Category Archives for "Personal Income Tax"

Is that Letter from CRA Legit?

By Randall Orser | Personal Income Tax

Comes this time of year when you, the Canadian taxpayer, start to receive love letters from the Canada Revenue Agency (CRA) requesting information or informing you of your tax debt if you hadn’t paid it on April 30th. Unfortunately, in this day and age of rampant scams, email and otherwise, you need to be diligent and don’t just answer that email or caller, or even that letter you received supposedly from CRA.

Email, Telephone, Letter Scams

CRA does NOT use email to contact individual taxpayers. The CRA has an automatic email system that sends out an email letting you know that you have Online Mail. This is the only time they will send you an email. The CRA will never use aggressive language or tone, ask for prepaid credit cards, threaten arrest or to send police in any correspondence. A CRA email notification will only advise you that you have correspondence to view in My Account. It will never ask for you to confirm information or click on a link. If you’re unsure, log into My Account and see if you have new mail to read.

The other email, and now a text, that goes around is a fake e-Interac transfer, CRA will never send you money via this method. It will be either a cheque, or direct deposit, which you must setup.

Fake letters are still going around, and they’re getting much better at it too. Someone showed me a letter he got from CRA, and this letter was so good it would’ve fooled me. It had their name, address, and it all looked very real. The letter even and a CRA number on it with 1-800-959, which many of their numbers start with. It had a balance owing, which made this person feel something wasn’t quite right; he usually gets refunds. This letter had the right language, and looked very legit. Fortunately, he called the CRA and found out, of course, it was fake.

Know how to recognize a scam

There are many fraud types, including new ones invented daily.

You should be vigilant when you receive, either by telephone, mail, text message or email, a fraudulent communication that claims to be from the Canada Revenue Agency (CRA) requesting personal information such as a social insurance number, credit card number, bank account number, or passport number.

These scams may insist that this personal information is needed so that the taxpayer can receive a refund or a benefit payment. Cases of fraudulent communication could also involve threatening or coercive language to scare individuals into paying fictitious debt to the CRA. Other communications urge taxpayers to visit a fake CRA website where the taxpayer is then asked to verify their identity by entering personal information. These are scams and taxpayers should never respond to these fraudulent communications or click on any of the links provided.

To identify communications not from the CRA, be aware of these guidelines.

If you receive a call saying you owe money to the CRA, you can call us or check My Account to be sure.

If you have signed up for online mail (available through My Account, My Business Account, and Represent a Client), the CRA will do the following:

  • send a registration confirmation email to the address you provided for online mail service for an individual or a business; and
  • send an email to the address you provided to notify you when new online mail is available to view in the CRA's secure online services portal.

The CRA will not do the following:

  • send email with a link and ask you to divulge personal or financial information;
  • ask for personal information of any kind by email or text message.
  • request payments by prepaid credit cards.
  • give taxpayer information to another person, unless formal authorization is provided by the taxpayer.
  • leave personal information on an answering machine.

Exception:

If you call the CRA to request a form or a link for specific information, a CRA agent will forward the information you are requesting to your email during the telephone call. This is the only circumstance in which the CRA will send an email containing links.

Caller ID is a useful function. However, the information displayed can be altered by criminals. Never use only the displayed information to confirm the identity of the caller whether it be an individual, a company or a government entity.

The old cliché holds true, if it sounds too good to be true, it probably is.

What’s the Best Way to Get Away from these Scams?

When in doubt, ask yourself the following:

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

If you get a letter, or email from CRA, you do need to check its validity with CRA itself. Give them a call at their main numbers 1-800-959-8281 for individuals and 1-800-959-5525 for businesses.

The best way to alleviate any issues is to sign up for My Account, and then sign up for Online Mail.

My Account is a secure portal that lets you view your personal income tax and benefit information and manage your tax affairs online.

My Account is:

  • Convenient – It is available 21 hours a day, 7 days a week (see Hours of service).
  • Easy to use – After registering, simply log in with your CRA user ID and password.
  • Fast – Information is up-to-the-minute and transactions are processed immediately.
  • Secure – The CRA user ID and password are just part of the security.

You can also log in with a Sign-in Partner. This option lets you log in with a user ID and password that you may already have, such as for online banking.

Online mail is a simple to use service that allows individuals to receive most of their mail, like their notice of assessment or benefit notices, from the Canada Revenue Agency (CRA) directly in My Account.

When you sign up for online mail, the CRA will send you an email letting you know when you have new mail to view in My Account. Once you are signed up for online mail, you will go paperless since your correspondence will no longer be printed and mailed. Don’t worry - if your bank or anyone else needs a paper copy, all you need to do is log in to My Account and print or download a copy.

You will stop getting any physical mail, and never have to worry about mail theft from those crappy community mailboxes, or fake letters as you’ll know they’re fake as you don’t get physical mail from CRA anymore.

Be diligent with any correspondence you get from CRA, and always check with CRA when you get such correspondence. Signing up for My Account and Online Mail will definitely get you feeling more secure about not getting scams in the future.

If you do have concerns about correspondence from the CRA, call them at 1-800-959-8281 for individuals and 1-800-959-5525 for businesses.

