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Retirement Planning: Four Tax-Efficient Income Options

Have you explored all of the tax-efficient income options available to generate consistent income that will provide for your retirement needs and wants? If you’re a Boomer challenged to find tax-efficient options, discuss these four alternative sources with your tax advisor today.

Many tax advisors will have these resources available in their retirement toolkit, in addition to the government benefits and private savings options that are more commonly used by Canadian investors. Taking advantage of these alternatives is especially important if you’re self-employed.

Pooled Retirement Pension Plans (PRPP).This new type of pension plan was passed into law by the federal government in 2012 and provincial legislation has since followed for most provinces. The plan provides a voluntary and affordable alternative for small businesses to offer an employer-sponsored pension plan at work, with contribution levels that will mirror those available under the Registered Pension Plan (RPP) defined contribution or money purchase rules. Pre-retirees should discuss the opportunity to initiate such a plan for their smaller business enterprise.

Individual Pension Plans (IPP). Individual Pension Plans are established for an owner-manager who is an employee of his or her own corporation. Annual minimum amounts are required to be withdrawn from the IPP once the plan member is 72, similar to the rules under the Registered Retirement Income Fund (RRIF). Also, contributions related to past years of employment must come from RRSP or RPP assets or by reducing RRSP contribution room, before deductible contributions to an IPP can be made.

Registered Disability Savings Plan (RDSP) Rule Changes. First established in 2008, the RDSP is used to accumulate private pension funds for the benefit of a disabled person. RDSPs function in a similar fashion to RESPs, in that contributions are not tax deductible, earnings accumulate on a tax-deferred basis and the government contributes grants and bonds to enhance savings. Any person eligible to claim the Disability Amount can be the beneficiary of an RDSP and the plan can be established by them or by an authorized representative. Until the end of 2023, a family member may be the plan holder for the beneficiary if the beneficiary’s capacity to enter into a contract is diminished.

German and other Foreign Pensions. If you receive German social security pension, it’s reportable in Canada, but you will qualify to claim a partial exempt portion; the exemption depends on when you started receiving the pension benefits. Ex-pats who receive any German pension benefits will also have filing obligations in Germany. Taxpayers may claim foreign tax credits on any income that is taxed both in Canada and Germany. To determine the proper credit, you’ll have to file returns in both countries rather than relying on taxes withheld at source which may be fully or partially refunded by filing a tax return. For other taxpayers with offshore pension income sources, don’t forget to report world income in Canadian funds; claiming a foreign tax credit if there are any foreign tax withholdings. Offshore assets require the filing of Form T1135 Foreign Income Verification Statement if the cost of assets exceeds $100,000 Canadian. This form must be filed by April 30.

Additional educational resources:

For further information and specialized training in retirement income planning, become a designate in Knowledge Bureau’s Master Financial Advisor – Retirement and Estate Services Specialist program, or the Tax Efficient Retirement Income Planning course. As a taxpayer, looking for an advisor with these credentials and consulting Evelyn Jacks’ latest book – Essential Tax Facts – can help you focus on tax-efficiency for every stage of life.





Found Money: How Filing an Accurate T1 Pays Off

For many Canadians filing a tax return is the most important financial transaction of the year. Getting the best tax refund is important: not only will it put more or the money you previously earned back in your own pocket, your refund can make at least some of your cash flow and retirement worries go away. Here’s how:

The average tax refund last year was $1,735 or about $145 a month. If that money was going into an RRSP, over a 40-year period at an average return of 5 percent, that tax refund would grow to $220,067. That’s a solid nest egg!

The tax return is also your avenue to refundable tax credits – tax free money – which include the following:

The GST/HST Credit of $284 per adult and $149 per child, offered by government to offset the cost of paying tax at the till.

  1. The Canada Child Benefit of up to $6,496 per child under six (that’s $541.33 per month) and $5,481 for each child between six and seven (that’s $456.75 per month).
  2. The Working Income Tax Benefit of up to $1,028 for those who have a minimum earned income of $3,000 (full-time students who don’t have an eligible dependant are amongst those who don’t qualify).
  3. The Eligible Educator School Supply Tax Credit of up to $1,000 in qualifying expenses – 15 percent is then refundable.
  4. Various Provincial refundable tax credits

The money moral: filing a timely, accurate T1 is about how much of your hard-earned dollars you get to keep – for now and for peace of mind in your financial future.

