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2016 Segal Tax Season Documents

Segal 2016 T1 Forms – Existing Client Package
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Major Life Events Can Affect Your Taxes and Finances

012717_Thinkstock_493335588_lores_KWAs you gear up for tax season, it’s a good time to reflect on any major life changes you’ve recently experienced. Passing through the various stages of life may have an effect on your taxes and finances.

If you’re getting married, just got divorced, welcomed a new child into the family or dealt with the death of a loved one, you may need to take action to claim tax benefits and keep the Canada Revenue Agency (CRA) up-to-date about your situation.

Marital Status Change

Let the CRA know if you get married, enter into a common-law partnership, separate, divorce or were recently widowed. It’s important to inform the CRA about changes in your marital status to make sure you receive the right amount in benefits and credit payments. When your marital status changes, the CRA will recalculate your benefits and credits based on:

  • Your updated family net income,
  • The number of children you have in your care and their ages, and
  • The province or territory where you live.

Your benefit payments will be adjusted the month after the month your status changes.

There are various ways to contact the CRA:

  • Use the “change my marital status” service found in My Account on the CRA website,
  • Select marital status in the MyBenefits CRA or MyCRA mobile apps,
  • Call 1-800-387-1193 if you are a benefit recipient, or
  • Send in a completed Form RC65, Marital Status Change.

If you change your name, contact the CRA as soon as possible at 1-800-959-8281 so the agency can update your records.

Note: The CRA doesn’t accept name changes by email or over the Internet.

If you get divorced during the year and you’re entitled to Canada Child Benefit payments, the goods and services tax/harmonized sales tax (GST/HST) credit, or the working income tax benefit (WITB) advance payments, let the CRA know by the end of the month after the month of your divorce.

Note: If you separate from your spouse or you’re making or receiving support payments after a divorce, ask your tax advisor about the tax implications.

If you just got married, your tax situation will change in several ways:

Spouse or common-law partner amount. Did you make the majority of the household income this year? If at any time in the year you supported your spouse (or common-law partner) and his or her net income was less than $11,474 in 2016, you can claim up to that amount. If you also claimed the family caregiver amount, your spouse or common-law partner’s net income must be less than $13,595.

A spousal RRSP. Once married, you can contribute to an RRSP for your spouse to save for retirement. However, contributions you make to a spousal account reduce your RRSP deduction limit. The total amount you can deduct for contributions you make to your RRSP or your spouse’s or common-law partner’s RRSP cannot be more than your RRSP deduction limit. If you cannot contribute to your RRSP because of your age, you can still contribute to your spouse’s (or common-law partner’s) RRSP until the end of the year he or she turns 71. Ask your tax advisor how much you can contribute and deduct.

Want to name your spouse as a representative? You can authorize your spouse (or common-law partner) as your representative for income tax matters. Do this online using the My Account feature.

Having a Baby or Adopting a Child

If you welcomed a new child into your family recently or you have a baby on the way, you may be entitled to credits and benefits (see the box at the bottom of this article). To qualify:

File an Automated Benefits Application (ABA). When registering a newborn’s birth, you can consent to use the ABA, which allows you to automatically apply for child tax benefits at the same time. If you give your consent on the provincial/territorial birth registration form, you don’t have to reapply for your child’s benefits by using the CRA online service or filing the form listed below.

Use the My Account feature. You can also apply to receive Canada child and family benefits by using the “apply for child benefits” service or by downloading and mailing Form RC66, Canada Child Benefits Application to your tax centre.

If you adopt a child under 18 years of age, you can also claim an amount for eligible expenses related to the adoption. The maximum 2016 amount for each child is $15,453.

After the Death of a Loved One

The CRA reminds families of these considerations after a loved one has passed away.

A final tax return. The legal representative of a deceased individual must report all of the person’s income from January 1 of the year of death up to, and including, the date of death.

Ask your tax advisor for details on benefits. Deductions and credits can be claimed on the tax return for a deceased person. With certain strategies, such as splitting amounts between tax returns or claiming them against specific kinds of income, some of the deceased person’s taxes may be reduced or eliminated.

