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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ontario

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

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

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

New Brunswick

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

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

Saskatchewan

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

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

British Columbia

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

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

Manitoba

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

Prince Edward Island

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Corporate:

Issue #40 Corporate

Personal:

Issue #40 Personal

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

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

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

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

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

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

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

$80,000 ˗ $73,756 = $6,244

$6,244 × 0.15 = $936.60

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Textbook and education tax credits repealed

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

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

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

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

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

Children’s fitness and arts tax credits repealed

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

Public transit tax credit repealed

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

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

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

 Caregiver tax credits replaced

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

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

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

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

For the majority of Canadians, the due date for filing of an individual tax return for the 2016 tax year is May 1, 2017. (Self-employed Canadians and their spouses have until June 15, 2017 to get that return filed.) In the best of all possible worlds, the taxpayer, or his or her representative, will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be “short-circuited” in a number of ways.

For the majority of Canadians, the due date for filing of an individual tax return for the 2016 tax year is May 1, 2017. (Self-employed Canadians and their spouses have until June 15, 2017 to get that return filed.) In the best of all possible worlds, the taxpayer, or his or her representative, will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be “short-circuited” in a number of ways.

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

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

Taxpayers who don’t want to deal with the CRA through its website, or who don’t think it’s worth registering for My Account just to deal with the CRA on a single issue, can obtain a hard copy of the T1 Adjustment form from the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html. Those who are unable to print the form from the website can order a copy to be sent to them by mail by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. The use of the actual form isn’t mandatory – the third option of sending a letter to the CRA is an acceptable alternative – but using the prescribed form has two benefits. First, it makes clear to the CRA that an adjustment is being requested, and secondly, filling out the form will ensure that the CRA is provided with all the information needed to process the requested adjustment. And, whether the request is made using the T1 Adjustment form or by letter, it is necessary to include any relevant documents – the information slip summarizing the income not reported, or the receipt for an expense inadvertently not claimed.

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

Where an Adjustment request is made, it will take at least a few weeks, usually longer, before the CRA responds. The Agency’s estimate is that such requests which are submitted online have a turnaround of about two weeks, while those which come in by mail take about eight weeks. Not unexpectedly, all requests which are submitted during the CRA’s peak return processing period between March and July will take longer.

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

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

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

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

Corporate:

Issue #39 Corporate

Personal:

Issue #39 Personal