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Year-End Tax Tip: Brush Up on Medical Expenses

Claiming medical expenses can be painful for most taxpayers: there are so many receipts and tiny numbers involved. But it can be worthwhile, especially if you schedule your dental and medical treatments in a tax-savvy manner before year-end.

Most people know, for example, that they can claim medical expenses for their nuclear family: mom, dad and their minor children. But did you know you can also claim for others who are dependent on you if they are resident in Canada? That includes children over 18, grandchildren, parents, grandparents, siblings, even uncles, aunts, nephews and nieces.

There are also a host of interesting costs that are deductible, provided they are unreimbursed by a medical plan. So, for example, if you are on a medical plan at work and it covers 80 percent of all these costs, you can claim the 20 percent that is not covered by the plan. Furthermore, the premiums for the private medical plan are claimable too, including those provided by an employer. Check pay stubs and Box 40 of the T4 slip for the premiums in this case.

Often forgotten claims are the unusual ones:

  • Medical marijuana or marijuana seeds, but they must be purchased from Health Canada, or a licensed person under the Marijuana Medical Access Regulations (MMAR). Costs of growing not deductible. Keep in mind, guidelines may change following legalization on October 20.
  • For people who have celiac disease, the incremental cost of acquiring gluten-free food products can be claimed, but you’ll need to compare the cost of gluten-free vs non-gluten-free food products. That person must also have a written certificate from a medical practitioner that a gluten-free diet is required. Deductible costs include the incremental cost of gluten-free bread, bagels, muffins, and cereals, rice flour and GF spices. Only the costs related to the person with celiac disease are to be used in calculating the medical expense tax credit . . . so if others consume the same food with the patient, a proration is necessary.

Generally, the costs of visiting the following medical practitioners are eligible: dentist or dental hygienist, medical doctor, optometrist, psychologist or psychoanalyst, chiropractor, naturopath, acupuncturist or dietician, to name a few.

Eligible medical treatments include: medical and dental services, eyeglasses, hearing aids and their batteries, attendant or nursing home care, ambulance fees; service dogs, guide dogs or dogs to manage severe diabetes or psychological conditions, including care and travel for training; prescribed alterations to the home to accommodate disabled persons; cost of training a person to provide care for an infirm dependant; and even tutoring services for a patient with a learning disability or mental impairment.

Remember, the claim for medical expenses is reduced by 3 percent of the claimant’s net income (or the dependant’s net income if claiming expenses for other dependants), to a maximum of $2,302 in 2018.

This maximum is reached when net income is over $76,733. Generally, that means the spouse with the lower income will get the biggest claim, but it is worth nothing if that spouse is not taxable. In those cases, carry the receipts forward for a possible future claim, as medical expenses can be claimed in the best 12-month period ending in the tax year.

That’s where year-end tax planning really comes into play. By grouping expenses left unclaimed from last year, timing your expenses for this year may provide for a bigger claim in your best 12-month period. This could be from November 1, 2017, to October 31, 2018, for example. A DFA – Tax Services Specialist can help you through the process, provided that, as a taxpayer, you’ve done your due diligence in keeping the appropriate receipts and documentation.


Tax Specialization: Soft Skills are Equally Important

There is a very bright future for the tax preparer who makes a great decision to become the Tax Services Specialist of the future. But, to offer the best advice in that regard, tax specialists must have more than precise technical skills.

To go beyond the filing of returns and move their offering to a specialized service model, advisors must be prepared to spend more time nurturing their relationships with a multi-stakeholder professional team; that is, with all the people involved in maximizing the client’s personal and financial goals, over the long term. To accomplish this, the soft skills matter.

Tax specialists must have excellent communications skills. In providing high-value advice at crucial financial times, they act as an articulate tax educator, both verbally and in writing, to take their individual client and, where required, the family as a whole, on a journey to continued financial health.

Tax specialists excel at conducting thorough interviews, not just during tax season, but by making a point of meeting the client more often: before, during and after significant lifecycle events. The result is a relationship built on trust, and a trusted advisor has the privilege of obtaining all the information required to make the most informed recommendations, even at the most difficult times in life: when there is great loss due to relationship breakdown, illness or death.

