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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 second quarter of 2020 (April to June 2020), that maximum monthly benefit is $613.53.

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 second quarter of 2020 (April to June 2020), that maximum monthly benefit is $613.53. 

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 2020, that second income tax bracket begins when taxable income reaches $48,535.
• The Canadian tax system provides (for 2020) a non-refundable tax credit of $7,637 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 $38,508.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2020, the full credit is payable to individual taxpayers whose family net income is less than $38,507.
• 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 2020, taxpayers whose prior year income was more than $79,054 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.

A final note — during the current pandemic, Service Canada is strongly encouraging anyone who is applying for federal government benefits — including Old Age Security — do so online, through My Service Canada Account. While in normal circumstances, individuals may be required to provide supporting documentation for their OAS application, that requirement is being temporarily waived. Such documentation may be requested at a later date, but processing of the application will now begin without it. Information on My Service Canada Account, and on how to make an online application can be found at https://www.canada.ca/en/employment-social-development/services/my-account.html.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2019, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2019, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 2, 2020 in order to be deducted on the return for 2019.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2019, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2019, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 2, 2020 in order to be deducted on the return for 2019.

The fact that the clock has run out on most major tax planning opportunities for 2019 doesn’t however, mean that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2019 — by claiming all available deductions and credits on the return and also by making sure that those deductions and credits are claimed in the way which will give the taxpayer the most “bang for the buck”.

Everyone’s tax situation — and, therefore, their tax return — is different, of course, but millions of Canadian taxpayers make claims on their annual returns for charitable donations made. It may seem counterintuitive, or even illogical, to not claim every available deduction and credit in order to obtain the best possible tax result for the year. However, for charitable donation tax credit claims there are situations in which it makes sense to defer an available claim until a future year, or to transfer that claim to another person.

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2019) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to encourage higher donations.

That credit, at both the federal and provincial/territorial levels, is a two-tier credit. Federally, the first $200 in donations receives a credit of 15% of the total donation, or $30. However, donations above the $200 level receive a credit equal to 29% of the donation amount over $200.

Take, for example, a taxpayer who makes a regular contribution to a favourite charity of $100 each month, or $1,200 per year. Where he or she claims that donation on the annual return each year, that claim will result in a federal credit of $320 ($200 × 15%, + $1,000 × 29%). Where, however, the same taxpayer defers the claim to the following year and claims a total of $2,400 in donations on a single return, he or she will receive a federal credit of $668. ($200 × 15%, + $2,200 × 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,712 ($200 × 15%, + $5,800 × 29%). Under each scenario, the total charitable donation made is the same, but the amount of credit received increases with each year that the claim is deferred. Since each of the provinces and territories provide a two-tier credit (at different rates, depending on the jurisdiction), the same result will be seen when calculating the provincial/territorial credit.

It's also the case that a married taxpayer can claim a credit for charitable donations made personally as well as those made by his or her spouse. Since the amount of tax credit claimable increases with the size of the annual donation it almost always makes sense to combine donations made by both spouses, in order to maximize the available credit, and to claim those donations on one return.

Since the amount of credit which may be obtained isn’t affected by the income of the taxpayer claiming it, the benefit received from the credit will be the same regardless of which spouse claims it, with one major exception. The charitable donation tax credit is a non-refundable credit, meaning that it reduces tax otherwise payable, but does not create or increase a tax refund. Consequently, it’s important, when deciding who will make the claim for combined donations, to ensure that the taxpayer making that claim has tax payable for the year of at least as much as the amount of the charitable donation tax credit. If neither spouse has sufficient tax payable for the year, then it would be better to defer the claim and make it in a future tax year.

It would be easiest, of course, to simply add up the amount of charitable donation receipts for the year and claim them all on the return of the donor. However, investing a little time to calculate the amount of donations made by both spouses, to consider who should make the claim and, finally, to determine whether the claim is best made in current year or a future one, can provide a much better overall tax result.

The past few months have been an almost perfect storm of bad financial news for Canadian retirees. The historic stock market downturn which occurred in mid-March resulted in a significant loss of value for many retirement savings portfolios, whether those savings were held in registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs). That downturn was accompanied by three consecutive interest rate cuts by the Bank of Canada, meaning that rates of return on such safe investment vehicles as guaranteed investment certificates, which were already low, became negligible.

