It has been nearly five years since the start of the pandemic, and the work-from-home arrangements which became a necessity during that time have now become a choice for employers and employees.

It has been nearly five years since the start of the pandemic, and the work-from-home arrangements which became a necessity during that time have now become a choice for employers and employees.

Relatively few employees still work from home on a full-time basis – many have returned to the office full-time and many more likely now utilize some kind of hybrid arrangement, dividing their work week between their employer’s work site and a home office.

There are any number of benefits to working from home – avoiding a lengthy and often stressful commute, and the costs associated with such a commute, and being able to have a better work/life balance. There are other financial benefits as well, as employees who work from home can sometimes claim tax deductions for expenses incurred to create and maintain their home office.

As the necessity and availability of work-from-home arrangements changed (and changed again) over the past five years, the tax rules governing the deductions which could be claimed for home office expenses changed (and changed again) to meet those realities.

 Employees who work from home have always been able to claim a tax deduction for costs related to a home office. Under the tax rules in place prior to 2020, a claim for a deduction for home office expenses was available only where employees met a number of criteria and could provide the tax authorities with an itemized accounting of eligible home office expenses incurred, as well as an attestation from their employer of the terms of the work-from-home arrangement – known as the “detailed” method. However, when work-from-home arrangements became effectively mandatory in 2020, for public health reasons, the federal government greatly simplified the rules governing those claims to provide a temporary flat-rate method which essentially eliminated the requirement for documentation. That flat-rate method, however, was available only during 2020, 2021, and 2022, and can no longer be utilized.

For 2024, the “detailed method” for claiming home office expenses will be the only method under which such costs may be deducted for tax purposes. What follows is a summary of the current rules outlined on the Canada Revenue Agency (“CRA”) website with respect to claims for home office expense deductions which will, absent an unlikely change in CRA policy, continue to apply to such claims during 2024.

In order to claim a deduction in 2024 for costs related to a work-at-home space, an employee must be required by their employer to work from home during the year. The requirement to work from home doesn’t have to be included in the employee’s employment contract, but can be simply a written or verbal agreement with the employer. Where an employee has entered into a formal telework arrangement with his or her employer, that arrangement will satisfy the “required work from home” criteria.

In addition, as outlined on the CRA website, at least one of the following criteria must also be satisfied in order for an employee to claim work-from-home costs for 2024.

• The work-at-home space is where the individual mainly (more than 50% of the time) did their work for a period of at least four consecutive weeks during the year; or
• The individual uses the workspace only to earn their employment income. They must also use it on a regular and continuous basis for in-person meetings with clients, customers, or other people in the course of their employment duties.

While the rules are (fairly) straightforward, it can be difficult to apply them in practice to the almost infinite variety of work-from-home arrangements which can be utilized by an employer and employee. Recognizing that reality, the CRA provides a number of examples on its website of how to analyze a particular work situation in order to determine whether it fits within the CRA’s criteria. Those examples can be found on the Agency’s 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-22900-other-employment-expenses/work-space-home-expenses/who-claim/detailed-method.html#h-2.

Once the CRA’s criteria are 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 their work-from-home space, such as rent; utilities costs like electricity, heating, and water (or the portion of a condo fee attributable to such utilities costs); home maintenance and minor repair costs; and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses, and the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the work space is not a separate room but is a shared or multi-purpose space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html. In all cases, the Canada Revenue Agency can ask the taxpayer to provide documentation and support for claims made using the detailed method.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office. Each such employee must obtain from their employer a completed form T2200 Declaration of Conditions of Employment - Canada.ca. On that form, the employer must certify the work-from-home arrangement and confirm that the employee is required to pay their own home office expenses and is not being reimbursed for any such 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.

The ability to claim a deduction for home office expenses can mean that significant expenses (like the cost of rent and utilities) which would have to be incurred by the employee in any case can give rise to tax savings. There’s no denying, though, that the record keeping required to support such deduction claims can be onerous, and it’s likely that few taxpayers record and document such costs on a routine basis. However, given the potential tax benefits, it’s worth doing some upfront planning to determine whether a deduction claim for home office expenses can be made for 2024 and to ensure that any record keeping needed to support that deduction is done before tax filing season arrives a few months from now.

For most Canadians, the subject of making RRSP or TFSA contributions, or making RRIF withdrawals, isn’t usually top of mind at year-end. Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February, but relatively few are aware that in some circumstances an RRSP contribution must be (or should be) made by December 31, in order to achieve the best tax result. As well, while a contribution or withdrawal from a TFSA can be done at any time, additional flexibility can be gained where withdrawals, in particular, are timed to take best advantage of the rules governing TFSAs. Finally, most Canadians who have opened a registered retirement fund (RRIF) are aware that they are required to make a withdrawal of a specified amount from that RRIF each year, with the percentage withdrawal amount based on the RRIF holder’s age – although few are aware of when and how that required withdrawal is calculated.

For most Canadians, the subject of making RRSP or TFSA contributions, or making RRIF withdrawals, isn’t usually top of mind at year-end. Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February, but relatively few are aware that in some circumstances an RRSP contribution must be (or should be) made by December 31, in order to achieve the best tax result. As well, while a contribution or withdrawal from a TFSA can be done at any time, additional flexibility can be gained where withdrawals, in particular, are timed to take best advantage of the rules governing TFSAs. Finally, most Canadians who have opened a registered retirement fund (RRIF) are aware that they are required to make a withdrawal of a specified amount from that RRIF each year, with the percentage withdrawal amount based on the RRIF holder’s age – although few are aware of when and how that required withdrawal is calculated. 

There are, in sum, significant advantages which can be obtained (and significant disadvantages avoided) by taking some time to consider and plan for RRSP and TFSA contributions and withdrawals before the end of the calendar year. What follows is an outline of steps which should be considered, before the end of the 2024 calendar year, by Canadians who have an RRSP, an RRIF, or a TFSA – or maybe all three.

Timing of RRSP contributions

When you are making a spousal RRSP contribution

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plan (RRSP) in their spouse’s name and claim the deduction for the contribution on their own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2024, the contributor can claim a deduction for that contribution on their return for 2024. The spouse can then withdraw that amount as early as January 1, 2027 and have it taxed in their own hands. If the contribution isn’t made until January or February of 2025, the contributor can still claim a deduction for it on the 2024 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2028. It’s an especially important consideration for couples who are approaching retirement and may plan on withdrawing funds in the relatively near future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should an unforeseen need to withdraw funds arise.

When you are turning 71 during 2024

Every Canadian who has an RRSP must collapse that plan by the end of the year in which they turn 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that they have sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31 of that year. Once that deadline has passed, no further RRSP contributions are possible.

RRIF withdrawals for 2024

Under Canadian law, anyone who has an RRIF is required to make a minimum withdrawal from that RRIF each year. The amount of the withdrawal is calculated as a specified percentage of the balance in the RRIF at the beginning of the calendar year, with that percentage based on the age of the RRIF holder at that time.

Taxpayers who have no immediate need of funds held within an RRIF are often reluctant to make a withdrawal and pay the tax on those amounts, especially where the value of investments held in an RRIF has declined. While there is no way of avoiding the requirement to withdraw that minimum amount from one’s RRIF, and to pay tax on the amount withdrawn, such taxpayers can consider contributing those amounts to a tax-free savings account (TFSA). Where that is done, the funds can be invested and continue to grow. As well, neither the original contribution nor the investment gains will be taxable when the funds are withdrawn from the TFSA, and amounts withdrawn will not be included in income when determining the taxpayer’s eligibility for means-tested federal benefits and credits, like Old Age Security, the GST/HST credit, or the age credit.

Planning for TFSA withdrawals and contributions

Each Canadian aged 18 and over can make an annual contribution to a tax-free savings account (TFSA) – the current-year contribution limit for 2024 is $7,000. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount is added to the taxpayer’s total TFSA contribution limit, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned (or the need to make such a withdrawal might arise) within the next few months, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from their TFSA on or before December 31, 2024 will have the amount which is withdrawn added to their TFSA contribution limit for 2025, which means it can be re-contributed, where finances allow, as early as January 1, 2025. If the same taxpayer waits until January of 2025 to make the withdrawal, the amount withdrawn won’t be added to the taxpayer’s TFSA contribution room until 2026.

The approach of the calendar year end doesn’t usually prompt Canadians to consider the details of making contributions to an RRSP, or withdrawals from a TFSA or an RRIF. There is, however, no flexibility in the deadlines for taking such actions, and considering what steps may be needed or advisable now means one less thing to remember as the December 31 deadline nears.

For most Canadians, tax planning for a year that hasn’t even started yet may seem premature or even unnecessary. However, most Canadians will start paying their taxes for 2025 in less than two months, starting with the first paycheque they receive in January.

For most Canadians, tax planning for a year that hasn’t even started yet may seem premature or even unnecessary. However, most Canadians will start paying their taxes for 2025 in less than two months, starting with the first paycheque they receive in January.

For most Canadians, (certainly for the vast majority who earn their income from employment), income tax, along with other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums, are paid periodically throughout the year by means of deductions taken from each paycheque received, with those deductions then remitted to the Canada Revenue Agency (CRA) on the taxpayer’s behalf by their employer.

Of course, each taxpayer’s situation is unique and so the employer has to have some guidance as to how much to deduct and remit on behalf of each employee. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by each employee, sometimes at the start of each year, but certainly at the time employment commences. Each employee must, in fact, complete two TD1 forms – one for federal tax purposes and the other for provincial tax imposed by the province in which the taxpayer lives. Federal and provincial TD1 forms for 2025 (which have not yet been released by the CRA but, once published, will be available on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html) list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount and the age amount. Adding amounts claimed on each form gives the Total Claim Amounts (one federal, one provincial) which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on their behalf to the federal government.

While the TD1 completed by the employee at the time their employment commenced will have accurately reflected the credits claimable by the employee at that time, everyone’s life circumstances change. Where a baby is born, a child starts post-secondary education, there is a separation or a divorce, a taxpayer turns 65 years of age, or an elderly parent comes to live with their children, the affected taxpayer(s) will often become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.

Consequently, it’s a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to them. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.

As well, it’s often the case that a taxpayer will have available deductions which cannot be recorded on the TD1, like RRSP contributions, deductible support payments, or child care expenses. While such claims make things a little more complicated, it’s still possible to have source deductions adjusted to accurately reflect those claims, and the employee’s resulting reduced tax liability for 2025. The way to do so is to file Form T1213, Request to Reduce Tax Deductions at Source with the CRA. The most recent version of the T1213 was issued by the CRA in September 2024, and can be found on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html.

Once the T1213 form is filed with the CRA, the Agency will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld from the employee’s paycheque – and thereby increasing the employee’s take-home income. 

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. While a T1213 can be filed with the CRA at any time of the year, the sooner it’s done, the sooner source deductions can be adjusted, effective for all subsequent paycheques. Providing an employer with an updated TD1 for 2025 as soon as possible, along with filing the T1213 with the CRA where circumstances warrant, will ensure that source deductions made starting January 1, 2025 will accurately reflect all of the employee’s current circumstances, and consequently their actual tax liability for the year – and, potentially, provide the employee with a little more cash flow to meet day-to-day expenses.

Canada’s income tax system is a self-assessing one, in which residents of Canada are expected (and in most cases, required) to file an annual tax return in which all sources of worldwide income are reported, and the amount of tax owed on that income calculated and paid.

Canada’s income tax system is a self-assessing one, in which residents of Canada are expected (and in most cases, required) to file an annual tax return in which all sources of worldwide income are reported, and the amount of tax owed on that income calculated and paid.

While the onus is on individual Canadians to determine the sources and amounts of income which have been received during the year, the process is not entirely an “honour” system in which amounts reported are not subject to cross-checks or verification. Rather, where income (whether salary, wages, investment income, or pension/retirement income) is paid to Canadians, the payor must prepare an information slip (a T4 or T5, or T4RRIF or T4RSP) setting out the amount and nature of the monies paid and the personal identification details (i.e., name, address, social insurance number) of the recipient. A copy of that information slip is provided to that recipient and another copy filed with the Canada Revenue Agency (CRA). The CRA is therefore able to cross-check income amounts reported by each Canadian taxpayer with the income payment information which has been filed with the Agency by the payor of that income.

There are very few types of income that escape the Canadian tax net, and in almost all cases the CRA is able to determine the amount and types of income received by each Canadian taxpayer through the system of information slips filed by payors. Where that system has not, to date, been as effective is in the tracking and reporting of income earned by Canadians through online or digital sales of goods or services.

Millions of Canadians earn income from online sales, through websites or apps. In some cases, such sales are infrequent, where an individual wants to earn a bit of additional income by selling possessions which are no longer needed or wanted, but are still saleable. In other cases, however, where such sales are done on a regular and frequent basis, the amount of income earned through online sales can be very substantial.

While it’s impossible to quantify or even know for certain, it’s likely the case that substantial amounts of income earned by Canadians from online sales are never reported to the tax authorities and are therefore never taxed. In some cases, that may be because recipients genuinely believe that such income does not need to be reported, while others who don’t report may simply be hoping that their omission never comes to the attention of the tax authorities.

Whatever the motivation or belief, the perception that online income doesn’t have to be reported is incorrect – as stated clearly on the CRA website, “income from platform economy activities is subject to taxation”. More generally, every resident of Canada is required to report all income received from all sources, both within Canada and worldwide. That includes income from what the CRA terms the “peer-to-peer” economy, in which goods are sold through online platforms including (but not limited to) Kijiji, Etsy, eBay, and Amazon.

To date, there has not been a practical mechanism by which the tax authorities can track amounts of income received by Canadians through online sales. That will change when, in January 2025, online platform operators will be required for the first time to report income amounts earned by individuals to the CRA. The actual reporting requirements came into force at the beginning of 2024, but the deadline for filing a report to the CRA with respect to online income earned by individual Canadians during 2024 is January 31, 2025. Information filed by online platform operators with the CRA with respect to any Canadian taxpayer will, of course, also be provided to that taxpayer, in the same way that taxpayers receive a copy of a T4 or T5 slip. The information filed with the CRA will include personal identifying information, including social insurance numbers, income figures, and bank account numbers, for any individual who meets the definition of a “reportable seller”.

The purpose of limiting such reporting to sales carried out by “reportable sellers” is to create a minimum activity/income threshold. The general definition of a “reportable seller” is any Canadian resident who is registered with a platform and has received amounts during the year from sales made on that platform. However, while all income from online sales are reportable as income, the cost to the CRA of pursuing taxpayers who earn very small amounts from such sales and/or do so very infrequently would almost certainly outweigh the benefit of any additional tax revenue collected as a result. Consequently, individuals who meet the definition of a reportable seller, but who trade infrequently or for very small amounts, are considered to be “excluded sellers” who are exempted from the new reporting requirements.

Notwithstanding, the threshold amounts which allow an individual to be characterized as an excluded seller (and for that reason exempt from the reporting requirements) are actually quite low. In order to be an excluded seller, an individual must have fewer than 30 sales per year and have earned no more than a total of $2,800 on such sales. Consequently, an individual who, during 2024, makes an average of three sales per month (36 per year) and receives an average of $80 per sale would be considered to be a reportable seller and the activities and income earned by that individual during 2024 would be reported to the CRA by January 31, 2025.

Where reporting is required, the obligation to report falls on the platform operator, who must provide the CRA with both identification and activity information with respect to each reportable seller, and provide a copy of that information to the reportable seller. The information reported can include:

• Identification information
  • Name of seller;
  • Seller’s primary address;
  • Sellers’s date of birth;
  • Seller’s tax identification number (for Canadian individuals, that means their social insurance number); and
  • Seller’s financial account identifiers (meaning bank account numbers)
• Activity information
  • Total income from sales (paid or credited), and number of sales, broken down by calendar quarter, and
  • Fees, commissions, or taxes withheld or charged by the platform operator.

Platform operators who are required to report under the new rules may ask sellers who are registered with their platform for additional information, in order to confirm whether an individual is a reportable seller for purposes of those reporting rules. Responding to such a request is not optional, as the new rules permit the CRA to assess a penalty of $500 where a seller fails to provide his or her social insurance number when such information is requested by a platform operator.

Detailed information on the new reporting rules for digital platform operators can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/reporting-rules-digital-platforms.html. Individuals who sell goods or services through online platforms or apps can find information summarizing their income tax and goods and services/harmonized sales tax obligations with respect to income earned from those activities on the same website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/platform-economy.html.

While the need for charitable donations for any number of causes is a year-round reality, appeals for such donations tend to increase as the holiday season and the end of the calendar year approach. And generally, those appeals are met, as Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing both federal and provincial tax credits for qualifying donations made. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year.

While the need for charitable donations for any number of causes is a year-round reality, appeals for such donations tend to increase as the holiday season and the end of the calendar year approach. And generally, those appeals are met, as Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing both federal and provincial tax credits for qualifying donations made. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year.

There is an additional reason, when planning charitable donations, to ensure that such donations are made by December 31. The credit provided by the federal government is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. Finally, where the taxpayer making the donation has taxable income (for 2024) over $246,752, charitable donations above the $200 threshold can receive a federal tax credit of 33%.

As a result of the two-level credit structure, the best tax result is obtained when donations made before the end of the calendar year are maximized. For example, a qualifying charitable donation of $400 made in December 2024 will receive a federal credit of $88.00 ($200 times 15% plus $200 times 29%). If the same amount is donated, but the donation is split equally between December 2024 and January 2025, the total credit claimable is only $60.00 ($200 times 15% plus $200 times 15%), and the 2025 donation can’t be claimed until the 2025 return is filed in April of 2026. And, of course, the larger the donation made in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level.

It’s also possible to carry forward, for up to five years, donations which were made in a particular tax year, but not claimed on the tax return for that year. So, if donations made in 2024 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying it forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2019, 2020, 2021, 2022, or 2023 tax years can be carried forward and added to the total donations made in 2024, and the total then claimed on the 2024 tax return. There is a ceiling on the amount of donations which can be claimed in any one calendar year, but that ceiling is a very generous one – a taxpayer can claim any qualifying current or carryforward donations up to a limit of three quarters of the taxpayer’s net income for the year.

When claiming charitable donations, it’s possible to combine donations made by oneself and one’s spouse and claim them on one spouse’s return. Generally, it makes sense to do so in order to maximize the total amount of donations claimed by a single individual, and therefore the amount of donations which can qualify for the higher tax credit rate(s).

Regardless of when a charitable donation is made or who claims it for tax purposes, would-be donors are well advised to carefully consider the charities to which they donate. It’s an unfortunate reality that while most organizations seeking charitable donations are legitimate, the charitable sector attracts its share of scammers and fraudsters whose only aim is to personally profit from the generosity of others. Such charitable donation frauds arise, in particular, whenever there are Canadian or world events like wars or natural disasters and people are particularly motivated to help. After every such event a flurry of “instant” charities spring to life, seeking donations which may or may not actually be used as represented. And, while some of the individuals or organizations who seek to raise funds in response to particular events may actually be well intentioned, the reality is that they are unlikely to have either the infrastructure or the experience needed to actually carry out their stated or intended aims. And others, of course, are simply scammers seeking to capitalize on the desire of Canadians to help in response to disaster or other need.

There are two ways to ensure that one’s charitable dollar is actually utilized as intended. The first is to donate only to large international charities which have been in existence for some time and which have both expertise and experience in utilizing charitable donations in an efficient and effective way. However, where a donor is deciding whether to make a donation to a newer or less well-known charity, it’s relatively easy to find information about that charity on the website of the Canada Revenue Agency.

Only donations made to registered charities can be claimed for purposes of the charitable donations tax credit. The Canada Revenue Agency maintains on its website a listing of all such registered charities; that listing (which is searchable) can be found at https://apps.cra-arc.gc.ca/ebci/hacc/srch/pub/dsplyBscSrch?request_locale=en.

That webpage will also provide information on the charity’s activities, including the date on which it became a registered charity. Through that site (which is updated daily by the Canada Revenue Agency), it’s also possible to obtain information on the countries in which the charity operates, the nature of its charitable activities, and details of its revenues and expenditures, all of which can help a would-be donor to determine whether or not to make a donation.

Detailed information on calculating and claiming the charitable donation tax credit is available on the same website at Giving to charity: Information for donors - Canada.ca.

Residents of the eight Canadian provinces in which the federal fuel charge (more commonly known as the federal carbon tax) is levied are entitled to claim and receive the federal Canada Carbon Rebate (CCR). That rebate (formerly known as the Climate Action Incentive Payment) is a non-taxable payment made four times a year (in April, July, and October of 2024 and January 2025) to help offset the cost of that federal carbon tax.

Residents of the eight Canadian provinces in which the federal fuel charge (more commonly known as the federal carbon tax) is levied are entitled to claim and receive the federal Canada Carbon Rebate (CCR). That rebate (formerly known as the Climate Action Incentive Payment) is a non-taxable payment made four times a year (in April, July, and October of 2024 and January 2025) to help offset the cost of that federal carbon tax.

For 2024, residents of Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, Newfoundland and Labrador, New Brunswick, and Prince Edward Island are eligible for the CCR. Unlike other federal credits, eligibility for the CCR is based solely on the province of residence of the individual, and is not affected in any way by the income of the person claiming it. Specifically, all individuals who were resident in Canada during the previous month and are resident in any of the above eight provinces on the first day of the month in which the rebate is paid are eligible to receive it, regardless of income.

The CCR has two elements – the basic rebate and the rural supplement. The amount of both will differ, depending on the taxpayer’s province of residence. The basic annual rebate amounts payable for the 2024-25 payment year (April 1, 2024 – March 31, 2025) are as follows.

                              First Adult     Second Adult     Each Minor Child

Alberta                       $900              $450                    $225

Saskatchewan             $752              $376                    $188

Manitoba                    $600              $300                    $150

Ontario                      $560              $280                     $140

Nova Scotia                $412              $206                     $103

New Brunswick           $380              $190                     $95

PEI                            $440              $220                     $110

Nfld and Labrador       $596              $298                     $149

The rural supplement, as the name implies, is provided to Canadians who live outside metropolitan areas and who are likely to have higher energy needs and consequently greater federal carbon tax expenditures. The rural supplement is calculated as a percentage of the basic rebate and was formerly equal to 10% of that basic rebate. However, that percentage amount has been increased, effective as of June 2024, to 20% of the basic rebate.

The increased rural supplement was not included in the April and July 2024 payments; consequently, the payment to be made on October 15 will include both the increased rural supplement for October, as well as retroactive payments for April and July.

While the general rules provide that the rural supplement is provided to Canadians who live outside metropolitan areas, all residents of Prince Edward Island automatically receive the rural supplement, and that is reflected in the figures shown above.

Unlike some other federal credit and rebate programs, there is no requirement for individual Canadians to file an application for the CCR for adults. However, in order to receive the CCR, all individuals must file an annual tax return with the Canada Revenue Agency, as information on that return is used to determine both eligibility (based on province of residence) and the amount of the available rebate (based on family composition) for the upcoming benefit year. There is no need to check any box or complete any particular line of the return in order to receive the basic rebate; however, individuals who are claiming the rural supplement (other than residents of PEI) must check off a box on page 2 of the federal income tax return, indicating that they are eligible for that supplement. Finally, in order to receive the CCR for a minor child, it is necessary that the child be registered for purposes of either the Child Tax Benefit program, or the GST/HST tax credit.

As shown above, a rebate amount is issued for each adult and each child in a family. However, only one global payment including rebate amounts for all family members is issued each quarter (around the 15^th of April, July, October, and January). Those payments (of both the basic rebate and the rural supplment) are made to the adult in the family whose tax return for the previous year is filed first. Where parents share custody of a child or children, 50% of the rebate for that child or children will be paid to each parent.

The Canada Carbon Rebate is among the easiest and most beneficial of the federal rebates and credits to qualify for and to claim, in that the only qualification needed is that the taxpayer be a resident of one of the provinces in which the federal carbon tax is levied, the only step needed to claim the rebate is the filing of an annual tax return, and finally, the full amount of the rebate (which can be as much as $1,800 annually for a family of four) is non-taxable and is received regardless of individual or family income.

The basic rules governing the Canada Carbon Rebate program are straightforward, and any needed computation of the amount of benefit claimable is done by the CRA when the taxpayer’s return is assessed. Taxpayers who have questions about the CCR can find detailed information on the program on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-carbon-rebate.html and https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4215.htm.

The Old Age Security (OAS) program is one of the two major federal benefit programs available to older Canadians – the other being the Canada Pension Plan (CPP). While both programs provide taxable monthly payments to Canadians, there are significant differences between the two. The Canada Pension Plan is a contributory system, with Canadians contributing a percentage of income earned during their working years, and with the amount of benefits receivable based on the amount of contributions made. By contrast, OAS benefits are paid out of general government revenues, with no requirement that recipients pay into the plan. The amount of the monthly OAS benefit is a fixed amount which is payable to anyone who has been resident in Canada for at least 40 years after the age of 18. (Reduced benefits are payable to those whose period of Canadian residence after the age of 18 is between 10 and 40 years.) For the fourth quarter of 2024 (October to December), that maximum monthly benefit for recipients under the age of 75 is $728., while benefit recipients aged 75 and older can receive up to $800. per month.

The Old Age Security (OAS) program is one of the two major federal benefit programs available to older Canadians – the other being the Canada Pension Plan (CPP). While both programs provide taxable monthly payments to Canadians, there are significant differences between the two. The Canada Pension Plan is a contributory system, with Canadians contributing a percentage of income earned during their working years, and with the amount of benefits receivable based on the amount of contributions made. By contrast, OAS benefits are paid out of general government revenues, with no requirement that recipients pay into the plan. The amount of the monthly OAS benefit is a fixed amount which is payable to anyone who has been resident in Canada for at least 40 years after the age of 18. (Reduced benefits are payable to those whose period of Canadian residence after the age of 18 is between 10 and 40 years.) For the fourth quarter of 2024 (October to December), that maximum monthly benefit for recipients under the age of 75 is $728., while benefit recipients aged 75 and older can receive up to $800. per month.

The other difference between the OAS and CPP programs is that eligible Canadians can begin to receive a CPP retirement benefit at age 60, but OAS benefits can start only once an individual turns 65. Formerly, OAS benefits were automatically paid to eligible recipients once they reached that age. Now, however, Canadians who are eligible to receive OAS benefits are able to defer receipt of those benefits for up to five years, to when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received increases by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%.

It can, however, be difficult to determine, on an individual basis, whether and to what extent it would make sense to defer receipt of OAS benefits. Some of the difficulty in deciding whether to defer – and for how long – lies in the fact there are no hard and fast rules, and the decision is very much an individual one. Fortunately, however, there are a number of factors which each individual can consider when making that decision.

The first such factor is how much total income will be required, at the age of 65, to finance current needs. It’s also necessary to determine what other sources of income (employment income from full- or part-time work, Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, annuity payments, and withdrawals from registered retirement savings plans (RRSPs) and registered retirement income fund (RRIFs)) are available to meet those needs, both currently and in the future, and when receipt of those income amounts can or will commence or cease. Once income needs and the sources and possible timing of each is clear, it’s necessary to consider the income tax implications of the structuring and timing of those sources of income. The tax rate payable on retirement income (as with all income) increases as income rises and, in addition, the availability of a number of federal tax credits and benefits is eroded at higher incomes. The ultimate goal, as it is at any age, is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits and benefits.

In making those calculations, the following income tax thresholds and benefit cut-off figures are a starting point.

• Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2024, that second income tax bracket begins when taxable income reaches $55,867.
• The Canadian tax system provides (for 2024) a non-refundable tax credit of $8,790 for taxpayers who are age 65 or older at the end of the tax year. The amount of that credit is reduced once the taxpayer’s net income for the year exceeds $44,325.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2024, the full credit is payable to individual taxpayers whose family net income is less than $44,324.
• Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits through a mechanism known as the “OAS recovery tax”, or clawback. Taxpayers whose net income for 2024 is more than $90,997 will have a portion of their future OAS benefits “clawed-back”.

What other sources of income are currently available?

More and more, Canadians are not automatically leaving the work force at the traditional retirement age of 65. Those who continue to work at paid employment and whose employment income is sufficient to finance their chosen lifestyle may well prefer to defer receipt of OAS. Similarly, a taxpayer who begins receiving benefits from an employer’s pension plan when they turn 65 may be able to postpone receipt of OAS benefits.

Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence?

Nearly all Canadians who were employed or self-employed after the age of 18 paid into the Canada Pension Plan and are eligible to receive CPP retirement benefits. While such retirement benefits can be received as early as age 60, receipt can also be deferred and received any time up to the age of 70. As is the case with OAS benefits, CPP retirement benefits increase with each month that receipt of those benefits is deferred. Taxpayers who are eligible for both OAS and CPP will need to consider the impact of accelerating or deferring the receipt of each benefit in structuring retirement income.  

Does the taxpayer have private retirement savings through an RRSP?

Receipt of a monthly pension from an employer-sponsored pension plan is no longer the reality for the majority of Canadian retirees; such retirees have generally saved for their retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to begin receiving income from those savings. There are a number of options available for structuring that income but, whatever the option chosen (usually converting the RRSP into a registered retirement income fund (RRIF) or purchasing an annuity), it will mean that the taxpayer will begin receiving taxable income amounts from those RRSP funds in each year after they turn 71. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider the tax impact that receipt of that additional taxable income amount from their RRSP will have in every future year.

The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing of each of those income sources must be considered, and none can be considered in isolation from the others.

Individuals who are undertaking that decision-making process will find some assistance on the Service Canada website. That website provides a very helpful Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. To use the calculator, it is necessary to know the amount of Canada Pension Plan benefit which will be received. Taxpayers who are registered for online access to My Service Canada Account can find that information there; those who are not can obtain that figure by calling Service Canada at 1-800 277-9914.

The Retirement Income Calculator can be found at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

In the 2024-25 Federal Budget released earlier this year, the federal government announced changes to the rules which govern mortgage lending in Canada. Those changes had two goals: making it easier for first-time home buyers to qualify for a mortgage, and providing an incentive to encourage the building of new residential properties in Canada. Finance Canada recently announced two additional changes to mortgage lending rules; the first of those changes builds on one of the Budget announcements, while the second reduces the amount of the down payment which some home purchasers are required to make.

In the 2024-25 Federal Budget released earlier this year, the federal government announced changes to the rules which govern mortgage lending in Canada. Those changes had two goals: making it easier for first-time home buyers to qualify for a mortgage, and providing an incentive to encourage the building of new residential properties in Canada. Finance Canada recently announced two additional changes to mortgage lending rules; the first of those changes builds on one of the Budget announcements, while the second reduces the amount of the down payment which some home purchasers are required to make.

To understand the purpose and impact of these changes, a bit of background on how mortgage lending works is necessary. In Canada, all home purchasers must make a down payment on the purchase price of a home. The current required minimum down payment is a percentage of the purchase price, as follows:

A mortgage is a loan obtained to help finance the purchase of a home, and the mortgage amount is the difference between the down payment made and the purchase price. Where any home purchaser makes a down payment of less than 20% of the purchase price of the property, they are required to obtain (and pay for) mortgage default insurance through the Canada Mortgage and Housing Corporation (CMHC). The home purchaser must, as well, repay that mortgage (known as a “high-ratio mortgage”) within 25 years (known as the “amortization period”). Where the down payment amount is more than 20% of the purchase price of the home, there is no limit on the length of time the homeowner can take to repay the full mortgage amount (although, as a practical matter, the maximum amortization period which most major mortgage lenders in Canada will provide is 30 years.).

In its Budget for the 2024-25 fiscal year, the federal government announced that an extended amortization period would be provided for first-time home buyers purchasing a new residential property. In July of this year, Finance Canada provided details of that change, announcing that mortgage lenders would be allowed to provide 30-year amortization periods on insured mortgages to all first-time home buyers who were purchasing a new residential property. In other words, the existing 25-year limit on amortization periods for high-ratio mortgages insured by the Canada Mortgage and Housing Corporation would be extended to allow for 30-year amortization periods – but only for first-time home buyers purchasing new residential properties. That change was effective as of August 1, 2024. On September 16, Finance Canada announced that eligibility for a 30-year amortization (that is, the option to repay a mortgage over 30 years rather than 25 years) would be expanded to become available to ALL first-time home buyers and to ALL buyers of new residential properties. That change will take effect on December 15, 2024.

In the same announcement made on September 16, changes were made to the rules which determine how large a down payment a home purchaser must make. Specifically, the current requirement to make a minimum 20% down payment on a home costing $1 million or more is increased to apply only to homes costing $1.5 million or more. That change is also effective for any mortgage taken out on or after December 15, 2024. As of that date, required down payments will be as follows:

As with all such measures, there are additional rules which must be consulted to determine eligibility for either an extended amortization period and/or the ability to make a lower down payment. Those rules are outlined in detail in a Backgrounder to the September 16 announcement; that Backgrounder can be found on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2024/09/delivering-the-boldest-mortgage-reforms-in-decades.html. The press releases for the July and September announcements are available on the same website at https://www.canada.ca/en/department-finance/news/2024/07/government-announces-30-year-amortizations-for-insured-mortgages-to-put-homeownership-in-reach-for-millennials-and-gen-z.html, and https://www.canada.ca/en/department-finance/news/2024/09/government-announces-mortgage-reform-details-to-ensure-canadians-can-access-lower-monthly-mortgage-payments-by-december-15.html.

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

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

They can be accessed below.

Corporate:

Issue #69 Corporate

Personal:

Issue #69 Personal

While the current state of the Canadian health care system is far from perfect, Canadians are nonetheless fortunate to have a publicly funded health care system, in which most major medical expenses are covered by provincial health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others – which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a 15% federal non-refundable medical expense tax credit (METC) to help offset out-of-pocket medical and para-medical costs which must be incurred.

While the current state of the Canadian health care system is far from perfect, Canadians are nonetheless fortunate to have a publicly funded health care system, in which most major medical expenses are covered by provincial health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others – which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a 15% federal non-refundable medical expense tax credit (METC) to help offset out-of-pocket medical and para-medical costs which must be incurred.

The difficulty for such individuals is that while the tax credit claimable is simple in concept, it can be difficult to determine just what kinds of expenses are claimable for purposes of that credit (not all are, and others are claimable only if certain criteria are met), the extent to which expenses can be claimed (only expenses which exceed a certain amount can be claimed, and that amount changes with the income of the taxpayer), and who should claim the expenses (usually, but not always, it makes more sense for the lower-income spouse to claim medical expenses incurred by the entire family).

It's not hard to see why taxpayers can become confused and frustrated when trying to file a claim for medical expenses on the annual return. However, the process of determining the available claim really comes down to answering three questions, as follows.

1. Which of my expenses are claimable and are there additional criteria imposed?
2. Of my total medical expenses, how much can I claim?
3. Should I or my spouse should make the claim for the medical expense tax credit?

Which of my expenses are claimable, and are there additional criteria imposed?

The good news for taxpayers is that there are a great number of different kinds of medical expenses which qualify for the medical expense tax credit, and the Canada Revenue Agency provides a detailed alphabetical (and searchable) listing of those expenses on its website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

While each of the medical expenses listed on the CRA website are eligible to be claimed for purposes of the medical expense tax credit, for each such expense it’s necessary to determine whether there are additional criteria which must be met in order to make that particular expense eligible for the credit.

Probably the most important criterion for most taxpayers is that, in some cases, a particular expense is only claimable if a prescription has been obtained from a medical doctor indicating a need on the part of the taxpayer to incur that expense. However, making a determination of when it’s necessary to obtain a prescription from a medical professional in order to ensure that the planned expenditure will qualify for the credit is far from intuitive. For instance, in order to claim the medical expense tax credit for the cost of a cane or a walker, it is necessary to obtain a prescription for that cane or walker. However, where costs are incurred to purchase a wheelchair, those costs are eligible for the medical expense credit, with no requirement that a prescription of any kind be obtained.

The listing of eligible medical expenses found on the CRA website does indicate the kinds of expenses for which a prescription is required; where the amount of a planned expenditure for a medical expense is significant, it’s well worth consulting the CRA website to ensure that the purchase is done in a way that will make it possible to claim the METC for the cost incurred.

Other types of medical expense costs can be claimed for purposes of the credit only where the person incurring that expenditure qualifies for the federal disability tax credit. Once again, the listing found on the CRA website indicates the types of expenditures to which this requirement applies.

Of my total medical expenses, how much can I claim?

Here again, the basic rule which determines how much a taxpayer can claim in a particular taxation year can be stated simply, but is more complex to apply. The basic rule is that for a taxation year a taxpayer can claim eligible medical expenses which exceed 3% of the taxpayer’s net income, or $2,759, whichever is less.

Put in more practical terms, the rule for 2024 is that any taxpayer whose net income for the year is $91,967 or less will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income of more than $91,967 will be limited to claiming qualifying expenses which exceed the $2,759 threshold.

Take, for example, a taxpayer who has $60,000 in net income for 2024 and incurs $3,400 in eligible medical expenses during the year. The computation of the available METC claim for 2024 is as follows. Based on the 3% of net income rule, the taxpayer will be entitled to claim medical expenses incurred which are more than $1,800 (3% of net income for the year). That taxpayer will therefore be able to claim $1,600 ($3,400 minus $1,800) in medical expenses for purposes of the METC.

The other aspect of determining the total expenses which can be claimed for purposes of the medical expense tax credit is that it’s possible to claim medical expenses which were incurred prior to the current tax year but weren’t claimed on the return for the year that the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending in 2024 will produce the greatest amount eligible for the credit. That determination will obviously depend on when medical expenses were incurred so there is, unfortunately, no universal rule of thumb which can be used.

Which spouse should make the claim for the medical expense tax credit?

Medical expenses incurred by family members – the taxpayer, their spouse, and children who are under the age of 18 at the end of 2024, as well as certain other dependent relatives – can be added together and claimed by either spouse. In most cases, it’s best to make that claim on the tax return of the lower-income spouse, in order to maximize the amount of claimable expenses (remembering that only expenses greater than 3% of net income can be claimed).

That said, it’s also necessary to ensure that the spouse making the claim has tax payable for the year. The reason for this is that the METC is a non-refundable credit, meaning that it can be used to reduce tax otherwise payable, but cannot create or increase a refund. So, in order to maximize the use of the METC in a year, it should be claimed by the spouse whose tax payable for the year is at least as much as the amount of the METC to be claimed.

As the end of the calendar year approaches, it’s a good idea to add up the medical expenses which have been incurred during 2024, as well as those paid during 2023 and not claimed on the 2023 return. Once those totals are known, it will be easier to determine whether to make a claim for 2024 or to wait and claim 2024 expenses on the return for 2025. And if the decision is to make a claim for 2024, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for that claim.

Finally, it’s a good idea to look into the timing of medical expenses which will have to be paid early in 2025. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis, or some expensive dental work) it may make sense, where possible, to accelerate the payment of those expenses to November or December 2024, where that means they can be included in 2024 totals and claimed on the return for this year.

The federal government provides a number of non-refundable tax credits and benefits to Canadians under the umbrella term “child and family benefits”, but likely the most widely available and most generous of those programs is the Canada Child Benefit (CCB).

The federal government provides a number of non-refundable tax credits and benefits to Canadians under the umbrella term “child and family benefits”, but likely the most widely available and most generous of those programs is the Canada Child Benefit (CCB).

The CCB is paid as a non-taxable monthly benefit to Canadian residents who have and live with one or more children under the age of 18 for whom they are primarily responsible. The CCB program, which was first introduced in 1993, replaced the former Family Allowance program, and has since gone through a number of iterations and name changes. What follows is a summary of what is available to Canadian families under the CCB program in 2024.

The CCB program has two types of benefits – the basic Canada Child Benefit (CCB) and a Child Disability Benefit (CDB). The first, the basic CCB, is provided to eligible residents of Canada who have one or more children who are under the age of 18 and who live with that child or children. The child disability benefit (CDB) is an additional monthly benefit intended to provide financial assistance to families who are caring for children who have a severe and prolonged impairment in physical or mental functions. Generally, where a child is eligible for the federal disability tax credit, parents who live with that child will be eligible to receive the CDB.

The current benefit year for both the CCB and the CDB runs from July 2024 to June 2025. During this benefit year, maximum benefits payable under the basic CCB are as follows:

• $7,787 per year ($648.91 per month) for each eligible child under the age of 6; and
• $6,570 per year ($547.50 per month) for each eligible child aged 6to 17.

Benefit eligibility under the CCB program is affected by family net income earned during the previous tax year. In other words, the amount of benefit which can be received during the 2024-25 benefit year is determined, in part, by the amount of family net income for 2023. For the 2024-25 benefit year, families having 2023 net income of $36,502 or less will receive the maximum CCB. Where that 2023 net income is greater than $36,502, the amount of benefit receivable is reduced by specified percentages and amounts, which are based on family net income and the number of children in the family. The actual benefit reduction percentages and amounts are as follows.

• For families with one eligible child, benefits are reduced by 7% of family net income between $36,502 and $79,087. Where family net income is more than $79,087, the benefit reduction is $2,981 plus 3.2% of family net income over $79,087.
• For families with twoeligible children, benefits are reduced by 13.5% of family net income between $36,502 and $79,087. Where family net income is more than $79,087, the benefit reduction is $5,749 plus 5.7% of family net income over $79,087.
• For families with three eligible children, benefits are reduced by 19.0% of family net income between $36,502 and $79,087. Where family net income is more than $79,087, the benefit reduction is $8,091 plus 8.0% of family net income over $79,087.

The Canada Disability Benefit provides eligible families with both an additional benefit amount and higher income thresholds which determine eligibility for that additional benefit amount. For the 2024-25 benefit year, the CDB provides up to $3,322 per year ($276.83 per month) for each child eligible for the disability tax credit (DTC). The CDB starts being reduced when family net income is more than $79,087, with the reduction calculated as follows: for families with one child eligible for the DTC, the reduction is 3.2% of the amount of 2023 family net income over $79,087, and for families with two or more children eligible for the DTC, the reduction is 5.7% of the amount of 2023 family net income over $79,087.

The number of variables – age of children, number of children and family net income – can make it difficult to easily calculate the amount of CCB or CDB for which a family is eligible during the current benefit year. To assist in that calculation, the federal government provides an online calculator which will determine that amount, based on information provided by the taxpayer. That online calculator can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/child-family-benefits-calculator.html.

There are two significant ways in which the CCB program differs from other federal tax credit and benefit programs. The first is that the CCB and CDB are paid once per month, throughout the benefit year (most other such credits are paid on a quarterly basis). CCB and CDB are paid around the 20^th of each month – a listing of actual payment dates during 2024 can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview/canada-child-benefit-payment-dates.html.

The second difference between the CCB and other programs is more significant – unlike some other programs, CCB amounts are not paid automatically to eligible recipients. In order to receive the CCB and the CDB, it is necessary both to apply for the benefit(s) and to file an annual tax return in order to ensure that benefit payments continue. Information on how to apply is available at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview/canada-child-benefit-apply.html.

The costs of raising children are many and varied, and the financial resources required have never been small. Over the past few years, increases in both interest rates and, especially, the rate of inflation have added to nearly every one of those costs to a significant degree. Receipt of a CCB payment each month can make a substantial contribution toward meeting those costs: a Canadian family which has two children, aged 5 and 7, and whose family net income for 2023 was $50,000 can receive just over $1,000 each month in tax-free benefits during the 2024-25 benefit year.

Finally, many (although not all) Canadian provinces and territories provide a benefit to families with children living in that province or territory, which is additional to any available federal CCB which a family can claim. Detailed information on both the federal and provincial/territorial child and family benefit programs can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview.html.

Canada’s tax system is a self-assessing one, meaning that the onus rests on individual taxpayers to file their annual return each spring and to pay any amounts owed. The compliance rate in Canada is high – most Canadian taxpayers comply with those tax obligations, filing returns and making any required payments on a consistent basis. Where such tax obligations aren’t met, however, the Canada Revenue Agency (CRA) has the authority to impose both penalties and interest charges.

Canada’s tax system is a self-assessing one, meaning that the onus rests on individual taxpayers to file their annual return each spring and to pay any amounts owed. The compliance rate in Canada is high – most Canadian taxpayers comply with those tax obligations, filing returns and making any required payments on a consistent basis. Where such tax obligations aren’t met, however, the Canada Revenue Agency (CRA) has the authority to impose both penalties and interest charges.

The types and amounts of penalties which can be assessed vary widely, depending on the nature of the non-compliance and, frequently, whether the taxpayer is a “repeat offender”. However, interest charges levied are always the same where taxes aren’t paid in full and on time, and those interest charges can be very substantial.

By law, the CRA charges interest at a rate which is four percentage points higher than commercial interest rates. For the third quarter of 2024, the CRA charges interest on outstanding tax amounts owed at a rate of 9.0%. More significantly, all such interest charges are compounded daily, meaning that each day the taxpayer is charged interest on both the tax amount owed and on the previous day’s interest charges. In such circumstances, interest charges can accumulate very quickly.

Where a failure to meet one’s tax obligations is simply the result of carelessness or negligence on the part of the taxpayer, it’s really not possible to avoid such charges. Sometimes, however, taxpayers fail to meet their tax obligations for reasons that are entirely outside their control. When that happens, the CRA may be willing to extend relief by forgiving interest and penalty charges, in whole or in part, through the Agency’s Taxpayer Relief Provisions.

It's important to note, at the outset, that while the CRA has issued guidelines on the circumstances in which interest and penalty relief may be provided, the decision to provide such relief is entirely discretionary on the Agency’s part – there is no right to interest and penalty relief. Second, while interest and penalty relief may be available to the taxpayer, no relief is provided with respect to actual tax amounts owed. No matter the circumstances, tax amounts owed must always be paid.

The guidelines issued by the CRA on when interest and penalty relief may be available fall into two general categories. The first addresses taxpayers who are unable to meet their tax obligations as the result of extraordinary circumstances. The first such circumstance is natural or man-made disasters which are, of course, becoming more and more common as each year increasing numbers of Canadians are forced to evacuate due to wildfires and floods. At such times, meeting one’s tax obligations is understandably a very low priority and, in the worst case scenario, the natural disaster which forced the evacuation may also result in the destruction of the taxpayer’s financial and tax records and supporting documentation, making it difficult or impossible to file returns or determine or pay amounts owed.

The other extraordinary circumstances in which the CRA is prepared to provide relief from penalty and interest charges are those which are specific to the taxpayer involved. As outlined on the CRA website, such circumstances generally involve either serious illness or accident, or serious emotional or mental distress, such as would result from a death in the taxpayer’s family.

Finally, the CRA is prepared to consider providing interest relief where the taxpayer is experiencing significant financial hardship. The CRA’s guidelines, as outlined on the Agency’s website, indicate that it would consider providing relief where paying interest amounts owed would make it difficult to provide basic necessities, such as food, medical help, transportation, or shelter, or where interest charges make up the majority of the amount owed and the taxpayer is unable to make a reasonable payment arrangement with the CRA.

In order to receive relief in situations of financial hardship, a taxpayer must be able to provide the CRA with detailed information on their current financial situation. That financial situation is outlined on a prescribed CRA form, which is available at Form RC376, Taxpayer Relief Request – Statement of Income and Expenses and Assets and Liabilities for Individuals. In addition to the information submitted on that form, the taxpayer must also provide supporting documentation, such as current mortgage statement(s), property assessment(s), rental agreement(s), loans and recurring bills, bank and credit card statements for the most recent three months, and current investment statements

Regardless of the reasons or circumstances which have led the taxpayer to submit an application for relief, the process of filing that application is the same. Taxpayers who have registered for the CRA online service My Account can file their application using that service. Those who are not registered for My Account, or would prefer filing a paper application, can find the required form on the CRA website at Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties and Interest. The address to which the completed form should be sent can be found on the last page of Form RC4288.

Whatever the method by which an application for relief is filed, the CRA will review the information submitted and make a determination of whether to cancel interest and/or penalty amounts owed, in whole or in part, in order to allow the taxpayer to pay off their tax debt. The factors considered by the Agency in determining whether to grant relief will, of course, depend in part on the circumstances giving rise to the application. In general, however, the Agency will consider the taxpayer’s tax return filing and payment history, whether the taxpayer knowingly let a balance owing exist (resulting in additional interest charges), whether reasonable care was taken in the management of the taxpayer’s tax affairs, and, finally, whether the taxpayer acted quickly to correct any delay or omission.

The CRA’s goal is to make a decision on straightforward applications made under its Taxpayer Relief Provisions within six months (180 days) after the application is received. However, not surprisingly, the Agency is currently receiving a higher-than-usual number of applications, meaning that the timeline for making decisions on those applications is now closer to eight months (or longer, for complex applications).

Where the taxpayer’s request is denied, they can make on online request to have the decision reviewed. If that decision is also negative, the only recourse is to ask a judge to review the CRA’s decision. In the great majority of cases, however, the cost of taking that step is likely to be greater than the amount of interest and penalties at issue.

In all cases, the best course of action for the taxpayer is to be proactive – to contact the CRA as soon as the taxpayer is aware that filing of a required return, or full payment of taxes owed, will not be possible. Taking the initiative and moving quickly to resolve the problem will both minimize the amount of interest which will accrue on unpaid taxes and will count in the taxpayer’s favour when the CRA considers whether to allow an application for waiver of those interest and penalty charges.

Detailed information on the Taxpayer Relief Provisions is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/taxpayer-relief-provisions.html.

The past five years have been a tough financial slog for most Canadian families, as they struggled to cope with the pandemic, followed by inflation which tripled from under 2% in mid-2020 to over 6% by the end of 2022, and, finally, interest rate increases which saw the Bank Rate go from less than 1% in April of 2020 to over 5% in April of 2024.

The past five years have been a tough financial slog for most Canadian families, as they struggled to cope with the pandemic, followed by inflation which tripled from under 2% in mid-2020 to over 6% by the end of 2022, and, finally, interest rate increases which saw the Bank Rate go from less than 1% in April of 2020 to over 5% in April of 2024.

While the relentless upward climb in both the rate of inflation and interest rates are finally showing signs of slowing, it’s nonetheless a fact that the cost of two truly non-discretionary components of a family budget – food and shelter – are still much more expensive than they were five years ago, and nearly all Canadian families are feeling the pinch.

While there’s plenty of financial pain to go around, one group of Canadians that is especially likely to be dealing with bad financial news in the near future is those who are renewing a mortgage. Home buyers who purchased a home five years ago and took out a five-year mortgage (as the majority do) likely got that mortgage at an interest rate of around 4% – or even less. Those seeking to renew that mortgage this year are likely facing renewal at a rate of at least 6%. That’s about a 50% increase in the mortgage interest rate, which can be enough to make the difference between a mortgage payment that is affordable, and one that is not.

To see why that’s the case, it helps to understand how mortgage payments are calculated. All mortgage payments are determined by three figures. The first is the size of the mortgage – the “principal amount”, which is the cost of the property purchased minus any downpayment made. The second is the interest rate which is charged on that principal amount. And the third is the length of time over which the principal amount of the mortgage is to be repaid – known as the “amortization period”.

Under Canadian law, anyone purchasing a home must make a down payment, and the amount of that downpayment depends on the purchase price of the property, as follows:

Where any home purchaser makes a down payment of less than 20% of the purchase price of the property, they must obtain mortgage default insurance through the Canada Housing and Mortgage Corporation (CHMC) and must, as well, repay that mortgage within 25 years. In other words, the maximum amortization period on a mortgage principal amount which represents more than 80% of the purchase of the property is 25 years. (Finance Canada recently announced that a 30-year amortization period would be allowed on some insured mortgages; however, that measure applies only as of August 1, 2024 and only to a relatively small group – first-time home buyers purchasing a newly-built property.)

Where the home purchaser makes a down payment of more than 20% (which would likely be the case for those who are already homeowners and are purchasing as part of a move up the “property ladder”), the length of the amortization period – the time frame in which the mortgage must be repaid – is not subject to that 25-year restriction. Rather, the length of that amortization period is something which is determined by agreement between the borrower and the financial institution which provides the mortgage financing.

The impact on monthly mortgage payments of a 2% change in a mortgage interest rate can be seen in the following example.

Assume that in 2019 a property owner sold their first home and, using the proceeds of that sale, is able to put down a $200,000 deposit on a home costing $650,000. The remainder of $450,000 of the purchase price is financed through a five-year mortgage at 4.0%, amortized over 25 years. The monthly mortgage payments are $2,367.

In 2024 that mortgage comes up for renewal, but the interest rate is now 6.0%, and the amortization period is now down to 20 years. Payments made over the previous five years have reduced the mortgage principal amount from $450,000 to $392,000, but the increased interest rate means that monthly payments will now be $2,800 – an increase of almost $450 per month, or $5,400 per year.

It's important to remember, as well, that mortgage payments are made out of after-tax income. In other words, in order to come up with the $5,400 per year needed to meet the increased mortgage payment obligations, a homeowner will either have to reallocate that $5,400 from the payment of other household expenditures, or will have to generate additional pre-tax income of almost $8,000 annually, which is $5,600 in after-tax income, assuming a marginal tax rate of 30%. Neither is a realistic scenario for most Canadian households right now.

Homeowners facing a mortgage renewal which will result in monthly mortgage payment obligations which cannot be met out of current household resources are between the proverbial rock and a hard place. Realistically, the only component of a mortgage over which a homeowner who is renewing that mortgage has any element of choice is the amortization period. The principal amount of the mortgage is the amount which was originally borrowed, less any principal repayments made, and can only be reduced by making additional payments. The interest rates in effect at the time of renewal are set by the lender and, while subject to negotiation, are not likely to be significantly less than the lender’s posted rates. Where a homeowner is facing an increase in monthly mortgage payments which simply aren’t manageable, the options are limited. The first is a sale of the home and the purchase of a smaller, less expensive property, but that’s rarely a situation which any homeowner wants to be forced into. The second option (with the agreement of the lender) is to extend the amortization period of the mortgage, in order to reduce monthly mortgage payments.

Extending the amortization period of a mortgage can have a dramatic effect on the amount of monthly mortgage payments, but it’s a choice that also comes with a cost, in the form of increased total interest payments over the life of the mortgage.

Continuing with the above example, assume that the homeowner who is renewing the mortgage at 6.0% for a five-year term chooses to extend the amortization period on that mortgage from the current 20 years to 30 years. (Although there is no legal limit on an amortization period for an uninsured mortgage, most major Canadian lending institutions do not provide amortizations of more than 30 years.)

The change in the amortization period from 20 years to 30 years will result in a monthly mortgage payment of $2,332 on a principal amount of $392,000 at 6% interest, meaning that the new mortgage payment amount will be slightly less than it was over the previous five years since the home was purchased, making it a manageable amount for the homeowner.

The cost of making this choice lies in the amount of interest which is paid on the mortgage over that amortization period, and that cost can be very substantial. If the homeowner had renewed their mortgage based on a 20-year amortization and a monthly mortgage payment of $2,800, the amount of interest which would be paid over that 20-year period would be $278,000. If the amortization period is changed to 30 years, reducing the monthly mortgage payment to $2,332, the amount of interest that would be paid over that 30-year period will be $447,000. Choosing to extend an amortization is a very consequential financial decision.

