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Federal Budget Commentary 2016


March 22, 2016, the Liberal government released its first budget. There are numerous proposed changes that can impact your personal and business tax planning.

Please click on the link below for the commentary on the 2016 Federal Budget.
Federal Budget commentary 2016

Feel free to contact us if you have any questions or would like to discuss your tax planning needs.


Press Releases

It is a sad fact that poverty is all around us and the severity of each case cannot be seen from something as simple as someone's clothes or the shoes that they wear. We cannot turn our backs from children who need our help the most, especially during this time of economic crisis. We need to reach out during these hard times, to underprivileged children within the GTA who desperately need your help. An article published by Campaign 2000 indicated that, one in every six children in Ontario, live in poverty.
Read more on this article… Other Press Releases click

Post secondary students and income tax

It shouldn’t be news to anyone that while the cost of obtaining a post-secondary education continues to rise, the government’s financial support of post-secondary institutions has, no less, declined. Additionally, the generous government student loan and grant programs available to earlier generations of students are no longer as generous as they once were. A realistic annual budget (including tuition, residence, and textbooks) for even a general arts or science undergraduate program now runs between $15,000 and $20,000. And, where a student decides to pursue post-graduate work or to enter a professional study program like law, dentistry, or medicine, those costs will skyrocket.

 

The most sensible solution to meeting the cost of obtaining a post-secondary education is, of course, to start planning – and saving – early, and to take advantage of government-sponsored savings programs like registered education savings plans and their ancillary grants. However, even well-intentioned parents who are diligent savers would likely have trouble coming up with enough funds to save the full cost of post-secondary education – especially for more than one child.  

The good news, apparently, is that in recognition of the realities of the increasing cost of obtaining a post-secondary education, the federal government provides a number of tax “breaks” for post-secondary students. While the rules governing eligibility and the amount of the federal tax “breaks” can be detailed, students generally can claim a non-refundable tax credit for tuition (but not residence) bills, an “education amount” based on the number of months they attended school during the tax year, and a “textbook amount”.

Aside from the cost of residence or off-campus housing (which are not, in any case, deductible or creditable for federal tax purposes), the largest single expense for most students is tuition fees, which can range from around $5,000 to over $15,000, depending on the school and the program. No matter what the amount, students are entitled to a non-refundable federal tax credit (which reduces their tax otherwise payable) equal to 15% of their tuition bill. Each province and territory also provides a non-refundable tax credit for tuition paid, with the percentage amount ranging (for 2013) from 4% to11%.

Both full and part-time university students can also claim the “education tax credit”, which is calculated as a fixed amount for every month of full or part-time attendance during the tax year. For 2013, the full-time amount to be claimed on the federal tax return is $400 per month, while the part-time amount is $120 per month. The total amount claimed is then multiplied by 15% to arrive at the credit claimed on the federal tax return. As with the tuition tax credit, the provinces all offer an education tax credit, with both the amount and the conversion percentage varying by province.

The final “standard” deduction available to post-secondary students is the so-called “textbook amount”. The name is somewhat misleading, as neither eligibility nor the amount of the credit depends on expenditures made for textbooks. Rather, the federal textbook amount is a fixed monthly amount (currently $65 for full-time and $20 for part-time students) which, like the tuition and education amounts, is converted to a credit by multiplying by 15%,, and which can be claimed by any student who is eligible for the education amount.

Non-refundable tax credits, like the tuition, education, and textbook credits outlined above, work by reducing the tax which the individual claiming the credits would otherwise have to pay. However, post-secondary students generally have relatively low income and, consequently, relatively low tax bills, and so may not be able to “use up” all of their available credits in a single tax year. Two solutions are possible.

First, the student may transfer the unused credit to a spouse, parent, or grandparent (and it’s not necessary for the parent or grandparent to have actually paid the tuition bill in order to claim the transferred credit). Second, the student can keep the excess credit and claim it in any future tax year when income and therefore the resulting tax payable will presumably be higher. There are some restrictions and limitations on the transfer of student tax credits, but generally speaking, most students should be able to transfer credits to parents or grandparents without difficulty.

It’s almost inevitable, notwithstanding savings, part-time and summer jobs, and all of the tax “breaks” offered to post-secondary students, that most students will end up incurring some debt in order to pay for their education. Where that debt is in the form of government-sponsored student loans (generally, loans provided under the Canada Student Loans program or the equivalent provincial program), interest paid on those loans after graduation can qualify for a tax credit at both the federal and provincial levels. It’s important to remember, however, that only interest paid on loans extended under government-sponsored programs qualifies for the credit. Loans provided by private lenders (for example, through a student line of credit) do not qualify, and interest paid on any consolidated loans which include funds advanced by private-sector lenders will similarly not be eligible for the credit.

