Tax-free savings accounts (TFSAs) have been around for a full decade now, having been introduced in 2009, and for most Canadians, a TFSA (along with a registered retirement savings plan (RRSP)) is now a regular part of their financial and tax planning.

Tax-free savings accounts (TFSAs) have been around for a full decade now, having been introduced in 2009, and for most Canadians, a TFSA (along with a registered retirement savings plan (RRSP)) is now a regular part of their financial and tax planning.

TFSAs are, in many ways, the inverse of RRSPs. While TFSAs do not provide the tax deduction that an RRSP contribution creates, the strength of TFSAs lies in their great flexibility and the ability they give to Canadians to save, for short-term or long-term purposes, on a tax-free basis. Every Canadian aged 18 years of age and older can contribute a specified annual amount to a TFSA ($6,000 for 2019). Funds contributed to the TFSA are not deductible from income for tax purposes, but investment income earned by those funds is not taxed, either as it accrues or on withdrawal. Where a taxpayer does not contribute to a TFSA in a particular tax year, the contribution not made can be carried forward and that contribution made in any subsequent year. As well, TFSA holders can withdraw funds from their plan at any time, free of tax, and funds withdrawn can be re-contributed, but not until the following year. Therefore, each taxpayer’s contribution limit for a particular year is that year’s statutory annual amount, plus any allowable contributions not made in previous years and carried forward, plus amounts withdrawn in any previous year but not yet re-contributed.

The amount of the allowable TFSA contribution limit for a year has been something of a moving target since 2009: what follows is a listing of the maximum allowable annual contribution limits for each year since TFSAs were introduced.

• The annual TFSA dollar limit for the years 2009, 2010, 2011, and 2012 was $5,000.
• The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
• The annual TFSA dollar limit for the year 2015 was $10,000.
• The annual TFSA dollar limit for the year 2016, 2017, and 2018 was $5,500.
• The annual TFSA dollar limit for the year 2019 is $6,000.

It’s readily apparent that, especially where there are carryforward amounts and/or the taxpayer has made withdrawals from a TFSA, that calculating one’s current year contribution room can be complex. At one time the Canada Revenue Agency (CRA) notified taxpayers of their current year TFSA contribution limit on the annual Notice of Assessment, but that is no longer the case. Now, the easiest way to find out one’s current year contribution limit is by calling the CRA’s Individual Income Tax Enquiries Line at 1-800-959-8281 or its automated Tax Information Phone Service (TIPS) line at 1-800-267-6999. Taxpayers who have registered for the Agency’s My Account online service can use that service to find the same information. It’s also possible to obtain from the CRA a TFSA Room Statement and a TFSA Transaction Summary, with the latter showing the contributions and withdrawals which have been made.

It is important to stay within one’s overall contribution limit because exceeding that limit — even for one day — will result in the imposition of a penalty tax. Therefore, once the taxpayer knows figures out his or her total contribution limit for 2019, it’s time to make sure that current contribution plans for the year will not put the taxpayer in an overcontribution position. Some taxpayers contribute on a regular, often monthly basis, while others are in the habit of depositing regular or irregular or periodic income receipts, like a tax refund or tax benefit amount or a bonus from their employer, into their TFSA. Either way, after finding out one’s current year contribution limit, it’s necessary to calculate how much has already been contributed in 2019. The difference between those two figures represents the balance which can be contributed before the end of the year without getting into an overcontribution position and incurring penalties. And, it’s important to remember that if withdrawals have been or will be made during 2019, those amounts cannot be re-contributed until after the end of this year.

If it’s necessary to adjust regular contributions in order not to go “offside” by the end of the year, the best time to do it is obviously before getting into that overcontribution position. As soon as a taxpayer is in an overcontribution position, however, a penalty tax of 1% per month of the excess is imposed, even if the excess funds are withdrawn before the end of the month — in other words, as explained in the Canada Revenue Agency guide to TFSAs “[I]f, at any time in a month, you have an excess TFSA amount, you are liable to a tax of 1% on your highest excess TFSA amount in that month.”

Especially where TFSA contributions are set up to occur regularly, by automatic deposit or bank transfer, it’s easy to assume that everything has been taken care of and nothing further needs to be done with respect to such arrangements. However, an “out of sight and out of mind” approach rarely makes for good financial and tax planning, and checking on the status of one’s TFSA on a periodic (at least quarterly) basis can help to ensure that everything is as it should be, and that unnecessary penalties are avoided.

One final consideration — one of the strengths of a TFSA as a savings vehicle is the ability to re-contribute funds which have been withdrawn. However, as outlined above, such re-contributions cannot be made until after the end of the calendar year in which the withdrawal was made. For that reason, taxpayers who may be contemplating a TFSA withdrawal early in 2020, perhaps in order to make an RRSP contribution, or to pay for a winter vacation, should make that withdrawal before the end of 2019. That way, should funds become available (perhaps through the tax refund generated by the RRSP contribution) it will be possible to make the re-contribution in 2020. If the withdrawal is not made until 2020, re-contribution will not be possible (without incurring a penalty) until 2021.

TFSAs are valuable savings and planning vehicles for Canadians — perhaps the most flexible such vehicle available. It’s easy, however, to get tripped up on the rules governing TFSAs, especially the rules around withdrawals and re-contributions. To help keep taxpayers from running afoul of those rules, the Canada Revenue Agency provides a lengthy and detailed publication on TFSAs, and that publication is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html.

In most cases, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences — a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

In most cases, the need to seek out and obtain legal services (and to pay for them) is associated with life’s more unwelcome occurrences and experiences — a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees (apart, hopefully, from a successful resolution of the problem that created the need for legal advice) would be being able to claim a tax credit or deduction for the fees paid.

Unfortunately, while there are some circumstances in which such a deduction can be claimed, those circumstances don’t usually include the routine reasons — purchasing a home, getting a divorce, establishing custody rights or seeking legal advice about making a will or managing a family estate — for which most Canadians incur legal fees. Generally, personal (as distinct from business-related) legal fees become deductible for most Canadian taxpayers only where they are incurred to recover amounts which they believe are owed to them, and where those amounts involve employment or employment-related income or, in some cases, family support obligations.

The first situation in which legal fees paid may be deductible is that of an employee seeking to collect (or to establish a right to collect) salary or wages. In all Canadian provinces and territories, employment standards laws provide that an employee who is about to lose his or her job (for reasons not involving fault on the part of the employee) is entitled to receive a specified amount of notice, or salary or wages equivalent to such notice. In many cases, however, the employee can establish a right to a period of notice (or payment in lieu) greater than the statutory minimum. The amount of notice or payment in lieu of notice which is payable can then become a matter of negotiation between the employer and its former employee, and such negotiations usually involve legal representation and consequently, legal fees. In that situation, legal fees incurred by the employee to establish a right to amounts allegedly owed by the employer are deductible by that former employee. If a court action is necessary and the Court requires the employer to reimburse its former employee for some or all of the legal fees incurred, the amount of that reimbursement must be subtracted from any deduction claimed. In other words, the former employee can claim a deduction only for legal fees which he or she was personally required to pay in order to collect wages or salary owed and for which he or she was not reimbursed.

