2017 checklist

Your 2017 Personal Income Tax Checklist

Keep up to date with the latest new information and tips

1st Quarter 2018

2nd Quarter 2018

1st quarter 2017     2nd quarter 2017

3rd quarter 2017     4th quarter 2017

4th quarter 2016     3rd quarter 2016 

2nd quarter 2016     1st quarter 2016  

1st quarter 2015     2nd quarter 2015

3rd quarter 2015     4th quarter 2015

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might, as part of his or her job, be required to see clients at their own premises for the purpose of meetings or other work-related activities and be expected to use his or her own vehicle to get to such meetings. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses and that no tax-free allowance was provided by the employer for such expenses, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include the following:

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

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

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

In larger urban centres, and in the nearby cities and suburbs which are served by inter-city transit, many commuters utilize that transit as a way of avoiding both the stress of a drive to work in rush hour traffic and the associated costs. And, for a time, such commuters were able to claim a tax credit to help mitigate the cost of using such transit. Unfortunately, the federal public transit tax credit was eliminated in 2017, such that it could be claimed only for costs incurred for transit use before July 1, 2017. It was not possible to carry the credit over and claim it in a subsequent taxation year, so the last claim anyone could make for the public transit tax credit was on the 2017 annual tax return.

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

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

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

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

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

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

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

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

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

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

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

Individuals and families move for any number of reasons, and those moves can be local or long distance. Whatever the reason for the move, or the distance to the new location, all moves have two things in common — stress and cost. Even where the move is a desired one — moving to attend university, or because of the purchase of a first home — moving represents the upheaval of one’s life and, where the move is for a long distance, or involves a large family home, the costs can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

While its common to refer simply to the “moving expense deduction”, as though it were available in all circumstances, the reality is that there is no general deduction available for moving costs. In order to be tax deductible, such moving costs must be incurred in specific and relatively narrow circumstances. Our tax system allows taxpayers to claim a deduction only where the move is made to get the taxpayer closer to his or her new place of work, whether that work is a transfer, a new job, or self-employment. Specifically, moving expenses can be deducted where the move is made to bring the taxpayer at least 40 kilometres closer to his or her new place of work. That requirement is satisfied where, for instance, a taxpayer moves from Toronto to Ottawa to take a new job. It’s also met where a taxpayer is transferred by his or her employer to another job in a different location and the taxpayer’s move will bring him or her at least 40 kilometres closer to the new work location. It’s not met where an individual or family move up the property ladder by selling and purchasing a new home in the same town or city.

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

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

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

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

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

It sometimes happens that a move to the new home takes place before the old residence is sold. In most such circumstances, the taxpayer is entitled to deduct up to $5,000 in costs incurred for the maintenance of that residence while it is vacant and efforts are being made to sell it. Specifically, costs including interest, property taxes, insurance premiums, and heat and utilities expenses paid to maintain the old residence while efforts were being made to sell it may be deducted. If any family members are still living at the old residence, or it is being rented, no deduction is available. As well, a claim for such home maintenance expenses is not allowed where the taxpayer delayed selling, for investment purposes or until the real estate market improved.

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

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

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

Anyone who has ever moved knows that there are an endless number of details to be dealt with. In some cases, the administrative burden of claiming moving-related expenses can be minimized by choosing to claim a standardized amount for certain types of expenses. Specifically, the CRA allows taxpayers to claim a fixed amount, without the need for detailed receipts, for travel and meal expenses related to a move. Using that standardized, or flat rate method, taxpayers may claim up to $17 per meal, to a maximum of $51 per day, for each person in the household. Similarly, the taxpayer can claim a set per-kilometre amount for kilometres driven in connection with the move. The per-kilometre amount ranges from 45 cents for Alberta to 60.5 cents for the Yukon Territory. In all cases, it is the province or territory in which the travel begins which determines the applicable rate.

These standardized travel and meal expense rates are those which were in effect for the 2017 taxation year — the CRA will be posting the rates for 2018 on its website early in 2019, in time for the tax filing season.

Once eligibility for the moving expense deduction is established, the rules which govern the calculation of the available deduction are not complex, but they are very detailed. The best summary of those rules is found on the form used to claim such expenses — the T1-M, which was updated and re-issued by the CRA in January of this year. The current version of the form can be found on the CRA’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t1-m/t1-m-17e.pdf, and more information is available at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/219/menu-eng.html. Details of the allowable amounts which may be claimed for standardized moving-related meal and travel expenses can be found on the same website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/255/rts-eng.html.