The past few months have been an almost perfect storm of bad financial news for Canadian retirees. The historic stock market downturn which occurred in mid-March resulted in a significant loss of value for many retirement savings portfolios, whether those savings were held in registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs). That downturn was accompanied by three consecutive interest rate cuts by the Bank of Canada, meaning that rates of return on such safe investment vehicles as guaranteed investment certificates, which were already low, became negligible.

While the stock market has made a significant recovery from the lows recorded during the month of March, it is not yet at pre-downturn levels. And, while retirees who are under the age of 71 and whose retirement savings are still held in an RRSP may be able to wait out the ongoing downturn in anticipation and hope of a full market recovery, those Canadians over age 71 who hold their retirement savings in a RRIF have a more immediate problem.

That problem arises from the application of the tax rules governing required withdrawals from a RRIF. The basic rule is that every Canadian who has an RRSP must collapse that RRSP by the end of the year in which they turn 71. While there are a few options available to those individuals, most taxpayers choose to convert their RRSP into a RRIF and, by doing so, they can continue to hold the same investments within the plan. There is, however, one big difference between an RRSP and a RRIF and that is that every RRIF holder must withdraw a percentage of the balance within the RRIF by the end of each calendar year. The specific percentage is based on the age of the RRIF holder and is calculated using the value of the RRIF on January 1 of the year.

For nearly every RRIF holder in Canada, the value of their RRIF at the beginning of this calendar year was greater than it is now. Having to make their required withdrawal based on the January 1 balance would mean, in many cases, having to sell investments at loss. In addition, making the usual required withdrawal from a smaller RRIF balance would negatively impact the amount left needed to generate investment gains (and needed retirement income) in future years. 

Recognizing the present and future financial cost this poses to retirees, the federal government announced, on March 18, a one-time change in the usual RRIF withdrawal rules for 2020.  Basically, that change will allow RRIF holders who had not yet made their full required RRIF withdrawal for 2020 to reduce the amount of that required withdrawal by 25%. The change applies to all types of RRIFs, including Life Income Funds and other locked-in RRIFs.

Take, for example, a retiree whose RRIF has a balance of $500,000 and who would usually be required to withdraw 2% of that balance. Under normal rules that required withdrawal would be $10,000 (2% of $500,000). Following the change announced by the federal government that required withdrawal can be reduced by 25%, meaning that the minimum withdrawal for 2020 is now $7,500 ($10,000 minus 25%).

While the basic rule is straightforward, there are a few aspects of the change which require a more detailed explanation.

• There is no requirement that the amount of RRIF withdrawal for 2020 be reduced. A required RRIF withdrawal amount always represents the minimum withdrawal which must be made, and the RRIF holder is free to withdraw any amount at or above that minimum (while remembering that all RRIF withdrawals create taxable income in the year the withdrawal is made).
• RRIF holders who made more than their reduced minimum withdrawal for 2020 before the change was made cannot re-contribute any “excess”. Continuing the above example, if the RRIF holder had withdrawn $10,000 from his or her RRIF in January of 2020 he or she cannot recontribute the “excess” of $2,500. The planholder’s RRIF withdrawal for 2020 will be $10,000 and he or she will be taxed on that amount.

Many retired Canadians choose to receive required withdrawals from their RRIFs as monthly payments. Where that is the case, the taxpayer can simply opt to reduce monthly payments for the rest of 2020 to arrive at the 25% reduction, as outlined in the following example provided on the Canada Revenue Agency (CRA) website.

“The 25% reduction applies to the entire minimum amount for 2020. For instance, let’s say an individual’s 2020 RRIF minimum amount before the reduction is $12,000. If the individual received minimum amount payments on a monthly basis, they would receive $1,000 per month. Because of the economic measure, their 2020 minimum amount is reduced by 25% to $9,000 ($12,000 × 75% = $9,000). If the individual had already received $1,000 from January to April for a total of $4,000, they would only need to receive a total of $5,000 for the rest of the year to reach their new minimum amount. This means their monthly RRIF payments are reduced to $625 for the remaining 8 months (8 × $625 = $5,000).”

Variable benefits are payments made to plan members from a defined contribution pension plan or a pooled registered pension plan, in a manner similar to a RRIF. The announced change also applies to the minimum amount for individuals receiving variable benefit payments under such plans (i.e., both types of payments are also reduced by 25% for 2020 only).

