Tax day has come and gone for Canadians, and unless you disagree with your assessment, you can leave that tax year behind. However, for those who disagree with the Canada Revenue Agency (CRA)’s assessment, then it’s important to know the deadlines for filing an objection. The first deadline is for a Notice of Objection (T400A). If that date is missed, you have a second opportunity by filing for an extension. If a taxpayer is still not successful, then they have the opportunity to appeal in the Tax Court of Canada. In one recent case, despite numerous attempts to send documentation to the CRA in response their requests, the minimal requirement is to ensure that your letter (if you’re not using the CRA form) state that you’re objecting to an assessment. Otherwise, your case will not be successful.
Key Takeaways:
“If you disagree with the CRA’s assessment of your return, you can formally object by filing a Notice of Objection (CRA Form T400A).”
Many Canadians depend on the Canadian Pension Plan as a source of income during retirement. However, there is often confusion around the 17 percent drop-out rule. Basically, this rule excludes 17 percent of months when you earned the least amount, which means the calculation of your monthly benefits will increase when these lower-income months are taken out of the equation. This could be as a result of time in school, lower career income, and caring for children. Depending on how long you work, your CCP could drop between 86-96 months based on the 17 rule.
Key Takeaways:
“Someone could retire at any point between ages 60 and 65, giving a range of contributory periods and corresponding maximum low-income drop-out months.”
Read more: https://www.moneysense.ca/columns/ask-moneysense/17-percent-drop-out-rule-cpp/
Many Canadians participate in the sharing economy, and income can be earned in a variety of ways. From accommodation sharing (aka home rentals) to ride sharing to making and selling goods or providing a service, all these activities fall as the sharing economy. Regardless of how you earned your income, any money that is earned needs to be reported for tax purposes.
Key Takeaways:
“All income earned through the sharing economy must be reported on tax returns.”
Sometimes in the rush to file an annual tax return mistakes or accidental omissions occur. On the other hand, businesses or individuals may receive a Notice of Reassessment, which requires additional work before your previous year’s tax return is finished. Depending on which of these two groups you’re in, there are different ways to proceed. If you receive an unfavourable Notice of Assessment, then review it to see why it has been changed. The first place to look is at the Explanation of Changes because it may be a simple clerical error. Then, review the Summary section. Once you understand the reason, then you can proceed.
Key Takeaways:
“If you receive an unfavourable Notice of Assessment, the first thing you must do is find out why CanRev has disallowed a claim or otherwise increased your taxes. If there’s a difference between your figures and CanRev’s, it’s quite possible that no one has even looked at your return beyond a keypunching clerk. You have a legal right to appeal your case. More importantly, if you do this properly, you stand a very good chance of winning.”
Read more: http://www.mondaq.com/canada/x/796962/tax+authorities/Amending+Your+Tax+Return+Careful+Now
A person’s tax bracket before and after retirement can help you decide whether you would benefit more from putting your money into an RRSP or TFSA account. By using this as a basis for your financial planning, it will become more obvious how to limit the taxes you pay. For instance, RRSP accounts are better investments for those who make more now, but require and plan to live on less after retiring.
Key Takeaways:
“While many people have no strong opinion when choosing between RRSPs and TFSAs, there is a clear advantage to RRSPs for those people who have more than modest incomes that are likely to be a fair bit lower in retirement. For most people earning over $47,000 a year, therefore, RRSPs are likely to be the better option.”
With the average life expectancy ranging from the mid to late eighties, yet, in reality, could be much more or less, Canadians planning to retire have to make decisions about where their retirement income will come from. You need to figure out where you stand to lose money on your household balance sheet should you or your spouse lives longer than expected. You need to know how much cash flow you will have and plan your budget. Having a financial plan in place for any situation will take away the stress and uncertainty.
Key Takeaways:
“The real value of financial planning [is] it helps reduce uncertainty—not by making highly exact predictions, but by identifying financial vulnerabilities and dependencies, and ways to effectively address them.”
A draft newsletter released by The Registered Plans Directorate of the CRA provides guidance on the tax implications of purchasing annuities by both plan administrators and individuals from registered pension plans. Currently, Section 147.4 of the Income Tax Act allows an annuity to be purchased from a pension plan with the condition that the annuinty terms are not “materially different” from the pension plan. If different, then 147.4 doesn’t apply resulting in the individual being seen to receive the full purchase price as a taxable payment. The draft newsletter outlines how their definition of “materially different” will be changing.
Key Takeaways:
“The main change in the Draft Newsletter is the new guidance respecting the forms of inflation indexing that will not be considered materially different by the CRA from CPI-based indexing. These will be welcome to plan administrators of pension plans who wish to purchase annuities with respect to benefits with CPI-based indexing.”
Read more: https://www.morneaushepell.com/ca-en/insights/cra-draft-newsletter-annuity-purchases-pension-plans
Homeowners may not realize it at the time, but renting out a home they used to live in will change its tax status when you go to sell it later. By making a primary residence a rental property, capital gains taxes will come into effect and be based on the increase in property value when you go to sell it. There are ways to continue to assess the property as a primary residence provided certain conditions are met. If you don’t qualify, then you’ll need to calculate the capital gain or loss using the fair market value when the home was converted from a principal residence to a rental property. This means any acquisition costs such as legal fees and land transfer tax, which would normally be added to the adjusted cost base or tax cost for capital gains purposes wouldn’t apply.
Key Takeaways:
“When you convert a home that is your principal residence into a rental property, this is considered a change in use. You are deemed to dispose of the property at the fair market value at that time, and immediately reacquire it.”
Read more: https://www.moneysense.ca/columns/how-to-calculate-rental-property-capital-gains-and-losses/
Some Canadians are looking to purchase a home not only a place to live, but as an investment for when they retire. But, is this an accurate perspective to take on a home? A house can be considered an investment in some ways, but not in other ways. It can be an investment as it appreciates in value, there are tax-free gains when sold (if it is your primary residence and the value has gone up), and it saves you from paying rent and could potentially be used to earn rental income. The equity in your home can also be used as collateral to get a low-interest line of credit. However, a house as an investment can be problematic as it can’t be quickly liquidated for cash and it can depreciate.
Key Takeaways:
“For most Canadians, a home is their largest single investment, and in many cases a keystone in their retirement plan. But is a house really an investment?”
Read more: https://www.bnn.ca/personal-investor-is-your-house-really-an-investment-1.1046497
When you decide to contribute to your RRSP or TFSA, it’s important to stay on top of what has been added as well as what your contribution limits are for each year. This includes keeping track of any money from other sources like a company pension plan to ensure you stay within your limit. If a Canadian over-contributes, the CRA will apply a tax penalty at a rate of one percent per month. Additionally, if a Canadian citizen becomes a non-resident, after that they are no longer eligible to contribute to these accounts and will also be penalized. Once a non-resident Canadian moves to another country, their case can be further complicated by not receiving notices mailed by the CRA.
Key Takeaways:
“While the tax man does have the ability to waive any over-contribution tax, penalties and arrears interest charged as a result of over-contributions, two cases demonstrate that the CRA shows little mercy when it comes to over-contributions.”