In some situations, an employee or former employee seeks legal help in order to collect or to establish a right to collect a retiring allowance or pension benefits. In such situations, the legal fees incurred can be deducted, up to the total amount of the retiring allowance or pension income actually received for that year. Where part of the retiring allowance or pension benefits received in a particular year is contributed to an RRSP or registered pension plan, the amount contributed must be subtracted from the total amount received when calculating the maximum allowable deduction for legal fees. However, where all legal fees incurred can’t be claimed in the current year, they can be carried forward and claimed on the return for any of the seven subsequent tax years.

The rules covering the deduction of legal fees incurred where an employee claims amounts from an employer or former employer are relatively straightforward. The same, unfortunately, cannot be said for the rules governing the deductibility of legal fees paid in connection with family support obligations. Those rules have evolved over the past number of years in a somewhat piecemeal fashion. The current rules are as follows.

Legal fees incurred by either party in the course of negotiating a separation agreement or obtaining a divorce are not deductible. Such fees paid to establish child custody or visitation rights are similarly not deductible by either parent.

Where, however, one former spouse has the right to receive support payments from the other, there are circumstances in which legal fees paid in connection with that right are deductible. Specifically, legal fees paid for the following purposes will be deductible by the person receiving those support payments:

• collecting late support payments;
• establishing the amount of support payments from a current or former spouse or common-law partner;
• establishing the amount of support payments from the legal parent of that person’s child (who is not a current or former spouse or common-law partner). However, in these circumstances the deduction is allowed only where the support is payable under a court order, not simply under the terms of an agreement between the parties;
• seeking an increase in support payments; or
• seeking an order making child support amounts received non-taxable.

On the payment side of the support payment/receipt equation, the situation is not nearly so favourable, as a deduction for legal fees incurred will not generally not be allowed to a person paying support. More specifically, as stated in the CRA guide, a person paying support cannot claim legal fees incurred in order to “establish, negotiate or contest the amount of support payments”.

Finally, where the Canada Revenue Agency reviews or challenges income amounts, deductions or credits reported or claimed by a taxpayer for a tax year, any fees (which in this case includes accounting fees) paid for advice or assistance in dealing with the CRA’s review, assessment or reassessment, or in objecting to that assessment or reassessment, can be deducted by the taxpayer. A deduction can similarly be claimed where the taxpayer incurs such fees in relation to a dispute involving employment insurance, the Canada Pension Plan or the Quebec Pension Plan.

As the baby boom generation ages, members of that generation must switch their focus from the accumulation of retirement savings to creating a structure which will ensure a steady flow of income throughout that retirement. Those individuals face a particular deadline when their 71^st birthday arrives, as they must, by December 31^st of that year, collapse their RRSP and convert it into a source of retirement income.

As the baby boom generation ages, members of that generation must switch their focus from the accumulation of retirement savings to creating a structure which will ensure a steady flow of income throughout that retirement. Those individuals face a particular deadline when their 71^st birthday arrives, as they must, by December 31^st of that year, collapse their RRSP and convert it into a source of retirement income.

The decision to be made is an important one which, once made, can’t be undone. In addition, such decision involves a number of factors which are either unknown, or beyond the control of the individual, or both. And, to add to the pressure, the choice made will affect the individual’s finances for the remainder of his or her life

While the actual decision is a complex one, the options available to a taxpayer who must convert an RRSP are actually quite few in number — three, to be precise. They are as follows:

• collapse the RRSP and include all of the proceeds in income for that year;
• collapse the RRSP and transfer all proceeds to a registered retirement income fund (RRIF); and/or
• collapse the RRSP and purchase an annuity with the proceeds.

It’s not hard to see that the first option doesn’t have much to recommend it. Collapsing an RRSP without transferring the balance to a RRIF or purchasing an annuity means that every dollar in the RRSP will be treated as taxable income for that year. In many cases, that will mean losing nearly half of the RRSP proceeds to income tax. And, while any amount left can then be invested, tax will be payable on all investment income earned.

As a practical matter, then, the choices come down to two: a RRIF or an annuity. And, as is the case with most tax and financial planning decisions, the best choice will be driven by one’s personal financial and family circumstances, risk tolerance, cost of living, and the availability of other sources of income to meet that cost of living.

The annuity route has the great advantages of simplicity and reliability. In exchange for a lump sum amount paid by the taxpayer, the annuity issuer agrees to pay the taxpayer a specific sum of money on a periodic basis (usually once a month) for the remainder of the annuitant’s life. Annuities can also provide a guarantee period, in which the annuity payments continue for a specified time period (5 years, 10 years, etc.), even if the taxpayer dies during that time. The amount of monthly income which can be received depends, of course, on the amount paid in, but also on the gender and, especially, the age of the taxpayer. Currently, the annuity rate for each $100,000 paid to the annuity issuer by a taxpayer who is 71 years of age is about $586 per month for a male taxpayer and about $533 per month for a female taxpayer (the actual rate is set by the company which issues the annuity and will vary somewhat from company to company). Those rates do not include any guarantee period.

For taxpayers whose primary objective is to obtain a guaranteed life-long income stream without the responsibility of making any investment decisions or the need to take any investment risk, an annuity can be an attractive option. There are, however, some potential downsides to be considered. First, an annuity can never be reversed. Once the taxpayer has signed the annuity contract and transferred the funds, he or she is locked into that annuity arrangement for the remainder of his or her life, regardless of any change in circumstances that might mean an annuity is no longer suitable. Second, unless the annuity contract includes a guarantee period, there is no way of knowing how many payments the taxpayer will receive. If he or she dies within a short period of time after the annuity is put in place, there is generally no refund of amounts invested — once the initial transfer is made at the time the annuity is purchased, all funds transferred belong to the annuity company. Third, most annuity payment schedules do not keep up with inflation — while it is possible to obtain an annuity in which payments are indexed, having that feature will mean a substantially lower monthly payout amount. Finally, where the amount paid to obtain the annuity represents most or all of the taxpayer’s assets, entering into the annuity arrangement means that the taxpayer will not be leaving an estate for his or her heirs.

