The following information was made available by the Canada Revenue Agency:
If you bought or sold your home or plan to buy or sell a home soon, the Canada Revenue Agency (CRA) has information to help you.
Principal residence exemption
Did you know that any profit–called capital gain–on the sale of your principal residence may be exempt from taxes? Generally, you do not have to pay tax on a capital gain when you sell your home if it was your principal residence for all the years that you owned it.
If you sold a property that was your principal residence, you must report the sale and designate the property as your principal residence on Schedule 3 of your income tax and benefit return. You must also fill in the appropriate sections of Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Trust). Only one property can be designated as a principal residence per tax year per family unit.
Home buyers' amount
Eligible home buyers can claim $5,000 on line 369 of Schedule 1 of their income tax and benefit return for the acquisition of a qualifying home in 2017.
You may qualify for the home buyers' amount if you did not live in another home owned by you or your spouse or common-law partner in 2017 or in any of the four preceding years. You do not have to be a first-time home buyer if you are eligible for the disability tax credit or you acquired the home for the benefit of a related person who is eligible for the disability tax credit.
Home Buyers' Plan
You may be eligible to participate in the Home Buyers' Plan. This plan lets you withdraw funds from your registered retirement savings plan to buy or build a qualifying home for yourself. You can withdraw up to $25,000 in a calendar year, and you have up to 15 years to repay the amounts you withdraw.
To qualify for the Home Buyers' Plan, you have to meet these two conditions:
- you are a first-time home buyer
- you have a written agreement to buy or build a qualifying home for yourself
You are considered a first-time home buyer if, in the preceding four-year period, you did not live in a home that you or your spouse or common-law partner owned.
You must intend to live in the qualifying home as your principal residence within one year of buying or building it.
Home Buyers' Plan for persons with disabilities
You do not have to be a first-time home buyer to participate in the Home Buyers' Plan if you are eligible for the disability tax credit or if you are helping a related person who is eligible for the credit buy or build a home. The purchase or construction must be done to allow a person with a disability to live in a home that is more accessible or better suited to their needs.
GST/HST rebate on new homes in Canada
If you constructed or substantially renovated a house for use as your primary place of residence, you may also be eligible for this rebate.
For more information on the GST/HST new housing rebate, refer to guide RC4028, GST/HST New Housing Rebate.
Home accessibility expenses
If you are a qualifying individual (65 years of age or older at the end of 2017 or eligible for the disability tax credit) or an eligible individual claiming certain tax credits for a qualifying individual, you may be able to claim eligible expenses paid for renovations that make your dwelling more accessible.
The Canada Revenue Agency (CRA) has a few tips that could save you time and money. At tax time, try to remember these eight things:
1. Do your taxes
Even if you didn’t receive any income in 2017, you may still get a tax refund and be eligible for benefit and credit payments. For example, families who are eligible for the Canada child benefit (CCB) can receive up to $6,400 annually for each child under the age of 6 and up to $5,400 annually for each child aged 6 to 17. You, and your spouse or common-law partner, if you have one, have to do your taxes every year so the CRA can calculate how much you could receive, and to continue receiving your benefit and credit payments without any interruptions. This includes payments such as the GST/HST credit and related provincial payments, the guaranteed income supplement, and advance payments of the working income tax benefit.
If you want to do your taxes yourself, the CRA has a step-by-step guide that makes doing your taxes easy.
2. Make sure you claim tax credits and deductions
There are tax credits and deductions you may be able to claim on your return, like the working income tax benefit. Not sure what tax credits and deductions you may be eligible for? Go to canada.ca/taxes-get-ready to learn about the new and existing tax measures that could help you save money.
3. Report all your income
Make sure you report all your income. You should have most of your slips, such as T4 slips, from your employer, payer, or administrator by the end of February. If you have not received, or you lost or misplaced, a slip for 2017, ask the issuer of the slip for a copy. If you register with My Account, you may have access to online copies of your slips. If you are still missing information, use your pay stubs or statements to estimate your income to report. Keep all of your documents in case we ask to see them later.
Some income you earn may not be included as part of a tax slip. Tips, money earned providing accommodations, and ride sharing, regularly selling stuff at a flea market or online, providing tutoring services, handy-man or snow removal services – all of this is considered income that must be reported.
Did you sell your principal residence in 2017? If so, you have to report basic information on your return to claim the principal residence exemption.
If you already did your taxes but did not report all of your income or deductions, use the ReFILE service in your NETFILE software to change your return, visit an EFILE service provider to Refile, or use the “Change my Return” service in My Account. You can also change your return with Form T1-ADJ, T1 Adjustment Request, and mail it to your tax centre.
For more information, please visit How to Change Your Return.
4. Make valid claims
Make sure you know what you can and cannot claim. Sometimes non-deductible amounts, such as funeral expenses, wedding expenses, loans to family members, a loss on the sale of a home designated as a principal residence, and other similar amounts, are claimed by mistake.
If the CRA finds that you made a mistake or made a claim in error, it will change your return. For a list of the most frequent changes the CRA makes, see Common adjustments.