Payments for GST/HST. Sometimes, the deceased will receive a GST/HST credit payment after death. In this case, you should return the payment to the tax centre serving your area and notify the CRA of the date of death.

Don’t worry about installments. If an individual who must pay tax by installments dies during the year, installment payments due on or after the date of death don’t have to be made.

Dealing with the Canada Child Benefit. If a recipient of this benefit dies, call the CRA at 1-800-959-8281, or complete Form RC4111 Request for the Canada Revenue Agency to Update Records as soon as possible to report the date of death. If the deceased person’s spouse (or common-law partner) is the child’s parent, the CRA will usually transfer the payments to that individual. If anyone other than the parent is now primarily responsible for the child, that person must apply for the child’s benefits. If the deceased is an eligible child, the parents’ entitlement to the benefit stops the month after the date of death.

Deemed disposition of property. The tax treatment of capital property is complex. Consult your tax advisor for information.

Don’t Forget Your Estate Plan

As you can see, major life events can have an impact on your taxes so discuss them thoroughly with your tax advisor. In addition, keep in mind that changes in your financial situation or your family structure should also be triggers for reviewing your estate plan. Marriages, divorces, births and deaths are just some of the reasons why you may want to update your will.

Child and Family Benefits

Here’s a brief explanation of eight tax and financial benefits available to families:

Canada Child Tax Benefit (CCTB) and Universal Child Care Benefit. These benefits were replaced by the tax-free Canada Child Benefit as of July 1, 2016. Talk with your tax advisor, as it’s possible you qualify for the replaced benefits for previous year. The CRA uses information from your income tax and benefit return to calculate how much your CCB payments will be. To get the CCB, you have to file your return every year, even if you didn’t have income during the year. If you have a spouse or common-law partner, he or she also has to file a return every year.

GST/HST credit. Low or modest-income families can receive this tax-free quarterly payment to offset some GST/HST. To receive it, they must file income tax and benefit returns every year, even if they have no income to declare.

Provincial and territorial benefits. Most provinces and territories have child and family benefit and credit programs that come with the CCTB and GST/HST credit. Ask your tax advisor about yours.

Working income tax benefit. Working low-income families can claim this refundable tax credit. Your tax advisor can explain the eligibility criteria.

Disability tax benefits for family members. Canada provides tax credits and benefits for adults and children under the age of 18 who meet certain conditions. Ask your tax advisor for details.

Registered Education Savings Plan (RESP). An RESP is a contract between you and a promoter that allows you to make contributions toward future education expenses of a named beneficiary of the plan. Generally, if you change beneficiaries, the CRA treats the contributions for the former beneficiary as if they had been made for the new beneficiary on the date they were originally made. If the new beneficiary already has an RESP, this may create an excess contribution. There are exceptions to this rule, so talk with your advisor.

Death of a Loved One: Filing the Final Tax Return

020317_Thinkstock_491359394_lores_KWDealing with the death of loved ones is difficult, and that may be compounded by having to figure out how to handle their taxes after they’re gone.

Canada doesn’t have an inheritance tax. Instead, Canada Revenue Agency (CRA) treats the estate as a sale, unless the estate is inherited by the surviving spouse or common-law partner, where certain exceptions are possible. This means that the estate pays the taxes owed to the government, rather than the beneficiaries paying. By the time the estate is settled, the beneficiaries shouldn’t have to worry about taxes.

Legal Representation

When someone passes away, that person’s legal representative (executor or estate administrator) has to file a final income tax return and take care of many other tasks. This article can help you understand what to expect during the process.

The representative:

1. Advises the CRA, Revenu Québec (if appropriate) and Service Canada of the date of death.

2. Arranges transfers to a survivor, if applicable, of any of the following benefit and credit payments:

  • Goods and services tax/harmonized sales tax (GST/HST) credit,
  • Working income tax benefit advance payments, or
  • Canada child benefit

If the death occurred between January 1 and October 3, 2016, the deadline for filing the final return and paying any tax owing is May 1 this year, as the usual April 30 falls on a Sunday. If the death occurred between November 1 and December 31, 2016, the deadline is six months after the date of the death.

