Newsletters

It has been nearly five years since the start of the pandemic, and the work-from-home arrangements which became a necessity during that time have now become a choice for employers and employees.

It has been nearly five years since the start of the pandemic, and the work-from-home arrangements which became a necessity during that time have now become a choice for employers and employees.

Relatively few employees still work from home on a full-time basis – many have returned to the office full-time and many more likely now utilize some kind of hybrid arrangement, dividing their work week between their employer’s work site and a home office.

There are any number of benefits to working from home – avoiding a lengthy and often stressful commute, and the costs associated with such a commute, and being able to have a better work/life balance. There are other financial benefits as well, as employees who work from home can sometimes claim tax deductions for expenses incurred to create and maintain their home office.

As the necessity and availability of work-from-home arrangements changed (and changed again) over the past five years, the tax rules governing the deductions which could be claimed for home office expenses changed (and changed again) to meet those realities.

 Employees who work from home have always been able to claim a tax deduction for costs related to a home office. Under the tax rules in place prior to 2020, a claim for a deduction for home office expenses was available only where employees met a number of criteria and could provide the tax authorities with an itemized accounting of eligible home office expenses incurred, as well as an attestation from their employer of the terms of the work-from-home arrangement – known as the “detailed” method. However, when work-from-home arrangements became effectively mandatory in 2020, for public health reasons, the federal government greatly simplified the rules governing those claims to provide a temporary flat-rate method which essentially eliminated the requirement for documentation. That flat-rate method, however, was available only during 2020, 2021, and 2022, and can no longer be utilized.

For 2024, the “detailed method” for claiming home office expenses will be the only method under which such costs may be deducted for tax purposes. What follows is a summary of the current rules outlined on the Canada Revenue Agency (“CRA”) website with respect to claims for home office expense deductions which will, absent an unlikely change in CRA policy, continue to apply to such claims during 2024.

In order to claim a deduction in 2024 for costs related to a work-at-home space, an employee must be required by their employer to work from home during the year. The requirement to work from home doesn’t have to be included in the employee’s employment contract, but can be simply a written or verbal agreement with the employer. Where an employee has entered into a formal telework arrangement with his or her employer, that arrangement will satisfy the “required work from home” criteria.

In addition, as outlined on the CRA website, at least one of the following criteria must also be satisfied in order for an employee to claim work-from-home costs for 2024.

• The work-at-home space is where the individual mainly (more than 50% of the time) did their work for a period of at least four consecutive weeks during the year; or
• The individual uses the workspace only to earn their employment income. They must also use it on a regular and continuous basis for in-person meetings with clients, customers, or other people in the course of their employment duties.

While the rules are (fairly) straightforward, it can be difficult to apply them in practice to the almost infinite variety of work-from-home arrangements which can be utilized by an employer and employee. Recognizing that reality, the CRA provides a number of examples on its website of how to analyze a particular work situation in order to determine whether it fits within the CRA’s criteria. Those examples can be found on the Agency’s 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/line-22900-other-employment-expenses/work-space-home-expenses/who-claim/detailed-method.html#h-2.

Once the CRA’s criteria are met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to their work-from-home space, such as rent; utilities costs like electricity, heating, and water (or the portion of a condo fee attributable to such utilities costs); home maintenance and minor repair costs; and internet access (but not internet connection) fees.

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses, and the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the work space is not a separate room but is a shared or multi-purpose space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities. Detailed information on how to make those calculations (including an online calculator) can be found 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/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html. In all cases, the Canada Revenue Agency can ask the taxpayer to provide documentation and support for claims made using the detailed method.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office. Each such employee must obtain from their employer a completed form T2200 Declaration of Conditions of Employment - Canada.ca. On that form, the employer must certify the work-from-home arrangement and confirm that the employee is required to pay their own home office expenses and is not being reimbursed for any such expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.

The ability to claim a deduction for home office expenses can mean that significant expenses (like the cost of rent and utilities) which would have to be incurred by the employee in any case can give rise to tax savings. There’s no denying, though, that the record keeping required to support such deduction claims can be onerous, and it’s likely that few taxpayers record and document such costs on a routine basis. However, given the potential tax benefits, it’s worth doing some upfront planning to determine whether a deduction claim for home office expenses can be made for 2024 and to ensure that any record keeping needed to support that deduction is done before tax filing season arrives a few months from now.

