Most Canadians deal with our tax system only once a year, when it’s time to complete and file the annual tax return. That return form – the T1 Individual Income Tax Return – is eight single-spaced pages long, and includes dozens of possible income inclusions, deductions, and credits, any one of which may or may not be relevant to a particular taxpayer’s situation. In addition, the tax return package includes numerous additional schedules, and one or more of those schedules must often be completed in order to make a claim for a particular deduction or credit on the T1 return itself.

Most Canadians deal with our tax system only once a year, when it’s time to complete and file the annual tax return. That return form – the T1 Individual Income Tax Return – is eight single-spaced pages long, and includes dozens of possible income inclusions, deductions, and credits, any one of which may or may not be relevant to a particular taxpayer’s situation. In addition, the tax return package includes numerous additional schedules, and one or more of those schedules must often be completed in order to make a claim for a particular deduction or credit on the T1 return itself.

All of this detail makes it easy for the majority of individuals to overlook valuable deduction and credit claims which may be available to them. And, while the Canada Revenue Agency (CRA) will correct minor arithmetical errors made on the return, it does not (and cannot) assess the taxpayer to include claims for deductions or credits which could have been made but were not.

One such often-overlooked claim is the one which can be made for payments made during the taxation year for annual union, professional, or similar dues. It’s a particularly beneficial claim since the expenditure in question is one which the taxpayer is obliged to make in any event and, where the requisite criteria are satisfied, the amount of such payment is fully deductible from income, without limit. Put another way, the income which was earned and used to pay annual union or professional dues is, where the related deduction is claimed, income on which no tax must be paid.

The deduction claimable for union and professional dues is particularly easy to overlook because of where it appears on the annual return. Although there are forms used by professionals and other self-employed taxpayers to claim business-related costs, as well as forms used by employees to claim allowable employment expenses, the deduction for union or professional dues doesn’t appear on either of those forms. Rather, it shows up as a single line (Line 21200) on page 4 of the T1 annual return.

The general rule for claiming such a deduction is described in the annual income tax return guide as follows:

Line 21200 – Annual union, professional, or like dues

Claim the total of the following amounts that you paid (or that were paid for you and reported as income) in the year related to your employment:

  - annual dues for membership in a trade union or an association of public servants
  - professional board dues required under provincial or territorial law
  - professional or malpractice liability insurance premiums or professional membership        dues required to keep a professional status recognized by law
  - parity or advisory committee (or similar body) dues required under provincial or     territorial law

There are, of course, requirements which must be satisfied in order for such payments to qualify for a deduction. The most important such restriction is that amounts paid must be those which are necessary in order for the taxpayer to obtain or maintain their professional standing. Every profession and trade has licensing and similar requirements which mandate that an individual maintain membership in a professional or similar association in order to practice their profession or trade. The costs of maintaining required membership in those organizations is deductible. Most professions and trades also have one or more voluntary associations which individuals may join by choice. However, the cost of maintaining membership in those voluntary associations, even if related to one’s trade or profession, is not deductible. So, for example, if membership in a given association does not affect professional status (e.g., the Canadian Bar Association for lawyers), dues or fees paid to it are not deductible. If, on the other hand, membership is necessary to maintain professional status (e.g., the Law Society of the province in which the individual lives and practices law), required dues paid to it are deductible.

While all such associations levy fees as a requirement of continuing membership and the right to practice the profession, invoices received for annual membership fees can cover a number of different charges and levies, and not all of those costs will be deductible. The CRA’s policy is that annual membership dues do not include initiation fees, licences, special assessments, or charges for anything other than the organization’s ordinary operating costs. An individual cannot, for instance, claim charges for pension plans as membership dues, even if receipts received show them as dues.

Where a claim for a deduction for professional membership or union dues is made, some other considerations arise. Generally, while it’s not necessary that having a particular professional designation be a requirement of the employee’s position in order for that employee to claim a deduction for related professional dues, the CRA does require that there be some connection between the employment and the professional association in question.

Take, for example, a chemical engineer who is employed by a company to sell chemical products or who is the president of a company that processes chemicals. There is sufficient connection between that person’s qualification as a chemical engineer and their employment duties that a deduction would be claimable for the cost of professional dues paid. On the other hand, a lawyer who is working full-time as the CEO of a furniture manufacturing and sales business does not satisfy the requirement and, accordingly, would not be entitled to deduct dues paid to maintain their professional status as a lawyer. 

It’s not uncommon for an employer to be willing to cover the cost of an employee’s professional dues as part of that employee’s benefit package. Where that is the case, and the employer’s payment of those dues does not appear on the employee’s T4 as a taxable benefit, no deduction for those costs can be claimed by the employee. Where, however, there is a taxable benefit which accrues to the employee (and that benefit is documented on a T4A and must be reported as part of the employee’s employment income), the employee can claim an offsetting deduction for eligible dues or fees paid on Line 21200 of the return.

General information on the deduction of professional membership fees or union dues is available in the 2022 General Income Tax and Benefit Guide. The same information can be found on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/212/menu-eng.html.

For many years, the Canada Revenue Agency (CRA) has been encouraging Canadian taxpayers to file their returns online, through the CRA’s website. And that message has clearly been heard, as the most recent statistics show that just under 92% of returns filed in 2022 were filed using one or the other of the CRA’s web-based filing methods. Those filing statistics also show that, even with the availability of tax software which greatly simplifies tax return preparation, most Canadians still don’t want to undertake that return preparation on their own. Of all returns filed, by any method, nearly 60% were filed using EFILE – meaning that the taxpayer paid someone else to prepare their return and file it electronically.

For many years, the Canada Revenue Agency (CRA) has been encouraging Canadian taxpayers to file their returns online, through the CRA’s website. And that message has clearly been heard, as the most recent statistics show that just under 92% of returns filed in 2022 were filed using one or the other of the CRA’s web-based filing methods. Those filing statistics also show that, even with the availability of tax software which greatly simplifies tax return preparation, most Canadians still don’t want to undertake that return preparation on their own. Of all returns filed, by any method, nearly 60% were filed using EFILE – meaning that the taxpayer paid someone else to prepare their return and file it electronically.

Notwithstanding the fact that the vast preponderance of returns are filed electronically, there are still other filing methods which are available and are used by taxpayers in substantial numbers. Last year, just over 2.6 million taxpayers filed a paper return, and a much smaller number (just under 53,000) filed a return over the phone.

Clearly, electronic filing is the overwhelming choice of Canadian taxpayers, and one of the greatest advantages of electronic filing is the speed at which returns filed by one of the CRA’s online methods can be processed. Generally, such returns are processed and a Notice of Assessment issued within two weeks (as compared to the anticipated eight-week processing time for paper-filed returns). Given that the majority of returns result in the payment of a refund, and that the average refund amount in 2022 was $2,093, it’s not hard to see why the vast majority of taxpayers have embraced electronic filing.

This filing season, as in past years, those who choose electronic filing have two choices – NETFILE and EFILE. The first of those – NETFILE (used last year by just under 33% of tax filers) – 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 – EFILE – involves having a third party file one’s return online. Almost always, the EFILE service provider also prepares the return which they are filing.

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 EFILE on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/efile-individuals.html. This site also provides a listing (searchable by postal code) of authorized EFILE service providers across Canada, which can be found at https://apps.cra-arc.gc.ca/ebci/efes/epcs/prot/ntr.action.

Those who are able and willing to prepare their own tax returns and file online can use the CRA’s NETFILE service (which is available as of February 20, 2023); information on this service can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be filed using NETFILE (for instance, a return for a non-resident of Canada, or for someone who declared bankruptcy in 2022), the vast majority of Canadians who wish to do so will be able to NETFILE their return.

At one time, it was necessary to obtain and provide an access code in order to NETFILE. While such a code is no longer a requirement, the CRA has provided tax filers with a taxpayer-specific code which can be included with the return for 2022. That eight-character alpha-numeric code is found (in very small type) in the top right hand corner of the first page of the 2021 Notice of Assessment, just under the Date Issued line for that Notice of Assessment. Including the code with your return is not mandatory:  however, you will be able to use information from the 2022 return when confirming your identity with the CRA only if the code was provided on that return.

A return can be filed using NETFILE only where it 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 at this time of year, approved software which can be used free of charge, or for a nominal charge, is also available. A listing of free and commercial software approved for use in preparing individual returns for 2022 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview/certified-software-netfile-program.html.

Taxpayers who want to obtain a hard copy of the tax return and guide package for 2022 can order that package online at https://apps.cra-arc.gc.ca/ebci/cjcf/fpos-scfp/pub/rdr?searchKey=ncp%20, to be sent to the taxpayer by regular mail. Taxpayers can also download and print a hard copy of the return and guide from the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html. Finally, the CRA will have sent, by regular mail, a hard copy of the 2022 tax return and guide package to anyone who paper-filed a return for 2021. That package should have arrived by February 20, 2023; taxpayers who should have received such a package but did not can call the CRA Individual Income Tax Enquiries line at 1 800 959 8281 to follow up and, if necessary, to request that a package be sent by mail.

A minority of taxpayers will have the option of filing their returns using a touch-tone telephone. That option, called File my Return service, will be available to eligible lower-income Canadians whose returns are relatively simple and whose tax situation remains relatively unchanged from year to year. For such taxpayers, it is important to file, even if there is no income to report, so that they receive the benefits and credits to which they are entitled. The telephone filing option is, however, available only to taxpayers who are advised by the CRA of their eligibility for the File my Return service; letters advising those individuals of their eligibility were sent out by the CRA in mid-February 2023. Like NETFILE, the File my Return service was available for the filing of 2022 tax returns beginning Monday February 20, 2023.

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, there are a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers.  Once again this year, the services of such clinics are provided through a number of options, including drop-ins, in-person appointments, and telephone or virtual meetings.  A listing of the available clinics (which is updated regularly throughout the filing season) and their method of operation this tax season can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/free-tax-help.html.

While there are a number of return preparation and filing options available to Canadian taxpayers, there’s no element of choice when it comes to the filing and payment deadlines for tax returns for 2022. The deadline for payment of any balance of taxes owed for 2022 is April 30, 2023. As April 30 falls on a Sunday this year, the CRA has announced that payments of 2022 taxes owed will be considered to have been made on time if they are made on or before Monday May 1, 2023. There are no exceptions to this deadline and, absent very unusual circumstances, no extensions are possible. Not surprisingly, the CRA makes it as easy as possible for Canadians to pay their taxes, offering no fewer than a dozen possible payment methods. Those methods are listed, and the available methods of payment explained, on the CRA website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/make-payment.html.

For the majority of Canadians, the income tax return for 2022 must also be filed on or before April 30. Here again, the CRA has, as a matter of administrative policy, extended that deadline to provide that returns will be considered filed on time if they are filed on or before Monday May 1, 2023. Self-employed taxpayers and their spouses have until Thursday June 15, 2023 to file their returns for 2022 (but they too must pay any balance of 2022 taxes owing on or before May 1, 2023).

The obligation to complete and file a tax return – and to pay any balance of taxes owed – recurs each spring with what probably seems to many taxpayers to be annoying regularity. That said, however, the T1 General tax return form which must be completed and filed each year by individual Canadian taxpayers is never exactly the same from one year to the next.

The obligation to complete and file a tax return – and to pay any balance of taxes owed – recurs each spring with what probably seems to many taxpayers to be annoying regularity. That said, however, the T1 General tax return form which must be completed and filed each year by individual Canadian taxpayers is never exactly the same from one year to the next.

Some of the changes found in each year’s T1 are the result of the indexing of many aspects of our tax system, as income brackets and tax credit amounts are increased to reflect the rate of inflation during the previous year. Other changes, however, arise from the introduction by the federal government of new deductions or credits, changes to the existing rules which govern the availability and amount of such deductions or credits, and, inevitably, the end of some tax credit programs.

This year, most of the changes to be found on the return for 2022 are of a targeted nature, affecting taxpayers who claim specific types of deductions or credits based on their personal or family circumstances. What follows is a summary of those changes which taxpayers will find on the return for 2022, as outlined by the Canada Revenue Agency (CRA) in its Guide to the 2022 return form.

First Time Home Buyer’s Tax Credit

The purchase of one’s first home is a milestone in anyone’s life, but also likely (especially in recent years) one of the most difficult milestones to accomplish. Assistance in that process is provided through the federal government’s First Time Home Buyers’ Tax Credit (FTHBTC).

As the name implies, the FTHBTC is a tax credit available to first-time home buyers in Canada. The “first-time home buyer” criterion is, however, somewhat misleading, in that the credit can be claimed by anyone who did not own a home in Canada during the current year or any of the previous four years. For 2022, then, anyone who was not a homeowner during 2018, 2019, 2020, 2021, or 2022, but then purchased a home in 2022, may qualify as a first-time home buyer for purposes of the credit.

Those who qualify and who purchase a qualifying home (which includes most kinds of housing in Canada, including detached, semi-detached, and condominium properties) could, for 2021 and previous tax years, claim a non-refundable tax credit of $750. For 2022 and subsequent years, the amount of that tax credit is doubled, to $1,500.

The non-refundable nature of the credit means that it can only be used to reduce federal tax otherwise payable, and cannot create or increase a tax refund. However, where a home has been purchased by two spouses, the total credit claim can be split, in any proportion, between the two of them.

Detailed information on the First Time Home Buyers’ Tax Credit for 2022 is available on the CRA website at  https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31270-home-buyers-amount.html.

Home Accessibility Tax Credit

Most Canadians want to “age in place” – that is, to remain in the family home for as long as possible. In many cases, as homeowners age, changes to the layout or facilities in their homes must be made for the home to continue to be both safe and convenient. That often means renovations, which can range in cost from hundreds to tens of thousands of dollars. Some of that cost can be offset by claiming the federal Home Accessibility Tax Credit (HATC), and the amount of expenditure eligible for that credit has doubled for 2022.

The criteria which determine the eligibility of a particular expense are extremely broad, as any “home renovation or alteration expenses of an enduring nature that allow a qualifying individual to gain access to, or to be mobile or functional within the eligible dwelling or reduce the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling” can qualify for the credit. And, for purposes of the credit, a qualifying individual is anyone who is over the age of 65 or who is eligible to claim the disability tax credit.

The range of expenses which qualify for the HATC can be anything from grab bars installed in a shower or bath, to a staircase chairlift or a full-scale renovation done to permit an individual to live on one floor of a dwelling. The HATC is particularly flexible in that it may be claimed by other family members who live in the same dwelling as the senior or disabled individual, where qualifying expenses are incurred for changes to that dwelling.

The actual amount of the HATC which can be claimed is 15% of qualifying expenses incurred. Prior to 2022, the maximum amount of expenses which could be claimed for purposes of the HATC in a particular calendar year was $10,000. For 2022 and subsequent years, that amount is doubled, to $20,000, meaning that the maximum credit which can be obtained is $3,000.

The HATC is a non-refundable credit (meaning that it can only reduce federal tax otherwise payable, and cannot create or increase a refund), but claims for the HATC in a year can be split among individuals who are eligible to claim the credit, in any proportions.

More information on the HATC for 2022 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31285-home-accessibility-expenses.html

Claims for the Disability Tax Credit

Canadians whose lives are significantly restricted by disability or ill health may be able to claim the Disability Tax Credit (DTC). The rules governing eligibility for the credit are detailed and sometimes complex and an individual must, in order to claim the credit, obtain certification from the CRA with respect to their eligibility. The credit is a significant one, in that a claim for the DTC will, for 2022, reduce federal tax payable by $1330.50.

One of the criteria which applies to determine whether an individual will be eligible for the DTC is the need to undergo what is termed “life-sustaining” therapy for a specified amount of time each week. A change to the tax rules provides that an individual who is diagnosed with type 1 diabetes is automatically considered to be someone who has met the requirement for “life-sustaining” therapy; such individuals could, therefore qualify for the DTC.

Taxpayers who may be affected by this change should note that obtaining authorization from the CRA to claim the DTC is lengthy process and that, without such authorization in place, any claim for the DTC on the annual return will be disallowed. It will not, therefore, be possible for a person with type 1 diabetes to claim the DTC on the return for 2022 unless they have already received authorization from the CRA as a person who qualifies for that credit. Such individuals would, however, be well advised to begin the process of receiving such authorization, so as to enable a claim for the DTC on the return for 2023 to be filed next spring. Detailed information on how to do so can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit.html.

Medical Expense Tax Credit

While our publicly-funded health care system covers many types of medical expenses incurred by Canadians, there is nonetheless a long (and growing) list of expenses which must be paid on an out-of-pocket basis. Where that’s the case, a medical expense tax credit (METC) can be claimed on the annual return to help offset the impact of medical expenses incurred, where such expenses are deemed to be eligible for that credit.

One of the most costly medical procedures which is not always covered by government health care plans is treatment for infertility and/or surrogacy arrangements. Beginning with the 2022 tax year, such expenses are considered to be qualified expenses for purpose of the medical expense tax credit. Or, as described by the CRA:

… the list of eligible medical expenses has been expanded to include amounts paid to fertility clinics and donor banks in Canada to obtain donor sperm or ova to enable the conception of a child by the individual, the individual’s spouse or common-law partner, or a surrogate mother on behalf of the individual. In addition, certain expenses incurred in Canada for a surrogate or donor are considered medical expenses of the individual.

Individuals who have incurred such expenses and intend to make a claim for the METC should remember that there is a limit on the amount of expenses which can be claimed. As is the case for all medical expenses claimed for purpose of the METC, any claim is limited to the amount of eligible expenses incurred which, for 2022, exceeds either 3% of the taxpayer’s net income for the year or $2,479, whichever is less.

Information on the types of expenses related to infertility treatment and surrogacy which may now be claimed as medical expenses can be found on the CRA website in an extensive listing of eligible medical expense, at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return/details-medical-expenses.html#frtlty.

As the pandemic dragged on into 2022, many employees continued to work from home for pandemic-related reasons. And probably at least as many employees reached an agreement with their employer that they would be able to continue to work from home for least some part of each work week, on a permanent basis. And, as was the case in 2020 and 2021, all of those workers may be entitled to claim a deduction on their 2022 tax return for expenses incurred to work from home.

As the pandemic dragged on into 2022, many employees continued to work from home for pandemic-related reasons. And probably at least as many employees reached an agreement with their employer that they would be able to continue to work from home for least some part of each work week, on a permanent basis. And, as was the case in 2020 and 2021, all of those workers may be entitled to claim a deduction on their 2022 tax return for expenses incurred to work from home.

