Tax News

Tax News

Tax News

What exactly does a bookkeeper do?

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Accessing home equity in retirement - the reverse mortgage (September 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Claiming a tax credit for out-of-pocket medical expenses (September 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The costs of tax procrastination (September 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Claiming a tax credit for home renovations (August 2016)

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 information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Reducing the after-tax cost of getting around (August 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Receiving a first instalment reminder from the CRA (August 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Tax changes affecting the upcoming school year (August 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

How to avoid getting caught by a tax scam (July 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Disputing your 2015 income tax assessment (July 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Making sure that your TFSA and RRSP stay onside (July 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Changes ahead for the Canada Pension Plan? (July 2016)

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 information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New Quarterly Newsletters (May 2016)

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


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Using the Canada Revenue Agency’s Voluntary Disclosure Program (May 2016)

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:

1. failure to fulfill obligations under the tax legislation;
2. failure to report taxable income received;
3. claiming of ineligible expenses on the tax return;
4. failure to remit employees’ source deductions;
5. 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);
6. failure to file information returns; or
7. 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.

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.

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


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Moving expenses – what’s deductible and what’s not? (May 2016)

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”).

1. 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);
2. transportation and storage costs (such as packing, haulage, movers, in-transit storage, and insurance) for household effects, including items such as boats and trailers;
3. costs for up to 15 days for meals and temporary accommodation near the old and the new residences for the members of the household;
4. lease cancellation charges (but not rent) on the old residence;
5. 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);
6. 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
7. 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:

1. expenses for work done to make the old residence more saleable;
2. any loss incurred on the sale of the old residence;
3. 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);
4. expenses incurred to clean or repair a rental residence to meet the landlord’s standards;
5. costs to replace such personal-use items as drapery and carpets; and
6. 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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Moving expenses – what’s deductible and what’s not? (May 2016)

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”).

1. 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);
2. transportation and storage costs (such as packing, haulage, movers, in-transit storage, and insurance) for household effects, including items such as boats and trailers;
3. costs for up to 15 days for meals and temporary accommodation near the old and the new residences for the members of the household;
4. lease cancellation charges (but not rent) on the old residence;
5. 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);
6. 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
7. 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:

1. expenses for work done to make the old residence more saleable;
2. any loss incurred on the sale of the old residence;
3. 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);
4. expenses incurred to clean or repair a rental residence to meet the landlord’s standards;
5. costs to replace such personal-use items as drapery and carpets; and
6. 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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Moving expenses – what’s deductible and what’s not? (May 2016)

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”).

1. 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);
2. transportation and storage costs (such as packing, haulage, movers, in-transit storage, and insurance) for household effects, including items such as boats and trailers;
3. costs for up to 15 days for meals and temporary accommodation near the old and the new residences for the members of the household;
4. lease cancellation charges (but not rent) on the old residence;
5. 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);
6. 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
7. 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:

1. expenses for work done to make the old residence more saleable;
2. any loss incurred on the sale of the old residence;
3. 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);
4. expenses incurred to clean or repair a rental residence to meet the landlord’s standards;
5. costs to replace such personal-use items as drapery and carpets; and
6. 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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

What happens after you file that tax return (May 2016)

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:

1. use the “change my return” option found on the CRA website in My Account at www.cra.gc.ca/myaccount;
2. send a completed Form T1-ADJ, T1 Adjustment Request, to the taxpayer’s tax centre; or
3. 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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Recent changes to federal retirement income programs (May 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Last-minute tax filing strategies (April 2016)

By the time the summer is over and everyone’s back to school and work, most taxpayers have completed and forgotten about their tax obligations for the year. Returns have been filed and Notices of Assessment have been received. Income tax refunds have been spent or saved, and any amount still owing for taxes has generally been paid. For the Canada Revenue Agency (CRA), however, taxes are a year-round business, and fall marks the move from one phase of its activities to another—specifically, to the start of its annual post-assessment tax return review process


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 b

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/.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Upcoming changes to financing a post-secondary education (April 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Filing your 2015 income tax return - when and how (April 2016)

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 information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

A new benefits payment system for Canadian families (April 2016)

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.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation. Close.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Dealing with the CRA through a representative (March 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Pension income splitting - getting something for nothing (March 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

When and how to file your return for 2015 (March 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

What’s new on the 2015 tax return (March 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New Quarterly Newsletters (February 2016)

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 information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

What to do with an instalment reminder from the CRA (February 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Planning to avoid the OAS clawback (February 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

RRSPs and TFSAs - making the annual choice (February 2016)

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New mortgage financing rules to take effect February 15 (February 2016)

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.

That new rule provides that the minimum down payment for new insured mortgages will increase from 5% to 10%, but only for the portion of the house price above $500,000. In other words, the minimum down payment on the first $500,000 paid for a home remains 5%, or $25,000. Once the home price is over that threshold, the required down payment effectively rises with increases in the price of the home, as shown in the following chart released by the Department of Finance.

Minimum Down Payment by Home Purchase Price: Existing and New Eligibility Rules

Home Purchase Price

Existing Eligibility Rules

Eligibility Rules Effective

February 15, 2016

Minimum Down Payment Percentage

Minimum Down Payment Amount

Minimum Down Payment Percentage

Minimum Down Payment Amount

$500,000 and below 5% up to $25,000 5% up to $25,000

$600,000 5% $30,000 5.8 % $35,000

$700,000 5% $35,000 6.4 % $35,000

$800,000 5% $40,000 6.9 % $35,000

$900,000 5% $45,000 7.2 % $35,000

$999,999 5% $50,000 7.5 % $35,000

$1,000,000 and above 20% $200,000 and up 20 % $35,000

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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Borrowing your down payment from your RRSP (October 2015)

As is reported in the news at least once a month, there doesn’t seem to be an end or a limit to the inexorable rise in Canadian house prices. While the cost of housing in Vancouver and Toronto outstrips prices everywhere else, even smaller metropolitan areas are posting record increases.


As with just about any economic development, there are winners and losers in this scenario. Baby boomers (and the parents of baby boomers) who purchased a home decades ago and are now looking to sell will undoubtedly realize a significant tax-free gain on that sale. The biggest losers are those who are still on the outside looking in—generally younger Canadians who are trying to break into the housing market by acquiring that first property, whether it’s a condo, townhouse, or detached home.

For most individuals or families in the market, buying real estate is a significant long-term financial commitment and right now, that financial commitment can be assumed at record low interest rates. As of the end of September, a five-year fixed-rate mortgage (the kind of mortgage taken out by two thirds of home buyers aged 18 to 34) could be obtained from major Canadian financial institutions at an interest rate of less than 3%. For most of those looking to get into the market then, the biggest hurdle isn’t likely the ongoing cost of financing, but the need to put together the required down payment. A down payment is calculated as a percentage of the purchase price of the house and so, as house prices in most Canadian markets have increased, the amount of the required down payment has risen in tandem. And, if that weren’t enough, changes made to the rules governing the financing of home ownership over the past few years have set the bar even higher.

Until the summer of 2008, it was possible to buy a home in Canada with a zero down payment (in other words, the entire cost of the home was borrowed) and to amortize repayment of that cost over up to 40 years—a time frame which would put most purchasers past the traditional retirement age of 65 by the time the mortgage was paid off. Successive changes implemented by the federal government have whittled away at those practices. Borrowers are now required to have at least a 5% down payment on a residential home purchase, and the maximum amortization period on a residential mortgage is 25 years. More stringent borrowing requirements are also imposed on would-be home purchasers, in terms of the percentage of income which monthly costs related to housing (mortgage payments, property taxes, and home heating) are permitted to consume.

All of this leaves the would-be first time home purchaser falling further and further behind when it comes to putting together a sufficient down payment. There is, however, another option available to that first-time purchaser, and it’s one not just sanctioned but created by the federal government itself. That option is borrowing all or part of the down payment from one’s registered retirement savings plan (RRSP), on a tax and interest free basis, under a program known as the Home Buyers’ Plan (HBP).

The average house price in Canada right now, when Toronto and Vancouver are excluded from the calculation, is about $340,000. The rules governing the HBP permit each taxpayer to withdraw up to $25,000 from his or her RRSP, which would be enough to make a 7% down payment on the average home. And, if there is a silver lining to the fact that many Canadians are forced to defer their entry into the housing market, it may be that, having been in the work force for a longer period of time, they are more likely to have at least $25,000 in their RRSPs. And, as outlined below, married couples can aggregate funds from each of their RRSPs to come up with that down payment.

While the rules governing HBPs can be detailed in their application, especially when it comes to any special circumstances or any contravention of those rules, the concept of the program is straightforward. A first-time home buyer who has entered into an agreement to purchase or build a home can withdraw up to $25,000 from his or her RRSP to purchase that home. The amount withdrawn is not taxed on withdrawal, as it usually would be, but must be repaid to the RRSP, without interest, over the subsequent 15 years, with the amount of each annual repayment prescribed by law. Where the first-time home buyer is married, and his or her spouse is also a first-time home buyer, the spouse can also withdraw up to $25,000 from his or her RRSP and both withdrawals can be pooled to come up with a down payment.

There are some additional rules, as follows. The home purchased using funds borrowed under the HBP must be bought or built before October 1 of the year following the year of withdrawal. As well, the borrower (and his or her spouse, where applicable) must intend to occupy the home as the principal place of residence within one year after its purchase—the HBP is not intended to provide funds to purchase or build rental residential accommodation.

The concept of a “first-time home buyer”, while seemingly self-explanatory, is in fact more flexible than it first appears. For purposes of the HBP, a first-time home buyer can actually be someone who has previously owned and lived in a home, as long as that home ownership ended more than four full calendar years prior to the time a withdrawal under the HBP is made. For instance, an individual who wishes to participate in the HBP by making a withdrawal of funds on March 31, 2016 will be considered a first-time home buyer if he or she had not owned and occupied a home after the end of 2011, the four full calendar years being the period between January 1, 2012 to February 29, 2016. Where the prospective home owner is married (including a common-law partnership), the same requirement applies to that person’s spouse.

Whatever the amount withdrawn from the RRSP under the HBP, that amount must be repaid within a maximum of 15 years. The first repayment is required in the second year following the year of withdrawal so, in the case of the example above, where the withdrawal is made in 2016, the first repayment must be made in 2018. Each repayment is generally 1/15th of the amount withdrawn so, a maximum withdrawal of $25,000 would mean an annual repayment amount of $1666.66. The taxpayer doesn’t have to keep track of where he or she stands with respect to the repayment schedule—each year, a Statement of Account sent to the taxpayer with his or her Notice of Assessment, after the annual return is filed. That Statement will summarize amounts repaid to date, the current HBP balance, and the amount of the next repayment which must be made. Such repayments are made by making a contribution to the taxpayer’s RRSP during or within 60 days after the end of the year for which the repayment is due, and designating part or all of that contribution as an HBP repayment on Schedule 7, which is then filed with the tax return for that year. If the taxpayer does not make the repayment when and in the amount required, any outstanding amount is added to income for the year and taxed at the taxpayer’s top marginal rate.

Like all investment and tax planning strategies, borrowing money from your RRSP to put together a down payment on a first home has both upsides and potential downsides. The biggest downside is the permanent loss of investment gains on the money temporarily withdrawn from the RRSP during that period of withdrawal. However, it’s also possible that the real estate purchased with the withdrawn funds will enjoy a greater increase in value over that period than would have earned by the funds had they remained in the RRSP. Like all investment and tax planning decisions, it comes down to a personal decision based on one’s own circumstances.

The rules outlined above summarize the basic structure and operation of the Home Buyers’ Plan. However, anyone contemplating making use of the HBP will need to familiarize themselves with those rules in much greater detail, perhaps with the assistance of professional advisers. A good place to start is the Canada Revenue Agency website, where information on the HBP can be found at www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

How to respond to an information request from the Canada Revenue Agency (October 2015)

By the time the summer is over and everyone’s back to school and work, most taxpayers have completed and forgotten about their tax obligations for the year. Returns have been filed and Notices of Assessment have been received. Income tax refunds have been spent or saved, and any amount still owing for taxes has generally been paid. For the Canada Revenue Agency (CRA), however, taxes are a year-round business, and fall marks the move from one phase of its activities to another—specifically, to 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.

This year, Canadians filed nearly 28 million individual income tax returns with the CRA. The vast majority of those returns—about 23 million—were filed electronically, with either EFILE or NETFILE, while only 5 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 means 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 82% 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 of 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, there are areas in which the CRA has determined that 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 too 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. If, after the response is received, more information is needed, the CRA will send a follow-up letter, or the taxpayer may be contacted by telephone.

One word of caution: there have been instances in which taxpayers have been contacted by telephone or e-mail by someone who claims to be a CRA representative, but is not. That person generally indicates that a review of the taxpayer’s return shows that additional taxes are owed, and suggests payment by an e-transfer of funds or other payment method. Taxpayers should be aware that the CRA never requests tax payment in this way. 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 by e-mail – any 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 CRA and the taxpayer.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Upcoming deadline for change to direct deposit (October 2015)

For several years the Canada Revenue Agency (CRA) has encouraged taxpayers to begin receiving payments from the Agency by means of direct deposit to their bank accounts, rather than by receiving cheques sent through the mail. By the spring of 2016, that second option will no longer be available.


In just over six months, on April 20, 2016, the CRA will be making all payments made to Canadian individuals and businesses by way of direct deposit. Many taxpayers, of course, have already arranged to have such payments deposited to their bank accounts. As well, at the beginning of 2015, the CRA began automatically direct-depositing amounts owed to individuals who had current bank account information already on file with the CRA. Anyone who does not fall into either of those two groups will have to act now to ensure that the CRA has the information needed to make direct deposit payments to their bank account after the end of this year.

Direct deposit can be arranged for any individual who receives at least one of the following kinds of payments from the CRA: -

* income tax refund;

* goods and services tax/harmonized sales tax credit and any similar provincial and territorial payments;

* Canada child tax benefit and any similar provincial and territorial payments;

* working income tax benefit;

* universal child care benefit; or.

* deemed overpayment of tax.

There are a number of ways in which a direct deposit arrangement can be set up. Canadians who have already registered for the CRA’s online service My Account can sign up for direct deposit using that feature, available at www.cra-arc.gc.ca/myaccount/. Those who are not registered for My Account can complete and send a paper copy of the Canada Direct Deposit enrolment form, which can be found on the federal government website at www.tpsgc-pwgsc.gc.ca/recgen/dd/form/can-eng.html. All such forms, when completed, are sent to the Receiver General for Canada, at the address provided on the form.

Finally, perhaps the easiest way to sign up for direct deposit is through a phone call to the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281. Taxpayers who want to pursue that option will need to provide the following information: -

* social insurance number

* full name and current address, including postal code

* date of birth

* most recent income tax and benefit return and information about the most recent payments received from the CRA; and

* banking information: three-digit financial institution number, five-digit transit number, and the account number.

The last item on that list—banking information—can be confusing. While the needed information can be found in a line of figures which appears at the bottom of cheques issued to individuals by their bank or other financial institution, that line can be difficult to decipher. The best approach is likely to visit one’s financial institution, where they can provide the information needed (financial institution number, transit number, and account number) in a more comprehensible format.

The information above summarizes the steps which individuals can take to sign up for direct deposit. However, businesses are also affected by the CRA’s upcoming changeover, and the procedures which they must follow to sign up for direct deposit are slightly different.

* corporation income tax refund;

* goods and services/harmonized sales tax credit;

* refund of excise or other duties; or

* refund of payroll deductions.

Businesses which are already registered for the CRA’s online service My Business Account can sign up for direct deposit there. As well, where a business has provided sufficient authorization to a representative, that representative person or firm can sign up on their behalf.

If the business wishes to register for direct deposit using a paper form, that form can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/rc366/README.html. In this case, however, the completed form is sent, not to the Receiver General, but to the business’s customary Tax Centre. A listing of such centres, with mailing addresses, can be found on the CRA website at www.cra-arc.gc.ca/cntct/prv/txcntr-eng.html.

Finally, any business can obtain more information about direct deposit by calling the CRA Business Enquiries Line at 1-800-959-5525.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Federal government matching program for refugee relief donations (October 2015)

Time and again, Canadians have shown that where there is a humanitarian crisis anywhere in the world, whether caused by a natural disaster or arising for reasons of politics or economics, they are prepared to extend a helping hand. In many such past instances, the federal government has indicated that it will augment the generosity of Canadians by matching donations which are made.


The refugee crisis now taking place in Europe is no exception. The federal government recently announced the creation of the Syria Emergency Relief Fund, and its plans to match funds donated by Canadians for refugee relief. For every eligible dollar donated by individual Canadians to registered Canadian charities for the purpose of refugee relief, Canada will set aside one dollar for that Fund. The Government’s contribution to the Fund will provide assistance through international and Canadian humanitarian organizations to meet humanitarian needs such as shelter, food, health, and water, as well as protection and emergency education. The maximum amount which the federal government will contribute to the Fund is $100 million.

The federal government has set certain parameters or criteria which donations must fulfill in order to qualify for the matching program. In order to qualify, donations from individual Canadians may not exceed $100,000 per individual and must be: -

* monetary in nature ( i.e., not donations of goods or services);

* made to a registered Canadian charity that is receiving donations in response to the Syria crisis;

* specifically earmarked for response to the Syria crisis;

* made between September 12 and December 31, 2015; and

* used by the registered charity receiving the donation in support of the humanitarian response to the impact of the Syria crisis.

Once a donation is made, the registered charity which receives it has until January 15, 2016 to make a declaration of that donation to the Department of Foreign Affairs, Trade and Development Canada.

Donations from a fundraising event undertaken to raise money from individuals in response to the Syria crisis can also be eligible for matching. This fundraising may be undertaken by schools, faith-based organizations, clubs, social groups, businesses, incorporated entities, or charitable organizations. There are, however, specific criteria which must be met, in order to qualify for matching. As stated on the federal government website, any donations made by corporations, governments, businesses, partnerships, schools, incorporated or non-incorporated entities, and unions from their existing resources that were not raised from individuals specifically in response to the Syria crisis are not eligible to be matched. In addition, donations to augment the amount originally raised from individuals through a fundraising activity or event are not eligible to be matched. The federal government has provided detailed information on how to make a qualifying donation, and that information can be found at:

www.international.gc.ca/development-developpement/humanitarian_response-situations_crises/how_to_syria-syrie_comment.aspx?lang=eng.#sthash.xS74ahxL.dpuf

In the rush to help, the need to ensure that donations are made in a way that will most benefit those who need that help can sometimes be overlooked. As well, it’s an unfortunate fact that disasters sometimes bring out the worst as well as the best in people. In any such situation, a number of “instant” charities tend to spring up and begin soliciting donations for aid. Some of them are honest and well-intentioned, and others are not. However, no matter how good their intentions, if they are not already registered charities, then any donations made to them will not qualify, either for the usual charitable donations tax credit, or for any matching funds which the government of Canada has promised to provide. As well, it’s not likely that such an “instant” charity will have the resources or the infrastructure required to provide help on the scale needed by victims of the current refugee crisis.

With that in mind, there are a number of resources available to Canadians who want to ensure that they are making their charitable donations in the most effective way possible. The CRA maintains a current listing of registered charities (remembering that only donations to registered charities will qualify for the matching funds) on its website at www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html. Would-be donors can also obtain information about a charity’s current registration status by calling the CRA toll-free at 1-800-267-2384.

Canadians who donate to a registered charity for refugee relief will also be able to claim a non-refundable charitable donations tax credit. The federal credit claimable is a two-level one. A 15% credit is available for the first $200 in donations, and donations over the $200 threshold are eligible for a 29% credit. Similar credits, in varying amounts, are provided by the provinces and territories.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Legal fees – what’s deductible and when? (September 2015)

For most Canadians, having to pay for legal services is an infrequent occurrence, and most of us would like to keep it that way. In most instances, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences—a divorce, a death, or a job loss. About the only thing that mitigates the pain of paying legal fees (aside, 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, or establishing custody rights—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 involve 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 becomes 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 claim amounts owed to him or her by the employer are deductible by that former employee. If, as sometimes occurs, the matter goes to court and the court orders 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 a registered retirement savings plan or a 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 “state of play” is 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;

seeking an increase in support payments;

seeking an order making child support amounts received non-taxable; or

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.
On the other side of the support equation, the situation is not nearly as favourable, since a deduction for legal fees incurred in relation to support obligations will 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, fees (which in this case includes accounting fees) paid for advice or assistance in dealing with the CRA’s review, assessment, or reassessment can be deducted by the taxpayer.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Deciding whether to put off receiving Old Age Security benefits (September 2015)

The current election campaign has once again focused the attention of Canadians, especially the baby boomers, on changes announced in 2012 to Canada’s retirement income system. One of the results of those changes is that Canadians aged 65 and over can, as of July 1, 2013, choose to defer receipt of their Old Age Security (OAS) benefits. What’s more difficult is deciding, on an individual basis, whether it makes sense to defer receipt of those benefits and, if so, for how long


To make sense of the change, and to help with the decision, a bit of background is helpful. The OAS program is one of 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 general revenues of the federal government. 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. As of September 2015, that maximum monthly benefit is $565.

Following the changes announced in 2012, Canadians eligible to receive OAS benefits would be able to defer receipt of those benefits for up to five years, until they turn 70 years of age. For each month that an individual Canadian deferred receipt of those benefits, the amount of benefit eventually received would increase by0.6%.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. Essentially, the first consideration in determining when to begin receiving OAS benefits requires the taxpayer who is turning 65 to consider how much total income is needed to finance current needs and the extent to which other sources of income are available to him or her to meet those needs. It’s also necessary to determine what other sources of income (Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, required RRSP withdrawals) will become available in the future and when receipt of those income amounts 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 how receipt of those sources of income is structured. 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 22%. For 2015, that second income tax bracket begins at taxable income of $44,701. ***The Canadian tax system provides (for 2015) a non-refundable tax credit of $7,033 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 $35,466, and disappears entirely for taxpayers with net income over $82,353. *** Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2015, the full credit is payable to individual taxpayers whose net income is less than $35,465. ***Taxpayers who receive Old Age Security benefits and have income of more than at income) are required to repay a portion of those benefits. Benefits begin to be “clawed back” when taxpayer income for 2015 is more than $72,809. Taxpayers having income of over $117,954 are not eligible for OAS and must repay any OAS benefits received.

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 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 until the age of 70. As is now 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, including 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. Generally speaking, the early years of retirement are the most active years, and the years in which expenses for activities are likely to be highest. Having such plans might argue for accelerating income into the early retirement years, when it can be used to make those plans possible.

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 of them 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 can 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 http://www.servicecanada.gc.ca/eng/isp/common/cricinfo.shtml.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The tax benefits of working from home (September 2015)

A number of circumstances and developments have come together to make working from home an attractive prospect for both employers and employees. Soaring house prices in major Canadian cities have driven those who work in those cities further and further afield in the search for affordable housing. Consequently, there are increasing numbers of Canadians who must travel into a major urban centre for work each day, putting already crowded highways and city streets into near-gridlock much of the time. And the summer of 2015 has been more difficult than most for commuters. In addition to the usual delays caused by the summer construction schedule, special events held in major cities have closed or narrowed the usual commuter routes. Any commuter spending hours a day just trying to get to and from work might well wonder whether it’s worth it.


Allowing employees to work from home, at least part of the time, has direct and indirect benefits to employers, too. The ability to work from home is a prized employment “perk” for many Canadians, especially those with young families. Employers who have workplace policies which allow their employees to maintain a healthier work/life balance are more likely to retain those employees. And, having employees work from home on a regular basis raises the possibility of alternatives to traditional office arrangements, meaning that the employer can get by with leasing less expensive downtown office space.

It’s also now a fact of life that there is no longer any technological barrier to working from home. Changes in technology, particularly communications technology, over the past quarter century have enable the home-based worker to have access to all of the information and services available to his or her in-office counterpart Along with the greater availability of work-from-home arrangements for employees, there has been a significant increase in the number of self-employed Canadians. And while not all of the self-employed work from home, it’s fairly common for those venturing into the world of self-employment for the first time to save costs by operating their business, at least initially, out of a home office.

While for most employees just the prospect of avoiding the commute one or more days a week would be enough to make a work-from-home arrangement attractive, the fact is that there are also tax benefits to be realized. While those benefits are not necessarily as generous as is popularly believed, it is the case that working from home can make costs which would be incurred in any event deductible for tax purposes.

As is usually the case in tax matters, the rules differ for employed taxpayers and for the self-employed, as the latter enjoy a greater degree of latitude in the deductions which may be claimed. That said, both the employed and the self-employed must meet the same basic two-part test in order to be eligible to deduct home office expenses, and that test is as follows: -

* the home office must be the place at which the taxpayer principally (defined by the Canada Revenue Agency (CRA) as more than 50% of the time) performs the duties of employment or must be the taxpayer’s principal place of business; or

* the home office must be both used exclusively for the purpose of earning income from employment or from the business and must be used on a regular and continuing basis for meeting customers or clients of the employer or the business.

A self-employed taxpayer who meets these criteria is entitled to claim (on Form T2124(E), Statement of Business Activities) expenses such as property taxes, rent, or mortgage interest (but not mortgage principal amounts), insurance, utilities costs, etc. However, such expenses are not deductible in their entirety; rather, the taxpayer must apportion the expenses based on the percentage of the total space which is used as a home office. For example, a self-employed taxpayer whose home office takes up 15% of available floor space and who incurs $2,000 each year in qualifying expenses would be entitled to deduct $300 ($2,000 × 15%) in home office expenses for that year. There is one further caveat, in that the amount of home office expenses claimed in a year cannot be greater than the amount of income from the business. It’s not, in other words, possible to run a business which produces $5,000 in income for the year and to then claim $10,000 in home office expenses relating to that business. However, where home office expenses exceed business income in any given year, the excess expenses can be carried over and claimed in a subsequent year in which there is sufficient business income to offset those expenses.

Employed taxpayers who meet the two-part test set out above must meet a further condition before being eligible to claim home office expenses, as follows:

*the employer must provide the employee with a Form T2200, which indicates that the employee is required by his or her contract of employment to provide and pay for the expenses related to the home office; *the employee must not have been reimbursed by the employer for such expenses; and *the expenses must have been used directly in the employee’s work at home.

Once the T2200 has been issued, and the other conditions are met, an employee who is a tenant can claim a proportionate part of his or her rent. An employee who owns his or her own home can claim a proportionate percentage of utilities and maintenance costs. An employee is not, however, entitled to claim any portion of mortgage interest, property taxes or home insurance costs paid and cannot claim capital cost allowance. As is the case with self-employed taxpayers, an employee’s deduction for home office expenses cannot be greater than the income from employment income for the year to which the expenses relate. And, once again, carryover to a subsequent taxation year is allowed.

One of the tax benefits which is commonly supposed to exist for the home office workers is the right to claim depreciation (or capital cost allowance (CCA), in tax parlance) on one’s home for tax purposes. For employees, however, such a claim is simply not allowed. And, while the self-employed may be entitled to claim CCA on a home, making such a claim can create a short-term benefit with long-term costs. Making a CCA claim on one’s home is likely to erode the principal residence exemption from capital gains tax which is claimable when a home is sold, and that exemption is almost always more valuable, in monetary and tax terms, than any CCA claim which might have been made.

Being able to claim home office expenses doesn’t result in the huge tax benefits that some popular tax myths claim. However, it can and does permit qualifying taxpayers to claim a portion of home ownership (or rental) expenses which would have been incurred in any case, while also avoiding the dreaded daily commute, making it a win-win situation.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

When you haven’t filed (or paid) on time (September 2015)

By this time of the year, most Canadian taxpayers have filed their returns for 2014 and received a Notice of Assessment with respect to those returns. Many will have received a refund, while others have received the unwelcome news that money is owed to the Canada Revenue Agency (CRA) and have paid up, however unwillingly.


Although most Canadians do file their returns and pay their taxes on time (90%, according to CRA figures), a significant minority of taxpayers have not yet filed a return for 2014, either out of procrastination or because they believe they owe taxes and don’t have funds available to pay those taxes.

