Category Archives for "Personal Income Tax"

Will I Have to File a Tax Return for This Year?

By Randall Orser | Personal Income Tax

2017 is pretty much done, and it’s time to start thinking about taxes (it comes sooner than you think). You’re wondering if you need to file a tax return, and more than likely you do. Here’s eighteen reasons to file a 2017 tax return come April 2018.

Do you have to file a return?

You must file a return for 2016 if:

  • You have to pay tax for 2016.
  • Canada Revenue Agency (CRA) sent you a request to file a return.
  • You received working income tax benefit advance payments in 2016.
  • You disposed of capital property in 2016 (for example, if you sold real estate, your principal residence, or shares) or you realized a taxable capital gain (for example, if a mutual fund or trust attributed income to you, or you are reporting a capital gains reserve you claimed on your 2015 return).
  • You have to repay any of your old age security or employment insurance benefits. See line 235.
  • You have to contribute to the Canada Pension Plan (CPP). This can apply if for 2016 the total of your net self-employment income and pensionable employment income is more than $3,500. See line 222.
  • You are paying employment insurance premiums on self-employment and other eligible earnings. See lines 317 and 430.

Even if none of these requirements apply, you should file a return if:

  • You want to claim a refund.
  • You want to claim the working income tax benefit for 2016.
  • You or your spouse or common-law partner want to begin or continue receiving Canada child benefit payments, including related provincial or territorial benefit payments.
  • You have incurred a non-capital loss (see line 236) in 2016 that you want to be able to apply in other years.
  • You want to carry forward or transfer the unused part of your tuition, education, and textbook amounts. See line 323.
  • You want to report income for which you could contribute to an RRSP and/or a pooled registered pension plan (PRPP) to keep your RRSP/PRPP deduction limit for future years current.
  • You want to carry forward the unused investment tax credit on expenditures you incurred during the current year See line 412.
  • You receive the guaranteed income supplement or allowance benefits under the old age security program. You can usually renew your benefit by filing your return by April 30. If you choose not to file a return, you will have to complete a renewal form. This form is available from Service Canada.

Really, there’s every good reason to file a tax return for 2017 even if you’re not working.

What Does the Tax Rate Really Mean?

By Randall Orser | Personal Income Tax

Many people get confused over what tax rate they’re actually paying. We hear about tax brackets and the rates within, but what rate are you actually paying? The Canadian tax system is based on marginal rates in tax brackets, and you’re taxed based on the income and the rate in that bracket.

What is a 'Marginal Tax Rate'

A marginal tax rate is the amount of tax paid on an additional dollar of income. The marginal tax rate for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher income earners. You’re taxed on each additional dollar of income

Your marginal tax rate has important implications for financial planning. You need to know your marginal tax rate to calculate what amount of your raise or bonus you’ll get to keep after taxes or whether it is worthwhile to contribute more to your RRSPs.

What is an ‘Average Tax Rate’

The average tax rate is pretty simple as it’s the total tax paid divided by your total income. The average tax rate reflects the total tax you are paying to the government.

The current federal rates are below (provincial rates are different for each province, so we won’t go into those right now).

Federal tax rates for 2017

  • 15% on the first $45,916 of taxable income, +
  • 20.5% on the next $45,915 of taxable income (on the portion of taxable income over $45,916 up to $91,831), +
  • 26% on the next $50,522 of taxable income (on the portion of taxable income over $91,831 up to $142,353), +
  • 29% on the next $60,447 of taxable income (on the portion of taxable income over $142,353 up to $202,800), +
  • 33% of taxable income over $202,800.

For example, James has an income of $75,500 for the 2017 tax year. His total federal tax would be $12,952.12. He’s taxed on the first $45,916 at 15% = $6,887.40 and the next $29,584 at $20.5% = 6,064.72. His average rate would be $17.15% which is the federal tax divided by total income ($12,952.12 ÷ $75,500.00).

Your total income is not taxed at the marginal rate but each dollar is taxed at the rate that your income fits as in the above example.

