Year End Tax Planning
As we approach the end of the year, it is time to consider some tax planning opportunities that may be available to you for 2016. We have provided you with a few items that may be applicable in your certain circumstance. Keep in mind that the planning points outlined below are not intended to serve as specific advice; you should always consult your D&H advisor before implementing any of the suggestions contained in this newsletter.
• Owner-Manager Remuneration
The right mix of salaries and dividends to the owner-manager will ensure taxes are minimized while taking into consideration RRSP entitlements and Canada Pension Plan requirements. Income splitting may also be possible if a spouse or family member provides services for which the individual can be paid a reasonable salary. This works particularly well where your spouse or children have little or no income.
• Lifetime Capital Gains Exemption
The lifetime capital gains exemption limit increased to $ 824,176 (from $ 813,600) effective for dispositions of ‘qualified small business corporation’ shares by individuals occurring in 2016. The lifetime capital gains exemption limit on qualified small business corporation shares is indexed to inflation for future tax years.
The lifetime capital gains exemption limit for ‘qualified farm and fishing property’ is $ 1,000,000 for dispositions by individuals occurring in 2016.
• Personal Income Tax Rates
The combined federal and provincial top marginal tax rate will increase from the 2015 year rate of 45.80% for income in excess of $151,050 to the 2016 year rate of 47.70% for income in excess of $200,000.
The maximum marginal tax rate for eligible dividends for 2016 is 31.30% (2015 – 28.68%), and for regular dividends for 2016 is 40.61% (2015 – 37.98%).
• Principal Residence Rules
The principal residence exemption provides a reduction in the gain that would otherwise be realized on the disposition of a ‘housing unit’ (e.g. house, condo, townhouse, cottage, share of housing co-op, etc.) by an individual resident in Canada who ordinarily inhabited the property.
In order for a property to qualify as a principal residence, the housing unit must be designated as the principal residence for each taxation year. However, only one property can be designated each year for a family unit (i.e. spouses and minor children).
The algebraic formula used to determine the amount by which the gain may be reduced allows for a “plus-one” rule, which provides an additional year that the property may be eligible to be designated as the individual’s principal residence. This rule is intended to allow an individual to designate a property in the year that the individual moves from an existing principal residence to a new principal residence.
The Income Tax Act (Canada) was amended in 2016 to reflect that the taxpayer must be a resident of Canada in the taxation year in which they acquired the property in order to claim the “plus-one” year rule in the formula. If the taxpayer was not a resident of Canada in the year of acquisition, they will not be eligible to claim the “plus-one” year.
The Canada Revenue Agency (“CRA”) has also modified their administrative policy for reporting dispositions of a principal residence. Effective for dispositions on or after January 1, 2016, individuals will now be required to report any disposition of a principal residence on Schedule 3, Capital Gains, of their T1 Income Tax and Benefit Return. If the property was the principal residence for every year that it was owned, the principal residence designation will be made on Schedule 3. The year of acquisition, proceeds of disposition, and description of the property will need to be reported. This change also applies to deemed dispositions of property, such as a deemed disposition on the change in use of the property.
Form T2091, Designation of a property as a principal residence by an individual (other than a personal Trust), will also be required if the property was not designated as the principal residence for all the years that it was owned.
The CRA will only allow the principal residence exemption on property disposed of in 2016 and later years if the sale and designation is reported in the return. Late filed designations may be accepted, but are subject to a penalty equal to the lesser of $8,000 or $100 for each month the designation is late. The designation is due with the return on April 30, 2017 for the 2016 taxation year. The CRA will provide a grace period for the transition for dispositions in the 2016 taxation year, and the CRA has stated that penalties for a late-filed principal residence designation on a disposition in 2016 will only be assessed in the certain cases.
• Family Tax Cut
In 2014 the Family Tax Cut was enacted. This was a non-refundable tax credit of up to $ 2,000 for eligible couples with minor children based on the net reduction of federal tax that would result if up to $ 50,000 of an individual’s taxable income was transferred to the individual’s eligible spouse or common-law partner. In order to be eligible, both spouses must file a personal income tax return.