Why Designating Your Tax Preparer as a Representative is a Good Idea

By Randall Orser | Personal Income Tax

There comes a time when your tax preparer is going to need access to your information that Canada Revenue Agency (CRA) has on you. This could be as simple as finding out how much you made in installments to more complicated such as adjusting your income tax return already filed. Of course, if CRA comes calling about your tax return filed, then having your tax preparer may be the way to go.

Access to Your Information

Allowing your tax preparer to have access to your CRA information can not only save them time getting your notices of assessments or tax installments, it saves you the hassle of having to find them and delay the preparation of your return. There are quite a few things your tax preparer can gather as your representative.

List of notices issued

A new service called 'List of notices issued' provides authorized representatives with a summary list of notices of assessment (NOA) and notices of reassessment (NOR) that have been issued to you as a result of a tax return being filed or amended.

Starting February 13, 2017, a summary list will be available and will include notices that were issued within the last year. Notices that were assessed before February 13, 2017, or before the authorization effective date, will not appear in the list.

The four possible notice types that will be displayed are:

  • NOA issued – No change – will be displayed when an initial assessment results in no tax difference from what was originally submitted.
  • NOA issued – Changed – will be displayed when an initial assessment results in a tax difference from what was originally submitted with the tax return.
  • NOR issued – Client or representative request – will be displayed when a change has been submitted to an assessment.
  • Other NOR issued – will be displayed when a change to an assessment has been initiated by the CRA.

Here’s a list of services for representatives of individuals.

Submit Documents

The “Submit documents” service allows you to electronically send documents to CRA on behalf of either your individual or business clients. “Submit documents” can be accessed directly through Represent a Client and allows you to submit documents on behalf of multiple clients without leaving the “Submit documents” service. The service can only be used to submit documents in response to requests from the CRA to submit supporting documentation and you will be provided with a reference number to use.

Auto-fill Return

Auto-fill my return is a secure Canada Revenue Agency (CRA) service that allows authorized representatives to automatically fill in parts of a 2016 and 2015 income tax and benefit return with information that the CRA has available at the time of filing the return. This service will continue in the future. That said, your tax preparer still needs to see the physical slips to compare what CRA has on file. We found many clients with a T4 of which CRA had no information.

Auto-fill also allows your tax preparer to get information on your carry forwards such as the Home Buyers Plan, non-capital and capital losses, tuition/education credits, etc.

Representing You in a “Review” or an “Audit”

This is where the representative can home in very handy. You get that notice that CRA wants to review something from your return filed, medical is usually one of those. Your tax preparer can get this information together from you, scan and then upload all your receipts to CRA, nice and easy.

If CRA is calling to “review” your return as a small business person, then you should have someone represent you in such matters. They will know exactly what items they put under each expense category, and can explain to CRA their reasoning for so doing. However, they can’t do that without being your representative.

For individuals, it won’t hurt having a third party at any reviews or audits by CRA, or even having them represent you without having to be there with the auditor. Who needs that stress, right? Letting the representative attend the review or having the review done in the representative’s office, may be a good choice.

Responsibilities of authorized representatives

· You shall act in the interest of your clients, employers, and interested third parties.

· You agree not to disclose any taxpayer information that is provided to you by the Canada Revenue Agency (CRA) to anyone else without the taxpayer's prior consent.

· You agree to ensure the security and privacy of all transactions you conduct on behalf of the taxpayer(s).

· You will ensure that all documents are properly disposed of to protect the taxpayer's confidentiality.

· You must comply with all provisions of applicable legislation (i.e. Income Tax Act (ITA), Excise Tax Act (ETA), etc).

· Please note that if you are accessing a taxpayer's account information online through the Represent a Client online service, you are also subject to the terms and conditions of the Represent a Client online service.

· EFILE® service providers are subject to the terms and conditions of EFILE®.

· The CRA reserves the right to revoke or suspend your privileges as an authorized representative of the taxpayer if you fail to abide by these terms and conditions of use.

Having a representative when it comes to CRA matters is a good thing to do, and it allows them to chat with CRA alieving you of that stress. For the representative it makes preparing your return more accurate, and less stressful for them as they can get the information they need to do the return without pestering you.

Is Your Donation Going to a Registered Charity? 

By Randall Orser | Personal Income Tax

It’s always good to give, and charity is one way you can give to help others, and at the same time get a credit on your taxes. In 2010, 84% of Canadians over 15 donated to charity, for an average of $446/donor, or $10.6 Billion. However, is that charity registered with the Canada Revenue Agency (CRA)? Any organization that wishes to have donors get a tax credit must register with CRA. You may be giving to a US Charity in US dollars, however, it may still be registered with CRA.

That raises the question, how do you know if your charity is registered with CRA?

What is the difference between a registered charity and a non-profit organization?

This is where some donors get confused as you may be giving to a non-profit rather than a registered charity. Although registered charities and non-profit organizations (NPOs) both operate on a non-profit basis, they are not the same. This explains the differences between the two.

