Insights

As the days get shorter and the temperature drops, many Canadians start thinking about spending a few days or weeks (or even longer) of the upcoming winter somewhere warmer. For some, that means going south for the holidays, while for others a January or February escape from winter has more appeal. And some Canadians, generally “snowbird” seniors who have retired, will spend most of the winter in a warmer climate.

As the days get shorter and the temperature drops, many Canadians start thinking about spending a few days or weeks (or even longer) of the upcoming winter somewhere warmer. For some, that means going south for the holidays, while for others a January or February escape from winter has more appeal. And some Canadians, generally “snowbird” seniors who have retired, will spend most of the winter in a warmer climate.

Whatever the timing and wherever the destination, one aspect of the planning of an out-of-country trip is the need to obtain travel medical insurance. No one, of course, wants to think of becoming sick or injured while on holiday, but the reality is that illness and accidents can happen anywhere. And when they do, the last thing anyone wants to have to think about is to how (or whether) they will be able to pay for necessary care or treatment.

Most provincial and territorial plans do make some provision for the payment of out-of-country medical expenses (with the extent of coverage differing by province or territory), but such coverage, where it exists, is usually limited to emergency care in the case of life-threatening illness or accident. The coverage provided by provincial and territorial health care plans can never be relied upon to provide payment of most out-of-country medical expenses and must always be supplemented by additional travel medical insurance coverage arranged (and paid for) by the individual.

The bottom line is that everyone who travels outside of Canada — without exception — needs to obtain travel medical insurance before leaving. And while the terms of that insurance and certainly the cost of obtaining it will vary greatly, depending on the age and health of the person to be insured, and the length of time for which insurance is required, there are some considerations which are common to everyone. At a minimum, everyone needs to consider the following.

• Does the policy cover medical expenses which are incurred as the result of a pre-existing condition? Are there exceptions, and what are they? Where there are coverage exclusions in a travel medical insurance policy, they are most likely to relate to medical conditions from which the applicant already suffers — and those, of course, are also the ones which are most likely to mean incurring out-of-country medical expenses. As well, it’s important to ensure that the extent of the coverage in all circumstances is clearly understood. For instance, in some policies, conditions that are considered minor are still covered, even if they were pre-existing conditions. However, any change in treatment or medication for that condition which occurs within a specified period of time prior to travel can mean that the condition is no longer considered as “minor” and so it will no longer be covered under the terms of the policy.

• For what length of time is coverage available? All travel medical insurance policies are stated to be effective for a specified number of days with the cost, of course, increasing with the length of the coverage period. As an individual grows older, he or she may find that the period of time for which their insurer will provide out-of-country medical insurance coverage becomes shorter and shorter. It is critical to make sure that the insurer will provide coverage for the entire length of the out-of-country stay. If coverage for the whole period can’t be obtained, or obtained at an affordable rate, the period of travel might have to be shortened.

• If the individual requires medical care within the policy coverage period, but the need for that care extends past the end of that period, how long will the coverage continue? For instance, if an individual is insured for a 60-day period, but has an accident or illness on day 58 of that period and care is required past the 60-day expiry date of the policy, for what period of time will the insurer continue to cover consequential medical costs incurred?

• What kind of medical history is required on the policy application form? At one time, applicants were required to provide information about any medical tests, diagnoses, or treatments which had taken place within a realistic, relatively short time frame — typically 90, 120, or 180 days — prior to the application date. More recently, however, some applications for travel medical insurance ask the applicant to provide their entire lifetime medical history — something which would be difficult for most people and is virtually impossible for anyone over the age of 50. And it seems that insurers will examine that medical history requirement to determine whether claims will be paid. There have been instances reported in the media in which coverage was denied on the basis that an individual’s application was incomplete or inaccurate, because some detail of his or her medical history was omitted, even where that detail was unknown to the applicant and unrelated to the medical event for which a claim was made.

• It’s critical to determine whether, in the event that out-of-country costs for medical care must be incurred, the terms of the policy provide that the insurer will pay such costs directly to the provider at the time care is provided, or whether the insured will be required to pay those costs up front and then seek reimbursement from the insurer? Where costs are small (e.g., a visit to a walk-in clinic for a minor matter) having to pay those costs out of pocket and receive reimbursement later isn’t usually a problem. Where, however, the medical event is a serious one — a heart attack or stroke, for example — costs can quickly run to the tens of thousands of dollars for specialized hospital care. Many retirees would find it difficult, if not impossible, to come up with that amount of money out of pocket on short notice.