Employees who work from home have always, assuming the requisite criteria are satisfied, been able to claim a portion of household expenses incurred. Doing so required the employee to obtain certification from the employer of the work-from-home arrangement, calculate household expenses incurred, determine the portion of such expenses which were attributable to the home office, and claim that amount on the annual return. Beginning in 2020, however, the Canada Revenue Agency (CRA), recognizing the greatly increased number of taxpayers who would be claiming home office expenses for the first time, relaxed the rules governing eligibility for claiming a deduction for home office expenses, and also introduced a new, temporary “flat rate” method of calculating the deduction for such expenses. The CRA has indicated that those more flexible rules, including the flat rate method, will continue to be allowed for the 2022 tax year.

Although the flat rate method is widely available, taxpayers who wish to do so and who qualify are still entitled to use the pre-existing detailed method under which actual eligible expenses incurred during the year are tallied and a percentage of those expenses claimed on the 2022 tax return. Given that the maximum deduction which can be claimed for the 2022 tax year using the flat rate method is just $500, taxpayers who worked from home for an extended period of time and who are willing to make the effort to retain and organize records for home office expenses, and to calculate the available deduction, will likely be rewarded with a better tax result.

Using the flat rate method

Although the flat rate method of claiming work from home expenses isn’t likely to produce the most beneficial tax result for the taxpayer, it has the undeniable advantage of greater simplicity.

In order to claim a deduction for costs related to a work-from-home space using the flat rate method, the following conditions must be met.

• The employee worked from home during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); and
• The employee worked from home for more than 50% of the time for a period of at least four consecutive weeks during 2022.

In addition, the expenses claimed by the employee must be directly related to their work, and the employee must not have been fully reimbursed for such expenses by their employer. Where the employer reimburses only a portion of such expenses, the employee may still make a claim under the flat rate method, assuming the other criteria are met.

A taxpayer who meets all of the criteria for using the flat rate method can claim $2 for each day they worked from home during the four-consecutive-week qualifying period. They can then claim $2 per day for any additional days of working from home during the year. However, there is an overall cap on the amount of home office expenses which can be claimed under the flat rate method. For 2022, the maximum which can be claimed is $500. There is no requirement that the employee obtain a T2200 or a T2200S from the employer in order to make a flat rate claim, and no requirement that the employee keep or provide receipts for any costs incurred.

Using the detailed method

In order to claim a deduction for costs related to a work-from-home space using the detailed method, an employee must have worked from home for at least 50% of the time, during at least four consecutive weeks during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home).

Where work-from-home costs are claimed using the detailed method, the taxpayer ‘s employer must provide a signed a Form T2200S – Declaration of Conditions of Employment for Working at Home Due to Covid-19 or Form T2200 – Declaration of Conditions of Employment, certifying the work from home arrangement and the fact that the employee paid the costs relating to such arrangement.

Where there is any kind of reimbursement provided by the employer, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received. Finally, the employee must keep all documents (invoices etc.) supporting their claim for work-from-home expenses. While those documents do not have to be filed with the return for 2022, the CRA has the right to ask for them in order to verify the claims by the taxpayer.

Once these threshold criteria are met, a broad range of costs becomes deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to their workspace, such as rent; utilities costs like electricity, heating, and water (or the portion of a condo fee attributable to such utilities costs); home maintenance and minor repair costs; and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses; the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines the percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the workspace is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work-from-home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html.

Planning ahead for 2023

Employees who are now working from home at least part of the time as a permanent working arrangement will, of course, be able to claim eligible home office expenses in 2023 and future tax years. The rules governing such claims will, however, change beginning in 2023, and employees who wish to make such a claim for 2023 should be aware of and planning for those changes now.

Essentially, the federal government has determined that, starting with the 2023 tax year, the more flexible rules which governed the deduction of expenses related to working from home (including the flat rate method) during 2020, 2021, and 2022 are no longer needed and therefore will no longer be available. Employees who wish to claim home office expenses for 2023 will need to qualify under the “traditional” rules which governed such expense claims prior to 2020.

Those rules require that the employee meet the following criteria in order to claim home office expenses:

• The employee was required by his or her employer to work from home during the year; and
• The work at home space is where the individual mainly (more than 50% of the time) did their work during the year; or
• The individual uses the workspace only to earn their employment income. They must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of their employment duties.

The employee must also obtain from their employer a completed and signed Form T2200 – Declaration of Conditions of Employment, certifying the work from home arrangement and the fact that the employee is responsible for paying the costs associated with such arrangement.

Employees who can qualify to claim a deduction under the rules for 2023 will need to retain the records needed to calculate such deduction using the detailed method (the only one available for 2023). At this point, all that’s required is to set aside things such as property tax and utility bills, receipts for purchases of office supplies, etc., to be used next spring when completing the return for 2023 and claiming a deduction for such expenses.  

While calculating the expenses which qualify for a home office expense deduction on the return for 2022 isn’t particularly complicated, the eligibility criteria for the deduction and determining the percentage of expenses eligible for that deduction can be detailed, especially as the range of work-from-home arrangements and work-from-home workspaces is almost limitless. The CRA has provided on its website a very helpful summary of both the general rules for claiming home office expenses for 2022, as well as guidance with respect to particular situations – for example, where two spouses share the same home office space. That information and guidance (including an FAQ document) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html.

Just about a year ago, in the 2022-23 budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase a first home. The most significant of those measures was the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

Just about a year ago, in the 2022-23 budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase a first home. The most significant of those measures was the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

The FHSA is available to eligible taxpayers starting in the current (2023) tax year. Due to the administrative requirements of putting the new FHSA in place, it will not actually be possible to open such a plan until April 1, 2023. Notwithstanding, Finance Canada has indicated that, for the 2023 tax year, full year contribution limits will apply, regardless of when a new plan is opened during the year.

Contributing to an FHSA

Under the program terms, any resident of Canada who is at least 18 years of age and who has not lived in a home which he or she owns in any of the current or four previous years can open an FHSA and contribute to that plan annually. Planholders will be able to contribute up to $8,000 per year to their plan, regardless of their income for that year. The $8,000 per year contribution must be made by the end of the calendar year, but planholders will be permitted to carry forward unused portions of their annual contribution limit, to a maximum of $8,000. For example, an individual who contributes $4,000 to an FHSA in 2023 would be allowed to contribute $12,000 in 2024 (representing $8,000 in contribution for 2024 plus $4,000 remaining from 2023). Regardless of the schedule on which contributions are made, there is a lifetime limit of $40,000 in contributions for each individual.

The real benefit of the FHSA program lies in the tax treatment of contributions. Individuals who contribute any amount in a year can deduct that amount from income, in the same manner as a registered retirement savings plan (RRSP) contribution. And, as with an RRSP, an individual is not required to claim a deduction for a contribution made during the year – he or she can make that contribution to an FHSA during a particular year, but wait to deduct that amount from income in a future year. When the planholder withdraws funds from the FHSA to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.

While funds are held within the FHSA, they can be held in cash, or can be invested in a broad range of investment vehicles. Specifically, such funds can be invested in mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs). Regardless of the investment vehicle chosen, interest, dividends, or any other type of investment income earned by those funds grows on a tax-free basis – that is, such investment income is not taxed as it is earned. 

Withdrawing funds from an FHSA

Given the generous tax treatment accorded contributions to a FHSA, there are inevitably some qualifications and restrictions placed on the use the plans. First, amounts withdrawn from a FHSA can be received tax free only if such withdrawals are “qualifying withdrawals”, meaning that the funds are used to make a qualifying home purchase. In order for a withdrawal to be a “qualifying withdrawal”, the planholder must have a written agreement to buy or build a home (which must be located in Canada) before October 1 of the next year. In addition, the planholder must intend to occupy that home within a year after buying or building it.

Amounts withdrawn from an FHSA and used for any other purpose are not qualifying withdrawals and the funds withdrawn are fully taxable in the year the withdrawal is made.

While Canadians who open an FHSA and make contributions to it are certainly hoping to be able to purchase a home, there are any number of reasons why their plans could change. Fortunately, the rules governing FHSAs provide planholders with a great deal of flexibility when it comes to the disposition of funds saved within an FHSA, in that  planholders can transfer all funds held within their FHSA to an RRSP or to a registered retirement income fund (RRIF) on a tax-free basis. Significantly, the amount which is transferred from an FHSA to an RRSP would not reduce or be limited by the individual’s RRSP contribution room. However, transfers made to an RRSP in these circumstances do not replenish FHSA contribution room – in other words, each eligible individual gets only one opportunity to save for the purchase of a first home using a FHSA. And, of course, any amounts transferred from an FHSA to an RRSP or RRIF will be taxable on withdrawal, in the same way as any other RRSP or RRIF withdrawal.

The ability to transfer funds between plans also works in the other direction. Individuals who have managed to accumulate funds within an RRSP will be allowed to transfer such funds to an FHSA (subject to the $8,000 annual and $40,000 lifetime contribution limits). While no deduction is permitted for funds transferred from an RRSP to an FHSA, that transfer does take place on a tax-free basis. Transfers made to an RRSP in these circumstances do not, however, replenish RRSP contribution room.

Closing an FHSA

Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. (Taxpayers must also close their FHSA by the end of the year in which they turn 71.)  While these rules do place some pressure on planholders with respect to the timing of their home purchase, there is some flexibility. Specifically, planholders who have not made a qualifying home purchase within the required 15-year time frame must then close the FHSA plan, but can still transfer funds held in the FHSA to their RRSP or RRIF, on a tax-free basis.

Finally, the FHSA program is complementary to the existing Home Buyers’ Plan (HBP). Under the HBP, an individual can withdraw up to $35,000 from his or her RRSP and use those funds for the purchase of a first home. Any such funds withdrawn must then be repaid to the RRSP over the next 15 years. The HBP will continue to be available to Canadians – however, an individual will not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.

The most recent information issued by Finance Canada with respect to the FHSA program can be found on its website at https://www.canada.ca/en/department-finance/news/2022/08/design-of-the-tax-free-first-home-savings-account.

For most taxpayers, the first few months of the year are a seemingly unending series of bills and payment deadlines. During January and February, many Canadians are still trying to pay off the bills from holiday spending. The first income tax instalment payment of 2023 is due on March 15 and the need to pay any tax balance for the 2022 tax year comes just six weeks after that, on May 1. Added to all of that, the deadline for making an RRSP contribution for 2022 falls on March 1, 2023.

For most taxpayers, the first few months of the year are a seemingly unending series of bills and payment deadlines. During January and February, many Canadians are still trying to pay off the bills from holiday spending. The first income tax instalment payment of 2023 is due on March 15 and the need to pay any tax balance for the 2022 tax year comes just six weeks after that, on May 1. Added to all of that, the deadline for making an RRSP contribution for 2022 falls on March 1, 2023.

The best advice on how to avoid a cash flow crunch, at least as it relates to the RRSP deadline, is to make RRSP contributions on a regular basis throughout the year. While that may be the preferred approach, it’s likely more a dream than a reality for most Canadians who have, over the past year, faced a cash flow crunch resulting from increased costs for everything from food to mortgage payments.

Notwithstanding that discouraging financial reality, Canadians who wish to deduct an RRSP contribution on their income tax return for 2022 are required to make that contribution on or before March 1, 2023. The maximum allowable current year contribution which can be made by any individual taxpayer for 2022 is 18% of that taxpayer’s earned income for the 2021 tax year, to a statutory maximum of $29,210.

Those are the basic rules governing RRSP contributions for the 2022 tax year. For most Canadians, however, those rules are just the starting point of the calculation, as millions of Canadian taxpayers have what is termed “additional contribution room” carried forward from previous taxation years. That additional contribution room arises because the taxpayer either did not make an RRSP contribution in each previous year or made one which was less than his or her maximum allowable contribution for the year. For many taxpayers that additional contribution room can amount to tens of thousands of dollars, and the taxpayer is entitled to use as much or as little of that additional contribution room as he or she wishes for the current tax year.

It’s apparent from the forgoing that determining one’s maximum allowable contribution for 2022 will take a bit of research. The first step in determining one’s total (current year and carryforward) contribution room for 2022 is to consult the last Notice of Assessment which was received from the Canada Revenue Agency (CRA). Every taxpayer who filed a return for the 2021 taxation year will have received a Notice of Assessment from the CRA, and the amount of that taxpayer’s allowable RRSP contribution room for 2022 will be summarized on page three of that Notice. Taxpayers who have discarded (or can’t find) their Notice of Assessment can obtain the same information by calling the CRA’s Telephone Information Phone Service (TIPS)  line at 1-800-267-6999. An automated service at that line will provide the required information, once the taxpayer has provided his or her social insurance number, month and year of birth and the amount of income from his or her 2021 tax return. Those who don’t wish to use an automated service can call the CRA’s Individual Income Tax Enquiries Line at 1-800-959 8281 and speak to a client services agent, who will also request such identifying information before providing any taxpayer-specific data. Finally, for those who have registered for the CRA’s My Account service, the needed information will be available online.

One question that doesn’t often get asked by taxpayers is whether it actually makes sense to make an RRSP contribution. The wisdom of making annual contributions to one’s RRSP has become an almost unquestioned tenet of tax and retirement planning, but there are situations in which other savings vehicles – particularly the Tax-Free Savings Account, or TFSA – may be the better short- or long-term option or even, in some cases, the only one available.

When it comes to making a contribution to one’s TFSA, the good news is the timelines and deadlines are much more flexible than those which govern RRSP contributions. A contribution to one’s TFSA can be made at any time of the year, and contributions not made during the current year can be carried forward and made in any subsequent year.

On the other hand, determining one’s total TFSA contribution room is significantly more complex than figuring out one’s allowable RRSP contribution amount, for two reasons. First, the maximum TFSA contribution amount has changed several times (increasing and decreasing) since the program was introduced in 2009. Second, and more important, individuals who withdraw funds from a TFSA can re-contribute those funds, but not until the year following the one in which the withdrawal is made. Especially where a taxpayer has several TFSA accounts, and/or a history of making contributions, withdrawals and re-contributions, it can be difficult to determine just where that taxpayer stands with respect to his or her current maximum allowable TFSA contribution amount.

In this case, there’s no help to be had from a Notice of Assessment, as the Canada Revenue Agency does not provide TFSA contribution information on that form. Information on one’s current year TFSA contribution limit can, however, be obtained from the CRA website, from the TIPS line at 1-800 267 6999 or its Individual Income Tax Enquiries line at 1-800-959 8281, as outlined above. It should be noted, however, that information on one’s current (i.e., 2023) TFSA contribution limit won’t be available through the TIPS line until mid-February 2023.

Determining which savings vehicle is the better option for a particular taxpayer will depend, for the most part, on the taxpayer’s current and future tax situation, the purpose for which the funds are being saved, and the taxpayer’s particular sources of retirement income.

Taxpayers who are saving toward a shorter-term goal, like next year’s vacation, should direct those savings into a TFSA. While choosing to save through an RRSP will provide a tax deduction on that year’s return and, possibly, a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP in a year or two. And, more significantly from a long-term point of view, repeatedly using an RRSP as a short-term savings vehicle will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn cannot be replaced. While the amounts involved may seem small, the loss of contribution room and the compounding of invested amounts over 25 or 30 years or more can make a significant dent in one’s ability to save for retirement.

Taxpayers who are saving toward the purchase of a first home will likely be better off contributing such savings to a First Home Savings Account (FHSA). While the FHSA is not available to taxpayers until the 2023 tax year (and so can’t create any tax savings for 2022) there are two benefits to waiting to open an FHSA and contributing to it in 2023. First, contributions to an FHSA are deductible from income in the same way as RRSP contributions. More significantly, however, amounts withdrawn from an FHSA for the purchase of a first home are received tax-free, resulting in a permanent tax savings that can’t be achieved through contributing to either an RRSP or a TFSA.

Taxpayers who are expecting their income to rise significantly within a few years – for example students in post-secondary or professional education or training programs – can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, allowing the funds to compound on a tax-free basis, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted from income which would be taxed at that higher tax rate. And, if a need for funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

Canadians aged 71 and older will find the RRSP vs. TFSA question irrelevant, as the last date on which taxpayers can make RRSP contributions is December 31 of the year in which they turn 71. Many of those taxpayers will, however, have converted their RRSP savings to a registered retirement income fund (RRIF) and anyone who has done so is required to withdraw (and be taxed on) a specified percentage of those RRIF funds every year. Particularly where required RRIF withdrawals exceed the RRIF holder’s current cash flow needs, that “excess” income can be contributed to a TFSA. Although the RRIF withdrawals made must still be included in income for the year and taxed as such, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn in the future from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.

RRSPs and TFSAs (together with the new FHSA) are the most significant tax-free or tax-deferred savings vehicles available to Canadian taxpayers, and each has a place in most financial and retirement plans. To help taxpayers to make informed choices about their savings options, the Canada Revenue Agency provides a number of dedicated webpages about both RRSPs and TFSAs which can be found on the CRA website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html and http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/menu-eng.html.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency. That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 15 of this year.

Sometime during the month of February, millions of Canadians will receive mail from the Canada Revenue Agency. That mail, a “Tax Instalment Reminder”, will set out the amount of instalment payments of income tax to be paid by the recipient taxpayer by March 15 and June 15 of this year.

Receiving an “Instalment Reminder” from the CRA won’t be a surprise for many recipients who have paid tax by instalments during previous tax years. For others, however, the need to make tax payments by instalment is a new and unfamiliar concept. That’s because for most Canadians – certainly most Canadians who earn their income through employment – the payment of income tax throughout the year is an automatic and largely invisible process, requiring no particular action on the part of the employee/taxpayer. Federal and provincial income taxes, along with Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, are deducted from each employee’s income and the amount deposited to an employee’s bank account is the net amount remaining after such taxes, contributions, and premiums are deducted and remitted on the employee’s behalf to the Canada Revenue Agency. While no one likes having to pay taxes, having those taxes paid “off the top” in such an automatic way is, relatively speaking, painless. Such is not, however, the case for the sizeable minority of Canadians who pay their income taxes by way of tax instalments

The CRA’s decision to send an Instalment Reminder to certain taxpayers isn’t an arbitrary one. Rather, an Instalment Reminder is generated when sufficient income tax has not been deducted from payments made to that taxpayer throughout the year. Put more technically, an Instalment Reminder will be issued by the CRA where the amount of tax which was or will be owed when filing the annual tax return is more than $3,000 in the current (2023) tax year and either of the two previous (2021 or 2022) tax years. Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income throughout the year is at least $3,000 less than their total tax owed for 2023 and either 2021 or 2022. For residents of Québec, that threshold amount is $1,800.

