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Claiming a deduction for 2016 child care expenses (March 2017)

Costs incurred for child care expenses are among the most frequent deductions claimed by Canadian taxpayers on their annual tax returns. And, for many Canadian families, especially those with more than one child, or those who live in large urban centres, the cost of child care can consume a significant percentage of their annual budget.

For all families who incur child care expenses, the good news is that most such costs can be claimed as a deduction (as opposed to a refundable or non-refundable credit) on the annual return, meaning that those costs reduce taxable income on a dollar-for-dollar basis. The tax treatment of expenses related to child care can, however, vary, depending on the kinds of expenses incurred and their purpose.

The basic rule is that child care expenses will be deductible when they are incurred in to order to allow a parent to earn income from either employment or self-employment, or to attend school. However, while those criteria for claiming the expense are broad, there are limitations on the amounts which may be claimed, no matter how large the actual expenditure.

For 2016, those dollar figure limitations are as follows:

  • up to $8,000 in child care expenses incurred for a child or children who are 6 years of age or under at the end of 2016; and
  • up to $5,000 in child care expenses incurred for a child or children who are between 7 and 16 years of age at the end of 2016.

Where a child is disabled, higher limits apply, and up to $10,000 in child care expenses can be claimed for 2016.

The total amount claimed for child care expenses, regardless of the age of the children or the number of children for whom such claims are made, is also subject to an overall limit of two-thirds of the income for the year of the parent making the claim. As well, in a two-parent family, any claim for child care expenses must generally be made by the spouse with the lower net income.

While amounts paid for day care or after-school care comprise the majority of child care expenses incurred by families, those aren’t the only costs. Where family finances allow, children may attend an overnight summer camp or a sports school, and a portion of the costs incurred for such camps may also be claimed as child care expenses. As is the case with the basic child care expense claim, there are limitations on the amounts which can be claimed and deducted, as follows:

  • up to $200 per week in such costs incurred for a child or children who were 6 years of age or under at the end of 2016; and
  • up to $125 per week in such costs incurred for a child or children who are between 7 and 16 years of age at the end of 2016.

And, as with the basic child care expense deduction, higher limits apply in the case of a disabled child, for whom up to $275 per week in such costs may be claimed.

There is a third category of expenses which many families incur for children, and those expenses are subject to different tax treatment. That category includes costs incurred to enroll children in extracurricular athletic or arts-focused activities.

While other child care costs are deductible from income, costs incurred for extracurricular activities are eligible for a non-refundable tax credit. Essentially, the federal income tax payable for the year by the parent who claims the credit is reduced by 15% of the amount paid to enroll a child or children in those activities.

Once again, there is a limit on the amount of eligible costs for which a credit can be claimed, and those limits have been reduced for 2016. The 2016 limits are as follows:

  • where a child is engaged in athletic or sports activities, a parent can claim a non-refundable credit on up to $500 of costs incurred for such activities;
  • where a child is enrolled in arts or cultural-related activities, a parent can claim a non-refundable credit on up to $250 of costs incurred for such activities.

It’s readily apparent that costs which are eligible for either of these credits could also qualify, in the right circumstances, for the child care expense deduction. The rule in such circumstances is that where an amount would qualify for both, such amount must first be claimed as a child care expense, with a tax credit then claimable on any unused remainder.

The number and variety of extracurricular activities available for children is, of course, enormous, and so the Canada Revenue Agency (CRA) has prescribed rules which apply to determine whether a particular activity qualifies for either of these credits. Information on those rules, and on the credit generally, can be found on the CRA website at www.cra-arc.gc.ca/fitness/ and www.cra-arc.gc.ca/artscredit/.

A deduction for child care expenses is claimed on line 214 of the annual tax return, but details of child care expenses incurred, and the computation of the available deduction, is done on Form T778, and that form also includes a useful summary of the applicable rules. The T778 is not included in the General Income Tax Return and Guide Package, but is available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t778/README.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
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Authorizing a representative to deal with the CRA (March 2017)

It’s not news that the Canadian tax system is complex and that most Canadians, especially those who only encounter it once a year at tax-filing time, would rather not have to deal with that complexity. Consequently, over the next couple of months, it’s likely that more than 16 million Canadian taxpayers will seek out the services of professional tax return preparers and tax discounters, in order to get their 2016 returns completed and EFILED on time.

