Why file a tax return if you have no taxable income for 2016?
You might be eligible for the federal GST/HST Credit and the BC Sales Tax Credit. An individual is required to apply for the GST/HST Credit annually by filing a personal income tax return. Low-income seniors can also re-apply for the Guaranteed Income Supplement by filing an annual personal income tax return. In addition, you will be able to recover any money owing to you for the year, such as an overpayment of income taxes, Canada Pension Plan contributions (CPP), or Employment Insurance premiums.
Even if you have no taxable income, you might still be required to file a tax return and pay CPP if your net self-employed income is in excess of $3,500. You might also want to report your taxable income on a tax return in order to build your RRSP contribution room and become eligible for greater RRSP deductions in a future year.
If you are a student with excess tuition and education amounts in the year, you will want to file a tax return so that you can use the amounts for credits in another year. Also, if you have a business loss, you must file a return in order to establish your right to claim the loss in other years.
Finally, if your tax return was filed more than three years after the end of a particular taxation year, the Canada Revenue Agency might not issue a tax refund related to that return.
There are two convenient ways to file your personal income tax and benefit return with the Canada Revenue Agency (CRA).
NETFILE allows you to file your personal income tax return directly with the CRA using the Internet. The tax return must be prepared using a commercial tax preparation software package or a Web application certified by the CRA to meet their system requirements.
EFILE is an automated system that lets registered electronic filing service providers complete and send your tax return to the CRA electronically. To use this service, you must take your documents to a tax preparation service provider.
You can mail a paper tax return to your tax centre using the envelope included in the income tax package mailed to you by the CRA. Use the mail-in label if you have one, and make note of the tax centre address for future reference.
The general deadline for filing personal income tax returns and paying any taxes owing is April 30th of the following year. Since April 30, 2017 is a Sunday, your return will be considered on time if the CRA receives it on or it is postmarked on or before May 1, 2017.
However, if you are self-employed, the filing deadline for you (and your spouse or common-law partner) is extended to June15th of the following year.
If you are a non-resident of Canada filing a non-resident tax return in respect of rents received in Canada, the filing deadline is June 30th where a Form NR6 was filed, otherwise the return is due within 2 years from the end of the year in which the rental income is received.
Just remember, any taxes you owe are still due by April 30th, so make sure you pay your taxes by that date to avoid arrears interest charges. If you owe taxes and your return is filed late, you will be assessed a penalty and interest on the unpaid balance of tax due.
If you find the deadline is fast approaching and you still haven’t received receipts or information slips for some items, file your return anyway with a cheque for the estimated tax owing and an explanation. You are responsible for making any necessary adjustment to your tax return promptly when the documents become available. Failure to do so might result in additional penalties for filing your tax return with incomplete and incorrect information.
When Canada Revenue Agency (CRA) sends you an assessment notice showing additional taxes payable, review it carefully: your arithmetic might have been wrong or you might have claimed a deduction to which you weren’t entitled. Alternatively, Canada Revenue Agency might have incorrectly denied a deduction or credit to which you were entitled.
If your return was prepared for you, advise the preparer of any changes in the assessment.
If you prepared your own return and don’t understand the information on your notice, contact your local CRA tax services office immediately for a full explanation.
If the assessment is not in your favour and you aren’t satisfied with the Canada Revenue Agency’s explanation, you might want to consult a professional advisor and consider filing a Notice of Objection with the Canada Revenue Agency to dispute the assessment. Keep in mind individuals have until the later of (i) one year after the date of the filing deadline for the return and (ii) 90 days after the date the CRA sent the Notice of Assessment to file the objection.
Even if there are no additional taxes payable on your Notice of Assessment, you should still review it to ensure the information such as RRSP deduction limits, unused RRSP contributions, Home Buyers' Plan and Lifelong Learning Plan repayment requirements, taxable refund interest, or losses available for carry forward, is correct.
If you failed to report any income on your 2013, 2014, or 2015 return, and you miss or forget to report any income on your 2016 return, you may be subject to a penalty for the repeated failure.
The penalties for repeated failures to report income for 2016 and subsequent years apply where the unreported income exceeds $500. The penalty itself is equal to the lesser of 10% of the unreported income or 50% of the additional income taxes payable on the unreported income.
With the myriad of T-slips issued these days, it’s easy to miss or forget one or two slips, especially when the slips are issued at different times during the year. The CRA receives copies of all T-slips, and through a matching system endeavours to match each T-slip to a tax return to make sure all income is reported; this means a failure to report income will probably be caught by the CRA.