Tax specialists are also advocates for their clients. They position themselves to be the “go to” financial advisor throughout a lifetime of personal and financial events. They coach their clients always to ask themselves the following question: “Is there a tax consequence to the decision I must make?” If the answer is “yes” or “maybe,” the right action is to seek advice. In doing so, clients and advisors can improve long-term, after-tax results as joint decision-makers supported by a multi-stakeholder team. The bigger the financial decision, the more important this “pre-consultation” is.

Perhaps most important, tax specialists represent their clients with confidence and professionalism to the tax department, whether during an audit or in adjusting previously-filed returns. This is possible because they know how to research relevant tax law, understand how it is administered by CRA and what the outcomes of recent jurisprudence have been.

In fighting for their clients’ Taxpayer Rights, tax specialists are also highly adept at applying relevant tax provisions to all the previously-filed returns CRA may select for audit, thereby matching the “hindsight” CRA brings to the audit process with skillful precision. Because they are passionate about making sure their client pays only the correct amount of tax and no more, tax specialists see themselves as stewards of hard-earned family wealth. Tax efficiency, in other words, really matters.

Where do other advisors from the financial services fit in? By working with a tax specialist, financial advisors make sure there is no “tax gap” in the investment strategy and process developed for the client. By following a common strategy, tax-efficiency becomes part of the investment decision-making that occurs throughout the year. Quite possibly a tax specialist, too, this professional works alongside the tax specialist to make sure the planned-for results are achieved.

Educator, advocate and steward: that’s the three-part role of the tax services specialist. Working together with financial advisors to deliver on a Real Wealth Management strategy, this new brand of tax professional brings tremendous value in the evolving tax and financial services industry.


Coming or Going from Canada: Be Tax Compliant

With Canada’s complex tax system, tax and financial advisors who exercise additional diligence to ensure immigrants and emigrants remain tax compliant can offer valuable advice. What tax deductions, credits and filing requirements should you make sure they don’t miss?

Part-year Residency. Taxpayers who immigrate to (or emigrate from) Canada are required to file a Canadian tax return to report their world income during the period of the tax year in which they were resident in Canada. This means that immigrants (and emigrants) may be required to report income, deductions and credits from two periods: the residency period (based on the actual number of days as a resident here during the year), as well as the non-residency period on the same tax return, depending on their Canadian income sources generated before arriving (or after leaving) the country.

Asset Valuation on Immigration. Those who immigrate to Canada must determine the Fair Market Value (FMV) of their assets at time of immigration. Canada is not able to tax any accrued capital gains before this, nor will Canada recognize accrued losses in that period.

The residency period is covered under the Income Tax Act S. 114 (a). All income must be calculated in the normal manner, but only for the residency period. This requires some unusual reporting:

  • Personal amounts are, therefore, prorated according to the number of days the taxpayer was resident in Canada.
  • Provincial taxes are due to the province of residence up to the last day of residency for emigrants and the last day of the year for immigrants.
  • Generally, refundable tax credits (GSTC, CTC, and provincial credits) are not available to emigrants.

Full Claims: Deductions. All deductions normally allowable to reduce taxable income are permitted, but only for the residency period and not for the full year. Allowable deductions can include:

  • RRSP contributions made within the calendar year or the normal 60-day period after year end. Amounts may also be transferred out of an RPP, DPSP or RRIF to an RPP, RRSP or RRIF. Complete form NRTA1 Authorization for Non-Resident Tax Exemption.
  • Support payments made to an estranged spouse that are normally deductible.
  • Child care expenses
  • Carrying charges: Interest on loans incurred will continue to be tax deductible by a non-resident, but only if they offset business income. For investment loans, interest is generally deductible only to date of emigration, unless paid to maintain Taxable Canadian Property.
  • Other employment expenses
  • Clerics’ residence deduction
  • Other deductions on Line 232
  • Employee Stock Options and Shares Deduction
  • Other deductions on Line 250
  • Losses on lines 251, 252, 253
  • Capital gains deduction
  • Northern residents’ deduction

However, it must be shown that these amounts are attributable to income earned in the period of Canadian residency.

