Tax Alerts

By anyone’s measure, obtaining a post-secondary education is an expensive undertaking. Tuition and other school-related costs are just the start of the bills which must be paid. Whether the student obtains a place in a university residence or finds a place to live off campus, students (and their parents) must also budget for the cost of residence and meal plan fees, or rent and groceries. The total cost of a single year of university or college attendance away from home can easily reach $30,000 – and can significantly exceed that amount where the student is enrolled in a specialized academic program leading to a professional designation.

The Old Age Security (OAS) program is the only aspect of Canada’s retirement income system which does not require a direct contribution from recipients of program benefits. Rather, the OAS program is funded through general tax revenues, and eligibility to receive OAS is based solely on Canadian residency. Anyone who is 65 years of age or older and has lived in Canada for at least 40 years after the age of 18 is eligible to receive the maximum benefit. For the third quarter of 2023 (July to September), that maximum monthly benefit for recipients under the age of 75 is $698.60, while benefit recipients aged 75 and older can receive up to $768.46 per month. The monthly benefit for all recipients will increase by 1.3% during the fourth quarter (October to December) of 2023.

When the pandemic began in the spring of 2020, it wasn’t long before it became apparent that the increasing threat was to both public health and to the economy. In response to the economic threat, the federal government launched a wide range of support programs for both individuals and businesses. Some of those programs were structured as outright grants to replace income lost when workplaces and businesses shut down, while others were structured as loans, to be repaid when the pandemic ended and the economic fortunes of recipients had (hopefully) improved.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required) to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government on or before April 30. And while it’s doubtful that anyone does so with any great degree of enthusiasm, each spring tens of millions of Canadians do sit down to complete that return (or, more often, they pay someone else to do it for them).

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

While the way in which post-secondary learning is delivered may have changed and changed again over the past three and a half years, as the pandemic waxed and waned and finally ended, the financial realities of post-secondary education have not. Regardless of how post-secondary learning is structured and delivered, it is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

The scarcity of affordable housing in just about every Canadian community can’t be news to anyone anymore. Whether it’s in relation to rental housing or the purchase of a first home, the opportunity to secure affordable, long-term housing has become more and more elusive, especially for younger Canadians.

By mid to late summer, almost every Canadian has filed his or her income tax return for the previous year and has received the Notice of Assessment issued by the Canada Revenue Agency (CRA) with respect to that tax filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations are done and behind them for another year.

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

The age at which Canadians retire and begin deriving income from government and private pensions and private retirement savings has become something of a moving target. At one time, reaching one’s 65th birthday marked the transition from working life to full retirement, and, usually, receipt of a monthly employee pension, along with government-sponsored retirement benefits. That is no longer the unvarying reality. The age at which Canadians retire can now span a decade or more, and retirement is more likely to be a gradual transition than a single event.

By the time summer arrives, nearly all Canadians have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return and have either spent their tax refund or, more grudgingly, paid any balance of tax owing.

At a time when Canadian households are coping simultaneously with ongoing inflation, especially food inflation, as well as interest rates which are at their highest point in decades, every dollar of income counts. And where that income can be obtained with minimal effort, and received tax-free, then it’s a win-win for the recipient.

With the worst days of the pandemic behind us, more and more Canadian families have returned to their usual schedule, with kids back in attendance at school and parents back at work at the office, on either a full-time or a part-time basis. While a return to the normal routine is likely welcome, the need to go to the office for at least part of the week means that parents must make arrangements for summer child care.

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

The purchase of a first home is a milestone in anyone’s life, for many reasons. A home purchase is likely the largest single financial transaction most Canadians will enter into in their lives, and having the ability to buy one’s own home has traditionally been perceived as a marker of financial success and stability.

