Two quarterly newsletters have been added—one about personal issues, and one about corporate issues. They can be accessed below.

Corporate:

Issue #20 Corporate

Personal:

Issue #20 Personal

While it didn’t get a lot of attention in the coverage of the 2012-13 federal Budget (brought down at the end of March), one of the budget announcements was definitely good news for the small business sector, as the EI hiring credit which had been available during 2011 was extended for another year.

One of the perennial concerns of small businesses is the number and variety of levies which they pay to governments at all levels and the effect of those payments on the bottom line. At the federal government level, businesses must pay, in addition to income tax, Canada Pension Plan contributions and Employment Insurance premiums on behalf of their employees. Where an employee earns in excess of about $50,000 per year, the employer’s share of those levies reaches almost $3,500 for the year.

In last year’s budget, the federal government proposed and implemented a “hiring credit” for small business, which provided a non-refundable credit of up to $1,000 against any increase in the employer’s EI premiums payable over the previous year’s amount. As the EI premium rate did not increase substantially on a year-over-year basis, any significant increase in an employer’s EI premiums liability for the current year over the previous one would generally arise as the result of taking on new employees. In effect, the credit covered up to the first $1,000 of EI premiums payable by the employer for new hires during the year.

As the intent of the credit was to benefit small and medium sized businesses, limits were placed on the size of the companies which could claim the credit. Specifically, the credit was available only to companies whose total EI premiums for the immediately previous year were less than $10,000.    

In this year’s budget, the federal government announced that the credit will similarly be made available during 2012 to employers whose EI premium liability during 2011 was less than $10,000. As was the case last year, the credit will cover up to the first $1,000 of any year-over-year increase (i.e., from 2011 to 2012) in the EI premiums payable by the employer.

Any such increase in premiums must be paid “up front”, when the employer business remits its source deductions in the usual way. However, there is no need to make an application for the hiring credit, as any credit will automatically be calculated by the Canada Revenue Agency (CRA) and applied as a credit on the employer’s payroll account with the Agency.  More information on the credit for 2012 can be found on the CRA Web site at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/hwpyrllwrks/stps/hrng/hcsb-2012-eng.html.

As gas prices across Canada climb past the $1.30/litre mark, and some predictions are for $1.50/litre (or higher) gas costs by the summer, consumers are looking for just about any way to reduce their cost of getting around.

For most of us, the purchase of gasoline is, for all practical purposes, a non-discretionary expense. Since the money has to be spent, the question becomes this: Does our tax system offer any relief by way of a deduction or credit for the cost of driving? The answer, as it usually is in tax, is yes … and no. The bad news for most employee taxpayers is that the cost of driving to work and back home, and the cost of most non-work driving is considered a personal expense, for which no deduction or credit is allowed, no matter how high the cost gets. The news is not, however, uniformly bad. The self-employed, of whom there are an increasing number, can claim a deduction for business-related driving expenses. As well, all taxpayers are permitted to claim a deduction for driving or travel expenses incurred for certain specific purposes, like moving to take a job or travelling to obtain medical care. And, finally, for those who decide that the daily commute has just become too costly and turn to public transit (which includes everything from subways to suburban commuter trains to ferries) as an alternative, a tax credit is available to help offset the cost of that transit.

Where employees are required, as part of their terms of employment, to use their own vehicle for work-related travel (e.g., someone who is required to visit clients at their own premises for the purpose of meetings or other work-related activities), tax relief is available for the related costs. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his employer’s place of business or in different places, that he or she is required to pay his or her own travelling expenses and that no tax-free allowance is provided by the employer for such expenses, the employee can deduct actual expenses incurred (including the cost of gas) for such work-related travel. It goes without saying that the employee must, in order to claim that deduction, keep a record of work-related travel done as well as records of travel-related expenses incurred.

The rules governing the taxation of employee automobile allowances and available deductions for employment-related automobile use (summarized on the Canada Revenue Agency Web site at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html), can be complicated. However, given the recent run-up in the cost of gasoline, as well as the anticipated increase ahead, it’s likely worth ensuring that every possible dollar of eligible expenses incurred as a result of employment-related car use is claimed.

Our tax system also permits a deduction for driving or other travelling costs incurred where a taxpayer moves to take a job (which would include students moving to take up a summer job) as well as for travelling costs which are incurred in order for the person or a member of their family to receive medical treatment.

