February 2017 Optimizer

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•  Important Dates                  

  •  Home Accessibility Tax Credit

•  2017 Automobile Limits

  •  Donation Tax Credit for High Income Earners

•  Changes to Principal Residence Exemption

  •  RRSP Contributions

•  Recommendations for Voluntary Disclosure Program


In this edition of The Optimizer, we highlight some important dates for the upcoming tax season, as well as discuss items of interest relating to your 2016 tax return.

2017 Important Dates

Feb 15

Last day to reimburse employer for personal car expenses to reduce operating benefit on employer provided automobile

Feb 28

Deadline for filing T4, T4A and T5 tax slips

Mar 1

Final day for making RRSP contributions for the 2016 tax year
Final day for Home Buyers’ Plan or Lifelong Learning Plan repayments

Mar 15

First instalment due for taxpayers required to remit quarterly

Mar 31

Deadline for paying any 2016 penalty tax owing on excess RRSP contributions
Deadline for filing tax returns for trusts with a December 31, 2016 year-end
Deadline for filing a T5013 information return for partnerships with non-corporate members
Deadline to file NR4 returns relating to amounts paid or credited to non-residents

Apr 30

Deadline for filing 2016 personal tax return if you have no self-employment income
Balance due date for 2016 taxes owning

May 31

Deadline for filing a T5013 information return for partnerships with all corporate members and a December 31 fiscal period end

Jun 15

Second instalment due for taxpayers required to remit quarterly
Deadline for filing 2016 personal tax return for self-employed taxpayers and their spouses (but any balance owing must be paid by April 30)

Jun 30

Deadline for paying any 2016 penalty tax owing on excess TFSA contribution

Sep 15

Third instalment due for taxpayers required to remit quarterly

Dec 15

Fourth instalment due for taxpayers required to remit quarterly

Deadlines falling on a holiday or weekend are generally extended to the next business day.

2017 Automobile Limits

Ontario tax free car allowance / employer reimbursement rates:
•  54 cents per km for the first 5,000km driven and 0.48 cents for each km thereafter.

Operating Expense Benefit:
•  0.25 cents per km for personal use of company vehicle (0.22 cents per km for those employed principally in the selling or leasing of automobiles)

Capital Cost Allowance Additions Limit:
•  $30,000 plus applicable federal and provincial sales taxes

Deductible interest limit:
•  $300 per month

Deductible lease expense limit:
•  $800 (plus applicable federal and provincial sales taxes) per month

Changes to Principal Residence Exemption

There were significant changes to the Principal Residence Exemption (“PRE”) in 2016. The first significant change being that CRA has eliminated its long standing administrative policy that where a taxpayer disposed of his or her principal residence and relied on the PRE to fully exempt the capital gain, the disposition of the principal residence did not need to be reported on the individual’s tax return.

Starting with dispositions that occurred in 2016, all dispositions of principal residences must be reported in the year in which they are sold. If the disposition is not reported on the return any gain will not qualify for the PRE. Further, CRA will be allowed an additional year to reassess a capital gain on the property in addition to the 3 year period that CRA ordinarily has to reassess tax.

A disposition of a principal residence can be reported late (e.g. by amending a return), but is subject to a penalty of up to $8,000. CRA has stated that for the 2016 taxation year, they will only assess a late-filing penalty in the most excessive cases.

What’s important to note is that this requirement to report the disposition does not only apply to actual sales of a principal residence, but also to deemed dispositions. For example, changing the use of a property from a principal residence to a rental property results in a deemed disposition. Under the new administrative rules, the change in use would need to be reported.

The second significant change involves the calculation of the exemption. The PRE is calculated based on the number of years the property is designated as the principal residence. The formula adds an additional year to the total number of years designated (known as the “plus one” rule). For example, a property owned 10 years only has to be designated as principal residence for nine of those years for the gain to be fully exempt due to the plus one rule.