For most Canadians, the subject of making RRSP or TFSA contributions, or making RRIF withdrawals, isn’t usually top of mind at year-end. Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February, but relatively few are aware that in some circumstances an RRSP contribution must be (or should be) made by December 31, in order to achieve the best tax result. As well, while a contribution or withdrawal from a TFSA can be done at any time, additional flexibility can be gained where withdrawals, in particular, are timed to take best advantage of the rules governing TFSAs. Finally, most Canadians who have opened a registered retirement fund (RRIF) are aware that they are required to make a withdrawal of a specified amount from that RRIF each year, with the percentage withdrawal amount based on the RRIF holder’s age – although few are aware of when and how that required withdrawal is calculated.

For most Canadians, the subject of making RRSP or TFSA contributions, or making RRIF withdrawals, isn’t usually top of mind at year-end. Most Canadians know that the deadline for making contributions to one’s registered retirement savings plan (RRSP) comes 60 days after the end of the calendar year, around the end of February, but relatively few are aware that in some circumstances an RRSP contribution must be (or should be) made by December 31, in order to achieve the best tax result. As well, while a contribution or withdrawal from a TFSA can be done at any time, additional flexibility can be gained where withdrawals, in particular, are timed to take best advantage of the rules governing TFSAs. Finally, most Canadians who have opened a registered retirement fund (RRIF) are aware that they are required to make a withdrawal of a specified amount from that RRIF each year, with the percentage withdrawal amount based on the RRIF holder’s age – although few are aware of when and how that required withdrawal is calculated. 

There are, in sum, significant advantages which can be obtained (and significant disadvantages avoided) by taking some time to consider and plan for RRSP and TFSA contributions and withdrawals before the end of the calendar year. What follows is an outline of steps which should be considered, before the end of the 2024 calendar year, by Canadians who have an RRSP, an RRIF, or a TFSA – or maybe all three.

Timing of RRSP contributions

When you are making a spousal RRSP contribution

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plan (RRSP) in their spouse’s name and claim the deduction for the contribution on their own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2024, the contributor can claim a deduction for that contribution on their return for 2024. The spouse can then withdraw that amount as early as January 1, 2027 and have it taxed in their own hands. If the contribution isn’t made until January or February of 2025, the contributor can still claim a deduction for it on the 2024 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2028. It’s an especially important consideration for couples who are approaching retirement and may plan on withdrawing funds in the relatively near future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should an unforeseen need to withdraw funds arise.

When you are turning 71 during 2024

Every Canadian who has an RRSP must collapse that plan by the end of the year in which they turn 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or by purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that they have sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31 of that year. Once that deadline has passed, no further RRSP contributions are possible.

RRIF withdrawals for 2024

Under Canadian law, anyone who has an RRIF is required to make a minimum withdrawal from that RRIF each year. The amount of the withdrawal is calculated as a specified percentage of the balance in the RRIF at the beginning of the calendar year, with that percentage based on the age of the RRIF holder at that time.

Taxpayers who have no immediate need of funds held within an RRIF are often reluctant to make a withdrawal and pay the tax on those amounts, especially where the value of investments held in an RRIF has declined. While there is no way of avoiding the requirement to withdraw that minimum amount from one’s RRIF, and to pay tax on the amount withdrawn, such taxpayers can consider contributing those amounts to a tax-free savings account (TFSA). Where that is done, the funds can be invested and continue to grow. As well, neither the original contribution nor the investment gains will be taxable when the funds are withdrawn from the TFSA, and amounts withdrawn will not be included in income when determining the taxpayer’s eligibility for means-tested federal benefits and credits, like Old Age Security, the GST/HST credit, or the age credit.

Planning for TFSA withdrawals and contributions

Each Canadian aged 18 and over can make an annual contribution to a tax-free savings account (TFSA) – the current-year contribution limit for 2024 is $7,000. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount is added to the taxpayer’s total TFSA contribution limit, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned (or the need to make such a withdrawal might arise) within the next few months, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from their TFSA on or before December 31, 2024 will have the amount which is withdrawn added to their TFSA contribution limit for 2025, which means it can be re-contributed, where finances allow, as early as January 1, 2025. If the same taxpayer waits until January of 2025 to make the withdrawal, the amount withdrawn won’t be added to the taxpayer’s TFSA contribution room until 2026.