As is almost always the case in financial planning, there isn’t a “right” answer – the right course of action depends almost entirely on the individual circumstances involved. For homeowners who are faced with a choice between extending an amortization period or being forced into either defaulting on the mortgage or selling the house, the decision to extend an amortization period may well be justified in the circumstances. However, where the choice made is to extend an amortization period, it’s important to treat that decision as a short-term measure taken solely to gain some temporary financial relief. A homeowner who extends the amortization period on a mortgage for the upcoming mortgage term can (and should, if at all possible) plan to reduce that mortgage amortization period at the next mortgage renewal date. As well, if and when household finances improve over the next five years, any available funds should be used to make additional payments on the mortgage or, where such additional payments aren’t allowed, to set such funds aside to make a lump-sum payment at the time of the next renewal. Both measures will work to reduce the amount of interest which must be paid over the life of the mortgage.

Being unable to afford one’s mortgage payments and facing the prospect of going into default on the mortgage is a situation that most homeowners would do almost anything to avoid. Those are undeniably stressful circumstances, but in most cases solutions are possible. The federal government, through the Financial Consumer Agency of Canada, provides an extremely useful webpage (at https://www.canada.ca/en/financial-consumer-agency/services/mortgages.html) which contains a wealth of information on mortgages and mortgage financing. That webpage includes a Mortgage Calculator (found at https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MC-CH-eng.aspx) which can be used to calculate the effect that different interest rates and amortization periods will have on both the amount of monthly mortgage payments and total interest costs which will be paid over the life of the mortgage. Taking the time to do so will enable a homeowner facing a mortgage renewal to make the most informed choice in their particular circumstances.

Members of the baby boom generation who were born between 1946 and 1965 are now between 59 and 78 years of age, and make up about a quarter of the Canadian population. Many, if not most, are now retired, and the older members of that generation are likely experiencing the changes to physical health, strength, and agility that come with age. The process of aging is an extremely variable one – some individuals are healthier and more active at age 80 than others are at 60, but the physical changes that accompany aging come, inevitably, to everyone. And when those changes take place, it’s necessary to make some hard decisions about a number of things.

Members of the baby boom generation who were born between 1946 and 1965 are now between 59 and 78 years of age, and make up about a quarter of the Canadian population. Many, if not most, are now retired, and the older members of that generation are likely experiencing the changes to physical health, strength, and agility that come with age. The process of aging is an extremely variable one – some individuals are healthier and more active at age 80 than others are at 60, but the physical changes that accompany aging come, inevitably, to everyone. And when those changes take place, it’s necessary to make some hard decisions about a number of things.

One of the most consequential decisions to be made when age-related physical changes become a factor in decision-making is whether one’s current living arrangements are still suitable. The overwhelming choice of older Canadians is to “age in place” – that is, to remain in the homes they already occupy, living independently in a familiar community and close to family and friends. While that’s the ideal, existing living arrangements can, in some cases, no longer meet the needs of the individual, or can even be unsafe.

Almost always, changes can be made to an existing home to make it both more convenient and safer to live in for an older resident. Those changes can range from something as small as the installation of a grab bar in a shower or bath to something as extensive as renovations which will allow for one-floor living. All such changes, however, come with a price tag. Fortunately, the federal government (and some provincial governments) offer programs to help mitigate that cost.

The federal program – the Home Accessibility Tax Credit (HATC) – allows individuals who own and live in their own homes to claim a non-refundable tax credit equal to 15% of the cost of making permanent changes to their home which will make it more accessible or safer for them to live in.

The HATC is in many ways an unusually flexible and generous tax credit. First, the criteria which determine whether a particular expenditure does or does not qualify for the credit are extremely broad, covering both safety and convenience. Specifically, changes made which meet either of the following criteria can qualify for the HATC. Changes made must:

• allow the individual to gain access to, or be mobile or functional within, the dwelling; or
• reduce the risk of harm to the individual within the dwelling or in gaining access to the dwelling.

Second, there is no requirement for any kind of assessment or certification by a medical professional that a particular kind of change to the home is needed, or is justified by the homeowner’s state of physical ability or disability – such determination is made solely by the owner/resident of the home. Where a homeowner decides that the installation of a railing along a hallway in their home, or a change to a non-slip floor in the bathroom, are necessary for their mobility or safety within the home, then the cost of making those changes can qualify for the credit.

Third, expenses incurred for purposes of the HATC can also be claimed as medical expenses for purposes of the medical expense tax credit. In other words, two different tax credits can be claimed for the same expenditure.

Finally, the credit can be claimed by all “qualifying individuals” meaning anyone who is age 65 or older by the end of the year in which the expenditure is made, or who is eligible for the disability tax credit. There are no income thresholds imposed – the full credit is claimable by any qualifying individual who incurs an eligible expenditure, regardless of their income.

While the eligibility criteria for expenditures under the HATC are very broad, the credit is intended to assist with the cost of changes which become a permanent part of the dwelling, and not those that represent regular maintenance costs or charges for household services. The following types of expenses are specifically not eligible for the HATC:

• amounts paid to acquire a property that can be used independently of the qualifying renovation;
• the cost of annual, recurring, or routine repairs or maintenance;
• amounts paid to buy household appliances;
• amounts paid to buy electronic home-entertainment devices;
• the cost of housekeeping, security monitoring, gardening, outdoor maintenance, or similar services;
• financing costs for the qualifying renovation; or
• the cost of renovation incurred mainly to increase or maintain the value of the dwelling.

In order to qualify for the credit, eligible expenditures must be made to a “housing unit” which is owned and occupied by the person making the claim. That housing unit could be a detached or semi-detached or row house, or a condominium or co-op unit.

Where a qualifying individual (that is, someone who is age 65 or older, or who is eligible for the disability tax credit) lives with and is dependent on another family member (generally, a parent, grandparent, child, grandchild, sibling, aunt, uncle, nephew, or niece) who owns the home in which they both live, that family member can also make a claim for the HATC for changes made to the home to assist their older or disabled relative. For this purpose, such family members are characterized as “eligible individuals”.

Finally, there is a limit on the amount of expenditures which can be claimed for purposes of the HATC, and that limit is $20,000 per year for a particular dwelling. The tax credit claimable is 15% of the eligible expenditure, such that the maximum tax credit which can be claimed is $3,000 per year. The HATC is a non-refundable tax credit, meaning that it can reduce or eliminate federal tax payable, but cannot create or increase a refund. Where the amount of the credit exceeds the tax payable by the qualifying individual and so cannot be fully utilized, the claim can be split between that qualifying individual and any family member who qualifies as an “eligible individual”, as outlined above.

The federal HATC can be claimed by qualifying individuals and eligible individuals who are resident in any province or territory in Canada. Several of those provinces and territories provide similar programs to help offset the cost of incurring such home accessibility changes, but there is unfortunately no uniformity among those programs. Both eligibility criteria (age, income, etc.) and the type of assistance provided (loan, forgiveable loan, refundable or non-refundable tax credits) are different in each province or territory which offers such assistance. However, information on those programs is available on the particular provincial government website, and can usually be found by searching "seniors' home renovations” on those websites.

Detailed information on the federal HATC is available on the federal government 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-31285-home-accessibility-expenses.html.

In most cases, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences – a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

In most cases, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences – a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

Unfortunately, while there are some circumstances in which such a deduction can be claimed, those circumstances don’t usually include the routine reasons – purchasing a home, getting a divorce, establishing custody rights, or seeking legal advice about making a will or managing a family estate – for which most Canadians incur legal fees. Generally, personal (as distinct from business-related) legal fees become deductible for most Canadian taxpayers only where they are seeking to recover amounts which they believe are owed to them, particularly where those amounts involved employment or employment-related income or, in some cases, family support obligations.

The first situation in which legal fees paid may be deductible is that of an employee seeking to collect (or to establish a right to collect) salary or wages. In all Canadian provinces and territories, employment standards laws provide that an employee who is about to lose his or her job (for reasons not involving fault on the part of the employee) is entitled to receive a specified amount of notice, or salary or wages equivalent to such notice. In many cases, however, the employee can establish a right to a period of notice (or payment in lieu) greater than the statutory minimum. The amount of notice or payment in lieu of notice which is payable can then become a matter of negotiation between the employer and its former employee, and such negotiations usually involve legal representation and consequently, legal fees. In that situation, legal fees incurred by the employee to establish a right to amounts allegedly owed by the employer are deductible by that former employee. If a court action is necessary and the Court requires the employer to reimburse its former employee for some or all of the legal fees incurred, the amount of that reimbursement must be subtracted from any deduction claimed. In other words, the former employee can claim a deduction only for legal fees which they were personally required to pay in order to collect wages or salary owed and for which they were not reimbursed.

In some situations, an employee or former employee seeks legal help in order to collect or to establish a right to collect a retiring allowance or pension benefits. In such situations, the legal fees incurred can be deducted, up to the total amount of the retiring allowance or pension income actually received for that year (but not including any amounts received which were transferred to the individual’s registered pension plan or registered retirement savings plan). Where the amount of legal fees incurred is greater than the total retiring allowance or pension amount received in the year, the excess can be carried forward and claimed in any of the subsequent seven tax years.

The rules covering the deduction of legal fees incurred where an employee claims amounts from an employer or former employer are relatively straightforward. The same, unfortunately, cannot be said for the rules governing the deductibility of legal fees paid in connection with family support obligations. Those rules have evolved over the years in a somewhat piecemeal fashion – the current rules are as follows.

Legal fees incurred by either party in the course of negotiating a separation agreement or obtaining a divorce are not deductible. Such fees paid to establish child custody or visitation rights are similarly not deductible by either parent. 

Where, however, one former spouse has the right to receive support payments from the other, there are circumstances in which legal fees paid in connection with that right are deductible. Specifically, legal fees paid for the following purposes will be deductible by the person receiving those support payments:

• to collect overdue support payments owing;
• to establish the amount of support payments from a current or former spouse or common-law partner;
• to establish the amount of support payments from the legal parent of one’s child (who is not a current or former spouse or common-law partner), but only where that support is payable under the terms of a court order; or
• to try to get an increase in support payments.

As well, the recipient of support payments can deduct legal fees incurred to try to make child support payments non-taxable.

On the payment side of the support payment/receipt equation, the situation is not nearly so favourable, as a deduction for legal fees incurred will not generally not be allowed to a person paying support. More specifically, as outlined on the Canada Revenue Agency (CRA) website, a payer of support cannot claim legal fees incurred to establish, negotiate, or contest the amount of support payments.

Finally, where the Canada Revenue Agency reviews or challenges income amounts, deductions, or credits reported or claimed by a taxpayer for a tax year, any fees paid for advice or assistance in dealing with the CRA’s review, assessment, or reassessment, or in objecting to that assessment or reassessment, can be deducted by the taxpayer.  A deduction can similarly be claimed where the taxpayer incurs such fees in relation to a dispute involving employment insurance, the Canada Pension Plan, or the Québec Pension Plan.

Detailed information on the rules which govern the deduction of legal fees incurred is available on the Canada Revenue Agency 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-23200-other-deductions.html#toc2. The specific rules which govern the deductibility of legal fees relating to support obligations are outlined in the CRA publication P102 Support Payments, which can be found on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p102.html.

By the middle of August, most students who are beginning post-secondary education this fall have hopefully received an offer of admission from their college or university of choice and are in the final stages of planning the move away from the family home for the first time. While deciding where to live and choosing courses for the upcoming fall semester is undoubtedly exciting, the hard reality is that all such choices come with a price tag – sometimes a very steep one. Regardless of geographic location, housing arrangements, or program choices, post-secondary learning is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in a university residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

By the middle of August, most students who are beginning post-secondary education this fall have hopefully received an offer of admission from their college or university of choice and are in the final stages of planning the move away from the family home for the first time. While deciding where to live and choosing courses for the upcoming fall semester is undoubtedly exciting, the hard reality is that all such choices come with a price tag – sometimes a very steep one. Regardless of geographic location, housing arrangements, or program choices, post-secondary learning is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in a university residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

Fortunately for students (and the parents who are likely footing much of the bill), there are tax credits and benefits which can be claimed to offset such costs: the credits and benefits which can be claimed by post-secondary students (or their spouses, parents, or grandparents) in relation to the upcoming 2024-25 academic year are summarized below.

Tuition fees

A federal 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 claim a non-refundable federal tax credit equal to 15% of such tuition costs. Many of the provinces and territories (excepting Alberta, Ontario, and Saskatchewan) also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.

The charges imposed on post-secondary students under the heading of “tuition” include a myriad of costs which may differ, depending on the particular program or institution, and not all of those costs will qualify as “tuition” for purposes of the tuition tax credit. The following specific amounts do, however, constitute eligible tuition fees for purposes of the tuition tax credit:

• Admission fees;
• Charges for use of library or laboratory facilities;
• Exemption fees;
• Examination fees (including re-reading charges);
• Application fees (but only if the student subsequently enrolls in the institution);
• Confirmation fees;
• Charges for a certificate, diploma, or degree;
• Membership or seminar fees that are specifically related to an academic program and its administration;
• Mandatory computer service fees; and
• Academic fees.

The following charges, however, do not constitute tuition fees for purposes of the credit:

• Extracurricular student social activities;
• Medical expenses;
• Transportation and parking;
• Board and lodging;
• Goods of enduring value that are to be retained by students (such as a microscope, uniform, gown, or computer);
• Initiation fees or entrance fees to professional organizations, including examination fees or other fees;
• Administrative penalties incurred when a student withdraws from a program or an institution;
• The cost of books (other than books, compact disks, or similar material included in the cost of a correspondence course); and
• Courses taken for purposes of academic upgrading to allow entry into a university or college program. These courses would usually not qualify for the tuition tax credit as they are not considered to be at the post-secondary school level.

Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, such fees and charges are limited to $250 unless the fees are required to be paid by all full-time students or by all part-time students.

At both the federal and provincial levels, the credit is a non-refundable one, meaning that it can reduce or eliminate tax otherwise payable, but cannot create or increase a tax refund. Where, as is often the case, a student doesn’t have tax payable for the year because their income isn’t high enough, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent, or grandparent.

Rent, food, and other personal and living expenses

Unfortunately, although housing and food costs will take up a very big chunk of each student’s budget, there is not (and never has been) a tax deduction or credit which is claimable for such costs. In all cases, living costs incurred by a post-secondary student (whether on campus or off) are characterized as personal and living expenses, for which no tax deduction or credit is allowed.

Student debt

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 15% federal tax credit can be claimed for the amount of interest being paid on such debt, in some circumstances. And, while other types of credits related to post-secondary education (like the tuition tax credit) can be transferred to and claimed by other family members, the student loan interest tax credit can be claimed only by the student – no transfer of the credit is allowed.

Students who are still in school and arranging for loans to finance their education should be mindful of the rules which govern that student loan interest tax credit, since decisions made while still in school with respect to how post-secondary education will be financed can have tax repercussions down the road, after graduation. That’s because while interest paid on a qualifying student loan is eligible for the credit, only some types of student borrowing will qualify for that credit. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.

It’s not uncommon for students (especially 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 which is used to finance education costs) will never be eligible for the student loan interest tax credit.

As explained in the Canada Revenue Agency 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”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit.

Students who are contemplating borrowing from a financial institution rather than getting a government student loan (or considering a consolidation loan which incorporates that government 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 tax credit on that borrowing in future years.

Finally, the federal government announced, in 2023, that interest would no longer be charged on Canada Student Loans, effective as of April 1, 2023 (although graduates are still responsible for any interest which was levied and accumulated prior to that date). Provincial and territorial student loan programs are not affected by the federal announcement and such loans may still be subject to interest charges, depending on the province. Where interest is levied on a loan provided under a government (federal or provincial) student loan program, that interest will be eligible for the student loan interest tax credit, as outlined above.

Other credits and deductions

While the available student-specific deductions and credits are more limited than they were in previous taxation years, there are nonetheless a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary student (for instance, deductions for moving costs). The Canada Revenue Agency publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The current version of that guide (which was last updated in May 2024), entitled Students and Income Tax, is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html.

During the 2024 calendar year, hundreds of thousands of Canadians will reach their 71^st birthday, and a significant percentage of that group are likely to have saved money for retirement through a registered retirement savings plan (RRSP). Every one of those individuals, whether they are retired, partly retired, or still in the work force, and regardless of the amount of savings accumulated in their RRSPs, will be required, by the end of the calendar year, to make a decision on how to structure and invest their retirement income for the remainder of their lives.

During the 2024 calendar year, hundreds of thousands of Canadians will reach their 71^st birthday, and a significant percentage of that group are likely to have saved money for retirement through a registered retirement savings plan (RRSP). Every one of those individuals, whether they are retired, partly retired, or still in the work force, and regardless of the amount of savings accumulated in their RRSPs, will be required, by the end of the calendar year, to make a decision on how to structure and invest their retirement income for the remainder of their lives.

The need to make that decision arises from the rule that all taxpayers who hold funds within an RRSP are required to collapse that RRSP by the end of the calendar year in which they turn 71 years of age – no exceptions and no extensions. It’s a very significant decision, as the course of action chosen will affect the individual’s income for the remainder of their life and, in some cases, actions taken cannot be undone.

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

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

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

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

The annuity route has the great advantages of simplicity and reliability. In exchange for a lump-sum amount paid by the taxpayer, the issuer of the annuity agrees to pay the taxpayer a specific sum of money, usually once a month, for the remainder of their life. Annuities can also provide a guarantee period, in which the annuity payments continue for a specified time period (five years, 10 years), even if the taxpayer dies during that time. Finally, annuities can be set up as joint annuities, in which annuity payments will continue until the death of the last annuitant – such joint annuities are most often purchased by spouses. Regardless of how the annuity is structured, the amount of monthly income which can be received is determined by the amount used to purchase the annuity, and also by the gender and, especially, the age of the annuity purchaser(s).

The other factor influencing the amount of income which can be received from an annuity is the interest rates which prevail at the time the annuity is purchased. Between 2009 and 2022, interest rates were so low that an annuity purchase had very little to recommend it. Beginning in early 2022, however, the Bank of Canada increased its benchmark rate several times, and annuity payment rates increased as a result. Currently (as of July 2, 2024) annuity rates for each $100,000 paid to the annuity issuer by a taxpayer who is 70 years of age range from $630 to $662 per month for a male taxpayer and from $574 to $613 for a female taxpayer (the actual rate is set by the company which issues the annuity, and will differ slightly from company to company). Those rates do not include any guarantee period.

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

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

Where a taxpayer holds savings in an RRIF, they can invest those funds in the same investment vehicles that were used while the funds were held in an RRSP. And, as with an RRSP, investment income earned by funds held inside an RRIF are not taxed as they are earned. While the ability to continue holding investments that can grow on a tax-sheltered basis provides the taxpayer with a lot of flexibility, that flexibility has a price in the form of investment risk. As is the case with all investments, investments held within an RRIF can increase in value – or decrease – and the taxpayer carries the entire investment risk. When things go the way every investor wants them to, investment income is earned while the taxpayer’s underlying capital is maintained, but that result is never guaranteed.

On the death of an RRIF annuitant, any funds remaining in the RRIF can pass to the RRSP or RRIF of the annuitant’s spouse on a tax-free basis. Where there is no spouse, the balance of funds in the RRIF will be treated, for tax purposes, as income to the RRIF annuitant in the year of death, and must be reported as income on the tax return for the year of death.

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

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

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

As of July 2024, the maximum OAS benefit for most Canadians (specifically, those who have lived in Canada for 40 years after the age of 18) is about $718 ($790 for those aged 75 and older) per month. The amount of CPP benefits receivable by the taxpayer will vary, depending on their work history, but the maximum current benefit which can be received at age 65 is about $1,365. As a result, a single taxpayer who receives the maximum CPP and OAS benefits at age 65 will have $25,000 in annual income ($2,083 per month). And, for a married couple, of course, the total annual income received from CPP and OAS can be about $50,000 annually, or $4,166 per month. While $25,000 a year isn’t usually enough to provide a comfortable retirement, for those who go into retirement in good financial shape – meaning, generally, without any debt – it can go a long way toward meeting non-discretionary living costs. In other words, most Canadians who are facing the annuity versus RRIF decision already have a source of income which is effectively guaranteed for their lifetime and which is indexed to inflation. Taxpayers who are considering the purchase of an annuity to create the income stream required to cover non-discretionary expenses should first determine how much of those expenses can already be met by the combination of their (and their spouse’s) CPP and OAS benefits. The amount of any needed annuity purchase can then be set to cover off any shortfall.

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

Most Canadians contemplate retirement with a mixture of anticipation and trepidation. While the benefits of an end to the day-to-day grind of work and commuting (while also having more free time to spend with family and friends) are undeniable, giving up a regular paycheque also means experiencing a degree of financial anxiety. For the majority of Canadians who are not members of a defined benefit pension plan, the overriding concern is how to manage retirement savings in a way that will generate sufficient income to provide a comfortable retirement, while still ensuring that accrued savings will last the remainder of one’s life. How, in other words, to avoid the dismal prospect of outliving one’s savings, or spending too much early in retirement and being left with insufficient income to meet one’s expenses late in life? And, of course, it’s impossible to find a definitive answer to that question, since none of us knows what the future holds, in terms of either health or longevity.

Most Canadians contemplate retirement with a mixture of anticipation and trepidation. While the benefits of an end to the day-to-day grind of work and commuting (while also having more free time to spend with family and friends) are undeniable, giving up a regular paycheque also means experiencing a degree of financial anxiety. For the majority of Canadians who are not members of a defined benefit pension plan, the overriding concern is how to manage retirement savings in a way that will generate sufficient income to provide a comfortable retirement, while still ensuring that accrued savings will last the remainder of one’s life. How, in other words, to avoid the dismal prospect of outliving one’s savings, or spending too much early in retirement and being left with insufficient income to meet one’s expenses late in life? And, of course, it’s impossible to find a definitive answer to that question, since none of us knows what the future holds, in terms of either health or longevity.

Typically, expenses are higher early in retirement, when retirees are likely to be healthier and more active, and retirement plans may include travel and the pursuit of hobbies and interests. However, while such activities and their associated costs likely dwindle as retirees age, other types of expenses come into play – especially expenses related to the need to pay for medical costs, household and personal services, and, ultimately, the prospect of paying for personal and/or medical care in an assisted living facility. The prospect of such future costs can make retirees reluctant to spend accrued savings (or annuity income), out of concern that such funds will be needed in the future to pay for care.

The worry about reaching an age where some degree of care is required (and must be paid for) is an entirely realistic one for retirees. According to Statistics Canada’s figures, the average Canadian who has reached the age of 75 has a life expectancy of another 12 years. And, since that figure represents an average, a significant number of 75-year-olds can expect to live longer than that. Again, according to StatsCan figures, in 2023 there were over 896,000 Canadians aged 85 or older.

With all of these demographic and financial realities in mind, a new kind of annuity – the advanced life deferred annuity, or ALDA – was created in 2019 and is now available to Canadians in the annuities marketplace. As is the case with all annuities, the issuer of an ALDA agrees, in exchange for receiving a specified lump sum amount, to provide an annual income of a specified amount to the annuitant. The difference, however, is while an ALDA can be taken out at any time, payments under the ALDA can be deferred to as late as the end of the year in which the annuitant turns 85.

For example, a retiree who turns 71 in 2024 and who has accumulated $500,000 in retirement savings could transfer $400,000 from his or her RRSP to an RRIF, and use the remaining $100,000 to purchase an ALDA, under which payments would begin at age 85. The retiree now has the security of knowing that the $400,000 held in the RRIF (plus any additional amounts earned from investment returns) doesn’t need to last for the unknown number of years remaining in their life, but instead for a specified period of time (in this case, 14 years), at which time the income stream from the ALDA will begin, to augment or replace the income from the RRIF.

There is a limit on the amount which can be used to purchase an ALDA. That limit is 25% of the amount held in an individual’s RRSP or RRIF, to a lifetime maximum. That lifetime maximum is indexed to inflation and stands at $170,000 for 2024. Taking the example outlined above, the retiree who has accumulated $500,000 in RRSP savings would be using 20% of that amount (or $100,000) to purchase the ALDA, and would be safely under the $170,000 lifetime limit.

While the security provided by such a retirement income structure would certainly be welcome to most retirees, the obvious concern where payments under an annuity are deferred is the possibility that the annuitant won’t live long enough to collect those payments, and that the funds expended to purchase the ALDA will effectively be wasted. There are two options to address that (legitimate) concern. First, an ALDA can be structured as a “joint-life” contract, under which payments will be made to the surviving annuitant (most often the spouse of the ALDA purchaser) for the remainder of their life. It’s also possible to structure the ALDA to provide for a lump sum death benefit to be paid to a beneficiary or beneficiaries (for example, the annuitant’s children) on the death of the annuitant. That death benefit can be any amount up to the amount of the original ALDA purchase, minus any amounts already paid out to the original annuitant. So if the original ALDA purchase was for $100,000 and $25,000 in benefits under the ALDA were paid out prior to the death of the original annuitant, the maximum death benefit amount would be $75,000.

Being able to have certainty of income for one’s very old age is a major benefit of purchasing an ALDA. There is, however, another benefit to be obtained, and that is income and tax deferral.

All Canadians who hold savings in an RRSP must collapse that RRSP by the end of the year in which they turn 71 and, in most instances, such individuals open an RRIF and transfer funds held in the RRSP to that RRIF. Once funds are held in an RRIF, a specified percentage of those funds must be paid out in each year to the RRIF holder. All such withdrawals constitute taxable income to the holder of the RRIF, and that taxable income can affect the RRIF holder’s eligibility for certain tax credits and benefits, like the age credit, Old Age Security benefits, and the GST/HST tax credit. Even if the RRIF holder does not actually need the total amount which must be withdrawn, there is no option to withdraw a lesser amount, and all funds withdrawn are treated as taxable income which can affect eligibility for tax credits and benefit – with no exceptions.

Where an RRIF holder purchases an ALDA, the amount used for that purchase is no longer included in the total balance on which the calculation of required RRIF withdrawals is based. Continuing the above example, if the RRIF holder used $100,000 of their retirement savings to purchase the ALDA, the amount which they would subsequently be required to withdraw from the RRIF each year would be calculated as a percentage of the remaining $400,000 – not the $500,000 which was held in the RRIF prior to the purchase of the ALDA.  Both the RRIF holder’s required income and their tax payable for the year will therefore be lower, and the loss of partial or full eligibility for tax credits and benefits will be less likely.

As is the case with most annuities, the terms of an ALDA (purchase amount, single vs. joint annuity, existence of a death benefit, age at which the income stream begins) are up to the ALDA purchaser and the issuer, as long as the basic tax rules governing such plans are adhered to. Everyone’s financial, health, and tax circumstances are different and, as is the case with any retirement income plan, those particular circumstances will drive the decisions made on the best retirement income structure for that individual. Purchasing an ALDA may be the right approach for some retirees, but not for others – but for everyone, having that option adds another element of flexibility to retirement income planning.

More information on ALDAs can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/alda.html.

By the time summer arrives, nearly all Canadians have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their tax refund or, more grudgingly, paid any balance of tax owing.

By the time summer arrives, nearly all Canadians have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their tax refund or, more grudgingly, paid any balance of tax owing.

It’s a surprise, therefore, when unexpected mail arrives from the Canada Revenue Agency (usually in mid- to late July), and the information in that mail will likely be both unfamiliar and unwelcome. Specifically, the enclosed Instalment Reminder form will advise the recipient that, in the view of the CRA, they should make instalment payments of income tax on September 15 and December 15 of 2024 – and will helpfully identify the amounts which should be paid on each date.

No one particularly likes receiving unexpected mail from the tax authorities, and correspondence which suggests that the recipient should be making payments of income tax for 2024 to the CRA during the year (instead of when they file the return for 2024 in April 2025) is likely to be both perplexing and somewhat alarming. It’s fair to say that most Canadians aren’t familiar with the payment of income tax by instalments, and are therefore at a loss to know how to proceed the first time they receive an Instalment Reminder.

The reason that the instalment payment system is unfamiliar to most Canadians is that most of us pay income taxes during our working lives through a different system. Every Canadian employee has tax automatically deducted from their paycheque (“at source”), before that paycheque is issued, and that tax is remitted by the employer to the CRA on the employee’s behalf. Such deductions and remittances accrue to the employee’s benefit, and they are credited with those remittances when filing the annual tax return for that year. It’s an efficient system, but it’s also one which is largely invisible to the employee, and certainly one which operates without the need for the employee to take any steps on their own.

Where an individual is no longer an employee – for instance, they start a business and become self-employed, or retire and begin to receive retirement income from various government and non-government sources – such deductions and remittances are no longer automatically made. However, Canadian tax rules provide that, where the amount of tax owed when a return is filed by the taxpayer is more than $3,000 ($1,800 for Québec residents) in the current (2024) year and either of the two previous (2022 and 2023) years, that taxpayer may be subject to the requirement to pay income tax by instalments.

The reason that first instalment reminders are issued in August has to do with the schedule on which Canadians file their tax returns. The amount of tax payable on filing for the immediately preceding year can’t be known until the tax return for that year has been filed and assessed, and the tax return filing deadline for individuals is April 30 (or June 15 for self-employed taxpayers and their spouses). Consequently, by the middle of July, the CRA will have the information needed to determine whether a particular taxpayer should receive a first instalment reminder for the current year.

Taxpayers who receive that first Instalment Reminder in July may also be puzzled by the fact that it is a “Reminder” and not a “Requirement” to pay. The reason for that is that those who receive it are not actually required by law to make instalment payments of tax. There are, in fact, three options open to the taxpayer who receives an Instalment Reminder.

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 they will not have to pay any interest or penalty charges even if they have to pay an additional amount on filing in the spring of 2024. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2024, they will of course receive a refund on filing.

Second, the taxpayer can make instalment payments based on the total amount of tax which was owed and paid for the 2023 tax year (including any balance that was owed on filing). If a taxpayer’s income has not changed between 2023 and 2024 and their available deductions and credits remain the same, the likelihood is that total tax liability for 2024 will be slightly less than it was in 2023, owing to the indexation of tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which they will actually owe for 2024 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2023 to 2024 and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this approach can obtain the information needed to estimate current year taxes (federal and provincial tax brackets and rates) on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#federal.

All of this may seem like a lot of research and calculation effort, especially when one considers that many Canadians don’t even prepare their own tax returns. And those who don’t want to be bothered with the intricacies of tax calculations can pay the amounts set out in the Instalment Reminder, secure in the knowledge that they will not incur any penalty or interest charges and that, should those amounts ultimately represent an overpayment of taxes, that overpayment will be recovered and refunded when the return for 2024 is filed next spring.

Once they have resigned themselves to the realities of the tax instalment system, the next question that most taxpayers have is how such payments can be made. The options open to taxpayers in that regard, as well as general information on the tax instalment system, are outlined on the Canada Revenue Agency website at Required tax instalments for individuals - Payments for individuals - Canada.ca.

By this time of the year, virtually all Canadian residents have filed their income tax return for 2023 and have received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that tax filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations are done and behind them for another year.

By this time of the year, virtually all Canadian residents have filed their income tax return for 2023 and have received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that tax filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations are done and behind them for another year.

It can, therefore, be a little surprising to receive a communication from the CRA in mid-summer and more than a little unsettling to find out that the Agency has some further questions about the tax return that the taxpayer thought was already completed. Notwithstanding, that’s an experience that millions of taxpayers will have over the next few weeks and months.

Between February 5 and June 24 of this year, the Canada Revenue Agency received and processed more than 30 million individual income tax returns filed for the 2023 tax year, and issued a Notice of Assessment in respect of each one of those returns. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and could not possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

In addition, the CRA has, for many years, been successful in encouraging taxpayers to fulfill their filing obligations online, through one of the Agency’s electronic filing services. This year, just under 29 million (or 93%) of individual returns for 2023 were filed by electronic means. While e-filing means that the turnaround for processing of returns is much quicker, there is, by definition, no paper involved.

The Canadian tax system has always been what is termed a “self-assessing” system, in which taxpayers report income earned and claim deductions and credits to which they believe they are entitled. Prior to the advent of e-filing there were means by which the CRA could easily verify claims made by taxpayers. Where returns were paper-filed, taxpayers were usually required to include receipts or other documentation to prove their claims, whatever those claims were for. For the 93% of returns which were filed this year by electronic means, no such paper trail exists. Consequently, the potential exists for misrepresentation of such claims (or simple reporting errors) on a large scale.

The CRA’s response to that risk is to conduct a wide range of review programs, some of them carried out before a Notice of Assessment is issued for the taxpayer’s return, and others after that Notice of Assessment has been issued and sent to the taxpayer. Regardless of the timing, in all cases the purpose of the review is to obtain from the taxpayer the information or documentation needed to support claims for deductions or credits made by the taxpayer on the return. The CRA also administers a Matching Program, in which information reported on the taxpayer’s return (both income and deductions) is compared to information provided to the CRA by third-party sources (like T4s filed by employers or T5s filed by banks or other financial institutions).

Being selected for review under either program means, for the individual taxpayer, the possibility of receiving unexpected correspondence, or a telephone call, from the CRA. Receiving such correspondence or such a call from the tax authorities is almost guaranteed to unsettle the recipient taxpayer, who may immediately conclude that he or she has done something very wrong and is facing a big tax bill. However, in the vast majority of cases, the contact is just a routine part of the Agency’s processing review mandate.

Where the initial contact from the CRA to the taxpayer is done by telephone, it’s important that the taxpayer verify the identity of the person claiming to be a representative of the Agency. As virtually everyone knows by now, fraudulent or “scam” calls purporting to be from the CRA have become commonplace. To assist taxpayers in confirming that any telephone contact received is a legitimate one, the CRA has provided information on how to respond to such a call; that information can be found on the CRA website at Verify it's the CRA calling - Scams and fraud - CRA - Canada.ca.

A taxpayer whose return is selected as part of a processing review program will be asked to provide verification or proof of deductions or credits claimed on the return –usually by way of receipts or similar documentation. Or, where figures which appear on an information slip – for instance, the amount of interest income earned – don’t match up with the amount of such interest income reported by the taxpayer, they will be contacted to provide an explanation of the discrepancy.

Of course, most taxpayers are not concerned so much with the kind of program or programs under which they are contacted as they are with why their return was singled out for review or follow-up. Many taxpayers assume that it’s because there is something wrong on their return, or that the letter is the start of a tax audit process, but that’s not necessarily the case. Returns are selected by the CRA for pre- or post-assessment review for a number of reasons. Canada’s tax laws are complex and, over the years, there are areas in which the CRA has determined that taxpayers are more likely to make errors on their return. Consequently, a return which includes claims in those areas (like dependant tax credit claims, or claims for medical expenses, moving expenses, or tuition tax credits) may have an increased chance of being reviewed. Where there are deductions or credits claimed by the taxpayer which are significantly different or greater than those claimed in previous returns, that could flag the return for review. And, if the taxpayer’s return has been reviewed in previous years, and especially if an adjustment was made following that review, subsequent reviews may be more likely. Finally, many returns are picked for the processing review programs simply on the basis of random selection.  

Regardless of the reason for the follow-up, the process is the same. Taxpayers whose returns are selected for review will be contacted by the CRA, usually by letter, identifying the deduction or credit for which the CRA wants documentation or the income or deduction amount about which a discrepancy seems to exist. The taxpayer will be given a reasonable period of time – usually a few weeks from the date of the letter – in which to respond to the CRA’s request. That response should be in writing, attaching, if needed, the receipts or other documentation which the CRA has requested. All correspondence from the CRA under its review programs will include a reference number, which is usually found in the top right-hand corner of the CRA’s letter. That number is the means by which the CRA tracks the particular inquiry, and should be included in the response sent to the Agency. It’s important to remember, as well, that it’s the taxpayer’s responsibility to provide proof, where requested, of any claims made on a return. Where a taxpayer does not respond to a CRA request or does not provide such proof, the Agency will proceed on the basis that the requested verification or proof does not exist and will assess or reassess accordingly.

Taxpayers who have registered for the CRA’s online tax program My Account (or whose representative is similarly registered for the Agency’s Represent a Client online service) can usually submit required documentation electronically. More information on how to do so can be found on the CRA website at Submitting documents online – Pre-assessment Review, Processing Review and Request Verification Programs - Canada.ca.

Whatever the reason a particular return was selected for review by the CRA, one thing is certain: a prompt response to the CRA’s enquiry, providing the Agency with the information or documentation requested, will, in the vast majority of cases, bring the matter to a speedy conclusion, to the satisfaction of both the Agency and the taxpayer. The CRA website also includes more detailed information on the return review process, which is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/review-your-tax-return-cra.html.

Most Canadians, understandably, think of our income tax system as a government “program” that takes money out of their paycheques and out of their pockets. And, while it’s certainly true that virtually every Canadian who earns an income must allocate a portion of that income to paying federal and provincial personal income taxes, that’s not the whole picture. Our tax system does, in fact, provide Canadians with a number of direct benefits, through a variety of tax credit and benefit programs which actually put money into the hands of Canadians. And when that money can be obtained with minimal effort (and be received tax-free) it’s a win-win for the recipient.

Most Canadians, understandably, think of our income tax system as a government “program” that takes money out of their paycheques and out of their pockets. And, while it’s certainly true that virtually every Canadian who earns an income must allocate a portion of that income to paying federal and provincial personal income taxes, that’s not the whole picture. Our tax system does, in fact, provide Canadians with a number of direct benefits, through a variety of tax credit and benefit programs which actually put money into the hands of Canadians. And when that money can be obtained with minimal effort (and be received tax-free) it’s a win-win for the recipient.

Those attributes describe the basic child and family benefits paid by the federal government to eligible Canadians every month of the year. However, a substantial number of eligible recipients don’t receive benefits to which they are entitled, simply because they haven’t claimed them, leaving potentially hundreds or thousands of dollars in tax-free income “on the table” each year. As well, many Canadians who do receive such benefits but who then fail to claim them annually can see their benefit payments stop, even though they remain eligible to receive those benefits.

While there are quite a number of such benefits, the process of “claiming” each of them is the same – simply filing a tax return each year. Eligibility for some (but not all) of the obtainable benefits and/or the amount of benefit obtainable is based, in part, on the income of the recipient. When each Canadian files a tax return, the Canada Revenue Agency determines, based on the information provided in that return, the benefits to which the taxpayer is entitled and in what amounts. Where the amount of a taxpayer’s income is relevant to the determination of eligibility, the income figure used is that from the previous year. In other words, a taxpayer’s eligibility for benefits during the 2024-25 benefit year is based on their income for 2023. And that information was provided to the Canada Revenue Agency on the tax returns for 2023 which were filed by taxpayers earlier this year.

Once the CRA receives the needed income information (usually by April 30, 2024) and determines a taxpayer’s benefit eligibility, those benefits are paid to eligible recipients throughout the 2024-25 benefit year, which starts on July 1, 2024 and ends on June 30, 2025.

It should be noted, as well, that while the federal government refers to these benefits under the umbrella term “child and family benefits”, it’s wrong to conclude that benefits are only available to parents and/or married individuals. Of the four benefit programs outlined below which will be in place during the upcoming benefit year, only the Canada Child Benefit program requires that a taxpayer be a parent, and none of the benefit programs require that a taxpayer be married or in a common-law relationship.

GST/HST Credit

The GST/HST credit is a non-taxable amount paid four times a year (on the 5^th of July, October, January, and April) to lower and middle-income individuals and families, to help offset the goods and services tax/harmonized sales tax (GST/HST) that they pay. Generally, the credit is available to Canadian residents who meet any one of the following criteria:

• aged 19 yearsof age or older;
• have or had a spouse or common law partner; or
• are or were a parent and live (or lived) with their child.

The amount of benefit which may be received is determined by both family size and income level. For the upcoming (July 2024 to June 2025) benefit year, the maximum annual GST/HST benefit is as follows:

• $519 if you are single;
• $680 if you are married or have a common-law partner; and
• $179 for each child under the age of 19.

The CRA website includes a chart showing the amount of GST/HST benefit which is provided at different income levels, to individuals and to families of different sizes and compositions. That chart can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/goods-services-tax-harmonized-sales-tax-gst-hst-credit/goods-services-tax-harmonised-sales-tax-credit-payments-chart.html.

Eligibility for the GST/HST credit for the 2024-25 benefit year is determined automatically by the CRA for each taxpayer who filed a return for 2023. There is, therefore, no need to indicate on the return that the taxpayer is applying for the GST/HST credit.

Canada Carbon Rebate

Unlike the other three credits which are based, at least in part, on household income, the Canada Carbon Rebate, or CCR (formerly known as the Climate Action Incentive Payment), is a flat rate, non-taxable credit paid to eligible residents living in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, or Saskatchewan. The purpose of the CCR is to help offset the financial impact of the federal carbon tax, with the amount of the annual benefit determined by the taxpayer’s province of residence and family composition. An online tool allowing taxpayers to estimate the amount of CCR they may receive can be found on the CRA website at How much you can get - Canada Carbon Rebate (CCR) for individuals - Canada.ca.

In addition to living in one of these provinces, recipients must also satisfy the same eligibility criteria as for the GST/HST credit, in that they must be Canadian residents who are at least 19 years of age, or have or had a spouse or common-law partner, or are or were a parent and lives or lived with their child.

The CCR (for all provinces) includes a rural supplement of the base amount for residents of small and rural communities. That supplement, which was set at 10% of the base amount in previous years, has been increased to 20% for the 2024-25 benefit year. While there is no need to apply for the CCR when filing a tax return, individuals who believe they are eligible for the rural supplement need to ensure that they tick the applicable box on page 2 of the return to indicate their eligibility. That requirement does not apply to residents of Prince Edward Island, where all CCR recipients are eligible for the rural supplement.

The CCR is paid in quarterly instalments, meaning that during the 2024-25 benefit year, payments will be made to eligible Canadians on the 15^th day of April, July, October, and January.

More information on the CCR can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/cai-payment.html.

Canada Workers Benefit

The Canada Workers Benefit (CWB) is a refundable tax credit paid to lower-income Canadian residents who are aged 19 or older or are married or have a common-law spouse or a child with whom they live, and who have “working income” earned from employment or self-employment.

The amount of CWB which an individual or family can receive depends on marital status and net income. The basic amounts payable, and the net income levels at which eligibility for that basic benefit is eroded, are as follows.

• $1,518 for single individuals
  The single individual benefit is reduced if adjusted net income is more than $24,975. No basic amount is payable if the applicant’s adjusted net income is more than $35,095.
• $2,616 for families 
  The family benefit amount is reduced if adjusted family net income is more than $28,494. No basic amount is payable where adjusted family net income is more than $45,934.

In order to apply for the CWB, a recipient must file their tax return electronically and follow the software instructions for applying or, if filing a paper return, must complete and file a Schedule 6 with that tax return.

More detailed information on the CWB can be found at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-workers-benefit.html.

Canada Child Benefit

The Canada child benefit (CCB) is a tax-free monthly payment made to eligible families to help with the cost of raising children under 18 years of age. The CCB is paid to the parent who is primarily responsible for the care and upbringing of the child or children, and the amount varies with the age and number of children.

The CCB is also a means-tested benefit, with the benefit amount being reduced as family net income increases. CCB amounts paid during the 2024-25 benefit year are based on family net income for 2023.

The maximum amounts payable for the benefit year running from July 2024 to June 2025 are as follows.

For each child:

• under 6 years of age: $7,787 per year ($648.91 per month)
• 6 to 17 years of age: $6,570 per year ($547.50 per month)

Where family net income for 2023 is less than $36,502, recipients will receive the maximum amount outlined above for 2024-25, with no reductions.

Individuals and families who may be eligible for the CCB will have their eligibility automatically assessed when they file their tax return for 2023: there is no requirement to file a particular schedule or other application. More information on the CCB is available on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview.html.

While the number and variety of federal child and family benefits and the varying eligibility criteria for each can be confusing, the necessary determinations and calculations are done by the federal government. The only step which need be taken by an individual is the filing of an annual tax return. Taxpayers who wish to find information on the benefits for which they may be eligible can refer to the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits.html, where detailed information on each such benefit, the eligibility criteria, and amounts which may be received are summarized.

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 #68 Corporate

Personal:

Issue #68 Personal

The Canadian tax system is a “self-assessing” one, in which taxpayers are expected (and, in most cases, required) to file an individual income tax return each spring. On that return the taxpayer provides a summary of income earned during the previous calendar year and claims available deductions and credits. Those calculations determine the amount of tax owed for the year and any amount owed must then, of course, be paid on or before April 30.

The Canadian tax system is a “self-assessing” one, in which taxpayers are expected (and, in most cases, required) to file an individual income tax return each spring. On that return the taxpayer provides a summary of income earned during the previous calendar year and claims available deductions and credits. Those calculations determine the amount of tax owed for the year and any amount owed must then, of course, be paid on or before April 30.

Although the percentage of taxpayers who are required to file a return but do not do so is relatively small, a percentage as low as 1% of non-filers in a population of 40 million can still amount to nearly 400,000 required returns not filed. There are a number of reasons why taxpayers don’t file a return – sometimes it’s just procrastination, or a lack of knowledge of how and when to get the return filed. In other cases, taxpayers don’t believe that they are required to file a return – for instance, where they have little or no income for the year.

However, in the majority of instances in which taxpayers don’t file a return, it’s likely because taxes are owed and they are unable to pay those taxes on time or in full – or at all. In such situations, it’s tempting to conclude that it’s better not to file in the hope, perhaps, that the CRA will overlook or somehow not notice the delinquency. That’s not, however, a realistic conclusion. Where a Canadian resident earns income, the payor of that income must file an income slip (T4 for employment income, T5 for interest income, etc.) with the Canada Revenue Agency, on which the recipient of that income is identified by name, address, and social insurance number. Where those slips don’t match up with income reported on a return for the year by the taxpayer, the omission will probably come to light.

Although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover that amount.

With all of that in mind, the Canada Revenue Agency instituted a program – the Voluntary Disclosures Program (VDP) – intended to encourage non-compliant taxpayers to come forward and put their tax affairs in order. The incentive to do so arises from the fact that in most cases, while taxpayers who participate in the VDP program have to pay outstanding tax amounts owed, plus some interest, they can avoid both other interest charges, some penalties which would normally be imposed, and the risk of criminal prosecution.

To qualify for such relief under the VDP, an application made with respect to non-compliance with income tax filing and payment obligations must:

• be voluntary (meaning that it is done before the CRA initiates any enforcement action related to the information to be disclosed);
• be complete (that is, includes all relevant information and documentation);
• involve the application or potential application of a penalty;
• include information that is at least one year or one reporting period past due; and
• include payment of the estimated tax owing (taxpayers who are unable to do so can request a payment arrangement).

The VDP program includes two separate “tracks” for income tax disclosures – the Limited Program and the General Program – and the kind and extent of relief available depends on the track to which a particular application is assigned.

While the Canada Revenue Agency will ultimately make the determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the Limited Program to instances in which taxpayers intentionally avoided their tax obligations (as distinct from inadvertence), or there is conduct on the part of the taxpayer which amounts to gross negligence. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

• the dollar amounts involved;
• the number of years of non-compliance;
• the sophistication of the taxpayer;
• how quickly the taxpayer acted to correct their non-compliance after becoming aware of it;
• whether the disclosure was made after the taxpayer became aware of the CRA’s intended specific focus on that particular area of taxpayer compliance; and
• whether efforts were made to avoid detection through the use of offshore vehicles or other means.

Those whose applications are accepted under the Limited Program will be required to pay outstanding tax balances owed, plus interest, and will be subject to penalties. They will not, however, be subject to criminal prosecution and will be exempted from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer.

Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance. For example, a taxpayer who makes an application to the VDP and who has failed to file returns for the 2017 through 2022 taxation years may be provided with interest relief with respect to tax arrears owed for the 2017, 2018, and 2019 taxation years. Such relief is generally equal to 50% of interest normally owed – in other words, the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years. No interest relief will, however, be provided on tax amounts owed for the three most recent (2020, 2021, and 2022) taxation years. Since interest charges levied by the CRA are, by law, higher than current commercial rates (for instance, the rate levied for July, August, and September of 2024 is 9%) and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

In order to benefit from the VDP, taxpayers must first make an application to the Program. That application must include payment of the estimated taxes owing, as a condition of participation in the VDP. Where a taxpayer is financially unable to make that tax payment, he or she can request that the CRA consider a payment arrangement.

The decision to apply to the VDP and to “come clean” about all previous tax transgressions is something that most taxpayers will likely consider with considerable trepidation. Those who are unsure about whether they want to move forward with a VDP application have the option of using the CRA’s “pre-disclosure discussion service”. As the name implies, that service allows taxpayers to participate in preliminary discussions with a CRA official, on an anonymous basis, to gain some knowledge about the VDP program, the process involved, and the potential relief available.

Taxpayers who decide to move forward with an application to the VDP can complete and file Form RC199 Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. Once the application is received, the CRA will check to make certain that the applicant meets all the criteria required for a valid application, and that all of the required information, documentation, and payment have been sent. The next step is for the CRA to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. At each step the taxpayer will be provided with written notice of the CRA’s decisions.

If the decision made is that the application is not eligible for the VDP, the taxpayer will also be advised in writing, with reasons, of the CRA’s decision to deny the application.

Where the decision made by the Agency is one with which the taxpayer does not agree, they are entitled to ask for a second review of the application. It is also possible for a taxpayer to ask the Federal Court to review the decision and to direct the CRA to re-consider the VDP application. However, a taxpayer who wishes to pursue their application to the extent of filing such a Federal Court application is well advised to obtain legal advice before doing so.

Finally, taxpayers should recognize that the VDP Program can’t be used as a kind of “get out of jail free card” with respect to repeated failures to meet tax filing and payment obligations. The CRA’s expectations are that taxpayers who have benefitted from the VDP will thereafter meet their tax obligations, and a second review will be provided for the same taxpayer only in situations where the second application relates to a different matter than the first, and where the circumstances giving rise to the second application were beyond the taxpayer’s control.

Detailed information on the VDP can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html. Additional details with respect to the  Program are also outlined in the CRA’s Information Circular IC00-1R6 – Voluntary Disclosures Program, which is available on the same website at IC00-1R6 - Voluntary Disclosures Program - Canada.ca.

As the school year draws to a close, the thoughts of millions of Canadian parents turn to the question of how to find – and pay for – child care throughout the summer months. While many Canadians are still able to work from home for some portion of the work week, few (if any) have the kind of work arrangement which allows them to dispense entirely with child care arrangements during the summer months.

As the school year draws to a close, the thoughts of millions of Canadian parents turn to the question of how to find – and pay for – child care throughout the summer months. While many Canadians are still able to work from home for some portion of the work week, few (if any) have the kind of work arrangement which allows them to dispense entirely with child care arrangements during the summer months.

Parents needing to arrange such care don’t lack for options. There is an almost limitless number of choices, but what each of those choices has in common is a price tag – sometimes a steep one. Some options, like playground supervisors or day camps provided by the local recreation authority or municipality, can be relatively inexpensive, while the cost of others, like residential camps that provide room, board, and a range of sports and arts activities can run to thousands of dollars per week.

The good news for families which incur such expenditures is that in many cases a deduction for part or all of the costs incurred can be claimed on the tax return for the year. And, since eligible expenditures can be deducted from income on a dollar-for-dollar basis, that means that income used to pay eligible child care expenses is income which is not taxed. That tax savings is obtained by claiming the Child Care Expense Deduction, which is not specific to summer child care or summer camp costs, but is available for qualifying child care expenses incurred at any time during the year. As well, the rule determining whether child care costs incurred are deductible is fairly straightforward – parents who incur eligible child care costs in order to work (whether in employment or self-employment), or in some cases to attend school, can deduct those costs from income, within specified limits.

The amount of any available child care deduction is calculated on Form T778, and that calculation can seem forbiddingly complex. However, at the end of the day, the amount of child care expenses which can be deducted is simply the least of three figures, and only one of those figures requires a calculation. The steps involved in determining the amount of available child care expense deduction are as follows.

First, the amount of any deduction for child care expenses is limited to two-thirds of the taxpayer’s net income for the year. The income figure used to calculate the two-thirds figure is, generally, the amount shown on Line 23600 of the annual tax return. Where the family incurring child care expenses is a two-income family, it is the spouse with the lower net income who must make the claim and consequently it is their net income which is used to provide that two-thirds of income figure.

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

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

For 2024, the following overall limits apply:

• $5,000 in costs per year for a child who was born in 2008 to 2017;
• $8,000 in costs per year for a child who was born after 2017;
• $11,000 in costs per year for a child who was born in 2024 or earlier, but for whom the disability amount can be claimed.

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

• $125 per week for a child who was born in 2008 to 2017;
• $200 per week for a child who was born after 2017; and
• $275 per week for a child who was born in 2024 or earlier, but for whom the disability amount can be claimed.

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

A two-income family has two children and both parents are employed. One spouse earns $70,000 per year, while the other earns $55,000. In 2023, one child is age 9 and the other is age 5. Neither child is disabled. During July and August, both of the children attend a local full-day summer camp, for which the cost is $400 per week per child.

• The first step is to determine the two-thirds of income figure. Since it is the lower-income spouse who must make the deduction claim, that figure is two-thirds of $55,000, or $36,663. Consequently, any deduction for child care expenses for the year cannot exceed $36,663.
• The second calculation is the total amount of child care expenses paid for each child:
  $400 per week for eight weeks of summer camp, or $3,200.
  Total child care expenses for each child are therefore $3,200.
• The last step is to determine the basic limit for child care expenses for each child, as follows:
  • the basic limit for the 5-year-old (who was born after 2017) is $8,000, and so the entire $3,200 in summer day camp costs incurred can be deducted.
  • the basic limit for the 9-year-old (who was born between 2008 and 2017) is $5,000, and so once again the entire $3,200 incurred for summer day camp costs can be deducted.

As well, since the camp is a day camp, the dollar amount cost limitations which apply with respect to overnight camps do not apply to limit the amount of expenses claimed by the family.

The total deduction available for child care expenses incurred for the 2024 tax year will therefore be $6,400. That deduction is claimed on Line 21400 of the tax return filed by the lower-income spouse for the year, reducing their taxable income from $55,000 to $48,600, and resulting in a federal tax savings of about $960. A similar tax deduction is claimed as well for provincial tax purposes; the amount of provincial tax saved will depend on the tax rates imposed by the province in which the family lives.

When parents are choosing summer activities/care for their children, that decision involves a number of factors, including the child’s interests and abilities, the availability of programs which match those interests and abilities, the work schedules of one or both parents, and, of course, the cost of the program or activity. While the availability of a “subsidy” through the tax system should never be the sole determinant of what activity or camp is the best choice, there’s no denying that being able to claim a deduction for the costs involved can tip the balance toward one or choice or another, or can bring a formerly unavailable option within a family’s financial reach.

Parents wishing to find out more about the child care expense deduction, and perhaps to calculate the maximum deduction which will be available to them for the 2024 tax year, should consult Form T778 E (23). The form which is currently on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t778.html is from the 2023 tax year, and consequently the age limits must be adjusted by one year for child care expense claims for 2024. (The actual form for 2024 will be posted on the CRA website early in 2025). The currently available form does, however, provide a detailed explanation of the rules governing the child care expense deduction, and those rules (as well as the applicable dollar limits, which are not indexed to inflation) will continue to apply for the 2024 tax year.