This tax credit was effective for the 2014 and 2015 taxation years. The tax credit has been eliminated for 2016 and subsequent taxation years.
• Trust Income Allocations
Income not allocated from an inter-vivos trust to an income beneficiary is taxed at the highest marginal personal tax rate (47.70% for 2016 in B.C.) in the trust. In order to allocate income from an inter-vivos trust to a beneficiary in 2016, the income must be paid or payable to the beneficiary on or before December 31st, 2016.
Care should be taken when allocating certain types of income, such as private company dividends, to beneficiaries under the age of 18 as the “Kiddie Tax” may apply to tax such income at the highest marginal personal tax rate.
• Review your Will
New legislation that came into effect in 2016 will tax certain trusts at the top marginal tax rate. If your will includes the creation of a trust, you should consider the tax impact and review your estate plan accordingly.
If you plan to make gifts to charity through your will or estate, you may be able to benefit from more flexibility in the use of your estate’s charitable donation tax credits by allocating the charitable donation credit between the terminal tax return for the year of death and the estate tax return after the death to obtain a more favourable tax position. This can be done when the returns are prepared and does not necessarily require a change to your will.
• Low-Interest Loans
The CRA’s prescribed rate of interest remains at 1% for the final quarter of 2016. This low interest rate provides tax planning opportunities for individuals to split income with family members using related party loans.
Related party loans that bear interest at a rate equal to the prescribed rate in effect as of the date of the loan can provide significant tax savings. A properly structured loan avoids the attribution rules which would otherwise apply to funds that are lent to your spouse or minor children, whether through a trust or otherwise, on an interest free basis. Annual interest payments made to you from the loaned funds will be taxed as income in your hands; however, any income generated by the recipient of the loan will be taxed as income in the hands of the recipient. Consequently, significant income can be shifted from your hands into the hands of a family member with a lower marginal tax rate.
Interest charged on related party loans outstanding in 2016 must be paid before January 30, 2017 in order to avoid the attribution rules.
Contact your D&H advisor if you feel that you may benefit from such an arrangement.
• Capital Losses
Capital losses may be used to offset capital gains realized during the year, reducing the income taxes that are payable for 2016. Therefore, it may make sense to sell investments that have dropped in value in order to realize a loss. To trigger capital losses before the end of the year, the transaction settlement date must be on or before December 31, 2016. The time it takes to settle a trade will vary depending on the nature of the security and the exchange on which it is listed. Check with your financial institution to determine the last date your trade can be initiated to ensure that it settles by December 31, 2016.
Want to buy back the same investments? Wait until at least 30 days have elapsed after the settlement date – otherwise, your losses will be denied and added to the cost base of your re-purchased investments.
If your capital losses exceed your capital gains in 2016, the net capital losses may be carried back three years or carried forward indefinitely to offset taxable capital gains in other years.
• RRSP Contributions
March 1, 2017 is the last day you can contribute to an RRSP and deduct the contribution on your 2016 personal tax return. However, the earlier you make the contribution, the more time you have to let your tax-sheltered retirement income funds grow.
Your 2016 RRSP “contribution limit” is equal to 18% of your 2015 “earned income” up to a maximum contribution limit of $ 25,370, plus any unused contribution room from prior years. Earned income generally consists of net employment, business, and rental income.
Your 2016 RRSP “contribution limit” can be found on your 2015 Notice of Assessment and on any subsequent 2015 Notice of Reassessment. Be sure to take into account any undeducted RRSP contributions you may already have when deciding how much to contribute to your RRSP for 2015. Unused RRSP contribution room can be carried forward indefinitely until fully utilized.