For those who have still not filed for 2014, the best strategy is to file as soon as possible. No matter what one’s tax situation, 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 is April 30 (extended by a few days this year because of an administrative error on the part of the CRA), while self-employed taxpayers and their spouses are required to file on or before June 15. No matter which filing deadline applies, a taxpayer who fails to file by that deadline is assessed an immediate penalty of 5% of the tax amount owing. So a taxpayer who owes $1000 in taxes and doesn’t file on time will have a penalty of $50 added to his or her bill the day after the filing deadline. As well, on 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 in 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 2014, the failure to file penalty is increased to 10% of any taxes owed for 2014, 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 2014 and owes taxes for that year is well-advised to 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—April 30, 2015, for all individual taxpayers. 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 each quarter, the interest rate charged on taxes owing is equal to the average treasury bill rate in effect during the first month of the previous quarter, plus four percent. For the third quarter of 2015, therefore, 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 Agency which can really inflate the interest cost of having tax debts. 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.

Perhaps contrary to popular belief, the CRA does have some flexibility. 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 to contact them to make such arrangements by providing a toll-free telephone line (1-888-863-8657). The taxpayer can propose a payment schedule based on his or her ability to pay, and the CRA, if 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.

One final blow: neither interest paid on tax debts nor penalties paid to the CRA are deductible from income.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Receiving a first instalment reminder from the CRA (August 2015)

This month, millions of Canadians will receive unexpected mail from the Canada Revenue Agency (CRA). That mail will contain an unfamiliar form—a 2015 Instalment Reminder. On that form, the CRA suggests to the recipient that he or she should make instalment payments of income tax on September 15 and December 15 2015, and will identify the amount which should be paid on each date.


Unexpected correspondence from the tax authorities is always unsettling, and correspondence which suggests that the recipient owes money to the government even more so. Someone who has never before received an instalment reminder (or, quite possibly, doesn’t even know what a tax instalment is) and who receives mail from the CRA suggesting that tax monies are owed might well be both surprised and worried. 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, 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. The figure 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 should receive a first instalment reminder. 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 2013 from employment in which tax deductions were automatically taken from his or her paycheque. Beginning January 1, 2014, 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 actually 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 2014 tax return was filed. Where the taxpayer’s income levels and withholding amounts are unchanged for 2015, and it is expected that once again, more than $3,000 will be owed on filing the 2015 return, the criteria for the instalment requirement would be met, and a first tax instalment reminder would be issued for the taxpayer in August 2015, after the 2014 return is assessed.

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 2015, 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 2014 tax year. Where a taxpayer’s income has not changed between 2014 and 2015 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2015 will be the same or slightly less than it was in 2014, 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 2015 and the remaining 25% in December 2015.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2015 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2014 to 2015 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-15e.pdf, or can obtain information on federal and provincial tax rates and brackets for 2015 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 2015 and the remaining 25% in December 2015.

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 e-payment to the CRA for taxes 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. There are few financial surprises more unwelcome than finding out that a large amount is owed 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 a significant bill for taxes owed on filing can create real financial hardship. Receiving an Instalment Reminder serves to give notice that if taxes are not being withheld from income amounts paid to the taxpayer throughout the year it is necessary to make some provision for those taxes, in order to avoid having to come up with the entire amount when the return for the year is filed the following spring.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

A mid-year check on your TFSA (August 2015)

Earlier this year, it was announced that the annual contribution limit to tax-free savings accounts (TFSAs) would be nearly doubled, increasing from $5,500 to $10,000, and that that increase would be effective for the 2015 and subsequent tax years.


When TFSAs were first introduced by the federal government in 2009, the annual contribution limit was $5,000. That limit stayed in place for four years before increasing to $5,500 for the 2013 and 2014 tax years. The latest increase, to $10,000, means that the total lifetime TFSA contribution limit now stands at $41,000 per taxpayer.

While Canadians have embraced TFSAs as a general savings and retirement savings vehicle, there has always been a degree of confusion about the rules governing TFSAs. That confusion usually arises because the TFSA is the only tax-sheltered savings plan which has the flexibility to permit planholders to withdraw funds from the plan and later replace them.

While the rules governing TFSAs can be complex, the basic rules are these: the TFSA program allows taxpayers to put up to $10,000 per year (as of 2015) into a TFSA. No tax deduction is permitted for any contribution made, but interest or any other kind of investment income earned by the funds held in a TFSA is not taxed as it is earned. Withdrawals can be made from a TFSA at any time, for any purpose, and funds withdrawn (including interest or other investment income earned) are not taxable. In addition, where funds are withdrawn from a TFSA, the amount of that withdrawal is added to the taxpayer’s TFSA limit for the following year. So, for instance, a taxpayer who withdraws $5000 from his or her TFSA in 2015 will be able to contribute up $15,000 to that TFSA in 2016. That $15,000 is made up of the 2016 current year contribution limit of $10,000 and $5,000 in contribution limit created by the withdrawal made in 2015 and carried forward to 2016.

With the TFSA system having been in place now for nearly 7 years, and especially with this year’s contribution limit increase, the total amount of possible contributions is becoming significant, as is the complexity of tracking contributions, withdrawals, and re-contributions made over the past several years. Many taxpayers contribute small or medium-sized amounts to their TFSA throughout the year, as those amounts become available—a tax refund, an employment bonus, or regular federal or provincial tax credit payments all frequently make their way into TFSAs. Other taxpayers set up a system in which amounts are transferred from a chequing or savings account to a TFSA on a regular basis. Some taxpayers do both. As well, it’s not at all uncommon for taxpayers to hold TFSAs at several different financial institutions, as those financial institutions compete for TFSA business by offering “incentive” rates of return in marketing campaigns. However, no matter how many TFSA accounts an individual has, his or her overall contribution limit for the year doesn’t change.

Making regular and irregular contributions to a TFSA, having multiple TFSA accounts at different financial institutions and making withdrawals from a TFSA can make it very difficult to determine where one stands in relation to one’s annual contribution limit at any given time. As well, relatively few taxpayers give much thought to that question, and even fewer know how to determine whether they are, in fact, “offside” with the contribution limit rules. However, there is an immediate cost for exceeding one’s limit, as a penalty of 1% per month or part-month is assessed for over-contributions. All of that means that, like any tax or financial planning strategy, TFSAs require regular monitoring, and right now, just over half-way through the current tax year, is a good time to carry out that “check-up”.

The first step in doing a TFSA “check-up” is determining one’s current year contribution limit. The Canada Revenue Agency (CRA) used to provide that information on each taxpayer’s Notice of Assessment, but that is no longer the case. As well, the CRA has discontinued its online Quick Access service, which used to provide that information. For those who have previously registered for the service, information on one’s 2015 TFSA contribution limit is available through the CRA’s My Account service at www.cra-arc.gc.ca/myaccount/). The CRA also offers a mobile app called “MyCRA” (available at www.cra-arc.gc.ca/esrvc-srvce/tx/psssrvcs/pss_fq/cnd-eng.html#hlp1), where the same information can be obtained. While both services give the taxpayer access to useful personal tax information, including one’s current year TFSA contribution limit, some set-up is required for both.

Taxpayers who don’t want to register for either of those services or who simply want information about their TFSA contribution limit more quickly can call the automated Tax Information Phone Service (TIPS) line at 1-800-267-6999. Those who would rather speak to a live person can call the CRA’s individual income tax enquiries line at 1-800-959-8281. In either case, the taxpayer should have last year’s tax return available to them before calling, as they will be asked to provide personal identifying information to satisfy the CRA’s security requirements—at a minimum, their social insurance number, date of birth, and the amount entered on line 150 of the tax return for 2014. Once the 2015 contribution limit is known, it’s time to figure out just how much has been contributed to a TFSA during 2015, by checking the year’s total contributions from all sources to date against total contribution room for the year. Where that check shows that the taxpayer is already in an over-contribution position the best course of action is to immediately transfer funds out of the TFSA to another (non-TFSA) account. Penalties payable for over-contributions to a TFSA are calculated based on the highest excess TFSA amount in each month. While a penalty will still be assessed for all months in which the taxpayer was in an over-contribution position (even if the excess contribution position only existed for as little as one day in the particular month), withdrawing or transferring any excess amounts before the end of the current month will avoid the imposition of further penalties.

If a comparison of the contribution limit for the year to contributions to date show that there is still contribution room left for 2015, the next step would be to total up any scheduled automatic transfers which will take place during the rest of 2015 and make sure that they will not, when added to contributions that have already been made since January 1, push total contributions for the year over the allowable limit. If they will, then it’s time to make a change to the transfer schedule or transfer amounts to keep contributions within the year’s maximum allowable contribution limit.

Where there is contribution room still available for 2015, but no contributions are scheduled or anticipated, it may be time to re-think that plan. Even where one’s circumstances don’t permit the contribution of large amounts, every dollar currently sitting in other accounts which is transferred to a TFSA means less tax paid on interest or other investment income earned on those dollars. In most circumstances, there’s really no good reason not to use a TFSA to hold funds which are not needed to meet current expenses, or which are already being set aside for relatively short-term financial goal—perhaps the purchase of a new car, or next year’s vacation. The rate of interest currently being paid on bank account balances is miniscule, and perhaps the only thing worse than receiving such meager returns is losing up to half of those already small interest amounts to income tax, when that result can be easily avoided. Having one’s financial institution transfer any “excess” funds from other accounts into a TFSA will remove the tax hit on any interest or other investment income earned on those funds. And, if a need for the funds arises unexpectedly, a tax-free withdrawal of some or all of the funds in the TFSA can always be made.

After getting off to a slow start, TFSAs have become a standard part of financial and tax planning of most Canadian taxpayers, as there is no other savings vehicle which provides the TFSA’s combination of tax benefits and flexibility. Using TFSAs to the fullest extent possible, while taking care not to violate the TFSA over-contribution rules, is a win-win combination for most taxpayers.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The (after-tax) benefit of increases to the Universal Child Care Benefit (August 2015)

In October 2014, the federal government announced a number of changes to tax and benefit programs affecting families with young children. One such change altered the Universal Child Care Benefit (UCCB) program, effective January 1, 2015, to increase the amount of that taxable benefit for families having children under the age of 6 and to create a new benefit for those with children aged 6 to 17. The first payment of the new or increased benefit was made in July, in the form of a lump sum payment representing the accrued benefits for the first half of 2015. Since then, this being an election year, there have been claims and counter-claims about the amount of the net benefit to Canadian families of the changes to the UCCB, and about the kind of tax planning families receiving that benefit need to undertake. The existing and new tax rules which determine the overall net benefit of the changes for Canadian families are as follows.


The changes themselves are straightforward. Formerly, Canadian families having a child or children under the age of 6 received $100 per child per month. There was no UCCB payable for children aged 6 and over. Following the changes, as of the 2015 tax year, parents of children under the age of 6 receive an additional $60 per month per child. As well, parents of children aged 6 to 17 will begin receiving a new benefit of $60 per child per month. So, in effect, all qualifying families that have children under the age of 18 will, beginning in 2015, receive an additional payment of $60 per child per month, or $720 per child per year.

Since the payments made in July represented accrued benefits from the beginning of the year, payment amounts could be substantial. It’s important, however, for recipients of those payments to realize and plan for the fact that there are significant tax considerations which will only become apparent next April, when filing the tax return for 2015.

The most significant of those tax considerations comes, ironically, from a change which was announced at the same time as the announcement of increases to the UCCB, but which has gotten much less attention. That change will increase the amount of federal taxes payable by every Canadian parent who was able to claim the federal child tax credit for one or more children in previous years.

The change is the cancellation of that federal child tax credit, effective for the 2015 and subsequent tax years. That child tax credit allowed a parent to make a claim, on his or her tax return for the year, for a 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, or just under half of the annual per child increase in the UCCB.

The second consideration for parents receiving the increased UCCB is that all UCCB amounts received represent taxable income. So, for each child in respect of whom the enhanced UCCB is received, a parent’s taxable income for the year will increase by $720. The amount of tax which will be payable on that amount will differ, of course, depending on the income of the parent receiving the UCCB, and the province in which they live. It’s possible, however, to provide some general guidelines. For a middle income parent who has total income of between $40,000 and $80,000, the federal tax rate is 22%. Provincial or territorial tax at those income levels will be, on average, around 11%. Consequently, the total tax payable on the $720 per child increase in the UCCB for 2015 will be about 33%, or one-third of that amount, or $238.

The net result of all these calculations is that a middle income parent who receives the $60 per month ($720 per year) increase in the UCCB for 2015 will pay about an additional $238 in combined federal-provincial tax for the year on that increase. As well, such parents will see their federal income tax bill increase by $338 because they can no longer claim the child tax credit. Overall, parents who wish to set aside funds to cover both these upcoming tax liabilities will need to allocate about $576 per child to do so, leaving about $144 of the $720 per child increase received in per-child UCCB payments for 2015.

When a lump sum amount is received from the government, it’s tempting for parents to think of those funds as purely disposable income, especially with back-to-school spending on the horizon. The fact, however, is that there are real tax costs associated with the package of child benefit and child tax credit changes introduced this year. Parents who recognize and plan for those costs might well avoid an unpleasant tax surprise when they file their 2015 tax returns next spring.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Tax relief available to Canadians affected by natural disasters (August 2015)

This summer, millions of Canadians have been affected by a series of disasters ranging from forest fires to droughts and other kinds of severe weather, and many of those Canadians have been temporarily displaced from their homes and businesses as a result.


For anyone facing circumstances which threaten their economic or physical well-being, dealing with tax obligations is, understandably, far down the list of priorities. And, while those tax obligations won’t just go away, the tax authorities can and will ensure that such individuals are not unfairly penalized when they can’t, as a result of the aforementioned disasters, meet those obligations on a timely basis.

The Canada Revenue Agency’s (CRA) ability to provide relief to taxpayers in such circumstances arises from the Agency’s Taxpayer Relief Program. That program allows the Minister to waive or cancel any interest or penalty charges that would be imposed as a consequence of the taxpayer’s failure to meet his or her tax obligations, where that failure was caused by events or circumstances outside the taxpayer’s control. While most such applications are the result of natural disasters, administrative relief can also be provided where the taxpayer 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.

Since the filing deadline for 2014 returns by self-employed taxpayers fell on June 15, as did the due date for the second instalment payment of income taxes for 2015, most requests for relief filed as a result of this summer’s events will likely be requests to waive the imposition of interest or penalties related to late filings or late payments. There is a specific process by which such requests are to be made. 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/rc4288-11e.pdf. 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 Agency 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. In addition, where the relief request is based on financial hardship, the taxpayer 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 Form RC4288. 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.

The Minister of National Revenue has issued a news release reminding Canadians affected by this summer’s wildfires of the availability of administrative tax relief, and that news release can be found on the CRA website at http://news.gc.ca/web/article-en.do?nid=1004599&tp=1.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Last-minute tax filing strategies (April 2015)

An old but still valid axiom of tax planning is that the best year-end tax planning starts on January 1st. The concept of year-end tax planning as a year-round activity may indeed be the ideal, but it’s certainly not the reality for most Canadian taxpayers. Some may be alerted to the need to think about current-year taxes by the approach of the calendar year end, while others have their memories jogged by an imminent RRSP contribution deadline. For many (if not most) Canadians, however, taxes aren’t thought of until it’s time to complete the annual tax return. But, even for those taxpayers, options to reduce the annual tax bill are still available, through careful completion of that return.


The available options will, of course, depend on the family and financial circumstances of the individual taxpayer; what follows is a listing of the last-minute tax saving strategies likely to be of use to many Canadians.

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 2014 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 2014 General Income Tax and Benefit package. More information on the Family Tax Cut is available on the Canada Revenue Agency (CRA) website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns409-485/423-eng.html.

The second such income splitting opportunity for 2014 is available to older married or common-law Canadians who receive private pension income during the year. Those taxpayers are entitled to allocate up to half of that income to a spouse or common-law 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 or 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/t1032-14e.pdf. 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: 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 (2014) 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 2014 are more than $200, the full claim should be made on the 2014 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 will receive a credit of 15% on the first $200 and 29% 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 $2,171, whichever is less. It’s possible, however, for all medical expenses of both spouses and all children who were 17 years of age and under at the end of 2014 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/$2,171 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 $2171, 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/.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Debt levels of Canadians - bigger but better? (April 2015)

Two reports released recently by Statistics Canada and by Canadian credit reporting agency TransUnion indicate that Canadians continue to rack up household and personal debt, but also that they might, perhaps, be getting better at managing that debt load.


Statistics Canada reports periodically on the amount of household debt that Canadians are carrying, measured as percentage of family disposable income. That percentage has been on an upward trajectory for several years, and the measurement for the fourth quarter of 2014 was no exception. StatsCan reported that credit-market debt, including mortgages, consumer credit, and non-mortgage loans, grew to 163.3% of disposable income. The 163.3% figure, which represents a new high in the debt-to-disposable-income ratio, means that, on average, Canadian families are carrying $1.63 in debt for every dollar of disposable income. The StatsCan report is available on the Agency’s website at www.statcan.gc.ca/daily-quotidien/150312/dq150312a-eng.htm.

The debt-to-disposable-income percentage is an important measure of the indebtedness of Canadians, but it is a relative measure, rather than one expressed in absolute figures, and it measures debt on a household rather than an individual basis. The information presented in the TransUnion report takes a slightly different approach. First, the numbers reported by TransUnion summarize individual rather than family indebtedness, and in absolute dollar figures, rather than as a percentage of income. Second, and more important, the debt figures included in the TransUnion report include only non-mortgage debt, which would typically mean credit cards, lines of credit and installment loans.

The distinction between the two kinds of debt is an important one. Except in rare circumstances, the amount of mortgage debt owed by an individual or family is less than the value of the property. Should it become difficult or impossible to continue to carry that mortgage, the option to sell and pay off the mortgage debt is always there. Lines of credit and credit cards, however, are unsecured debt, backed only by the borrower’s promise to repay.

Many installment loans also represent unsecured debts. While automobile loans are also typically structured as installment loans and the vehicle purchased is security for the debt, the reality is that vehicles depreciate quickly. Consequently, the value of the vehicle is very likely to be less than the outstanding balance of the loan quite soon after it is purchased, especially where there is no down payment and the total amount of the purchase is financed. As well, the time period over which automobile purchase loans are now provided has become longer and longer in recent years. While it used to be typical to pay off a car loan over 36 or 48 months, such loans are now available for a period of up to 7 years, meaning that the value of the automobile purchased will be less than the outstanding amount of the loan that much sooner.

The TransUnion report, a summary of which can be found on the company’s website at http://newsroom.transunion.com/transunion-low-interest-rate-environment-fuels-rise-in-canadian-debt-level/, shows that the average consumer debt carried by individual Canadians rose from $20,945 in the last quarter of 2013 to $21,428 in the last quarter of 2014, an increase of 2.3%. That’s not good news, but both the composition of that debt and the ability of Canadians to manage it have changed, for the better.

Balances owed on lines of credit showed the biggest increase over the year, rising 4.4% from $29,273 to $30,554. Average installment loan debt levels also increased, by 2.4%, from $21,665 to $22,187. However, balances in the category of debt that carries the highest interest rate—unsecured debt (i.e., credit cards)—have dropped, albeit marginally, from $3,738 to $3,659. Those figures seem to indicate that, while Canadians continue to rack up personal debt, they are managing that debt better by using lower interest rate products like lines of credit or installment loans, rather than high-interest credit cards.

The idea that Canadians may be getting better at managing personal debt is supported by a sharp drop in the delinquency (late payment) rate on some credit products. The 90-day delinquency rate for lines of credit dropped by nearly 13% from 2013 to 2014. Similarly, installment loan delinquency rates dropped over the same period by more than 12%.

The biggest risks when it comes to managing unsecured personal debt are, of course, a change in interest rates which increases the cost of repaying or even servicing that debt and/or a loss of income which undermines the debtor’s ability to keep up with payments. The TransUnion report indicates that “both consumer debt and delinquency performance usually lag behind general economic conditions”. The effects of the recent sharp decline in oil prices and possible future increases in interest rates both pose risks to Canadians’ continuing management of their personal debt loads.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Recent changes to the CRA’s online services for individuals (April 2015)

Like the rest of the world, the Canada Revenue Agency (CRA) has moved in recent years to dealing with its client group—the Canadian taxpayer—online, through the Agency’s website. To do so, the CRA has steadily expanded its roster of online services, while at the same time reducing or eliminating the in-person, telephone, or paper service options it once provided.


Over the past few months, the CRA has once again altered its list of online services for individuals. In some cases, the changes represent a new service while, in others, an existing service has been discontinued or altered.

The main gateway to obtain personal tax information and to carry out tax-related tasks on the CRA website is My Account, which can be found on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html. In order to obtain access to the services provided through My Account, a taxpayer must register online and request a CRA security code. That security code is then sent to the taxpayer, by regular mail, at the address the CRA has on record for him or her. Once the taxpayer has that information, he or she uses the security code to log into My Account.

When registering, a taxpayer can choose to use one of two methods for logging into My Account. Such logins can be done using a CRA ID and personal password, or the taxpayer can choose to log in using the same sign-in information (ID and password) which he or she already uses to do online banking at a Canadian financial institution. Choosing the second option means that the taxpayer needs to keep track of only one ID and password for both My Account and online banking. However, not all Canadian financial institutions have agreed to become “sign-in partners”—the list of those which currently provide that service are as follows.

BMO Financial Group CHOICE REWARDS MasterCard Scotiabank Tangerine TD Bank Group

Once registered for and logged in to My Account, by either method, the taxpayer can carry out a wide range of tax-related transactions, including the following: View detailed status of tax return, View current year RRSP and tax-free savings account (TFSA) limits, Manage online mail, Request a remittance form, View notice of assessment or reassessment, View detailed notice of assessment or reassessment View detailed information about RRSP, TFSA, Home Buyers' Plan, and Lifelong Learning Plan Arrange for direct deposit (update or stop) View tax returns View tax information slips: T4, T4A, T4A(P), T4A(OAS), and T4E Change a return Change address and telephone numbers Apply for child benefits View benefits and credits (Canada child tax benefit / GST/HST credit and related provincial and territorial programs payments, other benefits and credits, account balance, and statements of account) Submit documents Authorize a representative Pay by pre-authorized debit (create and manage) Register a formal dispute Instalments Change a marital status

Until February of 2015, the CRA also provided an online service called Quick Access. As the name implies, Quick Access provided taxpayers with access to personal tax information without the need to register for My Account and wait for a CRA security code to arrive by mail. In order to use Quick Access, a taxpayer was required to provide his or her social insurance number, date of birth, and some information from a previously filed tax return.

The Quick Access service was discontinued as of February 6, 2015. The CRA still does provide a kind of immediate access to personal tax information; however, to obtain that access, a taxpayer must register for My Account. The process works in this way: A taxpayer must first go online and register for My Account. The CRA will send the taxpayer a CRA security code by regular mail, and the process of completing the registration process for My Account will be as outlined above. However, while the taxpayer is waiting for the CRA security code to arrive, he or she will have access to a limited amount of tax information, similar to the information that was once available through Quick Access.

That information includes the following: View status of tax return View current year RRSP and tax-free savings account (TFSA) limits Manage online mail Request a remittance form View notice of assessment or reassessment The last change made recently to the CRA’s online services has to do with e-mail communication between the Agency and taxpayers. This marks a change for the CRA which, until now, has never communicated with taxpayers by e-mail, as e-mail is not viewed as sufficiently secure.

Taxpayers who have registered for My Account can now, however, register for online mail by providing the CRA with their e-mail address. Once a taxpayer has registered for online mail, certain correspondence from the CRA will no longer be printed and mailed to the taxpayer. Instead, an email notification will sent to the email address provided by the taxpayer when new mail is available for him or her to view in My Account. For security reasons, this email notification will not contain any links to the CRA website. Currently, the only types of correspondence which will be eligible for online mail and e-mail notification are Notices of Assessment and Notices of Reassessment. The CRA expects, however, that additional types of correspondence will join that list in the future.

A word of warning: the new online mail service is the only instance in which the CRA will be communicating with a taxpayer by e-mail. That’s an important fact to remember, as many attempted taxpayer frauds are perpetrated through a purported e-mail from the CRA, usually asking for personal financial or tax information and asking the recipient to use a link to what is represented to be the CRA’s website, but is not. Such e-mails are never from the CRA and should be deleted without responding. The only legitimate e-mail a taxpayer will receive from the CRA will be a notification that new correspondence is available to be viewed in My Account. Such e-mails will be received only by taxpayers who have registered for My Account and for online mail, and those e-mails will never contain links to any other site.

Taxpayers who want to sign up for online mail can do so on the CRA website through My Account or can call the CRA’s individual income tax enquiries line at 1-800-959-8281. Finally, taxpayers will notice a new entry on page 1 of the General Income Tax and Benefit Return. That entry, which appears just below the box for personal identification information, allows a taxpayer who is registered for My Account to provide the CRA with the e-mail address at which he or she wishes to be contacted.

More information about the new online mail option can be found on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/nlnml-eng.html, and on pages 10 and 60 of the 2015 General Income Tax and Benefit Guide.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Filing your 2014 income tax return (April 2015)

For even the most determined of procrastinators, the deadline for filing an individual income tax return for the 2014 tax year is imminent. That deadline will come on Thursday, April 30 for most Canadians, and on Monday, June 15 for the self-employed and their spouses.


Canadian taxpayers have a choice of three methods for filing of 2014 tax returns—paper filing, NETFILING, or EFILE. For the 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.

At one time, the CRA also offered taxpayers the choice of filing a return by telephone—known as TELEFILE—but that service has also been discontinued.

The majority of Canadian taxpayers 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 choose to do their own returns using the NETFILE option. In order to use NETFILE, it’s 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 such software authorized for use in the preparation of 2014 tax returns 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 2014 started on February 9, 2015 and will be available until January 15, 2016. 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. Time Zone 7 days a week Pacific Time 3:00 a.m. to midnight Mountain Time 4:00 a.m. to 1:00 a.m. Central Time 5:00 a.m. to 2:00 a.m. Eastern Time 6:00 a.m. to 3:00 a.m. Atlantic Time 7:00 a.m. to 4:00 a.m. Newfoundland Time 7:30 a.m. to 4:30 a.m.

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. Time zone Monday to Sunday Pacific Time 3:45 a.m. to 9:00 p.m. Mountain Time 4:45 a.m. to 10:00 p.m. Central Time 5:45 a.m. to 11:00 p.m. Eastern Time 6:45 a.m. to 12:00 a.m. Atlantic Time 7:45 a.m. to 1:00 a.m. Newfoundland and Labrador Time 8:15 a.m. to 1:30 a.m. 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. For the majority of Canadians, individual income tax returns for the 2014 tax year must be filed with the CRA on or before April 30, 2015, while self-employed taxpayers and their spouses have until June 15, 2015 to file their returns. For all taxpayers, however, where there is a tax amount still to be paid for the 2014 tax year, that amount is due and payable in its entirety on or before April 30, 2015.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Dealing with the CRA through a representative (March 2015)

As our tax system has become more and more complex, the number of individuals willing to brave the annual trip through 485 lines of the tax return and a 68-page tax guide on their own is declining. Consequently, the percentage of Canadians who have their return prepared by someone else with, presumably, more expertise has continued to increase.


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 himself 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’s not, unfortunately, always the case.

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.

The first decision which must be made by a taxpayer who is authorizing a representative through a T1013 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. 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 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. 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, 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. 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 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’s 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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Freedom 55, 60, 65... and counting? (March 2015)

Canadians whose adult memories reach back a quarter century to the early 1990s will likely remember a series of television ads picturing middle-aged individuals or couples enjoying life in an idyllic setting, the result of having retired at the age of 55. The concept of that a financially comfortable retirement could be achieved before the traditional retirement age of 65 was a relatively novel one, and for working Canadians of that generation, the term “Freedom 55” came to represent an ideal.


Of course, subsequent economic and financial market events have made the idea of a comfortable, financially secure retirement at the age 55 just that—an ideal that relatively few can actually achieve. It seems, however, that many Canadians apparently now view even leaving the work force for full retirement at the traditional age of 65 as an unlikely prospect.