At the mid-point of summer, both returning post-secondary and first-year students will be preoccupied with choosing courses and finding a place to live, while their parents will likely be more concerned with due dates for first semester tuition and residence bills. The “sticker shock” sometimes caused by those bills will hopefully be mitigated by the knowledge that the amounts will be offset somewhat next spring when tax credits may be claimed for most of the required expenditures.

Finally, the tax credits, deductions, and benefits available to post-secondary students, and the rules governing the calculation, transfer, and carry-over of those credits can be confusing, especially for those dealing with them for the first time. Anyone who has questions should consult the excellent Canada Revenue Agency guide P105, “Students and Income Tax”. A current version of that guide is available on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/E/pub/tg/p105/README.html.


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

Making a voluntary disclosure to the Canada Revenue Agency

Though it is obviously preferable, when it comes to taxes, filing on time and making sure the information provided to the CRA is complete and accurate (as each taxpayer must certify on the last page of his or her return) is not always guaranteed. For any number of reasons, taxpayers may put off what everyone agrees is an unpleasant task and consequently find themselves several years in arrears with respect to filing (which is sure to only compound their difficulties). Others may have filed returns on time but have understated income or falsely inflated expenses in order to reduce the amount of tax payable. The dilemma which then arises, of course, is whether to come clean with the tax authorities or to keep quiet and hope that the failure to file, or error or omission, is never discovered.

At the end of the day, the CRA’s goal is to have all required tax returns filed and to have all income and expenses correctly reported. However, tracking down non-filers, or those who have filed inaccurate returns, takes a great deal of time and consumes a lot of CRA resources. To assist in that process, the Agency has put in place a program to encourage Canadians who are delinquent in such ways to come forward and, effectively, “come clean”. That program is the CRA’s Voluntary Disclosure Program (VDP).  As the name implies, the Program allows taxpayers to voluntarily disclose to the CRA any past errors or omissions or failures to file when required. Where the requirements of the program are met, the CRA is authorized to cancel (or “waive”) any penalties which might otherwise be assessed against the taxpayer. It’s important to note that only penalties may be forgiven, and that the taxpayer will, notwithstanding any voluntary disclosure, continue to be liable for any outstanding taxes, plus interest charges.

The CRA imposes four conditions which must be met before a disclosure will qualify under the program. As follows:



  • The disclosure must be truly voluntary in nature – that is, it must be initiated by the taxpayer and, in particular, must not be the result of the taxpayer’s knowledge of enforcement action about to be taken by the CRA. In other words, a taxpayer who “voluntarily” discloses past transgressions after receiving a request to file outstanding returns or even finding out that he or she is about to be audited will not qualify under the program.


  • Any disclosure made by the taxpayer must be “complete” as the term is understood by the CRA. The taxpayer is expected to provide full and accurate reporting of all previously inaccurate, incomplete, or unreported information. It’s not possible to make selective disclosure of, for instance, one tax year while ignoring others. As well, the CRA may request documentation to verify the amounts to be disclosed. If that documentation shows that the initial disclosure contained significant errors or omissions, the disclosure will not qualify under the VDP. In such a case, the disclosed information will be processed by the CRA and the Agency will be able to apply interest and penalties to the entire outstanding amount.


  • The voluntary disclosure by the taxpayer must involve at least one penalty. Since the point of the VDP is to forgive penalties while collecting outstanding taxes and interest, there would be no point to seeking penalty relief where no penalties are involved. In such cases, the relevant information should simply be disclosed to the CRA which will then process it and assess any taxes and interest owed.


  • Finally, the taxpayer’s disclosure must generally include information which is at least one year past its due. In other words, a disclosure could not normally be made in respect of a 2012 income tax return (which was due April 30, 2013) until May of 2014. The CRA will, in some circumstances, accept a disclosure of information which is less than one year past due but, however, such disclosure cannot be used by the taxpayer simply to avoid penalties. For instance, a taxpayer who failed to get his or her 2012 return in and taxes paid by April 30, 2013 cannot now make a “voluntary disclosure” simply in order to avoid the late-filing penalty which would otherwise be assessed.


