Tag Archives: 2016 income tax return

What if your tax return is late?

By Sheryl Smolkin

You left filing your 2016 income tax return to the last minute and a huge project came up at work. You look at the calendar and suddenly realize you have missed the May 1st deadline. Or you have been working outside Canada for several years and didn’t file a return because you thought you didn’t have to.

What happens if your tax return is late and what can you do about it? Here’s what the Canada Revenue Agency has to say:

Interest
If you have a balance owing , CRA charges compound daily interest starting May 1, 2017, on any unpaid amounts owing for 2016. This includes any balance owing if they reassess your return. In addition, they will charge you interest on the penalties starting the day after your return is due.

The rate of interest charged can change every three months. For the first quarter of 2017 the interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums was 5%. However, if you overpaid your personal taxes, the interest rate paid to you is 3%. See Prescribed interest rates.

If you have amounts owing from previous years, CRA will continue to charge compound daily interest on those amounts. Payments you make are first applied to amounts owing from previous years.

Late-filing penalty
If you owe tax for 2016 and do not file your return for 2016 on time, CRA will charge you a late-filing penalty. The penalty is 5% of your 2016 balance owing, plus 1% of your balance owing for each full month your return is late, to a maximum of 12 months.

If you were charged a late-filing penalty on your return for 2013, 2014, or 2015 your late-filing penalty for 2016 may be 10% of your 2016 balance owing, plus 2% of your 2016 balance owing for each full month your return is late, to a maximum of 20 months.

That’s why even if you cannot pay your full balance owing on or before April 30, 2017 you should have filed the return on time to avoid the late-filing penalty.

Repeated failure to report income penalty
If you failed to report an amount on your return for 2016 and you also failed to report an amount on your return for 2013, 2014, or 2015, you may have to pay a federal and provincial or territorial “repeated failure to report income penalty.” If you did not report an amount of income of $500 or more for a tax year, it will be considered a failure to report income.

The federal and provincial or territorial penalties are each equal to the lesser of:

  • 10% of the amount you failed to report on your return for 2016; and
  • 50% of the difference between the understated tax (and/or overstated credits) related to the amount you failed to report and the amount of tax withheld related to the amount you failed to note on your return.

However, if you voluntarily tell CRA about an amount you failed to report, they may waive these penalties. For more information, see Voluntary Disclosures Program.

False statements or omissions penalty
In addition, you may have to pay a penalty if you, knowingly or under circumstances amounting to gross negligence, have made a false statement or omission on your 2016 return.

The penalty is equal to the greater of:

  • $100; and
  • 50% of the understated tax and/or the overstated credits related to the false statement or omission.

However, if you voluntarily tell CRA about an amount you failed to report and/or credits you overstated, they may also waive this penalty.

Cancel or waive penalties or interest
The CRA administers legislation, commonly called the taxpayer relief provisions, that gives them the  discretion to cancel or waive penalties or interest when taxpayers are unable to meet their tax obligations due to circumstances beyond their control.

The CRA’s discretion to grant relief is limited to any period that ended within 10 calendar years before the year in which a request is made.

For penalties, the CRA will consider your request only if it relates to a tax year or fiscal period ending in any of the 10 calendar years before the year in which you make your request. For example, your request made in 2017 must relate to a penalty for a tax year or fiscal period ending in 2007 or later.

For interest on a balance owing for any tax year or fiscal period, the CRA will consider only the amounts that accrued during the 10 calendar years before the year in which you make your request. For example, your request made in 2017 must relate to interest that accrued in 2007 or later.

To make a request fill out Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties or Interest. For more information about relief from penalties or interest and how to submit your request, go to Taxpayer relief provisions.

Changes you need to know about on your 2016 Income Tax Return

By Sheryl Smolkin

If your financial affairs are fairly straightforward and the only income you receive is from employment, you should have already received all of your tax slips and you may have already filed your income tax return, although it is not due until midnight on Monday, May 1st.

But tax slips for mutual funds, flow-through shares, limited partnerships and income trusts only had to be sent out by March 31st, so if you have multiple, more complex sources of income you are likely among the group of Canadians who are under the gun this month to finalize and file your returns.

Here are some of the things that have changed since last year that individuals and families should be aware of when they are assembling documentation and preparing their returns.

GENERAL/ADMINISTRATIVE
MyCRA: A mobile app from the Canada Revenue Agency now allows you to view your notice of assessment, tax return status, benefit and credit information, and RRSP and TFSA contribution room.

Auto-fill: If you use electronic software to do your taxes, the CRA will fill in many of the boxes for you. You sign into CRA MyAccount and agree to a download that will include information on your RRSP contributions, plus information from T4s, T4As and T5s. Users are advised to double-check the CRA’s data before they file.

INDIVIDUALS AND FAMILIES
Canada child benefit (CCB): As of July 2016, the CCB has replaced the Canada child tax benefit (CCTB), the national child benefit supplement (NCBS), and the universal child care benefit (UCCB). For more information see Canada child benefit.