Determining Total Income

The representative must determine the deceased person’s income from all sources from January 1 of the year of death up to, and including, the date of death. The representative will probably need previous tax returns and may have to contact employers, banks, trust companies, stock brokers and pension plan managers. The final return can’t be submitted through NETFILE.

Tax returns must be filed for any years that the person didn’t file before the year of death. If an individual who pays tax by installments dies during the year, payments due on or after the date of death don’t have to be paid.

In some cases, cheques may arrive for the deceased person. You may have to return certain cheques, but payment will definitely have to be stopped for the Canada Child Benefit, the GST/HST/QST credit and other benefit cheques if applicable. Employee vacation pay is considered income for the deceased and unused sick leave is considered income for the estate or the beneficiary.

Taxes and Debts First

Like all other debts, income tax has to be paid by the estate first before beneficiaries can inherit. This is part of settling the estate. The notice of assessment for the deceased individual’s tax return is one of the documents the legal representative needs in order to get a clearance certificate and distribute property from the estate.

A clearance certificate officially states that all amounts for which the deceased is liable to the CRA have been paid — or that the CRA accepted security for the payment. If the representative doesn’t get a clearance certificate, he or she can be liable for any amount owed.

The certificate covers all tax years to the date of death. It isn’t a clearance for any amounts a trust owes. If there’s a trust, a separate clearance certificate is needed.

Account and Asset Transfers

In terms of transfers, any non-registered capital property may be transferred to the deceased taxpayer’s spouse or common-law partner.

If there are registered assets such as Registered Retirement Savings Plans (RRSP) or Registered Retirement Income Funds (RRIF), the deceased person is deemed to have received the fair market value of the plan’s assets immediately prior to death. This amount must be included in the income of the deceased unless the spouse or common-law partner or a dependent child or grandchild is entitled to the funds.

If an individual or individuals are designated as beneficiaries, the proceeds from the plan will be taxable in their hands in the year they receive the money unless it’s transferred into their own tax-deferred plans. If no one is a designated beneficiary, the plan’s value may still be taxable in the hands of family members or others if they’re beneficiaries of the estate. In addition, proceeds in the RRSP may also be able to be rolled over to a Registered Disability Savings Plans for the benefit of a financially dependent infirm child or grandchild.

Other rules apply if death occurred after the plans matured and began paying out annuities.

If the value of investments in a registered plan declines between the date of death and the time of final distribution to the beneficiaries, that decrease may be carried back and deducted against any income from the registered plans that was included on the final return. For this to happen, the plan:

1. Must be wound up by the end of the year following the year of death, and

2. Must have held no investments other than qualifying investments during the post-death period.

If the deceased individual had a Tax-Free Savings Account (TFSA), tax implications may vary. The account holder can name a spouse or common-law partner as the successor holder. In that case, the spouse or partner becomes the new holder, keeping the account’s tax-exempt status. This won’t affect the TFSA contribution room of the spouse.

If some other person is named as beneficiary, the account will no longer be a TFSA. Whether or not a beneficiary can be named in a TFSA contract depends on provincial legislation. The legal representative will determine what applies in your case.

Assets with named beneficiaries such as life insurance policies or RRSPs are usually excluded in determining the value of an estate for purposes of probate. It’s likely that a TFSA with a named beneficiary would also be excluded from probate. Again, this depends on provincial legislation.

If no successor holder is named for the TFSA, the proceeds of the account become part of the estate. Any proceeds from the account that a surviving spouse or common-law partner receives can be used to make an exempt contribution to the survivor’s TFSA without affecting the contribution room of the survivor, provided:

  • It’s done before the end of the first calendar year after death, and
  • It’s designated as an exempt contribution in the survivor’s income tax return for the year of the contribution.

If there’s no spouse or common-law partner named as successor holder, the TFSA won’t lose its tax-exempt status until the earlier of:

1. The time it’s completely paid out to beneficiaries and no longer exists, or

2. The end of the first calendar year after death.

Any payments to beneficiaries, including during this exempt period, will be taxable to them to the extent that the payments include income or capital gains earned after the death of the holder.

Final Word

Representatives may also use optional tax returns to declare certain types of income. Also, by claiming certain amounts more than once, splitting them between returns or claiming them against certain kinds of income, representatives may be able to reduce or eliminate the deceased’s tax payable. Contact your tax advisor for more information in your situation.