In 2008, Sun Life Financial started surveying Canadians for what they called their “unretirement index”. Simply put, Canadians were asked whether they expected, at the age of 66, to be retired, or whether they would still be working, either full-time or part-time. The survey is conducted for the most part with a group of 3,000 working Canadians ranging in age from 30 to 65 years, with weighting used to ensure that the demographics of that group reflected the Canadian adult population as a whole, according to census data.

Given the number of financial crises and changes which have affected Canadians since 2008, it’s not surprising that the data coming out of that survey has changed over the intervening seven years, and the results mirror what has been happening in the financial markets and the economy as a whole. This, year, however, marks a watershed in the survey results.

In 2009, (before, it seems, the full impact of the collapse of financial markets had hit retirement savings portfolios), more than half (55%) of those surveyed expected to be retired by the age of 66. The following year, with many retirement savings portfolios decimated by the market collapse, and the “Great Recession” underway, that figure was halved, as only 28% of Canadians questioned felt confident that they would be able to retire by age 66. The percentage of those anticipating retirement by that age stayed relatively level throughout 2011, 2012, and 2013, although the group which expected to still be working full-time at that age rose after 2011. By 2012 and 2013, the two figures were statistically tied, with about 27 or 28% of those surveyed expecting full retirement by age 66 and another 26 or 27% expecting to be working full-time.

For the first time, however, in this year’s survey, a larger percentage of respondents indicated that they expected to still be working full-time at age 66 (32%) than the percentage (27%) which were looking forward to retirement by that time. It’s noteworthy, as well, that those who expect to still be working past the traditional retirement age of 65 believe that will be their reality despite the fact that they will have reached the age at which they can receive full Canada Pension Plan and Old Age Security benefits, as well as, potentially, the Guaranteed Income Supplement.

The results of the survey may also, however, show a change in how Canadians are defining or approaching retirement. Survey respondents who planned to be working past the traditional retirement age of 65 were asked for their reasons for continuing to work. While a majority (59%) of that group indicated that they would continue to work out of financial necessity, a significant number (41%) answered that staying in the work force was their own choice, with some of those choosing to work part-time. Those responses may indicate that retirement is being seen less as an either/or proposition—full-time work or full-time leisure—and more as a gradual transition from one to the other.

The Sun Life Canadian Unretirement Index Report for 2015 can be found on the company’s website at http://cdn.sunlife.com/static/canada/sunlifeca/About%20us/Canadian%20Unretirement%20Index/Unretirement%2


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Making a voluntary disclosure to the Canada Revenue Agency (March 2015)

Spring is, of course, income tax return filing season in Canada, and over the next four months millions of Canadians will file a return for the 2014 tax year. The filing deadline for this year is Thursday, April 30 for most taxpayers, and Monday June 15 for self-employed taxpayers and their spouses.


For most Canadians, doing their taxes is an annual chore which is best gotten out of the way as soon as possible. For many others, however, completing and filing the return is something that just doesn’t get done. Sometimes the cause is just procrastination (no one really likes doing their taxes), while in other cases, a taxpayer is worried that there will be a large balance owing, and avoids completing and filing the return for that reason.

Of course, once a taxpayer fails to file an annual return, the problem starts to compound itself. 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 is 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 it never comes 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 (VDP).

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 be 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 all of the information which would usually be made available to the CRA in a voluntary disclosure, except 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 canconfirm 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 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-name basis or not, there are four conditions which the CRA imposes before it will consider a disclosure to be eligible for the VDP. First, 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.

Second, 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. Third, any information to be disclosed must be at least one year overdue. So, for example, a taxpayer could not now make a voluntary disclosure of a failure to file a return for 2013, since that return was due less than a year ago (April 30 or June 15, 2014). He or she could, however, make a voluntary disclosure of a failure to file a return for 2012 or any previous year.

Finally, 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/.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

What’s new on the 2014 tax return? (March 2015)

Every annual tax filing season brings with it a number of changes to the annual return. In some years those changes are broad-based, affecting large numbers of taxpayers, while in others the changes are more targeted, and of interest to only specific groups within the overall population.


The changes which will be found this year on the individual income tax return for 2014 fall into both categories. The largest single group which will notice changes to the return (and, in many cases, changes to their tax liability for 2014) are families with young children. Other changes are more narrowly focused, affecting individuals who are eligible to claim the disability tax credit, or those who act as emergency services or search and rescue volunteers. Each of the following measures are effective as of the 2014 tax year, and can be claimed on the return to be filed this spring.

Family tax cut --

While the federal government refers to this measure as a tax “cut”, it is more accurately described as an income splitting opportunity which is available to families who have children under the age of 18. Such families can transfer (on paper only—no actual transfer of income is required) up to $50,000 in taxable income from one spouse to the other and have that income taxed in the hands of the recipient spouse. Such a transfer will be of most benefit where there is a significant disparity between the incomes of the two spouses (e.g., where one spouse works outside the home but the other does not). And, in all cases, the amount of the tax savings which can be realized by the transfer of income is capped at $2,000 per family per year.

Adoption expenses tax credit --

Canadian families who adopt children can incur significant costs in the course of arranging and finalizing an adoption, particularly for international adoptions. Such families are entitled to claim a non-refundable tax credit to help offset the costs involved in such adoptions—including the costs of necessary travel. The credit is calculated as 15% of eligible expenses and, before 2014, the amount of such eligible expenses for purposes of the credit was limited to $11,669 per child. For 2014 and subsequent tax years that limit has been increased to $15,000 per child, meaning that adoptive parents who are able to make the maximum claim will reduce their federal taxes by $2,250 (15% of $15,000).

Children’s fitness tax credit --

For several years, the federal government has provided a non-refundable childrens’ fitness tax credit to help reduce the net cost to parents of enrolling their children in sports or fitness-related activities. Since the credit was introduced, the maximum amount claimable per child per year has been $500. For 2014 and subsequent years, that amount has been increased to $1,000, meaning that parents who claim the maximum amount will reduce their federal taxes by $150.

Medical expense claims by disabled taxpayers--

Canadians whose daily activities are made significantly more difficult because of a disability may be entitled to claim a disability tax credit (DTC). For those taxpayers who are eligible for the DTC, the list of medical expenses which they can claim for purposes of the medical expense tax credit has been expanded. For 2014 and subsequent tax years, amounts paid as salary to a person who designs a personalized therapy plan can be claimed as a medical expense for purposes of the medical expense tax credit.

Volunteer firefighters, emergency services volunteers, and search and rescue volunteers

Special tax treatment, including tax credits and income exemptions, are provided to individuals who work as volunteer firefighters, emergency services volunteers or search and rescue volunteers. The rules on how those credits and income exemptions interact have changed for 2014, and the new rules are as follows. Individuals who are volunteer firefighters or search and rescue volunteers (and who meet the requirements with respect to the number of hours of eligible service provided during the year) can claim an amount of $3,000 per year. That amount is converted to a 15% non-refundable tax credit, meaning that federal taxes for the year are reduced by $450. Emergency services workers, including volunteer firefighters, volunteer search and rescue workers, and volunteer ambulance technicians who receive honoraria or nominal payments from a municipality or other public agency for their work are entitled to exclude the first $1,000 of such payment from income. In other words, only remuneration over $1,000 must be reported as income for tax purposes. It is not possible to claim both the $3,000 amount and the $1,000 income exemption. The choice is the taxpayer’s, and individuals who are eligible for both must determine which claim provides a better tax result in their circumstances. As well, an individual who provides services as both a volunteer firefighter and a search and rescue volunteer can claim only one $3,000 amount for a tax year. However, hours put in at either type of work can usually be counted for purposes of accumulating the minimum number of hours needed to make that single claim.

Applying for the GST/HST credit

Taxpayers will notice that, for the first time, there is no box on page 1 of the individual income tax return which must be checked in order to apply for the Goods and Services/Harmonized Sales Tax credit. Such an application is no longer required, as the Canada Revenue Agency (CRA) will automatically assess eligibility for the credit based on the information provided in the return, and will then notify those who are eligible to receive the credit. For married or common-law couples, only one spouse can receive the credit, and the credit will be paid to the person whose return is assessed first.

Mineral exploration tax credit

Eligibility for the mineral exploration tax credit for 2014 has been extended to flow-through share agreements entered into before April 2015. The final change for 2014 returns isn’t on the return itself, but may be of interest to taxpayers who want to find out the status of a return already filed. Taxpayers who provide the CRA with an e-mail address, either on their tax return or online, can receive an e-mail notification when their 2014 notice of assessment or re-assessment is available online on the CRA website. More information about the e-mail notification process is available at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/nlnml-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

RRSP season is upon us (February 2015)

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 computer 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, the deadline for contributions to an RRSP which can be deducted on the 2014 tax return is Monday March 2, 2015. (While the deadline is technically 60 days after the calendar year-end, or March 1, the federal government has invariably extended that deadline by one day when March 1 falls on a Sunday, as it does this year.)

There’s not a lot that’s new with respect to the rules governing RRSP contributions for 2014. The maximum allowable contribution for the year is 18% of earned income for 2013, or $24,270, whichever is less. Many if not most Canadians, however, have unused RRSP contribution room, the result of having made less than the maximum allowable contribution in previous years. Consequently, almost everyone’s RRSP contribution limit for 2014 will be much higher than the $24,270 statutory amount.

There are a number of ways to find out one’s actual maximum allowable contribution for 2014. Taxpayers who have kept the Notice of Assessment from their 2013 tax return will find that information on page 1 of the Notice. The information is also available online, using the Canada Revenue Agency’s (CRA) “Quick Access” feature at www.cra-arc.gc.ca/quickaccess/. It’s not necessary to pre-register to use Quick Access, but taxpayers wishing to do so must provide their social insurance number, date of birth, and the amount entered on line 150 of their 2013 tax return. Finally, taxpayers can call the CRA’s Tax Information Phone Service at 1-800-267-6999. In order to obtain RRSP contribution information (or any personal tax information) over the phone, the taxpayer must provide his or her date of birth and social insurance number, along with the figure reported on line 150 of the 2013 tax return, in order to fulfill the CRA’s security requirements.

Once the contribution limit for 2014 is determined, the taxpayer is free to make a contribution of any amount up to that limit and to then deduct that contribution amount on the return for 2014. Taxpayers who make a contribution in the first two months of 2015 also have the option of deducting some or all of that contribution on the return for 2015, to the extent that it was not claimed on the 2014 return.

More information on making an RRSP contribution for 2014, and the RRSP system generally is available on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Pension income splitting—getting something for nothing (February 2015)

The announcement of a change in our tax laws to permit income splitting within families in order to reduce the overall family tax burden has received a lot of attention in the media of late. What’s not as well known is the fact that older Canadian taxpayers have in fact been able for several years to benefit from a similar income splitting strategy. Generally speaking, the opportunity to split pension income is available to couples who are over the age of 65 and are receiving income from either RRSP/RRIF savings or from an employer-sponsored pension plan.


The reason that many Canadians, even those that can benefit from it, have never heard of pension income splitting is that it gets virtually no 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), tax-free savings accounts (TFSAs), or even registered education savings plans (RESPs), pension income splitting is never mentioned. There are no TV commercials or other media promotions for pension income splitting, as it is one of the 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 CRA for 2014 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, with no 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.

The scarcity of information on the benefits of pension income splitting is particularly unfortunate in that the strategy is one of the few exceptions to the rule that if something sounds too good to be true, it probably is. What pension income splitting offers is the opportunity to save tax without any expenditure of time or money, or any need to pre-plan. In a nutshell, pension income splitting allows married taxpayers over the age of 65, (or, for some types of income, those over the age of 60), when filing their tax returns, to divide their private pension income in a way which creates the best possible tax result, meaning the lowest possible tax bill.

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 2014, the first $44,000 of taxable income attracts a combined federal-provincial rate of around 25%. The next $44,000 of such income, however, is taxed at a rate of just under 35%. When taxable income exceeds $136,000, the tax rate imposed can approach 50%. While those percentages and income thresholds will vary by province, provincial and territorial tax rates will, in nearly every province or territory, increase as taxable income goes up. (The one exception to that rule is the province of Alberta, which imposes a flat 10% tax rate on all individual taxable income. However, Alberta taxpayers, like those in other provinces, will still pay increasing federal rates as income rises.) 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 information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

What to do with an instalment reminder from the CRA (February 2015)

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 March 2, 2015 is approaching, and the April 30, 2015 deadline for payment of 2014 taxes owed is not far behind. As if that series of financial hits weren’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 Canadians who receive such reminders are already familiar with the tax instalment process, that doesn’t make the reminder any more welcome. For others, especially the newly retired, or perhaps the newly self-employed, who have been accustomed throughout their entire working life to having tax deducted from their paycheque and then remitted to the CRA on their behalf, the idea of paying taxes by instalment is unfamiliar and puzzling.


For most Canadians, income taxes owed 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 process 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 identical.
Canadian federal tax rules provide that a taxpayer may be required to pay income tax by instalments where the amount of tax owing on filing is more than $3,000 in the current year (2015) and either of the two previous years (2013 or 2014). 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 2015 will specify two amounts, one to be paid by March 15 and the other due by June 15. Each of those amounts represent the CRA’s best estimate, based on the taxpayer’s return filed for the 2013 taxation year, of one quarter of the net tax will which be payable by the taxpayer for 2015. 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. (As March 15 falls on a Sunday this year, the March instalment payment will be considered paid on time if it is paid by the following Monday, March 16.) 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 2015 tax year. If the instalments paid turn out to be more than the taxpayer’s net tax liability for 2015, 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 2014 tax year. Where a taxpayer’s income has not changed between 2014 and 2015 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2015 will be slightly less than it was in 2014, owing to 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 2015 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease from 2014 to 2015 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 2015 tax year is filed in the spring of 2016. 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 2015—until March 31, 2015—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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Getting help with the cost of raising children (February 2015)

As everyone knows—even those who aren’t parents—raising children is expensive. Even though basic needs like education and health care are publicly funded, there is still a never-ending list of discretionary and non-discretionary costs to be paid


For many decades, parents of school-aged children have been provided with government assistance with the cost of raising children, whether through direct monthly payments or through tax deductions or credits claimed on the annual tax return. It can be difficult to keep track of just what benefits are available at a given time, however, since the system of payments, deductions, and credits is subject to continual review and revision. Some significant changes are being phased in over 2014 and 2015, ranging from an increase in amounts claimable by parents for everyday costs like fees for children’s sports activities, to higher monthly benefit amounts for existing child benefits, to a new income-splitting mechanism for families. Those changes also, however, include the elimination of some currently available tax benefits for families.
Changes on the 2014 tax return
Parents will first notice the changes when they sit down to complete their 2014 income tax return. For several years, parents have been able to claim a non-refundable 15% tax credit to help offset the cost of enrolling children in organized sports activities. In previous years, the maximum per-child cost which could be claimed for purposes of the credit was $500. For 2014, that maximum has increased to $1,000 per child.
There is a parallel 15% non-refundable credit which can be claimed for the cost of enrolling children in organized programs involving artistic or cultural activities. The maximum amount claimable for purposes of that credit has not, however, been increased, and remains at $500 per child per year for 2014.
The major change for families on the 2014 return is the ability to split income within a family group—the so-called “Family Tax Cut”. As is the case with all income splitting strategies, tax is saved by transferring income from a higher earning individual (one spouse) to an individual with a lower income (the other spouse). Since federal and most provincial tax rates rise as income increases, having that income taxed in the hands of the lower-income spouse means an overall reduction in the family’s tax bill.
The new income splitting strategy is available to families who have children under the age of 18 at the end of 2014. Eligible spouses can make a notional transfer (that is, a paper transfer—there is no need for any actual transfer of income) of up to $50,000 of taxable income from one spouse to the other, on the annual tax return. However, any tax savings realized by that notional transfer are capped at $2,000 per family per year.
In order to claim the benefit, both spouses must file an income tax return for 2014, and both must complete Schedule 1A. That schedule is included in the standard tax package, which is available on the Canada Revenue Agency website at www.cra-arc.gc.ca/formspubs/t1gnrl/menu-eng.html.
Changes to child benefit payments for 2015
Since 2006, the federal government has provided the Universal Child Care Benefit (UCCB) to eligible Canadian families. The taxable monthly benefit is provided to such families who have children under the age of 6, and is set at $100 per month per child.
Starting in 2015, the monthly UCCB benefit for children under age 6 is increased to $160 per month, and the program is expanded to provide a new benefit of $60 per month for children aged 6 through 17. All such benefits remain taxable.
There is an offset to the increased UCCB to be paid to Canadian families, although that offset will not be apparent until tax returns for 2015 are filed in the spring of 2016. Currently, parents are able to claim a non-refundable Child Tax Credit for each child under the age of 18. For 2014, that credit reduces federal tax by $338 (or $647 for a child in respect of whom the family caregiver amount is claimed). Beginning with 2015, concurrent with the changes to the UCCB, the Child Tax Credit is eliminated, and will not therefore be available to be claimed on the individual tax return for 2015.
Finally, although the UCCB changes take effect as of January 1, 2015, parents who receive the UCCB will not see any increase in benefits until later this year. A “balloon” payment will be made in July to cover the benefit increase for the January to June 2015 period. As of August 2015, the increased UCCB will be paid on a monthly basis, in the same way as the current benefit.
A listing of the federal tax and benefit changes which will affect families in 2015 can be found on the federal government website at www.fin.gc.ca/n14/14-184-eng.asp.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Escaping the Canadian winter: tax considerations for snowbirds (December 2014)

In virtually every province and territory, the winter of 2014-15 has arrived early. Although the calendar may say that its still autumn, Canadians right across the country have already had to take out the snow shovels and re-learn winter driving skills. It's no surprise, then, that the thought of escaping the Canadian winter for at least for a few weeks or months for a vacation down south is a priority for many Canadians.


For most of us, that means a trip to the southern United States, or perhaps the Caribbean, for a week or two. Others usually retirees will spend a couple of months, or even the whole winter, down south. While the declining value of the Canadian dollar has made such sojourns to warmer climates a more expensive proposition, meaning that some vacation plans may have to be scaled back, thousands of Canadians will still be planning to travel south of the border 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 what 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 drivers licence 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, and it�s necessary to confirm in advance the coverage which will be made available for out-of-Canada medical expenses. Most snowbirds end up obtaining 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.
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 U.S. dollars.
Application of U.S. tax laws
The application of U.S. 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 U.S. 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 U.S. should seek professional tax advice from an adviser familiar with cross-border taxation, to make certain that they are in compliance with any applicable U.S. tax requirements.
At one time, the CRA published a very useful information booklet dealing with the tax implications of spending extended periods of time outside Canada, but that publication is unfortunately no longer available. The Agency does, however, devote a section of its website to issues affecting Canadians who spend part of the year down south, and that information can be found at http://www.cra-arc.gc.ca/tx/nnrsdnts/sth-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The holiday season and the taxman (December 2014)

It seems incongruous to talk about taxes in relation to seasonal holiday celebrations. And, while its true that there are no tax implications to most holiday events and traditions, unexpected tax consequences and costs can arise where gifts and celebrations take place in the context of an employment relationship.


Formulating and administering rules to govern the tax treatment of employer-provided gifts and awards, especially holiday-related gifts and celebrations, is something of a minefield for the revenue authorities. 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 effort and expense involved in drafting and administering those rules can outweigh any revenue gain which results from their enforcement. As well, enforcing the rules around holiday gifts and celebrations to the letter of the law can create a cost to the government in the form of taxpayer ill will and potential non-compliance that can similarly outweigh the benefit of any revenue gain. 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.
A few years ago, the Canada Revenue Agency (CRA) reviewed its policies with respect to employer gifts generally, including holiday gifts, and the simplified rules which resulted from that review remain in effect.
The general rule for 2014 (as well as 2013, 2012, 2011, and 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 CRAs policy is simply that non-cash gifts and non-cash awards to an arms length employee, regardless of the number of such gifts or awards, will not be taxable if the total value of all such gifts and awards to that employee is $500 or less annually. The total value over $500 annually will be taxable.
Its 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. 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.
This time of year, the tax treatment of the annual employee holiday party also needs to be considered. The CRAs policy in this area has undergone a number of changes, but its current assessing position 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. 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 not seem entirely in the spirit of the season to consider tax benefits and costs when planning holiday gifts and parties; however, especially given that the taxable or non-taxable status of holiday gifts has been subject to change in recent years, its important to take those rules into account when planning any holiday gifts for employees. At the end of the day, an employer-provided gift that has a tax bill attached isnt likely to generate the hoped-for goodwill or holiday spirit.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Year-end tax planning tips (December 2014)

While individual tax returns for 2014 dont have to be filed, at the earliest, until April 30, 2015, its worth taking the time now to evaluate ones tax situation and consider possible strategies to reduce the tax bill for 2014. With the exception of RRSP contributions (in most cases) and pension income splitting, tax-planning strategies intended to reduce ones tax payable for this year must be put in place by December 31st, 2014. And, perhaps the only thing more frustrating than finding, on filing a return, that money is owed to the government is the realization that the option of taking steps to reduce or eliminate that tax bill is no longer available.


What follows is a list of the more common tax deductions and credits which are claimed by Canadian taxpayers, and the year-end considerations that apply to each.
Consider accelerating medical expenses into 2014
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 http://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 taxpayers net income, or $2,171, whichever is less, can be claimed for purposes of the medical expense tax credit.
Put in practical terms, the rule for 2014 is that any taxpayer whose net income is less than $72,370 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 $72,370 will be limited to claiming expenses which exceed the $2,171 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 werent 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 2014 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's a good idea to add up the medical expenses which have been incurred during 2014, as well as those paid during 2013 and not claimed on the 2013 return. Once those totals are known, it will be easier to determine whether to make a claim for 2014 or to wait and claim 2014 expenses on the 2015 return. And, if the decision is to make a claim for calendar year 2014, knowing what medical expenses were paid when will enable the taxpayer to determine the optimal 12-month period for the claim. Finally, its a good idea to look into the timing of medical expenses which will have to be paid early in 2015. It may make sense, where possible, to accelerate the payment of those expenses to December 2014, where that means that they can be included in 2014 totals and claimed on the 2014 return.
Make charitable donations for 2014
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 2014 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 2014 and January 2015, the total credit claimable is only $60 ($200 15% + $200 15%), and the 2015 donation canגt be claimed until the 2015 return is filed in April of 2016. 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.
Its also possible to carry forward, for up to five years, donations which were made in a particular tax year. So, if donations made in 2014 don't reach the $200 level, its 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 2009, 2010, 2011, 2012, or 2013 tax years can be carried forward and added to the total donations made in 2014, and then the aggregate amount claimed on the 2014 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 in any of the last 5 tax years (that is, 2009, 2010, 2011, 2012, and 2013) to claim a super-credit on up to $1,000 in cash donations made during the year. The super-credit, which is additional to the regular charitable donations tax credit claimed, is equal to 40% of donations under $200 and 54% of donations over the $200 threshold.
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 spouses 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 spouses income, at a (presumably) lower tax rate. However, such withdrawals from a spousal RRSP are taxed in the hands of the spouse only if 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 2014, the spouse can withdraw that amount as of January 1, 2017, and have it taxed in his or her hands. If the contribution isn't made until January or February of 2015, the contributor can still claim a deduction for it on the 2014 tax return, but the amount won't be eligible to be taxed in the spouses hands on withdrawal until January 2018. 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 year will ensure maximum flexibility should an unanticipated withdrawal be required.
When you need to make your RRSP contribution before December 31st
As just about everyone knows, an RRSP contribution can be made up to 60 days after the end of the current year (March 1st, or, in a leap year, February 29th) and still claimed on that years tax return. There is, however, 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 71usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31.
Take another look at the amount of tax instalments paid this year
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 taxpayers total tax liability for the year.
The final quarterly instalment for this year will be due on Monday, December 15, 2014. By that date, almost everyone will have a reasonably good idea of what his or her income will be for 2014 and so will 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 2014 tax year haven't yet been released by the CRA, it is possible to arrive at an estimate by using the 2013 form. Increases in tax credit amounts and tax brackets from 2013 to 2014 will mean that using the 2013 form will result, if anything, in a slight overestimate of tax liability for 2014.
Once ones tax bill for 2014 has been calculated, it's possible to compare that figure with the total of tax instalments already made for 2014 (that figure can be obtained by using the CRA's Quick Access online service, available at http://www.cra-arc.gc.ca/quickaccess/) and determine whether the tax instalment to be paid on December 15 can be adjusted downward.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Income splitting for families (December 2014)

The prospect of being able to split income within a family group so as to reduce overall tax payable has been on the tax horizon for a few years now. A recent announcement indicates that the federal government intends to make such income splitting possible to a certain extent.


Income splitting reduces a family's tax burden because of the way the Canadian personal income tax system is structured. Each layer (or bracket) of income is taxed at a different rate, with the rate of tax increasing as income goes up. So, for 2014, taxable income up to about $44,000 is taxed at a federal rate of 15%. The next bracket of income, between $44,000 and $88,000 is taxed at 22%. Higher rates are imposed on each successive income bracket, until taxable income over about $136,000 is taxed at the top federal rate of 29%. Each of the provinces, with the exception of Alberta, follows the same practice of imposing higher rates of provincial tax at higher income levels, although the income brackets and tax rates will differ by province. Alberta imposes a provincial flat tax of 10% on all taxable income, regardless of amount.
Given that tax rates increase at higher levels of income, its not hard to see how re-allocating income within a family group could reduce the amount of overall tax payable by that family. The greatest benefit from income splitting is realized where there is a large disparity in the amount of income earned by each of two spouses. Take, for example, a family in which one spouse has $86,000 in taxable income and the other spouse has none. Without income splitting, the top federal tax rate paid by the first spouse is 22%. If that spouse was able to transfer half of his or her taxable income tax to the other spouse, each would have taxable income of $43,000, on which the federal tax rate imposed would be 15%.
Whenever Canadian taxpayers pay less tax, however, government tax revenues go down, and allowing unrestricted income splitting between spouses would be very costly, in terms of the resulting reduction in federal tax revenues. Consequently, the new proposal to allow income splitting between spouses includes some significant restrictions and limitations.
The new measure (termed the Family Tax Cut) is to be structured as a non-refundable tax credit, meaning that it can reduce tax payable, but will not create or increase any tax refund. Under the proposal, a higher-earning spouse will be able to notionally transfer up to $50,000 in income to a lower-earning spouse in any tax year. However, any tax savings that are realized by making that notional transfer are limited, or capped, at $2,000 per family per year.
To be eligible to claim the credit, a taxpayer must be a Canadian resident at the end of the tax year, must reside with a spouse or common-law partner and must have at least one child who is under the age of 18 at the end of the tax year. That child must ordinarily reside with the taxpayer and his or her spouse or partner throughout the year. The Family Tax Credit can be claimed by either parent in a family, but not both.
In a situation in which the parents of a child are divorced or separated and have remarried or entered into new common-law partnerships to form two new couples, similar rules apply. Generally, where a child of the first marriage resides with the re-married parent through the year, that parent can still claim the Family Tax Cut credit of up to $2,000, where all other criteria are satisfied. As well, in cases of joint or shared custody, there may be circumstances where it is the same child who ordinarily resides with each couple.
The Family Tax Cut is intended to be made available beginning with the 2014 tax year, meaning that the credit should be claimable on returns for 2014 which will be filed next spring. Families intending to claim the credit do not, however, need to make any change in the actual receipt of income amounts for 2014 or for future years. The income transfer which triggers the credit is an entirely notional one, involving only line entries made on the 2014 income tax returns of the spouses.
The press release and backgrounder announcing the Family Tax Credit and outlining its terms can be found on the Finance Canada website at http://www.fin.gc.ca/n14/14-155-eng.asp and http://www.fin.gc.ca/n14/data/14-155_1-eng.asp.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Using NEXUS to facilitate cross-border travel (October 2014)

It’s a fact of life that since 9/11 any kind of travel—especially cross-border travel to the United States—has become a much more time-consuming and difficult process. Greater security measures have led to increased documentation requirements, more restrictions on the contents of carry-on bags, earlier check-in times at airports, and much longer line-ups resulting in delays at land border crossings.


