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One of the most valuable tax and investment strategies available to Canadians is home ownership. While the real estate market can (and does) go and up down, home ownership has proven to be, over the long term, a reliable way of building net worth.

One of the most valuable tax and investment strategies available to Canadians is home ownership. While the real estate market can (and does) go and up down, home ownership has proven to be, over the long term, a reliable way of building net worth.

The value of home ownership as a wealth-building tool is significantly increased by the tax rules which apply when a homeowner sells his or her home. Essentially, where an owner-occupied home is sold, the gain realized on that home which would, under ordinary tax rules, be included in income is instead received tax-free.

For example, a homeowner who purchased his or her home in 2000 for $200,000 and sells it in 2022 for $800,000 will earn a gain of $600,000. Half of that amount, or $300,000 would, under ordinary tax rules, constitute a taxable capital gain, on which the amount of combined federal-provincial tax could be close to $150,000. However, because of a tax rule known as the principal residence exemption, the entire gain realized is not included in income, and no tax is payable on that $600,000 amount.

It's not hard to see that being able to claim the principal residence exemption on the sale of a residential property is a huge benefit – so much so that the federal government has become concerned that individuals who are “flipping” residential real estate are claiming tax benefits to which they are not entitled on the income earned from such sales, including making claims for the principal residence exemption.

The federal government has chosen to address this situation with a change which was announced in the 2022 federal Budget and which will take effect for residential property sales which take place on or after January 1, 2023. The proposed new “deeming” rule will provide that, where an individual sells a residential property within 365 days of acquiring it, that property will be considered a “flipped property” and profits realized will be treated as business income and will be fully taxable, unless the sale takes place in relation to one or more enumerated “life events” or circumstances. In effect, the rule seems to place the onus on the taxpayer who sells a residential property within one year after purchase to show that his or her reasons for selling within one year of purchase either fall under one of the exempted “life event” circumstances or, if not, that the facts are such that he or she is nonetheless entitled to claim the principal residence exemption on any gain realized from the sale.

The new rule will not apply where a taxpayer sells a property within 365 days of acquiring it, and the sale of that property can reasonably be considered to have occurred due to, or in anticipation of, one or more of the following events:

• Death: the death of the taxpayer or a related person.
• Household addition: one or more persons related to the taxpayer joining the taxpayer’s household or the taxpayer joining the household of a related person’s household (e.g., birth of a child, adoption, care of an elderly parent).
• Separation: the breakdown of a marriage or common-law partnership, where the taxpayer has been living separate and apart from their spouse or common-law partner for a period of at least 90 days prior to the disposition.
• Personal safety: a threat to the personal safety of the taxpayer or a related person, such as the threat of domestic violence.
• Disability or illness: the taxpayer or a related person suffering from a serious disability or illness.
• Employment change: a change in employment for the taxpayer or their spouse or common-law partner.
• Involuntary termination: the employment of the taxpayer or their spouse or common-law partner is terminated by their employer;
• Insolvency: insolvency of the taxpayer.
• Involuntary disposition: the expropriation or the destruction of the taxpayer’s property.

The list of taxpayer circumstances in which the new rule will not apply to a sale within one year is undeniably broad; however, many of the criteria used to determine eligibility for an exemption from the new rule are, in some instances, quite subjective. A sale within 365 days of purchase which is the result of “serious disability or illness” would be exempt from the new rule, but it’s not clear what criteria would be applied to determine what constitutes a serious illness or disability, or who would make that determination.

It's clear that the federal government’s target for the new deeming rule is individuals who buy residential properties intending to sell quickly for a profit and not individuals and families who, for any number of reasons, decide to sell within a year of buying their home. However, the net for the new rule has been cast very broadly and it’s unclear how that new rule, as currently drafted, will be efficiently administered in a way which achieves the government’s objectives, without overreach. Fortunately, the federal government will, prior to enacting this new rule four months from now, in January 2023, be carrying out a consultation process in which these or any other issues may be raised. Any interested taxpayer can contribute to that consultation process, which will continue until September 30, 2022. More information on how to participate can be found on the Finance Canada website at Government delivering on Budget 2022 commitments to Canadians - Canada.ca.

Transitioning into retirement is a complex process, one which involves decisions around finances (present and future) as well as one’s way of life. While it was once typical for an individual to work full time until retiring (usually at age 65), the word “retirement” no longer has a single meaning – in fact, it’s now the case that almost every individual’s retirement plans look at 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 or simply from a desire to stay active and engaged in the work force.

Transitioning into retirement is a complex process, one which involves decisions around finances (present and future) as well as one’s way of life. While it was once typical for an individual to work full time until retiring (usually at age 65), the word “retirement” no longer has a single meaning – in fact, it’s now the case that almost every individual’s retirement plans look at 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 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 (CPP). 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 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. In 2012 that changed, 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 availability of 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 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 (CRA). An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of 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 https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html, 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 which they are entitled to will increase with each successive year’s contributions.

Where an individual makes 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 him or herself with those technical details. For CPP retirement benefit recipients who are under age 65 or over 70, there is no decision to be made. For the former, CPP contributions will be automatically deducted from their paycheques and for the latter, no such contributions are allowed.

Individuals in the middle group – aged 65 to 70 – will need to make a decision about whether it makes sense, in their individual circumstances, to continue making contributions to the CPP.

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 2022, $1,253.59 per month), as making such contributions will mean an increase in the individual’s CPP retirement benefit each month for the rest of his or her life. Conversely, for individuals who are already receiving the maximum CPP retirement benefit, or even close to it, there is likely little or no benefit to be derived from continuing to contribute (especially for those 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.

This year, for the first time since 2019, most (if not all) post-secondary students will be preparing to go to (or return to) university or college for in-person learning. While that’s an exciting prospect after two years of pandemic restrictions, starting or returning to post-secondary education is also an expensive undertaking.  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 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.

This year, for the first time since 2019, most (if not all) post-secondary students will be preparing to go to (or return to) university or college for in-person learning. While that’s an exciting prospect after two years of pandemic restrictions, starting or returning to post-secondary education is also an expensive undertaking.  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 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 learning is delivered may have changed and changed again over the past two and a half years, the financial realities have not. Regardless of how post-secondary learning is structured and delivered, it is expensive. Fortunately, there are also tax credits and benefits which can be claimed to offset such costs.

The tax credits and deductions which can be claimed by post-secondary students (or their spouses, parents, or grandparents) in relation to the 2022–23 academic year are summarized below.

Tuition fees

The good news is that 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 myriad 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 that 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); 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 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 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 students (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 December of 2021 and the references in it are to the 2021 taxation year. However, it is safe to assume that the same rules will apply for 2022.

In this year’s budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase of 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.

In this year’s budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase of 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.

Finance Canada has now released further details of the FHSA and, while the general structure of the FHSA program remains the same as that outlined in the 2022 federal Budget, the most recent announcement includes some changes which increase the flexibility of plan terms, to the benefit of taxpayers.

 As part of its announcement, Finance Canada confirmed that, while the FHSA program may not be available until part way through 2023, eligible participants will still be entitled to make a full contribution for the 2023 tax 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 and 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. It should be noted that the ability to carry forward contribution room to a future year is a change from the original budget announcement, which indicated that no such carryforward would be allowed.

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 an FHSA, there are inevitably some qualifications and restrictions placed on the use the plans. First, amounts withdrawn from an FHSA are 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 a 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 isn’t reduced or limited in any way 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, 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 from 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 on a tax-free basis, and without being limited by the amount of any available RRSP contribution room.

Finally, the FHSA program is complementary to the existing Home Buyers’ Plan (HBP). Under that Plan, 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 Home Buyers’ Plan 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 recent announcement made by Finance Canada with respect to the FHSA program included the announcement of a consultation process with respect to the rules governing such plans. That consultation process, which is now open, will continue until September 30, 2022. Details of the consultation process, as well as a backgrounder outlining the design of the FHSA program, can be found on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2022/08/government-delivering-on-budget-2022-commitments-to-canadians.html and at https://www.canada.ca/en/department-finance/news/2022/08/design-of-the-tax-free-first-home-savings-account.html.

By the beginning of August 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 filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations for the year are now in the past.

By the beginning of August 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 filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations for the year are now in the past.

It is, therefore, 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 filing 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 7and July 17 of this year, the Canada Revenue Agency received and processed just under 29.5 million individual income tax returns filed for the 2021 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 cannot 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 27 million (or 92.1%) of individual returns for 2021 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 over 92% 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 variety of review programs, some of them 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 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.

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 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.

Canadian businesses should be aware that, while many programs which provided payroll or expense supports for businesses during the pandemic ended on May 7, 2022, there is still a program in place to help employers with payroll costs. As well, even for programs which ended on May 7, applications can still be made for relief for claim periods prior to that date.

Canadian businesses should be aware that, while many programs which provided payroll or expense supports for businesses during the pandemic ended on May 7, 2022, there is still a program in place to help employers with payroll costs. As well, even for programs which ended on May 7, applications can still be made for relief for claim periods prior to that date.

The reason that applications for relief can still be made is that the application process works on a rolling basis, in which an application for relief can be made up to six months after the end of the particular claim period for which such relief is sought. The program that is still in place, and those for which applications can still be made for claim periods prior to May 7, 2022, are outlined below.

Work-Sharing Program

A Work-Sharing agreement helps employers and employees avoid layoffs when there is a temporary decrease in the normal level of business activity that is beyond the control of the employer.

The agreement made provides income support to employees eligible for Employment Insurance benefits who work a temporarily reduced work week while their employer recovers.

The pandemic relief Work-Sharing program runs until September 24, 2022, and the initial agreement entered into between the employer, employees, and Service Canada can run for a period of 76 weeks.

More information on eligibility criteria and the application process can be found on the federal government website at https://www.canada.ca/en/employment-social-development/services/work-sharing.html.

Tourism and Hospitality Recovery Program

Qualifying organizations (whether for-profit, not-for-profit, or charitable) which operate in the tourism, hospitality, arts, entertainment, or recreation sectors and have incurred significant revenue losses (at least 40% during the particular claim period) may be eligible for wage and/or rent subsidies for periods up to May 7, 2022.

Applications for such claim periods can be made up to 180 days after the end of the claim period. Consequently, as of July 30, 2022, applications can still be made for claim periods which began on or after January 16, 2022.

