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Looking ahead to 2020 (November 2019)

Planning for – or even thinking about – 2020 taxes when it’s not even December 2019 may seem more than a little premature. However, most Canadians will start paying their taxes for 2020 with the first paycheque they receive in January, and it’s worth taking a bit of time to make sure that things start off – and stay – on the right foot.

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 2020 (which have not yet been released by the CRA but, once published, will be available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms.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, a taxpayer turns 65 years of age, or an elderly parent comes to live with his or her children, the affected taxpayer will be 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.

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 2020. 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, they 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 at source.

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. Consequently, the sooner a T1213 for 2020 is filed with the CRA, the sooner source deductions can be adjusted, effective for all subsequent paycheques. Providing an employer with an updated TD1 for 2020 at the same time will ensure that source deductions made during 2020 will accurately reflect all of the employee’s current circumstances, and consequently his or her actual tax liability for the year.

It is also possible for some taxpayers to adjust the amount of remaining tax they will pay during 2019. While the majority of Canadians pay their taxes through source deductions, there are still millions of taxpayers who 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 Monday December 16, 2019. By that time, almost everyone will have a reasonably good idea of what his or her income and deductions will be for 2019 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 February 29, 2020. While the tax return forms to be used for the 2019 year haven’t yet been released by the CRA, it’s possible to arrive at an estimate by using the 2018 form. Increases in tax credit amounts and tax brackets from 2018 to 2019 will mean that using the 2018 form will likely result in a slight over-estimate of tax liability for 2019.

Once an estimate of one’s tax bill for 2019 has been calculated, that figure should be compared to the total of tax instalments already made during this calendar year (that figure can be obtained 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 funds for the inevitable holiday spending!

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

Planning for year-end charitable donations (November 2019)

The start of fall marks a lot of things, among them a number of runs, walks and other similar events held to raise money for a broad range of Canadian charities. And, within the next month, as the holiday season approaches, charities will launch their year-end marketing campaigns.

Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing a tax credit for qualifying donations made. Federally, taxpayers can claim a credit of 15% of the first $200 in donations plus 29% of donations over the $200 threshold.

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 – without exception.

There is, however, another reason to ensure donations are made by December 31. The credit provided by the federal government 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. Where the taxpayer making the donation has taxable income (for 2019) over $210,371, 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 2019 will received a federal credit of $88 ($200 × 15% + $200 × 29%). If the same amount is donated, but the donation is split equally between December 2019 and January 2020, the total credit claimable is only $60 ($200 × 15% + $200 × 15%), and the 2020 donation can’t be claimed until the 2020 return is filed in April 2021. 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 5 years, donations which were made in a particular tax year. So, if donations made in 2019 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying 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 2014, 2015, 2016, 2017, or 2018 tax years can be carried forward and added to the total donations made in 2019, and the aggregate then claimed on the 2019 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.

Since the charitable donations tax credit is a two-level credit, in which the credit percentage increases once donations made in a year exceed $200, it always makes sense to aggregate donations in a single year, so as to maximize the amount of credit claimable.

Any charity seeking or receiving a donation should be able to provide a registered charitable number, and a searchable current listing of registered charities can be found on the Canada Revenue Agency website at https://apps.cra-arc.gc.ca/ebci/hacc/srch/pub/dsplyBscSrch?request_locale=en. Information on the charitable donations tax credit is available on the same website at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/349/menu-eng.html.

Getting a fix on your retirement income (November 2019)

Most Canadians expend a considerable amount of time and effort in order to put money aside for retirement. Especially in an era in which the majority of workers can’t look forward to receiving an employer-sponsored pension plan, Canadians are well aware that the bulk of their income during retirement will have to come from government sources and from their own savings efforts.

One of the difficulties in saving for retirement is the near impossibility of knowing how to set a savings goal which meets the twin goals of sufficiency and attainability. As well, while many savers focus on identifying the “magic number” which will ensure a comfortable retirement, the fact is that the total amount saved is only one component of retirement financial planning. The reality is that most Canadians will receive income in retirement from at least three sources – private savings accumulated in a registered retirement savings plan (RRSP) or tax-free savings accounts (TFSAs), a Canada Pension Plan retirement pension, and Old Age Security benefits. The real question for most Canadians is how to determine the amount of annual income which all those sources of income will generate during their retirement years, and that is not a simple calculation.

Money can be withdrawn from an RRSP or TFSA at any age, a CPP retirement pension can start any time from age 60 to age 70, and Old Age Security benefits can be received as early as age 65 or as late as age 70. For both CPP and OAS, benefits will rise with each month that receipt of such benefits is deferred. Many Canadians continue to work, on a full or part-time basis, while receiving CPP and OAS benefits. As well, income from the different types of retirement income may be subject to different tax treatment, meaning that the after-tax amount received on $100 of income may vary widely, depending on the nature and source of that income.

The number of factors to consider and, especially, the complexity which results from the interaction of those factors could reasonably lead the average Canadian to conclude that it’s just not possible to make an accurate determination of the best way to structure their income in retirement, in order to ensure a reasonable income throughout their retirement years. But, help is at hand – and it’s free! That help is in the form of a Retirement Income Calculator which is available on the Government of Canada website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

Using that calculator, individual Canadian taxpayers can enter their personal data, including their date of birth, gender, and planned age of retirement, without the need to provide any personal identifying information. The user is then asked to provide information on income amounts which will be received from various sources, including any employer pension and Canada Pension Plan amounts and the age at which the user plans to begin receiving such income. Information is requested on the user’s period of residency in Canada, in order to determine whether he or she will be eligible to receive Old Age Security benefits and the amount of OAS benefits which will be provided at different ages. The calculator also allows the user to input the total amount of savings accumulated to date. Finally, information is requested on any other sources of income which will be available (e.g., income arising from part-time employment during retirement).