The approach of the calendar year end doesn’t usually prompt Canadians to consider the details of making contributions to an RRSP, or withdrawals from a TFSA or an RRIF. There is, however, no flexibility in the deadlines for taking such actions, and considering what steps may be needed or advisable now means one less thing to remember as the December 31 deadline nears.

For most Canadians, tax planning for a year that hasn’t even started yet may seem premature or even unnecessary. However, most Canadians will start paying their taxes for 2025 in less than two months, starting with the first paycheque they receive in January.

For most Canadians, tax planning for a year that hasn’t even started yet may seem premature or even unnecessary. However, most Canadians will start paying their taxes for 2025 in less than two months, starting with the first paycheque they receive in January.

For most Canadians, (certainly for the vast majority who earn their income from employment), income tax, along with other statutory deductions like Canada Pension Plan contributions and Employment Insurance premiums, are paid periodically throughout the year by means of deductions taken from each paycheque received, with those deductions then remitted to the Canada Revenue Agency (CRA) on the taxpayer’s behalf by their employer.

Of course, each taxpayer’s situation is unique and so the employer has to have some guidance as to how much to deduct and remit on behalf of each employee. That guidance is provided by the employee/taxpayer in the form of TD1 forms which are completed and signed by each employee, sometimes at the start of each year, but certainly at the time employment commences. Each employee must, in fact, complete two TD1 forms – one for federal tax purposes and the other for provincial tax imposed by the province in which the taxpayer lives. Federal and provincial TD1 forms for 2025 (which have not yet been released by the CRA but, once published, will be available on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html) list the most common statutory credits claimed by taxpayers, including the basic personal credit, the spousal credit amount and the age amount. Adding amounts claimed on each form gives the Total Claim Amounts (one federal, one provincial) which the employer then uses to determine, based on tables issued by the CRA, the amount of income tax which should be deducted (or withheld) from each of the employee’s paycheques and remitted on their behalf to the federal government.

While the TD1 completed by the employee at the time their employment commenced will have accurately reflected the credits claimable by the employee at that time, everyone’s life circumstances change. Where a baby is born, a child starts post-secondary education, there is a separation or a divorce, a taxpayer turns 65 years of age, or an elderly parent comes to live with their children, the affected taxpayer(s) will often become eligible to claim tax credits not previously available. And, since the employer can only calculate source deductions based on information provided to it by the employee, those new credit claims won’t be reflected in the amounts deducted at source from the employee’s paycheque.

Consequently, it’s a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to them. Doing so will ensure that the correct amount of tax is deducted at source throughout the year.

As well, it’s often the case that a taxpayer will have available deductions which cannot be recorded on the TD1, like RRSP contributions, deductible support payments, or child care expenses. While such claims make things a little more complicated, it’s still possible to have source deductions adjusted to accurately reflect those claims, and the employee’s resulting reduced tax liability for 2025. The way to do so is to file Form T1213, Request to Reduce Tax Deductions at Source with the CRA. The most recent version of the T1213 was issued by the CRA in September 2024, and can be found on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1213.html.

Once the T1213 form is filed with the CRA, the Agency will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld from the employee’s paycheque – and thereby increasing the employee’s take-home income. 

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time. While a T1213 can be filed with the CRA at any time of the year, the sooner it’s done, the sooner source deductions can be adjusted, effective for all subsequent paycheques. Providing an employer with an updated TD1 for 2025 as soon as possible, along with filing the T1213 with the CRA where circumstances warrant, will ensure that source deductions made starting January 1, 2025 will accurately reflect all of the employee’s current circumstances, and consequently their actual tax liability for the year – and, potentially, provide the employee with a little more cash flow to meet day-to-day expenses.

Canada’s income tax system is a self-assessing one, in which residents of Canada are expected (and in most cases, required) to file an annual tax return in which all sources of worldwide income are reported, and the amount of tax owed on that income calculated and paid.

Canada’s income tax system is a self-assessing one, in which residents of Canada are expected (and in most cases, required) to file an annual tax return in which all sources of worldwide income are reported, and the amount of tax owed on that income calculated and paid.

