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Both changes in the job market and increases in real estate prices over at least the past decade have made the goal of home ownership an elusive or even impossible one for many Canadians, especially younger Canadians.

Both changes in the job market and increases in real estate prices over at least the past decade have made the goal of home ownership an elusive or even impossible one for many Canadians, especially younger Canadians.

There is no single solution for the multiple factors which prevent many Canadians from getting that first toehold on the “property ladder”. However, changes announced in this year’s federal Budget seek to make it a bit easier to become a first-time home owner.

Those changes involved the expansion of an existing program — the Home Buyers’ Plan, which allows first-time home buyers to use funds withdrawn from their registered retirement savings plans (RRSPs) to make part or all of a down payment on a home purchase. Any such amounts can be withdrawn tax-free, but must then be re-contributed or repaid to the RRSP in prescribed amounts, and on a prescribed schedule, over the next 15 years.

While access to the HBP is limited to first-time home buyers, the definition of that term is more expansive than it might seem. Under the HBP rules, a first-time home buyer is someone who has not owned and lived in a home either in the current year or any of the four previous years. Where that person is married, his or her spouse must also meet the same criteria.

Where an individual and his or her spouse meet the HBP criteria, each could withdraw up to $25,000 from his or her RRSP and use those funds for a down payment. The Budget measures propose to increase the maximum amount which can be withdrawn from an RRSP under the HBP from $25,000 to $35,000.  Consequently, a couple can now withdraw up to $70,000 under the HBP, as the change is effective for withdrawals made under the HBP after the Budget date of March 19, 2019.

One further change to the HBP program was announced in the Budget, and that change applies where a marriage or common-law partnership breaks down.  When spouses separate, it is often the case that one or both of them must purchase another home. The Budget measures propose to extend access to the HBP for individuals who are in that situation, regardless of whether they meet the definition of first-time home buyer.

Where a former spouse purchases a new residence using the HBP, any previous place of residence must, in most instances, be disposed of within two years after the end of the year in which the HBP withdrawal is made.

The change providing increased access to the HBP on the breakdown of a marriage or common law partnership is effective for HBP withdrawals made after the end of 2019.

More details of the rules governing the HBP can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know, until their return is completed, what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know, until their return is completed, what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers are, of course, hoping for a refund — the bigger the better. A lot would be happy to find that at least nothing is owed to the Canada Revenue Agency (CRA), or that an amount owing is not significant.

The worst-case scenario, for all taxpayers, is to find out that they are faced with a large tax bill and an imminent payment deadline, and that they just don’t have the money to make the required payment by that deadline. For those who don’t have the means to pay a tax bill out of existing resources, that likely means borrowing the needed funds.  And while that will mean paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the CRA on the unpaid tax bill. 

If a tax bill can’t be paid in full out of either current resources or available credit, the CRA is open to making a payment arrangement with the taxpayer. While, like most creditors, the CRA would rather get paid on time and in full, its ultimate goal is to collect the full amount of taxes owed. Consequently, the Agency provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement.

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 150 of the last tax return for which the taxpayer received a Notice of Assessment. (For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2017 tax year). The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern time.

Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657 or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

The CRA also provides on online tool, in the form of a payment arrangement calculator (available at https://apps.cra-arc.gc.ca/ebci/recc/pac/prot/lngg?request_locale=en_CA), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances). That calculator includes interest charges since, no matter what payment arrangement is made, the CRA will levy interest charges on any amount of tax owed for the 2018 tax year which is not paid on or before April 30, 2019. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates. For the second quarter of 2019 (April 1 to June 30), that rate is 6%. Second, interest charges levied by the CRA are compounded daily, meaning that each day’s interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30 deadline.

Finally, there is one strategy which is, in all circumstances, a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount — and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed — and that doesn’t count the compound interest which is levied on all penalty amounts, as well as on all unpaid taxes. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Tuesday April 30, 2019. For self-employed taxpayers (and their spouses) the filing deadline is Monday June 17, 2019. However for all taxpayers, the payment deadline for all 2018 income tax owed is Tuesday April 30, 2019.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2018 must be remitted to the Canada Revenue Agency (CRA) on or before Tuesday, April 30, 2019 — no exceptions and, absent extraordinary circumstances, no extensions.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2018 must be remitted to the Canada Revenue Agency (CRA) on or before Tuesday, April 30, 2019 — no exceptions and, absent extraordinary circumstances, no extensions.