Detailed information on the program, including eligibility requirements and the application process (including application deadlines for each claim period), can be found on the federal government website at  https://www.canada.ca/en/revenue-agency/services/wage-rent-subsidies/tourism-hospitality-recovery-program.html.

Hardest-Hit Businesses Recovery Program

As the name implies the Hardest-Hit Businesses Recovery Program is targeted to entities – whether for profit, not-for-profit, or charitable – which have suffered a decline in revenues of at least 50% during a particular claim period. There are, as well, no restrictions on the economic or business sector which the particular applicant must be operating.

Under the Hardest-Hit Businesses Recovery Program, qualifying entities can receive both wage and rent supports. As with other business pandemic relief programs, claim periods under the HHBRP ended as of May 7, 2022. However, it is, as of the end of July 2022, possible to apply for benefits for any claim periods which began on or after January 16, 2022.

More information on the HHBRP is available on the federal government website at Hardest-Hit Business Recovery Program (HHBRP) - Canada.ca.

Canada Recovery Hiring Program

The Canada Recovery Hiring Program (CRHP) provides Canadian employers with a subsidy to cover a portion of wages for new employees or for wage or hour increases for existing employees.

As with other pandemic relief programs, the CRHP ended on May 7, 2022 but, as of the end of July 2022, applications can still be made for any claim periods which began on or after January 16, 2022.

More information on the CRHP can be found on the federal government website at Canada Recovery Hiring Program (CRHP) - Canada.ca.

Local Lockdown Program

In the earlier stages of the pandemic, lockdowns ordered by public health authorities were generally broad-based – often province-wide. Later, however, such lockdowns became more localized in nature, reflecting the pandemic conditions then prevailing in a particular region.

To address business losses resulting from such localized lockdowns, the federal government created the Local Lockdown Program. Essentially, under that Program, businesses, charities, and not-for-profit entities which were subject to a full or partial (for instance, capacity limits) public health restriction and incurred revenue losses of a specified percentage (which differs by claim period) may be eligible for wage and rent support through the Tourism and Hospitality Recovery Program (THRP). It’s important to note, however, that although such supports are being offered through the THRP, it is not necessary that the applicant be in the tourism, hospitality, arts, entertainment, or recreation sectors to be eligible for support.

Once again, the LLP ended on May 7, 2022, but applications under that Program can still be made for any claim periods which began on or after January 16, 2022. More information on the LLP is available at https://www.canada.ca/en/revenue-agency/services/wage-rent-subsidies/local-lockdown-program.html.

The sheer number and variety of pandemic relief programs offered by the federal and provincial governments at different times over the past two and a half years can make it difficult to follow just what supports are available to whom and for which time periods. Information on the current status of the major federal pandemic relief programs for businesses, including how the various programs interact and application deadlines for each claim period, is, however, always available on the federal government website at https://www.canada.ca/en/department-finance/economic-response-plan.html#financial_support.

Since 2009, Canadians have been living (and borrowing) in an ultra-low-interest-rate environment. Between January 2009 and January 2022, the bank rate (from which commercial interest rates are determined) was (except for a brief period in 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.

Since 2009, Canadians have been living (and borrowing) in an ultra-low-interest-rate environment. Between January 2009 and January 2022, the bank rate (from which commercial interest rates are determined) was (except for a brief period in 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 early part of this year. The Bank of Canada increased interest rates in March, and followed that up with successively larger interest rate increases in April, June, and July. As a result of those increases, the bank rate has, in the last five months, gone from .50% to 2.75% – nearly a six-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 current inflation rate of around 8% 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, the Bank projections were that the rate of inflation would be “returning to the 2% target by the end of 2024”.

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 to the debtor’s annual income. In the fall of 2005, the ratio of debt to disposable income for an average Canadian family stood at 93%. In the first quarter of 2022, that ratio stood at just less than double that amount, or 183%. In other words, on average, the debt load carried by Canadians is now just under twice their annual 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 the 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 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 TFSA 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 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/.

By the time August 2022 arrives, virtually all individual Canadians have filed their income tax return for the 2021 tax year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their refund or reluctantly paid any balance of tax owing.

By the time August 2022 arrives, virtually all individual Canadians have filed their income tax return for the 2021 tax year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their refund or reluctantly paid any balance of tax owing.

It’s a surprise, therefore, when unexpected mail arrives from the Canada Revenue Agency (CRA) around the middle of August, and both the enclosed form and the information on that form will likely be both unfamiliar and unwelcome. That enclosed form will be an Instalment Reminder which will advise the recipient that, in the CRA’s view, he or she should make instalment payments of income tax on September 15 and December 15 of 2021 – 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 tax to the CRA during the year (instead of when he or she files the return for the year next April) 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 behalf, 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. When someone’s working life ends and retirement begins, it’s consequently not particularly surprising that the individual wouldn’t know that it is now his or her responsibility to make specific arrangements for the payment of income tax. 

Adding to the potential confusion, most employees who are now moving into retirement have had only a single source of income throughout their working lives. Once in retirement, however, there are likely multiple such sources of income, including Canada Pension Plan benefits and Old Age Security payments, and perhaps monthly amounts received from an employer-sponsored registered pension plan (RPP) or a registered retirement income fund (RRIF). Unless the individual so directs, none of the payors of those kinds of income will deduct income tax from the payments and remit them to the federal government on the individual’s behalf. 

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 (2022) year and either of the two previous (2020 and 2021) 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 August 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 the return for 2022 next spring. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2022, 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 2021 tax year (including any balance that was owed on filing). Where a taxpayer’s income has not changed between 2021 and 2022 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2022 will be the same or slightly less than it was in 2021, 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 2022 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2021 to 2022 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 tax return for 2022 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.

As pandemic restrictions ease, the option of sending kids to summer camp is once again a realistic one and, for both kids and parents, the possibility of doing so must be particularly welcome this year.

As pandemic restrictions ease, the option of sending kids to summer camp is once again a realistic one and, for both kids and parents, the possibility of doing so must be particularly welcome this year.

When it comes to those summer camps, there are an almost limitless number of options for parents, 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 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 that deduction, which is not specific to summer child care or summer camp costs but is available year round, 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 the 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 his or her net income is used to determine the 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 licensed child care arrangement will qualify, 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 expenses 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 2022, the following overall limits apply:

• $5,000 in costs per year for a child who was born from 2006 to 2015;
• $8,000 in costs per year for a child who was born after 2015;
• $11,000 in costs per year for a child who was born in 2022 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 from 2006 to 2015;
• $200 per week for a child who was born after 2015; and
• $275 per week for a child who was born in 2022 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 2022, 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 the year for each child is 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 2015) 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 2006 and 2015) 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 do not apply to limit the amount of expenses claimed by the family.

The total deduction available for child care expenses incurred for the 2022 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 choice or another, or 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 2022 tax year, should consult Form T778 E (21). 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 2021 tax year, and consequently the age limits must be adjusted by one year for child care expense claims for 2022. 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 2022 tax year.

At a time when Canadian households are coping simultaneously with rising interest rates and an inflation rate which recently hit its highest point in nearly four 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 rising interest rates and an inflation rate which recently hit its highest point in nearly four 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 qualities 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 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 in 2022 is based on his or her income for 2021. And that information was provided to the Canada Revenue Agency on the tax returns for 2021 which were filed by taxpayers in the spring of 2022.

Once the CRA receives the needed income information (usually by April 30, 2022) and the Agency determines a taxpayer’s benefit eligibility, those benefits are paid to eligible recipients throughout the 2022–23 benefit year, which starts on July 1, 2022 and ends on June 30, 2023.

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 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 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 2022 to June 2023) benefit year, the maximum annual GST/HST benefit is as follows:

• $467 if you are single;
• $612 if you are married or have a common-law partner; and
• $161 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 2022–23 benefit year is determined automatically by the CRA for each taxpayer who filed a return for 2021. 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, and Saskatchewan. The purpose of the CAIP is to help offset the financial impact of the federal carbon tax.

In addition to living in one of the Alberta, Ontario, Manitoba, or Saskatchewan, 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.

Prior to this year, the CAIP was claimed on the individual income tax return and paid as part of the tax refund process. Beginning in 2022, however, the CAIP is paid in quarterly instalments on the 15^th of April, July, October, and January. For the 2022–23 benefit year, the amount of CAIP receivable in each of the four provinces is as follows.

The Ontario program provides an annual credit of:

• $373 for an individual,
• $186 for a spouse or common-law partner,
• $93 per child under 19,
• $186 for the first child in a single-parent family.

The Manitoba program provides an annual credit of:

• $416 for an individual,
• $208 for a spouse or common-law partner,
• $104 per child under 19,
• $208 for the first child in a single-parent family.

The Saskatchewan program provides an annual credit of:

• $550 for an individual,
• $275 for a spouse or common-law partner,
• $138 per child under 19,
• $275 for the first child in a single-parent family.

The Alberta program provides an annual credit of:

• $539 for an individual,
• $270 for a spouse or common-law partner,
• $135 per child under 19,
• $270 for the first child in a single-parent family.

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 when they file their return for 2021.

In 2022, because of the changeover to a quarterly benefit payment, the payment schedule for the CAIP is slightly altered. In July, eligible recipients will receive a “double up” payment equal to twice the usual quarterly benefit. The subsequent benefit payments (in October and January) will be single payments, each equal to one-quarter of the total annual CAIP. 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 is eroded, are as follows.

• $1,395 for single individuals
  The single individual benefit is reduced if adjusted net income is more than $22,944. No basic amount is payable if the applicant’s adjusted net income is more than $32,244.
• $2,403 for families 
  The family benefit amount is reduced if adjusted family net income is more than $26,177. No basic amount is payable where adjusted family net income is more than $42,197.

In order to apply for the CWB, a recipient must file a Schedule 6 with his or her tax return for the year. 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 or 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 2022–23 benefit year are based on family net income for 2021.

The maximum amounts payable for the benefit year running from July 2022 to June 2023 are as follows.

For each child:

• under 6 years of age: $6,997 per year ($583.08 per month)
• 6 to 17 years of age: $5,903 per year ($491.91 per month)

Where family net income for 2021 is less than $32,797, recipients will receive the maximum amount outlined above for 2022–23, with no reductions.

Individuals and families who may be eligible for the CCB will have their eligibility automatically assessed when filing a return for 2021: there is no requirement to file a particular schedule or other application. More information on the CTB 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 received are summarized.

