Tax Tips | Mysite

TAX TIPS

Tips for preparing your returns or planning a strategy to minimize tax payable are provided below. In some cases, the information will only be applicable to a specific year.

Topics

#1 Don't overlook deductible medical expenses

#2 List of all allowable medical expenses

#3 Transferring equities to a spouse's account

#4 Foreign property tax reporting

#5 Renting out your principal residence – tax implications

#6 Transferring investments between RRSP's and deferred tax accounts

#7 The tax avoidance vs, tax evasion - it's important

#8 Pension Income Splitting

#9 No tax on Canadian or US investments in an RRSP, DC, or TFSA

#10 Digital Subscription Tax Credit (RJOs)

#11 Final RRSP Contribution - If you turned 71

#12 Canada Training Credit (CTC) - a gift

#13 Notice of Assessment - an Important document

#14 Deductions and tax credits - strategies for claiming

#15 Lossing a Non-refundable Tax Credit borders on sinning!

#16 More Tax Credits: Canada Caregiver Credit, Disability amount, Child Disability Benefit, Canada Child Benefit

#17 Homebuyer Tax Credit

#18 Deductible Carrying charges and interest expense

#19 Donations can be carried forward but the tax credit can't

#20 Short selling is an income transaction unless..

#21 Deferred property tax - A gift from the BC government

#22 Foreign property and assets held during a year must be reported

#23 Canada Caregiver Tax Credit 4

#24 Strategy for minimum RRIF Withdrawals

1) Don't overlook deductible medical expenses

In Canada, there are a huge number of medical expenses that are deductible from taxable income. Deductible medical expenses you may not be aware of which are outlined in #2 below. Over a 12-month period small expenditures are up and generate a non-refundable tax credit (has to be used in that year).

The non-refundable tax credit is the lessor of

a) 3% (can't be carried forward or back if not used) net income and

b) $$2,397 (in 2020)

and

c) the medical costs incurred.

$2,397 credit (2020) is the maximum medical credit from medical expenses in a year.

If making a claim for medical expenses ensure you have a receipt. CRA generally will request proof of the expense if you claim a large amount (> $5,000) over a 12 month period.

#2 List of allowable medical expenses

Acoustic coupler – prescription needed.

Air conditioner – $1,000 or 50% of the amount paid for the air conditioner, whichever is less, for a person with a severe chronic ailment, disease, or disorder – prescription needed.

Air filter, cleaner, or purifier used by a person to cope with or overcome a severe chronic respiratory ailment or a severe chronic immune system disorder – prescription needed.

Altered auditory feedback devices for treating a speech disorder – prescription needed.

Ambulance service to or from a public or licensed private hospital.

Artificial eye or limb – can be claimed without any certification or prescription.

Assisted breathing devices that give air to the lungs under pressure, such as a continuous positive airway pressure (CPAP) machine or mechanical ventilator.

Attendant care and care in a facility

Audible signal devices including large bells, loud ringing bells, single stroke bells, vibrating bells, horns, and visible signals – prescription needed.

Baby breathing monitor – designed to be attached to an infant to sound an alarm if the infant stops breathing. A medical practitioner must certify in writing that the infant is at risk of sudden infant death syndrome – prescription needed.

Bathroom aids to help a person get in or out of a bathtub or shower or to get on or off a toilet – prescription needed.

Bliss symbol boards or similar devices used by a person who has a speech impairment to help the person communicate by choosing the symbols or spelling out words – prescription needed.

Blood coagulation monitors – the amount paid, including disposable peripherals such as pricking devices, lancets and test strips for a person who needs anti-coagulation therapy – prescription needed.

Bone marrow transplant – reasonable amounts paid to find a compatible donor, to arrange the transplant including legal fees and insurance premiums, and reasonable travel, board and lodging expenses for the patient, the donor, and their respective attendants.

Bone conduction receiver – can be claimed without any certification or prescription.

Braces for a limb including woven or elasticized stockings made to measure. Boots or shoes that have braces built into them to allow a person to walk are also eligible.

Braille note-taker devices used to allow a person who is blind to take notes (that can be read back to them, printed, or displayed in braille) with the help of a keyboard – prescription needed.

Braille printers, synthetic speech systems, large print-on-screen devices, and other devices designed to help a person who is blind to use a computer – prescription needed.

Breast prosthesis because of a mastectomy – prescription needed.

Cancer treatment in or outside Canada, given by a medical practitioner or a public or licensed private hospital.

Catheters, catheter trays, tubing, or other products needed for incontinence caused by illness, injury, or affliction.

Certificates – the amount paid to a medical practitioner for filling out and providing more information for Form T2201, Disability Tax Credit Certificate, and other certificates.

Chair – power-operated guided chair to be used in a stairway, including installation – prescription needed.

Cochlear implant – can be claimed without any certification or prescription.

Computer peripherals designed only to help a person who is blind to use a computer – prescription needed.

Cosmetic surgery before March 5, 2010 – generally, expenses for cosmetic procedures are eligible only if the expenses were incurred before March 5, 2010, and paid to a medical practitioner or a public or licensed private hospital.

Cosmetic surgery after March 4, 2010 – an expense for cosmetic procedures incurred after March 4, 2010 will continue to qualify as a medical expense only if it is necessary for medical or reconstructive purposes, such as surgery to address a deformity related to a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.

Crutches – can be claimed without any certification or prescription.

Deaf-blind intervening services used by a person who is blind and profoundly deaf when paid to someone in the business of providing these services.

Dental services – paid to a medical practitioner. Expenses for purely cosmetic procedures are not eligible.

Dentures and dental implants – can be claimed without any certification or prescription.

Devices or software designed to allow a person who is blind or has a severe learning disability to read print – prescription needed.

Diapers or disposable briefs for a person who is incontinent because of an illness, injury, or affliction.

Driveway access – reasonable amounts paid to alter the driveway of the main place of residence of a person who has a severe and prolonged mobility impairment, to ease access to a bus.

Drugs and medical devices bought under Health Canada's Special Access Program – the amounts paid for drugs and medical devices that have not been approved for use in Canada, if they were bought under this program. For more information, visit Health Canada.