More information on the federal government announcement, in the form of an FAQ document, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/registered-retirement-savings-plans-registered-retirement-income-funds-rrsps-rrifs/economic-statement-measure-annuitants-rrsp-rrif.html.

There have been so many announcements over the past couple of months with respect to temporary changes to individual and business tax obligations that keeping up with all of the new rules and altered deadlines isn’t easy. The good news is that, in all cases, individual taxpayers (both employees and the self-employed) are being provided with extended time to pay any income tax amounts for both 2019 and 2020. And, in most cases, taxpayers also have more time to file returns for the 2019 tax year.

There have been so many announcements over the past couple of months with respect to temporary changes to individual and business tax obligations that keeping up with all of the new rules and altered deadlines isn’t easy. The good news is that, in all cases, individual taxpayers (both employees and the self-employed) are being provided with extended time to pay any income tax amounts for both 2019 and 2020. And, in most cases, taxpayers also have more time to file returns for the 2019 tax year.

In an ordinary year, for most taxpayers (except the self-employed and their spouses) the filing and payment deadline is the same day — April 30. This year, both the filing and payment deadlines have been extended, but to different dates, as follows.

• Individual taxpayers (other than self-employed taxpayers and their spouses) must file a return for 2019 on or before June 1, 2020.
• Self-employed taxpayers and their spouses must file their returns for the 2019 tax year on or before June 15, 2020.
• For ALL individual taxpayers, the deadline for payment of 2019 income tax balances owed has been extended to September 1, 2020. In other words, although the return must be filed during the month of June, any tax balance owed from that return doesn’t have to be paid until September 1, 2020. Where the payment is made on or before that September date, the Canada Revenue Agency (CRA) will not charge interest on the amount owed.

As all of these changes were announced part way through tax filing season, some confusion was perhaps inevitable. The CRA website indicates that some taxpayers may have received a Notice of Assessment indicating that payment of a tax balance was due on or before April 30, 2020. That is incorrect, as all individual income tax balances owed for the 2019 tax year are not due until September 1, 2020.

Although the filing deadline has been extended, it’s still a good idea to file as soon as possible. Eligibility for certain means-tested government benefits, like the Goods and Services Tax Credit or the Canada Child Benefit, is determined in part by the amount of income reported on the annual return. The upcoming benefit year for all such benefits runs from July 1, 2020 to June 30, 2021, and both eligibility for and the amount of benefit received will be determined, in part, by the amount of income reported on the income tax return for 2019. Where that return has not yet been filed by the taxpayer and processed by the CRA, no determination of benefit entitlement can be made and so any payment of benefits which would start in July 2020 will be delayed.

Millions of individual Canadians also pay income tax for the current (2020) taxation year through quarterly instalments paid throughout the year. Those instalments are usually paid on the 15^th day of March, June, September, and December. This year the usual June payment deadline has been extended, and any instalment payment of tax which was normally due on that date can be paid anytime up to September 1, 2020. There has been no change announced with respect to the September 15 instalment payment deadline.

Incorporated businesses will also benefit from extended filing and payment deadlines. Where a corporation’s income tax return for 2019 was due after March 18, 2020 and before June 1, 2020, that deadline is extended to June 1, 2020. Payment deadlines for corporations were also extended, such that any income tax balances owed or instalment payments of income tax required after March 18 and before September 1, 2020 do not have to be paid until September 1, 2020.

More information on the extended payment and filing deadlines for this year can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html.

Suspension of review, audit and collection activities

The Canada Revenue Agency regularly carries out review activities in which taxpayers are asked to provide documentation or other information with respect to their entitlement to claimed benefits or credits.

Suspension of review, audit and collection activities

The Canada Revenue Agency regularly carries out review activities in which taxpayers are asked to provide documentation or other information with respect to their entitlement to claimed benefits or credits.

The CRA has indicated that taxpayers who have received a letter that includes a date to respond or asks for documents do not need to respond at this time. Verification work is currently on hold and the CRA will re-contact taxpayers at a future date.

The Agency has also announced that it will generally not contact small or medium (SME) businesses to initiate any post assessment GST/HST or income tax audits during the month of April.

Finally, collection activities on new tax debts are suspended until further notice.

Wage subsidy program for employers

The federal government will be providing eligible employers who have experienced a significant decline in revenues with a wage subsidy. For purposes of the subsidy, eligible employers include individuals, taxable corporations, and partnerships consisting of eligible employers, as well as non‑profit organizations and registered charities.

