Cook & Company is committed to keeping current on news and policies that may affect a company’s business. Below are the most current headlines, along with tax alerts from the Canadian and Alberta Provincial Government.
Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency. That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 16 and June 15 of this year.
Income tax is a big-ticket item for most retired Canadians. Especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.
If there is one invariable “rule” of financial and retirement planning of which most Canadians are aware, it is the unquestioned wisdom of making regular contributions to a registered retirement savings plan (RRSP). And it is true that for several decades the RRSP was only tax-sheltered savings and investment vehicle available to most individual Canadians.
- For Canadians over the age of 71, there is no choice. All individual Canadians must collapse their RRSPs by the end of the year in which they turn 71, and no RRSP contributions can be made after that time. A TFSA is the only tax-sheltered savings vehicle to which taxpayers over age 71 can contribute. Many of those taxpayers, however, have transferred their RRSP savings to a registered retirement income fund (RRIF) and are required to withdraw a specified percentage of funds from that RRIF each year. For taxpayers who are in the fortunate position of having such income in excess of current cash flow needs, that excess can be contributed to a TFSA. While the RRIF withdrawals must still be included in income and taxed in the year of withdrawal, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn in the future from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.
- The minority of working taxpayers who are members of registered pension plans (RPPs) will also likely find savings through a TFSA the better or even the only option. The maximum amount which can be contributed to an RRSP in a given year is generally 18% of the previous year’s income, to a specified dollar amount ceiling. However, any allowable contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under their pension plan. Where the RPP is a particularly generous one, RRSP contribution room may be minimal, or even non-existent, and a TFSA contribution the logical alternative.
- Where savings are being accumulated for an expenditure which is likely to occur within the next five years – for example, putting together money for a new car or for wedding costs, the TFSA is clearly the better choice. Taxpayers in that situation are sometimes tempted to make an RRSP contribution instead, in order to get a tax refund, and then to withdraw the funds when the planned expenditure is to be made. However, while choosing that option will provide a deduction on this year’s return and probably generate a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP a year or two later. And, more significantly from a long-term point of view, using an RRSP in this way will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn from the plan cannot be replaced. While the amounts involved may seem small, the loss of compounding on even a relatively small amount over 25 or 30 years can make a significant dent in one’s ability to save for retirement.
- Taxpayers who are expecting their income to rise significantly within a few years – for example students in post-secondary or professional education or training programs – can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, allowing the funds to compound on a tax-free basis, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted against income which would be taxed at the much higher rate, generating a tax savings. And, if a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.
- Lower income taxpayers, for whom there isn’t likely to be a great difference between pre- and post-retirement income are likely better off saving through a TFSA. That’s especially the case where those taxpayers may be eligible in retirement for means-tested government benefits like the Guaranteed Income Supplement or tax credits like the GST /HST credit or age credit. Withdrawals made from an RRSP or RRIF during retirement will be included in income for purposes of determining eligibility for such benefits or credits, and lower-income taxpayers could find that such withdrawals have pushed their income to a level which reduces or eliminates their eligibility. On the other hand, monies withdrawn from a TFSA are not included in income for the purpose of determining eligibility for any government benefits or tax credits, so saving through a TFSA will ensure that receipt of such benefits is not put at risk.
There’s no denying that the Canadian tax system is complex, even for individuals with relatively straightforward tax and financial circumstances. As well, significant costs can follow if a taxpayer gets it wrong when filing the annual tax return. Sometimes those costs are measured in the amount of time needed to straighten out the consequences of mistakes made on the annual return; in a worst-case scenario, they can involve financial costs in the form of interest charges or even penalties levied for a failure to remit taxes payable on time or in the right amount. Whatever the reason, fewer and fewer individuals are willing to brave the annual trip through the 8 pages (as of 2019) of the federal tax return (plus a seemingly innumerable related federal schedules and provincial tax forms), and that means that the percentage of Canadians who have their return prepared by someone who has, presumably, more expertise, has continued to rise.
Whether that someone else is a willing family member or friend, or a professional tax preparer and/or tax filing service, or an accountant, having someone else prepare the return means, in most cases, that the taxpayer will be dealing with the Canada Revenue Agency (CRA) through a representative and must provide authorization for that representative.
It sometimes comes as a surprise to taxpayers that the CRA will not – and, in fact, cannot – provide a taxpayer’s personal tax information to anyone other than that taxpayer, unless written authorization has been provided in advance, or the taxpayer him or herself is there to provide verbal authorization. While it may seem reasonable for a spouse who does the tax returns for the entire family or for an adult child completing a return for an elderly parent to be given access to information needed to complete that return, the restrictions on the release of such information are, in fact, very much in the best interests of the taxpayer. Most such requests for another individual’s personal tax information are genuine and well-intentioned, but that’s not, unfortunately, always the case.
The forum used to name and authorize a representative is the T1013 – Authorizing or Cancelling a Representative, and that form is available on the CRA website at http://www.cra-arc.gc.ca/E/pbg/tf/t1013/README.html).
The first decision which must be made by a taxpayer who is authorizing a representative is the level of authority he or she wants to grant to a representative and that, in turn, will depend on what he or she wants the representative to be able to do The T1013 form provides for two levels of authorization by a representative. Broadly speaking the first, Level 1 access provides the representative with the right to receive information while the higher Level 2 access enables the representative to make changes to the taxpayer’s account. Where a taxpayer does not specify a level of access when authorizing a representative, the CRA will automatically assign the lower Level 1 access to that representative. The specific rights granted to a representative at each level are as follows.
Where a representative has been provided by the taxpayer with Level 1 access, the CRA can disclose the following information to that representative:
- information given on the taxpayer’s income tax return;
- adjustments to the taxpayer’s income tax return;
- information about the taxpayer’s RRSP, Home Buyers’ Plan, TFSA, and Lifelong Learning Plan;
- the taxpayer’s accounting information, including balances, payment on filing, and instalments or transfers;
- information about the taxpayer’s benefits and credits (Canada child tax benefit, universal child care benefit, GST/HST credit, working income tax benefit); and
- he taxpayer’s marital status (but not information related to his or her spouse or common-law partner).
A Level 1 representative is not allowed to request changes (adjustments and transfers) to the taxpayer’s account.