Elastic support hose designed only to relieve swelling caused by chronic lymphedema – prescription needed.

Electrolysis – only amounts paid to a medical practitioner. Expenses for purely cosmetic procedures are not eligible.

Electronic bone healing device – prescription needed.

Electronic speech synthesizers that allow a person who is unable to speak to communicate using a portable keyboard – prescription needed.

Electrotherapy devices for the treatment of a medical condition or a severe mobility impairment – prescription needed.

Environmental control system (computerized or electronic) including the basic computer system used by a person with a severe and prolonged mobility impairment – prescription needed.

Extremity pump for a person diagnosed with chronic lymphedema – prescription needed.

Fertility-related procedures – amounts paid to a medical practitioner or a public or licensed private hospital to conceive a child. Generally, amounts paid for a surrogate mother are not eligible. See also In vitro fertility program.

Furnace – the amount paid for an electric or sealed combustion furnace to replace a furnace that is neither of these, where the replacement is necessary because of a person's severe chronic respiratory ailment or immune system disorder – prescription needed.

Gluten-free products – Persons with celiac disease can claim the incremental costs associated with buying gluten-free products as a medical expense. The incremental cost of buying gluten-free food products is the cost of gluten-free products minus the cost of similar products with gluten.

Generally, the food products are limited to those produced and marketed specifically for gluten-free diets, such as gluten-free bread. Other products can also be eligible if they are used by the person with celiac disease to make gluten-free products for their own use. These include, but is not limited to, rice flour and gluten-free spices.

If several people eat the product, only the costs related to the part of the product that is eaten by the person with celiac disease may be claimed as a medical expense.

Do not send any supporting documents. Keep them in case we ask to see them later. You will need to keep all of the following documents:

a letter from a medical practitioner that certifies that the person has celiac disease and needs a gluten-free diet
receipts for each gluten-free food product that is claimed
a summary of each food product that was bought during the 12-month period for which the expenses are being claimed

Group home – see Attendant care and care in a facility.

Hearing aids or personal assistive listening devices including repairs and batteries.

Heart monitoring devices including repairs and batteries – prescription needed.

Hospital bed including attachments – prescription needed.

Hospital services – public or private, that are licensed as hospitals by the province, territory or jurisdiction where they are located in.

Ileostomy and colostomy pads including pouches and adhesives.

Infusion pump including disposable peripherals used in treating diabetes, or a device designed to allow a person with diabetes to measure their blood sugar levels – prescription needed.

Injection pens – used to give an injection, such as an insulin pen – prescription needed.

Insulin or substitutes – prescription needed.

In vitro fertility program – the amount paid to a medical practitioner or a public or licensed private hospital. Fees associated with obtaining eggs or sperm from a donor or a donor organization (including service of locating a donor) are not eligible. See also Fertility-related procedures.

Kidney machine (dialysis) – the cost of the machine and related expenses, such as:

repairs, maintenance, and supplies
additions, renovations, or alterations to a home (the hospital official who installed the machine must certify in writing that they were necessary for installation)
the part of the operating costs of the home that relate to the machine (excluding mortgage interest and capital cost allowance)
a telephone extension in the dialysis room and all long distance calls to a hospital for advice or to obtain repairs
necessary and unavoidable costs to transport supplies

Laboratory procedures or services including necessary interpretations – prescription needed.

Large print-on-screen devices designed to help a person who is blind to use a computer – prescription needed.

Laryngeal speaking aids – can be claimed without any certification or prescription.

Laser eye surgery – the amount paid to a medical practitioner or a public or licensed private hospital.

Lift or transportation equipment (power-operated) designed only to be used by a person with a disability to help them access different areas of a building, enter or leave a vehicle, or place a wheelchair on or in a vehicle – prescription needed.

Liver extract injections for a person with pernicious anaemia – prescription needed.

Medical cannabis (marihuana) – the amounts paid for cannabis, cannabis oil, cannabis plant seeds, or cannabis products purchased for medical purposes from a holder of a licence for sale (as defined in subsection 264(1) of the Cannabis Regulations). The patient must be a holder of a medical document (as defined in subsection 264(1) of the Cannabis Regulations). The Cannabis Regulations require that the patient be registered as a client of the holder of a licence for sale and require the patient to make their purchases from the holder they are registered with.

Medical services by medical practitioners – to verify if a specific profession is recognized by a province or territory for the purposes of claiming medical expenses, see Authorized medical practitioners by province or territory for the purposes of claiming medical expenses.

Medical services outside of Canada – if you travel outside Canada to get medical services, you can claim the amounts you paid to a medical practitioner and a public or licensed private hospital. A "licensed private hospital" is a hospital licensed by the jurisdiction that it operates in.

Moving expenses – reasonable moving expenses (that have not been claimed as moving expenses on anyone’s return) to move a person who has a severe and prolonged mobility impairment, or who lacks normal physical development, to housing that is more accessible to the person or in which the person is more mobile or functional, to a limit of $2,000 (for residents of Ontario, the provincial limit is $2,927).

Needles and syringes – prescription needed.

Note-taking services used by a person with an impairment in physical or mental functions and paid to someone in the business of providing these services. A medical practitioner must certify in writing that these services are needed.

Nurse – the amount paid for services of an authorized nurse.

Nursing home – see Attendant care and care in a facility.

Optical scanners or similar devices designed to allow a person who is blind to read print – prescription needed.

Organ transplant – reasonable amounts paid to find a compatible donor, to arrange the transplant including legal fees and insurance premiums, and reasonable travel, board and lodging expenses for the patient, the donor, and their respective attendants.

Orthodontic work including braces paid to a medical practitioner or a dentist. Expenses for purely cosmetic procedures are not eligible.

Orthopaedic shoes, boots, and inserts – prescription needed.

Osteogenesis stimulator (inductive coupling) for treating non-union of fractures or aiding in bone fusion – prescription needed.

Over-the-counter medications – cannot be claimed as medical expenses, even if prescribed by a medical practitioner.

Oxygen and oxygen tent or other equipment necessary to administer oxygen – prescription needed.