While the onus is on individual Canadians to determine the sources and amounts of income which have been received during the year, the process is not entirely an “honour” system in which amounts reported are not subject to cross-checks or verification. Rather, where income (whether salary, wages, investment income, or pension/retirement income) is paid to Canadians, the payor must prepare an information slip (a T4 or T5, or T4RRIF or T4RSP) setting out the amount and nature of the monies paid and the personal identification details (i.e., name, address, social insurance number) of the recipient. A copy of that information slip is provided to that recipient and another copy filed with the Canada Revenue Agency (CRA). The CRA is therefore able to cross-check income amounts reported by each Canadian taxpayer with the income payment information which has been filed with the Agency by the payor of that income.

There are very few types of income that escape the Canadian tax net, and in almost all cases the CRA is able to determine the amount and types of income received by each Canadian taxpayer through the system of information slips filed by payors. Where that system has not, to date, been as effective is in the tracking and reporting of income earned by Canadians through online or digital sales of goods or services.

Millions of Canadians earn income from online sales, through websites or apps. In some cases, such sales are infrequent, where an individual wants to earn a bit of additional income by selling possessions which are no longer needed or wanted, but are still saleable. In other cases, however, where such sales are done on a regular and frequent basis, the amount of income earned through online sales can be very substantial.

While it’s impossible to quantify or even know for certain, it’s likely the case that substantial amounts of income earned by Canadians from online sales are never reported to the tax authorities and are therefore never taxed. In some cases, that may be because recipients genuinely believe that such income does not need to be reported, while others who don’t report may simply be hoping that their omission never comes to the attention of the tax authorities.

Whatever the motivation or belief, the perception that online income doesn’t have to be reported is incorrect – as stated clearly on the CRA website, “income from platform economy activities is subject to taxation”. More generally, every resident of Canada is required to report all income received from all sources, both within Canada and worldwide. That includes income from what the CRA terms the “peer-to-peer” economy, in which goods are sold through online platforms including (but not limited to) Kijiji, Etsy, eBay, and Amazon.

To date, there has not been a practical mechanism by which the tax authorities can track amounts of income received by Canadians through online sales. That will change when, in January 2025, online platform operators will be required for the first time to report income amounts earned by individuals to the CRA. The actual reporting requirements came into force at the beginning of 2024, but the deadline for filing a report to the CRA with respect to online income earned by individual Canadians during 2024 is January 31, 2025. Information filed by online platform operators with the CRA with respect to any Canadian taxpayer will, of course, also be provided to that taxpayer, in the same way that taxpayers receive a copy of a T4 or T5 slip. The information filed with the CRA will include personal identifying information, including social insurance numbers, income figures, and bank account numbers, for any individual who meets the definition of a “reportable seller”.

The purpose of limiting such reporting to sales carried out by “reportable sellers” is to create a minimum activity/income threshold. The general definition of a “reportable seller” is any Canadian resident who is registered with a platform and has received amounts during the year from sales made on that platform. However, while all income from online sales are reportable as income, the cost to the CRA of pursuing taxpayers who earn very small amounts from such sales and/or do so very infrequently would almost certainly outweigh the benefit of any additional tax revenue collected as a result. Consequently, individuals who meet the definition of a reportable seller, but who trade infrequently or for very small amounts, are considered to be “excluded sellers” who are exempted from the new reporting requirements.

Notwithstanding, the threshold amounts which allow an individual to be characterized as an excluded seller (and for that reason exempt from the reporting requirements) are actually quite low. In order to be an excluded seller, an individual must have fewer than 30 sales per year and have earned no more than a total of $2,800 on such sales. Consequently, an individual who, during 2024, makes an average of three sales per month (36 per year) and receives an average of $80 per sale would be considered to be a reportable seller and the activities and income earned by that individual during 2024 would be reported to the CRA by January 31, 2025.

Where reporting is required, the obligation to report falls on the platform operator, who must provide the CRA with both identification and activity information with respect to each reportable seller, and provide a copy of that information to the reportable seller. The information reported can include:

• Identification information
  • Name of seller;
  • Seller’s primary address;
  • Sellers’s date of birth;
  • Seller’s tax identification number (for Canadian individuals, that means their social insurance number); and
  • Seller’s financial account identifiers (meaning bank account numbers)
• Activity information
  • Total income from sales (paid or credited), and number of sales, broken down by calendar quarter, and
  • Fees, commissions, or taxes withheld or charged by the platform operator.

