability insurance premiums.

All such claims are made on Line 212 of the annual tax return, and allow the taxpayer to deduct eligible amounts paid, in full, from their income. In effect, no tax is payable on any income amounts which are used to pay union or professional dues or insurance premiums. And, unlike other deductions, there is no dollar figure limit imposed on amounts which may be deducted for professional or union dues, or professional liability insurance.

While the definition of professional or union dues or premiums payable for professional liability insurance may seem straightforward, there can in fact be a number of different types of payments involved. In determining what does and doesn’t qualify for the deduction, it’s necessary to consider the different types of dues and premiums separately.

Professional dues and insurance premiums

Essentially, the rule for deduction of these amounts provides that dues paid are deductible only where membership in an organization is necessary for the taxpayer to maintain professional status. So, for example, dues paid by a doctor to maintain membership in the College of Physicians and Surgeons in the province (or provinces) in which he or she practices medicine are deductible: dues paid to maintain membership in the Canadian Medical Association are not.  

Where the taxpayer who is seeking a deduction for such fees is an employee, it’s necessary that there be a reasonable degree of relationship between the payment of the membership fees and the requirements of the employee’s position. Continuing with the above example, a doctor who is employed by a hospital in whatever capacity should be able to claim a deduction for dues payable. A doctor who is working outside the medical field entirely but still wishes to maintain his or her membership in the College of Physicians and Surgeons will likely not be eligible to claim a deduction for dues paid.

The deduction of professional liability insurance premiums paid is more straightforward. A professional who is paying premiums for professional liability insurance is one who is working in his or her professional capacity. Such individuals can claim a deduction for the total amount of such premiums payable for insurance coverage during the calendar year for which the tax return is being filed.

Union dues

Like professional fees, union dues can be deducted where membership in a trade union is a requirement for the taxpayer to work in his or her trade or occupation. The Canada Revenue Agency’s (CRA’s) position is that membership dues and parity or advisory committee (or similar body) dues required under provincial or territorial law qualify for the deduction.

For both types of fees, other amounts can be included in the annual levy, but many of those amounts do not qualify for a deduction. Specifically, the CRA’s view is that dues eligible for the deduction do not include initiation fees, licenses, special assessments, or charges for anything other than the organization’s ordinary operating costs. It’s also not possible to claim charges for pension plans as membership dues, even if receipts received show them as dues.

Whether the fees in question are professional fees or union dues, a deduction can be claimed by an individual only where he or she is the person paying the fees or dues. Where those amounts are paid by an employer, and not shown as taxable benefit on the T4 slip for the year, no deduction for amounts paid is claimable by the employee.

There is, unfortunately, relatively little information provided by the CRA on the subject of claiming professional or union dues. The Agency once published interpretation bulletins on the subject, but those bulletins are now archived, meaning that they have not been updated in several years. The annual income tax guide does refer to those bulletins, however, as a source of information, and they can be found at www.cra-arc.gc.ca/E/pub/tp/it103r/it103r-e.html (for union dues), and at www.cra-arc.gc.ca/E/pub/tp/it158r2/it158r2-e.html (for professional fees). To obtain the most current information, taxpayers can call the CRA’s individual income tax enquiries line at 1-800-959-8281.

Thousands of Canadians, usually retirees, spend some or all of the Canadian winter as far south of the border as possible, often in Florida or Arizona. While the declining value of the Canadian dollar has made such sojourns much more expensive, meaning that some vacation plans may have to be scaled back, many Canadians will be planning at least a short stay in a warmer place this winter.

Thousands of Canadians, usually retirees, spend some or all of the Canadian winter as far south of the border as possible, often in Florida or Arizona. While the declining value of the Canadian dollar has made such sojourns much more expensive, meaning that some vacation plans may have to be scaled back, many Canadians will be planning at least a short stay in a warmer place this winter.

 Leaving the Canadian winter behind for a few weeks or months, however, doesn’t mean leaving behind the Canadian tax system. No one gives a lot of thought to the tax implications of taking an out-of-country vacation, but the reach of our tax system is a long one, and there are financial and tax issues to consider when planning to spend an extended period of time outside the country.

For most Canadians who go south for a few weeks or even a couple of months during the winter, there aren’t typically a lot of such tax consequences. Such vacationers usually remain, as it is called in tax parlance, “factual residents of Canada”. In practical terms, the income of such taxpayers is treated, for Canadian tax purposes, as though they had never left Canada. Factual residence is determined by the Canada Revenue Agency (CRA) on the basis of whether a taxpayer has maintained “residential ties” to Canada. Such residential ties could include continuing to own a home in Canada, having a spouse or dependants who remain in Canada while the snowbird is out of the country, having personal property (like a car) in Canada, and continuing to hold a Canadian driver’s license and medical insurance.