Oxygen concentrator – amounts paid to buy, use and maintain an oxygen concentrator including electricity.

Pacemakers – prescription needed.

Page turner devices to help a person turn the pages of a book or other bound document when they have a severe and prolonged impairment that markedly restricts the person's ability to use their arms or hands – prescription needed.

Personalized therapy plan – the salaries and wages paid for designing a personalized therapy plan are eligible medical expenses if certain conditions are met.

The plan has to be designed for a person who is eligible for the disability tax credit (DTC) and paid to someone who is in the business of providing such services to unrelated persons.

The therapy has to be prescribed and supervised by one of the following practitioners:

a psychologist, a medical doctor, or a nurse practitioner (for expenses incurred after September 7, 2017) for a mental impairment
an occupational therapist, a medical doctor, or a nurse practitioner (for expenses incurred after September 7, 2017) for a physical impairment

The plan has to meet one of the following conditions:

be needed to get public funding for specialized therapy
be prescribed by a psychologist, a medical doctor, or a nurse practitioner (for expenses incurred after September 7, 2017) for a mental impairment
be prescribed by an occupational therapist, a medical doctor, or a nurse practitioner (for expenses incurred after September 7, 2017) for a physical impairment

For more information about the DTC, see Disability tax credit.

Phototherapy equipment for treating psoriasis or other skin disorders. You can claim the amount paid to buy, use, and maintain this equipment.

Premiums paid to private health services plans including medical, dental, and hospitalization plans. They can be claimed as a medical expense, as long as 90% or more of the premiums paid under the plan are for eligible medical expenses.

Pre-natal and post-natal treatments paid to a medical practitioner or a public or licensed private hospital.

Prescription drugs and medications that can lawfully be obtained for use by the person only if prescribed by a medical practitioner. Also, the drugs or medications must be recorded by a pharmacist. You cannot claim over-the-counter medications, vitamins, or supplements, even if prescribed by a medical practitioner (except Vitamin B12).

Pressure pulse therapy devices for treating a balance disorder – prescription needed.

Provincial and territorial plans – you cannot claim the following provincial and territorial plans as medical expenses:

Alberta – Health Care Insurance Plan
British Columbia – Medical Services Plan
Manitoba – Health Plan
New Brunswick – Medicare
Newfoundland and Labrador – Medical Care Plan
Northwest Territories – Health Care Plan
Nova Scotia – Medical Services Insurance
Nunavut – Health Care Plan
Ontario – Health Insurance Plan/Health Premium
Prince Edward Island – Health Services Payment Plan
Quebec – Health Insurance Plan/Health Services Fund contributions/Health contributions
Saskatchewan – Medical Care Insurance Plan
Yukon – Health Care Insurance Plan

Reading services used by a person who is blind or has a severe learning disability and paid to someone in the business of providing these services. A medical practitioner must certify in writing that these services are needed.

Real-time captioning used by a person with a speech or hearing impairment and paid to someone in the business of providing these services.

Rehabilitative therapy including lip reading and sign language training to adjust to a person's hearing or speech loss.

Renovation or construction expenses – amounts paid for changes that give a person access to (or greater mobility or functioning within) their home because they have a severe and prolonged mobility impairment or lack normal physical development.

Costs for renovating or altering an existing home or the incremental costs in building the person's main place of residence may be incurred. These amounts paid, minus any related rebates, such as the goods and services tax/harmonized sales tax (GST/HST), can be claimed.

Renovation or construction expenses have to be reasonable and meet both of the following conditions:

They would not normally be expected to increase the value of the home.
They would not normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment.

Make sure you get a breakdown of the costs. Costs could include expenses such as:

buying and installing outdoor or indoor ramps if the person cannot use stairs
enlarging halls and doorways to give the person access to the various rooms of their home
lowering kitchen or bathroom cabinets so the person can use them

While these costs to renovate or alter a home to accommodate the use of a wheelchair may qualify as medical expenses under the conditions described above, these types of expenses related to other types of impairment may also qualify. In all cases, you must keep receipts and any other related documents to support your claim. Also, you must be able to show that the person’s particular circumstances and the expenses meet all of the conditions.

Respite care expenses – see Attendant care or care in a facility.

School for persons with a mental or physical impairment – an appropriately qualified person, such as a medical practitioner or the principal or head of the school, must certify in writing that the equipment, facilities, or staff specially provided by that school are needed because of the person's physical or mental impairment.

Scooter – the amount paid for a scooter that is used instead of a wheelchair.

Service animals – the cost of a specially trained animal to assist in coping with an impairment for a person who is in any of the following situations. The person:

is blind
is profoundly deaf
has a severe and prolonged physical impairment that markedly restricts the use of their arms or legs
is severely affected by autism or epilepsy
has severe diabetes (for expenses incurred after 2013)
has a severe mental impairment (for expenses incurred after 2017). The animal must be specially trained to perform specific tasks that assist the person in coping with the impairment. An animal that only provides emotional support is not considered to be specially trained for a specific task

In addition to the cost of the animal, the care and maintenance (including food and veterinarian care) are eligible expenses.

Reasonable travel expenses for the person to go to a school, institution, or other place that trains them in the handling such an animal (including reasonable board and lodging for full-time attendance at the school) are eligible expenses. The training of such animals has to be one of the main purposes of the person or organization that provides the animal.

Sign language interpretation services used by a person with a speech or hearing impairment and paid to someone in the business of providing these services.

Spinal brace – can be claimed without any certification or prescription.

Standing devices for standing therapy in the treatment of a severe mobility impairment – prescription needed.

Supplements and vitamins – cannot be claimed as medical expenses, even if prescribed by a medical practitioner (except vitamin B12).

Talking textbooks related to enrolment at a secondary school in Canada or a designated educational institution for a person who has a perceptual disability. A medical practitioner must certify in writing that the expense is necessary.

Teletypewriters or similar devices that allows a person who is deaf or unable to speak to make and receive phone calls – prescription needed.

Television closed caption decoders for a person who is deaf – prescription needed.