The best defence against the penalty for the failure to report income is to be vigilant about reporting your income, making sure to obtain any T-slips that you think might be outstanding and report the income from those slips. You can call the CRA, or log in to their My Account service, to verify the T-slips you should be reporting on your income tax return.
There are other potential penalties for failing to report income that may apply, and there are also Voluntary Disclosure and Taxpayer Relief measures in place that might allow you to avoid such penalties by making a voluntary disclosure of the omitted income. For assistance, contact a Chartered Professional Accountant.
You can claim a tax credit for medical expenses in certain circumstances. For 2016, the tax credit is available only on the portion of the medical expenses that exceeds the lesser of 3% of your net income and $2,237 for federal tax purposes, and $2,085 for BC tax purposes.
In general, medical expenses include payments to private health insurance plans, fees to optometrists, opticians, dentists, medical doctors and chiropractors, and the cost of prescription eyeglasses, contact lenses, medical lab tests, hospital services and treatments, prescription medicines, and medical devices such as artificial limbs and dentures (this not an exhaustive list of eligible expenses). Medical expenses also include reasonable renovation costs to an existing residence, and incremental construction costs to make a new principal residence, to accommodate a disabled person, provided such costs would not normally be incurred by persons who are not disabled, and would not be expected to increase the value of the property. Eligible medical expenses may include reasonable travel costs to obtain medical services not available where you live. You may not claim the specific portion of any medical expenses that have been reimbursed by a medical plan.
Cosmetic procedures which are purely aimed at enhancing one’s appearance, including related expenses such as travel, which were incurred after March 4, 2010, are not eligible medical expenses.
You can claim a tax credit for medical expenses for any 12-month period ending in 2016. Just look for the consecutive 12-month period for which the sum of your medical expenses is the highest. Keep in mind, however, that you cannot claim medical expenses already claimed in the previous year.
You can add the medical expenses of your spouse and minor children to your own medical expenses. In addition, you can also add the medical expenses of certain other dependents subject to certain restrictions. In particular, caregivers are able to claim eligible medical expenses incurred in respect of a “dependent” relative if the caregiver pays medical or disability-related expenses of the dependent relative. For this purpose, a “dependent” relative is defined as a child who is 18 years of age or older, or a grandchild, parent, grandparent, brother, sister, uncle, aunt, niece or nephew, who is dependent on the taxpayer for support.
As either spouse can claim the medical expense credit, it would generally be more beneficial for the lower income spouse to claim the medical expense and maximize the tax credit.
If you would like more information about claiming medical expenses, seek the advice of a Chartered Professional Accountant.
You can transfer some income tax credits to your spouse or common-law partner.
The transferable credits are the age credit, disability credit, pension income credit, your own education and tuition fee credits, and the textbook tax credit.
Note that for 2017 and subsequent tax years, the education and textbook tax credits have been eliminated.
If you are able to reduce your taxes payable to zero without using all of your available credits, you might consider transferring some of these unused credits to your spouse’s return.
Don’t let your credits go to waste. Consult the advice of a Chartered Professional Accountant for more information.
If you are unable to use certain deductions or tax credits in a particular tax year, you might be able to use them in a future year. Common carry-forward items include:
An individual is generally deemed to dispose of all their capital property at fair market value immediately before their death. If the property is left to a spouse or common-law partner (or to a qualifying trust), the proceeds of the deemed disposition may be the cost amount instead of the fair market value which defers the gain.
There can be additional complexities for private company shares held at death that can result in double taxation to the estate. Tax planning may be necessary to avoid the double taxation.
Notifying Government Authorities and Financial Institutions
The executor or administrator of the estate should notify authorities, including the Canada Revenue Agency and Service Canada, and financial institutions of the death and make arrangements to stop payments or transfer them to a survivor for the following:
Obtaining a Clearance Certificate
An executor or administrator of an estate may want to obtain a clearance certificate from CRA before distributing any property under their control to the beneficiaries of the estate. Without a clearance certificate, the executor or administrator may be liable for any amount the deceased owes to the CRA.
Being an executor or administrator of an estate includes responsibility for complex tax matters. Consult a Chartered Professional Accountant for assistance.
Do you or your family members regularly use public transit? If so, then you might be eligible to claim a special tax credit for transit passes purchased in 2016 on your 2016 personal income tax return.
This tax credit is available for transit passes used in 2016. There is no limit to the amount you may claim. Claims may be made in respect of passes that provide unlimited use of public transit for at least 20 days in any 28-day period.