5. File on time
If you have a balance owing and do not file your return on time, the CRA will charge you a late-filing penalty. The penalty is 5% of your balance owing on the due date of your return, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months. Even if you cannot pay your balance owing by the filing deadline, you can avoid the late-filing penalty by filing on time.
If you cannot pay the amount you owe by the due date, it’s best to contact the CRA before then. The CRA will work with you to resolve your tax debt or other CRA program debt. You may be eligible for a payment arrangement or taxpayer relief.
If you receive benefit payments, like the Canada child benefit, and you did not do your taxes on time, your payments can be delayed or stopped.
If you have never filed a return or haven’t filed for a few years, the CRA can help. You may be eligible for relief of interest, penalties, and prosecution by applying to the Voluntary Disclosures Program.
6. Keep receipts and records
Keep your receipts and other supporting documents for at least six years from the end of the tax year to which the records relate.
Sometimes returns are reviewed to make sure that income, deductions and credits are correctly reported. If the CRA reviews your return, having your receipts and records on hand makes it easier for you to support your claims. For more information, see Responding to the CRA.
The above information was made available on the Canada Revenue Agency (CRA) website on March 14th, 2018.
On February 27, 2018, federal Minister of Finance Honourable Bill Morneau released the 2018 budget, the third budget released by the current liberal government. The budget is titled “Equality + Growth: A Strong Middle Class” as the government continued its focus on improving gender equality and new funding to support innovation in Canada.
Major highlights of the budget included a projected deficit for 2018-19 of $18.1 billion and the widely anticipated introduction of new rules dealing with the taxation of passive income of private corporations in Canada. Some highlights of tax measures announced in the Budget which may be of interest to our client base include:
Tax on Split Income (TOSI)
On July 18, 2017, the Minister of Finance released a discussion paper outlining proposed changes designed to prevent small business owners from “sprinkling” corporate income with family members who were not directly involved in the business with the objective of reducing the overall family tax burden.
The discussion paper provided for a 75-day consultation period for interested parties to provide input on the proposed changes. There were over 21,000 submissions received during this consultation period. Between October 15 – 17, during “Small Business Week”, Minister Morneau announced several changes, which amended and, in some cases, canceled portions of the original proposals, along with a promise of a further update before the end of 2017.
On December 13, 2017, the government released further modifications to and some clarification of the proposed TOSI changes. The effective date of these changes is January 1, 2018. On the same day, the Senate released a paper stating the changes should be scrapped or at least postponed until more consultation is completed. With nothing announced since December, many tax practitioners were hoping that there would be an update in the 2018 Budget. Disappointingly, there were no updates or postponements announced in the Budget around the TOSI rules, and the government is going forward with the changes announced last year as updated in December.
Passive Income Rules
The Department of Finance's July 18, 2017, announcement also proposed changes to how a corporation's income from passive investment activity would be taxed. Detailed rules were not provided at that time but several alternatives were suggested, with one of the proposals taxing passive investment income at a rate approaching 75% on PEI by the time the income was in the personal hands of the shareholders! In response to significant opposition from Canada’s business community, during "Small Business Week" Minister Morneau announced further details that there would be a threshold of $50,000 of passive investment income, and any investment income below that amount would not be affected. However, many questions remained as there were no details on the implications for passive income above $50,000, including how the limit of $50,000 would be handled within corporate groups, and what types of passive income would be impacted.
The private sector certainly had a collective sigh of relief with the significant step back the government chose to take on the passive income changes. While the preference of the business community was to abandon the proposed changes to this area, the changes were not as large as feared.
Budget 2018 addressed some of the questions left unanswered in the fall update by including two new rules dealing with passive investment income earned by a Canadian Controlled Private Corporation (CCPC).
Small Business Limit
A CCPC (or an associated group of CCPCs) is entitled to a small business deduction annually on its first $500,000 of active business income. The small business deduction reduces taxes on this active business income, resulting in an effective corporate tax rate of 14.5% in PEI for a December 31/18 year end. Any business income above $500,000 is taxed at a rate of 31% in PEI.
Budget 2018 proposes that the $500,000 small business limit will be reduced by $5 for every $1 of passive income realized by the CCPC (or the associated group's) above the $50,000 threshold amount. The small business limit would be reduced to zero for that year when passive investment income reaches $150,000 in any year. This rule is in addition to the existing rule where the small business limit is reduced depending on the amount of taxable capital employed in Canada by associated companies. The CCPC's (or the associated group's) small business limit will be the lower of the limits determined under the two rules.
The new reduction of the small business limit will be based on the new term “adjusted aggregate investment income” which is based on “aggregate investment income”.