Tests – the cost of medical tests such as electrocardiographs, electrocardiograms, metabolism tests, radiological services or procedures, spinal fluid tests, stool examinations, sugar content tests, urine analysis, and x-ray services. Also, you can claim the cost of any related interpretation or diagnosis – prescription needed.

Therapy – the salary and wages paid for the therapy given to a person who is eligible for the disability tax credit (DTC). The person giving the therapy must not be your spouse or common-law partner and must be 18 years of age or older when the amounts are paid.

The therapy has to be prescribed and supervised by one of the following practitioners:

a psychologist, a medical doctor, or a nurse practitioner (for expenses incurred after September 7, 2017) for a mental impairment
an occupational therapist, a medical doctor, or a nurse practitioner (for expenses incurred after September 7, 2017) for a physical impairment

For more information about the DTC, see Disability tax credit.

Training – reasonable amounts paid for you or a relative to learn to care for a relative with a mental of physical impairment who lives with you or depends on you for support. The amount has to be paid to someone who is not your spouse or common-law partner and who was 18 years of age or older when the amounts were paid.

Travel expenses (less than 40 km) – travel expenses cannot be claimed as a medical expense if you traveled less than 40 kilometres (one way) from your home to get medical services.

Travel expenses (at least 40 km) – the cost of the public transportation expenses (for example, taxis, bus, or train) when a person needs to travel at least 40 kilometres (one way), but less than 80 km, from their home to get medical services.

To claim transportation and travel expenses, all of the following conditions must be met:

Substantially equivalent medical services were not available near your home.
You took a reasonably direct travelling route.
It is reasonable, under the circumstances, for you to have travelled to that place to get those medical services.

If a medical practitioner certifies in writing that you were not able to travel alone to get medical services, you can also claim the transportation and travel expenses of an attendant.

If you have travel expenses related to medical services and you also qualify for northern residents deductions (line 25500 of your return), you may be able to choose how to claim your expenses. For more information, see Form T2222, Northern Residents Deductions.

You may be able to claim the public transportation expenses you paid (for example, taxis, bus, or train) as medical expenses. Where public transportation is not readily available, you may be able to claim vehicle expenses.

You can choose to use the detailed or simplified method for calculating meals and vehicle expenses. If you use the detailed method, you have to keep all receipts and records for your 12-month period. For more information and to find out about the rates used to calculate this expense, go to Meal and vehicle rates used to calculate travel expenses for 2019 and previous years.

Example – Travel at least 40 kilometers but less that 80 kilometers

Travel expenses (at least 80 km) – the cost of the travel expenses, including accommodations, meals, and parking, when a person needs to travel at least 80 kilometers (one way) from their home to get medical services.

To claim transportation and travel expenses, all of the following conditions must be met:

Substantially equivalent medical services were not available near your home.
You took a reasonably direct travelling route.
It is reasonable, under the circumstances, for you to have travelled to that place to get those medical services.

If a medical practitioner certifies in writing that you were not able to travel alone to get medical services, you can also claim the transportation and travel expenses of an attendant.

You may be able to claim accommodation, meal, and parking expenses in addition to your transportation expenses as medical expenses.

For more information and to find out about the rates used to calculate these travel expenses, go to the Meal and vehicle rates used to calculate travel expenses for 2019 and previous years.

You must keep receipts for all accommodation expenses and you must be able to show that the amount paid for accommodation is necessary because of the distance traveled and your medical condition. Claim the amount for accommodation as shown on your receipts.

Examples – Travel at least 80 kilometers

Travel expenses (outside of Canada) – the cost of the transportation and travel expenses (for example, taxis, bus, or train, etc.) and travel expenses, including accommodations, meals, and parking, when a person is required to travel 80 kilometres or more (one way) from their home to get medical services outside of Canada.

To determine if the treatment received outside of Canada is an eligible medical expense, see Medical services provided outside of Canada.

To claim transportation and travel expenses, all of the following conditions must be met:

Substantially equivalent medical services were not available near your home.
You took a reasonably direct travelling route.
It is reasonable, under the circumstances, for you to have travelled to that place to get those medical services.

If a medical practitioner certifies in writing that you were not able to travel alone to get medical services, you can also claim the transportation and travel expenses of an attendant.

If you have travel expenses to get medical services and you also qualify for northern residents deductions (line 25500 of your return), you may be able to choose how to claim your expenses. For more information, see Form T2222, Northern Residents Deductions.

You may be able to claim accommodation, meal, and parking expenses in addition to your transportation expenses as medical expenses.

For calculating meal and vehicle expenses, you can choose to use the detailed or simplified method. If you use the detailed method, you have to keep all receipts and records for your 12-month period. For more information and to find out about the rates used to calculate these travel expenses, go to Meal and vehicle rates used to calculate travel expenses for 2019 and previous years.

You must keep receipts for all accommodation expenses and you must be able to show that the amount paid for accommodation is necessary because of the distance travelled and your medical condition. Claim the amount for accommodation as shown on your receipts.

Example – Travel at least 80 kilometres and outside of Canada

Treatment centre for a person addicted to drugs, alcohol, or gambling. A medical practitioner must certify in writing that the person needs the specialized equipment, facilities, or staff.

Truss for hernia – can be claimed without any certification or prescription.

Tutoring services that are additional to the primary education of a person with a learning disability or an impairment in mental functions, and paid to a person in the business of providing these services to individuals who are not related to the person. A medical practitioner must certify in writing that these services are needed.

Vaccines – prescription needed.

Van – 20% of the amount paid for a van that has been previously adpted, or is adapted within 6 months after the van was bought (minus the cost of adapting the van), to transport a person who needs to use a wheelchair, to a limit of $5,000 (for residents of Ontario, the provincial limit is $7,317).

Vehicle device designed only to allow a person with mobility impairment to drive the vehicle – prescription needed.

Vision devices – including eyeglasses and contact lenses to correct eyesight – prescription needed.

Visual or vibratory signaling device used by a person with a hearing impairment – prescription needed.

Vitamin B12 therapy for a person with pernicious anemia (either by injection, pills, or other methods) – prescription needed.

Vitamins – see Supplements and vitamins.

Voice recognition software is used by a person who has an impairment in physical functions. A medical practitioner must certify in writing that the software is necessary.

