Month: November 2023

2023 October Tax News

Table of Contents

    CRA issues Tax Tip on reporting of cryptocurrency holdings and transactions

    October 27, 2023

    Canadians who hold “crypto-assets”, including cryptocurrency, are required to report any income or capital gains resulting from transactions involving such assets. The Canada Revenue Agency recently issued a Tax Tip for such taxpayers, outlining the record keeping and reporting obligations which must be met.

    The Tax Tip, which can be found on the CRA website at https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2023/crypto-asset-exchanges-records-obligations-responsibilities.html, notes that crypto-asset exchanges may stop operations without notice, leaving clients without access to transaction records. The CRA recommends that such information – including trades (buy, sell, and swap), transfers (deposits and withdrawals), staking rewards, yield earnings, wallet addresses, and any other transaction information – be downloaded regularly, so that users will have information needed for tax reporting purposes.

    Year-end planning for your RRSP, RRIF, TFSA, and FHSA

    October 11, 2023

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

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

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

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

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

    Timing of RRSP contributions

    • When you are making a spousal RRSP contribution

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

    • When you are turning 71 during 2023

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

    RRIF withdrawals for 2023

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

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

    Planning for TFSA withdrawals and contributions

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

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

    Contributing to an FHSA

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

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

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

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

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

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

    The CPP post-retirement benefit – deciding whether to continue contributing (October 2023)

    October 11, 2023

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

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

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

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

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

    • Individuals who are 60 to 65 years of age and continue to work are required to continue making CPP contributions.
    • Individuals who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. To stop contributing, such an individual must fill out Form CPT30 (https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html). A copy of that form must be given to the individual’s employer and the original sent to the Canada Revenue Agency. An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of the CPT30 form to each employer.

      A decision to stop contributing can be changed, and contributions resumed, but only one such change can be made per calendar year. To make that change, the individual must complete section D of CRA Form CPT30, give one copy of the form to their employer(s), and send the original to the CRA.
    • Individuals who are over the age of 70 and are still working cannot contribute to the CPP.

    Overall, the effect of the rules is that CPP retirement benefit recipients who are still working and who are under aged 65, as well as those who are between 65 and 70 and choose not to opt out, will continue to make contributions to the CPP system and will continue therefore to earn new credits under that system. As a result, the amount of CPP retirement benefits to which they are entitled to will increase with each successive year’s contributions.

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

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

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

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

    Where an individual does choose to continue making CPP contributions while working and receiving CPP retirement benefits, the amount of any CPP post-retirement benefit earned will automatically be calculated by the federal government (no application is required), and the individual will be advised of any increase in their monthly CPP retirement benefit each year. The PRB will be paid to that individual automatically the year after the contributions are made, effective January 1 of that second year. Since the federal government doesn’t have all of the information needed to make such calculations until T4s and T4 summaries are filed by the employer by the end of February, the first PRB payment is usually made in a lump sum amount, in the month of April. That lump sum amount represents the PRB payable from January to April. Thereafter, the PRB is paid monthly and combined with the individual’s usual CPP retirement benefit in a single payment.

    While the rules governing the PRB can seem complex (and certainly the actuarial calculations are), the individual doesn’t have to concern themself with those technical details. For CPP retirement benefit recipients who are under age 65 or over 70, there is no decision to be made. For the former, CPP contributions will be automatically deducted from their paycheques and for the latter, no such contributions are allowed.

    Individuals in the middle group – aged 65 to 70 – will need to make a decision about whether it makes sense in their individual circumstances (and considering the possible impact of the additional contribution requirements which will take effect in 2024) to continue making contributions to the CPP.  To assist in that decision, the Canada Revenue Agency provides a very helpful online calculator which enables individuals to obtain an estimate of the amount of PRB which they will receive. That calculator is available on the CRA website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

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

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

    Year-end planning for medical expense claims (October 2023)

    October 11, 2023

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

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

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

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

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

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

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

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

    Increase in Old Age Security benefits for October to December 2023

    October 7, 2023

    The federal government has announced that amounts paid under the Old Age Security (OAS) program will increase for the fourth quarter (October to December) of 2023. The increases are based on changes to the Consumer Price Index.

