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!


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.