Each spring and summer, tens of thousands of Canadian families sell their homes and move – sometimes to a bigger and better property in the same town or city, and sometimes to a new city or even another province. At the same time, university students make the annual move from their university residences or apartments back to the family home for the summer. And, whatever the reason for the move or the distance to the new location, all moves have two things in common – stress and cost. Even where the move is a desired one, moving inevitably means upheaval of one’s life and the costs involved can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

Each spring and summer, tens of thousands of Canadian families sell their homes and move – sometimes to a bigger and better property in the same town or city, and sometimes to a new city or even another province. At the same time, university students make the annual move from their university residences or apartments back to the family home for the summer. And, whatever the reason for the move or the distance to the new location, all moves have two things in common – stress and cost. Even where the move is a desired one, moving inevitably means upheaval of one’s life and the costs involved can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

While it’s common to the refer to the “moving expense deduction” as though it were available to all taxpayers in all circumstances, the fact is that there is actually no universally available deduction claimable for moving costs – in order to be tax deductible, such moving costs must meet specific criteria. Our tax system allows taxpayers to claim a deduction only where the move is made to get the taxpayer closer to their new place of work, whether that work is a transfer within the same company, a change in employers, or moving to run a business at a new location. Specifically, moving expenses can be deducted where the move is made to bring the taxpayer at least 40 kilometres closer to their new place of work. That requirement is satisfied where, for instance, a taxpayer moves from Toronto to Calgary to take that new job. It’s also met where a taxpayer is transferred by their employer to another job in a different location and the taxpayer’s move will bring them at least 40 kilometres closer to the new work location. It’s not met where an individual or family move up the property ladder by selling and purchasing a new home in the same town or city.

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

It's important to remember, however, that even where the 40-kilometre requirement is met, moving costs can be deducted only from income earned from employment or self-employment (business) – such costs cannot be deducted from other types of income, like investment income or employment insurance benefits.

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

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

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

At some times and in some places, houses sell almost as soon as they are put on the market, while at other times or in other places it can take weeks or even months to find a buyer. When the latter is the case, the homeowner might have to move to start that new job before the “old” house has sold. In those circumstances, the taxpayer is entitled to deduct up to $5,000 in costs incurred for the maintenance of the old residence while it is vacant and on the market. Specifically, costs including interest, property taxes, insurance premiums, and heat and utilities expenses paid to maintain the old residence while it is vacant and efforts are being made to sell it may be deducted. If any family members are still living at the old residence, or it is being rented, no such deduction is available.

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

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

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

Anyone who has ever moved knows that there are a seemingly endless number of details to be dealt with. For some types of costs, the administrative burden of keeping track of (and retaining receipts for) such moving-related expenses can be minimized by choosing instead to claim a standardized amount. Specifically, the CRA allows taxpayers to claim a fixed amount, without the need for detailed receipts, for travel and meal expenses related to a move. Using that standardized, or flat-rate method, taxpayers may claim up to $23 per meal, to a maximum of $69 per day, for each person in the household. Similarly, the taxpayer can claim a set per-kilometre amount for kilometres driven in connection with the move; that per kilometre amount ranges from 53.0 cents for Alberta to 70.5 cents for the Yukon. In all cases, it is the province or territory in which the travel begins which determines the applicable rate.

These standardized travel and meal expense rates are those which were in effect for the 2023 taxation year – the CRA will be posting the rates for 2024 on its website early in 2025, in time for the tax filing season.

Once eligibility for the moving expense deduction is established, the rules which govern the calculation of the available deduction are not complex, but they are very detailed. The best summary of those rules is found on the form used to claim such expenses – the T1-M. The current version of that form can be found on the CRA’s website at T1-M Moving Expenses Deduction - Canada.ca, and more information (including a link to rates for standardized meal and travel cost claims) is available at Line 21900 – Moving expenses - Canada.ca.

Many (if not most) taxpayers think of tax planning as a year-end exercise, one to be carried out in the last few weeks of the year, in order to take the steps needed to minimize the tax bill for that year. And it’s true that almost all strategies needed to both minimize the tax hit for the current year and to ensure that there won’t be a big tax bill come next April must be put in place by December 31 (the making of registered retirement savings plan (RRSP) contributions being the notable exception). Nonetheless, there’s a lot to recommend carrying out a mid-year review of one’s tax situation for the current year. Doing that review mid-year, instead of waiting until December, gives the taxpayer the chance to make sure that everything is on track and, especially, to put into place any adjustments needed to help ensure that there are no unpleasant tax surprises when the return for 2024 is filed next spring. And, while the deadline for implementing most tax saving strategies may be December 31, it’s also the case that opportunities to make a significant difference to one’s current-year tax situation diminish as the calendar year progresses.

Many (if not most) taxpayers think of tax planning as a year-end exercise, one to be carried out in the last few weeks of the year, in order to take the steps needed to minimize the tax bill for that year. And it’s true that almost all strategies needed to both minimize the tax hit for the current year and to ensure that there won’t be a big tax bill come next April must be put in place by December 31 (the making of registered retirement savings plan (RRSP) contributions being the notable exception). Nonetheless, there’s a lot to recommend carrying out a mid-year review of one’s tax situation for the current year. Doing that review mid-year, instead of waiting until December, gives the taxpayer the chance to make sure that everything is on track and, especially, to put into place any adjustments needed to help ensure that there are no unpleasant tax surprises when the return for 2024 is filed next spring. And, while the deadline for implementing most tax saving strategies may be December 31, it’s also the case that opportunities to make a significant difference to one’s current-year tax situation diminish as the calendar year progresses.

Mid-year is also a good time to check up on current year taxes because nearly all of the information needed to do so is readily available to the taxpayer. By the beginning of June, most Canadians have filed their individual income tax return for the 2023 tax year and received a Notice of Assessment outlining their tax position for that year. Those who receive a refund will celebrate that fact or, less happily, those who receive a tax bill will pay up the amount owed. And, although the taxpayer’s reaction to one or the other of these outcomes will be very different, the fact is that a large tax bill owing or a large tax refund arise from the same cause – and that is that the amount of tax paid throughout the year was incorrect. While most taxpayers are delighted to receive a tax refund (often viewing it, incorrectly, as “free” money from the government), the fact is that a large refund means that the taxpayer has overpaid their taxes for the previous year and has essentially provided the Canada Revenue Agency with an interest-free loan of funds that could have been put to better use in the taxpayer’s hands. The other outcome – a large bill – means that taxes have been underpaid for the previous year and that could mean paying interest charges to the CRA. Either way, it’s in the taxpayer’s best interests to ensure that tax paid throughout the year is sufficient to cover their taxes, without overpaying or underpaying. The best-case scenario, from a tax and personal finance perspective, is to file a tax return and receive a Notice of Assessment which indicates that there is neither a substantial refund payable nor any significant amount owing.

For most Canadians, income and available deductions and credits don’t vary significantly from one year to the next. Where that’s the case, the amount of tax owed by the taxpayer for 2023 (a figure that can be found on Line 43500 of the Notice of Assessment) is likely to be very close to one’s tax liability for 2024.

After finding out how much tax was paid for 2023, the next step in doing a review is to get a sense of how much income tax has already been paid for the 2024 tax year. There are two ways of paying income taxes throughout the year. The majority of Canadians (including all employees) have income taxes deducted from their paycheques and remitted to the federal government on their behalf – a process known as source deductions. Taxpayers who do not have income tax deducted at source – which would include self-employed individuals and, frequently, retired taxpayers – make tax payments directly to the federal government (four times a year, in March, June, September, and December) through the tax instalment system.

Using the tax payable figure for 2023 as a guide, it’s necessary to figure out whether income tax payments made to date, either through deductions made from the taxpayer’s paycheque, or through instalment payments of tax, match up with that tax liability figure, recognizing that by this point in the year, approximately one-half of taxes for 2024 should already have been paid. If they haven’t, and particularly if there is a significant shortfall which would mean a large balance owing when the tax return for 2024 is filed next spring, the taxpayer will need to take steps to remedy that.

Where the individual involved pays tax by instalments, the solution is simple. They can simply increase or decrease the amount of remaining instalment payments made in 2024 so that the total instalment payments made over the course of this year accurately reflect the total tax payable for the year. The only caveat in that situation is that the individual should err on the side of caution to ensure that there isn’t a shortfall in instalment payments, which could result in interest charges being levied by the CRA.

The situation is a little more complex for employees, or anyone who has tax deducted at source. Often when such individuals discover that they are overpaying taxes through source deductions, it’s because deductions which they claim on their return for the year – for expenditures like deductible support payments, child care expenses, or contributions to a registered retirement savings plan (RRSP) or first home savings account (FHSA) – aren’t taken into account in calculating the amount of tax to deduct at source. The solution for employees who find themselves in that situation is to file a FormT1213 – Request to Reduce Tax Deductions at Source with the CRA. That form is available on the CRA website at T1213 Request to Reduce Tax Deductions at Source - Canada.ca. On the T1213, the taxpayer identifies the amounts which will be deducted on the return for the year and, once the CRA verifies that those deductible expenditures (like child care expense costs or RRSP contributions) are being made, it will authorize the taxpayer’s employer to reduce the amount of tax which is being withheld at source to take account of that deduction.

Where it’s the opposite situation and a taxpayer finds that source deductions being made will not be sufficient to cover their tax liability for the year (meaning a tax bill to be paid next spring), the solution is to have those source deductions increased. No one likes paying more taxes, but where taxes are owed, the only choice involved is to pay them now or pay them later. Spreading out that payment over the rest of the tax year is much less painful than being hit with a large tax bill (as well as interest charges when that tax bill can’t be paid in full and on time) when the return for the year is filed next spring.

Take, for example, an employee who found out, after filing the return for 2023, that an additional $2,000 in taxes was owed. Assuming that their income and the amount of tax deducted from their paycheque doesn’t change, it’s likely that a similar amount will be owed when the return for 2024 is filed. If that taxpayer is paid biweekly, there will be about 13 paycheques between the end of June and the end of the year. Increasing the amount of tax deducted from those paycheques by about $75 per paycheque will mean that the $2,000 in taxes owing is paid to the Canada Revenue Agency by the end of the year – thereby avoiding a large tax bill when the return for 2024 is filed in the spring of 2025.

To increase the amount of tax deducted from their paycheque, the employee needs to obtain a TD1A form for their province of residence for 2024. That form can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html. On the reverse side of that Form TD1, there is a section entitled “Additional tax to be deducted”, in which the employee can direct their employer to deduct additional amounts at source for income tax, and can specify the dollar amount which is to be deducted from each paycheque on a go-forward basis.

No one particularly likes thinking about taxes, at any time of year, but ignoring the issue definitely won’t make it go away. The investment of a few hours of time now, and putting in place any needed adjustments, can mean avoiding a nasty surprise in the form of a large tax bill which must be paid when the return for 2024 is completed and filed next spring.

Most retired Canadians receive income from two government-sponsored retirement income programs – the Canada Pension Plan (CPP) and the Old Age Security (OAS) program. While benefits from both are paid to recipients by the federal government on a monthly basis, there are significant differences in how the two plans are funded, the amounts which can be received, and, most significantly for retirees, in how entitlement to benefits is determined each year.

Most retired Canadians receive income from two government-sponsored retirement income programs – the Canada Pension Plan (CPP) and the Old Age Security (OAS) program. While benefits from both are paid to recipients by the federal government on a monthly basis, there are significant differences in how the two plans are funded, the amounts which can be received, and, most significantly for retirees, in how entitlement to benefits is determined each year.

Canadians who participated in the paid work force during their adult life will have contributed to the Canada Pension Plan (contributions are mandatory, and are deducted from the individual’s paycheque and remitted to the federal government on their behalf) and will be able to receive CPP retirement benefits as early as age 60. The amount of monthly benefit received depends on the amount of contributions made by the benefit recipient made during their working life.

The Old Age Security program differs from the Canada Pension Plan in a number of ways. The OAS program is funded entirely from general government revenues, with no direct contribution made by individual Canadians. Entitlement to OAS is based solely on the number of years of Canadian residence, and individuals who were resident in Canada for 40 years after the age of 18 can receive full OAS benefits. As of the second quarter (April to June of 2024), the full OAS benefit for individuals under the age of 75 is $713.34 per month.

The OAS program is distinct from other sources of retirement income in another, less welcome, way, in that it is the only government retirement income program under which the federal government can require the recipient of benefits to repay those benefits, in whole or in part. That repayment requirement comes about through the OAS “Recovery Tax”, which is universally known as the OAS “clawback”.

While the rules governing the administration of the clawback can be confusing, the concept is a (relatively) simple one. Anyone who received OAS benefits during 2023 and had income for that year of more than $86,912 must repay a portion of OAS benefits received. That repayment, or clawback, is administered by reducing the amount of OAS benefits which the individual receives during the following benefit year, which runs from July 1, 2024 to June 30, 2025.

For example, an individual who receives full OAS during 2023 and has net income for the year of $96,000 will be subject to the clawback. They must repay OAS amounts received at a rate of 15 cents (or 15%) of every dollar of income over the clawback income threshold, as in the following simplified example.

The OAS clawback threshold for 2023 is $86,912.

If your income in 2023 was $96,000, then your repayment would be 15% of the difference between $96,000 and $86,912:

$96,000 - $86,912 = $9,088

$9,088 x 0.15 = $1,363.20

You would have to repay $1,363.20 ($113.60 per month) for the July 2024 – June 2025 period.

The OAS clawback affects only individuals who have an annual income of at least $86,912 (for 2023), and it’s arguable that at such income levels, the clawback requirement does not impose any real financial hardship. Nonetheless, the OAS clawback is a perpetual irritant to those affected by it, perhaps because of the sense that they are being penalized for being disciplined savers, or good managers of their finances during their working years, in order to ensure a financially comfortable retirement.

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

In all cases, no matter what strategy is employed, the goal, as with much of individual tax planning, is to “smooth” one’s income from year to year, so that net income for each year comes in under the OAS clawback threshold and, not incidentally, minimizes exposure to the higher federal and provincial income tax rates which apply once taxable income exceeds $100,000.

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

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

Once the amount of annual income is determined, strategies to smooth out that income can be put in place. Those strategies can include receiving income from an RRSP prior to age 71, so as to reduce the total amount within the RRSP and so thereby reduce the likelihood of having a large “bump” in income when required withdrawals kick in at that time.

Taxpayers are sometimes understandably reluctant to take steps which they view as depleting their RRSP savings, but receiving income from an RRSP doesn’t necessarily mean spending that income. While tax has to be paid on any withdrawals (no matter what the taxpayer’s age), the after-tax amounts that aren’t currently needed as income can be contributed to the taxpayer’s tax-free savings account (TFSA), where they can be invested in the same manner as they were in the RRSP and can continue to compound free of current tax. And, when the taxpayer has need of those funds in retirement, they can be withdrawn free of tax and they won’t count as income for purposes of the OAS clawback – or for purposes of any other income-tested tax credit or benefit.

Taxpayers who are married can also “even out” their income by using pension income splitting, so that neither of them has sufficient income to be affected by the clawback.  Using pension income splitting, the spouse who has income over the OAS clawback threshold re-allocates the “excess” income to their spouse on the annual return, and that income is then considered to be income of the recipient spouse, for purposes of both income tax and the OAS clawback. To be eligible for pension income splitting, the income to be reallocated must be private pension income, which is generally income from an RRSP or registered retirement income fund (RRIF), or from an employer-sponsored pension plan.

There are two reasons why pension income splitting is a particularly attractive strategy for avoiding or minimizing the OAS clawback. First, there is no need to actually change the source or amount of income received by each spouse, as the reallocation of income is “notional”, existing only on the return for the year. Second, no decision has to be made on pension income splitting until it’s time to file the return for the previous year, meaning that spouses can easily calculate exactly how much income has to be reallocated in order to avoid the clawback, and to reduce tax liability generally. More information on the kinds of income eligible for pension income splitting, and the mechanics of the process, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html.

Detailed information on the OAS clawback  is available at https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/repayment.html.

This year, the Canada Revenue Agency (CRA) will receive and process more than 30 million individual income tax returns for the 2023 tax year. No two of those returns will be identical, as each such return will have its own particular combination of amounts and sources of income reported, and deductions and credits claimed. There is, however, one thing which every one of those returns has in common: for each and every one, the CRA will review the return filed, determine whether it is in agreement with the information contained therein, and, finally, issue a Notice of Assessment (NOA) to the taxpayer summarizing the Agency’s conclusions with respect to the taxpayer’s tax situation for the 2023 tax year.

This year, the Canada Revenue Agency (CRA) will receive and process more than 30 million individual income tax returns for the 2023 tax year. No two of those returns will be identical, as each such return will have its own particular combination of amounts and sources of income reported, and deductions and credits claimed. There is, however, one thing which every one of those returns has in common: for each and every one, the CRA will review the return filed, determine whether it is in agreement with the information contained therein, and, finally, issue a Notice of Assessment (NOA) to the taxpayer summarizing the Agency’s conclusions with respect to the taxpayer’s tax situation for the 2023 tax year.

When all goes as it should, the information – and the tax result – outlined in the Notice of Assessment is the same as that provided by the taxpayer in their return. In a minority of cases, however, the information presented in the Notice of Assessment will differ from that provided by the taxpayer in the 2023 tax return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a good day for the taxpayer. In some cases, however, the Notice of Assessment will inform the taxpayer that additional amounts are owed to the CRA. When that happens, the taxpayer has to figure out why, and to decide whether or not to dispute the CRA’s conclusions.

Many such discrepancies are the result of an error made by the taxpayer in completing the return. A lot of information from a variety of sources is reported on even the most straightforward of returns and it’s easy to overlook some of that information. Especially where the taxpayer has multiple sources of income – for instance, where individuals are working in the gig economy they may work under a succession of contracts during the year, or have multiple sources of income at any given time – it can be easy to overlook one or more small amounts of income. Equally, newly retired individuals who are used to having only one source of income – their paycheques – may now be receiving Canada Pension Plan benefits, Old Age Security amounts, private pension income, and, possibly, withdrawals from a registered retirement savings plan or registered retirement income fund, making it difficult to keep track of everything.

As well, most Canadian taxpayers now use tax return preparation software to complete and file their returns. While using such software essentially eliminates the risk of arithmetical error, inputting errors can still occur.

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

There are, however, instances in which the CRA and the taxpayer are in disagreement over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s claim for a medical expense, or for a deduction claimed for a business expenditure, and the taxpayer believes in good faith that the credit or deduction claim is a legitimate one. 

Whatever the nature of the dispute, the first step is always to contact the CRA for an explanation of the reasons why the change was made. While the information provided in the NOA is a good summary of the taxpayer’s tax situation for the year, it may not always be clear on precisely how and why the taxpayer and the Agency disagree on the actual amount of income tax which the taxpayer must pay for the year. The first step to be taken would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281, where client services agents who have access to the taxpayer’s return can explain any changes which were made during the assessment process. A real-time notification of the hours of service and current telephone wait times for that service is available on the CRA website at Contact the Canada Revenue Agency - Canada.ca. If that call doesn’t resolve the taxpayer’s questions, or there is still a disagreement, the taxpayer has to decide whether to take the next step of filing a Notice of Objection to the Notice of Assessment.

Filing a Notice of Objection formally advises the CRA that the taxpayer is disputing the Agency’s determination of their tax liability for the taxation year in question. Not incidentally, the filing of an Objection also brings to a halt most efforts undertaken by the CRA to collect taxes which it considers owing for the taxation year under dispute (although, if the taxpayer is eventually found to owe an amount in dispute, interest on that amount will have accumulated in the interim). Where the taxpayer files an Objection, the CRA’s collection efforts are, in most cases, suspended until 90 days after the date the CRA’s decision on that Objection is sent to the taxpayer.

There is a time limit by which any Objection must be filed, albeit a reasonably generous one. Individual taxpayers must file an Objection by the later of 90 days from the mailing date of the Notice of Assessment (the date found at the top of page 1) or one year from the due date of the return which is being disputed. So, for tax returns for the 2023 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2025 (or June 17, 2025 for self-employed taxpayers and their spouses). As with most things related to taxes, it’s best not to put it off. At the very least, if the taxpayer is ultimately found to owe some or all of the taxes assessed by the CRA, interest will have accrued on those taxes for the entire period since the filing due date and, if the filing of the Objection is delayed, the CRA may well have already commenced its collection efforts.

Taxpayers who have registered with the CRA’s online services feature My Account can file their Notice of Objection online at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html. The taxpayer provides information with respect to the assessment being disputed and the reasons why the assessment is being disputed and submits those reasons by clicking on the Submit button at the bottom of the "File a formal dispute” page. Taxpayers who are disputing their tax assessment online can also scan and send supporting documents relating to that dispute to the Agency.

While filing a dispute through My Account is certainly faster than mailing (or faxing) a hard copy of the Notice of Objection, not all taxpayers want to use that option. Taxpayers who choose instead to file their objection using a hard copy of a Notice of Objection form can find the most current version of the CRA’s standardized T400A Objection (which was updated and re-issued in the fall of 2023) on the Agency’s website at T400A Notice of Objection - Income Tax Act - Canada.ca.

Taxpayers aren’t obligated to use the CRA’s official Notice of Objection form – any communication which makes it clear that the taxpayer is objecting to his or her Notice of Assessment will do. Nonetheless, there’s no reason not to use the standardized form, and there are benefits to doing so. Using the T400A form will make it clear to the CRA that a formal objection is being filed, will present the necessary information in a format with which the Agency is familiar, and will also mean that no required information is inadvertently omitted. It’s also helpful to include a copy of the Notice of Assessment which is being disputed. Taxpayers should also consider ensuring proof of both delivery and time of delivery by sending the form or letter to the Appeals Intake Center in a way which provides for tracking and proof of delivery.

There is a single Appeals Intake Centre, and the mailing address for that Centre can be found on the CRA’s Notice of Objection form. A Notice of Objection can also be faxed to the Appeals Intake Centre, and the fax numbers for that Centre are available on the CRA website at File an objection – Income tax – Canada.ca. Finally, taxpayers can contact the CRA at its objection enquires phone line in order to get information about the status of their appeal. The toll-free telephone number for calls from within Canada to that line is 1-800-959-5513.

In the course of making its decision, the Agency may or may not contact the taxpayer for further discussion of the issues in dispute. Should the taxpayer be contacted, they may be asked to provide representations outlining their position, in writing or at a meeting. Through such representations and meetings, it may be possible for the taxpayer and the CRA to come to an agreement on the taxpayer’s tax liability. In either case, the CRA will either confirm its original assessment or change it. If the original assessment is changed, the CRA will issue a Notice of Reassessment outlining the changes. If the taxpayer continues to disagree with the CRA’s position, the next step is an appeal to the Tax Court of Canada. It’s generally a good idea, if an appeal is being considered, to consult legal counsel before filing that appeal.

Detailed information on the objection process is available on the CRA website at File an objection – Income tax – Canada.ca The Agency also publishes a useful pamphlet entitled Resolving Your Dispute: Objection and Appeal Rights under the Income Tax Act, and the most recent release of that publication can be found on the CRA website at P148 Resolving your dispute: Objection rights under the Income Tax Act - Canada.ca.

For the majority of Canadians, the due date for filing of an individual tax return for the 2023 tax year was Tuesday April 30, 2024. (Self-employed Canadians and their spouses have until Monday June 17, 2024 to get that return filed.) When things go entirely as planned and hoped, the taxpayer will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and the amount of tax payable determined by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be derailed in any number of ways.

For the majority of Canadians, the due date for filing of an individual tax return for the 2023 tax year was Tuesday April 30, 2024. (Self-employed Canadians and their spouses have until Monday June 17, 2024 to get that return filed.) When things go entirely as planned and hoped, the taxpayer will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and the amount of tax payable determined by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be derailed in any number of ways.

By April 22, 2024, almost 21 million individual income tax returns for the 2023 tax year had been filed with the CRA. And, inevitably, some of those returns contain errors or omissions that must be corrected.

Nearly 95% of the returns which have already been filed for the 2023 tax year were filed through electronic filing methods, meaning that they were prepared using tax return preparation software. The use of such software significantly reduces the chance of making a clerical or arithmetical error, like entering an amount on the wrong line or adding a column of figures incorrectly. However, no matter how good the software, it can work only with the information that is provided to it. Sometimes taxpayers prepare and file a return, only to later receive a tax information slip that should have been included on that return (or, more frequently, locate a tax information slip that had been received but was overlooked). It’s also easy to make an inputting error when transposing figures from an information slip (a T4 from one’s employer, for instance) into the software, such that $76,326 in income becomes $73,626 or $66,326. Whatever the cause, where the figures input are incorrect or information is missing, those errors or omissions will be reflected in the final (incorrect) tax payable figure produced by the software.

When the error or omission is discovered in a return which has already been filed, the question which immediately arises is how to make things right. The first impulse of many taxpayers is to file another return, in which the complete and correct information is provided, but that’s not the right answer. There are, however, several ways in which a mistake or omission on an already filed tax return can be corrected, including online options.

For several years now, taxpayers who file their tax returns online, whether through NETFILE or EFILE, have been able to notify the CRA of an error or omission in an already-filed return electronically by using the Agency’s ReFILE service. That service, which can be found at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/refile-online-t1-adjustments-efile-service-providers.html, allows taxpayers to very easily make corrections to an already filed return online, on the CRA website. Those taxpayers who used NETFILE to file their return can file an adjustment to a return filed for any of the 2020, 2021, 2022 and 2023 tax years.

While the majority of changes which a taxpayer is likely to want to make on his or her return can be made through electronic means, there are limitations to the service. ReFILE cannot be used to make changes to personal information, like the taxpayer’s address or direct deposit details. There are also some types of tax matters which cannot be handled through ReFILE, like applying for a disability tax credit or child and family benefits.

Taxpayers who have registered for the CRA’s “My Account” service have the option of making a change or correction to a return online through My Account, using the “Change My Return” feature. At one time, the process of becoming registered for My Account was somewhat cumbersome, as the taxpayer had to wait to receive a CRA-issued security code, which was sent by regular mail. That process has been streamlined, and registration for My Account can now be done in real time through what the CRA terms “document verification”. That document verification process requires a user to take a smartphone picture of their government-issued photo identification and of themself in order to verify identity. For purposes of this process, the only acceptable photo identification documents are a Canadian passport, Canadian drivers’ licence, or provincial/territorial photo ID card. More information on how to register for My Account using the document verification method can be found on the CRA website at My Account – What’s new - Canada.ca.

While using the CRA’s online services, whether through My Account or ReFILE, is certainly the fastest way to make a change or correction to an already-filed return, taxpayers who don’t wish to use any online method do still have a paper option. The paper form to be used is Form T1-ADJ E (23), which can be found on the CRA website at T1 Adjustment Request (canada.ca). Those who are unable to print the form off the website can order a copy to be sent to them by mail by calling the CRA’s individual income tax enquiries line at 1-800-959-8281.

Hard copy of a T1-ADJ E (23) is filed by sending the completed document to the appropriate Tax Center, meaning the one with which the tax return was originally filed. A listing of Tax Centres and their addresses can be found on the reverse of the TD-ADJ E (23) form. A taxpayer who isn’t sure any more which Tax Centre their return was filed with can go to https://www.canada.ca/en/revenue-agency/corporate/contact-information/tax-services-offices-tax-centres.html on the CRA website and select their location from the drop-down menu found there. The address for the correct Tax Centre will then be provided. 

Where a taxpayer discovers an error or omission in a return already filed, the impulse is to correct that mistake as soon as possible. However, no matter which method is used to make the correction – ReFILE, My Account or the filing of a T1-ADJ (23) in hard copy – it’s necessary to wait until the Notice of Assessment for the (incorrect) return already filed is received. Corrections to a return which are submitted prior to the time that return is assessed simply can’t be processed by the Agency.

Once the Notice of Assessment is received, and an adjustment request is made, it will take at least a few weeks before the CRA responds by issuing a Notice of Reassessment based on the new information provided by the taxpayer. Not surprisingly, requests which are submitted during the CRA’s peak return processing period between March and July will likely take longer.

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

As everyone knows, buying one’s first home – achieving that elusive first step on to the “property ladder” – has always presented a challenge, and that challenge has rarely been greater than it is now. The two unavoidable hurdles which must be cleared by first time home buyers are putting together sufficient funds for a down payment, and qualifying for mortgage financing under mortgage lending requirements which have become increasingly stringent in recent years. Soaring house prices and mortgage interest rates which have steadily increased over the past two years combine to make it difficult to clear either or both of those hurdles.

As everyone knows, buying one’s first home – achieving that elusive first step on to the “property ladder” – has always presented a challenge, and that challenge has rarely been greater than it is now. The two unavoidable hurdles which must be cleared by first time home buyers are putting together sufficient funds for a down payment, and qualifying for mortgage financing under mortgage lending requirements which have become increasingly stringent in recent years. Soaring house prices and mortgage interest rates which have steadily increased over the past two years combine to make it difficult to clear either or both of those hurdles.

Help is provided to first time home buyers through a number of federal and provincial tax credit or tax deferral programs, and three new measures recently announced by the federal government as part of the 2024-25 Federal Budget are intended to provide further assistance with putting together a down payment, qualifying for mortgage financing, and repaying amounts borrowed to purchase a first home.

Changes to the Home Buyers’ Plan

The first two measures relate to changes to the federal Home Buyers’ Plan, or HBP. The HBP allows first-time buyers who have money saved in a registered retirement savings plan (RRSP) to withdraw the funds held in that RRSP (to a prescribed limit) on a tax-free basis, as long as those funds are used toward the purchase of a first home. Under current rules, a first-time home buyer can withdraw up to $35,000 from his or her RRSP to use toward the purchase of a first home.

This year’s Federal Budget included a proposal to increase the amount which each individual can withdraw on a tax-free basis from their RRSP for the purchase of a first home from $35,000 to $60,000. The change is effective for RRSP withdrawals made by HBP participants after the federal budget date of April 16, 2024.

While the HBP rules allow first-time home buyers to withdraw funds on a tax-free basis from their RRSPs, those rules also require that the funds be repaid to the RRSP. That repayment takes place on a prescribed schedule – repayments in a specified amount must start in the second year after the withdrawal was made and must be completed within 15 years. In any year(s) in which a required repayment is not made in full, the amount of any repayment not made is included in the income of the RRSP holder for the year and is fully taxed as income.

The first few years of home ownership are often the most challenging from a financial perspective, as new homeowners adjust to the need to make regular mortgage payments and property tax payments and to meet all of the varied (and often unanticipated) expenses that home ownership entails. Having to also make repayments to one’s RRSP at the same time undoubtedly adds to the financial stress.

In this year’s budget, the federal government proposed a change in the repayment rules for the HBP. As a temporary measure, HBP participants who make a first withdrawal from their RRSP between January 1, 2022 and December 31, 2025 will not be required to begin repaying those amounts to their RRSP until the fifth year after the year in which the withdrawal was made. Full repayment will still have to be made in prescribed amounts and within the required 15-year repayment period.

Extended amortization on new build purchases by first-time buyers

For all but the most fortunate first-time home buyers, purchasing a home means borrowing money to cover the difference between the down payment amount and the total purchase price of the home. For most, that means taking out a mortgage which must be repaid in specified amounts over a specified period of time (known as the “amortization period”).

The “standard” repayment or amortization period for residential mortgages is 25 years. Opting for a shorter amortization period means higher mortgage payments and, conversely, where the amortization period is longer than 25 years, the amount of monthly mortgage payments goes down. The recent federal government announcement allows qualifying first-time home buyers, as of August 1, 2024, to extend the amortization (repayment) period for their mortgage to 30 years. Significantly, however, that extended amortization period will be available only to first-time buyers who purchase newly-built homes.

Having the ability to extend the amortization period in this way will have two benefits. First, of course, having lower mortgage payments will ease the financial stress of first-time home ownership. As well, first-time home buyers who opt for a 30-year amortization period and therefore have smaller monthly mortgage payments will likely also find it easier to qualify for more mortgage financing. When assessing the creditworthiness of a mortgage financing applicant, one of the metrics used by a lender is the percentage of income required to meet monthly mortgage payments, along with other debt repayment obligations (car payments, credit card debt, etc.). Where monthly mortgage payment amounts are reduced by an extended amortization period, the percentage of income which the prospective home buyer must allocate to debt repayment goes down, meaning that their creditworthiness, and the amount of mortgage financing for which they qualify, may increase. 

Each of these measures is intended to help qualifying first-time home buyers get into the housing market, and each will undoubtedly have that effect. However, as with nearly all financial and tax planning strategies, there are potential downsides which have to be considered. Withdrawing funds from an RRSP inevitably reduces the amount of investment income which those funds can earn, and ultimately means reduced retirement savings over the long term. Extending an amortization period reduces monthly mortgage payments but will mean that, over the long run, the total amount of interest paid will be much higher. Each prospective homeowner will have to determine what the “right” course of action is, based on their individual circumstances. Some help with that determination can be found on the website of the Financial Consumer Agency of Canada at https://www.canada.ca/en/financial-consumer-agency/services/mortgages.html, where detailed information on the ins and outs of financing a home purchase (including online calculators) is provided.

More information on the budget measures is available on the Finance Canada website at https://budget.canada.ca/2024/report-rapport/chap1-en.html#s1-2.

Most Canadians rarely have reason to interact with the tax authorities, and for most people, that’s the way they like it. In the vast majority of cases, Canadians file their tax returns each spring, receive their refund or pay any balance of taxes owing, and forget about taxes until filing season rolls around the following year.

Most Canadians rarely have reason to interact with the tax authorities, and for most people, that’s the way they like it. In the vast majority of cases, Canadians file their tax returns each spring, receive their refund or pay any balance of taxes owing, and forget about taxes until filing season rolls around the following year.

In many cases, however, things don’t run that smoothly, and it’s necessary for the Canada Revenue Agency to contact a taxpayer, to request additional information or seek confirmation of a deduction or credit amount claimed on the return. As our tax system is a self-assessing one, and nearly all returns are filed by electronic means (in which no receipts or other documentation are filed) it’s not surprising that the CRA would need to follow up with some taxpayers with respect to tax matters.

The difficulty for such taxpayers is that a communication – a letter or unsolicited telephone call purporting to be from the CRA – might be legitimate, or it might be part of a scam seeking to defraud the taxpayer. A legitimate communication from the tax authorities can’t be ignored, but clicking on a link in a fraudulent text or email, or providing personal financial information to a scammer over the phone (or worse, sending money), could be disastrous for the taxpayer. And, to add to the difficulties, scammers have become more and more sophisticated in their approaches. A fraudulent phone call from a scammer might show a legitimate CRA phone number on the recipient’s call display, leading him or her to conclude that the call is in fact from the Agency. And, according to the CRA, some fraudulent text messages now include images taken from Government of Canada social media accounts to make their scam messages look more legitimate.

The CRA is well aware of these problems, as tax frauds and scams have become so pervasive that on occasion CRA employees who contact taxpayers on genuine CRA business have had difficulty convincing the recipients of such calls that the call is a legitimate one. To address this problem, the Agency has posted information on its website on how (and how not) to make that determination. The Agency’s goal is two-fold: the first, of course, is to help taxpayers avoid becoming yet another victim of such frauds; the second is to prevent situations in which taxpayers ignore legitimate communications from the Agency, having dismissed them as just another phishing or scam attempt.

To help taxpayers verify that a contact is legitimately from the CRA, the Agency utilizes a number of strategies and security measures. First, any initial contact from the CRA will usually be by way of letter or phone call. The CRA does not send or receive emails or texts containing confidential personal tax information, or communicate with taxpayers on such matters through social media. When the CRA wants to initiate contact with a taxpayer who has not registered for the CRA service My Account, it will send the taxpayer a letter by regular mail, or will contact the taxpayer by phone call. Taxpayers who have registered for My Account may receive an email from the CRA letting them know that there is a communication for them to view in their online CRA account. The taxpayer will then be able to access any letters or electronic communication from the Agency on the CRA website, but only after signing into My Account. My Account, like all of the CRA’s online services, now requires user ID, password, and multi-factor authentication.

Where an unsolicited contact from the CRA to an individual taxpayer is made by telephone, it can be difficult to determine whether that unfamiliar voice on the telephone is in fact a CRA employee (remembering that call display is no longer an effective means of determining whether the call is actually from the Agency).

The Agency suggests that where the taxpayer wishes to verify that the call is in fact from a CRA employee (which is always the best approach when receiving any such phone call), that they take the following steps to ensure that that is the case.

1. Tell the caller you would like to first verify their identity.
2. Request and make a note of their:

• name,
• phone number, and
• office location.

Not infrequently, a taxpayer will contact the CRA through one of its individual or business tax help lines, which are answered by call centre agents. Each of those telephone services offers an automated callback service – when wait times reach a certain threshold, the taxpayer is given the option of receiving a callback rather than continuing to wait on hold. Where the taxpayer chooses the callback option, they are provided with a randomized four-digit confirmation number. The CRA call centre agent who returns the taxpayer’s call will repeat that number, so that the taxpayer can be certain that it is a CRA employee who is calling.

Finally, there are some actions which, if taken by anyone purporting to be from the CRA, should lead the taxpayer to immediately end the telephone call or delete the text or email, including the following: 

• the caller does not give proof of working for the CRA, for example, their name and office location;
• the caller pressures the taxpayer to act now, uses aggressive language, or issues threats of arrest, deportation, or sending law enforcement;
• the caller asks for information that the taxpayer would not enter on his or her return – for example, a credit card number; or
• the caller recommends that the taxpayer apply for benefits, or offers to apply for benefits on the taxpayer’s behalf.

Any unsolicited email or text which purports to be from the CRA should be immediately deleted WITHOUT clicking on any links. The only instances in which the CRA will email a taxpayer is to notify them that something is available for them to view in their online CRA account (which requires log-in with ID, password, and multi-factor authentication). The Agency will also email a form or publication where the taxpayer has previously requested it during a call or a meeting with a CRA agent. Information on how to ensure that such an email is legitimate can be found on the Agency’s website at What to expect when the Canada Revenue Agency contacts you - Canada.ca.

Finally, a CRA representative will never

• demand immediate payment from the taxpayer by any of the following methods:
  • Interac e-transfer,
  • cryptocurrency (Bitcoin),
  • prepaid credit cards,
  • gift cards from retailers such as iTunes, Amazon, or others;
• ask the taxpayer for a fee to speak with a contact centre agent;
• set up a meeting in a public place to take a payment from the taxpayer;
• leave voicemails that are threatening to the taxpayer, or that include the taxpayer’s personal or financial information; or
• send an email or text message with a link to the taxpayer’s refund.

While scams and frauds and their perpetrators have been around for literally centuries, changes in how we communicate and how we conduct our financial affairs have made it significantly easier to carry out such deceptions. Most taxpayers are now accustomed to and at ease with conducting much of their personal and financial lives online, and replying instantly to any communication has become the norm. And even newer technology, like AI, poses additional threats for the future.

In such an environment, the best protection for a taxpayer who has received an unsolicited communication purporting to be from the CRA is to do … nothing, in the moment. Responding immediately without taking the time to assess and verify the legitimacy of the communication is exactly the response the scammers count on and profit from. (As well, any communication which requires the taxpayer to act immediately with respect to a tax matter is almost certainly fraudulent – if the CRA contacts a taxpayer requesting information or documentation, or payment, a reasonable time period in which to respond will be provided and a date by which that response is required will be specified as part of the communication.) The taxpayer’s best protection is to double check in order to verify the legitimacy of any unsolicited contact received with respect to matters of tax or personal finances. Doing so is no longer just prudent, it’s a necessity.

More information on how to avoid become the victim of a tax scam can be found on the CRA website at Security and privacy of your information with the CRA - Canada.ca.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know, until their return is completed, what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know, until their return is completed, what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers are, of course, hoping for a refund – the bigger the better. And in most cases that hope is realized. Of the approximately 6 million tax returns filed with the Canada Revenue Agency between February 8 and March 18 of this year, 65% resulted in the payment of a refund to the taxpayer, while only 15% resulted in a balance owed to the Canada Revenue Agency. (The remaining 20% were nil returns.) However, while only a small percentage of returns put the taxpayer in the position of owing money to the government, that’s not much consolation to the taxpayers who find themselves in that situation.

The worst-case scenario, for all taxpayers, is to find out that they are faced with a large tax bill and an imminent payment deadline, and that they just don’t have the money to make the required payment by that deadline. This year, that deadline is Tuesday April 30, 2024 for ALL individual taxpayers (including self-employed taxpayers and their spouses who don’t actually have to file their returns for 2023 until June 15, 2024). That payment deadline is inflexible and, where payment in full is not made on or before April 30, 2024, interest charges on any unpaid balance will be levied by the Canada Revenue Agency beginning on May 1, 2024. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates – the rate charged from April 1 to June 30, 2024 is 10.0%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30, 2024 deadline.

Where the taxpayer can’t pay his or her tax bill out of current resources and is unable to borrow the funds to do so, there is another option. Like most creditors, the CRA would rather get paid on time and in full, but the Agency’s ultimate goal is to collect the full amount of taxes owed. If a tax bill can’t be paid, in full or in part, out of either current resources or private borrowing arranged by the taxpayer, the Canada Revenue Agency is open to making a payment arrangement with that taxpayer, providing him or her with the option of paying an amount owed over time, plus interest.

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide their full name and address, date of birth, and social insurance number, and to have the Notice of Assessment for the last tax return for which they were filed and assessed. For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2022 tax year. The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time.

Taxpayers who would rather speak directly to a CRA client services agent can call the Agency’s debt management call centre at 1-888-863-8657 from 7 a.m. to 8 p.m. Eastern Time Monday to Friday, or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

Finally, regardless of the taxpayer’s circumstances, there is one strategy which is, in all circumstances, a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. That’s the wrong decision, and also a costly one. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount – and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each full month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In the worst-case scenario, the total penalty charges can reach 50% of the tax amount owed – and that doesn’t count the compound interest which is levied on all penalty amounts, as well as on all unpaid taxes. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time.

Detailed information on the options available to taxpayers who can’t pay their taxes on time and in full can be found on the CRA website at Call us if you can't pay in full or on time - Debt collection at the CRA - Canada.ca and https://www.canada.ca/en/revenue-agency/services/payments-cra/payment-arrangements.html.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for each and every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2023 must be remitted to the Canada Revenue Agency (CRA) on or before Tuesday April 30, 2024. No exceptions and, absent extraordinary circumstances, no extensions.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for each and every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2023 must be remitted to the Canada Revenue Agency (CRA) on or before Tuesday April 30, 2024. No exceptions and, absent extraordinary circumstances, no extensions.

It is very much in the CRA’s interest to make paying taxes as simple and as straightforward as it can be, and so the Agency offers individual taxpayers a wide range of choices when it comes making that payment. There are, in fact, no fewer than seven separate options available to individual residents of Canada in paying their taxes for the 2023 tax year. The first four options outlined below involve payment by electronic means, while the last three describe those available to taxpayers who would prefer to make their payments in person, or by mailing a cheque to the CRA.

Pay using online banking or ATM

Millions of Canadians transact most or all of their banking using the online services of their particular financial institution and/or at an ATM of the financial institution. The list of financial institutions through which a payment can be made to the Canada Revenue Agency is a lengthy one (available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-online-banking.html), and includes all of Canada’s major banks and credit unions.

The specific steps involved in making that payment will differ slightly for each financial institution, depending on how their online payment systems or ATM systems are configured. In most cases, it is necessary to have the Canada Revenue Agency listed as a payee on one’s online banking or ATM arrangements.

It’s important as well to remember that the nature of the payment – i.e. current year tax return, as distinct from current year tax instalment payments – must be specified, and the taxpayer’s social insurance number must be provided, in order to ensure that the payment is credited to the correct account, for the correct taxation year.

It’s not necessary to access any particular CRA form in order to make an online payment of taxes through one’s financial institution.

Using the CRA’s My Payment

The CRA also provides an online payment service called My Payment. There is no fee charged for the service, and it’s not necessary to be registered for any of the CRA’s other online services in order to use My Payment.

What is necessary is that the taxpayer have an activated debit card with an Interac Debt, VISA Debit, or Debit MasterCard logo from a participating Canadian financial institution, as My Payment is set up to accept payment using only those cards. Credit cards cannot be used to make a payment through My Payment. Anyone intending to use My Payment should also confirm that the amount of any payment to be made is within the transaction limits imposed by their particular financial institution.

A list of participating financial institutions for each type of card, and more details on how to use this payment method, can be found at https://www.canada.ca/en/revenue-agency/services/e-services/payment-save-time-pay-online.html.

Payment by credit card, PayPal, or Interac e-transfer

While it’s possible to pay one’s taxes using a credit card, PayPal, or Interac e-transfer, such payments can only be made through third-party service providers (that is, payments by those methods cannot be made directly to the Canada Revenue Agency), and such third-party service providers will impose a fee for the service.

The CRA website indicates that there is currently only one such third party service provider – Pay Simply – which can process and remit individual income tax amounts owed through credit card, PayPal, or Interac e-transfer.

Details of making an income tax payment through a third-party service provider can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-credit-card.html.

Payment by pre-authorized debit

It’s possible to set up a pre-authorized debit (PAD) arrangement with the CRA, authorizing the Agency to debit the taxpayer’s bank account for an amount of taxes owed, on dates specified by the taxpayer.

Individuals who make instalment payments of tax throughout the year may already have such an arrangement in place and can certainly use that existing arrangement to arrange a PAD of any balance of taxes owed for the 2023 tax year. However, any such arrangement must be made at least five business days before the payment due date of April 30. A taxpayer who makes a payment of taxes only once a year is likely better off using another of the available payment methods.

There is also another option for taxpayers who have their return prepared and E-FILED by an authorized electronic tax filer. Such taxpayers can have that E-FILER set up a PAD agreement on their behalf in order to make a “one-time” payment for a current year tax amount owed. Such an arrangement is used only for the payment of a current year (i.e., 2023) tax balance, and can’t be used for other payments like instalment payments of tax. Details on how to set up a pre-authorized debit arrangement, whether for a single payment or for recurring payments, are outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-authorized-debit.html.

Paying in person at your financial institution

For those who don’t use online banking, or simply prefer to make a payment in person, it’s possible to pay a tax amount owed at the bank. Doing so, however, requires that the taxpayer have a specific personalized remittance form – the T7DR, Amount owing Remittance Voucher.

If the taxpayer has not received the required remittance form from the Canada Revenue Agency, it’s possible to download and print the form from the CRA website. Instructions on how to do so can be found on that website at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html, and detailed information on how to make the payment is available on the same website at Pay at the counter (teller) at a bank or credit union - Payments to the CRA - Canada.ca.

Paying at a Canada Post outlet

All Canada Post retail outlets can receive payments of individual income tax balances owed, in cash or by debit card, and will charge a fee for this service. Once again, however, it’s necessary to have a specific form to do so.

In this case, the taxpayer must have a QR code which contains the information needed for the CRA to credit the amount paid to the taxpayer’s account.

While a QR code is sometimes included on remittance forms sent to the taxpayer by the CRA, it’s also possible to generate a QR code online through the CRA website. A link to instructions on how to do so can be found on that website at https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/pay-canada-post.html.

Paying by cheque

While it’s not as common anymore, it’s still possible to pay any tax balance owed on filing by cheque, as outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-cheque.html.

Such cheques are made payable to the Receiver-General for Canada, and are mailed, together with the required remittance form (T7DR – Amount Owing Remittance Form) to the Canada Revenue Agency, using the address found on the back of the payment remittance form. Such payments can also be dropped off at a Canada Revenue Agency dropbox location (a listing of such locations can be found on the CRA website at CRA Office and dropbox locations - Canada.ca). As is the case with payments made at a financial institution, the taxpayer can print the required remittance form from the CRA’s website. Instructions on how to do so can be found at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html.

The CRA also suggests that, where payment of taxes owing is made by cheque, the taxpayer should include his or her social insurance number on the memo line found on the front of the cheque, and indicate the type of payment being made (that is, 2023 tax balance). Doing so will help ensure that the payment is credited to the correct account.

A decision on what method to use to pay one’s taxes includes another important consideration of which most taxpayers are unaware. Under longstanding Canada Revenue Agency policy, the CRA considers that a payment is actually made on the date on which it is received by the Agency. However, depending on the payment method chosen, that date of receipt often isn’t the same day the payment is made by the taxpayer, and it can be as much as several days later. And, of course, where payment is made close to the payment deadline, that delay can mean the difference between a timely payment and one that is late and incurs interest charges.

Helpfully, the Canada Revenue Agency provides information, for each payment method, on how the date of receipt is determined for that particular method. That information can be found on the CRA’s website at Canada Revenue Agency https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/make-payment.html. Taxpayers who have delayed making a payment until April 30 should be aware that the only two payment methods for which payment is always considered to have been received by the CRA on the same day it is made are payment at the counter at one’s financial institution (not at an ATM) or payment at a Canada Post location. In both cases, the remittance voucher will be date-stamped with the current day’s date, and the CRA will consider payment to have been made on that day, regardless of when it actually receives the funds.

Finally, once payment has been made, by any payment method, the CRA provides taxpayers with an online method for confirming that a payment has been received and applied to the taxpayer’s account. That service is available at https://www.canada.ca/en/revenue-agency/services/payments-cra/confirm-payment.html.

No one likes paying taxes, but for taxpayers who live on a fixed income having to pay a a large tax bill can mean real financial hardship – and the majority of Canadians who live on fixed incomes are, of course, those who are over 65 and retired. Adding to their financial stress is the reality that such individuals have been coping, for the past two years, with inflationary increases in the cost of just about all goods and services, especially food and shelter.

No one likes paying taxes, but for taxpayers who live on a fixed income having to pay a a large tax bill can mean real financial hardship – and the majority of Canadians who live on fixed incomes are, of course, those who are over 65 and retired. Adding to their financial stress is the reality that such individuals have been coping, for the past two years, with inflationary increases in the cost of just about all goods and services, especially food and shelter.

Fortunately, the Canadian tax system recognizes and addresses these realities by providing a number of tax deductions and credits which are available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit). In addition, tax deductions or credits are available to help offset the kinds of costs – like medical costs – which are more often incurred by older Canadians. What follows is an outline of some of the most common such deductions and credits which may be claimed by those over 65 on the return for the 2023 tax year.

Age credit

All Canadians who were age 65 or older at the end of 2023 can claim the age credit on their tax return for the year. For 2023, that credit amount is $8,396 which, when converted to a tax credit, reduces federal tax by $1,259.40.

While the age credit can be claimed by anyone aged 65 or older, the amount of credit claimable is reduced where the taxpayer’s income for 2023 was more than $42,335. Where that is the case, the available credit is reduced by 15% for each dollar of income over that $42,335 threshold amount.

Pension income credit

Most Canadians who are aged 65 or older receive income some kind of private pension income which would qualify for the pension income credit. For purposes of that credit, amounts received from an employer-sponsored pension plan qualify, but so too do amounts received from a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Amounts received from government-sponsored retirement income plans (like the Canada Pension Plan (CPP) or Old Age Security (OAS)) do not, however, qualify.

Where the taxpayer receives amounts that qualify as pension income for purposes of the pension income credit, the first $2,000 of such income is effectively exempt from federal tax. In addition, unlike the age credit, the total income of the taxpayer does not limit a claim for the pension income credit in any way.

Pension income splitting

Pension income splitting is a tax strategy which allows married taxpayers who are over the age of 65 to split eligible pension income between them, in order to obtain the best possible overall tax result.

The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to their spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, an RRSP, or an RRIF. Government source pensions, like the CPP, Québec Pension Plan (QPP), or OAS payments do not qualify for pension income splitting, regardless of the age of the recipient.

The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032 Joint Election to Split Pension Income (T1032 E (23)) with their annual tax return. That form, which is not included in the annual tax return package, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1032.html or can be ordered in large print format by calling 1-800-959 8281.

The tax saving strategies outlined above can be claimed by any taxpayer who meets the basic eligibility requirements (age, type of income, marital status, etc.) for the credit. Other types of deductions or credits require that the taxpayer incur a particular kind of expenditure which can then be claimed on the annual return, with that claim reducing the amount of federal tax payable for the year.

Not infrequently, taxpayers incur such expenditures but do not receive the available tax benefit because they are unaware that a credit or deduction is available to be claimed. Almost every taxpayer, for instance, incurs medical expenses or makes charitable donations in the course of a year, both of which can be eligible for a tax credit claim. And while the Canada Revenue Agency will correct basic arithmetical errors made on a return, it does not (and cannot) ensure that the taxpayer has claimed all the deductions and credits to which they are entitled on the return for the year.

As well, most of the credits which are available to reduce federal tax payable can also be claimed for provincial tax purposes, with the amount of the available provincial tax savings determined by the taxpayer’s province of residence. Finally, many of the provinces also offer tax saving opportunities to residents who are over the age of 65 through programs such as property tax credits for senior homeowners or tax credits for expenditures related to increasing safety or mobility for an individual over the age of 65 who lives in his or her own home.

Most Canadians do not prepare their own tax returns, and it's not reasonable to expect individuals (of any age) who don’t spend their working lives immersed in the intricacies of the Canadian tax system to be aware of the myriad of deductions and credit claims which may be available to them to help lower their tax bill. There is, however, help to be had with the tax return preparation process through free tax clinics which will prepare a return for the taxpayer at no cost, and can help to ensure that all available tax deductions and credits are claimed. Those tax return preparation clinics are operating now and a listing of such clinics can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/community-volunteer-income-tax-program/need-a-hand-complete-your-tax-return.html.

For the past two years, Canadians have had to continually adjust their household budgets to accommodate price increases for nearly all goods and services. The impact of rising prices is felt most by those who are living on a fixed income and who, of necessity, spend a larger than average share of their income on non-discretionary expenditures like housing and food. And, while such individuals and families can be found in all age groups, retirees make up the largest Canadian demographic who live on such fixed incomes.

For the past two years, Canadians have had to continually adjust their household budgets to accommodate price increases for nearly all goods and services. The impact of rising prices is felt most by those who are living on a fixed income and who, of necessity, spend a larger than average share of their income on non-discretionary expenditures like housing and food. And, while such individuals and families can be found in all age groups, retirees make up the largest Canadian demographic who live on such fixed incomes.

For many Canadian retirees, benefits received from the Canada Pension Plan (CPP) and Old Age Security (OAS) make up a significant portion of their annual income. And while such benefit amounts are indexed to inflation, those inflationary increases in benefits are tied to the overall rate of inflation. For the past two years, however, the cost of non-discretionary goods and services – especially housing and food – has risen much faster than the general rate of inflation. Consequently, such increases have outstripped the amount by which CPP and OAS benefits have been increased to account for inflation. Price increases in the cost of food purchased from stores were, in fact, higher than the overall rate of inflation in every month between December 2021 and November 2023 – in some months, nearly three times the overall inflation rate.