If you turned 71 during 2016 you must wind up your RRSP by the end of the year. Therefore, the last day you can contribute to your RRSP is December 31, 2016. However, if you have “earned income” in 2016, you will be entitled to additional contribution room for 2017. Since you must terminate your RRSP by December 31, 2016, you might consider making a contribution in December 2016 before your plan is wound up. Although you may be assessed a 1% over-contribution penalty for the month of December, you will be entitled to a tax deduction in 2016 for the contribution made. In addition, even if you are over the age of 71, you can still make contributions to a spousal RRSP up to the end of the year your spouse turns 71.
Income splitting in the future may be achieved by contributing to a spousal RRSP. However, to ensure your spouse pays the income tax on any withdrawal from the plan (rather than you), your spouse must wait until the third calendar year after the year of your last spousal RRSP contribution before making the withdrawal. Making the spousal contribution near the end of the year will effectively reduce the waiting period to just over two years.
• Allowable Business Investment Losses
While capital losses can only be used to offset capital gains, an allowable business investment loss (“ABIL”) can be used to reduce income from all sources. Therefore, if you are a shareholder or creditor of a financially unviable private small business corporation, consider selling your shares or debt to an unrelated person, or claiming a special write-down for the shares or debt, before December 31, 2016 to realize an ABIL for 2016. Keep in mind that if you have already claimed any capital gains deductions (“CGD”) in the past, the amount of the ABIL will be reduced by the CGD claimed. In addition, certain rules may disallow the ABIL claim if your investment is in the form of a non-interest bearing loan.
• Year-end Planning for Certain Investments
As a planning point, you may want to delay purchasing certain investments outside of your RRSP or TFSA until January 2017. Purchases of mutual funds that are expected to make taxable distributions near the end of 2016 can be delayed until 2017 to avoid paying tax sooner than necessary. Likewise, you might consider selling mutual funds before the end of the year to minimize your allocation of taxable income for 2016. When it comes to purchasing interest bearing securities (such as GICs) with a maturity date of one or more years, consider waiting until early 2017 so that you don’t have to pay tax on accrued interest income until 2018, the year of the investment’s first anniversary.
• Tax-Free Savings Account (TFSA)
You can contribute up to $ 5,500 to a TFSA for 2016 if you are a Canadian resident age 18 or older. Any unused contribution room can be carried forward indefinitely, so this limit may be higher if you did not contribute to a TFSA in a prior year. For example, if you have never contributed to a TFSA, you may be able to contribute a total of $ 46,500 before December 31, 2016. Contributions to a TFSA are not tax deductible, but investment income earned in the TFSA is tax-free, and you can make tax-free withdrawals from the TFSA at any time. When you make a withdrawal, the amount withdrawn will be added to your contribution room for the following year, so that it can be re-contributed in or after that following year. Over-contributing to your TFSA may result in a penalty of 1% per month on the amount off excess TFSA contributions until you have withdrawn the excess amount or more contribution room becomes available in the subsequent year.
One attractive feature of a TFSA is that if you have more money for investment than your spouse, you can give funds to your spouse to establish his or her own TFSA and the normal income attribution rules that would otherwise tax the investment income in your hands would not apply while the funds remain in the TFSA.
Unlike an RRSP, which has to be wound up when you reach age 71, you can maintain your TFSA for your entire lifetime.
TFSAs will generally be allowed to hold the same types of investments as RRSPs. This includes cash, mutual funds, publicly traded securities, GICs, bonds and in some limited circumstances certain shares of ‘small business corporations’.
• Registered Disability Savings Plan (RDSP)
You can set up an RDSP for a child if he or she qualifies for the disability tax credit. The maximum lifetime contribution limit is $ 200,000 per child, and contributions are not tax deductible. Income earned inside the plan is exempt from tax and withdrawals are taxable to the beneficiary. You will have to consider whether an RDSP might disqualify your child from receiving provincial or territorial income support amounts. Contributions may be supplemented to a maximum of $ 3,500 in matching grants in one year, and up to $ 70,000 over the beneficiary’s lifetime by payments from the Canada Disability Savings Grant Program depending on the beneficiary’s family income and contribution levels.