Child-care expenses: The amount parents can claim for child-care expenses has increased by $1,000 annually, per child, to $8,000 for a child under six and $5,000 for a child aged between seven and 16 years old. For more information see line 214.

Canada Apprentice Loan: Students in a designated Red Seal trade program can now claim interest on their government student loans. For more information see line 319.

Northern resident’s deductions: The basic and additional residency amounts used to calculate the northern residency deduction have both increased to $11 per day. See Form T2222, Northern Residents Deductions. For more information see line 255.

Children’s arts amount: The maximum eligible fees per child (excluding the supplement for children with disabilities), has been reduced to $250. Both will be eliminated for 2017 and later years. For more information see line 370.

Home accessibility expenses: You can claim a maximum of $10,000 for eligible expenses you incurred for work done or goods acquired for an eligible dwelling. This deduction typically applies to home renovations to improve accessibility for individuals eligible for the disability tax credit for the year or for qualifying seniors over 65. For more information see line 398.

Family tax cut: The Family Tax Cut allowed eligible couples with children under the age of 18 to notionally split the income of the spouse with higher earnings, transferring up to $50,000 of taxable income to the lower income spouse in a taxation year. The family tax cut has been eliminated for 2016 and later years.

Children’s fitness tax credit: The maximum eligible fees per child (excluding the supplement for children with disabilities) has been reduced to $500. Both will be eliminated for 2017 and later tax years. For more information see lines 458 and 459.

Eligible educator school supply tax credit: If you were an eligible educator, you can claim up to $1,000 for eligible teaching supplies expenses. For more information see lines 468 and 469.

INTEREST AND INVESTMENTS
Tax-free savings account (TFSA): The amount that you can contribute to your TFSA  every year has been reduced to $5,500.

Dividend tax credit (DTC): The rate that applies to “other than eligible dividends” has changed for 2016 and later tax years. For more information see lines 120 and 425.

Labour-sponsored funds tax credit: The tax credit for the purchase of shares of provincially or territorially registered labour-sponsored venture capital corporations has been restored to 15% for 2016 and later tax years. The tax credit for the purchase of shares of federally registered labour-sponsored venture capital corporations has decreased to 5% and will be eliminated for 2017 and later tax years. For more information see lines 413, 414, 411, and 419.

What’s new on your 2016 tax return: Sale of a principal residence

By Sheryl Smolkin

For many Canadians, the family home is the most valuable asset they own and an important factor when they are planning their retirement. When you sell your principal residence, any increase in value is not subject to capital gains tax. However, if you sold your principal residence in the last year, there is a new form you will need to complete for the first time when you file your 2016 income tax return.

Your principal residence can be any of the following types of housing units:

  • A house
  • A cottage
  • A  condominium
  • An apartment in an apartment building
  • An apartment in a duplex, or
  • A trailer, mobile home, or houseboat.

For one of the above to qualify as a principal residence you must have owned it alone or jointly with another person. In addition, you, your current or former spouse or common-law partner, or any of your children must have lived in the home at some time during the year.

You are only allowed to designate one home as your principal residence for a particular year. If you are unable to designate your home as your principal residence for all the years you owned it, a portion of any gain on sale may be subject to tax as a capital gain. The portion of the gain subject to tax is based on a formula that takes into account the number of years you owned the home and the number of years it was designated as your principal residence.

The principal residence exemption calculation formula is:

The extra year in the top of the equation (the “one-plus rule”) means that when a person moves, both the old home and the new home will be treated as a principal residence in the year of the move, even though only one of them can actually be designated as such for that year.  However, for dispositions occurring after October 3, 2016, the “one-plus” factor applies only where the taxpayer is resident in Canada during the year in which they acquire the property.

In years prior to 2016, there was no need to report the sale on your tax return if the entire gain was eliminated.  However, on October 3, 2016 the federal government announced that, starting with the 2016 tax year, the sale of a principal residence must be reported on Schedule 3 of the tax return in order to claim the principal residence exemption.  This change applies also for deemed dispositions, such as a deemed disposition due to change in use of the property.

The purpose for the new reporting requirement is two-fold. The federal government wants to ensure that Canadian residents only claim the capital gains exemption for principal residences in appropriate circumstances. In addition, under the new rules, foreign buyers who were not residents at the time a home was bought will no longer be able to claim a principal residence exemption.

There are two other major changes to the Income Tax Act (ITA) regarding the reporting of the disposition of a principal residence:

  • Canada Revenue Agency (CRA) can, according to new ITA s. 152(4)(b.3), reassess a taxpayer outside of the normal reassessment period, if the taxpayer does not report a disposition.  Normally for individuals the reassessment period is three years from the date of the initial notice of assessment, with some exceptions.
  • If the disposition of the principal residence is not reported on the tax return as required, a late-filing penalty can be imposed @ $100 per month x the number of months late, to a maximum of $8,000.  New ITA s. 220(3.21) is added to this effect.

For a more in depth assessment of how changes to the principal residence exemption may impact you, contact your accountant or other tax advisor.