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

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

Corporate:

Issue #44 Corporate

Personal:

Issue #44 Personal

The arrival of warmer weather signals both the start of spring and the approaching end of the school year. For many families, it also means the need to begin researching the availability of suitable child care or summer daytime or overnight camp arrangements for the summer months. There are many such options available to parents, but what each of those options have in common is a price tag – sometimes a steep one. Some options, like day camps provided by the local recreation authority or municipality can be relatively inexpensive, while the cost of others, like summer-long residential camps or elite level sports or arts camps, can run to the thousands of dollars.

The arrival of warmer weather signals both the start of spring and the approaching end of the school year. For many families, it also means the need to begin researching the availability of suitable child care or summer daytime or overnight camp arrangements for the summer months. There are many such options available to parents, but what each of those options have in common is a price tag – sometimes a steep one. Some options, like day camps provided by the local recreation authority or municipality can be relatively inexpensive, while the cost of others, like summer-long residential camps or elite level sports or arts camps, can run to the thousands of dollars.

The good news for families which must incur such expenditures is that in many cases a deduction for all or part of the costs incurred can be claimed on the tax return for the year. And, since eligible expenditures can be deducted from income on a dollar-for-dollar basis, that means that income used to pay eligible child care expenses is effectively not subject to income tax. The bad news is that some of the deductions or credits which could be claimed in recent years are no longer available.

This year, any offset provided by the tax system with respect to summer child care costs can only be claimed through the general deduction provided for child care costs. That deduction, which is not specific to summer child care costs but is available for such costs incurred year-round, allows parents who must incur child care costs in order to work (whether in employment or self-employment) or, in some cases to attend school, to deduct those costs from income, within specified limits.

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

First, the amount of any deduction for child care expenses is limited to two-thirds of the taxpayer’s “earned income” for the year. The income figure used to calculate the two-thirds figure is, generally, the amount shown on Line 150 of the annual tax return. Where the family incurring child care expenses is a two-income family, and both spouses are working, the claim is made by the spouse with the lower net income, and consequently his or her net income is used to determine the two-thirds of income figure.

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

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

For 2018, the following overall limits apply:

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

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

• $125 per week for a child who was born from 2002 to 2011;
• $200 per week for a child who was born in 2012 or later; and
• $275 per week for a child who was born in 2018 or earlier, for whom the disability amount can be claimed.

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

A two-income family has two children and both parents are employed. One spouse earns $60,000 per year, while the other earns $45,000. In 2018, one child is nine years old and the other is five. Neither child is disabled. Both children are in full-day school and so, during the school year, the family pays $400 per month for each child for after-school care. During the eight weeks of summer school vacation, both of the children attend a local full-day summer camp, for which the cost is $250 per week per child.

• The first step is to determine the two-thirds of income figure. Since it is the lower-income spouse who must make the deduction claim, that figure is two-thirds of $45,000, or $30,000. Consequently, any deduction for child care expenses for the year cannot exceed $30,000.

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

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

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

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

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

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

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

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

Parents wishing to find out more about the child care expense deduction, and perhaps to calculate the maximum deduction which will be available to them for the 2018 tax year should consult Form T778 E (17). That form, which includes detailed information on the rules governing the deduction and how to make the claim, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t778.html.

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

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

Each of those income sources requires that an individual has made contributions during his or her working life in order to receive benefits in retirement. The fourth major source of retirement income for Canadians – the Old Age Security (OAS) program – does not. Entitlement to OAS is based solely on the number of years of Canadian residence, and individuals who have been Canadian residents for 40 years after the age of 18 can receive full OAS benefits, as early as age 65. As of the second quarter of 2018, those eligible for full OAS benefits receive $589.59 per month.

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

While the rules governing the administration of the clawback can be confusing, the concept is a simple one. Anyone who receives OAS benefits during the year and has income for that year of more than $75,910 (for 2018) must repay a portion of those benefits. That repayment, or clawback, is administered by requiring repayment when the tax return for that year is filed the following April.

For example, an individual who receives full OAS during 2017 and has net income for the year of $82,000 will be subject to the clawback. He or she must repay OAS amounts received at a rate of 15 cents (or 15%) of every dollar of income over the clawback income threshold, as in the following example for the 2017 tax year:

Total OAS benefit for the year — $6,900

Total income for the year — $82,000

OAS income clawback threshold for 2017 — $74,788

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

Repayment amount required — $1081.80

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

As of 2018, the OAS clawback affects only individuals who have an annual income of at least $75,000, and it’s arguable that at such income levels, the clawback requirement is unlikely to impose significant financial hardship. Nonetheless, the OAS clawback is a perpetual irritant to those affected, perhaps because of the sense that they are being penalized for being disciplined savers, or good managers of their finances during their working years, in order to ensure a financially comfortable retirement.