It may seem that obtaining affordable travel medical insurance for which the underwriting requirements are realistic and which can be relied upon to provide coverage when needed is all but impossible. It is true that the requirements imposed on applicants for such insurance are becoming more and more difficult to fulfill, and it seems as well that insurers are scrutinizing claims much more stringently than they have in the past. In the circumstances, the best advice for those seeking to obtain travel medical insurance would be to start early, shop around, and read and complete the application forms and any other documentation provided by the insurer very thoroughly. It wouldn’t even be out of place, especially where an extended out-of-country stay is planned, to obtain professional advice from an independent insurance broker or a lawyer, to ensure that one’s understanding of the requirements of the application form and the terms of coverage provided by the travel medical insurance policy is correct. Taking such a step might seem extreme, but Canadians who have incurred unexpected out-of-country medical expenses for which coverage has been denied by their insurer have faced medical bills amounting to more than $100,000. For most retirees, such an occurrence would be a financial disaster, at a time of life when they can least afford it. And, put more positively, ensuring that the necessary insurance coverage is in place allows the traveler to focus on what’s most important — enjoying his or her vacation!

The daily commute to and from work is, generally, everybody’s least favourite part of the work day. In recent years that commute has gotten longer and longer as many Canadians, especially those working in large urban centers, have moved further and further away from their workplaces in search of affordable family housing.

The daily commute to and from work is, generally, everybody’s least favourite part of the work day. In recent years that commute has gotten longer and longer as many Canadians, especially those working in large urban centers, have moved further and further away from their workplaces in search of affordable family housing.

The good news for such employees is that changes in technology and the Canadian workplace over the past quarter century have made the option of working from one’s home, at least on an occasional or part-time basis, almost the norm among Canadian employees. For most, the opportunity to take a break from sitting in traffic gridlock or rushing to catch the commuter train is a valued employment perk.

While such advantages would likely, even on their own, be enough to make working from home an attractive option, there is another even more compelling benefit. That benefit is in the form of tax deductions claimable for home-related expenses by qualifying individuals who work from home. And, such deductions, in varying forms, can be available whether an individual is an employee working on salary, or a commission employee.

Of course, as with any tax deduction, there are conditions which must be met in order to qualify. Employees, regardless of whether they earn a salary or are paid by commission, must meet one of the following conditions in order to claim any home office deduction.

• The home work space is where the individual mainly (more than 50% of the time) does their work; or
• the individual uses the workspace only to earn his or her employment income. He or she must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of his or her employment duties.

Once either of these threshold criteria is met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to his or her work space, such as the cost of electricity, heating and home maintenance.

Where an individual who qualifies under either of the criteria outlined above is a commission employee, an even broader range of costs become deductible. In addition to costs for electricity, heating, and home maintenance, a commission employee can also deduct a proportionate share of costs incurred for property taxes and home insurance.

There is no specific formula for determining the proportion of eligible costs which can be deducted for qualifying home office expenses. The employee can determine that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home or he or she can make that calculation based on the number of rooms in the house relative the number of rooms used for work-related purposes. Whichever method is chosen, the most important consideration is that the approach taken (and the expenses claimed) be reasonable. In all cases, the Canada Revenue Agency can ask the taxpayer to provide documentation and support for claims made.

For example, an employee who lives in a 2000 square foot house and uses a 200 square foot room as a home office can (assuming the basic criteria outlined above are satisfied) claim 10% of his or her costs for electricity, heat, and home maintenance (where that maintenance involved the home work space) incurred during the tax year. If that employee works on commission, he or she can also deduct 10% of costs incurred for property taxes and home insurance.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office. Each such employee must file, with the income tax return for the year, a Form T2200. On that form, the employer must certify that the employee was required to use a portion of his or her home for work-related purposes, indicate what percentage of the employee’s duties were carried out at that home office and, finally, confirm that the employee is not being reimbursed for any home office expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.

In order to make a claim for home office expenses, there is clearly some paperwork involved. All employees seeking to make such a claim must total the amount of bills paid over the course of the year for electricity, heat, and any of the inevitable home maintenance costs. Those working on commission must also verify amounts paid for property taxes and home insurance. However, given that such efforts will produce a deduction from income for tax purposes for costs which would have been incurred in any case, it is likely that most employees would consider the return on that investment of time well worth it.

Tax scams have been around, probably, for about as long as Canada has had a tax system. They also have a tendency to proliferate at certain times of the year — often during tax return filing and assessment season, when it wouldn’t necessarily strike taxpayers as unusual to receive a communication purporting to be from the Canada Revenue Agency (CRA), with a message regarding that person’s taxes — whether in relation to a tax refund or an amount of tax owing.

Tax scams have been around, probably, for about as long as Canada has had a tax system. They also have a tendency to proliferate at certain times of the year — often during tax return filing and assessment season, when it wouldn’t necessarily strike taxpayers as unusual to receive a communication purporting to be from the Canada Revenue Agency (CRA), with a message regarding that person’s taxes — whether in relation to a tax refund or an amount of tax owing.