Such obligation arises on a regular basis for those who are self-employed, of course, and generally for those whose income is largely derived from investments. The group of recipients of a Tax Instalment Reminder often also includes retired Canadians, especially the newly retired, for two reasons. First, while most employees have income from only a single source – their paycheque – retirees often have multiple sources of income, including CPP and Old Age Security (OAS) payments, private retirement savings, and, sometimes, employer-provided pensions. And while income tax is deducted automatically from one’s paycheque, that’s not the case for most sources of retirement income. Relatively few new retirees realize that it’s necessary to make arrangements to have tax deducted “at source” from either their government source income (like CPP or OAS payments) or private retirement income like pensions or registered retirement income fund withdrawals, and to make sure that the total amount of those deductions is sufficient to pay the total tax bill for the year. It is that group of individuals who may be surprised and puzzled by the arrival of an unfamiliar “Instalment Reminder” from the CRA. However, no matter what kind of income a taxpayer has received, or why sufficient tax has not been deducted at source, the options open to a taxpayer who receives such an Instalment Reminder are the same.

First, the taxpayer can pay the amounts specified on the Instalment Reminder by the March and June payment due dates. Choosing this option will mean that the taxpayer will not face any interest or penalty charges, even if the amount paid by instalments throughout the year turns out to be less than the taxes actually payable for 2023. If the total of instalment payments made during 2023 turn out to be more than the taxpayer’s total tax liability for the year, he or she will of course receive a refund when the annual tax return is filed in the spring of 2024.

Second, the taxpayer can make instalment payments based on the amount of tax which was payable for the 2022 tax year (which will, of course, be known once the return for 2022 is completed). Where a taxpayer’s income has not changed significantly between 2022 and 2023 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2023 will be slightly less than it was in 2022, as the result of the indexation of both income tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2023 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease significantly from 2022 to 2023, such that his or her tax bill will also be substantially reduced, this option can make the most sense.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges if there is no additional tax payable when the return for the 2023 tax year is filed in the spring of 2024. However, should instalments paid have been late or insufficient, the CRA will impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2023 – until March 31, 2023 – is 8%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to levy penalties for overdue or insufficient instalments, but that is done only where the amount of instalment interest charged for the year is more than $1,000.

Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer’s best interests. Those who don’t wish to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the Reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required, and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above.

Detailed information on the instalment payment system for 2023, and the calculation and payment options available to taxpayers, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments.html.

2022 was a year of almost unrelenting bad financial news for Canadians, but perhaps no group was more affected by those changes than retirees who rely on income from unindexed pensions and from returns on invested savings. Most such retirees saw the value of their investments decline, as the S&P/TSX Composite Index dropped by over 8% during 2022. At the same time retirees had to cope with inflationary increases in the cost of most goods, including double digit percentage increases in the cost of food. Those who owned their own homes saw the value of those homes drop, on average, by 12% between December 2021 and December 2022. And, finally, retirees who carried debt were likely to be paying significantly more interest on that debt by the end of 2022 than they were at the beginning of the year.

2022 was a year of almost unrelenting bad financial news for Canadians, but perhaps no group was more affected by those changes than retirees who rely on income from unindexed pensions and from returns on invested savings. Most such retirees saw the value of their investments decline, as the S&P/TSX Composite Index dropped by over 8% during 2022. At the same time retirees had to cope with inflationary increases in the cost of most goods, including double digit percentage increases in the cost of food. Those who owned their own homes saw the value of those homes drop, on average, by 12% between December 2021 and December 2022. And, finally, retirees who carried debt were likely to be paying significantly more interest on that debt by the end of 2022 than they were at the beginning of the year.

With the 2022 calendar year behind us, those retirees must now prepare to file their tax returns for that year and face the prospect of having a tax bill to pay. Income tax is a big-ticket item for most retired Canadians and, especially for those who are no longer paying a mortgage, the annual tax bill may be the single biggest expenditure they are required to make each year. Fortunately, there is some good news for such retirees, as the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. What follows is an outline of the most common such deductions and credits which may be claimed by those over 65.

Most tax savings strategies (like charitable contributions) require an expenditure on the part of the taxpayer and must be completed prior to the end of the tax year. That’s not the case with any of the following tax saving credits, which simply need to be claimed on the annual return to filed in the spring of 2023.

Age credit

All Canadians who were age 65 or older at the end of 2022 can claim the age credit on their tax return for the year. For 2022, that credit amount is $7,898 which, when converted to a tax credit, reduces federal tax by $1,184.70.

While the age credit can be claimed by anyone aged 65 or older, the amount of credit claimable is reduced where the taxpayer’s income for 2022 was more than $39,826. Where that is the case, the available credit is reduced by 15% for each dollar of income over that $39,826 threshold amount.

Pension income credit

Most Canadians who are aged 65 or older receive income some kind of private pension income which would qualify for the pension income credit. For purposes of that credit, amounts received from an employer-sponsored pension plan qualify, but so too do amounts received from a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Amounts received from government-sponsored retirement income plans (like the Canada Pension Plan or Old Age Security) do not, however, qualify.

Where the taxpayer receives amounts that qualify as pension income for purposes of the pension income credit, the first $2,000 of such income is effectively exempt from federal tax. In addition, unlike the age credit, the total income of the taxpayer does not limit a claim for the pension income credit in any way.

Disability tax credit

It’s not necessary to be over the age of 65 in order to claim the disability tax credit, but many taxpayers who are in that age group may be able to qualify. The DTC cannot be claimed on the annual tax return, however, unless an individual has previously been approved by the Canada Revenue Agency as someone who meets the required criteria.

In order to be approved as someone eligible to claim the disability tax credit, an individual must generally have significant loss of function in specified activities necessary for daily life, like vision or mobility. The process for being approved as eligible for the disability tax credit is not a quick one and so is unlikely to be claimable for 2022 by anyone who has not already been approved by the CRA.

However, taxpayers who believe that they may qualify should consider starting the process of applying for such approval. That process generally starts with an individual’s health care provider, who can complete the necessary form detailing the extent of the individual’s loss of function. While the process takes months, starting now could mean, where the application is approved, that the DTC can be claimed on the return for 2023.

The DTC is a significant credit, as the credit amount for 2022 is $8,870, and the reduction in federal tax payable is $1,330.50.  

Pension income splitting

The credits listed above are generally flagged on the annual return form or in the tax guide. There is, however, another income tax saving strategy available to older Canadians, but it is not nearly as well known and, unfortunately, isn’t readily apparent from either the tax return form or the annual income tax guide. That tax saving strategy is pension income splitting and it’s likely the case that many taxpayers who could benefit aren’t familiar with the strategy, especially if they are not receiving professional tax planning or tax return preparation advice.

That’s a particularly unfortunate reality because pension income splitting has the potential to generate more tax savings among taxpayers over the age of 65 (and certainly those over the age of 71, for whom RRSP contributions are no longer possible) than just about any other tax planning strategy available to older Canadians. And, unlike most tax saving strategies, pension income splitting does not require any expenditure of funds or any advance planning on the part of the taxpayer.

When described in those terms, pension income splitting can sound like one of those “too good to be true” tax scams, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for Canadian residents who are married (and, usually, where one spouse is aged 65 or older) to make a notional reallocation of private pension income between them on their annual tax returns, and to benefit from a lower overall family tax bill as a result.

Pension income splitting, like all forms of income splitting, works because Canada has what is called a “progressive” tax system, in which the applicable tax rate goes up as income rises. For 2022, the federal tax rate applied to about the first $50,000 of taxable income is 15%, while the federal rate applied to approximately the next $50,000 of such income is 20.5%. So, an individual who has $100,000 in taxable income would pay federal tax of about $17,750: if that $100,000 was divided equally between such individual and his or her spouse, each would have $50,000 in taxable income and federal tax payable of $7,500 each. The total federal family tax bill would be $15,000, meaning a permanent federal tax savings of $2,750.

The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to his or her spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, an RRSP, or an RRIF. Government source pensions, like the Canada Pension Plan, Quebec Pension Plan, or Old Age Security payments do not qualify for pension income splitting, regardless of the age of the recipient.

The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income, with their annual tax return. That form for the 2022 tax year, which is not included in the annual tax return package, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1032.html or can be ordered by calling 1-800-959 8281.

On the T1032, the taxpayer receiving the private pension income and the spouse with whom that income is to be split must make a joint election to be filed with their respective tax returns for 2022. Since the splitting of pension income affects the income and therefore the tax liability of both spouses, the election must be made and the form filed by both spouses – an election filed by only one spouse or the other won’t suffice. In addition to filing the T1032, the spouse who is actual recipient of the pension income to be split must deduct from income the pension income amount allocated to his or her spouse. That deduction is taken on Line 21000 of their 2022 return. And, conversely, the spouse to whom the pension income amount is being allocated is required to add that amount to their income on the return, this time on Line 11600. Essentially, to benefit from pension income splitting, all that’s needed is for each spouse to file a single form with the CRA and to make a single entry on their 2022 tax return.

By the end of February or early March, taxpayers will have received (or downloaded) the information slips which summarize the income received from various sources during 2022. At that time, couples who might benefit from this strategy can review those information slips and calculate the extent to which they can make a dent in their overall tax bill for the year through pension income splitting.

Those wishing to obtain more information on pension income splitting than is available in the 2022 General Income Tax and Benefit Guide should refer to the CRA website at http://www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available.

The Employment Insurance premium rate for 2023 is set at 1.63%.

The Employment Insurance premium rate for 2023 is set at 1.63%.

Yearly maximum insurable earnings are set at $61,500, making the maximum employee premium $1,002.45.

As in previous years, employer premiums are 1.4 times the employee premium. The maximum employer premium for 2023 is therefore $1,403.43.

The Québec Pension Plan contribution rate for 2023 is set at 6.40% of pensionable earnings for the year.

The Québec Pension Plan contribution rate for 2023 is set at 6.40% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $66,600, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2023 will be $4,038.40 each.

The Canada Pension Plan contribution rate for 2023 is set at 5.95% of pensionable earnings for the year.

The Canada Pension Plan contribution rate for 2023 is set at 5.95% of pensionable earnings for the year.

Maximum pensionable earnings for the year will be $66,600, and the basic exemption is unchanged at $3,500.

The maximum employer and employee contributions to the plan for 2023 will be $3,754.45 each, and the maximum self-employed contribution will be $7,508.90.

Dollar amounts on which individual non-refundable federal tax credits for 2023 are based, and the actual tax credit claimable, will be as follows:

Dollar amounts on which individual non-refundable federal tax credits for 2023 are based, and the actual tax credit claimable, will be as follows:

                                                                         Credit amount                    Tax credit

Basic personal amount*                                            $15,000                          $2,250

Spouse or common-law partner amount                     $15,000                          $2,250

Eligible dependant amount*                                       $15,000                         $2,250

Age amount                                                              $8,396                           $1,259.40

Net income threshold for erosion of age credit             $42,335

Canada employment amount                                      $1,368                          $205.20 

Disability amount                                                       $9,428                          $1,414.20

Adoption expenses credit                                            $18,210                        $2,731.50

Medical expense tax credit income threshold amount    $2,635

*For taxpayers having net income for the year of more than $165,430, amounts claimable for the basic personal amount, the spousal amount and the eligible dependant amount for 2023 may differ.

The indexing factor for federal tax credits and brackets for 2023 is 6.3%. The following federal tax rates and brackets will be in effect for individuals for the 2023 tax year.

The indexing factor for federal tax credits and brackets for 2023 is 6.3%. The following federal tax rates and brackets will be in effect for individuals for the 2023 tax year.

Income level                                     Federal tax rate

$15,000 - $53,359                                  15.0%

$53,360 - $106,717                                 20.5%

$106,718 - $165,430                               26.0%

$165,431 - $235,675                               29.0%

Over $235,675                                         33.0%

Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax saving and planning strategies. Some of the more significant dates and changes for individual taxpayers for 2023 are listed below.

Each new tax year brings with it a listing of tax payment and filing deadlines, as well as some changes with respect to tax saving and planning strategies. Some of the more significant dates and changes for individual taxpayers for 2023 are listed below.

RRSP deduction limit and contribution deadline

The RRSP current year contribution limit for the 2022 tax year is $29,210. In order to make the maximum current year contribution for 2022 (for which the contribution deadline will be Wednesday March 1, 2023), it will be necessary to have earned income for the 2021 taxation year of $162,275.

Tax-free savings account contribution limit

The tax-free savings account (TFSA) contribution limit for 2023 is increased to $6,500. The actual amount which can be contributed by a particular individual includes both the current year limit and any carryover of uncontributed or re-contribution amounts from previous taxation years.

Taxpayers can find out their personal 2023 TFSA contribution limit by calling the Canada Revenue Agency’s Individual Income Tax Enquiries line at 1-800-959-8281. Those who have registered for the CRA’s online tax service My Account can obtain that information by logging into My Account.

Individual tax instalment deadlines for 2023

Millions of individual taxpayers pay income tax by quarterly instalments, which are due on the 15^th of March, June, September and December 2023.

The actual tax instalment due dates for 2023 are as follows:

• Wednesday March 15, 2023
• Thursday June 15, 2023
• Friday September 15, 2023
• Friday December 15, 2023

Old Age Security income clawback threshold

For 2023, the income level above which Old Age Security (OAS) benefits are clawed back is $86,912.

Individual tax filing and payment deadlines in 2023

For all individual taxpayers, including those who are self-employed, the deadline for payment of any balance of 2022 taxes owed is Monday May 1, 2023.

Taxpayers (other than the self-employed and their spouses) must file an income tax return for 2022 on or before Monday May 1, 2023.

Self-employed taxpayers and their spouses must file a 2022 income tax return on or before Thursday June 15, 2023.

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 #62 Corporate

Personal:

Issue #62 Personal

Canada’s retirement income system is often referred to as a three-part system. Individuals earning income from employment or self-employment can contribute to a registered retirement savings plan (RRSP) and withdraw funds from that plan in retirement. A much smaller (and shrinking) group of Canadians will receive income in retirement from an employer-sponsored pension plan. Finally, there are two government sponsored retirement income programs. Under the first, Canadian retirees who participated in the paid work force during their adult life will have contributed to the Canada Pension Plan (CPP) and will be able to receive CPP retirement benefits as early as age 60.

Canada’s retirement income system is often referred to as a three-part system. Individuals earning income from employment or self-employment can contribute to a registered retirement savings plan (RRSP) and withdraw funds from that plan in retirement. A much smaller (and shrinking) group of Canadians will receive income in retirement from an employer-sponsored pension plan. Finally, there are two government sponsored retirement income programs. Under the first, Canadian retirees who participated in the paid work force during their adult life will have contributed to the Canada Pension Plan (CPP) and will be able to receive CPP retirement benefits as early as age 60.

The second federal government retirement income program – the Old Age Security (OAS) program – is different from all other retirement income programs in that it does not require an individual to make contributions to the program during his or her working life in order to receive benefits in retirement. Rather, entitlement to OAS is based on the number of years of Canadian residence, and individuals who are resident in Canada for 40 years after the age of 18 can receive full OAS benefits. As of the fourth quarter of 2022, those full OAS benefits are equal to $685.50 per month.

The OAS program is distinct from other sources of retirement income in another, less welcome way, in that it is the only retirement income source for which the federal government can require repayment by the recipient. That repayment requirement comes about through the OAS “Recovery Tax”, which is universally known as the OAS “clawback”.

While the rules governing the administration of the clawback can be confusing, the concept is a (relatively) simple one. Anyone who receives OAS benefits during the year and has income for that year of more than (for 2022) $81,761 must repay a portion of the OAS benefits received. That repayment, or clawback, is administered by reducing the amount of OAS benefits which the individual receives during the next benefit year.

Since the OAS clawback affects only individuals who have an annual income for 2022 of at least $81,761, it’s arguable that at such income levels, the clawback requirement does not impose any real financial hardship. Nonetheless, the OAS clawback is a perpetual irritant to those affected, perhaps because of the sense that they are being penalized for being disciplined savers, or good managers of their finances during their working years, in order to ensure a financially comfortable retirement.

While any sense of grievance can’t alter the reality of the OAS clawback, there are strategies which can be put in place to either minimize or, in some cases, entirely eliminate one’s exposure to that clawback. Some of those planning considerations are better addressed earlier in life, prior to retirement, However, it’s not too late, once one is already receiving OAS, to make arrangements to avoid or minimize the clawback.

In all cases, no matter what strategy is employed, the goal is to “smooth” one’s income from year to year, so that net income for each year comes in under the OAS clawback threshold and, not incidentally, minimizes exposure to the higher federal and provincial income tax rates which apply once taxable income exceeds around $100,000.

The starting point, for taxpayers who are approaching retirement, is to determine how much income will be received from all sources during retirement, based on CPP and OAS entitlement, any savings accrued through an RRSP, and any amounts which may be received from an employer-sponsored pension plan. Anyone who has an RRSP must, by the end of the year in which they turn 71, convert that plan into a registered retirement income fund (RRIF) or purchase an annuity. Under either scenario, the taxpayer will begin receiving income from the RRIF or the annuity in the following year. However, it’s possible to begin receiving income from an RRSP or an RRIF at any time. Similarly, an individual who is eligible for CPP retirement benefits can begin receiving those benefits anytime between age 60 and age 70, with the amount of monthly benefit receivable increasing with each month receipt is deferred. The same calculation applies to OAS benefits, which can be received as early as age 65 or deferred up until age 70.

Once the amount of annual income is determined, strategies to smooth out that income can be put in place. One of those strategies is to withdraw income from an RRSP or an RRIF prior to age 71, so as to reduce the total amount within the RRSP or RRIF and so thereby reduce the likelihood of having a large “bump” in income when required withdrawals kick in at that time.

Taxpayers are sometimes understandably reluctant to take steps which they view as depleting their retirement savings, but receiving income from an RRSP or an RRIF doesn’t have to mean spending that income. While tax has to be paid on any withdrawals (no matter what the taxpayer’s age), the after-tax amounts can be contributed to the taxpayer’s tax-free savings account (TFSA), where they can earn investment income free of tax. And, when the taxpayer has need of those funds, in retirement, they can be withdrawn free of tax and won’t count as income for purposes of the OAS clawback or any other tax credits or benefits.

Taxpayers who are married can also “even out” their income by using pension income splitting, so that neither of them has sufficient income to be affected by the clawback. Using pension income splitting, the spouse who has income which exceeds the OAS clawback threshold re-allocates the “excess” income to his or her spouse on the annual return, and that income is then considered to be income of the recipient spouse, for purposes of both income tax and the OAS clawback. To be eligible for pension income splitting, the income to be reallocated must be private pension income, which is generally income from an RRSP, RRIF, or annuity, or from an employer-sponsored pension plan.