The vast majority of snowbirds who winter down south do maintain sufficient residential ties to Canada to be considered factual residents. Consequently, when they file their tax returns for the year, they follow all the same rules as year-round Canadian residents. They report all income received during the year from both inside and outside Canada and claim all available deductions and credits. Income tax is paid to the federal government and to the province with which their residential ties are kept. Finally, snowbirds who remain factual residents of Canada remain eligible for the goods and services tax credit, which may be paid to recipients outside of Canada.

Health care coverage

One of the biggest concerns of many snowbirds is maintaining health care insurance coverage while out of the country. In all cases, the availability and degree of coverage will depend on the health care plan in effect for the province or territory of which the snowbird is a resident, so it’s not possible to provide a one-size-fits-all answer to the question of the availability and extent of out-of-country coverage. As well, the rules governing such coverage are subject to continual revision, and it’s therefore critical that anyone planning an out-of-country stay confirm in advance the current rules governing such coverage. The prudent course of action followed by most snowbirds is to obtain supplementary health-care coverage, and the premiums paid for such coverage can usually be claimed as a medical expense on the Canada tax return. As well, any out-of-pocket costs incurred for eligible medical expenses while out of Canada (whether for the individual or his or her spouse) can be claimed as a medical expense on that year’s tax return.

One note of caution with respect to private supplementary health insurance is, however, warranted. Such insurance can sometimes be obtained at the last minute over the phone or online, but that’s not necessarily the best approach. The requirements imposed on applicants for such insurance are becoming more and more difficult to fulfill, and it seems as well that insurers are scrutinizing claims much more stringently than they have in the past. In the circumstances, the best advice for those seeking to obtain travel medical insurance would be to start early, shop around, and read and complete the application forms and any other documentation provided by the insurer very thoroughly. It wouldn’t even be out of place to obtain professional advice from an independent insurance broker or a lawyer, to ensure that one’s understanding of the requirements of the application form and the terms of coverage provided by the travel medical insurance policy is correct. Taking such a step might seem extreme, but Canadians who have incurred unexpected out-of-country medical expenses for which coverage has been denied by their insurer have faced medical bills amounting to more than $100,000. For most retirees, such an occurrence would be a financial disaster, at a time of life when they can least afford it. Time taken to ensure that any coverage obtained will be available if and when it is needed is always time well spent.

Old Age Security and Canada Pension Plan payments

Both Old Age Security (OAS) and Canada Pension Plan (CPP) benefits can be paid to benefit recipients who are living outside Canada, and there is no change in the amount of the benefits. As well, such payments can be made by direct deposit, and in US dollars.

Application of US tax laws

The application of US tax laws to snowbirds can, unfortunately, be a good deal more complex than the corresponding Canadian laws. Generally speaking, snowbirds who spend only a few weeks down south in the course of a calendar year are unlikely to be caught by any US tax filing or payment obligations. Those who extend their stay for longer than that—and certainly those who spend more than half of the year in the United States—should seek professional tax advice from an adviser familiar with cross-border taxation, to make certain that they are in compliance with any applicable US tax requirements. The US Internal Revenue Service also provides a (relatively) plain-language guide to the applicable rules on its website, at www.irs.gov/Individuals/International-Taxpayers.

The CRA no longer publishes its printed guide to the tax implications of spending extended periods of time outside Canada, but a section of the CRA’s website is devoted to issues affecting Canadians who spend part of the year down south, and that information can be found at www.cra-arc.gc.ca/tx/nnrsdnts/sth-eng.html.

One of the many changes resulting from developments in Canada’s economy over the past quarter century has been the need for, more or less, continuous learning. At one time, it was possible to set a career goal, acquire the necessary training or skills for that work and make a lifelong career in that field. It’s abundantly clear that that is no longer the reality for most Canadian workers, whatever their field of work.

One of the many changes resulting from developments in Canada’s economy over the past quarter century has been the need for, more or less, continuous learning. At one time, it was possible to set a career goal, acquire the necessary training or skills for that work and make a lifelong career in that field. It’s abundantly clear that that is no longer the reality for most Canadian workers, whatever their field of work.

