- Newsletters

Newsletters

Tax Alerts

Keep up to date with the latest new information and tips

Budget expands access to Home Buyers’ Plan (April 2019)

Both changes in the job market and increases in real estate prices over at least the past decade have made the goal of home ownership an elusive or even impossible one for many Canadians, especially younger Canadians.

There is no single solution for the multiple factors which prevent many Canadians from getting that first toehold on the “property ladder”. However, changes announced in this year’s federal Budget seek to make it a bit easier to become a first-time home owner.

Those changes involved the expansion of an existing program — the Home Buyers’ Plan, which allows first-time home buyers to use funds withdrawn from their registered retirement savings plans (RRSPs) to make part or all of a down payment on a home purchase. Any such amounts can be withdrawn tax-free, but must then be re-contributed or repaid to the RRSP in prescribed amounts, and on a prescribed schedule, over the next 15 years.

While access to the HBP is limited to first-time home buyers, the definition of that term is more expansive than it might seem. Under the HBP rules, a first-time home buyer is someone who has not owned and lived in a home either in the current year or any of the four previous years. Where that person is married, his or her spouse must also meet the same criteria.

Where an individual and his or her spouse meet the HBP criteria, each could withdraw up to $25,000 from his or her RRSP and use those funds for a down payment. The Budget measures propose to increase the maximum amount which can be withdrawn from an RRSP under the HBP from $25,000 to $35,000. Consequently, a couple can now withdraw up to $70,000 under the HBP, as the change is effective for withdrawals made under the HBP after the Budget date of March 19, 2019.

One further change to the HBP program was announced in the Budget, and that change applies where a marriage or common-law partnership breaks down. When spouses separate, it is often the case that one or both of them must purchase another home. The Budget measures propose to extend access to the HBP for individuals who are in that situation, regardless of whether they meet the definition of first-time home buyer.

Where a former spouse purchases a new residence using the HBP, any previous place of residence must, in most instances, be disposed of within two years after the end of the year in which the HBP withdrawal is made.

The change providing increased access to the HBP on the breakdown of a marriage or common law partnership is effective for HBP withdrawals made after the end of 2019.

More details of the rules governing the HBP can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.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 to do when you can’t pay your tax bill (April 2019)

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

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

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

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

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 150 of the last tax return for which the taxpayer received a Notice of Assessment. (For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2017 tax year). The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time.

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

The CRA also provides on online tool, in the form of a payment arrangement calculator (available at https://apps.cra-arc.gc.ca/ebci/recc/pac/prot/lngg?request_locale=en_CA), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances). That calculator includes interest charges since, no matter what payment arrangement is made, the CRA will levy interest charges on any amount of tax owed for the 2018 tax year which is not paid on or before April 30, 2019. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates. For the second quarter of 2019 (April 1 to June 30), that rate is 6%. Second, interest charges levied by the CRA are compounded daily, meaning that each day’s interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30 deadline.

Finally, there is one strategy which is, in all circumstances, a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount — and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed — and that doesn’t count the compound interest which is levied on all penalty amounts, as well as on all unpaid taxes. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Tuesday April 30, 2019. For self-employed taxpayers (and their spouses) the filing deadline is Monday June 17, 2019. However for all taxpayers, the payment deadline for all 2018 income tax owed is Tuesday April 30, 2019.

Paying the taxman – how and when (April 2019)

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2018 must be remitted to the Canada Revenue Agency (CRA) on or before Tuesday, April 30, 2019 — no exceptions and, absent extraordinary circumstances, no extensions.

It is very much in the CRA’s interests to make paying taxes as simple and as straightforward as it can be and so the Agency offers individual taxpayers a wide range of choices when it comes making that payment. There are, in fact, no fewer than seven separate options available to individual residents of Canada in paying their taxes for the 2018 tax year. The options open to taxpayers who must make a payment to the taxman are set out below.

Pay using online banking

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

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

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

Paying at your financial institution

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

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

Using the CRA’s My Payment

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

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

More details on this payment method can be found at https://www.canada.ca/en/revenue-agency/services/e-services/payment-save-time-pay-online.html.

Payment by credit card

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

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

Payment through a service provider

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

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

Payment by pre-authorized debit

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

Individuals who make instalment payments of tax throughout the year may already have such an arrangement in place and can certainly use that existing arrangement to arrange a PAD of any balance of taxes owed for the 2018 tax year. However, any PAD arrangement must be made at least five business days before the payment due date of April 30. A taxpayer who makes a payment of taxes only once a year is likely better off using another of the available payment methods.

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

Payment by cash or debit card

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

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

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

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

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

Deciding when to start receiving Old Age Security benefits (March 2019)

The Old Age Security program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the first quarter of 2019 (January to March 2019), that maximum monthly benefit is $601.45.

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

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

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

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

Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2019, that second income tax bracket begins when taxable income reaches $47,630.
The Canadian tax system provides (for 2019) a non-refundable tax credit of $7,494 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 $37,790.
Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2019, the full credit is payable to individual taxpayers whose family net income is less than $37,789.
Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits, through a mechanism known as the “OAS recovery tax”, or clawback. For the July 2019 to June 2020 benefit period, taxpayers whose income for 2018 was more than $75,910 will have a portion of their OAS benefit entitlement “clawed back”.