Wage subsidy program for employers

The federal government will be providing eligible employers who have experienced a significant decline in revenues with a wage subsidy. For purposes of the subsidy, eligible employers include individuals, taxable corporations, and partnerships consisting of eligible employers, as well as non‑profit organizations and registered charities.

The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 would be the greater of:

• 75 per cent of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
• the amount of remuneration paid, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less.

Details of the wage subsidy program, and how it will be administered, are still being developed and the most up-to-date information can be found on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html. 

Deferral of GST/HST remittance deadlines

Businesses which are required to make GST/HST payments or remittances which become owing on or after March 27, 2020 and before June 2020 can defer payment of those amounts.

The deferral will apply to GST/HST remittances for the February, March and April 2020 reporting periods for monthly filers; the January 1, 2020 through March 31, 2020 reporting period for quarterly filers; and for annual filers, the amounts collected and owing for their previous fiscal year and instalments of GST/HST in respect of the filer’s current fiscal year.

Where such remittances are made on or before June 30, 2020, no interest or penalties will be imposed by the Canada Revenue Agency, regardless of the original due date.

Deferral of income tax filing and payment due dates for corporations

Corporations which have a tax filing due date after March 18, 2020 and before June 1, 2020 will have until June 1, 2020 to effect that filing.

In addition, where any income tax balance or instalment payment of income tax is payable after March 18 and before September 1, 2020, the deadline for making such payment is now September 1, 2020.

Changes to filing and payment deadlines for 2019 returns

Individual Canadians are generally required to file their tax returns for the 2019 tax year on or before April 30, 2020. Self-employed Canadians (and their spouses) have until June 15, 2020 to file such returns. All individual Canadians, regardless of their filing deadline, must usually pay all taxes owed for 2019 by April 30, 2020.

Changes to filing and payment deadlines for 2019 returns

Individual Canadians are generally required to file their tax returns for the 2019 tax year on or before April 30, 2020. Self-employed Canadians (and their spouses) have until June 15, 2020 to file such returns. All individual Canadians, regardless of their filing deadline, must usually pay all taxes owed for 2019 by April 30, 2020.

However, the filing deadline for individuals who would normally have to file by April 30 has been extended to June 1, 2020. The filing deadline for self-employed individuals and their spouses remains June 15, 2020.

The new payment deadline for all individual income tax owed for the 2019 tax year has been extended and is now September 1, 2020. No interest or penalty will be assessed where payment is made on or before September 1.

While individual taxpayers now have until June 1 to file, those who receive Canada Child Benefit or the Goods and Services Tax/Harmonized Sales Tax credit (or similar credits provided by their province of residence) should consider filing as soon as possible. The benefit year for those programs starts on July 1, 2020 and both eligibility for, and the amount of any benefit payable is based on information provided in the 2019 tax return. A delay in the filing of the 2019 return could mean a delay in receiving benefits starting in July 2020. As well, regardless of when they file, taxpayers will have until September 1 to pay any tax balance owed for 2019.

Change to June 15 instalment payment deadline

Many Canadians pay their current year (i.e. 2020) income taxes quarterly, through the income tax instalment system. Such instalment payments of tax are normally made on March 15, June 15, September 15 and December 15.

The federal government has indicated that taxpayers who would normally make an instalment payment of tax on June 15 will instead have until September 1, 2020 to make that payment. No interest or penalties will be assessed where the payment is made on or before September 1.

One-time increase to GST/HST tax credit

The federal government will be providing a one-time increase to the GST/HST tax credit, which is usually paid to qualifying individuals in January, April, July and October of each year.

Those individual Canadians who are eligible for the GST/HST credit will receive a special one-time payment in early May 2020. While precise figures have not been provided, the federal government announcement indicates that the payment will be “close to” $400 per individual and $600 for couples.

Increase to Canada Child Benefit

Eligible Canadian families receive a monthly non-taxable payment of the Canada Child Benefit, with the amount of that payment based on family size and income.

The federal government has announced that, for the 2019-20 benefit year only, the amount of the Canada Child Benefit will be increased by $300 per child. There is no need to make any application, as the increased payment will be added automatically to the regular May 2020 payment, which is scheduled to take place on May 20, 2020.