Volume control feature (additional) used by a person who has a hearing impairment – prescription needed.

Walking aids – the amount paid for devices designed only to help a person who has a mobility impairment – prescription needed.

Water filter, cleaner, or purifier – used by a person to cope with or overcome a severe chronic respiratory ailment, or a severe chronic immune system disorder – prescription needed.

Wheelchairs and wheelchair carriers – can be claimed without any certification or prescription.

Whirlpool bath treatments – the amount paid to a medical practitioner. A hot tub that you install in your home, even if prescribed by a medical practitioner, is not eligible.

Wigs – the amount paid for a person who has suffered abnormal hair loss because of a disease, accident, or medical treatment – prescription needed.

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#3 Transferring equities to a spouse's account

Transferring equities in a non-registered (pension) account, to a spouses’ non-registered account, will result in a (deemed) disposition or a taxable capital gain. When the equities are sold any capital gains, or the annual dividends, are attributed and taxed in the hands of the transferring spouse.

#4 Foreign property tax reporting

If you own foreign property worth >$100,000 you are required to file form 1135 with your tax return.

Foreign property includes Investments in pooled products i.e., mutual or pooled funds, or investments held in registered pension type accounts, or foreign vacation property used entirely for personal use, are excluded. The location of the property or is a key factor in determining if it is foreign property.

CRA considers cryptocurrencies to be funds or intangible property to be foreign property if held or stored. Unfortunately, the location of cryptocurrency data is usually ambiguous since it is usually stored in blockchains on servers located outside of Canada.

To avoid problems the safest approach is to report foreign property and cryptocurrency holdings >$100,000 and avoid potential CRA penalties ($25/day - maximum $2,500) and interest charges.

#5 Renting out your principal residence – tax implications

If you rent out all or part of your principal residence e.g., Airbus, you are deemed to earn rental income that must be reported for tax purposes on Form T2091 and Schedule 3. This also results in a deemed disposition, that must be reported at the time of the change, of the percentage of the property converted to rent usage, based on square footage (Paragraph 45(1)(c) - Income Tax Act). A special exemption to this rule, subsection 45(2), is not applicable when only a partial change of use applies.

The rental portion of a principal residence is not exempt from tax if the property is sold.

There is an exception to the 45(1)(c) rules if 1) the income producing use is “ancillary” to the use of the property as a residence, 2) there is no structural change required to the property and 3) no CCA is claimed on the rental portion.

The meaning of ‘ancillary’ is not defined for tax purposes but generally means ‘subordinate’ or ‘secondary’ to the primary use. But it is up to CRA to determine if the exemption applies. (Hmmm!)

If the residence is rented out the property tax grant may not apply and, you may not be able to differ property taxes. To qualify for these programs, you must reside in the home.

#6 Transferring investments between RRSP's and other deferred tax accounts

You can’t transfer money from your Registered Retirement Savings Plan (RRSP) to the RRSP of someone else. This includes transfers to a spousal RRSP. This would apply mainly to professionals, small business owners, and employees in Individual Pension Plans (IPPS)

There is no way to transfer funds from a Defined Contribution plan (DC) to a spouse's deferred tax account.

If an employee leaves an employer, pension funds can be transferred to another employer's pension plan or into a registered plan e.g., RRSP.

Employer plans may allow employees to make additional voluntary contributions to a pension (Capital Accumulation Account CAP account).

A Tax-Free Savings Account (TFSA) can only be set up and held individually. You also cannot contribute directly to your spouse’s TFSA.

#7 The difference between tax avoidance and evasion is important

Tax avoidance vs. evasion has different consequences.x is u

Tax avoidance

Tax avoidance is the use of legal methods to minimize the amount of taxable income and tax owed. Claiming allowed tax deductions and tax credits are common tactics, as is investing in tax-advantaged accounts such as RRSPs, TFSA, or Capital Accumulation Accounts (CAPs).

Most Canadians don't begrudge paying tax but want to pay the least amount possible and they like to feel the money is spent wisely.

Examples of tax avoidance: Contributions to a RRSP, TFSA, DC plan, donations to a charity or donations political party or the Crown, following the rules established by CRA.

Tax evasion

Tax evasion is basically a case of intentionally lying and hiding. Tax evasion occurs when you do not report relevant financial information when filing a tax return.

Money laundering and cryptocurrencies are commonly used to evade tax. Tax evasion is a serious offense and can result in fines, penalties or, jail time.

Examples of Tax evasion: Concealing assets, income, or information to dodge tax liability or typically constitutes tax evasion.

Unintentional mistakes do happen in filing tax returns and are not considered evasion: the intent of the person signing the return is the key.

One thing can lead to another

A possible result of tax evasion is increasing the risk of having CRA auditing your past returns and increasing the likelihood of future return audits having audits. In most cases, only the last three years of your tax returns are eligible for audit by CRA. However, in the case of tax evasion CRA there is no limit as long as CRA can justify their audit by claiming the taxpayer is cheating on their tax returns.

(Audits period limitations for audits looking for foreign unreported income or assets are longer it because it is serious and potentially, there is more tax that CRA can recover. It is not unusual for foreign audits to go back ten or more years. of tax returns.)

If you think you won't be caught keep in mind CRA encourages whistleblowers, foreign governments are usually co-operative and modern technology provides CRA with tools that can track most financial transactions and communications.

G. Wahl, Managing Director, THE PensionAdvisor

#8 Pension Income Splitting

If you are married or live common law and are 65 or older, you can significantly reduce your combined tax payable by splitting pension income. The spouse who is 65, with a higher total income, can transfer up to 50% of eligible pension income to a spouse (who can be less than 65). You can also split pension income from a registered pension plan or life annuity if you are less than 65. CPP and OAS are not eligible for pension income ‘splitting’.

#9 No tax on Canadian or US investments in DC, RRIF, LIRA or TFSA

You can have US investments in a TFSA account however, US withholding tax is applied to interest earned (10%) or dividends (15%). TFSA withdrawals are not taxed therefore you will not recoup the US withholding tax as a tax credit i.e., you lose the withholding tax part of the interest or dividend received. The expected yields need to be reduced accordingly.