Registered charities

Registered charities are charitable organizations, public foundations, or private foundations that are created and resident in Canada. They must use their resources for charitable activities and have charitable purposes that fall into one or more of the following categories:

  • the relief of poverty
  • the advancement of education
  • the advancement of religion
  • other purposes that benefit the community

Examples of registered charities

Here are some examples of registered charities under each of the four categories:

  • relief of poverty (food banks, soup kitchens, and low-cost housing units)
  • advancement of education (colleges, universities, and research institutes)
  • advancement of religion (places of worship and missionary organizations)
  • purposes beneficial to the community (animal shelters, libraries, and volunteer fire departments)

Non-profit organizations

Non-profit organizations are associations, clubs, or societies that are not charities and that are organized and operated exclusively for social welfare, civic improvement, pleasure, recreation, or any other purpose except profit.

Examples of non-profit organizations

Here are a few types of non-profit organizations and examples of each:

  • social, recreational, or hobby groups (bridge clubs, curling clubs, and golf clubs)
  • certain amateur sports organizations (hockey associations, baseball leagues, and soccer leagues)
  • certain festival organizations (parades and seasonal celebrations)

If you wish to find out more about the differences between registered charities and non-profit organizations, go here.

List of charities and other qualified donees

Only qualified donees, including Canadian registered charities can issue official donation receipts for gifts they receive from individuals and corporations. Find a charity or other qualified donee, their current status and any available public information.

  • Charities
    (Charities Listings) Confirm registered status; review contact information and information filed on annual returns.
  • Municipalities
    Municipalities currently registered, revoked or terminated.

How do I Check if the Charity I’m Donating to is Registered?

There are two ways to confirm if a charity is registered with CRA:

· You can also call the Charities Directorate at 1-800-267-2384.

· You can ask the charity for its registration number and confirm its status in the List of charities.

Here’s Some More Information on Donating

Does a charity have to give a receipt when it receives a donation?

No. But the Canada Revenue Agency (CRA) advises charities to tell potential donors when they will or will not give a receipt. For example, a charity may decide to give receipts only for donations over $10.

Can a charity return a donation?

In most cases, no. Once the donation is made, the charity has to use the donation to carry out its charitable programs. But there are exceptions. For more information, go to Returning a gift to a donor.

Can a charity lend its registration number to another organization so it can give receipts?

No. A charity should never lend its registration number to another organization. A charity is responsible for all receipts issued under its name and number and must show these donations on its annual return. A charity that lends its registration number could lose its charitable registration.

Does a charity have to send copies of receipts to the CRA?

No. But charities have to keep a copy of all receipts they issue for at least two years from the end of the calendar year the donations were made in.

Whose name should a charity put on the receipt?

A receipt can be issued only to the true donor of the gift. For example, if a corporation donates money that was collected from its employees, and there is a written declaration to prove this, the charity can issue a receipt in each donor’s name. For more information, see Policy Commentary CPC-010.

Can a charity correct or replace a receipt?

Yes. A charity can give you a replacement receipt. For more information, go to Correcting or replacing official donation receipts.

The charity you made a donation to is no longer registered. Can you still use your receipt to claim a tax credit?

Yes. If the organization was registered when you made your donation, you can still use your receipt to claim a tax credit.

What if you get something in return for your donation?

When a charity gives you something of value in return for your donation, it is considered an advantage. The charity has to subtract the value of the advantage from the amount of your donation to figure out the eligible amount to put on your receipt.

Is it safe to donate online?

A charity that asks for donations online should be responsible for protecting your information. Read the charity’s privacy policy before making a donation. Make donations only if the webpages are secure. If you are not sure about donating online, contact the charity and ask about other ways to donate.

You’ve been invited to participate in a donation program that will make a profit for you. Is it safe to participate?

There are serious risks associated with this type of program. To learn more, go to Donation tax shelter schemes.

Donating not only helps your fellow man, but gives you a tax credit. I will say this, giving less then $200 per year really doesn’t do much for your tax credit, and depending on your income, $1000 or more is better.

Are You Considered a Low-Income Worker?

By Randall Orser | Personal Income Tax

In 2007, the government at the time established a refundable tax credit for those Canadians who are working but have a low income, and not attending post-secondary education called the Working Income Tax Benefit (WITB). It was thought this would encourage Canadians to enter the workforce. A refundable tax credit is one that you actually get the money back rather than added to your other non-refundable credits. For some clients, this has meant going from a balance owing to getting a refund, which is always nice. Who qualifies and what do you get with the WITB?

Are you eligible for the WITB?

You are eligible for the WITB if:

  • You are 19 years of age or older on December 31st; and
  • You are a resident of Canada for income tax purposes throughout the year.

If you are under 19 years of age, you may still be eligible for the WITB, if you have a spouse or common-law partner or an eligible dependent on December 31st.

You are not eligible for the WITB if:

  • You do not have an eligible dependent and are enrolled as a full-time student at a designated educational institution for more than 13 weeks in the year;
  • You are confined to a prison or similar institution for a period of 90 days or more in the year; or
  • You do not have to pay tax in Canada because you are an officer or servant of another country, such as a diplomat, or a family member or employee of such person.