Most tax scams operate in one of two ways. In one, the taxpayer is promised money, in the form of a tax refund or credit, and required to log into or click on a link to a (fraudulent) website in order to collect the monies allegedly owed to them. The link leads, not to a federal government website, but to a “dummy” site very closely resembling the actual CRA website. The taxpayer must then, in order to have his or her “refund” processed, provide personal and financial information which can then be used by the tax scammer.

The other kind of scam informs the taxpayer, usually by a telephone call, that he or she owes money to the government, and that payment must be made forthwith. A failure to pay, the taxpayer is told, will mean damage to his or her credit rating, seizure of his or her assets, cancellation of his or her passport and/or social insurance card or other government-issued identification, deportation, or imprisonment. Further, such payment must be made only by bitcoin, wire transfer, or pre-paid credit card. This type of fraud has become so ubiquitous, in fact, that many businesses which provide money-transfer services post warnings on their premises to would-be users of the need to be aware of the fraud risk. And, needless to say, both the demand and the destination to which that money is sent are fraudulent, having nothing to do with any government department or authority.

The latter approach has been used very successfully in recent years to cheat Canadian taxpayers — often those who are particularly vulnerable by reason of age, infirmity, or lack of familiarity with Canadian laws. Recent media reports indicate that 60,000 Canadian taxpayers have made complaints about receiving such calls, and that more than $10,000,000 has been paid by victims of this particular scheme.

What’s even more concerning is that the perpetrators of the scam are becoming more sophisticated. Software used now has the ability to show, on call display, a false phone number that appears to be Canadian in origin — showing, for instance, an area code which would indicate that the call is originating from the Ottawa area. Consequently, it would be easy for the recipient of such a call to be reassured that the call was indeed originating from the CRA’s head office in Ottawa.

While Canadians are contacted every day by would-be fraud artists, there also seems to be something about a (purported) communication from the tax authorities which makes people especially vulnerable. Perhaps it is the fact that most Canadians are unfamiliar with the workings of a system with which they interact, in most cases, only once a year. It’s also possible that they are apprehensive about the real (or rumoured) powers of the CRA or the federal government to cause them grief, and therefore suggestible. Whatever the reason, it’s often the case that even those who would normally be able to discern that what they are being told doesn’t make sense seem to suspend their disbelief when dealing (by phone or by e-mail) with someone who purports to represent the tax authorities.

There are, in fact, several things about such a phone call that should alert the recipient to the fact that it’s not legitimate. First of all, if a taxpayer does owe money to the CRA, he or she will be first advised of that fact by mail and never by telephone — generally in his or her Notice of Assessment for a tax return filed. Second, the CRA would never suggest or require that a taxpayer send funds to the Agency by bitcoin, wire transfer, or by using a prepaid credit card. Any payment of money owed to the CRA is made online, through the CRA website, through the taxpayer’s financial institution (in person or online), or by mailing a cheque to the Agency. Finally, any suggestion that the CRA would (or could) cancel a taxpayer’s passport or other government issued ID for failure to make payment is simply ludicrous.

There is almost no limit to the number and variety of scams and phishing attempts that are carried out using the CRA’s name and new ones, which appear frequently, are usually identified on the CRA website at www.cra-arc.gc.ca/scrty/frdprvntn/menu-eng.html. Unfortunately, many such scams originate outside Canada, limiting the ability of the CRA and law enforcement authorities to monitor or stop them. For the most part, therefore, the onus will fall on individual taxpayers to protect themselves, through a healthy degree of caution, and even skepticism.

The CRA suggests that, in order to avoid becoming a victim of such scams, taxpayers should keep the following general guidelines in mind.

The CRA will never:

• send an e-mail asking the taxpayer to divulge personal or financial information;
• ask for personal information of any kind by email or text message;

• request payment by prepaid credit cards;
• give taxpayer information to another person, unless formal authorization is provided by the taxpayer; or
• leave personal information on an answering machine.

When in doubt, a taxpayer should ask him or herself the following:

• Did I sign up to receive online mail through My Account, My Business Account, or Represent a Client?
• Did I provide my email address on my income tax and benefit return to receive mail online?
• Am I expecting more money from the CRA?
• Does this sound too good to be true?
• Is the requester asking for information I would not provide in my tax return?
• Is the requester asking for information I know the CRA already has on file for me?

In all instances, the recipient of a call which purports to be from the CRA should hang up and call the CRA Individual Income Tax Enquiries line at 1-800-959-8281. Service agents at that line will be able to access the taxpayer’s tax records and provide information on whether the taxpayer does indeed owe any funds to the CRA. As well, taxpayers who receive what seems to be a suspicious communication should report that by the calling Canadian Anti-Fraud Centre at 1-888-495-8501.

