Tax Alerts

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.

This year, for the first time since 2019, most (if not all) post-secondary students will be preparing to go to (or return to) university or college for in-person learning. While that’s an exciting prospect after two years of pandemic restrictions, starting or returning to post-secondary education is also an expensive undertaking.  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 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.

In this year’s budget, the federal government announced a number of measures to help Canadians who are trying to put together a down payment for the purchase of 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.

By the beginning of August 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 filing. Most taxpayers, therefore, would consider that their annual filing and payment obligations for the year are now in the past.

Canadian businesses should be aware that, while many programs which provided payroll or expense supports for businesses during the pandemic ended on May 7, 2022, there is still a program in place to help employers with payroll costs. As well, even for programs which ended on May 7, applications can still be made for relief for claim periods prior to that date.

Since 2009, Canadians have been living (and borrowing) in an ultra-low-interest-rate environment. Between January 2009 and January 2022, the bank rate (from which commercial interest rates are determined) was (except for a brief period in 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.

By the time August 2022 arrives, virtually all individual Canadians have filed their income tax return for the 2021 tax year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their refund or reluctantly paid any balance of tax owing.

As pandemic restrictions ease, the option of sending kids to summer camp is once again a realistic one and, for both kids and parents, the possibility of doing so must be particularly welcome this year.

At a time when Canadian households are coping simultaneously with rising interest rates and an inflation rate which recently hit its highest point in nearly four 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.

When a public health emergency was declared in March of 2020, the focus for the federal government was getting pandemic benefits into the hands of eligible recipients as quickly as possible, to help mitigate the sudden financial crisis faced by so many Canadians. To that end, three decisions were made with respect to program administration. First, eligibility for benefits would be determined by “self-attestation” – in other words, applicants would certify, based on the information provided to them online, that they met the eligibility criteria for a particular benefit. Such self-attestations were accepted at face value, without documentation or other verification methods. Second, application for the same benefit – the Canada Emergency Response Benefit, or CERB – could be made to either the Canada Revenue Agency or Employment Insurance/Service Canada, depending on the circumstances of the applicant. Finally, in at least in the initial round of CERB payments (which were received by over 8 million Canadians), no income tax was withheld from payments issued, although the CERB itself was taxable income.

If Canadians have the feeling that they are being squeezed from all sides when it comes to household finances, it’s because they are. In 2022 Canadian consumers have been hit by a double whammy of three successive interest rate hikes since March (with more increases almost certainly on the horizon) while dealing at the same time with increases in the cost of everyday goods to an extent that has not been seen, in some cases, for as much as forty years.