"Aggregate Investment Income" includes:
- Interest on investments
- Any dividends that are included in taxable income (dividends received from a taxable Canadian corporation are generally excluded from a corporation's taxable income)
- Capital gains that exceed capital losses
- Income from property that does not qualify as an active asset
The adjustments to arrive at the “adjusted aggregate investment income” include:
- Capital gains will be excluded to the extent they arise from the disposition of active business assets of the corporation or shares of an active connected corporation, subject to certain conditions
- Net capital losses carried over from other taxation years will be excluded
- Dividends from non-connected corporations will be added
- Income from savings in a life insurance policy that is not an exempt policy will be added
The new small business limit reduction is effective for tax years that begin after 2018.
Refundability of Taxes on Investment Income
Under current rules, corporations on PEI pay tax at a rate of 54.67% on aggregate investment income. The 54.67% tax rate includes a 30.67% refundable portion, called Refundable Dividend Tax On Hand (RDTOH) that is refunded to the company upon payment of taxable dividends to it shareholders. RDTOH also includes a 38.33% "Part IV" tax on portfolio dividends that are not included in regular taxable income. Under current rules, corporations can pay eligible or non-eligible dividends to recover RDTOH.
Finance expressed a concern that the refund of tax paid on passive income and the payment of dividends sourced by passive income needed to be more closely aligned.
In this regard, Budget 2018 proposes to implement two pools of RDTOH;
- One pool for Eligible RDTOH, which will track Part IV tax paid on eligible dividends
- One pool for Non-Eligible RDTOH to track all other refundable taxes paid on non-eligible dividends and investment income
With these new rules, CCPC’s will only receive a refund from the non-eligible RDTOH pool on the payment of non-eligible dividends. Under the new rules, CCPC’s will receive a refund from the eligible RDTOH pool on the payment of either type of dividend. Refunds based on paying a non-eligible dividend must come from the non-eligible RDTOH pool first. These changes will improve the integration of personal and corporate taxes. These rules are effective for tax years that begin after 2018.
Budget 2018 released new reporting requirements for certain Trusts. The goal of the new reporting requirements is to “determine taxpayers’ tax liabilities and to effectively counter aggressive tax avoidance as well as tax evasion, money laundering and other criminal activities”.
In the past, Trusts that did not earn income and did not make distributions to beneficiaries were not required to file an annual tax return. However, even when a Trust was required to file a return, there were no requirements for the Trust to disclose beneficiary information. Budget 2018 will require certain Trusts to file tax returns on an annual basis even if there is no income or distributions. These new filing requirements will apply to returns that are filed for 2021 and subsequent years.
Under the new reporting requirements, trusts will be required to report the identity of:
- All trustees
- All beneficiaries
- All settlors, and
- Each person who has the ability to exert control over the trustee's decision making
Failure to comply with these new rules will result in a $25/day penalty, with a minimum of $100 and a maximum of $2,500. An additional penalty of five percent of the maximum fair market value of property held during the relevant year by the trust will apply if a failure to file the return was made knowingly, or due to gross negligence.
Exceptions to the additional reporting requirements are:
- Mutual fund trusts
- Trusts governed by registered plans
- Lawyers' general trust accounts
- Graduated rate estates and qualified disability trusts
- Trusts that are non-profit organizations or registered charities, and
- Trusts that have been in existence for less than three months, have less than $50,000 in assets, and have no assets other than deposits, government debt obligations and publicly traded
The medical expense tax credit is a 15 percent non-refundable tax credit. The credit is based on the amount paid for eligible medical expenses that exceed the lessor of $2,302 and three percent of an individual’s income. The list of eligible expenses is reviewed and updated regularly.
Currently, the cost to purchase and care for an animal are eligible medical expenses where the animal was specially trained to assist patients with:
- Profound deafness,
- Severe autism,
- Severe diabetes,
- Severe epilepsy, or
- A severe or prolonged impairment that markedly restricts the use of the person's arms or legs
For the expenses to qualify, the animal has to be acquired from a person or organization whose main purpose is to provide special training to the animal.
Budget 2018 proposes to expand the list of eligible expenses to included expenses for a specially trained animal that is used to assist a patient in coping with a severe mental impairment. The example used in a budget paper is a psychiatric service dog used to assist someone with post-traumatic stress disorder.
The expansion of eligible expenses will apply to an expense incurred after 2017.
Extended Reassessment Period for certain circumstances
Canada Revenue Agency (CRA) may reassess taxpayers within a fixed period of time from when they receive their original assessment. The normal reassessment period ends three or four years after the original assessment.
Under current rules, when a taxpayer contests a CRA request for foreign-based information, the reassessment period is frozen while the matter is before the Federal Court, therefore extending the amount of time CRA has to complete its reassessment. This “stop the clock” rule only applies to CRA requests for foreign-based information.
Budget 2018 is amending parts of the Income Tax Act to implement a “stop the clock” rule for reassessment periods whenever any request for information or compliance order is contested. The clock would stop when an application is made to the Federal Court to review a request for information or when a taxpayer confirms opposition to a compliance order. The clock would remain stopped until the final disposition of the matter, including any appeals that may be made. This new rule extends the reassessment period for taxpayers that try to prolong the reassessment process. The CRA believes this will speed up processes and remove backlogs of work.