If you are eligible for the WITB and the disability amount, you may also be eligible to claim an annual disability supplement. To be eligible for the disability supplement, your working income must be over $1,150 and the Canada Revenue Agency (CRA) must have an approved Form T2201, Disability Tax Credit Certificate on file. If you have not already sent the CRA a completed Form T2201, you must do so to receive the disability supplement.

Some provinces/territories have exercised the option to reconfigure the WITB calculation based on specific social and economic realities. The CRA will determine the amount of WITB to pay based on the eligible individual's province or territory of residence at the end of the year.

For WITB purposes, you have an eligible dependent if you have a child who, at the end of the year:

  • lives with you;
  • is under 19 years of age; and
  • is not eligible for the WITB.

For WITB purposes, eligible dependents can be registered by completing Form RC66, Canada Child Benefits Application. However, if your dependents are already registered for the goods and services tax/harmonized sales tax (GST/HST) credit, the CRA will automatically take them into consideration when calculating your WITB amount.

For WITB purposes, an eligible spouse at the end of the year is a person who meets all of the following conditions:

  • is your spouse or common-law partner on December 31st;
  • is a resident of Canada throughout the year;
  • is not enrolled as a full-time student at a designated educational institution for a total of more than 13 weeks in the year, unless he/she has an eligible dependant at the end of the year;
  • is not confined to a prison or similar institution for a period of 90 days or more during the year; and
  • is not an officer or servant of another country, such as a diplomat, or a family member or employee of such person.

Family net income is an individual's net income added to the net income of their spouse or common-law partner, minus any amount reported for Universal Child Care Benefit (UCCB) (line 117 of the Income Tax and Benefit Return). Net income is the amount on line 236 of the Income Tax and Benefit Return.

Working income for a tax year is the total amount of an individual's or family's income for the year from employment and business (excluding losses).

How is the working income tax benefit (WITB) calculated?

The WITB is calculated using the following information:

  • marital status; province or territory of residence; working income; net income; eligible dependent; and eligibility for the WITB disability supplement.

To see how the WITB is calculated, please refer to the calculation sheet applicable to you, or you can use the Canada Revenue Agency (CRA) Child and family benefits calculator to get an estimate of your benefit.

What is the maximum amount of WITB you may receive?

WITB is intended for low-income individuals and families who have working income earned from employment or business.

For single individuals without children, the maximum amount of WITB is paid if working income is between $7,112 and $11,675 for 2016. The WITB payment is gradually reduced when net income is more than $11,675 (this is referred to as the base threshold). No WITB is paid when net income exceeds $18,529. These amounts vary slightly for residents of Alberta, Quebec, Nunavut and British Columbia.

For families, the maximum amount of WITB is paid if the family's working income is between $10,472 and $16,122 for 2016. The WITB payment is gradually reduced when family net income is more than $16,122 (this is referred to as the base threshold). The WITB payment is reduced to zero once family net income exceeds $28,576. These amounts vary slightly for residents of Alberta, Quebec, Nunavut and British Columbia.

For single individuals and families who are eligible and entitled to WITB disability supplement, the income thresholds will be a bit higher. See here.

Check here for the income levels.

The WITB can be quite beneficial to low-income, working Canadians, and was designed to give them a break on their taxes, as well as encourage those not yet in the workforce to do so.

Now’s the Time to Check Your RRSP

By Randall Orser | Personal Income Tax

I know, I know, it’s only July, I don’t want to think about tax stuff. However, now is the perfect time to check where you RRSP contributions have been for the year, and where they’ll be in 6 months. Do you have the room to put more in? Do you have some extra funds lying around? It’s not too late to think about a monthly RRSP contribution rather than that lump sum you do in January or February.

I’m going to assume you know what is an RRSP, and have hopefully checked what your contribution limit is for the year. Does your work have a pension plan? If so, how much have you contributed so far, as that comes your contribution limit. If you’ve reached your contribution limit, then what about your spouse? You can always put money into their RRSP, up to their contribution limit (they would need to be the contributor and annuitant).

Planning Opportunities

Contribute early in the year. This helps shelter income for a longer period and increases the compounding of the income in the plan. A monthly plan can also be used to help with cash flow.

Use the spousal plan (including common-law spouse) as much as possible to split the income tax upon withdrawal. Remember not to withdraw from any spousal plan until 3 years after the last contribution was made or it will be added to the income of the contributor. Note that it is the timing of the payment of contributions to a spousal RRSP that governs this recapture rule, not when (or whether) you claimed a deduction.

Make your money work for you. Consider other investments within your RRSP, such as mutual funds. Carefully consider what you invest in to maximize your return. (See schedule on page 3)

Utilize “rollovers” (special RRSP contributions). You may find yourself in a situation where you receive a payment which qualifies for special contribution treatment.

These special situations include:

· Special payments you receive on leaving employment, either in recognition of long service or as damages for loss of office. Note that years of service after 1995 no longer qualify;

· Lump-sum payments received from foreign pension plans for services performed outside Canada;

· Lump-sum payments received from a United States IRA and taxable in Canada;

· Amounts received from the RRSP or RRIF of a spouse, or in some cases, a parent or grandparent, who has died; and • The “cost amount” of shares you receive, directly or through a trust, in a special lump-sum distribution from a DPSP.