Effective for all dispositions occurring on or after October 3, 2016, the one plus rule will not apply for individuals who were non-resident throughout the year in which they purchased the principal residence, even if the individual became a resident in subsequent years. There is no grandfathering or transitional rule available for individuals who acquired a principal residence while non-resident prior to the announcement of these changes. This change can result in some taxpayers (particularly those who bought a home before immigrating to Canada) being unable to completely offset their capital gains even in situations where they only own one property.

The final significant change relates to principal residences owned by trusts. Additional criteria have been added to restrict a trust’s ability to claim the PRE. Applicable for taxation years of a trust beginning after 2016, the trust must be:

(A) an alter ego trust, spousal or common-law partner trust, joint spousal or common-law partner trust, or a “protective trust”, the beneficiary of which is the individual whose death determines the day of disposition for the trust;

(B) a qualified disability trust (subject to restrictions); or

(C) settled by a deceased parent of an orphan under the age of 18 who is resident in Canada.

Additionally, for a property acquired by a trust after October 2, 2016, the terms of the trust must provide the beneficiary the right to the use and enjoyment of the property as a residence for the property to qualify for the PRE. There are some transitional rules that may be available to trusts not meeting these criteria at the end of 2016.

Offshore Compliance Advisory Committee Releases Recommendations for Voluntary Disclosure Program

The recently appointed Offshore Compliance Advisory Committee released recommendations to the CRA on January 13, 2017 regarding the Voluntary Disclosures Program ("VDP"). These recommendations included:

•  Less generous VDP relief in certain circumstances;
•  Restricting availability of the VDP for repeat users;
•  Clarifying CRA’s position on when it will make accommodations for disclosures involving incomplete information;
•  Eliminating the VDP for multinational enterprises seeking relief in respect of related-party transfer pricing issues;
•  Requiring the disclosure of the identity of any professional advisers who assisted, promoted, or enabled offshore tax non-compliance;
•  Removal the right to file an objection to a voluntary disclosure agreement once it is agreed upon with CRA

The CRA has commented that it welcomes the recommendations, but no specific announcements have been made regarding changes to the program. CRA is expected to make further announcements later in 2017.

The VDP is offered by CRA as a way for Taxpayer’s to come forth and correct inaccurate or incomplete information, or to disclose information not previously reported. Some examples of situations that may be eligible under the VDP include unreported income, unfiled tax returns, ineligible expenses, failure to remit source deductions or GSTHST, etc.

Applications under the VDP can be done on a no-name basis with the identity of the taxpayer only revealed to CRA upon tentative acceptance into the program. If accepted under the VDP, CRA will reduce or eliminate interest and penalties that would otherwise be applicable. CRA also states that they will not prosecute valid disclosures made under the program.

There are conditions to making a valid disclosure, one of which being that the disclosure must be voluntary. CRA enforcement actions (e.g. audits, investigations, demand notices, etc.) can invalidate a disclosure.

If you have a tax compliance deficiency that you wish to rectify with CRA, contact us to discuss your options.

Home Accessibility Tax Credit

2016 is the first year in which the Home Accessibility Tax Credit (HATC) may be claimed. This federal credit functions similarly to an existing Ontario credit, and allows for additional tax savings of up to $1,500 (based on 15% of eligible expenditures up to $10,000). The provincial credit is being eliminated after 2016, making 2016 the only taxation year both credits are available.

The credit is available for households with seniors (age 65+) or persons qualifying for the disability tax credit (no age restriction). Eligible family members may claim the credit on behalf of a qualify individual.

The credit is based on eligible expenses relating to a home renovation or alteration that generally improves the access, mobility, or safety of the qualifying individual.

Donation Tax Credit for High Income Earners

As discussed in previous editions of The Optimizer, 2016 introduced a new 33% federal tax bracket on taxable income over $200,000. This increased the top marginal tax rate in Ontario from 49.53% to 53.53%.