Of course, information about anyone’s tax affairs is confidential and is protected, by law, from disclosure to any third party – even to a spouse, parent or child of the taxpayer. Consequently, any taxpayer who wants someone else to deal with the Canada Revenue Agency (CRA) on their behalf – whether it’s a family member, a friend, or a commercial tax return preparation service or tax discounter – must provide the Agency with permission to provide such access. And, although taxpayers are not required to provide such permission in order to have a third party prepare and EFILE their tax return, it’s not unusual for tax return preparers or tax discounters to ask their clients for such an authorization. In many cases, having that authorization will give the tax return preparer access to information – like the amount of available carryforward amounts of tuition or education credits, or the amount of RRSP contribution room – which is needed to complete the return.

That said, the vast majority of taxpayers who are asked to sign a form granting such permission to the person or firm preparing their tax return will likely do so without hesitation, and in most cases without reviewing that form carefully. That’s not the best approach, as a decision to grant anyone access to one’s confidential tax information is a significant step, and the consequences can be more far-reaching than might be apparent at first glance.

The CRA provides a prescribed form – the T1013(E), Authorizing or Cancelling a Representative (available on the CRA website at www.cra-arc.gc.ca/E/pbg/tf/t1013/README.hml), which can be used by anyone to name any other person or company as their representative. It is also possible, for those who are already registered for the CRA’s My Account service, to authorize a representative online.

No matter how the authorization is given, the first question for the taxpayer who is granting authorization is to consider the purpose for which such authorization is being provided.

The CRA’s T1013(E) form provides for two levels of access to an individual’s tax accounts and tax information. Broadly speaking the first, Level 1, provides the named representative with the right to receive information, while the higher Level 2 access enables that representative to make changes to the individual’s tax accounts.

The specific rights granted to a representative at each level are as follows.

Where a representative has been provided by the taxpayer with Level 1 access, the CRA can disclose information about the following to that representative:

  • information included on the taxpayer’s income tax return;
  • adjustments made to the taxpayer’s income tax return;
  • information about the taxpayer’s registered retirement savings plan (RRSP), Home Buyers’ Plan, Tax-Free Savings Account (TFSA), and Lifelong Learning Plan (LLP);
  • accounting information with respect to the taxpayer’s tax account, including balances, payments on filing, and instalment payments or transfers;
  • information about the taxpayer’s benefits and credits, including the Canada child benefit (CCB), goods and services/harmonized sales tax (GST/HST) tax credit, and the working income tax benefit (WITB); and
  • the taxpayer’s marital status (but not information related to the taxpayer’s spouse or common-law partner).

A representative who has been provided by the taxpayer with Level 2 access has all the powers of a Level 1 as well as the right to request adjustments to the taxpayer’s income, deductions, and non-refundable credits, and to effect accounting transfers. A Level 2 representative is also able to obtain personalized tax remittance forms in the taxpayer’s name, submit a request for relief from interest or penalty charges under the Taxpayer Relief Program, and to file a Notice of Objection from an assessment or a Notice of Appeal from a decision of the Minister.

There are some actions which cannot be taken by either a Level 1 or a Level 2 representative who has been authorized to act under a Form T1013(E). Such representatives are not allowed to change the taxpayer’s address, marital status, or direct deposit information, to authorize, view, or cancel other representatives on the taxpayer’s file, to get information about the children who are in the taxpayer’s care, or to apply for child benefits.

Where another person is engaged in preparing a taxpayer’s return or otherwise dealing with tax matters on their behalf, it can obviously be useful for that person to be able to obtain relevant tax-related information about that taxpayer. Taxpayers who are contemplating providing authorization to another person or company should, however, consider the following potential issues and potential pitfalls when deciding how much access to grant and, consequently, how to complete the T1013(E).