There is no US withholding tax on US interest or dividends in an RRSP, RRIF, LIRA, LRIF, etc. nor is there withholding tax on capital gains on US equities. If you earn interest or dividends in a non-registered (regular) account US withholding tax applies but you can claim it as a tax credit on your tax return

However, the exemption does not extend to tax-free savings accounts (TFSAs) or registered education savings plans (RESPs).

#10 Taxation of Cryptocurrencies

cryptocurrencies are popular but the tax treatment is complex and still evolving.

One of the appeals of cryptocurrency is that can be used to conceal illegal activities or hide income from the taxman. Given the large sums of money involved, it is just a matter of time that government tax agencies like CRA try to ensure all such income is reported. In the process, they will also decide what constitutes income and their interpretation of how it will be taxed.

Regulators and the taxman are however struggling to keep up with the development and spread of cryptocurrencies.

There is a limited amount of information available about the taxation of cryptocurrencies in Canada. A summary of the basics about taxation is outlined below (from CRA sources).

Cryptocurrencies are considered to securities: they are not treated as cash.
CRA considers cryptocurrencies to be a ‘commodity’: income is treated as business income.
The tax treatment depends on whether transactions are in the nature of business (to earn income) or as an investment.
Accepting cryptocurrencies as a payment is considered to be ‘bartering’ Businesses that accept this type of payment for products or services must report it as income.
In most cases, business cryptocurrency transactions are income in the year g the transaction.
The tax treatment of cryptocurrency ‘mining’ (when paid in cryptocurrencies) also depends on the nature of the transaction – see (3).
If the nature of the transaction is not obvious (provable/justifiable) CRA would likely treat it as income.
The issue of ‘business’ vs. ‘investment’ income is often ambiguous and depends on many direct and indirect factors such as timing, frequency, ‘intent’ etc. CRA makes the call!
If a transaction is an investment, gains or losses are treated as capital transactions and taxed accordingly (50% taxable or deductible in Canadian dollars).
Taxable capital gains and losses are given capital gains or loss treatment allowed under the ITA. The rules applicable to ‘superficial’ losses also apply.
Tax is payable in the year of the disposal of a cryptocurrency.
“Disposals” of cryptocurrencies include trade or exchanges, conversions to hard dollar currencies, or as payment for any type of goods or services.
The values of purchases or disposals or redemptions etc. must be stated in Canadian dollars on the date of the transaction.
You must keep detailed records of any type of transaction in order to establish the cost or selling price of a cryptocurrency.
The cost or selling price is the fair market value of the cryptocurrency based on the cost of whatever was purchased or sold (a potential can worms).
Where a taxable service, product or property is exchanged for a cryptocurrency GST/HST applies at the time of the transaction.
If cryptocurrency transactions are not reported CRA may impose penalties and charge interest on unpaid taxes.

In summary cryptocurrencies and transactions are complex: they appear to be a bookkeeping nightmare from a tax perspective. The fact that the tax treatment is still evolving makes it difficult to decide what information may be needed for tax purposes in the future.

Gerry Wahl, Managing Director, The PensionAdvisor

#11 Final RRSP Contribution - If you turned 71

If you turned 71 during the year you will have to convert your RRSP to an RRIF. If you have room and cash you can make a final RRSP contribution (tax-deductible) but it must be by December 31. You do not have the usual 60 days (by the end of February) from the end of the year to do this.

If you have a younger spouse you can continue to contribute their RRSP.

If you turn 71 and have earned income you could over contribute to your RRSP this year pay the penalty and have a deduction for the overpayment portion for next year.

#12 Canada Training Credit (CTC) - a gift

Effective in 2019 you are entitled to a refundable Canada Training Credit if you meet certain qualifying conditions. The credit accumulates at a rate of $250 per year – a lifetime maximum of $5000. You can claim this credit if you enroll and pay fees in a post-secondary or vocational course from an eligible university or educational institute.

If you meet the eligibility requirements, you will automatically accumulate $250 towards your Canada training credit limit. The credit will appear on your NoA. It appears that you do not have to apply to qualify for this credit.

To qualify you must be 25 to 64 years old and your income for the year must be between $10,000 and $150,000. You can claim the lesser of 50% of tuition fees or the accumulated amount in this fund, whichever is lower, as the training credit. The maximum lifetime tax value of the credit is $750 (15% of $5000),

G.Wahl< managing Director, The PensionAdvisor

#13 Notice of Assessment - Important document

CRA issues a Notice of Assessment (NoA) with each tax return filed. A NoA has information you may need in filing your current return. This includes any changes made to taxable income tax, tax owing, RRSP room, loss carryforwards, the CTC balance and other information.

If you don’t have copy of the NoA you can obtain the information by opening an account with CRA at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html

G.Wahl, Managing Director, The PensionAdvisor

#14 Deductions and tax credits - strategies for claiming

Don't be too quick to claim the deductions or tax credits: there may be an advantage in delaying the claim to the future. If you expect to have a large capital gain in the future or perhaps a large amount of tax to pay - consider delaying using the deduction or tax credit you are carrying forward until that time.

If the Canadian government increases the taxable portion of a taxable capital gain from 50 to say 75% (as rumored) and you have capital losses from prior years, it will be advantageous to offset the 75% capital gains with losses created by the 50% inclusion rate.

This is an example of why it is important to have a financial plan with a strong tax model will help select the optimal year to claim the deduction and/or credits to reduce overall tax paid.

G.Wahl, Managing Director, The PensionAadvisor

#15 Lossing a Non-refundable Tax Credit borders on sinning!

Utilize a non-refundable tax credit by creating net income

Non-refundable tax credits are 'free money'. They are deducted from tax payable for the year but must be used in the year: they can not be carried forward or back to other years like some other deductions. You should and often may be able to void losing non-refundable deduction but this means being aware of the potential loss when a return is filed.

It may be possible to use the non-refundable tax credit by increasing net income. You may be able to do this by reducing a deduction that can be carried forward to a future year. For example - an RRSP contribution.