When a public health emergency was declared in March of 2020, the focus for the federal government was getting pandemic benefits into the hands of eligible recipients as quickly as possible, to help mitigate the sudden financial crisis faced by so many Canadians. To that end, three decisions were made with respect to program administration. First, eligibility for benefits would be determined by “self-attestation” – in other words, applicants would certify, based on the information provided to them online, that they met the eligibility criteria for a particular benefit. Such self-attestations were accepted at face value, without documentation or other verification methods. Second, application for the same benefit – the Canada Emergency Response Benefit, or CERB – could be made to either the Canada Revenue Agency or Employment Insurance/Service Canada, depending on the circumstances of the applicant. Finally, in at least in the initial round of CERB payments (which were received by over 8 million Canadians), no income tax was withheld from payments issued, although the CERB itself was taxable income.

When a public health emergency was declared in March of 2020, the focus for the federal government was getting pandemic benefits into the hands of eligible recipients as quickly as possible, to help mitigate the sudden financial crisis faced by so many Canadians. To that end, three decisions were made with respect to program administration. First, eligibility for benefits would be determined by “self-attestation” – in other words, applicants would certify, based on the information provided to them online, that they met the eligibility criteria for a particular benefit. Such self-attestations were accepted at face value, without documentation or other verification methods. Second, application for the same benefit – the Canada Emergency Response Benefit, or CERB – could be made to either the Canada Revenue Agency or Employment Insurance/Service Canada, depending on the circumstances of the applicant. Finally, in at least in the initial round of CERB payments (which were received by over 8 million Canadians), no income tax was withheld from payments issued, although the CERB itself was taxable income.

Those decisions, while meeting the needs of the immediate situation, also created an environment in which many individuals received benefits to which they were not entitled at all, or which were greater than the amounts for which they were eligible, or were for time periods during which they were not eligible. As well, the interaction between pandemic benefits and existing government income replacement programs like Employment Insurance created some confusion over which benefits should be applied for, or could be received, in which circumstances. Finally, the self-attestation method opened the door to outright fraud by those claiming and receiving benefits to which they knew they were not entitled.

Whatever the cause, reason, or motivation, those who received pandemic benefits to which they were not entitled are now hearing from the federal government. Benefit recipients who may have received benefits for which they might not have been eligible have received letters reminding them of the eligibility criteria for the particular benefit(s) received. Such individuals might also have received a letter requesting documentation for their benefits application. Finally, the federal government has sent “denial letters” informing the recipients that a determination has been made that they did receive benefits to which they were not entitled.

With that process done, both Employment and Social Development Canada (ESDC) and the CRA are now issuing notices to recipients of pandemic individual benefits. Such letters inform the recipient of the determination which has been made that they received benefits to which they were not entitled, and outline both the amount to be repaid and available options for such repayment.

Given the circumstances under which such debts likely arose, the federal government is stressing that it is more than willing to work with individuals to enable them to discharge the debt that they now owe, and that options available to such individuals include flexible or deferred payment arrangements. In addition, the CRA has indicated that, where benefit recipients are unable to repay amounts owed in full, the Agency will not be levying penalties or interest charges with respect to unpaid amounts.

While the willingness of the federal government to be flexible with respect to repayment of amounts owed is certainly welcome, the options open to the government when it comes to collection of pandemic benefits owed are wide-ranging, and those options are outlined on its website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/when-you-money-collections-cra/collection-individual-covid-19-benefits-issued-by-canada-revenue-agency.html and https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/when-you-money-collections-cra/collection-canada-emergency-response-benefit-issued-by-service-canada.html. In worst-case scenarios, the collection options can include seizure of other amounts to which the debtor is entitled (like a tax refund or GST/HST credit) or, in the very worst case scenario, seizure of the debtor’s wages or assets.

A recent announcement by the federal government indicates that partial relief from repayment will be available for some CERB recipients. During the time that the CERB program was operating, there was a parallel benefit program for post-secondary students who were unable to find summer employment due to the pandemic. That program – the Canada Emergency Student Benefit (CESB) – provided recipients with $1,250 per month. The federal government recently announced that post-secondary students who would have qualified for the CESB but instead incorrectly applied for and received CERB will not have to repay the entire amount of CERB benefits received. Rather, such students who meet the eligibility criteria imposed by the federal government would be required to repay only the difference between CERB benefits received and the amount of CESB to which the student would have been entitled. The Canada Revenue agency has set up a website outlining the terms of the repayment relief program and a link to the application form.

Whatever one’s circumstances, it’s in the best interests of anyone in the position of having to repay pandemic benefits not to ignore a letter from the federal government. The telephone number to call to begin the process of reaching a repayment arrangement is 1-833-253-7615, and the best course of action is to make that call as soon as possible, and certainly before the federal government finds it necessary to commence more stringent collection actions.

If Canadians have the feeling that they are being squeezed from all sides when it comes to household finances, it’s because they are. In 2022 Canadian consumers have been hit by a double whammy of three successive interest rate hikes since March (with more increases almost certainly on the horizon) while dealing at the same time with increases in the cost of everyday goods to an extent that has not been seen, in some cases, for as much as forty years.

If Canadians have the feeling that they are being squeezed from all sides when it comes to household finances, it’s because they are. In 2022 Canadian consumers have been hit by a double whammy of three successive interest rate hikes since March (with more increases almost certainly on the horizon) while dealing at the same time with increases in the cost of everyday goods to an extent that has not been seen, in some cases, for as much as forty years.

Adding to the misery, price increases caused by inflation are disproportionately affecting goods which are simply not discretionary expenditures. In May 2022, while the overall rate of inflation was 7.7%, the cost of groceries rose by 9.7%, with increases recorded across nearly all food categories.  

No one feels the impact of rising prices as much as those who are living on a fixed income. 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.

Those retirees also, unfortunately, have had to content with a third financial factor in 2022. For the majority of retirees who do not receive a pension from a former employer, savings accumulated in a registered retirement savings plan or a registered retirement income fund provide, along with government programs like the Canada Pension Plan and Old Age Security, the bulk of retirement income. For the past several years, interest rates have been so low that, in order to generate sufficient returns to provide that retirement income, retirees have had to move away from the safety of traditional investments like guaranteed investment certificates and into more risky investments, usually in mutual funds. And, as of the end of June 2022, the market value of such funds on the Toronto Stock Exchange is down significantly from the start of the year. Consequently, retirees who might otherwise consider selling investments in order to generate needed cash flow may well hesitate to do so when such investments have dropped significantly in value.

It must seem to Canadian retirees that there are no good options when it comes to generating the cash flow needed to meet this perfect storm of bad financial circumstances. Fortunately, however, the 68% of Canadians over the age of 65 who own their own homes (based on Statistics Canada’s figures for 2016), do have options. While real estate prices in many areas have softened somewhat over the past couple of months, 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. And that equity can now provide a source of retirement income.

For such retirees who want to remain in their homes there are essentially two options. The first is a home equity line of credit, the second 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 percent 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 4.70%, they will be obliged to make an interest payment of approximately $50 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 the 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 he or she leaves or sells 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.

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 big tax bill come next April must be taken by December 31(the making of registered retirement savings plan (RRSP) contributions being the notable exception). Notwithstanding, 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 tax surprises when filing one’s tax return for 2022 next spring. As well, while the deadline for implementing 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 big tax bill come next April must be taken by December 31(the making of registered retirement savings plan (RRSP) contributions being the notable exception). Notwithstanding, 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 tax surprises when filing one’s tax return for 2022 next spring. As well, while the deadline for implementing 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 beginning of June, most Canadians have filed their individual income tax return for the 2021 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 up the amount owed. 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 2021 (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 2022.

After finding out one’s tax liability for 2021, the next step in doing a review is to get a sense of how much tax has already been paid for the 2022 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 2021 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 2022 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 2022 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 2022 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 FormT1213 – 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 with the Agency. 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 TD1A form for their province of residence for 2022, 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 the 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 2022 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 2022 and February of 2023 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 2022 is completed next spring.

While recent increases in interest rates have put something of a damper on home sales, the Canadian real estate market was booming in the first quarter of 2022. According to Canadian Real Estate Association statistics, there were over 650,000 residential sales transactions in the first quarter (January to March) of this year.

While recent increases in interest rates have put something of a damper on home sales, the Canadian real estate market was booming in the first quarter of 2022. According to Canadian Real Estate Association statistics, there were over 650,000 residential sales transactions in the first quarter (January to March) of this year.

Those figures mean that hundreds of thousands of Canadians will be closing home sales transactions and moving this spring. 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 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.

However, 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 tax deductible, 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 self-employment. 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 Toronto to Halifax 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. 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, 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 – there is no deduction possible 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 him or herself, family members, and household effects. In all cases, the moving expenses must 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”).

• traveling expenses, including vehicle expenses, meals, and accommodation, to move the taxpayer and members of his or her family 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 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.

At least during the first quarter of this year, the Canadian real estate market was a seller’s market, so much so that individuals who had sold their homes could then find it difficult to purchase another home in their desired location or at their desired price. Prudent would-be sellers may therefore have decided to purchase before selling, in order to avoid such difficulty. In most such 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 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 for certain types of expenses. 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 51.0 cents for Alberta to 64.5 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 2021 taxation year – the CRA will be posting the rates for 2022 on its website early in 2023, 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 27 million individual income tax returns already filed with the Canada Revenue Agency for the 2021 tax year, 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 2021 tax year.

Of the 27 million individual income tax returns already filed with the Canada Revenue Agency for the 2021 tax year, 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 2021 tax year.

When all goes as it should, the information contained in the Notice of Assessment 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 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, pension income, and, possibly, withdrawals from a registered retirement savings plan or registered retirement income fund, making it 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 calculates 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 has been around almost as long as our current income tax system and 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 be taken 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 an 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 2021 tax year, the one-year deadline (which is usually, but not always, the later of those two dates) would be April 30, 2023 (or June 15, 2023 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 and the reasons why the assessment is being disputed and submits those reasons by clicking on the Submit button at the bottom of the "Register my formal dispute – review" page. 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 (which was updated and re-issued in December 2021) on the Agency’s website at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t400a/t400a-22e.pdf.

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. 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. If the taxpayer continues to disagree with the CRA’s position, the next step is an appeal to the Tax Court of Canada, which must be filed within 90 days after the CRA issues its assessment or reassessment. While in many instances (generally where amounts in dispute are relatively small) taxpayers are allowed by law to represent themselves before the Tax Court, it’s generally a good idea, once things reach this point, to consult a tax lawyer before taking that next step.