Of course, the above doesn’t reflect the actual tax paid, this is just an example, as your total tax bill will be depending on many factors such as RRSP contributions, donations, medical and more.

Will You Owe Tax at Tax Time?

By Randall Orser | Personal Income Tax

Whether or not you end up owing tax depends on many factors. If you’re employed, and don’t have income other than from your employment, then you probably won’t end up owing anything. On the other hand, if you’re self-employed, more than likely you’ll end up owing something at tax time.

Employed Person

While being an employee and getting a T4 slip at the end up of the year, you may not think you’ll end up owing on your taxes, but that may just not be the case. Do you have other income such as investments (dividends or capital gains), or withdrawals from an RRSP? Maybe you have a rental property?

Any income you earn outside of your job will cause you to owe money at tax time. How much you’ll owe will depend on what your employment income was. You have to be careful and monitor your other income during the year, so, if you do owe tax come April it’s not a complete surprise and you’ve saved up for it. Or, you’ve made instalment payments to your income tax account with CRA and you don’t have to worry about a payment in April as it’s already paid for.

Your other income may actually put you into another tax bracket, so be careful when withdrawing RRSPs and such. For 2017, the federal tax brackets are:

  • 15% up to $45,916
  • 20.5% on $45,917 to $91,831
  • 26% on $91,832 to $142,353
  • 29% on $142,354 to $202,800
  • 33% above $202,800

Where is your employment income now? And, what will your additional income be? Where does it fit into the above scale? Your tax rate will change depending on the level of income.

If you have a total income of $107,000 then you’re in the middle tax bracket of 26%. You don’t pay 26% on the full $107,000 you pay approximately: $6887(15%) on the first $45,916, $9413 (20.5%) on the next $45,915, and $3,944 (26%) on the rest for a total of $20,244.

Your employment income may have only been $85,000 and federal tax on that would be about $14,899. In this case you pay about $5,345 on the additional income of $22,000.

As you can see having that additional income can me quite a bit more tax when it pushes you into a higher tax bracket. You may be wondering how to alleviate this tax, and the best way is RRSPs. Take your profits from the other incomes and put that into RRSPs, at least you can reduce the tax you owe.

Self-employed Person

As a self-employed person, you pay income tax based on your net income (revenue less expenses), so your tax owing can vary quite a bit from year-to-year depending on how your business is doing. Any year you have a loss, it will be first applied against any other income you have, and the balance will be carried forward to the next year; you can also carry a loss back if the prior year was profitable.

Where your income fits in the above brackets is how you will be taxed. The more you make, the more you end up paying in taxes. You can alleviate tax owing by doing RRSPs, and other deductions such as spousal (if you spouse’s net income is low); tuition credits for yourself, spouse or children; child care expenses; and more.

Ideally, the goal with a business is to get the income as low as possible for tax purposes. Though, be warned, this could bite you later when trying to get personal loans or mortgages as your income may be too low for the banks.

The following, as per Canada Revenue Agency, may be considered when determining operating expenses:

The above are based on what CRA has classified as expenses per the T2125 Statement of Business or Professional Income, which you file with your personal taxes each year. The links are to CRA’s definition of that expense. You can deduct other expenses as will fit into your business, however, CRA may not allow it for tax purposes. For example, speeding tickets, parking fines are not allowed as a deduction for tax purposes, though in your books you can write those off as they are considered a part of doing business.

Note: the above calculations are for federal tax, every province and territory also levies an income tax. Those rates can be found here.

Whether or not you owe tax at tax time will depend on many factors, most notably what are your total income from all sources for the calendar year. It may be a good idea come December to figure out what your total income is, estimate your taxes owing, and make an instalment payment to cover the taxes rather than owe at amount at tax time.

Does Canada Revenue Agency Have Your Current Information?

By Randall Orser | Personal Income Tax

Yes, it’s only November, however, it is a good time to think about tax-related issues. One of those is, does Canada Revenue Agency (CRA), have your current information. That could be a new address, marital status, and more. What has happened in your life this year, that the CRA may need to know about.