The second option open to taxpayers is to collapse the RRSP and transfer the entire balance to a RRIF. A RRIF operates in much the same way as an RRSP, with two major differences. First, it is not possible to contribute funds to a RRIF. Second, the taxpayer is required to withdraw an amount from his or her RRIF (and to pay tax on that amount) each year. That minimum withdrawal amount is a percentage of the outstanding balance, with that percentage figure determined by the taxpayer’s age at the beginning of the year. While the taxpayer can always withdraw more in a year or make lump sum withdrawals (and pay tax on those withdrawals), he or she cannot withdraw less than the minimum required withdrawal for his or her age group.

Where a taxpayer holds savings in a RRIF, he or she can invest those funds in the same investment vehicles as were used while the funds were held in an RRSP and those funds can continue to grow on a tax-sheltered basis, in the same way as funds in an RRSP. While the ability to continue holding investments that can grow on a tax-sheltered basis provides the taxpayer with a lot of flexibility, and the potential for growth in value, those benefits have a price in the form of investment risk. As is the case with all investments, the investments held within a RRIF can increase in value — or decrease — and the taxpayer carries the entire investment risk. When things go the way every investor wants them to, investment income is earned while the taxpayer’s underlying capital is maintained but, of course, that result is never guaranteed.

On the death of a RRIF annuitant, any funds remaining in the RRIF can pass to the annuitant’s spouse on a tax-free basis. Where there is no spouse, the remaining funds in the RRIF will be income to the RRIF annuitant in the year of death, and any balance after tax is paid will become part of his or her estate, available for distribution to beneficiaries.

While the above discussion of RRIFs versus annuities focuses on the benefits and downsides of each, it is not necessary (and in most cases not advisable) to limit the options to an either/or choice. It is possible to achieve, to a degree, the seemingly irreconcilable goals of lifetime income security and the potential for capital (and estate) growth. Combining the two alternatives — annuity and RRIF — either now or in the future can go a long way toward satisfying both objectives.

For everyone, in retirement or not, all spending is a combination of non-discretionary and discretionary items. The first category is made up mostly of expenditures for income tax, housing (whether rent or the cost of maintaining a house), food, insurance costs, and (especially for older Canadians) the cost of out-of-pocket medical expenses. The second category, discretionary expenses, includes entertainment, travel, and the cost of any hobbies or interests pursued. A strategy which utilizes a portion of RRSP savings to create a secure lifelong income stream to pay non-discretionary costs can remove the worry of outliving one’s money, while the balance of savings can be invested through a RRIF, for growth and to provide the income for non-discretionary spending.

Such a secure income stream can, of course, be created by purchasing an annuity. As well, although most taxpayers don’t necessarily think of them in that way, the Canada Pension Plan and Old Age Security have many of the attributes of an annuity, with the added benefit that both are indexed to inflation. By age 71, all taxpayers who are eligible for CPP and OAS will have begun receiving those monthly benefits. Consequently, in making the RRIF/annuity decision at that age, taxpayers should include in their calculations the extent to which CPP and OAS benefits will pay for their non-discretionary living costs.

As of September 2019, the maximum OAS benefit for most Canadians (specifically, those who have lived in Canada for 40 years after the age of 18) is about $614 per month. The amount of CPP benefits receivable by the taxpayer will vary, depending on his or her work history, but the maximum current benefit which can be received at age 65 is about $1,155. (Where receipt of either benefit is deferred past the age of 65, those amounts go up.) As a result, a single taxpayer who receives the maximum CPP and OAS benefits at age 65 will have just over $21,000 in annual income (or about $1,770 per month). And, for a married couple, of course, the combined total annual income received from CPP and OAS is just over $42,000 annually, or $3,500 per month. While $21,000 a year isn’t enough to provide a comfortable retirement, for those who go into retirement in good financial shape — meaning, generally, without any debt — it can go a long way toward meeting non-discretionary living costs. In other words, most Canadians who are facing the annuity versus RRIF decision already have a source of income which is effectively guaranteed for their lifetime and which is indexed to inflation. Taxpayers who are considering the purchase of an annuity to create the income stream required to cover non-discretionary expenses should first determine how much of those expenses can already be met by the combination of their (and their spouse’s) CPP and OAS benefits. The amount of any annuity purchase can then be set to cover off any shortfall.

While the options available to a taxpayer at age 71 with respect to the structuring of future retirement income are relatively straightforward, the number of factors to be considered in assessing those factors and making that decision are not. All of that makes for a situation in which consulting with an independent financial advisor on the right mix of choices and investments isn’t just a good idea, it’s a necessary one.

When parents separate and divorce, it is frequently the case that they are able to agree on an arrangement to share custody of their children. Such a shared-custody arrangement is often to the benefit of all concerned, especially the children of the marriage.

When parents separate and divorce, it is frequently the case that they are able to agree on an arrangement to share custody of their children. Such a shared-custody arrangement is often to the benefit of all concerned, especially the children of the marriage.

While a shared-custody arrangement usually makes the most sense from a human perspective, it can cause legal, financial, and tax complications. In particular, parents who share custody of their children must usually share, or divide, the tax deductions and benefits which can be received in respect of those children.

One of those benefits is the Canada Child Benefit (CCB) which is, in general terms, a non-taxable monthly benefit paid to parents of children who are under the age of 18.

The tax rules allow parents who share custody to also share CCB amounts. In such situations, payments made are equivalent to each eligible individual receiving one-half of the annual entitlement that they would receive if they were the only eligible parent (i.e., if the child lived with them all of the time), paid in monthly installments over the year. That has been the case since 2011, with the Canada Revenue Agency (CRA) determining who qualifies, based on an interpretation of shared parenting as meaning that a child generally lives with the parent between 40% and 60% of the time. However, recent Court decisions have altered and narrowed that policy, finding that a shared parenting arrangement requires that a child reside with a parent between 45% and 55% of the time.

In the CRA’s view, the narrower interpretation put forward into those Court decisions could result in a number of parents who share parenting time not being able to share in the benefits to which they are entitled. Consequently, new rules have been published to clarify the payment of CCB to shared-custody parents.

Those new rules provide that a shared-custody parent would be defined as one of two parents who:

• are not at that time cohabitating spouses or common-law partners of each other;
• reside with the child either at least 40% of the time in a month or on an equal or approximately equal basis; and
• primarily fulfill the responsibility for the care and upbringing of the child when residing with the child.

The proposed changes will provide more flexibility when it comes to shared-custody parents and the receipt of tax benefits for their children and will allow the CRA to continue with its existing administrative practices with respect to such parents. While the legislation to make the announced changes has not, owing to the election call, been passed by Parliament, officials of the Department of Finance have indicated that the CRA will nonetheless be administering the CCB based on those proposed rules, which are retroactive to June 2011.

More information on the new rules can be found on the Finance Canada website at https://www.fin.gc.ca/n19/data/19-095_01-eng.asp.

Canadians are fortunate to benefit from a publicly funded health care system, in which most costs of care ranging from routine visits to a family doctor to intensive care in a hospital setting are paid for by government-sponsored health insurance.