In some cases, skills have been acquired to work in sectors, like the manufacturing sector, which no longer employs Canadians in the numbers it once did. In other cases, changes—especially changes in technology—have created the need to learn new skills in order to continue to work and advance in one’s chosen field. Finally, today’s economy of contract positions and part-time work means that most Canadians will change jobs and career paths several times throughout their working lives, and that some of those changes will involve a move into a different field altogether.

Whatever the circumstances or the motivator, acquiring new skills or qualifications through a return to school is expensive. And, particularly in the case of an individual who no longer has a job because of a corporate downsizing or bankruptcy, or a plant closure, money for re-training can be hard to find. One source which can be tapped to raise the necessary funds, without the need to create interest-bearing debt, is one’s own retirement savings, through a government-sanctioned program known as the Lifelong Learning Plan.

The Lifelong Learning Plan, or LLP, allows Canadians to withdraw funds from their RRSPs, without paying tax on those withdrawals, where the funds will be used to further their education, or that of their spouse. (Education costs for one’s children do not qualify for the Lifelong Learning Plan.)

 Amounts withdrawn to finance education programs must be paid back to the RRSP over a period of 10 years. Any qualifying individual can withdraw up to $10,000 in a calendar year, and can continue making withdrawals until January of the fourth calendar year after the year of the first withdrawal. So, an individual who first withdraws funds under an LLP in September of 2015 can continue to make withdrawals (assuming, of course, that there are sufficient funds within the RRSP to do so) until January 2019. The maximum amount which can be withdrawn under an LLP is $20,000.

 In order to participate in an LLP, an individual must meet four qualifying criteria and must continue to fulfill those criteria throughout the four-year period during which withdrawals take place. The conditions are, however, ones which can be fairly easily met in most cases, and are as follows:

•   the taxpayer must have an RRSP;
•   the taxpayer must be a Canadian resident:
•   the taxpayer must be enrolled (or have received an offer to enroll) as a full-time student in a qualifying educational program at a designated educational institution; and
•   if the taxpayer has made an LLP withdrawal in a previous year, the repayment period has not begun.

Some of the terminology used does require explanation. For purposes of the LLP, a qualifying education program is one that lasts at least three consecutive months and requires a student to spend 10 hours or more per week on courses or work in the program. The definition of a designated educational institution would include most Canadian community colleges or universities. A taxpayer who has a question about whether a particular educational institution does or does not qualify can obtain that information by calling the Canada Revenue Agency’s (CRA’s) Individual Income Tax Enquiries line at 1-800-959-8281.

Withdrawing funds under an LLP

In order to withdraw funds from an RRSP under an LLP, the taxpayer must complete Form RC 96, Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP, and provide that form to his or her RRSP issuer. Assuming that the taxpayer does qualify for an LLP under the four criteria listed above, the RRSP issuer will provide the taxpayer with up to $10,000 from the RRSP, and no withholding tax will be required on amounts up to the $10,000 limit. The issuer will provide the taxpayer with a T4RSP slip showing the amount of the withdrawal, and all such LLP withdrawals must be reported on the tax return for the year. However, even though all amounts received are reported on the return, they do not count as taxable income and no income tax is payable on those amounts. The non-taxable status of such withdrawals applies, however, only to the first $10,000 withdrawn under an LLP. Amounts withdrawn in excess of the $10,000 limit are treated as regular income and taxed as such.

Making repayments to an LLP

While everyone who has an LLP must repay amounts withdrawn over a 10-year period and must repay 10% of the outstanding balance each year, the date on which those withdrawals must commence can vary. The task of figuring out what amounts must be repaid and when is made easier by the fact that everyone who withdraws funds under an LLP receives a Statement of Account each year, after they file their tax return. That Statement of Account will show total LLP withdrawals, the LLP balance, the amounts which have been repaid to date, and the amount which must be repaid in the following year.

While the rules governing when repayments must commence can be complicated, those rules are essentially as follows. The latest date on which anyone who has an LLP must commence repayment of amounts withdrawn is the fifth year after the first withdrawal. In most cases, however, repayments must start before that date. Generally, if an LLP student is not a full-time student for at least 3 months in the calendar year for two consecutive years, repayment to the LLP must start in the second of those two years. Assuming the LLP student continues to meet that requirement, repayment can be deferred until the fifth year following the year the first withdrawal is made. The CRA provides the following example of the application of the repayment rules under each scenario.