If the worst has already happened, and the taxpayer has been scammed, the Anti-Fraud Center has the following advice.

Step 1: Gather all information about the fraud. This includes documents, receipts, copies of emails, and/or text messages.

Step 2: Report the incident to local law enforcement. This ensures that police in that jurisdiction are aware of what scams are targeting their residents and businesses. Keep a log of all your calls and record all file or occurrence numbers.

Step 3: Contact the Canadian Anti-Fraud Centre toll free at 1-888-495-8501 or through the Fraud Reporting System (FRS).

Step 4: Report the incident to the financial institution where the money was sent (e.g., money service business such as Western Union or MoneyGram, bank or credit union, credit card company, or internet payment service provider).

Step 5: If the fraud took place online through Facebook, eBay, a classified ad site such as Kijiji, or a dating website, be sure to report the incident directly to the website. These details can be found under "report abuse" or "report an ad."

Step 6: Victims of identity fraud should place flags on all their accounts and report to both credit bureaus, Equifax and TransUnion.

Finally, the Centre also warns that victims of fraud are often targeted a second or third time with the promise of recovering money previously lost. Their advice is never to send money to recover money. Where money has been sent, especially by bitcoin, the chances of recovering it are virtually nil.

Ironically, the extent to which most individuals are now comfortable transacting their tax and financial affairs online or over the phone, and the speed and anonymity of such transactions has made it easier in many ways for fraud artists to succeed. As always, the best defence against becoming a victim of such fraud artists is by refusing to provide personal or financial information, and especially never to make any kind of payment, whether by phone, e-mail or online, without first verifying the legitimacy of the request by contacting the CRA directly.

Or, as stated succinctly in a recent federal government statement on the subject: ”[O]ne point needs to be made crystal clear: anyone purporting to represent CRA to ask for money over the phone is a fraud.”

Tax-free savings accounts (TFSAs) have been around for nearly a decade now, having been introduced in 2009, and for most Canadians, a TFSA is now a regular part of their financial and tax planning strategies.

Tax-free savings accounts (TFSAs) have been around for nearly a decade now, having been introduced in 2009, and for most Canadians, a TFSA is now a regular part of their financial and tax planning strategies.

While TFSAs do not provide the tax deduction that an RRSP contribution creates, the strength of TFSAs lies in their great flexibility and the ability they give to Canadians to save, for short-term or long-term purposes, on a tax-free basis. Every Canadian aged 18 years of age and older can contribute a specified annual amount to a TFSA ($5,500 for 2018). Funds contributed to the TFSA are not deductible from income for tax purposes, but investment income earned by those funds is not taxed, either as it accrues or on withdrawal. Where a taxpayer does not contribute to a TFSA in a particular tax year, the contribution not made can be carried forward and that contribution made in any subsequent year. As well, TFSA holders can withdraw funds from their plan at any time, free of tax, and funds withdrawn can be re-contributed, but not until the following year. Therefore, each taxpayer’s contribution limit for a particular year is that year’s statutory annual amount, plus any allowable contributions not made in previous years and carried forward, plus amounts withdrawn in any previous year but not yet re-contributed.

The amount of the allowable TFSA contribution limit for a year has been something of a moving target since 2009: what follows is a listing of the maximum allowable annual contribution limits for each year since TFSAs were introduced.

• The annual TFSA dollar limit for the years 2009, 2010, 2011, and 2012 was $5,000
• The annual TFSA dollar limit for the years 2013 and 2014 was $5,500
• The annual TFSA dollar limit for the year 2015 was $10,000
• The annual TFSA dollar limit for the years 2016, 2017, and 2018 was $5,500

It’s readily apparent that, especially where there are carryforward amounts and/or the taxpayer has made withdrawals from a TFSA, calculating one’s current year contribution room can be complex. At one time the Canada Revenue Agency (CRA) notified taxpayers of their current-year TFSA contribution limit on the annual Notice of Assessment, but that is no longer the case. Now, the easiest way to find out one’s current year contribution limit is by calling the CRA’s Individual Income Tax Enquiries Line at 1-800-959-8281 or its automated Tax Information Phone Service (TIPS) line at 1-800-267-6999. Taxpayers who have registered for the Agency’s My Account online service can use that service to find the same information. It’s also possible to obtain from the CRA a TFSA Room Statement and a TFSA Transaction Summary, with the latter showing the contributions and withdrawals which have been made.