Full Claims: Non-Refundable Tax Credits. If an immigrant or emigrant is eligible for any of the following non-refundable tax credits during the residency period, those amounts can be claimed in full:

  • CPP and EI premiums paid in the residency period
  • Provincial Parental Insurance Plan Contributions
  • Canada Employment Amount
  • Home Buyers’ Amount (and in 2016/17 the Home Accessibility Tax Credit)
  • Adoption Expenses
  • The Pension Income Amount
  • Interest on Student Loan Amount
  • Tuition Amounts
  • Medical Expenses
  • Charitable Donations
  • Spousal transfers for income earned in the residency period
  • Amounts transferred from child (tuition for residency period and a prorated disability amount)

Note: Part-year residents are required to take into account S. 94.2(5)(c) with regard to interests in a foreign investment entity. Reporting on such entities will be restricted to the period of time the taxpayer was resident in Canada.

Non-residency period. S. 114(b) requires the reporting of actively earned Canadian-source income (employment or self-employment in Canada) by a non-resident, or the reporting of Taxable Canadian Property dispositions. In addition, reserves for debt forgiveness, recovery of exploration and development expenses, and recaptured depreciation from the sale of a business interest will be reported. For the non-residency period, (See S. 115) the taxpayer may deduct only the following:

  • Losses under S. 111(1) (non-capital losses, net capital losses, restricted farm losses, farm losses, limited partnership losses), that offset any income reported under S. 114(a)
  • Deductions under S. 110(1)(d) and S. 110(1)(d.1), employee stock options and benefits deduction
  • Deductions under S. 110(1)(d.2) prospectors’ and grubstakers’ shares
  • Deductions under S. 110(1)(f): certain social benefits, treaty exempt amounts and employment income from international organizations

If all or substantially all (which generally means 90 percent or more) of the non-resident’s world income is reported for the period, all deductions normally allowed to a full-time resident will be allowed to the non-resident. Otherwise, non-residents are not allowed to claim any personal amounts.

Recent Jurisprudence: Non-residents and CCTB. Thorpe v The Queen, 2007 TCC 410.
The appellant argued that because her husband was a non-resident throughout the year and at all material times, his net income should not be included in the calculation of the Canada Child Tax Benefit for the base taxation years in question. The appellant’s husband visited the Canadian home frequently, paid for a car in Canada on a monthly basis for his wife, but no other family expenses. In finding for the appellant, the court stated (at paragraph 11) that the provisions in question (122.61/122.63) should be read generously in favour of enabling the children to receive the benefit of the CCTB.

Read part one of this two-part series: “Newcomers Need Advice: Can You Explain Our Complex Tax System?”


Newcomers Need Advice: Can You Explain Our Complex Tax System?

Our nation’s system is complex even to tax-educated Canadians. Imagine how mind-boggling this must be for newcomers (immigrants and refugees) and returning residents to Canada. There’s opportunity for advisors to work with this vast niche market and become a trusted educator and advocate for these families.

Doing so will bring a significant multi-generational wealth management opportunity with this demographic, and the numbers support this. According to Statistics Canada, 20.6 percent of Canada’s total population is foreign born, which represents the highest proportion among the G8 countries.

Between 2006 and 2011, 1.1 Million foreign-born people immigrated to Canada from Asia (representing the largest source) as well as Africa, the Caribbean, Central and South America. The majority of immigrants live in Ontario, BC, Quebec and Alberta.

How is Canada’s tax system different? Part of welcoming and advising newcomers and returning residents to Canada, is to take the time to answer questions about our tax system and educating them on the fundamentals that make our system different than that of their home countries.

To start, explain what their Social Insurance Number (SIN) means. Explain that a SIN is a key part of an individual’s financial identity, which is private, confidential and requires protection. Helping newcomers understand that these numbers and PIN numbers must not be shared is an important part of your role as educator and advocate on their behalf.

Legislated uses of the SIN in Canada include:

  1. Canada Pension Plan, Old Age Security and Employment Insurance contributions or claims (the original purposes for the SIN); income tax identification
  2. Tax reporting by banks, trust companies, caisse populaires and stock brokers for financial instruments like GICs or Canada Savings Bonds, or services (bank accounts) that generate interest
  3. Canada Student Loans or Canada Student Financial Assistance; Canada Education Savings Grants
  4. Tax Rebate Discounting Regulations; Garnishment Regulations (Family Orders and Agreements Enforcement Assistance Act); Canada Elections Act; Canadian Labour Standards Regulations (Canada Labour Code); Farm Income Protection

Programs authorized to use the SIN: Immigration Adjustment Assistance Program; Income and Health Care Programs; Income Tax Appeals and Adverse Decisions; Labour Adjustment Review Board; National Dose Registry for Occupational Exposures to Radiation; Social Assistance and Economic Development Program.