First, it’s possible to deal with the CRA through a number of avenues – by telephone, in writing, in person, and online. A taxpayer who is authorizing a representative has to decide, specifically, whether to grant that representative the ability to deal with his or her tax affairs online (through the CRA website) or to limit that access to contacts with the CRA by telephone, in writing, or in person. It is an important decision for this reason. Where the taxpayer completes Part II, Section B of the T1013(E), he or she is granting the representative access only by telephone, writing, or in-person (and not including online access), and the taxpayer can, on the same form, specify the tax years for which access is being authorized, and the level of authorization (Level 1 or 2) being granted for each year. Where, however, the taxpayer completes Part II, Section A, he or she is also providing his or her representative with online access through the CRA website, and such access must be provided for all taxation years, without limit, although the taxpayer can still specify whether such access is at Level 1 or 2.

Second, where a taxpayer engages the services of a tax return preparation service or a tax discounter, it is frequently the case that the business itself, rather than an individual, is named as the taxpayer’s representative on the T1013. Taxpayers should be aware, however, that where a business is named as the representative, everyone employed by that business will, as a result, have access to the taxpayer’s confidential tax information. If the taxpayer wants to limit such access solely to the person with whom they are dealing in relation to their tax return preparation or other tax matter, it is necessary to specify, on the T1013, the name of both the business and the specific individual for whom such authorization is being provided.

Third, when a taxpayer signs a T1013(E) appointing a representative, that T1013(E) does not expire, unless the taxpayer specifies a termination date, or subsequently cancels the appointment, or the CRA is notified of the taxpayer’s death. Taxpayers who have been asked to sign an authorization when engaging a tax return preparation firm or a tax discounter often assume that such authorization will be in effect only until the return is done. Unless a termination date is specified in the authorization, that is not the case.  A representative named in a T1013(E) in which no termination date is specified will have the continuing right to obtain information from the CRA about that taxpayer, even after the taxpayer has finished his or her dealings with the representative. (The CRA does provide a measure of protection for the taxpayer by cancelling inactive authorized representatives after a period of two years.) The good news is that cancelling the representative’s authorization can be done quite easily over the phone. The taxpayer need only call the CRA’s Individual Income Tax Enquiries Line. In order to satisfy the CRA’s information security requirements, the taxpayer will be asked to provide identifying information – at a minimum, his or her name, social insurance number, address, and data from a recently filed tax return. The T1013(E) authorization can then be cancelled.

It’s readily apparent that naming someone as your representative with the CRA, even at the lowest level of authorization for a limited period of time gives that person access to an enormous amount of personal tax and financial information. Taxpayers should be aware, when providing an authorization, exactly what they are agreeing to and for what length of time. When it is determined that providing such access is necessary, careful consideration should be given to the level of access the representative will need, the tax year or years for which such access is required and, possibly most important, providing a date on which that authorization will expire.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
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Filing your tax return for 2016 (March 2017)

The time is fast approaching when the annual chore of gathering together the various pieces of information needed to complete one’s annual tax return, and getting that return completed and filed can’t be delayed any longer. For those wishing to put that chore off as long as possible, there is one (very small) bit of good news. Individual Canadians (other than the self-employed and their spouses) are required to file the annual return by April 30 of the following year, and to pay any tax amount owed by the same deadline. This year, since April 30 falls on a Sunday, the Canada Revenue Agency (CRA) has extended that filing and payment deadline to the following day, Monday May 1, 2017. Self-employed taxpayers have until Thursday June 15, 2017 to file their returns for 2016, but they too must pay any outstanding tax amounts owed for that year by Monday May 1, 2017.

Aside from that administrative concession, there aren’t a lot of changes this year to the process of completing and filing the annual return. If the trend of the past several years continues, as it likely will, the vast majority of taxpayers will file their returns electronically, either by paying someone else to prepare and file the return, or by doing it themselves through the CRA website.

The CRA has for several years been encouraging taxpayers to move away from paper-filing of returns to online filing, and those efforts have been overwhelmingly successful. Last year, 84% of returns filed were filed online, while only 16% of taxpayers continued to paper-file.