It’s important to stay within one’s overall contribution limit because exceeding that limit — even for one day — will result in the imposition of a penalty tax. Therefore, once a person figures out his or her total contribution limit for 2018, it is time to make sure that current contribution plans for the year will not put the taxpayer in an overcontribution position. Some taxpayers contribute on a regular, often monthly basis, while others are in the habit of depositing regular or irregular or periodic income receipts — like a tax refund, tax benefit amount, or a bonus from their employer — into their TFSA. Either way, after finding out one’s current year contribution limit, it is necessary to calculate how much has already been contributed in 2018. The difference between those two figures represents the balance which can be contributed before the end of the year without getting into an overcontribution position and incurring penalties. And it’s important to remember that if withdrawals have been or will be made during 2018, those amounts cannot be re-contributed until after the end of this year.

If it’s necessary to adjust regular contributions in order not to go “offside” by the end of the year, the best time to do it is obviously before getting into that overcontribution position. As soon as a taxpayer is in an overcontribution position, however, a penalty tax of 1% per month of the excess is imposed, even if the excess funds are withdrawn before the end of the month (i.e., as explained in the CRA guide to TFSAs, “[I]f, at any time in a month, you have an excess TFSA amount, you are liable to a tax of 1% on your highest excess TFSA amount in that month”).

Especially where TFSA contributions are set up to occur regularly, by automatic deposit or bank transfer, it’s easy to assume that everything has been taken care of and nothing further needs to be done with respect to such arrangements. However, an “out of sight and out of mind” approach rarely makes for good financial and tax planning, and checking on the status of one’s TFSA on a periodic (at least quarterly) basis can help to ensure that everything is as it should be, and that unnecessary penalties are avoided.

One final consideration — one of the strengths of a TFSA as a savings vehicle is the ability to re-contribute funds which have been withdrawn. However, as outlined above, such re-contributions cannot be made until after the end of the calendar year in which the withdrawal was made. For that reason, taxpayers who may be contemplating a TFSA withdrawal early in 2019, perhaps in order to make an RRSP contribution, or to pay for a winter vacation, should make that withdrawal before the end of 2018. That way, should funds become available (perhaps through the tax refund generated by the RRSP contribution) it will be possible to make the re-contribution in 2019. If the withdrawal is not made until 2019, re-contribution will not be possible (without incurring a penalty) until 2020.

TFSAs are valuable savings and planning vehicles for Canadians — perhaps the most flexible such vehicles available. It’s easy, however, to get tripped up on the rules governing TFSAs, especially the rules around withdrawals and re-contributions. To help keep taxpayers from running afoul of those rules, the CRA provides a lengthy and detailed publication on TFSAs, and that publication is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html.

When the Canada Pension Plan was put in place on January 1,1966, it was a relatively simple retirement savings model. Working Canadians started making contributions to the CPP when they turned 18 years of age and continued making those contributions throughout their working life. Those who had contributed could start receiving CPP on retirement, usually at the age of 65. Once an individual was receiving retirement benefits, he or she was not required (or allowed) to make further contributions to the CPP. The CPP retirement benefit for which that individual was eligible therefore could not increase (except for inflationary increases) after that point.

When the Canada Pension Plan was put in place on January 1,1966, it was a relatively simple retirement savings model. Working Canadians started making contributions to the CPP when they turned 18 years of age and continued making those contributions throughout their working life. Those who had contributed could start receiving CPP on retirement, usually at the age of 65. Once an individual was receiving retirement benefits, he or she was not required (or allowed) to make further contributions to the CPP. The CPP retirement benefit for which that individual was eligible therefore could not increase (except for inflationary increases) after that point.

Retirement looks a lot different in 2018 than it did it 1966, and the Canada Pension Plan has evolved and changed to recognize those differences. What that means for the average Canadian is much more flexibility in determining how to structure both their contributions to the CPP and the receipt of CPP retirement benefits.

While greater flexibility in retirement income planning is always a good thing, having more choices brings with it the need to determine which choices are the right ones in one’s particular circumstances. And, when it comes to CPP, many Canadians must make a decision on when it makes sense to keep making CPP contributions.

The need to make that choice arises where a decision is made to continue to stay in the work force, whether part time or full time, even after beginning to receive CPP retirement benefits. While it has always been possible to work while receiving such benefits, it was, until 2012, not possible to make CPP contributions related to that work. A change made in that year, however, allowed individuals who continued to work while receiving the CPP retirement benefit to also continue to contribute to the Canada Pension Plan and, as a result, increase the amount of CPP retirement benefit they received each month. That benefit 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 (CRA). 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 Form CPT30 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 Form CPT30, give one copy of the form to his or her employer, and send the original to the CRA.
• Individuals who are over the age of 70 and are still working cannot contribute to the CPP.

Overall, the effect of these new rules is that CPP retirement benefit recipients who are still working and who are under age 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 retirement benefits which they are entitled to will increase with each year’s additional contributions.