For those who travel infrequently—perhaps for an annual winter vacation down south—the delays resulting from increased security measures can be frustrating and annoying. For Canadians who travel across the border regularly, especially for business, those delays can be costly, in terms of both time and money.
Many of the increased security measures simply can’t be avoided and are likely here to stay. Frequent cross-border travellers can, however, avoid the delays caused by long line-ups at airports or land border crossings if they are willing and able to obtain a NEXUS card.
The NEXUS program, which was introduced beginning in 2002, is designed to expedite the border clearance process for low-risk, pre-approved travellers into Canada and the United States. NEXUS members are, in many cases, allowed to bypass the usual procedures in effect at border crossings. Instead, they can use automated self-serve kiosks in dedicated areas at designated international airports, and designated lanes at land border crossings. NEXUS cardholders are also entitled to use the “Trusted Traveller Canadian Air Transport Security Authority (CATSA) Security Line” at major and some medium-sized Canadian airports to expedite airport pre-boarding security screening. Finally, Canadian and U.S. citizens can use a NEXUS membership card as an alternative to a passport when entering the United States by land or at major airports.
Given all that, it’s not surprising that the process of obtaining a NEXUS card requires that both the Canadian and U.S. governments satisfy themselves that any applicant poses no security risk to either country. It’s also necessary, as part of the application process, to provide bio-metric identification information.
There are also restrictions on who may apply for a NEXUS card. First, an applicant must be a citizen or permanent resident of Canada or the United States. However, even applicants who meet that criterion may be still ineligible for any of the following reasons:
1. being inadmissible to Canada or the United States under applicable immigration laws;
2. intentionally providing false or incomplete information on the application;
3. conviction for a serious criminal offence in any country for which a pardon was not granted (for U.S. background checks an applicant may be questioned about his or her full criminal history, including arrests and pardons, which may result in exclusion from NEXUS); or
4. a recorded violation of customs, immigration or agriculture law.

Applying for a NEXUS card
Assuming that none of the reasons for ineligibility exist, an application for a NEXUS card can be made using the Global Online Enrollment System, and instructions on how to do so can be found on the Canadian Border Services Agency website at http://www.cbsa-asfc.gc.ca/prog/nexus/goes-eng.html. It’s also possible to apply using a paper application form and details of that process can be found at http://www.cbsa-asfc.gc.ca/prog/nexus/paper-papier-eng.html#_Application. In either case, the information provided on the application form (which will include proof of U.S. or Canadian citizenship or permanent resident status) will be provided to both U.S. Customs and Border Protection and the Canada Border Services Agency. The fee for filing either an online or paper application is $50.00 (CDN. Or U.S.), and the process takes about 6 to 8 weeks.
Once the initial processing of the online or paper application is done and assuming that no reason for disqualification is found, the applicant will be contacted to arrange an interview at a NEXUS Enrolment Centre. At that interview, an officer of either the CBSA and/or U.S. CBP officer will do the following:
1. review the information provided on the application form to make sure it is still valid;
2. verify the applicant’s identity and review original documents such as proof of citizenship and residency documents, work permits, and visas;
3. ensure that the applicant meets all eligibility requirements for membership; and
4. take the applicant’s fingerprints.

Once the application is approved and it is determined that a NEXUS card can be issued, a digital photograph of the applicant, which will appear on that card, is taken. A request will also be made for a digital photograph to be taken of the applicant’s irises, to be used to verify his or her identity at NEXUS self-serve airport kiosks.
Once issued, a NEXUS card is valid for a period of five years. Renewals are carried out using same application process, but where there have been no changes to the applicant’s circumstances, an interview is not usually required.

Using the NEXUS card
When landing at a Canadian airport which has NEXUS self-serve kiosks, a NEXUS cardholder uses the following procedure:
1. Go to the self-serve kiosk located in the Canadian inspection services area;
2. Stand in front of the camera to have your irises photographed. Follow the prompts on the screen and complete the entry process. You will then receive a self-serve kiosk receipt;
3. The self-serve kiosk will direct you to the cashier for the collection of duties and taxes owing, if applicable;
4. Proceed to the baggage claim and then to the exit. Present your self-serve kiosk receipt and the completed CBSA Declaration Card to the border officer.

A similar process is followed by a NEXUS cardholder entering the U.S. by air.
Where a NEXUS cardholder is entering Canada or the U.S. at one of the land crossings the procedure, while still expedited, is somewhat different, as follows.
1. Use the designated NEXUS lane and stop and hold the membership card in front of the proximity card reader.
2. Proceed to the inspection booth for a visual inspection. The border officer will indicate whether the card holder should enter the inspection area or proceed into Canada or the U.S.

The majority of NEXUS cardholders are likely individuals who travel frequently between Canada and the U.S. for business reasons. However, it’s also possible to have and use a NEXUS card where frequent cross-border trips are being done for employment or for personal or recreational reasons. In particular, Canadians who live near the border and who cross back and forth frequently may find it useful to have a NEXUS card, especially for times when cross-border traffic is heavy and wait times are long, as is usually the case on holidays.
Whatever the applicant’s reasons for wanting to obtain a NEXUS card, the application and assessment process is the same. As might be expected, given the security considerations, that application and assessment process is not quick or simple, and does require the willingness to provide bio-metric identification information of a kind not usually asked of Canadians. Whether the undeniable benefits of having a NEXUS card are worth that effort and those considerations is a decision to be made on an individual basis.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Managing fees for day-to-day banking (October 2014)

Being charged a fee for just about every bank service from using an ATM to making an e-transfer of funds to simply receiving a printed bank statement each month is a perennial irritant to many Canadians, as is the fact that such fees seem to increase on a regular basis. Canadian banks have sometimes been willing to waive or reduce such charges for some groups, such as seniors or students, but policies haven’t been consistent from bank to bank and could be changed or even eliminated at the bank’s discretion.


Beginning in January 2015, Canadian consumers will have somewhat more access to low-cost (or, in some cases, no-cost) basic banking services, and somewhat more certainty that those services will remain available to them at a minimal cost. The change will come about as the result of an agreement between the federal government and Canada’s biggest banks, under which the banks have agreed, on a voluntary basis, to provide basic banking services for a nominal cost or no cost.
The low-cost or no-cost bank accounts will provide the kinds of basic deposit, withdrawal, and cheque-writing services which most Canadians would utilize on a day-to-day basis. Such accounts will have the following minimum features:
1. a minimum of 12 debit transactions per month, at least 2 of which can be done in-branch;
2. cheque-writing privileges; and
3. no extra charge for deposits, debit card, pre-authorized payment forms, monthly printed statements, and cheque image return or online cheque image viewing.

Banks that have committed to the voluntary guidelines will offer a basic account having these features for a service or account fee of no more than $4.00 per month. In some cases, for specified groups, the same basic account will be provided at no cost. Those groups include young people, students, low-income seniors who are eligible for the federal Guaranteed Income Supplement, and individuals who are Registered Disability Savings Plan beneficiaries.
The new voluntary guidelines have been agreed to by several of Canada’s major banks, including Bank of Montreal, Canadian Imperial Bank of Commerce, Laurentian Bank, National Bank of Canada, Royal Bank of Canada, Scotiabank, and TD Canada Trust. The guidelines will come into effect as of January 15, 2015.
It’s important to remember two additional facts. First, financial institutions which have not joined in the voluntary guidelines (e.g., credit unions or online banks) may offer the same or even better choices, either in terms of cost or the kind and number of services provided for that cost. And second, even individuals who are members of a group which is eligible for a low cost account may find that they can do even better. As is the case with all financial decisions, the best approach is to do your research, shop around, and make sure that you are purchasing only the services you need, at the best price you can get.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Just a few questions about your tax return (October 2014)

Receiving unexpected correspondence from the tax authorities is almost guaranteed to unsettle the taxpayer who receives that correspondence, even where there’s no reason to believe that anything is wrong. But, as the Canada Revenue Agency (CRA) begins its annual post-assessment tax return review process in the summer and fall, it’s an experience which will soon be shared by millions of Canadian taxpayers.


Each year, between March and June, Canadians file more than 25 million tax returns. This year, 80% of those returns were filed using one of the electronic options available to taxfilers—NETFILE or EFILE. The CRA’s goal is to process all returns and issue a Notice of Assessment to the taxpayer within two to six weeks of filing.
The CRA has also, in recent years, strongly encouraged Canadians to file their tax returns by electronic means, and the fact that 80% of returns were filed in that way this year indicates that Canadians have largely moved to electronic filing. While filing electronically means faster turnaround, when returns are filed by electronic methods there is, by definition, no paper involved. Consequently, the CRA does not receive documentation to back up much of the information and many of the claims made by taxpayers on their returns—claims for charitable donations, union or professional dues, tuition amounts, or other similar deductions and credits.
No matter what the filing method, it’s obviously impossible for the CRA to analyze 25 million returns in detail while meeting the two to six week turnaround time. Even for the minority of returns which are paper-filed, the CRA processes most without conducting a manual review of the information filed, so that it can send out Notices of Assessment as quickly as possible. At the initial filing, only a minority of returns are selected for further review or examination before the Notice of Assessment is issued. However, all returns—no matter how they’re filed—are screened by the Agency’s computer system and so may be subject to review later in the year.
Specifically, starting in the month of August, the CRA begins its post-assessment review process, and it is this process that may result in the taxpayer receiving a letter from the Agency. 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.
However, regardless of which program is involved, 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 period of time—usually 30 days 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. If, after the response is received, more information is needed, the CRA will send a follow-up letter, or the taxpayer may be contacted by telephone. One word of caution—the CRA does not, and has never, dealt with taxpayers with respect to their personal tax situation by e-mail, as it does not view e-mail as a sufficiently secure method of communication. Any such e-mail purporting to be from the CRA is not genuine, and should be deleted without responding. If a contact is made by telephone, the person calling from the CRA 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.
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. Situations where there are deductions or credits claimed by the taxpayer which are significantly different or greater than those claimed in previous returns may also 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.
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 CRA and the taxpayer.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Small businesses to benefit from temporary reduction in EI premiums (October 2014)

The federal government has announced that small and medium-sized Canadian businesses will be able to pay lower employer EI premiums, beginning January 1, 2015. While the program recently announced by the Minister of Finance is entitled the “Small Business Job Credit”, the credit actually operates by reducing, for a two-year period, the portion of Employment Insurance premiums paid by employers.


The amount of the credit is calculated using a reduced premium rate for small businesses for the year in question. Employees pay EI premiums at a rate of $1.88 per $100 of insurable earnings. Employers are then required to pay their share of EI premiums at 1.4 times the employee rate. Under the new program, employers will calculate the amount of EI premiums to remit using the standard premium rate of $1.88 per $100 of earnings. When the employer’s T4 information return is processed in the spring of the following year, however, the Canada Revenue Agency (CRA) will re-calculate EI premiums owed by eligible small businesses at a reduced rate of $1.60 per $100 of insurable earnings.
Eligibility for the premium reduction will be limited to businesses which remit less than $15,000 in employer premiums for the year. The premium reduction will be available during the 2015 and 2016 calendar years.
The Department of Finance provides the following example of a business which will be eligible for the credit, and how that credit will be calculated.
A small business employing 14 employees, each earning $40,000, would ordinarily pay about $14,740 in EI premiums in 2015. However, since the total EI premiums paid by the employer are less than $15,000, it would be eligible under the Small Business Job Credit for a refund of about $2,200, which is the difference between employer premiums paid at the legislated rate versus the premiums calculated under the reduced small business rate ($12,540).
Once the CRA determines that a business it entitled to the tax credit and the amount of that credit, any such amount will first be applied to any outstanding balances owed by the business. Where there is no such balance or there is an excess after the balance is paid, that amount will be refunded to the small business.
The Small Business Job Credit is part of a program of changes to the EI premium rate which will see the 2016 rate of $1.88 per $100 of insurable earnings reduced to an estimated $1.47 in 2017.
The rate reduction for 2017 is part of a new rate-setting mechanism which ensures that EI premiums are no higher than needed to pay for the EI program over time. Beginning in 2017, annual adjustments to the rate will be limited to 5 cents. Finally the annual announcement of the EI premium rate for the upcoming year will be announced by the middle of September, to give both employers and workers more time to plan for any change in the rate.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Receiving a first instalment reminder from the CRA (September 2014)

During the month of August, millions of Canadians received unexpected mail from the Canada Revenue Agency (CRA) containing an unfamiliar form—a 2014 Instalment Reminder. On that form, the CRA suggested to the recipient that he or she should make instalment payments of income tax on September 15 and December 15, 2014, and identified the amount which should be paid on each date. Someone who has never before received an instalment reminder (or, quite possibly, doesn’t even know what a tax instalment is) and who receives mail from the CRA suggesting that tax monies are owed might well be both surprised and worried. 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 life and income tax is 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, 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. The figure 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 should receive a first instalment reminder. 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 2012 from employment in which tax deductions were automatically taken from his or her paycheque. Beginning January 1, 2013, 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 actually 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 2013 tax return was filed. Where the taxpayer’s income levels and withholding amounts are unchanged for 2014, and it is expected that , once again, more than $3,000 will be owed on filing the 2014 return, the criteria for the instalment requirement would be met, and a tax instalment reminder would be issued for the taxpayer after the 2013 return is assessed.
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 2014, 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 2013 tax year. Where a taxpayer’s income has not changed between 2013 and 2014 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2014 will be the same or slightly less than it was in 2013, owing to the indexation of tax brackets and tax credit amounts.
Third, the taxpayer can estimate the amount of tax which he or she will owe for 2014 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2013 to 2014 and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this approach can obtain the information needed to estimate current year taxes (provincial and federal tax rates and brackets) on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html.
Many taxpayers who receive an Instalment Reminder are less than pleased about the fact that they are being asked to, as they see it, pre-pay their taxes for the year. But, in fact, in almost all cases they have been “pre-paying” taxes 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 e-payment to the CRA for taxes feels much different.
However, 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. There are few financial surprises more unwelcome than finding out that a large amount is owed 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 a significant bill for taxes owed on filing can create real financial hardship. Receiving an instalment payment reminder is, in effect, a reminder that if taxes are not being withheld from income amounts paid to the taxpayer throughout the year it is necessary to make some provision for those taxes, in order to avoid having to come up with the entire amount when the return for the year is filed the following spring.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

CRA creates business tax reminder mobile app (September 2014)

The Canada Revenue Agency (CRA) is constantly seeking to enhance and upgrade its online services, and to encourage Canadians to manage their tax affairs through the Agency’s website. Those efforts have taken another step forward with the release of the CRA’s newest mobile app for small and medium-sized businesses.


That app, known as the Business Tax Reminders mobile app, is recommended by the CRA for use by small and medium-sized businesses with annual revenue of $20 million or less and fewer than 500 employees. Those parameters would make the app relevant to the majority of Canadian businesses.
Business users can use the new app for the following two basic functions:
• creating custom reminders for key CRA due dates related to instalment payments, returns, and remittances; and
• customizing and tailoring the reminder system for personal business deadlines, with either calendar or pop-up messages.
The new mobile app is available on Apple iOS, Google Android, and BlackBerry mobile platforms, and can be downloaded free of charge from each of the following sites.
Google Android:
https://play.google.com/store/apps/details?id=com.CRA.BusinessReminderApp
Apple iOS: https://itunes.apple.com/ca/app/cra-business-tax-reminders/id823794559?mt=8
BlackBerry:
http://appworld.blackberry.com/webstore/content/49923887/?CPID=PRD_BBWSH_Email&countrycode=CA&lang=en
The news release announcing the creation of the new app, and information about its uses is available on the CRA website at http://www.cra-arc.gc.ca/esrvc-srvce/mblpp/menu-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Taxes, then and now: what we pay and what we get (September 2014)

Recently the Fraser Institute released a study (The Canadian Consumer Tax Index, 2014 edition) indicating that, for 2013, the payment of taxes consumed just under 42% of the average family’s income, and that the tax bill of the average Canadian family had increased by 1,832% percent since 1961. Both were startling figures and the results of the study were consequently widely reported in the media. As with all statistical studies and results, it’s useful to look behind those figures to understand the underlying data and methodology, and how the figures were arrived at.


When most Canadians think of taxes, they think of income taxes and, perhaps, sales taxes, as those are the most visible taxes and ones which are paid directly by the taxpayer. The definition of “taxes” is, however, much, much broader than just income and sales taxes. For purposes of the study, in addition to income and sales taxes, the definition of taxes included:
• payroll and health taxes;
• property taxes;
• profit taxes;
• liquor, tobacco, amusement, and other excise taxes;
• auto, fuel, and motor vehicle licence taxes;
• natural resource taxes;
• import duties; and
• unspecified “other” taxes.
All of those taxes were included in the 42% figure.
The second aspect of the study which significantly affected the results was the impact of growth in family income between 1961 and 2013. As noted by the study’s authors “[T]the interaction of a number of factors produced the dramatic increase in the average family’s tax bill from 1961 to 2013. Among those factors is, first, a sizeable increase in incomes over the period: 1,448% since 1961. Even with no changes in tax rates, the family’s tax bill would have increased substantially; growth in family income alone would have produced an increase in the tax bill from $1,675 in 1961 to $25,923 in 2013. Second, the average family faced a tax rate increase from 33.5 percent in 1961 to 41.8 percent in 2013.”
Finally, it’s useful to look not just at what Canadians paid in taxes in 1961 and 2013, but at what they received. Taxes are, in essence, the bill Canadians pay for services provided by governments at all levels. Comparing the services available in 1961 to those available in 2013 helps explain where some of the increase in taxes payable by Canadian families is going. And, a look at two of the most costly and widely utilized social programs provided by the federal government to individuals—the Canada Pension Plan (CPP) and the Old Age Security (OAS) program—shows a big difference between 1961 and 2013.
Most Canadians will rely on payments from CPP and OAS as the base for their retirement income planning. In 1961, it wasn’t possible to assume that government-source income like CPP and OAS would ensure the same basic standard of living in retirement. The Canada Pension Plan didn’t exist in 1961, but was introduced (along with premiums payable by individuals to fund the Plan) four years later, in 1965. The Old Age Security program was available in 1961, but there were significant differences from the program in place today. The biggest difference was that, in order to receive OAS payments in 1961, an individual had to be aged 70 or older, instead of today’s age threshold of 65 (remembering as well that there was no Canada Pension Plan to bridge the gap between retirement at age 65 and receipt of OAS benefits at age 70). The higher OAS age threshold, together with other factors, reduced both the numbers of Canadians receiving OAS and the cost of the program. The universal OAS program was introduced in the early 1950s and by early 1953, OAS expenditures would reach $323 million, or about 7% of the total federal budget. By comparison, combined Old Age Security and Canada Pension Plan payments totalled $42 billion in 2000 and represented about 25 per cent of federal spending in Canada.
There’s no question but that the tax burden of the average Canadian family, along with the government services funded by those taxes, have both increased since 1961. Whether those tax increases should have been imposed to pay for expanded government services, or whether allowing Canadian families to keep that money and spend or save it as they saw fit would have been a better approach depends on one’s view of tax policy and the role of government in the lives of Canadians. What is undoubtedly true, however, whether in the private or the public sphere, is that you have to pay for what you get.
The report of the Fraser Institute is available on the Institute’s website at http://www.fraserinstitute.org/research-news/display.aspx?id=21657.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New regulations for disability tax credit promoters (September 2014)

Living with a significant disability, whether physical or mental, isn’t easy. In many instances, that disability can prevent an individual from working, or limit the person to part-time work, both of which affect financial well-being. In addition, disabled Canadians often must incur expenses not faced by other Canadians in order to enable them to live as independently as possible.


The Canadian tax system attempts to mitigate the financial barriers and costs experienced by disabled Canadians by providing them with a specific non-refundable tax credit, known as the disability tax credit, or DTC. That credit, which is available at both the federal and provincial/territorial levels, is a significant one. For federal purposes, the DTC can reduce federal tax for 2014 by as much as $1165, while the amount of any provincial credit will vary by province of residence.
. In order to ensure that the DTC is provided only to those who genuinely qualify, Canadian tax law and administration impose some fairly stringent and detailed requirements. Anyone who wishes to claim the DTC must file a specific application with the Canada Revenue Agency (CRA) and await the Agency’s determination of whether they are eligible to claim the DTC, and whether that claim can be made on a temporary (i.e., for a specified time period) or permanent basis.
The application form which is filed with the CRA is Form T2201. The form has two parts, one of which is completed by the individual, and the other which must be completed by a physician or other health care professional. In order to qualify for the DTC, an individual must have a disability which is expected to last for at least 12 months and which significantly restricts that individual in carrying out the basic activities of daily living. Once the required Form T2201 is filed with the CRA, some period of time can pass before the Agency’s decision is made and communicated to the individual who made the application. Where that application is denied, the affected individual has the right to appeal.
The process of obtaining the right to claim the DTC is not simple, quick or easy, and the decision made by the CRA on a particular application can have a significant effect on the financial well-being of the disabled individual. However, many such individuals may have difficulty, for various reasons, in completing the application, or may not even be aware that they may be eligible for the DTC. In recent years, a number of businesses have been established which, for a fee, offer to prepare a DTC application for a disabled individual. Some of these businesses provide a valuable service for reasonable compensation. Others, unfortunately, do not. In some cases, unrealistic promises of huge tax savings are made, or significant charges are levied for work of dubious quality or value. Overall, the risk of exploitation of a vulnerable population is very real.
Acting on that concern, the federal government put forward legislation which will limit excessive fees that can be charged by any person or company for helping to prepare a DTC application, and which will impose financial penalties where that amount is exceeded. That legislation was passed by Parliament, and the federal government is now undertaking consultations to assist in drafting the regulations which will determine the charges which can be made by such promoters, and the penalties which can be levied when allowable charges are exceeded. Details of the legislation and the consultation process can be found at http://www.cra-arc.gc.ca/disability/.
While the new legislation will help to ensure that penalties will be imposed on unscrupulous individuals or companies who take unfair advantage of disabled individuals with respect to DTC applications, it’s always better to avoid being victimized in the first place. With that in mind, disabled individuals and their families who may be considering paying to have someone prepare a DTC application should consider the following.
• Nobody—individual or company—can guarantee the success of an application for the right to claim the DTC, on either a temporary or permanent basis. As outlined above, the requirements which must be fulfilled in order to qualify for the DTC are very specific and very detailed. Each application is assessed on its own merits, and no one can guarantee in advance the outcome of that assessment.
• Nobody has the ability to guarantee that a particular application will be treated as high priority, or expedited. All applications for DTC claims are considered as they are received, and the process of assessment generally takes at least several weeks. Any claims that applications prepared by a particular company will be considered before others (or that paying an additional charge can move an application to the top of the list) are simply false.
• The DTC is a non-refundable tax credit, which means that it reduces federal and provincial/territorial tax otherwise payable. Some of the advertisements put out by promoters claim that a disabled individual can receive “thousands of dollars” from the government following a successful application for the DTC. The facts are, however, that claiming the DTC, or any other non-refundable tax credit, cannot create a tax refund or increase an existing one. It can only reduce tax which would otherwise be payable. It’s an important point because, in many cases, income amounts received by a disabled individual (for instance, monthly payments made by a provincial government to disabled individuals) are not subject to tax.
Some promoters may claim that it doesn’t matter that a disabled individual might not be able to make use of the DTC, in full or in part, because any amount not used by a disabled individual can simply be transferred to and used by another family member. However, while it is possible to transfer a DTC claim from a dependant, the rules governing the circumstances in which a transfer can be made are complex, and it isn’t possible to guarantee, without detailed knowledge of the specific circumstances and tax situation of an individual and his or her family, that such a transfer will be possible. The requirements for such a transfer are outlined on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/318/dpndnt-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New Quarterly Newsletters (August 2014)

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

They can be accessed below.
Corporate:
Issue #29 Corporate
Personal:
Issue #29 Personal


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New businesses and GST/HST registration (August 2014)

Virtually all businesses in Canada which sell goods or services must collect goods and services tax (GST) or harmonized sales tax (HST) from purchasers of those goods and services. However, an exemption is provided for businesses whose taxable sales for a single quarter or over the previous four quarters total less than $30,000. Such businesses are known as "small suppliers", and they are not obligated to register for GST/HST purposes. Such businesses may, however, register voluntarily, in order to be able to claim input tax credits on the GST/HST they pay on their own purchases. Where such voluntary registration is done, the business must then remit GST/HST amounts collected on its own sales of goods and services to the federal government.


However, once taxable sales of a business in a single quarter or over the previous four quarters reach the $30,000 threshold, registration for GST/HST purposes becomes mandatory. A gap in the law, however, has meant that businesses which did not register as required could not be compelled to do so.
That gap was closed by a measure announced in this year's federal Budget. The new rule gives the Minister of National Revenue the discretionary authority to register and assign a GST/HST registration number where a person fails to comply with the requirement to register, even after receiving notification of that requirement from the Minister.
The Canada Revenue Agency (CRA) intends to administer the new provision, in the first instance, on a reminder basis. Businesses which are non-compliant will be contacted by the CRA on an informal basis and reminded of their obligation to register. Where registration does not take place, the CRA will then issue a formal notification indicating that the person will be registered for GST purposes effective 60 days from the date of the formal notice.
Once a business is registered for GST/HST purposes, certain obligations follow, whether the registration is done voluntarily or by the Minister as the result of a business's failure to register. Businesses which are registered for GST/HST purposes must charge and collect GST/HST from their customers or clients, and must remit the required GST/HST amounts to the federal government, together with a GST/HST return, on a prescribed schedule. Details of the GST/HST remittance and filing obligations imposed on Canadian businesses can be found on the CRA website at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The medical expense tax credit and out-of-country costs (August 2014)

Canadians benefit from a health care system in which the cost of health care is paid out of public funds and the standard of care is equal to any in the world. While in other countries the cost of treatment for a major illness can literally push an individual or family into bankruptcy, Canadians can be assured that getting good medical treatment in Canada does not depend on having the money to pay for such treatment.


