Tag: Tax filing

Filing your 2014 taxes – What’s new, what’s noteworthy

The annual tax filing ritual is again upon us. For individuals, this year’s due date for filing a return and making tax payment is Thursday, April 30. For someone who runs a business, as well as for that person’s spouse, the tax return due date is Monday, June 15, though any tax payments remain due by April 30.

This year sees the introduction of the much-anticipated Family Tax Cut, announced in the Fall 2014 Economic Statement along with a number of measures directed at families with children.

We’ve also included a few items we felt worth reiterating from recent years, a heads-up as to what may attract an audit and a shout-out to the Canada Revenue Agency (CRA) concerning its evolving efforts to improve communications with taxpayers.

Families with children

Family Tax Cut

Parents with children under the age of 18 will be able to take advantage of the Family Tax Cut. This is the follow-through on the Conservative Party’s proposal from the 2011 election campaign. Initially positioned as “income splitting,” the enacted measure is in the form of a tax credit.

Using new Schedule 1A, parents first calculate their federal tax due (less tax credits) without reference to this provision. A second step then performs the calculation on the basis of shifting up to $50,000 of income from one spouse to the other. The net reduction in tax on the second step may then be claimed as a tax credit, though capped at $2,000.

Universal Child Care Benefit (UCCB)

Effective January 1, 2015, the monthly UCCB payment increased from $100 to $160 for each child under age six and now includes $60 for each child aged six to 17. For clarity, this amount is not claimed on the tax return, but is rather paid as a taxable monthly instalment to the lower-income parent. There will be a catch-up payment in July 2015 to cover the first six months of 2015, with continuing monthly payments thereafter.

Child Tax Credit (CTC)

In conjunction with the changes to the UCCB, the CTC is being repealed after the 2014 tax year. This means that parents will still be able to claim this tax credit for each child under age 18 when filing this April, with the credit being worth $338 per child.

Children’s Fitness Tax Credit

The qualifying amount of this credit has doubled to $1,000. As the credit is based on the lowest-bracket rate, the value of this change is up to $75.

Child Care Expense Deduction

An additional $1,000 may be claimed (generally by the lower-income parent) for child care expenses. As a deduction rather than a credit, this is worth the value of the federal taxes saved, so potentially as much as $290.

Worth repeating from recent years

Foreign income reporting

Changes to the T1135 Foreign Income Verification Statement form and reporting process were announced in the 2013 Federal Budget. The reporting process during 2014 (with respect to 2013) was further adjusted a couple of times, including amendments to the form itself (streamlining the reporting of securities held in Canadian brokerage accounts) and extension of filing dates.

For 2014 reporting, the T1135 form is due with a person’s tax return, which can now be filed electronically.

First-Time Donor’s Super Credit

This credit, announced in the 2013 Federal Budget, can be claimed only once from 2013 to 2017. It allows an additional 25% tax 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.

What might attract an audit?

Each January the CRA conducts a letter writing campaign to make taxpayers aware of what activities its auditors will be focusing on in the coming season. This year the focus will be on those who claim business losses, rental losses and employment expenses on line 229.

Letters are sent to a sample list of taxpayers who might come under scrutiny based on their past filed tax returns. The fact that a taxpayer receives a letter does not mean that the person will necessarily be audited.

Communications with CRA

The CRA has been highlighting its efforts to better communicate with taxpayers, both in its adoption of emerging technology and engagement in social media, such as:

  • MyCRA mobile app – Secure access to view key tax information, such as notices of assessment, tax return status, and RRSP and TFSA contribution room. (Due for release in February 2015, but still pending at time of writing in early March)
  • MyCRA business app – Create custom reminders and alerts for key CRA due dates related to instalment payments, returns and remittances
  • Online mail – Instant access to your tax records anytime, anywhere, rather than having to rely on paper correspondence. Register online through “CRA My Account,” or simply by providing an e-mail address and permission on your tax return

More information can be found on the CRA website at www.cra-arc.gc.ca/nwsrm/txtps/2014/tt141208-eng.html.

Hello new retiree, it’s CRA calling

Beginning tax payments by instalment

We look forward to our lives being simpler in retirement. But when it comes to income taxes, there is a wrinkle that most retirees will not have experienced before – instalment payments.

Reminders for instalment payments are sent from the Canada Revenue Agency (CRA) semi-annually in February regarding March and June due dates, and in August for September and December.

While receiving unexpected correspondence from the CRA may be a bit of a shock, there’s no need to panic. Paying taxes by instalment is not a matter of being unfairly targeted. No, it is simply an extension of employers’ payroll withholding and remittance during working years, which responsibility later rests upon retirees personally through quarterly instalments.

Who has to pay?

A standing feature of our tax system is the requirement for payers of certain amounts subject to tax to withhold and remit a portion to the CRA. Where an insufficient amount has been withheld (usually because the payer has limited information about the payee), the obligation then falls upon that payee.

Common situations include income from rent, non-registered investments, self-employment, multiple employers and – for our purposes –  pension payments of various sorts.

The obligation is triggered if a person’s net tax owing was more than $3,000 in either of the two preceding years, and is expected to exceed $3,000 in the current year. (In Quebec, the threshold is $1,800.)