There are two reasons why pension income splitting is a particularly attractive strategy for avoiding or minimizing the OAS clawback. First, there is no need to actually change the source or amount of income received by each spouse, as the reallocation of income is “notional”, existing only on the return for the year. Second, no decision has to be made on pension income splitting until it’s time to file the return for the previous year, meaning that spouses can easily calculate exactly how much income has to be reallocated in order to avoid the clawback, and to reduce tax liability generally. More information on the kinds of income eligible for pension income splitting, and the mechanics of the process, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/pension-income-splitting.html.

As the pandemic continues to wane, traditional employer-sponsored holiday social events have once again become a reality – although, as in all aspects of pandemic life, such events will likely be a hybrid of “virtual” and in-person functions.

As the pandemic continues to wane, traditional employer-sponsored holiday social events have once again become a reality – although, as in all aspects of pandemic life, such events will likely be a hybrid of “virtual” and in-person functions.

In addition to restoring the annual holiday social event employers may, given the current difficulties in attracting and retaining employees, have an added incentive to show their appreciation to current employees by means of a holiday gift or bonus.

What such employers certainly don’t want to do is to create a tax headache for their employees. Unfortunately, it’s also the case that a failure to properly structure such gifts or other extras like holiday parties can result in unintended and unwelcome tax consequences to those employees. And this year, recognizing the ways in which holiday-related employer gifts and employer-sponsored social events have changed over the past three years, the Canada Revenue Agency (CRA) has responded by updating its policies to address those new realities.

Trying to formulate and administer the tax rules around holiday gifts and celebrations is something of a no-win situation for the CRA. On an individual or even a company level, the amounts involved are usually small, or even nominal, and the range of situations which must be addressed by the related tax rules are virtually limitless. As a result, the cost of drafting and administering those rules can outweigh the revenue generated by the enforcement of such rules, to say nothing of the potential ill-will generated by imposing tax consequences on holiday gifts or parties. Nonetheless, the potential exists for employers to provide what would otherwise be taxable remuneration in the guise of holiday gifts, and it’s the responsibility of the tax authorities to ensure that such situations don’t slip through the tax net.

The starting point for the CRA’s rules is that any gift (cash or non-cash) received by an employee from his or her employer at any time of the year is considered to constitute a taxable benefit, to be included in the employee’s income for that year.

The CRA does, however, make some administrative concessions in this area, allowing non-cash gifts (within a specified annual dollar limit) to be received tax-free by employees, as long as such gifts are given on significant dates or events, like religious holidays such as Christmas or Hanukkah, or on the occasion of a birthday, a marriage, or the birth of a child.

In sum, the CRA’s administrative policy is simply that such non-cash gifts to an arm’s length employee, regardless of the number of such gifts, will not be taxable if the total fair market value of all such gifts (including goods and services tax or harmonized sales tax) to that employee is $500 or less annually. The total value over $500 annually will be a taxable benefit to the employee and must be included on the employee’s T4 for the year, and on which income tax must be paid.

It’s important to remember the “non-cash” criterion imposed by the CRA, as the $500-per-year administrative concession does not apply to what the CRA terms “cash or near-cash” gifts, and all such gifts are considered to be a taxable benefit and included in income for tax purposes, regardless of amount. For this purpose, the CRA considers both currency and cheques to be cash. As well, in situations in which an employee selects and purchases something, submits a receipt to the employer and receives reimbursement for that purchase, that employee is considered to have received a cash gift, in the amount of the purchase/reimbursement.

Other instances of gifts made to employees are not so clear cut, as even a gift or award which cannot be converted to cash can be considered by the CRA to be a near-cash gift. Drawing a firm line between cash/near-cash gifts and non-cash gifts can be difficult, and the CRA provides the following information to help clarify that difference.

Examples of a near-cash gift or award

• Something easily converted to cash, such as bonds, securities, or precious metals;
• Gift cards (with the exception outlined below);
• A prepaid card issued by a financial institution that can be used to pay for purchases; and
• Digital currency which is electronic money (i.e., cryptocurrencies not issued by a government or central bank).

Under the CRA’s previous policy, gift cards were considered to be near-cash gifts and fully taxable to the employee who received one, but the CRA has now carved out an exception to that policy. Specifically, effective as of the 2022 tax year, a gift card that meets all of the following criteria will be treated as a non-cash gift, and subject to the usual rules governing non-cash gifts:

• the card comes with money already on it and can only be used to purchase goods or services from a single retailer or group of retailers identified on the card;
• the terms and conditions of the gift card clearly state that amounts on the card cannot be converted into cash; and
• the employer keeps a log to record details of the gift card information including the date, the employee’s name and the reason for providing the gift card, as well as the type and amount of the gift card.

It may seem nearly impossible to plan for employee holiday gifts without running afoul of one or more of the detailed rules and administrative policies surrounding the taxation of such gifts and benefits. However, designing a tax-effective plan is possible, if the following rules are kept in mind.

Cash or near-cash gifts should be avoided, as they will, no matter how large or small the amount, almost always create a taxable benefit to the employee. The sole exception to that rule is the exception carved out by the CRA which now (for 2022 and subsequent tax years) treats gift certificates as non-cash gifts, but only where such gift certificates meet the criteria listed above.

Where non-cash holiday gifts are provided to employees, gifts with a value of up to $500 can be received free of tax. The employer must be mindful of the fact that the $500 limit is a per-year and not a per-occasion limit. Where the employee receives non-cash gifts with a total value of more than $500 in any one taxation year, the portion over $500 is a taxable benefit to the employee.

In addition to the new rules governing employee gifts, the tax treatment of employer sponsored holiday social events has changed under the CRA’s new policies. While the basic policy which determines whether an event does or does not create a taxable benefit to employees is essentially the same, there is some difference in the way virtual and in-person events are treated for tax purposes.

The general and long-standing rule is that a holiday social event does not create a taxable benefit to employees where the event is open to all employees and the per-person cost of the event is below a specified threshold.

For 2022, an employer-sponsored social event which is in-person or is a combination of in-person and virtual attendance will not create a taxable benefit for employees if the per-person cost is less than $150. Ancillary costs such as transportation home, taxi fare, and overnight accommodation for attendees are not included in the total cost limit for the event. As well, where gift cards are provided to employees who are attending “virtually”, such gift cards must meet the criteria listed above which allows the characterization of such gift cards as a non-cash gift.

Where an employer-sponsored social event is entirely virtual in nature, different limits apply. Those limits are as follows.

• where a virtual social event includes meals, beverages, and delivery services, the event will not be a taxable benefit to employees if the total cost is $50 per employee or less.
• where a virtual social event includes meals, beverages, delivery services, and entertainment, the event will not be a taxable benefit to employees if the total cost is $100 per employee or less.

Finally, employers should note that where the per employee dollar limits outlined above are exceeded, the entire per-employee cost of the event is treated as a taxable benefit – not just the amount by which the per-employee cost exceeds those prescribed dollar limits. And, finally, in order to benefit from those prescribed limits, employers are restricted to holding six or fewer employer-paid social events each year.

The range and variety of social events and employee gifts which can be provided by an employer to its employees is almost limitless, and where the government seeks to draft rules to govern the tax treatment of such a range of possibilities, complexity is inevitable. The best advice to be given to employers in the circumstances is to consider carefully the kinds of gifts which are given and to be mindful of the dollar amount limits imposed on non-cash gifts and employer-paid social gatherings. After all, at the end of the day, a gift which results in unintended and unwanted tax consequences is unlikely to engender much holiday spirit or goodwill on the part of the employee who receives it.

The worst of the COVID-19 pandemic which began almost three years ago is now (hopefully) behind us. That doesn’t mean, however, that Canadians aren’t still dealing with the unwelcome consequences of the pandemic, in a number of ways.

The worst of the COVID-19 pandemic which began almost three years ago is now (hopefully) behind us. That doesn’t mean, however, that Canadians aren’t still dealing with the unwelcome consequences of the pandemic, in a number of ways.

One of those long-term consequences relates to pandemic benefits which were paid by the federal government and received by individuals across Canada for income support . Those individual pandemic benefit programs ended several months ago, in May of 2022, and the federal government continues to seek repayment of such benefits by individuals who were either not entitled to receive them, or who received benefits in amounts greater than they were eligible for.

It's not at all surprising that overpayments of individual pandemic benefits took place, for a number of reasons. While there were undoubtedly individuals who deliberately made fraudulent claims for benefits to which they knew they were not entitled, it’s likely that most instances of benefit overpayments arose for other reasons. The first such reason is the sheer number of Canadians who received such benefits. According to Statistics Canada, more than two thirds of adult Canadians benefited from at least one pandemic relief program in 2020 alone. As well, in the first six months of the pandemic (March to September 2020) a single program – the Canada Emergency Response Benefit (CERB) – provided income to over one quarter of Canadian adults. Second, as the pandemic continued, the CERB was replaced by, in turn, the Canada Recovery Benefit, the Canada Recovery Caregiving Benefit, the Canada Recovery Sickness Benefit, and the Canada Worker Lockdown benefit. Given that each of these programs had its own eligibility criteria and benefit periods, confusion and error over eligibility for benefits at any particular time wasn’t just likely, it was almost inevitable. Third, the largest individual pandemic benefit program – the CERB – was administered simultaneously by two different federal government entities – the Canada Revenue Agency (CRA) and Employment and Social Development Canada. Consequently, there were possibly instances in which an individual claimed and received amounts from both entities, not understanding that the same benefit was incorrectly being paid twice. As well, eligibility for pandemic benefits depended, in some instances, on whether an individual was already receiving Employment Insurance benefits, leading to more confusion. And, finally, especially in the early days of the pandemic, individuals who applied for pandemic benefits self-certified their eligibility as part of the online application process. In the interests of getting such benefits into the hands of suddenly unemployed Canadians as quickly as possible, there was no further verification process carried out to determine whether recipients were, in fact, entitled to the benefits claimed and paid.

Regardless of the reasons why an overpayment of benefits occurred, such overpayments must now be repaid. However, in light of the factors outlined above, the federal government has made two decisions with respect to such required repayments. The first such decision is only individuals who received an overpayment of benefits through intentional fraud will face “additional” unspecified consequences – likely in the form of interest and penalties, or even legal consequences. The second decision is that while individuals who received benefit overpayments through innocent error or misunderstanding will be required to repay any overpayment of benefits, there will be no interest charges levied on any of the amounts which they must repay.

The list of benefit programs for which repayment of overpayments will be required is as follows.

• Canada Emergency Response Benefit;
• Canada Emergency Student Benefit;
• Canada Recovery Benefit;
• Canada Recovery Caregiving Benefit;
• Canada Recovery Sickness Benefit;
• Canada Worker Lockdown Benefit.

There are, as well, tax consequences to both receipt and repayment of benefits. Benefits paid under each of these programs constituted taxable income to the recipient and would have been included on a T4A slip issued by the federal government for the tax year in which the benefits were received. Those amounts would have been reported as income on the tax return for that year, and income tax paid on those amounts by the benefit recipient.

Where benefit amounts received in previous years (and on which income tax was paid) are repaid to the federal government, the person who made those repayments is entitled to claim a deduction for the repayment amount on his or her tax return.

Where a repayment is made between January 1, 2021 and December 31, 2022, the taxpayer can choose which tax year to claim that deduction from income or can split the deduction between tax years, whichever gives the best tax result. Where a repayment is made after the end of 2022, however, the deduction can be claimed only in the year that the repayment is made.

The specific rules with respect to deductions claimed for repayments made during 2021 and 2022 are as follows.

For benefit repayments made in 2021, the taxpayer may:

• claim the deduction on the 2021 tax return;
• claim the deduction on the 2020 tax return if he or she received the amount in 2020;
• split the deduction between the 2020 and 2021 tax returns if he or she received the amount in 2020.

For benefit repayments made in 2022, the taxpayer may:

• claim the deduction on the 2022 tax return;
• claim the deduction on the tax return for the year he or she received the benefit (2020 or 2021);
• split the deduction between tax returns.

In January of 2023, the Canada Revenue Agency will be issuing a new form – Form T1B Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year – which will make it easier for taxpayers to claim a repayment made in 2022 as a deduction on a tax return for a prior tax year.

Not surprisingly, the federal government is making it as easy as possible for Canadians to repay benefit overpayments, by providing them with multiple options when it comes to making such repayments. Repayments can be paid online, on the website of the CRA or the taxpayer’s financial institution. Payments can also be sent by mail, in the form of a cheque or money order (not cash), and any such cheque or money order should be made payable to the Receiver General of Canada. Additionally, repayments can be made at a Canada Post location, using a debit card, with cash, or by using a QR code, which can be downloaded from the CRA website.

Given current economic conditions and the length of time which has passed since some of these benefit payments were made, there will likely be many instances in which benefit recipients will be unable to make immediate repayment in full. In such circumstances, the CRA is willing to receive such repayments over time, under the terms of a payment arrangement with the taxpayer. Once again, no interest charges will be levied on outstanding repayment obligations.

The CRA recently posted on its website detailed information on its current COVID-19 benefit repayment policies and procedures. That information can be found at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/repay-covid-benefits.html.

For individual Canadian taxpayers, the tax year ends at the same time as the calendar year. And what that means for individual Canadians is that any steps taken to reduce their tax payable for 2022 must be completed by December 31, 2022. (For individual taxpayers, the only significant exception to that rule is registered retirement savings plan (RRSP) contributions. With some exceptions, such contributions can be made any time up to and including March 1, 2023, and claimed on the return for 2022.)

For individual Canadian taxpayers, the tax year ends at the same time as the calendar year. And what that means for individual Canadians is that any steps taken to reduce their tax payable for 2022 must be completed by December 31, 2022. (For individual taxpayers, the only significant exception to that rule is registered retirement savings plan (RRSP) contributions. With some exceptions, such contributions can be made any time up to and including March 1, 2023, and claimed on the return for 2022.)

While the remaining time frame in which most tax planning strategies for 2022 can be implemented is only a few weeks, the good news is that the most readily available of those strategies don’t involve a lot of planning or complicated financial structures – in many cases, it’s just a question of considering the timing of steps which would have been taken in any event. What follows is a listing of some of the steps which should be considered by most Canadian taxpayers as the year-end approaches.

Charitable donations

The federal government and each of the provincial and territorial governments provide a tax credit for donations made to registered charities during the year. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year – there are no exceptions.

There is, however, another reason to ensure donations are made by December 31. The credit provided by each of the federal, provincial, and territorial governments is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. For the minority of taxpayers who have taxable income (for 2022) over $221,708, charitable donations above the $200 threshold can receive a federal tax credit of 33%.

As a result of the two-level credit structure, the best tax result is obtained when donations made during a single calendar year are maximized. For instance, a qualifying charitable donation of $400 made in December 2022 will receive a federal credit of $88.00 (($200 × 15%) + ($200 × 29%)). If the same amount is donated, but the donation is split equally between December 2022 and January 2023, the total credit claimable is only $60.00 (($200 × 15%) + ($200 × 15%)), and the 2023 donation can’t be claimed until the 2023 return is filed in April 2024. And, of course, the larger the donation in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level.

It’s also possible to carry forward, for up to five years, donations which were made in a particular tax year. So, if donations made in 2022 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying it forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2017, 2018, 2019, 2020, or 2021 tax years can be carried forward and added to the total donations made in 2022, and the aggregate then claimed on the 2022 tax return.

When claiming charitable donations, it’s possible to combine donations made by oneself and one’s spouse and claim them on a single return. Generally, and especially in provinces and territories which impose a high-income surtax – currently, Ontario and Prince Edward Island – it makes sense for the higher income spouse to make the claim for the total of charitable donations made by both spouses. Doing so will reduce the tax payable by that spouse and thereby minimize (or avoid) liability for the provincial high-income surtax.

Making a final RRSP contribution

Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31 of that year. Once that deadline has passed, no further RRSP contributions are possible.

Taxpayer requests for penalty or interest relief

Taxpayers are entitled to request relief from the Canada Revenue Agency (CRA) for interest or penalty charges which the CRA has levied, and those who want to do so must send their request within 10 years from the end of the calendar year or fiscal period concerned. The CRA may also cancel interest and penalties that accrued within 10 calendar years of the year the taxpayer relief request is made, regardless of the tax year or reporting period in which the debt originated.

This year’s deadline applies to taxpayer relief requests for:

• the 2012 tax year;
• any reporting period that ended during the 2012 calendar year; and
• any interest and penalties that accrued during the 2012 calendar year for any tax year or reporting period.

All such requests for relief must be submitted on or before December 31, 2022.

Reviewing tax instalments for 2022

Millions of Canadian taxpayers (particularly self-employed and retired Canadians) pay income taxes by quarterly instalments, with the amount of those instalments representing an estimate of the taxpayer’s total liability for the year.

The final quarterly instalment for this year will be due on Thursday December 15, 2022. By that time, almost everyone will have a reasonably good idea of what their income and deductions will be for 2022 and so will be in a position to estimate what the final tax bill for the year will be, taking into account any tax planning strategies already put in place, as well as any RRSP contributions which will be made on or before March 1, 2023. While the tax return forms to be used for the 2022 year haven’t yet been released by the CRA, it’s possible to arrive at an estimate by using the 2021 form. Increases in tax credit amounts and tax brackets from 2021 to 2022 will mean that using the 2021 form will likely result in a slight over-estimate of tax liability for 2022.

Once one’s tax bill for 2022 has been calculated, that figure should be compared to the total of tax instalments already made during 2022 (that figure can be obtained by checking one’s online tax account on the CRA website, or by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959-8281). Depending on the result, it may then be possible to reduce the amount of the tax instalment to be paid on December 15 – and thereby free up some additional funds for the inevitable holiday spending!

For most Canadians, tax planning for a year that hasn’t even started yet may seem too remote to even be considered. However, most Canadians will start paying their taxes for 2023 with the first paycheque they receive in January of 2023, less than two months from now. And, of course, with inflation running at over 7% and interest rates having nearly doubled in the last eight months, managing cash flow and maximizing take-home (after tax) income is a priority for everyone right now.

For most Canadians, tax planning for a year that hasn’t even started yet may seem too remote to even be considered. However, most Canadians will start paying their taxes for 2023 with the first paycheque they receive in January of 2023, less than two months from now. And, of course, with inflation running at over 7% and interest rates having nearly doubled in the last eight months, managing cash flow and maximizing take-home (after tax) income is a priority for everyone right now.