The Canadian medical system does, however, have its weaknesses, and chief among them is the time it can take to get treatment in non-emergency situations. Everyone has heard stories of, or has personally experienced, waits of weeks or months to see a specialist, to undergo some types of surgeries, or even to have diagnostic procedures carried out.
Many Canadians who are unwilling to wait for those weeks or months and who have the necessary financial resources have opted to travel to another country—usually the United States—to have such procedures done, and to pay for them out of their own pocket. While paying out of pocket for the cost of a major procedure like open heart surgery is beyond the resources of all but a few Canadians, paying for less invasive procedures—like an MRI—isn’t. As well, some countries have become destinations for what is termed “medical tourism” by setting up facilities in which particular kinds of specialist medical treatment can be obtained.
The Canada Revenue Agency (CRA) was asked recently about the availability of a claim for the medical expense tax credit (METC) for costs incurred for out-of-country medical care. The METC allows a taxpayer to claim a non-refundable federal credit of 15% of the cost of qualifying medical expenses, to the extent that such expenses incurred in a 12-month period ending in 2014 exceed 3% of the taxpayer’s net income, or $2,171, whichever is less. So, a taxpayer whose net income for 2014 is $50,000 can claim any qualifying medical expenses over $1,500 (3% of $50,000). A parallel provincial credit for the same medical expenses can also be claimed, with the percentage credit based on the province in which the taxpayer lives and files a tax return.
The answer provided by the CRA to the query about whether and to what extent an METC can be claimed for out-of-country medical expenses isn’t what some might expect. Essentially, the CRA’s position is that for purposes of the METC, a medical expense receives the same tax treatment, whether it is incurred in Canada, the United States, or some other more remote destination. In the CRA’s words “[a]ny expense meeting the required conditions to qualify as an eligible medical expense … will not be disqualified for the sole reason that it was incurred outside Canada”.
The particular question put to the CRA was with respect to costs incurred by an individual to travel to another country in order to have back surgery. That surgery was recommended by a specialist within Canada but the specialist was too busy to perform the surgery personally. So the individual, accompanied by his wife, took a flight to another country, where the surgery was carried out in a hospital. The individual and his wife stayed at a nearby hotel during a recuperation period. All of the costs involved for travel, surgery, the hospital stay, and accommodations for the taxpayer and his wife were paid out-of-pocket, with no reimbursement from an employer, an insurance plan, or a provincial government.
In providing its opinion on whether each of the types of costs incurred was eligible for the METC, the CRA assessed each in light of the rules which would apply for the same expenses incurred in Canada, and reached the following conclusions.
Amounts paid to a medical practitioner in the foreign country and to the hospital were qualifying medical expenses for purposes of the METC. The only stipulation made by the CRA was that the hospital to which the monies were paid must have been a public or licensed private hospital, and that amounts paid were for medical services.
The cost of the return flight taken by the individual would be eligible for the METC if the cost was paid to someone in the business of providing transportation services, the distance travelled by the individual was at least 40 kilometres by a reasonably direct travel route, substantially equivalent medical services were unavailable within the individual’s locality and, finally, it was reasonable for the individual to travel to the other location to obtain medical services. The cost of the wife’s flight would qualify if a medical practitioner certified that the individual could not travel alone.
Travel expenses other than the cost of the flight—including costs incurred by the individual for meals, accommodation, gasoline, and parking—qualified as medical expenses if individual was travelling at least 80 kilometres to obtain medical treatment and the other criteria outlined above were also met. As with the cost of the flight, other travel expenses incurred by the individual’s spouse could also qualify for the METC if a medical practitioner certified that the individual could not travel alone.
Nobody wants to get sick, especially in situations where one has to incur out-of-pocket expenses in order to receive medical care in a timely way. The unfortunate reality of the current state of the Canadian medical system is, however, that it can take a long time to obtain diagnosis and/or treatment for symptoms or conditions which are not considered urgent—and, perhaps, even for some that are. Canadians who make the difficult and sometimes costly decision to seek more timely medical care out-of-country can at least be assured that, assuming the usual criteria are met, the costs of obtaining that care may be offset to some degree by our tax system.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Federal government tightens mortgage lending rules—again (August 2014)

Canada’s mortgage lending rules (and banking practices in general) have always been more stringent and conservative that those which prevail in the United States. In large part because of that, Canada was spared the lending crisis which took place in the U.S. in 2007-2008, after a significant number of ill-advised sub-prime mortgages went into default and eventual foreclosure.


While mortgage lending practices in Canada during that time never approached the level of recklessness seen in the U.S., the Canadian government nonetheless perceived a need to put a halt to some practices which it viewed as creating potential risks to the overall market. In all, the federal government has moved several times since 2008 to make changes which require higher down payments and reduce both the maximum mortgage amortization period and the percentage of total income which new homeowners could spend on housing costs.
The latest such set of changes was announced earlier this year, and came into effect on May 30, 2014. All of the changes related to mortgages insured by the Canada Mortgage and Housing Corporation (CMHC).
Canadian law requires any would-be homeowner who purchases a home with a down payment of less than 20 percent of the purchase price to obtain mortgage insurance through CMHC. Essentially that insurance, for which the premiums are paid by the homeowner, protects the mortgage lender against the risk that the homeowner will default on the mortgage. And, because CMHC is a federal Crown corporation, the federal government is ultimately responsible for any obligations undertaken by CMHC.
This most recent set of changes will affect property purchases by self-employed Canadians and purchases of second properties by all Canadians, self-employed or otherwise. The affected types of properties or borrowers are as follows.
Purchases of a second property
At first glance, it would seem that instances in which an individual would be purchasing a second property aren’t all that common. But there are in fact a number of circumstances in which such purchases by individuals or families can make sense. The first one that comes to mind, of course, is the purchase of a cottage or other type of recreational property. In other cases, parents who have children attending an out-of-town university or college may decide that it makes more financial and economic sense to purchase a condo or house in the town or city where the university is located. At current interest rates, the cost of carrying the mortgage on that property can be less than the cost of fees for a university residence (especially for more than one child). Owning a property in the university or college town also eliminates the aggravation and cost of finding and renting a series of apartments or houses for four or more years. And, parents who opt for purchasing rather than renting can ultimately benefit from the increase in value of the property over the period of ownership. Finally, it’s not that rare for a couple or family who live in one city or in the suburbs to maintain a small condo in another city, for either work or recreational purposes.
The new rule, effective May 30, 2014, provides that where an individual borrower (or co-borrower) is purchasing a second property, CMHC will not provide insurance for that property where such insurance is already in place on the borrower or co-borrower’s first property. Borrowers who have a mortgage on their first property which is not CMHC-insured (or who have no mortgage at all) will still be able to obtain CMHC insurance on the purchase of their second property, assuming all other criteria are met. Essentially, CMHC is minimizing its exposure by no longer providing mortgage default insurance on two properties owned at the same time by the same borrower.
It’s also not uncommon today for parents to act as co-signers for their children, usually on the purchase of a first home. The fact that the new rule also applies to co-borrowers will mean that parents whose own home has a CMHC-insured mortgage will not be able to act as co-signers for their children who are purchasing a property which also requires CMHC insurance.
Self-employed home purchasers
It’s always been more difficult for those who are self-employed to obtain credit of any kind. Generally, more proof of income is asked for, interest rates may be higher or a guarantor may be required.
CMHC will continue to provide insurance for self-employed individuals who want to purchase a home, but it will no longer be willing to accept the individual’s own estimate or assessment of his or her income. Rather, such individuals may obtain CMHC insurance on their home purchase only where their income is formally validated by a third party. Generally, this will mean providing copies of the individual’s Notice of Assessment or business financial statements for the two year period preceding the date of purchase.
It’s likely that those affected by this latest set of changes to mortgage lending rules won’t be happy about the new restrictions. Notwithstanding, these are unlikely to be the last such changes announced by the federal government, which has shown that it will not hesitate to impose new rules where it believes that existing practices may create an unacceptable level of risk to the Canadian real estate and lending market as a whole.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Minimizing the cost of post-secondary education (August 2014)

As summer starts winding down, post-secondary students will start thinking about choosing courses and finding a place to live during the coming academic year. Their parents’ attention will more likely be focused on the cost of that year, and the upcoming deadlines for payment of first semester tuition and housing costs.


Whether a student attends college or university, post-secondary education is expensive. Even those who cut costs as much as possible by living at home during their college or university years must still spend thousands of dollars on tuition fees and required textbooks. Where a student lives away from home, whether in residence or in rental housing off-campus, it’s realistic to budget a minimum of $15,000 annually for the combined cost of school and living expenses.
Fortunately for all concerned, the cost of post-secondary education can be offset somewhat by claiming the various tax credits which are provided through our tax system. At the federal level, a non-refundable tax credit equal to 15% of qualifying costs can be claimed by the student. A parallel credit is claimable at the provincial or territorial level, with the available percentage credit varying, depending on the province or territory in which the student lives and files an income tax return.
First, the bad news: although living costs—the cost of living in a student residence and purchasing a meal plan, or the cost of renting off-campus—is often the largest single annual expense incurred by post-secondary students , there is no tax credit or deduction available to help mitigate those living expenses. Since the student would have to have incurred costs for shelter and food in any case, such expenses are viewed as personal expenses unrelated to the student’s education and therefore not eligible for credit or deduction.
The good news, however, is that a non-refundable tax credit can be claimed for virtually all other education-related costs, including tuition, books, and most ancillary expenses—(e.g., examination fees or mandatory computer service fees which are levied as part of a student’s tuition). And, where a student can’t make use of the full credit available, that credit can usually be transferred to, and claimed by, a spouse, parent, or grandparent.
After the cost of food and shelter, the largest expense faced by post-secondary students is the cost of tuition, which can range from $4,000 a year to over $15,000. No matter what the amount, students are entitled to a non-refundable federal tax credit equal to 15% of their tuition bill. A parallel provincial or territorial credit can also be claimed, with the percentage credit ranging, in 2014, from 5.05% to 11.0%.
Both full and part-time university students can also claim the “education tax credit”, which is calculated as a fixed amount for every month of full or part-time attendance during the tax year. For 2014, the full time amount to be claimed on the federal tax return is $400 per month, while the part-time amount is $120 per month. The total amount claimed is then multiplied by 15% to arrive at the credit claimed on the federal tax return. As with the tuition tax credit, the provinces all offer an education tax credit, with both the amount and the conversion percentage varying by province.
The final “standard” deduction available to post-secondary students is the so-called “textbook amount”. The name is somewhat misleading, as neither eligibility for nor the amount of the credit depends on expenditures made for textbooks. Rather, the federal textbook amount is a fixed monthly amount (currently $65 for full-time and $20 for part-time students) which, like the tuition and education amounts is converted to a credit by multiplying by 15%, and which can be claimed by any student who is eligible for the education amount.
Non-refundable tax credits, like the tuition, education, and textbook credits outlined above, work by reducing the tax which the individual claiming the credits would otherwise have to pay. However, post-secondary students generally have relatively low income and consequently relatively low tax bills and so may not be able to “use up” all of their available credits in a single tax year. Two solutions are possible. First, the student may transfer the unused credit to a spouse, parent, or grandparent (and it’s not necessary for the parent or grandparent to have actually paid the tuition bill in order to claim the transferred credit). Second, the student can keep the excess credit and claim it in any future tax year, when income and therefore the resulting tax payable will presumably be higher. There are some restrictions and limitations on the transfer of student tax credits, but generally speaking, most students should be able to transfer credits to parents or grandparents without difficulty.
No matter how diligently parents save for a child’s post-secondary education or how lucrative a student’s summer jobs are, today’s reality is that most students will have incurred some debt to pay the cost of post-secondary 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), interest paid on those loans after graduation can qualify for a tax credit, at both the federal and provincial levels. It is 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, and interest paid on any consolidated loans which include funds advanced by private-sector lenders will similarly not be eligible for the credit. In today’s low interest rate environment, a financial institution may offer (usually at the time repayment of government student loans must begin) to consolidate all of a student’s outstanding debt at a preferential interest rate. Post-secondary graduates should consider such offers carefully, as 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.
While the long-term benefits are undeniable, obtaining a post-secondary education never has been and likely never will be an inexpensive proposition. The costs involved, can, however, be kept to the minimum possible by ensuring that every tax “break” available, during both the post-secondary years and thereafter, is claimed in the most tax-efficient way possible.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Charities and political activity (July 2014)

Although they aren’t usually thought of in those terms Canadian charities, as measured by the amount of money they receive and administer, can be big businesses. However, because they collect and dispense that money in order to support and advance causes which create a public benefit, charities are accorded special status under our tax laws. Our tax system effectively subsidizes the activities of charitable organizations by providing a tax deduction or tax credit to companies and individuals that contribute to those organizations. To ensure that their activities are in furtherance of their charitable purposes, charities are required to file an annual information return outlining those activities. Recent changes made to that information return focus on situations in which political activities are undertaken by registered charities.


In order to receive a designation as a registered charity (and consequently to be able to provide donors with a tax receipt enabling them to claim a credit or deduction), an organization is required by law to have exclusively charitable purposes. While the particular kinds of aims and objectives which may qualify an organization for certification as a registered charity vary widely, one kind of activity which cannot qualify as charitable in nature is political activity. An organization established for political purposes, or an organization that devotes more than an incidental percentage of its resources to political purposes, or whose political activities are not in furtherance of its charitable purposes, cannot qualify as a registered charity.
Support of a particular political party or candidate is an obvious partisan political purpose, but under Canadian law as it relates to charities, the definition of political purposes is much broader. As determined by Canadian courts, political purposes are those that seek to retain, oppose, or change the law, policy, or decision of any level of government in Canada or a foreign country. Essentially the rules seek to ensure that any organization that has been designated as a registered charity does not extend the benefits of having that designation to cover political aims or activities, in more than an incidental way. At the extreme end, the rules seek to prevent organizations whose aims are essentially political from “masquerading” as charitable organizations in order to receive the related status and tax benefits.
The initial, general, rule is that that a charity that devotes no more than 10% of its total resources a year to allowable political activities will be operating within allowed guidelines. Smaller charities are given more leeway, and operate under the following guidelines.

1. Registered charities with less than $50,000 annual income in the previous year can devote up to 20% of their resources to political activities in the current year.
2. Registered charities whose annual income in the previous year was between $50,000 and $100,000 can devote up to 15% of their resources to political activities in the current year.
3. Registered charities whose annual income in the previous year was between $100,000 and $200,000 can devote up to 12% of their resources to political activities in the current year.
4.Charities which breach these rules can face serious sanctions, up to and including temporary suspension or even revocation of their charitable status.

Amendments to the rules which were announced in 2012 expanded the definition of political activities to include situations in which a registered charity provides funds to another charity that is intended to support that other charity’s political activities. Where that intention exists, the gift is considered to be a political activity by the donor charity, regardless of the ultimate use of the gift, and must now be reported as such. As well, where a charity receives funding from outside Canada, and the donor directs the charity to use that gift for political activities, receipt of the gift is considered be political activity of the charity, whether or not the funds are put to that use.
It’s apparent from even a brief summary that determining when a charity has engaged in political activity which must be reported can be a very subjective exercise, and the consequences of making the wrong call can be significant. The CRA recognizes that fact, and has created a number of on-line resources to assist charities in making that determination. Those resources, which include webinars, FAQ documents and self-assessment tools, can all be found on the Charities webpage of the CRA website, at http://www.cra-arc.gc.ca/chrts-gvng/chrts/cmmnctn/pltcl-ctvts/menu-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

A mid-year check on your TFSA (July 2014)

Tax-free savings accounts (TFSAs) were first made available by the federal government in 2009. While there were some early difficulties which led to many taxpayers inadvertently breaching TFSA rules, Canadian taxpayers and their financial advisers have now become accustomed to using TFSAs as a standard part of financial, tax, and retirement planning.


A quick review of the TFSA rules: the TFSA program allows taxpayers to put up to $5,500 per year into a TFSA. No tax deduction is permitted for any contribution made, but interest or other investment income earned by the funds in a TFSA is not taxed as it is earned. Withdrawals can be made from a TFSA at any time, for any purpose, and funds withdrawn (including interest or other investment income earned) are not taxable. In addition, TFSAs are an extremely flexible savings vehicle in that the amount of any funds withdrawn from a TFSA is added to the taxpayer’s TFSA limit for the following year. So, for instance, a taxpayer who withdraws $2000 from his or her TFSA in 2014 will be able to contribute up $7,500 to that TFSA in 2015. That $7,500 is made up of the 2015 current-year contribution limit of $5,500 and $2,000 in additional contribution limit created by the withdrawal made in 2014 and carried forward to 2015.
Now that taxpayers have been able to save through TFSAs for nearly 6 years, the total amount of possible contributions (as much as $31,000, for someone who has never made a TFSA contribution) is becoming significant, as is the complexity of tracking contributions, withdrawals, and re-contributions made over the past several years. As well, it’s not uncommon for taxpayers to hold TFSAs at several different financial institutions, as those financial institutions compete for TFSA business by offering “incentive” rates of return in marketing campaigns. No matter how many TFSA accounts an individual has, the overall contribution limit for the year doesn’t change, but having multiple accounts does make it more difficult to determine where one stands in relation to that contribution limit at any given time. And, since a 1% per month penalty is assessed for any over-contributions, no taxpayer wants to find him or herself in an over-contribution position, particularly because it is completely avoidable. Like any financial or tax-planning strategy, TFSAs require regular monitoring, and right now, half-way through the current tax year, is a good time to carry out that “check-up”.
Any check on the state of one’s TFSA has to start by determining one’s current year contribution limit. The Canada Revenue Agency (CRA) used to provide that information on each taxpayer’s Notice of Assessment, but that is no longer the case. Taxpayers can obtain information on their current-year limit on the CRA website, using the Quick Access service at http://www.cra-arc.gc.ca/quickaccess/. It’s not necessary to pre-register for that service, but users will be asked for their social insurance number, date of birth, and amount entered on line 150 of their 2013 tax return. Taxpayers who have already registered for the CRA’s My Account service can log on there (http://www.cra-arc.gc.ca/myaccount/) to obtain information on their 2014 TFSA contribution limit. Finally, taxpayer-specific information on TFSA limits can be obtained by calling the Tax Information Phone Service (TIPS) line at 1-800-267-6999. Here again, the taxpayer will be asked to provide his or her social insurance number, date of birth, and the amount entered on line 150 of their 2013 tax return.
Once the 2014 contribution limit is known, it’s time to figure out just how much has been contributed to a TFSA during 2014. Many taxpayers are in the habit of depositing periodic income receipts—a income tax refund, a payment from an employer’s benefit plan, or interest income from other accounts—into a TFSA, or have arranged to have their financial institution make regular transfers from other accounts into a TFSA throughout the year. Those amounts can add up, especially where the taxpayer has multiple TFSA accounts at different financial institutions, and checking the year’s total contributions from all sources to date against total contribution room for the year is the first step to be taken, to make sure that the taxpayer isn’t already in an over-contribution position. Where that has already happened, the best course of action is to immediately transfer funds out of the TFSA to another (non-TFSA) account. Penalties payable for over-contributions to a TFSA are calculated based on the highest excess TFSA amount in each month. While a penalty will still be assessed for all months in which the taxpayer was in an over-contribution position (even if the excess contribution position only existed for one day in the particular month), withdrawing or transferring any excess amounts before the end of the current month will avoid the imposition of further penalties.
If a comparison of the contribution limit for the year to contributions to date show that there is still contribution room left for 2014, the next step would be to total up all scheduled automatic transfers which will take place during the rest of 2014 and make sure that they will not, when added to contributions that have already been made since January 1, push total contributions for the year over the allowable limit. If they will, then it’s time to make a change to the transfer schedule or transfer amounts to keep contributions within the year’s maximum allowable contribution limit.
Where there is contribution room still available for 2014, but no contributions are scheduled or anticipated, it may be time to rethink that plan. Even where one’s circumstances don’t permit the contribution of large amounts, every dollar currently sitting in other accounts which is transferred to a TFSA means less tax paid on interest or other investment income earned on those dollars. In most circumstances, there’s really no good reason not to use a TFSA to hold funds which are not needed to meet current expenses, or which are already being set aside for relatively short-term financial goals—perhaps the purchase of a new car, or next winter’s vacation. The rate of interest currently being paid on bank account balances is miniscule, and perhaps the only thing worse than receiving such meager returns is losing up to half of those already small interest amounts to income tax, when that result can be easily avoided. Having one’s financial institution transfer any “excess” funds from other accounts into a TFSA will remove the tax hit on any interest or other investment income earned on those funds. And, if a need for the funds arises unexpectedly, a tax-free withdrawal of some or all of the funds in the TFSA can always be made.
Taxpayers who are over age 71 may particularly benefit from the use of a TFSA to allow their retirement savings to continue to grow and compound on a tax-free basis. Canadians who have saved for retirement through a registered retirement savings plan (RRSP) are required, after the end of the year in which they turn 71, to withdraw a prescribed percentage of the balance in their plans each year. Where the taxpayer doesn’t need those withdrawn RRIF amounts to meet current expenses, often the best solution is to contribute those amounts to a TFSA. Income tax will still have to be paid on the required amount withdrawn, but the funds can usually be put back in the same investment vehicle from which they were withdrawn, whether that is a guaranteed investment certificate, a mutual fund, or a bond. Any future growth in the value of those investments can then compound tax-free, as they did while in the RRSP, and can eventually be received free of tax when they are withdrawn from the TFSA. And, finally, because amounts withdrawn from a TFSA are not included in income, any withdrawals from the TFSA will have no effect whatsoever on a retired taxpayer’s eligibility for means-tested benefits, like Old Age Security, the age credit, the GST/HST tax credit, or the federal Guaranteed Income Supplement.
After getting off to a slow start, TFSAs have become a standard part of financial and tax planning of most Canadian taxpayers, as there is no other savings vehicle which provides the TFSA’s combination of tax benefits and flexibility. Using TFSAs to the fullest extent possible, while taking care not to go offside with the TFSA over-contribution rules, is a win-win combination for most taxpayers.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Sales suppression software - new penalties now in effect (July 2014)

It goes without saying that developments in technology have made their mark in just about all areas of personal and business life. One of those changes has been the use of computer systems to record and document business transactions, including point-of-sale (POS) transactions in retail businesses. And, inevitably, the use of such systems has given rise to the development of software intended to defeat them. The possession and use of such software—known as electronic suppression of sales (ESS) software or, more familiarly, “zapper software”, is now an offence under Canada’s income tax and excise tax legislation.


At the most basic level, zapper software deletes or modifies sales transaction records from a POS system. And, of course, where sales transactions are not recorded, the business owner can avoid reporting the income from such transactions, for both income tax and GST/HST purposes.
What makes zapper software a particular problem for the tax assessment and collection efforts of the Canada Revenue Agency (CRA) is that where sales transaction records are deleted or modified by such software, no record of those events are kept in the system. Consequently, in the event that the CRA reviews records in the POS system as part of an audit or other review, no evidence that those records have been tampered with can be traced or found.
The potential revenue loss which could result from the use of zapper software was significant enough to lead the federal government, in its 2013 budget, to propose the application of specific penalties simply for the possession or acquisition of such software. In other words, it’s not necessary to actually use such software in order to run afoul of the new rules; simply purchasing or owning the software is enough to attract penalties.
There are two levels of penalty under the rules. The first imposes a monetary penalty of $5,000 for a first infraction relating to the use, possession, or acquisition of ESS software. On a second or subsequent infraction, that monetary penalty increases to $50,000.
For those involved in the manufacture or sale of ESS software, the monetary penalties are doubled. On a first infraction, the monetary penalty imposed is $10,000, increasing to $100,000 for second or subsequent infractions.
In each case, a separate penalty is imposed for both income tax and GST/HST. Consequently, on a first offence relating to use of ESS software, the potential penalty is $5,000 for each of income tax and GST/HST purposes, or a total of $10,000.
There is also the potential for criminal charges under the new legislation. Where such charges are laid and a conviction obtained, the fine imposed can range from $10,000 to $1,000,000, and those convicted can be imprisoned for a period of, potentially, up to five years.
Most business owners purchase their POS software in a sealed package from a software vendor, and most wouldn’t have the technological savvy (or the time) to analyze the software in detail to determine whether it contains ESS capabilities. The CRA suggests, therefore, that in order to avoid being caught by the new penalties, business owners take the following steps:

1. those acquiring a new POS system should obtain assurances from the software provider that the new system does not contain ESS programming;
2. for existing POS systems, assurances should be obtained from the software provider that the POS system does not contain ESS programming; and
3. a record should be kept of any assurances received and all steps taken to ensure that the software obtained and used by the business does not contain ESS software should be documented.

Business owners who can demonstrate that they have taken these reasonable steps—who have exercised what is usually termed “due diligence”—to ensure that they did not purchase and do not own ESS software can avoid the imposition of the new penalties. Where, however, a business owner has actually used ESS software, no such defence is available.
Business owners who have used ESS software in the past are in a somewhat different position. In such cases, the CRA’s advice is for the business owner to come forward and make a disclosure under the CRA’s Voluntary Disclosure Program. Where such a voluntary disclosure is made, and accepted by the CRA, the business owner can pay the taxes owed, plus interest, but may avoid the imposition of penalties or criminal sanctions. More information on the CRA’s Voluntary Disclosures Program can be found on the Agency’s website at http://www.cra-arc.gc.ca/voluntarydisclosures/#q3.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Disputing your income tax assessment (July 2014)

It’s not unusual for a taxpayer to disagree with the Canada Revenue Agency’s (CRA) assessment of his or her tax return. When that happens, the first step is to get in touch with the CRA, by phone or letter, to determine just where the disagreement lies and whether it can be resolved. Where the CRA and the taxpayer can’t come to an agreement or compromise on what the taxpayer’s tax liability for the year should be, it’s time to move to the next level.


No matter what the basis for the disagreement is—a disallowed deduction or a dispute over the amount of income for the year—that next step is the filing by the taxpayer of a Notice of Objection. Filing such an objection 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 a Notice of 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, recent changes in the law require the CRA to postpone collection action on only 50% of the amount in dispute, where that dispute involves a charitable 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 2013 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2015 (or June 15, 2015 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 http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html. The taxpayer provides information with respect to the reasons why the assessment is being disputed and submits those reasons. After the taxpayer selects the Submit button at the bottom of the "Register my formal dispute" page, a message thanking him or her for the submission is displayed. That message indicates that the submission was successfully received, and it is then forwarded to a CRA employee. That employee may contact the taxpayer directly for more information, especially as it is not possible for the taxpayer to attach any supporting documents when filing a formal dispute online. Needless to say, any documents relating to the dispute should be kept by the taxpayer.
While filing a dispute through My Account is certainly faster than mailing hard copy of the Notice of Objection, not all taxpayers want to take advantage of that option. In particular, those who are not already registered with My Account may not wish to undertake the registration process simply in order to file a single Notice of Objection. Taxpayers who choose instead to mail hard copy of a Notice of Objection can find the CRA’s standardized form—the T400A Objection—on the CRA’s website at http://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 the T400A form will make it clear to the CRA that a formal objection is being filed, will present the necessary information in a format with which the CRA is familiar, and will also mean that no required information is inadvertently omitted. It’s also helpful to include a copy of the Notice of Assessment which is being disputed. Since the CRA does not always acknowledge receipt of an Objection, taxpayers should 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). The CRA has two appeal intake centres, which are as follows:
Western Intake Centre
Burnaby-Fraser Tax Service Office
9737 King George Boulevard
PO Box 9070, Station Main
Surrey, BC V3T 5W6
Eastern Intake Centre
Sudbury Tax Service Office
1050 Notre-Dame Avenue
Sudbury, ON P3A 5C1
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 CRA may or may not contact the taxpayer for further discussions of the issues in dispute. Should the taxpayer be contacted, he or she may be asked to provide representations outlining his or her position, in writing or at a meeting. Through such representations and meetings, it may be possible for the taxpayer and the CRA to come to an agreement on the taxpayer’s tax liability. In either case, the CRA will either confirm its original assessment or change it. If the original assessment is changed, the CRA will issue a Notice of Reassessment outlining the changes. If the taxpayer continues to disagree with the CRA’s position, the next step is an appeal to the Tax Court of Canada, which must be filed within 90 days after the CRA issues its assessment or reassessment. While in many instances (generally where amounts in dispute are relatively small) taxpayers 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 http://www.cra-arc.gc.ca/E/pub/tg/p148/README.html.
A final note—many taxpayers, when they receive a Notice of Assessment and determine that the CRA agrees with their return as filed, consign the Notice to the nearest garbage can or recycling container. Neither is a good idea. A Notice of Assessment, in addition to outlining the CRA’s assessment of the taxpayer’s income and tax position for the year—thus serving as an official record of their tax situation—contains useful and necessary information on the taxpayer’s RRSP current year and carryforward contribution amounts. The Notice of Assessment should be treated as part of a taxpayer’s tax records, and filed away accordingly.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Moving expenses—what’s deductible and when? (June 2014)

The spring and summer months are the traditional time for moving in Canada. Moving during these months allows Canadians to both take advantage of the warmer weather and to get settled into the new location in time for the upcoming school year. Canadians move for a lot of reasons—a new job or a job transfer, moving to be closer to family, moving when a growing family needs a larger home or, conversely, downsizing in anticipation of retirement. Whatever the reasons and whatever the distance, however, moving always involves costs and stress. Whether it’s the cost involved in preparing the current home to be put on the market, trips to the new location to search for a home, or just the cost of packing and transporting one’s belongings and driving to the new location, the financial outlay of moving can be considerable. In some circumstances, however, our tax system will provide for a deduction to help offset moving costs.