The magic of compound interest! Annual contributions of $13,500 at an average interest rate of 8% per annum made at the beginning of each year accumulate over $15,000 more interest in the first 10 years than contributions made at the end of the year. After 25 years, the difference is over $75,000!

The compounding effect of interest earned on the RRSP is clearly demonstrated above by the difference in interest rates. An investment of $13,500 per year at 6% interest per annum grows to $785,111 at the end of 25 years, while the same amount invested at 8% grows to $1,065,885.

Should You Borrow to Finance an RRSP

Interest on money borrowed to make RRSP contributions is not a deductible expense for tax purposes. If you have a choice between borrowing to make an RRSP contribution or borrowing to make another investment, you should always borrow to make the other investment. The interest paid on the investment loan may well qualify for tax deduction and thus offset the cost of borrowing.

Spousal RRSP

A spousal RRSP is an RRSP which names your spouse rather than yourself as the “annuitant” but you have made the contribution. Any amount, which you could have contributed to your own plan under your current contribution limit, can instead be contributed to your spouse’s plan. Contributions made by you to your spouse’s RRSP can be deducted from your income. Your spouse will be taxed when the funds are withdrawn subject to the 3-year rule described in Planning Opportunities above.

Once a cohabitation relationship achieves the status of a common-law marriage under the 12-month or child rule, that marriage is considered to continue until there is a marital breakdown marked by a separation of at least 90 days.

Common-law spouses are included in the definition of spouse and are, therefore, eligible for the spousal plan, although there are still some questions as to how Canada Customs and Revenue Agency will monitor the common-law relationships.

The special rules on spousal RRSPs are very beneficial. Ideally, you and your spouse should have the same amount in your RRSPs at retirement. However, when using a spousal RRSP, you should note that the contributing spouse would be taxed on any withdrawals within 3 years of the last contribution to any spousal plan.

Are You Leaving Canada?

If you leave Canada for an extended period, you must determine whether you are going to become a non-resident for income tax purposes.

If you have withdrawn funds from an RRSP under the Home Buyers’ Plan (you qualify as “first-time home buyers” could borrow up to $20,000 from an RRSP to purchase a “principal place of residence”), and become a non-resident before acquiring your Canadian home, your withdrawals will be disqualified and added to your income in the year of withdrawal. You may cure the disqualification by refunding the withdrawal and cancelling your participation in the plan.

If you have withdrawn funds from an RRSP under the Home Buyers’ Plan and become a non-resident after acquiring your Canadian home, you must repay the entire withdrawal within 60 days of becoming a non-resident. To the extent that you do not repay the amount within 60 days, the unrepaid balance will be included in your income for the period of the year in which you were still a resident of Canada and taxed accordingly.

Now is a great time to review your RRSP, and what you want to accomplish with it this year. Think about all that money you’re missing out on by not investing now, and waiting until January or February of next year. That’s a missed opportunity, and that’s just sad.

Why a Large Refund is Not Necessarily a Good Thing

By Randall Orser | Personal Income Tax

Another tax year’s been filed, and you’re excited as you’re getting a huge refund again this year. That’s great! Or, is it? A large refund is really saying you’re not managing your money as well as you probably could. Financially, getting a refund every year may be doing more harm than good. Wouldn’t you rather get that money on each pay cheque, rather than in one lump sum? Hopefully, after you read this you’ll talk to your human resources department, tax preparer, and your financial planner.

What Does That Large Refund Mean?

What you’ve basically done when you get a large refund is loan the government your funds for a whole year without any interest. Why would you do that? You probably wouldn’t loan a friend or family member money without interest, but you give it to the government. Just think of the ways you could use that large refund, even if it’s only $2,000, you could put that money into an RRSP, or TFSA. Or, invest it into non-registered investments to make some additional cash.

What Should You Do Instead?

If you’re finding that large refunds are a way of life, then you need to figure out what to do so you don’t get those large refunds. The first thing to do is talk to whomever is in charge of payroll at your work: boss, payroll preparer, human resources, etc.

Get a copy of Form TD1, Personal Tax Credits Return, and go through each section and fill in amounts that apply to you. The TD1 form used to determine the amount of tax to be deducted from your employment income or other income, such as pension income. The payroll person, or your tax preparer, can help you figure out the amount of tax exemptions for which you qualify, and fill out the form. You should do a new TD1 each year.

If you find that your tax situation has changed during the year, you can update the TD1 at any time. Many things could change during the year, such as a marriage, divorce, children aging out of credits or going off to college, which could cause either a balance owing or a large refund.

Now What?

You’ve talked to your payroll department, and made the changes to your TD1. You will start to see an increase in your pay cheque as less tax is coming off. The amount won’t be huge; however, you need to look at the overall view. This is where things can get interesting. Figure out how much extra you’re getting on each pay cheque, and setup a new direct deposit with work for that much to go into a savings account (or even a TFSA). If you can’t do that through work, then an automatic transfer into a savings (or TFSA) account will work too. Whether the amount is $20 or $100, do this each pay, and watch your savings grow.

Getting that large refund at tax time, is not necessarily a good thing, especially if you’re using to pay certain bills that come due at that time, such as property taxes. You’re much better off taking that money for yourself each pay cheque, rather than giving it to the government interest free.