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.

Over the past several years, would-be buyers in the Canadian residential real estate market have been faced with two realities. First, the cost of homes continued to increase significantly in virtually every market across Canada. At the same time, however, the cost of borrowing to finance a home purchase had almost never been lower.

Over the past several years, would-be buyers in the Canadian residential real estate market have been faced with two realities. First, the cost of homes continued to increase significantly in virtually every market across Canada. At the same time, however, the cost of borrowing to finance a home purchase had almost never been lower.

At least one of those realities came to an end in April 2022, when the Bank of Canada increased its benchmark interest rate by a full one-half percentage point – the largest such rate hike in more than 20 years. At the same time, the Bank signaled in its press release announcing the rate hike decision that more such increases were likely on the horizon, as the Bank seeks to bring the current inflation rate of 6.8% closer to its target rate of 2%.

While a one-half percent rate increase doesn’t necessarily sound like a lot, each increase in interest rates results in a change in what’s called the “mortgage stress test” – and those changes drive down the amount of mortgage financing for which most first-time home buyers can qualify, and consequently the maximum price they can consider paying for a home.

To understand that mortgage stress test, some background is required. Mortgage lending rules have always been more conservative in Canada than they are in the United States. However, it was at one time possible to purchase a home in Canada without providing any down payment, and to finance the repayment of the full purchase price over the next 40 years – longer than the working life of many Canadians.

In 2008 the US mortgage market was collapsing under the weight of hundreds of thousands of mortgage defaults. While that scenario fortunately never played out in Canada, the Canadian government determined that changes were needed to existing Canadian mortgage lending rules, in large part to avoid such a possibility. Those rules were tightened in many steps over the subsequent 10 years, leading eventually to the imposition of the mortgage stress test in 2016 and a furthering tightening of that test in 2017 and 2021. Essentially, the mortgage stress test imposes additional income and creditworthiness requirements on would-be borrowers with the goal of ensuring that they will be able to manage (and repay) their mortgage debt at both current interest rates and at potentially higher rates in the future.

Lenders have always, of course, assessed the creditworthiness of individuals who apply for mortgage financing – or any kind of loan. When an applicant seeks mortgage financing, lenders use two tests to determine the applicant’s ability to manage the borrowing sought. The first, the Gross Debt Service (GDS), is a measure of housing costs, and includes mortgage payments, property taxes, heating, and, where applicable, one-half of condominium fees. Lenders want to see that no more than 35% to 39% of a household’s gross income is needed to meet the GDS. The second measurement, the Total Debt Service or TDS, includes housing costs plus all other debt obligations (student loans, car payments, etc.). When it comes to TDS, lenders want to see that payment of total debt obligations utilizes no more than 42% to 44% of the borrower’s gross household income.

In addition to these tests imposed by a lender, the mortgage stress test requires would-be borrowers to satisfy additional, more stringent, criteria. Specifically, such borrowers must meet the GDS and TDS ratios based on both the actual mortgage interest rate which the lender is providing and a higher notional rate. In effect, a borrower must show that he or she has sufficient total income and disposable income to continue to be able to meet mortgage payment obligations in the event that mortgage interest rates increase – as they just have.

Anyone applying for mortgage financing (including both first-time buyers and current homeowners renewing their mortgages or moving to a new lender) must meet the GDS and TDS ratios using the actual rate negotiated with the lender plus 2%, or the notional rate set by the federal government, whichever is higher.

As of June 2021, the notional rate imposed under the mortgage stress test was increased to 5.25% for all mortgages, regardless of the size of down payment. At that time, the 5.25% rate was, usually, the higher of two possible rates which could be imposed under the mortgage stress test, meaning that prospective borrowers had to show that they could meet their mortgage payment obligations based on a notional rate of 5.25%. However, following the recent interest rate increases announced by the Bank of Canada, major Canadian lenders have increased their mortgage lending rates. As of mid-May, the lowest rate offered by a major Canadian bank for a five-year fixed rate mortgage was 4.36%. As a result, under the terms of the mortgage stress test, prospective buyers will have to show that they satisfy lending criteria based on a notional rate of 6.36%, as that rate is higher than the notional 5.25% rate set by the federal government.

The recent changes create a kind of double jeopardy for prospective borrowers. As the result of the higher notional rate imposed under the mortgage stress test, such borrowers will qualify for less in the way of mortgage financing, narrowing the range of properties on which they can make an offer to purchase. And, at the same time, such prospective homeowners are faced with the certainty that, should they be successful in making an offer to purchase and obtaining mortgage financing, the cost of servicing that mortgage will be higher than it would have been just a few months ago.

While both these changes are undoubtedly discouraging to Canadians trying to get a foothold in the residential real estate market, they are the new reality for would-be home buyers. And, while predicting the future of interest rates is a fool’s game, current economic realities (along with the signals issued by the Bank of Canada) would seem to make it very unlikely that interest rates will be declining any time in the near future. Those trying to adjust to the new interest rate reality (which includes but certainly isn’t limited to first-time home buyers or those renewing their mortgages) can find some guidance on the website for the Financial Consumer Agency of Canada at https://itools-ioutils.fcac-acfc.gc.ca/MQ-HQ/MortgageQualifier.aspx?lang=eng&lang=eng and https://www.canada.ca/en/financial-consumer-agency/services/interest-rates-rise.html.

Since the beginning of the pandemic in March 2020, the federal government has provided a wide range of pandemic benefit programs for individuals. In the main, those programs have acted to replace income lost where employment income was no longer available as businesses closed during lockdowns, or individuals were unable to work because of illness or because they were at home with young children when schools closed to in-person learning.

Since the beginning of the pandemic in March 2020, the federal government has provided a wide range of pandemic benefit programs for individuals. In the main, those programs have acted to replace income lost where employment income was no longer available as businesses closed during lockdowns, or individuals were unable to work because of illness or because they were at home with young children when schools closed to in-person learning.

As the pandemic waxed and waned over the past two years, pandemic benefit programs offered by the federal government for individual Canadians have been introduced, amended, and replaced, to fit the changing circumstances. Those ongoing changes have made it difficult for individuals to know, at any given time, what benefits are available to them, what the eligibility criteria for those benefits are, and, perhaps most critically, the deadline(s) by which application for such benefits must be made.

As of April 2022, there are three major federal pandemic programs still in existence: the Canada Recovery Sickness Benefit, the Canada Recovery Caregiver Benefit, and the Canada Worker Lockdown Benefit. Each has its own eligibility criteria and benefit amount obtainable, as outlined below.

Canada Recovery Sickness Benefit

As the name implies, the Canada Sickness Recovery Benefit (CRSB) is provided to individuals who have been unable to work due to COVID-19. That inability to work can arise because the person had COVID-19, was advised to self-isolate, or had an underlying health condition that put them at higher risk of contracting COVID-19.

The CRSB provides such individuals with a flat amount of $500 per week, for a week in which the individual was unable to work at least 50% of their normal work week. The benefit amount of $500 per week does not depend in any way on the amount of income the individual normally earns; however, in order to qualify, the individual must have earned at least $5,000 in the previous 12 months, or during 2019, 2020, or 2021.

The CRSB is payable for a maximum of six weeks, such that the maximum benefit receivable is $3,000.

Canada Recovery Caregiving Benefit

Millions of Canadians, while not ill themselves, lost income during the pandemic because they were needed to stay at home to care for children or other family members who required supervised care.

The Canada Recovery Caregiving Benefit (CRCB) provides income support to such individuals who were employed or self-employed. In order to qualify for the CRCB, individuals must have been unable to work because they were at home caring for their child who was under age 12 or another family member who needed such supervised care. Such at-home care must have been required because the school, regular program, or facility attended by the individual requiring care was closed or unavailable due to the pandemic, or because the person requiring care was sick, self-isolating, or at risk of serious health complications due to COVID-19. In addition, the applicant for the CRCB must have been unable to work at least 50% of their normal work week and he or she must have earned at least $5,000 in the previous 12 months, or during 2019, 2020, or 2021.

Like the CRSB, the CRCB pays eligible individuals a flat amount of $500 per week. Unlike the CRSB, however, the CRCB program will provide a weekly benefit to eligible individuals for a period of up to 44 weeks.

Canada Worker Lockdown Benefit

The Canada Worker Lockdown Benefit (CWLB) differs in a number of ways from the CRSB and the CRCB. The latter two benefits are available in all provinces and territories, with eligibility for such benefits based entirely on personal circumstances. In the case of the CWLB, however, eligibility depends, in the first instance, on the public health situation in an individual’s province of residence (or sometimes, on their location within a province or territory) at any given time.

The reason for the difference is that the CWLB is intended to help compensate individuals who have lost income due to public health orders issued in response to current pandemic conditions, and currently in force in their particular place of residence and work. Such orders can, of course, vary widely from place to place.

In order to be eligible for the CWLB, an individual must have earned at least $5,000 in the previous 12 months or in either 2020 or 2021. In addition, an applicant must have filed a tax return for the 2020 tax year and must also commit to filing his or her returns for 2021 and 2022 by the end of 2023. Additional eligibility conditions may also apply, and a list of those conditions can be found at https://www.canada.ca/en/revenue-agency/services/benefits/worker-lockdown-benefit/cwlb-who-apply.html.

The CWLB is $300 per week and there is no limit to the number of weeks during which benefits can be received. However, such benefits are only available during time periods when the area or province or territory in which an individual lives is designated as a COVID-19 lockdown region. In addition, such lockdown must have resulted in an individual losing his or her job, or experiencing a 50% reduction in average weekly income, as compared to the previous year.

COVID-19 lockdown regions are designated by the federal government, and a comprehensive listing of the dates during which each province and territory of Canada qualified as a COVID-19 lockdown region can be searched by postal code, on the federal government website at https://www.canada.ca/en/revenue-agency/services/benefits/worker-lockdown-benefit/cwlb-regional-lockdowns.html.

Making the application – critical dates and deadlines

It’s critical to remember that an application for benefits under the CRSB, CRCB, or the CWLB programs can be made up to 60 days after the end of a benefit week/period. Consequently, as of April 26, benefit applications still be made for any benefit period starting after February 19, 2022.