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

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

The starting point, for taxpayers who are approaching retirement, is to determine how much income will be received from all sources during retirement, based on CPP and OAS entitlement, any savings accrued through an RRSP and any benefits which will be received from an employer-sponsored pension plan.

Anyone who has an RRSP must begin receiving income from that RRSP in the year after that person turns 71. However, it’s possible to begin receiving income from an RRSP at any time. Similarly, an individual who is eligible for CPP retirement benefits can begin receiving those benefits anytime between age 60 and 70, with the amount of monthly benefit receivable increasing with each month receipt is deferred. The same calculation applies to OAS benefits, which can be received as early as age 65 or deferred up until age 70.

Once the amount of annual income is determined, strategies to smooth out that income can be put in place. Those strategies can include receiving income from an RRSP prior to the required withdrawal date of age 72, so as to reduce the total amount within the RRSP and so thereby reduce the likelihood of having a large “bump” in income when required withdrawals kick in at age 72.

Taxpayers are sometimes understandably reluctant to take steps which they view as depleting their RRSP savings, but receiving income from an RRSP doesn’t mean spending that income. While tax has to be paid on any withdrawals (whether the taxpayer is under or over the age of 71), after-tax amounts received can be contributed to the taxpayer’s tax-free savings account (TFSA), where they can compound free of tax. And, when the taxpayer has need of those funds, in retirement, they can be withdrawn free of tax, and they won’t count towards income for purposes of the OAS clawback.

Taxpayers who are married can “even out” their income by using pension income splitting, so that neither of them has sufficient income to be affected by the clawback. Using pension income splitting, the spouse who has qualifying income over the OAS clawback threshold can notionally re-allocate the “excess” income to his or her spouse on the annual return. That income is then considered to be income of the recipient spouse, for purposes of both income tax and the OAS clawback. To be eligible for pension income splitting, the income to be reallocated must be private pension income, which is generally income from an RRSP or registered retirement income fund (RRIF), or from an annuity or an employer-sponsored pension plan. More information on the kinds of income eligible for pension income splitting, and the mechanics of the process, can be found on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html.

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

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

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

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

Most Canadians now prepare their returns (or have those returns prepared by a tax professional) using tax return preparation software. The use of such software significantly reduces the chance of making a clerical or arithmetical error, like entering an amount on the wrong line or adding a column of figures incorrectly. However, no matter how good the software, it can work only with the information that is provided to it. Sometimes taxpayers prepare and file a return, only to later receive a tax information slip that should have been included on that return. It’s also easy to make an inputting error when transposing figures from an information slip (a T4 from one’s employer, for instance) into the software. Whatever the cause, where the figures input are incorrect or information is missing, those errors or omissions will be reflected in the final (incorrect) result produced by the software.

When the error or omission is discovered in a return which has already been filed, the question is how to make things right. The first impulse of many taxpayers is to file another return, in which the complete and correct information is provided, but that’s not the right answer. There are, however, several ways in which a mistake or omission on an already-filed tax return can be corrected. And this year, taxpayers have more options than were previously available to them in doing so.

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

This year, taxpayers who filed online, whether through NETFILE or EFILE, can advise the CRA of an error or omission in an already-filed return electronically, using the Agency’s ReFILE service. That service, which can be found at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/refile-online-t1-adjustments-efile-service-providers.html, allows taxpayers to make corrections to an already-filed return online, using the CRA website.

Essentially, taxpayers whose returns have been filed online (through NETFILE or EFILE) can file a correction to that already-filed return, using the same tax return preparation software that was used to prepare the return. Those taxpayers who used NETFILE to file their return can file an adjustment to a return for 2017 or 2016. Where the return was filed using EFILE, the EFILE service provider can file adjustments for returns filed for the 2017, 2016, or 2015 tax years.

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

It’s also possible to make a change or correction to a return using the CRA’s “My Account” service (through the “Change My Return” option), but that choice is available only to taxpayers who have already registered for the My Account service. As well, the changes/corrections which can be made using ReFILE are the same as those which can be done through My Account, without the need to become registered for My Account, a process which takes a few weeks.

Taxpayers who wish to make changes or corrections which cannot be made through ReFILE or My Account (or those who just don’t wish to use the online option) can paper-file an adjustment to their return. The paper form to be used is Form T1-ADJ E (2018), which can be found on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html. Those who are unable to print the form off the website can order a copy to be sent to them by mail by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. There is no limit to the number of changes or corrections which can be made using the T1-ADJ E (2018) form.

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

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

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

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

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