Your Notice of Assessment (NOA)

By Randall Orser | Personal Income Tax

You’ve filed your taxes for the year, and now just wait for the notice of assessment to arrive. Many people just ignore this notice until the next tax year, or their mortgage comes due. Your Notice of Assessment has a lot of information in it that could help you to understand your tax filing, your carry forwards for the next year, and any issues that may have turned up with your tax filing. You should keep your notice of assessment for at least 6 years, along with your other tax filing records for that year.

The picture above of the revised notice of assessment that the Canada Revenue Agency will start sending out in February 2016. It includes four notes explaining how the notice’s contact information, account details, key information, and account summary are simplified and easy to understand. The four notes read:

  • “1. Contact info – Appears in the top left corner”
  • “2. Notice Details – Organized so you can easily identify your notice details”
  • “3. Key info – Provides your most important information and if any actions are required”
  • “4. Account summary – Provides you with a status of your account and useful tips”

The Sections of the Notice Explained

Account Summary

The account summary section on your notice shows you the result of the assessed or reassessed return. The result may be a refund, a zero balance, or a balance owing. The amount shown in the account summary also includes any outstanding balances you owe from previous returns.

The account summary may also show the result from concurrent assessments or reassessments.

When you file several consecutive-year returns at the same time, we do a concurrent assessment. For example, you file your 2011, 2012, and 2013 returns together to claim some credits that you didn’t know about before.

When you send us new information that changes your returns for several consecutive years, we do a concurrent reassessment. We reassess all your affected returns at the same time. The result appears in the account summary on the last notice of the series.

Tax assessment summary

The tax assessment summary on your notice lists the main lines on your assessed or reassessed tax return. Beside each line, you can see the amounts CRA used to calculate your balance on this return. You can compare these amounts to the ones on your return to see where CRA made changes, if any.

The summary also shows any penalty and interest we calculated on your refund or amount owing. If you have a balance owing from a previous assessment or reassessment, it will also appear here. If the amounts on any of the main lines differ from yours, see the Explanation of changes and important information section for more details about our changes.

Explanation of changes and other important information

The explanation of changes section on your notice explains in detail the changes or corrections made to your tax return. These changes are based on the information sent with your return and the information CRA has on file.

If, after reviewing your notice, you realize you have new or additional information you want to send in to change your return, see How to change your return.

If you disagree with your assessment or reassessment and want to register a formal dispute, see Complaints and disputes; you have 90 days from the date of the notice to register your dispute.

RRSP/PRPP deduction limit statement

This statement shows your deduction limit for your registered retirement savings plan (RRSP) and your pooled retirement pension plan (PRPP).

Deduction limit

Your deduction limit is the amount of RRSP/PRPP contributions you can deduct for the next year. Your deduction limit will appear on line (A) of your statement. Your statement also shows how CRA calculated your deduction limit. The calculation is based on your:

  • earned income in the previous year;
  • pension adjustments (PAs);
  • past service pension adjustments (PSPAs);
  • pension adjustment reversals (PARs); and
  • unused RRSP deduction room at the end of the previous year

When calculating your deduction limit, CRA takes into account the information you sent with your previous tax returns and the information they have on file.

Available Contribution Room

The last line of the statement gives you your available contribution room for the next year. Your available contribution room is your deduction limit minus any unused RRSP/PRPP contributions you reported in past years that you can deduct for next year. Your unused contributions appear on line (B) of your statement.

If the total RRSP/PRPP contributions, including your current and unused contributions, you claim on your return are less than your deduction limit, you have available contribution room to carry forward to the next year.

Excess Contribution

If your RRSP/PRPP contributions are more than your deduction limit, you have an excess of contributions. You may have to pay tax on this excess amount. For more information on RRSP/PRPP contribution and deduction rules, see How much can I contribute and deduct?

Other Sections You May Find on Your Notice

Home Buyers’ Plan (HBP) statement

If you participate in the Home Buyers’ Plan (HBP), you will see your HBP statement on your notice of assessment or notice of reassessment. The HBP lets you withdraw up to $25,000 in a calendar year from your RRSPs to buy or build a qualifying home for yourself or for a related person with a disability. Your statement shows your remaining balance to repay, and your minimum required repayment for the next year.

CRA calculates your balance by subtracting the following amounts from the total you withdrew from your RRSP: total repayments, cancellations, differences included in income

Your minimum required repayment is a portion of the balance you have left to repay. If you pay less than the minimum amount, you will have to include the difference as RRSP income on your return.

Lifelong Learning Plan (LLP) Statement

If you participated in the Lifelong Learning Plan (LLP), you will see a Lifelong Learning Plan Statement on your notice of assessment or notice of reassessment. The LLP lets you withdraw amounts from your RRSPs to pay for full-time training or education for you or your spouse or common-law partner. This statement shows the balance left to repay, and the minimum required repayment for the next year.

CRA calculates your balance by subtracting the following amounts from the total you withdrew from your RRSP: total repayments, cancellations, differences included in income

Your minimum required repayment is a portion of the balance you have left to repay. If you pay less than the minimum amount, you will have to include the difference as RRSP income on your return.