The task of applying for SINs will lead naturally into a discussion about Canada’s tax system. This is a great opportunity for you to be an educator and/or for you to become a new, key person on the client’s financial advisory team: a trusted tax advisor. There are three key principles to convey:

Our tax system is based on self-assessment. That essentially means that families must file audit-proof tax returns.

The principle of progressivity: The more you earn in Canada the more you pay.

However, the Basic Personal Amount – different federally from provincial returns – ensures that a basic amount may be earned tax free. Newcomer clients will want to understand this, what the tax brackets are and how income splitting affects their tax filings and tax planning.

You will want to ensure that they know about the Income Attribution Rules as well. Recall that this prohibits the transfer of capital from the top earner in the family to spouses or minor children so that they can report income at their lower marginal rates.

Tax withholding: For most employees, the first dollars earned go directly to the government, recoverable only by filing a tax return.

In addition, do explain that the tax return doesn’t only reconcile the correct amount of tax to be paid on various income sources; it is an application form for a number of generous refundable tax credits, available even if they have no income. This is all “new money” for certain family members, and it can form the basis for important discussions about cash flow, debt management and investments.

 So who is a “Newcomer to Canada” for tax purposes? This applies when individuals establish significant residential ties in Canada, usually on the date they arrive in the country. Newcomers to Canada who have established residential ties with Canada may be:

Returning Canadians: Those who were residents of Canada in any earlier year and are now non-residents, are considered residents for income tax purposes when they move back to Canada and re-establish residential ties.

Be sure to bring these folks up to date on tax changes and determine how the tax obligations they have in the country they emigrated from integrate with CRA rules.

Even more so, your expertise can be critical to the ability of new Canadians to adapt to life in their new country and succeed financially. Remember the needs of this significant segment of the population when you are looking for opportunities to grow your practice and serve your community.


Canada Caregiver Credit: The Missing Tax Link

The Canada Caregiver Credit (CCC), new in 2017, is still poorly understood and a complicated tax break to explain. For these reasons, many Canadians have missed claiming it. Tax and financial advisors who really want to help families under medical stress can make a big financial difference will add it to their year-end review and adjust 2017 tax returns for missed claims.

The CCC replaced the Family Caregiver Tax Credit, the Caregiver Tax Credit, and the Credit for Infirm Dependants. This credit comes in two parts:

  • A “Mini” CCC of $2150 in 2017 ($2182 in 2018), which must be claimed for an infirm minor child or someone for whom you are claiming a spousal amount. The term spousal amount also includes an “eligible dependant” or a someone you are claiming as “equivalent to spouse.”
  • A “Maxi” CCC of $6883 in 2017 ($6986 in 2018), or a portion thereof, may be claimed if you are supporting a spouse or eligible dependant over 18, whose net income is over $11,635 in 2017 ($11,809 in 2018). You may also claim this amount for infirm adults who are considered “other dependants.” But this larger credit is never claimed for a minor child.

The Maxi portion of the Canada Caregiver Credit is complicated for spouses because you may be able to claim the Mini CCC in conjunction with the spousal amount. However, if you can’t claim the spousal amount then you may be able to claim part (or all) of the Maxi amount.

A dependant can also be your own parents/grandparents, brothers/sisters, aunts/uncles, nieces/nephews or adult children, or those of your spouse or common law partner.

Only one claim will be allowed for the Canada Caregiver Credit for this class of dependant, although the claim could be shared among two or more taxpayers as long as the total amount claimed does not exceed the allowable claim.

CRA may contact your client sometime in the future to verify the claim for the Canada Caregiver Credit or the Disability Amount. An infirm dependant is one who has “an impairment in physical or mental functions.” A child under 18 will be considered to be “infirm” only if he or she is likely to be, for an indefinite duration, dependant on others for significantly more assistance in attending to personal needs, compared to children of the same age. This person can be claimed for the Canada Caregiver Credit.