Actually making the disclosure isn’t a difficult process. The taxpayer must complete Form RC199, Taxpayer Agreement – Voluntary Disclosures Program, attaching all supporting documents. That Form and supporting documents should be sent, by mail or fax, to the tax centre which would normally process returns filed from the area where the taxpayer lives. Information on the location of particular tax centres can be found at http://www.cra-arc.gc.ca/gncy/nvstgtns/vdp-eng.html.

Finally, a taxpayer who is considering making a voluntary disclosure (and whose situation meets the four criteria required by the CRA, as outlined above) can “test the waters”, to a degree, before deciding to make a full disclosure. The CRA will accept a “no-name” disclosure from a taxpayer using the same form as that used by a taxpayer making a full disclosure. While the taxpayer is not required to provide his or her name or address, the CRA does require that the first three characters of the taxpayer’s postal code be disclosed so that the disclosure form can be sent to the correct tax centre for processing. The CRA can, at the taxpayer’s request, consider the information provided and can then advise the taxpayer on the possible tax implications, based on the information provided. It’s then up to the taxpayer to determine whether to proceed with a full disclosure. The CRA’s policy with respect to such no-name disclosures requires the taxpayer who makes a no-name disclosure to provide identifying information within 90 calendar days from the effective date of disclosure, in order to “complete” the disclosure. During the 90-day period, the taxpayer is protected from prosecution and from the application of penalties. However, if at the end of the 90 day period the identity of the taxpayer remains unknown, the voluntary disclosure file will be closed without further contact from the CRA, and no extension of the 90-day period will be allowed.

No one likes paying taxes, and paying back taxes, plus interest, is even more unpalatable. However, for taxpayers who find themselves in a position where an investigation or audit by the CRA into their affairs would likely result in the payment of taxes, plus interest, plus penalties, or even a prosecution, the Voluntary Disclosure Program offers a way to “come clean” without the risk of prosecution, and without the often onerous penalties which can be levied by the tax authorities.

 


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

Getting a first Instalment Reminder from the tax authorities

August is the month in which millions of Canadian taxpayers receive an instalment reminder from the Canada Revenue Agency. In some cases, taxpayers are receiving such a notice for the first time and are often at a loss to know what it means and how to respond.

Most Canadians work as employees throughout their working life and they have income tax deducted “at source”, meaning that their employer deducts an amount for income tax from their paycheques and remits it to the Canada Revenue Agency on their behalf. However, for those who are self-employed or, frequently, for those who are retired, no such deduction is automatically made from their income, and the issuance of an instalment reminder by the Canada Revenue Agency may be the result.

Canadian tax rules provide that where the amount of tax owed when a return is filed by a taxpayer is more than $3,000 ($1,800 for Quebec residents) in the current year and either of the two previous years, that taxpayer may be required to pay income tax by instalments. Since the CRA has, for the most part, now completed its assessment of individual tax returns for the 2012 tax year, it will have determined which taxpayers owed more than the threshold amount of $3,000 or $1,800 on filing for that year. Where it is likely that a similar situation will occur for 2013, the result will be the issuance of a tax instalment notice informing taxpayers that instalment payments of tax may be required for 2013 with those payments due by September 15 and December 15 of this year.

Take, for instance, the example of an individual who retired at the end of 2011 from employment in which tax deductions were automatically taken from his or her paycheque. Beginning January 1, 2012, this individual’s sources of income changed from employment income to Canada Pension Plan, Old Age Security benefits, and monthly withdrawals from an RRSP. In order for the amounts withheld from such income to match the taxpayer’s actual tax liability for the year, the taxpayer would have needed to calculate the amount of that tax liability and made arrangements for withholdings to be made from one or more of the three income sources to total that overall tax liability amount. For most taxpayers, that’s not a very likely scenario. Consequently, it would be almost inevitable that correct withholdings would not be made and that tax of more than $3,000 would be owed when the 2012 tax return was filed. Where the taxpayer’s income levels and withholding amounts are unchanged for 2013, (and it is expected that once again, more than $3,000 will be owed on filing the 2013 return) the criteria for the instalment requirement would be met, and a tax instalment reminder would be issued for the taxpayer after the 2012 return is assessed.

A first instalment reminder issued by the CRA this summer will specify an amount which represents the Agency’s best estimate, based on the taxpayer’s returns filed for the 2012 and 2011 taxation years, of the tax which will be payable by the taxpayer for 2013. The taxpayer then has the following three options.

First, the taxpayer can pay the amounts specified on the reminder, by the respective due dates of September 15 and December 15. A taxpayer who does so can be certain that he or she will not face any interest or penalty charges. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2013, he or she will of course receive a refund on filing.