    During the fourth quarter, the maximum monthly OAS payment for recipients under the age of 75 will be $707.68, while the maximum monthly payment to those age 75 and older is set at $778.45.

    Details of these and other benefits during the fourth quarter of 2023 can be found on the federal government website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html.

    Employment Insurance premium rates for 2024

    October 7, 2023

    The Canada Employment Insurance Commission has announced the premium rates and limits which will apply for purposes of the Employment Insurance program during the 2024 calendar year.

    For 2024, as a result of indexation, maximum insurable earnings will increase to $63,200. The premium rate will be $1.66 per $100 of insurable earnings, meaning that the maximum employee premium for the year will be $1,049.12. Maximum premiums payable by employers (who pay 1.4 times the employee rate) are set at $1,468.77 per employee for 2024.

    The announcement of the premium rates and maximum insurable earnings for 2024 can be found on the federal government website at https://www.canada.ca/en/employment-social-development/news/2023/09/canada-employment-insurance-commission-confirms-2024-employment-insurance-premium-rate.html.

    About Expert Fiscaliste

    Quebec RL-31

    Expert Fiscaliste provides income tax preparation and consulting services to individuals, businesses, with real estate residential operations in Quebec.

    If you want to take advantage of our services for your Tax Returns Give us a call at 514-954-9031, or visit our Contact Tax Experts page

    2023 September Tax News

    Table of Contents

      Coming clean with the tax authorities – the Voluntary Disclosure Program (September 2023)

      September 27, 2023

      The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required) to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government on or before April 30. And while it’s doubtful that anyone does so with any great degree of enthusiasm, each spring tens of millions of Canadians do sit down to complete that return (or, more often, they pay someone else to do it for them).

      Whether they do it themselves or have the return prepared for them, the rate of compliance among Canadian taxpayers is very high – between February 6 and August 27, 2023, just under 31 million individual income tax returns were filed with the Canada Revenue Agency. Inevitably, however, there are those who do not meet their filing or payment obligations.

      There are a lot of reasons why some Canadians don’t file their returns, or don’t file returns which are accurate and complete, or don’t pay their taxes on a timely basis. Sometimes, that failure to timely file is based on a lack of understanding of how our tax system works, or on incorrect information about that system. In other instances, taxpayers simply don’t have the funds needed to pay the amount of tax owing and decide (incorrectly) that if they can’t pay their tax bill, in whole or in part, the best course of action is to not file a return. Finally, each year there are some Canadians who file returns in which (inadvertently or purposefully) income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed.

      While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate, isn’t high, there are a lot of such returns when measured by absolute numbers. And although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover that amount.

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

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

      • be voluntary (meaning that it is done before the CRA initiates any enforcement action related to the information to be disclosed);
      • be complete;
      • involve the application or potential application of a penalty;
      • include information that is at least one year past due; and
      • include payment of the estimated tax owing.

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

      While the CRA will ultimately make the determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the Limited Program to instances in which applications disclose non-compliance which appears to include intentional (as distinct from inadvertent) conduct on the part of the taxpayer or a degree of carelessness which amounts to gross negligence. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

      • the dollar amounts involved;
      • the number of years of non-compliance;
      • the sophistication of the taxpayer;
      • how quickly the taxpayer acted to correct their non-compliance after becoming aware of it;
      • whether there has been deliberate or wilful default or carelessness amounting to gross negligence on the part of the taxpayer; and
      • whether the disclosure was made after the taxpayer became aware of the CRA’s intended specific focus on that particular area of taxpayer compliance.