Change to registered retirement income fund withdrawal requirements

Canadian taxpayers are required to collapse their registered retirement savings plans (RRSPs) by the end of the year in which they turn 71. Most Canadians convert their RRSPs into registered retirement income funds (RRIFs) and they are then required to make annual withdrawals from those RRIFs.

The amount of such annual withdrawal is, by law, a specified percentage (based on the taxpayer’s age) of the balance in the RRIF as of January 1 of the year. There has been a significant decline in the markets since the beginning of this year and, consequently, many RRIF holders will have seen a corresponding decline in the value of their investments.

So that RRIF holders are not penalized by those events (by having to liquidate investments at a loss in order to make a required withdrawal) the federal government has reduced the amount of required withdrawals, for the 2020 taxation year only. Specifically, the minimum withdrawal requirement for RRIFs for 2020 has been reduced by 25%.

It’s important to note, however, that individuals who have already withdrawn more than the reduced 2020 minimum amount will not be permitted to re-contribute to their RRIFs an amount up to the 25% proposed reduction. 

Finally, the changes announced also apply to the minimum amount for individuals receiving variable benefit payments under a defined contribution registered pension plan or pooled registered pension plan. Such amounts will also be reduced by 25%, for 2020 only.

Student loan repayments suspended

As of March 30, required repayments of Canada Student Loans will be suspended for a period of 6 months, and no additional interest will accrue on unpaid amounts during that time. There is no requirement that an application be made, as the moratorium on payments during that period will be implemented automatically.

Canada Emergency Response Benefit

Canadians who have no source of income as a consequence of the pandemic may receive $2,000 per month, for a four month period, with that amount provided under under the Canada Emergency Response Benefit (CERB). The CERB is available to a broader group of Canadians than would normally be eligible for income replacement under the Employment Insurance system. Specifically, the CERB applies, in addition to wage earners, to contract workers and self-employed individuals who would not normally qualify for EI.

CERB will be available for Canadians who have lost their job, are sick, quarantined, or taking care of someone who is sick with COVID-19, as well as working parents who must stay home without pay to care for children who are sick or at home because of school and daycare closures. In addition, those who are still employed but are not currently receiving any income from their employer – i.e. are laid off – can qualify.

The specific requirements for an individual to receive CERB, as set out on the federal government website, are as follows:

• Residing in Canada, who are at least 15 years old;
• Who have stopped working because of COVID-19 or are eligible for Employment Insurance regular or sickness benefits:
• Who had income of at least $5,000 in 2019 or in the 12 months prior to the date of their application; and
• Who are or expect to be without employment or self-employment income for at least 14 consecutive days in the initial four-week period. For subsequent benefit periods, they expect to have no employment income.

The federal government has indicated that applications for the CERB can be made online at https://www.canada.ca/en/services/benefits/ei/cerb-application.html as of April 6. As thousands of applications are expected, applicants are asked to apply in the following order:

• on April 6, for those with dates of birth in January, February and March;
• on April 7, for those with dates of birth in April, May and June;
• on April 8, for those with dates of birth in July, August and September;
• on April 9 for those with dates of birth in October, November and December.

Payments will be made within 3-4 days by direct deposit and within10 days if sent by mail.

Detailed information on the CERB, including a list of FAQ, can be found on the federal government website at https://www.canada.ca/en/services/benefits/ei/cerb-application.html?utm_campaign=not-applicable&utm_medium=vanity-url&utm_source=canada-ca_coronavirus-cerb.

The current pandemic has changed the lives of Canadians in innumerable ways, and the tax system has not been exempt from those changes. In fact, since we are currently in what would in normal circumstances be the peak of the filing, payment and return processing season, the usual tax-related obligations which apply to both individuals and businesses have been altered or extended in a number of ways to accommodate current realities.

The current pandemic has changed the lives of Canadians in innumerable ways, and the tax system has not been exempt from those changes. In fact, since we are currently in what would in normal circumstances be the peak of the filing, payment and return processing season, the usual tax-related obligations which apply to both individuals and businesses have been altered or extended in a number of ways to accommodate current realities.

In addition to providing extensions of time with respect to filing and payment obligations, the federal government has increased a number of benefits which are delivered, at least in part, through the tax system. As well, new benefits intended to mitigate the economic impact of the pandemic have been created.