Taxpayers who want to paper-file their returns have found it more difficult in recent years, as the CRA has discontinued its practice of mailing personalized returns to Canadians who had used the paper-filing option in the past. However, it is still possible to obtain and use a paper return. Tax return forms and guides (including a return envelope for mailing) are available from Service Canada offices and post offices across the country. If those sources run out of return packages (as has happened in previous years), taxpayers can have a return package mailed to them, by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281 and making a request. As well, a printable version of the return can be found on the CRA’s website at www.cra-arc.gc.ca/formspubs/t1gnrl/menu-eng.html.

The majority of taxpayers who choose to file online have two options – NETFILE and E-FILE. The first of those – NETFILE – involves preparing one’s return using software approved by the CRA and filing that return on the Agency’s website, using the NETFILE service. The second method – E-FILE – involves having a third party file one’s return online, and the group of service providers which are authorized by the CRA to E-FILE individual income tax returns include both tax return preparation services and tax discounters.

It seems that most Canadians prefer to have someone else prepare and file their tax returns. Last year, 56% of individual income tax returns filed came in by E-FILE, while exactly half that number, or 28% of returns were filed using NETFILE, and the balance of 16% were paper-filed. (A fourth option – TELEFILE – which allowed Canadians to file using a touch-tone phone was discontinued by the CRA several years ago and is no longer available.)

The majority of Canadians who would rather have someone else deal with the intricacies of the Canadian tax system on their behalf can find information about E-FILE on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/fl-nd/menu-eng.html. That site will also provide a listing (searchable by postal code) of authorized E-FILE service providers across Canada.

Those who are more comfortable preparing their own tax returns and filing online can use the CRA’s NETFILE service, and information on that service can be found at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be NETFILED (for instance, a return for a taxpayer who died in 2016), the vast majority of Canadians who wish to do so will be able to NETFILE their return. As well, while it was once necessary to obtain an access code in order to NETFILE, that is no longer the case. The CRA’s NETFILE security procedures can be satisfied by providing specific personal identifying information, including social insurance number and date of birth.

NETFILE can only be used where a return is prepared using tax return preparation software which has been approved by the CRA. While such software can be found for sale just about everywhere this time of year, approved software which can be used free of charge is also available. A listing of both free and commercial software approved for use in preparing individual returns for 2016 can be found on the CRA website at www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/crtfdsftwr/menu-eng.html.

Finally, taxpayers who are not comfortable preparing their own returns, but for whom the cost of engaging a third party to do so is a financial hardship have another option. During tax filing season, the CRA runs a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers. A listing of such clinics (which is regularly updated during tax filing season) can be found on the CRA website at www.cra-arc.gc.ca/tx/ndvdls/vlntr/clncs/menu-eng.html.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
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What’s new on the 2016 tax return? (March 2017)

Although individual Canadians file the same T1 Income Tax Return form each year, the rules governing the information to be provided on that return form and the tax consequences flowing from that information is in a constant state of change. And, it’s a safe bet that very few taxpayers read the annual Income Tax Guide carefully to find out what’s changed on this year’s return.

As a result, it’s easy for a situation to arise in which taxpayers to fail to report income received, or in which they miss out on newly available deductions or credits, both due to a lack of knowledge. And, it’s worth noting that while the Canada Revenue Agency (CRA) will almost certainly pick up on a taxpayer’s failure to report income as required, the CRA does not (and, in fact, cannot) provide the taxpayer with deductions or tax credits to which he or she is entitled, but has failed to claim on the return.

There were a significant number of tax changes which took effect during the 2016 tax year which affected individuals, and which are reflected on the 2016 return to be filed this spring. Some of the more important of those changes are outlined below.

Changes to child and family benefits

As of July 1, 2016, the child and family benefits paid to Canadian families underwent a significant change. Prior to July 1, the federal child and family benefit program consisted of the Canada Child Tax Benefit (which was not taxable), the National Child Benefit Supplement (which was not taxable) and the Universal Child Care Benefit (which was taxable). All of those benefits were replaced, effective July 1, with the Canada Child Benefit, which is not taxable.