• Registered Education Savings Plan (RESP) Contributions
December 31, 2016 is the last day you can contribute to an RESP and receive a Canada Education Savings Grant (CESG) for 2015. There is no maximum annual RESP contribution limit, but the lifetime maximum is $ 50,000. CESG grants are calculated at 20% of your RESP contributions, subject to an annual limit of $ 500 ($ 1,000 if there is unused grant room from a previous year) per child under the age of 18 and a lifetime limit of $ 7,200. Additional age restrictions apply for RESP contributions and withdrawals.
Families with a total income of less than $ 90,563 may qualify for increased CESG benefits on the first $ 500 of RESP contributions.
All B.C. children born on or after January 1, 2006 who have an RESP are entitled to receive the $ 1,200 B.C. Training and Education Savings Grant. To access the grant, families must open an RESP and apply for the grant before the child turns nine years old. A family may only apply for the grant once the child has turned six years old. As the program is new, an extension is available for children who had their sixth birthday in 2013, 2014 or 2015 – the application deadline is the later of August 14, 2018 or the day before their ninth birthday. If your child was born in 2006, your extension is granted until August 14, 2019.
• Defer a Bonus
If you are going to receive a bonus for 2016, you may want to talk to your employer about deferring the bonus until January of 2017. That way, you can defer paying income taxes on the bonus for a full year, although a certain level of payroll withholdings will still be required.
To avoid the income tax withholdings entirely, if you have RRSP contribution room available, you can have your employer transfer the bonus directly into your RRSP in January 2017. This will enable your employer to reduce the income tax withholdings on the bonus, and will enable you to take an RRSP deduction in 2016 despite the bonus being included in your 2017 income for tax purposes.
• Interest Deductibility
In order to deduct loan interest on your income tax return, the borrowed money must be used for the purpose of earning income from a business or property. If you are currently paying interest that is not deductible (for example, on a home mortgage loan), contact your D&H advisor to discuss the possibility of reorganizing your affairs to make the interest deductible.
As already mentioned, interest charged on related party loans structured to avoid the attribution rules must be paid before January 30, 2017 in order to be deductible.
Finally, keep in mind that a deduction for your life insurance premiums is permitted where the life insurance policy is assigned as collateral for a loan, provided the assignment is required by the lender, the lender is a Canadian or Quebec licensed financial institution, and the interest payable on the loan is deductible.
• Investment Counseling Fees
You may be eligible to claim a tax deduction if you paid investment counseling fees for non-registered accounts during the year. Since income earned in registered accounts, such as an RRSP or a TFSA, is tax-sheltered, counseling fees paid to manage these accounts are not deductible.
• Review Your Personal Use of Employer-Provided Automobiles
A taxable benefit called a “standby charge” applies to an individual who uses a company owned automobile for personal purposes. If your total personal use is less than 20,004 kilometres and represents less than 50% of the total use for the year, you may qualify for a reduction of the standby charge. Also, if your business use exceeds 50% of your total use, then you have the option to calculate your operating cost benefit as one-half of the standby charge (rather than the default 26 cents per km of personal use) less reimbursements, should this prove beneficial.
It is important to maintain a log that records all of the business use of your vehicle for the year, and to note the odometer details at the end of each year, so you can document your business use and total use in the case of a CRA audit.
Review your automobile log to see if you fall within the thresholds. If you intend to use the alternate 50% method for calculating the operating cost benefit, you must advise your employer in writing by December 31, 2016.
• Purchasing Assets
If you own a business and are planning to buy certain assets for your business in the next few months, you may want to consider purchasing them before year-end. Doing so will enable you to claim capital cost allowance on the assets a full year sooner than if you wait until the New Year. In addition, if you are registered for GST, you can claim a full GST credit in the year of purchase, which will allow you to reduce the GST you owe for 2016.