A representative who has been provided by the taxpayer with Level 2 access has all the powers of a Level 1 representative, as well as the right to ask for adjustments to the taxpayer’s income, deductions, non-refundable tax credits; and accounting transfers. A Level 2 representative is also able to submit a request for taxpayer relief, to file a notice of objection or an appeal on the taxpayer’s behalf and to request remittance vouchers on behalf of the taxpayer.
There are some actions which cannot be taken by either a Level 1 or a Level 2 representative. A representative authorized by the filing of a T1013, regardless of level of authorization, will not be allowed to change the taxpayer’s address, marital status, direct deposit information, or any pre-authorized debit agreement.
A taxpayer naming a representative through a T1013 must also decide whether he or she wants the representative to have online access to the taxpayer’s account, or to be able to deal with the CRA on his or her behalf only by telephone or in writing. Where the authorization provides only for the latter (no online access), the taxpayer can specify the tax years for which access is being authorized, and the level of authorization granted for each such year. Where online access is authorized, however, that access must be for all tax years, although the taxpayer can still specify the level (Level 1 or Level 2) of access to be allowed. It’s also important to note that where a taxpayer names a firm or business as the representative, he or she can also specify, by name, the individual within that firm or business to authorization is being granted. Finally, the taxpayer can also specify a date on which the authorization will expire, if he or she wishes to do so.
The CRA will be making changes to the procedures by which an individual taxpayer can authorize a representative, and current information provided on the CRA website indicates that, as of February 10, 2020, the following changes will be made.
The current T1013 form used to authorize or cancel a representative will be available until February 10, at which time it will be replaced by a new form – AUT-01, Authorize a Representative for Access by Phone and Mail.
Under the new system, there will be two different processes – one to allow a representative access by mail or phone and a second to provide a representative with online access. The new form to be used to authorize mail or phone access will be the AUT-01 Authorize a Representative for Access by Phone or Mail. Taxpayers who wish to provide a representative with online access must use an e-authorization process, which is not yet available on the CRA website. More information on the new processes can, however, be found at https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2020/changing-how-representatives-authorized.html.
It seems that T1013s already filed by taxpayers will continue to be in effect and that there will be no need for taxpayers who have filed the T1013 to file another or different form after February 10, 2020.
It is readily apparent that naming someone as your representative with the CRA, by whatever method, and even at the lowest level for a limited period of time, gives that person access to an enormous amount of personal tax and financial information. Taxpayers should be aware, when providing an authorization, exactly what they have agreed to and for what length of time. Where a taxpayer engages the services of a tax return preparation service, for instance, that service will frequently ask the taxpayer to sign an authorization enabling them to act as the taxpayer’s representative with the CRA. It’s a reasonable request, given that the tax return preparer may need to contact the CRA to obtain information – for example, from prior year returns – which is needed to prepare the tax return for the current year. Taxpayers who authorize a representative in such circumstances should, however, be careful to ensure that the authorization is limited, usually to the specific time during which the return will be prepared. Not infrequently, taxpayers have been asked to sign an authorization which does not specify any time frame and are surprised to find that such an authorization is still in effect, giving the representative the right to obtain information about that taxpayer, even years later, long after the taxpayer had finished his or her dealings with the tax return preparation service.
The need to designate a representative to deal on one’s behalf with the CRA is fairly commonplace. However, giving another person access to your personal tax information, even for a limited purpose or a limited time, is a significant step which should not be taken without some thought. Where it is determined that providing such access is necessary, careful consideration should be given to the level of access needed, the tax years for which access is required and, possibly most important, providing a date on which that authorization will expire.
The Employment Insurance premium rate for 2020 is decreased to 1.58%.
Yearly maximum insurable earnings are set at $54,200, making the maximum employee premium $856.36.
As in previous years, employer premiums are 1.4 times the employee contribution. The maximum employer premium for 2020 is therefore $1,198.90.
The Quebec Pension Plan contribution rate for employees and employers for 2020 is 5.7%, and maximum pensionable earnings are $58,700. The basic exemption is $3,500.
The maximum employee premium for the year is $3,146.40, and the maximum employer contribution is the same.
The Canada Pension Plan contribution rate for 2020 is increased to 5.25% of pensionable earnings for the year.
The Canada Pension Plan contribution rate for 2020 is increased to 5.25% of pensionable earnings for the year.
The maximum pensionable earnings for the year will be $58,700, and the basic exemption is unchanged at $3,500.
The maximum employer and employee contributions to the plan for 2020 will be $2,898.00 each, and the maximum self-employed contribution will be $5,796.
Dollar amounts on which individual non-refundable federal tax credits for 2020 are based, and the actual tax credit claimable, will be as follows:
|Credit amount||Tax credit|
|Basic personal amount||$12,298||$1844.70|
|Spouse or common law partner amount||$12,298||$1844.70|
|Eligible dependant amount||$12,298||$1844.70|
|Net income threshold for erosion of credit||$38,508|
|Canada employment amount||$1,245||$186.75|
|Adoption expenses credit||$16,563||$2,484.45|
|Medical expense tax credit threshold amount||$2,397|
The indexing factor for federal tax credits and brackets for 2019 is 1.9%. The following federal tax rates and brackets will be in effect for individuals for the 2020 tax year:
|Income level||Federal tax rate|
|$12,298 – $48,535||15%|
|$48,536 – $97,069||20.5%|
|$97,070 – $150,473||26%|
|$150,474 – $214,368||29%|
Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax planning strategies. Some of the more significant dates and changes for individual taxpayers for 2020 are listed below.
RRSP deduction limit increased
The RRSP current year contribution limit for the 2019 tax year is $26,500. In order to make the maximum current year contribution for 2019 (for which the contribution deadline will be Monday March 2, 2020), it will be necessary to have earned income for the 2018 taxation year of $147,222.
TFSA contribution limit unchanged
The TFSA contribution dollar limit for 2020 is unchanged at $6,000. The actual amount which can be contributed by a particular individual includes both the current year limit and any carryover of uncontributed or re-contribution amounts from previous taxation years.
Taxpayers can find out their 2020 contribution limit by calling the Canada Revenue Agency’s Individual Income Tax Enquires line at 1-800-959 8281. Those who have registered for the CRA’s online tax service My Account can obtain that information by logging into that service.
Individual tax instalment deadlines for 2020
Millions of individual taxpayers pay income tax by quarterly instalments, which are due on the 15th day of each of March, June, September and December 2020.
The actual tax instalment due dates for 2020 are as follows:
Monday March 16, 2020
Monday June 15, 2020
Tuesday September 15, 2020
Tuesday December 15, 2020
Old Age Security income clawback threshold
For 2020, the income level above which Old Age Security (OAS) benefits are clawed back is $79,054.