Not all moves will qualify for tax relief, but where a taxpayer moves to be at least 40 kilometres closer to his or her place of work (for example, a taxpayer who moves from Toronto to take a job in Calgary or Regina or Ottawa), most moving costs will be deductible from employment or business income earned at the new location. The 40 kilometre distance is measured using the shortest route normally available to the travelling public, which in most cases would mean the distance by road. And, moving to be closer to work doesn’t have to mean moving to a new company—a job transfer to another city while continuing to work for the same employer will qualify, assuming the 40-kilometre criterion is met. A deduction is also available where someone who is unemployed moves to start a new job or business, again assuming that all other required criteria are met.
The list of expenses which may be deducted is fairly comprehensive, but not all moving- related costs are deductible. Under the administrative policies of the Canada Revenue Agency (CRA), as outlined in their Form T1-M, Moving Expenses Deduction , the following are considered eligible moving expenses:
• 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, 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.
It sometimes happens 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 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.
It may seem from the foregoing 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 (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; 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 45.5 cents for Saskatchewan to 63.5 cents for the Yukon Territory. These standardized expense rates are those which were in effect for the 2013 taxation year—the CRA will be posting the rates for 2014 on its website early in 2015, in time for the tax-filing season. It is in all cases the province or territory in which the travel begins which determines the applicable rate.
Any moving-related expenses can be deducted from employment or self-employment income (but not investment income or employment insurance benefits) earned at the new location. Where a move takes place late in the year, it’s possible, especially where the move is a long distance one, that such expenses will exceed income earned at the new location during the calendar year. In such cases, it’s possible to carry forward the excess expenses, and deduct them from income earned in subsequent years.
The rules governing the deduction of moving expenses are outlined in some detail on the CRA’s T1-M form. The current version of the form can be found on the CRA website at http://www.cra-arc.gc.ca/E/pbg/tf/t1-m/t1-m-13e.pdf, and more information on the tax treatment of moving costs is available on the same website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/menu-eng.html.
Any questions not answered by the form or on the website can be directed to the CRA’s individual enquiries line at 1-800-959-8281.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

When you don’t agree with your tax assessment (June 2014)

By now, most Canadians, (with the exception of the self employed and their spouses, who have until June 16) will have filed their 2013 income tax returns. And, since the goal of the Canada Revenue Agency (CRA) is to have returns processed and assessed within a maximum of six weeks from the time of filing, many of those who have filed will by now have received a Notice of Assessment for their 2013 return from the CRA.


In most cases, there are no surprises on the Notice of Assessment, and the figures submitted by the taxpayer with respect to income tax owed for 2013 are confirmed by the CRA. Sometimes there are small changes—while the CRA will not alter a return to, for instance, provide the taxpayer with additional credits to which he or she was entitled but did not claim—the Agency does correct arithmetical errors made on the return.
In a minority of cases, however, the figures which appear on the Notice of Assessment differ significantly from those submitted on the return. 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 a few hundred dollars in interest income earned. Even where tax software is used to prepare the return, such 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 and T5 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 $25,353 on the T4 becomes $23,533 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 the corrections made by the CRA result in less tax payable, it’s a good day for the taxpayer. But even where there is additional tax owing because of an error or omission made by the taxpayer in completing the return, disputing the assessment doesn’t really make sense when the CRA’s figures are correct. 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 and paying tax on all income received 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 expense, which the taxpayer believes to be legitimate. When that happens, the taxpayer has to decide whether to dispute the assessment.
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, if that isn’t clear from the Notice of Assessment. It used to be possible to meet face-to-face with a CRA representative at a Tax Services Office (TSO), on a drop-in basis or, more recently, by appointment. Unfortunately, such meetings are no longer an option, as in the fall of 2013, payment and enquiry counter service at TSOs was discontinued. Taxpayers who want 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 their return. The name of that Tax Centre can be found in the top right hand corner of each page of the Notice of Assessment, and fax numbers and mailing addresses for the Tax Centres are available on the CRA website.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The responsibilities—and risks—of being a corporate director (June 2014)

The picture that many Canadians have of corporate directors is that of a highly-paid director of a blue-chip multinational, travelling on the company jet to attend directors meetings in exotic locations. While there are certainly corporate directors who fulfill that perception, the reality is most Canadian companies are small or medium-sized owner-managed businesses. In such small operations, it’s not unusual for family members or friends to be asked to become directors of the company—often, when the business is first incorporated. In other instances, someone may agree to sit on the board of a local non-profit organization, as a way of supporting the activities of that organization. While many directors, especially first-time directors of small companies, view their position as purely nominal or honorary, the fact is that taking a position as a corporate director means taking on very real responsibilities. And, no matter what size the company or organization may be, the responsibilities of those directors are the same.


Every Canadian company must meet a variety of reporting, filing, and payment obligations, at both federal and provincial levels. However, the area which most often causes problems for the directors of a corporation is the obligations of that corporation to the Canada Revenue Agency (CRA). The CRA recently updated and re-issued its publication on the obligations and potential liability of corporate directors, and that publication, Information Circular IC89-2R3, is available on the CRA website at http://www.cra-arc.gc.ca/E/pub/tp/ic89-2r3/ic89-2r3-14e.pdf. As outlined in the CRA’s updated release, the obligations of directors generally come down to four questions:
• Who can be held liable?
• What can they be held liable for?
• How can liability be avoided?
• What are the potential consequences where liability is established?
On the first question, the net is cast very, very broadly. Or, in the CRA’s wording, “[T]he statutes do not distinguish between directors, whether active, passive, nominee or outside directors.” Anyone who holds the title of director can face personal liability for the company’s failure to fulfill its obligations to the CRA. It’s a common misconception that a director who is not involved in the affairs of the company—who doesn’t, for instance, attend directors’ meetings, read minutes of the meetings, or sign directors’ resolutions—can’t be held liable for decisions made at meetings he or she didn’t attend or implemented through resolutions of which he or she was unaware. In fact, the opposite is true—not only does a lack in involvement in the affairs of the company generally not absolve a director of potential liability, that very lack of involvement can be seen a evidence of a failure to meet the obligations that come with a position as a company director. And, finally, it’s not even necessary to formally hold a position as director in order to be held liable for company failures—the CRA’s position is that “[O]fficers, employees and others who are not legally appointed or elected as directors, but who perform the functions that directors would perform, may be liable.”
What, then, can directors be held liable for? A company, depending on its size and the industry in which it operates, can have a variety of legal and tax obligations, with the latter usually including the obligation to remit amounts on a regular basis to the federal government. Again, depending on the industry and activities of the corporation, those remittance obligations can involve excise duty, refundable tax for scientific research and experimental development or share-purchase tax credits, or payments to non-residents, and corporate directors can be held liable for a company’s failure to remit any or all such amounts. However, the one remittance obligation common to virtually all companies is that of remittance of employee source deductions. Any corporation which has employees must withhold income tax, Canada Pension Plan contributions, and Employment Insurance premiums from the employees wages, and must remit those amounts, together with any required employer contribution, to the CRA on a regular basis. It’s not surprising, therefore, that the majority of cases in which directors have been held personally liable for a corporation’s failure to remit have involved employee source deductions.
The actual mechanics of making source deductions and remitting them to the CRA on time is a function usually carried out by a company’s payroll department or, in smaller companies, a bookkeeper or accountant. While company directors don’t have to be directly involved in that process, what they must do is to make sure that the company is properly withholding deductions or, in the CRA’s words, they “must make every reasonable effort to ensure that source deductions … are withheld, collected, remitted and paid.” That reasonable effort is also known as a director’s “due diligence” responsibility—the director’s obligation to take the care that a reasonably prudent person would take in similar circumstances to make sure that the corporation deducts, withholds, collects, remits, and pays amounts due on a timely basis.
Numerous court decisions have addressed the question of just what constitutes “due diligence” on the part of a corporate director, and the CRA has summarized that duty, as it relates to corporate remittances, as follows.
To ensure that he or she has fulfilled the due diligence obligation, a corporate director should use methods such as:
• establishing a separate account for withholdings from employees and remittances of source deductions and other amounts owed to the CRA;
• calling on financial officers of the corporation to report regularly on the status of the account; and
• obtaining regular confirmation that withholdings, remittances, or payments have in fact been made during all relevant periods.
In practical terms, a corporate director could fulfill this responsibility by requiring the company employee who looks after source deductions and remittances to set up a separate account in which source deductions are deposited, and to provide a regular report to the Board of Directors, with documentary evidence in the form of receipts and/or statements of account from the CRA, confirming that all source deductions have been made and remitted as required. A director who does so is very likely to be seen to have made all reasonable efforts to ensure that the company is in compliance with its obligations.
Where there is a failure to meet those obligations, however, the CRA will look first to the company to make good on any deficiency. It is only where the company is unable to do so—a judgment against the corporation cannot be realized on, or the company has been dissolved or liquidated, or is bankrupt with no assets to pay its obligations—that the CRA will advise the directors, with a “pre-assessment proposal” that they may face liability for the company’s outstanding debts. A director who receives such a communication from the CRA should respond in writing within the time frame set out in the proposal, outlining the steps which he or she had taken to ensure that the corporation was in compliance with its obligations, and should provide documentary evidence of the steps taken. The CRA will then consider that response before deciding whether to issue an assessment against the director personally for amounts owed by the company to the CRA.
Where the CRA does decide that the directors can be held personally responsible for corporate debts, that liability is “joint and several”, meaning that each director can be assessed for the full amount of any amount owed by the company to the CRA, including penalties and interest—assessments for such debts are not issued on a pro-rata basis.
While a director’s potential liability for amounts owed by the corporation to the CRA is significant, it’s not, fortunately, open-ended. The CRA must issue any assessment against a director within two years of the time that a director resigned his or her position with the company. So, in other words, leaving a position as a company director will not insulate that director from liability for actions or omissions which occurred during his or her time as director. However, any assessment in respect of those actions or omissions must, in order to be valid, be issued by the CRA within two years after the date the director resigned.
Most corporate directors, whether in large, small, or medium-sized companies, will never face the prospect of being held personally liable for amounts owed by the corporation to the CRA. Nonetheless, anyone who agrees to act as a corporate director for a company of any size, or for a non-profit organization, should understand that such a position is never simply a nominal or honorary one. Becoming a corporate director means taking on very real ongoing responsibilities and, as the CRA makes clear in its recent publication, ignorance of those responsibilities will not serve as a defence to any potential personal liability.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New reporting requirements for internet business activities (June 2014)

All Canadian businesses must report and pay tax on any income arising from their business activities, whether those activities are carried out from a traditional bricks and mortar office or storefront, or through one or more websites. The Canada Revenue Agency (CRA) has become increasingly concerned, in recent years, about income generated through e-commerce on the Internet, and particularly about the possibility that such income may go unreported and therefore untaxed.


The CRA’s efforts in this area have been stepped up a notch this year. For the first time, most Canadian businesses, incorporated or unincorporated, will be required to provide specific information on the extent of their internet business activities, and the percentage of their income which is derived from such activities, when filing their annual tax return.
Most businesses do, of course, have a website, but not all business websites exist for the purpose of generating income—some are created and maintained only to provide information about the business and the goods or services it provides, together with contact information. The CRA’s new reporting requirement distinguishes between those two kinds of websites, and only those which are income-generating need be reported. For the CRA, examples of webpages or websites that are covered by the new reporting requirements include (but are not limited to):
• webpages and websites that allow the completing and submitting of an order form, the checking out of a virtual shopping cart, or similar transactions;
• online market place websites where the goods and/or services of the business are sold; and
• webpages and websites hosted outside of Canada that generate income.
Websites which do not generate income need not be reported include:
• telephone directory websites that list the webpage or website of a business; and
• information-only webpages and websites. (Like directories or ads, these pages and sites give basic information such as a business name, address, telephone number, and general information about goods and/or services provided.)
The process by which the new reporting requirements must be fulfilled differs, depending on whether or not a business is incorporated. For those that are not—generally, self-employed individuals—the required information is reported in a new section of the existing form on which business income is reported and business deductions claimed (Form T2125 for most businesses).
Corporations will report the same information on a new schedule—Schedule 88, Internet Business Activities, as part of the corporation’s T2 income tax return, where the required filing date for that return is after December 31, 2014.
On either form, the business must indicate how many income-generating websites it has, must provide the URL of each of those websites, and must provide an estimate of what percentage of the business’s gross income was received from Internet business activities.
There is one kind of business which is, as yet, not subject to the new reporting requirements. The CRA indicates on its website, without explanation, that “[I]f your partnership earns income from one or more webpages or websites, currently you do not have to report Internet income information.”
Finally, some taxpayers may not have to deal with the new reporting requirements until next year. Since the new version of the T2125 was not made available online until around the beginning of April, the CRA website states that self-employed individuals who filed a 2013 return before April 4, 2014 can include their Internet income information with the 2014 return, to be filed in 2015. As well, information provided in a CRA newsletter indicates that if the tax preparation software used by a corporation for its 2013 return does not include new Schedule 88, the corporation can start filing that schedule with its T2 return for 2014.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

“Phishing” season for taxpayers (May 2014)

While the recent publicity around the “Heartbleed” computer bug has highlighted the vulnerability of taxpayers to gaps in computer security systems, such security glitches aren’t the only way in which the personal data of taxpayers can be compromised or taxpayers can be victimized by scams. Fraud isn’t, unfortunately, a seasonal business—every day of the year, attempts are made to cheat individuals out of their hard-earned savings or property. That said, the fact that it is tax-filing season makes it easier for those seeking to defraud others to carry out such ventures by passing themselves off as representatives of the Canada Revenue Agency (CRA).


For most of the year, taxpayers live quite happily without any contact with the CRA. During 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.
Both types of messages were the subject of a recent warning from the CRA. A recent telephone scam apparently involves the caller using threatening or coercive language to frighten an individual into pre-paying a fictitious debt to the CRA. Others include notifications by e-mail that the taxpayer is entitled to a refund of a specific amount, or informing the recipient that their tax assessment has been verified and they are eligible to receive a tax refund. It’s not hard to see how a taxpayer who has filed a return but has not yet received a Notice of Assessment in respect of that return could be, in these circumstances, tricked into believing that they are dealing with a legitimate communication from the tax authorities.
Some such e-mails have obvious spelling or grammar errors which make it easy to see that they are not, in fact, from the CRA. Others, however, are more sophisticated, making it difficult even for those who are familiar with CRA communications to detect the deception. The CRA notes that taxpayers should be aware, in particular, that telephone calls or e-mails which ask for information like the taxpayer’s credit card, bank account or passport numbers are never from the CRA, as they do not ask for such information.
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. E-mails which are ostensibly from the CRA should generally be deleted, particularly where the e-mail directs the recipient to click on a link to a website closely resembling the CRA’s, where the taxpayer is then asked for personal identifying or financial information. Those websites are invariably fraudulent. As well, the CRA notes that e-mails containing such links can contain embedded software that can harm the recipient’s computer, or put personal information at risk.
There’s 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 appear frequently. The CRA suggests that, in order to avoid becoming a victim of such scams, taxpayers should keep the following general guidelines in mind.
The CRA will:
• NEVER request information from a taxpayer about a passport, health card, or driver’s license;
• NEVER leave any personal information on an answering machine or ask taxpayers to leave a message with their personal information on an answering machine;
• not request personal information of any kind from a taxpayer by e-mail;
• not divulge taxpayer information to another person unless formal authorization is provided by the taxpayer.
The CRA also suggests that, when in doubt, a taxpayer should ask himself or herself 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?
A taxpayer who receives what seems to be a suspicious communication should report that to info@antifraudcentre.ca. If the worst happens and an individual has been tricked into providing personal or financial information, the RCMP’s webpage on e-mail fraud and phishing suggests the following course of action:
Step 1 - Contact your bank/financial institution or credit card company.
Step 2 - Contact your credit bureau and have fraud alerts placed on your credit reports:
Equifax Canada
Toll free: 1-800-465-7166
TransUnion Canada
Toll free: 1-877-525-3823
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 or online, without first verifying the legitimacy of the request.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Getting some tax relief for the cost of driving (May 2014)

Watching gas prices rise as the weather grows (slightly) warmer is a regular experience for Canadians—a rite of spring, if you will. The difference this year is that gas prices, which are, in mid-April, already at a three-year high in some provinces (at around $1.50 per litre in Montreal and Vancouver) seem likely to break new records this summer.


All of this has left Canadians searching for just about any way to reduce their cost of getting around. The problem is that for most of us the purchase of gasoline is, for all practical purposes, a non-discretionary expense. Most Canadians have to get to work each day and, except for those who live in large cities or the bedroom communities surrounding those cities, public transit isn’t usually a practical option. For everyone else, since the money has to be spent, the question becomes, does our tax system offer any relief by way of a deduction or credit for the cost of driving?
The answer, as it usually is in tax, is yes … and no. 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 deduction or credit is allowed, no matter how much it costs. 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. As well, all taxpayers are permitted to claim a deduction for driving or travel expenses incurred for certain specific purposes, like moving to take a job or travelling to obtain medical care. And, finally, for those who decide that the daily drive has just become too costly 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 transit.
There is, however, one instance in which employees can claim a deduction for driving costs. Where employees are required, as part of their terms of employment, to use their own vehicle for work-related travel (e.g., someone who is required to visit clients at their own premises for the purpose of meetings or other work-related activities), tax relief is available for the related costs. 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 travelling 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;
• license 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
• eligible leasing 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 (summarized on the Canada Revenue Agency website athttp://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html) can be complicated. But, given the recent run-up in the cost of gasoline, as well as the anticipated increase ahead, it’s likely worth ensuring that every possible dollar of eligible expenses incurred as a result of employment-related car use is claimed.
Our tax system also permits a deduction for driving or other travelling costs incurred where a taxpayer moves to take a job (which would include students moving to take up a summer job) as well as for travelling costs which are incurred in order for the person or a member of their family to receive medical treatment.
Where it’s necessary to move to take up employment or self-employment, and the move takes the taxpayer at least 40 kilometres closer to the new place of work, the costs of that move can be deducted from income earned at the new job. When it comes to travelling costs, the taxpayer has the option of either itemizing the various costs incurred (including operating expenses such as fuel, oil, tires, licence fees, insurance, maintenance, and repairs and ownership expenses such as depreciation, provincial tax, and finance charges) for the year and then claiming a pro-rated amount which reflects the percentage of kilometres driven which relate to the move. Such an approach requires a fair amount of record keeping and many taxpayers choose instead to claim the standardized per-kilometer rate provided by the federal government. For 2013 (the 2014 rates will be posted on the CRA website early in 2015), that standardized rate ranged from 45.5 cents per kilometer in Saskatchewan to 63.5 cents per kilometer in the Yukon Territory. Where the standardized rate is claimed, no receipts are required, but the taxpayer is required to keep a record of the number of kilometers travelled in relation to the move.
The same approach (itemized approach or standardized rate claim) applies where a taxpayer is claiming travelling expenses related to medical care. The basic rule for claiming travel expenses in such circumstances requires the taxpayer to travel at least 40 kilometres (one way) from his or her home to obtain medical services which were not available any closer to home. Where that requirement is met, the taxpayer may claim the public transportation expenses paid (for example, taxis, bus, or train) as medical expenses. Where public transportation is not readily available, the taxpayer may be able to claim a pro-rated share of vehicle expenses (both operating expenses and ownership expenses, with receipts, as outlined above) or opt for claiming the standardized per-kilometre rate. As is the case with all medical expense claims, a claim is available only where the total amount claimable exceeds the lesser of 3% of net income or (for 2014) $2,171.
Finally, where a taxpayer decides that driving is just too expensive and opts instead for public transit, a tax credit for the cost of using that public transit 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.
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 (e.g., high school or university students who use transit to get back and forth from school) can be aggregated and claimed on the return of either parent for the year. So, a family of four who incurs $700 a month in transit costs (not difficult to do where an inter-city commuter pass can cost up to $350 a month and city transit passes, even for students, can cost around $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—the equivalent of almost 3 months travel costs.
No matter how it’s done, commuting back and forth to and from work every day is tough, and no amount of tax relief is going to make driving that daily commute an easy or 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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

A new pension proposal from the federal government (May 2014)

The issue of retirement financing is a hot topic these days. The concern is that too many Canadians are not financially prepared for retirement or, put more bluntly, that many of those approaching retirement simply won’t have sufficient resources to support them throughout their retirement years.


There are a lot of reasons why this is the case. Most Canadians are not members of pension plans and so must save for retirement through individual plans, usually registered retirement savings plans (RRSPs). Canadians who are now in their late 50s and early 60s often face multiple competing financial obligations while trying to save for retirement, as they try to provide a post-secondary education for their own children (or financial support for 20-somethings who can’t find a secure place in the job market) and, sometimes, financial support for elderly parents. As well, many of those who had saved for decades through RRSPs saw their nest eggs decimated in the financial and stock market collapse which occurred in 2008.
Canada’s retirement income system has three “pillars”. The first is the statutory plans to which most Canadians have access. The Canada Pension Plan provides a monthly benefit based on the contributions made by an individual and his or her employee throughout the employee’s working years. While the maximum monthly CPP retirement benefit is currently $1,050, the average such benefit is closer to $650. Individuals aged 65 and older who have been Canadian residents during their adult lives are also entitled to receive a monthly benefit from the Old Age Security program. The maximum such benefit currently payable is $550 per month. Even those who receive the maximum amount of retirement income from both statutory plans can, therefore, look forward to an annual income of just under $20,000—enough, in most cases, to cover no more than basic living expenses.
For decades, a significant portion of retirement income received by Canadians came from the second pillar of retirement income—employer-sponsored registered pension plans. There are, basically, two types of such plans. Under a defined benefit plan, both employer and employee make contributions to the plan and such contributions are managed and invested by a pension plan administrator. The employee will know exactly how much he or she can expect to receive in the way of a monthly pension upon retirement and the pension plan is obligated to provide that amount. If the funds in the pension plan are insufficient to provide that benefit, it is the employer’s responsibility to make good on any shortfall, through what are known as solvency payments. The second type of registered pension plan, the defined contribution plan, operates somewhat differently. Both employers and employees make contributions to the plan, and contributed funds are invested and managed as with a defined benefit plan. However, there is no guarantee of a specific level of retirement income which the employee will receive. Rather, on retirement, the amount accrued in the plan is made available to the employee, who must then decide how to use those funds to provide a retirement income stream.
It’s easy to see that the obligations of an employer are much greater under a defined benefit plan and, in recent years, many employers have restructured their pension plans to switch from defined benefit plans to defined contribution plans. Where such a change is made, the risk of a shortfall in the funding needed to provide an adequate retirement income stream is essentially transferred from the employer to the employee.
Finally, the third source of retirement income for Canadians is private savings—usually through an RRSP.
The concern about the shortfall in Canadians’ retirement savings has led to a number of proposals from the provinces and from interest groups for changes to be made to the retirement income system. Once of those proposals was for enhancements to the Canada Pension Plan, but the federal government has seemingly rejected that option and determined that a different approach is needed. It has now brought forward a proposal for an entirely new type of pension plan—the “Target Benefit Plan” or TBP, which combines the features of a defined benefit plan and a defined contribution plan. Under the proposals, both defined benefit plans and defined contribution plans currently in existence could, with the agreement of all parties, be converted to TBPs, and the TBP option would be available to any pension plans created in the future.
According the federal government release, which is available at http://www.fin.gc.ca/n14/14-061-eng.asp, the purpose of TBPs is to provide a pension plan structure which “provides a high probability of benefit security for plan members and retirees through both favourable and adverse market conditions.” The essential features of such plans are as follows.
• Benefits payable under a TBP are to be “targeted” rather than defined or guaranteed.
• Contribution rates would be established by plan parties, with a minimum contribution set, based on the expected level of target benefits.
• Both pension benefits and contributions could be adjusted, with the agreement of plan participants, to respond to the financial performance and position of the plan.
• Since benefits are targeted rather than guaranteed, TBPs would not be required to be funded on a solvency basis. Instead of requiring solvency payments, TBPs would ensure viability of target benefits through adjustments to contributions and pension benefits.
• TBPs could have two types of benefits—base benefits and ancillary benefits. The former would be subject to a higher level of protection, and would be reduced only where a plan deficit remained even after ancillary benefits were reduced.
The federal government will be holding a consultation process to seek input from interested parties on the proposed structure of TBPs. That consultation process will take place until June 23, and written comments should be sent via email to: pensions@fin.gc.ca. The document outlining the TBP proposal in detail can be found on the Finance Canada website at http://www.fin.gc.ca/activty/consult/pic-impicc-eng.asp.
It should be noted that the current proposal will apply only to federally regulated private sector employees (for example, those employed in the banking and transportation industries) and to employees of Crown corporations. However, with the current focus on creating an effective and sustainable retirement savings regime for all Canadians, the federal proposal will undoubtedly form the basis for discussion about future changes to pension plan laws, at both the federal and provincial levels.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Last minute tax-saving strategies (April 2014)

By the time most Canadians sit down to organize their various tax slips and receipts, and undertake to complete their tax return for 2013, 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 2013, 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 March 1, 2014 in order to be deducted on the return for 2013.


The fact that the clock has run out on most major tax planning opportunities for 2013 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 2013—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 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 can properly maximize the tax benefit.
Combining claims for family members Generally speaking, in the Canadian tax system, each taxpayer reports and pays tax on his or her income and claims only those tax deductions and credits to which he or she is personally entitled. Unlike the U.S. system, there is no such thing in Canada as a joint tax return, or “filing married”.
That said, there are instances in which members of the same family can combine similar costs incurred during the year and have those costs claimed by a single family member, leading to a better overall tax result. Specifically, under our system, families can combine medical costs, charitable donations, and public transit costs, and a single family member can claim a non-refundable tax credit in respect of each of those types of expenditures.
Our tax system provides a credit for all donations made to qualifying charities. The federal credit is equal to the first 15% of the first $200 in qualifying donations made, plus 29% of donations made over the $200 threshold. Each of the provinces and territories also provides a two-level, non-refundable tax credit for charitable donations made, at varying percentages. Consequently, where charitable donations made by two spouses are combined, it is more likely that some part of those donations will qualify for the enhanced credit available for donations over the $200 threshold.
A similar benefit can be obtained where medical expenses for all family members are combined. Once again, a federal tax credit of 15% of eligible medical expenses can be claimed, and the same expenses can receive a provincial or territorial tax credit at varying percentages, depending on the jurisdiction. The medical expense tax credit can be claimed for any qualifying medical expenses paid by the taxpayer or his or her spouse (or for dependent children aged 17 or less) for which no reimbursement was received. There is, however, a limitation, in that only qualifying medical expenses in excess of the lesser of $2,152 (for 2013) or 3% of the taxpayer’s net income can be claimed. Consequently, it makes sense for the lower income spouse to make the claim for combined medical expenses of both spouses and any dependent children.
Where a taxpayer or his or her spouse pays medical expenses for other dependants, such as parents or grandparents or children aged 18 or older, it’s still possible for either spouse to claim a credit for such expenses. In such cases, qualifying medical expenses which exceed the lesser of $2,152 and 3% of the dependant’s net income for the year can be claimed by either spouse.
Our tax system also provides a non-refundable tax credit for some public transit expenses incurred, and such expenses paid by family members can be combined and claimed by one spouse. Generally, the cost of monthly (or longer) public transit passes can be claimed where those passes were purchased by the taxpayer, his or her spouse, or dependent children who were under the age of 19 at the end of 2013. The non-refundable federal credit is equal to 15% of the total cost and, once again, provincial and territorial tax credits are available, at varying rates.
Choosing when to claim a tax credit It may be intuitively obvious that claiming every possible tax deduction or credit as soon as it is available makes good tax sense. There are, however, times when a better tax result can be obtained by deferring claims.
Where a charitable donation is made, the tax credit available in respect of that donation can be claimed in the year the donation is made or in any one of the five subsequent years. Since the percentage amount of the available tax credit increases (from 15% to 29%, federally) once total donations claimed in a year exceed $200, it makes sense to accumulate donations until that $200 threshold is passed and make the claim in that year.
Similarly, taxpayers have some latitude in deciding when to claim incurred medical expenses. The rule is that medical expenses which may be claimed in a particular year are those which are incurred in any 12-month period ending during that year. Medical expenses are typically incurred on an irregular, unpredictable basis. Consequently, any taxpayer who has a potential medical expense claim is well-advised to take the time to determine which 12-month claim period makes the most sense, even if that means putting off a claim for medical expenses to the following year.
Take, for example, a taxpayer whose net income is $50,000, giving him or her a medical expense tax credit threshold of $1,500 (3% of $50,000). Assume that the taxpayer incurs $1,600 in costs for dental treatment in the fall of 2013, and a further $1,800 in such costs in early 2014. If the expenses for 2013 were claimed on the 2013 return, the total credit available would be $15 ($1,600 - $1,500 × 15%). The claim for 2014 would produce a credit of $45 ($1,800 - $1,500 × 15%). The combined credit received for both years is $60. If, however, the claim for 2013 is deferred and the expense claims for both 2013 and 2014 are aggregated and claimed on the 2014 return, the total credit claimable is $285 ($3,400 - $1,500 × 15%).
Choosing who should claim the tax credit It’s important to remember that all of these credits are non-refundable tax credits, meaning that any credits received can reduce tax otherwise payable, but cannot create or increase an income tax refund. Consequently, where expenses incurred by family members are to be combined and claimed by one spouse, the best person to make that claim is the spouse whose income is lower, as long as his or her federal tax payable for the year is at least as much as the total non-refundable tax credits to be claimed.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

How to file your 2013 tax return (April 2014)

By the beginning of April (and usually earlier), Canadian taxpayers will have in hand all of the information needed to prepare their 2013 income tax returns. Employers who issue T4 slips to their employees and financial institutions which provide T5 slips outling investment income (including interest and dividends) earned during 2013 by investors must issue such information slips to employees, shareholders, and account holders by the end of February 2014. Self-employed taxpayers, who must calculate their own business income for 2013, will certainly be in a position to do so by the end of the first quarter of 2014. Finally, retirees who receive pension income, either from a former employee or from the Canada Pension Plan or Old Age Security program will have received T4A information slips from the pension plan administrator or the government of Canada documenting that income for 2013.