• Changes to Eligible Capital Property
Starting in 2017, eligible capital property (ECP) will be converted into a new class of depreciable property. Eligible capital expenditures (ECE) are expenses incurred to purchase intangible rights or benefits for the purpose of earning income, including goodwill when a business is purchased, customer lists, licenses, and franchise rights. 75% of an ECE is added to the cumulative eligible capital (CEC) pool and amortized at an annual rate of 7%.
Budget 2016 announced the repeal of the current ECP regime.
Under the new rules, the current balance in the CEC pool will be transferred to a new class of depreciable property and amortized at an annual rate of 7% for the first ten years until 2027 and then reduced to a rate of 5% beginning in 2028. For purchases of ECE beginning in 2017, the total cost will be added to the new class and amortized at an annual rate of 5%.
The new rules will also reduce the tax advantages that can arise on a sale of ECP by a Canadian-controlled private corporation (“CCPC”). On the sale of business assets by a CCPC, the amount of the sale proceeds attributable to ECP can result in income that is taxed at the small business tax rate. The new rules will eliminate that advantage, so an asset sale by a CCPC that completes on or before December 31, 2016 will probably have a significantly better tax result than a sale that completes after December 31, 2016.
• Moving Expenses
If you moved within Canada during the year, your moving expenses may be deductible. In order to qualify, you must start working or operating a business at a new location, and your new home must be at least 40km closer to the new location than your old home. The deductibility of moving expenses is limited to the income earned at the new location in the year, and can be carried forward indefinitely. Moving expenses include out-of-pocket costs for moving, realtor’s commissions and legal fees on the sale of your old home, and the property transfer tax and legal fees paid on the purchase of your new home.
If you moved into or out of Canada during the year, but remained a Canadian resident for income tax purposes while you were abroad, you may also be able to deduct your moving expenses.
• Charitable Donations
Charitable donations must be made on or before December 31, 2016 to qualify for a tax credit in 2016. Donations may be claimed up to an amount not exceeding 75% of net income. Donations in excess of 75% of net income can be carried forward up to 5 years. For deceased taxpayers, this limit is increased to 100% of net income in both the year of death and the preceding year (taking into account bequests or legacies in the deceased’s will).
To encourage charitable giving by new donors, the 2013 Federal Budget introduced a temporary “first-time donor’s super credit”. This is an increased federal tax credit for a first-time donor on up to $ 1,000 of cash donations. The increased tax credit will add 25% to the current credit and may only be claimed once in 2013 or subsequent taxation years until 2017. An individual will be considered a first-time donor if neither the individual nor the individual’s spouse or common-law partner has claimed the charitable donations tax credit or the first-time donor’s super credit in any taxation year after 2007.
Donations of publicly-traded marketable securities that have appreciated in value can offer even greater income tax benefits than cash donations. The inclusion rate for capital gains realized on the disposition of securities by way of donation is reduced to 0% (instead of the normal capital gains inclusion rate of 50%). The 0% inclusion rate is also available for donations made to private foundations. Therefore, instead of selling securities with accrued gains to make a cash donation, consider donating the securities instead. Keep in mind that most charities require more time to process receipt donations of securities than for donations of cash. Donating publicly-traded marketable securities that are in a loss position can also be effective as you will receive a donation receipt for the fair market value of the securities at the date of the donation, and you will also be able to use the capital loss.
For donations of shares issued pursuant to a ‘flow-through share agreement’ entered into after March 21, 2011, the exemption from capital gains tax is only available to the extent that cumulative capital gains in respect of dispositions of shares of that class exceed the original cost of the flow through shares. This essentially eliminates the additional tax benefits of donating flow-through shares.
• Political Donations
Political donations must be made on or before December 31, 2016 to qualify for a tax credit in 2016. The maximum credit available for federal political donations is $ 650 on $ 1,275 of donations. The maximum credit available for B.C. provincial political donations is $ 500 on $ 1,150 of donations. For political donations in excess of these amounts, no additional tax credits are available.