Donations in excess of $200 result in a 29% federal tax credit. To the extent that an individual has income over $200,000, the donation credit is increased from 29% to 33%. Carryforward amounts from before 2016 are excluded from this treatment.

2017 will also be the last year that the first time donor super credit will be available for individuals who have not made donations since 2008. The super credit increases the donation credit by 25%, subject to restrictions.

RRSP Contributions

In order to be deductible in 2016, you must make an RRSP contribution by March 1, 2017. Your maximum contribution for 2016 is 18% of your 2015 earned income, up to a maximum of $25,370 plus unused contribution room carried forward from previous years.

Consider making a contribution to a spousal RRSP to achieve income splitting in the future. Your contributions will grow on a tax-deferred basis until they are withdrawn, and will be taxed in the hands of your spouse at that time, provided that sufficient time has elapsed since the funds were originally contributed.

If your taxable income is low in 2016, consider carrying forward your RRSP contribution to a future year when you will be subject to a higher marginal tax rate. Doing so will enable you to maximize the tax refund generated by the RRSP contribution.

Care should be taken not to make excess RRSP contributions as the penalties for doing so can be severe. CRA will assess a penalty of 1% per month (12% per year) on excess RRSP contributions. The penalty tax continues to accrue until the excess contributions are removed, or until sufficient contribution room is generated.

Excess contributions must be reported on form T1-OVP, which is due on March 31 for the 2016 taxation year. Failing to file form T1-OVP results in an additional late filing penalty and interest. Similar penalties apply for excess Tax Free Savings Account (TFSA) contributions.

Contact us if you need help resolving excess RRSP/TFSA contributions.

Congratulations to Matthew Roman, Senior Tax Manager, CPA Exam Gold Medal Winner

SF Partnership, LLP is proud to announce that our Senior Tax Manager, Matthew Roman has been awarded the Gold Medal by the Chartered Professional Accountants of Canada (CPA Canada) in Ontario. The Gold Medal is awarded to the person obtaining the highest standing in passing the Common Final Examination and obtaining his Chartered Professional Accountant (CPA) designation.

The CFE is a national three-day evaluation that assesses competencies including essential knowledge, professional judgment, ethics and the ability to communicate.

Matthew has a Bachelor of Commerce from the University of Toronto Mississauga and a Master of Taxation from the University of Waterloo.

In achieving this honour, Matthew reflected with saying “I began a career in taxation immediately after university and what became apparent to me was that I needed to know more than just tax in order to be the best tax practitioner I could possibly be. I believed that, to be successful in tax, I also had to know the accounting side of things. I was concerned that I would be putting myself at a disadvantage in my career, learning and growth if I didn’t also have the skills and expertise that come with being a CPA.”

The Partners and Staff of SF Partnership, LLP congratulate Matthew on achieving this high level of accomplishment.

About SF Partnership

SF Partnership, LLP is a full service, mid-market, public accounting firm providing a wide range of services to private and public entities, in a variety of industries. We work with our clients to improve profitability, minimize tax and address business management concerns. We are committed to our clients’ success. We are a proud member of BKR, a respected international association of member firms that allows us to serve our clients’ interests around the world in a timely and seamless manner. Our standards for client service and our approach to adding value, combined with the quality of our people are what differentiate our firm and make us a leader in the field of public accounting.

Contact Us

The Madison Centre
4950 Yonge Street, Suite 400
Toronto, Ontario,
M2N 6K1

Phone: 416-250-1212
Fax: 416-250-1225
E-mail: info@sfgroup.ca


Brook Scarr, CPA, CA
Partner, Taxation

All rights reserved. Permission to reproduce or copy in any form or means is prohibited without the express written consent of SF Partnership, LLP. All information contained in this publication is general in nature, and should not be construed as professional advice. Readers are urged to consult their professional advisors before taking any action based on this publication. ©SF Partnership, LLP 2017