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

      Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance – that is, for the years preceding the three most recent years of returns required to be filed. For example, a taxpayer who makes an application to the VDP and who has failed to file returns for the 2016 through 2021 taxation years may be provided with interest relief with respect to taxes owed for the 2016, 2017, and 2018 taxation years. Such relief is generally equal to 50% of interest owed – in other words, the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years. No interest relief will, however, be provided on tax amounts owed for the three most recent (2019, 2020, and 2021) taxation years. Since interest charges levied by the CRA are, by law, higher than current commercial rates (for instance, the rate levied for the third quarter of 2023 is 9%) and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

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

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

      Taxpayers who decided to move forward with an application to the VDP can complete a Form RC199 Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. Once the application is received, the CRA will check to make certain that the applicant is eligible to apply and that all of the required information and documentation and the payment have been sent. The next step is for the CRA to evaluate the application to ensure that the criteria for participation in the VDP are satisfied and, if so, to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. At each step the taxpayer will be provided with written notice of the CRA’s decisions. The CRA’s advice is that taxpayers should contact them (for individual taxpayers, by calling the Individual Income Tax Enquiries line at 1-800-959-8281) if more than five weeks have passed since the application was submitted and no response has yet been received.

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

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

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

      Detailed information on the VDP program can be found on the CRA website at: https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html.

      Deciding when to start receiving Old Age Security benefits (September 2023)

      September 27, 2023

      The Old Age Security (OAS) program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the third quarter of 2023 (July to September), that maximum monthly benefit for recipients under the age of 75 is $698.60, while benefit recipients aged 75 and older can receive up to $768.46 per month. The monthly benefit for all recipients will increase by 1.3% during the fourth quarter (October to December) of 2023. 

      For many years, OAS was automatically paid to eligible recipients once they reached the age of 65. For the past decade, however, Canadians who are eligible to receive OAS benefits have been able to defer receipt of those benefits for up to five years, when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received increases by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%.

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

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

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

      • Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2023, that second income tax bracket begins when taxable income reaches $53,359.
      • The Canadian tax system provides (for 2023) a non-refundable tax credit of $8,396 for taxpayers who are age 65 or older at the end of the tax year. The amount of that credit is reduced once the taxpayer’s net income for the year exceeds $42,335.
      • Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2023, the full credit is payable to individual taxpayers whose family net income is less than $42,335.
      • Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits, through a mechanism known as the “OAS recovery tax”, or clawback. Taxpayers whose income for 2023 is more than $86,912 will have a portion of their future OAS benefits “clawed back”.

      What other sources of income are currently available?

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

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

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

      Does the taxpayer have private retirement savings through an RRSP?

      Taxpayers who were not members of an employer-sponsored pension plan during their working lives generally save for retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to begin receiving income from those savings. There are a number of options available for structuring that income, and, whatever the chosen option (usually, converting the RRSP into a registered retirement income fund or RRIF, or purchasing an annuity), it will mean that the taxpayer will begin receiving income amounts from those RRSP funds in the following year. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider that they will have an additional (taxable) income amount for each year after they turn 71.

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

      Individuals who are facing that decision-making process will find some assistance on the Service Canada website. That website provides a Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. To use the calculator, it is necessary to know the amount of Canada Pension Plan benefit which will be received; the taxpayer can obtain that information by calling Service Canada at 1-800 277-9914.

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

      Changes to Registered Education Savings Plans for the upcoming school year (September 2023)

      September 27, 2023

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

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

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

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

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

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

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

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

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

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

      Despite the best efforts of students and their parents to save for post-secondary education and to offset the costs of that education through summer jobs, the reality is that most post-secondary students do have to borrow money at some point during their post-secondary education years. The lowest-cost source of such borrowing is government student loan programs, and changes which take effect as of the 2023-24 academic year have also been made with respect to such borrowings.

      All Canada Student Loan (CSL) borrowings are subject to a weekly limit and where a student borrows funds through the CSL program, no repayment of those borrowings is required until six months after the student graduates. As announced in this year’s federal budget, and effective as of August 1, 2023, the limit on borrowings through the Canada Student Loan program was increased from $210 to $300 per week of study. Finally, effective as of April 1, 2023, all loans received through the CSL program are interest free.