Additional educational resources: Interested in learning more about how to help others prepare accurate T1 and get a jump on retirement planning? Try Knowledge Bureau’s Distinguished Financial Advisor – Tax Services Specialist or Master Financial Advisor – Retirement and Estate Service Specialist designations. Register before June 15 to save on tuition for the summer session. Courses are available online 24/7 with continuous intake, so you can start anytime!

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 53 books on family tax preparation and planning.



Tax Tip: Three Tax Secrets for RRSP Investors

March 1, 2018 is an important date for savvy taxpayers: don’t miss topping up your RRSP contribution by this deadline. It’s a great investment for your retirement, of course, but it’s so much more powerful: there are, in fact, three additional tax secrets most people don’t know about that can help you improve your finances.

First, your RRSP accumulations will provide valuable options for lifelong learning and for homebuyers, too, as you can withdraw funds for those purposes on a tax free basis, as long as you pay the money back into the RRSP annually, according to CRA’s schedule.  Check out the Lifelong Learning Plan and the Home Buyers Plan for details.

The third secret is all about your net income (line 236 of the T1 return).  Because your RRSP deduction will reduce your net income, you will increase your cash flow—all year long from refundable tax credits and social benefits you may qualify for. Here’s what you need to know.

Net income, Line 236 on your tax return, is the income-testing level used to determine the size of some of the non-refundable tax credits a taxpayer is entitled to. The RRSP will reduce that number so you get more.  Your non-refundable tax credits can be found on Schedule 1 of the T1 return. Check out the entire list of them by printing this form from CRA’s website.

In real dollars, non-refundable tax credits are worth 15 percent of their value as an offset to the federal taxes payable. Their value is higher than that, though, depending on where you live, as they offset provincial taxes, too. Provinces have discretion on what tax credits they offer their residents, so check out what non-refundable tax credits your province allows as the list may be different from the federal schedule.  So to benefit, you must have taxable income.

Not so with refundable tax credits, like the Canada Child Benefit or the GST/HST Credit.  Even people with no income should file for them.  But if you have net income, the RRSP can help to reduce it so that you get more of these lucrative credits.  Often these credits are simply calculated automatically by the government and sent directly to you—no additional math for you to do. But that’s tricky for some people – you don’t actually see reference to the credits or their calculations on the return; although your tax software will usually provide those references for you.

Net income is also the figure used to determine any clawback of Old Age Security or Employment Insurance Benefits. You want to keep as much of those benefits as possible; so if your income is above the thresholds the Finance Department sets out for benefit eligibility,  the RRSP can reduce income levels to your advantage.

That’s why the RRSP can be your financial hero: it reduces your net income so you get more tax benefits at tax time and all year long.  Remember, the higher your income, the more valuable the deduction of your RRSP contributions will be. The RRSP is a very effective tool in reducing taxable income—so do contribute before midnight March 1!

Check it out with your tax services specialist, or see for yourself by using Knowledge Bureau’s Income Tax Estimator.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 53 books on family tax preparation and planning.

©2018 Knowledge Bureau Inc. All Rights Reserved.

Tax Season 2018: Refunds Won’t Flow Before End of February

Filing a tax return is the first, and often most important, financial transaction of the year for millions of Canadians. What’s different in 2018? For starters, the government is hanging on to early filers’ refunds longer than ever. With last year’s average tax refund clocking in at just over $1,735, that’s a big deposit that cash-strapped Canadians don’t have for their RRSP or TFSA deposit.

The taxman won’t start accepting tax returns for electronic filing until February 26—two weeks later than 2016 and one week later than year. That means early filers won’t receive their tax refunds until March.

Tax filing is really all about how much of your own money you get to keep, and that begins with making sure you only pay the correct amount of tax—no more—and that it gets into your pocket as quickly as possible so you can use it to pay down debt or save for your future.