If you’ve moved in the year, then you should’ve informed CRA as soon as you were at your new address. Even if you signed up for online mail, you should let them know about your new address; you can do this through My Account where you get your online mail.

Why is this important? Keeping your information up to date will ensure that you keep receiving benefit payments to which you may be entitled and important correspondence from the CRA. Otherwise, your payments may stop or you may not receive important correspondence, such as your notice of assessment.

CRA will not forward your new information to other government departments, except Elections Canada if you authorized such on your tax return. Contact other departments or organizations directly to give them your new address.

Marital Status

During the year you may have gotten married, or have lived with someone for 12 consecutive months during some point in the year. In either case, you need to inform CRA as soon as your marital status changes.

This also goes for getting divorced. If your marital status changes during the year and you are entitled to any Canada child benefit (CCTB) payments, GST/HST credit, or working income tax benefit (WITB) advance payments, you must let CRA know by the end of the month after the month of your divorce. In the case of separation, do not tell CRA until you have been separated for more than 90 consecutive days.

If you changed your name, let CRA know as soon as possible. Call them at 1-800-959-8281 to update our records. CRA does not accept changes of name by email or over the Internet.

Birth of a Child

You’ve had a big event this year having a child, and you may be eligible for some tax credits from the government. The first one being the Child Tax Benefit (CTB).

To be eligible for the CCB, you have to meet all of the following conditions:

  • You must live with the child, and the child must be under 18 years of age.
  • You must be primarily responsible for the care and upbringing of the child.
  • You must be a resident of Canada for tax purposes.
  • You or your spouse or common-law partner must be:
    • a Canadian citizen
    • a permanent resident
    • a protected person
    • a temporary resident who has lived in Canada for the previous 18 months, and who has a valid permit in the 19th month
    • an Indian within the meaning of the Indian Act, if you are not a Canadian citizen


The Automated Benefits Application is a partnership between the Canada Revenue Agency (CRA) and the Vital Statistics Agency of the participating province. The CRA will use the information from the child's birth registration to determine your eligibility for benefits and credits.

You can use the Automated Benefits Application if all of these situations apply:

  • you are the birth mother of a newborn
  • your child is born in a participating province
  • you did not already apply using My Account or Form RC66, Canada Child Benefits Application

What you need to do

After your baby is born:

  1. Complete your child’s provincial birth registration form.
  2. Give your consent to the Vital Statistics Agency to securely share the information from your birth registration form with the CRA.
  3. Provide your social insurance number (SIN) to avoid delays.
  4. Submit your form.

We recommend that you sign up for direct deposit before your baby is born to get your payments faster.

If you use the Automated Benefits Application, do not apply any other way.


If during the year you’ve become disabled, there are tax credits you can apply for to reduce your tax burden.

Disability Tax Credit

What is the disability tax credit?

The disability tax credit (DTC) is a non-refundable tax credit that helps persons with disabilities or their supporting persons reduce the amount of income tax they may have to pay. An individual may claim the disability amount once they are eligible for the DTC. This amount includes a supplement for persons under 18 years of age at the end of the year.

The purpose of the DTC is to provide for greater tax equity by allowing some relief for disability costs, since these are unavoidable additional expenses that other taxpayers don’t have to face.

Being eligible for the DTC can open the door to other federal, provincial, or territorial programs such as the registered disability savings plan, the working income tax benefit, and the child disability benefit.

Who is eligible for the DTC?

You are eligible for the DTC only if we approve Form T2201. A medical practitioner has to fill out and certify that you have a severe and prolonged impairment and must describe its effects. Answer a few questions to find out if the person with the disability may be eligible.

If we have already told you that you are eligible, do not send another form unless the previous period of approval has ended or if we tell you that we need one. You must tell us immediately if your medical condition improves.

Disability supports deduction

Individuals who have an impairment in physical or mental functions and have paid for certain medical expenses can claim the disability supports deduction under certain conditions.

Who is eligible?