Second, the taxpayer can make instalment payments based on the total amount of tax which was paid for the 2012 tax year. Where a taxpayer’s income has not changed between 2012 and 2013, and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2013 will be the same or slightly less than it was in 2012, owing to the indexation of tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2013 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2012 to 2013, and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this avenue can obtain the information needed to estimate current-year taxes (provincial and federal tax rates and brackets) on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges where there is no tax payable when the return for the 2013 tax year is filed in the spring of 2014. However, should instalments paid be insufficient, the Canada Revenue Agency can impose interest charges at rates which are higher than current commercial rates. As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to impose penalties but this is typically done only where the amounts involved are quite significant.

For taxpayers who receive an instalment notice for 2013 for only September and December, the CRA has the following advice, as outlined on its website:

 
  • Taxpayers who decide to use the no-calculation option should pay the amount shown in box 2 of the reminder for September 15 and December 15.
  •  
  • Taxpayers who decide to use the prior year option should calculate 2012 net tax owing and add any CPP contributions payable, and any voluntary EI premiums payable. Three-quarters of the total should be paid on September 15 and the remaining one-quarter on December 15.
  •  
  • Taxpayers who decide to use the current-year option should estimate current-year (2013) net tax owing and add any CPP contributions payable and any voluntary EI premiums payable. Once again, three-quarters of the total should be paid on September 15 and the remaining one-quarter on December 15.
 

Most taxpayers who receive an instalment reminder from the CRA aren’t happy to see it arrive, and most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, receiving an instalment reminder can actually be a kind of blessing in disguise. There are few financial surprises more unwelcome than finding out that a large amount of tax is owed when the tax return for the year is filed. For most, it’s an annoyance and an aggravation. For those who live on a fixed income, however, being faced with a significant bill for taxes owed on filing can create real financial hardship. Receiving an instalment payment reminder is, in effect, a reminder that, if taxes are not being withheld from income amounts paid to the taxpayer throughout the year, it is necessary to make some provision for those taxes in order to avoid having to come up with the entire amount when the return for the year is filed the following spring. 


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

Tax help for family caregivers

The baby boom generation, whose members are now between the ages of 48 and 67, is also known, with good reason, as the “sandwich generation”. Many baby boomers are now in the position of needing to provide some degree of practical support or care to aging parents while also trying to save for their own retirement and to provide for their children. Those children are, in many cases, enrolled in costly post-secondary education programs or, having finished their education, remain living in the family home.    

Of all the roles taken on by such baby boomers, providing support and care for elderly parents is among the most demanding. Such support can range from occasional help with the practical demands of everyday life, like shopping and cooking, to the need to provide a home for an elderly parent who can no longer live alone. The demands placed on family members who provide any level of care and support for elderly relatives take several forms, including physical, emotional, and, almost always, financial.

Some help with the financial costs of providing support to elderly parents is available through our tax system, usually in the form of non-refundable credits which reduce the tax otherwise payable by the supporting person or persons who are claiming the credits. Unfortunately, the overall system of credits relating to the support of a parent (or a grandparent) is complex, as each credit has its own set of eligibility criteria and income thresholds, and in some cases making a claim for a particular credit disqualifies the claimant from obtaining a different, similar, credit. Making sense of all the interrelated credits is difficult, especially for taxpayers who only deal with them once a year at tax-filing time. There is no doubt that some taxpayers miss out on credits which they are entitled to claim, simply because of a lack of knowledge or understanding of how the rules apply.

What follows is an outline of the most common kinds of claims available to an individual who is supporting an elderly parent, and the eligibility rules and restrictions which apply to each. It should be noted that such credits may also be claimed for other qualifying dependants but that the eligibility criteria may differ.

Medical expenses of a dependant

Increasing age usually means an increase in medical expenses, many of which may not be covered by government or private health care services plans. Individuals who support elderly parents are able to make a claim, for tax purposes, of the cost of such medical expenses, within prescribed limits. Generally, a supporting individual is entitled to claim any medical expense which exceeds $2,109 or 3% of the dependant parent’s net income, whichever one is less. Those expenses are then aggregated with other qualifying medical expenses, and 15% of that total is claimed as a non-refundable tax credit.

The list of expenses which qualify for purposes of the medical expense tax credit is long and complex, and subject to frequent change. The current listing of qualifying expenses is available on the Canada Revenue Agency (CRA) website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/llwbl-eng.html.