Calculating the instalment amount

There are three options available for calculating the amount of the quarterly instalment payments:

  1. Non-calculation option – By default, the instalment amount is based on the two preceding years’ income. The CRA will calculate this figure based on your tax records and include it in your semi-annual reminder correspondence. This option is most appropriate when income, deductions and tax credits are consistent from year to year.
  2. Prior-year option – If the current year is expected to be much like the prior year but significantly different from two years ago, this option is a better choice. In this case, it is up to you to calculate the instalment amount yourself. With your prior year’s Notice of Assessment or tax return in hand, you can fill in the required data on a calculation chart available through the CRA website.
  3. Current-year option – If the current year is unlike either of the two prior years, you can calculate the instalment amount using an estimate of your current year’s tax owing. For pensioners, this is likely most applicable in the first year or two of full retirement. As in option 2, the calculation chart can be used, though in this case as more of a guide in coming up with your estimate.

For options 2 and 3, any Canada Pension Plan (CPP) contributions for self-employment and voluntary employment insurance (EI) premiums must be added to the calculated tax owing. Of course, these will not apply to a full-time retiree.

The point of this exercise is not to come up with the least payment possible. Rather you are looking for the option that best estimates your actual/eventual tax liability. In fact, if you choose either option 2 or 3 and the instalment amounts are too low, CRA may charge interest and even levy penalties. (See Interest and penalties below.)

Making the payment

Payment can be made through online banking, by debit to CRA through My Account or My Payment, by mail or in person at your financial institution.

The mailed reminder from CRA will include Form INNS3, Instalment Remittance Voucher. This form is not required for online payment types, but should be stamped when paying at your financial institution and enclosed when making payment by mail (though a cover note with your Social Insurance Number may be sufficient to assist in proper processing of mail payments).

Instalments are due the 15th of March, June, September and December. If any of those dates fall on a weekend or public holiday, the due date moves to the next business day.

Mailed instalments are considered paid on the postmarked date, in-person payments at your financial institution on the date stamped on your INNS3 and online payments on the date the amount is credited to the CRA. If payment by any method is post-dated, it is the later negotiable date that applies.

Interest and penalties

Making a mistake on a calculation or remittance date could be costly. Instalment interest is charged on late and insufficient payments from the respective due date, compounded daily.

The prescribed interest rate for overdue income tax is 5% for January to March 2015, and additional instalment penalties apply if interest charges exceed $1,000. Prescribed rates are adjusted quarterly, based on economic conditions.

Want to PAD your tax bill? – More options when paying CRA

Few (if any) people get excited about the opportunity to pay more tax.  On the other hand, it may very well be helpful to have a variety of options for making payments for the tax you do owe.

As in the pre-internet days, you can send a cheque by mail to the Canada Revenue Agency (CRA), or hand deliver it at your local financial institution.  Either way, your cheque must be accompanied by a personalized remittance voucher, which can be ordered by phone or online from CRA.

Of course, if you are capable of ordering a remittance voucher online – which requires you or your designated representative to navigate the ‘My Account’ or ‘Quick Access’ gateway – then you may find it more convenient to avail yourself of one of the online payment methods.

Standing online payment methods

None of the following methods require a remittance voucher.

Most financial institutions include CRA as a payee in their online banking/billing system.  Look in the list of payees for something like “CRA (revenue)-(2013)-tax owing”.  This will ensure that the payment not only makes it there, but is also applied to the correct purpose (rather than being used against a past due amount or current installments, for example).  Your own biller ID will be your social insurance number.

Alternatively, you can make your payment directly with CRA by registering and logging into its ‘My Payment’ service.  It’s like using your debit card online through Interac, so the money will actually have to be in your institution’s account for this to be processed.  Presently, only four banks participate in this program: BMO, RBC, TD and Scotiabank.

Scotiabank is the lone institution designated by CRA to receive payments on its behalf from non-residents, whether by online payment or wire transfer.  Canadian residents may not use a wire transfer.

PAD your payment

The latest addition to payment options is pre-authorized debit, or PAD, available through the ‘My Account’ service.  Once logged in, look for the bright red “NEW” flag in the left margin to create a new PAD agreement.  It will take five business days to process, so don’t leave it to the last minute.

Through PAD you can make a single payment or a series, for income tax, child and family benefit repayments and more.  In fact, you can file your tax return early and authorize a PAD in time for April 30 … Even if your tax return is processed later, no interest will be charged and the withdrawal will be processed on the appropriate date.

And if you’re feeling this leaves you a bit too exposed, rest assured that CRA can only take payments for the purposes and amounts per your instructions.

If debit, why not credit?

CRA does not accept credit card payments directly.  It does however allow payments to be made through third-party service providers where your payment to them may be made using a credit card.

While there are many third-party providers that send payment and remittance details online to the CRA (eg., source deductions taken by payroll managers), the only currently registered company that accepts credit card payments is Plastiq.  Of course you will pay a fee to any third-party provider for their service.

As well, be aware that the day you make your payment to a third-party provider is not generally the same date that payment is received by the CRA.  Familiarize yourself with your service terms so that your payment is in by the payment due date, else you may face late fees.