A claim is also available for short-term passes provided that each pass provides at least 5 consecutive days of unlimited public transit use or at least 20 days in any 28-day period.
Eligible cost-per-trip electronic payment cards may also qualify in 2016 provided they are used for at least 32 one-way trips during an uninterrupted period of no more than 31 days. Check with your public transit authority to ensure the card they issue is eligible.
You may claim the eligible cost for yourself, your spouse or common-law partner, and your children under the age of 19 at the end of the year.
Save those old transit passes. They could be worth 15 cents per dollar when you file your tax return.
As of July 1, 2016 the Canada child benefit (CCB) replaced the Canada child tax benefit (CCTB), the national child benefit supplement (NCBS) and the universal child care benefit (UCCB). The CCB is a non-taxable amount paid monthly to help eligible families with the cost of raising children under 18 years of age. The CCB may also include the Child Disability Benefit (CDB) and other provincial programs.
To qualify for the CCB, you must meet all of the following conditions:
In addition, you might be eligible even if your child lives with you on a shared basis. Shared eligibility exists where a child lives more or less equally with two separate individuals and each individual is primarily responsible for the child’s care and upbringing when the child resides with them
For each eligible child under the age of six, the CCB benefit amounts to $6,400 per year (or $533.33 per month). For each eligible child age 6 to 17, the CCB benefit amounts to $5,400 per year (or $450.00 per month). The tax credit begins to reduce once adjusted family net income is over $30,000 and is eliminated for one-child families earning more than $188,438 per year.
The BC early childhood tax benefit (BCECTB) was introduced as of April 1, 2015. The BCECTB is a monthly tax free payment to assist eligible families with costs to raise children under 6. The payment is combined into one payment with the CCB and the B.C. family bonus program (BCFB). Your child is automatically registered for the BCECTB when they are registered for the CCB. Therefore you must apply for the CCB to determine if eligible for the BCECTB.
The BCECTB provides a benefit of up to $55 per month per child under age 6. Benefits are based on the number of children in the family and the family's net income. The BCECTB is reduced if the family's net income exceeds $100,000 and is zero once the family's net income exceeds $150,000.
You can claim all of your 2016 donations plus any donations made in any of the previous five years that have not previously been claimed, to an annual limit of 75% of your net income. The first $200 of donations are eligible for a tax credit calculated at 20.06% (federal and BC combined), and donations in excess of $200 are eligible for a tax credit calculated at 43.7% (or 47.7% in some cases) combined.
If you are married, consider claiming all of your donations on one spouse’s tax return. By claiming donations on only one spouse’s tax return, you avoid having the first $200 of donations subject to the reduced tax credit twice, saving you up to $47 of income tax.
If you are a first-time donor, the federal portion of the tax credit is enhanced by a further 25% for up to the first $1,000 of donations in the year. This “super credit” can only be claimed in respect of one taxation year from 2013 to 2017, and is usually only available in the year you make your first donation unless none of the donation has previously been claimed. You may wish to consider accelerating next year’s donations into that first year to make sure you maximize the potential super credit. This super credit is only available through the 2017 taxation year.
You don’t have to claim your donations made in 2016 in your 2016 tax return. If, for example, you have other deductions sufficient to eliminate your taxes, then there is no benefit to claiming the donations in this year. Instead, carry forward your donations; they can still be claimed in any of the next five years.
You are required to attach the official charitable donation tax receipts to your tax return if you file a paper tax return. If you file your tax return electronically, retain your donation receipts because the Canada Revenue Agency may ask for them later. Pledge slips, cancelled cheques, credit card slips, and other proofs of payment are not acceptable substitutes for an official donation receipt; however these documents may be requested by the CRA if your tax return is selected for review. If you have lost your official donation receipt, contact the charity for an official duplicate. Donations to foreign charities generally do not qualify for the charitable donations credit, but there are special rules to allow credits for donations to some US charities and certain other prescribed foreign charities.
Every receipt from a Canadian charity or athletic association must contain a statement that it is an “official receipt for income tax purposes". The receipt must also conform to the prescribed format, and include the name of the organization, its address, the registration number assigned to it by the Minister of National Revenue, the date, and the amount of the donation.
Note that the Canada Revenue Agency administratively allows a taxpayer to initially choose which spouse or common-law partner will report a donation or gift and allows for the subsequent transfer of any carry forward balances from one spouse to the other spouse.
Consult a Chartered Professional Accountant to maximize your donation tax credit.
If you are a Canadian resident and have received income from foreign sources, you must report this income in Canadian dollars on your tax return.