That’s critical because the single most important financial question for most Canadians still is, “Will I have enough?”

A first line of defense in making sure you do, is not to pay too much off the top of gross earnings in withholding taxes. Ask your tax advisor about what you can do to reduce that risk. It is possible to make a request to reduce your withholding taxes in some cases, using form T1213 Request to Reduce Tax Deductions at Source.

The annual tax filing season also gives families a deliberate opportunity to look at last year’s financial results and rethink their savings opportunities.

Canadians love their tax refunds; many consider it to be a type of forced savings. It’s always amazing that so many people don’t connect the dots between their tax filing requirements, the time value of money and sound financial planning. Also:  Making an interest-free loan to the government for an extended period of time, in excess of your tax obligations, works against your investment potential.

Bottom line: It’s unfortunate that CRA will be holding up Canadians’ tax refunds for an extra week this year:  two weeks longer than the year before!  Remember, the sooner the money is in your hands and the longer it stays invested, the more you’ll save in the long run. So file your tax return—sooner, rather than later.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 53 books on family tax preparation and planning.

Additional Educational Resources: Knowledge Bureau’s Real Wealth Manager (RWM) program, DFA-Tax Services Specialist designation

©2018 Knowledge Bureau Inc. All Rights Reserved.

Aboriginal Peoples: Tax Filing Considerations

Canada has 1,673,785 aboriginal people, representing 4.9 percent of the population. According to our census, this population has grown 42.5 percent in the period 2006-16 and the average age of the aboriginal people, at 32.1 years, is close to a decade younger than the rest of Canada. There are unique tax filing concerns for these Canadians, requiring specialized knowledge.

Approximately 75 percent of aboriginal people have registered Indian status and 44 percent of these people live on reserves. That’s notable because there is a special tax exemption under section 87 of the Income Tax Act for income earned on the reserve by those living there.

When is investment income tax exempt? It’s a question many aboriginal investors what to know the answer to. Here are the rules:

Interest Income from a savings or chequing account, a term deposit or guaranteed investment certificate (GIC) that is earned at a financial institution located on the reserve will be tax exempt as long as the financial institution is required to pay the interest income to the taxpayer at a location of the financial institution on a reserve. In the case of a term deposit or GIC, the interest rate is generally fixed or can be calculated at the time the investment is made.

Dividends, too, will be tax exempt if the head office, management and principal income-generating activities of the corporation are situated on a reserve. The same is true of rental income earned from property situated on the reserve. Moveable property rented to someone off the reserve is considered to be taxable. In the case of royalty income, if the underlying right is situated on-reserve, the royalty income will be tax exempt.

Capital gains from the disposition of properties on the reserve are tax exempt.

• In the case of RRSPs, exempt income will not qualify for earned-income purposes and so no RRSP deduction can be made. However, if RRSPs are funded with taxable sources, regular rules apply.

• Notably, Old Age Security and Guaranteed Income Supplement payments are taxable. So are support payments made by an estranged spouse if the recipient lives off the reserve.

• Section 87 of the Indian Act does not apply to corporations or trusts, even if they are owned or controlled by an Indian. A corporation or trust is treated as a separate taxpayer and, therefore, neither would be considered an Indian for purposes of the exemption. If a trust has claimed a deduction for amounts paid to an Indian, the amounts must be added to income unless it can be shown there are factors connecting the trust’s income to a reserve, in the case of business or investment income.

It’s of course also very important to file for refundable tax credits, even if there is no taxable income. For more information, see the Knowledge Bureau’s Introduction to Personal Tax Preparation course, which student xxxx found particularly enlightening (hotlink – proper name and testimonial from graduate with permission?)

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 53 books on family tax preparation and planning.

Additional Educational Resource: Excerpted from the CE Summit Knowledge Journal, now available for purchase in the Knowledge Bureau Bookstore.

Tax Tip: A New Tax Credit for Infirm Children

Last week we discussed a new Canada Caregiver’s Credit (CCC) for spouses and eligible dependants who can be claimed as “equivalent to spouse.” But did you know that you can now make a new claim if you are a caregiver of a dependent minor or adult child who is infirm? It’s possible under the revamped Canada Caregiver Credit.