It must seem to Canadian retirees that there just aren’t many good options when it comes to generating the cash flow needed to cover ever-increasing costs for non-discretionary expenditures. Fortunately, however, the roughly 75% of Canadians over the age of 60 who own their own homes (based on Statistics Canada’s figures for 2021) do have options. Canadians who are now of retirement age and own their homes most likely purchased those homes many years, or even decades, ago and have, consequently, built up significant equity. In the current economic circumstances, that equity has made them house-rich and cash-poor. And that equity can now provide an ongoing source of retirement income – through a home equity line of credit or a reverse mortgage.

The home equity line of credit (or HELOC), as the name implies, is a line of credit which permits the homeowner to borrow up to a pre-set limit based on the current market value of their home. Such borrowings can be in any amount (up to, of course, the limit on the HELOC) and can be made at any time and for any purpose. Typically, the interest rate charged on a HELOC is a variable rate – usually one half or one per cent more than the prime rate used by the lender. There is, however, a significant feature of the HELOC of which potential borrowers must be aware. While there is generally no obligation to repay amounts borrowed from a HELOC until either the death of the homeowner or until the house is sold, borrowers are required to pay interest each month on the total amount borrowed.

Take, for example, a couple who own a house currently valued at $750,000. Assume that the couple obtain a HELOC based on that home value and borrow $1,000 each month ($12,000 annually) from the HELOC to help meet current cash flow shortfalls. At an interest rate of 8.70%, they will be obliged to make an interest payment of approximately $87 per month on that $12,000 borrowing. As the amount of HELOC indebtedness increases over time, or the interest rate charged goes up, the amount of those required monthly interest payment obligations will, of course, also increase.

The other option open to homeowners to provide cash flow is a reverse mortgage. Like the HELOC, a reverse mortgage allows homeowners to borrow based on the market value of their property. A reverse mortgage is also similar to a HELOC in that borrowers can borrow a lump sum amount, or can opt to structure the reverse mortgage as a series of payments which will provide a regular income stream, or some combination of the two. And, as with a HELOC, no repayment of the funds advanced under a reverse mortgage is required until the death of the homeowner, or until they leave or sell the home.

The basic advantage of a reverse mortgage over a HELOC is that no payments of interest are required under a reverse mortgage. However, homeowners need to consider the impact that advantage can have over time. Once the reverse mortgage is taken out, interest will, of course, be levied on all amounts provided, and will accumulate from the time the funds are first advanced. Total interest costs can add up very quickly and reach significant amounts by the time the debt is eventually to be repaid, usually out of the proceeds from the sale of the house. And, of course, every dollar of funds advanced and interest levied eats away at the amount of equity which the homeowner has built up, on a dollar-for-dollar basis. By contrast, with a HELOC, where accrued interest charges must be paid monthly, the amount of debt (and consequent reduction in equity) will never be greater than the principal amount borrowed. Finally, under the terms of many reverse mortgages, a prepayment penalty is levied where the homeowner moves or sells the house within a few years of obtaining the reverse mortgage – the exact time frame will depend on terms provided by the particular lender. With a HELOC, however, repayment of the outstanding balance can be made in part or in full at any time, without penalty.

As is almost always the case with financial issues, there is no one right answer or even a one-size-fits-all answer, as the “correct” answer is always based on the particular financial and life circumstances of the individuals involved. Some help with making a decision on whether a HELOC or a reverse mortgage makes sense in one’s circumstances can be found on the website of the Financial Consumer Agency of Canada at https://www.canada.ca/en/financial-consumer-agency/services/mortgages/borrow-home-equity.html, where the benefits and downsides of each option are outlined in detail.

Most Canadians don’t turn their attention to their taxes until sometime around the end of March or the beginning of April, in time to complete the return for 2023 ahead of the April 30, 2024 filing deadline.

Most Canadians don’t turn their attention to their taxes until sometime around the end of March or the beginning of April, in time to complete the return for 2023 ahead of the April 30, 2024 filing deadline.

While that approach leaves plenty of time to get the return prepared and filed, it also means that the most significant opportunities to reduce or minimize the tax bill for 2023 are no longer available. Almost all such tax planning or saving strategies, in order to be effective for 2023, must have been implemented by the end of that calendar year.

The fact that the clock has run out on most major tax planning opportunities for 2023 does not, however, mean that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2023 – by claiming all available deductions and credits on the return, and also by making sure that those deductions and credits are structured and claimed in the way which will give the taxpayer the greatest tax benefit.

In some cases, a claim for a tax deduction or credit can only be made on the return for the year in which the expense is incurred; in other cases, claims can be made for expenses incurred in the previous tax year or even as far back as five years previously. Consequently, getting the best tax result on one’s return requires an assessment of which deductions and credits are available to claim in the current year, whether some or all of them can be carried forward and claimed in a future year, and whether it makes sense to do so. It may seem counterintuitive, or even illogical, to not claim every available deduction and credit in order to obtain the best possible tax result for the year. However, in some cases (albeit for different reasons) there are situations in which it makes sense to defer an available claim to a future year, or to transfer the claim to another family member.

Charitable donations

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (that is, 2023) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to order to encourage higher donations.

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

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

It's important to note as well that charitable donations made by either spouse can be combined and claimed on the return for one of those spouses, thereby increasing the amount of charitable donations available to claim and possibly the amount of credit which can be received.

Medical expenses

Notwithstanding our publicly-funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs.

The federal credit for such expenses is 15% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, albeit at different rates.

Many taxpayers, with some justification, find the rules on the calculation of a medical tax credit claim confusing. First, there is an income threshold imposed. Medical expenses eligible for the credit are qualifying expenses which exceed 3% of net income, or (for 2023) $2,635, whichever is less. Put more practically, for 2023 taxpayers who have net income of $87,850 or more can claim medical expenses incurred over $2,635. Those with lower incomes can claim medical expenses which exceed 3% of that lower net income. For instance, a taxpayer having $35,000 in net income could claim qualifying medical expenses incurred over $1,050 (3% of $35,000).

The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, such rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and therefore the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed and, of course, any expenses which were claimed on a previous return cannot be claimed again.

While only expenses which exceed the $2,635/3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for each child who was under the age of 18 at the end of 2023. While medical expenses incurred by a single family member might not be enough to allow them to make a claim, aggregating those expenses is very likely (especially for a family that does not have private medical insurance coverage) to mean that total expenses will exceed the applicable threshold.

In determining who will make the medical tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income/$2,635 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower net income makes the claim for total family medical expenses. However, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit.

Finally, there are a huge number and variety of medical expenses which individuals and families may incur, and the rules governing which can be claimed and in what circumstances are very specific. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. The very long list of medical expenses eligible for the credit, and any ancillary requirements, such as a prescription, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

While owning one’s own home brings with it many intangible benefits, home ownership also provides some very significant financial advantages. Specifically, it provides the opportunity to accumulate wealth through increases in home equity, and to realize that wealth on a truly tax-free basis.

While owning one’s own home brings with it many intangible benefits, home ownership also provides some very significant financial advantages. Specifically, it provides the opportunity to accumulate wealth through increases in home equity, and to realize that wealth on a truly tax-free basis.

Anyone who was fortunate enough to purchase a home more than 10 or 15 years ago likely now owns a property which has a current market value of many times more than the original purchase price. The real benefit of such asset growth, however, is found in the way such increases in value are treated for tax purposes.

The Canadian tax system is a very comprehensive one, and there are very few sources of income, property or investment income which escape the tax net. Home ownership is one of those few exceptions. Under general Canadian tax rules, where an asset is sold, the increase in the value of that asset over its original purchase price is treated as a capital gain, 50% of which must be included in taxable income and taxed as such. However, where a family home is sold, any increase in value (that is, any gain) is exempt from tax, regardless of the amount of such gain. For example, a homeowner who paid $200,000 for a home in 2000 and sold that home in 2023 for $1,000,000 has a gain of $800,000. Assuming that the property was lived in and used as a home (a “principal residence” in tax parlance) for the entire 23 years of ownership, the full $800,000 gain can be received tax-free. If that gain were treated as a capital gain, and taxed as such, approximately $200,000 of the gain would have to be paid in capital gains tax.

The tax-free status of gains made on the sale of a family home is known, for tax purposes, as the principal residence exemption (PRE) and has been available to Canadians for many decades. For many years after the introduction of the PRE there were no changes made to the rules governing the availability of the exemption, or the reporting requirements for claiming it. In the last eight years, however, and especially in 2023, the rules with respect to the availability of the exemption have been tightened.

The need for changes arose out of a perceived change in the way the housing market operated, resulting from unprecedented increases in the price of residential properties over a relatively short period of time. While there are have always been individuals or companies who purchased properties with the intent of reselling them, perhaps after undertaking renovations, most purchases of residential real estate were made by individuals or families intending to live in them. However, it became possible, over the past 10 or 15 years, to purchase a property and re-sell it relatively soon thereafter for a very substantial profit. And, where the PRE was claimed on that sale, the entire profit would be received tax-free.

These changes in the housing market led to what the federal government perceived as a situation in which housing was being bought and sold as a commodity rather than for its traditional purpose of providing a home, and that the PRE was being used to avoid the payment of profits made from the “flipping” of properties in a way that was never intended. A secondary effect of such “commodification” of residential real estate was to drive up the price of properties, putting home ownership further and further out of the reach of the average Canadian.

For both these reasons, the federal government moved, in 2016 and again in 2023, to make changes to ensure that the principal residence exemption was being used for its intended purpose, and only by those who were entitled to claim it.

The first such change, which took effect as of January 1, 2016, was an administrative measure which required taxpayers, for the first time, to report any transaction for which the PRE was being claimed. Beginning with the 2016 tax year, individuals who are claiming the PRE for a property sale which took place during the year are required to complete Schedule 3 on their tax return for the year, confirming that fact and indicating the tax years for which the exemption is being claimed.

The second change made by the federal government with respect to the PRE was much more substantive, and aimed directly at those who, in the government’s view, are misusing the PRE. That change, which is effective as of the 2023 tax year, provides that anyone who sells a property which they have owned for less than 365 days would be considered to be “flipping” properties. Where that is the case, 100% of any gain made on the sale of the property would be included in income and taxed as business income. In other words, not only would the seller of the property not be eligible for the PRE, the gains made on the sale of the property would not be treated as a capital gain (only half of which is included in income for tax purposes) but as business income, the entirety of which is included in income and taxed as such.

The difference in the tax result is best illustrated using the example above. An individual who purchases a property for $200,000 and sells that property for $1,000,000 has a gain of $800,000. The result of the different possible tax treatments of that gain is as follows:

• Where the sale is fully eligible for the principal residence exemption, the total tax payable on the gain is $0;
• Where the gain is treated as a capital gain, the total tax payable on that gain is about $200,000; and
• Where the property sale takes place after 2022, the property was owned for less than 365 days, and the transaction is treated as property flipping, the new rule will apply and the total tax payable on the gain will be about $400,000.

Of course, while most Canadians who purchase a home to live in as a principal residence don’t intend to sell within a year of purchase, life’s circumstances can sometimes dictate a different outcome. Consequently, exemptions from the new tax consequences of selling within 12 months of purchase will be provided for Canadians who sell their home due to certain specified life events. 

The rules require that anyone who sold a principal residence during the 2023 tax year must report that sale on page 2 of Schedule 3 of their return for 2023. In that section, the taxpayer is required to designate the property which has been sold as his or her principal residence, and to indicate whether that property has been their principal residence throughout the period of ownership. Where, as in most cases, the number of years of ownership will be identical to the number of years that the property was used as a principal residence, the entire gain realized on the sale of the property will qualify for the principal residence exemption and therefore be non-taxable.

Less often, a taxpayer will have sold a principal residence during 2023 within 12 months of having acquired it. Where that is the case, an additional section of Schedule 3 must be completed, to determine whether the sale does or does not constitute “property flipping”. That section, found on page 3 of Schedule 3, asks the taxpayer to indicate whether he or she sold a housing unit during 2023 within 365 days of acquiring it. Where the answer to that question is “yes” the taxpayer can indicate whether the sale was “due to, or in anticipation of” any one or more of nine different “life events”.

That listing of “life events” is quite extensive, and includes such things as job loss, having an elderly parent come to live with the taxpayer (or the taxpayer moving to care for an elderly parent), illness, and insolvency. And, in addition, it is not necessary for such circumstances to have actually occurred prior to the sale; it is sufficient that the sale have taken place “in anticipation of” the particular life event or events. Where these criteria are satisfied, the sale of a property within 365 days of its acquisition will be considered to not constitute property flipping, and any gain realized on the sale will be exempt from tax under the principal residence exemption (assuming that the taxpayer actually lived in the property during the year he or she owned it).

More information on the rules governing the sale of a principal residence and claiming the exemption on the 2023 tax return can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence-other-real-estate/sale-your-principal-residence.html.

While our tax laws require Canadian residents to complete and file a T1 tax return form each spring, that return form is never exactly the same from year to year. Some of the changes found in each year’s T1 are the result of the indexing of many aspects of our tax system, as income brackets and tax credit amounts are increased to reflect the rate of inflation during the previous year. Other changes, however, arise from the introduction by the federal government of new deductions or credits, changes to the existing rules which govern the availability, amount, or delivery of such deductions or credits, and, inevitably, the end of some tax credit programs.

While our tax laws require Canadian residents to complete and file a T1 tax return form each spring, that return form is never exactly the same from year to year. Some of the changes found in each year’s T1 are the result of the indexing of many aspects of our tax system, as income brackets and tax credit amounts are increased to reflect the rate of inflation during the previous year. Other changes, however, arise from the introduction by the federal government of new deductions or credits, changes to the existing rules which govern the availability, amount, or delivery of such deductions or credits, and, inevitably, the end of some tax credit programs.

This year, most of the changes to be found on the return for 2023 are of a targeted nature, affecting taxpayers who claim specific types of deductions or credits based on their personal or family circumstances. What follows is a summary of the changes which taxpayers will find on the return for 2023, as outlined by the Canada Revenue Agency in its Guide to the 2023 return form.

Multigenerational home renovation tax credit (MHRTC)

The MHRTC is a new refundable tax credit that allows an eligible individual to claim certain renovation costs incurred to create a secondary unit within their home so that an elderly or disabled relative can live with them. Taxpayers who carry out such an eligible renovation can claim up to $50,000 in qualifying expenditures. The credit amount is 15%, meaning that a maximum credit of $7,500 ($50,000 times 15%) can be obtained. Detailed information on eligibility requirements can be found on Schedule 12, Multigenerational Home Renovation Tax Credit, which is used to claim the credit for 2023.

First home savings account (FHSA)

The First Home Savings Account is a new registered plan to help individuals save for their first home on a tax-sheltered basis. Contributions (to a maximum of $8,00 per year and a lifetime maximum of $40,000) made to an FHSA after March 2023 are deductible from income and, where funds are withdrawn from the FHSA to purchase a first home, no tax is payable on the withdrawals. Taxpayers who opened an FHSA in 2023 should complete Schedule 15, FHSA Contributions, Transfers and Activities as part of their return for 2023. Detailed information on the FHSA program can be found on the federal government website at First Home Saving Account.

Property flipping

A Canadian taxpayer who sells the home in which he or she has lived is not required to pay tax on the proceeds of sale from that transaction as the result of the principal residence exemption. Beginning in 2023, however, taxpayers who sell a residential property which they have owned for less than a year will not be entitled to claim that principal residence exemption. In such circumstances, any gain or profit realized on the sale will be treated as business income and taxed in full. (Some exceptions apply where a property held for less than one year is sold owing to a change in life circumstances – i.e., a death, job loss, or illness.) Detailed information on the new “property flipping” rule and those exceptions can be found at Residential Property Flipping Rule.

Federal, provincial, and territorial COVID-19 benefit repayments

During the pandemic millions of Canadians received benefit payments under a number of different government programs. In some instances, benefit payments were made to individuals who were not eligible for a particular benefit, or in amounts which exceeded their benefit entitlement. Over the past couple of years, the federal government has obtained repayment of such benefit overpayments from those individuals. Where, during 2023, a taxpayer repaid COVID-19 benefits received, they can claim a deduction for such repayments on line 23200 of the 2023 tax return.

Deduction for tools (tradespersons and apprentice mechanics)

Tradespersons who earn employment income from their trade are entitled to claim a deduction from that employment income for the cost of eligible tools. As of 2023, the maximum such deduction which may be claimed each year has increased from $500 to $1,000. Detailed information about the tools deductions for tradespersons and apprentice mechanics can be found on the federal government website at Deduction for Tradesperson’s Tools Expense – Canada.ca.

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 #67 Corporate

Personal:

Issue #67 Personal

Each year, the Canada Revenue Agency publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. The final statistics for 2023 show that the vast majority of Canadian individual income tax returns – just over 92%, or just under 30 million returns – were filed by electronic means, using one or the other of the CRA’s web-based filing methods. About 2.5 million returns – or just under 8% – were paper-filed.

Each year, the Canada Revenue Agency publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. The final statistics for 2023 show that the vast majority of Canadian individual income tax returns – just over 92%, or just under 30 million returns – were filed by electronic means, using one or the other of the CRA’s web-based filing methods. About 2.5 million returns – or just under 8% – were paper-filed.

Clearly, electronic filing is the overwhelming choice of Canadian taxpayers, and those who choose electronic filing this year have two choices – NETFILE and E-FILE. The first of those – NETFILE (used last year by just under 33% of tax filers) – involves preparing one’s return using software approved by the CRA and filing that return on the CRA’s website, using the CRA’s NETFILE service. The second method – E-FILE – involves having a third party file one’s return online. Almost always, the E-FILE service provider also prepares the return which they are filing. And it seems that most Canadians want to have little to do with the preparation of their own returns, as last year just under 60% of all the individual income tax returns filed came in by E-FILE. 

The majority of Canadians who would rather have someone else deal with the intricacies of the Canadian tax system on their behalf can find information about E-FILE on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/efile-individuals.html. That site will also provide a listing (searchable by postal code) of authorized E-FILE service providers across Canada; the listing can be found at https://apps.cra-arc.gc.ca/ebci/efes/epcs/prot/ntr.action.

Those who are able and willing to prepare their own tax returns and file online can use the CRA’s NETFILE service (which will be available as of Monday, February 19, 2024, at 6 a.m. Eastern Time); information on that service can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be filed using NETFILE (for instance, a return for a non-resident of Canada, or for someone who declared bankruptcy in 2022 or 2023), the vast majority of Canadians who wish to do so will be able to NETFILE their return.

At one time, it was necessary to obtain and provide an access code in order to NETFILE. While such a code is no longer a requirement, the CRA has provided tax filers with a taxpayer-specific code which can be included with the return for 2023. That eight-character alpha-numeric code is found (in very small type) in the top right-hand corner of the first page of the 2023 Notice of Assessment, just under the “Date Issued” line for that Notice of Assessment. Including the code with your return is not mandatory; however, the taxpayer will be able to use information from the 2023 return when confirming their identity with the CRA only if the code was provided on that return.

A return can be filed using NETFILE only where it is prepared using tax return preparation software which has been approved by the CRA. While such software can be found for sale just about everywhere at this time of year, approved software which can be used free of charge, or for a nominal charge, is also available. A listing of free and commercial software products which are approved for use in preparing individual returns for 2023 is maintained on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview/certified-software-netfile-program.html. That listing will be updated and added to once the NETFILE service for 2023 returns is open, and throughout the tax filing season.

The CRA will automatically send (by regular mail) a hard copy of the 2023 tax return package to anyone who paper-filed a return for 2022. However, for the first time this year, that tax return package will not include a line-by-line guide on how to complete the return. Taxpayers who wish to have a paper copy of that line-by-line guide sent to them by mail can order a copy of the guide (or of the entire tax return package of forms and guide) on the CRA website at  https://apps.cra-arc.gc.ca/ebci/cjcf/fpos-scfp/pub/rdr?searchKey=ncp%20. Finally, taxpayers can download and print a hard copy of the return and guide from the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html.

 A minority of taxpayers will have the option of filing their returns using a touch-tone telephone. That option, called SimpleFile by Phone (which until this year was called “File my Return”), will be available to eligible lower-income Canadians whose returns are relatively simple and whose tax situation remains relatively unchanged from year to year. For such taxpayers, it is important to file, even if there is no income to report, so that they receive the benefits and credits to which they are entitled. This automated telephone filing option is, however, available only to taxpayers who are advised by the CRA of their eligibility for the SimpleFile by Phone service; emails and letters advising those individuals of their eligibility are being sent out by the CRA in February 2024. Information on SimpleFile by Phone can be found on the CRA website at SimpleFile by Phone automated phone service - Canada.ca.

Finally, taxpayers who are not comfortable preparing their own returns, but for whom the cost of engaging a third party to do so is a financial hardship, have another option. During tax filing season, there are a number of community tax clinics staffed by volunteers at which taxpayers can have their returns prepared free of charge. A searchable listing of the available clinics (which is updated regularly throughout the filing season) and their method of operation (walk-in, appointment, virtual, etc.) this tax season can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/free-tax-help.html.

While there are a number of filing options available to Canadian taxpayers, there’s no element of choice when it comes to the filing and payment deadlines for tax returns for 2023. The deadline for payment of any balance of taxes owed for 2023 is Tuesday April 30, 2024. There are no exceptions to this deadline and, absent very unusual circumstances, no extensions are possible.

For the majority of Canadians, the tax return for 2023 must also be filed on or before Tuesday, April 30, 2024. Self-employed taxpayers and their spouses, however, have until Monday, June 17, 2024 to file their returns for 2023. (While the filing deadline for self-employed taxpayers and their spouses is normally June 15, this year that date falls on a Saturday and so the filing deadline for self-employed taxpayers and their spouses is extended to Monday June 17, 2024.)  It’s important to note that, regardless of the applicable tax return filing deadline, all Canadian individual taxpayers must pay any balance of tax owed for the 2023 tax year on or before Tuesday April 30, 2024.

A summary of filing and payment due dates for returns for the 2023 tax year can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/important-dates-individuals.html.

Income tax is a big-ticket item for most retired Canadians. Especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

Income tax is a big-ticket item for most retired Canadians. Especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

There is, however, another income-tax-saving strategy which is not nearly as well known. Even more unfortunate is the fact that the benefits of that strategy (and the ease with which it can be accomplished) aren’t readily apparent from either the tax return form or the annual income tax guide. That tax saving strategy is pension income splitting and it’s likely the case that many taxpayers who could benefit aren’t familiar with the strategy, especially if they are not receiving professional tax planning or tax return preparation advice.

That’s a particularly unfortunate reality because pension income splitting has the potential to generate more tax savings among taxpayers over the age of 65 (and certainly those over the age of 71, for whom RRSP contributions are no longer possible) than just about any other tax planning strategy available to retirees. In addition, it’s one of the very few tax planning strategies which requires no expenditure of funds on the part of the taxpayer and which can be implemented after the end of the tax year, at the time the return for that tax year is filed.

When described in those terms, pension income splitting can sound like one of those “too good to be true” tax scams, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for Canadian residents who are married (and, usually, where the spouse whose income is being split is aged 65 or older) to make a notional (meaning that no money actually has to change hands) reallocation of private pension income between them on their annual tax returns, and to benefit from a lower overall family tax bill as a result.

Pension income splitting, like all forms of income splitting, works because Canada has what is called a “progressive” tax system, in which the applicable tax rate goes up as income rises. For 2023, the federal tax rate applied to about the first $53,000 of taxable income is 15%, while the federal rate applied to approximately the next $53,000 of such income is 20.5%. So, an individual who has $106,000 in taxable income would pay federal tax of about $18,815. If that $106,000 was divided equally between such individual and his or her spouse, each would have $53,000 in taxable income and federal tax payable of $7,950 each. The total federal family tax bill would be $15,900, for a federal tax saving of just under $3,000.

The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to his or her spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, a registered retirement savings plan (RRSP), or a registered retirement income fund (RRIF). Government source pensions, like the Canada Pension Plan (CPP), Québec Pension Plan (QPP), or Old Age Security (OAS) payments do not qualify for pension income splitting, regardless of the age of the recipient.

The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income (T1032 E (23)), with their annual tax return. That form, which is not included in the annual tax return package, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1032.html or can be ordered in large print format by calling 1-800-959 8281.

On the T1032, the taxpayer receiving the private pension income and the spouse with whom that income is to be split must make a joint election to be filed with their respective tax returns for 2023. Since the splitting of pension income affects the income and therefore the tax liability of both spouses, the election must be made and the form filed by both spouses – an election filed by only one spouse or the other won’t suffice. In addition to filing the T1032, the spouse who is the actual recipient of the pension income to be split must deduct from income the amount of eligible pension income which is being allocated to their spouse. That deduction is taken on Line 21000 of the 2023 return. And, conversely, the spouse to whom the eligible pension income is being allocated is required to add that amount to their income on the return, this time on Line 11600. Essentially, to benefit from pension income splitting, all that’s needed is for each spouse to file a single form with the CRA and to make a single entry on their 2023 tax return.

By the end of February or early March, taxpayers will have received (or downloaded) the information slips which summarize the income received from various sources during 2023. At that time, couples who might benefit from this strategy can review those information slips and calculate the extent to which they can make a dent in their overall tax bill for the year through a little judicious pension income splitting.

Those wishing to obtain more information on pension income splitting than is available in the 2023 General Income Tax and Benefit Guide should refer to the CRA website at http://www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available.

If there is one invariable “rule” of financial and retirement planning of which most Canadians are aware, it is the unquestioned wisdom of making regular contributions to one’s registered retirement savings plan (RRSP). And it is true that for several decades the RRSP was the only tax-sheltered savings and investment vehicle available to most individual Canadians.

If there is one invariable “rule” of financial and retirement planning of which most Canadians are aware, it is the unquestioned wisdom of making regular contributions to one’s registered retirement savings plan (RRSP). And it is true that for several decades the RRSP was the only tax-sheltered savings and investment vehicle available to most individual Canadians.

In 2009, however, that reality changed with the introduction of Tax-Free Savings Accounts (TFSAs). In 2023, yet another variable was added to that decision-making process with the introduction of the First Home Savings Account (FHSA), which provides Canadians with the ability to save toward the purchase of a home on a tax-assisted basis.

It should be said that there’s nothing wrong, and a lot right, with making the maximum allowable contribution to each of a TFSA, an RRSP, and an FHSA annually. However, doing all that assumes the availability of a level of discretionary income that just isn’t the financial reality in which most Canadians live and plan. In addition, there are circumstances in which making a contribution to one type of plan or the other is clearly the better choice – and sometimes the only choice. Some of those circumstances are as follows.

• For Canadians over the age of 71, there is no real choice. All individual Canadians must collapse their RRSPs by the end of the year in which they turn 71, and no RRSP contributions can be made after that time. Practically speaking, a TFSA is the only tax-sheltered savings vehicle to which taxpayers over age 71 can contribute. (While contributions to an FHSA can be made by taxpayers of any age, an FHSA is of benefit to individuals who are planning for the purchase of a home – not a fact situation which applies to most Canadians over the age of 71). Many taxpayers over the age of 71, however, have transferred their RRSP savings to a registered retirement income fund (RRIF) and are required to withdraw a specified percentage of funds from that RRIF each year. For taxpayers who are in the fortunate position of having such income in excess of current cash flow needs, that excess can be contributed to a TFSA. While the RRIF withdrawals must still be included in income and taxed in the year of withdrawal, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn in the future from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.
• The minority of working taxpayers who are members of registered pension plans (RPPs) will also likely find savings through a TFSA or FHSA the better or even the only option. The maximum amount which can be contributed to an RRSP in a given year is generally 18% of the previous year’s income, to a specified dollar amount ceiling. However, any allowable contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under their pension plan. Where the RPP is a particularly generous one, RRSP contribution room may be minimal, or even non-existent, and a TFSA or FHSA contribution the logical alternative.
• Where savings are being put aside for an expenditure that is likely to be made in the next five years (like a new car or a wedding), and that savings goal is something other than home ownership, saving through a TFSA is almost certain to be the better option. Taxpayers in that situation are sometimes tempted to make an RRSP contribution instead, in order to get a tax refund, and then to withdraw the funds when the planned expenditure is to be made. However, while choosing that option will provide a deduction on this year’s return and probably generate a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP a year or two later. And, more significantly from a long-term point of view, using an RRSP in this way will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn from the plan cannot be replaced. While the amounts involved may seem small, the loss of compounding on even a relatively small amount over 25 or 30 years can make a significant dent in one’s ability to save for retirement.

The greatest tax benefit of contributing to an RRSP is realized when contributions are made when income (and therefore tax payable) is high, and the intention is to withdraw those funds when both income and the rate of tax payable on that income are lower. Where that’s not the case, saving through a TFSA can make more sense, as in the following situations.

• Taxpayers who are expecting their income to rise significantly within a few years – for example students in post-secondary or professional education or training programs – can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, allowing the funds to compound on a tax-free basis, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted against income which would be taxed at the much higher rate, generating a tax savings. And, if a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

• Lower-income taxpayers, for whom there isn’t likely to be a great difference between pre- and post-retirement income, are likely better off saving through a TFSA. That’s especially the case where those taxpayers may be eligible in retirement for means-tested government benefits like the Guaranteed Income Supplement or tax credits like the GST/HST credit or age credit. Withdrawals made from an RRSP or RRIF during retirement will be included in income for purposes of determining eligibility for such benefits or credits, and lower-income taxpayers could find that such withdrawals have pushed their income to a level which reduces or eliminates their eligibility. On the other hand, monies withdrawn from a TFSA are not included in income for the purpose of determining eligibility for any government benefits or tax credits, so saving through a TFSA will ensure that receipt of such benefits is not put at risk.
• For taxpayers who are saving toward the purchase of a first home, the FHSA is clearly the best choice. Contributions made to an FHSA are deductible from income, investment income of any kind earned by contributed funds are not taxed as earned, and where original contributions and investment gains are withdrawn, no tax is payable where the amounts withdrawn are used to purchase a first home. The result is a permanent tax savings that can’t be achieved through contributing to either an RRSP or a TFSA.

Taxpayers who are contemplating making a contribution to any of these tax-assisted plans must also keep in mind that each type of plan has its own contribution deadline. A contribution to a TFSA can be made at any time of the year. Contributions to an RRSP must, in order to be deducted on the return for 2023, be made on or before Thursday, February 29, 2024. And, finally, contributions to an FHSA must be made by the end of the calendar year in order to be claimed as a tax deduction on the return for that year. In other words, in order to deduct a contribution made to an FHSA on the return for the 2023 tax year, that contribution must have been made on or before December 31, 2023. Any FHSA contribution made now would be deductible on the return for 2024.

As is the case with most tax and financial planning questions, there isn’t a universal right or wrong answer when it comes to decisions on contributing to a TFSA and/or an RRSP and/or an FHSA. What is certain, however, is that the best choice for any individual is the one which takes account of their particular tax and financial realities and prospects – both current and future.

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

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

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

The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an instalment reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2024) tax year and either of the two previous (2022 or 2023) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income throughout the year is at least $3,000 less than their total tax owed for 2024 and either 2022 or 2023. For residents of Québec, that threshold amount is $1,800.

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

First, the taxpayer can pay the amounts specified on the Reminder, by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2024. If the total of instalment payments made during 2024 turn out to be more than the taxpayer’s total tax liability for the year, he or she will of course receive a refund when the annual tax return is filed in the spring of 2025.

Second, the taxpayer can make instalment payments based on the amount of tax which was payable for the 2023 tax year (which will, of course, be known once the return for 2023 is completed). Where a taxpayer’s income has not changed significantly between 2023 and 2024 and their available deductions and credits remain the same, the likelihood is that total tax liability for 2024 will be slightly less than it was in 2023, as the result of the indexation of both tax credit amounts and income tax brackets.

Third, the taxpayer can estimate the amount of tax which they will owe for 2024 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2023 to 2024, such that the tax bill will also be substantially reduced (as might be the case for someone for whom 2024 is their first year of retirement), this option can make the most sense.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no additional tax payable when the return for the 2024 tax year is filed in the spring of 2025. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2024 – until March 31, 2024 – is 10%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.

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

Detailed information on the instalment payment system for 2024, and the calculation and payment options available to taxpayers, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments.html.

The Employment Insurance (EI) premium rate for 2024 is set at 1.66%.

The Employment Insurance (EI) premium rate for 2024 is set at 1.66%.

Yearly maximum insurable earnings are set at $63,200, making the maximum employee premium $1,049.12.

As in previous years, employer premiums are 1.4 times the employee premium. The maximum employer premium for 2024 is therefore $1,468.77.

Changes made to the Québec Pension Plan (QPP) beginning in the 2024 calendar year will create a two-tier contribution structure.

Changes made to the Québec Pension Plan (QPP) beginning in the 2024 calendar year will create a two-tier contribution structure.

First-tier contributions for 2024 are set at 6.4% of pensionable earnings between $3,500 and $68,500.

Second-tier contributions for 2024 are set at 4.0% of pensionable earnings between $68,500 and $73,200.

The maximum QPP contribution in 2024 for individuals making only first-tier contributions (those with pensionable earnings of $68,500 or less) will be $4,160. Individuals making second tier contributions will be required to contribute up to an additional $188.00 in contributions for the year.

Changes made to the Canada Pension Plan (CPP) beginning in the 2024 calendar year will create a two-tier contribution structure.

Changes made to the Canada Pension Plan (CPP) beginning in the 2024 calendar year will create a two-tier contribution structure.

First-tier contributions for 2024 are set at 5.95% of pensionable earnings between $3,500 and $68,500.

Second-tier contributions for 2024 are set at 4.0% of pensionable earnings between $68,500 and $73,200.

The maximum CPP contribution in 2024 for individuals making only first-tier contributions (those with pensionable earnings of $68,500 or less) will be $3,867.50. Individuals making second tier contributions will be required to contribute up to an additional $188.00 in contributions for the year.

Dollar amounts on which individual non-refundable federal tax credits for 2024 are based, and the actual tax credit claimable, will be as follows:

Dollar amounts on which individual non-refundable federal tax credits for 2024 are based, and the actual tax credit claimable, will be as follows:

                                                                         Credit amount         Tax credit

Basic personal amount*                                           $15,705                $2,356

Spouse or common law partner amount*                   $15,705                $2,356

Eligible dependant amount*                                      $15,705                $2,356

Age amount                                                              $8,790                 $1,319

Net income threshold for erosion of age credit            $44,325

Canada employment amount                                      $1,433                    $215                        

Disability amount                                                       $9,872                  $1,481

Adoption expenses credit                                          $19,066                 $2,860

Medical expense tax credit income threshold amount    $2,759

*For taxpayers having net income for the year of more than $173,205, amounts claimable for the basic personal amount, the spousal amount and the eligible dependant amount for 2024 may differ.

The indexing factor for federal tax credits and brackets for 2024 is 4.7%. The following federal tax rates and brackets will be in effect for individuals for the 2024 tax year.

The indexing factor for federal tax credits and brackets for 2024 is 4.7%. The following federal tax rates and brackets will be in effect for individuals for the 2024 tax year.

Income level                    Federal tax rate

$15,705 - $55,867                  15.0%

$55,868 - $111,733                20.5%

$111,734 - $173,205              26.0%

$173,206 - $246,752              29.0%

Over $246,752                       33.0%

Each new tax year brings with it a schedule of tax payment and filing deadlines, as well as some changes with respect to tax saving and planning opportunities. Some of the more significant dates and changes for individual taxpayers for 2024 are listed below.

Each new tax year brings with it a schedule of tax payment and filing deadlines, as well as some changes with respect to tax saving and planning opportunities. Some of the more significant dates and changes for individual taxpayers for 2024 are listed below.

Registered Retirement Savings Plan (RRSP) deduction limit and contribution deadline

The RRSP current year contribution limit for the 2023 tax year is $30,780. In order to make the maximum current year contribution for 2023 (for which the contribution deadline will be Thursday February 29, 2024), it will be necessary to have earned income of $171,000 for the 2022 taxation year.

Tax-Free Savings Account (TFSA) contribution limit

The TFSA contribution limit for 2024 is increased to $7,000. The actual amount which can be contributed by a particular individual includes both the current year limit and any carryover of uncontributed or re-contribution amounts from previous taxation years.

Taxpayers can find out their personal 2024 TFSA contribution limit by calling the Canada Revenue Agency’s Individual Income Tax Enquiries line at 1-800-959-8281. Those who have registered for the CRA’s online tax service My Account can obtain that information by logging into My Account.

A TFSA contribution can be made at any time during the taxation year.

First Home Savings Account (FHSA) contribution limit for 2024

The FHSA current year contribution limit for 2024 is $8,000. The actual amount which can be contributed by a particular individual includes both the current year contribution limit and any carryover of uncontributed amounts from 2023.

There is a lifetime per individual limit of $40,000 in contributions to an FHSA, and an FHSA contribution can be made at any time during the taxation year.

Individual tax instalment deadlines for 2024

Millions of individual taxpayers pay income tax by quarterly instalments, which are due on the 15^th day of March, June, September, and December 2024. Where the 15^th of the month falls on a weekend or a statutory holiday, the instalment payment deadline is extended to the next business day.

The actual tax instalment due dates for 2024 are as follows:

• Friday March 15, 2024
• Monday June 17, 2024
• Monday September 16, 2024
• Monday December 16, 2024

Old Age Security income clawback threshold

For 2024, the income level above which Old Age Security (OAS) benefits are clawed back is $90,997.

Individual tax filing and payment deadlines in 2024

For all individual taxpayers, including those who are self-employed, the deadline for payment of any balance of 2023 taxes owed is Tuesday April 30, 2024.

Taxpayers (other than the self-employed and their spouses) must file an income tax return for 2023 on or before Tuesday April 30, 2024.

Self-employed taxpayers and their spouses must file an income tax return for 2023 on or before Monday June 17, 2024.

While most taxpayers pay their annual income tax bill in full and by the tax payment deadline of April 30, there are many circumstances that could result in an individual’s being unable to meet their tax payment obligations in full or on time. Individuals who earn income from employment pay their taxes through deductions from their paycheques, but can still be faced with a tax balance owing when the annual return is filed. Newly retired Canadians who are receiving income from a variety of sources may not realize that sufficient tax is not being withheld from all of those sources to cover the tax bill for the year. And, in a time when many Canadians and their families are living paycheque to paycheque, most taxpayers are unlikely to have additional funds readily available to pay a large, unexpected tax bill.

While most taxpayers pay their annual income tax bill in full and by the tax payment deadline of April 30, there are many circumstances that could result in an individual’s being unable to meet their tax payment obligations in full or on time. Individuals who earn income from employment pay their taxes through deductions from their paycheques, but can still be faced with a tax balance owing when the annual return is filed. Newly retired Canadians who are receiving income from a variety of sources may not realize that sufficient tax is not being withheld from all of those sources to cover the tax bill for the year. And, in a time when many Canadians and their families are living paycheque to paycheque, most taxpayers are unlikely to have additional funds readily available to pay a large, unexpected tax bill.

While falling behind on any financial obligation isn’t good, tax debt is a particularly bad kind of debt to have, for a couple of reasons. First, interest is charged by the Canada Revenue Agency on all outstanding tax amounts owed. Interest rates are already at their highest level in more than 20 years – and the CRA charges interest at higher than market rates. By law, the interest rate levied by the CRA is two percentage points higher than commercial interest rates. The CRA’s “prescribed” interest rate – the one charged on all tax amounts owed – is currently (from October 1 to  December 31, 2023) set at 9.0%.  Beginning on January 1, 2024 and until March 31, 2024, that rate will increase to 10.0%. Second, all interest amounts charged by the CRA are compounded daily, meaning that on each successive day, interest is charged on interest amounts which were levied the day before. It’s not at all hard to see how, where interest is charged at 10% and compounded daily, total interest charges could accumulate very, very quickly.

Where a taxpayer owes money to the CRA and hasn’t the funds to pay that amount in full, there are a couple of options. The first is to reach out to the CRA to set up a payment arrangement. Like all creditors, the CRA prefers to be paid on time and in full. Especially in difficult economic times, that’s not always possible and the CRA is generally willing to consider an arrangement in which the tax debt is repaid over time.

There are two avenues available to taxpayers who want to propose a payment arrangement with the CRA. The first is a call to the Agency’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide their social insurance number, date of birth, and the amount entered on line 15000 of the last tax return for which the taxpayer received a Notice of Assessment. For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2022 tax year. The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time.

Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657 Monday to Friday between 7 a.m. and 8 p.m. Eastern time, or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

Where tax amounts are owed, it’s necessary to come to some arrangement with the CRA to eliminate that debt, as there is no ability to have tax amounts owed forgiven. That’s not the case, however, with respect to interest amounts which have accrued on the tax debt. In some circumstances, the CRA is prepared to waive such interest charges, along with any penalty amounts that have been assessed. It does so under the Taxpayer Relief Program.

Interest and penalty relief under the Taxpayer Relief Program is often provided to taxpayers who have been unable to meet their tax payment obligations as the result of natural disasters or other circumstances outside of their control. However, such relief is also available to taxpayers who are unable to meet such obligations owing to financial hardship. In particular, the CRA website indicates that it would consider providing interest relief where financial hardship and an inability to pay results from loss of work, or paying the interest would make it difficult to provide basic necessities such as food, medical help, transportation, or shelter.

In order to receive relief from interest charges, a taxpayer must provide the CRA with detailed information on their current financial situation. That financial situation is outlined on a prescribed CRA form, which is available at Form RC376, Taxpayer Relief Request – Statement of Income and Expenses and Assets and Liabilities for Individuals. In addition to the information submitted on that form, the taxpayer must also provide supporting documentation, such as current mortgage statement(s), property assessment(s), rental agreement(s), loans and recurring bills, bank and credit card statements for the most recent three months, and current investment statements.

The CRA will review the information submitted and make a determination of whether to cancel interest amounts owed, in whole or in part, in order to allow the taxpayer to pay off their tax debt. The CRA’s goal is to make a decision on straightforward applications made under the Taxpayer Relief Program within six months (180 days) after the application is received. However, not surprisingly, the Agency is currently receiving a higher than usual number of applications, meaning that the timeline for making decisions on those applications is now closer to eight months (or longer, for complex applications).

In considering whether to grant an application for interest and penalty relief under the Program, the Agency will consider a number of factors, including the taxpayer’s tax return filing and payment history, whether the taxpayer knowingly let a balance owing exist, which resulted in additional interest, whether reasonable care was taken in the management of the taxpayer’s tax affairs, and finally, whether the taxpayer acted quickly to correct any delay or omission.

Where the taxpayer’s request is denied, they can make on online request to have the decision reviewed. If that decision is also negative, the only recourse is to ask a judge to review the CRA’s decision. In the great majority of cases, however, the cost of taking that step is likely to be greater than the amount of interest and penalties at issue.

In all cases, the best course of action for the taxpayer is to be proactive – to contact the CRA as soon as the taxpayer is aware that full payment of taxes owed will not be possible, to set up a payment arrangement, and to make an application under the Taxpayer Relief Program for waiver of any interest or penalty charges. Taking the initiative and moving quickly to resolve the problem will both minimize the amount of interest which will accrue on unpaid taxes and will count in the taxpayer’s favour when the CRA considers whether to allow an application for waiver of those interest charges.

Detailed information on the Taxpayer Forgiveness Program is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/taxpayer-relief-provisions.html.

While almost everyone looks forward to retirement and an end to the day-to-day demands of working life, there’s also no question but that the decision to give up a regular paycheque is a stressful one. Particularly when the cost of life’s necessities – groceries, rent, mortgage interest payments – seems to be continually increasing, individuals wanting to retire have to wonder whether they can actually afford to do so, or whether it would be foolhardy, in the current economic realities, to walk away from a reliable, regular paycheque.

While almost everyone looks forward to retirement and an end to the day-to-day demands of working life, there’s also no question but that the decision to give up a regular paycheque is a stressful one. Particularly when the cost of life’s necessities – groceries, rent, mortgage interest payments – seems to be continually increasing, individuals wanting to retire have to wonder whether they can actually afford to do so, or whether it would be foolhardy, in the current economic realities, to walk away from a reliable, regular paycheque.

The first financial task faced by anyone contemplating retirement in the very near future is to determine what financial resources they will have to live on, and whether those resources are sufficient. And, while no one can accurately predict where inflation or interest rates are going, it is nonetheless possible to formulate “best case” and “worst case” scenarios, and to test one’s retirement income expectations against both.  

For most Canadians, income in retirement will come from three sources. The first two sources – a Canada Pension Plan (CPP) retirement benefit and Old Age Security (OAS) payments – will be received by nearly all retirees. The fortunate minority who are members of an employer-sponsored registered pension plan will also receive a monthly benefit from that plan. For the majority of Canadian retirees who will not receive a pension from their employer, the balance of their income in retirement (after CPP and OAS) will come from private retirement savings accumulated in registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), and tax-free savings accounts (TFSAs). The real question for most Canadians is how to determine the amount of annual after-tax income which all those sources of income will generate during their retirement years, and that’s not a simple calculation.

Money can be withdrawn from an RRSP, an RRIF, or a TFSA at any age, a CPP retirement pension can start anytime from age 60 to age 70, and Old Age Security benefits can be received as early as age 65 or as late as age 70. For both CPP and OAS, benefits will rise with each month that receipt of such benefits is deferred. As well, income from the different types of retirement income may be subject to different tax treatment, meaning that the after-tax amount received on $100 of income may vary widely, depending on the nature and source of that income.

The number of factors to consider and, especially, the complexity which results from the interaction of those factors, could reasonably lead the average Canadian to conclude that it’s just not possible to make an accurate determination of the best way to structure their income in retirement in order to ensure a reasonable income throughout their retirement years. But help is at hand – and it’s free!

That help is in the form of two online retirement planners which are available on the Government of Canada website. The first of those is a new “Retirement Hub” webpage which can be found at Learn and plan for your retirement – Retirement Hub – Canada.ca. While the Retirement Hub does include financial calculations, it goes beyond finances to provide more broad-based information on transitioning to and living in retirement.  

For purely financial calculations, the federal government provides a Retirement Income Calculator. That Calculator is included in the Retirement Hub webpage, but can also be found in a stand-alone version at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html. 

Using the Retirement Income Calculator, individual Canadian taxpayers can enter their personal data, including their date of birth, gender, and planned age of retirement, without the need to provide any personal identifying information. The user is then asked to provide information on income amounts which will be received from various sources, including any employer pension and Canada Pension Plan amounts and the age at which the user plans to begin receiving such income. Information is requested on the user’s period of residency in Canada, in order to determine whether he or she will be eligible to receive Old Age Security benefits and the amount of OAS benefits which will be provided at different ages. The calculator also allows the user to input the total amount of savings accumulated to date. Finally, information is requested on any other sources of income which will be available during retirement.

Using that data, the calculator estimates the amount of income which will be available to the individual from each source during each year of his or her retirement and generates a bar graph and a table showing those income amounts.

The real benefit of the calculator, however, lies in the individual’s ability to vary the inputs – to create “what-if” scenarios in order to determine the effect any changes made will have on retirement income at various ages. Users can change the age at which they choose to receive government-sponsored retirement benefits like CPP and OAS, or can specify a different rate of return (pre- or post-retirement) earned on retirement savings. They can also change the period of time (i.e., life expectancy) over which retirement income will be spread. That way, the user can obtain answers to frequently asked questions like the following:

• How much more will I receive if I accelerate – or delay – receipt of Canada Pension Plan or Old Age Security benefits, or both, for one, two, or more years?
• What if I work an additional year or two after age 65 before starting RRSP withdrawals?
• What if I earn income from part-time employment during retirement?
• What if I choose to begin receiving CPP and OAS as soon as I am eligible, but defer making RRSP withdrawals?
• What if I live longer than the average life expectancy?

For each of these what-if fact scenarios, the calculator will determine the effect that particular change will have on the amount of income receivable from each different retirement income source, and will provide a summary of income for each year of retirement from all such sources under each fact scenario created by the user.

There are, of course, some factors which can’t be incorporated into any calculator because they cannot be predicted or planned for. No one can predict how long their retirement will last (although the Calculator does project retirement income based on average life expectancy for individuals of the age and gender of the user). Similarly, it’s never possible to know what investment returns will be earned on retirement savings during retirement, or what the rate of inflation will be. The calculator’s ability to estimate future income data based on a number of different fact patterns does, however, allow users to create retirement income projections under both “best-case” and “worst-case” retirement income scenarios. And, based on those income projections, an individual can determine whether retirement in the near future is financially feasible.

During the month of December, it’s customary for employers to provide something “extra” for their employees, whether it’s a compensation bonus, a gift, or an employer-sponsored social event – or all three. And, given the current labour shortages in many sectors, employers may be particularly motivated this year to provide such extras in order to retain current employees, or attract new ones. What employers definitely aren’t trying to do is create a tax headache or liability for their employees: unfortunately, it’s also the case that a failure to properly structure employee gifts or even employee social events can result in unintended and unwelcome tax consequences to those employees.

During the month of December, it’s customary for employers to provide something “extra” for their employees, whether it’s a compensation bonus, a gift, or an employer-sponsored social event – or all three. And, given the current labour shortages in many sectors, employers may be particularly motivated this year to provide such extras in order to retain current employees, or attract new ones. What employers definitely aren’t trying to do is create a tax headache or liability for their employees: unfortunately, it’s also the case that a failure to properly structure employee gifts or even employee social events can result in unintended and unwelcome tax consequences to those employees.

Trying to formulate and administer the tax rules around holiday gifts and celebrations is something of a no-win situation for the tax authorities. On an individual or even a company level, the amounts involved are usually small, or even nominal, and the range of situations which must be addressed by the related tax rules are virtually limitless. As a result, the cost of drafting and administering those rules can outweigh the revenue generated by the enforcement of such rules, to say nothing of the potential ill-will generated by imposing tax consequences on holiday gifts or parties. Nonetheless, the potential exists for employers to provide what would otherwise be taxable remuneration in the guise of holiday gifts, and it’s the responsibility of the Canada Revenue Agency to ensure that such situations don’t slip through the tax net.

The determination of whether employer gifts constitute a taxable benefit which must be reported on a T4 or T4A slip and on which tax must be paid is based on administrative policy formulated and followed by the Canada Revenue Agency (the Agency). In 2023, the starting point of that administrative policy is that any gift (cash or non-cash) received by an employee from his or her employer at any time of the year is considered to constitute such a taxable benefit, to be included in the employee’s income for that year.

The CRA does, however, make some administrative concessions in this area, allowing non-cash gifts (as defined by the Agency, and within a specified annual dollar limit) to be received tax-free by employees, as long as such gifts are given on significant dates or events, like religious holidays such as Christmas or Hanukkah, or on the occasion of a birthday, a marriage, or the birth of a child.

In sum, the Agency’s current administrative policy is simply that such non-cash gifts to an employee, regardless of the number of such gifts, will not be taxable if the total fair market value of all such gifts (including goods and services tax or harmonized sales tax) to that employee is $500 or less annually. The total value over $500 annually will be a taxable benefit to the employee and must be included on the employee’s T4 for the year, and on which income tax must be paid.

It’s important to remember the “non-cash” criterion imposed by the Agency, as the $500 per year administrative concession does not apply to what the Agency terms “cash or near-cash” gifts, and all such gifts are considered to be a taxable benefit and included in income for tax purposes, regardless of amount. For this purpose, the Agency considers both currency and cheques to be cash. As well, in situations in which an employee selects and purchases something, submits a receipt to the employer, and receives reimbursement for that purchase, that employee is considered to have received a cash gift in the amount of the purchase/reimbursement.

Other instances of gifts made to employees are not so clear cut, as even a gift or award which cannot be converted to cash can be considered by the Agency to be a near-cash gift. Drawing a firm line between cash/near-cash gifts and non-cash gifts can be difficult, and the CRA provides the following information to help clarify that difference.

Examples of a near-cash gift or award

• Something easily converted to cash, such as bonds, securities or precious metals;
• Gift cards (with the exception outlined below);
• A prepaid card issued by a financial institution that can be used to pay for purchases; and
• Digital currency which is electronic money (i.e., cryptocurrencies not issued by a government or central bank).

At one time, the Agency considered all gift cards to be near-cash gifts and fully taxable to the employee who received one, but in 2022 the Agency carved out an exception to that policy. Specifically, effective for 2022 and subsequent tax years, a gift card that meets all of the following criteria will be treated as a non-cash gift, and subject to the usual rules governing non-cash gifts:

• the card comes with money already on it and can only be used to purchase goods or services from a single retailer or group of retailers identified on the card;
• the terms and conditions of the gift card clearly state that amounts on the card cannot be converted into cash; and
• the employer keeps a log to record details of the gift card information including the date, the employee’s name, and the reason for providing the gift card, as well as the name of the retailer and the type and amount of the gift card.

It may seem nearly impossible to plan for employee holiday gifts without running afoul of one or more of the detailed rules and administrative policies surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if the following rules are kept in mind.

• Cash or near-cash gifts should be avoided, as they will, no matter how large or small the amount, almost always create a taxable benefit to the employee. The sole exception to that rule is the exception carved out by the Agency which now treats gift certificates as non-cash gifts, but only where such gift certificates meet the criteria listed above.
• Where non-cash holiday gifts are provided to employees, gifts with a value of up to $500 can be received free of tax. The employer must be mindful of the fact that the $500 limit is a per-year and not a per-occasion limit. Where the employee receives non-cash gifts with a total value of more than $500 in any one taxation year, the portion over $500 is a taxable benefit to the employee.

The tax treatment of employer-sponsored holiday social events comes with its own set of rules, which have been subject to frequent change by the Agency. During the pandemic, it was necessary to formulate rules which would address the tax treatment of holiday events which were held virtually. While holiday gatherings in 2023 are now far more likely to be in-person gatherings, the administrative policies formulated during the pandemic nonetheless remain in place.

For 2023, the general rule is that a holiday social event (whether in-person or a combination of in-person and virtual) does not create a taxable benefit to employees where the event is open to all employees and the per person cost of the event is below a specified threshold. Specifically, such an event will not create a taxable benefit for employees if the per person (including spouses and common-law partners) cost is less than $150. Ancillary costs such as transportation home, taxi fare, and overnight accommodation for attendees are not included in the total cost limit for the event. As well, where gift cards are provided to employees who are attending “virtually”, such gift cards must meet the criteria listed above which allows the characterization of such gift cards as a non-cash gift.

It’s important for employers to remember that, where the per employee dollar limit outlined above is exceeded, the entire per employee cost of the event (including ancillary costs and the cost of attendance by a spouse or common-law partner) is treated as a taxable benefit to the employee – not just the amount by which those total costs exceed the prescribed $150 limit. And, finally, in order to benefit from that prescribed limit, employers are restricted to holding six or fewer employer-paid social events each year.

The range and variety of social events and employee gifts which can be provided by an employer to its employees is almost limitless, and where the government seeks to draft rules to govern the tax treatment of such a range of possibilities, complexity is inevitable. The best advice to be given to employers in the circumstances is to consider carefully the kinds of gifts which are given and to be mindful of the dollar amount limits imposed on non-cash gifts and employer-paid social gatherings. After all, no matter how much a gift from one’s employer is appreciated, or how enjoyable an employer-sponsored social event may be, neither is likely to engender much goodwill if it comes with an unexpected tax bill to the employee.