While the need to file the annual income tax return certainly isn’t new, the process for doing so has undergone a number of changes in recent years. At one time, the only option for filing was a “paper, pencil, and eraser” return. The available options expanded when the Canada Revenue Agency (CRA) created systems which allowed taxpayers to file over the telephone (TELEFILE) or online (NETFILE), while still maintaining the option of filing a paper return. In 2013, however, changes were made which eliminated one filing method and made filing the traditional paper return more difficult. All of those changes, which continue this year, are part of the CRA’s continuing efforts to encourage taxpayers to file their returns online.
The change which has the broadest impact is the fact that the CRA no longer mails personalized income tax return forms to taxpayers. Such forms—along with the General Income Tax Guide—can still be obtained from a Service Canada office (a listing of such offices can be found at http://www.servicecanada.gc.ca/cgi-bin/sc-srch.cgi?app=hme&ln=eng) or at post offices. Taxpayers who find it difficult to obtain the return form and guide from either of those locations can have one mailed to them by calling the CRA’s individual income tax enquiries line at 1-800-959-8281.
One of the consequences of the CRA’s decision to no longer provide personalized return forms to taxpayers was the disappearance of the specialized return form. At one time, the CRA provided a number of different types of individual tax returns, which were tailored to the needs of the taxpayer group which used them. One of those returns was the T1 Special, a shorter, more simplified version of the T1 General Return. The T1 Special was sent by the CRA to taxpayers with relatively straightforward tax situations—usually seniors, students, and taxpayers earning only income from employment. The more complex T1 General is now the only return form which can be used by individual taxpayers, regardless of their circumstance. As a result, taxpayers who used the T1 Special return form prior to last year may find that the T1 now looks unfamiliar and more complex.
The other change made last year by the CRA, which continues for this filing season, was the elimination of TELEFILE, the method for filing by telephone.
Most Canadians now file their tax returns electronically, and there are two possible electronic filing methods. With the first, EFILE, the taxpayer engages a service provider who usually prepares the return and then files it electronically (or e-files it) with the CRA. Alternatively, taxpayers can prepare their own return, using software approved by the CRA and file that return using the Agency’s online NETFILE service.
The choice of which software to use is up to the taxpayer. There are numbers of commercial software packages sold during tax filing season, at varying costs. Taxpayers can also, however, use NETFILE-approved software which is available free of charge on the CRA website at http://netfile.gc.ca/sftwr-eng.html.
One of the changes made by the CRA to make using NETFILE easier was the elimination of the need for a specific access code for filing. Taxpayers who want to NETFILE their 2013 income tax return need only provide their social insurance number and date of birth in order to satisfy CRA NETFILE security requirements.
The NETFILE system for filing of 2013 individual income tax returns is available at the following times:


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Paying your taxes for 2013: when and how? (April 2014)

While most Canadians try to avoid the inevitable for as long as possible, there’s no escaping the fact that the tax payment deadline (for all Canadians) and the tax filing deadline (for the majority of Canadians) is now only a few weeks away. For all individual Canadians, the deadline for payment of all income taxes owed for the 2013 tax year is Wednesday, April 30, 2014—no exceptions and, in the absence of very unusual circumstances, no extensions.


Where payment for taxes owed isn’t made (or made in full) on or before April 30, the interest clock starts running on May 1. By law, the interest rate charged by the Canada Revenue Agency (CRA) on overdue or insufficient tax payments is higher than ordinary commercial rates. This year, the interest rate which will be levied (from April 1 to June 30) on such payment deficiencies is 5%. As well, where interest is charged by the CRA, such interest is compounded daily, meaning that each day, interest is charged on interest which was levied the day before.
There’s a common misconception among Canadian taxpayers that, if you owe money for taxes and you don’t have the funds the make that payment, there’s no point in filing a return. Not filing in such circumstances is, in fact, an expensive mistake. Where an individual owes taxes and doesn’t file a return by April 30 (or June 16, 2014 in the case of a self-employed taxpayer), the CRA assesses an immediate late-filing penalty of 5% of the amount owed, plus an additional 1% of that amount for every month that the taxpayer’s return is late, to a maximum of 12 months. Those penalties are in addition to any interest charge levied on the outstanding amount. As well, interest is charged on any late-filing penalty assessed, beginning the day after the return is due.
Taxpayers who repeatedly fail to file on time when taxes are owed can get hit even harder. Where the CRA has imposed a late-filing penalty on a particular taxpayer in any one of the last three years (e.g., 2011, 2012, and 2013) and the taxpayer’s return is not filed on time in 2014, the late-filing penalty can increase to 10% of the 2013 balance owing, plus 2% of amount owed for 2013 for each full month the return is late, to a maximum of 20 months. Adding it all up, the worst-case scenario for a taxpayer who late-files twice in four years where taxes are owed on filing can be total penalties equal to as much as half of the original tax amount owed—an initial penalty of 10%, plus 2% per month for 20 months, or 40%, for a total of 50% of taxes owed. And that calculation doesn’t include the interest charges which will also be levied throughout.
Clearly, that’s a situation that no one wants to be in. However, a taxpayer who doesn’t have the money needed to pay taxes by the payment deadline does have some options. The first step is, clearly, to file the return on time and so avoid late-filing penalties. As well, the CRA is open to making payment arrangements with taxpayers who cannot pay the full amount owed on filing. In such circumstances, the taxpayer’s best course of action is to contact the CRA to discuss payment options. The CRA has a toll-free line (1-888-863-8657) which taxpayers can call to discuss a payment arrangement, and that line is available from Monday to Friday, 7:00 a.m. to 11:00 p.m. (Eastern Time).
It should be noted that the CRA isn’t generally willing to enter into a payment arrangement until and unless the taxpayer has exhausted other options (e.g., by borrowing the needed funds). And, given that the interest rate charged by the CRA is higher than many commercial rates and that such interest charges are subject to daily compounding, it may well be more cost-effective for the taxpayer to borrow the needed money elsewhere.
For those who do have the funds needed to pay their taxes by the April 30 payment deadline the CRA, not surprisingly, provides many options for making that payment. For those who want to make their payment electronically, income tax payments can usually be made through the website or telephone banking services of major Canadian financial institutions. As well, the CRA website includes a My Payment option through which taxpayers can make a payment from an account at a participating Canadian financial institution, and that option can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/mypymnt/menu-eng.html.
Taxpayers who don’t want to or can’t pay by electronic means can make a payment at their bank or other financial institution. While such payments can be made free of charge, it’s necessary to have the proper form. That form can be obtained by calling the CRA Individual Income Tax Enquiries line at 1-800-959-8281.
Taxpayers who paper-file a return can also attach a cheque or money order to that return. Finally, a cheque or money order for taxes owed can be mailed to the CRA at 875 Heron Road, Ottawa, Ontario K1A 1B1. Where a cheque or money order is mailed separate from the return, the taxpayer can attach a note to the cheque or money order stating his or her social insurance number and giving instructions on how the payment should be applied. The taxpayer can also order Remittance Form T7DR(A) by calling the Individual Income Tax Enquiries line at 1-800-959-8281, and attach that form to the cheque or money order.
Paying income taxes isn’t anyone’s favourite way to spend money. Nonetheless, it’s a financial obligation that can’t be avoided, and the costs of procrastination can be significant.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Understanding the Canada Pension Plan Post-Retirement Benefit (April 2014)

Over the past few years, there have been a lot of changes to the Canada Pension Plan, both in terms of contributions made to the plan, and with respect to the receipt of CPP retirement benefits. One of the least well-known and least understood of those changes is the CPP Post-Retirement Benefit, or PRB.


The PRB exists because, for the first time, Canadians who are already receiving CPP retirement benefits can (or in some cases are obliged to) continue making CPP contributions through their employment or self-employment income. Before 2012, once an individual began receiving CPP retirement benefits, no further contributions to the CPP were possible.
Under the new rules which took effect in 2012, individuals between the ages of 60 and 64 who are receiving CPP retirement benefits but who continue to work are obliged to make CPP contributions. Such individuals who are aged 65 to 70 can elect to make such contributions, but are not required to do so. After age 70, it is not possible to make contributions to the CPP, no matter what one’s employment status.
The benefit of continuing to make CPP contributions is that such contributions allow one to increase the amount of CPP retirement benefits receivable on a going-forward basis. Specifically, where a recipient of CPP retirement benefits makes CPP contributions in 2014, the amount of his or her CPP retirement benefits will increase beginning January 1, 2015.
The amount of any PRB which accrues to an individual depends on the amount of contributions made during the previous year, which in turn depends on the amount of income earned by the individual during that year. The following, adapted from an example on the Service Canada website, shows how the PRB works.
Jane is a CPP retirement pension recipient who, in 2013, is 65 years of age. She will receive gross earnings of $57,000 annually until she reaches age 70. Jane elects to make voluntary CPP contributions until the age of 70 and the amount of those contributions will average about $2,450 per year.
Each year between the ages of 66 and 70, Jane’s CPP retirement benefit would be increased by the amount of PRB earned in the previous year. That PRB would range from $337 at age 66 to $481 at age 70. Each year, her new PRB would be added to the previous PRBs she had collected. If she passes away at age 87, between the ages of 66 and 87, she would collect a total of $40,493.61 in PRB payments.
While every individual who makes CPP contributions while receiving CPP retirement benefits will see that benefit increase as a result, the total PRB benefits received will depend on the amount of contributions made and, especially, the number of years that the individual receives CPP retirement benefits.
For those who are between ages 60 and 64, there is no decision to be made, as CPP contributions during those years are mandatory for all working Canadians. For those aged 65 to 70 however, the choice is theirs whether they wish to continue to be a part of the workforce, and that choice is a very individual one. Some practical assistance in making the decision can be obtained from the Service Canada website, where an online calculator can be used to determine the amount of any PRB available to individuals of different ages, at different income levels. That calculator, along with general information on the PRB can be found athttp://www.servicecanada.gc.ca/eng/services/pensions/cpp/prb/index.shtml.
A final practical note: CPP contributions will be deducted from the income of all Canadian employees, regardless of age, and remitted to the federal government on their behalf. Individuals aged 65 to 70 who do not wish to make voluntary CPP contributions must complete Form CPT30, Election to stop contributing to the Canada Pension Plan (available on the Service Canada website at http://www.cra-arc.gc.ca/E/pbg/tf/cpt30/). A copy of the form is given to the employer and the original sent to the Canada Revenue Agency.
An election to cease making CPP contributions is not, however, irrevocable. It is possible to reverse that election by once again filing Form CPT30. Such a change can, however, be done only once per calendar year.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Some early tax planning for 2014 – getting source deductions right (March 2014)

With all the focus this time of year on making RRSP contributions and getting one’s 2013 tax return in on time, it may seem premature to start thinking of how to minimize tax payable for 2014. There nevertheless remain reasons why this is, in fact, a good time to be contemplating one’s tax liability for the current year


Most Canadians are happy to avoid thinking of taxes for most of year but the receipt of T4 and T5 slips and other tax slips and receipts makes it clear that the time to complete and file the annual tax return is at hand. One of the more unpleasant surprises that can occur when completing a 2013 tax return is finding that tax is owed for the year – quite possibly even a substantial amount of tax! In too many cases, funds must be borrowed to meet those expenses, meaning the taxpayer will be paying non-deductible interest costs. When that’s the case, avoiding a repeat of that scenario for 2014 becomes a priority.
For the vast majority of Canadians who earn income from employment and who find they owe taxes on filing, the reason is almost always that tax paid throughout the year was insufficient. To understand why tax deductions taken throughout the year can come up short, it’s necessary to understand how and when the tax authorities collect taxes from individual taxpayers. Canada’s tax system is self-assessing meaning that individual taxpayers must calculate and pay their income taxes for the year by the following April 30. 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 on the taxpayer’s behalf by his or her employer.
Of course, as each taxpayer’s situation is unique, the employer requires 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 a TD1 form which is completed and signed by every employee, sometimes at the start of each tax year but certainly at the time employment commences. The TD1 form (which is available on the CRA website at http://www.cra-arc.gc.ca/menu/AFAF_T_TD-e.html#ti) lists the most common statutory credits and deductions claimed by taxpayers, including the basic personal credit, the spousal credit amount, the child amount, and the age amount. Adding all amounts claimed together gives the Total Claim Amount, which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on his or her behalf to the federal government.
While this system makes fundamental sense, it can go awry when tax withheld at source doesn’t match up with actual tax payable. Generally, not enough tax is withheld when the employee has overstated the personal tax credit amounts available to him or her on the TD1, or, more often, where an employee has other sources of income which are not taken into account in calculating the correct deductions.
Having income from multiple sources, each of which is income subject to tax, is far from uncommon. For example, many Canadians who have already begun to receive Canada Pension Plan retirement benefits and/or Old Age Security benefits continue to work, at least on a part-time basis. Where no tax is withheld from the CPP or OAS benefits, and the source deductions made from employment income reflect only the tax payable on that employment income, the certain result will be tax owing when the return for the year is filed. Younger taxpayers, often new graduates, must work at two or more part-time jobs where a full-time position can’t be found.
Another advantage to addressing the issue of source deductions at tax filing time is that taxpayers will, after completing their tax returns, know exactly how much tax was payable on income in the previous (2013) year. Assuming that income for 2014 will be about the same, a taxpayer who ensures that source deductions for 2014 are equal to the amount of total tax that was payable for 2013 is unlikely to end up with a balance owing when the 2014 return is filed in April 2015.
Where income for 2014 will be significantly different than that received in 2013, a rough idea of one’s tax liability for 2014 can be determined by adding together 25% of the first $40,000 in income plus 33% of the next $40,000 in income. For those who wish to be more precise, a calculation of taxes which will be payable for 2014 can be done using the federal and provincial tax rates as listed on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html.
Taxpayers who are having difficulty determining just how much tax is being withheld from their paycheque or government benefits over the course of the year (the information should be available on the pay stub or equivalent statement of income and deductions) should take their question to either their company’s human resources department or the bookkeeper who prepares the payroll. Where it’s necessary, the taxpayer can direct that additional withholdings be made to better reflect his or her actual tax payable for the year. Where the income on which additional tax should be withheld is government source income like CPP or OAS benefits, the taxpayer can arrange for such withholdings to be made, or increased, by completing and filing Form ISP-3520, available at http://www.servicecanada.gc.ca/eforms/forms/sc-isp-3520(2013-05-13)e-cpp.pdf. As circumstances require, doing either or both will ensure that source deductions made during 2014 accurately reflect the individual’s current tax situation and help to avoid an unpleasant surprise when it comes time to file the tax return for 2014.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Getting an instalment reminder from the CRA (March 2014)

This time of year the taxes that most Canadians are thinking of are the 2013 income taxes due on April 30. However, many Canadians will be reminded that the Canada Revenue Agency (CRA) is already thinking of taxes which will be owed for 2014 when they find an instalment reminder in their mail. For Canadians who have received many of such notices in the past, the reminder and the tax instalment process are familiar, although not necessarily welcome. For those who are new to that process, however, both the reminder itself and figuring out how to deal with it can be baffling.


For the newly retired, or perhaps the newly self-employed, who have been accustomed throughout their entire working life to having tax deducted from their paycheque and then remitted to the CRA on their behalf, receipt of an Instalment Reminder may be particularly puzzling. However, the instalment reminder process is triggered where 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 identical. Canadian federal tax rules provide that a taxpayer may be required to pay income tax by instalments where the amount of tax owing on filing is more than $3,000 in the current year (2014) and either of the two previous years (2012 or 2013). 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 2014 will specify two amounts, one to be paid by March 15 and the other due by June 15. Each of those amounts represent the Agency’s best estimate based on the taxpayer’s return filed for the 2012 taxation year of one quarter of the net tax which will be payable by the taxpayer for 2014. 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. (As March 15 falls on a Saturday this year, the March instalment payment will be considered paid on time if it is paid by the following Monday, March 17. Similarly, the June 15 payment deadline falls on a Sunday this year, and that payment will be considered paid on time if it is paid by the end of the next business day, Monday June 16). 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 2014 tax year. If the instalments paid turn out to be more than the taxpayer’s net tax liability for 2014, 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 2013 tax year. Where a taxpayer’s income has not changed between 2013 and 2014, and his or her available deductions and credits remain the same, the likelihood is that their total tax liability for 2014 will be slightly less than it was in 2013, owing to 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 2014 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease from 2013 to 2014, and where 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 2014 tax year is filed in the spring of 2015. However, should instalments paid have been paid late or insufficient, the Canada Revenue Agency will impose interest charges at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2014, until March 31, 2014, 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. It should still be noted that 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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Pension income splitting – getting something for nothing (March 2014)

Pension income splitting is likely the best tax benefit around that almost no one knows about. It is also likely to be one of the few exceptions to the rule that if something sounds too good to be true, it probably is. What pension income splitting offers is the opportunity to save tax without any expenditure of time or money, or any need to pre-plan. In a nutshell, pension income splitting allows married taxpayers over the age of 65 (or, for some types of income, those over the age of 60) to, when filing their tax returns, divide their private pension income in a way which creates the best possible tax result, meaning the lowest possible tax bill.


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, the first $40,000 of taxable income attracts a combined federal-provincial rate of around 25%. The next $40,000 of such income, however, is taxed at a rate of just under 35%. When taxable income exceeds $125,000, the tax rate imposed can approach 50%. While those percentages and income thresholds will vary by province, provincial and territorial tax rates will, in nearly every province or territory, increase as taxable income goes up. (The one exception to that rule is the province of Alberta, which imposes a flat 10% tax rate on all individual taxable income. However, Alberta taxpayers, like those in other provinces, will still pay increasing federal rates as income rises.) 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.
While Canadians are inundated during the first two months of the year with advertisements extolling the virtues of registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs) or even registered education savings plans (RESPs), pension income splitting gets virtually no attention. There are no TV commercials or other media promotions for pension income splitting, as it is one of those unusual tax planning strategies in which no one but the taxpayer gains a financial benefit. 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.
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, 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. Nor is there any 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(E)12, Joint Election to Split Pension Income, with their annual tax return. That form, which is not included in the general tax return package issued by the CRA, can be found on the CRA website at http://www.cra-arc.gc.ca/E/pbg/tf/t1032/t1032-12e.pdf.
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 the particular tax year. Since the splitting of pension income affects both the income and 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 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 file a single form with the CRA and for each spouse to make a single entry on his or her tax return for the year.
The benefits of making that minimal effort can be significant. Take, for example, a couple over the age of 65 who have a combined income of $75,000, with the husband receiving $50,000 and the wife $25,000. Where, as part of his income, the husband receives $20,000 in eligible pension income (which could be income from a registered pension plan or withdrawals from an RRSP or a RRIF), he can allocate up to $10,000 of that eligible pension income to his wife. At his income level, the husband would pay about $3,000 in combined federal and provincial tax on that $10,000 of pension income. When that income is taxed instead on his wife’s return, the tax payable (since her total income is within the first, lowest tax bracket) will be about $2,000. As well, taxpayers receiving private pension income can claim a non-refundable federal tax credit of up to $2,000 on their returns for the year. (The actual credit claimable is equal to the amount of qualifying pension income reported or $2,000, whichever is less.) So, in this case, the wife who is allocated $10,000 in qualifying pension income can now claim the full $2,000 pension tax credit on her return for the year the income is reported, thereby saving an additional $300 in federal income tax. Each of the provinces and territories also provides a pension income credit, in varying amounts. When that provincial or territorial credit is included in the calculation, the total tax payable on the $10,000 of eligible pension income allocated to the wife has been effectively cut by half.
Finally, in most cases, being able to claim a tax deduction or credit for a tax year requires the taxpayer to take any necessary actions before December 31st of that year. One of the best attributes of income splitting as a tax planning strategy is that it doesn’t have to be addressed until it’s time to file the return for the year at the end of April. 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.
This year, for the first time, the General Income Tax Guide issued by the CRA highlights the pension income splitting option, as part of a change which flags all deductions and credits which may be claimed by retired seniors. There is, however, no change to the material on pension income splitting included in the Guide, which addresses only the mechanics of filing, with no reference to the tax-saving benefits which can be obtained. The CRA does, however, provide detailed information on pension income splitting on its website, and that information can be found at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/pnsn-splt/menu-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

What's new on the 2013 tax return? (March 2014)

The one constant in tax is change. As such, the income tax return form filed by millions Canadians each spring is never exactly the same as the one filed for the previous year. In certain years changes are broad-based, affecting a substantial percentage of tax filers, while in other years (like this one) those changes are narrower in their application and effect.


To make taxpayers aware of changes which might affect them, the Canada Revenue Agency (CRA) provides a list of such changes, both on the first page of the annual General Income Tax and Benefit Guide and on the Agency’s website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/whtsnw-eng.html. The more broad-based of this year’s changes are listed below.
Donations and gifts
In last year’s budget, the federal government introduced a “super-credit” for donors to charity. While the credit was introduced as the “first-time donors supercredit” (FDSC), it is, in fact, available to any Canadian tax-filer who has not claimed a charitable donation on any tax return filed for 2008 or a later year – essentially, the last 5 tax years.
Qualifying donors can claim, in addition to the usual charitable donations tax credit (15% on the first $200 in donations; 29% on the donations over the $200 mark), a further credit equal to 25% of donations made.
The FDSC is available on up to $1,000 in a single tax year. Taxpayers who contribute the maximum amount can therefore claim a charitable donations tax credit of $30 (on the first $200 in donations), plus $232 (29% of the next $800 in donations), plus $250 (the supercredit of $250 of the $1,000 donation made) for a total charitable donations tax credit for the year of $512.
In order to claim the FDSC for the 2013 tax year, taxpayers must have made the qualifying donation or donations after March 20, 2013.
Adoption expenses
Canadians who adopt a child or children are entitled to claim a tax credit of 15% of eligible related expenses incurred, to a maximum expense limit of $11,669 (for 2013) per child. Such a claim is made on the tax return for the year in which the adoption is finalized.
A change on the 2013 return will expand the “adoption period”: the time period during which expenses incurred will be eligible for the credit. Specifically, the adoption period will begin either when an application is made for registration with the responsible government agency or with a licensed adoption agency, or when a Court application is made in respect of the adoption, whichever is earlier. As was already the case, the adoption period ends when an adoption order is issued or an adopted child begins permanent residence with his or her adoptive family, whichever is later.
Pooled registered pension plans
The number of Canadians who belong to employer-sponsored registered pension plans continues to decline. To allow such Canadians to have access to professionally-managed pension funds the federal government introduced the concept of pooled registered pension plans (“PRPPs”).
Briefly, such PRPPs allow those who don’t have access to a company-specific employer-sponsored pension plans to aggregate or pool amounts which they and/or their employers contribute to their retirement savings with those contributed by others. The pooled funds are then invested by a pension plan administrator in the same manner as would be the case with a traditional employer-sponsored RPP. The individual making such contributions can then deduct them on his or her income tax return for the year.
In provinces in which the enabling legislation was put in place, such PRPPs became available on January 1, 2013. Consequently, individuals who took advantage of that opportunity can deduct, on the tax return for 2013, PRPP contributions made on or after that date and before March 4, 2014.
Mineral exploration investment tax credit
Investors who hold “flow-through” shares in a company are entitled to deduct qualifying mineral exploration expenses renounced to them by that company when calculating their own taxable income. Such investors can also claim the federal mineral exploration tax credit, which is equal to 15% of specified mineral exploration expenses incurred in Canada and renounced to shareholders. The mineral exploration tax credit program had been scheduled to expire in 2013 but the credit was extended to be available to flow-through share agreements entered into on or before March 31, 2014. Consequently, taxpayers who have made the requisite investment can claim the credit on their 2013 tax return.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

The CRA’s new tax informant program (February 2014)

It is easy to see that it’s much more difficult for Canadian tax authorities to track and measure income which is paid in a foreign jurisdiction than income which arises within our borders. And, of course, technological changes have made it possible to move money around the globe in seconds.


Canada’s tax system operates, to an extent, as an honour system in which Canadians complete an annual income tax return disclosing income from all sources, computing tax payable on that income, and remitting any tax amounts due. A few years ago, changes were made to the general income tax return to highlight the fact that income arising outside Canada was subject to Canadian income tax. Those changes require everyone who files an income tax return to specifically disclose whether he or she holds foreign property having a cost of more than $100,000 and, where the answer is yes, to complete a specific tax form (Form T1135, “Foreign Income Verification Statement”) providing details of those holdings.
Notwithstanding these changes, the loss of revenue resulting from offshore investments held by Canadians and the non-reporting or under-reporting of income from those investments has become of increasing concern to the tax authorities. The problem has also come to public attention as the result of recent media reports highlighting the cases of a few high profile individuals.
A number of measures to address international tax non-compliance were introduced as part of the 2013 federal budget, including new reporting requirements for financial institutions with respect to large international electronic funds transfers, revisions to Form T1135 to require more detailed information, and extensions of the reassessment period where a taxpayer has failed to properly file a Form T1135, or has failed to properly account for foreign source income or property on his or her income tax return.
The federal government has apparently decided that existing measures to combat losses to the tax system resulting from offshore investments are no longer sufficient and has launched the Offshore Tax Informant Program (OTIP). The OTIP will, for the first time, provide “financial awards” to individuals who provide information related to instances of major international tax non-compliance that leads to the collection of taxes owing.
Two important points about the new program are worth noting. First, the CRA is looking for instances of significant international non-compliance, and the program is targeted at situations in which the amount of tax owing exceeds $100,000. Second, the CRA’s goal is not just to learn about situations of international tax non-compliance but to actually collect taxes owed. Consequently, the OTIP will be administered based on the following criteria:
• the CRA will enter into a contract with an informant individual if the potential additional assessment of federal tax, excluding interest and penalties, is more than $100,000; and
• a payment will be made to the informant individual after the tax debt has been collected and all recourse rights (that is, appeals) associated with the assessed tax have expired. The CRA is also not interested in providing financial awards to those who participate in offshore tax evasion schemes. Therefore, no payment will be made to an individual who has been convicted of tax evasion related to the information provided.
The mechanics of the program are relatively straightforward. An eligible individual (who does not need to be a Canadian or live in Canada) can contact the program. That initial contact can be done by telephone by calling1-855-345-9042 (North American toll-free number) or 613-960-4265. Collect calls will be accepted, and the call can be on a no-names basis.
Once the initial contact is made and information provided, an OTIP officer will make a recommendation about whether to proceed. If a decision is made to go forward, the informant individual and the CRA will enter into a contract, and the CRA will act on the information provided and seek to collect the tax owing. That process can, of course, take several years, and no financial award will be provided to the informant until $100,000 of federal tax has been collected and all of the appeal rights of the taxpayer from whom it was collected have expired.
Where a financial award is provided to the informant, that award can range from 5% to 15% of the tax collected, depending on the quality and value of the information provided, as well as the degree of cooperation which the CRA receives from the informant. Award levels are set at 5%, 7.5%, 10%, 12.5%, or 15% of the tax collected.
Finally, just in case there was any doubt on the matter, the CRA specifies, in its fact sheet on the OTIP (available on the CRA website at http://www.cra-arc.gc.ca/gncy/cmplnc/otip-pdife/menu-eng.html), that any award payment made under the OTIP will be treated as taxable income to the recipient in the year that it is received.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Digital currency and the tax system (February 2014)

The growth in the use of digital currency has been increasingly in the news over the past year as the price of the most well-known type of digital currency, bitcoin, has increased significantly and its use more mainstream. Bitcoin ATMs are now available in three Canadian cities (Vancouver, Toronto, and Ottawa) and certain online retailers now accept them as a payment method.