Platform operators who are required to report under the new rules may ask sellers who are registered with their platform for additional information, in order to confirm whether an individual is a reportable seller for purposes of those reporting rules. Responding to such a request is not optional, as the new rules permit the CRA to assess a penalty of $500 where a seller fails to provide his or her social insurance number when such information is requested by a platform operator.

Detailed information on the new reporting rules for digital platform operators can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/reporting-rules-digital-platforms.html. Individuals who sell goods or services through online platforms or apps can find information summarizing their income tax and goods and services/harmonized sales tax obligations with respect to income earned from those activities on the same website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/platform-economy.html.

While the need for charitable donations for any number of causes is a year-round reality, appeals for such donations tend to increase as the holiday season and the end of the calendar year approach. And generally, those appeals are met, as Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing both federal and provincial tax credits for qualifying donations made. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year.

While the need for charitable donations for any number of causes is a year-round reality, appeals for such donations tend to increase as the holiday season and the end of the calendar year approach. And generally, those appeals are met, as Canadians have a well-deserved reputation for supporting charitable causes, through donations of both money and goods. Our tax system supports that generosity by providing both federal and provincial tax credits for qualifying donations made. In all cases, in order to claim a credit for a donation in a particular tax year, that donation must be made by the end of that calendar year.

There is an additional reason, when planning charitable donations, to ensure that such donations are made by December 31. The credit provided by the federal government is a two-level credit, in which the percentage credit claimable increases with the amount of donation made. For federal tax purposes, the first $200 in donations is eligible for a non-refundable tax credit equal to 15% of the donation. The credit for donations made during the year which exceed the $200 threshold is, however, calculated as 29% of the excess. Finally, where the taxpayer making the donation has taxable income (for 2024) over $246,752, charitable donations above the $200 threshold can receive a federal tax credit of 33%.

As a result of the two-level credit structure, the best tax result is obtained when donations made before the end of the calendar year are maximized. For example, a qualifying charitable donation of $400 made in December 2024 will receive a federal credit of $88.00 ($200 times 15% plus $200 times 29%). If the same amount is donated, but the donation is split equally between December 2024 and January 2025, the total credit claimable is only $60.00 ($200 times 15% plus $200 times 15%), and the 2025 donation can’t be claimed until the 2025 return is filed in April of 2026. And, of course, the larger the donation made in any one calendar year, the greater the proportion of that donation which will receive credit at the 29% level rather than the 15% level.

It’s also possible to carry forward, for up to five years, donations which were made in a particular tax year, but not claimed on the tax return for that year. So, if donations made in 2024 don’t reach the $200 level, it’s usually worth holding off on claiming the donation and carrying it forward to the next year in which total donations, including carryforwards, are over that threshold. Of course, this also means that donations made but not claimed in any of the 2019, 2020, 2021, 2022, or 2023 tax years can be carried forward and added to the total donations made in 2024, and the total then claimed on the 2024 tax return. There is a ceiling on the amount of donations which can be claimed in any one calendar year, but that ceiling is a very generous one – a taxpayer can claim any qualifying current or carryforward donations up to a limit of three quarters of the taxpayer’s net income for the year.

When claiming charitable donations, it’s possible to combine donations made by oneself and one’s spouse and claim them on one spouse’s return. Generally, it makes sense to do so in order to maximize the total amount of donations claimed by a single individual, and therefore the amount of donations which can qualify for the higher tax credit rate(s).

Regardless of when a charitable donation is made or who claims it for tax purposes, would-be donors are well advised to carefully consider the charities to which they donate. It’s an unfortunate reality that while most organizations seeking charitable donations are legitimate, the charitable sector attracts its share of scammers and fraudsters whose only aim is to personally profit from the generosity of others. Such charitable donation frauds arise, in particular, whenever there are Canadian or world events like wars or natural disasters and people are particularly motivated to help. After every such event a flurry of “instant” charities spring to life, seeking donations which may or may not actually be used as represented. And, while some of the individuals or organizations who seek to raise funds in response to particular events may actually be well intentioned, the reality is that they are unlikely to have either the infrastructure or the experience needed to actually carry out their stated or intended aims. And others, of course, are simply scammers seeking to capitalize on the desire of Canadians to help in response to disaster or other need.