If you have an impairment in physical or mental functions, you can claim a disability supports deduction if you paid expenses that no one has claimed as medical expenses. You must have paid them so you could:

  • be employed or carry on a business (either alone or as an active partner)
  • do research or similar work for which you received a grant
  • attend a designated educational institution or a secondary school where you were enrolled in an educational program

Only the person with the impairment in physical or mental functions can claim expenses for this deduction.

Home accessibility expenses

If you became disabled and had to make adjustments to your home for your mobility and use of the home, you may be entitled to claim expenses for doing so. What renovations or expenses are eligible and ineligible?

A qualifying renovation is a renovation or alteration that is of an enduring nature and is integral to the eligible dwelling (including the land that forms part of the eligible dwelling). The renovation must:

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

An item you buy that will not become a permanent part of your dwelling is generally not eligible.

Eligible expenses

These expenses are outlays or expenses made or incurred during the year that are directly attributable to a qualifying renovation of an eligible dwelling. The expenses must be for work performed and/or goods acquired in the tax year.

Work performed by yourself

If you do the work yourself, the eligible expenses include expenses for :

  • building materials;
  • fixtures;
  • equipment rentals;
  • building plans; and
  • permits.

However, the value of your own labour or tools cannot be claimed as eligible expenses. This includes someone who is related to you, unless they have a contracting business and are registered to GST/HST.

If you have had any changes in relation to the above, it’s best to inform the CRA as soon as possible. If you don’t and later changes are made to any credits you were receiving, then CRA will claw back any overpayments, and charge penalties and interest.

Eight Expenses You Cannot Deduct on Your Taxes

By Randall Orser | Personal Income Tax

Tax time is fast approaching, yeah, I know it’s not even Christmas yet, but the time flies like crazy nowadays. However, you’ve been doing well this year keeping track of your receipts. However, before you get too excited and start adding that stuff up you may want to ensure that what you’ve collected is actually deductible.

Commuting Costs

You’ve got to get to work and back, however, CRA sees this as personal time, and, therefore, mileage is not deductible. We did have a public transit credit for a couple of years, however, the Liberals saw fit to eliminate this in 2017; apparently on the rich used it. If you’re a small business, and you’re home-based, any mileage you travel to a client or customer site, then you can claim that mileage or the cost of the automobile receipts.

Home Insurance

The insurance you get to protect your home from fire, water, wind and other damage, including theft, is not considered deductible. However, if you have a small business you can claim a certain amount based on the home office deduction percentage you claim.

Charities That Don’t Qualify

We all like to help others from time to time, and giving to a charity is a great way to help others and make the world a better place. In order for you to be able to use a charitable receipt as a deduction, it must be registered with Canada Revenue Agency (CRA). At the time you donate, the charity should be able to tell you their status, as well a registration number should show up on the receipt (9 digits followed by RR, for example: 123456789RR0001.

Funds that you give to family or friends, even for a financial hardship, do not qualify for a charitable deduction.


The taxes you pay to the federal government for income taxes do not qualify for a deduction, as much as we’d love to be able to do that. Some taxes, such as property taxes, provincial sales taxes, business license fees, can be deducted from business income.

Plastic Surgery

If you decide to have plastic surgery, or any other cosmetic surgery procedure, this would not qualify as a tax deductible medical expense. Any cosmetic surgery procedure must be considered medically necessary and prescribed by a doctor.

Over-the-Counter Medications

Those medications, such as Nyquil, Tylenol, Advil, etc. are not tax deductible; only medications prescribed by a doctor with a valid prescription receipt are deductible from your taxes. This also goes for supplements whether or not prescribed by a homeopathic, or other doctor; and that includes supplements bought from a pharmacy or nutrition store.

Child Support Payments

Payments you make to your spouse for child support are not considered deductible for tax purposes. The though behind this to make child support non-deductible and non-taxable was that there should be no direct tax advantages for supporting one’s own children whether living together or apart.

Penalties and Interest

There are times when things just get beyond us and we end up incurring penalties and interest when it comes to filing our taxes. Depending on how far behind you did get, these penalties and interest could get quite high. However, you can still not deduct these from your taxes.

