The CRA app is here! – Well, maybe not just yet

I have been looking forward to the Canada Revenue Agency’s release of its new personal tax app.

This is of particular personal interest, as about a decade back I penned an academic paper comparing the effectiveness of the CRA’s website to the offering of the Australian Tax Office (ATO).  In my opinion, it was clear that the Aussies had a much better grasp of the available technology at that time, and were using it much more ably to communicate with their constituents.

In the intervening years, I have continued to have an interest in the CRA’s communication practices and adoption of emerging technologies. The agency has been making some noticeable strides toward more effectively engaging with taxpayers, in particular in its online services like MyAccount.

While MyAccount houses a taxpayer’s detailed information, streamlined access is also available by logging in using the “My tax information” button on the MyCRA webpage.  On that page, there are also buttons for “My Payment, Benefit payment dates, Help with my taxes and Charity information”.  These latter resources are general in nature (ie., not specific to the taxpayer), and do not require logging in.

An underwhelming release

Now that we are into the tablet era, focus shifts toward the importance of the app as a key communications portal.

For months the CRA has been signaling toward the February 2015 release of the personal MyCRA app, but as that month came to a close the ‘Mobile apps’ landing page within the CRA site still only had  a link to the MyCRA webpage.  But in a March 2 news release, CRA stated that it was “proud to announce the release of its new mobile app – MyCRA – available for all mobile devices like smartphones and tablets.”

I checked the App Store, and could not find what I was looking for, but that is not all that uncommon.  My second stop was that CRA Mobile apps landing page, but it still simply linked to the MyCRA webpage.  On that page however, there was now a hyperlinked phrase “Add to home page instructions”.  Tapping there brings up an overlay window with simple instructions for placing “this web app” on the tablet’s home screen.

After completing the task, I went to the MyCRA icon now on the surface of my tablet and … it simply re-launched my browser, opening to the same MyCRA webpage I had just been on.

Minimal content, for now

Now I’m not an information technology expert, but I’m generally able to distinguish between an app and a bookmark.  One is left to wonder whether this is the intended end product, or if a true MyCRA app could not be developed in time, and this became the fallback.

Still, perhaps I was getting too mired in the process. Perhaps the substance of the change was waiting behind the “My tax information” button, so I logged in.  This gave me expected  access to the status of my 2014 return (not yet filed), related notices of assessment and RRSP and TFSA contribution limits, and that was all.

While I would not dispute that this is important and useful information, in my opinion the experience falls short of the expectations the lead-up generated.  Indeed, many of the items highlighted in the news release are those general information categories available without need to log in, let alone employ the “app” to launch the page in the first place.

In fairness, it appears that the MyCRA site (and the real app to follow?) is intended to be a platform for future communications (stating that it will house returns and assessments from 2014 on), and no doubt it will evolve.  For the present though, this is a disappointing baby step as the CRA strives to improve its service delivery to taxpayers.

Locked-in retirement savings – Understanding maximum limits

When someone leaves employment or otherwise ceases to be a member of a registered pension plan, portability options are generally available for the accumulated pension benefits from the duration of the employment. Commonly, a person may transfer or commute the value into some type of locked-in retirement savings plan, like a locked-in registered retirement savings plan (RRSP) or locked-in retirement account (LIRA).

Such plans may continue to be invested and earn tax-sheltered income, but no withdrawals are allowed. When the person wishes to begin taking income, a transfer may be made to a plan type from which withdrawals are permitted. This could be a life income fund (LIF), a locked-in retirement income fund (LRIF) or a prescribed retirement income fund (PRIF), depending on applicable pension legislation.

In this article, we’ll outline the rules regarding maximum withdrawals associated with those latter types of plans. Next month we’ll look at exceptions to the rules that may entitle a person to unlock some or all of the money in such plans.

Why is there locking in?

While retirement savings are frequently discussed in terms of their tax treatment, it is the pension law of the province (or federal authority) that governs locking-in provisions.

Pension law generally deals with the rights and obligations of employers as contributors, employees as members and the role of pension administrators. In large part this is focused on assuring the savings of and for employees/members is available to support them in retirement.

In a sense, locking-in rules reach beyond the employment relationship to assure that a former pension member does not deplete funds before retirement and draws upon them in a measured manner during retirement.

Maximum withdrawals by jurisdiction

The accompanying table shows the percentages/factors the respective jurisdictions apply to determine maximum withdrawals. Basically, the factor is applied to the market value of the plan at the beginning of the year to derive the maximum allowable withdrawal. For some provinces, that is the entire calculation for a LIF. However, for Alberta, British Columbia, Manitoba and Ontario, the maximum annual withdrawal is the greater of this calculation and the dollar value of the market growth in the preceding calendar year.