It is very much in the CRA’s interests to make paying taxes as simple and as straightforward as it can be and so the Agency offers individual taxpayers a wide range of choices when it comes making that payment. There are, in fact, no fewer than seven separate options available to individual residents of Canada in paying their taxes for the 2018 tax year. The options open to taxpayers who must make a payment to the taxman are set out below.

Pay using online banking

Millions of Canadians transact most or all of their banking using the online services of their particular financial institution. The list of financial institutions through which a payment can be made to the CRA is a lengthy one (available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-online-banking.html), and includes all of Canada’s major banks and credit unions.

The specific steps involved in making that payment will differ slightly for each financial institution, depending on how their online payment systems are configured. What’s important to remember is that the nature of the payment (i.e., current year tax return, as distinct from current year tax instalment payments) must be specified, and the taxpayer’s social insurance number must be provided, in order to ensure that the payment is credited to the correct account, for the correct taxation year.

It is not necessary to access any particular CRA form in order to make an online payment of taxes through one’s financial institution website.

Paying at your financial institution

For those who don’t use online banking, or simply prefer to make a payment in person, it’s possible to pay a tax amount owed at the bank. Doing so, however, requires that the taxpayer have a personalized remittance form.

Since that remittance is specific to the taxpayer, it’s not possible to simply print that form from the CRA website. However, taxpayers who wish to obtain such a personalized remittance form can do so by calling the CRA’s Individual Income Tax Enquiries line at 1-800-959 8281 and requesting that one be sent to them by mail.

Using the CRA’s My Payment

The CRA also provides an online payment service called My Payment. There is no fee charged for the service, and it’s not necessary to be registered for any of the CRA’s other online services in order to use My Payment.

What is necessary is that the taxpayer have a debit card with a VISA Debit, Debit MasterCard, or InteracOnline logo from a participating Canadian financial institution, as My Payment is set up to accept payment using only those cards. Anyone intending to use My Payment should first confirm that the amount of any payment to be made is within the daily or weekly transaction limits imposed by the particular financial institution.

More details on this payment method can be found at https://www.canada.ca/en/revenue-agency/services/e-services/payment-save-time-pay-online.html.

Payment by credit card

While it’s possible to pay one’s taxes using a credit card, such payments can only be made through third-party service providers (that is, payments by credit card cannot be made directly to the CRA), and such third-party service providers will impose a fee for the service.

There are only two such service providers listed on the CRA website, and links to each such service are available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-credit-card.html.

Payment through a service provider

There are a number of third-party service providers which will accept payments and remit them on the taxpayer’s behalf to the CRA. However, the majority of such services are more oriented toward providing services to businesses, and most of those listed on the CRA website do not handle payments of individual income tax amounts owed.

The full listing of third-party service providers, and the types of payments they handle, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-a-service-provider.html.

Payment by pre-authorized debit

It’s possible to set up a pre-authorized debit (PAD) arrangement with the CRA, authorizing the Agency to debit one’s bank account for an amount of taxes owed, on dates specified by the taxpayer.

Individuals who make instalment payments of tax throughout the year may already have such an arrangement in place and can certainly use that existing arrangement to arrange a PAD of any balance of taxes owed for the 2018 tax year. However, any PAD arrangement must be made at least five business days before the payment due date of April 30. A taxpayer who makes a payment of taxes only once a year is likely better off using another of the available payment methods.

There is also another option for taxpayers who have their return prepared and E-FILED by an authorized electronic filer. Such taxpayers can have that E-FILER set up a PAD agreement on their behalf in order to make a one-time payment for a current-year tax amount owed. Such an arrangement is only for the payment of a current-year tax balance and can’t be used for other payments like instalment payments of tax. Details on how to set up a pre-authorized debit arrangement, whether for a single payment or for recurring payments, are outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-authorized-debit.html.

Payment by cash or debit card

It is still possible to pay one’s taxes in cash, or by using a debit card. Such payments are made, not at CRA offices, but at Canada Post outlets.