What expenses are a tax deduction? And, what are just money well spent? That can be a confusing question. Using the tips above, should help you avoid creating a red flag that will get the attention of CRA, and then having it disallowed and penalties and interest added.

Ensure You Have All Your Medical Receipts

By Randall Orser | Personal Income Tax

It’s the digital age, and the government is somewhat getting behind that by allowing us to electronically file our tax returns. However, with that Efile® comes the problem that Canada Revenue Agency (CRA) doesn’t get all your receipts and/or slips like it used to when we paper filed. The number of ‘reviews’ has increased considerably over the years, and one of the big ones CRA reviews is medical receipts.

CRA can do a pre-assessment review of your medical expenses where they ask for your medical receipts before they actually process your return. This usually happens when you have a large amount for medical expenses; that could be $5000 or up.

Then there’s the post-assessment review where they process your return as filed, however, later in the year when CRA has time, they’ll look at medical expenses. This happens when they either couldn’t get to your return pre-assessment, or the amount wasn’t at their threshold at that time.

Either way, you’ll get a letter from CRA outlining what they’re looking at and what they require. Something like this:

Dear Madam:                                                                                    

Re: Income Tax and Benefit Return for 2016

​Account Number         XXX XXX 264

Reference Number      TB1718 6045 7310

We regularly conduct review programs as an important part of the self-assessment tax system. To determine if we have assessed your return con-ectly, we need more information. Please note, if you claimed a provincial or territorial 11011-reftmdableta x credit that corresponds to the federal tax credit

under review, we will review both credits at the same time.

Medical expenses          Amount being reviewed $x,xxx.00


To support your claim for medical expenses for self, spouse or common-law partner, and your dependent children born in 1999 or later, and/or the allowable amount of medical expenses for other dependents, please provide the following information, as applicable:

all receipts, forms, and/or other supporting documents or medical certificates;

Receipts have to include the following information:

the name of the patient;

the type of service provided;

the amount and date of the payment for the services provided;

the name of the person who made the payment;

If submitting a pharmacy statement, it should also contain the name of the

controlled drug, preparation, substance, or the Drug Identification Number (DIN).

NOTE: Cancelled cheques and cheque images are not acceptable receipts.

a detailed statement from the insurance company confirming:

the name of the patient;

the date and the amount of the payment;

the name of the controlled drug, preparation;

the kind of medical, paramedical, and/or dental expenses;

the amount that has been or can be reimbursed.

  • indicate the 12-month period used. If a 12-month period is not indicated, we will use the calendar year.
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Should I Invest in my RRSPs now?

By Randall Orser | Personal Income Tax

Now is the perfect time to check where you RRSP contributions have been for the year, and where they’ll be in by the end of February. Do you have the room to put more in? Do you have some extra funds lying around? You may want to put the funds in now, and earn some income on them rather than wait until February; plus, you’re beating the rush and not scrambling to get them in by March 1st.

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.

Your TFSA and Ten Things You Should Know

By Randall Orser | Personal Income Tax

In 2009, the government of the day created the Tax Free Savings Account (TFSA) as a means to efficiently invest more. Surprisingly, eight years in to the TFSA’s existence, some Canadians are still confused about how they actually work. And, no it’s not another way for the rich to save on taxes, it can benefit the ordinary Canadian too. We’re going to talk about 10 things you should know about the TFSA.

You Can Have More Than One TFSA Account

You can have multiple TFSA accounts at different institutions, however, they all share the same contribution limit. As of 2017, that limit is $5,500 per year. Good records are a must when you have multiple accounts, as you need to track your contributions and withdrawals as it’s much easier to over contribute by accident.

Over Contributions Incur Penalties

Whenever you go over your contribution limit, you will incur a penalty of 1% per month on that excess amount. This over contributing is a simple mistake because many people don’t under understand how the contribution limit works. This gets more complicated when you have multiple TFSAs, and you have several transactions happening throughout the year. Your best method of determining your contribution limit is to keep track of it yourself, or chat with Canada Revenue Agency (CRA). They can let you know what your limit is for the year.