Those who meet qualifying conditions in Manitoba and Saskatchewan may make transfers to a PRIF that is not subject to maximum withdrawals. Prince Edward Island has not implemented pension standards legislation, so potential transfers will generally depend on the pension contract.

An LRIF bases withdrawals entirely on a series of market-value calculations, irrespective of annuitant. While common in the past, most provinces have discontinued LRIFs or combined those market-value rules with their LIF rules.

Compared to minimum withdrawals

Tax rules require that a minimum amount be withdrawn from a retirement income fund, locked-in or otherwise, though there is no required withdrawal the year a plan is established. As opposed to the pension law rationale for protecting against excessive depletion, the minimum withdrawal is the government’s way of forcing eventual income recognition and tax revenue.

To limit the effect of those forced minimum withdrawals, a pensioner may use a younger spouse’s age for the withdrawal calculation. There is no corresponding rule for locked-in maximums; the maximum is always based on the annuitant’s own age.

Transferring the excess amount to a registered retirement income fund (RRIF)

While the minimum amount is required to be taken as income, an annuitant may transfer the excess amount (up to the maximum) to a RRIF (or even an RRSP if the person has not reached age 71). This is done using Form T2030.

Whether a surviving spouse can claim donations of deceased spouse

At issue

Most tax credits are limited in value to the lowest bracket tax rate.  The charitable tax credit is generally more lucrative, as it is claimed based on two tiers.  Federally, the lowest bracket rate applies on the first $200 of annual donations, with any excess entitled to a credit at the top bracket rate.  (Provincial credits operate similarly, though not all are exactly at the top bracket rate.)

For spouses, there is a further benefit available via administrative practice of the Canada Revenue Agency.  CRA recognizes that donations are generally made based on the family unit, despite that one name may appear on a donation receipt.  Accordingly, the agency allows donations to be claimed on the return of either spouse or common law partner.  This simplifies reporting and efficiency of credit use, at the very least helping elevate past the $200 threshold.

Until recently, spouses could also depend on a related CRA administrative practice on the death of a spouse, but after 2015 it is no more.

2010-0372621E5 Donation by will claimed by spouse

The CRA was asked whether an individual can claim a tax credit for a charitable donation made by his/her deceased spouse’s will in the year in which the spouse died.

The response cited the CRA’s general administrative position on donations on behalf of a family unit.  It went on to highlight ITA s.118.1(5) (as it was at that time), which deems charitable gifts made by an individual in his or her Will to have been made by the individual in the year of death and not by the estate.  This is despite that the executor/estate really carries out the donation, and that it may not actually occur until a later year altogether.

The writer then stated that the deceased’s executor and the surviving spouse (which could very well be the same person) are entitled to claim the tax credit in the most beneficial manner available.  Thus, supported by the deemed timing of the donation, a spouse would be entitled to claim the donation on his/her own return for the year in which the spouse died.

Bill C-43, Royal Assent (2014-12-16)

This Bill enacted provisions of the February 11, 2014 federal budget.

The definition of “total charitable gifts” in s.118.1(1) was replaced, including explicit acknowledgement for either the individual or his/her spouse or common law partner to claim donations.  This somewhat codifies the past CRA administrative practice with respect to the family unit, except that this treatment does not apply to donations made by a trust.

In that latter respect, new provisions were also enacted to deal with donations made by Will.  Such donations would no longer be deemed to occur in the year of death.  Rather, the donation could be claimed in the year it is actually made, with the executor (on behalf of the estate, which is a trust) having discretion to claim the donation in any earlier estate year, in the terminal year or the year prior to death.

2014-0555511E5 E – Spousal sharing of charitable gifts

On November 7, 2014 (while Bill C-43 was still making its way through Parliament), a taxpayer inquired whether the CRA would continue to apply its administrative position from letter 2010-0372621E5.

The CRA response was issued January 27, 2015, citing the amended definitions and deeming provisions outlined above.  Given these amendments, the CRA’s administrative practice as stated in the 2010 letter will no longer apply for deaths occurring after 2015.

Practice points

  1. For modest donations (relative to prevailing income), it is likely that the full value of the credit will be able to be claimed through the carryback to the deceased’s terminal year or the year prior to death.  Where the donor has little income, the inability of a surviving spouse to report the donation may mean that some of the credit value may be unusable.
  2. The Bill C-43 amendments also encompass donations made by beneficiary designation under life insurance and through registered plans.
  3. Those who have strategically planned their charitable giving may wish to consult with their philanthropic and tax advisors whether reconsideration and revision may be warranted.  For some, it may swing the balance toward lifetime gifting, rather than being exposed to potential uncertainty in the estate.