There are two ways to ensure that one’s charitable dollar is actually utilized as intended. The first is to donate only to large international charities which have been in existence for some time and which have both expertise and experience in utilizing charitable donations in an efficient and effective way. However, where a donor is deciding whether to make a donation to a newer or less well-known charity, it’s relatively easy to find information about that charity on the website of the Canada Revenue Agency.

Only donations made to registered charities can be claimed for purposes of the charitable donations tax credit. The Canada Revenue Agency maintains on its website a listing of all such registered charities; that listing (which is searchable) can be found at https://apps.cra-arc.gc.ca/ebci/hacc/srch/pub/dsplyBscSrch?request_locale=en.

That webpage will also provide information on the charity’s activities, including the date on which it became a registered charity. Through that site (which is updated daily by the Canada Revenue Agency), it’s also possible to obtain information on the countries in which the charity operates, the nature of its charitable activities, and details of its revenues and expenditures, all of which can help a would-be donor to determine whether or not to make a donation.

Detailed information on calculating and claiming the charitable donation tax credit is available on the same website at Giving to charity: Information for donors - Canada.ca.

Residents of the eight Canadian provinces in which the federal fuel charge (more commonly known as the federal carbon tax) is levied are entitled to claim and receive the federal Canada Carbon Rebate (CCR). That rebate (formerly known as the Climate Action Incentive Payment) is a non-taxable payment made four times a year (in April, July, and October of 2024 and January 2025) to help offset the cost of that federal carbon tax.

Residents of the eight Canadian provinces in which the federal fuel charge (more commonly known as the federal carbon tax) is levied are entitled to claim and receive the federal Canada Carbon Rebate (CCR). That rebate (formerly known as the Climate Action Incentive Payment) is a non-taxable payment made four times a year (in April, July, and October of 2024 and January 2025) to help offset the cost of that federal carbon tax.

For 2024, residents of Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, Newfoundland and Labrador, New Brunswick, and Prince Edward Island are eligible for the CCR. Unlike other federal credits, eligibility for the CCR is based solely on the province of residence of the individual, and is not affected in any way by the income of the person claiming it. Specifically, all individuals who were resident in Canada during the previous month and are resident in any of the above eight provinces on the first day of the month in which the rebate is paid are eligible to receive it, regardless of income.

The CCR has two elements – the basic rebate and the rural supplement. The amount of both will differ, depending on the taxpayer’s province of residence. The basic annual rebate amounts payable for the 2024-25 payment year (April 1, 2024 – March 31, 2025) are as follows.

                              First Adult     Second Adult     Each Minor Child

Alberta                       $900              $450                    $225

Saskatchewan             $752              $376                    $188

Manitoba                    $600              $300                    $150

Ontario                      $560              $280                     $140

Nova Scotia                $412              $206                     $103

New Brunswick           $380              $190                     $95

PEI                            $440              $220                     $110

Nfld and Labrador       $596              $298                     $149

The rural supplement, as the name implies, is provided to Canadians who live outside metropolitan areas and who are likely to have higher energy needs and consequently greater federal carbon tax expenditures. The rural supplement is calculated as a percentage of the basic rebate and was formerly equal to 10% of that basic rebate. However, that percentage amount has been increased, effective as of June 2024, to 20% of the basic rebate.

The increased rural supplement was not included in the April and July 2024 payments; consequently, the payment to be made on October 15 will include both the increased rural supplement for October, as well as retroactive payments for April and July.

While the general rules provide that the rural supplement is provided to Canadians who live outside metropolitan areas, all residents of Prince Edward Island automatically receive the rural supplement, and that is reflected in the figures shown above.

Unlike some other federal credit and rebate programs, there is no requirement for individual Canadians to file an application for the CCR for adults. However, in order to receive the CCR, all individuals must file an annual tax return with the Canada Revenue Agency, as information on that return is used to determine both eligibility (based on province of residence) and the amount of the available rebate (based on family composition) for the upcoming benefit year. There is no need to check any box or complete any particular line of the return in order to receive the basic rebate; however, individuals who are claiming the rural supplement (other than residents of PEI) must check off a box on page 2 of the federal income tax return, indicating that they are eligible for that supplement. Finally, in order to receive the CCR for a minor child, it is necessary that the child be registered for purposes of either the Child Tax Benefit program, or the GST/HST tax credit.