A Tax-Saving Strategy for Seniors

If you earn income eligible for the Pension Income Tax Credit, you or your spouse or common-law partner may cut your total tax bill by using an income splitting strategy.

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Tax Planning Points

Increasing your spouse’s income above a certain level or reducing your income below a certain level will result in a claw-back of OAS.

Increasing your spouse’s income to more than a certain government set level will trim the old age amount tax credit. Talk to your financial advisor

If your spouse is under 65, income from RRIFs, RRSP annuities, and other annuities do not qualify for the pension amount tax credit, while payments from pension plans do.

Under pension splitting guidelines, you may transfer as much as 50 per cent of the qualifying income to the tax return of a lower-income spouse or common-law partner. This allows a greater portion of family income to be taxed at a lower rate and generates a higher level of after-tax income.

Pension splitting sidesteps attribution rules, where transferred assets are generally attributed back to, and taxed in the hands of, the person making the transfer.

Who Is Eligible

Ottawa allows spouses or common-law partners to shift as much as 50 per cent of eligible pension income to the other as long as they:

  • Are married or in a common-law relationship in the year they choose to split the income;
  • Reside in Canada on December 31 or at the time of death; or
  • In the case of bankruptcy, reside in Canada on December 31 of the calendar year in which the tax year (pre- or post-bankruptcy) ends.

In addition, they cannot be living apart at the end of the year and cannot have been living separately for more than 90 days during the year because their relationship broke down. You may split income if you are living apart for medical, educational or business reasons.

The Effects of Pension Income Splitting

1. Spouses or partners who qualify for the pension income tax credit may claim the first $2,000 of qualifying income. Tax withheld from the pension, remitted to Canada Revenue Agency (CRA), and reported on the T4A slip, is also transferred to your spouse, in proportion to the amount of pension you transfer.

2. If the transferred income is taxable income from pension plans and superannuation plans, your spouse will be able to claim the pension income amount. If the income is the taxable portion of annuities, RRSP annuities and RRIF payments, your spouse must be older than 65 to claim the pension income amount of $2,000.

3. Pension income splitting will not affect tax credits such as the child tax benefit, the GST/HST credit, Canada Child Tax Benefit and related provincial or territorial benefits. However, the new tax benefit may affect individual tax credits, such as the age amount credit and the OAS claw-back.

4. If your spouse or partner is in a lower tax bracket than you, transferring pension income to your spouse will result in a lower combined tax bill, and may also result in a lower OAS claw-back. For low income seniors, it may boost your tax credit due to the age amount.

What Is Eligible

If you are age 65 years or older, the income that qualifies is the same as the income that is eligible for the Pension Income Tax Credit, which is available on as much as $2,000 of certain forms of pension income. This includes the total of:

1. Income from a Registered Pension Plan (RPP);

2. Annuities from a Registered Retirement Savings Plan (RRSP);

3. Payments from a Registered Retirement Income Fund (RRIF); and

4. The taxable portion of annuities from a superannuation or pension fund or plan.

For individuals under the age of 65, qualifying income comprises money from pension plans and superannuation plans, including foreign pensions.

Payments from RRSPs do not qualify, so if you are older than 65 and plan to withdraw money from your plan, talk to your tax accountant about the possibility of converting the RRSP to either an RRIF or an RRSP annuity. (There is no age restriction for the spouse or common -law partner who receives the income allocation.)

Other income that does not qualify includes payments from the Canada or Quebec Pension Plan, Old Age Security (OAS) payments, and Guaranteed Income Supplements (GIS).

The allocated pension income is treated as income of the lower-income spouse for all purposes under federal income tax rules. In effect, some couples may now receive a second pension tax credit where previously only one was available. In addition, splitting pension income could mean higher Old Age Security entitlements for some couples.

For those individuals eligible to split their pension with their spouse or partner, the degree of benefit will likely vary noticeably, so talk to your tax accountant to ensure that you are making the right decision and that you take the maximum benefits allowable.

Guarding Against Age Bias

With some rare exceptions, actions in the workplace based solely on an employee’s age are discriminatory and violate portions of these human rights laws in Canada: the Charter of Rights and Freedoms, the Human Rights Act and provincial and territorial statutes.