What other sources of income are currently available?

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

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

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

Does the taxpayer have private retirement savings through an RRSP?

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

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

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

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

It’s tax filing – and tax scam – season (March 2019)

For many years now, there has been a persistent tax scam operating in Canada in which Canadians are contacted, usually by phone, by someone who falsely identifies himself or herself as being a representative of the Canada Revenue Agency (CRA). The taxpayer is told that money — sometimes a substantial amount of money — is owed to the government. The identifier for this particular scam is that the caller insists that the money owed must be paid immediately (usually by wire transfer or pre-paid credit card) and, if payment is not made right away, significant negative consequences will follow, including immediate arrest or seizure of assets, confiscation of the taxpayer’s Canadian passport, or deportation.

Of course, none of those consequences are remotely possible, even in circumstances where a legitimate tax debt is owed. However, the individuals or groups perpetrating this scam have, over the years, become both increasingly sophisticated — to the point of having a call display which shows the call as coming from the CRA — and increasingly successful, and many Canadians have suffered significant financial losses as a result.

To combat this, the CRA and other authorities have provided many warnings to taxpayers on how to avoid getting cheated, such that by now almost everyone has heard of this particular tax scam. However, there has also been an unintended result, as outlined by the CRA on its website:

“Scammers posing as Canada Revenue Agency (CRA) employees continue to contact Canadians, misleading them into paying false debt. These persistent scammers have created fear among people who now automatically assume that any communication from someone representing the CRA is not genuine.”

As we move into tax filing season, it is more likely that the CRA will be in touch with taxpayers for legitimate reasons. This poses two potential problems. First, there is likely to be an increase in the activity of tax scammers, who are relying on the fact that taxpayers are more likely to expect contact from the CRA during tax filing season. Second, the tax administration process can’t function efficiently if taxpayers don’t respond to legitimate communications from the CRA out of fear that such communications are just in furtherance of another tax scam.

To address this problem, the CRA has provided comprehensive information on the methods by which it does and does not contact taxpayers, and what it will and will not ask for in communications with taxpayers. That information, which is posted on the CRA website, is as follows.

Phone

The CRA may

verify your identity by asking for personal information such as your full name, date of birth, address, account number, or social insurance number
ask for details about your account, in the case of a business enquiry
call you to begin an audit process

The CRA will never

ask for information about your passport, health card, or driver's license
demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards, or gift cards from retailers such as iTunes, Amazon, or others
use aggressive language or threaten you with arrest or sending the police
leave voicemails that are threatening or give personal or financial information

Email

The CRA may

notify you by email when a new message or a document, such as a notice of assessment or reassessment, is available for you to view in secure CRA portals such as My Account, My Business Account, or Represent a Client
email you a link to a CRA webpage, form, or publication that you ask for during a telephone call or a meeting with an agent (this is the only case where the CRA will send an email containing links)

The CRA will never

give or ask for personal or financial information by email and ask you to click on a link
email you a link asking you to fill in an online form with personal or financial details
send you an email with a link to your refund
demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards, or gift cards from retailers such as iTunes, Amazon, or others
threaten you with arrest or a prison sentence

Mail

The CRA may

ask for financial information such as the name of your bank and its location
send you a notice of assessment or reassessment
ask you to pay an amount you owe through any of the CRA's payment options
take legal action to recover the money you owe, if you refuse to pay your debt
write to you to begin an audit process

The CRA will never

set up a meeting with you in a public place to take a payment
demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards, or gift cards from retailers such as iTunes, Amazon, or others
threaten you with arrest or a prison sentence

Text messages/instant messaging

The CRA never uses text messages or instant messaging such as Facebook Messenger or WhatsApp to communicate with taxpayers under any circumstance. If a taxpayer receives text or instant messages claiming to be from the CRA, they are scams!

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 or over the phone 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 CRA suggests that anyone who is contacted by phone by someone claiming to be a CRA employee take the following steps:

Ask for or make a note of the caller's name, phone number, and office location and tell them that you want to first verify their identity.

Check that the employee calling you about your taxes works for the CRA or that the CRA did contact you by calling 1-800-959-8281 for individuals or 1-800-959-5525 for businesses. If the call you received was about a government program such as Student Loans or Employment Insurance, call 1-866-864-5823.

New Quarterly Newsletters (February 2019)

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

Tax deadlines and limits for the 2019 tax year (January 2019)

Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax planning strategies. Some of the more significant dates and changes for individual taxpayers for 2019 are listed below.

Changes to the Canada Pension Plan starting in 2019 (November 2018)

When the Canada Pension Plan was launched in the mid-1960s, both the working lives and the retirements of Canadians looked a lot different than they do in 2018. Fifty years ago, most Canadians were able to work at a single full-time job, often held that job for most or all of their working lives and, in many cases, benefitted from an employer sponsored defined benefit pension plan which guaranteed a certain level of income in retirement.