For most Canadians (certainly for the vast majority who earn their income from employment), income tax, along with other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums, are paid periodically throughout the year by means of deductions taken from each paycheque received, with those deductions then remitted to the Canada Revenue Agency (CRA) on the taxpayer’s behalf by his or her employer.

Of course, each taxpayer’s situation is unique and so the employer has to have some guidance as to how much to deduct and remit on behalf of each employee. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by each employee, sometimes at the start of each year, but certainly at the time employment commences. Each employee must, in fact, complete two TD1 forms – one for federal tax purposes and the other for provincial tax imposed by the province in which the taxpayer lives. Federal and provincial TD1 forms for 2023 (which have not yet been released by the CRA but, once published, will be available on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html) list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount, and the age amount. Adding amounts claimed on each form gives the Total Claim Amounts (one federal, one provincial) which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on his or her behalf to the federal government.

While the TD1 completed by the employee at the time his or her employment commenced will have accurately reflected the credits claimable by the employee at that time, everyone’s life circumstances change. Where a baby is born or a son or daughter starts post-secondary education, there is a separation or a divorce, a taxpayer turns 65 years of age, or an elderly parent comes to live with his or her children, the affected taxpayer(s) will often become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.

Consequently, it’s a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to him or her. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.

As well, it’s often the case that a taxpayer will have available deductions which cannot be recorded on the TD1, like RRSP contributions, deductible support payments, or child care expenses. While such claims make things a little more complicated, it’s still possible to have source deductions adjusted to accurately reflect those claims, and the employee’s resulting reduced tax liability for 2023. The way to do so is to file Form T1213 – Request to Reduce Tax Deductions at Source (available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html) with the Agency. Once that form is filed with the CRA, the CRA will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld from the employee’s paycheque – and thereby increasing the employee’s take-home income. 

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. While a T1213 can be filed with the CRA at any time of the year, the sooner it’s done, the sooner source deductions can be adjusted, effective for all subsequent paycheques. Providing an employer with an updated TD1 for 2023 as soon as possible, along with filing the T1213 with the CRA where circumstances warrant, will ensure that source deductions made starting January 1, 2023 will accurately reflect all of the employee’s current circumstances, and consequently his or her actual tax liability for the year – and, potentially, provide the employee with a little more cash flow to meet day to day expenses.

Over the past three years, the structure of work-from-home arrangements for employees has been a constantly changing landscape. In 2020, almost all employees who could work from home were required to do so, as most workplaces were closed under pandemic public health lockdown rules. As the pandemic eased (slightly) in 2021, employees began, in some cases, to return to the workplace on a part-time or full-time basis. That trend has continued in 2022, although in most cases employees are now working from home by agreement with their employer, rather than because of the requirements of a public health mandate.

Over the past three years, the structure of work-from-home arrangements for employees has been a constantly changing landscape. In 2020, almost all employees who could work from home were required to do so, as most workplaces were closed under pandemic public health lockdown rules. As the pandemic eased (slightly) in 2021, employees began, in some cases, to return to the workplace on a part-time or full-time basis. That trend has continued in 2022, although in most cases employees are now working from home by agreement with their employer, rather than because of the requirements of a public health mandate.

As the necessity and availability of work-from-home arrangements changed over the past three years, so too did the tax rules under which employees could claim a deduction for home office related costs. Under the tax rules in place prior to 2020, such a deduction was available only where employees met a number of criteria and could provide the tax authorities with an itemized accounting of eligible home office expenses incurred, as well as attestation from their employer of the terms of the work-from-home arrangement. In 2020, however, the federal government, recognizing that millions of Canadians would be claiming home office expense deductions for the first time, simplified the rules to provide for a standardized deduction claim for eligible employees who were working from home because of the pandemic.

The standardized deduction is still available to be claimed by individual employees who worked from home during 2022. However, the eligibility criteria for claiming the standardized deduction (which is the same test which applied in 2020 and 2021) may be more difficult for employees to meet in 2022, as work-from-home arrangements have evolved.

The standardized claim for home office expenses which was introduced in 2020 allows employees to claim a deduction of $2 per day for each day that the employee worked from home. There is no requirement to document expenses incurred and no need to provide verification from an employer that the work from home arrangement was required of the employee. However, in order to be eligible for the standardized deduction for 2022, the following criteria must be satisfied:

• an employee must have worked from home during the year due to the COVID-19 pandemic: and
• the work from home arrangement must have lasted for at least four consecutive weeks, with the employee working from home at least 50% of the time during those four consecutive weeks.

It may well be that many employees who continued to work from home during 2022 for at least part of the time will not be able to fit themselves into the eligibility criteria for claiming the standardized deduction, because their work arrangements throughout the year had them in the office for more than 50% of the time (i.e. three days week in the office, two days working from home), or because any time period when they did work more than 50% of the time from home did not last at least four consecutive weeks. In such cases, the employee should consider whether he or she can make a claim for a home office expense deduction using the detailed method which was in place prior to 2020 and continues to be available for 2022. And, while the record keeping requirements to claim such a deduction under the detailed method will be more onerous, using that detailed method can often produce a bigger expense claim and therefore a better tax result for the taxpayer.

In order to claim a deduction for costs related to a work from home space using the detailed method, an employee must meet at least one of the following conditions.

• The employee worked from home during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); or
• the employee was required by his or her employer to work from home during 2022 (this can be just a verbal or written agreement between employer and employee).

In addition, at least one of the following criteria must also be satisfied in order to claim work from home costs under the detailed method:

• The work from home space is where the individual mainly (more than 50% of the time) did his or her work for a period of at least four consecutive weeks during 2022; or
• The individual uses the workspace only to earn his or her employment income. He or she must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of his or her employment duties.

Once these threshold criteria are met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to his or her work from home space, such as rent, utilities costs like electricity, heating, water (or the portion of a condo fee attributable to such utilities costs), home maintenance and minor repair costs, and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses, and the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the workspace is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html.

 In all cases, the CRA can ask the taxpayer to provide documentation and support for claims made using the detailed method.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method. Each such employee must obtain either a T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19 - Canada.ca or T2200 Declaration of Conditions of Employment - Canada.ca. On those forms, the employer must certify the work from home arrangement and confirm that the employee is required to pay his or her own home office expenses and is not being reimbursed for any such expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.

For the many taxpayers who claimed the standardized home office expense deduction in 2020 and 2021, the filing season for returns for 2022 may be the first time they encounter the rules and requirements which govern claims for home office expenses using the detailed method. It would, therefore, be advisable to do some upfront planning to determine what kind of deduction claim (standardized vs. detailed) they may be able to make for 2022, and to ensure that any record keeping needed to support that deduction is done before tax filing season arrives a few months from now.

The majority of Canadians who are not members of an employer-sponsored defined benefit registered pension plan save for retirement through a registered retirement savings plan (RRSP). For those Canadians who have accumulated retirement savings in an RRSP, the year in which they turn 71 is decision time. By the end of that year, all RRSPs must be closed, and the RRSP holder must decide whether to transfer his or her accrued savings into a registered retirement income fund (RRIF), or purchase an annuity, or both. (It’s also possible to collapse the RRSP and include all RRSP amounts in income for that year, but such a course of action is rarely advisable from a tax perspective).

The majority of Canadians who are not members of an employer-sponsored defined benefit registered pension plan save for retirement through a registered retirement savings plan (RRSP). For those Canadians who have accumulated retirement savings in an RRSP, the year in which they turn 71 is decision time. By the end of that year, all RRSPs must be closed, and the RRSP holder must decide whether to transfer his or her accrued savings into a registered retirement income fund (RRIF), or purchase an annuity, or both. (It’s also possible to collapse the RRSP and include all RRSP amounts in income for that year, but such a course of action is rarely advisable from a tax perspective).

Most RRSP holders choose to transfer funds held in an RRSP to an RRIF, and that transfer can be done on a tax-free basis. In addition, investment returns on funds transferred to the RRIF can continue to accrue tax-free. The RRIF holder is, however, required to withdraw a minimum amount each year (based on the RRIF holder’s age and the amount in the RRIF at the start of the year), and that withdrawn amount is taxed as income.

Where the RRSP holder chooses to purchase an annuity, he or she pays a specified lump sum amount to the annuity issuer, usually an insurance company, in exchange for which he or she is guaranteed an annual income of a specified amount for the remainder of his or her life. That income, too, is taxable to the annuity holder.

While each of the available options (RRIF and annuity) has upsides and downsides, the main underlying consideration is the same for both. And that is how to generate enough income to have a comfortable retirement, while still ensuring that savings accrued will last the remainder of one’s life. How, in other words, to avoid the dismal prospect of outliving one’s savings, or spending too much early in retirement and being left with insufficient income to meet one’s expenses late in life? And, of course, it’s impossible to find a definitive answer to that question, since none of us knows what the future holds, in terms of either health or longevity.

Typically, expenses are higher early in retirement, when retirees are likely to be healthier and more active, and retirement plans may include travel and the pursuit of hobbies and interests. However, while such activities and their associated costs likely dwindle as retirees age, other types of expenses come into play – especially expenses related to the need to pay for medical costs, household and personal services, and ultimately, personal and/or medical care in an assisted living facility. The prospect of such future costs can make retirees reluctant to spend accrued savings (or annuity income), out of concern that such funds will be needed in the future to pay for care.

The worry about reaching an age where some degree of care is required (and must be paid for) is an entirely realistic one for retirees. According to Statistics Canada’s figures, the average Canadian who has reached the age of 75 has a life expectancy of another 12 years. And, since that figure represents an average, a significant number of 75-year-olds can expect to live longer than that. Again according to StatsCan figures, there were, in 2021, over 860,000 Canadians aged 85 or older.

With all of these demographic and financial realities in mind, the federal government announced, in 2019, the availability of a new kind of annuity – the advanced life deferred annuity or ALDA. As is the case with all annuities, the annuity issuer agrees, in exchange for receiving a specified lump sum amount, to provide an annual income of a specified amount to the annuitant. The difference, however, is while an ALDA can be taken out at any time, payments under the ALDA can be deferred to as late as the end of the year in which the annuitant turns 85.

For example, a retiree who turns 71 in 2022 and who has accumulated $500,000 in retirement savings could transfer $400,000 from his or her RRSP to an RRIF, and use the remaining $100,000 to purchase an ALDA, under which payments would begin at age 85. The retiree now has the security of knowing that the $400,000 held in the RRIF (plus any additional amounts earned from investment returns) doesn’t need to last for the unknown number of years in his or her remaining life, but instead for a specified period of time (in this case, 14 years), at which time the income stream from the ALDA will begin, and will augment or replace the income from the RRIF.

There is a limit on the amount which can be used to purchase an ALDA. That limit is 25% of the amount held in an individual’s RRSP or RRIF, to a lifetime maximum of (for 2022) $160,000. Taking the example outlined above, the retiree who has accumulated $500,000 in RRSP savings would be using 20% of that amount (or $100,000) to purchase the ALDA, and would be safely under the $160,000 lifetime limit.

While the security provided by such a retirement income structure would certainly be welcome to most retirees, the obvious concern where payments under an annuity are deferred is the possibility that the annuitant won’t live long enough to collect those payments, and that the funds expended to purchase the ALDA will effectively be wasted. There are two options to address that (legitimate) concern. First, an ALDA can be structured as a “joint-life” contract, under which payments will be made to the surviving annuitant (most often the spouse of the ALDA purchaser) for the remainder of his or her life. It’s also possible to structure the ALDA to provide for a lump sum death benefit to be paid to a beneficiary or beneficiaries (for example, the annuitant’s children) on the death of the annuitant.

Being able to have certainty of income for one’s very old age is a major benefit of purchasing an ALDA. There is, however, another benefit to be obtained, and that is income and tax deferral.

As outlined above, individuals who hold savings in an RRSP must collapse that RRSP by the end of the year in which they turn 71 and, in most instances, such individuals open an RRIF and transfer funds held in the RRSP to that RRIF. Once funds are held in an RRIF a specified percentage of those funds must be paid out in each year to the RRIF holder. All such withdrawals constitute taxable income to the holder of the RRIF, and count as income which determines that RRIF holder’s eligibility for certain tax credits and benefits, like the age credit, Old Age Security benefits, and the GST/HST tax credit. Even if the RRIF holder does not actually need the total amount which must be withdrawn, there is no option to withdraw a lesser amount, and all funds withdrawn are treated as taxable income which determine eligibility for tax credits and benefits – with no exceptions.

Where an RRIF holder purchases an ALDA, the amount used for that purchase is no longer included in the total balance on which the required RRIF withdrawal percentage is calculated. Continuing the above example, if the RRIF holder used $100,000 of his or her retirement savings to purchase the ALDA, the amount which he or she would subsequently be required to withdraw from the RRIF each year would be calculated as a percentage of the remaining $400,000 – not the $500,000 which was held in the RRIF prior to the purchase of the ALDA. Both the RRIF holder’s income and his or her tax payable will therefore be lower, and the loss of partial or full eligibility for tax credits and benefits will be less likely.

As is the case with most annuities, the terms of an ALDA (purchase amount, single vs. joint annuity, existence of a death benefit, age at which the income stream begins) are up to the ALDA purchaser and the issuer, as long as the basic tax rules governing such plans are adhered to. Everyone’s financial, health, and tax circumstances are different and, as is the case with any retirement income plan, those particular circumstances will drive the decisions made on the best retirement income structure for that individual. Purchasing an ALDA may be the right approach for some retirees, but not for others –  but for everyone, having that option adds another element of flexibility to retirement income planning.

More information on ALDAs can be found on the federal government website at https://www.budget.gc.ca/2019/docs/tm-mf/si-is-en.html#advanced-life-deferred-annuities.

While the current state of the Canadian health care system is not without its problems, Canadians are nonetheless fortunate to have a publicly-funded health care system, in which most major medical expenses are covered by provincial health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others - which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a medical expense tax credit to help offset out-of-pocket medical and para-medical costs which must be incurred.

While the current state of the Canadian health care system is not without its problems, Canadians are nonetheless fortunate to have a publicly-funded health care system, in which most major medical expenses are covered by provincial health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others - which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a medical expense tax credit to help offset out-of-pocket medical and para-medical costs which must be incurred.

The bad news for such individuals is that while a tax credit is available, the computation of eligible expenses and, in particular, determining when a claim for the credit should be made can be confusing. In addition, the determination of which expenses qualify for the credit and which do not isn’t necessarily intuitive, nor is the determination of when it’s necessary to obtain prior authorization from a medical professional in order to ensure that the planned expenditure will qualify for the credit. For instance, in order to claim the medical expense tax credit for the cost of a walker, it is necessary to obtain a prescription for that walker from a medical professional. Where costs are incurred to purchase a wheelchair, those costs are eligible for the medical expense credit with no requirement that a prescription of any kind be obtained.

The basic rule is that qualifying medical expenses (a lengthy list of which can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html) over 3% of the taxpayer’s net income, or $2,479, whichever is less, can be claimed for purposes of the medical expense tax credit on the taxpayer’s return for 2022.

Put in more practical terms, the rule for 2022 is that any taxpayer whose net income is less than $82,635 will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income of $82,635 or more will be limited to claiming qualifying expenses which exceed the $2,479 threshold.

The other aspect of the medical expense tax credit which can cause some confusion is that it’s possible to claim medical expenses which were incurred prior to the current tax year, but weren’t claimed on the return for the year that the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending in 2022 will produce the greatest amount eligible for the credit. That determination will obviously depend on when medical expenses were incurred so there is, unfortunately, no universal rule of thumb which can be used.

Medical expenses incurred by family members – the taxpayer, his or her spouse, children who were born in 2005 or later, and certain other dependent relatives – can be added together and claimed by one member of the family. In most cases, it’s best, in order to maximize the amount claimable, to make that claim on the tax return of the lower-income spouse, where that spouse has tax payable for the year.

As the end of the calendar year approaches, it’s a good idea to add up the medical expenses which have been incurred during 2022, as well as those paid during 2021 and not claimed on the 2021 return. Once those totals are known, it will be easier to determine whether to make a claim for 2022 or to wait and claim 2022 expenses on the return for 2023. And, if the decision is to make a claim for 2022, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for that claim.

Finally, it’s a good idea to look into the timing of medical expenses which will have to be paid early in 2023. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis, or some expensive dental work) it may make sense, where possible, to accelerate the payment of those expenses to November or December 2022, where that means they can be included in 2022 totals and claimed on the 2022 return.

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 #61 Corporate

Personal:

Issue #61 Personal

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.

Corporate:

Issue #60 Corporate

Personal:

Issue #60 Personal

The fact that Canada is in the middle of a housing crisis isn’t really news to anyone. Whether it’s having difficulty finding an affordable apartment or putting together enough money for a down payment, or coping with ever increasing mortgage interest rates and mortgage payments, housing availability and affordability is a concern for Canadians across all age groups.

The fact that Canada is in the middle of a housing crisis isn’t really news to anyone. Whether it’s having difficulty finding an affordable apartment or putting together enough money for a down payment, or coping with ever increasing mortgage interest rates and mortgage payments, housing availability and affordability is a concern for Canadians across all age groups.

That reality led the federal government to propose a number of measures to address the housing needs of Canadians. One of those measures – the Multi-Generational Home Renovation Tax Credit – will take effect in 2023.

As the name implies, the Multi-Generational Home Renovation Tax Credit will provide assistance through the tax system for costs incurred to create additional living space which will allow an elderly (over 65) or disabled adult relative to live with family, while at the same time having their own self-contained living space.

Take, for example a couple in their late 50s whose children have all moved out of the family home to live on their own, and so now have a home that is too big for just the two of them. Many Canadians in that “sandwich generation” also have parents in their 80s who don’t want (or need) to move into an assisted living facility but could nonetheless benefit from having family nearby to provide them with help with some aspects of day-to-day independent living. The new tax credit program provides the opportunity for that empty nester couple to stay in their family home and renovate that home to provide living space for all family members, and to do so on a tax-assisted basis.

Similarly, parents of disabled adult children who are not capable of fully independent living often have great difficulty in finding appropriate (and affordable) residential facilities in which those adult children can live. In such cases, being able to provide a self-contained living space for those disabled adult children within their existing home, while still being able to provide the necessary degree of supervision, would provide an additional option for such families.

The phrase which usually comes to mind when describing such living arrangements is a “granny flat”, which implies a separate, smaller structure on the same property as the existing home. While that is certainly an available option under this program, it’s not the only one. The new tax credit will be available for “renovations, alterations or additions” to an existing dwelling which results in the creation of a “secondary housing unit” for the elderly or disabled relative. The only requirement is that the new housing unit to be used by the qualifying relative must be self-contained, having a private entrance, kitchen, bathroom facilities, and sleeping area. So, renovations eligible for the new credit would include a separate, smaller housing unit on the same property, an addition built on to the existing home, or simply renovations made to the existing home without changing the size of that home. As long as the requirement of being a self-contained housing unit having a separate entrance, kitchen, bathroom, and sleeping area is met, the configuration of the renovated/newly constructed space is entirely up the individuals doing that renovation or construction.