However, while a cash payment may be a low-tech option, the requirements for making a cash or debit card payment are not. In order to do so, the taxpayer will need a self-generated QR (quick response) code. Such code can be created by following a link found on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/pay-canada-post.html. The QR code created is provided to a clerk at a Canada Post outlet, who uses the information in the code to properly credit the payment made. Service fees are levied for this payment method.

It’s important for all taxpayers to realize that the payment deadline of April 30 requires that the CRA receive payment by that date. The Agency considers that a payment has been made only when it actually receives that payment, or the payment is received by a member of the Canadian Payments Association (which would include most Canadian financial institutions).

The majority of payment options now available to Canadians involve online transactions or the use of third-party service providers. Both such methods can mean some delay in receipt of the payment by the CRA, as a result of the time required for processing of the payment by the financial institution or third party. Consequently, taxpayers who make their tax payments online or using a third-party service provider are well-advised to consider that time lag in deciding when to make their payment – waiting until April 30, especially late in the day, to do so  isn’t a good idea.

Those who make their payment in person at a financial institution (using a personalized remittance form, as outlined above) can make their payment on April 30, as the date stamped on the remittance form is considered to be the date on which such payment is received by the CRA.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2018, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2018, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 1, 2019 in order to be deducted on the return for 2018.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2018, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2018, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 1, 2019 in order to be deducted on the return for 2018.

However, the fact that the clock has run out on most major tax planning opportunities for 2018 doesn’t mean that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2018 — by claiming all available deductions and credits on the return and also by making sure that those deductions and credits are claimed in the way which will give the taxpayer the most “bang for the buck”.

Everyone’s tax situation (and therefore their tax return) is different, of course, but most taxpayers make claims on their annual returns for medical expenses incurred and/or charitable donations made. It may seem counterintuitive, or even illogical, to not claim every available deduction and credit in order to obtain the best possible tax result for the year. However, for both medical and charitable tax credit claims, albeit for different reasons, there are situations in which it makes sense to defer an available claim until a future year, or to transfer the claim to another person.

Claiming charitable donations

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2018) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to encourage higher donations.

That credit, at both the federal and provincial/territorial levels, is a two-tier credit. Federally, the first $200 in donations receives a credit of 15% of the total donation, or $30. However, donations above the $200 level receive a credit equal to 29% of the donation amount over $200.

Take, for example, a taxpayer who makes a regular contribution to a favourite charity of $100 each month, or $1,200 per year. Where he or she claims that donation on the annual return each year, that claim will result in a federal credit of $320 ($200 × 15%, plus $1,000 × 29%). Where, however, the same taxpayer defers the claim to the following year and claims a total of $2,400 in donations on a single return, he or she will receive a federal credit of $668. ($200 × 15%, plus $2,200 × 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,712 ($200 × 15%, plus $5,800 × 29%). Under each scenario, the total charitable donation made is the same, but the amount of credit received increases with each year that the claim is deferred. Since each of the provinces and territories provide a two-tier credit (at different rates, depending on the jurisdiction), the same result will be seen when calculating the provincial/territorial credit.

Medical expense tax credit

Notwithstanding our publicly funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs.

The federal credit for such expenses is 15% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, albeit at different rates.

Many taxpayers find the rules on the calculation of a medical tax credit claim confusing, with some justification. First, there is an income threshold imposed. Eligible medical expenses are those expenses which exceed 3% of net income, or (for 2018) $2,302, whichever is less. Put more practically, for 2018 taxpayers who have net income of $76,750 or less can claim medical expenses incurred over $2,302. Those with higher incomes can claim medical expenses which exceed 3% of that higher net income.

The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, this rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed and, of course, any expenses which were claimed on a previous return cannot be claimed again. 

While only expenses which exceed the $2,302/3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for all children born in 2001 or later. While medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses is very likely (especially for a family that does not have private medical insurance coverage) to mean that total expenses will exceed the applicable threshold.

In determining who will make the medical tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income/$2,302 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower income makes the claim for total family medical expenses. However, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit.

Finally, there are a huge number and variety of medical expenses which individuals and families may incur, and the rules governing which can be claimed and in what circumstances, are very specific. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. A listing of medical expenses eligible for the credit, and any ancillary requirements, such as a prescription, 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-330-331-eligible-medical-expenses-you-claim-on-your-tax-return.html#mdcl_xpns.

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 #47 Corporate

Personal:

Issue #47 Personal