Français
Chartered Professional Accountants and Licensed Public Accountants

Insights

Tax Alerts

The end of summer means back to school for students of all ages. For parents of elementary and secondary school students the focus is on obtaining back to school clothes and supplies and starting the process of enrollment in after-school activities for the fall. For those already in (or starting) post-secondary education, choosing courses, finding a place to live and paying the initial bills for tuition and residence are more likely to be on the immediate agenda.


Although they aren’t usually thought of in such terms, Canadian charities, as measured by the amount of money they receive and administer, can be big businesses. However, because they collect and disperse that money in order to support and advance causes which create a public benefit, charities are accorded special status under our tax laws. Our tax system effectively subsidizes the activities of charitable organizations by providing a tax deduction or tax credit to companies and individuals that contribute to those organizations and by exempting the charities themselves from the payment of income tax.


Most Canadians approaching retirement know that they will be able to receive retirement income from the Canada Pension Plan and Old Age Security programs. Many, however, are unaware that there is a third federal program — the Guaranteed Income Supplement (GIS) — which provides an additional monthly income amount to eligible individuals who already receive Old Age Security. That lack of knowledge is particularly unfortunate because, while there is no need for an individual to apply in order to receive an Old Age Security benefit, anyone who wishes to receive the GIS must apply to do so. (Automatic enrollment in GIS is something that is planned for future implementation, but is not yet in place.). Finally, while the OAS benefit is a standard amount for most recipients, the rules governing eligibility for GIS, and the amount which a particular individual will receive, are more complex.


The Canada Revenue Agency (CRA) doesn’t publish information or statistics on the number of individual taxpayers who owe it money in the form of back taxes, interest, or penalties. Nonetheless, it’s a safe assumption that some percentage of the 28 million or so Canadians who filed a tax return this past spring either couldn’t pay their 2016 taxes when due or still owe money from past years, or both. Being unable to pay one’s bills on time and as due obviously isn’t desirable, no matter who the creditor is. There are, however, a number of reasons why owing money to the tax authorities is a particularly bad idea.


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


Sometime around the middle of August, millions of Canadians will receive unexpected mail from the Canada Revenue Agency (CRA), and that mail will contain unfamiliar and unwelcome news. Specifically, the enclosed form will advise the recipient that, in the view of the CRA, he or she should make instalment payments of income tax on September 15 and December 15th of this year – and will helpfully identify the amounts which should be paid on each date.


The traditional idea of retirement – working full-time until age 65 and then leaving the workforce completely to live on government-sponsored and private sources of retirement income – has undergone a lot of changes over the past couple of decades, and Canada’s government-sponsored retirement income system has evolved in response. Generally, the changes to the Canada Pension Plan (CPP) and Old Age Security (OAS) programs have increased the flexibility of those programs and, in particular, have given individuals a greater range of choices with respect to, especially, the timing of their receipt of CPP and OAS.


While Canadians typically think of taxes only in the spring when the annual return must be filed, taxes are a year-round business for the Canada Revenue Agency (CRA). The CRA is busy processing and issuing Notices of Assessment for individual tax returns during the February to June filing season. To date, in 2017, the CRA has received and processed just under 28 million individual income tax returns. That volume of returns and the CRA’s self-imposed processing turnaround goals (two to six weeks, depending on the filing method) mean that the CRA cannot possibly do an in-depth review of each return filed prior to issuing the Notice of Assessment.


The Bank of Canada’s recent decision to raise interest rates generated a lot of media attention, for the most part because while the increase itself was only one quarter of a percentage point, it was the first move made by the Bank of Canada to increase rates in the past seven years. Much of the media coverage of the rate change centered around the effect that change might or might not have on the current real estate market. One of the issues under discussion was whether this or future increases in interest rates (and therefore mortgage rates) would act as a barrier to those seeking to get into the housing market. And a phrase that was prominent in that discussion — the mortgage financing “stress test” — is likely one that is unfamiliar to most Canadians, even those who are affected by it.