Canadians are fortunate to benefit from a publicly funded health care system, in which most costs of care ranging from routine visits to a family doctor to intensive care in a hospital setting are paid for by government-sponsored health insurance.

While there is no doubt that most medical costs are not the financial responsibility of the individual, it is nonetheless a fact that a significant (and growing) number of medical and para-medical costs must be paid for on an out-of-pocket basis by the person incurring those costs. And those costs can, in some instances, run to thousands of dollars per year.

The costs which first come to mind are, of course, those which must be incurred for prescription medicine. While some Canadians have full or partial coverage for such costs through an employer-sponsored benefits plan, the majority of Canadians (especially those working on a part-time or contract basis) don’t. Similarly, visits to a dentist must be paid for by those who don’t have private medical insurance on an out-of-pocket basis. The same goes for services provided by any number of medical and, especially, para-medical practitioners, including physiotherapists, psychologists, and registered massage therapists.

It’s a virtual certainty that nearly all Canadians will incur one or more of those uninsured costs over the course of a year. The good news for those individuals and families is that in many instances a federal and provincial tax credit can be claimed to help offset those costs. The bad news is that the rules on determining just what expenses qualify for the credit and how and when to claim it can be complex.

First, the basics. The technical rule is that, for 2019, taxpayers can claim a tax credit for qualifying medical expenses which exceed 3% of their net income for the year or $2,352, whichever is less. That’s a confusing calculation to many Canadians, and it’s perhaps easier to think of it in these terms:

• For 2019, taxpayers who have income of $78,400 or less can claim all qualifying medical expenses which exceed 3% of their income for the year. As an example, someone who has $50,000 in income for 2019 can claim qualifying medical expenses over $1,500 ($50,000 × 3% = $1,500).

• For 2019, taxpayers who have income over $78,400 can claim their qualifying medical expenses which are greater than $2,352.

There is also some degree of flexibility in the timing of a claim made for the medical expense tax credit. Specifically, a claim made on the return for 2019 can include any qualifying medical expense incurred in any 12-month period which ends in 2019. Consequently, taxpayers can, in order to maximize the expenses claimed for the year (and so exceed the statutory thresholds outlined above) can pick any 12-month period ending during 2019.

For example, an individual might have incurred significant medical expenses in the last half of 2018 and the first half of 2019. That taxpayer would likely benefit from choosing the period July 1, 2018 to June 30, 2019, and claiming all medical expenses incurred during that period on his or her return for 2019.

There is, unfortunately, no formula or rule-of-thumb which allows a taxpayer to easily or quickly pick the time period which will provide the greatest credit amount, since that determination depends on when qualifying medical expenses were incurred. To determine the optimal period for a medical expenses tax credit claim, it’s really a matter of trial and error, or doing the computation for different time periods and choosing the one that gives the best result.

In aggregating those medical expenses, it’s also possible for families to include all qualifying expenses incurred by both spouses and by any children who were born in 2002 or later. The claim for the credit (using the total family medical expenses) can then be made by either spouse. Since the amount of the allowable expense claim increases as income decreases, it makes sense for the claim for total family medical expenses to be made by the lower-income spouse on his or her return for the year, as long as that spouse’s tax payable for the year is greater than the amount of the credit to be claimed.

Of course, the first determination which must be made when calculating a medical expense tax credit claim for the year is which expenses do or do not qualify for the credit. The number and kind of expenses which can be incurred for medical care are almost limitless in their scope and variety, and the list of qualifying and non-qualifying expenses for purposes of the credit reflects that reality.

The Canada Revenue Agency (CRA) helpfully provides a chart of the types of expenses which can qualify for the medical expense tax credit, and that chart includes other requirements which must be met in order for a particular expense to qualify. It’s well worth reviewing that chart (which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-330-331-eligible-medical-expenses-you-claim-on-your-tax-return.html#mdcl_xpns) as the requirements imposed in order to qualify can be very specific and are not necessarily intuitive. For instance, to claim the cost of a walker as a medical expense, it is necessary to have a doctor’s prescription for that equipment. However, the cost of a wheelchair can be claimed with no requirement for a prescription. Finally, although the chart listing eligible medical expenses is 14 pages long, the CRA notes that such listing is “not exhaustive”. A full listing can be found in CRA Income Tax Folio S1-F1-C1, Medical Expense Tax Credit, which is available at https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-1-health-medical/income-tax-folio-s1-f1-c1-medical-expense-tax-credit.html.

The exercise of determining eligible medical expenses for all family members, calculating the optimal time period for making a medical expense tax credit claim, and determining the actual credit claimable can be a time-consuming process. However, given that such expenses are usually unavoidable, the dollar figure costs are often significant, and the effort has to be made only once a year, it is an annual effort worth making.

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.

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.

While it’s doubtful that many Canadians approach the task with any degree of enthusiasm, the fact is that millions of Canadians do sit down each spring to complete their annual tax return for the previous calendar year (or more often, they pay someone else to do it for them). Although the rate of compliance among Canadian taxpayers is very high — for the last filing season, just under 30 million individual income tax returns were filed with the Canada Revenue Agency (CRA) — there are, inevitably, those who do not file or pay on time.

There are a lot of reasons why individual Canadians don’t file their returns or pay their taxes on a timely basis, and almost all of them are based on a lack of understanding of how our tax system works, or on incorrect information about that system.

Some taxpayers don’t file because they believe that there’s no requirement to do so if they don’t owe anything and aren’t expecting a refund. While that can be true, it is also necessary to file in order to receive a number of income-tested tax credits and benefits, including the harmonized sales tax (HST) credit, the Canada Child Benefit, and a range of provincial tax credits. Those who don’t file cannot have their eligibility for such credits determined and, therefore, no credits can be paid to them. Others don’t file because they have a balance owing but don’t have the funds to pay that balance on filing. That, too, is the wrong approach, as anyone who owes taxes but doesn’t file a return by the filing deadline gets hit with an immediate penalty of at least 5% of the outstanding amount owed. In such circumstances, the right approach is to file on time and to contact the CRA in order to come to an agreement on a payment arrangement over time. Finally, there is a persistent (and completely false) tax myth that has been circulating for decades, that the federal government does not have the legal right to collect taxes, and every year some taxpayers fall victim to someone peddling that myth.

There are also a number of Canadians who file returns in which income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed. While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate isn’t high, there are a lot of such returns when measured by absolute numbers. And, although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover that amount.

With all of that in mind, several years ago the CRA instituted a program intended to encourage non-compliant taxpayers to come forward and put their tax affairs in order. The incentive to do so arose from the fact that, in most cases, while such taxpayers would have to pay outstanding tax amounts owed, plus interest, they would not be subject to penalties which would normally be imposed and would, in addition, avoid the risk of criminal prosecution.