• Medical Expenses
Medical expenses you wish to claim in 2016 must be paid within any twelve month period ending in 2016 to obtain a tax credit. The credit is equal to the medical expenses incurred, minus the lesser of 3% of net income or $ 2,237, multiplied by 15.0%. A similar calculation applies for B.C. provincial tax purposes, albeit at a credit rate of 5.06%. Calculations are required to determine whether it is more beneficial to claim medical expenses in the current year or to defer them to the following year.
Expenses for medical or dental services (including related expenses such as travel) which are purely for cosmetic purposes do not qualify for the medical expense credit.
If you are a self-employed person, you may be allowed to deduct from your income certain premiums paid to a private hospital or medical expense insurance plan. There are limitations and specific requirements, so contact your D&H advisor to discuss your individual situation.
• Adoption Costs
Individuals who successfully adopt a child will be entitled to claim a tax credit for the year in which the adoption is finalized based on the adoption related expenses paid, less reimbursements, up to a maximum of $ 15,255 for each child. Parents may each claim a portion of the credit per adopted child.
• Child Care Expenses
Subject to certain limitations, child care expenses incurred during the year may be claimed as a deduction from income. In two parent families, child care expenses must generally be claimed by the lower income spouse. The maximum deductible amounts are $ 8,000 for each child under the age of seven at the end of the year, and $ 5,000 for each child between the ages of seven and sixteen at the end of the year.
If your child is eligible for the disability tax credit, the limit for child care expenses for any age is increased to $ 11,000.
The total deduction for child care expenses cannot exceed 2/3 of the earned income of the individual claiming the deduction.
Remember that boarding school and camp fees can qualify for the child care deduction (limits apply), and that you’ll need to keep receipts for all child care expenses.
• Children’s Fitness and Arts Expenses
2016 is the final year that you will be able to claim the children’s fitness and arts credits.
Parents can claim a refundable tax credit of up to $ 500 per year (reduced from $ 1,000 per year in 2015) for eligible fitness expenses paid for each child who is under 16 years of age at the beginning of the year. Where a child qualifies for the disability tax credit, a supplemental $500 credit may be claimed if the child was less than 18 years of age at the beginning of the year.
Parents can also claim a non-refundable credit of up to $ 250 per year (reduced from $ 500 per year in 2015) for eligible arts expenses paid for each child who is under 16 years of age at the beginning of the year. Where a child qualifies for the disability tax credit, eligible arts expenses of up to $ 750 may be claimed for each such child that was less than 18 years of age at the beginning of the year.
If you do not have sufficient expenditures to maximize the credits, consider pre-paying for qualifying fitness and art’s expenses for 2017 by December 31st in order to claim them on your 2016 return.
The Child Fitness Equipment Tax Credit, providing a non-refundable tax credit equal to 50% of the B.C. Child Fitness Tax Credit, can also be claimed.
• Universal Child Care Benefit and Canada Child Benefit
The Universal Child Care Benefit (UCCB) was $ 160 per month for each child under the age of six, and $ 60 per month for each child in their care aged six through seventeen. In a two-parent family, the UCCB is subject to income tax in the hands of the parent with the lowest income. A single parent receiving the UCCB will have the option of including the UCCB for all children in the income of the child for whom the eligible dependent (equivalent-to-married) credit is claimed. If no eligible dependent claim can be made, the parent will have the option of including the UCCB for all children in the income of any one of the children.
Effective July 1, 2016, the Universal Child Care Benefit (UCCB) was replaced by the Canada Child Benefit (CCB). The CCB is a tax-free monthly payment made to eligible families. The CRA uses your income tax and benefit return from the previous year to determine the amount of CCB payments you are entitled to.
In order to qualify for the CCB payments, you and your spouse must file your return every year even if you did not have any income in the year.
Benefits are paid over a 12-month period starting July and ending in June of the following year. Your benefit will be recalculated every July based on your income tax and benefit return from the previous year.
Effective April 1, 2015 the province of B.C. introduced the B.C. Early Childhood Tax Benefit (BCECTB). The BCECTB is $ 55 per month for each child under the age of six. The benefit is reduced if the family’s net income exceeds $100,000 and is completely eliminated once the family’s net income exceeds $150,000. The CRA will administer the BCETB program for the province, and will use information from the CCB registry to determine eligibility for the program.
