It’s time to take note of the tax filing requirements and investment opportunities that arise in the first quarter of 2017: January, February and March. Investors making TFSA and RRSP contributions, as well as interest payments on inter-spousal loans are affected. So are taxpayers who are making quarterly instalment tax remittances.
JANUARY – TFSAs: Additional TFSA Contribution Room. An additional $5,500 (indexed) in TFSA contribution room became available to Canadian adult residents on January 1, 2017, providing a total of $52,000 of available room since 2009. Contributions to a TFSA are not deductible, however income earned within a TFSA and withdrawals made from it are not subject to tax. TFSA activity does not affect eligibility for federal income tested benefits and tax credits, such as Old Age Security, the Guaranteed Income Supplement, the Canada Child Tax Benefit, the Working Income Tax Benefit and the Goods and Services Tax Credit.
TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada. You do not have to set up a TFSA or file a tax return to earn contribution room. If, for example, an individual is 18 or older in 2009 but is not obligated to file a tax return until 2016, they would be considered to have accumulated TFSA contribution room for each year starting in 2009.
JANUARY 30: Interest Payment Due – Inter-Spousal Loans For Investment Purposes. Drawing up inter-spousal investment loans are a legitimate way for the higher-income spouse to transfer taxable investment income to their lower-income spouse to reduce the family tax bill. For several years now, the prescribed rate for spousal loans has been set at an advantageous 1%. This prescribed rate is locked in for the life of the loan, so a loan set up at 1% will continue to shield against income attribution for as long as the loan is outstanding and interest is paid annually before the January 30 of the following year. The terms of the loan should mirror commercial terms to be audit-proof.
FEBRUARY: Make RRSP Contributions; but avoid overcontributions. Here are the annual contribution limits you need to know, although it is possible for taxpayers to have higher contribution room available, depending on prior year contribution levels:
- For the 2016 tax year – 18% of earned income to a maximum of $25,370 (this occurs when the prior year earned income was $140,944). This contribution must be made by March 1, 2017.
- For the 2017 tax year – 18% of earned income to a maximum of $26,010 (this occurs when prior year earned income was $144,500). This contribution must be made by March 1, 2018.
- For the 2018 tax year – 18% of earned income to a maximum of $26,230. (this occurs when 2017 earned income is $145,722). This contribution must be made by March 1, 2019.
MARCH 15: Make First of 4 Instalment Payments For Tax Year 2017. The others due June 15, September 15 and December 15. Note that the remittance date is December 31 for farmers/fishers who are required to make only one instalment in the year). Instalments must be made if the estimated taxes payable (including CPP contributions and EI premiums on self-employment income) in the current and one of the two preceding tax years exceed $3,000 ($1,800 on the federal return for Quebec residents). Three remittance options are available to taxpayers:
- No-calculation Option. CRA will provide instalment amounts (first two based on one-quarter of taxes owing in second prior year and last two based on taxes owing in the prior year less first two instalments). Taxpayers who pay using this method will not be subject to interest on deficient instalments.
- Prior Year Option. Each instalment is one-quarter of the taxes payable in the prior year. If these are not sufficient to cover the current year taxes, interest on deficient instalments will be payable.
- Current Year Option. Each instalment is one-quarter of the estimated taxes for the current year. If these are not sufficient to cover the current year taxes, interest on deficient instalments will be payable.
MARCH 31: T1-OVP Reporting of Penalty On Tax RRSP Excess Contributions. For each month in which, at the end of the month, there is an excess amount in the taxpayer’s RRSP (i.e. more than $2,000 more than the taxpayer’s available contribution room for the year), a penalty tax of 1% of the excess amount is payable. Complete Form T1-OVP and pay the excess within 90 days of the end of the year in which there are unused contributions.
Check in with a DFA-Tax Services Specialist before the deadlines arrive if you are unsure about your filing rights or obligations.