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


At the Canada Revenue Agency (CRA), taxes are a year-round business. During the spring and early summer, the CRA is busy processing the millions of individual tax returns filed by Canadians for the previous tax year. The volume of returns filed and the Agency’s self-imposed processing turnaround goals mean that the CRA cannot possibly do an in-depth review of each return filed. Once the season of processing and assessing tax returns is for the most part complete, however, the CRA moves to the next phase of its activities – specifically, the start of its annual post-assessment tax return review process.


Having access to mobile communication is useful and practical for any number of reasons and Canadians who don’t have a cell or smart phone are likely now the exception rather than the rule. It’s also the case, however, that cell phone rates payable by Canadians are among the highest in the world, and so having an employer provide that cell phone (and pay the associated costs) is consequently a valued employment benefit. That said, Canadians who enjoy such an employment benefit should be aware that, while they may not have to pay a monthly cell phone bill, there still can be a cost in the form of a taxable benefit which must be reported on the annual return. 


When it comes to questions around personal finance, two issues tend to dominate current discussions. The first is whether and to what extent Canadians are financially prepared for retirement, and the second is the seemingly inexorable increase in the value of residential real estate. For many retired Canadians, those two issues are very much interlinked.


While our health care system is not without its problems, Canadians are fortunate to benefit from a publicly funded system in which individuals are not required to pay personally for the cost of necessary medical care. Generally speaking, acute care provided in a hospital setting is covered by that system, as is more routine care provided by physicians in their offices.

Canadians who, as the result of illness or accident, require care in our medical system are nonetheless often surprised to find that there is a long and ever-increasing list of expenses which are not covered by government-sponsored health care, or for which the individual is required to make at least a partial payment. In some cases, individuals will have private health care coverage to help offset those costs but for most, such costs must be paid on an out-of-pocket basis. For those who must bear such costs personally, some recovery of costs incurred is possible by claiming a medical expense tax credit on the annual return. The federal medical expense tax credit is equal to 15% of the cost of qualifying medical expenses claimed, and each of the provinces and territories also provide for a medical expense tax credit, at varying rates.


Each spring, Canadians are required to fulfill two tax obligations. The first is the requirement to file an individual income tax return providing details of income earned, deductions and credits claimed, and the amount of income tax payable for the previous calendar year. The second such obligation is to pay any amount of income tax owed for that year which is still outstanding. And although the Canadian tax system is for the most part a voluntary self-reporting and self-assessing one, most Canadians do comply with those two obligations in a timely way.


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


Home renovations are big business right now in Canada, as many homeowners opt to make changes and/or additions to their current residences rather than try to find a new home in the current real estate market. And, while the cost of renovating one’s home is usually considered a personal expense which doesn’t qualify for any tax credit or deduction, starting this year there is an exception to that rule.


The fact that the cost of residential real estate in Canada’s largest cities has reached unaffordable levels for most Canadians, especially young families, isn’t really news any more. What’s relatively new, however, is that significant price increases are now being seen in cities which are within daily driving range of those major cities, presumably as individuals and families move further and further out in search of affordable housing. The trade-off for moving further from work in order to be able to purchase an affordable home is, of course, the daily commute. And, while gas prices aren’t currently at the levels seen a year or two ago, commuting is never inexpensive, leading many to wonder whether our tax system provides any relief for unavoidable commuting costs incurred.


For most of the year, taxpayers live quite happily without any contact with the Canada Revenue Agency (CRA). During and just following tax filing season, however, such contact is routine – tax returns must be filed, Notices of Assessment are received from the CRA and, on occasion, the CRA will contact a taxpayer seeking clarification of income amounts reported or documentation of  deductions or credits claimed on the annual return. Consequently, it wouldn’t necessarily strike taxpayers as unusual to be contacted by the CRA with a message that a tax amount is owed or, more happily, that the taxpayer is owed a refund by the Agency. Consequently, it’s the perfect time for scam artists posing as representatives of the CRA to seize the opportunity to defraud taxpayers.