Individual tax filing and payment deadlines in 2019
For all individual taxpayers, including those who are self-employed, the deadline for payment of all income tax owed for the 2019 tax year is Thursday April 30, 2020.
Taxpayers (other than the self-employed and their spouses) must file an income tax return for 2019 on or before Thursday April 30, 2020.
Self-employed taxpayers and their spouses must file a 2019 income tax return on or before Monday June 15, 2020.
The general corporate income tax rate will decrease from 11% to 10%, effective January 1, 2020.
The provincial education and tuition tax credits are eliminated as of the 2020 taxation year.
Indexation of personal income tax credits and income brackets is eliminated as of January 1, 2020.
The provincial Scientific Research and Experimental Development (SR&ED) tax credit is eliminated as of January 1, 2020.
Newfoundland and Labrador
The Newfoundland and Labrador Temporary Deficit Reduction Levy, which was in effect from 2016 to 2019, is eliminated.
The provincial small business corporate tax rate is reduced from 3.5% to 3.2%, effective as of January 1, 2020. That rate applies on the first $500,000 of active business income of eligible corporations.
Prince Edward Island
The basic personal amount is increased to $10,000.
Between now and the end of February 2020, Canadians will receive a variety of receipts for expenditures made during the 2019 taxation year. Some of those expenditure receipts will support a tax deduction or credit claim to be made by the recipient on his or her 2019 tax return, while others will not. And, it’s not always easy for a taxpayer to know when such a credit or deduction is or is not available to be claimed. While the Canadian individual income tax return is only four pages long, the information on those four pages is supported by 13 supplementary federal schedules, dealing with everything from the calculation of capital gains to determining required Canada Pension Plan contributions by self-employed taxpayers.
All of this complexity makes it easy for the majority of individuals who only deal with our tax system once a year to overlook valuable deduction and credit claims which may be available to them. One such deduction is that available for payments made during the taxation year for annual union, professional, or similar dues.
It’s particularly easy to overlook an available claim for that deduction because of where it appears on the annual return. Although there are forms used by self-employed taxpayers to claim business-related costs and forms used by employees to claim allowable employment expenses, the deduction for union or professional dues doesn’t appear on either type of form. Rather, it shows up as a single line (Line 212) on page 3 of the T1 annual return.
The general rule for claiming such a deduction is described in the annual income tax return guide as follows:
Line 212 — Claim the total of the following amounts related to your employment that you paid (or that were paid for you and reported as income) in the year:
- annual dues for membership in a trade union or an association of public servants;
- professional board dues required under provincial or territorial law;
- professional or malpractice liability insurance premiums or professional membership dues required to keep a professional status recognized by law; and
- parity or advisory committee (or similar body) dues required under provincial or territorial law.
There are, of course, limitations on the kinds of expenses which may be claimed and the circumstances in which a taxpayer is entitled to claim those expenses. The most important such restriction is that amounts paid must be those which are necessary in order for the taxpayer to obtain or maintain his or her professional standing. Every profession and trade has licensing and similar requirements which mandate that an individual maintain membership in a professional or similar association in order to practice his or her profession or trade. The costs of maintaining required membership in those organizations is deductible. The cost of maintaining membership in other, voluntary associations, even if related to one’s trade or profession, is not. So, for example, if membership in a given association does not affect professional status (e.g., the Canadian Bar Association for lawyers) dues paid to maintain that membership are not deductible. If, on the other hand, membership (and the payment of fees or dues) is necessary to maintain professional status (e.g., the applicable provincial Law Society for the lawyer) the dues paid to that organization are deductible.
As well, invoices received for annual membership costs can cover a number of different charges and levies, and not all of those costs will be deductible. The policy of the Canada Revenue Agency (CRA) is that annual membership dues do not include initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs. A taxpayer cannot claim charges for pension plans as membership dues, even if receipts received show them as dues.
Where a claim for a deduction for professional membership or union dues is made by an employee, some other considerations arise. Generally, while it’s not necessary that having a particular professional designation be a requirement of the employee’s position in order for that employee to claim a deduction for related professional dues, the CRA does require that there be some connection between the employment and the professional association in question.
In some cases, an employer is willing to cover the cost of an employee’s professional dues as part of the employee’s benefit package. Where that’s the case, and the employer’s payment of those dues does not appear on the employee’s T4 as a taxable benefit, no deduction for those costs can be claimed by the employee. Where, however, there is a taxable benefit which accrues to the employee, he or she can claim an offsetting deduction for eligible dues or fees paid, on Line 212 of the return.
General information on the deduction of professional membership fees or union dues, for both self-employed taxpayers and employees can be found on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/212/menu-eng.html.
While Canadians benefit from a publicly funded health care system, there are nonetheless a large, and increasing, number of medical expenses which are not covered by provincial health care plans. As well, with the rise in part-time positions and contract work — the “gig” economy — an increasing number of Canadians do not enjoy coverage for such costs through employer-sponsored private insurance. In those situations, Canadians have to pay for such unavoidable expenditures, including dental care, prescription drugs, ambulance trips, and many other para-medical services, like physiotherapy, on an out-of-pocket basis.
The good news, where such costs must be paid for partially or entirely by the taxpayer, is that our tax system provides a medical expense tax credit to help offset those costs. Unfortunately, the computation of such credit and, in particular, the timing of making a claim for that credit, can be confusing. In addition, the determination of what 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 contemplated expenditure will qualify for the credit.
The basic rule is that qualifying medical expenses over 3% of the taxpayer’s net income, or $2,352, whichever is less, can be claimed for purposes of the medical expense tax credit on the taxpayer’s return for 2019. The Canada Revenue Agency (CRA) provides a lengthy list of qualifying expenditures, together with information on any requirements for a prescription or other medical authorization or documentation for a particular type of expenditure, and that list can be found on the CRA website at www.cra-arc.gc.ca/medical/#mdcl_xpns.
Put in terms that are more easily understood, the rule for 2019 is that any taxpayer whose net income is less than $78,400 will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income over $78,400 will be limited to claiming qualifying expenses which exceed the $2,352 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 2019 will produce the greatest amount eligible for the credit. That determination will obviously depend on the amount of medical expenses and, in particular, when those medical expenses were incurred. Consequently, there is no universal rule of thumb that can be used.
