Tag: CRA

It’s just about time for your annual reacquaintance with the Canada Revenue Agency (CRA). Circle Wednesday, April 30 to get your return and tax payment in, though if you or your spouse run a business, the return itself may not be due until Monday, June 16.

Apart from the usual indexation of brackets and tax credit amounts, there are few broad-based measures for 2013.

The most substantial change is arguably the foreign asset reporting requirements. Though obviously only relevant to a small subset of the population, it will have a large compliance impact on those affected taxpayers.

Apart from that, the following summary mostly touches on the items the CRA itself has drawn attention to as we head into tax-filing season.

Foreign income reporting

Announced in the 2013 Federal Budget, the T1135 Foreign Income Verification Statement has been revised to require more detailed information, including the names of specific foreign institutions and countries where offshore assets are located, the foreign income earned on those assets and the maximum cost amount of those assets during the year.

Since the initial June 2013 release, the form and process have been adjusted somewhat, now allowing a streamlined transitional reporting method for the 2013 tax year only. The filing deadline is generally the same as for one’s tax return, but in February 2014 the deadline for the 2013 form was extended to Thursday, July 31, 2014.

Pension items

Canada Pension Plan (CPP) – Post-retirement benefit

As of January 1, 2013, the new post-retirement benefit began to be paid. Credits to this pension arise when someone between 60 and 70 has made CPP contributions while already collecting a CPP retirement pension.

Old Age Security (OAS)

As of March 1, 2013, an OAS pensioner in the first six months of payments may pay back received amounts, and reapply for an increased pension at a later time. As of July 1, 2013, an otherwise qualified 65-year-old has the option to defer the OAS pension for up to five years, with a 0.6% monthly premium applying to the deferred period.

Pooled registered pension plans (PRPP)

PRPP contributions are now included in the same line previously used to record RRSP-deductible amounts. Similarly, PRPP payments are also now included as a type of pension payment alongside RRIF payments and other similar receipts.

Retirement compensation arrangements

Beginning in 2013, payments from a retirement compensation arrangement may be included as eligible pension income to be split with a spouse. The payments must be in the form of a life annuity that supplements a registered pension plan (but not an individual pension plan). This is subject to an annual maximum, which for 2013 is $94,383 less other eligible pension income.

First-Time Donor’s Super Credit

A first-time donor will be allowed an additional 25% credit on charitable donations made in cash up to $1,000. This applies to the federal credit only. To qualify, neither the taxpayer nor his/her spouse or common-law partner may have claimed any amount of the charitable donation tax credit in any of the five preceding tax years. This is a temporary credit that can only be claimed once from 2013 to 2017.

Family matters

Family caregiver tax credit

This credit, for 2013 and subsequent years, may be available for a taxpayer who personally attends to the needs of someone else; for example, to drive that person to doctor’s appointments. The dependency must be due to physical or mental impairment, generally confirmed by a statement from a medical practitioner. The credit is calculated based on an amount of $2,040 that augments one or more of the spouse or common-law partner amount, amount for an eligible dependant, amount for children born in 1996 or later, and the caregiver amount.

Adoption expenses              

For adoptions finalized in 2013 or later, the qualifying adoption period is extended back to when an application was made to the appropriate provincial ministry, licensed agency or Canadian court. Previously, expenses only became qualified after a child was matched with his or her adoptive family.

Grants to parents of missing children

A parent may be entitled to a new federal grant where a child is missing or has died as a result of a criminal offence. This grant must be reported as “other income.”

Business matters

Restriction on farming losses

The amount that may be claimed under the restricted farm loss rules has been capped at $8,750 since 1998. For 2013 and following years, the amount has been doubled to $17,500: 100% of the first $2,500 of net farming loss plus 50% of the next $30,000 net farming loss. However, also for 2013 and following years, other sources of income must be subordinate to farming income in order for the farming losses to be deductible against those other sources.

Earnings on the Web

Individuals are now required to report websites and Web pages from which they generate income. This is a very broad provision that includes creating an online profile on someone else’s website, including blogs, auctions, directories or other marketplaces.

Want to “PAD” your tax payments?

And speaking of online activity, the CRA is encouraging taxpayers to sign up for its new pre-authorized debit (PAD) payment option. The service attaches to the My Account service.

Among the suggested benefits, it can simplify (and assure) the process for those who make their tax payments by instalments, and enable a taxpayer to file an income tax return early while scheduling payment closer to the required deadline.

More information can be found on the CRA website at
http://www.cra-arc.gc.ca/prthrzddbt-eng.html.

Last month we looked at the Canada Pension Plan component of My Service Canada Account (MySCA). This service offers a window on a person’s CPP contribution history as well as a snapshot of what pension may be anticipated based on some simple inputs.

In this article, we turn to the federal government’s Canadian Retirement Income Calculator (CRIC). The CRIC combines those CPP figures with other savings information to give a rough sketch of current savings progress and future retirement expectations.

Accessing CRIC

As covered in last month’s article, an option within MySCA is to estimate one’s CPP retirement pension. In the “Notes” section below the calculated figures on the results page, there is hyperlink that can be clicked to move over to the CRIC.

Alternatively, if a person already has the CPP contribution details, the login to MySCA can be skipped. Starting instead at the general Service Canada home page, there are a few routes that can be followed. The most direct is to click on “Retirement Planning” on the left margin “Life Events” list, with the link to CRIC then being shown in the middle column when the page refreshes. 

Income sources and output

The usual public and personal retirement income sources are canvassed:

• Old Age Security (OAS) 
• Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) 
• Employer registered pension plans (RPPs) 
• Registered Retirement Savings Plans (RRSPs) 
• Other revenue sources such as foreign pensions, business income and rental income 

Existing actual figures are to be entered, so on top of the CPP contributions statement, RRSP and RPP statements should also be handy. Some basic sensitivity analysis is available, including adjusting future earnings expectations and savings intentions, comparing results at different retirement/drawdown ages, and projecting potential investment-return rates. 

Once all entries are completed, a grid summary is generated that shows monthly income by source in three time frames: under 60, 60 to 64 and 65+. To assist understandability, figures are expressed in today’s dollars, and there is a brief discussion of why and how required income in retirement may be less than during working years.   

Evaluating the results

The whole process is suggested to take “approximately 30 minutes,” which is indeed quite manageable. Keep in mind that, as with any retirement income calculator, the reliability of the output is dependent on the quantity and quality of the input. With this in mind, three aspects of the calculator warrant specific mention.

First, the CRIC operates on an individual basis, which is to say that for those who are married or living in a common-law relationship, each person must use the calculator separately and compare results to understand the overall situation. No guidance is given as to how to approach this comparison.

Second, there is a separate calculator for the new post-retirement benefit for people who work while receiving a CPP retirement pension. Apart from this being a novel concept to comprehend, it is unfortunate that the results are not integrated within the main model.  

Third, generally entries are requested and results expressed in pre-tax dollars. Of course the translation of this into spendable cash would depend on income level, the arithmetic for which would be a tall task for a significant proportion of the population. Furthermore, there are no instructions on how to address tax-free savings accounts, being after-tax at both the savings and drawdown stages. Indeed, there is no mention of the TFSA at all as far as I could find – a significant omission.

These limitations in mind, it remains a worthwhile exercise to gather financial information, review savings habits and consider potential retirement implications. In that context, the CRIC can be a useful tool to shed light on retirement issues and to motivate action, but the results should ideally be reviewed with a professional familiar with financial planning matters before any actual steps are undertaken.

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Reference MySCA web address: www.servicecanada.gc.ca/eng/online/mysca.shtml