• Alimony and Maintenance
Alimony and maintenance payments made during the year are generally deductible for income tax purposes for the payer and included in the income of the recipient.
There is an exception for child support payments made pursuant to an agreement, court order, or an amendment to an agreement or court order, dated after April 30, 1997. Such payments are not deductible by the payer and are not includible in the recipient’s income. Certain payments made to third parties may also qualify as alimony and maintenance payments, provided this is specified in the related agreement or court order.
• Home Accessibility Tax Credit
Qualifying individuals, their spouses or common-law partners, or those for whom the qualifying individual is an eligible or infirm dependent, may claim up to $ 10,000 of eligible expenditures per calendar year per eligible dwelling under the non-refundable Home Accessibility Tax Credit.
Qualifying individuals include seniors (individuals who are sixty-five years of age or older at the end of the taxation year) and persons eligible for the Disability Tax Credit at any time in the taxation year.
An expense will be eligible for the Home Accessibility Tax Credit if it is made or incurred in relation to a renovation or alteration of an eligible dwelling to provide the qualifying individual with access to the dwelling, improved mobility or function within the dwelling, or to reduce the risk of harm to the qualifying individual within the dwelling. The expenses must be of an enduring nature and be integral to the dwelling (i.e. permanent fixtures).
• B.C. Education Coaching Credit
The B.C. Budget for 2015 introduced a new non-refundable B.C. Education Coaching Credit effective for the 2015, 2016 and 2017 taxation years.
The credit of $ 500 is available to paid teachers and teaching assistants who carry out at least ten hours of hours unpaid work in the year to coach or supervise students of a qualifying school engaged in extracurricular activities.
• Teachers and Early Childhood Educator School Supply Credit
Budget 2016 announced the new Teachers and Early Childhood Educator School Supply Tax Credit. The 15% refundable tax credit for amounts up to $1,000 is available to teachers and early childhood educators employed at an elementary or secondary school or child care facility who purchased eligible teaching supplies.
You may be required to provide supporting receipts and a certification from your employer attesting to the eligible supplies expense if requested by the CRA.
• Public Transit Passes
This credit applies to the cost of public transit passes that have a duration of at least one month. The credit may be claimed by an individual in respect of such costs incurred by the individual, the individual’s spouse or common-law partner, and dependent children under the age of 19 for passes purchased before December 31, 2016. Public transit includes transit by bus, streetcar, subway, commuter bus, commuter train and local ferry. Expired transit passes should be retained to support any claims. The costs of certain electronic payment cards and certain weekly public transit passes may also be claimed.
Scholarships and Other Prizes − all scholarship, fellowship, bursary or prize income received from a program that entitles the student to the education tax credit is tax exempt. Where the student is enrolled in a part-time program, the exemption applies only to the extent the award covers tuition fees and costs incurred for program-related materials. For other scholarships, fellowships, bursaries or prizes, the first $ 500 is tax exempt.
Tuition Credits – Tuition fees and student loan interest must be paid on or before December 31, 2016 to qualify for a tax credit in 2016. Unclaimed tuition, education, and textbook credits can be carried forward indefinitely (or transferred to a supporting parent, grandparent, or spouse up to certain limits), while unclaimed credits for student loan interest can be carried forward for five years.
Education and Textbook Credits – 2016 is the final year that the education and textbook non-refundable credits will be available. The education credit is worth 15% of $400 for each month of full-time post-secondary education or $120 for each month of part-time education. The textbook credit is worth 15% of $65 for each month of full-time post-secondary education or $20 for each month of part-time education.
Foreign University Tuition Fees – If you attended a foreign university, your tuition fees may be eligible for a tuition credit in Canada. To support such fees, you must have the foreign university complete a Form TL11A, Tuition, Education, and Textbook Amounts Certificate – University Outside Canada, and provide that CRA upon request.