Where an individual makes CPP contributions while working and receiving CPP retirement benefits, the amount of any CPP PRB earned will automatically be calculated by the federal government, 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 of every year. Since the federal government needs information about employer contributions made, the first annual payment of the PRB is usually issued in early April and includes a lump sum amount representing benefits back to January of that year. Thereafter, the PRB is paid monthly and the PRB amount is added to the individual’s CPP retirement benefit amount and issued as 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 himself 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.

For all but a very fortunate few, buying a home means having to obtain financing for the portion of the purchase price not covered by a down payment. For most buyers, especially first-time buyers, that means taking out a conventional mortgage from a financial institution.

For all but a very fortunate few, buying a home means having to obtain financing for the portion of the purchase price not covered by a down payment. For most buyers, especially first-time buyers, that means taking out a conventional mortgage from a financial institution.

The rules governing eligibility or such home financing have been in somewhat a state of flux over the past ten years. For a number of reasons, mortgage and home equity borrowing practices never reached the unsustainable levels recorded south of the border, and Canada was spared the catastrophic housing crash which occurred in the U.S. in 2008 and 2009. However, in the years after the financial crisis which followed that housing crash, interest rates hit historic lows. Those ultra-low rates, in combination with rising real estate values, resulted in a record level of borrowing as first-time buyers took advantage of the low rates to purchase more home than they might otherwise have been able to afford, and existing homeowners borrowed against their ever-increasing home equity.

Canadian government and banking officials were sufficiently concerned with the level of borrowing, and the potential exposure of borrowers, that several sets of changes were made between 2008 and 2017 to tighten home financing and mortgage lending rules. What follows is an outline of the rules which now apply to prospective purchasers of residential property across Canada.

The first such rule requires prospective buyers to put down a minimum down payment, which is set at a percentage of the property cost. The applicable percentage depends on the cost of the property to be acquired, as follows:

Purchase price of the home                                           Minimum required down payment

$500,000 or less                                                              5% of the purchase price

$500,000 to $999,999                                                      5% of the first $500,000; and 10% of the portion of the                                                                                                  purchase price over $500,000

$1,000,000 or more                                                          20% of the purchase price

Whatever the purchase price of the home, where the down payment made is less than 20% of that purchase (or, put another way, the mortgage amount is greater than 80% of the purchase price), that mortgage is characterized as a high-ratio mortgage. In that case, additional requirements are imposed.

Basically, where a mortgage is a high ratio mortgage, the prospective home owner must obtain (and pay for) mortgage default insurance, usually through the Canada Mortgage and Housing Corporation (CMHC). Such insurance means that, should the home owner default on the mortgage, CMCH will pay the remaining outstanding balance of that mortgage to the financial institution which provided the mortgage financing. CMHC mortgage loan insurance premiums range from 0.6% to 4.50% of the amount of the mortgage, depending on the size of the down payment (although mortgage default insurance is not available where the purchase price of a home is $1,000,000 or more). Home buyers who take mortgage default insurance can pay those premiums upfront, or can add them to the mortgage amount and pay them over the life of that mortgage.

Prospective home buyers, having put together funds for a down payment, are often most concerned about whether they will be able to qualify for a mortgage. Those concerns are often well-founded, as the rules which govern such qualifications have recently become more stringent.

Everyone who applies for a mortgage (whether or not that mortgage is a high-ratio mortgage) from a federally-regulated financial institution (which includes all of the major Canadian banks), must pass a “stress test”. That test, which measures the borrower’s debt repayment obligations as a percentage of income, is intended to ensure that the applicant will be able to meet his or her mortgage payment obligations, both at the current low rates, and in the almost certain event that those rates will increase.

In making that determination, lenders use two measures — the gross debt service (GDS) and total debt service (TDS) ratios. GDS is essentially a measure of the borrower’s cost of housing, including mortgage payments, property tax payments, the cost of heating and, in the case of condominium purchasers, 50% of condo fees. In all cases, the total of such costs should not be more than 32% of the applicant’s gross income. The TDS represents all of the applicant’s debt servicing costs, including both housing costs and the cost of servicing credit card, student loan, car loan, line of credit, and other debt. When it comes to TDS, lenders want total debt servicing costs to be less than 40% of the applicant’s gross income.

Essentially, then, in applying the stress test, lenders look at the total housing cost and total debt servicing costs which the applicant will have if the mortgage is approved, to see whether the GDS and TDS ratios fall within the acceptable percentage limits.

Lenders are now required to run that stress test using the higher of two rates, as shown below, and the applicant must, using the GDS and TDS ratios, qualify at the higher rate.