That 60-day application period is particularly important when it comes to the CWLB. As of April 26, there are no regions of Canada which are currently designated as COVID-19 lockdown regions. However, with the exception of British Columbia, Saskatchewan, Manitoba, and New Brunswick, and some areas of Québec and the Northwest Territories, all other provinces and territories were subject to such designation within the last 60 days, meaning that eligible applicants can still apply for CWLB benefits for those time periods. A listing of the COVID-19 lockdown designation periods for each province and territory (or locations within a province or territory) can be found on the federal government website at https://www.canada.ca/en/services/benefits/designated-covid-19-lockdown-regions.html.

The other critical date to be aware of is May 7, 2022: as of that date (under existing legislation), each of the CRSB, CRCB, or CWLB programs will come to an end. Notwithstanding, the 60-day rule for applications will continue, meaning that applications for benefits can still made, as long as the usual eligibility criteria are met and no more than 60 days has passed since the end of the particular benefit period for which the application is being made.

 While the number and variety of benefit programs and varying eligibility and application criteria can be confusing, the federal government has provided a comprehensive summary on its website of the rules governing these programs. That summary is available at https://www.canada.ca/en/department-finance/economic-response-plan.html#individuals.

Canada’s retirement income system has three major components – private savings through registered retirement savings plans or registered pension plans, and two public retirement income plans – the Canada Pension Plan and the Old Age Security program. The last of those – the Old Age Security 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 second quarter of 2022 (April to June 2022), that maximum monthly benefit is $648.67.

Canada’s retirement income system has three major components – private savings through registered retirement savings plans or registered pension plans, and two public retirement income plans – the Canada Pension Plan and the Old Age Security program. The last of those – the Old Age Security 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 second quarter of 2022 (April to June 2022), that maximum monthly benefit is $648.67. 

For many years, OAS was automatically paid to eligible recipients once they reached the age of 65. However, beginning in July 2013 Canadians who are eligible to receive OAS benefits have been 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 the 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 entirely dependent on each individual’s financial circumstances. 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. By that age many (although not all) Canadians are no longer making mortgage payments or saving for retirement and so the amount of income needed is reduced. 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 (for 2022) 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 2022, that second income tax bracket begins when taxable income reaches $50,197.
• The Canadian tax system provides a non-refundable tax credit of $7,898 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 $39,826.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2022, the full credit is payable to individual taxpayers whose family net income is less than $39,826.
• 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 2022 is more than $81,761 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 he or she turns 65, may be in a financial position which enables him or her 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 then begin receiving income from those savings. There are a number of options available for structuring that income, and, whatever the option chosen (usually, converting the RRSP into a registered retirement income fund or RRIF, or purchasing an annuity) 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 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, and 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.

The difficulties faced by younger Canadians in buying a first home almost anywhere in Canada, owing to both the spiraling cost of real estate and, more recently, increases in interest rates, is a major concern for those individuals and their families. Not surprisingly, then, the issue of housing affordability was a major focus of the recent federal budget, and the following measures to address that problem were announced.

The difficulties faced by younger Canadians in buying a first home almost anywhere in Canada, owing to both the spiraling cost of real estate and, more recently, increases in interest rates, is a major concern for those individuals and their families. Not surprisingly, then, the issue of housing affordability was a major focus of the recent federal budget, and the following measures to address that problem were announced.

Tax-Free First Home Savings Account

The most significant housing affordability measure announced in the budget was the creation of a new program – the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save (within prescribed limits) toward the purchase of a first home.

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.

Beginning in 2023, 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 limit cannot be carried over to future years – in other words, if a planholder makes less than the maximum allowable contribution in any year, his or her contribution limit for subsequent years is still $8,000. As well, 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 contribution. As well, investment income of any kind which is earned by contributed funds held in the plan is not taxed as it is earned. Finally, when the planholder withdraws funds from the plan to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.  

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 are received tax-free only if those funds are used to make a qualifying home purchase. Amounts withdrawn and used for any other purpose are fully taxable.

Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. While this does 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 are allowed to transfer funds held in the FHSA to their RRSP. Significantly, the amount which is transferred from an FHSA to an RRSP isn’t reduced or limited in any way 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 a first-time home purchase using an FHSA. And, of course, any amounts transferred from an FHSA to an RRSP will be taxable on withdrawal, in the same way as any other RRSP withdrawal.

Finally, individuals who have managed to accumulate funds within an RRSP will be allowed to transfer (subject to the $8,000 annual and $40,000 lifetime contributions limits) such funds to an FHSA on a tax-free basis, where they would then be subject to the usual rules governing an FHSA. Such individuals would not, however, be entitled to replace those funds within the RRSP.

Our tax system already provides a means to save for home ownership on a tax-assisted basis – the Home Buyers’ Plan (HBP). Under that Plan, 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 Home Buyers’ Plan 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.

First-Time Home Buyers’ Tax Credit

First time home buyers in Canada can already claim a non-refundable federal tax credit of up to $750 (which can be shared between spouses) when purchasing a home which they will occupy as a principal residence.

The budget proposes to increase the amount of that Home Buyers’ Tax Credit to $1,500, and spouses and common-law partners will continue to be able to split the value of the credit.

The increase applies to acquisitions of a qualifying home made after 2021.

Details of each of these measures can be found in the 2022 Federal Budget papers, which are available on the federal government website at https://budget.gc.ca/2022/pdf/tm-mf-2022-en.pdf.

For the majority of Canadians, the due date for filing of an individual tax return for the 2021 tax year was Monday May 2, 2022. (Self-employed Canadians and their spouses have until Wednesday June 15, 2022 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 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.

For the majority of Canadians, the due date for filing of an individual tax return for the 2021 tax year was Monday May 2, 2022. (Self-employed Canadians and their spouses have until Wednesday June 15, 2022 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 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.

By April 11, 2022, just over 13 million individual income tax returns for the 2021 tax year had been filed with the Canada Revenue Agency. And, inevitably, some of those returns contain errors or omissions that must be corrected.

Over 93% of the returns which have already been filed for the 2021 tax year were filed through online 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 arithmetic 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. 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 $69,206 in income becomes $62,906. 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.

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 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 return can file an adjustment to a return filed for the 2018, 2019, 2020, and 2021 tax years. Where the return was filed using EFILE, the EFILE service provider can similarly file adjustments for returns filed for the 2018, 2019, 2020, or 2021 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.

It’s also possible to make a change or correction to a return using the CRA’s “My Account” service (through the “Change My Return” feature), but that choice is available only to taxpayers who have already become registered for My Account. Taxpayers who opt to become registered for My Account in order to access the broader options available through Change My Return should be aware that the registration process takes a few weeks, in order to satisfy the CRA’s security measures.

While using the CRA’s online services, whether through ReFILE or My Account, 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. 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. There is no limit to the number of changes or corrections which can be made using the T1-ADJ E (20) form.

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. A taxpayer who isn’t sure 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 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 CRA.

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’s goal is to respond to such requests that are submitted online within about two weeks, while those which come in by mail currently (as of April 2022) take about ten to twelve weeks. Not unexpectedly, 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, 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.

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 #59 Corporate

Personal:

Issue #59 Personal

It is a sad fact that, every year, thousands of Canadians become the victims of scams in which fraud artists claim to be representatives of the federal government. Equally sadly, in most cases the money lost is never recovered.

It is a sad fact that, every year, thousands of Canadians become the victims of scams in which fraud artists claim to be representatives of the federal government. Equally sadly, in most cases the money lost is never recovered.

While fraud has always and will always exist, this time of year provides a perfect opportunity for scams, particularly those involving our tax system, for a number of reasons. First, of course, it’s tax-filing season, a time of year when receiving communications from the tax authorities wouldn’t strike most Canadians as being out of place, or suspicious – and when, in fact, the tax authorities do communicate with taxpayers for valid reasons. Second, most tax returns filed by individual Canadians result in the payment of a tax refund. Consequently, receiving an email or other communication indicating that the CRA has funds which are owed to you wouldn’t necessarily strike most recipients as a scam. As well, over the course of the past two pandemic years, many day-to-day financial dealings have had to be managed online or by phone, opening up opportunities for fraudsters to misrepresent themselves as government officials or government websites. All in all, it’s a perfect storm of opportunity for scammers and fraudsters.

Generally, there are two basic ways in which tax fraud artists prey on taxpayers. In a scam which has been around for years, if not decades, a telephone caller falsely informs the taxpayer that he or she owes money to the Canada Revenue Agency and that immediate payment must be made. A failure to pay, the taxpayer is told, will mean seizure of his or her assets, cancellation of his or her passport and/or social insurance card or other government-issued identification, deportation, or imprisonment. Further, such payment must be made only by wire transfer or pre-paid credit card or cryptocurrency. In a second type of scam, which is more common at this time of year, the taxpayer is contacted by e-mail or text and advised that he or she is owed money by the federal government. In order to receive the money owed, the taxpayer must click on a link in that e-mail or text. The link leads, not to a federal government website, but to a “dummy” site very closely resembling the actual Canada Revenue Agency website. The taxpayer must then, in order to have his or her “refund” processed, provide personal and financial information which can then be used by the tax scammer. A taxpayer may also be contacted by phone, told falsely that he or she is owed money by the CRA and asked to provide details – like a bank account number – so that the “refund” can be deposited to the taxpayer’s account.

There are, in fact, several things about such communications that should alert the recipient to the fact that they are not legitimate. First of all, if a taxpayer does owe money to the CRA, or is owed money by the CRA, he or she will be first advised of that fact in the Notice of Assessment issued by the CRA for every tax return that is filed – and never by telephone, email, or text. Second, the CRA would never suggest or require that a taxpayer send funds to the Agency by wire transfer or by using a prepaid credit card or cryptocurrency, and would never ask a taxpayer to click on a link in an email or text, or to provide financial details over the phone. Payments of money owed to the CRA are made online, through the CRA website, through the taxpayer’s financial institution (in person or online), or by mailing a cheque to the Agency. Any payment by the CRA to the taxpayer is made by direct deposit to a taxpayer’s bank account (using an already existing direct deposit arrangement), or by cheque, which is sent to the taxpayer by regular mail. Finally, any suggestion that the CRA would (or could) cancel a taxpayer’s passport or other government-issued ID for failure to make payment is simply ludicrous.