      More information on the budgetary changes to the Canada Student Loan program and on changes to the rules governing Registered Education Savings Plans can be found on the federal government website at https://www.canada.ca/en/employment-social-development/corporate/notices/budget-student-aid.html and at https://www.budget.canada.ca/2023/report-rapport/tm-mf-en.html#a3.

      Repayment deadline extended for small business pandemic loans

      September 23, 2023

      During the pandemic, the federal government provided the small business sector with financial assistance through the Canada Emergency Business Account (CEBA) program. That program provided eligible small businesses with loans of up to $60,000.

      Program terms provided that where such loans were repaid by December 31, 2023, up to 33% of loan amounts could be forgiven. The federal government recently announced that such repayment deadline would be extended by a few weeks, and that the new deadline will be January 18, 2024. As of January 19, 2024, outstanding loans will convert to three-year term loans, subject to interest of five per cent per annum, with the term loan repayment date extended by an additional year from December 31, 2025 to December 31, 2026.

      Details of the repayment requirements and new deadlines are outlined in the federal government announcement of the extension, which can be found at https://www.canada.ca/en/department-finance/news/2023/09/canada-emergency-business-account-government-extends-repayment-and-partial-loan-forgiveness-deadlines.html.

      Third individual instalment payment of 2023 due September 15

      September 9, 2023

      Individual Canadian taxpayers who pay federal income tax by instalments make those instalment payments of tax four times each year, by specified deadlines.

      The third income tax instalment deadline for the 2023 tax year falls on Friday, September 15. Information on the instalment payment program, available options with respect to determining the amount of instalment payment to be made, and methods for making an instalment payment can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments.html.

      Increase in withdrawal limits for Registered Education Savings Plans

      September 1, 2023

      Canadian parents can save for their children’s post-secondary education on a tax-assisted basis, through the federal Registered Education Savings Plan (RESP) program, which allows parents to contribute up to $50,000 per child beneficiary to an RESP. Once the beneficiary of an RESP enrols in post-secondary education, he or she can withdraw amounts from the plan, and such withdrawals are taxed in the hands of the student beneficiary. Since many students have little or no other income, they can usually withdraw the money tax-free.

      In this year’s budget, the federal government announced that the amount which a beneficiary can withdraw from his or her RESP once enrolled in post-secondary education would be increased. Effective as of March 28, 2023, that amount is increased to $8,000 (from $5,000) for full-time students and to $4,000 (from $2,500) for part-time students.

      Detailed information on RESPs can be found on the Canada Revenue Agency website at https://www.canada.ca/en/services/benefits/education/education-savings.html, and the budget announcement of the increased withdrawal limits is available on the Finance Canada site at Chapter 1: Making Life More Affordable and Supporting the Middle Class | Budget 2023 (canada.ca).

      About Expert Fiscaliste

      Quebec RL-31

      Expert Fiscaliste provides income tax preparation and consulting services to individuals, businesses, with real estate residential operations in Quebec.

      If you want to take advantage of our services for your Tax Returns Give us a call at 514-954-9031, or visit our Contact Tax Experts page

      2023 August tax news

      Table of Contents

        Upcoming changes to electronic filing requirements for businesses

        August 26, 2023

        For several years, businesses which file more than 50 information returns (slips and summaries) have been required to file those returns by electronic means, rather than paper filing. Effective as of January 1, 2024, that requirement to file electronically will apply whenever more than five such information returns are filed by a business. Penalties will apply where returns to which the electronic filing requirement applies (which include the T4 payroll return (renumeration paid), T5 (investment income), T3 (trust income) and T4A (pension and other income return)) are not filed by electronic means.

        The Canada Revenue Agency (CRA) has issued a Tax Tip providing details of the upcoming changes. That Tax Tip, which includes information on how to file electronically, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2023/businesses-january-file-six-more-returns-electronically-avoid-penalties.html.