Using that data, the calculator estimates the amount of income which will be available to the individual from each source during each year of his or her retirement and generates a bar graph and a table showing those income amounts.

The real benefit of the calculator, however, lies in the user’s ability to vary the inputs – to create “what-if” scenarios in order to determine the effect any changes made will have on retirement income at various ages. Users can change the age at which they choose to receive government-sponsored retirement benefits like CPP and OAS, or can specify a different rate of return (pre or post retirement) earned on retirement savings. They can also change the period of time (i.e., life expectancy) over which retirement income will be spread. That way, the user can obtain answers to frequently asked questions like the following:

How much more will I receive if I delay receipt of Canada Pension Plan or Old Age Security benefits, or both, for one, two, or more years?

What if I work an additional year or two after age 65 before starting RRSP withdrawals?

What if I earn income from part-time employment during retirement?

What if I choose to begin receiving CPP and OAS as soon as I am eligible, but defer making RRSP withdrawals?

What if I live longer than the average life expectancy?

For each of these what-if fact scenarios, the calculator will determine the effect that particular change will have on the amount of income receivable from each different retirement income source, and will provide a summary of income for each year of retirement from all such sources under each fact scenario created by the user.

There are, of course, some factors which can’t be incorporated into any calculator because they cannot be predicted or planned for. No one can predict how long their retirement will last (although the calculator does project retirement income based on average life expectancy for individuals of the age and gender of the user). Similarly, it’s never possible to know what investment returns will be earned on retirement savings during retirement, or what the rate of inflation will be. The calculator’s ability to estimate future income data based on a number of different fact patterns does, however, allow users to create retirement income projections under both best-case and worst-case retirement income scenarios – and to plan for both.

Getting credit(s) for financing the political process (November 2019)

To win elections, politicians need votes. And to run the election campaigns needed to garner those votes, those politicians need an organization, volunteers, and money — a lot of money. To wage the most recent federal election, the major political parties raised and spent millions of dollars, and their task of raising that money was undoubtedly made somewhat easier by the fact that Canadian taxpayers who donated money to political parties or candidate can obtain some tax relief from doing so.

Individuals who donated to the political party or candidate of their choice may or may not be happy with the outcome of the election, but no matter which registered party or candidate they donated to, it will be possible for them to claim a federal tax credit for those donations when they file their returns for 2019 next spring.

The credit provided under the Income Tax Act is available with respect to funds contributed to either a registered political party or to candidates running in a federal election. Contributions can be made at any time, not just during an election campaign, as long as the donation is received by an official candidate or a registered federal political party or association.

While the parties which currently hold seats in the House of Commons are, of course, the most well-known, there were in fact 21 political parties registered and in good standing with Elections Canada for purposes of the 2019 federal election. They are as follows, in alphabetical order:

Donations to any one of these registered parties, within prescribed limits, would qualify for the federal political contribution tax credit.

Official candidates can, of course, be running either as candidates for one of the registered parties or as independents. Elections Canada provides a list of confirmed candidates who ran in this year’s federal election, and that list can be found at https://www.elections.ca/content2.aspx?section=can&document=index&lang=e.

The federal political tax credit is calculated as a percentage of donations given. However, the credit percentage decreases as contributions amounts increase, and no credit at all is given for donations in excess of $1,275. The credit percentages allowed at different contribution levels are as follows:

*Contribution amount*	*Allowable tax credit*
$0.01 to $400.00	75% of the contribution
$400.01 to $750.00	$300 + 50% of the contribution over $400
$750.01 and over	$475 + 33⅓% of the contribution over $750

The maximum credit claimable in any taxation year by a single taxpayer is $650. Once the math is worked out, it becomes clear that the maximum credit obtainable is reached once contribution levels reach $1,275.

Contribution amount Allowable tax credit

$400 × 75% = $300

$350 × 50% = $175

$525 × 33.3% = $175

$1,275 $650

Where donations exceed $1,275 in any one taxation year, no tax credit can be claimed on the “excess” donation. As well, there is no provision which allows the taxpayer to carry over any “excess” contributions to a subsequent taxation year, meaning that no credit will ever be obtainable with respect to those “excess” contributions.

Many Canadians who are committed to a particular political party or candidate volunteer their time during a nomination or election campaign – canvassing for the candidate, putting up election signs or telephoning voters to encourage them to vote for the candidate. However, in such cases, the work must be its own reward, as no income tax receipts can be issued for most such non-monetary contributions and consequently no credit can be claimed for the value of any non-monetary contribution (including volunteer hours) donated.

Where a qualifying contribution is made, an official receipt must be issued in order for the tax credit to be claimed. During an election campaign, the official agent of a candidate issues that receipt, and it must be issued between the time the candidate is officially nominated and election day. Outside an election period, any receipts are issued by the registered agent of a political party or association. A receipt must be issued, in paper or electronic format, for every contribution over $20.

The actual credit for qualifying donations made is claimed on the tax return for the year in which the contribution was made. The amount of the credit is calculated (according to the formula outlined above) on the Federal Worksheet and the amount of the actual credit entered on line 410 of Schedule 1 of the federal tax return. By the time the 2019 return is filed, of course, the election will long since have been concluded, the newly elected government will be in place in Ottawa, and the taxpayer will be in a position to assess whether it was, in fact, money well spent.

New Quarterly Newsletters (August 2019)

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