The Supreme Court of Canada has defined discrimination as: “A distinction whether intentional or not but based

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Testing for Undue Hardship

   There is an exception that allows some discriminatory actions if the cost of accommodating an employee would present an undue hardship for the company.

When making a determination of undue hardship, businesses should consider three primary factors: health, safety and cost. A company has to provide hard evidence that accommodation would cost too much or impose health and safety concerns.

The Supreme Court of Canada has listed other factors that may be considered, including:

  • The type of work performed.
  • Size of the workforce.
  • Interchangeability of job duties.
  • A financial ability to accommodate.
  • The impact on a collective agreement.
  • The influence on employee morale.

These factors and their importance vary from case to case. For example, a large corporation or a federal agency would likely find it hard to prove undue hardship on the basis of cost alone. Such organizations usually have the budget, size and flexibility to accommodate special needs at a lower cost. Among the factors considered when determining financial costs are:

  • The employer’s size and financial situation.
  • An ability to amortize costs or mitigate the hardship in some other way.
  • The number of people the accommodation would benefit.
  • The possibility of phasing-in major accommodations.
  • The availability of special budgets, reserve funds or external sources of funding, such as government funding or tax incentives.

Factors Not to Consider Include:

  • Customer or public preference based on prejudice or stereotyping.
  • Discriminatory objections, such as other employees’ objections to accommodations based on prejudice or attitudes inconsistent with human rights values.
  • Threatened grievances by other employees.

on grounds relating to personal characteristics . . . which has the effect of imposing burdens, obligations or disadvantages on [an] individual or group not imposed upon others or which withholds or limits access to opportunities, benefits and advantages available to other members of society.” (Andrews v. Law Society of British Columbia)

To help avoid charges of age bias, a company must keep the workplace free from discrimination and support the needs of older employees. To help protect your business from potential legal liability, get professional legal help setting up a policy.

According to the Ontario Human Rights Commission, here are some of the actions that could generally be considered to involve age discrimination:

  • Limiting or withholding transfers, promotions and training based on an employee’s age.
  • Using subjective criteria that could indicate ageism in determining whether to retain or terminate an employee.
  • Refusing to assign an older employee to certain jobs or requiring an undesired transfer.
  • Linking performance evaluations to age by either subjecting older employees to more scrutiny or evaluating based on a perception that a person will soon retire.
  • Failing to recall someone from a layoff because of age.
  • Targeting older workers during a downsizing, reorganization or amalgamation.
  • Letting an employee go because the person is eligible for pensions.
  • Retaliating or threatening retaliation against any individual who is the alleged victim of age discrimination, files a complaint or testifies in a discrimination complaint.
  • Failing to accommodate older workers unless that would create undue hardship for your company. (See right-hand box for how to gauge undue hardship).

Age discrimination can also be found in the recruitment and hiring process, so it’s prudent to take the side of caution and avoid:

  • Direct or indirect statements relating to age in job advertisements.
  • Age-related questions in job applications other than to determine that a candidate is old enough to hold a full-time position.
  • Interview questions relating to age unless: the job is aimed specifically at persons 65 years of age or older; the hiring organization is a special interest group serving a particular age group; age is a bona fide occupational requirement of the job; or the question is necessary to determine eligibility for a special program to promote age equality.
  • Statements about your company’s need to “rejuvenate” its work force.
  • Comments while evaluating candidates that refer to the applicant’s appearance, adaptability, or ability to be trained based on age, or concerns that the applicant will be too costly to hire because of age.
  • Evidence that there is a pattern of preference for hiring younger workers. For example, if a significantly younger candidate is hired whose qualifications are no better than an older candidate for the same job, or a candidate is turned away due to a perceived “lack of career potential” or experience that was too “diversified” or “specialized.”

Certain types of differential acts are not generally considered discriminatory when based on age, such as:

  • Legal restrictions on child employment.
  • Affirmative action programs for older workers.
  • Retirement plans based on minimum age plus years of service.
  • Policies aimed at easing the transition into retirement.

(In a future article we will look at whether mandatory retirement is discriminatory.)