        When the taxman has a few questions about your return (August 2023)

        August 18, 2023

        By mid to late summer, almost every Canadian has filed his or her income tax return for the previous year and has received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that tax filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations are done and behind them for another year.

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

        Between February 6 and July 23 of this year, the CRA received and processed almost 31 million individual income tax returns filed for the 2022 tax year and issued a Notice of Assessment in respect of each one of those returns. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and could not possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

        In addition, the CRA has, for many years, been encouraging taxpayers to fulfill their filing obligations online, through one of the Agency’s electronic filing services. This year, just over 28 million (or 92.6%) of individual returns for 2022 were filed by electronic means. While e-filing means that the turnaround for processing of returns is much quicker, there is, by definition, no paper involved. The Canadian tax system has always been what is termed a “self-assessing” system, in which taxpayers report income earned and claim deductions and credits to which they believe they are entitled. Prior to the advent of e-filing there were means by which the CRA could easily verify claims made by taxpayers. Where returns were paper-filed, taxpayers were usually required to include receipts or other documentation to prove their claims, whatever those claims were for. For the nearly 93% of returns which were filed this year by electronic means, no such paper trail exists. Consequently, the potential exists for misrepresentation of such claims (or simple reporting errors) on a large scale.

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

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

        Where the initial contact from the CRA to the taxpayer is done by telephone, it’s important that the taxpayer verify the identity of the person claiming to be a representative of the Agency. As virtually everyone knows by now, fraudulent or “scam” calls purporting to be from the CRA have become commonplace. To assist taxpayers in confirming that any telephone contact received is a legitimate one, the CRA has provided information on how to respond to such a call, and that information can be found on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud/expect-cra-contacts.html

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

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

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

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

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

        Making the most of the new First Home Savings Account (August 2023)

        August 18, 2023

        The scarcity of affordable housing in just about every Canadian community can’t be news to anyone anymore. Whether it’s in relation to rental housing or the purchase of a first home, the opportunity to secure affordable, long-term housing has become more and more elusive, especially for younger Canadians.

        In early 2022, as part of its 2022-23 budget, the federal government announced the creation of a new tax measure intended to assist Canadians in their efforts to purchase a first home. And while that new program – the First Home Savings Account (FHSA) – isn’t a solution for all of the difficulties faced by those seeking to purchase that first home, it can provide some significant financial assistance in that effort. As the name implies, the FHSA allows first time home buyers (starting in 2023) to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

        Contributing to an FHSA

        Under the program terms, any resident of Canada who is at least 18 years of age (but under the age of 71 at the end of the current year) and who has not lived in a home which he or she owns in any of the current or four previous calendar years can open an FHSA and contribute to that plan annually. Planholders can contribute up to $8,000 per year to their plan, regardless of their income. The $8,000 per year contribution must be made by the end of the calendar year, but planholders will be permitted to carry forward unused portions of their annual contribution limit, to a maximum of $8,000. For example, an individual who contributes $6,000 to an FHSA in 2023 would be allowed to contribute $10,000 in 2024 (representing $8,000 in contributions for 2024 plus $2,000 in remaining contributions from 2023). Regardless of the schedule on which contributions are made, there is a lifetime limit of $40,000 in contributions for each individual.

        The real benefit of the FHSA program lies in the tax treatment of contributions and income earned by those contributions. Individuals who contribute any amount in a year can deduct that amount from income, in the same manner as a registered retirement savings plan (RRSP) contribution. And while funds are held within the FHSA, they can be held in cash, or can be invested in a broad range of investment vehicles. Specifically, such funds can be invested in mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs). Regardless of the investment vehicle chosen, interest, dividends, or any other type of investment income earned by those funds grows on a tax-free basis – that is, such investment income is not taxed as it is earned. 

        Most significantly, when the planholder withdraws funds from the FHSA to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.