This issue of the Newsletter summarizes the changes and new programs which affect both individuals and businesses in Canada. As is the case with most things right now, each of these is subject to change as the federal government determines what is needed as the situation evolves. The information below is current to April 1, 2020 and more information on these changes and any future ones can be found on the government of Canada website at  https://www.canada.ca/en/department-finance/economic-response-plan.html.

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 fearing the worst while hoping for the best.

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 fearing the worst while hoping for the best.

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 CRA provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement.

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s 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 2018 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 CRA’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 2019 tax year which is not paid on or before April 30, 2020. 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. The rate charged is currently 6%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30 deadline.

Finally, there is one strategy which is, in all circumstances, a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount – and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed – and that doesn’t count the compound interest which is levied on all penalty amounts, 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 Thursday April 30, 2020. For self-employed taxpayers (and their spouses) the filing deadline is Monday June 15, 2020. However, for all taxpayers the payment deadline for all 2019 income tax owed is Thursday April 30, 2020.

The Canadian tax system provides individual taxpayers with a tax credit for out-of-pocket medical and para-medical expenses incurred during the year. Given that such expenses must be incurred at some time by virtually every Canadian, that credit is among the most frequently claimed on the annual return. Unfortunately, however, the rules governing such claims are detailed, somewhat complex and frequently confusing.

The Canadian tax system provides individual taxpayers with a tax credit for out-of-pocket medical and para-medical expenses incurred during the year. Given that such expenses must be incurred at some time by virtually every Canadian, that credit is among the most frequently claimed on the annual return. Unfortunately, however, the rules governing such claims are detailed, somewhat complex and frequently confusing.

Taxpayers who wish to make a claim for the cost of medical expenses must make the following determinations. Which, if any, of the medical expenses incurred qualify for the medical expense tax credit? For what time period should the claim be made? What documentation, if any, is required to support the claim(s) being made? And, finally, which family member should make the claim?

Even the basic “formula” with respect to the amount of medical expenses which may be claimed is not straightforward. That basic rule is that a taxpayer can make a claim for qualifying medical expenses incurred in any 12-month period which ends during the taxation year, to the extent that the amount of such expenses exceeds 3% of net income or $2,352, whichever is less. Each component of that formula clearly requires some explanation.

Qualifying medical expenses

While Canada has a publicly funded medical care system, there is nonetheless a large (and growing) number of medical and para-medical expenses which must be paid for by the individual on an out-of-pocket basis. The more common of these expenses include the costs of prescription drugs, dental care, physiotherapy, medical equipment, and ambulance transport.

However, it is not the case that all such expenses can be claimed for tax purposes, or can be claimed in all circumstances. Where an expense does qualify, additional requirements may be imposed before a claim for such expense can be made. Finally, the question of whether an expense is claimable for tax purposes, and the requirements which must be met, aren’t necessarily intuitive.

To assist taxpayers in that regard, the Canada Revenue Agency (CRA) publishes a very lengthy list of medical expenses which do qualify, together with information on any additional requirements (such as a doctor’s prescription) which must be met in order to make such claim.  That listing can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

For what time period should the claim be made?

While it might seem logical that only medical expenses incurred during 2019 could be claimed on the return for that year, the rules are actually more flexible that that. Specifically, those rules allow a claim to be made on the return for 2019 for qualifying medical expenses which are incurred in any 12-.month period which ends during 2019.

Taking advantage of that rule requires the taxpayer to identify the 12 month period ending sometime in 2019 during which the greatest amount of qualifying medical expense were incurred.

It’s sometimes the case that it makes better sense, from a tax perspective, to not make a claim in the first year that that claim is available. Take, for instance a taxpayer who must incur significant costs for dental care, with such costs being incurred between October 2019 and March 2020. In order to maximize the claim to be made, it could make sense not to make a claim for the expenses incurred in the fall of 2019 on the 2019 return, but instead to wait and make a claim on the return for 2020 for all costs incurred between October 2019 and March 2020.

There is, unfortunately, no formula or rule of thumb which can be used to determine the optimal 12-month period for a medical expense claim in all circumstances. Rather, the taxpayer must determine, on a case-by-case basis, the optimal time period in their particular circumstances. Tax return preparation software can be helpful in this regard, by running what-if scenarios to determine the optimal tax result.

What documentation is required to support claims made?