The trick is to back off on the deduction to the extent it increases tax payable to the amount of the non-deductible tax credit that will be lost. No additional tax will result and you can use the carry-forward deduction to reduce future tax payable.

There are 2 takeaways from this:

1) the person preparing your tax return should be astute enough to do this this

2) Having a formal financial with a strong tax component will help you see when it is appropriate to take tax deductions and credits that are being carried forward.

The PensionAdvisor financial planning model has a comprehensive tax component (essential in planning for retirement).

G.Wahl, Managing Director, The PensionAdvisor

#16 Canada caregiver credit:

If you have a dependant under the age of 18 who’s physically or mentally impaired, you may be able to claim up to an additional $2,350 in 2022 and $2,295 for 2021 in calculating certain non-refundable tax credits. For infirm dependants 18 or older, the amount for 2022 is $7,525 and the 2021 amount is $7,348.

Disability amount:

The amount for 2022 is $8,870 (non-refundable tax credit; $8,662 in 2021), with a supplement up to $5,174 for those under 18 (the amount is reduced if child care expenses are claimed; $5,053 in 2021).

Child disability benefit:

The child disability benefit is a tax-free benefit of up to $2,985 (2022) for families who care for a child under 18 with a severe and prolonged impairment in physical or mental functions. For 2021, the amount is $2,915.

Canada child benefit:

In 2022, the maximum CCB benefit is $6,997 per child under six and up to $5,903 per child aged six through 17. In 2020, those amounts are $6,833 per child under six and up to $5,765 per child aged six through 17. It is a refundable benefit

#17 Home buyer Credit L

You can claim $5,000 for the purchase of a qualifying home in the year if both of the following apply:

you or your spouse or common-law partner acquired a qualifying home
you did not live in another home owned by you or your spouse or common-law partner in the year of the acquisition or in any of the four preceding years (first-time home buyer)

It is a non-refundable tax credit

#18 Deductible Carrying charges and interest expense

Interest expenses can be deducted in some cases. Also, see "Taxtion"

You can claim the following if incurred to earn income.

Fees to manage investments.
Fees for certain investment advice.
Fees paid for preparing a tax return.
Interest paid to earn investment income from interest and dividends.
Equity loans where the company indicates they will pay dividends in the future.
Legal fees incurred relating to support payments to a current or former spouse.
Interest on student loans (claim on Line 31900 only)

You cannot claim certain expenses.

Interest to borrow money to contribute to one of the registered savings accounts or a TFSA.
Safety deposit box fees.
Brokerage fees paid to buy securities (included as part of the cost of the security).
Legal fees to get a divorce.

#19 Donation amounts can be carried forward but not the tax credit.

Tax credits are offered both federally and provincially on donations made during the year. It is a non-refundable tax credit and multi-tiered, i.e., the federal charitable tax credit rate is 15% on the first $200 and 29% on the remaining amount. The donation tax credit rate on income taxed at 33% increases to tax 33%. The provincial amount is calculated similarly and added to the federal amount to determine the full benefit.

The tax credit is limited to 75% of net income. However, if you die, the amount increases to 100% of net income in the year of death.

The actual donation made can be carried forward for five years if not used. However, the tax credit can not be carried forward - it is a non-refundable tax credit.

Donations can be made in kind, at fair market value, or in cash assuming a receipt is received from the donation recipient. Donations of capital or personal properties must be made at fair market value and result in a deemed disposition and a taxable capital gain (50% taxable) which must be reported.

Donations must be made to qualifying charitable organizations to get the tax credit. Qualifying charitable organizations can be found at

https://www.canada.ca/en/revenue-agency/services/charities-giving/list-charities/list-charities-other-qualified-donees.html

In some cases, donations to foreign charities may also be claimed. Check with CRA before deducting.

You also can pool charitable donations with their spouse or common-law partner on their personal tax return, creating a larger tax credit.

Dec. 31 is the last day to donate and obtain a receipt for a tax year.

#20 Short selling is an income transaction unless..

The gain or loss on the short sale of shares is considered to be an income gain or loss, unless an election has been made under s. 39(4) to treat them as capital transactions. In Federal Court of Appeal Rezek v. Canada (2005 FCA 227), it is stated that any broker's fees, rental fees and compensatory dividends paid by the short seller between the short sale and the close out will reduce the profit or increase the loss.

#21 Deferred Property Tax - A gift from the provincial government

Deferring annual property tax - an opportunity to preserve cash and monetize home equity

It's not often The BC government provides a significant benefit but deferring your annual property tax is definitely a gift. Qualifying homeowners can defer the property tax (only) portion of their annual tax assessment (this does not include the lesser utilities charge or other local add ons). Interest is charged at a very low rate - usually much less than bank loan rates.

Alberta, Ontario, and Halifax offer deferred tax programs as well.

The deferred tax, in simple terms, is a loan. From a financial and risk perspective, it makes sense to defer property tax. (For details see "Taxation" #7)

You will be more disappointed by the things that you didn’t do than by the ones you could have done when you still could do them.

G.Wahl, Managing Director, The PensionAdvisor

#22 Foreign property and assets held during a year must be reported

CRA wants to know about any foreign-owned assets (property) that are you have

It is not unusual for taxpayers to try to evade tax or, launder money by owning foreign-owned property. CRA and other governments are aware of this ruse and co-operate to unearth evaders. The penalties for evasion are significant, but there are also penalties for simply not reporting the foreign property.

Foreign Assets and Property Defined

Foreign property must be disclosed if at any time during the year the property(ies) cost more than C$100,000

1) land, buildings, equipment

2) public and private shares of any type

3) Bonds, bank accounts, other types of cash or investments

4) personal use property (there are certain exclusions)

5) partnerships, joint ventures, trusts, etc.

The following do not have to be reported:

1) Personal use property such as vacation or recreational property

2) Assets and investments held in registered savings account RRSP, RRIF, or TFSA

3) Foreign pensions (funds)

Cryptocurrencies, because of their nature, usually have a foreign component that is not obvious or even easy to determine at a point in time.

It may be advisable to simply report cryptocurrency holdings to avoid CRA problems and audits.

Reporting

The property held is reported on Form T1135 when you file your tax return.