        In sum, contributions made to an FHSA are deductible from income, investment income earned on those funds is not taxed as it is earned, and, where either original contributions made or investment income earned is withdrawn from an FHSA to purchase a first home, no tax is payable on such withdrawn amounts. For the taxpayer, it’s a win-win-win.

        Withdrawing funds from an FHSA

        Given the generous tax treatment accorded contributions to an FHSA, there are inevitably some qualifications and restrictions placed on the use of the plans. First, amounts withdrawn from an FHSA can be received tax-free only if such withdrawals are “qualifying withdrawals”, meaning that the funds are used to make a qualifying home purchase. In order for a withdrawal to be a “qualifying withdrawal”, the planholder must have a written agreement to buy or build a home located in Canada. That home must be acquired, or construction of the home must be completed, before October 1 of the next year. In addition, the planholder must intend to occupy that home within a year after buying or building it.

        Amounts withdrawn from an FHSA and used for any other purpose are not qualifying withdrawals and the funds withdrawn are fully taxable in the year the withdrawal is made.

        While Canadians who open an FHSA and make contributions to it are certainly hoping to be able to purchase a home, there are any number of reasons why their plans could change. Fortunately, the rules governing FHSAs provide planholders with a great deal of flexibility when it comes to the disposition of funds saved within an FHSA, in that  planholders can transfer all funds held within their FHSA to an RRSP or to a registered retirement income fund (RRIF) on a tax-free basis. Significantly, the amount which is transferred from an FHSA to an RRSP would not reduce or be limited by the individual’s RRSP contribution room. However, transfers made to an RRSP in these circumstances do not replenish FHSA contribution room – in other words, each eligible individual gets only one opportunity to save for the purchase of a first home using an FHSA. And, of course, any amounts transferred from an FHSA to an RRSP or RRIF will be taxable on withdrawal from those plans, in the same way as any other RRSP or RRIF withdrawal.

        The ability to transfer funds between plans can also work in the other direction. Individuals who have managed to accumulate funds within an RRSP will be allowed to transfer such funds to an FHSA (subject to the $8,000 annual and $40,000 lifetime contribution limits). While no deduction is permitted for funds transferred from an RRSP to an FHSA, that transfer does take place on a tax-free basis. Transfers made to an RRSP in these circumstances do not, however, replenish RRSP contribution room.

        Older taxpayers who open an FHSA should be aware that it is not possible to transfer funds from an RRIF to an FHSA.

        Closing an FHSA

        Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. (Taxpayers must also close their FHSA by the end of the year in which they turn 71.)  While these rules do place some pressure on planholders with respect to the timing of their home purchase, there is some flexibility. Specifically, planholders who have not made a qualifying home purchase within the required 15-year time frame (or by the end of the year in which they turn 71) must then close the FHSA plan, but can still transfer funds held in the FHSA to their RRSP or RRIF, on a tax-free basis.

        The FHSA is a significant new tax planning tool, and Canadians who are in a position to take advantage of its terms should certainly consider doing so. The federal government has posted information on the FHSA program on its website, and that information is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html.

        Tax breaks for the upcoming post-secondary school year (August 2023)

        August 18, 2023

        While the way in which post-secondary learning is delivered may have changed and changed again over the past three and a half years, as the pandemic waxed and waned and finally ended, the financial realities of post-secondary education have not. Regardless of how post-secondary learning is structured and delivered, it is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan. Fortunately for students (and their parents), there are tax credits and benefits which can be claimed to offset such costs: the credits and benefits which can be claimed by post-secondary students (or their spouses, parents, or grandparents) in relation to the 2023-24 academic year are summarized below.

        Tuition fees

        A federal tax credit continues to be available for the single largest cost associated with post-secondary education – the cost of tuition. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (which would include most Canadian universities and colleges) can still claim a non-refundable federal tax credit of 15% of such tuition costs. Many of the provinces and territories (excepting Alberta, Ontario, and Saskatchewan) also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.The charges imposed on post-secondary students under the heading of “tuition” include a myriad of costs which may differ, depending on the particular program or institution, and not all of those costs will qualify as “tuition” for purposes of the tuition tax credit. The following specific amounts do, however, constitute eligible tuition fees for purposes of the tuition tax credit:

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

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

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

        Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, such fees and charges are limited to $250 unless the fees are required to be paid by all full-time students or by all part-time students. At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where, as is often the case, a student doesn’t have tax payable for the year because his or her income isn’t high enough, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent, or grandparent.