It’s obvious that the number and kind of different medical expenses which might be incurred by individuals over the course of the year is virtually limitless. In all cases, the taxpayer must be prepared to support and document the nature and cost of each such expense, as well as the date on which it was incurred. For some expenses, taxpayers must meet additional requirements – most often the need for a doctor’s prescription. As well, in some cases, particular medical expenses can be claimed only by taxpayers who are also eligible for the disability tax credit. A very lengthy list of the expenses which qualify for the medical expense tax credit, and the documentation and other requirements which apply for each, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

Who will make the claim?

Medical expenses incurred by either spouse or any of their minor children can be combined and claimed on a single return. In some circumstances, medical expenses paid by the taxpayer for other relatives may also combined and included in the taxpayer’s claim.

Since only the amount of medical expenses which exceeds 3% of net income or $2,352 (whichever is less) can be claimed, it usually makes the most sense to combine family medical expenses and for a single claim for those combined expenses to be made by the lower income spouse, as long as that spouse has tax payable equal to at least the amount of the credit to be claimed.

It is readily apparent that determining, calculating, and claiming the medical expense tax credit for a particular tax year isn’t an easy or straightforward process. The CRA does publish a separate guide to the rules which govern such claims, and that Guide — RC 4065, Medical Expenses —  can be found on the CRA website at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4065/rc4065-19e.pdf.

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 #51 Corporate

Personal:

Issue #51 Personal

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency. That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 16 and June 15 of this year.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency. That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 16 and June 15 of this year.

Receiving an “Instalment Reminder” from the CRA won’t be a surprise for many recipients who have paid tax by instalments during previous tax years. For others, however, the need to make tax payments by instalment is a new and unfamiliar concept. That’s because for most Canadians – certainly most Canadians who earn their income through employment – the payment of income tax throughout the year is an automatic and largely invisible process, requiring no particular action on the part of the employee/taxpayer. Federal and provincial income taxes, along with Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, are deducted from each employee’s income and the amount deposited to an employee’s bank account is the net amount remaining after such taxes, contributions and premiums are deducted and remitted on the employee’s behalf to the Canada Revenue Agency. While no one likes having to pay taxes, having those taxes paid “off the top” in such an automatic way is, relatively speaking, painless. Such is not, however, the case for the sizeable minority of Canadians who pay their income taxes by way of tax instalments

The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an instalment reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2020) tax year and either of the two previous (2018 or 2019) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income throughout the year is at least $3,000 less than their total tax owed for 2020 and either 2018 or 2019. For residents of Quebec, that threshold amount is $1,800.

Such obligation arises on a regular basis for those who are self-employed, or course, and generally for those whose income is largely derived from investments. The group of recipients of a tax instalment reminder often also includes retired Canadians, especially the newly retired, for two reasons. First, while most employees have income from only a single source – their paycheque – retirees often have multiple sources of income, including Canada Pension Plan (CPP) and Old Age Security (OAS) payments, private retirement savings and, sometimes, employer-provided pensions. And, while income tax is deducted automatically from one’s paycheque, that’s not the case for most sources of retirement income. Relatively few new retirees realize that it’s necessary to make arrangements to have tax deducted “at source” from either their government source income (like CPP or OAS payments) or private retirement income like pensions or registered retirement income fund withdrawals, and to make sure that the total amount of those deductions is sufficient to pay the total tax bill for the year. It is that group of individuals, who may be surprised and puzzled by the arrival of an unfamiliar “Instalment Reminder” from the CRA. However, no matter what kind of income a taxpayer has received, or why sufficient tax has not been deducted at source, the options open to a taxpayer who receives such an Instalment Reminder are the same.

First, the taxpayer can pay the amounts specified on the Reminder, by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2020. If the total of instalment payments made during 2020 turn out to more than the taxpayer’s total tax liability for the year, he or she will of course receive a refund when the annual tax return is filed in the spring of 2021.

Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2019 tax year. Where a taxpayer’s income has not changed significantly between 2019 and 2020 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2020 will be slightly less than it was in 2019, as the result of the indexation of both income tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2020 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2019 to 2020, such that his or her tax bill will also be substantially reduced, this option can make the most sense.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no tax payable when the return for the 2020 tax year is filed in the spring of 2021. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2020 – until March 31, 2020 – is 6%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.

Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer’s best interests. Those who don’t wish to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the Reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required, and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above.

To help taxpayers make a decision on how to respond to an Instalment Reminder, detailed information on the instalment payment system is available on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-income-tax-instalments.html.