Medical expenses incurred by family members — the taxpayer, his or her spouse, dependent children who were born in 2002 or later, and certain other dependent relatives — can be added together and claimed by one member of the family. In most cases, it is 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.
As December 31 approaches, it’s a good idea to add up the medical expenses which have been incurred during 2019, as well as those paid during 2018 and not claimed on the 2018 return. Once those totals are known, it will be easier to determine whether to make a claim for 2019 or to wait and claim 2019 expenses on the return for 2020. And, if the decision is to make a claim for 2019, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for the claim.
Finally, it’s also a good idea to look at the timing of medical expenses which will have to be paid early in 2020. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis, or necessary dental work) it may make sense, where cash flow considerations allow, to accelerate the payment of those expenses to December 2019, so that they can be included in 2019 totals and claimed on the 2019 return.
For most Canadians, registered retirement savings plans (RRSPs) don’t become top of mind until near the end of February, as the annual contribution deadline (which, for 2019 contributions, will be March 2, 2020) approaches. When it comes to tax-free savings accounts (TFSAs), most Canadians are aware that there is no contribution deadline for such plans, so that contributions can be made at any time or even carried forward to a subsequent taxation year. Consequently, neither RRSPs nor TFSAs tend to be a priority when it comes to year-end tax planning.
For most Canadians, registered retirement savings plans (RRSPs) don’t become top of mind until near the end of February, as the annual contribution deadline (which, for 2019 contributions, will be March 2, 2020) approaches. When it comes to tax-free savings accounts (TFSAs), most Canadians are aware that there is no contribution deadline for such plans, so that contributions can be made at any time or even carried forward to a subsequent taxation year. Consequently, neither RRSPs nor TFSAs tend to be a priority when it comes to year-end tax planning.
Notwithstanding those facts, there are considerations which apply to both RRSPs and TFSAs in relation to the approach of the end of calendar year. Failing to take those considerations into account can mean the permanent loss of contribution room, a loss of flexibility when it comes to making withdrawals or having to pay more tax than necessary when funds are withdrawn. Some of those considerations are outlined below.
When you need to make your RRSP contribution on or before December 31
While most RRSP contributions to be deducted on the return for 2019 can be made anytime up to and including March 2, 2020, there is one important exception to that rule.
Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 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 he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31st is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31st of that year.
Make spousal RRSP contributions before December 31
Under Canadian tax rules, a taxpayer can make a contribution to an 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 2019, the contributor can claim a deduction for that contribution on his or her return for 2019. The spouse can then withdraw that amount as early as January 1, 2022 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2020, the contributor can still claim a deduction for it on the 2019 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2023. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively new future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should the need for an unplanned withdrawal arise.
Accelerate any planned TFSA withdrawals into 2019
Each Canadian aged 18 and over can make an annual contribution to a TFSA – the maximum contribution for 2019 is $6,000. 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 within the next few months, perhaps to pay for a winter vacation or to make an RRSP contribution, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA on or before December 31st, 2019 will have the amount withdrawn added to his or her TFSA contribution limit for 2020, which means it can be re-contributed as early as January 1, 2020. If the same taxpayer waits until January of 2020 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2021.
During the month of December, it is customary for employers to provide something “extra” for their employees, by way of a holiday gift, a year-end bonus or an employer-sponsored social event. And it is certainly the case that employers who provide such extras don’t intend to create a tax headache for their employees. Unfortunately, a failure to properly structure such gifts or other extras can result in unintended and unwelcome tax consequences to those employees.
Trying to formulate and administer the tax rules around holiday gifts is something of a no-win situation for the Canada Revenue Agency (CRA). On an individual or even a company level, the amounts involved are usually small, or even nominal, and the range of situations which must be addressed by the applicable tax rules are virtually limitless. As a result, the cost of drafting and administering those rules can outweigh the revenue generated by the enforcement of such rules, to say nothing of the potential ill will generated by imposing tax consequences on holiday gifts and celebrations. Notwithstanding, the potential exists for employers to provide what would otherwise be taxable remuneration in the guise of holiday gifts, and it’s the responsibility of the tax authorities to ensure that such strategies are caught by the tax net.
There is, as a consequence, a detailed set of rules which outline the tax consequences of gifts and awards provided by the employer, and even in relation to annual holiday celebrations sponsored (and paid for) by an employer.
The starting point for the rules is that any gift (cash or non-cash) received by an employee from his or her employer at any time of the year is considered to constitute a taxable benefit, to be included in the employee’s income for that year. However, the CRA makes an administrative concession in this area, allowing non-cash gifts (within a specified dollar limit) to be received tax-free by employees, as long as such gifts are given on religious holidays such as Christmas or Hanukkah, or on the occasion of a significant life event, like a birthday, a marriage, or the birth of a child.
In sum, the CRA’s administrative policy is simply that non-cash gifts to an arm’s length employee, regardless of the number of such gifts, will not be taxable if the total fair market value of all such gifts (including goods and services tax or harmonized sales tax) to that employee is $500 or less annually. The total value over $500 annually will be a taxable benefit to the employee, and must be included on the employee’s T4 for the year, and on which income tax must be paid.
It’s important to remember the “non-cash” criterion imposed by the CRA, as the $500 per year administrative concession does not apply to what the CRA terms “cash or near-cash” gifts and all such gifts are considered to be a taxable benefit and included in income for tax purposes, regardless of amount. For this purpose, the CRA considers anything which could be easily converted to cash as a “near-cash” gift. Even a gift or award which cannot be converted to cash will be considered to be a near-cash gift if, in the CRA’s words, it “functions as cash”. So, a gift card or gift certificate which can be used by the employee to purchase his or her choice of merchandise or services would be considered a near-cash gift, and taxable as such. It’s not hard to see that drawing a firm line between cash and non-cash gifts can be difficult. The CRA provides the following information and examples to help clarify that difference.
You give your employee tickets to an event on a specific date and time. This may not be a taxable benefit for the employee since there is no element of choice, if the other rules for gifts and awards are met.
You give your employee a voucher (which may be a ticket or a certificate) that entitles the employee to receive an item for a set value at a store. For example, you may give your employees a voucher for a turkey valued up to $30 as a Christmas gift, and for convenience, you arrange for your employees to go to a particular grocery store and exchange the voucher for a turkey. The employees can only use the voucher to receive a turkey valued up to $30 (no substitutes). Such vouchers are generally considered non-cash gifts.