That program, the Voluntary Disclosure Program (VDP), generally fulfilled its objectives but was criticized as being a means by which those who engage in deliberate tax avoidance could escape the consequences of their actions. As a result, changes were made to the VDP in March of 2018, with the effect of narrowing the eligibility criteria for the program and imposing additional conditions on participants.

The changes made in 2018 did not alter the basic requirements for participation in the VDP, which are still as follows. To qualify for relief, an application made with respect to non-compliance with income tax filing and payment obligations must:

• be voluntary (meaning that it is done before the taxpayer becomes aware of any compliance or enforcement action by the CRA);
• be complete;
• involve the application or potential application of a penalty;
• include information that is at least one year past due; and
• include payment of the estimated tax owing.

Under the current VDP structure, there are two separate programs for income tax disclosures — the Limited Program and the General Program — and the kind and extent of relief available depends on the track to which a particular application is assigned.

While the CRA will make a determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the Limited Program to instances in which applications disclose non-compliance which appears to include intentional (as distinct from inadvertent) conduct on the part of the taxpayer. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

• the dollar amounts involved;
• the number of years of non-compliance; and
• the sophistication of the taxpayer; and
• whether efforts were made to avoid detection through the use of offshore vehicles or other means.

Those whose applications are accepted under the Limited Program will not be subject to criminal prosecution and will be exempt from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer. Interest on outstanding tax balances will be payable, however, and other penalties will be levied.

Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance — that is, for the years preceding the three most recent years of returns required to be filed. For example, a taxpayer who makes an application to the VDP and who has failed to file returns for the 2010 through 2017 taxation years may be provided with interest relief with respect to taxes owed for the 2010-2014 taxation years. Such relief is generally equal to 50% of interest owed (i.e., the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years). No interest relief will, however, be provided on tax amounts owed for the three most recent (2015-2017) taxation years. Since interest charges levied by the CRA are, by law, greater than current commercial rates and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

In order to benefit from the VDP, taxpayers must first make an application to the program. That application must include payment of the estimated taxes owing, as a condition of participation in the VDP. Where a taxpayer is financially unable to make that tax payment, he or she can request that the CRA consider a payment arrangement.

The decision to apply to the VDP and to “come clean” about all previous tax transgressions is one which many taxpayers may well view with trepidation. Those who are unsure about whether they want to move forward with a VDP application can take advantage of the CRA’s “pre-disclosure discussion service”. As the name implies, that service allows taxpayers to participate in preliminary discussions, on an anonymous basis”, to gain some knowledge about the VDP program, the process involved and the potential relief available.

Taxpayers who decide to move forward with an application to the VDP can complete and file Form RC199, Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. While use of this form is not mandatory — a letter will suffice — there’s really no downside to using the prescribed form, and doing so will ensure that all of the needed information is provided to the tax authorities. Once the application is received, the CRA will check to make certain that the applicant is eligible to apply and that all of the required information, documentation, and payment has been sent. The CRA will then let the taxpayer know of his or her acceptance into the VDP and the effective date of that acceptance. The next step is for the CRA to evaluate the application to ensure that the five criteria for participation in the VDP (as listed above) are satisfied and to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. The taxpayer will be provided with that information in writing. The CRA’s advice is that taxpayers should contact them (for individual taxpayers, by calling the Individual Income Tax Enquiries line at 1-800-959-8281) if they have not heard from the CRA within four or five weeks of submitting an application.

If the decision made is that the application is not eligible for the VDP, that the necessary information, documentation, or payment was not received, that the five conditions of a valid application are not met, or that the circumstances are such that relief is not typically considered the taxpayer will also be advised in writing, with reasons, of the CRA’s decision to deny the application.

Where the decision made by the CRA is one with which the taxpayer does not agree, he or she is entitled to ask for a second review of the application. If that decision is also unfavourable, it is possible for a taxpayer to ask a court to review the decision and direct the CRA to re-consider the VDP application. However, taxpayers should be aware that the circumstances in which courts can do so are very limited and such applications to court are more often than not unsuccessful. In any case, a taxpayer who is considering a court application with respect to a decision made under the VDP should obtain legal advice before doing so.

Finally, taxpayers should recognize that the VDP Program can’t be used as a kind of “get out of jail free card” with respect to repeated failures to meet their tax filing and payment obligations. The CRA website makes it clear that the Agency expects taxpayers who have benefitted from the VDP to thereafter meet their tax obligations and a second review will be provided for the same taxpayer only in unusual situations where the circumstances are beyond the taxpayer’s control.

Detailed information on the VDP program can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html.

By now, news of yet another data breach resulting in unauthorized access to personal information — especially financial information — has become so frequent as to seem almost commonplace. Notwithstanding, the recent data breach affecting Capital One was, in many ways, a singular event.

By now, news of yet another data breach resulting in unauthorized access to personal information — especially financial information — has become so frequent as to seem almost commonplace. Notwithstanding, the recent data breach affecting Capital One was, in many ways, a singular event.

The magnitude of the Capital One data breach was unprecedented in many respects. The number of Canadians affected by the breach, the volume of information obtained and, particularly, the nature of the information lost were all on a scale not previously seen, in Canada or elsewhere.

According to information provided by Capital One, approximately 6 million Canadians (or one in every six Canadians) have had the privacy of their personal information compromised. Part of the reason that such a huge number of individuals has been affected is the time frame involved. The breach affected, not just those who held credit products issued by Capital One, but those who applied for such products (whether or not they were ever obtained) for a fifteen-year period, from 2005 through early 2019. The personal information obtained through the breach included personal information Capital One routinely collects at the time it receives credit card applications, including names, addresses, postal codes, phone numbers, email addresses, dates of birth, income, credit scores, credit limits, balances, payment history and contact information.

While a privacy breach involving any of the above information is problematic for those affected, the most significant aspect of the Capital Once breach is that the Social Insurance Numbers (SIN) of 1 million Canadians were obtained by an unauthorized person or persons as a result of the privacy breach. A SIN is the “gold standard” of personal identification for Canadians — it is used to file tax returns, obtain government benefits, and open bank accounts. Having someone’s SIN makes it easier to obtain other identifying information and that information, in the aggregate, facilitates identity theft.

Anyone who has been the victim of a personal information data breach can take steps to mitigate the possible impact of that breach. Affected credit cards can be cancelled and re-issued and bank account numbers changed. Individuals can change passwords and e-mail addresses. While all of that is time consuming, aggravating and inconvenient, it can be done.

The situation is different when it comes to SINs. SINs are issued by the federal government and the government’s policy is to NOT provide an individual with a new SIN where the original number is compromised in a data breach. (A new SIN can be requested only in circumstances in which an individual can prove that his or her SIN was used fraudulently.) The stated reasons for that policy, as outlined on the Service Canada website, are as follows:

A new Social Insurance Number does not protect you from fraud and identity theft

A new SIN is not a fresh start or protection from fraud or identity theft.