Although these scams are well known (and new ones appear frequently and are noted on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html), many such scams originate outside Canada, limiting the ability of the CRA and law enforcement authorities to monitor or stop them. For the most part, therefore, the onus will fall on individual taxpayers to protect themselves through a healthy degree of caution, even skepticism. At the end of day, the best protection from being scammed is being aware of the methods by which the CRA will (and, more importantly, will not) contact a taxpayer – in other words, being able to recognize when a scam attempt is being made.

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

A legitimate CRA employee will identify themselves when they contact you. The employee will give you their name and a phone number. Make sure the caller is a CRA employee before you give any information over the phone.

If you’re suspicious, this is how you can make sure the caller is from the CRA:

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.
3. End the call. Then check that the information provided during the call was legitimate by calling the CRA’s individual income tax enquiries line at 1-800-959-8281. 

Similarly, where a caller claiming to be from the CRA leaves a voice mail the taxpayer should, instead of returning that call, call the 1-800 number above. Service agents at that line will be able to access the taxpayer’s tax records and provide accurate information on whether the Agency is indeed seeking to contact the taxpayer and, if so, for what reason.

Taxpayers should note as well that seeing a CRA 1-800 number or an Ottawa area code on their call display does not necessarily mean that the call is from the CRA. Scammers have been able to use technology to show false numbers on call display, as part of their attempt to seem legitimate.

Red flags that suggest a caller is a scammer include (but are not limited to):

• The caller does not give the taxpayer proof that the caller works for the CRA – for example, their name, phone number, and office location.
• The caller pressures the taxpayer to act now or uses aggressive language.
• The caller asks the taxpayer to pay with prepaid credit cards, gift cards, cryptocurrency, or some other unusual form of payment.
• The caller asks for information that the taxpayer would not enter on a tax return or that is not related to money which the taxpayer owes to the CRA – for instance, a credit card number.
• The caller says that he or she can help the taxpayer apply for government benefits. Such applications are made directly on Government of Canada websites or by phone – no one should give information to callers offering to apply for benefits on the taxpayer’s behalf.

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

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. A lot would be happy to find that at least nothing is owed to the Canada Revenue Agency, or that an amount owing is not significant.

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. For those who don’t have the means to pay a tax bill out of existing resources, that likely means 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. 

However, if 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 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 his or her social insurance number, date of birth, and the amount entered on line 150 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 2020 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.

The CRA also provides on online tool, in the form of a Payment arrangement calculator (available at Payment Arrangement Calculator - Canada.ca), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances. That calculator includes interest charges since, no matter what payment arrangement is made, the CRA levies interest charges on any amount of tax owed for the 2021 tax year which is not paid on or before May 2, 2022. 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, 2022 is 5.0%. 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 2, 2022 deadline.

Unfortunately, this year many taxpayers may be facing what might be termed a “tax hangover”. During 2020, millions of Canadian taxpayers applied for and received pandemic-related benefits. And, although those benefits represent taxable income to the recipients, no tax was deducted from the payments when they were made. Consequently, many benefit recipients, on filing their returns for the 2020 tax year in the spring of 2021, faced a larger than expected tax bill for 2020. In recognition of that fact, and the ongoing economic dislocation resulting from the pandemic, the Canada Revenue Agency provided some relief in the form of a one-year interest holiday. Specifically, taxpayers who received pandemic-related benefits during 2020, and whose income for that year was $75,000 or less, were not assessed interest charges on 2020 tax amounts which were owed but not paid in full by the deadline. Unfortunately for such taxpayers, that interest holiday ends on April 30, 2022. If outstanding tax amounts owed for 2020 are not paid by that date, the CRA will begin assessing interest charges on the debt. And, as outlined above, those interest charges will be levied at a rate of 5% – with interest compounded daily. Details of the interest holiday program and how outstanding amounts owed will be treated after April 30, 2022 can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes/interest-relief.html.

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. 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 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 a worst-case scenario, the total penalty charges can be 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. This year, for most taxpayers, that means filing on or before Monday May 2, 2022. For self-employed taxpayers (and their spouses) the filing deadline is Wednesday June 15, 2022. However, for all taxpayers, the payment deadline for all 2021 income tax amounts owed is Monday May 2, 2022.

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/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-taxes-owing.html#toc2.

Our tax system is complex and, understandably, its myriad rules and exceptions are a mystery to most Canadian taxpayers – and most are happy to leave it that way. There is however, one rule in the Canadian tax system which doesn’t really have any exceptions and of which most Canadian taxpayers are all too well aware. That is the rule that says individual income tax amounts owed for any tax year must be paid – in full – on or before April 30 of the following calendar year. This year, that means April 30, 2022 – although, since April 30, 2022 falls on a Saturday, the Canada Revenue Agency is providing an administrative concession by allowing taxpayers until Monday May 2 to pay their taxes without incurring any interest charges.

Our tax system is complex and, understandably, its myriad rules and exceptions are a mystery to most Canadian taxpayers – and most are happy to leave it that way. There is however, one rule in the Canadian tax system which doesn’t really have any exceptions and of which most Canadian taxpayers are all too well aware. That is the rule that says individual income tax amounts owed for any tax year must be paid – in full – on or before April 30 of the following calendar year. This year, that means April 30, 2022 – although, since April 30, 2022 falls on a Saturday, the Canada Revenue Agency is providing an administrative concession by allowing taxpayers until Monday May 2 to pay their taxes without incurring any interest charges.

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 2021 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 sending a cheque to the CRA.

Pay using online banking

Millions of Canadians transact most or all of their banking using the online services of their particular 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 are configured. What’s important to remember is 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 Debit, 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. 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 the particular financial institution.

A list of participating financial institutions for each type of card, and more details on 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.

There are only two such service providers – Pay Simply and Plastique - listed on the CRA website, and links to each such service are available 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 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 2021 tax year. However, any such arrangement must be made at least five business days before the payment due date of May 2. 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 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 only for the payment of a current year 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 that 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.

Paying at a Canada Post outlet

All Canada Post outlets can receive payments of individual income tax balances owed, in cash or by debit card. 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 of Canada, and are mailed, together with the required remittance form, to the Canada Revenue Agency, using the address found on the back of the payment remittance form. As is the case with payments made at a financial institution, the taxpayer can print such a 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. 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.

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.

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 2021 ahead of the May 2, 2022 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 2021 ahead of the May 2, 2022 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 2021 are no longer available. Almost all such tax planning or saving strategies, in order to be effective for 2021, 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 2021 doesn’t, 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 2021 – 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, while 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.

Political contribution tax credit

The federal government provides a non-refundable tax credit for contributions made to registered political parties and to candidates in federal elections. As a federal election was held in 2021, many Canadians may have made contributions which are eligible for that political contribution tax credit.

The restriction, however, is that a claim for that political contribution tax credit can only be made on the return for the year in which the contribution was made. Consequently, taxpayers who made qualifying contributions in 2021 must claim the credit for those contributions on the return for 2021: if that is not done, no credit can be claimed for that contribution on any future return. There is some flexibility, however, in that where one spouse has made a contribution which qualifies for the federal political contribution tax credit, that contribution, and the resulting credit, can be claimed instead by the taxpayer’s spouse on his or her tax return for that year.

Charitable donations

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2021) 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 provides 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 expense 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 2021) $2,421, whichever is less. Put more practically, for 2021 taxpayers who have net income of $80,700 or more can claim medical expenses incurred over $2,421. 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, 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 $2,421/3% 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 2004 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/$2,421 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.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for last year show that the vast majority of Canadian individual income tax returns — just over 90%, or just over 28 million returns — were filed online, using one or the other of the CRA’s web-based filing methods. About 2.8 million returns — or just over 9% — were paper-filed.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for last year show that the vast majority of Canadian individual income tax returns — just over 90%, or just over 28 million returns — were filed online, using one or the other of the CRA’s web-based filing methods. About 2.8 million returns — or just over 9% — 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 Agency’s website, using the 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. It seems that most Canadians want to have little to do with the preparation of their own returns, as last year just over 58% 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, and that 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 is available as of February 21, 2022), and 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 2020 or 2021), 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 2021. That eight-character alpha-numeric code is found (in very small type) in the top right hand corner of the first page of the 2020 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 2021 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 approved for use in preparing individual returns for 2021 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 hard copy of the tax return and guide package for 2021 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 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, hard copy of the 2021 tax return and guide package to anyone who paper-filed a return for 2020 before November 12, 2021. That package should have arrived by February 21, 2022; 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, and letters advising those individuals of their eligibility were sent out by the CRA in mid-February 2022.

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, most such clinics have had to change their usual in-person operation and adopt alternate methods. Volunteers can prepare an individual’s return, for free, by videoconference, by phone, or through document drop-off. 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 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 2021. The deadline for payment of any balance of taxes owed for 2021 is April 30, 2022. As April 30 falls on a Saturday this year, the CRA has announced that payments of 2021 taxes owed will be considered to have been made on time if they are made on or before Monday May 2, 2022. 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 2021 must also be filed on or before April 30. Here again, the CRA has extended that deadline to provide that returns will be considered filed on time if they are filed on or before Monday May 2, 2022. Self-employed taxpayers and their spouses have until Wednesday June 15, 2022 to file their returns for 2021 (but they too must pay any balance of 2021 taxes owing on or before May 2, 2022).

A summary of filing and payment due dates for returns for the 2021 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.

The Canadian tax system provides individual taxpayers with a tax credit for out-of-pocket medical and para-medical expenses incurred during the year. Given that such expenses must be incurred at some time by virtually every Canadian, that credit is among the most frequently claimed on the annual return. Unfortunately, however, the rules governing such claims are detailed, somewhat complex, and frequently confusing.

The Canadian tax system provides individual taxpayers with a tax credit for out-of-pocket medical and para-medical expenses incurred during the year. Given that such expenses must be incurred at some time by virtually every Canadian, that credit is among the most frequently claimed on the annual return. Unfortunately, however, the rules governing such claims are detailed, somewhat complex, and frequently confusing.

Taxpayers who wish to make a claim for the cost of medical expenses must make the following determinations. Which, if any, of the medical expenses incurred qualify for the medical expense tax credit? For what time period should the claim be made? What documentation, if any, is required to support the claim(s) being made? And, finally, which family member should make the claim?

Even the basic “formula” with respect to the amount of medical expenses which may be claimed is not straightforward. That basic rule is that a taxpayer can make a claim for qualifying medical expenses incurred in any 12-month period which ends during the taxation year, to the extent that the amount of such expenses exceeds 3% of net income or $2,421, whichever is less. Each component of that formula clearly requires some explanation.