A gift card or gift certificate to a movie theatre, however, is considered a near cash gift or award. With a gift card or gift certificate to a movie theatre, your employee can choose which move to see and when to see it, or they can use the card or certificate at an arcade or concession stand.
This time of year, the tax treatment of the annual employee holiday party also must be considered. The CRA’s current policy in this area is that no taxable benefit will be assessed in respect of employee attendance at an employer-provided social event, where attendance at the party was open to all employees, and the cost per employee was $150 or less (which represents an increase from the $100 ceiling for previous years). The $150 cost is meant to cover the party itself, not including any ancillary costs, such as transportation costs or overnight accommodation. Where the total cost of the event itself exceeds the $150 per person threshold, the CRA will assess the employee as having received a taxable benefit equal to the entire per person cost (i.e., not just that portion of the cost that exceeds $150.)
It may seem nearly impossible to plan for employee holiday gifts and other benefits without running afoul of one or more of the detailed rules and administrative policies surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if a few basic principles are kept in mind.
- If the employer is planning to hold a holiday party, dinner, or other social event, it is imperative that such event must be open to all employees. Restricting attendance in any way will mean that the CRA’s concession with respect to the non-taxable status of such events does not apply. The cost of the event must, as well, be kept below $150 per person. While the CRA’s policy doesn’t specify, it seems reasonable to calculate that amount based on the number of employees invited to attend the event, rather than on the actual attendance, which can’t be accurately predicted in advance.
- Any cash or near-cash gifts should be avoided, as they will, no matter how large or small the amount, create a taxable benefit to the employee. Although gift certificates or pre-paid credit cards are a popular choice, they aren’t a tax-effective one, as they will invariably be considered by the CRA to create a taxable benefit to the employee.
- Where non-cash holiday gifts are provided to employees, gifts with a value of up to $500 can be received free of tax. The employer must be mindful of the fact that the $500 limit is a per-year and not a per-occasion limit. Where the employee receives non-cash gifts with a total value of more than $500 in any one taxation year, the portion over $500 is a taxable benefit to the employee.
Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.
They can be accessed below.
Planning for – or even thinking about – 2020 taxes when it’s not even December 2019 may seem more than a little premature. However, most Canadians will start paying their taxes for 2020 with the first paycheque they receive in January, and it’s worth taking a bit of time to make sure that things start off – and stay – on the right foot.
For most Canadians, (certainly for the vast majority who earn their income from employment), income tax, along with other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums, are paid periodically throughout the year by means of deductions taken from each paycheque received, with those deductions then remitted to the Canada Revenue Agency (CRA) on the taxpayer’s behalf by his or her employer.
Of course, each taxpayer’s situation is unique and so the employer has to have some guidance as to how much to deduct and remit on behalf of each employee. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by each employee, sometimes at the start of each year, but certainly at the time employment commences. Each employee must, in fact, complete two TD1 forms – one for federal tax purposes and the other for provincial tax imposed by the province in which the taxpayer lives. Federal and provincial TD1 forms for 2020 (which have not yet been released by the CRA but, once published, will be available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms.html) list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount, and the age amount. Adding amounts claimed on each form gives the Total Claim Amounts (one federal, one provincial) which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on his or her behalf to the federal government.
While the TD1 completed by the employee at the time his or her employment commenced will have accurately reflected the credits claimable by the employee at that time, everyone’s life circumstances change. Where a baby is born, or a son or daughter starts post-secondary education, a taxpayer turns 65 years of age, or an elderly parent comes to live with his or her children, the affected taxpayer will be become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.
Consequently, it’s a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to him or her. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.
It’s often the case that a taxpayer will have available deductions which cannot be recorded on the TD1, like RRSP contributions, deductible support payments, or child care expenses. While such claims make things a little more complicated, it’s still possible to have source deductions adjusted to accurately reflect those claims, and the employee’s resulting reduced tax liability for 2020. The way to do so is to file Form T1213, Request to Reduce Tax Deductions at Source (available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html), with the Agency. Once that form is filed with the CRA, they will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld at source.
Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. Consequently, the sooner a T1213 for 2020 is filed with the CRA, the sooner source deductions can be adjusted, effective for all subsequent paycheques. Providing an employer with an updated TD1 for 2020 at the same time will ensure that source deductions made during 2020 will accurately reflect all of the employee’s current circumstances, and consequently his or her actual tax liability for the year.
It is also possible for some taxpayers to adjust the amount of remaining tax they will pay during 2019. While the majority of Canadians pay their taxes through source deductions, there are still millions of taxpayers who pay income taxes by quarterly instalments, with the amount of those instalments representing an estimate of the taxpayer’s total liability for the year.
The final quarterly instalment for this year will be due on Monday December 16, 2019. By that time, almost everyone will have a reasonably good idea of what his or her income and deductions will be for 2019 and so will be in a position to estimate what the final tax bill for the year will be, taking into account any tax planning strategies already put in place, as well as any RRSP contributions which will be made on or before February 29, 2020. While the tax return forms to be used for the 2019 year haven’t yet been released by the CRA, it’s possible to arrive at an estimate by using the 2018 form. Increases in tax credit amounts and tax brackets from 2018 to 2019 will mean that using the 2018 form will likely result in a slight over-estimate of tax liability for 2019.
Once an estimate of one’s tax bill for 2019 has been calculated, that figure should be compared to the total of tax instalments already made during this calendar year (that figure can be obtained by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281). Depending on the result, it may then be possible to reduce the amount of the tax instalment to be paid on December 15 – and thereby free up some funds for the inevitable holiday spending!
The start of fall marks a lot of things, among them a number of runs, walks and other similar events held to raise money for a broad range of Canadian charities. And, within the next month, as the holiday season approaches, charities will launch their year-end marketing campaigns.
Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing a tax credit for qualifying donations made. Federally, taxpayers can claim a credit of 15% of the first $200 in donations plus 29% of donations over the $200 threshold.
In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year – without exception.
There is, however, another reason to ensure donations are made by December 31. The credit provided by the federal government is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. Where the taxpayer making the donation has taxable income (for 2019) over $210,371, charitable donations above the $200 threshold can receive a federal tax credit of 33%.
As a result of the two-level credit structure, the best tax result is obtained when donations made during a single calendar year are maximized. For instance, a qualifying charitable donation of $400 made in December 2019 will received a federal credit of $88 ($200 × 15% + $200 × 29%). If the same amount is donated, but the donation is split equally between December 2019 and January 2020, the total credit claimable is only $60 ($200 × 15% + $200 × 15%), and the 2020 donation can’t be claimed until the 2020 return is filed in April 2021. And, of course, the larger the donation in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level.