If someone else uses your old SIN and the business does not check the person’s identity, you may have to prove you were not involved in the fraud or pay the impostor’s debts.

 A new Social Insurance Number is a complex affair

The Government can only share your new SIN with the federal departments and agencies that use your SIN.

This means that it would be up to you to provide your new SIN to all the financial institutions, creditors, pension providers, recent and current employers, and any other organizations with which you shared your old SIN.

Not doing so or failing to do so properly risks not receiving benefits or leaves the door open to subsequent fraud or identity theft.

You double your monitoring efforts with two Social Insurance Numbers instead of one

A new SIN does not erase your old SIN. You would therefore need to monitor your accounts and credit reports for both SINs on a regular and ongoing basis. This would put added burden on you. Numerous SINs multiply the risk of fraud.

Consequently, individuals whose SINs have been obtained by unauthorized persons through the Capital One hack will need to be vigilant, now and for some time into the future, to guard against unauthorized use of that number. Such individuals may rightfully expect Capital One to take responsibility for and cover the cost of such monitoring efforts, and the company has indicated that it will take the following actions.

The company began directly notifying Canadians affected by the cyber incident by email on August 7, 2019, and that process will continue by e-mail or regular mail, over several weeks. The difficulty, of course, is that e-mail addresses were one of the kinds of information obtained as part of the data breach. Consequently, anyone who receives an e-mail from Capital One will need to take steps to ensure that such e-mail is not part of a further phishing attempt. Any suspicious e-mails received should be forwarded, without opening (and especially without clicking on any links) to abuse@capitalone.com In order to help those affected spot fraudulent emails or messages, Capital One has posted a number of tips on its website at https://www.capitalone.ca/help/fraud-protection/.

Capital One has also announced that it will not be contacting anyone affected by the data breach by telephone or text. Consequently, any phone call or text which purports to be from Capital One is fraudulent and should be ignored. Where personal information has mistakenly been provided in response to such a call or text, the following steps should be taken:

• call Capital One to report that account information may have been compromised;
• sign in to Capital One online banking and change passwords; and
• check accounts for suspicious activity.

Finally, the company has indicated that it will provide and pay for two years of credit monitoring and identity theft insurance from TransUnion to everyone impacted. Details of the data breach and the company’s response are outlined on the Capital One website at https://www.capitalone.ca/facts2019/.

One of the reasons that so many SINs were compromised in the Capital One data breach is that Canadians have become accustomed to being routinely asked for their SIN in situations in which that request shouldn’t be made. And, in too many cases, Canadians routinely provide those SINs without fully considering the potential risks.

The number of instances in which individuals are required to provide their SINs is actually quite limited, and such information can generally be requested only by an employer, by agencies of the federal government, or by private institutions (like banks or credit unions) which are required to provide taxpayer-specific information to the federal government, especially the tax authorities, and then only in specific circumstances.

Notwithstanding, SINs are requested in any number of situations in which they don’t have to be provided, including the following:

• proving your identity (except for specific government programs);
• completing a job application before you get the job;
• completing an application to rent a property;
• negotiating a lease with a landlord;
• completing a credit card application;
• cashing a cheque;
• completing some banking transactions (mortgage, line of credit, loan);
• completing a medical questionnaire;
• renting a car;
• subscribing to long distance or cellular telephone services;
• writing a will;
• applying to a university or college; and
• making funeral arrangements.

Somewhat surprisingly, it’s not actually against Canadian law for an individual or company to ask for a SIN in circumstances in which they aren’t entitled to it. Consequently, the onus falls on the individual to refuse to provide his or her SIN in such circumstances. That’s not always as easy as it sounds — for instance, SINs are routinely requested in residential tenancy applications and, in a tight rental market, individuals may be reluctant to refuse where doing so could mean losing out on hard-to-find rental accommodation. Individuals will therefore need to determine, in each instance, whether the risks inherent in providing one’s SIN number are justified in the circumstances. And no matter what those circumstances are, the best advice is always this: if you don’t have to disclose identifying and/or personal financial information, then don’t!

The start of the calendar year also marks the beginning of the tax year for individuals and consequently most tax changes are scheduled to take effect as of January 1 of each year. However, the federal and provincial budgets are brought down in the late winter and spring, and those budgets can include announcements of tax changes which will take effect later in the year (often, but not exclusively, on July 1, being halfway through the tax year). As well, where a change in tax rates, credits, or income brackets announced in the budgets is made effective as from the beginning of the tax and calendar year, individuals will first notice that change when their payroll withholdings are adjusted starting in July.

The start of the calendar year also marks the beginning of the tax year for individuals and consequently most tax changes are scheduled to take effect as of January 1 of each year. However, the federal and provincial budgets are brought down in the late winter and spring, and those budgets can include announcements of tax changes which will take effect later in the year (often, but not exclusively, on July 1, being halfway through the tax year). As well, where a change in tax rates, credits, or income brackets announced in the budgets is made effective as from the beginning of the tax and calendar year, individuals will first notice that change when their payroll withholdings are adjusted starting in July.

What follows is a listing of significant federal and provincial tax changes which are currently scheduled to come into effect during the remainder of the 2018 tax year.

Federal

Indexation of Child Tax Benefits

In its 2016 Budget, the federal government replaced the existing Canada Child Tax Benefit with the Canada Child Benefit program. The new program provides lower and middle income Canadian families with a non-taxable monthly benefit, with the amount of that benefit dependent on family size and income.

When the CCB program was introduced, one of the terms of that program was that  benefits payable would be indexed, starting in July  2020. However, in the fall of 2017, the federal government announced that such indexation would be accelerated, such that all CCB benefits will be indexed to changes in the Consumer Price Index, starting in  July 2018.

Indexation of benefits will take place automatically starting in July, and there is no requirement or need for CCB recipients to take any action.

British Columbia

Interactive Digital Media Tax Credit extended

The B.C. Interactive Digital Media tax credit, which was scheduled to expire at the end of August, 2018, has been extended for a period of five years and so it will be available until August 31, 2023.

Manitoba

Carbon tax introduced effective September 1

Manitoba’s carbon tax will impose a $25 tax per tonne of greenhouse gas emissions beginning on September 1, 2018 and will apply to gas, liquid, and solid fuel products intended for combustion in the province.

Corporate tax credit programs extended

The Manitoba Book Publishing Tax Credit and the Cultural Industries Printing Tax Credit were both scheduled to expire on December 31, 2018. Both have been extended for one year, to December 31, 2019.

Ontario

Changes to personal income tax rates and brackets

Previously, Ontario was one of only two Canadian provinces to levy a personal income tax surtax. However, it was announced in this year’s Budget that the surtax would be eliminated, and that tax brackets and rates would be adjusted to compensate for that change.