The indexing factor for federal tax credits and brackets for 2019 is 1.9%. The following federal tax rates and brackets will be in effect for individuals for the 2020 tax year:

The indexing factor for federal tax credits and brackets for 2019 is 1.9%. The following federal tax rates and brackets will be in effect for individuals for the 2020 tax year:

Income level                           Federal tax rate

$12,298 - $48,535                         15%

$48,536 - $97,069                        20.5%

$97,070 - $150,473                       26%

$150,474 - $214,368                     29%

Above $214,368                            33%

A generation ago, retirement was an event. Typically, an individual would leave the work force completely at age 65 and begin collecting Canada Pension Plan and Old Age Security benefits along with, in many cases, a pension from an employer-sponsored registered pension plan.

A generation ago, retirement was an event. Typically, an individual would leave the work force completely at age 65 and begin collecting Canada Pension Plan and Old Age Security benefits along with, in many cases, a pension from an employer-sponsored registered pension plan.

Much has changed in the intervening decades and one of those changes is that retirement is now more often a process than an event. Many of those who have reached the traditional retirement age of 65 are receiving CPP and OAS benefits while at the same time continuing to participate in the work force. Some stay at an existing full-time job but more commonly, such individuals take up part-time employment, out of financial need or simply from a desire to stay active and engaged in the work force.

At one time, beginning to receive CPP retirement benefits meant that, even for those who chose to remain in the work force, no further CPP contributions were allowed. In 2012 that changed, with the introduction of the CPP Post-Retirement Benefit. The availability of that benefit means that those who are aged 65 to 70 and continue to work while receiving CPP retirement benefits must decide whether or not to continue making CPP contributions. Such individuals who make the choice to continue to contribute to the Canada Pension Plan will see an increase in the amount of CPP retirement benefit they received each month. That increase is the CPP post-retirement benefit or PRB.

The rules governing the PRB differ, depending on the age of the taxpayer. In a nutshell, an individual who has chosen to begin receiving the CPP retirement benefit but who continues to work will be subject to the following rules:

• Individuals who are 60 to 65 years of age and continue to work are required to continue making CPP contributions.
• Individuals who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. To stop contributing, such an individual must fill out Form CPT30, Election to stop contributing to the Canada Pension Plan, or revocation of a prior election. A copy of that form must be given to the individual’s employer and the original sent to the Canada Revenue Agency. An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of the CPT30 form to each. A decision to stop contributing can be changed, and contributions resumed, but only one change can be made per calendar year. To make that change, the individual must complete section D of CRA Form CPT30, give one copy of the form to his or her employer, and send the original to CRA

• Individuals who are over the age of 70 and are still working cannot contribute to the CPP.

Overall, the effect of the rules is that CPP retirement benefit recipients who are still working and who are under aged 65, as well as those who are between 65 and 70 and choose not to opt out, will continue to make contributions to the CPP system and will continue therefore to earn new credits under that system. As a result, the amount of CPP retirement benefits which they are entitled to will increase with each year’s contributions.

Where an individual makes CPP contributions while working and receiving CPP retirement benefits, the amount of any CPP post-retirement benefit earned will automatically be calculated by the federal government (no application is required), and the individual will be advised of any increase in that monthly CPP retirement benefit each year. The PRB will be paid to that individual automatically the year after the contributions are made, effective January 1^st of that year. Since the federal government doesn’t have all of the information needed to make such calculations until T4s and T4 summaries are filed by the employer by the end of February, the first PRB payment is usually made in a lump sum amount, in the month of April. That lump sum amount represents the PRB payable from January to April. Thereafter, the PRB is paid monthly and combined with the individual’s usual CPP retirement benefit in a single payment.

While the rules governing the PRB can seem complex (and certainly the actuarial calculations are), the individual doesn’t have to concern him or herself with those technical details. For CPP retirement benefit recipients who are under age 65 or over 70, there is no decision to be made. For the former, CPP contributions will be automatically deducted from their paycheques and for the latter, no such contributions are allowed.

Individuals in the middle group – aged 65 to 70 will need to make a decision about whether it makes sense, in their individual circumstances, to continue making contributions to the CPP. Some assistance in making that decision is provided on the federal government website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement/benefit-amount.html, which shows the calculations which would apply for individuals of different ages and income levels.

More information on the PRB generally is also available on that website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement.html.