        Rent, food, and other personal and living expenses

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

        Student debt

        Most post-secondary students in Canada must incur some amount of debt in order to complete their education, and repayment of that debt is typically not required until after graduation. Once repayment starts, a 15% federal tax credit can be claimed for the amount of interest being paid on such debt, in some circumstances. Students who are still in school and arranging for loans to finance their education should be mindful of the rules which govern that student loan interest tax credit, since decisions made while still in school with respect to how post-secondary education will be financed can have tax repercussions down the road, after graduation. That’s because while interest paid on a qualifying student loan is eligible for the credit, only some types of student borrowing will qualify for that credit. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.It’s not uncommon (especially for students in professional programs, like law or medicine) to be offered lines of credit by a financial institution, often at advantageous or preferential interest rates. As well, financial institutions sometimes offer, once a student has graduated and begun to repay a government-sponsored student loan, to consolidate that student loan with other kinds of debt, also at advantageous interest rates. However, it should be kept in mind that interest paid on that line of credit (or any other kind of borrowing from a financial institution to finance education costs) will never be eligible for the student loan interest tax credit. As explained in the Canada Revenue Agency publication on the subject: “ [I]f you renegotiated your student loan with a bank or another financial institution, or included it in an arrangement to consolidate your loans, you cannot claim this interest amount”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit. Students who are contemplating borrowing from a financial institution rather than getting a government student loan (or considering a consolidation loan which incorporates that student loan amount) must remember, in evaluating the benefit of any preferential interest rate offered by a financial institution, to take into account the loss of the student loan interest tax credit on that borrowing in future years.

        Other credits and deductions

        While the available student-specific deductions and credits are more limited than they were in previous taxation years, there are nonetheless a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary student (for instance, deductions for moving costs). The Canada Revenue Agency publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The current version of that guide, entitled Students and Income Tax, is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html. That guide was last revised in January of 2023 and the references in it are to the 2022 taxation year. It is, however, safe to assume that the same rules will apply for 2023.

        Updated publication issued for GST/HST tax credit for 2023-24

        August 12, 2023

        The federal government provides a refundable tax credit to lower and middle-income  Canadians, to help offset the impact of the goods and services tax/harmonized sales tax (GST/HST). That credit is paid directly to eligible taxpayers four times each year, in July, October, January, and April.

        The current benefit year for the GST/HST credit runs from July 1, 2023 to June 30, 2024. The Canada Revenue Agency (CRA) recently updated and re-issued its publication on the credit, to include information on current year amounts and income thresholds. That publication (RC4210) is available on the CRA website at RC4210 GST/HST Credit – Canada.ca.

        Prescribed interest rate for leasing for September 2023

        August 4, 2023

        The prescribed leasing interest rate mandated by the Canada Revenue Agency (CRA) must be calculated using bond yield information found on the Bank of Canada website. That calculation shows that the prescribed interest rate for leasing for the month of September 2023 is 4.34%.

        The CRA’s instructions on how to calculate the prescribed interest rate for leasing, which includes a link to the necessary bond yield information, can be found at How to calculate Prescribed Interest Rates for Leasing Rules – Canada.ca.

        About Expert Fiscaliste

        Quebec RL-31

        Expert Fiscaliste provides income tax preparation and consulting services to individuals, businesses, with real estate residential operations in Quebec.

        If you want to take advantage of our services for your Tax Returns Give us a call at 514-954-9031, or visit our Contact Tax Experts page.

        Share this:

        Translate »
        error

        Enjoy this blog? Please spread the word :)