Everyone in Canada who earns a salary or wages is familiar with the deduction taken from each paycheque for contributions to the Canada Pension Plan (CPP). The CPP is one of the two major government-sponsored retirement income programs in Canada – the other being the Old Age Security program.

Everyone in Canada who earns a salary or wages is familiar with the deduction taken from each paycheque for contributions to the Canada Pension Plan (CPP). The CPP is one of the two major government-sponsored retirement income programs in Canada – the other being the Old Age Security program.

While the Old Age Security program is financed out of general federal government revenues, the CPP is self-funded by means of contributions made by employees, together with matching contributions made by their employers. (Self-employed individuals pay both the employee and employer portions of CPP contributions).

Several years ago, it was determined that changes were needed to the CPP, to ensure that CPP retirement benefits replaced a greater percentage of working income than was then the case. Those changes to the CPP began in 2019, when the required annual contribution to the CPP began to increase. It was increased each year thereafter, and now stands at 5.95% of annual earnings.

The basic structure of the CPP provides that everyone who is between 18 and 69 years of age and earns more than $3,500 per year must make CPP contributions equal to 5.95% of their income between $3,500 and a specified income ceiling. That income ceiling is known as the Year’s Maximum Pensionable Earnings (YMPE) and is set at $68,500 for 2024.

Beginning in 2024, however, the CPP will change from a single-tier to a two-tier contribution structure, with higher-income individuals required to make an additional CPP contribution. Specifically, individuals who have annual income of less than the 2024 YMPE of $68,500 will continue to make Tier 1 CPP contributions of 5.95% of earnings between $3,500 and $68,500. However, those whose earnings exceed the $68,500 income ceiling must pay 4% of those additional earnings (Tier 2 contributions) up to a second earnings ceiling. That second earnings ceiling – to be called the Year’s Additional Maximum Pensionable Earnings, or YAMPE – is set at $73,200 for 2024.

The effect of the upcoming changes is that individuals who will have income of more than $68,500 during 2024 must pay both the 5.95% contribution on earnings between $3,500 and $68,500 (Tier 1 contributions) and 4% of earnings between $68,500 and $73,200 (Tier 2 contributions).

There are no tax or financial planning steps to be taken in response to the upcoming changes – having CPP contributions deducted from one’s income and remitted to the federal government by one’s employer is mandatory, and there is no ability to “opt out” of making either Tier 1 or Tier 2 contributions.

Individuals who earn less than $68,500 during 2024 will see no change to the CPP contributions deducted from their paycheques, but those earning more than that amount will see increased deductions made for CPP beginning January 1, 2024. It should be noted as well that 2024 is something of a phase-in year for Tier 2 contributions. Those contribution amounts will increase in future years, as the upper income limit (or YAMPE) for such Tier 2 contributions, which is set at $73,200 for 2024, will increase significantly in 2025 and later years.

No one likes to see additional deductions being taken from their paycheque but those who are affected by the increased contribution requirements at least have the satisfaction of knowing that their higher contributions will eventually be reflected in an increase in CPP retirement benefits to which they will be entitled.

Detailed information on the upcoming changes to the CPP (including changes planned for years after 2024) can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-enhancement.html.

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

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

They can be accessed below.

Corporate:

Issue #66 Corporate

Personal:

Issue #66 Personal

When the pandemic struck in March of 2020 and public health lockdowns were imposed, virtually all Canadian employees were required to work from home, most for the first time.

When the pandemic struck in March of 2020 and public health lockdowns were imposed, virtually all Canadian employees were required to work from home, most for the first time.

In the nearly four years since then, the work landscape has shifted, as many employees continue to work entirely from home, some have returned to the office full-time, and many, perhaps most, now utilize some kind of hybrid arrangement, dividing their work week between their employer’s work site and a home office.

As the necessity and availability of work-from-home arrangements changed (and changed again) over the past four years, the tax rules governing deductions which could be claimed for home office expenses changed (and changed again) to meet those realities.

Employees who work from home have always been able to claim a tax deduction for costs related to a home office. Under the tax rules in place prior to 2020, a claim for a deduction for home office expenses was available only where employees met a number of criteria and could provide the tax authorities with an itemized accounting of eligible home office expenses incurred, as well as attestation from their employer of the terms of the work-from-home arrangement – known as the “detailed” method. However, when work-from-home arrangements became essentially mandatory in 2020, the federal government greatly simplified the rules governing those claims, to provide for a temporary flat-rate method which eliminated the requirement for documentation of home office costs. That flat-rate method was available (with some variations) during 2020, 2021 and 2022, but cannot be used for home office expenses claims for 2023.

For 2023, the “detailed method” for claiming home office expenses will be the only method under which such costs may be deducted for tax purposes. What follows is a summary of the current rules outlined on the Canada Revenue Agency (CRA) website with respect to claims for home office expense deductions using the detailed method which will apply to such claims during 2023.

In order to claim a deduction for costs related to a work from home space using the detailed method, an employee must meet at least one of the following conditions.

• The employee worked from home during the year as a consequence of the pandemic (including employees who were given a choice and elected to work from home); or
• The employee was required by their employer to work from home during the year (this can be just a verbal or written agreement between employer and employee).

In addition, at least one of the following criteria must also be satisfied in order to claim work from home costs under the detailed method.

• The work at home space is where the individual mainly (more than 50% of the time) did their work for a period of at least four consecutive weeks during the year; or
• The individual uses the workspace only to earn their employment income. They must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of their employment duties.

Once these threshold criteria are 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 their work from home space, such as rent, utilities costs like electricity, heating, water (or the portion of a condo fee attributable to such utilities costs), home maintenance and minor repair costs, and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses, and the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the workspace is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html. In all cases, the CRA can ask the taxpayer to provide documentation and support for claims made using the detailed method.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method. Each such employee must obtain either a T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19 - Canada.ca or T2200 Declaration of Conditions of Employment - Canada.ca. On those forms, the employer must certify the work from home arrangement and confirm that the employee is required to pay their own home office expenses and is not being reimbursed for any such 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.

For the many taxpayers who were able to avail themselves of the simplified method for claiming a deduction for home office expenses in 2020, 2021, or 2022, the upcoming filing season for returns for 2023 may be the first time they encounter the rules and requirements which govern claims for home office expenses using the traditional detailed method. It would, therefore, be advisable to do some upfront planning to determine whether a deduction claim can be made for 2023 and to ensure that any record keeping needed to support that deduction is done before tax filing season arrives a few months from now.

The day-to-day financial impact of increases in interest rates over the past 18 months, together with higher costs for nearly all goods and services, means that for most Canadians maximizing take-home income isn’t just desirable, it’s a necessity. And the best way to make sure that take-home pay is maximized is to ensure that deductions taken from that paycheque – especially deductions for income tax – are no greater than required.

The day-to-day financial impact of increases in interest rates over the past 18 months, together with higher costs for nearly all goods and services, means that for most Canadians maximizing take-home income isn’t just desirable, it’s a necessity. And the best way to make sure that take-home pay is maximized is to ensure that deductions taken from that paycheque – especially deductions for income tax – are no greater than required.

For most Canadians, (certainly for the vast majority who earn their income from employment), income tax, along with other statutory deductions like Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, is paid periodically throughout the year by means of deductions taken from each paycheque received, with those deductions then remitted to the Canada Revenue Agency (CRA) on the taxpayer’s behalf by their employer. Eventually, the taxpayer files a tax return for the year. Where things work as intended, the total amount of income tax deducted from the taxpayer’s paycheques throughout the year is very close to the amount of tax they owe for that tax year. Where the amounts withheld for income tax are greater than the taxpayer’s total tax payable for the year, they receive a tax refund. Most taxpayers like receiving such a tax refund, but the fact is that receiving a refund means that the taxpayer has overpaid taxes throughout the year, and essentially provided the tax authorities with an interest-free loan of monies which could have been paid to the taxpayer by their employer throughout the year.

The amount of tax deducted by employers and remitted to the federal government on the employee’s behalf isn’t arbitrary – rather, it’s based on information provided to that employer by the employee. That information is provided on a TD1 form, which is completed and signed by each employee, sometimes at the start of each year, but certainly at the time employment commences. Each employee must, in fact, complete two TD1 forms – one for federal tax purposes and the other for provincial tax imposed by the province in which the taxpayer lives. Federal and provincial TD1 forms for 2024 (which have not yet been released by the CRA but, once published, will be available on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html) list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount, and the age amount. Adding together all amounts claimed on each TD1 form gives the Total Claim Amounts (one federal, one provincial) which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on their behalf to the federal government.

While the TD1 completed by the employee at the time their employment commenced will have accurately reflected the credits claimable by the employee at that time, everyone’s life circumstances change. Where a baby is born or a child starts post-secondary education, there is a separation or a divorce, a taxpayer turns 65 years of age, or an elderly parent comes to live with their children, the affected taxpayer(s) will often become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.

Consequently, it’s a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to them. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.

As well, it’s often the case that a taxpayer will have available deductions for expenditures like Registered Retirement Savings Plan or First-Time Homeowner Savings Plan contributions, deductible support payments, or child care expenses, none of which can be recorded on the TD1 but all of which reduce the taxpayer’s tax owing for the year. While such claims make things a little more complicated, it’s still possible to have source deductions adjusted to accurately reflect those claims and the employee’s resulting reduced tax liability for 2024. The way to do so is to file Form T1213 – Request to Reduce Tax Deductions at Source (available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html) with the CRA. Once that form is filed with the CRA, the Agency will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld from the employee’s paycheque – and thereby increasing the employee’s take-home income. 

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. While a T1213 can be filed with the CRA at any time of the year, the sooner it’s done, the sooner source deductions can be adjusted, effective for all subsequent paycheques. Providing an employer with an updated TD1 for 2024 as soon as possible, along with filing a T1213 with the CRA where circumstances warrant, will ensure that source deductions made starting January 1, 2024 will accurately reflect all of the employee’s current circumstances, and consequently their actual tax liability for the year. Taking those steps can mean increased take-home income for the employee, making it easier to meet day to day expenses in 2024.

Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing a tax credit for qualifying donations made and, in all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year.

Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing a tax credit for qualifying donations made and, in all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year.

There is, however, another reason to ensure donations are made by December 31. The credit provided by the federal government is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. Where the taxpayer making the donation has taxable income (for 2023) over $235,675, charitable donations above the $200 threshold can receive a federal tax credit of 33%.

As a result of the two-level credit structure, the best tax result is obtained when donations made during a single calendar year are maximized. For instance, a qualifying charitable donation of $400 made in December 2023 will receive a federal credit of $88.00 ($200 times 15% plus $200 times 29%). If the same amount is donated, but the donation is split equally between December 2023 and January 2024, the total credit claimable is only $60.00 ($200 times 15% plus $200 times 15%), and the 2024 donation can’t be claimed until the 2024 return is filed in April of 2025. And, of course, the larger the donation made in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level.

It’s also possible to carry forward, for up to five years, donations which were made in a particular tax year. So, if donations made in 2023 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2018, 2019, 2020, 2021, or 2022 tax years can be carried forward and added to the total donations made in 2023, and the aggregate then claimed on the 2023 tax return.

When claiming charitable donations, it’s possible to combine donations made by oneself and one’s spouse and claim them on a single return. Generally, and especially in provinces and territories which impose a high-income surtax – currently, Ontario and Prince Edward Island – it makes sense for the higher income spouse to make the claim for the total of charitable donations made by both spouses. Doing so will reduce the tax payable by that spouse and thereby minimize (or avoid) liability for the provincial high-income surtax.

Regardless of when a charitable donation is made, would-be donors are well advised to carefully consider the charities to which they donate. It’s an unfortunate reality that while most organizations seeking charitable donations are legitimate, the charitable sector attracts its share of scammers and fraudsters whose only aim is to personally profit from the generosity of others. Such charitable donation frauds arise, in particular, whenever there are world events like wars, famines, or natural disasters and people are particularly motivated to help. After every such event a flurry of “instant” charities spring to life, seeking donations which may or may not actually be used as represented. And, while some of the individuals or organizations who seek to raise funds in response to particular events may actually be well intentioned, the reality is that they are unlikely to have either the infrastructure or the experience needed to actually carry out their stated or intended aims. And others, of course, are simply scammers seeking to capitalize on the desire of Canadians to help in response to disaster.

There are two ways to ensure that one’s charitable dollar is actually utilized as intended. The first is to donate only to large international charities which have been in existence for some time and which have both expertise and experience in utilizing charitable donations in an efficient and effective way. However, where a donor is deciding whether to make a donation to a newer or less-well-known charity, it’s relatively easy to find information about that charity on the website of the Canada Revenue Agency.

Only donations made to registered charities can be claimed for purposes of the charitable donations tax credit. The Canada Revenue Agency maintains on its website a listing of all such registered charities, and that listing (which is searchable) can be found at https://apps.cra-arc.gc.ca/ebci/hacc/srch/pub/dsplyBscSrch?request_locale=en. That webpage will also provide information on the charity’s activities, including the date on which it became a registered charity, the countries in which it operates, the nature of its charitable activities, and details of its revenues and expenses, all of which can help a would-be donor to determine whether or not to make a donation.

Detailed information on calculating and claiming a charitable donations tax credit is available on the same website at Giving to charity: Information for donors - Canada.ca.

The 10-fold increase in interest rates since March of 2022 has affected Canadians in almost every area of their financial lives, as individuals and families struggle to cope with the every-increasing bite that interest costs take out of their budgets.

The 10-fold increase in interest rates since March of 2022 has affected Canadians in almost every area of their financial lives, as individuals and families struggle to cope with the every-increasing bite that interest costs take out of their budgets.

Probably no group has been more affected by increased interest costs than homeowners who have a mortgage on their family home and must find room in their budget to make ever-increasing payments on that mortgage.

There are basically two types of mortgages held by Canadians. The first is a fixed rate mortgage in which, as the name implies, the rate of interest payable is set for a fixed term of, usually, one to five years. The required monthly payment is also set for the entire term and will not change, meaning that such homeowners are not affected by any change in interest rates during the current term of their mortgage. They will, however, have to renew that mortgage at the end of the current term, at whatever interest rates are then in effect.

The other major type of mortgage financing is a variable rate mortgage, in which the interest rate payable on the mortgage amount goes up with every interest rate increase announced by the Bank of Canada and passed on to consumers by Canadian financial institutions. Homeowners who have a variable rate mortgage can have one of two types of repayment arrangements. The Financial Consumer Agency of Canada explains the two types of payment arrangements in this way:

Adjustable payments with a variable interest rate

With adjustable payments, the amount of the required mortgage payment changes if the interest rate changes. A set amount of each payment applies to the principal amount of the mortgage (the loan amount), while the interest rate portion changes as interest rates change.

Fixed payments with a variable interest rate

With fixed payments, although the rate of interest payable changes as interest rates change, the amount of the required mortgage payment stays the same.

However, when interest rates change, the allocation of that fixed payment between principal and interest also changes. If the interest rate goes up, more of the payment goes towards the interest, and less to the principal. If the interest rate goes down, more of the payment goes towards the principal.

Where interest rates increase substantially, as they have done over the past year and half, homeowners who have a variable interest rate mortgage with fixed payments are at risk of reaching the point at which their payments no longer cover even the required interest payment. In other words, although they are making payments on time and in the required set amount, their overall mortgage principal is increasing every month, as interest amounts which have not been paid are added to that mortgage principal – a situation known as negative amortization. 

Finally, while holders of fixed rate mortgages (in which the interest rate does not change during the term of the mortgage) are currently sheltered from the impact of increased interest rates, they are unlikely to remain in that position much longer. According to the Bank of Canada, almost all borrowers will see an increase in mortgage interest costs over the next three years, and the Bank’s data suggests that holders of fixed rate mortgages will see their payments increase by between 20% and 25% at their next renewal. 

Looking at the current pressures being experienced by holders of variable rate mortgages, as well as the impact that mortgage renewals will have in the near future on holders of fixed rate mortgages, the Financial Consumer Agency of Canada (FCAC – a federal agency whose responsibilities include protecting the rights and interests of consumers of financial products and services and supervising federally regulated financial entities, such as banks) determined that new measures were needed to address both current and upcoming risks. Those measures outline the expectations of the FCAC with respect to mortgage lending practices by federally regulated financial institutions (which would include all major lenders – a full listing can be found at https://www.osfi-bsif.gc.ca/Eng/wt-ow/Pages/wwr-er.aspx?sAll= 1), in situations in which homeowners can be characterized as “consumers at risk” with respect to their mortgage payment obligations. For purposes of the new guidelines, “consumers at risk” means those who have variable rate mortgages and whose payments (or the portion of their payments allocated to interest charges) have increased materially, or who may be facing negative amortization, or those who have fixed rate mortgages which will be up for renewal in the near future and who are also facing a material increase in payments.

Where a homeowner is facing a material increase in mortgage payments, or negative amortization, the FCAC’s expectation is that the financial institution holding that mortgage will provide temporary mortgage relief in the following specific ways:

• waiving prepayment penalties where such a homeowner makes a lump sum payment to avoid negative amortization, or sells their principal residence;
• waiving, for a limited period, internal fees or costs which would otherwise be charged when mortgage relief measures are activated: and
• ensuring, for a limited time, that where mortgage relief measures result in negative amortization no interest is charged on interest which has been added to mortgage principal.

Where homeowners fall short or fall behind in meeting their mortgage payment obligations, the longer-term financial repercussions – in the form of higher interest rates charged on future borrowings, or a negative impact on the homeowner’s credit rating, or both – can be significant. The new guidelines address both of those risks, as follows:

• at the time of mortgage renewal, the homeowner should not be offered a less advantageous interest rate based on the homeowner’s inability to adjust his or her mortgage agreement, or to qualify with other lenders; and
• where mortgage relief measures are provided, and the new arrangements include the ability to make a late payment or be delinquent on the mortgage generally, those late payments or that delinquency should not be reflected on the homeowner’s credit report.

Where homeowners run into difficulty with paying their mortgage, one of the relief measures which can be provided is to extend the time period over which the mortgage must be repaid – the amortization period. While an extension of the amortization period will mean lower payments, those lower payments also mean that more interest will be paid over the life of the mortgage and, of course, that it will take longer before the homeowner is mortgage-free.

Extension of the amortization period of a mortgage is one of the relief measures set out in the new guidelines. However, those guidelines also impose specific steps to be taken by the financial institution which provides the extended amortization. Any such extension must be for the shortest period possible, and the financial institution is expected to work with the homeowner to develop a plan which:

• ensures that the total amortization period is reasonable;
• includes information about options to restore the amortization to its original period; and
• includes an assessment and communication of the potential long-term, negative financial implications of the change in the amortization period.

Finally, where any mortgage relief measures are provided, the onus is on the financial institution to provide specific information to the homeowner before implementing any such measures. That information must include:

• the outstanding amount owing on the original credit agreement for the mortgage before the mortgage relief measures take effect;
• the impact of the mortgage relief measures on the total cost of servicing the mortgage, in dollar figures, as well as the remaining amortization (or repayment) period after the relief measures take effect;
• the new payment amount, due date, and frequency;
• the new interest rate and type (that is, fixed or variable); and
• the date on which the changes will take effect.

The new guidelines expect financial institutions to proactively monitor their clients to permit early identification of signs of financial stress, and to proactively contact consumers at risk regarding possible mortgage relief measures. However, consumers who are at risk of falling into default on their mortgage obligations are well-advised to also be proactive in contacting their financial institution where mortgage relief is needed – armed with knowledge of the kinds of relief which can be provided, and on what terms.

Detailed information on the new mortgage relief guidelines is available on the federal government website at https://www.canada.ca/en/financial-consumer-agency/services/industry/commissioner-guidance/mortgage-loans-exceptional-circumstances.html.

While our health care system is currently struggling with a number of significant problems, Canadians are nonetheless fortunate to have a publicly funded health care system, in which most major medical expenses are covered by government health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others – which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a medical expense tax credit to help offset out-of-pocket medical and para-medical costs which must be incurred.

While our health care system is currently struggling with a number of significant problems, Canadians are nonetheless fortunate to have a publicly funded health care system, in which most major medical expenses are covered by government health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others – which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a medical expense tax credit to help offset out-of-pocket medical and para-medical costs which must be incurred.

The bad news for such individuals is that while a tax credit is available, the computation of eligible expenses and, in particular, determining when a claim for the credit should be made can be confusing. In addition, the determination of which expenses qualify for the credit and which do not isn’t necessarily intuitive, nor is the determination of when it’s necessary to obtain prior authorization from a medical professional in order to ensure that the planned expenditure will qualify for the credit. For instance, in order to claim the medical expense tax credit for the cost of a cane or a walker, it is necessary to obtain a prescription for that cane or walker from a medical professional. However, where costs are incurred to purchase a wheelchair, those costs are eligible for the medical expense credit, with no requirement that a prescription of any kind be obtained.

The basic rule is that the total cost of qualifying medical expenses (a lengthy list of which can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html) which exceed 3% of the taxpayer’s net income, or $2,635, whichever is less, can be claimed for purposes of the medical expense tax credit on the taxpayer’s return for 2023.

Put in more practical terms, the rule for 2023 is that any taxpayer whose net income is less than $87,835 will be entitled to claim medical expenses that are greater than 3% of their net income for the year. Those having income of $87,835 or more will be limited to claiming qualifying expenses which exceed the $2,635 threshold.

The other aspect of the medical expense tax credit which can cause some confusion is that it’s possible to claim medical expenses which were incurred prior to the current tax year but weren’t claimed on the return for the year that the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending in 2023 will produce the greatest amount eligible for the credit. That determination will obviously depend on when medical expenses were incurred so there is, unfortunately, no universal rule of thumb which can be used.

Medical expenses incurred by family members – the taxpayer, their spouse, and children who are under the age of 18 at the end of 2023, as well as certain other dependent relatives – can be added together and claimed by one member of the family. In most cases, it’s best, in order to maximize the amount claimable, to make that claim on the tax return of the lower-income spouse, where that spouse has tax payable for the year equal to at least the amount of the medical expense tax credit to be claimed.

As the end of the calendar year approaches, it’s a good idea to add up the medical expenses which have been incurred during 2023, as well as those paid during 2022 and not claimed on the 2022 return. Once those totals are known, it will be easier to determine whether to make a claim for 2023 or to wait and claim 2023 expenses on the return for 2024. And, if the decision is to make a claim for 2023, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for that claim.

Finally, it’s a good idea to look into the timing of medical expenses which will have to be paid early in 2024. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis, or some expensive dental work) it may make sense, where possible, to accelerate the payment of those expenses to November or December 2023, where that means they can be included in 2023 totals and claimed on the return for this year.

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

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

Transitioning into retirement is now much more of a process than an event – often a complex process involving decisions around both finances (present and future) and one’s desired way of life. It’s now the case that almost every individual’s retirement plans look a little different than anyone else’s. Some will take a traditional retirement of moving from a full-time job into not working at all, while others may stay working full-time past the traditional retirement age of 65. Still others will leave full-time employment but continue to work part-time, either out of financial need (especially over the past couple of years) or simply from a desire to stay active and engaged in the work force.

The flexible nature of retirement plans is reflected in changes made over the past decade to Canada’s government-run retirement income programs, particularly the Canada Pension Plan. It’s possible to begin receiving CPP benefits as early as age 60 and as late as age 70, with the amount of benefit increasing with each month that receipt of benefits is deferred. Many Canadians now choose to begin receiving their CPP retirement benefits while continuing to participate in the work force, part-time or full-time.

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

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

• Individuals who are 60 to 65 years of age and continue to work are required to continue making CPP contributions.
• Individuals who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. To stop contributing, such an individual must fill out Form CPT30 (https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html). A copy of that form must be given to the individual’s employer and the original sent to the Canada Revenue Agency. An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of the CPT30 form to each employer.
  
  A decision to stop contributing can be changed, and contributions resumed, but only one such change can be made per calendar year. To make that change, the individual must complete section D of CRA Form CPT30, give one copy of the form to their employer(s), 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 the rules is that CPP retirement benefit recipients who are still working and who are under aged 65, as well as those who are between 65 and 70 and choose not to opt out, will continue to make contributions to the CPP system and will continue therefore to earn new credits under that system. As a result, the amount of CPP retirement benefits to which they are entitled to will increase with each successive year’s contributions.

Individuals who are currently considering whether to continue contributing the CPP will now have to take into consideration changes being made to CPP contribution rules beginning January 1, 2024.

The basic structure of the CPP provides that anyone who is over the age of 18 and earns more than $3,500 per year must make CPP contributions equal to 5.95% of their income between $3,500 and a specified income ceiling. That income ceiling is known as the Year’s Maximum Pensionable Earnings and is set at $66,600 for 2023.

Beginning in 2024, however, there will be two levels of required CPP contributions. Individuals who have annual income of less than the YMPE (likely to be around $70,000 for 2024) will continue to make CPP contributions of 5.95% of earnings between $3,500 and $70,000.  However, those whose earnings exceed that $70,000 income ceiling must pay 4% of those additional earnings, up to a second earnings ceiling. That second earnings ceiling – to be called the Year’s Additional Maximum Pensionable Earnings, or YAMPE – is likely be around $80,000 for 2024.

The effect of the upcoming changes is that individuals who will have income of more than around $70,000 during 2024 must pay an additional CPP contribution of 4% of their income between $70,000 and $80,000 (in addition to the 5.95% contribution to be made on income between $3,500 and $70,000). The increased contribution will, of course, be reflected in the amount of PRB the individual receives; however, each individual will have to consider how much he or she will have to pay in additional CPP contributions and whether those increased costs are justified by the amount of any increase in future benefits. It’s important to note, as well, that anyone who chooses to continue making CPP contributions will be subject to both levels of CPP contribution requirements – it is not possible to “opt out” of making second-level CPP contributions.

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

While the rules governing the PRB can seem complex (and certainly the actuarial calculations are), the individual doesn’t have to concern themself 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 (and considering the possible impact of the additional contribution requirements which will take effect in 2024) to continue making contributions to the CPP.  To assist in that decision, the Canada Revenue Agency provides a very helpful online calculator which enables individuals to obtain an estimate of the amount of PRB which they will receive. That calculator is available on the CRA website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

As well, while every situation is different, there are some general rules of thumb which will be useful in determining whether or not to continue making contributions to the CPP. Generally speaking, continuing to contribute makes the most sense for individuals whose current CPP retirement pension is significantly less than the maximum allowable benefit (which is, for 2023, $1,306.57 per month), as making such contributions will mean an increase in the individual’s CPP retirement benefit each month for the rest of their life. Conversely, for individuals who are already receiving the maximum CPP retirement benefit, or even close to it, there is likely insufficient benefit to be derived from continuing to contribute (especially for those who will be subject to the additional contribution amount requirements beginning in 2024, or who are self-employed and must therefore pay both the employer and employee contribution amounts). 

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

Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February. There are, however, some circumstances in which an RRSP contribution must be (or should be) made by December 31 in order to achieve the desired tax result.

Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February. There are, however, some circumstances in which an RRSP contribution must be (or should be) made by December 31 in order to achieve the desired tax result. 

Similarly, most Canadians who have opened a registered retirement income fund (RRIF) are aware that they are required to make a withdrawal of a specified amount from that RRIF each year, with the percentage withdrawal amount based on the RRIF holder’s age – although few are aware of when and how that required withdrawal is calculated. 

The rules around TFSAs are more flexible, but it is nonetheless the case that advantages can be obtained (and disadvantages avoided) by carefully timing TFSA withdrawals and recontributions based on the calendar year end.

Finally, beginning in 2023, taxpayers have an additional opportunity to save on a tax-assisted basis, through the new First Home Savings Account (FHSA). While saving through an FHSA is possible only for those who have not owned a home in the current or any of the four previous years, the FHSA offers qualifying taxpayers the opportunity to reduce taxes payable to an extent not available through other government-sanctioned tax saving or deferral programs.

While the basic rules with respect to contributions to and withdrawals from each of these tax-assisted savings plans are relatively straightforward, there are nonetheless benefits to be obtained from careful consideration of the detailed rules – and some exceptions from those rules. What follows is an outline of steps which should be considered, before the end of the 2023 calendar year, by Canadians who have an RRSP, RRIF, TFSA, or FHSA – or maybe all four.

Timing of RRSP contributions

• When you are making a spousal RRSP contribution

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plan (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2023, the contributor can claim a deduction for that contribution on his or her return for 2023. The spouse can then withdraw that amount as early as January 1, 2026 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2024, the contributor can still claim a deduction for it on the 2023 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2027. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively near future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should  an unforeseen need to withdraw funds arise.

• When you are turning 71 during 2023

Every Canadian who has an RRSP must collapse that plan by the end of the year in which they turn 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that they have sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31 of that year. Once that deadline has passed, no further RRSP contributions are possible.

RRIF withdrawals for 2023

Under Canadian law, anyone who has an RRIF is required to make a minimum withdrawal from that RRIF each year. The amount of the withdrawal is calculated as a specified percentage of the balance in the RRIF at the beginning of the calendar year, with that percentage based on the age of the RRIF holder at that time.

Taxpayers who have no immediate need of funds held within an RRIF are often reluctant to make a withdrawal and pay the tax on those amounts, especially where the value of investments held in an RRIF has declined. While there is no way of avoiding the requirement to withdraw that minimum amount from one’s RRIF, and to pay tax on the amount withdrawn, such taxpayers can consider contributing those amounts to a tax-free savings account (TFSA). Where that is done, the funds can be invested and continue to grow, and neither the original contribution nor the investment gains will be taxable when the funds are withdrawn from the TFSA.

Planning for TFSA withdrawals and contributions

Each Canadian aged 18 and over can make an annual contribution to a tax-free savings account (TFSA) – the maximum contribution for 2023 is $6,500. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount can be re-contributed, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned (or the need to make such a withdrawal might arise within the next few months), to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from their TFSA on or before December 31, 2023 will have the amount which is withdrawn added to their TFSA contribution limit for 2024, which means it can be re-contributed, where finances allow, as early as January 1, 2024. If the same taxpayer waits until January of 2024 to make the withdrawal, they won’t be eligible to recontribute the funds withdrawn until 2025.

Contributing to an FHSA

The First Home Savings Account (FHSA) program, which became available to taxpayers beginning in 2023, offers qualifying taxpayers significant tax benefits. The FHSA program allows taxpayers who do not currently own a home (and did not own a home in any of 2019, 2020, 2021, or 2022) to contribute up to $8,000 per year to an FHSA. Each qualifying taxpayer can contribute up to a lifetime total of $40,000 to an FHSA.

Contributions made to an FHSA are deductible from income, and investment income earned by funds inside an FHSA is not taxed as earned. Finally, where funds are withdrawn to purchase a home, both the original contributions made and investment income earned are received by the taxpayer free of tax.

The ability to contribute up to $8,000 per year to an FHSA does not depend on the taxpayer’s income, and contributions not made in a calendar year can (subject to a maximum of $8,000 in carryforward amounts, and to the $40,000 lifetime limit) be carried forward and made in a future tax year.

Where an individual has opened and contributed to an FHSA, he or she has up to 15 years to withdraw those funds tax-free and use them to purchase a home. However, taxpayers who have an FHSA also have the option to transfer funds from that FHSA plan to their RRSP (and vice-versa), without immediate tax consequences.

For taxpayers who qualify, the new FHSA program offers an unparalleled degree of flexibility to save on a tax-free or tax-deferred basis. Details on the FHSA program can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html.

The approach of the calendar year end doesn’t usually prompt Canadians to consider the details of making contributions to an RRSP or FHSA, or withdrawals from a TFSA or an RRIF. There is, however, no flexibility in the deadlines for taking such actions, and considering what steps may be needed or advisable now means one less thing to remember as the December 31 deadline nears.

During the pandemic, temporary financial assistance was provided to Canadian small businesses through a number of grant and loan programs initiated by the federal government. One of the largest of those programs was the Canada Emergency Business Account (CEBA) program, which ran from April 2020 to June 2021, and provided a total of approximately $50 billion in loan financing to just under a million small businesses.

During the pandemic, temporary financial assistance was provided to Canadian small businesses through a number of grant and loan programs initiated by the federal government. One of the largest of those programs was the Canada Emergency Business Account (CEBA) program, which ran from April 2020 to June 2021, and provided a total of approximately $50 billion in loan financing to just under a million small businesses.

Under CEBA program terms, qualifying small businesses could receive up to $60,000 in loans, with forgiveness of up to one-third of outstanding loan amounts provided where those CEBA loans were repaid by a specified deadline. The original deadline for repayment of loans under the CEBA program was the end of 2022, but that deadline was extended to December 31, 2023. On September 14, 2023, the federal government announced that further relieving changes would be made with respect to CEBA loan repayment schedules. Those changes include an extension of the repayment deadline, as well as a new extended deadline for businesses which opt to refinance their CEBA loan(s). The deadlines and repayment terms for CEBA loans, as outlined in the federal government Backgrounder, are now as follows.

• The repayment deadline for CEBA loans to qualify for partial loan forgiveness of up to 33 per cent is being extended to January 18, 2024.
• For CEBA loan holders who make a refinancing application with the financial institution that provided their CEBA loan by January 18, 2024, the repayment deadline to qualify for partial loan forgiveness now includes a refinancing extension until March 28, 2024.
• As of January 19, 2024, outstanding loans, including those that are captured by the refinancing extension, will convert to three-year term loans, subject to interest of five per cent per year, with the term loan repayment date extended by an additional year from December 31, 2025 to December 31, 2026. In other words, small businesses and not-for-profits will automatically have access to a three-year, low-interest loan of up to $60,000 if they have not repaid or refinanced their loan, providing those who are unable to secure refinancing or generate enough cashflow to repay their loans by the forgiveness deadline an additional year to continue repayment at a low borrowing cost.

Small businesses which repay their CEBA loans on or before the new deadline of January 18, 2024 (or March 28, 2024 if a refinancing application is submitted prior to January 18, 2024 at the financial institution that provided their CEBA loan), will still be eligible for partial loan forgiveness. Where a business benefits from loan forgiveness, any forgiven amount will be treated as income, which must be reported on the tax return file by the business, and on which tax must be paid.

Details of the current rules respecting CEBA loan repayments and forgiveness are outlined in the September14 Backgrounder, which is available at https://www.canada.ca/en/department-finance/news/2023/09/canada-emergency-business-account-government-extends-repayment-and-partial-loan-forgiveness-deadlines.html, and on the CEBA program webpage, which can be found at https://ceba-cuec.ca/.

By anyone’s measure, obtaining a post-secondary education is an expensive undertaking. Tuition and other school-related costs are just the start of the bills which must be paid. Whether the student obtains a place in a university residence or finds a place to live off campus, students (and their parents) must also budget for the cost of residence and meal plan fees, or rent and groceries. The total cost of a single year of university or college attendance away from home can easily reach $30,000 – and can significantly exceed that amount where the student is enrolled in a specialized academic program leading to a professional designation.

By anyone’s measure, obtaining a post-secondary education is an expensive undertaking. Tuition and other school-related costs are just the start of the bills which must be paid. Whether the student obtains a place in a university residence or finds a place to live off campus, students (and their parents) must also budget for the cost of residence and meal plan fees, or rent and groceries. The total cost of a single year of university or college attendance away from home can easily reach $30,000 – and can significantly exceed that amount where the student is enrolled in a specialized academic program leading to a professional designation.

Adding to the financial hit, government support for post-secondary education through our tax system has been cut back in recent years. While students can still claim a tax credit for the cost of tuition, two other related tax credits – the education tax credit and the textbook tax credit – were eliminated by both the federal government and several of the provinces in recent years.

While there are still government-sponsored loan and grant programs which post-secondary students can access, the reality is that most families will shoulder the main financial burden of post-secondary education for their children. And many families do so through a Registered Education Savings Plan, or RESP.

An RESP enables parents (or grandparents) to save for a child or grandchild’s post-secondary education on a tax-assisted basis. While parents or grandparents who contribute to an RESP cannot deduct contributions made from income, investment income earned by those contributed funds is not taxed as it is earned. And, where RESP contributions start early, those funds can compound, through untaxed investment earnings, for more than a decade.

The other significant tax benefit of an RESP comes into play when the beneficiary, now a student enrolled in post-secondary education, withdraws funds to pay for his or her education. All such qualifying withdrawals made, whether of original contributions or investment income earned, are taxed in the hands of the student beneficiary. And, because most students have little or no income, it’s often the case that no tax is payable on amounts withdrawn.

A change announced in the 2023-24 federal budget will enhance the available tax savings. The amount which a student can withdraw from an RESP is subject to limits and, as noted in the budget, those limits have not changed in 25 years, clearly not keeping pace with increases in either the cost of living or the cost of post-secondary education.

To address that gap, the amount which a student can withdraw from an RESP has been increased, effective as of the budget date of March 28, 2023. Those changes are as follows:

• Students who are enrolled full-time (defined as a program lasting at least three weeks and requiring at least 10 hours per week of courses or other program work) can now withdraw up to $8,000 in respect of the first 13 consecutive weeks of enrollment in a 12-month period. (The previous limit was $5,000.)
• Students who are enrolled part-time (defined as a program lasting at least three consecutive weeks and requiring at least 12 hours per month of courses in the program) can now withdraw up to $4,000 per 13-week period. (The previous limit was $2,500.)

The tax impact of the change can mean that a post-secondary student who lives at home during the summer, is able to find full-time employment at minimum wage during that time, and who withdraws the full $8,000 from his or her RESP, could cover about half the costs to be incurred for the upcoming school year out of income on which no federal tax is payable.

Assume that such a student is paid $15.00 per hour, working 35 hours a week for the 16 weeks between academic years. That work will generate $8,400 in income. The RESP withdrawal of $8,000 will bring the student’s total income for the year to $16,400. For federal tax purposes, every taxpayer can earn up to $13,521 (for 2023) in annual income before any federal tax is payable. The student can, as well, claim a federal tax credit for tuition amounts paid, which will eliminate federal tax on the remaining $2,879 of income.

Despite the best efforts of students and their parents to save for post-secondary education and to offset the costs of that education through summer jobs, the reality is that most post-secondary students do have to borrow money at some point during their post-secondary education years. The lowest-cost source of such borrowing is government student loan programs, and changes which take effect as of the 2023-24 academic year have also been made with respect to such borrowings.

All Canada Student Loan (CSL) borrowings are subject to a weekly limit and where a student borrows funds through the CSL program, no repayment of those borrowings is required until six months after the student graduates. As announced in this year’s federal budget, and effective as of August 1, 2023, the limit on borrowings through the Canada Student Loan program was increased from $210 to $300 per week of study. Finally, effective as of April 1, 2023, all loans received through the CSL program are interest free.

More information on the budgetary changes to the Canada Student Loan program and on changes to the rules governing Registered Education Savings Plans can be found on the federal government website at https://www.canada.ca/en/employment-social-development/corporate/notices/budget-student-aid.html and at https://www.budget.canada.ca/2023/report-rapport/tm-mf-en.html#a3.

The Old Age Security (OAS) program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the third quarter of 2023 (July to September), that maximum monthly benefit for recipients under the age of 75 is $698.60, while benefit recipients aged 75 and older can receive up to $768.46 per month. The monthly benefit for all recipients will increase by 1.3% during the fourth quarter (October to December) of 2023.

The Old Age Security (OAS) program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the third quarter of 2023 (July to September), that maximum monthly benefit for recipients under the age of 75 is $698.60, while benefit recipients aged 75 and older can receive up to $768.46 per month. The monthly benefit for all recipients will increase by 1.3% during the fourth quarter (October to December) of 2023. 

For many years, OAS was automatically paid to eligible recipients once they reached the age of 65. For the past decade, however, Canadians who are eligible to receive OAS benefits have been able to defer receipt of those benefits for up to five years, when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received increases by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%.

It can, however, be difficult to determine, on an individual basis, whether and to what extent it would make sense to defer receipt of OAS benefits. Some of the difficulty in deciding whether to defer – and for how long – lies in the fact there are no hard and fast rules, and the decision is very much an individual one. Fortunately, however, there are a number of factors which each individual can consider when making that decision.

The first such factor is how much total income will be required, at the age of 65, to finance current needs. It’s also necessary to determine what other sources of income (employment income from full- or part-time work, Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, annuity payments, and withdrawals from registered retirement savings plans (RRSPs) and registered retirement income fund (RRIFs)) are available to meet those needs, both currently and in the future, and when receipt of those income amounts can or will commence or cease. Once income needs and the sources and possible timing of each is clear, it’s necessary to consider the income tax implications of the structuring and timing of those sources of income. The ultimate goal, as it is at any age, is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits.

In making those calculations, the following income tax thresholds and benefit cut-off figures are a starting point.

• Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2023, that second income tax bracket begins when taxable income reaches $53,359.
• The Canadian tax system provides (for 2023) a non-refundable tax credit of $8,396 for taxpayers who are age 65 or older at the end of the tax year. The amount of that credit is reduced once the taxpayer’s net income for the year exceeds $42,335.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2023, the full credit is payable to individual taxpayers whose family net income is less than $42,335.
• Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits, through a mechanism known as the “OAS recovery tax”, or clawback. Taxpayers whose income for 2023 is more than $86,912 will have a portion of their future OAS benefits “clawed back”.

What other sources of income are currently available?

More and more, Canadians are not automatically leaving the work force at the age of 65. Those who continue to work at paid employment and whose employment income is sufficient to finance their chosen lifestyle may well prefer to defer receipt of OAS. Similarly, a taxpayer who begins receiving benefits from an employer’s pension plan when they turn 65 may be able to postpone receipt of OAS benefits.

Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence?

Nearly all Canadians who were employed or self-employed after the age of 18 paid into the Canada Pension Plan and are eligible to receive CPP retirement benefits. While such retirement benefits can be received as early as age 60, receipt can also be deferred and received any time up to the age of 70. As is the case with OAS benefits, CPP retirement benefits increase with each month that receipt of those benefits is deferred. Taxpayers who are eligible for both OAS and CPP will need to consider the impact of accelerating or deferring the receipt of each benefit in structuring retirement income.

Does the taxpayer have private retirement savings through an RRSP?

Taxpayers who were not members of an employer-sponsored pension plan during their working lives generally save for retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to begin receiving income from those savings. There are a number of options available for structuring that income, and, whatever the chosen option (usually, converting the RRSP into a registered retirement income fund or RRIF, or purchasing an annuity), it will mean that the taxpayer will begin receiving income amounts from those RRSP funds in the following year. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider that they will have an additional (taxable) income amount for each year after they turn 71.

The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing and taxation of each of those income sources must be considered, and none can be considered in isolation from the others.

Individuals who are facing that decision-making process will find some assistance on the Service Canada website. That website provides a Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. To use the calculator, it is necessary to know the amount of Canada Pension Plan benefit which will be received; the taxpayer can obtain that information by calling Service Canada at 1-800 277-9914.

The Retirement Income Calculator can be found at: https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

When the pandemic began in the spring of 2020, it wasn’t long before it became apparent that the increasing threat was to both public health and to the economy. In response to the economic threat, the federal government launched a wide range of support programs for both individuals and businesses. Some of those programs were structured as outright grants to replace income lost when workplaces and businesses shut down, while others were structured as loans, to be repaid when the pandemic ended and the economic fortunes of recipients had (hopefully) improved.

When the pandemic began in the spring of 2020, it wasn’t long before it became apparent that the increasing threat was to both public health and to the economy. In response to the economic threat, the federal government launched a wide range of support programs for both individuals and businesses. Some of those programs were structured as outright grants to replace income lost when workplaces and businesses shut down, while others were structured as loans, to be repaid when the pandemic ended and the economic fortunes of recipients had (hopefully) improved.

One of the largest support programs for businesses was the Canada Emergency Business Account (CEBA). Under the CEBA program, the federal government initially provided eligible businesses with a non-interest-bearing loan of up to $40,000. In December of 2020 the program was expanded and such eligible businesses were able to receive up to an additional $20,000, also structured as a non-interest-bearing loan. While the federal government was the source of the funding, all such loans were administered through Canadian financial institutions.

The popularity of the CEBA program can be measured in statistics issued by Statistics Canada. Almost 1 million (898,271) businesses were approved for initial CEBA loans, and nearly 600,000 (571,851) were approved for additional borrowing under the CEBA expansion. In total, $49.2 billion in CEBA loans were provided.

While the funds provided through the CEBA program were undoubtedly a lifeline for many businesses, that financing was always structured as an interest-free loan which would, ultimately, have to be repaid. That repayment deadline is December 31, 2023.  

While the Canada Revenue Agency has made it clear that the December 31 repayment deadline is not subject to negotiation, there is some relief to be provided to businesses which borrowed under the CEBA program. Those borrowers who repay their loans, at least in part, by December 31, 2023 can have some portion of those loan amounts forgiven.

The computation of the loan amount to be forgiven is somewhat complex and depends on the amount originally borrowed and the amount repaid by the December 31, 2023 deadline. The federal government provides the following information (and examples) on its website.

“All applicants that meet CEBA eligibility criteria will have the following terms of forgiveness:

If you borrowed $40,000 or less:
Repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before December 31, 2023 will result in loan forgiveness of 25 percent (up to $10,000).

• Example 1:
  Maximum Amount Borrowed: $40,000
  Amount Repaid By December 31, 2023: $30,000
  Available Forgiveness: $10,000

• Example 2:
  Maximum Amount Borrowed: $20,000
  Amount Repaid By December 31, 2023: $15,000
  Available Forgiveness: $5,000

• Example 3:
  Maximum Amount Borrowed: $40,000
  Amount Repaid By December 31, 2023: $25,000
  Available Forgiveness: $0

If you borrowed more than $40,000 and up to $60,000:
If you received a $40,000 loan and subsequently received the $20,000 expansion, the terms of your forgiveness have changed and are described here.

Repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before December 31, 2023 will result in a single tranche of loan forgiveness up to $20,000 based on a blended rate:

• 25 percent on the first $40,000; plus
• 50 percent on amounts above $40,000 and up to $60,000.

For clarity, the portion of forgiveness based on a rate of 25% and the portion of forgiveness based on a rate of 50% are combined into a single tranche of forgiveness, which is only available if all other amounts outstanding are repaid by December 31, 2023. For example, if $60,000 is borrowed, no forgiveness is available unless $40,000 is repaid.

• Example 4:
  Maximum Amount Borrowed: $60,000
  Amount Repaid By December 31, 2023: $40,000
  Available Forgiveness: $20,000 ($40,000 x 25% + $20,000 x 50%)

• Example 5:
  Maximum Amount Borrowed: $50,000
  Amount Repaid By December 31, 2023: $35,000
  Available Forgiveness: $15,000 ($40,000 x 25% + $10,000 x 50%)

• Example 6:
  Maximum Amount Borrowed: $60,000
  Amount Repaid By December 31, 2023: $35,000
  Available Forgiveness: $0

If you fully repaid your original $40,000 loan, claimed forgiveness, and thereafter received the $20,000 expansion:
Repaying the outstanding balance of the $20,000 expansion (other than the amount available to be forgiven) on or before December 31, 2023 will result in loan forgiveness of 50 percent (up to $10,000).

• Example 7:
  Maximum amount Borrowed: $20,000
  Amount Repaid By December 31, 2023: $10,000
  Available Forgiveness: $10,000

• Example 8:
  Maximum amount Borrowed: $20,000
  Amount Repaid By December 31, 2023: $8,000
  Available Forgiveness: $0”

Where a business benefits from loan forgiveness, any forgiven amount will be treated as income, which must be reported on the tax return filed by the business and on which tax must be paid.

Any loan amounts which are not repaid by December 31, 2023 and are not forgiven will be subject to interest starting January 1, 2024, at a rate of 5%. As well, if a loan remains outstanding after the end of 2023, only interest payments will be required until the full principal loan amount outstanding is due on December 31, 2025.

As the repayment deadline for CEBA loans approaches, a number of financial institutions have begun advertising refinancing products for businesses with outstanding CEBA loans, to enable such businesses to meet the December 31, 2023 repayment deadline (and so qualify for any available partial or complete CEBA loan forgiveness). The federal government notes on its website that it does not offer and is not affiliated with any such refinancing products for CEBA loans.

For an individual business which does not have the funds needed to repay CEBA loans by the end of 2023, the question of whether to pursue such refinancing isn’t a straightforward one, as there are a number of factors to consider. Ultimately, each business will have to consider, and evaluate, the loss of any possible loan forgiveness where a CEBA loan is not repaid by the end of 2023, the amount of interest (at a rate of 5%) which will be levied during 2024 and 2025 on outstanding CEBA loan amounts, the amount of tax which would be payable on any forgiven portion of a CEBA loan, and finally, the amount of interest costs which will be payable where CEBA loans are refinanced through a private lender in order for the business to meet the December 31, 2023 repayment deadline.

The federal government has posted detailed information on the repayment obligations of businesses under the CEBA program, and that information is available at https://ceba-cuec.ca/. In addition, businesses which have CEBA loans can obtain information specific to their circumstances from the CEBA Call Centre, which can be reached at 1-888-324-4201, Monday to Friday from 9 a.m. to 6 p.m. Eastern Time.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required) to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government on or before April 30. And while it’s doubtful that anyone does so with any great degree of enthusiasm, each spring tens of millions of Canadians do sit down to complete that return (or, more often, they pay someone else to do it for them).

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required) to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government on or before April 30. And while it’s doubtful that anyone does so with any great degree of enthusiasm, each spring tens of millions of Canadians do sit down to complete that return (or, more often, they pay someone else to do it for them).

Whether they do it themselves or have the return prepared for them, the rate of compliance among Canadian taxpayers is very high – between February 6 and August 27, 2023, just under 31 million individual income tax returns were filed with the Canada Revenue Agency. Inevitably, however, there are those who do not meet their filing or payment obligations.

There are a lot of reasons why some Canadians don’t file their returns, or don’t file returns which are accurate and complete, or don’t pay their taxes on a timely basis. Sometimes, that failure to timely file is based on a lack of understanding of how our tax system works, or on incorrect information about that system. In other instances, taxpayers simply don’t have the funds needed to pay the amount of tax owing and decide (incorrectly) that if they can’t pay their tax bill, in whole or in part, the best course of action is to not file a return. Finally, each year there are some Canadians who file returns in which (inadvertently or purposefully) income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed.

While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate, isn’t high, there are a lot of such returns when measured by absolute numbers. And although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover that amount.

With all of that in mind, several years ago the Canada Revenue Agency (CRA) instituted a program – the Voluntary Disclosure Program (VDP) – intended to encourage non-compliant taxpayers to come forward and put their tax affairs in order. The incentive to do so arises from the fact that, in most cases, while taxpayers who participate in the VDP program have to pay outstanding tax amounts owed, plus some interest, they can avoid some other interest charges, some penalties which would normally be imposed, and the risk of criminal prosecution.

To qualify for relief under the VDP, an application made with respect to non-compliance with income tax filing and payment obligations must:

• be voluntary (meaning that it is done before the CRA initiates any enforcement action related to the information to be disclosed);
• be complete;
• involve the application or potential application of a penalty;
• include information that is at least one year past due; and
• include payment of the estimated tax owing.

The VDP program includes two separate “tracks” for income tax disclosures – the Limited Program and the General Program – and the kind and extent of relief available depends on the track to which a particular application is assigned.

While the CRA will ultimately make the determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the Limited Program to instances in which applications disclose non-compliance which appears to include intentional (as distinct from inadvertent) conduct on the part of the taxpayer or a degree of carelessness which amounts to gross negligence. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

• the dollar amounts involved;
• the number of years of non-compliance;
• the sophistication of the taxpayer;
• how quickly the taxpayer acted to correct their non-compliance after becoming aware of it;
• whether there has been deliberate or wilful default or carelessness amounting to gross negligence on the part of the taxpayer; and
• whether the disclosure was made after the taxpayer became aware of the CRA’s intended specific focus on that particular area of taxpayer compliance.

Those whose applications are accepted under the Limited Program will be required to pay outstanding tax balances owed, plus interest, and will be subject to penalties. They will not, however, be subject to criminal prosecution and will be exempt from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer.

Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance – that is, for the years preceding the three most recent years of returns required to be filed. For example, a taxpayer who makes an application to the VDP and who has failed to file returns for the 2016 through 2021 taxation years may be provided with interest relief with respect to taxes owed for the 2016, 2017, and 2018 taxation years. Such relief is generally equal to 50% of interest owed – in other words, the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years. No interest relief will, however, be provided on tax amounts owed for the three most recent (2019, 2020, and 2021) taxation years. Since interest charges levied by the CRA are, by law, higher than current commercial rates (for instance, the rate levied for the third quarter of 2023 is 9%) and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

In order to benefit from the VDP, taxpayers must first make an application to the Program. That application must include payment of the estimated taxes owing, as a condition of participation in the VDP. Where a taxpayer is financially unable to make that tax payment, he or she can request that the CRA consider a payment arrangement.

The decision to apply to the VDP and to “come clean” about all previous tax transgressions is something that most taxpayers will likely consider with considerable trepidation. Those who are unsure about whether they want to move forward with a VDP application have the option of using the CRA’s “pre-disclosure discussion service”. As the name implies, that service allows taxpayers to participate in preliminary discussions with a CRA official, on an anonymous basis, to gain some knowledge about the VDP program, the process involved, and the potential relief available.

Taxpayers who decided to move forward with an application to the VDP can complete a Form RC199 Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. Once the application is received, the CRA will check to make certain that the applicant is eligible to apply and that all of the required information and documentation and the payment have been sent. The next step is for the CRA to evaluate the application to ensure that the criteria for participation in the VDP are satisfied and, if so, to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. At each step the taxpayer will be provided with written notice of the CRA’s decisions. The CRA’s advice is that taxpayers should contact them (for individual taxpayers, by calling the Individual Income Tax Enquiries line at 1-800-959-8281) if more than five weeks have passed since the application was submitted and no response has yet been received.

If the decision made is that the application is not eligible for the VDP, the taxpayer will also be advised in writing, with reasons, of the CRA’s decision to deny the application.

Where the decision made by the Agency is one with which the taxpayer does not agree, they are entitled to ask for a second review of the application. If that decision is also unfavourable, it is possible for a taxpayer to ask the Federal Court to review the decision and to direct the CRA to re-consider the VDP application. However, a taxpayer who wishes to pursue his or her application to the extent of filing such a Federal Court application is well advised to obtain legal advice before doing so.

Finally, taxpayers should recognize that the VDP Program can’t be used as a kind of “get out of jail free card” with respect to repeated failures to meet tax filing and payment obligations. The CRA website makes it clear that the Agency expects taxpayers who have benefitted from the VDP to thereafter meet their tax obligations, and a second review will be provided for the same taxpayer only in situations where the second application relates to a different matter than the first, and where the circumstances giving rise to the second application were beyond the taxpayer’s control.

Detailed information on the VDP program can be found on the CRA website at: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html.

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

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

They can be accessed below.