Although the change in the rate structure is effective as of the beginning of 2018, changes to income tax source deductions which reflect that change will be implemented starting in July.

Prince Edward Island

Change to basic personal amount

In this year’s Budget, the province announced that the basic personal tax credit amount, which is claimable by all PEI residents, would be increased in two steps. The first stage of that change will see the amount for 2018 increase from $8,160 to $8,660.

Although the change is effective as of the beginning of the calendar year, it will first be reflected in payroll deductions made for provincial income tax starting in July 2018.

For several generations, reaching one’s 65^th birthday marked the transition from working life to full retirement, and, usually, receipt of a monthly employee pension, along with government-sponsored retirement benefits. That is no longer the reality. The age at which Canadians retire can now span a decade or more, and retirement is more likely to be a gradual transition than a single event.

For several generations, reaching one’s 65^th birthday marked the transition from working life to full retirement, and, usually, receipt of a monthly employee pension, along with government-sponsored retirement benefits. That is no longer the reality. The age at which Canadians retire can now span a decade or more, and retirement is more likely to be a gradual transition than a single event.

Today, Canadians can choose to begin receiving benefits from government-sponsored retirement benefit programs between the ages of 60 and 70. Canada Pension Plan retirement benefits can begin as early as age 60, and taxpayers can start collecting Old Age Security benefits at age 65. Receipt of income from either of those government- sponsored retirement income plans can also be deferred until the age of 70, but no later.

As well, the employer-sponsored pension plan is no longer available as a source of guaranteed retirement income for the majority of retirees. Instead, such retirees have (hopefully) saved for retirement through a registered retirement savings plan (RRSP). Holders of such plans are required to collapse their RRSP by the end of the year in which they turn 71 years of age. And, the decision made on what to do with the funds within that RRSP will affect the individual’s income for the remainder of his or her life.

While the actual decision is a complex one, the options available to a taxpayer who must collapse an RRSP are actually quite few in number — three, to be precise. They are as follows:

• collapse the RRSP and include all of the proceeds in income for that year;
• collapse the RRSP and transfer all proceeds to a registered retirement income fund (RRIF); and/or
• collapse the RRSP and purchase an annuity with the proceeds.

It’s not hard to see that the first option doesn’t have much to recommend it. Collapsing an RRSP without transferring the balance to a RRIF or purchasing an annuity means that every dollar in the RRSP will be treated as taxable income for that year. In most cases, that will mean losing nearly half of the RRSP proceeds to income tax. And, while any amount left can then be invested, tax will be payable on all investment income earned.

As a practical matter, then, the choices come down to two: a RRIF or an annuity. And, as is the case with most tax and financial planning decisions, the best choice will be driven by one’s personal financial and family circumstances, risk tolerance, cost of living, and the availability of other sources of income to meet that cost of living.

The annuity route has the great advantages of simplicity and reliability. In exchange for a lump sum amount paid by the taxpayer, the annuity issuer agrees to pay the taxpayer a specific sum of money, usually once a month, for the remainder of the annuitant’s life. Annuities can also provide a guarantee period, in which the annuity payments continue for a specified time period (5 years, 10 years), even if the taxpayer dies during that time. The amount of monthly income which can be received depends, of course, on the amount paid in, but also on the gender and, especially, the age of the taxpayer. Currently, annuity rates for each $100,000 paid to the annuity issuer by a taxpayer who is 70 years of age range from $579 to $643 per month for a male taxpayer and from $515 to $572 for a female taxpayer (the actual rate is set by the company which issues the annuity). Those rates do not include any guarantee period.

For taxpayers whose primary objective is to obtain a guaranteed life-long income stream without the responsibility of making any investment decisions or the need to take any investment risk, an annuity can be an attractive option. There are however, some potential downsides to be considered. First, an annuity can never be reversed. Once the taxpayer has signed the annuity contract and transferred the funds, he or she is locked into that annuity arrangement for the remainder of his or her life, regardless of any change in circumstances that might mean an annuity is no longer suitable. Second, unless the annuity contract includes a guarantee period, there is no way of knowing how many payments the taxpayer will receive. If he or she dies within a short period of time after the annuity is put in place, there is no refund of amounts invested — once the initial transfer is made at the time the annuity is purchased, all funds transferred belong to the annuity company. Third, most annuity payment schedules do not keep up with inflation — while it is possible to obtain an annuity in which payments are indexed, having that feature will mean a substantially lower monthly payout amount. Finally, where the amount paid to obtain the annuity represents most or all of the taxpayer’s assets, entering into the annuity arrangement means that the taxpayer will not be leaving an estate for his or heirs.

The second option open to taxpayers is to collapse the RRSP and transfer the entire balance to a registered retirement income fund, or RRIF. A RRIF operates in much the same way as an RRSP, with two major differences. First, it’s not possible to contribute funds to a RRIF. Second, the taxpayer is required to withdraw an amount from his or her RRIF (and to pay tax on that amount) each year. That minimum withdrawal amount is a percentage of the outstanding balance, with that percentage figure determined by the taxpayer’s age at the beginning of the year. While the taxpayer can always withdraw more in a year, or make lump sum withdrawals (and pay tax on those withdrawals), he or she cannot withdraw less than the minimum required withdrawal for his or her age group.

Where a taxpayer holds savings in a RRIF, he or she can invest those funds in the same investment vehicles as were used while the funds were held in an RRSP and those funds can continue to grow on a tax-sheltered basis, in the same way as funds in an RRSP. While the ability to continue holding investments that can grow on a tax-sheltered basis provides the taxpayer with a lot of flexibility, and the potential for growth in value, those benefits have a price in the form of investment risk. As is the case with all investments, the investments held within a RRIF can increase in value — or decrease — and the taxpayer carries the entire investment risk. When things go the way every investor wants them to, investment income is earned while the taxpayer’s underlying capital is maintained but, of course, that result is never guaranteed.

On the death of a RRIF annuitant, any funds remaining in the RRIF can pass to the annuitant’s spouse on a tax-free basis. Where there is no spouse, the remaining funds in the RRIF will be income to the RRIF annuitant in the year of death, and any balance after tax is paid will become part of his or her estate, available for distribution to beneficiaries.

While the above discussion of RRIFs versus annuities focuses on the benefits and downsides of each, it is not necessary (and in most cases not advisable) to limit the options to an either/or choice. It is possible to achieve, to a degree, the seemingly irreconcilable goals of lifetime income security and the potential for capital (and estate) growth. Combining the two alternatives — annuity and RRIF — either now or in the future, can go a long way toward satisfying both objectives.  