Where it’s necessary to move to take up employment or self-employment, the costs of that move can be deducted from income earned at the new job. When it comes to travelling costs, the taxpayer has the option of either itemizing the various costs incurred (including operating expenses such as fuel, oil, tires, license fees, insurance, maintenance, and repairs and ownership expenses such as depreciation, provincial tax, and finance charges) for the year and then claiming a pro-rated amount which reflects the percentage of kilometres driven which relate to the move. Such an approach requires a fair amount of record keeping and many taxpayers choose instead to claim the standardized per kilometer rate provided by the federal government. For 2011 (the 2012 rates will be posted on the Canada Revenue Agency Web site early in 2013), that standardized rate ranges from 49.0 cents per kilometer in Manitoba to 63.5 cents per kilometer in the Yukon Territory. Where the standardized rate is claimed, no receipts are required, but the taxpayer is required to keep a record of the number of kilometers travelled in relation to the move.

The same approach (itemized approach or standardized rate claim) applies where a taxpayer is claiming travelling expenses related to medical care. The basic rule for claiming travel expenses in such circumstances requires the taxpayer to travel at least 40 kilometres (one way) from his or her home to obtain medical services which were not available any closer to home. Where that requirement is met, the taxpayer may claim the public transportation expenses paid (for example, taxis, buses, or trains) as medical expenses. Where public transportation is not readily available, the taxpayer may be able to claim a pro-rated share of vehicle expenses (both operating expenses and ownership expenses, with receipts, as outlined above) or opt for claiming the standardized per-kilometre rate. As is the case with all medical expense claims, a claim is available only where the total amount claimable exceeds the lesser of 3% of net income or (for 2012) $2,109.
 
Finally, where a taxpayer decides that driving is just too expensive and opts instead for public transit, a tax credit for the cost of using that public transit is offered by the federal government and by several of the provinces, and there is no limit on the amount which may be claimed. The federal credit is calculated as 15% of the cost of public transit, and while provincial credit amounts vary, an average would be around 7%. A taxpayer would therefore be able to claim a credit (and reduce taxes which would otherwise be payable for the year) by 22% of eligible public transit costs incurred during that year.

The public transit tax credit isn’t limited to costs incurred for transit use to and from work. Costs incurred by either spouse and by any dependent children under the age of 19 who regularly purchase a weekly or monthly transit pass (e.g., high school or university students who use transit to get back and forth from school) can be aggregated and claimed on the return of either parent for the year. So, a family of four that incurs $600 a month in transit costs (not difficult to do where an inter-city commuter pass can cost up to $300 a month and city transit passes, even for students, can cost up to $100) can claim $7,200 in eligible transit costs per year, for which they would be able to reduce their tax bill for the year by just under $1,600.

No amount of tax relief is going to make driving, especially for a daily commute, an inexpensive proposition. But, that said, seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.

By now, most Canadian taxpayers (except the self-employed and their spouses, who have until June 15) will have filed their 2011 income tax returns. It’s quite often the case that a taxpayer will realize, after the return is filed, that information has been inadvertently misstated, or perhaps amounts have been omitted where an information slip was received after the return was sent, or even that claims have been made for deductions or credits to which the taxpayer is not actually entitled.

In such situations, the taxpayer is often at a loss to know how to proceed, but the process for amending a return is actually straightforward. The first reaction in such circumstances is sometimes simply to file another, corrected return, but that’s not the right solution. Instead, the taxpayer should wait until a Notice of Assessment is received in respect of the return already filed, and then file a Notice of Adjustment with the Canada Revenue Agency (CRA), making the necessary corrections. A Notice of Adjustment can be filed in a number of ways. The easiest and quickest way of doing of so is through the CRA Web site’s “My Account” feature, but that option is available only to taxpayers who have registered to obtain a CRA ID and password. While doing so isn’t difficult (the steps to be taken to do so are outlined on the Web site at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/myccnt/menu-eng.html, it does take a few weeks to complete the process. Taxpayers who don’t want to deal with the CRA through the Web site, or who don’t think it’s worth registering just to deal with the Agency on a single issue can obtain hard copy of the T1 Adjustment form from the CRA Web site at http://www.cra-arc.gc.ca/E/pbg/tf/t1-adj/t1-adj-11e.pdf or by calling the CRA Forms request line at 1-800-959-2221. The use of the actual form isn’t mandatory—a letter to the CRA signed by the taxpayers is an acceptable alternative—but using a standardized form has two benefits. First, it makes it clear to the CRA that an adjustment is being requested, and two, filling out the form will ensure that the CRA is provided with all the information needed to process the requested adjustment.  Once the form or letter is completed, it should be mailed or faxed to the Tax Centre to which the original return was sent. A taxpayer who isn’t sure anymore where that was can go on the CRA Web site at  http://www.cra-arc.gc.ca/cntct/tso-bsf-eng.html and, by selecting his or her location from a drop-down menu of provinces and cities, can obtain the address of the Tax Centre (not the Tax Services Office) to which the adjustment request should be sent.