Regardless of the configuration of the changes, it's readily apparent that the cost of carrying out such renovations or construction will be substantial. Consequently, the refundable tax credit which can be claimed under the new program will be equal to 15% of eligible renovation/construction expenses incurred, to a maximum of $50,000 in such expenses. In other words, a refundable tax credit of $7,500 can be claimed where $50,000 or more in eligible expenses are incurred. Where expenses incurred are less than that amount, the refundable tax credit claimable will be 15% of actual expenses incurred. Regardless of amount, all expense claims must be supported by receipts.

The range of such expenses which will qualify for the credit is broad, and includes the cost of labour and professional services, building materials, fixtures, and equipment rentals and permits. Costs incurred for furniture or appliances for the new premises do not qualify for the credit, nor do any costs (i.e., interest costs) of financing the renovation or new construction.

The new credit will be available for the 2023 and subsequent tax years, so only work performed and paid for and/or goods acquired after the end of 2022 will be eligible for the credit. An eligible renovation/construction is considered to be completed when the work passes a final inspection, and the tax credit is then claimed for the taxation year in which the project is completed.

The information above outlines the general framework of the new tax credit program; as with all such programs, there are detailed requirements which must be fulfilled. Those details can be found in the budget announcement of the Multi-Generational Home Renovation Tax Credit, which is available on the Finance Canada website at https://budget.gc.ca/2022/report-rapport/tm-mf-en.html#a2. The federal government has also recently carried out a consultation process with respect to this credit and other 2022 budget measures, and that consultation process ended on September 30, 2022. Any changes to the program terms arising from that consultation process should be made available on the Finance Canada website prior to the program implementation date of January 1, 2023.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required) to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government by a specified deadline. And, although the rate of compliance among Canadian taxpayers is very high – more than 30 million individual income tax returns for the 2021 tax year were filed with the Canada Revenue Agency between early February and mid-September of 2022 – there are, inevitably, those who do not either file or pay on time.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required) to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government by a specified deadline. And, although the rate of compliance among Canadian taxpayers is very high – more than 30 million individual income tax returns for the 2021 tax year were filed with the Canada Revenue Agency between early February and mid-September of 2022 – there are, inevitably, those who do not either file or pay on time.

There are a lot of reasons why some Canadians don’t file their returns or pay their taxes on a timely basis, and almost all of them are based on a lack of understanding of how our tax system works, or on incorrect information about that system. In addition, each year there are some Canadians who file returns in which income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed.

While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate, isn’t high, there are a lot of such returns when measured by absolute numbers. And, although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover that amount.

With all of that in mind, several years ago the Canada Revenue Agency instituted a program – the Voluntary Disclosure Program, or VDP –  intended to encourage non-compliant taxpayers to come forward and get their tax affairs straightened out. The incentive to do so arises from the fact that, in most cases, while taxpayers who participate in the VDP program have to pay outstanding tax amounts owed, plus interest, they avoid the penalties which would normally be imposed and, in addition, avoid the risk of criminal prosecution. And, in some circumstances, even required interest payments can be reduced.

To qualify for relief under the VDP, an application made with respect to non-compliance with income tax filing and payment obligations must:

• be voluntary (meaning that it is done before the taxpayer becomes aware of any compliance or enforcement action by the CRA);
• be complete;
• involve the application or potential application of a penalty;
• include information that is at least one year past due; and
• include payment of the estimated tax owing.

The VDP program includes two separate “tracks” for income tax disclosures – the Limited Program and the General Program – and the kind and extent of relief available depends on the track to which a particular application is assigned.

While the Canada Revenue Agency will ultimately make the determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the harsher Limited Program to instances in which applications disclose non-compliance which appears to include intentional (as distinct from inadvertent) conduct on the part of the taxpayer. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

• the dollar amounts involved;
• the number of years of non-compliance;
• the sophistication of the taxpayer;
• how quickly the taxpayer acted to correct their non-compliance after becoming aware of it;
• whether there has been deliberate or wilful default or carelessness amounting to gross negligence on the part of the taxpayer; and
• whether the disclosure was made after the taxpayer became aware of the CRA’s intended specific focus on such area of taxpayer compliance.

Those whose applications are accepted under the Limited Program will not be subject to criminal prosecution and will be exempt from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer. Interest on outstanding tax balances will be payable, however, and other penalties will be levied.

Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance – that is, for the years preceding the three most recent years of returns required to be filed, or to be corrected. For example, a taxpayer who makes an application to the VDP in 2022 with respect to his or her failure to file returns for the 2016 through 2020 taxation years may be provided with interest relief with respect to taxes owed for the 2016, 2017, and 2018 taxation years. Such relief is generally equal to 50% of interest owed – in other words, the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years. No interest relief will, however, be provided on tax amounts owed for the 2019 and 2020 taxation years. Since interest charges levied by the CRA are, by law, higher than current commercial rates (for instance, the rate levied for the fourth quarter of 2022 is 7%) and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

In order to benefit from the VDP, taxpayers must first make an application to the Program. That application must include payment of the estimated taxes owing, as a condition of participation in the VDP. Where a taxpayer is financially unable to make that tax payment, he or she can request that the CRA consider a payment arrangement.

The decision to apply to the VDP and to “come clean” about all previous tax transgressions is something that most taxpayers will likely consider with considerable trepidation. Those who are unsure about whether they want to move forward with a VDP application have the option of using the CRA’s “pre-disclosure discussion service”. As the name implies, that service allows taxpayers, or their representatives, to participate in preliminary discussions with a CRA official, on an anonymous basis, to gain some knowledge about the VDP program, the process involved, and the potential relief available.

Taxpayers who decide to move forward with an application to the VDP can complete a file Form RC199 Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. Once the application is received, the CRA will check to make certain that the applicant is eligible to apply and that all of the required information, documentation, and payment has been sent. The next step is for the CRA to evaluate the application to ensure that the criteria for participation in the VDP are satisfied and, if so, to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. If the decision made is that the application is not eligible for the VDP, the taxpayer will also be advised in writing, with reasons, of the CRA’s decision to deny the application. Individual taxpayers can also check on the status of their application by calling the Individual Income Tax Enquiries line at 1-800-959-8281.

Finally, taxpayers should recognize that the VDP Program can’t be used as a kind of “get out of jail free card” with respect to repeated failures to meet tax filing and payment obligations. The CRA website makes it clear that the Agency expects taxpayers who have benefitted from the VDP to thereafter meet their tax obligations, and a second review will be provided for the same taxpayer only in unusual situations where the circumstances are beyond the taxpayer’s control.

Detailed information on the VDP program can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html.

Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February. There are, however, some circumstances in which an RRSP contribution must (or should) be made by December 31, in order to achieve the desired tax result.

Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February. There are, however, some circumstances in which an RRSP contribution must (or should) be made by December 31, in order to achieve the desired tax result. 

Similarly, most Canadians who have opened a registered retirement income fund (RRIF) are aware that they are required to make a withdrawal of a specified amount from that RRIF each year, with the percentage withdrawal amount based on the RRIF holder’s age – although few are aware of when and how that required withdrawal is calculated. 

The rules around tax-free savings accounts (TFSAs) are more flexible, but it is nonetheless the case that advantages can be obtained (and disadvantages avoided) by carefully timing TFSA withdrawals and recontributions based on the calendar year end.

In other words, while the basic rules with respect to contributions to and withdrawals from each of these savings plans are relatively straightforward, there are nonetheless benefits to be received from careful consideration of the detailed rules – and some exceptions from those rules.

What follows is an outline of steps which should be considered, before the end of the 2022 calendar year, by Canadians who have an RRSP, an RRIF, and/or a TFSA – or maybe all three.

Timing of RRSP contributions

When you are making a spousal RRSP contribution

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plan (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2022, the contributor can claim a deduction for that contribution on his or her return for 2022. The spouse can then withdraw that amount as early as January 1, 2025 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2023, the contributor can still claim a deduction for it on the 2022 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2026. This is an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively near future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should an unforeseen need to withdraw funds arise.

When you are turning 71 during 2022

Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age – usually by converting the RRSP into an RRIF or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31 of that year. Once that deadline has passed, no further RRSP contributions are possible.

RRIF withdrawals for 2022

Under Canadian law, anyone who has a registered retirement income fund (RRIF) is required to make a minimum withdrawal from that RRIF each year. The amount of the withdrawal is calculated as a specified percentage of the balance in the RRIF at the beginning of the calendar year, with that percentage based on the age of the RRIF holder at that time.

During the second quarter of 2022, the Toronto Stock Exchange experienced a significant loss in value – down by 13.9%. Since required RRIF withdrawal amounts are based on the value of the RRIF at the start of the calendar year, many RRIF holders will, unfortunately, be faced with the prospect of having to make withdrawals from a portfolio whose value has declined since the beginning of 2022. While there is no way of avoiding the requirement to withdraw that minimum amount from one’s RRIF, and to pay tax on the amount withdrawn, taxpayers who do not have immediate need of such funds can consider contributing those amounts to a TFSA. Where that is done, the funds can be invested and continue to grow, and neither the original contribution nor the investment gains will be taxable when the funds are withdrawn from the TFSA.

Planning for TFSA withdrawals and contributions

Each Canadian aged 18 and over can make an annual contribution to a tax-free savings account (TFSA) – the maximum contribution for 2022 is $6,000. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount can be re-contributed, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned (or the need to make such a withdrawal might arise) within the next few months, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA on or before December 31, 2022 will have the amount which is withdrawn added to his or her TFSA contribution limit for 2023, which means it can be re-contributed, where finances allow, as early as January 1, 2023. If the same taxpayer waits until January of 2023 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2024.

The approach of the calendar year end doesn’t usually prompt Canadians to consider the details of making contributions to an RRSP or withdrawals from a TFSA or a RRIF. There is, however, no flexibility in the deadlines for taking such actions, and considering what steps may be needed or advisable now means one less thing to remember as the December 31 deadline nears.

Since early 2022, the finances of Canadian households have been hit with what Statistics Canada has called a “trifecta of market challenges”, which increasingly stretched and squeezed the efforts of Canadians to maintain their financial stability during the second quarter (April 1 to June 30) of this year.

Since early 2022, the finances of Canadian households have been hit with what Statistics Canada has called a “trifecta of market challenges”, which increasingly stretched and squeezed the efforts of Canadians to maintain their financial stability during the second quarter (April 1 to June 30) of this year.

The Toronto Stock Exchange, which had risen steadily over the past two years, dropped by 13.8% during the second quarter of 2022. Conversely, interest rates have increased significantly this year, as has the rate of inflation. In early March 2022, the Bank Rate (from which all other commercial interest rates are derived) stood at .50%. As of June 30, 2022, that Bank Rate had risen by 1.25%, from .50% to 1.75%. Inflation followed a similar course, with year-over-year increases in the overall Consumer Price Index hitting 6.8%, 7.7%, and 8.1% in, respectively, April, May, and June 2022. Even more problematic is that in each of those months increases in the cost of many non-discretionary spending items – particularly food – were significantly higher than the overall rate of inflation.

Given the combined effect of each of these changes, it’s clear that Canadian households are under significant financial pressure. For many Canadians, increases in the cost of living have negatively impacted how far their disposable income can stretch, while they are coping at the same time with increased costs for making at least the minimum required payments on their debts. The extent of that financial pressure and the measures which Canadian households are taking to respond to it are made clear by a recent series of reports on the current state of Canadian household finances. Two of those reports were issued by major credit rating agencies – Equifax Canada and TransUnion – while the third was a report by Statistics Canada on the state of Canadian household finances.

While the reports come from separate sources, they all tell the same story, which can be summed up by a headline in the StatsCan report – “Household borrowing reaches near record pace”. One of the measures by which StatsCan measures household debt is the ratio of such debt as a percentage of household disposable income. In the second quarter of 2022, that figure was 182% – in other words, Canadian households owed, on average, $182 for every $100 of household disposable income.

The actual debt amounts behind that percentage figure are outlined in the Equifax and TransUnion reports. Consumer debt can be divided into a number of categories, including credit cards, personal loans, lines of credit, and mortgages. The TransUnion report compared average balances in each of those categories from the second quarter of 2021 to the second quarter of 2022. In all categories, average individual balances were higher in 2022: specifically, mortgage balances had increased by 9.5% (to $333,788), credit card balances had increased by 10.9% (to $3,825), and balances owing on personal loans had increased by 20.3%. In the second quarter of 2022, the average amount owed per individual consumer in the personal loans category (which does not include automobile loans or lines of credit) was $56,723.

Significantly, increases in spending and debt levels were also apparent when comparing the first and second quarters of 2022. According to the Equifax report, credit card balances rose by 6.4% in the April to June period, as compared to the first three months of 2022.

Given all of those figures, it seems that Canadian households are relying more and more on credit – whether through increased use of credit cards or taking out personal loans – to meet increased day-to-day costs. And even though those increases (in inflation and interest rates) have only really begun to bite over the past six months or so, the impact of increased debt levels is already becoming apparent. Again according to the Equifax report, consumer insolvency rose during the second quarter to the highest levels since the start of the pandemic. Many individuals who can no longer manage their debt obligations end up by making what is called a “consumer proposal” in which creditors are asked to accept payment of less than the total debt owed, in order to allow the debtor to discharge those debt obligations. During the second quarter of 2022, the number of such consumer proposals made, when compared to same period in 2021, rose by just under 21%.

While all of these figures show the financial stress which most Canadian households are feeling, perhaps the most significant figure is one which cannot be accounted for in the second quarter reports. During the second quarter of this year, the Bank Rate increased from .50% to 1.75%. During the third quarter (which ends on September 30), that Bank Rate increased by another 1.75%, to 3.50%. In other words, the Bank Rate, on which interest rates payable by consumers are based, has doubled since the end of the second quarter. The effects of that change will undoubtedly become apparent when consumer financial reports for the third quarter of 2022 are issued later this year.

While no individual Canadian or household can do much to affect interest rates or the rate of inflation, that doesn’t mean that there is no help available for those who are struggling with current financial realities. Credit Counselling Canada, a non-profit organization, can provide individuals and families with assistance with budgeting and managing debt obligations including, where necessary, reaching arrangements with creditors to re-structure existing debt and re-payment obligations. The Agency’s website, which outlines their services and provides additional contact information for credit counsellors in each Canadian province and territory, can be found at https://creditcounsellingcanada.ca/.

The Equifax and TransUnion reports for the second quarter of 2022 can be found online at https://www.consumer.equifax.ca/about-equifax/press-releases/-/blogs/financial-stress-mounts-credit-card-demand-and-debt-rise and at https://newsroom.transunion.ca/high-interest-rate-and-inflation-challenges-create-financial-stress-for-a-segment-of-vulnerable-canadian-borrowers/, and the Statistics Canada release is available on the Agency’s website at The Daily — National balance sheet and financial flow accounts, second quarter 2022 (statcan.gc.ca).

One of the most valuable tax and investment strategies available to Canadians is home ownership. While the real estate market can (and does) go and up down, home ownership has proven to be, over the long term, a reliable way of building net worth.

One of the most valuable tax and investment strategies available to Canadians is home ownership. While the real estate market can (and does) go and up down, home ownership has proven to be, over the long term, a reliable way of building net worth.

The value of home ownership as a wealth-building tool is significantly increased by the tax rules which apply when a homeowner sells his or her home. Essentially, where an owner-occupied home is sold, the gain realized on that home which would, under ordinary tax rules, be included in income is instead received tax-free.

For example, a homeowner who purchased his or her home in 2000 for $200,000 and sells it in 2022 for $800,000 will earn a gain of $600,000. Half of that amount, or $300,000 would, under ordinary tax rules, constitute a taxable capital gain, on which the amount of combined federal-provincial tax could be close to $150,000. However, because of a tax rule known as the principal residence exemption, the entire gain realized is not included in income, and no tax is payable on that $600,000 amount.

It's not hard to see that being able to claim the principal residence exemption on the sale of a residential property is a huge benefit – so much so that the federal government has become concerned that individuals who are “flipping” residential real estate are claiming tax benefits to which they are not entitled on the income earned from such sales, including making claims for the principal residence exemption.

The federal government has chosen to address this situation with a change which was announced in the 2022 federal Budget and which will take effect for residential property sales which take place on or after January 1, 2023. The proposed new “deeming” rule will provide that, where an individual sells a residential property within 365 days of acquiring it, that property will be considered a “flipped property” and profits realized will be treated as business income and will be fully taxable, unless the sale takes place in relation to one or more enumerated “life events” or circumstances. In effect, the rule seems to place the onus on the taxpayer who sells a residential property within one year after purchase to show that his or her reasons for selling within one year of purchase either fall under one of the exempted “life event” circumstances or, if not, that the facts are such that he or she is nonetheless entitled to claim the principal residence exemption on any gain realized from the sale.

The new rule will not apply where a taxpayer sells a property within 365 days of acquiring it, and the sale of that property can reasonably be considered to have occurred due to, or in anticipation of, one or more of the following events:

• Death: the death of the taxpayer or a related person.
• Household addition: one or more persons related to the taxpayer joining the taxpayer’s household or the taxpayer joining the household of a related person’s household (e.g., birth of a child, adoption, care of an elderly parent).
• Separation: the breakdown of a marriage or common-law partnership, where the taxpayer has been living separate and apart from their spouse or common-law partner for a period of at least 90 days prior to the disposition.
• Personal safety: a threat to the personal safety of the taxpayer or a related person, such as the threat of domestic violence.
• Disability or illness: the taxpayer or a related person suffering from a serious disability or illness.
• Employment change: a change in employment for the taxpayer or their spouse or common-law partner.
• Involuntary termination: the employment of the taxpayer or their spouse or common-law partner is terminated by their employer;
• Insolvency: insolvency of the taxpayer.
• Involuntary disposition: the expropriation or the destruction of the taxpayer’s property.

The list of taxpayer circumstances in which the new rule will not apply to a sale within one year is undeniably broad; however, many of the criteria used to determine eligibility for an exemption from the new rule are, in some instances, quite subjective. A sale within 365 days of purchase which is the result of “serious disability or illness” would be exempt from the new rule, but it’s not clear what criteria would be applied to determine what constitutes a serious illness or disability, or who would make that determination.