Quick recall: the Canada Caregiver Credit comes with two parts:

  • A “Mini” CCC of $2,150, which must be claimed for an infirm minor child or someone for whom you are claiming a spousal amount. Remember that the term spousal amount also includes an “eligible dependant” or a someone you are claiming as “equivalent to spouse.”
  • A “Maxi” CCC of $6,883, or a portion thereof, may be claimed if you are supporting a spouse or eligible dependant whose net income is over $11,635. But, you may also claim this amount for infirm adult dependants. However, this larger credit, is never claimed for a minor child.

Infirm children. The claim is $2,150* for each infirm child under age 18. Children under 18 will be considered to be “infirm” only if they are likely to continue to be, for an indefinite period, dependant on others in attending to their personal needs significantly more than when compared to children of the same age. Only one claim may be made for an infirm child by one parent. But if that parent does not need the full amount, the unused amount may be transferred to their spouse. This is done using Schedule 2 on the personal tax return.

New Essential Tax Facts. Book by Evelyn JacksThe Canada Caregiver Credit may not be claimed by a taxpayer who is required to pay a support amount for the dependant. However, in the year of a change in marital status, the taxpayer has the option of claiming the credit or the support payments. In the case of a child, where both parents must make support payments, only one parent can make the CCC claim and the parties will need to agree on who that is.

Other Infirm dependants age 18 and over. In this case, claim $6,883* minus the dependant’s net income over $16,163. You will get a full claim if net income is under $16,163, a partial claim if it is between $16,163 and $23,046 and nothing when income is over that.

Your dependant can be your or your spouse’s parents/grandparents, brothers/sisters, aunts/uncles, nieces/nephews. Only one claim will be allowed for the Canada Caregiver Amount for this class of dependant, although the claim could be shared amongst two or more taxpayers, as long as the total amount claimed does not exceed the allowable claim.

Evelyn Jacks is President of Knowledge Bureau and author of the New Essential Tax Facts: How to Make the Right Tax Moves and Be Audit-Proof, Too, available in February. Pre-orders accepted now. Follow Evelyn on twitter @evelynjacks.


US Tax Reforms Could Attract Top Canadian Talent

In its first major tax reform in over 30 years, the United States is considering a package of tax changes that if passed into law, could significantly impact Canada’s ability to keep top talent and business ventures from moving across the border.

While Canadian high-income earners have faced various federal and provincial tax hikes since 2016, and private businesses are fighting this summer’s controversial high-tax  reforms, the federal tax proposals in the U.S. are much friendlier to several taxpayer profiles:

  • For low-income earners the standard deduction will increase from $6350 to $12,000 (slightly more than Canada’s current basic personal amount of $11, 635).  For those filing jointly, the amount would rise from $12,700 to $24,000.
  • Above the standard deduction, the number of tax rates will be reduced from 7 to 4 ranging from:  12 percent (on incomes up to $45,000), to 25 percent (incomes between $45,001 to $200,000) and 35 percent (incomes between $200,001 to $500,000).  A high rate of 39.6 percent will be applied to incomes above $500,000.  The bracket amounts double for joint filers.
    • It’s at income levels between $142,354 and $202,800 that American taxpayers have the most favorable tax rates, saving 4% over Canadian rates. The next most advantageous tax rates occur on incomes up to $45,000, where Americans would save 3% over Canadian rates.
  • A new Family Credit would enhance the current Child Tax Credit, increasing it from $1,000 to $1,600.  In addition, a $300 credit will be provided to each parent and adult dependant.
  • The Estate Tax exemption would double immediately; and be repealed entirely after six years.
  • The corporate tax rate would be reduced to 20 percent from 35 percent. The tax rate for active small business income would be 25 percent.    For small businesses, a rate of 9 percent for incomes under $75,000 is proposed, with the rate phasing out as incomes exceed $150,000 with a full phase out at $225,000 of income.
    • It’s interesting to note that Canada’s small business tax rate is proposed to drop to 9% by 2019 – a hasty announcement made last month by Finance Minister Morneau, who has been under attack for trying to substantively change the landscape for business owners with exorbitant taxes on family members who don’t meet “reasonableness” tests and passive investment income in the corporation.
  • Business could immediately write off the full cost of new equipment.
  • It would become easier for American business to repatriate foreign earnings; incentives to move overseas would be eliminated.
  • Mortgage interest rate deductibility will continue, but only for existing mortgages and on the cost of newly acquired homes up to $500,000.
  • The Alternative Minimum Tax would be repealed.