Finally, don’t forget that the EI Compassionate Care Benefits For Caregivers are available for up to 6 months.

Excerpted from Evelyn Jacks’ Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-proof Too. Purchase it online today, with no shipping costs!

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Worth the Claim: Disability Tax Credits

CRA audit activities extended to those who claim Disability Tax Credits (DTCs), especially diabetics and children with autism, has continued to raise the ire of taxpayers. The $1.3 Billion in tax relief has been inconsistently applied and retroactively disallowed. But if you qualify, you could go back and recover that lucrative tax credit – all the way back to 2008.

It’s one of three important tax credits the vast majority of families often miss out on. It’s why I have covered the topic extensively in the 2018 version of Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-proof Too.

Here’s what you need to know:  the DTC is a non-refundable tax credit which translates to a federal real dollar amount of over $1,200; close to $2000, depending on where you live in Canada.

Those who miss making the claim can recover it 10 years back, too – so do the math – it’s a big number and worth the extra attention to your prior filed returns:

Maximum Disability Amounts

Year Maximum Disability Amount Maximum Supplement for Persons Under 18
2017 $8,113 $4,733
2016 $8,001 $4,667
2015 $7,899 $4,607
2014 $7,766 $4,530
2013 $7,697 $4,490
2012 $7,546 $4,402
2011 $7,341 $4,282
2010 $7,239 $4,223
2009 $7,196 $4,198
2008 $7,021 $4,095
Total $75,819 Approximate real dollar value: Between $15,163.80 and $18,954.75* $44,227 Approximate real dollar value: Between $8,845.50 and $11,056.75*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*Based on average combined federal/provincial tax rates of between 20 percent and 25 percent over the period.

Who can verify the claim? It’s a prerequisite that a medical practitioner certify your claim; therefore an important fall project is to make the appointment to get the T2201 Disability Tax Credit Certificate signed.

Note that medical doctors can certify most types of conditions, while nurse practitioners have also been added to the list of qualified professionals effective March 22, 2017. Any charge for this is claimable as a medical expense. In addition, CRA must accept the certificate, and that’s where much of the controversy has originated over the last year.

Who qualifies? A disabled person for the purposes of this credit is one who has a “severe and prolonged impairment in mental or physical functions.” When a taxpayer claims expenses for an attendant or the cost of nursing home care for a patient as a medical expense, neither that individual nor any other person may claim the Disability Tax Credit (DTC) or transfer it from that patient. But, the DTC can still be used if the claim for an attendant is less than $10,000 ($20,000 in the year of death).

Expenses claimable for these purposes can include fees paid for nursing home residence, full time care in-personal residence, or care in a group home plus costs for a special school or detox centre, which may qualify as both medical expenses and tuition fee credits. But, this generally does not include “stop smoking” treatment unless part of a medical treatment prescribed and monitored by a medical practitioner.

Working with a DFA-Tax Services Specialist is important, as these professionals will provide expert services in claiming and recovering these credits for families and charge a reasonable fee for doing so – by the form or by the hour. Stay away from those who charge a percentage of the refunds.

Recover Missed Credits. Remember that you can recover missed credits over a 10-year period by filing an adjustment to prior filed returns. A tax specialist can help you with this as well.

Next Time: Claiming the Canada Caregiver Credit

Excerpts from Evelyn Jacks’ Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof Too can be purchased online with free shipping!

Additional educational resources:

Help your clients claim complex caregiver tax credits – enhance your knowledge with the Advanced Income Tax Consultancy course.

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UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.


Caregivers: Tax Literacy Matters

The vast majority of Canadians caring for sick and disabled family members are missing out on lucrative tax assistance and paying for expensive care costs out of pocket, according to a CIBC poll. Worse, only 12 percent of caregivers are accessing available tax deductions, credits, and benefits on their tax returns.

his creates an opportunity for tax-savvy financial consultants to provide valuable advice.
In this three-part series, three of the most important credits to for advisors and clients to discuss are covered, starting with the claim for medical expenses.