To convert the foreign source income, you must use the rate of exchange that was in effect at the time the income was received or the average exchange rate for the year as published by the Bank of Canada if the amount was received at various times throughout the year.
You must report the amount of foreign income before deducting any tax that was withheld at the source. However, if you have paid tax on that same income in a foreign country, the amount of foreign tax paid might be eligible for a foreign tax credit or deduction on your Canadian income tax return.
Some foreign source income might also be exempt from tax in Canada, or in the foreign country, under international tax treaties.
There might be several tax planning opportunities, depending on the source and type of foreign income you received. To help you identify these opportunities, consult a Chartered Professional Accountant.
Canadian residents are required to report their worldwide income on their Canadian income tax return. This includes pension income from foreign pension plans and US social security benefits. Under the tax treaty between Canada and the US, only 85% of US social security benefits are taxable in Canada. However, effective for the 2010 and subsequent taxation years, Canadians will be able to claim an additional deduction of 35% of US social security benefits if they have been resident in Canada and have continuously, since before 1996, received US social security benefits in each taxation year. The additional deduction can also be claimed if the benefits are paid to a taxpayer in respect of a deceased spouse or common-law partner who received benefits prior to 1996.
Some foreign pension income is eligible for pension income splitting. Generally, Canadian residents who are 65 years of age or older at the end of year can transfer up to 50% of their pension income to their spouse or common-law partner if they jointly sign and file Form T1032. Where the Canadian resident is not 65 years of age at the end of the year, only “qualified pension income” that is eligible for the $2,000 pension income credit is eligible for pension income splitting.
A Canadian resident may transfer certain payments from a foreign pension plan to an RRSP provided the amount is included in income and attributable to services rendered by the individual, or his/her spouse or common-law partner, in a period throughout which the individual, or his/her spouse or common-law partner, were not resident in Canada. The transfer should be made within 60 days following the end of the year in which the income is received, and it may be made over and above the individual’s regular RRSP contribution room.
A foreign tax credit can be claimed on the Canadian income tax return to reduce the person’s overall Canadian tax liability where the foreign pension income is taxable in the foreign country. Taxation of a foreign pension received by a resident in Canada may vary depending on the tax treaty Canada has with the payer country. If you earn foreign pension income, contact a Chartered Professional Accountant to determine whether the foreign pension income is taxable in Canada and how you can get a foreign tax credit for tax paid to another country.
Canadian residents are required to report their income from all sources around the world. In addition, every individual must indicate on their personal income tax return whether they own specified foreign property with an aggregate cost of $100,000 or more. To determine the cost of foreign properties acquired in a currency other than Canadian dollars, use the exchange rate in effect at the time the property was purchased. Shares of non-Canadian companies held in a non-registered Canadian investment account are specified foreign property, so the reporting requirement can apply to you even if you don’t own any property outside Canada.
If you own specified foreign property with an aggregate cost of more than $100,000 you must complete and file Form T1135 by your tax return due date. Individuals do not need to complete this statement for the year in which they first became a resident of Canada, but they still need to report on their Canadian income tax return for that year the foreign property income earned after becoming a resident of Canada.
The Canada Revenue Agency has implemented changes to Form T1135 for the 2015 and later tax years. The changes allow taxpayers who held specified foreign property with a total cost amount of more than $100,000 but less than $250,000 throughout the year to report under a new simplified reporting method.
For taxpayers who held specified foreign property with a total cost of $250,000 or more throughout the year, the current detailed reporting method will apply. However, under the current detailed reporting method, taxpayers are allowed to report the aggregate amounts for specified foreign property held in accounts with registered securities dealers and Canadian trust companies rather than providing the detail of each such property. This reporting method requires taxpayers to provide the aggregate fair market value of the property in each account on a country by country basis.
Specified foreign property does not include property that is purely for personal use and generates no income. If the foreign property (for example, a vacation home) is not used to generate income, then it does not have to be reported as foreign property. Foreign property used exclusively in an active business, foreign property held through a Canadian mutual fund, and foreign property held in an RRSP or TFSA are also exempt from this reporting requirement.
Other foreign property reporting may be required where you own foreign corporations, have transferred or loaned funds to a non-resident trust, or received distributions from or borrowed funds from a non-resident trust.
The foreign property reporting requirements are complex, and failure to comply with the reporting requirements can result in significant penalties. Contact a Chartered Professional Accountant to help you understand the reporting requirements and identify tax-planning opportunities for foreign tax credits.