Successor Holder vs. Beneficiary

You can name a beneficiary to your TFSA, however, you may not realize you can name someone a ‘success holder’. Your beneficiary can be anyone you choose, such as a child, parent, or sibling; a successor holder can only be your spouse or common-law partner. Your beneficiary receives the proceeds of your TFSA upon your death, and the TFSA is closed. With a successor holder, your account is rolled into their TFSA which doesn’t affect their contribution room. If you have a spouse or common-law partner and want them to inherit your TFSA, it makes sense to name them successor holder as they can continue to grow your investments tax free; and, avoid taxes payable on any income on the account from your time of death to when the account is closed.

Contributions in Kind

Are you thinking about transferring from your non-registered account to your TFSA? You need to ensure there are no unrealized capital gains or losses. Once you transfer in-kind to a TFSA, it’s considered a deemed disposition for tax purposes; however, there’s a catch, unrealized gains are realized immediately upon disposition, but unrealized losses are not claimed. You should never ever transfer an investment in a loss position to your TFSA. What you should do is sell the security in your non-registered account so you can claim the loss, transfer the cash into your TFSA, then wait at least thirty days before repurchasing so you avert prompting a superficial loss.

Non-qualified Investments

While most investments can be help in your TFSA, there are some that are considered non-qualified. The non-qualified investments are:

  • Any personal debt in your name;
  • Any debt or share of a corporation in that you hold a significant interest;
  • Any debt or share of a corporation that you don’t deal with at arm’s length.

Any time you have a non-qualified investment in your TFSA, there is a one-time tax equal to 50% of the fair market value at the time it’s acquired or became non-qualified.

Foreign Withholding Tax

If you have foreign investments and receive dividends, they’ll be subject to a non-resident withholding tax. Usually on your foreign investments in non-registered accounts you can claim the foreign dividend tax credit against that foreign tax withheld; however, that is not the case with TFSAs.

Non-resident contributions

If you are considered a non-resident and you make a contribution to your TFSA, you are taxed at a rate of 1% per month on said contributions. This generally applies to someone who is a dual citizen of Canada and the United States. Unlike RRSPs, there is no tax treaty between Canada and the United States that recognizes the TFSA as an exempt foreign trust. As far as the Internal Revenue Service is concerned, you need to disclose and pay tax on income generated by your TFSA. If you are a US citizen, you’re better off keeping your investments in an RRSP or non-registered accounts rather than a TFSA.

Social Security Benefits

Your TFSA withdrawals are not considered taxable income. As such, and a major advantage, is that withdrawals won’t count against you for the purpose of determining your social security benefits, such as Old Age Security (OAS) or Guaranteed Income Supplement (GIS), which get clawed back based on your income level for the tax year.

Loan Interest Tax-deductibility

Any time you borrow money to invest in a non-registered investment account, the interest is tax deductible. However, this doesn’t apply with your TFSA or any other registered accounts. Of course, this makes total sense, as with TFSAs there are no tax ramifications for contributions or withdrawals, so you shouldn’t be able to claim a deduction for the interest paid. You can’t have your cake and eat it too.

Retroactive Contribution Room

The beauty of the TFSA is that you have accumulated contribution room that depends on how long you’ve been a Canadian resident, and not when you first opened your TFSA. If you open your TFSA today, you still have contribution room retroactive back to when TFSAs were first introduced in 2009, as long as you were 18 or older at the time. If you weren’t 18 in 2009, then you have no accumulated contribution room for those years. If you turned 18 in 2013, then you would have no accumulated contribution room for 2009 to 2012.

The TFSA is an excellent investment vehicle for all Canadians. As the contribution limit continues to accumulate, and, hopefully, the government increases the yearly amount, in the future, you’ll need to ensure you know everything about your TFSA.

Thinking of Moving Up North for a Job? 