Amount for an infirm adult dependant OR caregiver amount

Part of the complexity of claims relating to the support of adult dependants is the way in which those claims are inter-related. Individuals who support a parent or grandparent who is dependent upon them for that support because of mental or physical infirmity may claim either the amount for an infirm adult dependant or the caregiver amount yet cannot be both. In fact, if anyone can claim the caregiver amount for a particular dependant, no claim for the amount for an infirm adult dependant can be made at all.

The requirements and restrictions for each claim are different so a careful reading is needed to determine which credit might be available.

In order to claim the caregiver amount (claimed on Line 315 of the tax return), all of the following requirements must be met:

 
  • The dependant person must be the claimant’s parent or grandparent, who is living in Canada;
  •  
  • the parent or grandparent for whom the claim is being made must have been born in 1947 or earlier; and
  •  
  • the parent or grandparent must have a net income for the year of less than $19,824. As a rough rule of thumb, an individual who receives the maximum amounts obtainable under the Canada Pension Plan and Old Age Security programs but has no other sources of income will have an annual income of about $17,000.
  •  

Where more than one person (a husband and wife or perhaps siblings) support the same parent or grandparent, the claim can be split between them.

In order to claim the amount for an infirm adult dependent (claimed on Line 306 of the tax return), the following criteria must be satisfied:

  • The dependent person must be a parent or grandparent of the person making the claim, and must be a resident of Canada at any time during the year;
  •  
  • the parent or grandparent must have an impairment in physical or mental functions;
  •  
  • the parent or grandparent in respect of whom the claim is being made must be dependent on the claimant for support; and
  • the parent or grandparent in respect of whom the claim is being made must have a net income for the year of less than $13,078.
  •  

As with the caregiver amount, where support for a parent or grandparent is shared, the claim for the amount for an infirm adult dependant can be split.

Family caregiver amount

 

Perhaps in recognition of the fact that a need to provide care and support for elderly parents is a fact of life for an increasing number of Canadians, the federal government introduced (effective for 2012 and subsequent tax years) a new non-refundable tax credit known as the family caregiver amount. This amount allows qualifying taxpayers to claim an additional $2,000 over and above the usual amount claimable for the caregiver (Line 315) amount or the amount for an infirm adult dependent (Line 306).

Where eligibility for claiming any of these amounts requires that the parent or grandparent need support because of an impairment in physical or mental functions, that impairment must be documented by a statement from a medical doctor. That statement must outline when the impairment began, what the duration of the impairment is expected to be, and indicate that, because of that impairment, the individual is dependent on others.

Care provided in an institution

It often happens that the support needed by an elderly parent reaches a level of specialized care which can only realistically be provided in an institutional setting like a retirement or nursing home. Depending on the level of care required and the particular institution chosen, the cost of such care can be thousands of dollars per month. Such costs, are, however, treated as qualifying medical expenses. Generally speaking, costs which are paid for the care of the individual like nursing services, housekeeping services, personal laundry services, salon services, and other services relating to social activities will all be treated as eligible medical expenses. Costs incurred for rent and food will not.

 

Even from a brief summary, it is apparent that figuring out which credit claims can or should be made is a complex one. Some assistance with that process can be obtained from a CRA publication dealing with these credits and exemptions. That publication, entitled Medical and Disability Related Information (Guide RC4064), can be found on the CRA website at   http://www.cra-arc.gc.ca/E/pub/tg/rc4064/rc4064-12e.pdf.


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

New Quarterly Newsletters (November 2012)

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

 

 

 Corporate:

Issue #22 Corporate

Personal:

Issue #22 Personal


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

Audit & Accounting

With increasing frequency I hear the term 'passionate' used to describe certain behaviours, relationships or characteristics in the business world. Companies are described as 'passionate customers;' and employees and management are described as being 'passionate' about their work and roles. Read more on this article… For other articles on 'Audit & Accounting,' click
 


 

General

Effective January 1, 2009, every Canadian over the age of 17 is entitled to contribution up to $5,000 annually to a Tax-Free Savings Account (TFSA). Contributions to such accounts will not be deductible from income, but investment income in any form earned by contributed amounts will not be taxed, and amounts held within a TFSA may be withdrawn at any time, for any purpose, free of tax. Read more on this article… For other 'General' articles, click


 


 

Starting a New Business

First, think about who your target group is. Who specifically do you need to reach? Do you wish to focus on national, regional or local prospects? Read more on this article…For other articles on 'Starting a New Business,' click


 

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