“Missing a claim for medical expenses is common in Canada,” says Evelyn Jacks, President of Knowledge Bureau, who covers the subject in depth in her new book, Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof Too. “But, you have to know to save all your receipts, and navigate your way through some complex rules to get top benefits.”

Here are some details on the Medical Expense Tax Credit, which is found on Line 330 and 331 of your tax return.

How are medical expenses calculated? Qualifying medical expenses over the lesser of 3 percent of net income and $2302 in 2018 will qualify for a federal non-refundable tax credit. Medical expenses can be claimed for a number of people in the family who may be sick or disabled:

  • the nuclear family: the taxpayer, and the taxpayer’s spouse or common-law partner
  • a child or grandchild of the taxpayer or the taxpayer’s spouse who depended on the taxpayer for support
  • a parent, grandparent, brother, sister, uncle, aunt, niece, or nephew of the taxpayer or the taxpayer’s spouse who lived in Canada at any time in the year and depended on the taxpayer for support

Medical expenses for dependent children may be added to the medical expenses of the parents. Because the claim for medical expenses is reduced by 3 percent of the taxpayer’s net income, it is often best to claim the amount on the return of the lower-income taxpayer, unless that taxpayer is not taxable.

But medical expenses can also be claimed for dependent adults. In this case, the total medical expenses must be reduced by 3 percent of the dependant’s net income for the tax year. This transferred claim is not to be pooled with the taxpayer’s other medical expenses. That means it is not further reduced by 3 percent of the net income of the person making the claim.

What expenditures qualify? There is a very long list of expenditures that qualify for medical expense claims. An astute tax specialist will have these handy, but the trick is really to save all the receipts for any medical expenses incurred by you or your relatives, as medical expenses are often audited.

Most federal budgets add to the list every year. A recent addition is the cost of owning a psychiatric service animal. Starting in 2018, the costs of animals that have been specially trained to provide assistance to people with severe mental impairments may be claimed; for example, guiding a disoriented patient, searching the patient’s home if the patient has severe anxiety or applying compression to patients who have night tremors. The animal must be trained by a person or organization whose main purpose is this specialized training.

Eligible expenses include cost of care and maintenance for the animal, including food, veterinary costs, reasonable travel costs for the patient to attend training at a facility that teaches how to handle the animal.

Other commonly missed medical expenses that caregivers should take advantage of are outlined in detail in the article entitled “Commonly Missed Medical Expenses: Dig for Tax Savings”.

So what’s it all worth? The allowable medical expense claim, after the 3 percent limitation, reduces your taxes payable by 20 to 25 percent of the claimable amount (depending on what province you live in). Medical expenses not claimable because of the 3 percent limitation can also be carried forward for possible use in the following year, so saving unclaimed receipts is important. You can make the claim for the best 12-month period (the period in which you had the highest expenses, that is), ending in the current tax year; make that 24 months in the year of death.

Next week: learn more about the Disability Tax Credit

Evelyn Jacks’ Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-proof Too can be purchased online with free shipping!

Additional educational resources:

Help your clients claim complex caregiver tax credits – enhance your knowledge with the Advanced Income Tax Consultancy course.

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UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.


Inflation Hits High Point: Continues Upward Trend to 2.5%

Inflation has hit its highest point since February 2012’s 2.6%. It now sits at a lofty 2.5%, and is expected to hold steady until the second half of 2019. Poorly understood, inflation, together with high taxes and rising interest rates, is a great wealth eroder.

This trend brings with it an opportunity for you to add value in discussions with clients.

Up from 2.2% in May, the 2.5 percent inflation rate applies based on economic trends throughout the month of June. This is above the Bank of Canada’s target midline rate of 2%. Bank of Canada uses its prescribed interest rate to keep inflation in check. But consistent increases, like those earlier this summer and the next one anticipated with the fourth quarter announcement this fall, have implications to debt management in particular.

Bank of Canada rate increases drive up the prime lending rates of the big banks, as well as the Canada Revenue Agency’s prescribed interest rates. Though the banks’ rate hikes do not affect existing borrowers with fixed-rate products, new borrowers and those with existing variable-rate debt will definitely feel the pinch on their pocketbooks, and so will those who are behind on what they owe the taxman.