Corporate:

Issue #65 Corporate

Personal:

Issue #65 Personal

While the way in which post-secondary learning is delivered may have changed and changed again over the past three and a half years, as the pandemic waxed and waned and finally ended, the financial realities of post-secondary education have not. Regardless of how post-secondary learning is structured and delivered, it is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

While the way in which post-secondary learning is delivered may have changed and changed again over the past three and a half years, as the pandemic waxed and waned and finally ended, the financial realities of post-secondary education have not. Regardless of how post-secondary learning is structured and delivered, it is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

Fortunately for students (and their parents), there are tax credits and benefits which can be claimed to offset such costs: the credits and benefits which can be claimed by post-secondary students (or their spouses, parents, or grandparents) in relation to the 2023-24 academic year are summarized below.

Tuition fees

A federal 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. Many of the provinces and territories (excepting Alberta, Ontario, and Saskatchewan) also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.

The charges imposed on post-secondary students under the heading of “tuition” include a myriad of costs which may differ, depending on the particular program or institution, and not all of those costs will qualify as “tuition” for purposes of the tuition tax credit. The following specific amounts do, however, constitute eligible tuition fees for purposes of the tuition tax credit:

• Admission fees;
• Charges for use of library or laboratory facilities;
• Exemption fees;
• Examination fees (including re-reading charges) that are integral to a program of    study;
• Application fees (but only if the student subsequently enrolls in the institution);
• Confirmation fees;
• Charges for a certificate, diploma, or degree;
• Membership or seminar fees that are specifically related to an academic program and its administration;
• Mandatory computer service fees; and
• Academic fees.

The following charges, however, do not constitute tuition fees for purposes of the credit:

• Extracurricular student social activities;
• Medical expenses;
• Transportation and parking;
• Board and lodging;
• Goods of enduring value that are to be retained by students (such as a microscope, uniform, gown, or computer);
• Initiation fees or entrance fees to professional organizations including examination fees or other fees (such as evaluation fees) that are not integral to a program of study at an eligible educational institution;
• Administrative penalties incurred when a student withdraws from a program or an institution;
• The cost of books (other than books, compact disks, or similar material included in the cost of a correspondence course when the student is enrolled in such a course given by an eligible educational institution in Canada);
• Courses taken for purposes of academic upgrading to allow entry into a university or college program. These courses would usually not qualify for the tuition tax credit as they are not considered to be at the post-secondary school level.

Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, such fees and charges are limited to $250 unless the fees are required to be paid by all full-time students or by all part-time students.

At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where, as is often the case, a student doesn’t have tax payable for the year because his or her income isn’t high enough, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent, or grandparent.

Rent, food, and other personal and living expenses

Unfortunately, although housing and food costs will take up a big portion of each student’s budget, there is not (and never has been) a tax deduction or credit which is claimable for such costs. In all cases, living costs incurred by a post-secondary student (whether on campus or off) are characterized as personal and living expenses, for which no tax deduction or credit is allowed.

Student debt

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 15% federal 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 to finance their education should be mindful of the rules which govern that student loan interest tax credit, since decisions made while still in school with respect to how post-secondary education will be financed can have tax repercussions down the road, after graduation. That’s because while interest paid on a qualifying student loan is eligible for the credit, only some types of student borrowing will qualify for that credit. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.

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 Canada Revenue Agency 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”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit.

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 tax credit on that borrowing in future years.

Other credits and deductions

While the available student-specific deductions and credits are more limited than they were in previous taxation years, there are nonetheless a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary student (for instance, deductions for moving costs). The Canada Revenue Agency publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The current version of that guide, entitled Students and Income Tax, is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html. That guide was last revised in January of 2023 and the references in it are to the 2022 taxation year. It is, however, safe to assume that the same rules will apply for 2023.

The scarcity of affordable housing in just about every Canadian community can’t be news to anyone anymore. Whether it’s in relation to rental housing or the purchase of a first home, the opportunity to secure affordable, long-term housing has become more and more elusive, especially for younger Canadians.

The scarcity of affordable housing in just about every Canadian community can’t be news to anyone anymore. Whether it’s in relation to rental housing or the purchase of a first home, the opportunity to secure affordable, long-term housing has become more and more elusive, especially for younger Canadians.

In early 2022, as part of its 2022-23 budget, the federal government announced the creation of a new tax measure intended to assist Canadians in their efforts to purchase a first home. And while that new program – the First Home Savings Account (FHSA) – isn’t a solution for all of the difficulties faced by those seeking to purchase that first home, it can provide some significant financial assistance in that effort. As the name implies, the FHSA allows first time home buyers (starting in 2023) to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

Contributing to an FHSA

Under the program terms, any resident of Canada who is at least 18 years of age (but under the age of 71 at the end of the current year) and who has not lived in a home which he or she owns in any of the current or four previous calendar years can open an FHSA and contribute to that plan annually. Planholders can contribute up to $8,000 per year to their plan, regardless of their income. The $8,000 per year contribution must be made by the end of the calendar year, but planholders will be permitted to carry forward unused portions of their annual contribution limit, to a maximum of $8,000. For example, an individual who contributes $6,000 to an FHSA in 2023 would be allowed to contribute $10,000 in 2024 (representing $8,000 in contributions for 2024 plus $2,000 in remaining contributions from 2023). Regardless of the schedule on which contributions are made, there is a lifetime limit of $40,000 in contributions for each individual.

The real benefit of the FHSA program lies in the tax treatment of contributions and income earned by those contributions. Individuals who contribute any amount in a year can deduct that amount from income, in the same manner as a registered retirement savings plan (RRSP) contribution. And while funds are held within the FHSA, they can be held in cash, or can be invested in a broad range of investment vehicles. Specifically, such funds can be invested in mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs). Regardless of the investment vehicle chosen, interest, dividends, or any other type of investment income earned by those funds grows on a tax-free basis – that is, such investment income is not taxed as it is earned. 

Most significantly, when the planholder withdraws funds from the FHSA to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.

In sum, contributions made to an FHSA are deductible from income, investment income earned on those funds is not taxed as it is earned, and, where either original contributions made or investment income earned is withdrawn from an FHSA to purchase a first home, no tax is payable on such withdrawn amounts. For the taxpayer, it’s a win-win-win.

Withdrawing funds from an FHSA

Given the generous tax treatment accorded contributions to an FHSA, there are inevitably some qualifications and restrictions placed on the use of the plans. First, amounts withdrawn from an FHSA can be received tax-free only if such withdrawals are “qualifying withdrawals”, meaning that the funds are used to make a qualifying home purchase. In order for a withdrawal to be a “qualifying withdrawal”, the planholder must have a written agreement to buy or build a home located in Canada. That home must be acquired, or construction of the home must be completed, before October 1 of the next year. In addition, the planholder must intend to occupy that home within a year after buying or building it.

Amounts withdrawn from an FHSA and used for any other purpose are not qualifying withdrawals and the funds withdrawn are fully taxable in the year the withdrawal is made.

While Canadians who open an FHSA and make contributions to it are certainly hoping to be able to purchase a home, there are any number of reasons why their plans could change. Fortunately, the rules governing FHSAs provide planholders with a great deal of flexibility when it comes to the disposition of funds saved within an FHSA, in that  planholders can transfer all funds held within their FHSA to an RRSP or to a registered retirement income fund (RRIF) on a tax-free basis. Significantly, the amount which is transferred from an FHSA to an RRSP would not reduce or be limited by the individual’s RRSP contribution room. However, transfers made to an RRSP in these circumstances do not replenish FHSA contribution room – in other words, each eligible individual gets only one opportunity to save for the purchase of a first home using an FHSA. And, of course, any amounts transferred from an FHSA to an RRSP or RRIF will be taxable on withdrawal from those plans, in the same way as any other RRSP or RRIF withdrawal.

The ability to transfer funds between plans can also work in the other direction. Individuals who have managed to accumulate funds within an RRSP will be allowed to transfer such funds to an FHSA (subject to the $8,000 annual and $40,000 lifetime contribution limits). While no deduction is permitted for funds transferred from an RRSP to an FHSA, that transfer does take place on a tax-free basis. Transfers made to an RRSP in these circumstances do not, however, replenish RRSP contribution room.

Older taxpayers who open an FHSA should be aware that it is not possible to transfer funds from an RRIF to an FHSA.

Closing an FHSA

Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. (Taxpayers must also close their FHSA by the end of the year in which they turn 71.)  While these rules do place some pressure on planholders with respect to the timing of their home purchase, there is some flexibility. Specifically, planholders who have not made a qualifying home purchase within the required 15-year time frame (or by the end of the year in which they turn 71) must then close the FHSA plan, but can still transfer funds held in the FHSA to their RRSP or RRIF, on a tax-free basis.

The FHSA is a significant new tax planning tool, and Canadians who are in a position to take advantage of its terms should certainly consider doing so. The federal government has posted information on the FHSA program on its website, and that information is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html.

By mid to late summer, almost every Canadian has filed his or her income tax return for the previous year and has received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that tax filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations are done and behind them for another year.

By mid to late summer, almost every Canadian has filed his or her income tax return for the previous year and has received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that tax filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations are done and behind them for another year.

It can, therefore, be a little surprising to receive a communication from the CRA at this time of year, and more than a little unsettling to find out that the Agency has some further questions about the tax return that the taxpayer thought was already completed. Notwithstanding, that’s an experience that millions of taxpayers will have over the next few weeks and months.

Between February 6 and July 23 of this year, the CRA received and processed almost 31 million individual income tax returns filed for the 2022 tax year and issued a Notice of Assessment in respect of each one of those returns. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and could not possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

In addition, the CRA has, for many years, been encouraging taxpayers to fulfill their filing obligations online, through one of the Agency’s electronic filing services. This year, just over 28 million (or 92.6%) of individual returns for 2022 were filed by electronic means. While e-filing means that the turnaround for processing of returns is much quicker, there is, by definition, no paper involved. The Canadian tax system has always been what is termed a “self-assessing” system, in which taxpayers report income earned and claim deductions and credits to which they believe they are entitled. Prior to the advent of e-filing there were means by which the CRA could easily verify claims made by taxpayers. Where returns were paper-filed, taxpayers were usually required to include receipts or other documentation to prove their claims, whatever those claims were for. For the nearly 93% of returns which were filed this year by electronic means, no such paper trail exists. Consequently, the potential exists for misrepresentation of such claims (or simple reporting errors) on a large scale.

The CRA’s response to that risk is to conduct a wide range of review programs, some of them carried out before a Notice of Assessment is issued for the taxpayer’s return, and others after that Notice of Assessment has been issued and sent to the taxpayer. Regardless of the timing, in all cases the purpose of the review is to obtain from the taxpayer the information or documentation needed to support claims for deductions or credits made by the taxpayer on the return. The CRA also administers a Matching Program, in which information reported on the taxpayer’s return (both income and deductions) is compared to information provided to the CRA by third-party sources (like T4s filed by employers or T5s filed by banks or other financial institutions).

Being selected for review under either program means, for the individual taxpayer, the possibility of receiving unexpected correspondence, or a telephone call, from the CRA. Receiving such correspondence or such a call from the tax authorities is almost guaranteed to unsettle the recipient taxpayer, who may immediately conclude that he or she has done something very wrong and is facing a big tax bill. However, in the vast majority of cases, the contact is just a routine part of the Agency’s processing review mandate.

Where the initial contact from the CRA to the taxpayer is done by telephone, it’s important that the taxpayer verify the identity of the person claiming to be a representative of the Agency. As virtually everyone knows by now, fraudulent or “scam” calls purporting to be from the CRA have become commonplace. To assist taxpayers in confirming that any telephone contact received is a legitimate one, the CRA has provided information on how to respond to such a call, and that information can be found on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud/expect-cra-contacts.html

A taxpayer whose return is selected as part of a processing review program will be asked to provide verification or proof of deductions or credits claimed on the return – usually by way of receipts or similar documentation. Or, where figures which appear on an information slip – for instance, the amount of employment income earned – don’t match up with the amount of employment income reported by the taxpayer, he or she will be contacted to provide an explanation of the discrepancy.

Of course, most taxpayers are not concerned so much with the kind of program or programs under which they are contacted as they are with why their return was singled out for review or follow-up. Many taxpayers assume that it’s because there is something wrong on their return, or that the letter is the start of a tax audit process, but that’s not necessarily the case. Returns are selected by the CRA for pre- or post-assessment review for a number of reasons. Canada’s tax laws are complex and, over the years, there are areas in which the CRA has determined that taxpayers are more likely to make errors on their return. Consequently, a return which includes claims in those areas (like dependant tax credit claims, claims for medical expenses, moving expenses, or tuition tax credits) may have an increased chance of being reviewed. Where there are deductions or credits claimed by the taxpayer which are significantly different or greater than those claimed in previous returns that may attract the CRA’s attention. And, if the taxpayer’s return has been reviewed in previous years and, especially, if an adjustment was made following that review, subsequent reviews may be more likely. Finally, many returns are picked for the processing review programs simply on the basis of random selection.  

Regardless of the reason for the follow-up, the process is the same. Taxpayers whose returns are selected for review will be contacted by the CRA, usually by letter, identifying the deduction or credit for which the CRA wants documentation or the income or deduction amount about which a discrepancy seems to exist. The taxpayer will be given a reasonable period of time – usually a few weeks from the date of the letter – in which to respond to the CRA’s request. That response should be in writing, attaching, if needed, the receipts or other documentation which the CRA has requested. All correspondence from the CRA under its review programs will include a reference number, which is usually found in the top right-hand corner of the CRA’s letter. That number is the means by which the CRA tracks the particular inquiry, and should be included in the response sent to the Agency. It’s important to remember, as well, that it’s the taxpayer’s responsibility to provide proof, where requested, of any claims made on a return. Where a taxpayer does not respond to a CRA request or does not provide such proof, the Agency will proceed on the basis that the requested verification or proof does not exist and will assess or reassess accordingly.

Taxpayers who have registered for the CRA’s online tax program My Account (or whose representative is similarly registered for the Agency’s Represent a Client online service) can usually submit required documentation electronically. More information on how to do so can be found on the CRA website at Submitting documents online – Pre-assessment Review, Processing Review and Request Verification Programs - Canada.ca.

Whatever the reason a particular return was selected for post-assessment review by the CRA, one thing is certain. A prompt response to the CRA’s enquiry, providing the Agency with the information or documentation requested, will, in the vast majority of cases, bring the matter to a speedy conclusion, to the satisfaction of both the Agency and the taxpayer. The CRA website also includes more detailed information on the return review process, which is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/review-your-tax-return-cra.html.

Between 2009 and early 2022, Canadians lived (and borrowed) in an ultra-low interest rate environment. Between January 2009 and March 2022, the bank rate (from which commercial interest rates are determined) was (except, briefly, in the fall of 2018) never higher than 1.50% – and was almost always lower than that. Effectively, adult Canadians who are now under the age of 35 have had no experience of managing their finances in high – or even, by historical standards, ordinary – interest rate environments.

Between 2009 and early 2022, Canadians lived (and borrowed) in an ultra-low interest rate environment. Between January 2009 and March 2022, the bank rate (from which commercial interest rates are determined) was (except, briefly, in the fall of 2018) never higher than 1.50% – and was almost always lower than that. Effectively, adult Canadians who are now under the age of 35 have had no experience of managing their finances in high – or even, by historical standards, ordinary – interest rate environments.

That prolonged period of low interest rates (which coincided, not surprisingly, with an explosion in the amount of debt taken on by Canadians) came to an abrupt halt in the spring of 2022. The Bank of Canada increased interest rates in March of 2022, and followed that up with nine further interest rate increases between March 2022 and July 2023. As a result of those increases the bank rate has, over that 16-month period, gone from .25% to 5.00% – a twenty-fold increase – and commercial interest rates on all credit products have increased commensurately.

Unfortunately, it isn’t likely that Canadians can anticipate any interest rate relief in the short-term. The Bank of Canada has made it clear in its public announcements that it is committed to reducing the rate of inflation to the Bank’s 2% core inflation rate target, and that one of its major tools to effect that reduction is increases in interest rates. In its latest press release on the subject issued on July 12, 2023, the Bank’s projection was that “inflation is forecast to hover around 3% for the next year before gradually declining to 2% in the middle of 2025.”

The impact of the recent rapid increase in interest rates on average Canadians can’t really be overstated. A common measure of individual indebtedness is the ratio of debt to disposable income – in other words, the percentage represented by the amount of debt relative to the debtor’s annual income. In the first quarter of 2023, the ratio of debt to disposable income for an average Canadian family stood at p-184.5%. In other words, on average, the debt load carried by Canadians is now just under twice their annual disposable income.

Of course, what matters most to individuals is not necessarily the size of the debt they are carrying, but the cost of servicing that debt – the amount of the monthly credit card, line of credit, or mortgage payments – all of which will, of course, increase as interest rates go up. For several years, financial advisors and government and banking officials have been sounding warnings that the debt loads which Canadians were carrying were likely sustainable only at the extremely low interest rates then in effect. Their concern was that when, inevitably, those rates returned to historically “normal” levels the burden of repaying, or even servicing, those debts would be unsustainable. And that time has come.

Given that those are the unavoidable current and future realities, it’s necessary to consider what strategies are available to Canadians who are carrying substantial amounts of debt on how to manage the upcoming months and possibly years of increased interest charges.

In considering available strategies, it’s important to draw a distinction between secured and unsecured debt. Put simply, the former is debt which is secured by the value of an underlying asset and, if the debtor fails to make payments on the debt, the lender is entitled to seize that underlying asset and sell it to satisfy any outstanding debt amount owed. The types of secured debt most familiar to Canadians are, of course, a mortgage or a car loan. Unsecured debt, on the other hand, is provided solely on the strength of the borrower’s promise to repay, and credit cards are most common example of unsecured debt owed by Canadians.

While any type of debt can cause problems for borrowers, when interest rates go up it’s usually those who are carrying unsecured debt who are the first to feel the pinch. Not only is the rate of interest payable on unsecured debt higher than that imposed on secured debt, the interest rate on such unsecured debt is usually a “variable” rate, meaning that it will go up with every increase in the bank rate. And, of course, debtors whose debt is secured by an underlying asset and who find that carrying that debt is no longer manageable always have the option of selling that asset and using the proceeds to retire the outstanding balance of the loan – an option that isn’t available when it comes to unsecured debt.

For those who are carrying outstanding debt, the obvious advice is to get the debt paid down as quickly as possible. That is, however, easier said than done, especially when the interest component of the debt is increasing.

Even where repayment of the debt over the short-term isn’t a realistic expectation, such individuals do, however, have some options, as outlined below.

Liquidating assets

Because interest rates have been so low in recent years, it’s become relatively common to carry debt even when the debtor has sufficient assets to pay off that debt. In many cases, individuals have borrowed money for the purpose of investing it, on the assumption that the interest payable would be less than the investment gains earned. That may no longer be a valid assumption. Where someone who is carrying unsecured debt has an asset or assets that can be sold, it makes sense to first consider whether it makes sense to use the proceeds from the sale of such assets to clear the debt.

Paying off debt from savings

While tapping into retirement savings should be a last resort, individuals carrying unsecured debt could consider using funds held in a tax-free savings account or just in a savings account to pay off or pay down the debt, and thereby reduce or eliminate carrying charges on that debt.

Reducing the interest rate payable

Where there are not sufficient assets available to eliminate unsecured debt, the next step would be to consider trying to lower the rate of interest being charged on that debt. Much unsecured debt owed by Canadians is in the form of credit card debt, which carries some of the highest interest rates around. Often debt carried on credit cards can be consolidated into a single bank loan or line of credit at a lower rate of interest.

Fixing the interest rate payable

If a lower interest rate can’t be obtained, then debtors would be well advised to at least try and prevent future rate increases by fixing the interest rate currently in place. While no one can claim to be able to predict future interest rates with certainty, the Bank of Canada has clearly signaled that interest rates are likely to continue rising. If the debt is in good standing – that is, payments have been made on time and in at least the minimum amount required – it may be possible to transfer the amount owed, either to another credit card with a fixed rate of interest, or to a personal loan with both a fixed rate of interest and a fixed repayment schedule.

Looking for an interest rate holiday

It’s not uncommon for credit card companies, in order to get new customers, to offer an “interest holiday”. Essentially, the offer is that if a debtor transfers an outstanding balance from another card to a new card issued by the soliciting company (or even to a card already held by the debtor), that debt will be interest-free or at a very low rate of interest for a fixed period – usually about six to nine months.

There is a cost associated with such offers – usually around 1% to 3% of the amount transferred. And, of course, such a course of action offers no more than a temporary reprieve from high interest rate charges, but it can be enough to provide the debtor with a little breathing room while more long term or permanent solutions are sought.

Those who are already in financial difficulty in relation to their outstanding debts – unable to make the minimum monthly required payment, or missing payments – require a different approach. Such individuals can obtain debt/credit counselling through any number of non-profit agencies, who can work with them, and with their creditor(s), to create a manageable repayment schedule. More information on the credit counselling process, and a listing of such non-profit agencies can be found at http://creditcounsellingcanada.ca/.

The age at which Canadians retire and begin deriving income from government and private pensions and private retirement savings has become something of a moving target. At one time, reaching one’s 65^th birthday marked the transition from working life to full retirement, and, usually, receipt of a monthly employee pension, along with government-sponsored retirement benefits. That is no longer the unvarying reality. The age at which Canadians retire can now span a decade or more, and retirement is more likely to be a gradual transition than a single event.

The age at which Canadians retire and begin deriving income from government and private pensions and private retirement savings has become something of a moving target. At one time, reaching one’s 65^th birthday marked the transition from working life to full retirement, and, usually, receipt of a monthly employee pension, along with government-sponsored retirement benefits. That is no longer the unvarying reality. The age at which Canadians retire can now span a decade or more, and retirement is more likely to be a gradual transition than a single event.

Today, Canadians can choose to begin receiving benefits from government-sponsored retirement benefit programs between the ages of 60 and 70. Canada Pension Plan retirement benefits can begin as early as age 60, and taxpayers can start collecting Old Age Security benefits at age 65. Receipt of income from either of those government sponsored retirement income plans can also be deferred until the age of 70.

There is, however, one retirement income “deadline” which is not flexible and must be adhered to by every Canadian who has saved for retirement through a registered retirement savings plan (RRSP). All holders of such plans are required to close out their RRSP by the end of the calendar year in which they turn 71 years of age – no exceptions and no extensions. The decision which must be made on how to do so is a very big one, as the course of action chosen will affect the individual’s income for the remainder of his or her life.

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

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

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

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

The annuity route has the great advantages of simplicity and reliability. In exchange for a lump sum amount paid by the taxpayer, the issuer of that annuity agrees to pay the taxpayer a specific sum of money, usually once a month, for the remainder of his or her life. Annuities can also provide a guarantee period, in which the annuity payments continue for a specified time period (five years, 10 years), even if the taxpayer dies during that time. The amount of monthly income which can be received depends, of course, on the amount paid in, but also on the gender and, especially, the age of the taxpayer.

The other factor influencing the amount of income which can be received from an annuity is current interest rates. For many years, interest rates have been so low that an annuity purchase had very little to recommend it. Over the past 14 months, however, the Bank of Canada has raised interest rates several times, and annuity payment rates have risen as a result. Currently, annuity rates for each $100,000 paid to the annuity issuer by a taxpayer who is 70 years of age range from $636 to $672 per month for a male taxpayer and from $588 to $621 for a female taxpayer (the actual rate is set by the company which issues the annuity). Those rates do not include any guarantee period.

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

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

Where a taxpayer holds savings in an RRIF, he or she can invest those funds in the same investment vehicles as were used while the funds were held in an RRSP. And, as with an RRSP, investment income earned by funds held inside an RRIF are not taxed as they are earned. While the ability to continue holding investments that can grow on a tax-sheltered basis provides the taxpayer with a lot of flexibility, that flexibility has a price in the form of investment risk. As is the case with all investments, the investments held within an RRIF can increase in value – or decrease – and the taxpayer carries the entire investment risk. When things go the way every investor wants them to, investment income is earned while the taxpayer’s underlying capital is maintained, but that result is never guaranteed.

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

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

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

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

As of July 2023, the maximum OAS benefit for most Canadians (specifically, those who have lived in Canada for 40 years after the age of 18) is about $699 per month. The amount of CPP benefits receivable by the taxpayer will vary, depending on his or her work history, but the maximum current benefit which can be received at age 65 is about $1,306. As a result, a single taxpayer who receives the maximum CPP and OAS benefits at age 65 will have just over $24,000 in annual income (about $2005 per month). And, for a married couple, of course, the total annual income received from CPP and OAS can be about $48,000 annually, or $4,010 per month. While $24,000 a year isn’t usually enough to provide a comfortable retirement, for those who go into retirement in good financial shape – meaning, generally, without any debt – it can go a long way toward meeting non-discretionary living costs. In other words, most Canadians who are facing the annuity versus RRIF decision already have a source of income which is effectively guaranteed for their lifetime and which is indexed to inflation. Taxpayers who are considering the purchase of an annuity to create the income stream required to cover non-discretionary expenses should first determine how much of those expenses can already be met by the combination of their (and their spouse’s) CPP and OAS benefits. The amount of any annuity purchase can then be set to cover off any shortfall.

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

By the time summer arrives, nearly all Canadians have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return and have either spent their tax refund or, more grudgingly, paid any balance of tax owing.

By the time summer arrives, nearly all Canadians have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return and have either spent their tax refund or, more grudgingly, paid any balance of tax owing.

It’s a surprise, therefore, when unexpected mail arrives from the Canada Revenue Agency (usually in mid- to late July), and the information in that mail will likely be both unfamiliar and unwelcome. Specifically, the enclosed Instalment Reminder 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 15 of 2023 – and will helpfully identify the amounts which should be paid on each date.

No one particularly likes receiving unexpected mail from the tax authorities, and correspondence which suggests that the recipient should be making payments of income tax for 2023 to the CRA during the year (instead of when he or she files the return for 2023 in April 2024) is likely to be both perplexing and somewhat alarming. It’s fair to say that most Canadians aren’t familiar with the payment of income tax by instalments, and are therefore at a loss to know how to proceed the first time they receive an Instalment Reminder.

The reason that the instalment payment system is unfamiliar to most Canadians is that most of us pay income taxes during our working lives through a different system. Every Canadian employee has tax automatically deducted from his or her paycheque (“at source”), before that paycheque is issued, and that tax is remitted by the employer to the CRA on the employee’s behalf. Such deductions and remittances accrue to the employee’s benefit, and they are credited with those remittances when filing the annual tax return for that year. It’s an efficient system, but it’s also one which is largely invisible to the employee, and certainly one which operates without the need for the employee to take any steps on his or her own.

Where an individual is no longer an employee – for instance, he or she starts a business and becomes self-employed, or retires and begins to receive retirement income from various government and non-government sources – such deductions and remittances are no longer automatically made. However, Canadian tax rules provide that, where the amount of tax owed when a return is filed by the taxpayer is more than $3,000 ($1,800 for Québec residents) in the current (2023) year and either of the two previous (2021 and 2022) years, that taxpayer may be subject to the requirement to pay income tax by instalments.

The reason that first Instalment Reminders are issued in August has to do with the schedule on which Canadians file their tax returns. The amount of tax payable on filing for the immediately preceding year can’t be known until the tax return for that year has been filed and assessed, and the tax return filing deadline for individuals is April 30 (or June 15 for self-employed taxpayers and their spouses). Consequently, by the end of July, the CRA will have the information needed to determine whether a particular taxpayer should receive a first Instalment Reminder for the current year

Taxpayers who receive that first Instalment Reminder in July may also be puzzled by the fact that it is a “Reminder” and not a “Requirement” to pay. The reason for that is that those who receive it are not actually required by law to make instalment payments of tax. There are, in fact, three options open to the taxpayer who receives an Instalment Reminder.

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 have to pay any interest or penalty charges even if he or she does have to pay an additional amount on filing in the spring of 2024. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2023, 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 owed and paid for the 2022 tax year (including any balance that was owed on filing). If a taxpayer’s income has not changed between 2022 and 2023 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2023 will be slightly less than it was in 2022, 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 actually owe for 2023 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2022 to 2023 and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this approach can obtain the information needed to estimate current-year taxes (federal and provincial tax brackets and rates) on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#federal.

All of this may seem like a lot of research and calculation effort, especially when one considers that many Canadians don’t even prepare their own tax returns. And those who don’t want to be bothered with the intricacies of tax calculations can pay the amounts set out in the Instalment Reminder, secure in the knowledge that they will not incur any penalty or interest charges and that, should those amounts ultimately represent an overpayment of taxes, that overpayment will be recovered and refunded when the return for 2023 is filed next spring.

Once they have resigned themselves to the realities of the tax instalment system, the next question that most taxpayers have is how such payments can be made. The options open to taxpayers in that regard are helpfully outlined on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-income-tax-instalments/you-pay-your-instalments.html.

At a time when Canadian households are coping simultaneously with ongoing inflation, especially food inflation, as well as interest rates which are at their highest point in decades, every dollar of income counts. And where that income can be obtained with minimal effort, and received tax-free, then it’s a win-win for the recipient.

At a time when Canadian households are coping simultaneously with ongoing inflation, especially food inflation, as well as interest rates which are at their highest point in decades, every dollar of income counts. And where that income can be obtained with minimal effort, and received tax-free, then it’s a win-win for the recipient.

Those attributes describe the basic child and family benefits paid by the federal government to eligible Canadians every month of the year. However, a substantial number of eligible recipients don’t receive benefits to which they are entitled simply because they haven’t claimed them, leaving potentially hundreds or thousands of dollars in tax-free income “on the table” each year. As well, many Canadians who do receive such benefits but who then fail to claim them annually can see their benefit payments stop, even though they remain eligible to receive those benefits.

While there are quite a number of such benefits, the process of “claiming” each of them is the same – simply filing a tax return each year. Eligibility for some (but not all) of the obtainable benefits and/or the amount of benefit obtainable is based, in part, on the income of the recipient. When each Canadian files a tax return, the Canada Revenue Agency determines, based on the information provided in the return, which benefits the taxpayer is entitled to and in what amounts. Where the amount of a taxpayer’s income is relevant to the determination of eligibility, the income figure used is that from the previous year. In other words, a taxpayer’s eligibility for benefits during the 2023-24 benefit year is based on his or her income for 2022. And that information was provided to the Canada Revenue Agency on the tax returns for 2022 which were filed by taxpayers earlier this year.

Once the CRA receives the needed income information (usually by April 30, 2023) and the Agency determines a taxpayer’s benefit eligibility, those benefits are paid to eligible recipients throughout the 2023-24 benefit year, which starts on July 1, 2023 and ends on June 30, 2024.

It should be noted, as well, that while the federal government refers to these benefits under the umbrella term “child and family benefits”, it’s wrong to conclude that benefits are only available to parents and/or married individuals. Of the five benefit programs outlined below which will be in place during the upcoming benefit year, only the Canada Child Benefit program requires that a taxpayer be a parent, and none of the benefit programs require that a taxpayer be married or in a common-law relationship.

GST/HST Credit

The GST/HST credit is a non-taxable amount paid four times a year (on the 5^th of July, October, January, and April) to low- and middle-income individuals and families, to help offset the goods and services tax/harmonized sales tax (GST/HST) that they pay. Generally, the credit is available to Canadian residents who meet any one of the following criteria:

• aged 19 yearsof age or older;
• have or had a spouse or common law partner; or
• are or were a parent and live (or lived) with their child.

The amount of benefit which may be received is determined by both family size and income level. For the upcoming (July 2023 to June 2024) benefit year, the maximum annual GST/HST benefit is as follows:

• $496 if you are single;
• $650 if you are married or have a common-law partner; and
• $171 for each child under the age of 19.

The CRA website includes a chart showing the amount of GST/HST benefit which is provided at different income levels, to individuals and to families of different sizes and compositions. That chart can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/goods-services-tax-harmonized-sales-tax-gst-hst-credit/goods-services-tax-harmonised-sales-tax-credit-payments-chart.html.

Eligibility for the GST/HST credit for the 2023-24 benefit year is determined automatically by the CRA for each taxpayer who filed a return for 2022. There is, therefore, no need to indicate on the return that the taxpayer is applying for the GST/HST credit.

Climate Action Incentive Payment

Unlike the other three credits which are based, at least in part, on household income, the Climate Action Incentive Payment (CAIP) is a flat rate non-taxable credit paid to residents of the provinces of Ontario, Manitoba, Alberta, Saskatchewan, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island. The purpose of the CAIP is to help offset the financial impact of the federal carbon tax.

In addition to living in one of these provinces, recipients must also satisfy the same eligibility criteria as for the GST/HST credit, in that they must be Canadian residents who are at least 19 years of age, or have or had a spouse or common law partner, or are or were a parent and lives or lived with their child.

The amount of CAIP which an individual can receive varies, depending on his or her province of residence. Information on the amount of CAIP which may be received in each province can be found on the CRA website at Climate action incentive payment - Canada.ca.

The CAIP (for all provinces) includes a rural supplement of 10% of the base amount for residents of small and rural communities. While there is no need to apply for the CAIP when filing a tax return, individuals who may be eligible for the rural supplement need to ensure that they complete and file a Schedule 14 indicating their eligibility for the supplement when they file their return for 2022. That requirement does not apply to residents of Prince Edward Island, where all CAIP recipients are eligible for the rural supplement.

When it was first introduced, the CAIP was claimed on the individual income tax return and paid as part of the tax refund process. Now, however, the CAIP is paid in quarterly instalments. During the 2023-24 benefit year, residents of Ontario, Alberta, Manitoba, and Saskatchewan will receive four quarterly payments, on the 15^th day of April, July, October, and January.

Since the federal fuel charge will only come into effect as of July 1, 2023 in Newfoundland and Labrador, Nova Scotia, and Prince Edward Island, residents of those provinces will receive three quarterly payments of the CAIP during the 2023-24 benefit year (in July 2023, October 2023, and January 2024) and four payments in subsequent benefit years. New Brunswick residents will receive a double payment in October 2023 (to cover the July and October payments) and a single payment in January 2024.

More information on the CAIP can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/cai-payment.html.

Canada Workers Benefit

The Canada Workers Benefit (CWB) is a refundable tax credit paid to lower-income Canadian residents who are aged 19 or older or are married or have a common-law spouse or child with whom they live, and who have “working income” earned from employment or self-employment.

The amount of CWB which an individual or family can receive depends on marital status and net income. The basic amounts payable, and the net income levels at which eligibility for that basic benefit is eroded, are as follows.

• $1,428 for single individuals
  The single individual benefit is reduced if adjusted net income is more than $23,495. No basic amount is payable if the applicant’s adjusted net income is more than $33,015.
• $2,461 for families 
  The family benefit amount is reduced if adjusted family net income is more than $26,805. No basic amount is payable where adjusted family net income is more than $43,212.

In order to apply for the CWB, a recipient must file his or her tax return electronically or, if filing a paper return, must complete and file a Schedule 6 with that tax return. In previous years, taxpayers were required to apply for advance payment of the CWB;  however, effective as of July 2023, CWB recipients who were eligible for the benefit in 2022 will automatically begin receiving quarterly advance payments of their CWB for 2023.

More detailed information on the CWB can be found at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-workers-benefit.html.

Canada Child Benefit

The Canada child benefit (CCB) is a tax-free monthly payment made to eligible families to help with the cost of raising children under 18 years of age. The CCB is paid to the parent who is primarily responsible for the care and upbringing of the child or children, and the amount varies with the age and number of children.

The CCB is also a means-tested benefit, and the benefit amount which may be received is reduced as family net income increases. CCB amounts paid during the 2023-24 benefit year are based on family net income for 2022.

The maximum amounts payable for the benefit year running from July 2023 to June 2024 are as follows.

For each child:

• under 6 years of age: $7,437 per year ($619.75 per month)
• 6 to 17 years of age: $6,275 per year ($522.91 per month)

Where family net income for 2022 is less than $34,863, recipients will receive the maximum amount outlined above for 2023-24, with no reductions.

Individuals and families who may be eligible for the CCB will have their eligibility automatically assessed when they file their tax return for 2022: there is no requirement to file a particular schedule or other application. More information on the CCB is available on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview.html.

“Grocery Rebate”

As every Canadian who has purchased food in the past year knows, the cost of groceries has been steadily increasing, as the inflation rate for food costs has consistently outpaced the general rate of inflation. To address that situation, the federal government announced, as part of the 2023-24 federal budget, that eligible Canadians would receive a “grocery rebate”, which will be paid on July 5, 2023.

The term “grocery rebate” is something of a misnomer, since the amount of the rebate is not specifically tied to the cost of groceries, nor is there any requirement that amounts received be spent on groceries. Rather, the “grocery rebate” is simply a one-time payment to be made to Canadians who were eligible for and received a GST/HST tax credit payment in January of 2023, and the amount of the “grocery rebate” will be double the amount received of the January 2023 GST/HST tax credit payment. So, for example, an individual who received a GST/HST tax credit payment amount of $89.00 in January 2023 will receive (on July 5, 2023) a “grocery rebate” of $178.00.

More information on the “grocery rebate” can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/goods-services-tax-harmonized-sales-tax-gst-hst-credit/grocery-rebate.html.

While the number and variety of federal child and family benefits, and the varying eligibility criteria for each, can be confusing, the necessary determinations and calculations are done by the federal government. The only step which need be taken by an individual is the filing of an annual tax return. Taxpayers who wish to find information on the benefits for which they may be eligible can refer to the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits.html, where detailed information on each such benefit, the eligibility criteria and amounts which may be received are summarized.

With the worst days of the pandemic behind us, more and more Canadian families have returned to their usual schedule, with kids back in attendance at school and parents back at work at the office, on either a full-time or a part-time basis. While a return to the normal routine is likely welcome, the need to go to the office for at least part of the week means that parents must make arrangements for summer child care.

With the worst days of the pandemic behind us, more and more Canadian families have returned to their usual schedule, with kids back in attendance at school and parents back at work at the office, on either a full-time or a part-time basis. While a return to the normal routine is likely welcome, the need to go to the office for at least part of the week means that parents must make arrangements for summer child care.

Parents needing to arrange such care don’t lack for options. There are an almost limitless number of choices, but what each of those choices has in common is a price tag – sometimes a steep one. Some options, like day camps provided by the local recreation authority or municipality, can be relatively inexpensive, while the cost of others, like elite-level residential sports or arts camps, can run to the thousands of dollars.

The good news for families which incur such expenditures is that in many cases a deduction for part or all of the costs incurred can be claimed on the tax return for the year. And, since eligible expenditures can be deducted from income on a dollar-for-dollar basis, that means that income used to pay eligible child care expenses is income which is effectively not subject to income tax. That benefit is provided by our tax system through the general deduction provided for child care costs. The general rule for the deduction (which is not specific to summer child care or summer camp costs but is available for qualifying child care expenses throughout the year) is that parents who must incur child care costs in order to work (whether in employment or self-employment), or in some cases to attend school, can deduct those costs from income, within specified limits

The amount of any available child care deduction is calculated on Form T778, and that calculation can seem forbiddingly complex. However, at the end of the day, the amount of child care expenses which can be deducted is simply the least of three figures, and only one of those figures requires a calculation. The steps involved in determining the amount of available child care expense deduction are as follows.

First, the amount of any deduction for child care expenses is limited to two-thirds of the taxpayer’s net income for the year. The income figure used to calculate the two-thirds figure is, generally, the amount shown on Line 23600 of the annual tax return. Where the family incurring child care expenses is a two-income family, it is the spouse with the lower net income who must make the claim and consequently it is his or her net income which is used to provide that two-thirds of income figure.

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

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

For 2023, the following overall limits apply:

• $5,000 in costs per year for a child who was born in 2007 to 2016;
• $8,000 in costs per year for a child who was born after 2016;
• $11,000 in costs per year for a child who was born in 2023 or earlier, but for whom the disability amount can be claimed.

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

• $125 per week for a child who was born in 2007 to 2016;
• $200 per week for a child who was born after 2016; and
• $275 per week for a child who was born in 2023 or earlier, but for whom the disability amount can be claimed.

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

A two-income family has two children and both parents are employed. One spouse earns $65,000 per year, while the other earns $55,000. In 2023, one child is age 9 and the other is age 5. Neither child is disabled. During July and August, both of the children attend a local full-day summer camp, for which the cost is $300 per week per child.

• The first step is to determine the two-thirds of income figure. Since it is the lower-income spouse who must make the deduction claim, that figure is two-thirds of $55,000, or $36,630. Consequently, any deduction for child care expenses for the year cannot exceed $36,630.
• The second calculation is the total amount of child care expenses paid for each child:
  $300 per week for eight weeks of summer camp, or $2,400.
  Total child care expenses for each child are therefore $2,400.
• The last step is to determine the basic limit for child care expenses for each child, as follows:
  • the limit for the 5-year-old (who was born after 2016) is $8,000, and so the entire $2,400 in summer day camp costs incurred can be deducted.
  • the basic limit for the 9-year-old (who was born between 2007 and 2016) is $5,000, and so once again the entire $2,400 incurred for summer day camp costs can be deducted.

As well, since the camp is a day camp, the dollar amount cost limitations which apply with respect to overnight camps does not apply to limit the amount of expenses claimed by the family.

The total deduction available for child care expenses incurred for the 2023 tax year will therefore be $4,800. That deduction is claimed on Line 21400 of the tax return filed by the lower-income spouse for the year, reducing his or her taxable income from $55,000 to $50,200, and resulting in a federal tax savings of about $1,000. A similar tax deduction is claimed as well for provincial tax purposes, and the amount of provincial tax saved will depend on the tax rates imposed by the province in which the family lives.

While the availability of a “subsidy” through the tax system should never be the sole determinant of what activity or camp is the best choice, there’s no denying that being able to claim a deduction for the costs involved can tip the balance toward one or choice or another, or can bring a formerly unavailable option within a family’s financial reach.

Parents wishing to find out more about the child care expense deduction, and perhaps to calculate the maximum deduction which will be available to them for the 2023 tax year, should consult Form T778-22e. The form which is currently on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t778.html is from the 2022 tax year, and consequently the age limits must be adjusted by one year for child care expense claims for 2023. The form does, however, provide a detailed explanation of the rules governing the child care expense deduction, and those rules continue to apply for the 2023 tax year.

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 #64 Corporate

Personal:

Issue #64 Personal

The purchase of a first home is a milestone in anyone’s life, for many reasons. A home purchase is likely the largest single financial transaction most Canadians will enter into in their lives, and having the ability to buy one’s own home has traditionally been perceived as a marker of financial success and stability.

The purchase of a first home is a milestone in anyone’s life, for many reasons. A home purchase is likely the largest single financial transaction most Canadians will enter into in their lives, and having the ability to buy one’s own home has traditionally been perceived as a marker of financial success and stability.

While there are many intangible benefits to owning a home, home ownership also provides some very tangible and significant financial advantages. Specifically, it provides the opportunity to accumulate wealth through increases in home equity, and to realize that wealth on a truly tax-free basis.

Most Canadians who purchase a home do so by making a down payment and borrowing the remainder of the purchase price of the home from a financial institution. That borrowing – the home mortgage – is paid off, with interest, usually over a 25- or 30-year period, at the end of which the homeowner owns the property outright. And, in virtually all instances, the value of that property is likely to be many times more than the original purchase price. In many locations in Canada, a home purchased in 1998 for $200,000 could have, by 2023, a market value of $1,000,000.

The real benefit of such asset growth, however, is found in the way such increases in value are treated for tax purposes. The Canadian tax system is a very comprehensive one, and there are very few sources of income or investment gains which escape the tax net. Home ownership is one of those few exceptions.

Under Canadian tax rules, where an asset is sold, the increase in the value of that asset over its original purchase price is treated as a capital gain, 50% of which must be included in taxable income and taxed as such. However, where a family home is sold, any increase in value (that is, any gain) is exempt from tax, regardless of the amount of such gain. Continuing the above example, a homeowner who paid $200,000 for a home in 1998 and sells that home in 2023 for $1,000,000 has a gain of $800,000. Assuming that the property was lived in and used as a home (a “principal residence” in tax parlance) for the entire 23 years of ownership, the full $800,000 gain can be received tax-free. If that gain were treated as a capital gain, and taxed as such, approximately $200,000 of the gain would have to be paid in capital gains tax.

The tax-free status of gains made on the sale of a family home is known, for tax purposes, as the principal residence exemption (PRE) and has been available to Canadians since 1972. And, for nearly 45 years after that, there were no changes made to the rules governing the availability of the exemption, or the reporting requirements for claiming it. In the last eight years, however, and especially in 2023, the rules with respect to the exemption have been tightened.

The need for changes arose out of a perceived change in the way the housing market operated, resulting from unprecedented increases in the price of residential properties over a relatively short period of time. While there are have always been individuals or companies who purchased properties with the intent of reselling them, perhaps after undertaking renovations, most purchases of residential real estate were made by individuals or families intending to live in them. However, it became possible, over the past 10 or 15 years, to purchase a property and re-sell it relatively soon thereafter for a very substantial profit. And, where the PRE was claimed on that sale, the entire profit would be received tax-free.

These changes in the housing market led to what the federal government perceived as a situation in which housing was being bought and sold as a commodity rather than for its traditional purpose of providing a home, and that the principal residence exemption was being used to avoid the payment of profits made from the “flipping” of properties in a way that was never intended. A secondary effect of such “commodification” of residential real estate was to drive up the price of properties, putting home ownership further and further out of the reach of the average Canadian.

For both these reasons, the federal government moved, in 2016 and again in 2023, to make changes to ensure that the principal residence exemption was being used for its intended purpose, and only by those who were entitled to claim it.

The first such change, which took effect as of January 1, 2016, was an administrative measure which required taxpayers, for the first time, to report any transaction for which the PRE was being claimed. Beginning with the 2016 tax year, individuals who are claiming the PRE for a property sale which took place during the year are required to complete Schedule 3 on their tax return for the year, confirming that fact and indicating the tax years for which the exemption is being claimed.

It’s important to note that the new requirement to report any claims for the PRE does not in any way change the rules respecting either eligibility for the exemption or the tax treatment of amounts received on the sale of a principal residence. What it does, however, is provide the tax authorities with information which could flag claims for the PRE which those tax authorities view as requiring further investigation. For instance, where an individual claims the principal residence exemption on two sales of residential property within a three-year period, it’s very likely that the tax authorities will want further information to determine whether either or both such transactions fit within the ambit of the rules governing the PRE.

In fact, as reported in the media, the Canada Revenue Agency has sent out “educational letters” to several hundred taxpayers who have claimed the PRE in circumstances which the CRA believes merit further investigation. Those letters suggest that taxpayers contact the CRA to provide an explanation for their use of the PRE, or to amend their return(s) if necessary.

These CRA enforcement activities are unlikely to affect taxpayers who sell a principal residence perhaps two or three times during their lifetime: the CRA’s efforts are directed at those who may be repeatedly using the PRE to shelter income or capital gains which should be reported as (and taxed as) income. Nonetheless, it remains the case that anyone claiming the PRE in any year after 2015 must file a Schedule 3 with their return for the year, certifying that fact, in order to be able to benefit from it.

The second change made by the federal government with respect to the PRE was much more substantive, and aimed directly at those who, in the government’s view, are misusing the PRE. That change, which is effective as of 2023, provides that anyone who sells a property which they have owned for less than 12 months would be considered to be “flipping” properties. Where that is the case, 100% of any gain made on the sale of the property would be included in income and taxed as business income. In other words, not only would the seller of the property not be eligible for the PRE, the gains made on the sale of the property would not be treated as a capital gain (only half of which is included in income for tax purposes) but as business income, the entirety of which is included in income and taxed as such.

The difference in the tax result is best illustrated using the example above. An individual who purchases a property for $200,000 and sells that property for $1,000,000 has a gain of $800,000. The result of the different possible tax treatments of that gain is as follows:

• Where the sale is fully eligible for the principal residence exemption, the total tax payable on the gain is $0;
• Where the gain is treated as a capital gain, the total tax payable on that gain is about $200,000; and
• Where the property sale takes place after 2022 and the property was owned for less than 12 months, the new rule will apply, and the total tax payable on the gain will be about $400,000.

Of course, while most Canadians who purchase a home to live in as a principal residence don’t intend to sell within a year of purchase, life’s circumstances can sometimes dictate a different outcome. Consequently, exemptions from the new tax consequences of selling within 12 months of purchase will be provide for Canadians who sell their home due to specified life events, such as a death, disability, the birth of a child, a new job, or a divorce. 

The changes made to the PRE rules in 2016 and 2023 don’t change the fact that home ownership remains one of the very best tax savings and wealth building strategies available to Canadians. Those who buy intending to live in the property as a family home are unlikely to be affected by the 2023 rule changes, and compliance with the new reporting requirements introduced in 2016 will ensure that they make the most of the tax saving possibilities available to them.

More information on the rules governing the sale of a principal residence and claiming the exemption can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence-other-real-estate/sale-your-principal-residence.html  and https://www.budget.canada.ca/2022/report-rapport/chap1-en.html#2022-4.

Many, if not most, taxpayers think of tax planning as a year-end exercise to be carried out in the last few weeks of the year, with a view to taking the steps needed to minimize the tax bill for the current year. And it’s true that almost all strategies needed to both minimize the tax hit for the year and to ensure that there won’t be a big tax bill come next April must be taken by December 31 of the current calendar year (the making of registered retirement savings plan (RRSP) contributions being the notable exception). Nonetheless, there’s a lot to recommend carrying out a mid-year review of one’s tax situation for the current year. Doing that review mid-year, instead of waiting until December, gives the taxpayer the chance to make sure that everything is on track and to put into place any adjustments needed to help ensure that there are no tax surprises when the income tax return for 2023 is filed next spring. As well, while the deadline for implementing most tax saving strategies may be December 31, the window of opportunity to make a significant difference to one’s current-year tax situation does narrow as the calendar year progresses.

Many, if not most, taxpayers think of tax planning as a year-end exercise to be carried out in the last few weeks of the year, with a view to taking the steps needed to minimize the tax bill for the current year. And it’s true that almost all strategies needed to both minimize the tax hit for the year and to ensure that there won’t be a big tax bill come next April must be taken by December 31 of the current calendar year (the making of registered retirement savings plan (RRSP) contributions being the notable exception). Nonetheless, there’s a lot to recommend carrying out a mid-year review of one’s tax situation for the current year. Doing that review mid-year, instead of waiting until December, gives the taxpayer the chance to make sure that everything is on track and to put into place any adjustments needed to help ensure that there are no tax surprises when the income tax return for 2023 is filed next spring. As well, while the deadline for implementing most tax saving strategies may be December 31, the window of opportunity to make a significant difference to one’s current-year tax situation does narrow as the calendar year progresses.

By the middle of June, most Canadians will have filed their individual income tax return for the 2022 tax year and received a Notice of Assessment outlining their tax position for that year. Those who receive a refund will celebrate that fact; less happily, those who receive a tax bill will pay the amount owed, however reluctantly. Although few Canadians have this perspective, the reality is that getting either a big tax refund or having to pay a large tax bill is a sign that one’s tax affairs need attention. A refund, especially a large refund, means that the taxpayer has overpaid his or her taxes for the previous year and has essentially provided the Canada Revenue Agency with an interest-free loan of funds that could have been put to better use in the taxpayer’s hands. The other outcome – a large bill – means that taxes have been underpaid for the previous year and could mean paying interest charges to the CRA. Either way, it’s in the taxpayer’s best interests to ensure that tax paid throughout the year is sufficient to cover his or her taxes, without overpaying or underpaying. The best-case scenario is to file a tax return and receive a Notice of Assessment which indicates that there is neither a substantial refund payable nor any significant amount owing.

For most Canadians, income and available deductions and credits don’t vary substantially from one year to the next. Where that’s the case, the amount of tax owed by the taxpayer for 2022 (a figure that can be found on Line 43500 of the Notice of Assessment) is likely to be very close to one’s tax liability for 2023.

After determining the amount of one’s tax liability for 2022, the next step in doing a review is to get a sense of how much tax has already been paid for the 2023 tax year. There are two ways of paying taxes throughout the year. The majority of Canadians (including all employees) have income taxes deducted from their paycheques and remitted to the federal government on their behalf – known as source deductions. Taxpayers who do not have income tax deducted at source – which would include self-employed individuals and, frequently, retired taxpayers – make tax payments directly to the federal government (four times a year, in March, June, September, and December) through the tax instalment system.

Using the tax payable figure for 2022 as a guide, it’s necessary to figure out whether income tax payments made to date, either by source deductions or instalment payments, match up with that tax liability figure, recognizing that by this point in the year, approximately one-half of taxes for 2023 should already have been paid. If they haven’t, and particularly if there is a significant shortfall which will mean a large balance owing when the tax return for 2023 is filed next spring, the taxpayer will need to take steps to remedy that.

Where the individual involved pays tax by instalments, the solution is simple. He or she can simply increase or decrease the amount of remaining instalment payments made in 2023 so that the total instalment payments made over the course of this year accurately reflect the total tax payable for the year. The only caveat in that situation is that the individual should err on the side of caution to ensure that there isn’t a shortfall in instalment payments, which could result in interest charges being levied by the CRA.

The situation is a little more complex for employees, or anyone who has tax deducted at source. Often when such individuals discover that they are overpaying taxes through source deductions, it’s because other deductions which they claim on their return for the year – for expenditures like deductible support payments, child care expenses, or contributions to an RRSP – aren’t taken into account in calculating the amount of tax to deduct at source. The solution for employees who find themselves in that situation is to file a Form T1213 – Request to Reduce Tax Deductions at Source, which is available on the CRA website at T1213 Request to Reduce Tax Deductions at Source - Canada.ca. On that form, the taxpayer identifies the amounts which will be deducted on the return for the year and, once the CRA verifies that those deductible expenditures are being made, it will authorize the taxpayer’s employer to reduce the amount of tax which is being withheld at source to take account of that deduction.

Where it’s the opposite situation and a taxpayer finds that source deductions being made will not be sufficient to cover his or her tax liability for the year (meaning a tax bill to be paid next spring), the solution is to have those source deductions increased. To do that, the employee needs to obtain a federal TD1 form for 2023, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html. On the reverse side of that Form TD1, there is a section entitled “Additional tax to be deducted”, in which the employee can direct his or her employer to deduct additional amounts at source for income tax, and can specify the dollar amount which is to be deducted from each paycheque, on a go-forward basis.

Alternatively, the taxpayer who is looking at a large tax bill on filing the 2023 return can take steps to bring down that bill by creating or increasing available deductions. The most widely available strategy which will provide the greatest tax savings is an RRSP contribution, which reduces taxable income on a dollar-for-dollar basis. And while it’s difficult for most taxpayers to come up with such a contribution at the last minute, starting mid-year to transfer a set amount from each paycheque received between June of 2023 and February of 2024 to one’s RRSP can result in a substantial contribution deduction and a resulting reduction in the tax bill for the year.

No one particularly likes thinking about taxes, at any time of year, but ignoring the issue definitely won’t make it go away. The investment of a few hours of time now, and putting in place any needed adjustments, can mean avoiding a nasty surprise in the form of a large balance owing when the return for 2023 is completed next spring.

Canada’s retirement income system is made up of two public retirement income programs – the Old Age Security program and the Canada Pension Plan – as well as the opportunity to accumulate private retirement savings on a tax-assisted basis, through registered pension plans or registered retirement savings plans.