It’s also possible to carry forward, for up to 5 years, donations which were made in a particular tax year. So, if donations made in 2019 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2014, 2015, 2016, 2017, or 2018 tax years can be carried forward and added to the total donations made in 2019, and the aggregate then claimed on the 2019 tax return.
When claiming charitable donations, it’s possible to combine donations made by oneself and one’s spouse and claim them on a single return. Generally, and especially in provinces and territories which impose a high-income surtax – currently, Ontario and Prince Edward Island – it makes sense for the higher income spouse to make the claim for the total of charitable donations made by both spouses. Doing so will reduce the tax payable by that spouse and thereby minimize (or avoid) liability for the provincial high-income surtax.
Since the charitable donations tax credit is a two-level credit, in which the credit percentage increases once donations made in a year exceed $200, it always makes sense to aggregate donations in a single year, so as to maximize the amount of credit claimable.
Any charity seeking or receiving a donation should be able to provide a registered charitable number, and a searchable current listing of registered charities can be found on the Canada Revenue Agency website at https://apps.cra-arc.gc.ca/ebci/hacc/srch/pub/dsplyBscSrch?request_locale=en. Information on the charitable donations tax credit is available on the same website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/349/menu-eng.html.
Most Canadians expend a considerable amount of time and effort in order to put money aside for retirement. Especially in an era in which the majority of workers can’t look forward to receiving an employer-sponsored pension plan, Canadians are well aware that the bulk of their income during retirement will have to come from government sources and from their own savings efforts.
One of the difficulties in saving for retirement is the near impossibility of knowing how to set a savings goal which meets the twin goals of sufficiency and attainability. As well, while many savers focus on identifying the “magic number” which will ensure a comfortable retirement, the fact is that the total amount saved is only one component of retirement financial planning. The reality is that most Canadians will receive income in retirement from at least three sources – private savings accumulated in a registered retirement savings plan (RRSP) or tax-free savings accounts (TFSAs), a Canada Pension Plan retirement pension, and Old Age Security benefits. The real question for most Canadians is how to determine the amount of annual income which all those sources of income will generate during their retirement years, and that is not a simple calculation.
Money can be withdrawn from an RRSP or TFSA at any age, a CPP retirement pension can start any time from age 60 to age 70, and Old Age Security benefits can be received as early as age 65 or as late as age 70. For both CPP and OAS, benefits will rise with each month that receipt of such benefits is deferred. Many Canadians continue to work, on a full or part-time basis, while receiving CPP and OAS benefits. As well, income from the different types of retirement income may be subject to different tax treatment, meaning that the after-tax amount received on $100 of income may vary widely, depending on the nature and source of that income.
The number of factors to consider and, especially, the complexity which results from the interaction of those factors could reasonably lead the average Canadian to conclude that it’s just not possible to make an accurate determination of the best way to structure their income in retirement, in order to ensure a reasonable income throughout their retirement years. But, help is at hand – and it’s free! That help is in the form of a Retirement Income Calculator which is available on the Government of Canada website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.
Using that calculator, individual Canadian taxpayers can enter their personal data, including their date of birth, gender, and planned age of retirement, without the need to provide any personal identifying information. The user is then asked to provide information on income amounts which will be received from various sources, including any employer pension and Canada Pension Plan amounts and the age at which the user plans to begin receiving such income. Information is requested on the user’s period of residency in Canada, in order to determine whether he or she will be eligible to receive Old Age Security benefits and the amount of OAS benefits which will be provided at different ages. The calculator also allows the user to input the total amount of savings accumulated to date. Finally, information is requested on any other sources of income which will be available (e.g., income arising from part-time employment during retirement).
Using that data, the calculator estimates the amount of income which will be available to the individual from each source during each year of his or her retirement and generates a bar graph and a table showing those income amounts.
The real benefit of the calculator, however, lies in the user’s ability to vary the inputs – to create “what-if” scenarios in order to determine the effect any changes made will have on retirement income at various ages. Users can change the age at which they choose to receive government-sponsored retirement benefits like CPP and OAS, or can specify a different rate of return (pre or post retirement) earned on retirement savings. They can also change the period of time (i.e., life expectancy) over which retirement income will be spread. That way, the user can obtain answers to frequently asked questions like the following:
How much more will I receive if I delay receipt of Canada Pension Plan or Old Age Security benefits, or both, for one, two, or more years?
What if I work an additional year or two after age 65 before starting RRSP withdrawals?
What if I earn income from part-time employment during retirement?
What if I choose to begin receiving CPP and OAS as soon as I am eligible, but defer making RRSP withdrawals?
What if I live longer than the average life expectancy?
For each of these what-if fact scenarios, the calculator will determine the effect that particular change will have on the amount of income receivable from each different retirement income source, and will provide a summary of income for each year of retirement from all such sources under each fact scenario created by the user.
There are, of course, some factors which can’t be incorporated into any calculator because they cannot be predicted or planned for. No one can predict how long their retirement will last (although the calculator does project retirement income based on average life expectancy for individuals of the age and gender of the user). Similarly, it’s never possible to know what investment returns will be earned on retirement savings during retirement, or what the rate of inflation will be. The calculator’s ability to estimate future income data based on a number of different fact patterns does, however, allow users to create retirement income projections under both best-case and worst-case retirement income scenarios – and to plan for both.
To win elections, politicians need votes. And to run the election campaigns needed to garner those votes, those politicians need an organization, volunteers, and money — a lot of money. To wage the most recent federal election, the major political parties raised and spent millions of dollars, and their task of raising that money was undoubtedly made somewhat easier by the fact that Canadian taxpayers who donated money to political parties or candidate can obtain some tax relief from doing so.
Individuals who donated to the political party or candidate of their choice may or may not be happy with the outcome of the election, but no matter which registered party or candidate they donated to, it will be possible for them to claim a federal tax credit for those donations when they file their returns for 2019 next spring.
The credit provided under the Income Tax Act is available with respect to funds contributed to either a registered political party or to candidates running in a federal election. Contributions can be made at any time, not just during an election campaign, as long as the donation is received by an official candidate or a registered federal political party or association.
