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.
To be eliminated after 2016 tax year.
Don’t forget your education expenses on your tax return.
Students enrolled at eligible Canadian post-secondary institutions might be entitled to a tax credit for tuition fees and ancillary fees paid for each calendar year. Full-time student fees at foreign universities might also qualify for a credit.
Certain examination and other related fees paid to an educational institution, professional association, provincial ministry or similar institution to take an examination that is required to obtain professional status recognized by federal or provincial statute, or to be licensed or certified to practice a profession or trade in Canada may also be claimed.
Canadian students may claim tuition tax credits for tuition fees paid to foreign universities outside of Canada as long as the student is in full-time attendance, the course duration is a minimum of 3 consecutive weeks, and the course leads to a degree. This will recognize the shorter course lengths at some foreign educational institutions and allow Canadian students to claim the related tuition tax credits.
In addition to the tuition credit, students might be entitled to an education tax credit calculated on an education amount of $400 per month for each full-time attendance, or $120 per month for each part-time attendance. In BC, the education amounts are $200 per month for full-time attendance and $60 per month for part-time attendance.
A student may be able to transfer a portion of his/her unused tuition, education, and textbook tax credits to a supporting spouse, parent, or grandparent up to a maximum of $5,000 per year subject to certain restrictions. Tuition, education, and textbook amounts that cannot be used in the current year, and that are not transferred, can be carried forward and claimed by the student in a subsequent year.
If your employer (or your parent's employer) paid your tuition, it is not creditable to you unless the amount was included in your (or your parent's) income.
Students might also be eligible for tax credits or deductions for other expenses, such as interest on student loans or moving expenses.
If you would like more information about claiming tuition tax credits, seek the advice of a Chartered Professional Accountant.
Scholarship, fellowship, or bursary income received by a student is considered fully tax-exempt, provided the income is connected with a program that entitles the student to claim the education tax credit as a full-time student.
The education tax credit is available to students who are enrolled in qualifying post-secondary educational programs at designated educational institutions. Generally, to be considered at the post-secondary school level, a course should provide credit towards a degree, diploma or certificate.
Where the scholarship exemption applies to a student in a part-time program, the exemption applies only to the extent the award covers tuition fees and costs incurred for program-related materials. This limit does not apply to students entitled to the disability tax credit or students who cannot enrol full-time due to a mental or physical impairment.
Since 2007, the exemption has been extended to scholarships, fellowships, and bursaries received in connection with an elementary or secondary school educational program.
Scholarships from foreign universities may be considered taxable income to the student in that country even though the student may be considered a resident of Canada while attending the foreign university.
NOTE: The tuition tax credit has not been eliminated, but for 2017 and future tax years the education and textbook tax credits have been eliminated. The tax exemption for scholarship, fellowship, and bursary income is unaffected by the elimination of the education tax credit.
If you have questions about the taxation of scholarships or bursaries, contact a Chartered Professional Accountant.
The government of Canada adds to your savings in a Registered Education Savings Plan (RESP) with the Canadian Education Savings Grant (CESG). The CESG is a financial incentive for parents, family, and friends to save for a child’s education after high school. The grant is paid directly into the child’s RESP and will not be included in the annual and lifetime contribution limits for the beneficiary. The CESG lifetime limit for any one beneficiary is $7,200.
Lifetime RESP contributions are limited to $50,000 per beneficiary. When more than the $50,000 RESP lifetime limit is contributed with respect to a beneficiary, a 1% per month penalty tax is payable on the excess contribution that is not withdrawn by the end of the month.
The government of Canada will contribute the Basic CESG grant equal to 20% of the first $2,500 of annual contributions to an RESP (up to a maximum of $500 per year per beneficiary) for the benefit of children under 18 years of age. For missed years, there are carry forward provisions that allow you to catch up on missed CESGs by up to $500 per year.
In 2016, the additional CESG rate on the first $500 of annual contributions is 20% for families with income of $45,282 or less (CESG equals $100 on the $500 of contributions), and 10% for families with income between $45,282 and $90,563 (CESG equals $50 on the $500 of contributions).
If the beneficiary does not use the CESG for education, the principal amount of the CESG grants must be repaid to the government. You will not have to repay income earned on the CESG grants but the income will be taxed when the amounts are withdrawn.
The CESG will only be available for a 16 or 17 year old if the RESP contributions (net of any withdrawals) made before the year the child turned 16 either totaled $2,000 or were at least $100 per year in any four previous years.
Subscribers of separate RESP plans for their children are allowed to transfer amounts between individual RESPs for siblings, without incurring penalties and without triggering the repayment of CESGs, provided that the beneficiary of the plan receiving the transfer of assets had not attained 21 years of age when the plan was opened. Set up and make contributions to an RESP for your children to qualify for the CESG.
If you would like more information about the Canada Education Savings Grants, seek the advice of a Chartered Professional Accountant.
Income received by an individual in the form of tips and gratuities related to employment is considered taxable income for the year and must be reported on the personal income tax return. Individuals who receive such income should keep a record of the amount they receive. These records do not have to be submitted with the income tax return but they should be available if the Canada Revenue Agency (CRA) requests them.
Failure to report tips and gratuities as income can result in potentially significant income taxes, penalties, and arrears interest if the CRA reassesses an income tax return to include additional income. The CRA generally expects a person working at a restaurant to have earned tips and gratuities so a failure to report such income on a tax return might result in a query from the CRA when the return is being assessed.
If you have questions about including tips and gratuities in income, or if you failed to report tips and gratuities as income in prior years and would like to fix the omission before the CRA reassesses you, consult a Chartered Professional Accountant.
If you moved in 2016 for employment, self-employment, or to attend a university or other post-secondary educational institution, you may claim a tax deduction for certain moving expenses if:
You may claim mover’s transportation costs, storage charges, insurance, personal transportation costs for you and your family, the costs of cancelling a lease at your former living location, and lodging and meals for up to 15 days near your former or new living location. If you sold your former residence, you can claim the costs of selling that residence including advertising costs, legal fees, real estate sales commission, mortgage prepayment penalties, and various other costs. If you sold a property at your former living location and acquired a property at your new living location you can deduct certain costs of the purchase such as property transfer taxes in connection with the purchase of your new residence (but not GST or HST on the new residence).
The costs of automobile and meals incurred in the move may be the actual costs (within reason and subject to certain limits) or the CRA flat rate costs. For an automobile, it can be the actual operating costs for the year prorated over the total mileage for the year relative to the mileage for the move. Alternatively it can be based on the 2017 flat rate in British Columbia of $0.475 per km. For meals it can be the actual costs or the 2016 flat rate of $17 per person per meal up to a maximum of $51 per person per day.
You must claim the deduction for eligible moving expenses in the year of the move up to the amount of your income from your new living location. If your deductible moving expenses exceed your income in the new living location, the excess can be deducted in the following years. Deductible moving expenses to study as a full-time student at a university or other post-secondary educational institution can only be deducted against income earned in the year from scholarships, fellowships, bursaries, certain prizes, and research grants, that are included in income for tax purposes.
If you move for employment purposes, you may not claim a deduction for any expenses paid by your employer on your behalf that were not included as a taxable benefit to you. Expenses you incurred that your employer reimbursed or expenses for which you have received an allowance are also not deductible unless the reimbursement or the allowance is included in calculating your income.
You should consult a Chartered Professional Accountant when considering a move to determine what costs are deductible.
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.
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.