Canada’s retirement income system is made up of two public retirement income programs – the Old Age Security program and the Canada Pension Plan – as well as the opportunity to accumulate private retirement savings on a tax-assisted basis, through registered pension plans or registered retirement savings plans.

While the purpose of both public retirement income programs is to ensure that Canadians have a basic level of income in retirement, the two plans are very different with respect to funding, eligibility requirements, and benefit amounts.

The Old Age Security (OAS) program, which is funded out of general tax revenues, provides a set amount of income each month to Canadians who are age 65 or older and who have lived in Canada for 40 years or more since the age of 18. (A reduced and pro-rated benefit amount is available to those who have lived in Canada for a shorter period of time). The current maximum monthly OAS benefit (which is adjusted for inflation at the beginning of each calendar quarter) is $691.00 ($760.10 for those aged 75 or older). Where an OAS recipient of any age has income of more than around $86,000, the amount of OAS benefit which he or she can receive is reduced.

By comparison, the Canada Pension Plan (CPP) is funded entirely from mandatory contributions made by every person over the age of 18 who earns more than a minimum amount ($3,500 per year). If that person is an employee, he or she pays half the required contribution and the employer pays the other half. If the individual is self-employed, he or she must make the entire contribution. In all cases, the amount contributed is a percentage of earnings to a specified maximum earnings amount known as the Yearly Maximum Pensionable Earnings, or YMPE, which is currently $66,600.

As early as age 60, or as late as age 70, the individual contributor can apply to begin receiving a monthly CPP retirement benefit. The actual amount of the benefit is different for each individual, as it is arrived at using a formula based on the total amount of contributions made during the individual contributor’s working life. The current maximum monthly benefit is $1306.57. Once an individual begins receiving a CPP retirement benefit, monthly payments of that benefit continue for the rest of the individual’s life and, unlike OAS, is never reduced in any way.

The result of the way in which the CPP is funded means that, unlike the OAS program, the CPP must be entirely self-financed – that is, all benefits paid must come out of the pool of capital created by contributions made by individual Canadian workers and the gains made by investing those amounts.

Several years ago, it was recognized that, for a range of reasons, many Canadian families were not accumulating sufficient savings to ensure adequate income in retirement. In 2016, federal government statistics indicated that 24 per cent of families (1.1 million families) nearing retirement age were at risk of not having adequate income in retirement to maintain their standard of living. The federal and provincial governments determined that the best response to that reality was to make changes to the Canada Pension Plan, in order to increase the extent to which CPP retirement benefits would replace working income.

Those changes to the CPP began in 2019, when the required annual contribution to the CPP rose from 4.95% to 5.1% of earnings. That contribution percentage was increased each year thereafter, such that it now (for 2023) stands at 5.95% of earnings over $3,500.

The second, more consequential, change is that, effective as of January 1, 2024, higher income earners will be required to make a new, additional contribution to the CPP. The change affects only individuals who earn more than the YMPE (currently $66,600).

In effect, there will be two levels of CPP contributions beginning in 2024. There is no change to the current contribution structure for those with annual income of less than the YMPE: such individuals will continue to contribute 5.95% of earnings in excess of $3,500 yearly, and the maximum annual contribution will be 5.95% of the YMPE.   However, those whose income exceeds the YMPE for the year will pay 4% of those additional earnings (to be known as second CPP contributions), up to the second earnings ceiling – to be called the Year’s Additional Maximum Pensionable Earnings, or YAMPE.

The practical effect of the upcoming changes is best illustrated by example, as follows:

Sarah earns $85,000 in 2024. Her CPP contribution requirements will be as follows:

• Assume that the YMPE for 2024 is $67,700.
• The basic exemption for the year remains $3,500, meaning that Sarah must pay CPP contributions of 5.95% of $64,200 ($67,700 minus $3,500).
• Her first level CPP contributions for the year will therefore be $3,819.90 ($64,200 times 5.95%), and her employer will contribute an equal amount.

Since Sarah’s income for 2024 is more than the YMPE, she will be required to make second CPP contributions, which are calculated as follows:

• Assume that the YAMPE for 2024 is $72,400.
• Sarah must therefore pay second CPP contributions on $4,700 ($72,400 minus $67,700). Second level CPP contributions are set at 4.0%, so Sarah must pay 4.0% of $4,700, or $188.
• Once again, her employer will contribute an equal amount.

Sarah’s total CPP contributions for 2024 will therefore be $4,007.90.

While it’s important for those who will be affected by the upcoming changes to the CPP contribution structure to be aware of what’s coming, they are not changes for which any financial or tax planning is required – the requirement to make additional contributions (where it applies) is mandatory and will be done automatically. And, while no one really likes to see additional deductions being taken from their paycheque, it may be some comfort to consider that such deductions are really a way to increase one’s chances of not having to stay longer in the work force because of a lack of retirement savings, and being able to look forward to a more financially comfortable retirement.

More information on the upcoming changes to the CPP can be found on the federal government website at https://www.canada.ca/en/revenue-agency/news/2023/05/the-canada-pension-plan-enhancement--businesses-individuals-and-self-employed-what-it-means-for-you.html.

Sales of residential real estate across Canada are, after a slowdown in 2022, once again on the rise. Back-to-back increases in sales figures during February and March 2023 were followed by a double digit increase in such sales during the month of April. Those figures mean that tens of thousands of Canadians will be closing home sales transactions and moving this spring and summer. And, whatever the reason for the move or the distance to the new location, all moves have two things in common – stress and cost. Even where the move is a desired one – from an apartment to a first home, or moving to take one’s dream job, any move inevitably means upheaval of one’s life, and the costs (especially for a long-distance move) can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

Sales of residential real estate across Canada are, after a slowdown in 2022, once again on the rise. Back-to-back increases in sales figures during February and March 2023 were followed by a double digit increase in such sales during the month of April. Those figures mean that tens of thousands of Canadians will be closing home sales transactions and moving this spring and summer. And, whatever the reason for the move or the distance to the new location, all moves have two things in common – stress and cost. Even where the move is a desired one – from an apartment to a first home, or moving to take one’s dream job, any move inevitably means upheaval of one’s life, and the costs (especially for a long-distance move) can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

While it’s common to refer simply to the “moving expense deduction”, as though it were available in all circumstances, the fact is that there is actually no across-the-board deduction available for moving costs. In order to be deductible from income for tax purposes, such moving costs must be incurred in specific and relatively narrow circumstances. Our tax system allows taxpayers to claim a deduction only where the move is made to get the taxpayer closer to his or her new place of work, whether that work is a transfer, a new job, or starting a business. Specifically, moving expenses can be deducted where the move is made to bring the taxpayer at least 40 kilometres closer to his or her new place of work. That requirement is satisfied where, for instance, a taxpayer moves from Ottawa to Calgary to take a new job. It’s also met where a taxpayer is transferred by his or her employer to another job in a different location and the taxpayer’s move will bring him or her at least 40 kilometres closer to the new work location. The requirement is not met where an individual or family move up the property ladder by selling and purchasing a new home (or buying a first home) in the same town or city where they currently live, without any change in work location.

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

It's important to remember, however, that even where the 40-kilometre requirement is met, it’s possible to deduct moving costs only from employment or self-employment (business) income – no deduction is allowed from other sources of income, like investment income or employment insurance benefits.

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

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

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

Every homeowner who is moving must decide whether to sell their current home before purchasing the new one, or to secure a new home first, and then put their current home on the market. Those who decide on the second approach are entitled to deduct up to $5,000 in costs incurred for the maintenance of the “old” residence while it is vacant and it is on the market. Specifically, costs including interest, property taxes, insurance premiums, and heat and utilities expenses paid to maintain the old residence while efforts were being made to sell it may be deducted. If any family members are still living at the old residence, or it is being rented, no such deduction is available.

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

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

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

Anyone who has ever moved knows that there are an endless number of details to be dealt with. For some types of costs, the administrative burden of claiming moving-related expenses can be minimized by choosing to claim a standardized amount, rather than the actual amount of expense incurrred. Specifically, the CRA allows taxpayers to claim a fixed amount, without the need for detailed receipts, for travel and meal expenses related to a move. Using that standardized, or flat rate method, taxpayers may claim up to $23 per meal, to a maximum of $69 per day, for each person in the household. Similarly, the taxpayer can claim a set per-kilometre amount for kilometres driven in connection with the move. The per-kilometre amount ranges from 55.0 cents for Alberta and Saskatchewan to 67.5 cents for the Northwest Territories. In all cases, it is the province or territory in which the travel begins which determines the applicable rate.

These standardized travel and meal expense rates are those which were in effect for the 2022 taxation year – the CRA will be posting the rates for 2023 on its website early in 2024, in time for the tax filing season.

Once eligibility for the moving expense deduction is established, the rules which govern the calculation of the available deduction are not complex, but they are very detailed. The best summary of those rules is found on the form used to claim such expenses – the T1-M. The current version of that form can be found on the CRA’s website at Moving Expenses Deduction. (canada.ca) and more information (including a link to rates for standardized meal and travel cost claims) is available at Line 21900 – Moving expenses – Canada.ca.

Of the 17 million individual income tax returns for the 2022 tax year filed with the Canada Revenue Agency (CRA) by the middle of April 2023, no two were identical. Each return contained its own particular combination of types and amounts of income reported and deductions and credits claimed. There is, however, one thing which every one of those returns has in common: For each and every one, the CRA will review the return filed, determine whether it is in agreement with the information contained therein, and, finally, issue a Notice of Assessment (NOA) to the taxpayer summarizing the Agency’s conclusions with respect to the taxpayer’s tax situation for the 2022 tax year.

Of the 17 million individual income tax returns for the 2022 tax year filed with the Canada Revenue Agency (CRA) by the middle of April 2023, no two were identical. Each return contained its own particular combination of types and amounts of income reported and deductions and credits claimed. There is, however, one thing which every one of those returns has in common: For each and every one, the CRA will review the return filed, determine whether it is in agreement with the information contained therein, and, finally, issue a Notice of Assessment (NOA) to the taxpayer summarizing the Agency’s conclusions with respect to the taxpayer’s tax situation for the 2022 tax year.

When all goes as it should, the information contained in the NOA is the same as that provided by the taxpayer in his or her return. In a minority of cases, however, the information presented in the NOA will differ from that provided by the taxpayer in his or her return. Where that difference means an unanticipated refund, or a refund larger than the one expected, it’s a good day for the taxpayer. In some cases, however, the NOA will inform the taxpayer that additional amounts are owed to the CRA. When that happens, the taxpayer has to figure out why, and to decide whether or not to dispute the CRA’s conclusions.

Many such discrepancies are the result of an error made by the taxpayer in completing the return. A lot of information from a variety of sources is reported on even the most straightforward of returns and it’s easy to overlook some of that information. Especially where the taxpayer has multiple sources of income – for instance, individuals who are working in the gig economy and may work under a succession of contracts during the year, or have multiple sources of income at any given time – it’s easy to omit one or more small amounts of income when completing the tax return for the year. Equally, newly retired individuals who are used to having only one source of income – their paycheques – may now be receiving Canada Pension Plan benefits, Old Age Security amounts, pension income, and, possibly, withdrawals from a registered retirement savings plan or registered retirement income fund, making it more difficult to keep track of everything.

Most Canadian taxpayers now use tax return preparation software to complete and file their returns. While such software essentially eliminates the risk of arithmetical error, the process isn’t foolproof. Such tax software relies, in the first instance, on information input by the user. No matter how good the software, it can’t account for income information which the taxpayer hasn’t provided. In other cases, the taxpayer can easily transpose figures when entering them, such that an income amount of $39,257 on the T4 becomes $32,957 on the tax return. Once again, the tax software has no way of knowing that the information input was incorrect and will calculate tax owing on the basis of the figures provided.

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

There are, however, instances in which the CRA and the taxpayer are in disagreement over substantive issues, and those issues most often involve claims for deductions or credits. For instance, the CRA may have disallowed an individual’s claim for a medical expense, or for a deduction claimed for a business expenditure, and the taxpayer believes in good faith that the credit or deduction claim is legitimate. 

Whatever the nature of the dispute, the first step is always to contact the CRA for an explanation of the reasons why the change was made. While the information provided in the NOA is a good summary of the taxpayer’s tax situation for the year, it may not always be clear on precisely how and why the taxpayer and the Agency disagree on the actual amount of income tax which the taxpayer must pay for the year. The first step to take would be a call to the Individual Income Tax Enquiries line at 1-800-959-8281, where agents who have access to the taxpayer’s return can explain any changes which were made during the assessment process. If that call doesn’t resolve the taxpayer’s questions, or there is still a disagreement, the taxpayer has to decide whether to take the next step of filing a Notice of Objection to the NOA.

Doing so formally advises the CRA that the taxpayer is disputing his or her tax liability for the taxation year in question. Not incidentally, the filing of an Objection also brings to a halt most efforts undertaken by the CRA to collect taxes which it considers owing for the taxation year under dispute (although, if the taxpayer is eventually found to owe the amount in dispute, interest will have accumulated in the interim). Where the taxpayer files an Objection, the CRA’s collection efforts are, in most cases, suspended until 90 days after the date the CRA’s decision on that Objection is sent to the taxpayer.

There is a time limit by which any Objection must be filed, albeit a reasonably generous one. Individual taxpayers must file an Objection by the later of 90 days from the mailing date of the Notice of Assessment (the date found at the top of page 1) or one year from the due date of the return which is being disputed. So, for tax returns for the 2022 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2024 (or June 15, 2024 for self-employed taxpayers and their spouses). As with most things related to taxes, it’s best not to put it off. At the very least, if the taxpayer is ultimately found to owe some or all of the taxes assessed by the CRA, interest will have accrued on those taxes for the entire period since the filing due date and, if the filing of the Objection is delayed, the CRA may well have already commenced its collection efforts. Certainly, if the deadline is imminent, it’s necessary to file a Notice of Objection in order to preserve the taxpayer’s appeal rights, even if discussions with the CRA are still ongoing.

Taxpayers who have registered with the CRA’s online services feature My Account can file their Notice of Objection online at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html. The taxpayer provides information with respect to the assessment being disputed, together with the reasons why the assessment is being disputed, and submits that information online. Taxpayers who are disputing their tax assessment can also scan and send supporting documents relating to that dispute to the Agency.

While filing a dispute through My Account is certainly faster than mailing hard copy of the Notice of Objection, not all taxpayers want to use that option. In particular, those who are not already registered with My Account may not wish to undertake the registration process simply in order to file a single Notice of Objection. Taxpayers who choose instead to file their objection using hard copy of a Notice of Objection form can find the most current version of the CRA’s standardized T400A Objection on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t400a.html.

Taxpayers aren’t obligated to use the CRA’s official Notice of Objection form – any communication which makes it clear that the taxpayer is objecting to his or her Notice of Assessment will do. Nonetheless, there’s no reason not to use the standardized form, and there are benefits to doing so. Using the T400A form will make it clear to the CRA that a formal objection is being filed, will present the necessary information in a format with which the Agency is familiar, and will also mean that no required information is inadvertently omitted. It’s also helpful to include a copy of the Notice of Assessment which is being disputed. Taxpayers should also consider ensuring proof of both delivery and time of delivery by sending the form or letter to the Appeals Intake Center in a way which provides for tracking and proof of delivery. The mailing address and fax numbers for the Appeals Intake Centre can be found on the CRA website at File an objection – Income tax - Canada.ca.

It’s also possible to contact the CRA at its objection enquires phone line in order to get information about the status of one’s appeal. The toll-free telephone number for calls from within Canada to that line is 1-800-959-5513.

In the course of making its decision, the Agency may or may not contact the taxpayer for further discussions of the issues in dispute. Should the taxpayer be contacted, he or she may be asked to provide representations outlining his or her position, in writing or at a meeting. Through such representations and meetings, it may be possible for the taxpayer and the CRA to come to an agreement on the taxpayer’s tax liability. In either case, the CRA will either confirm its original assessment or change it. If the original assessment is changed, the CRA will issue a Notice of Reassessment outlining the changes.

Information on objections and appeal rights can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes.html?utm_campaign=not-applicable&utm_medium=vanity-url&utm_source=canada-ca_cra-complaints-disputes. The CRA also publishes a useful pamphlet entitled Resolving Your Dispute: Objection and Appeal Rights under the Income Tax Act, and the most recent release of that publication can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p148/p148-resolving-your-dispute-objection-appeal-rights-under-income-tax-act.html.

The fact that Canadian households and families have been living with a significant amount of financial stress for the past year or so isn’t really news. Eight interest rate hikes in the past 14 months, together with double digit inflationary increases in the price of food and energy, have combined to squeeze family finances from all directions.

The fact that Canadian households and families have been living with a significant amount of financial stress for the past year or so isn’t really news. Eight interest rate hikes in the past 14 months, together with double digit inflationary increases in the price of food and energy, have combined to squeeze family finances from all directions.

It’s also not surprising that the financial pressures experienced by Canadians are now starting to show up in the statistics documenting debt levels, credit payment behaviour, and insolvencies. As reported by Equifax Canada in their Quarterly Credit Trends Report for the fourth quarter of 2022 (available at https://www.consumer.equifax.ca/about-equifax/press-releases/-/blogs/economic-headwinds-impacting-debt-levels-and-credit-payment-behaviour?), total consumer debt during that quarter rose by 6.2% when compared to the same quarter in 2021, as Canadians turned increasingly to the use of credit to meet their day-to-day financial obligations. It’s apparent as well from the statistics that some of those Canadians are having difficulty managing that increased debt. When statistics for December 2022 are compared to those for December 2021, they show that over 300,000 more consumers were carrying an unpaid balance on their credit cards from one month to the next, rather than paying the full balance off at the end of each billing cycle. As well, during the fourth quarter of 2022, the 90+ day volume delinquency rate for credit cards and auto loans rose by 23% and 11% respectively.

When individuals or families need to turn to credit to meet day-to-day financial obligations and then have difficulty repaying or even servicing that debt, the worst case scenario is insolvency. And it is the case that an increasing number of Canadians are reaching the point at which they see their available options narrow to the point that they must consider making a consumer proposal or even declaring bankruptcy. The Statistics Canada report on insolvency statistics for individuals for the month of January 2023 (https://ised-isde.canada.ca/site/office-superintendent-bankruptcy/en/statistics-and-research/insolvency-statistics-canada-january-2023) shows that in every province there was a double digit percentage increase between January 2022 and January 2023 in the number of individuals who made a consumer proposal. In some provinces, the number of such proposals made by individuals nearly doubled over that 12-month period.

Neither individuals who are struggling with debt nor their creditors want to see things reach a point at which the debtor is insolvent. Individuals or families who are unable to manage their current debt load should be aware that there are viable options open to them – and equally, that there are courses of action which should be avoided.

Where an individual or a family feels overwhelmed by debt, it’s inevitable that they will be vulnerable to approaches which promise to make the problem go away – and even to provide funds to repay existing debt. The website of the Financial Consumer Agency of Canada (an agency of the federal government)  at https://www.canada.ca/en/financial-consumer-agency/services/debt.html  and https://www.canada.ca/en/financial-consumer-agency/services/debt/debt-settlement-company.html contains a warning about using the services of such “debt settlement companies”, making the following points:

• Companies or agencies can’t guarantee they will solve your debt problems.
• Companies or agencies can’t quickly and easily fix your credit score.
• Companies should not (as they sometimes do) encourage you to take out a high-interest loan to pay off your debts.
• Companies and agencies may misrepresent services they offer as being part of a government program.

These warnings are based on the fact that debt settlement companies are for-profit businesses, not service providers. They collect fees from consumers who are in financial difficulty, sometimes making unrealistic commitments with respect to what they can accomplish. For instance, while such companies may promise to negotiate with creditors in order to reduce any amount owed, or the interest rate payable on existing debt, the fact is that creditors are not obliged to speak to or negotiate with a debt settlement company with respect to another person’s debts. Debt settlement companies may promise to “fix” a poor credit rating or credit report, but they have no actual power to do so. And the fees paid to such companies will almost certainly have to be paid, whether or not they can actually produce the results they promise.

That reality does not, however, mean that there is no help for individuals and families seeking to find their way out of debt. In almost every community of any size, there will be a credit counselling agency which can assist consumers with debt management and debt repayment and, equally important, will help the individual or family to establish financial management practices (like setting up a realistic family budget) to ensure their future financial stability.

Such credit counselling agencies operate on a not-for-profit basis and provide their services at little or no cost to individuals or families for their services. Each such agency is a member of Credit Counselling Canada (to be a member of Credit Counselling Canada, an agency must be accredited and must operate only on a not-for-profit or charitable basis), and a listing of their member agencies and locations can be found on the Credit Counselling Canada website at https://creditcounsellingcanada.ca/locate-a-counsellor/?cc=ON. An outline of the kinds of services which are provided by such agencies is available on the same website at https://creditcounsellingcanada.ca/.

The vast majority of Canadians view completing and filing their annual tax return as an unwelcome chore, and generally breathe a sigh of relief when it’s done for another year. When things go entirely as planned and hoped, the taxpayer will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be derailed in any number of ways.

The vast majority of Canadians view completing and filing their annual tax return as an unwelcome chore, and generally breathe a sigh of relief when it’s done for another year. When things go entirely as planned and hoped, the taxpayer will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be derailed in any number of ways.

Over 94% of the returns which had been filed for the 2022 tax year by mid-April 2023 were filed through online filing methods (NETFILE or EFILE), meaning that they were prepared using tax return preparation software. The use of such software significantly reduces the chance of making a clerical or arithmetic error, like entering an amount on the wrong line or adding a column of figures incorrectly. However, no matter how good the software is, it can work only with the information that is provided to it. Sometimes taxpayers prepare and file a return, only to later receive a tax information slip that should have been included on that return. It’s also easy to make an inputting error when transposing figures from an information slip (for example, a T4 slip from one’s employer) into the software, such that $73,246 in income becomes $72,346. Whatever the cause, where the figures input are incorrect or information is missing, those errors or omissions will be reflected in the final (incorrect) result produced by the software.

In other cases, a receipt for something like a charitable donation may be overlooked when the taxpayer is completing the return, or may be received after the return has already been filed. Whatever the cause or reason for the error or omission in an already filed return, the question which immediately arises is how to make things right. And, no matter what the reason for the error or omission, the course of action to be followed by the taxpayer is the same.

The first impulse of many taxpayers when a mistake or omission is discovered is to file another return, in which the complete and correct information is provided, but that’s not the right answer. There are, however, several ways in which a mistake or omission on an already filed tax return can be corrected, including online options.

As well the right response (although it seems counterintuitive) is, at least initially, to do nothing. The taxpayer must wait until the CRA has issued a Notice of Assessment with respect to the incorrect return already filed, for the very good reason that the return as filed isn’t in the CRA’s system until then. Once the Notice of Assessment is issued, however, there are three options available to the taxpayer to make the necessary correction.

Taxpayers who are registered for the CRA’s online service “My Account” can avail themselves of the Agency’s online “Change My Return” feature at Change my return: online adjustments for income tax and benefits returns - Canada.ca. The process is quite straightforward – using a drop-down menu, the taxpayer chooses the tax year for which he or she wants to make a change on the return and can then search for the line number on which the change is needed.  A “new amount” box will appear, into which the correct amount is input. A summary page will then show the old and new numbers and, if the taxpayer is satisfied that the information is correct, he or she clicks on “Submit Changes”. A confirmation number for the changes made is then provided. The CRA will then process the information and issue a new Notice of Assessment which reflects the changes made.

Taxpayers who are not registered for My Account but who have filed their tax return using one of the Agency’s electronic filing services (whether NETFILE or EFILE) can make a correction on their return by using the Agency’s ReFILE service. Like the Change my Return feature, the ReFILE service (available at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/refile-online-t1-adjustments-efile-service-providers.html) enables taxpayers to make corrections to an already filed return online, on the CRA website.

Essentially, taxpayers whose returns have been filed online (through NETFILE or EFILE) can make a correction using the same tax return preparation software that was used to prepare the return. Those taxpayers who used NETFILE to file their 2022 tax return can file an adjustment to a return filed for the 2019, 2020, 2021, and 2022 tax years. Where the return was filed using EFILE, the EFILE service provider can similarly file adjustments for returns filed for the 2019, 2020, 2021. or 2022 tax years.

There are limits to the ReFILE service. Regardless of who is using the service (i.e., the taxpayer or an EFILE service provider) the online system will accept a maximum of nine adjustments to a single return, and ReFILE cannot be used to make changes to personal information, like the taxpayer’s address or direct deposit details. There are also some types of tax matters which cannot be handled through ReFILE, like applying for a disability tax credit or child and family benefits.

While using the CRA’s online services, whether through ReFILE or Change my Return, is certainly the fastest way to make a correction on an already-filed return, taxpayers who don’t wish to use an online method do still have a paper option. The paper form to be used is Form T1-ADJ E (20), which can be found on the CRA website at T1-ADJ T1 Adjustment Request - Canada.ca. There is no limit to the number of changes or corrections which can be made using the T1-ADJ E (20) form.

A hard copy of a T1-ADJ(20) (or a letter) is filed by sending the completed document to the appropriate Tax Center, which is the one with which the tax return was originally filed. A listing of Tax Centres and their addresses can be found on the reverse of the TD-ADJ (20) form. As well, the taxpayer can go to https://www.canada.ca/en/revenue-agency/corporate/contact-information/tax-services-offices-tax-centres.html on the CRA website and select their location from the drop-down menu found there. The address for the correct Tax Centre will then be provided. 

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

Once the Notice of Assessment is received, and an adjustment request is made, it will take at least a few weeks, usually longer, before the CRA responds. The CRA generally aims to respond to online requests within two weeks and to paper-filed requests within eight weeks.

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

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

Each of those income sources requires that an individual have made contributions during his or her working life in order to enjoy benefits in retirement. The fourth major source of retirement income for Canadians – the Old Age Security program – does not. Entitlement to OAS is based solely on the number of years of Canadian residence, and individuals who are resident in Canada for 40 years after the age of 18 can receive full OAS benefits. As of the first quarter of 2023, the full OAS benefit for individuals under the age of 75 is $687.56 per month.

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

While the rules governing the administration of the clawback can be confusing, the concept is a (relatively) simple one. Anyone who received OAS benefits during 2022 and had income for that year of more than $81,761 must repay a portion of the benefits received. That repayment, or clawback, is administered by reducing the amount of OAS benefits which the individual receives during the next benefit year.

For example, an individual who receives full OAS during 2022 and has net income for the year of $95,000 will be subject to the clawback. He or she must repay OAS amounts received at a rate of 15 cents (or 15%) of every dollar of income over the clawback income threshold, as in the following simplified example:

Total OAS benefit for the year: $8,200

Total income for the year: $95,000

OAS income clawback threshold: $81,761

Income over clawback threshold: $13,239 times 15% = $1,985.85

Repayment amount required: $1,985.85

The federal government becomes aware of an individual’s income for 2022 only once the tax return for that year is filed, usually by May 1, 2023.  At that time, it will become apparent that $1,985.85 in OAS benefits received must be repaid. Consequently, in the following benefit year (which will run from July 2023 to June 2024), OAS benefits received will be reduced by $165.48 per month ($1,985 divided by 12 months).

The OAS clawback affects only individuals who have an annual income of at least $81,761, and it’s arguable that at such income levels, the clawback requirement does not impose any real financial hardship. Nonetheless, the OAS clawback is a perpetual irritant to those affected, perhaps because of the sense that they are being penalized for being disciplined savers, or good managers of their finances during their working years, in order to ensure a financially comfortable retirement.

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

In all cases, no matter what strategy is employed, the goal is to “smooth” one’s income from year to year, so that net income for each year comes in under the OAS clawback threshold and, not incidentally, minimizes exposure to the higher federal and provincial income tax rates which apply once income exceeds around $100,000.

The starting point, for taxpayers who are approaching retirement, is to determine how much income will be received from all sources during retirement, based on CPP and OAS entitlement, any savings accrued through an RRSP, and any amounts which may be received from a private pension plan. Anyone who has an RRSP must begin receiving income from that RRSP in the year after that person turns 71. However, it’s possible to begin receiving income from an RRSP at any time. Similarly, an individual who is eligible for CPP retirement benefits can begin receiving those benefits anytime between age 60 and age 70, with the amount of monthly benefit receivable increasing with each month receipt is deferred. The same calculation applies to OAS benefits, which can be received as early as age 65 or deferred up until age 70.

Once the amount of annual income is determined, strategies to smooth out that income can be put in place. Those strategies can include receiving income from an RRSP prior to age 71, so as to reduce the total amount within the RRSP and so thereby reduce the likelihood of having a large “bump” in income when required withdrawals kick in at that time.

Taxpayers are sometimes understandably reluctant to take steps which they view as depleting their RRSP savings, but receiving income from an RRSP doesn’t mean spending that income. While tax has to be paid on any withdrawals (no matter what the taxpayer’s age), the after-tax amounts can be contributed to the taxpayer’s tax-free savings account (TFSA), where they can compound free of tax. And, when the taxpayer has need of those funds, in retirement, they can be withdrawn free of tax and, they won’t count as income for purposes of the OAS clawback.

Taxpayers who are married can also “even out” their income by using pension income splitting, so that neither of them has sufficient income to be affected by the clawback.  Using pension income splitting, the spouse who has income over the OAS clawback threshold re-allocates the “excess” income to his or her spouse on the annual return, and that income is then considered to be income of the recipient spouse, for purposes of both income tax and the OAS clawback. To be eligible for pension income splitting, the income to be reallocated must be private pension income, which is generally income from an RRSP or registered retirement income fund (RRIF), or from an employer-sponsored pension plan.

There are two reasons why pension income splitting is a particularly attractive strategy for avoiding or minimizing the OAS clawback. First, there is no need to actually change the source or amount of income received by each spouse, as the reallocation of income is “notional”, existing only in the return for the year. Second, no decision has to be made on pension income splitting until it’s time to file the return for the previous year, meaning that spouses can easily calculate exactly how much income has to be reallocated in order to avoid the clawback, and to reduce tax liability generally. More information on the kinds of income eligible for pension income splitting, and the mechanics of the process, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html.

Detailed information on the OAS clawback  is available at https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/repayment.html.

Fortunately for the Canadian taxpayer, most individual income tax returns filed result in the payment of a tax refund to the tax filer. Notwithstanding, a significant number of taxpayers find, on completing the annual tax return, that money is owed to the Canada Revenue Agency. Of the returns for the 2022 tax year that were filed between mid-February and mid-March this year, over half a million taxpayers found themselves in that position. It’s likely, as well, that those who owe money on filing aren’t eager to file early, and so the number of taxpayers who must pay a tax balance for 2022 will almost certainly increase significantly between now and the payment deadline of May 1, 2023.

Fortunately for the Canadian taxpayer, most individual income tax returns filed result in the payment of a tax refund to the tax filer. Notwithstanding, a significant number of taxpayers find, on completing the annual tax return, that money is owed to the Canada Revenue Agency. Of the returns for the 2022 tax year that were filed between mid-February and mid-March this year, over half a million taxpayers found themselves in that position. It’s likely, as well, that those who owe money on filing aren’t eager to file early, and so the number of taxpayers who must pay a tax balance for 2022 will almost certainly increase significantly between now and the payment deadline of May 1, 2023.

While receiving a refund is the best possible outcome, the worst-case scenario for all taxpayers is to find out that they are faced with a large tax bill and an imminent payment deadline, and that they just don’t have the money to make the required payment by that deadline. Right now, many Canadians are already living with significant financial constraints, as they cope with both inflationary increases in the cost of household goods (especially groceries) and the impact of eight successive increases in interest rates since this time last year.

For the many Canadians who don’t have the means to pay a tax bill out of existing resources, that can mean borrowing the needed funds.  And, while that will mean paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the Canada Revenue Agency on the unpaid tax bill. 

Where, however, a tax bill can’t be paid in full out of either current resources or available credit, the Canada Revenue Agency is open to making a payment arrangement with the taxpayer. While, like most creditors, the CRA would rather get paid on time and in full, its ultimate goal is to collect the full amount of taxes owed. Consequently, the Agency provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement.

There are two avenues available to taxpayers who want to propose a payment arrangement with the CRA. The first is a call to the Agency’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 15000 of the last tax return for which the taxpayer received a Notice of Assessment. For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2021 tax year. The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time.

Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657 or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

No matter what payment arrangement is made, the CRA will levy interest charges on any amount of tax owed for the 2022 tax year which is not paid on or before May 1, 2023. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest rate charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates – the rate which will be charged from April 1 to June 30, 2023 is 9.0%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the May 1 deadline.

Finally, regardless of the taxpayer’s financial circumstances, there is one strategy which is always ill-advised. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount – and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each full month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Monday May 1, 2023. For self-employed taxpayers (and their spouses) the filing deadline is Thursday June 15, 2023. However, for all taxpayers, the payment deadline for all 2022 income tax amounts owed is Monday May 1, 2023.

Detailed information on the options available to taxpayers who can’t pay their taxes on time and in full can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments.html.

Most Canadians live their lives with only very infrequent contact with the tax authorities and are generally happy to keep it that way. Sometime between mid-February and the end of April (or June 15 for self-employed taxpayers and their spouses) a return must be filed by the taxpayer and a Notice of Assessment is then issued by the Canada Revenue Agency (CRA). In most cases, the taxpayer will receive a tax refund by direct deposit to his or her bank account, while in a minority of cases the taxpayer will have to pay a tax amount owing on or before May 1, 2023.

Most Canadians live their lives with only very infrequent contact with the tax authorities and are generally happy to keep it that way. Sometime between mid-February and the end of April (or June 15 for self-employed taxpayers and their spouses) a return must be filed by the taxpayer and a Notice of Assessment is then issued by the Canada Revenue Agency (CRA). In most cases, the taxpayer will receive a tax refund by direct deposit to his or her bank account, while in a minority of cases the taxpayer will have to pay a tax amount owing on or before May 1, 2023.

Sometimes, however, the process does not play out in quite that way. In some cases, the CRA will have questions about information reported on the taxpayer’s return – perhaps an income amount reported does not match up with the amount reported to the CRA by the payor of that income. In other cases, the taxpayer may have claimed a deduction or credit, and the CRA wants the taxpayer to provide them with the receipt or other documentation to support that deduction or credit claim. In both cases, the CRA may contact the taxpayer to resolve the discrepancy or to obtain the information needed to finish processing the taxpayer’s return. In some cases, that contact will occur before the CRA issues the Notice of Assessment with respect to the taxpayer’s return, while in others it will not take place until after the Notice of Assessment has been issued.

While no one particularly likes hearing from the tax authorities, it is critical that the taxpayer respond to any enquiry from the CRA. Failing to do so will mean, at a minimum, that the processing of one’s tax return will be delayed; or worse, a claim made on the return will be denied because the taxpayer has not responded to requests to provide the CRA with supporting documentation.

The problem which arises for the taxpayer is determining whether a communication received is in fact a legitimate request from the CRA or is part of a scam, phishing, or fraud attempt. Scams in which fraud artists claim to be from the CRA have become ubiquitous over the past decade or so, to the point that almost everyone has (or knows someone who has) received a fraudulent communication purporting to be from the tax authorities and requesting information from the taxpayer.

In an effort to address this issue, the CRA recently posted on its website a guide to how to distinguish legitimate queries received from the Agency from scams or phishing attempts. The Agency’s goal is two-fold: the first, of course, is to help taxpayers avoid becoming yet another victim of such frauds, and the second is to prevent situations in which taxpayers ignore legitimate communications from the Agency, having dismissed them as just another phishing attempt.

To help taxpayers verify that a contact is legitimately from the CRA, the Agency utilizes a number of strategies and security measures. First, any initial contact from the CRA will be by way of letter or phone call. The CRA does not send or receive emails pertaining to confidential individual tax matters. It also does not contact taxpayers by text message or on any social media sites. Taxpayers who have not signed up for the CRA service My Account will receive a letter from the CRA by regular mail, or will receive a phone call. Those who have signed up for My Account will be able to access any letters or electronic communication from the Agency on the CRA website, but only after signing into My Account. My Account, like all of the CRA’s sign-in services, now requires multi-factor authentication.

Where an unsolicited contact from the CRA to an individual taxpayer is by telephone, it can be difficult to determine whether that unfamiliar voice on the telephone is in fact a CRA employee. Any legitimate CRA employee will identify themself when they contact a taxpayer and will provide that taxpayer with their name and phone number to call them back, if needed. (Taxpayers should be aware that relying on call display to verify the source of the call is not a good idea, as scammers have been able to manipulate that technology to display what looks very much like, or even the same as, a legitimate CRA phone number.)

The Agency suggests that where there is any doubt about the identity of a caller claiming to be from the CRA, taxpayers consider taking the following steps to ensure that they are, in fact, speaking to a CRA employee.

1. Tell the caller you would like to first verify their identity.
2. Request and make a note of their:

• name,
• phone number, and
• office location.

Not infrequently, a taxpayer will contact the CRA through one of its individual or business tax help lines, which are answered by call center agents. Each of those telephone services offers an automated callback service – when wait times reach a certain threshold, the taxpayer is given the option of receiving a callback rather than continuing to wait on hold. Where the taxpayer chooses the callback option, he or she is provided with a randomized four-digit confirmation number. The CRA call center agent who returns the taxpayer’s call will repeat that number, so that the taxpayer can be certain that it is a CRA employee who is calling.

Finally, there are some actions which, if taken by anyone purporting to be from the CRA, should lead the taxpayer to immediately end the telephone call, including the following:  

• the caller does not give you proof of working for the CRA, for example, their name and office location;
• the caller pressures you to act now, uses aggressive language, or issues threats of arrest or sending law enforcement;
• the caller asks you to pay with prepaid credit cards, gift cards, cryptocurrency, or some other unusual form of payment;
• the caller asks for information you would not enter on your return or that is not related to money you owe the CRA, for example, a credit card number;
• the caller recommends that you apply for benefits:
  • do not provide information to callers offering to apply for benefits on your behalf;
  • you can apply for benefits directly on Government of Canada websites or by phone.

In addition, a CRA representative will never:

• demand immediate payment from the taxpayer by any of the following methods:
  • Interac e-transfer,
  • Cryptocurrency (Bitcoin),
  • Prepaid credit cards,
  • Gift card from retailers such as iTunes, Amazon, or others;
• ask the taxpayer for a fee to speak with a contact centre agent;
• set up a meeting in a public place to take a payment from the taxpayer;
• use aggressive language or threaten the taxpayer with arrest, deportation, or sending the police;
• leave voicemails that are threatening to the taxpayer, or that include the taxpayer’s personal or financial information; or
• send an email or text message with a link to the taxpayer’s refund.

While scams and frauds and their perpetrators have been around for literally centuries, changes in technology mean that most taxpayers are now accustomed to and at ease with conducting much of their personal and financial lives online, making it much easier to carry out such deceptions. And even newer technology, like artificial intelligence, poses additional threats for the future. In such an environment, the taxpayer’s best protection is to take whatever steps are needed to verify the legitimacy of any unsolicited contact received with respect to matters of tax or personal finances. Doing so is no longer just prudent, it’s a necessity.

It is an axiom of tax planning that the best year-end tax planning begins on January 1. And while it’s true that opportunities to make a significant dent in one’s tax payable for the year diminish as the calendar year winds down, it’s not the case that the time frame for taking advantage of such opportunities has passed.

It is an axiom of tax planning that the best year-end tax planning begins on January 1. And while it’s true that opportunities to make a significant dent in one’s tax payable for the year diminish as the calendar year winds down, it’s not the case that the time frame for taking advantage of such opportunities has passed.

Most tax planning strategies, in order to affect one’s tax liability for the year, must be put in place prior to December 31. The one major exception to that rule is contributions made to one’s registered retirement savings plan (RRSP), but even that must be done within 60 days after the end of the calendar year.

At this point there are a couple of ways to minimize the tax hit for 2022 – by claiming all available deductions and credits on the return, and also by making sure that those deductions and credits are structured and claimed in the way which will give the taxpayer the greatest tax benefit. It would seem logical to claim every possible deduction, to the maximum extent possible, but that’s not in fact always the best approach. It is counterintuitive, but sometimes the best overall tax result can be obtained by deferring tax deduction or credit claims to a future year, or by transferring them to another family member.

Two of the mostly widely available opportunities to do so involve claims for tax credits involving medical expenses incurred and charitable donations made. What follows is an outline of how those medical and charitable donation expense and credit claims can be structured to reduce tax payable for 2022, and in some cases, for future years.

Charitable donations

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2022) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to encourage higher donations.

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

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

It's important to note as well that charitable donations made by either spouse can be combined and claimed on the return for one of those spouses, thereby increasing the amount of charitable donations available to claim and possibly the amount of credit which can be received.

Medical expenses

Notwithstanding our publicly funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs.

The federal credit for such expenses is 15% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, at varying rates.

Many taxpayers, with some justification, find the rules on the calculation of a medical tax credit claim confusing. First, there is an income threshold imposed. Medical expenses eligible for the credit are qualifying expenses which exceed 3% of net income, or (for 2022) $2,497, whichever is less. Put more practically, for 2022 taxpayers who have net income of $83,250 or more can claim medical expenses incurred over $2,497. Those with lower incomes can claim medical expenses which exceed 3% of that lower net income. For instance, a taxpayer having $35,000 in net income could claim qualifying medical expenses incurred over $1,050 (3% of $35,000).

The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most tax credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, this rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and therefore the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed and, of course, any expenses which were claimed on a previous return cannot be claimed again. 

While only expenses which exceed the $2,497 / 3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for all children born in 2005 or later. While medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses is very likely (especially for a family that does not have private medical insurance coverage) to mean that total expenses will exceed the applicable threshold.

In determining who will make the medical tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income / $2,497 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower net income makes the claim for total family medical expenses. However, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit.

Finally, there are a huge number and variety of medical expenses which individuals and families may incur, and the rules governing which can be claimed and in what circumstances are very specific. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. The very long list of medical expenses eligible for the credit, and any ancillary requirements, such as a prescription, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

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 #63 Corporate

Personal:

Issue #63 Personal

Most Canadians deal with our tax system only once a year, when it’s time to complete and file the annual tax return. That return form – the T1 Individual Income Tax Return – is eight single-spaced pages long, and includes dozens of possible income inclusions, deductions, and credits, any one of which may or may not be relevant to a particular taxpayer’s situation. In addition, the tax return package includes numerous additional schedules, and one or more of those schedules must often be completed in order to make a claim for a particular deduction or credit on the T1 return itself.

Most Canadians deal with our tax system only once a year, when it’s time to complete and file the annual tax return. That return form – the T1 Individual Income Tax Return – is eight single-spaced pages long, and includes dozens of possible income inclusions, deductions, and credits, any one of which may or may not be relevant to a particular taxpayer’s situation. In addition, the tax return package includes numerous additional schedules, and one or more of those schedules must often be completed in order to make a claim for a particular deduction or credit on the T1 return itself.

All of this detail makes it easy for the majority of individuals to overlook valuable deduction and credit claims which may be available to them. And, while the Canada Revenue Agency (CRA) will correct minor arithmetical errors made on the return, it does not (and cannot) assess the taxpayer to include claims for deductions or credits which could have been made but were not.

One such often-overlooked claim is the one which can be made for payments made during the taxation year for annual union, professional, or similar dues. It’s a particularly beneficial claim since the expenditure in question is one which the taxpayer is obliged to make in any event and, where the requisite criteria are satisfied, the amount of such payment is fully deductible from income, without limit. Put another way, the income which was earned and used to pay annual union or professional dues is, where the related deduction is claimed, income on which no tax must be paid.

The deduction claimable for union and professional dues is particularly easy to overlook because of where it appears on the annual return. Although there are forms used by professionals and other self-employed taxpayers to claim business-related costs, as well as forms used by employees to claim allowable employment expenses, the deduction for union or professional dues doesn’t appear on either of those forms. Rather, it shows up as a single line (Line 21200) on page 4 of the T1 annual return.

The general rule for claiming such a deduction is described in the annual income tax return guide as follows:

Line 21200 – Annual union, professional, or like dues

Claim the total of the following amounts that you paid (or that were paid for you and reported as income) in the year related to your employment:

  - annual dues for membership in a trade union or an association of public servants
  - professional board dues required under provincial or territorial law
  - professional or malpractice liability insurance premiums or professional membership        dues required to keep a professional status recognized by law
  - parity or advisory committee (or similar body) dues required under provincial or     territorial law

There are, of course, requirements which must be satisfied in order for such payments to qualify for a deduction. The most important such restriction is that amounts paid must be those which are necessary in order for the taxpayer to obtain or maintain their professional standing. Every profession and trade has licensing and similar requirements which mandate that an individual maintain membership in a professional or similar association in order to practice their profession or trade. The costs of maintaining required membership in those organizations is deductible. Most professions and trades also have one or more voluntary associations which individuals may join by choice. However, the cost of maintaining membership in those voluntary associations, even if related to one’s trade or profession, is not deductible. So, for example, if membership in a given association does not affect professional status (e.g., the Canadian Bar Association for lawyers), dues or fees paid to it are not deductible. If, on the other hand, membership is necessary to maintain professional status (e.g., the Law Society of the province in which the individual lives and practices law), required dues paid to it are deductible.

While all such associations levy fees as a requirement of continuing membership and the right to practice the profession, invoices received for annual membership fees can cover a number of different charges and levies, and not all of those costs will be deductible. The CRA’s policy is that annual membership dues do not include initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs. An individual cannot, for instance, claim charges for pension plans as membership dues, even if receipts received show them as dues.

Where a claim for a deduction for professional membership or union dues is made, some other considerations arise. Generally, while it’s not necessary that having a particular professional designation be a requirement of the employee’s position in order for that employee to claim a deduction for related professional dues, the CRA does require that there be some connection between the employment and the professional association in question.

Take, for example, a chemical engineer who is employed by a company to sell chemical products or who is the president of a company that processes chemicals. There is sufficient connection between that person’s qualification as a chemical engineer and their employment duties that a deduction would be claimable for the cost of professional dues paid. On the other hand, a lawyer who is working full-time as the CEO of a furniture manufacturing and sales business does not satisfy the requirement and, accordingly, would not be entitled to deduct dues paid to maintain their professional status as a lawyer. 

It’s not uncommon for an employer to be willing to cover the cost of an employee’s professional dues as part of that employee’s benefit package. Where that is the case, and the employer’s payment of those dues does not appear on the employee’s T4 as a taxable benefit, no deduction for those costs can be claimed by the employee. Where, however, there is a taxable benefit which accrues to the employee (and that benefit is documented on a T4A and must be reported as part of the employee’s employment income), the employee can claim an offsetting deduction for eligible dues or fees paid on Line 21200 of the return.

General information on the deduction of professional membership fees or union dues is available in the 2022 General Income Tax and Benefit Guide. The same information can be found on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/212/menu-eng.html.

For many years, the Canada Revenue Agency (CRA) has been encouraging Canadian taxpayers to file their returns online, through the CRA’s website. And that message has clearly been heard, as the most recent statistics show that just under 92% of returns filed in 2022 were filed using one or the other of the CRA’s web-based filing methods. Those filing statistics also show that, even with the availability of tax software which greatly simplifies tax return preparation, most Canadians still don’t want to undertake that return preparation on their own. Of all returns filed, by any method, nearly 60% were filed using EFILE – meaning that the taxpayer paid someone else to prepare their return and file it electronically.

For many years, the Canada Revenue Agency (CRA) has been encouraging Canadian taxpayers to file their returns online, through the CRA’s website. And that message has clearly been heard, as the most recent statistics show that just under 92% of returns filed in 2022 were filed using one or the other of the CRA’s web-based filing methods. Those filing statistics also show that, even with the availability of tax software which greatly simplifies tax return preparation, most Canadians still don’t want to undertake that return preparation on their own. Of all returns filed, by any method, nearly 60% were filed using EFILE – meaning that the taxpayer paid someone else to prepare their return and file it electronically.

Notwithstanding the fact that the vast preponderance of returns are filed electronically, there are still other filing methods which are available and are used by taxpayers in substantial numbers. Last year, just over 2.6 million taxpayers filed a paper return, and a much smaller number (just under 53,000) filed a return over the phone.

Clearly, electronic filing is the overwhelming choice of Canadian taxpayers, and one of the greatest advantages of electronic filing is the speed at which returns filed by one of the CRA’s online methods can be processed. Generally, such returns are processed and a Notice of Assessment issued within two weeks (as compared to the anticipated eight-week processing time for paper-filed returns). Given that the majority of returns result in the payment of a refund, and that the average refund amount in 2022 was $2,093, it’s not hard to see why the vast majority of taxpayers have embraced electronic filing.

This filing season, as in past years, those who choose electronic filing have two choices – NETFILE and EFILE. The first of those – NETFILE (used last year by just under 33% of tax filers) – involves preparing one’s return using software approved by the CRA and filing that return on the Agency’s website, using the NETFILE service. The second method – EFILE – involves having a third party file one’s return online. Almost always, the EFILE service provider also prepares the return which they are filing.

The majority of Canadians who would rather have someone else deal with the intricacies of the Canadian tax system on their behalf can find information about EFILE on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/efile-individuals.html. This site also provides a listing (searchable by postal code) of authorized EFILE service providers across Canada, which can be found at https://apps.cra-arc.gc.ca/ebci/efes/epcs/prot/ntr.action.

Those who are able and willing to prepare their own tax returns and file online can use the CRA’s NETFILE service (which is available as of February 20, 2023); information on this service can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be filed using NETFILE (for instance, a return for a non-resident of Canada, or for someone who declared bankruptcy in 2022), the vast majority of Canadians who wish to do so will be able to NETFILE their return.

At one time, it was necessary to obtain and provide an access code in order to NETFILE. While such a code is no longer a requirement, the CRA has provided tax filers with a taxpayer-specific code which can be included with the return for 2022. That eight-character alpha-numeric code is found (in very small type) in the top right hand corner of the first page of the 2021 Notice of Assessment, just under the Date Issued line for that Notice of Assessment. Including the code with your return is not mandatory:  however, you will be able to use information from the 2022 return when confirming your identity with the CRA only if the code was provided on that return.

A return can be filed using NETFILE only where it is prepared using tax return preparation software which has been approved by the CRA. While such software can be found for sale just about everywhere at this time of year, approved software which can be used free of charge, or for a nominal charge, is also available. A listing of free and commercial software approved for use in preparing individual returns for 2022 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview/certified-software-netfile-program.html.

Taxpayers who want to obtain a hard copy of the tax return and guide package for 2022 can order that package online at https://apps.cra-arc.gc.ca/ebci/cjcf/fpos-scfp/pub/rdr?searchKey=ncp%20, to be sent to the taxpayer by regular mail. Taxpayers can also download and print a hard copy of the return and guide from the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html. Finally, the CRA will have sent, by regular mail, a hard copy of the 2022 tax return and guide package to anyone who paper-filed a return for 2021. That package should have arrived by February 20, 2023; taxpayers who should have received such a package but did not can call the CRA Individual Income Tax Enquiries line at 1 800 959 8281 to follow up and, if necessary, to request that a package be sent by mail.

A minority of taxpayers will have the option of filing their returns using a touch-tone telephone. That option, called File my Return service, will be available to eligible lower-income Canadians whose returns are relatively simple and whose tax situation remains relatively unchanged from year to year. For such taxpayers, it is important to file, even if there is no income to report, so that they receive the benefits and credits to which they are entitled. The telephone filing option is, however, available only to taxpayers who are advised by the CRA of their eligibility for the File my Return service; letters advising those individuals of their eligibility were sent out by the CRA in mid-February 2023. Like NETFILE, the File my Return service was available for the filing of 2022 tax returns beginning Monday February 20, 2023.

Finally, taxpayers who are not comfortable preparing their own returns, but for whom the cost of engaging a third party to do so is a financial hardship, have another option. During tax filing season, there are a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers.  Once again this year, the services of such clinics are provided through a number of options, including drop-ins, in-person appointments, and telephone or virtual meetings.  A listing of the available clinics (which is updated regularly throughout the filing season) and their method of operation this tax season can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/free-tax-help.html.

While there are a number of return preparation and filing options available to Canadian taxpayers, there’s no element of choice when it comes to the filing and payment deadlines for tax returns for 2022. The deadline for payment of any balance of taxes owed for 2022 is April 30, 2023. As April 30 falls on a Sunday this year, the CRA has announced that payments of 2022 taxes owed will be considered to have been made on time if they are made on or before Monday May 1, 2023. There are no exceptions to this deadline and, absent very unusual circumstances, no extensions are possible. Not surprisingly, the CRA makes it as easy as possible for Canadians to pay their taxes, offering no fewer than a dozen possible payment methods. Those methods are listed, and the available methods of payment explained, on the CRA website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/make-payment.html.

For the majority of Canadians, the income tax return for 2022 must also be filed on or before April 30. Here again, the CRA has, as a matter of administrative policy, extended that deadline to provide that returns will be considered filed on time if they are filed on or before Monday May 1, 2023. Self-employed taxpayers and their spouses have until Thursday June 15, 2023 to file their returns for 2022 (but they too must pay any balance of 2022 taxes owing on or before May 1, 2023).

The obligation to complete and file a tax return – and to pay any balance of taxes owed – recurs each spring with what probably seems to many taxpayers to be annoying regularity. That said, however, the T1 General tax return form which must be completed and filed each year by individual Canadian taxpayers is never exactly the same from one year to the next.

The obligation to complete and file a tax return – and to pay any balance of taxes owed – recurs each spring with what probably seems to many taxpayers to be annoying regularity. That said, however, the T1 General tax return form which must be completed and filed each year by individual Canadian taxpayers is never exactly the same from one year to the next.

Some of the changes found in each year’s T1 are the result of the indexing of many aspects of our tax system, as income brackets and tax credit amounts are increased to reflect the rate of inflation during the previous year. Other changes, however, arise from the introduction by the federal government of new deductions or credits, changes to the existing rules which govern the availability and amount of such deductions or credits, and, inevitably, the end of some tax credit programs.

This year, most of the changes to be found on the return for 2022 are of a targeted nature, affecting taxpayers who claim specific types of deductions or credits based on their personal or family circumstances. What follows is a summary of those changes which taxpayers will find on the return for 2022, as outlined by the Canada Revenue Agency (CRA) in its Guide to the 2022 return form.

First Time Home Buyer’s Tax Credit

The purchase of one’s first home is a milestone in anyone’s life, but also likely (especially in recent years) one of the most difficult milestones to accomplish. Assistance in that process is provided through the federal government’s First Time Home Buyers’ Tax Credit (FTHBTC).

As the name implies, the FTHBTC is a tax credit available to first-time home buyers in Canada. The “first-time home buyer” criterion is, however, somewhat misleading, in that the credit can be claimed by anyone who did not own a home in Canada during the current year or any of the previous four years. For 2022, then, anyone who was not a homeowner during 2018, 2019, 2020, 2021, or 2022, but then purchased a home in 2022, may qualify as a first-time home buyer for purposes of the credit.