• Where the mortgage will be a high ratio mortgage (down payment of less than 20%), the bank must use the higher of the Bank of Canada’s conventional five-year mortgage rate, or the mortgage interest rate which the applicant will be paying.
• Where the mortgage is not a high ratio mortgage, the bank must use the higher of the Bank of Canada’s conventional five-year mortgage rate and the interest rate which the applicant will be paying, plus 2%.

The Bank of Canada’s current conventional 5-year mortgage rate is 5.34%.

The need to qualify for a mortgage at a rate higher than current rates, and higher than the mortgage interest rate which is actually being provided will undoubtedly affect prospective borrowers. In some cases, borrowers may have to “downsize” their home purchase budget to accommodate the new rules while in other instances, those hoping to get into the housing market may be forced to wait until they can accumulate a large down payment so as to reduce the amount of mortgage financing needed.  In all cases, however, the intent of the new rules is to ensure that, once the home purchase is made, the new homeowners will be in a position to meet the financial obligations that home ownership involves, over both the short and the long term.

The month of September marks both the end of summer and the beginning of the new school year for millions of Canadian children, teenagers, and young adults. And, whatever the age of the student or the grade level to which he or she is returning, there will inevitably be costs which must be incurred in relation to the return to school. Those costs can range from a few hundred dollars for school supplies for grade school and high school students to thousands (or tens of thousands) of dollars for the cost of post-secondary or professional education.

The month of September marks both the end of summer and the beginning of the new school year for millions of Canadian children, teenagers, and young adults. And, whatever the age of the student or the grade level to which he or she is returning, there will inevitably be costs which must be incurred in relation to the return to school. Those costs can range from a few hundred dollars for school supplies for grade school and high school students to thousands (or tens of thousands) of dollars for the cost of post-secondary or professional education.  

Unfortunately for those students (and their parents!) the kinds of assistance which can be obtained through our tax system to help offset those costs has been eroded over the past few years, as previously available tax credits were withdrawn.

At the grade school and high school levels, there are really no credits or deductions which can be claimed for education-related costs. Formerly, two tax credits (the fitness credit and the arts credit) were available to help offset the cost of extra-curricular activities for children under the age of 16, but both such credits were cancelled as of the end of 2016.

Parents who work outside the home and consequently need to arrange for and pay for after-school care for their children can, however, deduct the costs of that care, within specified limits. Those limits are based on the age of the child and the amount of family income for the year. Details of that child care tax deduction are outlined on the Canada Revenue Agency (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/line-214-child-care-expenses.html.

Once children reach an age to pursue post-secondary education, costs escalate. In recognition of that fact, post-secondary students (and their parents) have benefited for many years from an “assist” through our tax system, which provides deductions and credits for some of the many associated costs. However, two of those credits are also not available for 2018 or subsequent years.

For many years post-secondary students were able to claim the education tax credit and the textbook tax credit. Both, unfortunately, were eliminated as of the end of 2016. It’s important to remember, however, that where education and textbook credits have been earned but not claimed in years before 2017, however, they are still available to be claimed by the student as carryover credits in 2017, 2018, or later years.

The good news is that a tax credit continues to be available for the single largest cost associated with post-secondary education — the cost of tuition. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (which would include most Canadian universities and colleges) can still claim a non-refundable federal tax credit of 15% of such tuition costs. The provinces and territories also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction. At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where a student doesn’t have tax payable for the year, as is often the case, credits earned can be carried forward and claimed by the student in a future year, or transferred (within limits) in the current year to a spouse, parent, or grandparent.

While the cost of living, whether in a student residence or off campus, can be significant, there is no federal deduction or credit provided for such expenses. Such costs are characterized as personal and living expenses, for which no tax deduction or credit has ever been allowed.

Most post-secondary students in Canada must incur some amount of debt in order to complete their education, and repayment of that debt is typically not required until after graduation. Once repayment starts, a tax credit can be claimed for the amount of interest being paid on such debt, in some circumstances. Students who are still in school and arranging for loans should, however, be mindful of the rules which govern that student loan interest tax credit. While all interest paid on a qualifying student is eligible for the credit, only some types of student borrowing will qualify. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the deduction. It’s not uncommon (especially for students in professional programs, like law or medicine) to be offered lines of credit by a financial institution, often at advantageous or preferential interest rates. As well, financial institutions sometimes offer, once a student has graduated and begun to repay a government-sponsored student loan, to consolidate that student loan with other kinds of debt, also at advantageous interest rates. However, it should be kept in mind that interest paid on that line of credit (or any other kind of borrowing from a financial institution to finance education costs) will never be eligible for the student loan interest tax credit. As explained in the CRA publication on the subject, “ [I]f you renegotiated your student loan with a bank or another financial institution, or included it in an arrangement to consolidate your loans, you cannot claim this interest amount”. Students who are contemplating borrowing from a financial institution rather than getting a government student loan (or considering a consolidation loan which incorporates that student loan amount) must remember, in evaluating the benefit of any preferential interest rate offered by a financial institution, to take into account the loss of the student loan interest deduction on that borrowing in future years.