Penalties

The late filing penalty for not reporting foreign property is $25 per day to a maximum of $2,500 plus interest. CRA appears to have little sympathy for excuses- health reasons, forgetfulness, etc.

Also see #7 - Evasion and Avoidance above

#4 - "Investments" #4 Cryptocurrencies

G.Wahl, managing Director, The PensionAdvisor

#23 Canada Caregiver Tax Credit

A significant ton-refundable tax credit is available if you are providing care for a relative.

The Canada Caregiver Credit (CCC) is a non-refundable tax credit available in 2021. It replaces the following:

1) The Caregiver amount

2) the Amount for Infirm Dependent (18+)

3) The Family Caregiver Amount

Are you Eligibile

To be eligible to claim the tax credit:

1) you must be supporting a spouse with a mental or physical disablility, or

2) if the person depends on you because of a mental or physical disability, and was

a) your child, or grandchild,

b) you or a spouse's parent, grandparent brother, sister, uncle, aunt, nephew or niece, and

c) resident in Canada any time during the year

Who can be the person cared for: for?

a) they do not have to qualify as dependents.

b) they not have to live with you.

c) they can be a family member who relied on you and had mental or physical infirmity during the year

Amount that can be claimed

1) for a spouse $2,295 (Line 30300) plus a maximum of $7,348 (Line 30450) - if their income is between $7,368 and $24,604

2) for your child less than 18, $2,295 (Line 30500)

3) for an eligible dependent, 18 years old, $2,295 (line 30400) plus an extra amount (Line 30450) - if their income is between $7,368 and $24,604

4) for an eligible dependent, under 18, $2,295 (Line 30400) at the end of the year (Line 30500 if your child)

5) for dependents who are at least 18 who is not an eligible dependent, $7,348 (line 30450)

The maximum BC Caregiver Amount for 2021 is $4,844 less any dependent income in excess of $16,738. The credit is also available to someone not a dependent in some cases.

Keep in mind that the tax credit may be affected by the dependent person's net income, or if you are claiming other credits for the person.

You do not need to send CRA supporting a medical document unless CRA requests after the fact.

For more information on the Canada Caregiver Credit, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/canada-caregiver-amount.html or canada.ca.

G.Wahl, Managing Director, The PensionAdvisor

#24 Move your RRSP to a RRIF

At age 60 you can transfer an RRSP to A RRIF - why do this?

Background

An RRIF is another form of a Registered Retirement Savings Plan (RRSP) with the same investment choices offer the same investment options and is available from all financial institutions etc. Both allow you to defer paying tax on income and gains made in the account until the money is withdrawn. The income and gains in either account have no special tax treatment other than the deferring tax until a withdrawal is made. When a withdrawal is it is taxed as income at your marginal tax rate.

At age 60 you can convert all or part of an RRSP to an RRIF (no tax payable on the switch). You may be able to make contributions to an RRSP but you cannot make contributions to an RRIF. At age 71 you must convert an RRSP to an RRIF. If the minimum withdrawal has been made for an RRIF in a year you can also convert the RRIF back to an RRSP.

When the RRIF is in place you are required to make an annual minimum withdrawal; annual withdrawals are not required from an RRSP. The minimum withdrawal rates are based on age and can be found at

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/t4rsp-t4rif-information-returns/payments/chart-prescribed-factors.html

The amount withdrawn determines the rate of withholding tax that applies to withdraws. There is no withholding tax applied to your minimum payment from the RRIF.

The account holder (platform provider) determines the minimum annual withdrawal based on age at January 1 each year. However, an election can be made to have the withdrawal based on a spouse’s age. The account holder will also automatically withhold tax if a withdrawal or cumulative withdrawals for the years exceed the minimum amount. (There is no limit on the maximum you can withdraw). Tax is otherwise payable when the return for the year is filed.

Advantages - converting to an RRIF

1) At age 65 RRIF withdrawals are treated as pension income and qualify for the $2000 pension income deduction.

2) The pension deduction becomes a non-refundable tax credit - $300 each year (15% of $2000).

3) You can split up to 50% of pension income (RRIF) with a spouse.

4) Investments can be consolidated and managed in one account.

Word of caution

If you receive pension income, excluding CPP and OAS, of more than $2,000 there is no advantage to converting to minimize tax unless you split the RRIF income with your spouse and you and/or your spouse have a pension of less than $2,000.

G.Wahl, Managing Director, The PensionAdvisor

#24 Strategy for RRIF withdrawals

If you have RRIF you must withdraw the minimum amount each year

If you have a RRIF you are required to withdraw a minimum amount each year. The withdrawal rates are shown - see - Taxation #9.

No is tax withheld by the platform provider (carrier) if when you make a minimum or partial minimal withdrawal. RRIF income is taxable and the associated tax is payable when you file your annual return. Withdrawals are 100% subject to tax at your marginal tax rate.

The carrier will automatically withdraw the minimum amount from the RRIF account at year end, if you haven't already done this, and deposit in you non-register account account or bank account.

You could also take or instruct the carrier to withdraw the minimum amount as 12 equal withdrawals over the year or, you could also withdraw the total minimal amount at the start of the year as a lump sum. The balance of the minimum amount remaining in the RRIF during the year will continue to earn tax free income etc.

(Some people prefer to have an amount going into their bank account each month or prefer a lump sum at year end. Some won't remember to do teach monthly or, perhaps are afraid they might squander a lump sum withdrawal at the beginning of a year.)

On the other hand, if you withdraw a lump sum at the start of the year you can use the funds to make a TFSA contribution, to earn tax free income. If you invest the rest of the withdrawal in dividend paying equities or have capital gains you benefit from the a dividend tax credit or are only taxed on 50%. i.e., you pay less tax than you would on income earned in t he RRIF during the year.

The annual tax savings from this approach are not huge but over time the potential tax savings compounded and become significant.

G.Wahl, Managing Director, The PensionAdvisor

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#2 List of allowable medical expenses

Tax avoidance

Examples of tax avoidance: Contributions to a RRSP, TFSA, DC plan, donations to a charity or donations political party or the Crown, following the rules established by CRA.

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Tax evasion

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