For everyone, in retirement or not, all spending is a combination of non-discretionary and discretionary items. The first category is made up mostly of expenditures for income tax, housing (whether rent or the cost of maintaining a house), food, insurance costs, and (especially for older Canadians) the cost of out-of-pocket medical expenses. The second category of discretionary expenses includes entertainment, travel, and the cost of any hobbies or interests pursued. A strategy which utilizes a portion of RRSP savings to create a secure lifelong income stream to cover non-discretionary costs can remove the worry of outliving one’s money, while the balance of savings can be invested through a RRIF, for growth and to provide the income for non-discretionary spending.

Such a secure income stream can, of course, be created by purchasing an annuity. As well, although most taxpayers don’t necessarily think of them in that way, the Canada Pension Plan and Old Age Security have many of the attributes of an annuity, with the added benefit that both are indexed to inflation. By age 71, all taxpayers who are eligible for CPP and OAS will have begun receiving those monthly benefits. Consequently, in making the RRIF/annuity decision at that age, taxpayers should include in their calculations the extent to which CPP and OAS benefits will pay for their non-discretionary living costs.

As of June 2018, the maximum OAS benefit for most Canadians (specifically, those who have lived in Canada for 40 years after the age of 18) is about $590 per month. The amount of CPP benefits receivable by the taxpayer will vary, depending on his or her work history, but the maximum current benefit which can be received at age 65 is about $1,050. (Where receipt of either benefit is deferred past the age of 65, those amounts go up.) As a result, a single taxpayer who receives the maximum CPP and OAS benefits at age 65 will have just under $20,000 in annual income (just over $1,600 per month). And, for a married couple, of course, the combined total annual income received from CPP and OAS can approach $40,000 annually, or $3,200 per month. While $20,000 a year isn’t enough to provide a comfortable retirement, for those who go into retirement in good financial shape — meaning, generally, without any debt — it can go a long way toward meeting non-discretionary living costs. In other words, most Canadians who are facing the annuity versus RRIF decision already have a source of income which is effectively guaranteed for their lifetime and which is indexed to inflation. Taxpayers who are considering the purchase of an annuity to create the income stream required to cover non-discretionary expenses should first determine how much of those expenses can already be met by the combination of their (and their spouse’s) CPP and OAS benefits. The amount of any annuity purchase can then be set to cover off any shortfall.

While the options available to a taxpayer at age 71 with respect to the structuring of future retirement income are relatively straightforward, the number of factors to be considered in assessing those factors and making that decision are not. All of that makes for a situation in which consulting with an independent financial adviser on the right mix of choices and investments isn’t just a good idea, it’s a necessary one.

It’s something of an article of faith among Canadians that, as temperatures rise in the spring, gas prices rise along with them. Whether that’s the case every year or not, this year statistics certainly support that conclusion. In mid-May, Statistics Canada released its monthly Consumer Price Index, which showed that gasoline prices were up by 14.2%. As of the third week of May, the per-litre cost of gas across the country ranged from 125.2 cents per litre (in Manitoba) to 148.5 cents per litre (in British Columbia). On May 23, the average price across Canada was 135.2 cents per litre, an increase of more than 25 cents per litre from last year’s average on that date.

It’s something of an article of faith among Canadians that, as temperatures rise in the spring, gas prices rise along with them. Whether that’s the case every year or not, this year statistics certainly support that conclusion. In mid-May, Statistics Canada released its monthly Consumer Price Index, which showed that gasoline prices were up by 14.2%. As of the third week of May, the per-litre cost of gas across the country ranged from 125.2 cents per litre (in Manitoba) to 148.5 cents per litre (in British Columbia). On May 23, the average price across Canada was 135.2 cents per litre, an increase of more than 25 cents per litre from last year’s average on that date.

While in some cases Canadians can reduce the impact of gas price increases by reducing the amount of driving they do, the practical reality is that, for most of us, driving a car every day can’t be avoided, and gasoline is consequently a non-discretionary expense. That’s especially true for those who must drive to work each day and, increasingly, that drive is becoming a longer and longer one, as individuals and families move further and further from their workplace location in search of affordable housing. Finally, for many Canadians a car is their only transportation option, when they live in places that are not served by public transit, or the available transit isn’t a practical daily option.

Unfortunately, for most taxpayers, there’s no relief provided by our tax system to help alleviate the cost of driving as the cost of driving to work and back home, as well as the cost of driving that isn’t work-related, is considered a personal expense for which no deduction or credit can be claimed, no matter how great the cost. That said, there are some (fairly narrow) circumstances in which employees can claim a deduction for the cost of work-related travel.

Those circumstances exist where an employee is required, as part of his or her terms of employment, to use a personal vehicle for work-related travel. For instance, an employee might, as part of his or her job, be required to see clients at their own premises for the purpose of meetings or other work-related activities and be expected to use his or her own vehicle to get to such meetings. If the employer is prepared to certify on a Form T2200 that the employee was ordinarily required to work away from his employer’s place of business or in different places, that he or she is required to pay his or her own motor vehicle expenses and that no tax-free allowance was provided by the employer for such expenses, the employee can deduct actual expenses incurred for such work-related travel. Those deductible expenses include the following:

• fuel (gasoline, propane, oil);
• maintenance and repairs;
• insurance;
• license and registration fees;
• interest paid on a loan to purchase the vehicle;
• eligible leasing costs for the vehicle; and
• depreciation, in the form of capital cost allowance.

In almost all instances, a taxpayer will use the same vehicle for both personal and work-related driving. Where that’s the case, only the portion of expenses incurred for work-related driving can be deducted and the employee must keep a record of both the total kilometres driven and the kilometres driven for work-related purposes. And, of course, receipts must be kept to document all expenses incurred and claimed.

While no limits (other than the general limit of reasonableness) are placed on the amount of costs which can be deducted in the first four categories listed above, there are limits and restrictions with respect to allowable deductions for interest, eligible leasing costs, and depreciation claims. The rules governing those claims and the tax treatment of employee automobile allowances and available deductions for employment-related automobile use generally are outlined on the Canada Revenue Agency website at www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/mtrvhcl-eng.html.

In larger urban centres, and in the nearby cities and suburbs which are served by inter-city transit, many commuters utilize that transit as a way of avoiding both the stress of a drive to work in rush hour traffic and the associated costs. And, for a time, such commuters were able to claim a tax credit to help mitigate the cost of using such transit. Unfortunately, the federal public transit tax credit was eliminated in 2017, such that it could be claimed only for costs incurred for transit use before July 1, 2017. It was not possible to carry the credit over and claim it in a subsequent taxation year, so the last claim anyone could make for the public transit tax credit was on the 2017 annual tax return.

No amount of tax relief is going to make driving, especially for a lengthy daily commute, an inexpensive proposition. But, that said, seeking out and claiming every possible deduction and credit available under our tax rules can at least help to minimize the pain.