While the parties which currently hold seats in the House of Commons are, of course, the most well-known, there were in fact 21 political parties registered and in good standing with Elections Canada for purposes of the 2019 federal election. They are as follows, in alphabetical order:
- Animal Protection Party of Canada
- Bloc Québécois
- Canada’s Fourth Front
- Canadian Nationalist Party
- Christian Heritage Party of Canada
- Communist Party of Canada
- Conservative Party of Canada
- Green Party of Canadav
- Liberal Party of Canadav
- Libertarian Party of Canadav
- Marijuana Party
- Marxist-Leninist Party of Canada
- National Citizens Alliance of Canada
- New Democratic Party
- Parti pour l’Indépendance du Québec
- Parti Rhinocéros Party
- People’s Party of Canada
- Progressive Canadian Party
- Stop Climate Change
- The United Party of Canada
- Veterans Coalition Party of Canada
Donations to any one of these registered parties, within prescribed limits, would qualify for the federal political contribution tax credit.
Official candidates can, of course, be running either as candidates for one of the registered parties or as independents. Elections Canada provides a list of confirmed candidates who ran in this year’s federal election, and that list can be found at https://www.elections.ca/content2.aspx?section=can&document=index&lang=e.
The federal political tax credit is calculated as a percentage of donations given. However, the credit percentage decreases as contributions amounts increase, and no credit at all is given for donations in excess of $1,275. The credit percentages allowed at different contribution levels are as follows:
|Contribution amount||Allowable tax credit|
|$0.01 to $400.00||75% of the contribution|
|$400.01 to $750.00||$300 + 50% of the contribution over $400|
|$750.01 and over||$475 + 33⅓% of the contribution over $750|
The maximum credit claimable in any taxation year by a single taxpayer is $650. Once the math is worked out, it becomes clear that the maximum credit obtainable is reached once contribution levels reach $1,275.
|Contribution amount||Allowable tax credit|
|$400 × 75% =||$300|
|$350 × 50% =||$175|
|$525 × 33.3% =||$175|
Where donations exceed $1,275 in any one taxation year, no tax credit can be claimed on the “excess” donation. As well, there is no provision which allows the taxpayer to carry over any “excess” contributions to a subsequent taxation year, meaning that no credit will ever be obtainable with respect to those “excess” contributions.
Many Canadians who are committed to a particular political party or candidate volunteer their time during a nomination or election campaign – canvassing for the candidate, putting up election signs or telephoning voters to encourage them to vote for the candidate. However, in such cases, the work must be its own reward, as no income tax receipts can be issued for most such non-monetary contributions and consequently no credit can be claimed for the value of any non-monetary contribution (including volunteer hours) donated.
Where a qualifying contribution is made, an official receipt must be issued in order for the tax credit to be claimed. During an election campaign, the official agent of a candidate issues that receipt, and it must be issued between the time the candidate is officially nominated and election day. Outside an election period, any receipts are issued by the registered agent of a political party or association. A receipt must be issued, in paper or electronic format, for every contribution over $20.
The actual credit for qualifying donations made is claimed on the tax return for the year in which the contribution was made. The amount of the credit is calculated (according to the formula outlined above) on the Federal Worksheet and the amount of the actual credit entered on line 410 of Schedule 1 of the federal tax return. By the time the 2019 return is filed, of course, the election will long since have been concluded, the newly elected government will be in place in Ottawa, and the taxpayer will be in a position to assess whether it was, in fact, money well spent.
Tax-free savings accounts (TFSAs) have been around for a full decade now, having been introduced in 2009, and for most Canadians, a TFSA (along with a registered retirement savings plan (RRSP)) is now a regular part of their financial and tax planning.
TFSAs are, in many ways, the inverse of RRSPs. While TFSAs do not provide the tax deduction that an RRSP contribution creates, the strength of TFSAs lies in their great flexibility and the ability they give to Canadians to save, for short-term or long-term purposes, on a tax-free basis. Every Canadian aged 18 years of age and older can contribute a specified annual amount to a TFSA ($6,000 for 2019). Funds contributed to the TFSA are not deductible from income for tax purposes, but investment income earned by those funds is not taxed, either as it accrues or on withdrawal. Where a taxpayer does not contribute to a TFSA in a particular tax year, the contribution not made can be carried forward and that contribution made in any subsequent year. As well, TFSA holders can withdraw funds from their plan at any time, free of tax, and funds withdrawn can be re-contributed, but not until the following year. Therefore, each taxpayer’s contribution limit for a particular year is that year’s statutory annual amount, plus any allowable contributions not made in previous years and carried forward, plus amounts withdrawn in any previous year but not yet re-contributed.
The amount of the allowable TFSA contribution limit for a year has been something of a moving target since 2009: what follows is a listing of the maximum allowable annual contribution limits for each year since TFSAs were introduced.
- The annual TFSA dollar limit for the years 2009, 2010, 2011, and 2012 was $5,000.
- The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
- The annual TFSA dollar limit for the year 2015 was $10,000.
- The annual TFSA dollar limit for the year 2016, 2017, and 2018 was $5,500.
- The annual TFSA dollar limit for the year 2019 is $6,000.
It’s readily apparent that, especially where there are carryforward amounts and/or the taxpayer has made withdrawals from a TFSA, that calculating one’s current year contribution room can be complex. At one time the Canada Revenue Agency (CRA) notified taxpayers of their current year TFSA contribution limit on the annual Notice of Assessment, but that is no longer the case. Now, the easiest way to find out one’s current year contribution limit is by calling the CRA’s Individual Income Tax Enquiries Line at 1-800-959-8281 or its automated Tax Information Phone Service (TIPS) line at 1-800-267-6999. Taxpayers who have registered for the Agency’s My Account online service can use that service to find the same information. It’s also possible to obtain from the CRA a TFSA Room Statement and a TFSA Transaction Summary, with the latter showing the contributions and withdrawals which have been made.
It is important to stay within one’s overall contribution limit because exceeding that limit — even for one day — will result in the imposition of a penalty tax. Therefore, once the taxpayer knows figures out his or her total contribution limit for 2019, it’s time to make sure that current contribution plans for the year will not put the taxpayer in an overcontribution position. Some taxpayers contribute on a regular, often monthly basis, while others are in the habit of depositing regular or irregular or periodic income receipts, like a tax refund or tax benefit amount or a bonus from their employer, into their TFSA. Either way, after finding out one’s current year contribution limit, it’s necessary to calculate how much has already been contributed in 2019. The difference between those two figures represents the balance which can be contributed before the end of the year without getting into an overcontribution position and incurring penalties. And, it’s important to remember that if withdrawals have been or will be made during 2019, those amounts cannot be re-contributed until after the end of this year.