What all of that means from the perspective of a family which received child and family benefits from the federal government during 2016 is that the only amount which must be reported on a return for 2016 (generally, on the return of the parent with the lower net income) is any Universal Child Care Benefit which was received between January and June 2016. Any and all other child and family benefits received during the year are not taxable and so do not need to be included in income on the return for 2016.  

Changes to children’s fitness and arts credits

For several years, parents have been able to claim a non-refundable tax credit to help offset the cost of enrolling their children in fitness or arts-related activities.

Those credits may still be claimed on the return for 2016, but they have been reduced. For 2016, the maximum eligible fees per child for purposes of the children’s fitness tax credit has been reduced to $500. Eligible fees per child for purposes of the children’s arts credit have been reduced even further, to $250.

Looking ahead, it’s worth noting that both credits have been entirely eliminated as of 2017, so parents should not plan on claiming either credit when they file their returns for the current taxation year in the spring of 2018.

Elimination of Family Tax Cut

In 2014 and 2015, families with children under age 18 were able to engage in income splitting, through the notional reallocation of income from a higher earning spouse to the spouse with the lower income. That strategy, known as the “Family Tax Cut”, generally allowed up to $50,000 in taxable income to be notionally reallocated to the lower earning spouse, and taxed (at a lower rate) in his or her hands. The maximum tax savings which could be claimed was $2,000.

However, taxpayers who search the 2016 return form for a place to claim the Family Tax Cut won’t find it, as it has been eliminated for 2016 and subsequent taxation years. 

New home accessibility expense tax credit claim

Beginning with the 2016 taxation year, taxpayers can claim a non-refundable tax credit for changes made to a home in order to make it safer or more accessible for a senior or for someone who is disabled. The credit is equal to 15% of qualifying costs incurred, to a maximum of $10,000 in such costs.

The home accessibility tax credit is claimable, not just by the person for whom the qualifying renovations are made but, generally, by family members who support that individual.

In order to be claimed on the return for 2016, any eligible renovations must of course have been done before the end of that year, so the deadline for making such renovations claimable on the 2016 has passed. However, as many common home “renovation” projects do qualify for the credit (for example, installing a grab bar in a bath or shower), it’s worth checking to see whether any such expenditures were made during 2016.

And, of course, such qualifying expenditures made during 2017 will be claimable on the return next spring. More information on the kinds of home renovation expenses that will or won’t qualify for the credit is available on the Canada Revenue Agency website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns360-390/398/398-eng.html#R_lgbl_HATC.

Reporting the sale of a principal residence

For many years, Canadian taxpayers have received a tax exemption (the “principal residence exemption”) on any profit (or “gain”) they make on the sale their home, as such amounts are not included in taxable income. Until now, it hasn’t even been necessary to report the sale of one’s home on the annual tax return. As of the 2016 tax year, that has changed.

An individual taxpayer who sells his or her home must now report the sale on Schedule 3 to the annual return. On that Schedule 3, the taxpayer is required to certify the year the property was acquired, the number of years during which the property was his or her principal residence during the period of ownership and the amount for which the property was sold.

There is a related change with respect to the CRA’s ability to enforce the new reporting requirement. Also effective as of 2016, the Agency can at any time (meaning that the usual time limits for reassessments don’t apply) reassess your income tax return if you fail to report a sale of real estate.

Claiming a labour-sponsored funds tax credit

Taxpayers who invest in the shares of federally or provincially (or territorially) registered labour-sponsored venture capital corporations (LSVCCs) can claim a federal tax credit for that investment. Changes have been made, effective for the 2016 tax year, to the percentage claims which can be made.

For 2016 and subsequent years, the federal credit rate percentage for investments in provincially or territorially registered LSVCCs has been restored to 15%.

Conversely, the federal tax credit for the purchase of shares of federally registered LSVCCs has decreased to 5% for 2016. As well, 2016 is the last year for which a credit can be claimed for investments in federally registered LSVCCs, as the federal credit is eliminated for 2017 and later tax years.


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
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New Quarterly Newsletters (February 2017)

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues. They can be accessed below.

Corporate:

Issue #39 Corporate

Personal:

Issue #39 Personal


The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
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