What issues should be discussed? For consumers who need a loan or are intending on making a home purchase, it’s important to speak to your financial advisor about the best strategy for your personal financial circumstances. One valuable approach may be to take advantage of lower rates available today, before they rise further over the next year. If you have consumer debt, variable-rate loan products, or you owe money to the CRA, paying down this debt should be among your top priorities.

For investors, revisiting a holistic Real Wealth Management strategy is critical at this time. This means focusing on how to accumulate, grow, preserve and transition wealth with sustainability after taxes, inflation and fees like interest and professional costs. Look for a tax or financial advisor who has Knowledge Bureau’s Distinguished Financial Advisor or Real Wealth Manager certifications. These specialists can help you with tax-efficient strategies to mitigate the risks of rising inflation and interest rates that will affect you over the next year.

For more insight on effective strategies and interpretations about Bank of Canada prescribed rates and inflation, we also recommend reading some of our previous coverage on these subjects:

Additional Educational Resources:

  1. Help Canadians with issues like these – learn more about Knowledge Bureau’s customizable online curriculum options, including those that will earn you credits towards DFA or RWM designations. Register before September 15, 2018, for tuition savings! Free trials are available of many courses.
  2. Pick up a copy of Evelyn Jacks’ Essential Tax Facts – it’s an essential tax resource for Canadians managing their finances throughout every life stage, as well as professionals in the tax and financial services.

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UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.


Take 2: New Complex Tax Rules, Short Comment Periods

If the date July 18, 2018 rings a bell it should: it marked the one-year anniversary of Morneau’s controversial small business tax proposals. This year, mid-summer tax complexity is again in the news, as Finance Canada released two important new tax documents for Canadians on July 27: the Draft Sales and Excise Tax Legislative and Regulatory Proposals and the Draft Income Tax.

The Draft Sales and Excise Tax Legislative and Regulatory Proposals impact the GST/HST holding corporation rules, the excise refund for diesel used for certain purposes, the GST/HST rebate for printed books for qualifying public service bodies, information sharing in criminal matters, and reassessment periods for compliance orders.

The Draft Income Tax Legislative Proposals are designed to improve access to the Canada Worker’s Benefit, and also affect the deductibility of employee contributions under the Quebec Pension Plan, the reporting requirements for trusts, cross-border surplus stripping for partnership and trusts, more complex rules on the holding of passive investment income, and reassessment periods, among other provisions.

Canadians are invited to submit comments on both of these proposals until September 10, 2018. This, despite protests from tax practitioners and business owners on the short comment periods allowed on the very complex corporate tax changes announced last year.  The Finance Department also initiated consultations on two other aspects of the GST/HST holding corporation rules, with an accompanying consultation paper. Comments on this paper must be made by September 28, 2018.

Further, in a statement from a G20 Summit in July, Finance Minister Morneau indicated that Canadians can expect competitiveness issues to be addressed with this fall’s Economic Statement, which will be covered at Knowledge Bureau’s CE Summits in early November. The opportunity for advisors will be to learn how to help their clients assess the impact of uncertain trade relations and Canada’s high tax rates, on year-end personal and business tax and wealth planning.

Mr. Morneau noted in his statement, that his priority will be lowering the cost of new investment rather than cutting tax rates overall, despite the pressures posed to match the newly implemented rates south of the border.

At the same time, he announced the government will invest $16.8 million in the Global Sharing Platform for Tax Administrations, which will have to goal of helping countries around the world to deal with the challenge of international tax evasion and aggressive tax avoidance. This platform will provide governments around the world access to virtual classrooms, networks of experienced tax administrators and a growing library of global best practices, according to the July release.

Mr. Morneau has also teased that other focal points of the Fall Economic Statement will include NAFTA renegotiation, and plans to build Canada’s oil pipeline; in an effort to enhance Canada’s competitive stance. This Economic Statement is also widely expected to clear the path for another Bank of Canada rate hike this fall, making debt management a key issue for advisors to discuss with clients, especially pre-retirees, now until year-end.

Additional educational resources:

Considering the focus of the fall economic statement, tax and financial advisors will need to be up to speed on the latest issues impacting their corporate clients. Knowledge Bureau’s fall CE Summits will help you do just that, with workshops focusing on year-end planning for investors and small businesses. Reserve your spot today in one of four Canadian cities – Winnipeg on November 2, Vancouver on November 5, Calgary on November 6, or Toronto on November 7. We also recommend the Business Valuation for Advisors certificate course, which can provide needed credits towards a Master Financial Advisor – Business Services Specialist designation and the Debt and Cash Flow Management Course as a professional development choice this fall.