None of those circumstances accurately describe the current reality for Canadians, either those who are approaching retirement or the younger generation seeking to find their place in the workforce. Defined benefit pension plans, at least in the private sector, simply aren’t part of workplace reality for most Canadian workers. In some cases, corporate bankruptcies have left those who did have such a pension with a reduced pension, or no pension at all. And, while some of those who are nearing retirement may have worked for a single employer for their entire working lives, there are many Canadians for whom corporate downsizing or outsourcing has meant the loss of a long-term position. And, when that happens, replacing that lost income has often meant working on contract or in short-term positions, usually for less compensation.

All of these factors have affected the ability of Canadians to accumulate private savings for retirement through registered pension plans (RPPs) and registered retirement savings plans (RRSPs) and, as a consequence, has increased the degree to which they must rely, in retirement, on government sponsored retirement income programs like the Canada Pension Plan. A few years ago the federal government took a look at the existing structure of the CPP and how well it fit with the current and future needs of retiring Canadians. The result of that review was a decision to make significant changes to the CPP, and the implementation of those changes will begin on January 1, 2019.

Although most Canadians will receive CPP retirement benefits, many are unfamiliar with how the CPP system operates. The CPP is a contributory plan, in which employees and employers each make contributions throughout the working life of the employee, starting at age 18. The amount of contributions made is calculated as 4.95% of income, but there is a maximum annual contribution amount. Effectively, the maximum allowable contribution for a year is currently reached at about $55,000 in income (known as Yearly Maximum Pensionable Earnings, or YMPE). Even where an individual’s income exceeds the YMPE, it’s not possible to make additional CPP contributions for the year. As currently structured, the CPP retirement benefit replaces about 25% of income, based on the current YMPE of $55,000. Finally, the CPP must, by law, be fully funded, meaning that any benefits paid out of the CPP must come from contributions made and income earned from the investment of those contributions.

The changes to be made to the CPP will be implemented over a five-year period, from 2019 to 2025. At the end of that implementation period, the maximum CPP benefit available to retired Canadians will have increased by about 50%. (Currently, the maximum monthly benefit is about $1,135, although the average CPP retirement benefit received is closer to $673.) As a result, by 2025, the CPP retirement benefit will replace about 33% of pre-retirement income, based on the YMPE. In addition, the YMPE will be increased. All of these increases must, of course, be funded, and that funding will come through an increase in the amount of CPP contributions required to be made by employees, employers and the self-employed. Those contribution amount increases will start in January 2019.

Each of the changes outlined above essentially maintain the current structure of the CPP and simply provide for higher contribution amounts resulting in greater CPP benefits. The second change, however, which starts in 2024, effectively provides for a separate, additional required contribution for Canadians who earn more than the YMPE. That separate contribution rate, which is expected to be 4% for both employees and employers, will be calculated as a percentage of income between the YMPE to the upper income limit for the year. That upper income limit will be implemented over a 2-year period and is expected to reach $82,700 in 2025. Individuals who are required to make the additional contribution will be entitled to claim that contribution as a deduction from income for tax purposes.

The first change which working Canadians will notice will be an increase in CPP contribution rates, as of January 1, 2019. That change will be minimal: while CPP contribution rates for 2019 have not yet been announced, the estimate provided when the CPP changes were announced indicated that such changes would mean an increase in contributions of about $6.00 a month in 2019. That increase will accelerate in subsequent years, such that the increase is about $43 per month by 2025.

All working Canadians between the ages of 18 and 65 must contribute to the CPP, and those Canadians, especially younger Canadians, will be most impacted by the upcoming changes. Canadians who remain in the work force past the age of 65 (even if they are already receiving CPP retirement benefits) have the option of continuing to contribute to the CPP up until the age of 70, and receiving increased CPP benefits as a result. After age 70 no one, even if they remain in the work force, can contribute to the CPP.

Canadians also have a choice of when to begin receiving CPP retirement benefits. Such benefits can begin at the age of 60 or can be deferred to as late as age 70. With each year that the receipt of benefits is deferred, the amount of monthly benefit increases.

The decision of when to begin receiving CPP retirement benefits and when to cease making CPP contributions is one which involves the assessment of many individual factors, including living costs in retirement, the availability of other sources of income in retirement, one’s health and employment circumstances and the cost of contributing to the CPP relative to the benefits to be received.

Starting next year, the planned changes to the CPP will be another factor to be included in that calculation.

Pay using online banking

Paying at your financial institution

Using the CRA’s My Payment

Payment by credit card

Payment through a service provider

Payment by pre-authorized debit

What other sources of income are currently available?

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

Does the taxpayer have private retirement savings through an RRSP?

Phone

The CRA may

The CRA will never

Email

The CRA may

The CRA will never

Mail

The CRA may

The CRA will never

Text messages/instant messaging

The CRA never uses text messages or instant messaging such as Facebook Messenger or WhatsApp to communicate with taxpayers under any circumstance. If a taxpayer receives text or instant messages claiming to be from the CRA, they are scams!

RRSP deduction limit increased

TFSA contribution limit increased

Individual tax instalment deadlines for 2019

Old Age Security income clawback threshold

Individual tax filing and payment deadlines in 2019