Sometimes it’s the CRA who discovers that a return is incomplete or that further information is needed to properly assess the return. In such circumstances, the Agency will contact the taxpayer even before the return is assessed, to request further information or documentation of deductions or credits claimed (for example, information on the custody of a child where one parent has claimed an equivalent to spouse deduction, or receipts documenting child care expenses claimed). In all cases, the best thing to do is respond to such requests promptly, and to provide the requested documents or information. The CRA can assess only on the basis of information with which it is provided, and where a request for information or supporting documents for a deduction or credit claimed is ignored by the taxpayer, the assessment will proceed on the basis that that such support does not exist. Providing the requested information or supporting documents can often resolve the question to the CRA’s satisfaction, and the assessment of the taxpayer’s return can then proceed.

Of all the measures announced in the 2012-13 federal Budget brought down on March 29, it was the changes to Canada’s Old Age Security (OAS) system which will likely have the greatest impact on the largest number of Canadians. Under pre-budget rules, Canadians become eligible to receive OAS the month in which they turn 65, although the first payment is actually received the following month.

Changes to the OAS system were widely expected to be included in the budget, and the announced changes were, for the most part, as predicted. Specifically, the federal government announced that the eligibility age for receipt of OAS benefits would be raised from the current age of 65 to age 67. The change will, however, be deferred until 2023 and then implemented over a six-year period between April 2023 and January 2029.

The Budget also included an unexpected announcement that OAS recipients would, effective July 1, 2013, have the option of deferring their receipt of OAS benefits for up to five years. Such an option already exists for Canada Pension Plan (CPP) benefits and, as is the case with CPP benefits, deferral of OAS benefits will mean a larger monthly amount when benefits are received.

While the announced changes are, on their face, relatively straightforward, the combination of the lengthy phase-in period and the new option to defer receipt of OAS benefits can cause some difficulty in determining just how the changes will apply in an individual situation. An explanation of how the changes will apply to different age groups follows.

Current recipients of OAS benefits

Canadians who are currently receiving OAS benefits are completely unaffected by the changes announced in the budget. Both the timing and the amount of their monthly benefits will continue without change.

Canadians born after June 30, 1948 and before April 1, 1958

Those born between these two dates will be eligible to receive OAS benefits once they turn 65—they are not affected by the increase in the eligibility age. However, as everyone in this age group will be eligible to begin receiving benefits in July 2013 or later, they will have the option of deferring receipt of those benefits for up to five years.

Where receipt of OAS benefits is deferred, the amount of the benefit increases with each month of deferral. The budget papers provide the following two examples of the effect of a short-term and a long-term deferral on the amount of OAS benefit received.

Example #1

Michael will be turning 65 in September 2013.

Instead of taking up his OAS pension at age 65, he plans to continue working a year longer and defer the pension until age 66.

When he takes up his OAS pension at age 66, his annual pension will be $6,948 instead of $6,481 (in 2012 dollars).

Example #2

Rita will be turning 65 in December 2013.

She plans to continue working as long as she can. She prefers to forgo her OAS pension for the maximum deferral period of five years so that she can have a substantially higher annual pension amount, starting at age 70.

When she takes up her OAS pension at age 70, her annual pension will be $8,814 instead of $6,481 (in 2012 dollars).

Canadians born after March 31, 1958

This is the group of Canadians who will be affected by both the increase in the eligibility age for receipt of OAS benefits, and by the option to defer benefit receipt by up to five years. The following chart, taken from the federal Department of Finance Web site, outlines the age at which benefits may first be received by those born after March 31, 1958. It can be seen from the chart that Canadians born after January 31, 1962 will not be eligible to receive OAS benefits until they reach the age of 67.

 While this group will have receipt of their OAS benefits delayed beyond the age of 65, they will also be entitled, if they so choose, to defer receipt of the benefits for an additional period of up to five years past their eligibility date, as outlined in the examples above.

Canadians who receive OAS benefits may also be eligible to receive the Guaranteed Income Supplement (GIS), which is made available to lower-income seniors. The changes to the OAS system will also affect receipt of the GIS. Specifically, as GIS payments are tied to OAS, eligible seniors will not receive any GIS payments until payment of their OAS benefits begins.

In view of the number of Canadians who will be affected by the announced changes to the OAS system, the federal government has posted explanatory information, including an FAQ document, on its Web site, and that information can be found at http://www.servicecanada.gc.ca/eng/isp/oas/changes/index.shtml.