By Randall Orser | Personal Income Tax

The north is thought to be a desolate place, however, that’s not the case anymore. It could be a good time to find a job in the Northern parts of Canada. There are credits for being a northern resident, and they could be good enough to make that move worthwhile.

Northern Residents Deduction

There are two northern residents’ deductions:

  • a residency deduction (Step 2 of Form T2222) for having lived in a prescribed zone; and
  • a deduction for travel benefits (Step 3 of Form T2222) you received from employment in a prescribed zone that was included in your income.

You qualify if you have lived on a permanent basis, in a prescribed northern zone (Zone A) or a prescribed intermediate zone (Zone B) for a continuous period of at least six consecutive months. This period can begin or end in the tax year specified on Form T2222, Northern Residents Deductions. To determine if you lived in the prescribed zone on a permanent basis, we consider the number of your absences from the prescribed zone and the purpose and length of your absences.

If you have not lived in a prescribed zone for a continuous period of at least six consecutive months at the time you file your return, you do not yet qualify. File your return without making the claim. When you qualify, you can ask us to adjust your return.

Your period of residency is not affected if you moved from one place in a prescribed zone directly to another place in a prescribed zone. Absences from a prescribed zone - If you lived in a prescribed zone on a permanent basis, absences from a prescribed zone do not usually affect your period of residency. If you lived in a prescribed zone for work-related reasons (while your principal place of residence was not in a prescribed zone), you may qualify for the deduction.

Can you claim the deduction for travel benefits?

You can claim the deduction for travel benefits for expenses you incurred to travel or the value of travel provided by your employer if you meet all of the following conditions:

  • you qualify to claim northern residents’ deductions;
  • you are an employee dealing at arm's length with your employer; and
  • you must have included in your income (in the same year that you have the travel expenses) the taxable travel benefits that you received from your employment in a prescribed zone.

If you take a trip that begins and ends in one year and you are reimbursed the following year, you cannot claim the deduction for travel benefits for that trip.

You can claim a deduction for travel benefits if you leave on a trip in one year and return the next year. For example, you may leave on a trip in December and come back in January. If you receive non-refundable tickets or travel vouchers, the taxable travel benefit should be included in your T4 slip or T4A slip for the year the trip begins.

Taxable travel benefits include:

  • travel assistance provided by your employer such as airline tickets or a trip on the company owned airplane; and
  • a travel allowance or a lump-sum payment you received from your employer for travel expenses you incurred.

Any travel expenses, excluding those for employment purposes, which are paid for by your employer, are generally considered taxable benefits.

The maximum deduction you can claim for each eligible trip is the lowest of the following three amounts:

You can claim a deduction for travel benefits even if you are not claiming a residency deduction. For example, if your spouse or common-law partner claims both the basic and the additional residency amounts, you can still claim a deduction for any taxable travel benefits you received.

You cannot claim a deduction for travel benefits if:

  • you or any member of your household received or was entitled to receive non-taxable amounts as travel assistance, a travel allowance, or as a reimbursement for travel expenses; or
  • someone else has already claimed the deduction for travel benefits for this trip on their return.

There are two parts to the residency deduction: a basic residency amount and an additional residency amount. The amount you can claim for these will depend on whether you lived in a prescribed northern or an intermediate zone.

For 2016, you can claim a basic residency amount of $11 for each day you lived in a prescribed northern zone. Or if you lived in a prescribed intermediate zone, you can claim $5.50 per day.

The additional residency amount is $11 for each day you lived in a prescribed northern zone. Or if you lived in a prescribed intermediate zone, it is $5.50 per day. You can claim this additional amount only if you maintained and lived in a dwelling in the northern or intermediate zone and you are the only person in your household claiming the basic residency amount.