Many, if not most, taxpayers think of tax planning as a year-end exercise to be carried out in the last few weeks of the year, with a view to taking the steps needed to minimize the tax bill for the current year. And it’s true that almost all strategies needed to both minimize the tax hit for the year and to ensure that there won’t be a big tax bill come next April must be taken by December 31 of the current calendar year(the making of registered retirement savings plan (RRSP) contributions being the notable exception). Nonetheless, there’s a lot to recommend carrying out a mid-year review of one’s tax situation for the current year. Doing that review mid-year, instead of waiting until December, gives the taxpayer the chance to make sure that everything is on track and to put into place any adjustments needed to help ensure that there are no tax surprises when the income tax return for 2023 is filed next spring. As well, while the deadline for implementing most tax saving strategies may be December 31, the window of opportunity to make a significant difference to one’s current-year tax situation does narrow as the calendar year progresses.

Canada’s retirement income system is made up of two public retirement income programs – the Old Age Security program and the Canada Pension Plan – as well as the opportunity to accumulate private retirement savings on a tax-assisted basis, through registered pension plans or registered retirement savings plans.

Sales of residential real estate across Canada are, after a slowdown in 2022, once again on the rise. Back-to-back increases in sales figures during February and March 2023 were followed by a double digit increase in such sales during the month of April. Those figures mean that tens of thousands of Canadians will be closing home sales transactions and moving this spring and summer. And, whatever the reason for the move or the distance to the new location, all moves have two things in common – stress and cost. Even where the move is a desired one – from an apartment to a first home, or moving to take one’s dream job, any move inevitably means upheaval of one’s life, and the costs (especially for a long-distance move) can be very significant. There is not much that can diminish the stress of moving, but the associated costs can be offset somewhat by a tax deduction which may be claimed for many of those costs.

Of the 17 million individual income tax returns for the 2022 tax year filed with the Canada Revenue Agency (CRA) by the middle of April 2023, no two were identical. Each return contained its own particular combination of types and amounts of income reported and deductions and credits claimed. There is, however, one thing which every one of those returns has in common: For each and every one, the CRA will review the return filed, determine whether it is in agreement with the information contained therein, and, finally, issue a Notice of Assessment (NOA) to the taxpayer summarizing the Agency’s conclusions with respect to the taxpayer’s tax situation for the 2022 tax year.

The fact that Canadian households and families have been living with a significant amount of financial stress for the past year or so isn’t really news. Eight interest rate hikes in the past 14 months, together with double digit inflationary increases in the price of food and energy, have combined to squeeze family finances from all directions.

The vast majority of Canadians view completing and filing their annual tax return as an unwelcome chore, and generally breathe a sigh of relief when it’s done for another year. When things go entirely as planned and hoped, the taxpayer will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer. While that’s the outcome everyone is hoping for, it’s a result which can be derailed in any number of ways.

There are a number of income sources available to Canadians in retirement. Those who participated in the work force during their adult life will have contributed to the Canada Pension Plan and will be able to receive CPP retirement benefits as early as age 60. Earning employment or self-employment income will also have entitled those individuals to contribute to a registered retirement savings plan (RRSP). A shrinking minority of Canadians will be able to look forward to receiving benefits from an employer-sponsored pension plan.

Fortunately for the Canadian taxpayer, most individual income tax returns filed result in the payment of a tax refund to the tax filer. Notwithstanding, a significant number of taxpayers find, on completing the annual tax return, that money is owed to the Canada Revenue Agency. Of the returns for the 2022 tax year that were filed between mid-February and mid-March this year, over half a million taxpayers found themselves in that position. It’s likely, as well, that those who owe money on filing aren’t eager to file early, and so the number of taxpayers who must pay a tax balance for 2022 will almost certainly increase significantly between now and the payment deadline of May 1, 2023.

Most Canadians live their lives with only very infrequent contact with the tax authorities and are generally happy to keep it that way. Sometime between mid-February and the end of April (or June 15 for self-employed taxpayers and their spouses) a return must be filed by the taxpayer and a Notice of Assessment is then issued by the Canada Revenue Agency (CRA). In most cases, the taxpayer will receive a tax refund by direct deposit to his or her bank account, while in a minority of cases the taxpayer will have to pay a tax amount owing on or before May 1, 2023.

It is an axiom of tax planning that the best year-end tax planning begins on January 1. And while it’s true that opportunities to make a significant dent in one’s tax payable for the year diminish as the calendar year winds down, it’s not the case that the time frame for taking advantage of such opportunities has passed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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