There are, as well, a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary students (for instance, moving expense deductions). The CRA publishes a very useful guide that summarizes most of the income rules which may apply to post-secondary students. That guide, entitled Students and Income Tax, was updated in August 2018 to include recent changes, and that current version is now available on the CRA website at www.cra-arc.gc.ca/E/pub/tg/p105/README.html.

The administrative policy of the Canada Revenue Agency (CRA) with respect to charities has been that no more than 10% of a registered charity’s resources can be allocated to non-partisan political activity. Where the CRA views a charity as having exceeded that threshold it may impose sanctions, up to and including revocation of a charity’s charitable registration status.

The administrative policy of the Canada Revenue Agency (CRA) with respect to charities has been that no more than 10% of a registered charity’s resources can be allocated to non-partisan political activity. Where the CRA views a charity as having exceeded that threshold it may impose sanctions, up to and including revocation of a charity’s charitable registration status.

Earlier this year, an Ontario court decision effectively struck down the rules limiting the involvement of charities in non-partisan political activity, including the CRA’s 10% ceiling rule, declaring those rules to be invalid and of no effect. That change was effective as of the date of the Court’s ruling, which was July 16, 2018.

Needless to say, that Court decision created considerable uncertainty in the charitable sector with respect to the current or future involvement by charities in any non-partisan political activities. The CRA has now made two announcements intended to alleviate that uncertainty.

First, the CRA has announced that it will be appealing the Court’s decision, which it believes contains “significant errors of law”. The hearing and decision in that appeal is at least several months away.

The CRA has, however, also announced that changes will be made, not just to its policy with respect to the permitted political activities of charities, but to the Income Tax Act provisions governing the permitted activities of registered charities. According to the CRA’s press release, which can be found on its website at https://www.canada.ca/en/revenue-agency/news/2018/08/statement-by-the-minister-of-national-revenue-and-minister-of-finance-on-the-governments-commitment-to-clarifying-the-rules-governing-the-political.html, the planned changes will allow charities to pursue their charitable purposes by engaging in non-partisan political activities and in the development of public policy. Charities will still be required to have exclusively charitable purposes, and restrictions against partisan political activities will remain.

Significantly, the CRA will implement the planned changes through amendments to the Income Tax Act, with the intention of introducing amending legislation in the fall of 2018. Consequently, the new rules governing political activities of charities will be, not simply administrative policy on the part of the CRA, but legal requirements under the Income Tax Act. As well, the planned legislative changes will apply retroactively, including to the audits and objections of registered charities which are currently suspended. Such suspensions will be lifted when the planned legislation is passed by Parliament.

The CRA’s announcement of the planned changes did not include a detailed outline of the planned changes. However, the Agency did indicate in its press release that such changes would be “consistent with” Recommendation #3 found in the report of the Agency’s Consultation Panel on the Political Activities of Charities. That Recommendation is as follows:

 “The Panel recommends that amendments:

1. retain the current legal requirement that charities must be constituted and operated exclusively for charitable purposes, and that political purposes are not charitable purposes;
2. fully support the engagement of charities in non-partisan public policy dialogue and development in furtherance of charitable purposes, retiring the term “political activities” which tends to be understood in common parlance as partisan and is therefore confusing, and clearly articulating the meaning of “public policy dialogue and development” to include: providing information, research, opinions, advocacy, mobilizing others, representation, providing forums and convening discussions; and
3. retain the prohibition on charities’ engaging in “partisan political activities” with the inclusion of “elected officials” (i.e. charities may not directly support “a political party, elected official or candidate for public office”) and the removal of the prohibition on “indirect” support, given its subjectivity.”

The full Report of the Panel is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/charities-giving/charities/resources-charities-donors/resources-charities-about-political-activities/report-consultation-panel-on-political-activities-charities.html.

There is an important caveat: the CRA has indicated that its planned legislative amendments would be “consistent with” the Panel Recommendation, and not that they would reflect that Recommendation in every respect. Consequently, the content of the amendments may well differ in one or more ways from the Panel Recommendation.

The CRA has indicated as well that, once the legislative amendments are in place, it will be providing ”supporting guidance”, in collaboration with the charitable sector, presumably through plain language publications outlining both the legislative changes and how the CRA intends to implement and administer those changes going forward. Stay tuned.

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 #45 Corporate

Personal:

Issue #45 Personal