Canadians have already expressed concerns about some of these proposals and their effect on our economy.  Writing in the Financial Post, tax expert Jamie Golombek noted that in combination with Florida’s zero tax rates, the Trump tax reductions at the top end of the income scale,  would make the U.S. more attractive for Canada’s highly skilled people and professionals.  Using the example of a medical professional paying tax at 53.5% on income above $220,000 in Ontario, accepting an offer to move to Florida would mean “. . .not only could she be paid in U.S. dollars but that income would be subject to tax at a top rate of 33 per cent – that’s more than 20 per cent lower than her current, combined federal/Ontario rate.”

Speaking to the Canadian Press last December, Dr. Jack Mintz,  President’s Fellow of the School of Public Policy,  also worried about the potential brain drain through tax competitiveness:   “We don’t look particularly competitive in attracting talent when you have both a low dollar and, now, a really high marginal tax rate cutting in at a relatively low income level. I think the government needs to worry about attracting talent.”

Craig Alexander, chief economist for the Conference Board of Canada, agreed, noting that “businesses and individuals often make decisions based on after-tax incomes . . .so, if America cuts its corporate and personal income-tax rates significantly, it could create a competitive challenge for Canada.”

More recently, Dr. Mintz opined on what Canada must do if the tough NAFTA negotiations it is in with the U.S. fail:  “Like the U.K. following its Brexit experience, we will need to pursue more vigorously new avenues for trade and create a better business environment with better regulations and growth-oriented tax system.”

Combined with the recent tax proposals, which are going in the opposite direction, and new CPP tax hikes on the horizon, it could be a very bumpy road ahead for Canadian business and their government, and by extension, the taxpayers who work for them.

To weigh in with your view, participate in the Canadian Federal Budget consultations at this link:

Evelyn Jacks is Founder and President of Knowledge Bureau and author of 52 books on tax preparation, planning and family wealth management. Follow her @evelynjacks.

Additional Educational Resources:  CE Summits, November 21 in Winnipeg, November 22 in Calgary, November 23 in Vancouver and November 28 in Toronto, and Cross Border Taxation Course.

©2017 Knowledge Bureau Inc. All Rights Reserved.

The Paradise Papers, Pre-Budget Consultations and The Real Tax Gap

This week brought more controversial tax news to Canadians: the Paradise Papers and a new tax “consultation”; this time in advance of the 2018 Federal budget. The elephant in the room in both these stories is the unfinished “consultation” on the massive tax changes proposed for private businesses.

Small business owners are still reeling from the potentially exorbitant tax hikes on the incomes from their invested capital in private corporations within Canada, even as they hear about potential tax erosion from the Paradise Papers story. It appears that CRA is unable to tap into the “tax gap” left from the movement of assets offshore by prominent, wealthy Canadians, according to CBC reports.

Speaking from the Distinguished Advisor Conference being held in Kelowna, Evelyn Jacks, President of Knowledge Bureau, said, “There are many troubling aspects to this story starting with a key ingredient required for a fair taxation system: confidentiality. The burden of proof for accurate tax filings is always on the taxpayer, but in return the taxpayer has rights to the confidentiality of his or her taxation records, and impartiality. This is in fact enshrined in the sixteen Taxpayer’s Bill of Rights.”

This Taxpayer’s Bill of Rights is worth the read. For example, did you know:

“You have the right to receive entitlements and to pay no more and no less than what is required by law.” To make sure that all taxpayers pay only the correct amount of tax, the law must be simple and transparent and from a compliance point of view, it cannot be applied retroactively and punitively for people who don’t understand their rights.