There are differing opinions on whether bitcoins represent a true currency – the only one not issued by a sovereign nation – or whether digital “currency” is better described simply as a transaction or payment system. Whichever the case, it is indisputable that the use of bitcoins, or any other digital currency, represents a potential revenue loss to the tax system.
The Canadian tax authorities have seemingly been quicker off the mark than their U.S. counterparts to recognize this new reality, as the Canada Revenue Agency (CRA) recently issued a fact sheet outlining its views and assessing policies with respect to transactions involving digital currency.
Ironically, the CRA’s assessing policy for transactions involving the newest form of currency or payment is the same as that which applies to the oldest such system: bartering. In the CRA’s view, where digital currency is used to pay for goods or services, the rules for barter transactions apply. By the CRA’s definition, a barter transaction occurs where any two persons agree to exchange goods or services and carry out that exchange without the use of legal currency.
In applying the rules governing barter transactions to those involving digital currency, the CRA will assess on the basis that where an individual sells a good or a service and receives digital currency as payment, the value of the good or service sold represents income to the seller, and must be included in the seller’s income for tax purposes.
Bitcoins, or other digital currency, is a commodity which can be bought or sold like any other. In such cases, the CRA’s assessing policy is that any resulting gain or loss on such commodity trading transactions would be a taxable event to the trader. Depending on the trader’s particular circumstances, income from trading in digital currency could create business income or a capital gain, while losses from such trading could create a business or a capital loss.
At this point, the CRA has not issued any technical interpretations or other publications dealing specifically with digital currency. The recently issued fact sheet, which can be found on the CRA website at http://www.cra-arc.gc.ca/nwsrm/fctshts/2013/m11/fs131105-eng.html, does, however, include links to existing CRA publications which may assist taxpayers in determining the tax implications of their digital currency transactions.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

RRSPs – it’s that time again… (February 2014)

Soon, television and radio, as well as the internet, will be filled with advertisements reminding Canadians that it is, once again, registered retirement savings plan (RRSP) season.


This year, an RRSP contribution for 2013 can be made any time up to and including March 3, 2014. The allowable contribution to be made by any individual for 2013 is equal to 18% of income earned in 2012, to a maximum contribution of $23,820. 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 2013 contribution amount and deducted from income for 2013.
Every taxpayer who filed an income tax return for 2012 received a Notice of Assessment from the Canada Revenue Agency, and the total amount of one’s allowable RRSP contribution for 2013 (including any carryover amounts) can be found on page 1 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. And, for those who prefer to deal with the CRA online, the same information can be obtained through the Agency’s Quick Access service available at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/qckccss/menu-eng.html. Once again, in order to meet security requirements, it is necessary to provide one’s 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 2013 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.
Before 2009, RRSPs were really the only tax-sheltered savings vehicle available to most Canadians. However, the introduction of tax-free savings accounts (TFSAs) that year gave Canadians another option. 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 which is that 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 2013 must be made on or before March 3, 2014, there is no such deadline for TFSA contributions (such contributions for 2013 can be made at any time during 2013 or, given the very flexible carryforward rules which apply to such plans, at any time in the future). When TFSAs were introduced in 2009, the maximum yearly contribution amount was set at $5,000. For 2013 and 2014, that limit was increased, for the first time, to $5,500. Consequently, for someone who has never made a TFSA contribution, the combined current year and carryforward contribution limit for 2014 would be $31,000.
It’s not, of course, 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 2013/14. As follows:
• For younger taxpayers, where the savings goal is short-term (e.g., 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.
• 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 2013 tax year is calculated as 18% of earned income for 2012, to a maximum contribution of $23,820. 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.
• In a similar way, for taxpayers over the age of 71, the RRSP v. TFSA question is simply irrelevant. Taxpayers over that age are not eligible to make contributions. The benefit is greatest for older taxpayers whose required RRIF withdrawals are greater than their current needs. While such 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 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 Canada Revenue Agency has dedicated sections of its website to information about both TFSAs and RRSPs. That information can be found at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/rrsps-eng.html and http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Some potential tax relief for winter-weary Canadians (February 2014)

Although the winter of 2013-14 is barely half-way over, many Canadians must feel as though it has already worn out its welcome. Even before winter officially started on December 21, much of the country had already experienced unusually cold temperatures. That was followed by ice storms and blizzards which disrupted holiday travel and left hundreds of thousands of Canadians stranded or without power, in many cases for several days.


Not even the tax authorities can do anything about the weather. They can, however, ensure that taxpayers who suffered through the storms that occurred in late December don’t also get penalized for any resulting failure to meet their tax obligations. A recent news release from the Minister of National Revenue, available on the Canada Revenue Agency website at http://news.gc.ca/web/article-en.do?mthd=index&crtr.page=1&nid=808619, reminds taxpayers that the CRA is prepared to do just that.
The CRA’s ability to provide relief to taxpayers in such circumstances arises from the Agency’s Taxpayer Relief Program. That Program allows the Minister to waive or cancel any interest or penalty charges that would be imposed as a consequence of the taxpayer’s failure to meet his or her tax obligations, where that failure was caused by events or circumstances outside the taxpayer’s control. 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.
The Minister is also authorized, under the taxpayer relief provisions, to accept certain late, amended or revoked income tax elections or designations. That option may be particularly relevant just now, as some tax elections or designations, in order to be effective, must be made by the end of the calendar year. Many Canadians who lost power as the result of the ice storms were affected during the last week of 2013 and may consequently have been unable to file such elections as planned. Not all income tax elections or designations can qualify for relief. However, the lengthy list of those that do can be found on the CRA website at http://www.cra-arc.gc.ca/E/pub/tp/ic07-1/ic07-1-e.html#P349_53790.
Most requests for relief filed as a result of this winter’s weather will likely be requests to waive the imposition of interest or penalties related to late filings or late payments. For such requests, a specific process is to be followed. The CRA issues the prescribed form, RC4288, “Request for Taxpayer Relief”, which can be found on the CRA website at http://www.cra-arc.gc.ca/E/pbg/tf/rc4288/rc4288-11e.pdf. 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 Agency to make a decision on the request for relief is provided. Information required includes:
• your name, address, and telephone number;
• your social insurance number (SIN), account number, partnership number, trust account number, business number (BN), or any other identification number assigned to you 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 your control;
• an explanation of how the circumstances affected your ability to meet your tax obligations;
• the facts and reasons supporting your 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.
Any relief request is 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 http://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.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

New Quarterly Newsletters (February 2014)

The Canada Pension Plan contribution rate for 2014 is unchanged at 4.95% of pensionable earnings for the year.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Canada Pension Plan Contributions for 2014 (January 2014)

The Canada Pension Plan contribution rate for 2014 is unchanged at 4.95% of pensionable earnings for the year.


The maximum pensionable earnings for the year will be $52,500, and the basic exemption is unchanged at $3,500.
The maximum employer and employee contributions to the plan for 2014 will be $2,425.50 each, and the maximum self-employed contribution will be $4,851.00.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Federal individual tax rates and brackets for 2014 (January 2014)

The indexing factor for federal tax credits and brackets for 2014 is 0.9%. Consequently, the following federal tax rates and brackets will be in effect for individuals for the 2014 tax year:

Income Level Federal Tax Rate
$11,138 - $43,953 15.0%
$43,954 - $87,907 22.0%
$87,908 - $136,270 26.0%
Above $136,270 29.0%

There is no change in federal individual tax rates for 2014.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Tax 101 for snowbirds (December 2013)

Every year, thousands of Canadians (mostly retirees) escape our winter by traveling south, usually to the U.S., for periods lasting up to even the entirety of winter. And while the value of the Canadian dollar relative to the U.S. dollar changes on a daily basis, the two currencies have been close to par now (or the Canadian dollar above par) for the last few years, making the cost of such a vacation easier to manage.


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 extended vacation, but the reach of our tax system is long, and there are tax consequences and costs which can result from spending an extended period of time outside of the country.

For most Canadians who go south for a few weeks or even a few months during the winter, there aren’t typically many of such tax consequences. Such vacationers usually remain, to use tax parlance, as “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 dependant(s) 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 licence 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, and it’s necessary to confirm in advance the coverage which will be made available for out-of-Canada medical expenses. Most snowbirds end up obtaining 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.

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 as well as in US dollars.

Both OAS and CPP benefits received will, of course, be subject to Canadian income tax, and OAS payments will be subject to the OAS “recovery tax” (clawback), if the recipient’s income for the 2013 tax year is more than $70,954 ($71,592 for 2014).

Application of U.S. tax laws

The application of U.S. tax laws to snowbirds can, unfortunately, be a good deal more complex than the equivalent Canadian laws. Generally speaking, snowbirds that spend only a few weeks down south in the course of a calendar year are unlikely to be caught by any U.S. tax filing or payment obligations. Those who extend their stay for longer than that (and certainly for those who spend more than half of the year in the U.S.) should seek professional tax advice from an advisor familiar with cross-border taxation, to make certain that they are in compliance with any applicable U.S. tax requirements.

Recognizing that the potential tax consequences of spending extended periods of time south of the border could affect thousands of Canadian taxpayers, the Canada Revenue Agency has published an information booklet on the subject as available on its website at http://www.cra-arc.gc.ca/E/pub/tg/p151/p151-12e.pdf. The Agency has also devoted a section of its website to issues affecting Canadians who vacation out of the country, available at http://www.cra-arc.gc.ca/tx/nnrsdnts/sth-eng.html.

The best advice for those whose plans include an extended stay south of the border, especially for those contemplating repeat visits on an annual basis (and certainly if they are contemplating the purchase of vacation property in the U.S.), is to obtain professional advice in advance on the U.S. and Canadian tax consequences. Doing so can ensure that what was intended to be a relaxing vacation doesn’t end up causing a major tax headache.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Year-end tax planning tips for TFSAs and RRSPs (December 2013)

As December 31st approaches, the need to decide on and implement tax planning strategies for the year becomes top-of-mind for many Canadians. Under general tax rules, tax-free savings account (TFSA) contributions and withdrawals can be made at any time during the year, and registered retirement savings plans (RRSP) contributions for 2013 don’t generally have to be made before March 1, 2014. As outlined below, there are some situations, however, in which planning strategies involving TFSAs and RRSPs have to be put in place by the end of the calendar year.


The CRA’s efforts seem to be paying off. This year, more than three-quarters of returns filed were filed by electronic methods rather than by paper. There was, in fact, a decrease of almost 30% in the number of returns filed by the traditional paper method.

Accelerate any tax-free savings account withdrawals into 2013

Canadians aged18 and over can contribute up to $5,500 per year (as of 2013) 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.

It makes sense, consequently, where a TFSA withdrawal is planned within the next few months, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from a TFSA before December 31, 2013, will have the amount withdrawn added to his or her TFSA contribution limit for 2014. If the same taxpayer waits until January of 2014 to make the withdrawal, he or she won’t be eligible to replace the funds until 2015.

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 2013, the spouse can withdraw that amount as of January 1, 2016, and have it taxed in his or her hands. If the contribution isn’t made until January or February of 2014, the contributor can still claim a deduction for it on the 2013 tax return but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January of 2017. 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 year will ensure maximum flexibility should an unanticipated withdrawal become necessary.

When you need to make your RRSP contribution before December 31

As just about everyone knows, an RRSP contribution can be made up to 60 days (March 1, or, in a leap year, February 29) after the end of the current year and still claimed on that year’s tax return. There is, however, 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 (done 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 31st is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Making the most of your charitable dollar – the federal government’s matching program for Philippines typhoon relief donations (December 2013)

Canadians have a well-deserved reputation for responding with generosity to assist those affected by natural disasters, and the current crisis in the Philippines is no exception. As of mid-November, almost $20 million in private donations had been raised for relief efforts following the November 8th typhoon.


To supplement that generosity, the federal government has announced that, for every eligible dollar donated by individual Canadians to registered Canadian charities for the purpose of disaster relief in the Philippines, Canada will set aside one dollar for the Typhoon Haiyan Relief Fund. Those matching funds will then be allocated by the federal government to established Canadian and international humanitarian organizations, to provide needed assistance for those most affected by the typhoon. There is no limit on the amount of matching dollars which the federal government will contribute to the Fund.

The federal government has set certain parameters or criteria which donations must fulfill in order to qualify for the matching program. In order to qualify, a donation must be:

• made by an individual Canadian;
• monetary (i.e., not a donation of goods or services), and not exceeding $100,000 per individual;
• made to a registered Canadian charity that is receiving donations in response to the Typhoon Haiyan disaster in the Phillippines;
• specifically earmarked for the purpose of responding to the Phillippines typhoon disaster; and • made on or before December 9, 2013.

Once a donation is made, the registered charity which receives it has until December 23, 2013, to make a declaration to the federal government. That declaration will specify the amount of eligible donations received, and the federal government will then set aside an equivalent amount for the Typhoon Haiyan Relief Fund. That Fund will then be administered by the federal government.

In the rush to help, the need to ensure that donations are made in a way that will most benefit those who need that help can sometimes be overlooked. As well, it’s an unfortunate fact that disasters sometimes bring out the worst as well as the best in people. In any such situation, a number of “instant” charities tend to spring up and begin soliciting donations for aid. Some of them are honest and well-intentioned but others are not. However, no matter how good their intentions, if they are not already registered charities (and most likely are not given that gaining certification as a registered charity is not a quick process), then any donations made to them will not qualify, either for the usual charitable donations tax credit, or for any matching funds which the government of Canada has promised to provide. Good intentions notwithstanding, it’s not likely that such an “instant” charity will have the resources or the infrastructure required to provide help on the scale needed by those affected by the disaster in the Philippines.

With that in mind, there are a number of resources available to Canadians who want to ensure that they are making their charitable donations in the most effective way possible. General information about making charitable donations can be found on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/chrts-gvng/dnrs/rcpts/menu-eng.html. As well, the CRA maintains a listing of registered charities (remembering that only donations to registered charities will qualify for the matching funds) on its website at http://www.cra-arc.gc.ca/chrts-gvng/lstngs/menu-eng.html. It’s also possible to verify a charity’s registration status by calling the CRA toll-free at 1-800-267-2384.

Canadians who donate to a registered charity for typhoon disaster relief will also be able to claim a non-refundable charitable donations tax credit. The federal credit claimable is two-level. A 15% credit is available for the first $200 in donations, and donations over the $200 threshold are eligible for a 29% credit. Similar credits, in varying percentage amounts, are provided by the provinces and territories.

Since the percentage amount of the credit rises as charitable donations increase, it may be advisable, where charitable donations made in a single year don’t exceed the $200 threshold, to defer making the claim. Charitable donations can be claimed in the tax year they are made or in any of the five subsequent tax years. Consequently, it’s possible to accumulate charitable donations for up to six years and claim them on a single return, thereby maximizing the amount of non-refundable credit received.

Canadians who are considering making a donation for Philippines disaster relief can find more information about the Typhoon Haiyan Relief Fund and the humanitarian crisis in general on the Foreign Affairs, Trade and Development website at http://www.international.gc.ca/development-developpement/humanitarian_response-situations_crises/haiyan/how_to_make_donation-comment_faire_don.aspx and http://www.international.gc.ca/development-developpement/humanitarian_response-situations_crises/haiyan/Fund-Fonds.aspx


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Just a few questions about your tax return.

The Canada Revenue Agency wants Canadians to deal with their tax affairs – especially the filing of their annual tax returns – online, rather than in the traditional paper format. For several years, the CRA has sought to move Canadians to the online management of their taxes and benefits by pointing out the benefits of doing so like the faster processing of returns and the quicker receipt of refunds. This year, those efforts also included no longer mailing a personalized return form to Canadians.


The CRA’s efforts seem to be paying off. This year, more than three-quarters of returns filed were filed by electronic methods rather than by paper. There was, in fact, a decrease of almost 30% in the number of returns filed by the traditional paper method.

When returns are filed by electronic methods, there is, by definition, no paper involved. Consequently, the CRA does not receive documentation to back up much of the information and many of the claims made by taxpayers on their returns – claims for RRSP contributions, charitable donations, union or professional dues, tuition amounts, or other similar deductions and credits.

The CRA processes most of the more than 26 million tax returns filed each year by Canadians within 2 to 6 weeks of the time they are filed. That schedule clearly does not permit the Agency to verify the information provided on those returns as, in fact, most returns are processed by the CRA without a manual review of the information reported. However, all returns are screened by the Agency’s computer system and subject to review at a later date.

Where that screening or review is carried out, some of the information provided on a tax return can be verified by the CRA by cross-checking information from other sources. Where salary and wages are paid to an individual during the year, the employer must file with the CRA a copy of the T4 slip summarizing wages paid and deductions taken. Similarly, where interest or other investment income is paid by a financial institution, that institution must provide the CRA with a copy of the T5 slip documenting those payments. Where an RRSP contribution is made, the CRA will receive a copy of the information slip outlining the contributor’s social insurance number, the date the contribution was made, and the amount.

Yet for many other types of taxpayer expenditures for which a deduction or credit can be claimed, the CRA must essentially trust the information provided by the taxpayer. In most cases, that information will be accurate and complete. The Agency does, however, have programs through which it follows up with taxpayers to confirm either that information provided on the return is correct or if in the case of any discrepancies. Most of those programs are carried out during the fall and winter months.

The Agency actually has three programs through which it seeks to verify the accuracy of information provided on tax returns filed by Canadians. The first such program, the Pre-Assessment Review Program, is conducted before Notices of Assessment are issued for tax returns filed, meaning that the program is essentially now complete with respect to returns filed for the 2012 tax year. The second and third programs – the Processing Review (PR) Program and the Matching Program – are now into their peak periods, meaning that thousands of Canadians will be finding a letter from the CRA in their mailbox over the next several months.

While both the PR and Matching Programs have the same ultimate aim of verifying information provided on tax returns, the process for each is different. Under the PR program (which is carried out between August and December), taxpayers are asked to provide documentation for claims made on their tax return (e.g., copies of receipts for charitable donation made or medical expenses claimed, or proof of union dues or professional fees paid). Under the Matching Program, taxpayers are contacted by the CRA where information provided on the return is inconsistent with information provided by third-party sources, such as employers or financial institutions.

Taxpayers often wonder why their particular return was singled out for review but more than likely the return was simply selected at random. It’s also true, however, that there are circumstances which increase the likelihood that the CRA will request verification of claims made on a return. One of those, of course, is where information provided on the return doesn’t match up with information provided by a third-party (like an employer or a financial institution). As well, where claims made by a taxpayer are significantly different than those made in prior years – for instance, a significant increase in medical expenses claimed, or a new claim for the eligible dependant credit made by a recently separated individual, the return may be flagged for review. And finally, where a taxpayer’s return was reviewed in one or more prior years (and particularly where an adjustment was required), it’s more likely that the CRA will want to verify claims made on subsequent returns.

However, regardless of which program is involved, 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 or deduction amount about which a discrepancy seems to exist. The taxpayer will be given a period of time – usually 30 days 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. As well, beginning in 2013, the CRA will accept scanned documents sent to them electronically by using services (My Account or Represent a Client) available on the Agency’s website.

If, after the response is received, more information is needed, the CRA will send a follow-up letter, or the taxpayer may be contacted by telephone. If a contact is made by telephone, the person calling from the CRA 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.

In some cases, even where the deduction or credit claimed on the return is a legitimate one, taxpayers either don’t have the documentation requested because the related receipts have either not been kept, have been lost, or have been destroyed. Unfortunately for such taxpayers, the onus is always on the taxpayer to provide proof of eligibility for any deductions or credits claimed. The CRA has the legal right to ask for such proof and to disallow deductions or credits where that proof is not forthcoming. Others simply elect to ignore the letter from the CRA in the hope, perhaps, that the Agency will forget all about it. Either approach, however, will eventually end with the return being reassessed to disallow the deduction or credit claimed and the resulting increased tax bill.

Whatever the taxpayer’s circumstances, the best course of action is to respond promptly to the CRA’s initial letter and to provide, where possible, the documentation or information requested. In most cases, that will bring matters to a conclusion which is satisfactory to both the taxpayer and the tax authorities.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Doing business with the CRA online

Most business owners want to spend a minimum amount of time as possible on tax-related matters in an attempt to get such matters dealt with and resolved as quickly as possible. The Canada Revenue Agency shares at least the second objective, and is continually rolling out services which try to streamline requirements and speed up the processes which business owners must follow to meet those requirements.


Until now, however, the CRA has not been able to provide businesses with the ability to receive private (that is, taxpayer-specific) correspondence by electronic means. The CRA does not communicate with taxpayers (individuals or businesses) by e-mail, as e-mail is not viewed as sufficiently secure for the transmission of tax information specific to a particular individual or business. Consequently, most written communication from the Agency, which included taxpayer-specific information, had to come by traditional “snail-mail”. This will, however, now change as the result of a recent announcement from the CRA.

That announcement (available on the CRA website at http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/ygm-eng.html) will give business owners the option to receive some of their mail from the CRA online through the CRA website. To do so, business owners who have not yet done so must register for My Business Account (again, on the CRA website at http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/myccnt/menu-eng.html). Once that registration is made, the business owner must log onto his or her My Business Account and select “Manage Online Mail” from the menu. A series of prompts will then allow the business owner to select the account or accounts (income tax, GST/HST, etc.) for which he or she wishes to receive online mail. Thereafter, at each log-in to My Business Account, a notification of any new mail which has not yet been viewed will appear.

Currently, business owners can receive notices of assessment and reassessment, as well as some correspondence from the CRA through the online mail function. As the new function is implemented, the CRA plans to make additional types of correspondence (i.e., payroll-related mail) available to business owners.

Most Canadians, including business owners, struggle with the need to remember a seemingly endless list of User IDs and passwords needed for various online purposes. A relatively recent feature on the CRA’s website means that it may not be necessary for new registrants to My Business Account to create (and remember) yet another such ID and password. Anyone who uses the online banking services of participating major Canadian financial groups (currently BMO Financial Group, “CHOICE REWARDS” Master Card, Scotiabank, and TD Bank Group) can use the ID and password already setup for such online banking for purposes of My Business Account. And, while the ID and password may be the same, the CRA stresses that the identity of the financial institution, personal identifying information, personal tax information, or banking details are never shared.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Retirees' health benefits – when is a deal a deal?

For many Canadians planning their retirement, a pervasive worry is outliving one’s savings. A big part of the reason why they fear such an eventuality is that such savings could be depleted as a result of unexpected major medical costs .


For that reason, having extended health coverage from one’s employer available throughout retirement is a highly valued benefit both for those approaching retirement and for those already retired. But what happens when “lifetime” benefits don’t turn out to be “lifetime” after all?

What’s needed in this area – for both companies and their retirees – is some certainty. And unfortunately the recent court decisions do not provide that certainty. The short answer to whether the extended health benefits provided to a company’s retirees can be changed after retirement is that there is no short answer. There is no law, provincial or federal, which requires a company, in all cases, to maintain the same ongoing benefits package for employees or retirees. That said, it’s important to remember that all of the recent decisions dealt only with retirees’ health benefits and that nothing in those decisions affects retirees’ pensions (which are entirely separate and are governed by pension standards legislation).

The reason that there is no law or invariable general rule with respect to retirees’ health benefits is that, in each case, the court’s decision on whether the company had the right to alter those benefits (or was prohibited from doing so) is based on its interpretation of the agreement between the particular company and its employees that provided for those benefits.

In both the recent cases, the retirees had been salaried employees of the company but none had entered into individual employment contracts. Consequently, the courts had to look to all of the documents and communications which had, over the years, outlined or interpreted the terms of the benefits package provided to those employees. While the outcome in each case depended on the court’s assessment of the terms of each company’s benefits package, as defined by those documents and communications, there are some conclusions which can be drawn from the reasoning in both decisions.

First, companies have the right to make changes to post-retirement benefits, but only where that right is outlined in clear and unambiguous language in the documents and communications provided to the employee during his or her working life and at the time of retirement. Where there is the slightest ambiguity in the language, or the relevant documents don’t address that issue, the issue will be decided in favour of the retirees.

Second, making their determination, the courts will look at all sources of information which were made available to the employee, including benefits booklets, information provided during employee benefits or retirement planning seminars, and insurance policies. The language in those documents will be analyzed to determine whether the company made clear representations with respect to the provision of benefits post-retirement.

Decisions involving the competing rights of retirees and their former employers when it comes to post-retirement benefits are difficult ones. On the one hand, companies which seek to cut back on costs involving their retirees are generally companies encountering financial difficulty, and the continued financial health of the company is critical to the future of both current employees and retirees. On the other hand, retirees are in a particularly vulnerable position. Unlike current employees, they are generally living on a fixed income and are unable to respond to unwelcome changes in a compensation or benefit plan by seeking a better position elsewhere. Finally, in many cases, their retirement plans have been based on the assumption that the benefits which are now threatened would be available to them for the rest of their lives.

While the recent court decisions don’t provide an invariable rule that will apply to each such case, what is clear is that there will be many more of such cases before the courts as companies continue to seek to control their retiree costs while the retirees themselves push to protect what they increasingly view as their retirement rights.

Any questions not answered by the form or on the Web site can be directed to the CRA's individual enquiries line at 1-800-959-8281.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Legal fees – what’s deductible and when?

For most Canadians, spending hard-earned money on legal fees is about as appealing a prospect as paying income taxes. And, to make matters worse, a need for legal services is often associated with life’s more unwelcome occurrences (e.g., divorce, death, job loss, etc.). About the only thing that mitigates the pain of paying legal fees (aside, hopefully, from a successful resolution of the problem that created the need for legal advice) is being able to claim a tax credit or deduction for the fees paid.


For most Canadians, spending hard-earned money on legal fees is about as appealing a prospect as paying income taxes. And, to make matters worse, a need for legal services is often associated with life’s more unwelcome occurrences (e.g., divorce, death, job loss, etc.). About the only thing that mitigates the pain of paying legal fees (aside, hopefully, from a successful resolution of the problem that created the need for legal advice) is 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, such as purchasing a home, getting a divorce, or establishing custody rights, 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 becomes a matter of negotiation between the employer and its former employee, and such negotiations usually involve legal representation and thus 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, even if a court action must be initiated and that action is ultimately unsuccessful. However, where a court order 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 “state of play” is 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.

However, where 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 other side of the support equation, the situation is not nearly so favourable, as a deduction for legal fees incurred in relation to support obligations will generally not be allowed to a person paying support. More specifically, as outlined on the Canada Revenue Agency 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 Canada Revenue Agency reviews or challenges income amounts, deductions or credits reported or claimed by a taxpayer, any legal fees (which in this case includes accounting fees) paid for advice or assistance in dealing with the CRA’s review, assessment, or reassessment can be deducted by the taxpayer.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

It's not just a numbers game – call 604-746-7770 for professional and competitive accounting, business consulting and income tax services.

Raj Hans Chartered Professional Accountant is proud to provide top level accounting to clients both near and far.

Contacts

Abbotsford Office:

Calgary Office (By Apointment Only):

We Accept

Get In Touch

Designed and Hosted by

Logo Raj Hans Chartered Professional Accountant