• File Tax Returns for all Family Members who Receive Income or are Eligible for TFSA Contribution Room
All family members who receive income or have a capital gain or loss in a year should file income tax returns even if they do not have to pay any tax. Filing an income tax return generally prevents taxpayers from further reassessments after a period of three years from the notice of assessment date. In addition, if your child or spouse earns income from employment or business, filing a tax return will allow them to accumulate RRSP contribution room for use in future years.
Family members who don’t have any income should still file income tax returns if they are 18 or older, because the CRA tracks TFSA contribution room only for individuals who file tax returns. In addition, some benefits (such as the GST credit, Canada Child Tax Benefit, Universal Child Care Benefit, and Guaranteed Income Supplement) are dependent on the assessed total income of a taxpayer and any spouse. For post-secondary students, you may be able to claim or carry forward the interest paid on your student loans, and transfer or carry forward your tuition, education, and textbook amounts.
• Offshore Investments
If you hold specified foreign property costing more than $ 100,000 in total at any time during 2016, you are required to file Form T1135, Foreign Income Verification Statement. Shares of foreign corporations, rental properties outside Canada, and debts owing from non-residents can all be specified foreign property that is required to be reported. Shares of foreign companies held in a non-registered Canadian investment account are specified foreign property and must be reported; some Canadian financial institutions can give you a report showing the foreign property and the relevant cost amounts. The filing due date of the form is the same as the filing deadline for your personal tax return, and there are penalties for not filing the form on time.
If you held specified foreign property with a total cost of less than $ 250,000 throughout the year, there is a simplified reporting method available. With this method, only the type of property, the top three countries based on the maximum cost amount of specified foreign property held during the year, and any income or gains and losses will need to be reported.
If you held specified foreign property with a total cost of $250,000 or more, you will need to report the cost (maximum cost during the year, as well as cost at year-end), country where the property is held, income, and gains and losses in respect of each individual foreign investment. Taxpayers may choose to report the aggregate value of securities held in a Canadian registered broker account on a country-by-country basis. The highest fair market value at the end of any month during the year and the fair market value at year-end will be required to be reported. If the form is filed late or if the CRA finds any errors on the form, it can extend the period during which it can reassess your tax return by three years (to six years in total).
If you were a beneficiary of a trust that is not resident in Canada, you may be required to file an information return in respect of income distributions or capital distributions from the trust. Penalties for failure to file the information return can apply.
• U.S. Citizens Living in Canada
U.S. citizens or green card holders are subject to U.S. taxation on their worldwide income even if they live in Canada. Tax credit mechanisms exist to prevent double taxation, but certain information reporting forms carry non-filing penalties even where there is no U.S. tax payable.
U.S. personal income tax returns for citizens or green card holders living outside of the U.S. are generally due on June 15, 2017, but payment of any outstanding income taxes must be made by April 15, 2017 to avoid arrears interest.
• The “Nil Consideration” Election for GST Purposes
The “nil consideration” election is an election that allows certain corporations and partnerships to elect to make supplies for nil consideration for GST purposes. The advantage to the election is that “closely related” corporations and partnerships can treat supplies of goods and services as being made for nil consideration; this avoids the need for one party to collect and remit GST while the other party makes an ITC claim and waits for the refund.
The election is only available to “closely related” corporations and partnerships. Eligibility for the nil consideration election is complex; if you are relying on such an election, please contact us to discuss the eligibility requirements and the method of filing the election.
In the past, the election for nil consideration did not need to be filed with CRA. It was sufficient to simply keep the election in your records, and to show the election only if CRA asked to see it.
However, starting in 2015, registrants who are relying on the nil consideration election must file form RC4616, Election or Revocation of an Election for Closely Related Corporations and/or Canadian Partnerships to Treat Certain Taxable Supplies as Having Been Made for Nil Consideration for GST/HST Purposes, if they are relying on the nil consideration election.
Please contact us for assistance with this election.News