For small business, the Taxpayer’s Bill of Rights says this:   “CRA is committed to administering the tax system in a way that minimizes the costs of compliance for small businesses.” This makes a compelling case for dropping the onerous “reasonableness tests” and the mind-numbing complexity proposed for the tracking of sources of capital used for passive investments in private corporations.

In other words, there must be reciprocity in a self assessment system: if taxpayers must bear the burden of proof, there must be an equal obligation for the tax department to ensure all efforts are made to help Canadians mitigate their tax costs by communicating in a simple, understandable and effective manner what the law is, how people can comply with it and several appeal rights that allow people to get it right.

International tax law is very complex. It’s difficult for taxpayers and CRA alike to understand. While CRA needs to enforce the obligations people have when they move their assets offshore; these taxpayers also have taxpayer rights. Those who try to comply with the law are not tax cheats, if they took all steps to ensure they met their obligations to Canada are met.

These include the following requirements, which all taxpayers should take note of:

  • If you are a resident in Canada at any time of the year you must file a tax return in Canada and report world income in Canadian dollars. This includes the income from offshore trusts and pensions. You must also declare on Form T1135, the cost of certain foreign assets over $100,000.
  • Residents of Canada can be actual, factual or deemed. Certain deemed residents qualify for special tax credits in Canada. Therefore, you can still be tied to your tax obligations in Canada even if you or your money resides offshore.
  • Canadian residents who hold foreign investment properties or who transfer or loan money to offshore trusts will be subject to Canadian taxation and complex annual reporting rules.
  • Those who immigrate or emigrate are considered to be part-year residents of Canada, but may still have reporting obligations in Canada.
  • Upon emigration from Canada, departure taxes must be paid on accrued gains on many assets held at that time. Professional help should be sought to understand which assets require reporting, how capital losses are identified and scheduled and what obligations may arise in both countries, if any, after departure.  For example, those who are non-residents may still be required to file a tax return in Canada if they earn employment or self-employment income in Canada or sell taxable Canadian property.
  • Taxes paid in other countries on the same world income reported in Canada will be the subject of a foreign tax credit to provide tax relief from double taxation. In other cases, tax treaties will provide relief.

Most Canadians pay their taxes willingly and on time. It’s possible that the Paradise Papers story underscores just what happens when the fundamental principles of an effective tax regime – fairness, equity, simplicity and compliance – break down: people with means leave the country with their assets and their income, leaving burdensome tax obligations on lower income earners. That’s the real tax gap we have to fix.

Knowledge Bureau’s EverGreen Explanatory Notes and Cross Border Taxation course provide detailed information on the rules and implications of holding offshore assets. However, taxpayers who are in doubt about their compliance requirements when assets are held offshore should immediately seek advice from a qualified tax specialist and correct their situation before CRA comes knocking.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services, and author of 52 books on family tax preparation and planning.

©2017 Knowledge Bureau Inc. All Rights Reserved.

Which Employee Benefits Are Taxable?

A couple of weeks ago, the financial news of the day involved a controversy about the taxation of employee benefits. CRA was enforcing its interpretation of the law in relation to the taxation of the benefit of receiving employee discounts at work. After a political outcry, CRA backed down, leaving several question marks.

That’s regrettable because tax law must be certain – up front – in order for employers to properly fill out T4 slips and communicate the net after-tax value of employee remuneration.  It’s not possible to try to anticipate how CRA is going to interpret a law afterwards, and it’s unfair for employees to face unintended consequences in an audit many years later.

Based on where the law stands today, here’s a list of a dozen and a half taxable and tax-free benefits to consider in determining compensation for employees for 2017, excerpted from Family Tax Essentials. Business owners should discuss these and other perks of employment with their tax and bookkeeping specialists as part of their year end planning meetings:

Perks of Employment

Taxable Benefits*:

  • Personal use of employer’s vehicle
  • Gifts in cash or those that exceed $500
  • Value of holidays, prizes and awards
  • Merchandise discounts – below cost
  • Premiums for a provincial health or hospital plan
  • Tuition paid for courses for personal benefit
  • Interest-free and low-interest loans
  • Group sickness, accident or life plans
  • Gains and income under employee stock-option plans

Tax-Free Benefits:

  • Recreational facilities, including social or athletic club memberships
  • Non-cash gifts under $500;
  • $500 or more for birthdays, anniversaries. Annual $1000 total.
  • Employee counselling services for health, retirement or re-employment
  • Merchandise discounts – above cost
  • Premiums for a private health plan or lump-sum wage-loss replacement plan
  • Tuition paid for courses for the employer’s benefit
  • Certain moving expenses if required by the employer
  • Employer’s required contribution to provincial health and medical plans
  • Employer-paid costs of attendant for disabled employees or to cover away-from-home education due to work in remote worksites

* If these amounts include GST/HST, employees who are allowed to claim employment expenses may be able to claim a rebate on Line 457 by filing form GST370. If you receive this rebate, claim it as income in the following tax year on Line 104.

Evelyn Jacks is Founder and President of Knowledge Bureau and author of 52 books on the subject of tax planning, preparation and family wealth management.

Additional educational resources: Advanced Family Tax Preparation Course, CE Summits

Disability Tax Credits Change Highlights Audit-Proofing

Audit-proofing strategies must be implemented by tax professionals and their diabetic clients receiving disability tax credits in light of the CRA’s new interpretation of the rules.

CRA has changed their position on allowing diabetics to claim disability tax credits in certain cases; a national news controversy that is leaving taxpayers uncertain about claims specific to important life sustaining therapies for their loved ones.  So exactly what are the rules and why is CRA changing their interpretation in retrospect?

Criteria for claiming the DTC (Disability Tax Credit).  If you become disabled, you may be able to claim the disability amount on Line 316 of your return. You’ll need to have a medical practitioner (the government now allows nurse practitioners as authorities) complete Form T2201, Disability Tax Credit Certificate. If you do not require the full disability amount to reduce your federal taxes to zero, you may transfer the unused portion of the credit to a supporting person. In the case of spouses, that transfer is made on Schedule 2 and on Line 326 of the tax return.

Taxpayers with “a severe and prolonged impairment in mental or physical functions” may claim it. Here is what that means:

  • A prolonged impairment is one that has lasted or is expected to last for a continuous period of at least 12 months.
  • A severe impairment in physical or mental functions must restrict the patient all or substantially all of the time, which is another way of saying 90% of the time or more.

You will be considered markedly or in some cases significantly restricted if all or substantially all of the time you have difficulty performing one or more of the basic daily living activities listed below, even with the appropriate therapy, medication, and devices:

  • speaking
  • hearing
  • walking
  • elimination (bowel or bladder functions)
  • feeding
  • dressing
  • mental functions necessary for everyday life

When it comes to life-sustaining therapies, the disability tax credit can be claimed if the therapy is required to support a vital function and the therapy is needed at least 3 times per week, for an average of at least 14 hours per week. This includes the daily adjusting of medication and the time spent by a primary caregiver performing and supervising activities for a disabled child.

According to the Revenue Minister, advances in technology, such as portable insulin pumps, have reduced the amount of time that diabetics require for life-sustaining therapies and this has resulted in them no longer qualifying for the credit.  What’s important is that the burden of proof is on the taxpayer – keeping a log of life sustaining treatments is required to justify claims.

The claim is lucrative. The maximum claim is $8113 per adult dependant in 2017. As a non-refundable credit, the disability amount reduces the taxpayer’s tax bill by $8113 x 15% = $1216.95 regardless of income. In addition, each province has a provincial disability amount which varies by province, and will increase this claim.

Disability Tax Credits for children who require this assistance also qualify. For those supporting a disabled minor, this amount is enhanced by an indexed supplement of $4,732 (for 2017). This amount is reduced by amounts claimed under Child Care Expenses on Line 214 and the Disability Supports Deduction on Line 215 in excess of $2,772 (for 2017).

Additional Educational Resources:  Contact your DFA-Tax Services Specialist for help in working with CRA’s audits, or consider taking this important online designation program to help others.

Evelyn Jacks is President of Knowledge Bureau and author of 52 books on personal tax preparation, tax planning and family wealth management.  Follow her on twitter @evelynjacks.

©2017 Knowledge Bureau Inc. All Rights Reserved.