Qualifying medical expenses

While Canada has a publicly funded medical care system, there is nonetheless a large (and growing) number of medical and para-medical expenses which must be paid for by the individual on an out-of-pocket basis. The more common such expenses include the costs of prescription drugs, dental care, physiotherapy, medical equipment, and ambulance transport.

However, it’s not the case that all such expenses can be claimed for tax purposes, or can be claimed in all circumstances. Where an expense does qualify, additional requirements may be imposed before a claim for such expense can be made. Finally, the question of whether an expense is claimable for tax purposes, and the requirements which must be met, aren’t necessarily intuitive.

To assist taxpayers in that regard, the Canada Revenue Agency (CRA) publishes a very lengthy list of medical expenses which do qualify, together with information on any additional requirements (such as a doctor’s prescription) which must be met in order to make such a claim. That listing 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/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html#mdcl_xpns.

What documentation is required to support claims made?

It’s obvious that the number and kind of different medical expenses which might be incurred by individuals over the course of the year is virtually limitless. In all cases, whatever the expense, the taxpayer must be prepared to support and document the nature and cost of each such expense, as well as the date on which it was incurred, with receipts. While such documentation does not have to be filed with the return, the CRA can request it from the taxpayer. And, where the supporting documentation cannot be provided, the expense claim will be denied.

For what time period should the claim be made?

While it might seem logical that only medical expenses incurred during 2021 could be claimed on the return for that year, the rules are actually more flexible than that. Specifically, those rules allow a claim to be made on the return for 2021 for qualifying medical expenses which are incurred in any 12-month period which ends during 2021.

Taking advantage of that rule requires the taxpayer to identify the 12-month period ending sometime in 2021 during which the greatest amount of qualifying medical expense was incurred.

It’s sometimes the case that it makes better sense, from a tax perspective, to not make a claim in the first year that that claim is available. Take, for instance a taxpayer who must incur significant costs for dental care, with such costs being incurred between November 2021 and March 2022. In order to maximize the claim to be made, it could make sense not to make a claim for the expenses incurred in the fall of 2021 on the 2021 return, but instead to wait and make a claim on the return for 2022 for all costs incurred between November 2021 and March 2022.

There is, unfortunately, no formula or rule of thumb which can be used to determine the optimal 12-month period for a medical expense claim in all circumstances. Rather, the taxpayer must determine, on a case-by-case basis, the optimal time period in their particular circumstances. Tax return preparation software can be helpful in this regard, by running what-if scenarios to determine the optimal tax result.

Who will make the claim?

Medical expenses incurred by either spouse or any of their minor children can be combined and claimed on a single return. In some circumstances, medical expenses paid by the taxpayer for other relatives may also be combined and included in the taxpayer’s claim.

Since only the amount of medical expenses which exceeds 3% of net income or $2,421 (whichever is less) can be claimed, it usually makes the most sense to combine family medical expenses and for a single claim for those combined expenses to be made by the lower income spouse, as long as that spouse has tax payable equal to at least the amount of the credit to be claimed.

It’s readily apparent that determining, calculating, and claiming the medical expense tax credit for a particular tax year isn’t an easy or straightforward process. To assist taxpayers in that process, the CRA publishes a guide to the rules which govern medical expense claims, and the most recent issue of that Guide — RC 4065, Medical Expenses — can be found on the CRA website at https://www.canada.ca/content/dam/cra-arc/formspubs/pub/rc4065/rc4065-21e.pdf.

While the requirement that Canadians file an income tax return each year never changes, the actual content of that return is never the same year to year. While many of the changes — like inflation-related increases to income tax brackets and credit amounts — happen automatically and don’t require any particular awareness or action on the part of the taxpayer, this is not the case with all tax changes. In some cases, taxpayers who aren’t aware of the changes can miss out on newly available or expanded tax deductions or credits, even if they are using tax preparation software to prepare their return. While the Canada Revenue Agency (CRA) will usually catch arithmetic errors made on a return, the Agency does not (and cannot) ensure that a taxpayer has made all of the claims which are available to him or her. And perhaps the only thing worse than having to pay a tax bill is paying one that is higher than it needs to be because available deductions or credits were missed.

While the requirement that Canadians file an income tax return each year never changes, the actual content of that return is never the same year to year. While many of the changes — like inflation-related increases to income tax brackets and credit amounts — happen automatically and don’t require any particular awareness or action on the part of the taxpayer, this is not the case with all tax changes. In some cases, taxpayers who aren’t aware of the changes can miss out on newly available or expanded tax deductions or credits, even if they are using tax preparation software to prepare their return. While the Canada Revenue Agency (CRA) will usually catch arithmetic errors made on a return, the Agency does not (and cannot) ensure that a taxpayer has made all of the claims which are available to him or her. And perhaps the only thing worse than having to pay a tax bill is paying one that is higher than it needs to be because available deductions or credits were missed.

This year, there are three tax or tax-related changes on the return for 2021 which are likely to affect a broad range of Canadians, and they are explained below.

Home office expenses

During the 2021 tax year, millions of Canadians continued to work from home, at least some of the time, for pandemic-related reasons. It has always been the case that employees who work from home and who meet certain criteria can deduct a portion of certain expenses related to the use of a home office — including internet usage fees and a portion of utilities costs and rent. In order to make such a claim, the employee must provide a specified form (the T2200 or T2200S) signed by his or her employer, indicating that the employee works from home and bears those costs, without reimbursement by the employer. To make the claim, the employee was also required to calculate the specific costs incurred and be prepared to provide documentation of those costs, if asked.

In view of the fact that millions of Canadians have been working from home for the first time during the past two years, and recognizing the somewhat onerous extent of record-keeping required to claim home office expenses, the federal government offered employees a choice in the form of a flat rate deduction. Using that method, an employee can claim a deduction of $2 for each day that he or she worked from home, to a maximum of $500 (for 2021), without the need to provide receipts or to obtain a T2200 from the employer. In order to qualify for the flat rate deduction, an employee must have worked more than 50% of the time from home for a period of at least four consecutive weeks for pandemic-related reasons. An employee who was offered the option of working from home and chose to do so will also qualify for the flat rate deduction.

Employees who worked from home during 2021 and meet the eligibility criteria under both the new flat rate and older detailed method can choose which one to use. Those who want to determine which method gives a better tax result can calculate their actual costs on a T777 (available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t777.html) and then decide which is the better option for them.

Detailed information on the two methods, including eligibility criteria and required documentation, 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.

Climate action incentive payment

In this case, the change is not a change to the tax rules, but rather the means by which, and the schedule on which, the tax benefit is delivered. Eligible taxpayers who live in Alberta, Saskatchewan, Manitoba, or Ontario can receive a tax-free Climate Action Incentive (CAI) payment, which is intended to help offset the impact of federal pollution pricing. For 2022, the basic amount of that incentive is $360, with higher amounts available to taxpayers who live in rural areas.

On the return for 2020, the CAI was claimed, and the payment delivered, as part of the tax filing process, with eligible taxpayers claiming the incentive by completing Schedule 14 of the return. Any incentive amount to which the taxpayer was entitled would then create or increase the refund owed to the taxpayer. Conversely, where the taxpayer owed money on filing, that tax bill would be reduced by the amount of any CAI to which the taxpayer was entitled.

On the return for 2021, most taxpayers do not need to complete Schedule 14 or make a specific claim for the CAI. The exception is taxpayers who live in rural areas, who must complete Schedule 14 in order to indicate their eligibility for the CAI rural supplement. For taxpayers who are not eligible for that rural supplement, the CRA will determine a taxpayer’s eligibility, and the amount of any CAI payable, based solely on information contained in the taxpayer’s return for the year. The major change, however, is that payment of the incentive to eligible taxpayers is not delivered as part of the tax filing process – in other words, it won’t create or increase a tax refund and it will not reduce any tax payment required on filing. That’s because, starting in 2022, the federal government intends to deliver the CAI as a quarterly benefit payment. Under that new system, one-quarter of the CAI for the year will be paid to eligible taxpayers in each of April, July, October, and December of the year. Since the information needed to determine a specific taxpayer’s eligibility will not be available until the return for 2021 is filed, the July 2022 payment will include a retroactive payment for April 2022 — it will, in effect, be a “double-up” payment, covering the first six months of 2022.

For 2022, the CAI is $360 for an adult, plus $180 for a spouse, plus $89 for each eligible child. More information on the CAI for 2022 is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/cai-payment.html.

Canada Workers’ Benefit

The CWB is a refundable tax credit provided to lower income working Canadians. The CWB is not new, but changes have been made for the 2021 tax year which both increase the amount of the benefit and expand its availability.

The CWB is claimed by completing and filing Schedule 6 of the annual tax return. And, while the calculations to be made on that Schedule are somewhat complex, the amounts which are available to eligible taxpayers (as set out on the CRA website) are:

• $1,395 for single individuals — the amount is gradually reduced if your adjusted net income is more than $22,944; no basic amount is paid if your adjusted net income is more than $32,244.
• $2,403 for families — the amount is gradually reduced if your adjusted family net income is more than $26,177; no basic amount is paid if your adjusted family net income is more than $42,197.

An additional amount (the CWB disability supplement) is also provided to taxpayers who are eligible for the federal disability tax credit.

The changes made to the CWB for 2021 will expand the number of taxpayers who are eligible for the credit. Consequently, taxpayers who were not eligible for the CWB in previous years would be well advised to complete Schedule 6 this year to determine whether, as the result of the change in the rules, they can now receive it.

Detailed information on the CWB for 2021 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/witb-eligibility.html.

The list of financial assistance programs that have been provided by the federal government to support individual Canadians through two years of the pandemic is lengthy, detailed, and sometimes confusing. Unfortunately for the Canadian taxpayer, however, every one of those programs has one thing in common — benefits received are taxable income which must be reported on the return for the year in which they were received, and on which tax must be paid.

The list of financial assistance programs that have been provided by the federal government to support individual Canadians through two years of the pandemic is lengthy, detailed, and sometimes confusing. Unfortunately for the Canadian taxpayer, however, every one of those programs has one thing in common — benefits received are taxable income which must be reported on the return for the year in which they were received, and on which tax must be paid.