It's clear that the federal government’s target for the new deeming rule is individuals who buy residential properties intending to sell quickly for a profit and not individuals and families who, for any number of reasons, decide to sell within a year of buying their home. However, the net for the new rule has been cast very broadly and it’s unclear how that new rule, as currently drafted, will be efficiently administered in a way which achieves the government’s objectives, without overreach. Fortunately, the federal government will, prior to enacting this new rule four months from now, in January 2023, be carrying out a consultation process in which these or any other issues may be raised. Any interested taxpayer can contribute to that consultation process, which will continue until September 30, 2022. More information on how to participate can be found on the Finance Canada website at Government delivering on Budget 2022 commitments to Canadians - Canada.ca.

Transitioning into retirement is a complex process, one which involves decisions around finances (present and future) as well as one’s way of life. While it was once typical for an individual to work full time until retiring (usually at age 65), the word “retirement” no longer has a single meaning – in fact, it’s now the case that almost every individual’s retirement plans look at little different than anyone else’s. Some will take a traditional retirement of moving from a full-time job into not working at all, while others may stay working full-time past the traditional retirement age of 65. Still others will leave full-time employment, but continue to work part-time, either out of financial need or simply from a desire to stay active and engaged in the work force.

Transitioning into retirement is a complex process, one which involves decisions around finances (present and future) as well as one’s way of life. While it was once typical for an individual to work full time until retiring (usually at age 65), the word “retirement” no longer has a single meaning – in fact, it’s now the case that almost every individual’s retirement plans look at little different than anyone else’s. Some will take a traditional retirement of moving from a full-time job into not working at all, while others may stay working full-time past the traditional retirement age of 65. Still others will leave full-time employment, but continue to work part-time, either out of financial need or simply from a desire to stay active and engaged in the work force.

The flexible nature of retirement plans is reflected in changes made over the past decade to Canada’s government-run retirement income programs, particularly the Canada Pension Plan (CPP). It’s possible to begin receiving CPP benefits as early as age 60 and as late as age 70, with the amount of benefit increasing with each month that receipt of benefits is deferred. Many Canadians now choose to begin receiving their CPP benefits while continuing to participate in the work force, part-time or full-time.

At one time, beginning to receive CPP retirement benefits meant that, even for those who chose to remain in the work force, no further CPP contributions were allowed. In 2012 that changed, with the introduction of the CPP Post-Retirement Benefit. The availability of that benefit means that those who are aged 65 to 70 and continue to work while receiving CPP retirement benefits must decide whether or not to continue making CPP contributions. Such individuals who make the choice to continue to contribute to the Canada Pension Plan will see an increase in the amount of CPP retirement benefit they receive each month for the remainder of their lives. That increase is the CPP post-retirement benefit or PRB.

The rules governing the availability of the PRB differ, depending on the age of the taxpayer. In a nutshell, an individual who has chosen to begin receiving the CPP retirement benefit but who continues to work will be subject to the following rules:

• Individuals who are 60 to 65 years of age and continue to work are required to continue making CPP contributions.
• Individuals who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. To stop contributing, such an individual must fill out form https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html. A copy of that form must be given to the individual’s employer and the original sent to the Canada Revenue Agency (CRA). An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of the CPT30 form to each employer.

A decision to stop contributing can be changed, and contributions resumed, but only one such change can be made per calendar year. To make that change, the individual must complete section D of CRA form https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html, give one copy of the form to their employer(s), and send the original to the CRA

• Individuals who are over the age of 70 and are still working cannot contribute to the CPP.

Overall, the effect of the rules is that CPP retirement benefit recipients who are still working and who are under aged 65, as well as those who are between 65 and 70 and choose not to opt out, will continue to make contributions to the CPP system and will continue therefore to earn new credits under that system. As a result, the amount of CPP retirement benefits which they are entitled to will increase with each successive year’s contributions.

Where an individual makes CPP contributions while working and receiving CPP retirement benefits, the amount of any CPP post-retirement benefit earned will automatically be calculated by the federal government (no application is required), and the individual will be advised of any increase in their monthly CPP retirement benefit each year. The PRB will be paid to that individual automatically the year after the contributions are made, effective January 1 of that second year. Since the federal government doesn’t have all of the information needed to make such calculations until T4s and T4 summaries are filed by the employer by the end of February, the first PRB payment is usually made in a lump sum amount in the month of April. That lump sum amount represents the PRB payable from January to April. Thereafter, the PRB is paid monthly and combined with the individual’s usual CPP retirement benefit in a single payment.

While the rules governing the PRB can seem complex (and certainly the actuarial calculations are), the individual doesn’t have to concern him or herself with those technical details. For CPP retirement benefit recipients who are under age 65 or over 70, there is no decision to be made. For the former, CPP contributions will be automatically deducted from their paycheques and for the latter, no such contributions are allowed.

Individuals in the middle group – aged 65 to 70 – will need to make a decision about whether it makes sense, in their individual circumstances, to continue making contributions to the CPP.

While every situation is different, there are some general rules of thumb which will be useful in determining whether or not to continue making contributions to the CPP. Generally speaking, continuing to contribute makes the most sense for individuals whose current CPP retirement pension is significantly less than the maximum allowable benefit (which is, for 2022, $1,253.59 per month), as making such contributions will mean an increase in the individual’s CPP retirement benefit each month for the rest of his or her life. Conversely, for individuals who are already receiving the maximum CPP retirement benefit, or even close to it, there is likely little or no benefit to be derived from continuing to contribute (especially for those who are self-employed and must therefore pay both the employer and employee contribution amounts). 

More information on the PRB generally is available on the CRA website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement.html.

This year, for the first time since 2019, most (if not all) post-secondary students will be preparing to go to (or return to) university or college for in-person learning. While that’s an exciting prospect after two years of pandemic restrictions, starting or returning to post-secondary education is also an expensive undertaking.  There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and expensive rental market. Those who choose to live in residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

This year, for the first time since 2019, most (if not all) post-secondary students will be preparing to go to (or return to) university or college for in-person learning. While that’s an exciting prospect after two years of pandemic restrictions, starting or returning to post-secondary education is also an expensive undertaking.  There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and expensive rental market. Those who choose to live in residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

While the way in which learning is delivered may have changed and changed again over the past two and a half years, the financial realities have not. Regardless of how post-secondary learning is structured and delivered, it is expensive. Fortunately, there are also tax credits and benefits which can be claimed to offset such costs.

The tax credits and deductions which can be claimed by post-secondary students (or their spouses, parents, or grandparents) in relation to the 2022–23 academic year are summarized below.

Tuition fees

The good news is that a federal tax credit continues to be available for the single largest cost associated with post-secondary education – the cost of tuition. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (which would include most Canadian universities and colleges) can still claim a non-refundable federal tax credit of 15% of such tuition costs. Many of the provinces and territories (excepting Alberta, Ontario, and Saskatchewan) also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.

The charges imposed on post-secondary students under the heading of “tuition” include myriad costs which may differ, depending on the particular program or institution, and not all of those costs will qualify as “tuition” for purposes of the tuition tax credit. The following specific amounts do, however, constitute eligible tuition fees for purposes of that credit:

• admission fees;
• charges for use of library or laboratory facilities;
• exemption fees;
• examination fees (including re-reading charges) that are integral to a program of study;
• application fees (but only if the student subsequently enrolls in the institution);
• confirmation fees;
• charges for a certificate, diploma, or degree;
• membership or seminar fees that are specifically related to an academic program and its administration;
• mandatory computer service fees; and
• academic fees.

The following charges, however, do not constitute tuition fees for purposes of the credit:

• extracurricular student social activities;
• medical expenses;
• transportation and parking;
• board and lodging;
• goods of enduring value that are to be retained by students (such as a microscope, uniform, gown, or computer);
• initiation fees or entrance fees to professional organizations including examination fees or other fees (such as evaluation fees) that are not integral to a program of study at an eligible educational institution;
• administrative penalties incurred when a student withdraws from a program or an institution;
• the cost of books (other than books, compact disks or similar material included in the cost of a correspondence course when the student is enrolled in such a course given by an eligible educational institution in Canada); and
• courses taken for purposes of academic upgrading to allow entry into a university or college program. These courses would usually not qualify for the tuition tax credit as they are not considered to be at the post-secondary school level.

Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, such fees and charges are limited to $250 unless the fees are required to be paid by all full-time students or by all part-time students.

At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where, as is often the case, a student doesn’t have tax payable for the year because his or her income isn’t high enough, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent or grandparent.

Rent, food, and other personal and living expenses

Unfortunately, although housing and food costs will take up a big portion of each student’s budget, there is not (and never has been) a tax deduction or credit which is claimable for such costs. In all cases, living costs incurred by a post-secondary student (whether on campus or off) are characterized as personal and living expenses, for which no tax deduction or credit is allowed.

Student debt

Most post-secondary students in Canada must incur some amount of debt in order to complete their education, and repayment of that debt is typically not required until after graduation. Once repayment starts, a tax credit can be claimed for the amount of interest being paid on such debt, in some circumstances.

Students who are still in school and arranging for loans to finance their education should be mindful of the rules which govern that student loan interest tax credit, since decisions made while still in school with respect to how post-secondary education will be financed can have tax repercussions down the road, after graduation. That’s because while interest paid on a qualifying student loan is eligible for the credit, only some types of student borrowing will qualify for that credit. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.

It’s not uncommon (especially for students in professional programs, like law or medicine) to be offered lines of credit by a financial institution, often at advantageous or preferential interest rates. As well, financial institutions sometimes offer, once a student has graduated and begun to repay a government-sponsored student loan, to consolidate that student loan with other kinds of debt, also at advantageous interest rates. However, it should be kept in mind that interest paid on that line of credit (or any other kind of borrowing from a financial institution to finance education costs) will never be eligible for the student loan interest tax credit.

As explained in the Canada Revenue Agency publication on the subject: “[I]f you renegotiated your student loan with a bank or another financial institution, or included it in an arrangement to consolidate your loans, you cannot claim this interest amount”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit.

Students who are contemplating borrowing from a financial institution rather than getting a government student loan (or considering a consolidation loan which incorporates that student loan amount) must remember, in evaluating the benefit of any preferential interest rate offered by a financial institution, to take into account the loss of the student loan interest tax credit on that borrowing in future years.

Other credits and deductions

While the available student-specific deductions and credits are more limited than they were in previous taxation years, there are nonetheless a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary students (for instance, deductions for moving costs). The Canada Revenue Agency publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The current version of that guide, entitled Students and Income Tax, is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html. That guide was last revised in December of 2021 and the references in it are to the 2021 taxation year. However, it is safe to assume that the same rules will apply for 2022.

In this year’s budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase of a first home. The most significant of those measures was the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

In this year’s budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase of a first home. The most significant of those measures was the Tax-Free First Home Savings Account (FHSA) which, as the name implies, allows first time home buyers to save on a tax-assisted basis (within prescribed limits) toward such a purchase.

Finance Canada has now released further details of the FHSA and, while the general structure of the FHSA program remains the same as that outlined in the 2022 federal Budget, the most recent announcement includes some changes which increase the flexibility of plan terms, to the benefit of taxpayers.

 As part of its announcement, Finance Canada confirmed that, while the FHSA program may not be available until part way through 2023, eligible participants will still be entitled to make a full contribution for the 2023 tax year.

Contributing to an FHSA

Under the program terms, any resident of Canada who is at least 18 years of age and who has not lived in a home which he or she owns in any of the current or four previous years can open an FHSA and contribute to that plan annually. Planholders will be able to contribute up to $8,000 per year to their plan, regardless of their income for that year. The $8,000 per year contribution must be made by the end of the calendar year and planholders will be permitted to carry forward unused portions of their annual contribution limit, to a maximum of $8,000. For example, an individual who contributes $4,000 to an FHSA in 2023 would be allowed to contribute $12,000 in 2024 (representing $8,000 in contribution for 2024 plus $4,000 remaining from 2023). Regardless of the schedule on which contributions are made, there is a lifetime limit of $40,000 in contributions for each individual. It should be noted that the ability to carry forward contribution room to a future year is a change from the original budget announcement, which indicated that no such carryforward would be allowed.

The real benefit of the FHSA program lies in the tax treatment of contributions. Individuals who contribute any amount in a year can deduct that amount from income, in the same manner as a registered retirement savings plan (RRSP) contribution. And, as with an RRSP, an individual is not required to claim a deduction for a contribution made during the year – he or she can make that contribution to an FHSA during a particular year, but wait to deduct that amount from income in a future year. When the planholder withdraws funds from the FHSA to purchase a first home, those withdrawal amounts – representing both original contributions and investment income earned by those contributions – are not taxed.

While funds are held within the FHSA, they can be held in cash, or can be invested in a broad range of investment vehicles. Specifically, such funds can be invested in mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs). Regardless of the investment vehicle chosen, interest, dividends, or any other type of investment income earned by those funds grows on a tax-free basis – that is, such investment income is not taxed as it is earned.  

Withdrawing funds from an FHSA

Given the generous tax treatment accorded contributions to an FHSA, there are inevitably some qualifications and restrictions placed on the use the plans. First, amounts withdrawn from an FHSA are received tax free only if such withdrawals are “qualifying withdrawals”, meaning that the funds are used to make a qualifying home purchase. In order for a withdrawal to be a “qualifying withdrawal”, the planholder must have a written agreement to buy or build a home (which must be located in Canada) before October 1 of the next year. In addition, the planholder must intend to occupy that home within a year after buying or building it.

Amounts withdrawn from an FHSA and used for any other purpose are not qualifying withdrawals and the funds withdrawn are fully taxable in the year the withdrawal is made.

While Canadians who open an FHSA and make contributions to it are certainly hoping to be able to purchase a home, there are any number of reasons why their plans could change. Fortunately, the rules governing FHSAs provide planholders with a great deal of flexibility when it comes to the disposition of funds saved within a FHSA, in that planholders can transfer all funds held within their FHSA to an RRSP or to a registered retirement income fund (RRIF) on a tax-free basis. Significantly, the amount which is transferred from an FHSA to an RRSP isn’t reduced or limited in any way by the individual’s RRSP contribution room. However, transfers made to an RRSP in these circumstances do not replenish FHSA contribution room – in other words, each eligible individual gets only one opportunity to save for the purchase of a first home using an FHSA. And, of course, any amounts transferred from an FHSA to an RRSP or RRIF will be taxable on withdrawal, in the same way as any other RRSP or RRIF withdrawal.

The ability to transfer funds between plans also works in the other direction. Individuals who have managed to accumulate funds within an RRSP will be allowed to transfer such funds to an FHSA (subject to the $8,000 annual and $40,000 lifetime contribution limits). While no deduction is permitted for funds transferred from an RRSP to an FHSA, that transfer does take place on a tax-free basis. Transfers made from an RRSP in these circumstances do not, however, replenish RRSP contribution room..

Closing an FHSA

Individuals who open an FHSA have 15 years from the date the plan is opened to use the funds for a qualifying home purchase. (Taxpayers must also close their FHSA by the end of the year in which they turn 71.)  While these rules do place some pressure on planholders with respect to the timing of their home purchase, there is some flexibility. Specifically, planholders who have not made a qualifying home purchase within the required 15-year time frame must then close the FHSA plan, but can still transfer funds held in the FHSA to their RRSP on a tax-free basis, and without being limited by the amount of any available RRSP contribution room.

Finally, the FHSA program is complementary to the existing Home Buyers’ Plan (HBP). Under that Plan, an individual can withdraw up to $35,000 from his or her RRSP and use those funds for the purchase of a first home. Any such funds withdrawn must then be repaid to the RRSP over the next 15 years. The Home Buyers’ Plan will continue to be available to Canadians – however, an individual will not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.

The recent announcement made by Finance Canada with respect to the FHSA program included the announcement of a consultation process with respect to the rules governing such plans. That consultation process, which is now open, will continue until September 30, 2022. Details of the consultation process, as well as a backgrounder outlining the design of the FHSA program, can be found on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2022/08/government-delivering-on-budget-2022-commitments-to-canadians.html and at https://www.canada.ca/en/department-finance/news/2022/08/design-of-the-tax-free-first-home-savings-account.html.

By the beginning of August almost every Canadian has filed his or her income tax return for the previous year and has received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations for the year are now in the past.

By the beginning of August almost every Canadian has filed his or her income tax return for the previous year and has received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations for the year are now in the past.

It is, therefore, a little surprising to receive a communication from the CRA at this time of year and more than a little unsettling to find out that the Agency has some further questions about the tax return filing that the taxpayer thought was already completed. Notwithstanding, that’s an experience that millions of taxpayers will have over the next few weeks and months.

Between February 7and July 17 of this year, the Canada Revenue Agency received and processed just under 29.5 million individual income tax returns filed for the 2021 tax year and issued a Notice of Assessment in respect of each one of those returns. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and cannot possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.

In addition, the CRA has, for many years, been encouraging taxpayers to fulfill their filing obligations online, through one of the Agency’s electronic filing services. This year, just over 27 million (or 92.1%) of individual returns for 2021 were filed by electronic means. While e-filing means that the turnaround for processing of returns is much quicker, there is, by definition, no paper involved. The Canadian tax system has always been what is termed a “self-assessing” system, in which taxpayers report income earned and claim deductions and credits to which they believe they are entitled. Prior to the advent of e-filing there were means by which the CRA could easily verify claims made by taxpayers. Where returns were paper-filed, taxpayers were usually required to include receipts or other documentation to prove their claims, whatever those claims were for. For the over 92% of returns which were filed this year by electronic means, no such paper trail exists. Consequently, the potential exists for misrepresentation of such claims (or simple reporting errors) on a large scale.

The CRA’s response to that risk is to conduct a variety of review programs, some of them before a Notice of Assessment is issued for the taxpayer’s return, and others after that Notice of Assessment has been issued and sent to the taxpayer. Regardless of the timing, in all cases the purpose of the review is to obtain from the taxpayer the information or documentation needed to support claims for deductions or credits made by the taxpayer on the return. The CRA also administers a Matching Program, in which information reported on the taxpayer’s return (both income and deductions) is compared to information provided to the CRA by third-party sources (like T4s filed by employers or T5s filed by banks or other financial institutions).

Being selected for review under either program means, for the individual taxpayer, the possibility of receiving unexpected correspondence, or a telephone call, from the CRA. Receiving such correspondence or call from the tax authorities is almost guaranteed to unsettle the recipient taxpayer, who may immediately conclude that he or she has done something very wrong and is facing a big tax bill. However, in the vast majority of cases, the contact is just a routine part of the Agency’s processing review mandate.