If it’s necessary to adjust regular contributions in order not to go “offside” by the end of the year, the best time to do it is obviously before getting into that overcontribution position. As soon as a taxpayer is in an overcontribution position, however, a penalty tax of 1% per month of the excess is imposed, even if the excess funds are withdrawn before the end of the month — in other words, as explained in the Canada Revenue Agency guide to TFSAs “[I]f, at any time in a month, you have an excess TFSA amount, you are liable to a tax of 1% on your highest excess TFSA amount in that month.”
Especially where TFSA contributions are set up to occur regularly, by automatic deposit or bank transfer, it’s easy to assume that everything has been taken care of and nothing further needs to be done with respect to such arrangements. However, an “out of sight and out of mind” approach rarely makes for good financial and tax planning, and checking on the status of one’s TFSA on a periodic (at least quarterly) basis can help to ensure that everything is as it should be, and that unnecessary penalties are avoided.
One final consideration — one of the strengths of a TFSA as a savings vehicle is the ability to re-contribute funds which have been withdrawn. However, as outlined above, such re-contributions cannot be made until after the end of the calendar year in which the withdrawal was made. For that reason, taxpayers who may be contemplating a TFSA withdrawal early in 2020, perhaps in order to make an RRSP contribution, or to pay for a winter vacation, should make that withdrawal before the end of 2019. That way, should funds become available (perhaps through the tax refund generated by the RRSP contribution) it will be possible to make the re-contribution in 2020. If the withdrawal is not made until 2020, re-contribution will not be possible (without incurring a penalty) until 2021.
TFSAs are valuable savings and planning vehicles for Canadians — perhaps the most flexible such vehicle available. It’s easy, however, to get tripped up on the rules governing TFSAs, especially the rules around withdrawals and re-contributions. To help keep taxpayers from running afoul of those rules, the Canada Revenue Agency provides a lengthy and detailed publication on TFSAs, and that publication is available on the CRA website at
In most cases, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences — a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.
Unfortunately, while there are some circumstances in which such a deduction can be claimed, those circumstances don’t usually include the routine reasons — purchasing a home, getting a divorce, establishing custody rights or seeking legal advice about making a will or managing a family estate — for which most Canadians incur legal fees. Generally, personal (as distinct from business-related) legal fees become deductible for most Canadian taxpayers only where they are incurred to recover amounts which they believe are owed to them, and where those amounts involve employment or employment-related income or, in some cases, family support obligations.
The first situation in which legal fees paid may be deductible is that of an employee seeking to collect (or to establish a right to collect) salary or wages. In all Canadian provinces and territories, employment standards laws provide that an employee who is about to lose his or her job (for reasons not involving fault on the part of the employee) is entitled to receive a specified amount of notice, or salary or wages equivalent to such notice. In many cases, however, the employee can establish a right to a period of notice (or payment in lieu) greater than the statutory minimum. The amount of notice or payment in lieu of notice which is payable can then become a matter of negotiation between the employer and its former employee, and such negotiations usually involve legal representation and consequently, legal fees. In that situation, legal fees incurred by the employee to establish a right to amounts allegedly owed by the employer are deductible by that former employee. If a court action is necessary and the Court requires the employer to reimburse its former employee for some or all of the legal fees incurred, the amount of that reimbursement must be subtracted from any deduction claimed. In other words, the former employee can claim a deduction only for legal fees which he or she was personally required to pay in order to collect wages or salary owed and for which he or she was not reimbursed.
In some situations, an employee or former employee seeks legal help in order to collect or to establish a right to collect a retiring allowance or pension benefits. In such situations, the legal fees incurred can be deducted, up to the total amount of the retiring allowance or pension income actually received for that year. Where part of the retiring allowance or pension benefits received in a particular year is contributed to an RRSP or registered pension plan, the amount contributed must be subtracted from the total amount received when calculating the maximum allowable deduction for legal fees. However, where all legal fees incurred can’t be claimed in the current year, they can be carried forward and claimed on the return for any of the seven subsequent tax years.
The rules covering the deduction of legal fees incurred where an employee claims amounts from an employer or former employer are relatively straightforward. The same, unfortunately, cannot be said for the rules governing the deductibility of legal fees paid in connection with family support obligations. Those rules have evolved over the past number of years in a somewhat piecemeal fashion. The current rules are as follows.
Legal fees incurred by either party in the course of negotiating a separation agreement or obtaining a divorce are not deductible. Such fees paid to establish child custody or visitation rights are similarly not deductible by either parent.
Where, however, one former spouse has the right to receive support payments from the other, there are circumstances in which legal fees paid in connection with that right are deductible. Specifically, legal fees paid for the following purposes will be deductible by the person receiving those support payments:
- collecting late support payments;
- establishing the amount of support payments from a current or former spouse or common-law partner;
- establishing the amount of support payments from the legal parent of that person’s child (who is not a current or former spouse or common-law partner). However, in these circumstances the deduction is allowed only where the support is payable under a court order, not simply under the terms of an agreement between the parties;
- seeking an increase in support payments; or
- seeking an order making child support amounts received non-taxable.
On the payment side of the support payment/receipt equation, the situation is not nearly so favourable, as a deduction for legal fees incurred will not generally not be allowed to a person paying support. More specifically, as stated in the CRA guide, a person paying support cannot claim legal fees incurred in order to “establish, negotiate or contest the amount of support payments”.
Finally, where the Canada Revenue Agency reviews or challenges income amounts, deductions or credits reported or claimed by a taxpayer for a tax year, any fees (which in this case includes accounting fees) paid for advice or assistance in dealing with the CRA’s review, assessment or reassessment, or in objecting to that assessment or reassessment, can be deducted by the taxpayer. A deduction can similarly be claimed where the taxpayer incurs such fees in relation to a dispute involving employment insurance, the Canada Pension Plan or the Quebec Pension Plan.
- the general prescribed rate that is used to determine the taxable benefit of employees relating to the personal portion of automobile operating expenses paid by their employers will remain at 28 cents per kilometer;
- for purchases after 2019, the ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000; and
- the maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2019, and the limit on deductible leasing costs will remain at $800 per month.
- the 2009 tax year;
- any reporting period that ended during the 2009 calendar year; and
- any interest and penalties that accrued during the 2009 calendar year for any tax year or reporting period.