Those who qualify and who purchase a qualifying home (which includes most kinds of housing in Canada, including detached, semi-detached, and condominium properties) could, for 2021 and previous tax years, claim a non-refundable tax credit of $750. For 2022 and subsequent years, the amount of that tax credit is doubled, to $1,500.

The non-refundable nature of the credit means that it can only be used to reduce federal tax otherwise payable, and cannot create or increase a tax refund. However, where a home has been purchased by two spouses, the total credit claim can be split, in any proportion, between the two of them.

Detailed information on the First Time Home Buyers’ Tax Credit for 2022 is available on the CRA website at  https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31270-home-buyers-amount.html.

Home Accessibility Tax Credit

Most Canadians want to “age in place” – that is, to remain in the family home for as long as possible. In many cases, as homeowners age, changes to the layout or facilities in their homes must be made for the home to continue to be both safe and convenient. That often means renovations, which can range in cost from hundreds to tens of thousands of dollars. Some of that cost can be offset by claiming the federal Home Accessibility Tax Credit (HATC), and the amount of expenditure eligible for that credit has doubled for 2022.

The criteria which determine the eligibility of a particular expense are extremely broad, as any “home renovation or alteration expenses of an enduring nature that allow a qualifying individual to gain access to, or to be mobile or functional within the eligible dwelling or reduce the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling” can qualify for the credit. And, for purposes of the credit, a qualifying individual is anyone who is over the age of 65 or who is eligible to claim the disability tax credit.

The range of expenses which qualify for the HATC can be anything from grab bars installed in a shower or bath, to a staircase chairlift or a full-scale renovation done to permit an individual to live on one floor of a dwelling. The HATC is particularly flexible in that it may be claimed by other family members who live in the same dwelling as the senior or disabled individual, where qualifying expenses are incurred for changes to that dwelling.

The actual amount of the HATC which can be claimed is 15% of qualifying expenses incurred. Prior to 2022, the maximum amount of expenses which could be claimed for purposes of the HATC in a particular calendar year was $10,000. For 2022 and subsequent years, that amount is doubled, to $20,000, meaning that the maximum credit which can be obtained is $3,000.

The HATC is a non-refundable credit (meaning that it can only reduce federal tax otherwise payable, and cannot create or increase a refund), but claims for the HATC in a year can be split among individuals who are eligible to claim the credit, in any proportions.

More information on the HATC for 2022 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31285-home-accessibility-expenses.html

Claims for the Disability Tax Credit

Canadians whose lives are significantly restricted by disability or ill health may be able to claim the Disability Tax Credit (DTC). The rules governing eligibility for the credit are detailed and sometimes complex and an individual must, in order to claim the credit, obtain certification from the CRA with respect to their eligibility. The credit is a significant one, in that a claim for the DTC will, for 2022, reduce federal tax payable by $1330.50.

One of the criteria which applies to determine whether an individual will be eligible for the DTC is the need to undergo what is termed “life-sustaining” therapy for a specified amount of time each week. A change to the tax rules provides that an individual who is diagnosed with type 1 diabetes is automatically considered to be someone who has met the requirement for “life-sustaining” therapy; such individuals could, therefore qualify for the DTC.

Taxpayers who may be affected by this change should note that obtaining authorization from the CRA to claim the DTC is lengthy process and that, without such authorization in place, any claim for the DTC on the annual return will be disallowed. It will not, therefore, be possible for a person with type 1 diabetes to claim the DTC on the return for 2022 unless they have already received authorization from the CRA as a person who qualifies for that credit. Such individuals would, however, be well advised to begin the process of receiving such authorization, so as to enable a claim for the DTC on the return for 2023 to be filed next spring. Detailed information on how to do so can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit.html.

Medical Expense Tax Credit

While our publicly-funded health care system covers many types of medical expenses incurred by Canadians, there is nonetheless a long (and growing) list of expenses which must be paid on an out-of-pocket basis. Where that’s the case, a medical expense tax credit (METC) can be claimed on the annual return to help offset the impact of medical expenses incurred, where such expenses are deemed to be eligible for that credit.

One of the most costly medical procedures which is not always covered by government health care plans is treatment for infertility and/or surrogacy arrangements. Beginning with the 2022 tax year, such expenses are considered to be qualified expenses for purpose of the medical expense tax credit. Or, as described by the CRA:

… the list of eligible medical expenses has been expanded to include amounts paid to fertility clinics and donor banks in Canada to obtain donor sperm or ova to enable the conception of a child by the individual, the individual’s spouse or common-law partner, or a surrogate mother on behalf of the individual. In addition, certain expenses incurred in Canada for a surrogate or donor are considered medical expenses of the individual.

Individuals who have incurred such expenses and intend to make a claim for the METC should remember that there is a limit on the amount of expenses which can be claimed. As is the case for all medical expenses claimed for purpose of the METC, any claim is limited to the amount of eligible expenses incurred which, for 2022, exceeds either 3% of the taxpayer’s net income for the year or $2,479, whichever is less.

Information on the types of expenses related to infertility treatment and surrogacy which may now be claimed as medical expenses can be found on the CRA website in an extensive listing of eligible medical expense, at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return/details-medical-expenses.html#frtlty.

As the pandemic dragged on into 2022, many employees continued to work from home for pandemic-related reasons. And probably at least as many employees reached an agreement with their employer that they would be able to continue to work from home for least some part of each work week, on a permanent basis. And, as was the case in 2020 and 2021, all of those workers may be entitled to claim a deduction on their 2022 tax return for expenses incurred to work from home.

As the pandemic dragged on into 2022, many employees continued to work from home for pandemic-related reasons. And probably at least as many employees reached an agreement with their employer that they would be able to continue to work from home for least some part of each work week, on a permanent basis. And, as was the case in 2020 and 2021, all of those workers may be entitled to claim a deduction on their 2022 tax return for expenses incurred to work from home.

Employees who work from home have always, assuming the requisite criteria are satisfied, been able to claim a portion of household expenses incurred. Doing so required the employee to obtain certification from the employer of the work-from-home arrangement, calculate household expenses incurred, determine the portion of such expenses which were attributable to the home office, and claim that amount on the annual return. Beginning in 2020, however, the Canada Revenue Agency (CRA), recognizing the greatly increased number of taxpayers who would be claiming home office expenses for the first time, relaxed the rules governing eligibility for claiming a deduction for home office expenses, and also introduced a new, temporary “flat rate” method of calculating the deduction for such expenses. The CRA has indicated that those more flexible rules, including the flat rate method, will continue to be allowed for the 2022 tax year.

Although the flat rate method is widely available, taxpayers who wish to do so and who qualify are still entitled to use the pre-existing detailed method under which actual eligible expenses incurred during the year are tallied and a percentage of those expenses claimed on the 2022 tax return. Given that the maximum deduction which can be claimed for the 2022 tax year using the flat rate method is just $500, taxpayers who worked from home for an extended period of time and who are willing to make the effort to retain and organize records for home office expenses, and to calculate the available deduction, will likely be rewarded with a better tax result.

Using the flat rate method

Although the flat rate method of claiming work from home expenses isn’t likely to produce the most beneficial tax result for the taxpayer, it has the undeniable advantage of greater simplicity.

In order to claim a deduction for costs related to a work-from-home space using the flat rate method, the following conditions must be met.

• The employee worked from home during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); and
• The employee worked from home for more than 50% of the time for a period of at least four consecutive weeks during 2022.

In addition, the expenses claimed by the employee must be directly related to their work, and the employee must not have been fully reimbursed for such expenses by their employer. Where the employer reimburses only a portion of such expenses, the employee may still make a claim under the flat rate method, assuming the other criteria are met.

A taxpayer who meets all of the criteria for using the flat rate method can claim $2 for each day they worked from home during the four-consecutive-week qualifying period. They can then claim $2 per day for any additional days of working from home during the year. However, there is an overall cap on the amount of home office expenses which can be claimed under the flat rate method. For 2022, the maximum which can be claimed is $500. There is no requirement that the employee obtain a T2200 or a T2200S from the employer in order to make a flat rate claim, and no requirement that the employee keep or provide receipts for any costs incurred.

Using the detailed method

In order to claim a deduction for costs related to a work-from-home space using the detailed method, an employee must have worked from home for at least 50% of the time, during at least four consecutive weeks during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home).

Where work-from-home costs are claimed using the detailed method, the taxpayer ‘s employer must provide a signed a Form T2200S – Declaration of Conditions of Employment for Working at Home Due to Covid-19 or Form T2200 – Declaration of Conditions of Employment, certifying the work from home arrangement and the fact that the employee paid the costs relating to such arrangement.

Where there is any kind of reimbursement provided by the employer, 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. Finally, the employee must keep all documents (invoices etc.) supporting their claim for work-from-home expenses. While those documents do not have to be filed with the return for 2022, the CRA has the right to ask for them in order to verify the claims by the taxpayer.

Once these threshold criteria are met, a broad range of costs becomes deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to their workspace, such as rent; utilities costs like electricity, heating, and water (or the portion of a condo fee attributable to such utilities costs); home maintenance and minor repair costs; and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses; the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines the percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the workspace is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work-from-home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html.

Planning ahead for 2023

Employees who are now working from home at least part of the time as a permanent working arrangement will, of course, be able to claim eligible home office expenses in 2023 and future tax years. The rules governing such claims will, however, change beginning in 2023, and employees who wish to make such a claim for 2023 should be aware of and planning for those changes now.

Essentially, the federal government has determined that, starting with the 2023 tax year, the more flexible rules which governed the deduction of expenses related to working from home (including the flat rate method) during 2020, 2021, and 2022 are no longer needed and therefore will no longer be available. Employees who wish to claim home office expenses for 2023 will need to qualify under the “traditional” rules which governed such expense claims prior to 2020.

Those rules require that the employee meet the following criteria in order to claim home office expenses:

• The employee was required by his or her employer to work from home during the year; and
• The work at home space is where the individual mainly (more than 50% of the time) did their work during the year; or
• The individual uses the workspace only to earn their employment income. They must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of their employment duties.

The employee must also obtain from their employer a completed and signed Form T2200 – Declaration of Conditions of Employment, certifying the work from home arrangement and the fact that the employee is responsible for paying the costs associated with such arrangement.

Employees who can qualify to claim a deduction under the rules for 2023 will need to retain the records needed to calculate such deduction using the detailed method (the only one available for 2023). At this point, all that’s required is to set aside things such as property tax and utility bills, receipts for purchases of office supplies, etc., to be used next spring when completing the return for 2023 and claiming a deduction for such expenses.  

While calculating the expenses which qualify for a home office expense deduction on the return for 2022 isn’t particularly complicated, the eligibility criteria for the deduction and determining the percentage of expenses eligible for that deduction can be detailed, especially as the range of work-from-home arrangements and work-from-home workspaces is almost limitless. The CRA has provided on its website a very helpful summary of both the general rules for claiming home office expenses for 2022, as well as guidance with respect to particular situations – for example, where two spouses share the same home office space. That information and guidance (including an FAQ document) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html.

Just about a year ago, in the 2022-23 budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase a first home. The most significant of those measures was the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

Just about a year ago, in the 2022-23 budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase a first home. The most significant of those measures was the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

The FHSA is available to eligible taxpayers starting in the current (2023) tax year. Due to the administrative requirements of putting the new FHSA in place, it will not actually be possible to open such a plan until April 1, 2023. Notwithstanding, Finance Canada has indicated that, for the 2023 tax year, full year contribution limits will apply, regardless of when a new plan is opened during the year.

Contributing to an FHSA

Under the program terms, any resident of Canada who is at least 18 years of age and who has not lived in a home which he or she owns in any of the current or four previous years can open an FHSA and contribute to that plan annually. Planholders will be able to contribute up to $8,000 per year to their plan, regardless of their income for that year. The $8,000 per year contribution must be made by the end of the calendar year, but planholders will be permitted to carry forward unused portions of their annual contribution limit, to a maximum of $8,000. For example, an individual who contributes $4,000 to an FHSA in 2023 would be allowed to contribute $12,000 in 2024 (representing $8,000 in contribution for 2024 plus $4,000 remaining from 2023). Regardless of the schedule on which contributions are made, there is a lifetime limit of $40,000 in contributions for each individual.

The real benefit of the FHSA program lies in the tax treatment of contributions. Individuals who contribute any amount in a year can deduct that amount from income, in the same manner as a registered retirement savings plan (RRSP) contribution. And, as with an RRSP, an individual is not required to claim a deduction for a contribution made during the year – he or she can make that contribution to an FHSA during a particular year, but wait to deduct that amount from income in a future year. When the planholder withdraws funds from the FHSA to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.

While funds are held within the FHSA, they can be held in cash, or can be invested in a broad range of investment vehicles. Specifically, such funds can be invested in mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs). Regardless of the investment vehicle chosen, interest, dividends, or any other type of investment income earned by those funds grows on a tax-free basis – that is, such investment income is not taxed as it is earned. 

Withdrawing funds from an FHSA

Given the generous tax treatment accorded contributions to a FHSA, there are inevitably some qualifications and restrictions placed on the use the plans. First, amounts withdrawn from a FHSA can be received tax free only if such withdrawals are “qualifying withdrawals”, meaning that the funds are used to make a qualifying home purchase. In order for a withdrawal to be a “qualifying withdrawal”, the planholder must have a written agreement to buy or build a home (which must be located in Canada) before October 1 of the next year. In addition, the planholder must intend to occupy that home within a year after buying or building it.

Amounts withdrawn from an FHSA and used for any other purpose are not qualifying withdrawals and the funds withdrawn are fully taxable in the year the withdrawal is made.

While Canadians who open an FHSA and make contributions to it are certainly hoping to be able to purchase a home, there are any number of reasons why their plans could change. Fortunately, the rules governing FHSAs provide planholders with a great deal of flexibility when it comes to the disposition of funds saved within an FHSA, in that  planholders can transfer all funds held within their FHSA to an RRSP or to a registered retirement income fund (RRIF) on a tax-free basis. Significantly, the amount which is transferred from an FHSA to an RRSP would not reduce or be limited by the individual’s RRSP contribution room. However, transfers made to an RRSP in these circumstances do not replenish FHSA contribution room – in other words, each eligible individual gets only one opportunity to save for the purchase of a first home using a FHSA. And, of course, any amounts transferred from an FHSA to an RRSP or RRIF will be taxable on withdrawal, in the same way as any other RRSP or RRIF withdrawal.

The ability to transfer funds between plans also works in the other direction. Individuals who have managed to accumulate funds within an RRSP will be allowed to transfer such funds to an FHSA (subject to the $8,000 annual and $40,000 lifetime contribution limits). While no deduction is permitted for funds transferred from an RRSP to an FHSA, that transfer does take place on a tax-free basis. Transfers made to an RRSP in these circumstances do not, however, replenish RRSP contribution room.

Closing an FHSA

Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. (Taxpayers must also close their FHSA by the end of the year in which they turn 71.)  While these rules do place some pressure on planholders with respect to the timing of their home purchase, there is some flexibility. Specifically, planholders who have not made a qualifying home purchase within the required 15-year time frame must then close the FHSA plan, but can still transfer funds held in the FHSA to their RRSP or RRIF, on a tax-free basis.

Finally, the FHSA program is complementary to the existing Home Buyers’ Plan (HBP). Under the HBP, an individual can withdraw up to $35,000 from his or her RRSP and use those funds for the purchase of a first home. Any such funds withdrawn must then be repaid to the RRSP over the next 15 years. The HBP will continue to be available to Canadians – however, an individual will not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.

The most recent information issued by Finance Canada with respect to the FHSA program can be found on its website at https://www.canada.ca/en/department-finance/news/2022/08/design-of-the-tax-free-first-home-savings-account.

For most taxpayers, the first few months of the year are a seemingly unending series of bills and payment deadlines. During January and February, many Canadians are still trying to pay off the bills from holiday spending. The first income tax instalment payment of 2023 is due on March 15 and the need to pay any tax balance for the 2022 tax year comes just six weeks after that, on May 1. Added to all of that, the deadline for making an RRSP contribution for 2022 falls on March 1, 2023.

For most taxpayers, the first few months of the year are a seemingly unending series of bills and payment deadlines. During January and February, many Canadians are still trying to pay off the bills from holiday spending. The first income tax instalment payment of 2023 is due on March 15 and the need to pay any tax balance for the 2022 tax year comes just six weeks after that, on May 1. Added to all of that, the deadline for making an RRSP contribution for 2022 falls on March 1, 2023.

The best advice on how to avoid a cash flow crunch, at least as it relates to the RRSP deadline, is to make RRSP contributions on a regular basis throughout the year. While that may be the preferred approach, it’s likely more a dream than a reality for most Canadians who have, over the past year, faced a cash flow crunch resulting from increased costs for everything from food to mortgage payments.

Notwithstanding that discouraging financial reality, Canadians who wish to deduct an RRSP contribution on their income tax return for 2022 are required to make that contribution on or before March 1, 2023. The maximum allowable current year contribution which can be made by any individual taxpayer for 2022 is 18% of that taxpayer’s earned income for the 2021 tax year, to a statutory maximum of $29,210.

Those are the basic rules governing RRSP contributions for the 2022 tax year. For most Canadians, however, those rules are just the starting point of the calculation, as millions of Canadian taxpayers have what is termed “additional contribution room” carried forward from previous taxation years. That additional contribution room arises because the taxpayer either did not make an RRSP contribution in each previous year or made one which was less than his or her maximum allowable contribution for the year. For many taxpayers that additional contribution room can amount to tens of thousands of dollars, and the taxpayer is entitled to use as much or as little of that additional contribution room as he or she wishes for the current tax year.

It’s apparent from the forgoing that determining one’s maximum allowable contribution for 2022 will take a bit of research. The first step in determining one’s total (current year and carryforward) contribution room for 2022 is to consult the last Notice of Assessment which was received from the Canada Revenue Agency (CRA). Every taxpayer who filed a return for the 2021 taxation year will have received a Notice of Assessment from the CRA, and the amount of that taxpayer’s allowable RRSP contribution room for 2022 will be summarized on page three of that Notice. Taxpayers who have discarded (or can’t find) their Notice of Assessment can obtain the same information by calling the CRA’s Telephone Information Phone Service (TIPS)  line at 1-800-267-6999. An automated service at that line will provide the required information, once the taxpayer has provided his or her social insurance number, month and year of birth and the amount of income from his or her 2021 tax return. Those who don’t wish to use an automated service can call the CRA’s Individual Income Tax Enquiries Line at 1-800-959 8281 and speak to a client services agent, who will also request such identifying information before providing any taxpayer-specific data. Finally, for those who have registered for the CRA’s My Account service, the needed information will be available online.

One question that doesn’t often get asked by taxpayers is whether it actually makes sense to make an RRSP contribution. The wisdom of making annual contributions to one’s RRSP has become an almost unquestioned tenet of tax and retirement planning, but there are situations in which other savings vehicles – particularly the Tax-Free Savings Account, or TFSA – may be the better short- or long-term option or even, in some cases, the only one available.

When it comes to making a contribution to one’s TFSA, the good news is the timelines and deadlines are much more flexible than those which govern RRSP contributions. A contribution to one’s TFSA can be made at any time of the year, and contributions not made during the current year can be carried forward and made in any subsequent year.

On the other hand, determining one’s total TFSA contribution room is significantly more complex than figuring out one’s allowable RRSP contribution amount, for two reasons. First, the maximum TFSA contribution amount has changed several times (increasing and decreasing) since the program was introduced in 2009. Second, and more important, individuals who withdraw funds from a TFSA can re-contribute those funds, but not until the year following the one in which the withdrawal is made. Especially where a taxpayer has several TFSA accounts, and/or a history of making contributions, withdrawals and re-contributions, it can be difficult to determine just where that taxpayer stands with respect to his or her current maximum allowable TFSA contribution amount.

In this case, there’s no help to be had from a Notice of Assessment, as the Canada Revenue Agency does not provide TFSA contribution information on that form. Information on one’s current year TFSA contribution limit can, however, be obtained from the CRA website, from the TIPS line at 1-800 267 6999 or its Individual Income Tax Enquiries line at 1-800-959 8281, as outlined above. It should be noted, however, that information on one’s current (i.e., 2023) TFSA contribution limit won’t be available through the TIPS line until mid-February 2023.

Determining which savings vehicle is the better option for a particular taxpayer will depend, for the most part, on the taxpayer’s current and future tax situation, the purpose for which the funds are being saved, and the taxpayer’s particular sources of retirement income.

Taxpayers who are saving toward a shorter-term goal, like next year’s vacation, should direct those savings into a TFSA. While choosing to save through an RRSP will provide a tax deduction on that year’s return and, possibly, a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP in a year or two. And, more significantly from a long-term point of view, repeatedly using an RRSP as a short-term savings vehicle will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn cannot be replaced. While the amounts involved may seem small, the loss of contribution room and the compounding of invested amounts over 25 or 30 years or more can make a significant dent in one’s ability to save for retirement.

Taxpayers who are saving toward the purchase of a first home will likely be better off contributing such savings to a First Home Savings Account (FHSA). While the FHSA is not available to taxpayers until the 2023 tax year (and so can’t create any tax savings for 2022) there are two benefits to waiting to open an FHSA and contributing to it in 2023. First, contributions to an FHSA are deductible from income in the same way as RRSP contributions. More significantly, however, amounts withdrawn from an FHSA for the purchase of a first home are received tax-free, resulting in a permanent tax savings that can’t be achieved through contributing to either an RRSP or a TFSA.

Taxpayers who are expecting their income to rise significantly within a few years – for example students in post-secondary or professional education or training programs – can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, allowing the funds to compound on a tax-free basis, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted from income which would be taxed at that higher tax rate. And, if a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

Canadians aged 71 and older will find the RRSP vs. TFSA question irrelevant, as the last date on which taxpayers can make RRSP contributions is December 31 of the year in which they turn 71. Many of those taxpayers will, however, have converted their RRSP savings to a registered retirement income fund (RRIF) and anyone who has done so is required to withdraw (and be taxed on) a specified percentage of those RRIF funds every year. Particularly where required RRIF withdrawals exceed the RRIF holder’s current cash flow needs, that “excess” income can be contributed to a TFSA. Although the RRIF withdrawals made must still be included in income for the year and taxed as such, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn in the future from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.

RRSPs and TFSAs (together with the new FHSA) are the most significant tax-free or tax-deferred savings vehicles available to Canadian taxpayers, and each has a place in most financial and retirement plans. To help taxpayers to make informed choices about their savings options, the Canada Revenue Agency provides a number of dedicated webpages about both RRSPs and TFSAs which can be found on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html and http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html.

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

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

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

The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an Instalment Reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2023) tax year and either of the two previous (2021 or 2022) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income throughout the year is at least $3,000 less than their total tax owed for 2023 and either 2021 or 2022. For residents of Québec, that threshold amount is $1,800.

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

First, the taxpayer can pay the amounts specified on the Instalment Reminder by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2023. If the total of instalment payments made during 2023 turn out to be more than the taxpayer’s total tax liability for the year, he or she will of course receive a refund when the annual tax return is filed in the spring of 2024.

Second, the taxpayer can make instalment payments based on the amount of tax which was payable for the 2022 tax year (which will, of course, be known once the return for 2022 is completed). Where a taxpayer’s income has not changed significantly between 2022 and 2023 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2023 will be slightly less than it was in 2022, as the result of the indexation of both income tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2023 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2022 to 2023, such that his or her tax bill will also be substantially reduced, this option can make the most sense.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no additional tax payable when the return for the 2023 tax year is filed in the spring of 2024. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2023 – until March 31, 2023 – is 8%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.

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

Detailed information on the instalment payment system for 2023, and the calculation and payment options available to taxpayers, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments.html.

2022 was a year of almost unrelenting bad financial news for Canadians, but perhaps no group was more affected by those changes than retirees who rely on income from unindexed pensions and from returns on invested savings. Most such retirees saw the value of their investments decline, as the S&P/TSX Composite Index dropped by over 8% during 2022. At the same time retirees had to cope with inflationary increases in the cost of most goods, including double digit percentage increases in the cost of food. Those who owned their own homes saw the value of those homes drop, on average, by 12% between December 2021 and December 2022. And, finally, retirees who carried debt were likely to be paying significantly more interest on that debt by the end of 2022 than they were at the beginning of the year.

2022 was a year of almost unrelenting bad financial news for Canadians, but perhaps no group was more affected by those changes than retirees who rely on income from unindexed pensions and from returns on invested savings. Most such retirees saw the value of their investments decline, as the S&P/TSX Composite Index dropped by over 8% during 2022. At the same time retirees had to cope with inflationary increases in the cost of most goods, including double digit percentage increases in the cost of food. Those who owned their own homes saw the value of those homes drop, on average, by 12% between December 2021 and December 2022. And, finally, retirees who carried debt were likely to be paying significantly more interest on that debt by the end of 2022 than they were at the beginning of the year.

With the 2022 calendar year behind us, those retirees must now prepare to file their tax returns for that year and face the prospect of having a tax bill to pay. Income tax is a big-ticket item for most retired Canadians and, especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, there is some good news for such retirees, as the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. What follows is an outline of the most common such deductions and credits which may be claimed by those over 65.

Most tax savings strategies (like charitable contributions) require an expenditure on the part of the taxpayer and must be completed prior to the end of the tax year. That’s not the case with any of the following tax saving credits, which simply need to be claimed on the annual return to filed in the spring of 2023.

Age credit

All Canadians who were age 65 or older at the end of 2022 can claim the age credit on their tax return for the year. For 2022, that credit amount is $7,898 which, when converted to a tax credit, reduces federal tax by $1,184.70.

While the age credit can be claimed by anyone aged 65 or older, the amount of credit claimable is reduced where the taxpayer’s income for 2022 was more than $39,826. Where that is the case, the available credit is reduced by 15% for each dollar of income over that $39,826 threshold amount.

Pension income credit

Most Canadians who are aged 65 or older receive income some kind of private pension income which would qualify for the pension income credit. For purposes of that credit, amounts received from an employer-sponsored pension plan qualify, but so too do amounts received from a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Amounts received from government-sponsored retirement income plans (like the Canada Pension Plan or Old Age Security) do not, however, qualify.

Where the taxpayer receives amounts that qualify as pension income for purposes of the pension income credit, the first $2,000 of such income is effectively exempt from federal tax. In addition, unlike the age credit, the total income of the taxpayer does not limit a claim for the pension income credit in any way.

Disability tax credit

It’s not necessary to be over the age of 65 in order to claim the disability tax credit, but many taxpayers who are in that age group may be able to qualify. The DTC cannot be claimed on the annual tax return, however, unless an individual has previously been approved by the Canada Revenue Agency as someone who meets the required criteria.

In order to be approved as someone eligible to claim the disability tax credit, an individual must generally have significant loss of function in specified activities necessary for daily life, like vision or mobility. The process for being approved as eligible for the disability tax credit is not a quick one and so is unlikely to be claimable for 2022 by anyone who has not already been approved by the CRA.

However, taxpayers who believe that they may qualify should consider starting the process of applying for such approval. That process generally starts with an individual’s health care provider, who can complete the necessary form detailing the extent of the individual’s loss of function. While the process takes months, starting now could mean, where the application is approved, that the DTC can be claimed on the return for 2023.

The DTC is a significant credit, as the credit amount for 2022 is $8,870, and the reduction in federal tax payable is $1,330.50.  

Pension income splitting

The credits listed above are generally flagged on the annual return form or in the tax guide. There is, however, another income tax saving strategy available to older Canadians, but it is not nearly as well known and, unfortunately, isn’t readily apparent from either the tax return form or the annual income tax guide. That tax saving strategy is pension income splitting and it’s likely the case that many taxpayers who could benefit aren’t familiar with the strategy, especially if they are not receiving professional tax planning or tax return preparation advice.

That’s a particularly unfortunate reality because pension income splitting has the potential to generate more tax savings among taxpayers over the age of 65 (and certainly those over the age of 71, for whom RRSP contributions are no longer possible) than just about any other tax planning strategy available to older Canadians. And, unlike most tax saving strategies, pension income splitting does not require any expenditure of funds or any advance planning on the part of the taxpayer.

When described in those terms, pension income splitting can sound like one of those “too good to be true” tax scams, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for Canadian residents who are married (and, usually, where one spouse is aged 65 or older) to make a notional reallocation of private pension income between them on their annual tax returns, and to benefit from a lower overall family tax bill as a result.

Pension income splitting, like all forms of income splitting, works because Canada has what is called a “progressive” tax system, in which the applicable tax rate goes up as income rises. For 2022, the federal tax rate applied to about the first $50,000 of taxable income is 15%, while the federal rate applied to approximately the next $50,000 of such income is 20.5%. So, an individual who has $100,000 in taxable income would pay federal tax of about $17,750: if that $100,000 was divided equally between such individual and his or her spouse, each would have $50,000 in taxable income and federal tax payable of $7,500 each. The total federal family tax bill would be $15,000, meaning a permanent federal tax savings of $2,750.

The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to his or her spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, an RRSP, or an RRIF. Government source pensions, like the Canada Pension Plan, Quebec Pension Plan, or Old Age Security payments do not qualify for pension income splitting, regardless of the age of the recipient.

The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income, with their annual tax return. That form for the 2022 tax year, which is not included in the annual tax return package, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1032.html or can be ordered by calling 1-800-959 8281.

On the T1032, the taxpayer receiving the private pension income and the spouse with whom that income is to be split must make a joint election to be filed with their respective tax returns for 2022. Since the splitting of pension income affects the income and therefore the tax liability of both spouses, the election must be made and the form filed by both spouses – an election filed by only one spouse or the other won’t suffice. In addition to filing the T1032, the spouse who is actual recipient of the pension income to be split must deduct from income the pension income amount allocated to his or her spouse. That deduction is taken on Line 21000 of their 2022 return. And, conversely, the spouse to whom the pension income amount is being allocated is required to add that amount to their income on the return, this time on Line 11600. Essentially, to benefit from pension income splitting, all that’s needed is for each spouse to file a single form with the CRA and to make a single entry on their 2022 tax return.

By the end of February or early March, taxpayers will have received (or downloaded) the information slips which summarize the income received from various sources during 2022. At that time, couples who might benefit from this strategy can review those information slips and calculate the extent to which they can make a dent in their overall tax bill for the year through pension income splitting.

Those wishing to obtain more information on pension income splitting than is available in the 2022 General Income Tax and Benefit Guide should refer to the CRA website at http://www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available.

The Employment Insurance premium rate for 2023 is set at 1.63%.

The Employment Insurance premium rate for 2023 is set at 1.63%.

Yearly maximum insurable earnings are set at $61,500, making the maximum employee premium $1,002.45.

As in previous years, employer premiums are 1.4 times the employee premium. The maximum employer premium for 2023 is therefore $1,403.43.

The Québec Pension Plan contribution rate for 2023 is set at 6.40% of pensionable earnings for the year.

The Québec Pension Plan contribution rate for 2023 is set at 6.40% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $66,600, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2023 will be $4,038.40 each.

The Canada Pension Plan contribution rate for 2023 is set at 5.95% of pensionable earnings for the year.

The Canada Pension Plan contribution rate for 2023 is set at 5.95% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $66,600, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2023 will be $3,754.45 each, and the maximum self-employed contribution will be $7,508.90.

Dollar amounts on which individual non-refundable federal tax credits for 2023 are based, and the actual tax credit claimable, will be as follows:

Dollar amounts on which individual non-refundable federal tax credits for 2023 are based, and the actual tax credit claimable, will be as follows:

                                                                         Credit amount                    Tax credit

Basic personal amount*                                            $15,000                          $2,250

Spouse or common-law partner amount                     $15,000                          $2,250

Eligible dependant amount*                                       $15,000                         $2,250

Age amount                                                              $8,396                           $1,259.40

Net income threshold for erosion of age credit             $42,335

Canada employment amount                                      $1,368                          $205.20 

Disability amount                                                       $9,428                          $1,414.20

Adoption expenses credit                                            $18,210                        $2,731.50

Medical expense tax credit income threshold amount    $2,635

*For taxpayers having net income for the year of more than $165,430, amounts claimable for the basic personal amount, the spousal amount and the eligible dependant amount for 2023 may differ.

The indexing factor for federal tax credits and brackets for 2023 is 6.3%. The following federal tax rates and brackets will be in effect for individuals for the 2023 tax year.

The indexing factor for federal tax credits and brackets for 2023 is 6.3%. The following federal tax rates and brackets will be in effect for individuals for the 2023 tax year.

Income level                                     Federal tax rate

$15,000 - $53,359                                  15.0%

$53,360 - $106,717                                 20.5%

$106,718 - $165,430                               26.0%

$165,431 - $235,675                               29.0%

Over $235,675                                         33.0%

Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax saving and planning strategies. Some of the more significant dates and changes for individual taxpayers for 2023 are listed below.

Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax saving and planning strategies. Some of the more significant dates and changes for individual taxpayers for 2023 are listed below.

RRSP deduction limit and contribution deadline

The RRSP current year contribution limit for the 2022 tax year is $29,210. In order to make the maximum current year contribution for 2022 (for which the contribution deadline will be Wednesday March 1, 2023), it will be necessary to have earned income for the 2021 taxation year of $162,275.

Tax-free savings account contribution limit

The tax-free savings account (TFSA) contribution limit for 2023 is increased to $6,500. The actual amount which can be contributed by a particular individual includes both the current year limit and any carryover of uncontributed or re-contribution amounts from previous taxation years.

Taxpayers can find out their personal 2023 TFSA contribution limit by calling the Canada Revenue Agency’s Individual Income Tax Enquiries line at 1-800-959-8281. Those who have registered for the CRA’s online tax service My Account can obtain that information by logging into My Account.

Individual tax instalment deadlines for 2023

Millions of individual taxpayers pay income tax by quarterly instalments, which are due on the 15^th of March, June, September and December 2023.

The actual tax instalment due dates for 2023 are as follows:

• Wednesday March 15, 2023
• Thursday June 15, 2023
• Friday September 15, 2023
• Friday December 15, 2023

Old Age Security income clawback threshold

For 2023, the income level above which Old Age Security (OAS) benefits are clawed back is $86,912.

Individual tax filing and payment deadlines in 2023

For all individual taxpayers, including those who are self-employed, the deadline for payment of any balance of 2022 taxes owed is Monday May 1, 2023.

Taxpayers (other than the self-employed and their spouses) must file an income tax return for 2022 on or before Monday May 1, 2023.

Self-employed taxpayers and their spouses must file a 2022 income tax return on or before Thursday June 15, 2023.

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 #62 Corporate

Personal:

Issue #62 Personal

Canada’s retirement income system is often referred to as a three-part system. Individuals earning income from employment or self-employment can contribute to a registered retirement savings plan (RRSP) and withdraw funds from that plan in retirement. A much smaller (and shrinking) group of Canadians will receive income in retirement from an employer-sponsored pension plan. Finally, there are two government sponsored retirement income programs. Under the first, Canadian retirees who participated in the paid work force during their adult life will have contributed to the Canada Pension Plan (CPP) and will be able to receive CPP retirement benefits as early as age 60.

Canada’s retirement income system is often referred to as a three-part system. Individuals earning income from employment or self-employment can contribute to a registered retirement savings plan (RRSP) and withdraw funds from that plan in retirement. A much smaller (and shrinking) group of Canadians will receive income in retirement from an employer-sponsored pension plan. Finally, there are two government sponsored retirement income programs. Under the first, Canadian retirees who participated in the paid work force during their adult life will have contributed to the Canada Pension Plan (CPP) and will be able to receive CPP retirement benefits as early as age 60.

The second federal government retirement income program – the Old Age Security (OAS) program – is different from all other retirement income programs in that it does not require an individual to make contributions to the program during his or her working life in order to receive benefits in retirement. Rather, entitlement to OAS is based on the number of years of Canadian residence, and individuals who are resident in Canada for 40 years after the age of 18 can receive full OAS benefits. As of the fourth quarter of 2022, those full OAS benefits are equal to $685.50 per month.

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

While the rules governing the administration of the clawback can be confusing, the concept is a (relatively) simple one. Anyone who receives OAS benefits during the year and has income for that year of more than (for 2022) $81,761 must repay a portion of the OAS benefits received. That repayment, or clawback, is administered by reducing the amount of OAS benefits which the individual receives during the next benefit year.

Since the OAS clawback affects only individuals who have an annual income for 2022 of at least $81,761, it’s arguable that at such income levels, the clawback requirement does not impose any real financial hardship. Nonetheless, the OAS clawback is a perpetual irritant to those affected, perhaps because of the sense that they are being penalized for being disciplined savers, or good managers of their finances during their working years, in order to ensure a financially comfortable retirement.

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

In all cases, no matter what strategy is employed, the goal is to “smooth” one’s income from year to year, so that net income for each year comes in under the OAS clawback threshold and, not incidentally, minimizes exposure to the higher federal and provincial income tax rates which apply once taxable income exceeds around $100,000.

The starting point, for taxpayers who are approaching retirement, is to determine how much income will be received from all sources during retirement, based on CPP and OAS entitlement, any savings accrued through an RRSP, and any amounts which may be received from an employer-sponsored pension plan. Anyone who has an RRSP must, by the end of the year in which they turn 71, convert that plan into a registered retirement income fund (RRIF) or purchase an annuity. Under either scenario, the taxpayer will begin receiving income from the RRIF or the annuity in the following year. However, it’s possible to begin receiving income from an RRSP or an RRIF at any time. Similarly, an individual who is eligible for CPP retirement benefits can begin receiving those benefits anytime between age 60 and age 70, with the amount of monthly benefit receivable increasing with each month receipt is deferred. The same calculation applies to OAS benefits, which can be received as early as age 65 or deferred up until age 70.

Once the amount of annual income is determined, strategies to smooth out that income can be put in place. One of those strategies is to withdraw income from an RRSP or an RRIF prior to age 71, so as to reduce the total amount within the RRSP or RRIF and so thereby reduce the likelihood of having a large “bump” in income when required withdrawals kick in at that time.

Taxpayers are sometimes understandably reluctant to take steps which they view as depleting their retirement savings, but receiving income from an RRSP or an RRIF doesn’t have to mean spending that income. While tax has to be paid on any withdrawals (no matter what the taxpayer’s age), the after-tax amounts can be contributed to the taxpayer’s tax-free savings account (TFSA), where they can earn investment income free of tax. And, when the taxpayer has need of those funds, in retirement, they can be withdrawn free of tax and won’t count as income for purposes of the OAS clawback or any other tax credits or benefits.

Taxpayers who are married can also “even out” their income by using pension income splitting, so that neither of them has sufficient income to be affected by the clawback. Using pension income splitting, the spouse who has income which exceeds the OAS clawback threshold re-allocates the “excess” income to his or her spouse on the annual return, and that income is then considered to be income of the recipient spouse, for purposes of both income tax and the OAS clawback. To be eligible for pension income splitting, the income to be reallocated must be private pension income, which is generally income from an RRSP, RRIF, or annuity, or from an employer-sponsored pension plan.

There are two reasons why pension income splitting is a particularly attractive strategy for avoiding or minimizing the OAS clawback. First, there is no need to actually change the source or amount of income received by each spouse, as the reallocation of income is “notional”, existing only on the return for the year. Second, no decision has to be made on pension income splitting until it’s time to file the return for the previous year, meaning that spouses can easily calculate exactly how much income has to be reallocated in order to avoid the clawback, and to reduce tax liability generally. More information on the kinds of income eligible for pension income splitting, and the mechanics of the process, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html.

As the pandemic continues to wane, traditional employer-sponsored holiday social events have once again become a reality – although, as in all aspects of pandemic life, such events will likely be a hybrid of “virtual” and in-person functions.

As the pandemic continues to wane, traditional employer-sponsored holiday social events have once again become a reality – although, as in all aspects of pandemic life, such events will likely be a hybrid of “virtual” and in-person functions.

In addition to restoring the annual holiday social event employers may, given the current difficulties in attracting and retaining employees, have an added incentive to show their appreciation to current employees by means of a holiday gift or bonus.

What such employers certainly don’t want to do is to create a tax headache for their employees. Unfortunately, it’s also the case that a failure to properly structure such gifts or other extras like holiday parties can result in unintended and unwelcome tax consequences to those employees. And this year, recognizing the ways in which holiday-related employer gifts and employer-sponsored social events have changed over the past three years, the Canada Revenue Agency (CRA) has responded by updating its policies to address those new realities.

Trying to formulate and administer the tax rules around holiday gifts and celebrations is something of a no-win situation for the CRA. On an individual or even a company level, the amounts involved are usually small, or even nominal, and the range of situations which must be addressed by the related tax rules are virtually limitless. As a result, the cost of drafting and administering those rules can outweigh the revenue generated by the enforcement of such rules, to say nothing of the potential ill-will generated by imposing tax consequences on holiday gifts or parties. Nonetheless, the potential exists for employers to provide what would otherwise be taxable remuneration in the guise of holiday gifts, and it’s the responsibility of the tax authorities to ensure that such situations don’t slip through the tax net.

The starting point for the CRA’s rules is that any gift (cash or non-cash) received by an employee from his or her employer at any time of the year is considered to constitute a taxable benefit, to be included in the employee’s income for that year.

The CRA does, however, make some administrative concessions in this area, allowing non-cash gifts (within a specified annual dollar limit) to be received tax-free by employees, as long as such gifts are given on significant dates or events, like religious holidays such as Christmas or Hanukkah, or on the occasion of a birthday, a marriage, or the birth of a child.

In sum, the CRA’s administrative policy is simply that such non-cash gifts to an arm’s length employee, regardless of the number of such gifts, will not be taxable if the total fair market value of all such gifts (including goods and services tax or harmonized sales tax) to that employee is $500 or less annually. The total value over $500 annually will be a taxable benefit to the employee and must be included on the employee’s T4 for the year, and on which income tax must be paid.

It’s important to remember the “non-cash” criterion imposed by the CRA, as the $500-per-year administrative concession does not apply to what the CRA terms “cash or near-cash” gifts, and all such gifts are considered to be a taxable benefit and included in income for tax purposes, regardless of amount. For this purpose, the CRA considers both currency and cheques to be cash. As well, in situations in which an employee selects and purchases something, submits a receipt to the employer and receives reimbursement for that purchase, that employee is considered to have received a cash gift, in the amount of the purchase/reimbursement.

Other instances of gifts made to employees are not so clear cut, as even a gift or award which cannot be converted to cash can be considered by the CRA to be a near-cash gift. Drawing a firm line between cash/near-cash gifts and non-cash gifts can be difficult, and the CRA provides the following information to help clarify that difference.

Examples of a near-cash gift or award

• Something easily converted to cash, such as bonds, securities, or precious metals;
• Gift cards (with the exception outlined below);
• A prepaid card issued by a financial institution that can be used to pay for purchases; and
• Digital currency which is electronic money (i.e., cryptocurrencies not issued by a government or central bank).

Under the CRA’s previous policy, gift cards were considered to be near-cash gifts and fully taxable to the employee who received one, but the CRA has now carved out an exception to that policy. Specifically, effective as of the 2022 tax year, a gift card that meets all of the following criteria will be treated as a non-cash gift, and subject to the usual rules governing non-cash gifts:

• the card comes with money already on it and can only be used to purchase goods or services from a single retailer or group of retailers identified on the card;
• the terms and conditions of the gift card clearly state that amounts on the card cannot be converted into cash; and
• the employer keeps a log to record details of the gift card information including the date, the employee’s name and the reason for providing the gift card, as well as the type and amount of the gift card.

It may seem nearly impossible to plan for employee holiday gifts without running afoul of one or more of the detailed rules and administrative policies surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if the following rules are kept in mind.

Cash or near-cash gifts should be avoided, as they will, no matter how large or small the amount, almost always create a taxable benefit to the employee. The sole exception to that rule is the exception carved out by the CRA which now (for 2022 and subsequent tax years) treats gift certificates as non-cash gifts, but only where such gift certificates meet the criteria listed above.

Where non-cash holiday gifts are provided to employees, gifts with a value of up to $500 can be received free of tax. The employer must be mindful of the fact that the $500 limit is a per-year and not a per-occasion limit. Where the employee receives non-cash gifts with a total value of more than $500 in any one taxation year, the portion over $500 is a taxable benefit to the employee.

In addition to the new rules governing employee gifts, the tax treatment of employer sponsored holiday social events has changed under the CRA’s new policies. While the basic policy which determines whether an event does or does not create a taxable benefit to employees is essentially the same, there is some difference in the way virtual and in-person events are treated for tax purposes.

The general and long-standing rule is that a holiday social event does not create a taxable benefit to employees where the event is open to all employees and the per-person cost of the event is below a specified threshold.

For 2022, an employer-sponsored social event which is in-person or is a combination of in-person and virtual attendance will not create a taxable benefit for employees if the per-person cost is less than $150. Ancillary costs such as transportation home, taxi fare, and overnight accommodation for attendees are not included in the total cost limit for the event. As well, where gift cards are provided to employees who are attending “virtually”, such gift cards must meet the criteria listed above which allows the characterization of such gift cards as a non-cash gift.

Where an employer-sponsored social event is entirely virtual in nature, different limits apply. Those limits are as follows.

• where a virtual social event includes meals, beverages, and delivery services, the event will not be a taxable benefit to employees if the total cost is $50 per employee or less.
• where a virtual social event includes meals, beverages, delivery services, and entertainment, the event will not be a taxable benefit to employees if the total cost is $100 per employee or less.

Finally, employers should note that where the per employee dollar limits outlined above are exceeded, the entire per-employee cost of the event is treated as a taxable benefit – not just the amount by which the per-employee cost exceeds those prescribed dollar limits. And, finally, in order to benefit from those prescribed limits, employers are restricted to holding six or fewer employer-paid social events each year.

The range and variety of social events and employee gifts which can be provided by an employer to its employees is almost limitless, and where the government seeks to draft rules to govern the tax treatment of such a range of possibilities, complexity is inevitable. The best advice to be given to employers in the circumstances is to consider carefully the kinds of gifts which are given and to be mindful of the dollar amount limits imposed on non-cash gifts and employer-paid social gatherings. After all, at the end of the day, a gift which results in unintended and unwanted tax consequences is unlikely to engender much holiday spirit or goodwill on the part of the employee who receives it.

The worst of the COVID-19 pandemic which began almost three years ago is now (hopefully) behind us. That doesn’t mean, however, that Canadians aren’t still dealing with the unwelcome consequences of the pandemic, in a number of ways.

The worst of the COVID-19 pandemic which began almost three years ago is now (hopefully) behind us. That doesn’t mean, however, that Canadians aren’t still dealing with the unwelcome consequences of the pandemic, in a number of ways.

One of those long-term consequences relates to pandemic benefits which were paid by the federal government and received by individuals across Canada for income support . Those individual pandemic benefit programs ended several months ago, in May of 2022, and the federal government continues to seek repayment of such benefits by individuals who were either not entitled to receive them, or who received benefits in amounts greater than they were eligible for.

It's not at all surprising that overpayments of individual pandemic benefits took place, for a number of reasons. While there were undoubtedly individuals who deliberately made fraudulent claims for benefits to which they knew they were not entitled, it’s likely that most instances of benefit overpayments arose for other reasons. The first such reason is the sheer number of Canadians who received such benefits. According to Statistics Canada, more than two thirds of adult Canadians benefited from at least one pandemic relief program in 2020 alone. As well, in the first six months of the pandemic (March to September 2020) a single program – the Canada Emergency Response Benefit (CERB) – provided income to over one quarter of Canadian adults. Second, as the pandemic continued, the CERB was replaced by, in turn, the Canada Recovery Benefit, the Canada Recovery Caregiving Benefit, the Canada Recovery Sickness Benefit, and the Canada Worker Lockdown benefit. Given that each of these programs had its own eligibility criteria and benefit periods, confusion and error over eligibility for benefits at any particular time wasn’t just likely, it was almost inevitable. Third, the largest individual pandemic benefit program – the CERB – was administered simultaneously by two different federal government entities – the Canada Revenue Agency (CRA) and Employment and Social Development Canada. Consequently, there were possibly instances in which an individual claimed and received amounts from both entities, not understanding that the same benefit was incorrectly being paid twice. As well, eligibility for pandemic benefits depended, in some instances, on whether an individual was already receiving Employment Insurance benefits, leading to more confusion. And, finally, especially in the early days of the pandemic, individuals who applied for pandemic benefits self-certified their eligibility as part of the online application process. In the interests of getting such benefits into the hands of suddenly unemployed Canadians as quickly as possible, there was no further verification process carried out to determine whether recipients were, in fact, entitled to the benefits claimed and paid.

Regardless of the reasons why an overpayment of benefits occurred, such overpayments must now be repaid. However, in light of the factors outlined above, the federal government has made two decisions with respect to such required repayments. The first such decision is only individuals who received an overpayment of benefits through intentional fraud will face “additional” unspecified consequences – likely in the form of interest and penalties, or even legal consequences. The second decision is that while individuals who received benefit overpayments through innocent error or misunderstanding will be required to repay any overpayment of benefits, there will be no interest charges levied on any of the amounts which they must repay.

The list of benefit programs for which repayment of overpayments will be required is as follows.

• Canada Emergency Response Benefit;
• Canada Emergency Student Benefit;
• Canada Recovery Benefit;
• Canada Recovery Caregiving Benefit;
• Canada Recovery Sickness Benefit;
• Canada Worker Lockdown Benefit.

There are, as well, tax consequences to both receipt and repayment of benefits. Benefits paid under each of these programs constituted taxable income to the recipient and would have been included on a T4A slip issued by the federal government for the tax year in which the benefits were received. Those amounts would have been reported as income on the tax return for that year, and income tax paid on those amounts by the benefit recipient.

Where benefit amounts received in previous years (and on which income tax was paid) are repaid to the federal government, the person who made those repayments is entitled to claim a deduction for the repayment amount on his or her tax return.

Where a repayment is made between January 1, 2021 and December 31, 2022, the taxpayer can choose which tax year to claim that deduction from income or can split the deduction between tax years, whichever gives the best tax result. Where a repayment is made after the end of 2022, however, the deduction can be claimed only in the year that the repayment is made.

The specific rules with respect to deductions claimed for repayments made during 2021 and 2022 are as follows.

For benefit repayments made in 2021, the taxpayer may:

• claim the deduction on the 2021 tax return;
• claim the deduction on the 2020 tax return if he or she received the amount in 2020;
• split the deduction between the 2020 and 2021 tax returns if he or she received the amount in 2020.

For benefit repayments made in 2022, the taxpayer may:

• claim the deduction on the 2022 tax return;
• claim the deduction on the tax return for the year he or she received the benefit (2020 or 2021);
• split the deduction between tax returns.

In January of 2023, the Canada Revenue Agency will be issuing a new form – Form T1B Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year – which will make it easier for taxpayers to claim a repayment made in 2022 as a deduction on a tax return for a prior tax year.

Not surprisingly, the federal government is making it as easy as possible for Canadians to repay benefit overpayments, by providing them with multiple options when it comes to making such repayments. Repayments can be paid online, on the website of the CRA or the taxpayer’s financial institution. Payments can also be sent by mail, in the form of a cheque or money order (not cash), and any such cheque or money order should be made payable to the Receiver General of Canada. Additionally, repayments can be made at a Canada Post location, using a debit card, with cash, or by using a QR code, which can be downloaded from the CRA website.

Given current economic conditions and the length of time which has passed since some of these benefit payments were made, there will likely be many instances in which benefit recipients will be unable to make immediate repayment in full. In such circumstances, the CRA is willing to receive such repayments over time, under the terms of a payment arrangement with the taxpayer. Once again, no interest charges will be levied on outstanding repayment obligations.

The CRA recently posted on its website detailed information on its current COVID-19 benefit repayment policies and procedures. That information can be found at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/repay-covid-benefits.html.

For individual Canadian taxpayers, the tax year ends at the same time as the calendar year. And what that means for individual Canadians is that any steps taken to reduce their tax payable for 2022 must be completed by December 31, 2022. (For individual taxpayers, the only significant exception to that rule is registered retirement savings plan (RRSP) contributions. With some exceptions, such contributions can be made any time up to and including March 1, 2023, and claimed on the return for 2022.)

For individual Canadian taxpayers, the tax year ends at the same time as the calendar year. And what that means for individual Canadians is that any steps taken to reduce their tax payable for 2022 must be completed by December 31, 2022. (For individual taxpayers, the only significant exception to that rule is registered retirement savings plan (RRSP) contributions. With some exceptions, such contributions can be made any time up to and including March 1, 2023, and claimed on the return for 2022.)

While the remaining time frame in which most tax planning strategies for 2022 can be implemented is only a few weeks, the good news is that the most readily available of those strategies don’t involve a lot of planning or complicated financial structures – in many cases, it’s just a question of considering the timing of steps which would have been taken in any event. What follows is a listing of some of the steps which should be considered by most Canadian taxpayers as the year-end approaches.

Charitable donations

The federal government and each of the provincial and territorial governments provide a tax credit for donations made to registered charities during the year. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year – there are no exceptions.

There is, however, another reason to ensure donations are made by December 31. The credit provided by each of the federal, provincial, and territorial governments is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. For the minority of taxpayers who have taxable income (for 2022) over $221,708, charitable donations above the $200 threshold can receive a federal tax credit of 33%.

As a result of the two-level credit structure, the best tax result is obtained when donations made during a single calendar year are maximized. For instance, a qualifying charitable donation of $400 made in December 2022 will receive a federal credit of $88.00 (($200 × 15%) + ($200 × 29%)). If the same amount is donated, but the donation is split equally between December 2022 and January 2023, the total credit claimable is only $60.00 (($200 × 15%) + ($200 × 15%)), and the 2023 donation can’t be claimed until the 2023 return is filed in April 2024. And, of course, the larger the donation in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level.

It’s also possible to carry forward, for up to five years, donations which were made in a particular tax year. So, if donations made in 2022 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying it forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2017, 2018, 2019, 2020, or 2021 tax years can be carried forward and added to the total donations made in 2022, and the aggregate then claimed on the 2022 tax return.

When claiming charitable donations, it’s possible to combine donations made by oneself and one’s spouse and claim them on a single return. Generally, and especially in provinces and territories which impose a high-income surtax – currently, Ontario and Prince Edward Island – it makes sense for the higher income spouse to make the claim for the total of charitable donations made by both spouses. Doing so will reduce the tax payable by that spouse and thereby minimize (or avoid) liability for the provincial high-income surtax.

Making a final RRSP contribution

Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31 of that year. Once that deadline has passed, no further RRSP contributions are possible.

Taxpayer requests for penalty or interest relief

Taxpayers are entitled to request relief from the Canada Revenue Agency (CRA) for interest or penalty charges which the CRA has levied, and those who want to do so must send their request within 10 years from the end of the calendar year or fiscal period concerned. The CRA may also cancel interest and penalties that accrued within 10 calendar years of the year the taxpayer relief request is made, regardless of the tax year or reporting period in which the debt originated.

This year’s deadline applies to taxpayer relief requests for:

• the 2012 tax year;
• any reporting period that ended during the 2012 calendar year; and
• any interest and penalties that accrued during the 2012 calendar year for any tax year or reporting period.

All such requests for relief must be submitted on or before December 31, 2022.

Reviewing tax instalments for 2022