A taxpayer whose return is selected as part of a processing review program will be asked to provide verification or proof of deductions or credits claimed on the return – usually by way of receipts or similar documentation. Or, where figures which appear on an information slip – for instance, the amount of employment income earned – don’t match up with the amount of employment income reported by the taxpayer, he or she will be contacted to provide an explanation of the discrepancy.

Of course, most taxpayers are not concerned so much with the kind of program or programs under which they are contacted as they are with why their return was singled out for review or follow-up. Many taxpayers assume that it’s because there is something wrong on their return, or that the letter is the start of a tax audit process, but that’s not necessarily the case. Returns are selected by the CRA for post-assessment review for a number of reasons. Canada’s tax laws are complex and, over the years, there are areas in which the CRA has determined that taxpayers are more likely to make errors on their return. Consequently, a return which includes claims in those areas (like dependant tax credit claims, claims for medical expenses, moving expenses, or tuition tax credits) may have an increased chance of being reviewed. Where there are deductions or credits claimed by the taxpayer which are significantly different or greater than those claimed in previous returns, that may attract the CRA’s attention. And, if the taxpayer’s return has been reviewed in previous years and, especially, if an adjustment was made following that review, subsequent reviews may be more likely. Finally, many returns are picked for the processing review programs simply on the basis of random selection.  

Regardless of the reason for the follow-up, the process is the same. Taxpayers whose returns are selected for review will be contacted by the CRA, usually by letter, identifying the deduction or credit for which the CRA wants documentation or the income or deduction amount about which a discrepancy seems to exist. The taxpayer will be given a reasonable period of time – usually a few weeks from the date of the letter – in which to respond to the CRA’s request. That response should be in writing, attaching, if needed, the receipts or other documentation which the CRA has requested. All correspondence from the CRA under its review programs will include a reference number, which is usually found in the top right-hand corner of the CRA’s letter. That number is the means by which the CRA tracks the particular inquiry, and should be included in the response sent to the Agency. It’s important to remember, as well, that it’s the taxpayer’s responsibility to provide proof, where requested, of any claims made on a return. Where a taxpayer does not respond to a CRA request or does not provide such proof, the Agency will proceed on the basis that the requested verification or proof does not exist and will assess or reassess accordingly.

Taxpayers who have registered for the CRA’s online tax program My Account (or whose representative is similarly registered for the Agency’s Represent a Client online service) can usually submit required documentation electronically. More information on how to do so can be found on the CRA website at Submitting documents online – Pre-assessment Review, Processing Review and Request Verification Programs - Canada.ca.

Whatever the reason a particular return was selected for post-assessment review by the CRA, one thing is certain: A prompt response to the CRA’s enquiry, providing the Agency with the information or documentation requested, will, in the vast majority of cases, bring the matter to a speedy conclusion, to the satisfaction of both the Agency and the taxpayer. The CRA website also includes more detailed information on the return review process, which is available at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/review-your-tax-return-cra.html.

Canadian businesses should be aware that, while many programs which provided payroll or expense supports for businesses during the pandemic ended on May 7, 2022, there is still a program in place to help employers with payroll costs. As well, even for programs which ended on May 7, applications can still be made for relief for claim periods prior to that date.

Canadian businesses should be aware that, while many programs which provided payroll or expense supports for businesses during the pandemic ended on May 7, 2022, there is still a program in place to help employers with payroll costs. As well, even for programs which ended on May 7, applications can still be made for relief for claim periods prior to that date.

The reason that applications for relief can still be made is that the application process works on a rolling basis, in which an application for relief can be made up to six months after the end of the particular claim period for which such relief is sought. The program that is still in place, and those for which applications can still be made for claim periods prior to May 7, 2022, are outlined below.

Work-Sharing Program

A Work-Sharing agreement helps employers and employees avoid layoffs when there is a temporary decrease in the normal level of business activity that is beyond the control of the employer.

The agreement made provides income support to employees eligible for Employment Insurance benefits who work a temporarily reduced work week while their employer recovers.

The pandemic relief Work-Sharing program runs until September 24, 2022, and the initial agreement entered into between the employer, employees, and Service Canada can run for a period of 76 weeks.

More information on eligibility criteria and the application process can be found on the federal government website at https://www.canada.ca/en/employment-social-development/services/work-sharing.html.

Tourism and Hospitality Recovery Program

Qualifying organizations (whether for-profit, not-for-profit, or charitable) which operate in the tourism, hospitality, arts, entertainment, or recreation sectors and have incurred significant revenue losses (at least 40% during the particular claim period) may be eligible for wage and/or rent subsidies for periods up to May 7, 2022.

Applications for such claim periods can be made up to 180 days after the end of the claim period. Consequently, as of July 30, 2022, applications can still be made for claim periods which began on or after January 16, 2022.

Detailed information on the program, including eligibility requirements and the application process (including application deadlines for each claim period), can be found on the federal government website at  https://www.canada.ca/en/revenue-agency/services/wage-rent-subsidies/tourism-hospitality-recovery-program.html.

Hardest-Hit Businesses Recovery Program

As the name implies the Hardest-Hit Businesses Recovery Program is targeted to entities – whether for profit, not-for-profit, or charitable – which have suffered a decline in revenues of at least 50% during a particular claim period. There are, as well, no restrictions on the economic or business sector which the particular applicant must be operating.

Under the Hardest-Hit Businesses Recovery Program, qualifying entities can receive both wage and rent supports. As with other business pandemic relief programs, claim periods under the HHBRP ended as of May 7, 2022. However, it is, as of the end of July 2022, possible to apply for benefits for any claim periods which began on or after January 16, 2022.

More information on the HHBRP is available on the federal government website at Hardest-Hit Business Recovery Program (HHBRP) - Canada.ca.

Canada Recovery Hiring Program

The Canada Recovery Hiring Program (CRHP) provides Canadian employers with a subsidy to cover a portion of wages for new employees or for wage or hour increases for existing employees.

As with other pandemic relief programs, the CRHP ended on May 7, 2022 but, as of the end of July 2022, applications can still be made for any claim periods which began on or after January 16, 2022.

More information on the CRHP can be found on the federal government website at Canada Recovery Hiring Program (CRHP) - Canada.ca.

Local Lockdown Program

In the earlier stages of the pandemic, lockdowns ordered by public health authorities were generally broad-based – often province-wide. Later, however, such lockdowns became more localized in nature, reflecting the pandemic conditions then prevailing in a particular region.

To address business losses resulting from such localized lockdowns, the federal government created the Local Lockdown Program. Essentially, under that Program, businesses, charities, and not-for-profit entities which were subject to a full or partial (for instance, capacity limits) public health restriction and incurred revenue losses of a specified percentage (which differs by claim period) may be eligible for wage and rent support through the Tourism and Hospitality Recovery Program (THRP). It’s important to note, however, that although such supports are being offered through the THRP, it is not necessary that the applicant be in the tourism, hospitality, arts, entertainment, or recreation sectors to be eligible for support.

Once again, the LLP ended on May 7, 2022, but applications under that Program can still be made for any claim periods which began on or after January 16, 2022. More information on the LLP is available at https://www.canada.ca/en/revenue-agency/services/wage-rent-subsidies/local-lockdown-program.html.

The sheer number and variety of pandemic relief programs offered by the federal and provincial governments at different times over the past two and a half years can make it difficult to follow just what supports are available to whom and for which time periods. Information on the current status of the major federal pandemic relief programs for businesses, including how the various programs interact and application deadlines for each claim period, is, however, always available on the federal government website at https://www.canada.ca/en/department-finance/economic-response-plan.html#financial_support.

Since 2009, Canadians have been living (and borrowing) in an ultra-low-interest-rate environment. Between January 2009 and January 2022, the bank rate (from which commercial interest rates are determined) was (except for a brief period in 2018) never higher than 1.50% – and was almost always lower than that.  Effectively, adult Canadians who are now under the age of 35 have had no experience of managing their finances in high – or even, by historical standards, ordinary – interest rate environments.

Since 2009, Canadians have been living (and borrowing) in an ultra-low-interest-rate environment. Between January 2009 and January 2022, the bank rate (from which commercial interest rates are determined) was (except for a brief period in 2018) never higher than 1.50% – and was almost always lower than that.  Effectively, adult Canadians who are now under the age of 35 have had no experience of managing their finances in high – or even, by historical standards, ordinary – interest rate environments.

That prolonged period of low interest rates (which coincided, not surprisingly, with an explosion in the amount of debt taken on by Canadians) came to an abrupt halt in the early part of this year. The Bank of Canada increased interest rates in March, and followed that up with successively larger interest rate increases in April, June, and July. As a result of those increases, the bank rate has, in the last five months, gone from .50% to 2.75% – nearly a six-fold increase – and commercial interest rates on all credit products have increased commensurately.

Unfortunately, it isn’t likely that Canadians can anticipate any interest rate relief in the short-term. The Bank of Canada has made it clear in its public announcements that it is committed to reducing the current inflation rate of around 8% to the Bank’s 2% core inflation rate target, and that one of its major tools to effect that reduction is increases in interest rates. In its latest press release on the subject, the Bank projections were that the rate of inflation would be “returning to the 2% target by the end of 2024”.

The impact of the recent rapid increase in interest rates on average Canadians can’t really be overstated. A common measure of individual indebtedness is the ratio of debt to disposable income – in other words, the percentage represented by the amount of debt to the debtor’s annual income. In the fall of 2005, the ratio of debt to disposable income for an average Canadian family stood at 93%. In the first quarter of 2022, that ratio stood at just less than double that amount, or 183%. In other words, on average, the debt load carried by Canadians is now just under twice their annual income.

Of course, what matters most to individuals is not necessarily the size of the debt they are carrying, but the cost of servicing that debt – the amount of the monthly credit card, line of credit, or mortgage payments – all of which will, of course, increase as interest rates go up. For several years, financial advisors and government and banking officials have been sounding warnings that the debt loads which Canadians were carrying were likely sustainable only at the extremely low interest rates then in effect. Their concern was that when, inevitably, those rates returned to historically “normal” levels the burden of repaying, or even servicing, those debts would be unsustainable. And that time has come.

Given that those are the unavoidable current and future realities, it’s necessary to consider what strategies are available to Canadians who are carrying substantial amounts of debt on how to manage the upcoming months and possibly years of increased interest charges.

In considering available strategies, it’s important to draw a distinction between secured and unsecured debt. Put simply, the former is debt which is secured by the value of an underlying asset and, if the debtor fails to make payments on the debt, the lender is entitled to seize that underlying asset and sell it to satisfy any outstanding debt amount owed. The types of secured debt most familiar to Canadians are, of course, a mortgage or a car loan. Unsecured debt, on the other hand, is provided solely on the strength of the borrower’s promise to repay, and credit cards are the most common example of unsecured debt owed by Canadians.

While any type of debt can cause problems for borrowers, when interest rates go up it’s usually those who are carrying unsecured debt who are the first to feel the pinch. Not only is the rate of interest payable on unsecured debt higher than that imposed on secured debt, the interest rate on unsecured debt is usually a “variable” rate, meaning that it will go up with every increase in the bank rate. And, of course, debtors whose debt is secured by an underlying asset and who find that carrying that debt is no longer manageable always have the option of selling that asset and using the proceeds to retire the outstanding balance of the loan – an option that isn’t available when it comes to unsecured debt.

For those who are carrying outstanding debt, the obvious advice is to get the debt paid down as quickly as possible. That is, however, easier said than done, especially when the interest component of the debt is increasing.

Even where repayment of the debt over the short-term isn’t a realistic expectation, such individuals do, however, have some options, as outlined below.

Liquidating assets

Because interest rates have been so low in recent years, it’s become relatively common to carry debt even when the debtor has sufficient assets to pay off that debt. In many cases, individuals have borrowed money for the purpose of investing it, on the assumption that the interest payable would be less than the investment gains earned. That may no longer be a valid assumption. Where someone who is carrying unsecured debt has an asset or assets that can be sold, it makes sense to first consider whether it makes sense to use the proceeds from the sale of such assets to clear the debt.

Paying off debt from savings

While tapping into retirement savings should be a last resort, individuals carrying unsecured debt could consider using funds held in a TFSA or just in a savings account to pay off or pay down the debt, and thereby reduce or eliminate carrying charges on that debt.

Reducing the interest rate payable

Where there are not sufficient assets available to eliminate unsecured debt, the next step would be to consider trying to lower the rate of interest being charged on that debt. Much unsecured debt owed by Canadians is in the form of credit card debt, which carries some of the highest interest rates around. Often debt carried on credit cards can be consolidated into a single bank loan or line of credit at a lower rate of interest.

Fixing the interest rate payable

If a lower interest rate can’t be obtained, then debtors would be well advised to at least try and prevent future rate increases by fixing the interest rate currently in place. While no one can claim to be able to predict future interest rates with certainty, the Bank of Canada has clearly signaled that interest rates are likely to continue rising. If the debt is in good standing – that is, payments have been made on time and in at least the minimum amount required – it may be possible to transfer the amount owed, either to another credit card with a fixed rate of interest, or to a personal loan with both a fixed rate of interest and a fixed repayment schedule.

Looking for an interest rate holiday

It’s not uncommon for credit card companies, in order to get new customers, to offer an “interest holiday”. Essentially, the offer is that if a debtor transfers an outstanding balance from another card to a new card issued by the soliciting company (or even to a card already held by the debtor), that debt will be interest-free or at a very low rate of interest for a fixed period – usually about six months.

There is a cost associated with such offers – usually around 1% to 3% of the amount transferred. And, of course, such a course of action offers no more than a temporary reprieve from high interest rate charges; but it can be enough to provide the debtor with a little breathing room while more long term or permanent solutions are sought.

Those who are already in financial difficulty in relation to their outstanding debts – unable to make the minimum monthly required payment, or missing payments – require a different approach. Such individuals can obtain debt/credit counselling through any number of non-profit agencies, who can work with them, and with their creditor(s), to create a manageable repayment schedule. More information on the credit counselling process, and a listing of such non-profit agencies, can be found at http://creditcounsellingcanada.ca/.

By the time August 2022 arrives, virtually all individual Canadians have filed their income tax return for the 2021 tax year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their refund or reluctantly paid any balance of tax owing.

By the time August 2022 arrives, virtually all individual Canadians have filed their income tax return for the 2021 tax year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their refund or reluctantly paid any balance of tax owing.

It’s a surprise, therefore, when unexpected mail arrives from the Canada Revenue Agency (CRA) around the middle of August, and both the enclosed form and the information on that form will likely be both unfamiliar and unwelcome. That enclosed form will be an Instalment Reminder which will advise the recipient that, in the CRA’s view, he or she should make instalment payments of income tax on September 15 and December 15 of 2021 – and will helpfully identify the amounts which should be paid on each date.

No one particularly likes receiving unexpected mail from the tax authorities, and correspondence which suggests that the recipient should be making payments of tax to the CRA during the year (instead of when he or she files the return for the year next April) is likely to be both perplexing and somewhat alarming. It’s fair to say that most Canadians aren’t familiar with the payment of income tax by instalments, and are therefore at a loss to know how to proceed the first time they receive an Instalment Reminder.

The reason that the instalment payment system is unfamiliar to most Canadians is that most of us pay income taxes during our working lives through a different system. Every Canadian employee has tax automatically deducted from his or her paycheque (“at source”), before that paycheque is issued, and that tax is remitted by the employer to the CRA on the employee’s behalf. Such deductions and remittances accrue to the employee’s behalf, and they are credited with those remittances when filing the annual tax return for that year. It’s an efficient system, but it’s also one which is largely invisible to the employee, and certainly one which operates without the need for the employee to take any steps on his or her own. When someone’s working life ends and retirement begins, it’s consequently not particularly surprising that the individual wouldn’t know that it is now his or her responsibility to make specific arrangements for the payment of income tax. 

Adding to the potential confusion, most employees who are now moving into retirement have had only a single source of income throughout their working lives. Once in retirement, however, there are likely multiple such sources of income, including Canada Pension Plan benefits and Old Age Security payments, and perhaps monthly amounts received from an employer-sponsored registered pension plan (RPP) or a registered retirement income fund (RRIF). Unless the individual so directs, none of the payors of those kinds of income will deduct income tax from the payments and remit them to the federal government on the individual’s behalf. 

Canadian tax rules provide that, where the amount of tax owed when a return is filed by the taxpayer is more than $3,000 ($1,800 for Québec residents) in the current (2022) year and either of the two previous (2020 and 2021) years, that taxpayer may be subject to the requirement to pay income tax by instalments.

The reason that first instalment reminders are issued in August has to do with the schedule on which Canadians file their tax returns. The amount of tax payable on filing for the immediately preceding year can’t be known until the tax return for that year has been filed and assessed, and the tax return filing deadline for individuals is April 30 (or June 15 for self-employed taxpayers and their spouses). Consequently, by the end of July, the CRA will have the information needed to determine whether a particular taxpayer should receive a first instalment reminder for the current year

Taxpayers who receive that first Instalment Reminder in August may also be puzzled by the fact that it is a “Reminder” and not a “Requirement” to pay. The reason for that is that those who receive it are not actually required by law to make instalment payments of tax. There are, in fact, three options open to the taxpayer who receives an Instalment Reminder.

First, the taxpayer can pay the amounts specified on the Reminder, by the respective due dates of September 15 and December 15. A taxpayer who does so can be certain that he or she will not have to pay any interest or penalty charges even if he or she does have to pay an additional amount on filing the return for 2022 next spring. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2022, he or she will of course receive a refund on filing.

Second, the taxpayer can make instalment payments based on the total amount of tax which was owed and paid for the 2021 tax year (including any balance that was owed on filing). Where a taxpayer’s income has not changed between 2021 and 2022 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2022 will be the same or slightly less than it was in 2021, owing to the indexation of tax brackets and tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will actually owe for 2022 and can pay instalments based on that estimate. Where a taxpayer’s income has dropped from 2021 to 2022 and there will consequently be a reduction in tax payable, this option may be worth considering. Taxpayers who wish to pursue this approach can obtain the information needed to estimate current year taxes (federal and provincial tax brackets and rates) on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#federal.

All of this may seem like a lot of research and calculation effort, especially when one considers that many Canadians don’t even prepare their own tax returns. And those who don’t want to be bothered with the intricacies of tax calculations can pay the amounts set out in the Instalment Reminder, secure in the knowledge that they will not incur any penalty or interest charges and that, should those amounts ultimately represent an overpayment of taxes, that overpayment will be recovered and refunded when the tax return for 2022 is filed next spring.

Once they have resigned themselves to the realities of the tax instalment