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Non-Residents in the Family: What’s the CRA’s Take?

Summertime is family time; but it is also the time of year when people prepare for big life changes taking place in the fall. Young adults make plans to work abroad, travel or go to school and empty-nesters journey to warmer climates. However, non-residency comes with tax consequences, so a visit to a tax advisor should be part of your travel preparation.

In fact, it can pay handsomely to find a cross-border tax expert who can help you determine with confidence what your filing status is, both before and after you leave. Knowing that will help you comply and avoid costly penalties and interest for failure to file various returns, especially if you are compelled to do so retroactively.

In fact, it can pay handsomely to find a cross-border tax expert who can help you determine with confidence what your filing status is, both before and after you leave. Knowing that will help you comply and avoid costly penalties and interest for failure to file various returns, especially if you are compelled to do so retroactively.

You will also make better decisions about contributing to and withdrawing from Canadian investments left behind: TFSAs, RRSPs, RRIFs, taxable Canadian real estate or business properties, for example.

You should be especially concerned about your tax ties if you are going to a country with which Canada does not have a tax treaty that prevents double taxation. You must be prepared to show that you have severed ties with Canada and have a permanent home elsewhere to avoid attachment to the Canadian tax system. However, taxable assets left in Canada will still have tax consequences for non-residents upon their disposition.

In addition to taxing the worldwide income of residents, the government of Canada imposes income taxes on non-residents who earn income in Canada. Except where there is an international tax agreement restricting the collection of such taxes, anyone in Canada who pays income to a non-resident is required to withhold income taxes from those payments.

In most cases, this is the only tax that the government will get on that income, as the non-resident will generally not be filing a Canadian income tax return. In fact, an expatriate of Canada may find that withholding taxes on Canadian income earned while a non-resident is cheaper than paying taxes in Canada.

Even in cases where there is little or no Canadian income, a non-resident may wish to file a tax return in Canada, in order to attempt a refund of the withholding taxes. There are three opportunities:

  • Under Section 216—Collection of rents and timber royalties. These filings are not eligible for any personal amounts and so are subject to 48 percent non-resident surtaxes, the same taxes levied to deemed residents.
  • Under Section 216.1—Non-resident actors may file a return in Canada under this section to report net Canadian-source acting income.
  • Under Section 217—Non-residents receiving any of the following sources of income may file a return for amounts that include:
    • Old Age Security pension, Canada Pension Plan or Quebec Pension Plan benefits, most superannuation and pension benefits, deferred profit- sharing plan payments, RRSP or RRIF payments, certain retiring allowances or death benefits.
    • Employment Insurance benefits or registered supplementary unemployment benefit plan payments, or amounts received from a retirement compensation arrangement (RCA), or the purchase price of an interest in a retirement compensation arrangement.
    • Prescribed benefits under a government assistance program.

In these cases, if Canadian-source income is 90 percent or more of their worldwide income, taxpayers will be allowed to claim full personal amounts. If Canadian-source income is less than 90 percent of world income, then personal amounts are limited to 15 percent of eligible income. The 48 percent non-resident surtax will apply but will be reduced by the factor of eligible income divided by non-eligible world income. Paying the 25 percent withholding taxes may be simpler and less expensive.

It’s complicated, and that’s why you may need help from a tax professional in making the right filing decisions when your life changes and takes you across the border or overseas.

Excerpted from Evelyn Jacks’ latest book, Essential Tax Facts: How to Make the Right Moves and Be Audit-Proof, Too. Pick up your copy today as your guide for tax-efficiency at all life stages.

Additional educational resources: Ready to improve your skillset and help your clients navigate complex issues in a tax-efficient way? Try Knowledge Bureau’s Cross Border Taxation course. Or complete a full designation to become a Distinguished Financial Advisor – Tax Services Specialist, or Master Financial Advisor – Business Services Specialist.

COPYRIGHT OWNED BY KNOWLEDGE BUREAU INC., 2018.
UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.