If your notice included a cheque

If you think the amount is correct, you can cash your cheque at any time. If you believe that the amount of your cheque is incorrect, review the information on your notice to see if there are any changes or errors. If you find a mistake in the calculation of your refund or benefits, go to How to change your return to find out how to ask for an adjustment.

The Government of Canada is switching to direct deposit. For information about direct deposit and how to sign up, see Direct deposit.

If your notice indicates you need to make a payment, you can pay via your online banking using Pay Bills; send a cheque along with the remittance portion to CRA, you may be able to make a payment at your local branch; however, many banks are no longer taking government payments.

Your notice did not include a cheque or a remittance voucher

If you received a notice with no cheque or remittance voucher, it could be because:

  • CRA calculated a zero balance on your return, so you don’t have a refund and you don’t owe any money on this return. CRA sent you the notice for your information only. Keep it for your records; or
  • you paid the amount owing at the time you filed your return, so your return should show the amount due and the amount already paid. CRA sent you the notice for your information only. Keep it for your records; or
  • CRA deposited your refund directly into your bank account. Your notice should show the amount that was deposited. Keep your notice or statement for your records

Your notice of assessment can come in pretty handy, and gives you information on your tax filing. If you are using a tax preparer, it is important to ensure they get a copy of this notice, especially if the assessment is different than what was filed. Today, CRA has instituted a way for preparers to get copies of NOAs without you having to directly give consent, but by ticking a box on the T183 Electronic Filer form.

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Child Care Expenses

By Randall Orser | Personal Income Tax

You decided to have kids, and while your taxes weren’t in the thought process at the time, you may as well benefit tax wise from them now.

What are child care expenses?

Child care expenses are amounts you or another person paid to have someone look after an eligible child so that you or the other person could:

  • earn income from employment;
  • carry on a business either alone or as an active partner;
  • attend school under the conditions identified under Educational program; or
  • carry on research or similar work, for which you or the other person received a grant.

The child must have lived with you or the other person when the expense was incurred for the expense to qualify. Usually, you can only deduct payments for services provided in Canada by a Canadian resident.

Who can claim child care expenses?

If you are the only person supporting the eligible child, you can claim child care expenses you incurred while the eligible child was living with you. Fill out parts A and B, and, if it applies, Part D of Form T778, Child Care Expenses Deduction.

There may have been another person who lived with you at any time in 2016 and at any time during the first 60 days of 2017 who was: the eligible child's parent; your spouse or common-law partner, if you are the father or the mother of the eligible child; or an individual claiming an amount for the eligible child on line 305, 306, 315, or 367 of their Schedule 1, Federal Tax.

In this situation, the person with the lower net income (including zero income) must fill out parts A and B and claim the child care expenses unless one of the situations in Part C or D applies.

If any of the situations in Part C or Part D apply, the child care expenses can be claimed by the person with the higher net income, or in part by both the person with the higher net income and the person with the lower net income. In this situation, the person with the higher net income must calculate the claim first. However, you must each fill out a separate Form T778, and fill out parts A and B, and, if it applies, parts C and D.

If both of you have equal net incomes, you have to agree on which one of you will claim the child care expenses.

If you got married or became a common-law partner in 2016, you and your spouse or common-law partner have to consider your net incomes for the whole year. Include child care expenses you both paid for the whole year.

For whom can you claim child care expenses?

Child care expenses can only be claimed for an eligible child.

An eligible child is: your or your spouse's or common-law partner's child; or a child who was dependent on you or your spouse or common-law partner, and whose net income in 2016 was $11,474 or less.

The child must have been under 16 years of age at some time in the year. However, the age limit does not apply if the child was mentally or physically infirm and dependent on you or your spouse or common-law partner.

What payments can you claim?

You can claim child care expenses that were incurred for services provided in 2016. These include payments made to:

  • caregivers providing child care services;
  • day nursery schools and daycare centres;
  • educational institutions, for the part of the fees that relate to child care services;
  • day camps and day sports schools where the primary goal of the camp is to care for children (an institution offering a sports study program is not a sports school); or
  • boarding schools, overnight sports schools, or camps where lodging is involved (read the note in Part A of Form T778, Child Care Expenses Deduction).

The above is not an exhaustive list of deductible child care expenses. For example, advertising expenses and placement agency fees incurred to locate a child care provider and mandatory registration fees may also qualify as child care expenses.

When the child care services are provided by an individual, the individual cannot be:

  • the eligible child's father or mother;
  • another person;
  • a person for whom you or another person claimed an amount on line 305, 306, 315, or 367 of Schedule 1, Federal Tax; or
  • a person under 18 years of age who is related to you.

A person is related to you if he or she is connected to you by a blood relationship, marriage or common-law partnership, or adoption. For example, your brother, sister, brother-in-law, sister-in-law, and your or your spouse's or common-law partner's child are related to you. However, your niece, nephew, aunt, and uncle are not.

What payments you cannot claim?

You cannot claim payments for:

  • medical or hospital care, clothing, or transportation costs;
  • fees that relate to education costs at an educational institution, such as tuition fees of a regular program or a sports study program; and
  • fees for leisure or recreational activities, such as tennis lessons or the annual registration for Scouts.