While fewer Canadians claimed and received such benefits during 2021 (as compared to 2020) there are still millions of taxpayers who will need to report pandemic benefits received during the year. It is possible, as well, that an individual taxpayer would have received pandemic benefits under more than one program during 2021, as the Canada Recovery Program (which included multiple types of benefits) ended in the fall of 2021 and was replaced by the Canada Worker Lockdown Benefit. The possible benefit programs from which benefits might have been received during 2021 therefore include the Canada Emergency Response Benefit (CERB), the Canada Emergency Student Benefit (CESB), the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), the Canada Recovery Caregiving Benefit (CRCB), and the Canada Worker Lockdown Benefit (CWLB). And, while tax was withheld from payments made under some (but not all) of these benefit programs, the amount withheld was a flat amount of 10% of the benefit, which was likely less than the amount of tax which will ultimately be payable on the benefit amount. The rules on how to determine the amount in taxable benefits received and how to report them on the return for 2021 are outlined below.

The good news is that those who received pandemic benefits of any kind during 2021 will not have to remember which benefit(s) they received or how much the payments were. Rather, such individuals will receive T4A slips from the Canada Revenue Agency (CRA), and those slips will summarize the amount in benefits received from each program.

Taxpayers who are registered to use the CRA’s online services will be able to access their T4A slips on the CRA website. Those who do not will have paper copies of the T4A slips mailed to them by the end of February 2022.

T4A slips issued will show, in separate boxes, the amount of benefit received during 2021 under each pandemic relief program. As a practical matter, however, the specific type of benefit doesn’t really matter when it comes to taxation of those benefits, since taxpayers must add up all of the benefit amounts listed on the T4A and report the total amount as a single figure on line 13000 of the 2021 income tax return.

It's somewhat confusing that line 13000 on the return doesn’t actually refer to pandemic benefits; rather, it is a line on which “other income” is reported. While there is a space on Line 13000 of the return on which taxpayers can specify the type(s) of “other income” being reported, filing instructions provided on the CRA website state only that taxpayers should “[E]nter the total amount you received on line 13000 of your tax return. If you are filing a paper return, specify the type of income you are reporting. Attach a list if you received more than one benefit.”

Among all of the benefit programs provided, tax was withheld from all benefits under the CRB, the CRSB, the CRCB, and the CWLB. Taxpayers who received such benefits will find an amount listed in Box 22 on the T4A. That number, which represents the amount of tax which the benefit recipient has already paid on those benefits, should be entered on Line 43700 of the return.

Taxpayers who received the Canada Recovery Benefit during 2021 and who had net income for the year of more than $38,000 may find themselves in the unenviable position of having to repay some of the CRB amounts received. The repayment rate is 50 cents of benefits received for every dollar of net income over the $38,000 threshold, to a maximum amount of total CRB benefits received. Where a taxpayer is preparing his or her return using tax preparation software, that software should do any required repayment calculation automatically and include any repayment amount in the total of tax payable for the year. Taxpayers completing a paper return will need to calculate any required repayment amount using a Worksheet (in the section under Social Benefits Repayment), which can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package/5000-d1.html.

While the number of different benefit programs under which benefits might have been received during 2021 is numerous, and the rules governing eligibility were certainly complex, reporting those benefits for tax purposes is really just a two-step process for taxpayers. First, add up all benefit amounts which appear in Boxes 197 to 199, Box 200, Box 211, and Boxes 202 to 204 on the T4A slip which was received. Take the total amount of such benefits and enter it on Line 13000 of the return. Next, if there is an amount appearing in Box 22 of the T4A, that number should be entered on Line 43700 of the return.

Detailed information on the taxation of pandemic benefits and how to report that income on the return can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes/t4a-report/report-amounts.html#h-1.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency (CRA). 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 (CRA). 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 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 (2022) tax year and either of the two previous (2020 or 2021) 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 2022 and either 2020 or 2021. For residents of Quebec, that threshold amount is $1,800.

Such obligation arises on a regular basis for those who are self-employed, or 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 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 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 2022. If the total of instalment payments made during 2022 turn out to more than the taxpayer’s total tax liability for the year, they will of course receive a refund when the annual tax return is filed in the spring of 2023.

Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2021 tax year. Where a taxpayer’s income has not changed significantly between 2021 and 2022 and their available deductions and credits remain the same, the likelihood is that total tax liability for 2022 will be slightly less than it was in 2021, 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 they will owe for 2022 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2021 to 2022, such that their 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 2022 tax year is filed in the spring of 2023. 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 2022 — until March 31, 2022 — is 5%.) 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.

To help taxpayers make a decision on how to respond to an Instalment Reminder, detailed information on the instalment payment system is available on the CRA 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.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 recipient 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 2021, the federal tax rate applied to about the first $49,000 of taxable income is 15%, while the federal rate applied to approximately the next $49,000 of such income is 20.5%. So, an individual who has $98,000 in taxable income would pay federal tax of about $17,395: if that $98,000 was divided equally between such individual and their spouse, each would have $49,000 in taxable income and federal tax payable of $7,350 each. The total federal family tax bill would be $14,700.

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, a registered retirement savings plan (RRSP) or a registered retirement income fund (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 for 2021, 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 (CRA) 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 2021. 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 their spouse. That deduction is taken on Line 21000 of their 2021 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 2021 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 2021. 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 2021 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 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 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). Since then, taxpayers have had a choice of which savings and investment vehicle better meets their short-term and long-term tax and personal finance objectives, and this is the time of year when most Canadians must make that choice.

It should be said that there’s nothing wrong, and a lot right, with making the maximum allowable contribution to both of one’s TFSA and RRSP every year. However, doing both 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 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. A TFSA is the only tax-sheltered savings vehicle to which taxpayers over age 71 can contribute. Many of those taxpayers, 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 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 contribution the logical alternative.

At the other end of the age spectrum, younger Canadians whose savings goals are likely more short-term are usually better off saving through a TFSA. Where savings are being accumulated for an expenditure which is likely to occur within the next five years (e.g., putting together money for a new car or for a down payment), the TFSA is clearly the better choice. 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 is 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 — e.g., 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-retirement 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.

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. 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.

As the pandemic continued past 2020 and through 2021, it is likely that employees who were able to work from home spent at least part of the 2021 tax year doing just that. And, as was the case in 2020, those workers may be entitled to claim a deduction on their 2021 tax return for home office expenses incurred.

As the pandemic continued past 2020 and through 2021, it is likely that employees who were able to work from home spent at least part of the 2021 tax year doing just that. And, as was the case in 2020, those workers may be entitled to claim a deduction on their 2021 tax return for home office expenses incurred.

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 to claim that amount on the annual return. For 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, provided a new, temporary “flat rate” method of calculating the deduction for such expenses. The CRA has indicated that that flat rate method will continue to be allowed for both 2021 and 2022.

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 2021 tax return.

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 2021 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 2021.

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 2021; 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 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 work space 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 Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, or Form T2200, Declaration of Conditions of Employment. 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.

While the detailed method outlined above can create substantial deductions for employees who work from home, it is apparent that making such a claim involves considerable record keeping and paperwork. Taxpayers who would prefer not to undertake that task can instead avail themselves of the flat rate method.

Conversely, in order to claim a deduction for costs related to a work from home space using the flat rate method, an employee must meet the following conditions:

• the employee worked from home during 2021 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 2021.

In addition, the following criteria must both be satisfied:

• the employee is not claiming any employment expenses other than home office expenses; and
• the employer did not reimburse all of the employee’s home office expenses for the year; 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 claim under the flat rate method. For 2021 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.

There is no general rule of thumb which can be used to determine whether the flat rate method or the detailed method will give a better tax result — that determination can only be made where the available deduction is calculated under each method and a comparison made of the result. Taxpayers who don’t want to undertake that effort (or don’t have the records needed to calculate or support such a claim using the detailed method) and who meet the required criteria for the flat rate method can simply multiply the number of work-from-home days (up to a maximum of 250 days, or $500.) and claim the resulting figure on line 22900 of the 2021 tax return.

While calculating the expenses which qualify for a home office expense deduction 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 work spaces 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 2021, as well as guidance with respect to particular situations — e.g., 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.

The Employment Insurance premium rate for 2022 is unchanged at 1.58%.

The Employment Insurance premium rate for 2022 is unchanged at 1.58%.

Yearly maximum insurable earnings are set at $60,300, making the maximum employee premium $952.74.

As in previous years, employer premiums are 1.4 times the employee premium. The maximum employer premium for 2022 is therefore $1,333.84.

The Quebec Pension Plan contribution rate for 2022 is set at 6.15% of pensionable earnings for the year.

The Quebec Pension Plan contribution rate for 2022 is set at 6.15% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $64,900, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2022 will be $3,776.10 each.

The Canada Pension Plan contribution rate for 2022 is set at 5.7% of pensionable earnings for the year.

The Canada Pension Plan contribution rate for 2022 is set at 5.7% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $64,900, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2022 will be $3,499.80 each, and the maximum self-employed contribution will be $6,999.60.

Dollar amounts on which individual non-refundable federal tax credits for 2022 are based, and the actual tax credit claimable, will be as follows:

Dollar amounts on which individual non-refundable federal tax credits for 2022 are based, and the actual tax credit claimable, will be as follows:

                                                                       Credit amount                        Tax credit

Basic personal amount*                                         14,398                               2,159.70

Spouse or common law partner amount*                14,398                              2,159.70

Eligible dependant amount*                                   14,398                               2,159.70

Age amount                                                           7,898                               1,184.70

Net income threshold for erosion of age credit         39,826

Canada employment amount                                  1,287                                 193.05

Disability amount                                                  8,870                                1330.50

Adoption expenses credit                                      17,131                              2,569.65

Medical expense tax credit

Income threshold amount                                      2,479

*For taxpayers having net income for the year of more than $155,625, amounts claimable for the basic personal amount, the spousal amount, and the eligible dependant amount for 2022 may differ.

The indexing factor for federal tax credits and brackets for 2022 is 2.4%. The following federal tax rates and brackets will be in effect for individuals for the 2022 tax year.

The indexing factor for federal tax credits and brackets for 2022 is 2.4%. The following federal tax rates and brackets will be in effect for individuals for the 2022 tax year.

Income level                                            Federal tax rate

$14,398 – $50,197                                        15%

$50,198 – $100,392                                     20.5%

$100,393 – $155,625                                    26%

$155,626 – $221,708                                    29%

Over $221,708                                              33%

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 #58 Corporate

Personal:

Issue #58 Personal