Sarah makes LLP withdrawals from 2011 to 2014. She continues her education from 2011 to 2016, and is entitled to claim the education amount as a full-time student for at least three months on her income tax and benefit return every year. Sarah’s repayment period begins in 2016, since 2016 is the fifth year after the year of her first LLP withdrawal. The due date for her first repayment is March 1, 2017, which is 60 days after the end of 2016, her first repayment year.

Joseph makes an LLP withdrawal in 2013 for a qualifying educational program he is enrolled in during the same year. He is entitled to the education amount as a full-time student for five months of 2013. Joseph completes the educational program in 2014, and he is entitled to the education amount as a full-time student for five months in 2014. He is not entitled to the education amount for 2015 or 2016. Joseph’s repayment period begins in 2016.

Deciding whether to tap into one’s RRSP in order to finance further education involves a balancing of factors. Using RRSP funds in this way means that no interest will have to be paid on funds used for education costs, unlike more traditional borrowings, including government student loans. As well, there are no tax costs to using an LLP, assuming that any withdrawals made are within statutory limits and repayments are made on schedule and in the amounts required. On the other hand, there is a “cost” in that funds withdrawn will not, during the 10 to 15-year period starting with the first withdrawal and ending with the last repayment, be earning income inside the RRSP, so the amount available in the RRSP on retirement will certainly be less. The expectation, as with all borrowings related to education, is that the costs involved will be more than offset by greater earning capacity in the future, and consequently greater ability to save for retirement.

At the end of day, the decision of whether to participate in an LLP will come down to the individual circumstances of the taxpayer involved. In making that determination, the taxpayer will need to consider the following.

•   How much has already been saved in one’s RRSP, and what percentage of the funds saved currently in the plan will be needed for the LLP?
•   What are the job prospects and average earnings in the sector or position for which the taxpayer is being re-trained? In other words, is the investment to be made in re-training or education likely to be more than offset by the earnings which will be realized as the result of that re-training?
•   Finally, for older workers, are there enough years remaining before retirement to justify the costs and time involved in re-training? If the time needed to re-train is greater than the number of working years left after the re-training is completed, it’s likely that there are better strategies than investing significant funds in re-training costs. 

Most Canadians are aware that the deadline for contributing to one’s registered retirement savings plan (RRSP) is 60 days after the calendar year end. Many also know that contributions to a tax-free savings account (TFSA) can be made at any time during the year. Consequently, when Canadians start thinking about year-end tax planning or saving strategies, RRSPs and TFSAs aren’t often top-of-mind. The fact is, however, that there are some situations in which planning strategies involving TFSAs and RRSPs have to be put in place by the end of the calendar year; some of those are outlined below.

Most Canadians are aware that the deadline for contributing to one’s registered retirement savings plan (RRSP) is 60 days after the calendar year end. Many also know that contributions to a tax-free savings account (TFSA) can be made at any time during the year. Consequently, when Canadians start thinking about year-end tax planning or saving strategies, RRSPs and TFSAs aren’t often top-of-mind. The fact is, however, that there are some situations in which planning strategies involving TFSAs and RRSPs have to be put in place by the end of the calendar year; some of those are outlined below.

Accelerate any tax-free savings account withdrawals into 2015

Each Canadian aged 18 and over can contribute up to $10,000 per year (as of 2015) to a Tax-Free Savings Account (TFSA). Where amounts are withdrawn from a TFSA, the withdrawn amount is added to the taxpayer’s TFSA contribution limit for the following year.

Consequently, it makes sense, where a TFSA withdrawal is planned within the next few months, perhaps to pay for a winter vacation or to make an RRSP contribution, 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, 2015 will have the amount withdrawn added to his or her TFSA contribution limit for 2016. If the same taxpayer waits until January of 2016 to make the withdrawal, he or she won’t be eligible to replace the funds until 2017.

Make spousal RRSP contributions before December 31

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 from a spousal RRSP 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 the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2015, the contributor can claim a deduction for that contribution on his or her return for 2015. The spouse can then withdraw that amount as of January 1, 2018 and have it taxed in his or her hands. If the contribution isn’t made until January or February of 2016, the contributor can still claim a deduction for it on the 2015 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2019. It’s an especially important consideration for couples approaching retirement who may plan on withdrawing funds in the relatively near future. Even where that’s not the case, making the contribution before the end of the calendar will ensure maximum flexibility if an unanticipated withdrawal becomes necessary.

When you need to make your RRSP contribution before December 31^st

While most RRSP contributions to be deducted on the return for 2015 can be made any time up to and including February 29, 2016, there is one important exception to that rule.

Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71—usually by converting the RRSP into a registered retirement income fund (RRIF) or 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.