You cannot claim expenses for which you or another person received, or is entitled to receive, a reimbursement of the child care expenses or any other form of assistance not included in income. This includes, for example, the hiring credit for small business and small business job credit received under the Employment Insurance Act. If your employer paid the child care expenses on your behalf, you can claim the part of the expenses included in your income for the year.

Completing your tax return

Use Form T778, Child Care Expenses Deduction, to calculate your allowable amount of child care expenses. Enter on line 214 of your return the amount that you can claim.

The individual or organization who received the payments must give you a receipt showing information about the services provided. When the child care services are provided by an individual, you will need the social insurance number of the individual. The receipt can be in your name or that of your spouse or common-law partner.

You cannot carry forward unclaimed expenses to another year.

As a Student, Do I Have to File a Tax Return? 

By Randall Orser | Personal Income Tax

You’ve ventured out into the world of post-secondary education, and have a lot going on. Taxes are not something you’re thinking about, and besides, you don’t have any income, or other reason to file a return. Or do you?

Most income you receive is taxable and you have to include it on your return. However, you do not have to include your GST/HST credit, Canada child tax benefit payments, or related provincial or territorial program payments, lottery winnings, or most gifts and inheritances.

The most common forms of income are: employment income (T4 or T4A); income not showing up on a T4 (tips, gratuities); scholarships, fellowships, bursaries, study grants, and artists’ project grants (awards); net research grants; apprenticeship incentive or completion grants; RESP withdrawals; interest and other investment income.

There are other reasons to file a tax return, you may have a refund, you or your spouse may want to get the GST/HST credits, you or your spouse may qualify for child tax benefits, and more.

Tuition/Education Credits

You still need to file a tax return as you have to claim your tuition, education, and textbook amounts first on your own return, even if someone else paid your fees. The amount you must use on your own tax return is equal to the amount of credit required to reduce the taxes you owe. The calculation for this amount is included on Schedule 11.

Even if you have no tax to pay and you are transferring part of your tuition, education, and textbook amounts, file your return and a completed Schedule 11 so we can update our records with your unused tuition, education, and textbook amounts available to carry forward to other years.

If you are transferring an amount to a designated individual, only transfer the amount this person can use. This way, you can carry forward as much as possible to use in a future year.

You may transfer a maximum of $5,000, minus the amount you used to reduce your tax owing as calculated on Schedule 11. You can transfer all or some to your spouse or common-law partner (who would claim it on line 360 of his or her Schedule 2) or to your or your spouse's or common-law partner's parent or grandparent (who would claim it on line 324 of his or her Schedule 1).

Depending on their province or territory of residence, your spouse or common-law partner may have to complete Schedule (S2) to calculate their provincial or territorial transfer amounts.

Which tax package should you use?

Generally, you have to use the package for the province or territory where you resided on December 31. If you were living in a province or territory other than the one you usually reside in, use the package for your usual province or territory of residence. For example, if you usually reside in Ontario, but you were going to school in Alberta, you would use the package for Ontario.

If you resided in Quebec on December 31, use the package for residents of Quebec to calculate your federal tax only. You will also need to file a provincial income tax return for Quebec.

As you can see there are many reasons to file a tax return, even if you have no, or little, income. There are many credits you will get as a result of filing a tax return, and you don’t want to miss out on free money, now do we.

Donations and gifts – CRA

By Randall Orser | Personal Income Tax

If you or your spouse or common-law partner made a gift of money or other property to certain institutions, you may be able to claim a federal and provincial or territorial non-refundable tax credit when you file your return. Generally, you can claim all or part of this amount, up to the limit of 75% of your net income.

What is the eligible amount of my gift?

In most cases, the eligible amount of your gift is the amount shown on your charitable donation receipt.

In most cases, the eligible amount of your gift is the amount shown on your charitable donation receipt.

However, in more technical terms, the eligible amount of the gift is the amount by which the fair market value of the gifted property exceeds the amount of an advantage, if any, received or receivable for the gift.

The advantage is generally the total value of any property, service, compensation, use or any other benefit that you are entitled to as partial consideration for, or in gratitude for, the gift. The advantage may be contingent or receivable in the future, either to you or a person or partnership not dealing at arm's length with you.

Example

You donate $1,000 to the Anytown Ballet Company, which is a registered charity. In gratitude, the company provides you with three tickets to a show that are valued at $150. You are therefore considered to have received an advantage of $150. The eligible amount of the gift is $850 ($1,000 − $150).

The advantage also includes any limited-recourse debt in respect of the gift at the time it was made. For example, there may be a limited recourse debt if the property was acquired as part of a gifting arrangement that is a tax shelter. In this case, the eligible amount of the gift will be reported in box 13 of Form T5003, Statement of Tax Shelter Information. For more information on tax shelters and gifting arrangements, see Guide T4068, Guide for the Partnership Information Return (T5013 Forms).

There are situations in which the eligible amount may be deemed to be nil. For more information, see the sections called "Deemed fair market value" and "Official donation receipts" in Pamphlet P113, Gifts and Income Tax.