  • Example 1: Eric and his wife Geneviève lived in a prescribed northern zone for 300 consecutive days during 2016. Eric’s basic residency amount is $3,300 (300 days x $11). Geneviève’s basic residency amount is also $3,300 (300 days x $11). Eric and Geneviève cannot claim the additional residency amount. This is because they lived in the same dwelling during the same period and they are each claiming the basic residency amount.
  • Example 2: Jane lived in a prescribed intermediate zone for 300 days during 2016. Her basic residency amount is $1,650 (300 days x $5.50). Her additional amount is also $1,650 (300 days x $5.50). This gives her a total claim of $3,300 ($1,650 + $1,650). Jane can claim the additional residency amount because she maintained and lived in a dwelling and is the only individual in her dwelling claiming the basic residency amount.

As you can see, moving up north may not be all that bad, and many people I know that moved up north are enjoying it very much.

Are You Having a Baby? 

By Randall Orser | Personal Income Tax

Congratulations! If you are a new parent, or about to be one, there are some things that can benefit you tax wise when having children. Children can be expensive to raise and the government recognizes this and gives parents different tax credits and benefits to somewhat offset those costs.

If you are a single parent, then you can claim the child as equivalent to spouse, which gives you an additional $11K non-refundable tax credit.

Apply for child benefits

With the Automated Benefits Application (ABA), you can automatically apply for child benefits when registering the birth of your new baby. If you live in a province that has ABA and give your permission, you will automatically be applying or registering for:

  • the Canada child benefit (CCB)– A tax-free monthly payment made to eligible families to help them with the cost of raising a child under 18
  • the goods and services tax/harmonized sales tax (GST/HST) credit - A tax-free quarterly payment that helps families and individuals with low and modest incomes offset all or part of the GST or HST that they pay
  • any related provincial programs – Most provinces and territories also have child and family benefits and credits, which families can receive in addition to the CCB and the GST/HST credit. We won’t get into these in this post as there are just too many of them.

If you live in a territory that does not have ABA, you can apply for child and family benefits using the “Apply for child benefits” service through My Account or by completing and mailing Form RC66, Canada Child Benefits Application to your tax centre.

Canada Child Benefit (CCB)

The Canada child benefit (CCB) is a tax-free monthly payment made to eligible families to help them with the cost of raising children under 18 years of age. The CCB might include the child disability benefit and any related provincial and territorial programs.

The Canada Revenue Agency (CRA) uses information from your income tax and benefit return to calculate how much your CCB payments will be. To get the CCB, you have to file your return every year, even if you did not have income in the year. If you have a spouse or common-law partner, they also have to file a return every year.

Benefits are paid over a 12-month period from July of one year to June of the next year. Your benefit payments will be recalculated every July based on information from your income tax and benefit return from the previous year.

If you want to know if you qualify for the CCB check out CRA’s website here.

GST/HST Credit

The GST/HST credit is a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST or HST that they pay. You no longer have to apply for the GST/HST credit. The Canada Revenue Agency will automatically determine your eligibility when you file your next income tax and benefit return for the 2014 and later tax years.

There are various provincial programs related to the GST/HST credit, which you can check on CRA’s website here. For British Columbia, there is the BC Family Bonus and the BC Low Income Climate Action Tax Credit.

If you have a spouse or common-law partner, only one of you can receive the credit. The credit will be paid to the person whose return is assessed first. The amount will be the same, regardless of who (in the couple) receives it.

Working Income Tax Benefit

Your baby is considered an eligible dependent, which means you may now claim the working income tax benefit (WITB), or the amount you claimed before might increase. The WITB is a refundable tax credit that provides tax help for working low-income families and individuals. Eligible individuals and families may be able to apply for WITB advance payments, which are paid quarterly. This credit is especially helpful if you are a single parent.

Save For Your Child's Education

It's never too early to start saving for your child's future education by contributing to a registered education savings plan (RESP). Programs such as the Canada education savings grant (CESG) and the Canada learning bond (CLB) are other reasons for creating an RESP for your child. These programs may provide incentives for using an RESP to save for a child's education after high school (post-secondary education).

With the above credits, there is a disability portion if your child is diagnosed with any kind of disability. All the above credits get an increase for a disable child under 18 years of age. Note that the disability must be severe and prolonged impairment in physical or mental functions.

If you are having a baby, then these credits can help with the cost of raising them, and you may as well take advantage of them.