As shown above, a rebate amount is issued for each adult and each child in a family. However, only one global payment including rebate amounts for all family members is issued each quarter (around the 15^th of April, July, October, and January). Those payments (of both the basic rebate and the rural supplment) are made to the adult in the family whose tax return for the previous year is filed first. Where parents share custody of a child or children, 50% of the rebate for that child or children will be paid to each parent.

The Canada Carbon Rebate is among the easiest and most beneficial of the federal rebates and credits to qualify for and to claim, in that the only qualification needed is that the taxpayer be a resident of one of the provinces in which the federal carbon tax is levied, the only step needed to claim the rebate is the filing of an annual tax return, and finally, the full amount of the rebate (which can be as much as $1,800 annually for a family of four) is non-taxable and is received regardless of individual or family income.

The basic rules governing the Canada Carbon Rebate program are straightforward, and any needed computation of the amount of benefit claimable is done by the CRA when the taxpayer’s return is assessed. Taxpayers who have questions about the CCR can find detailed information on the program on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-carbon-rebate.html and https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4215.htm.

The Old Age Security (OAS) program is one of the two major federal benefit programs available to older Canadians – the other being the Canada Pension Plan (CPP). While both programs provide taxable monthly payments to Canadians, there are significant differences between the two. The Canada Pension Plan is a contributory system, with Canadians contributing a percentage of income earned during their working years, and with the amount of benefits receivable based on the amount of contributions made. By contrast, OAS benefits are paid out of general government revenues, with no requirement that recipients pay into the plan. The amount of the monthly OAS benefit is a fixed amount which is payable to anyone who has been resident in Canada for at least 40 years after the age of 18. (Reduced benefits are payable to those whose period of Canadian residence after the age of 18 is between 10 and 40 years.) For the fourth quarter of 2024 (October to December), that maximum monthly benefit for recipients under the age of 75 is $728., while benefit recipients aged 75 and older can receive up to $800. per month.

The Old Age Security (OAS) program is one of the two major federal benefit programs available to older Canadians – the other being the Canada Pension Plan (CPP). While both programs provide taxable monthly payments to Canadians, there are significant differences between the two. The Canada Pension Plan is a contributory system, with Canadians contributing a percentage of income earned during their working years, and with the amount of benefits receivable based on the amount of contributions made. By contrast, OAS benefits are paid out of general government revenues, with no requirement that recipients pay into the plan. The amount of the monthly OAS benefit is a fixed amount which is payable to anyone who has been resident in Canada for at least 40 years after the age of 18. (Reduced benefits are payable to those whose period of Canadian residence after the age of 18 is between 10 and 40 years.) For the fourth quarter of 2024 (October to December), that maximum monthly benefit for recipients under the age of 75 is $728., while benefit recipients aged 75 and older can receive up to $800. per month.

The other difference between the OAS and CPP programs is that eligible Canadians can begin to receive a CPP retirement benefit at age 60, but OAS benefits can start only once an individual turns 65. Formerly, OAS benefits were automatically paid to eligible recipients once they reached that age. Now, however, Canadians who are eligible to receive OAS benefits are able to defer receipt of those benefits for up to five years, to when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received increases by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%.

It can, however, be difficult to determine, on an individual basis, whether and to what extent it would make sense to defer receipt of OAS benefits. Some of the difficulty in deciding whether to defer – and for how long – lies in the fact there are no hard and fast rules, and the decision is very much an individual one. Fortunately, however, there are a number of factors which each individual can consider when making that decision.

The first such factor is how much total income will be required, at the age of 65, to finance current needs. It’s also necessary to determine what other sources of income (employment income from full- or part-time work, Canada Pension Plan retirement benefits, employer-sponsored pension plan benefits, annuity payments, and withdrawals from registered retirement savings plans (RRSPs) and registered retirement income fund (RRIFs)) are available to meet those needs, both currently and in the future, and when receipt of those income amounts can or will commence or cease. Once income needs and the sources and possible timing of each is clear, it’s necessary to consider the income tax implications of the structuring and timing of those sources of income. The tax rate payable on retirement income (as with all income) increases as income rises and, in addition, the availability of a number of federal tax credits and benefits is eroded at higher incomes. The ultimate goal, as it is at any age, is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits and benefits.

In making those calculations, the following income tax thresholds and benefit cut-off figures are a starting point.

• Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2024, that second income tax bracket begins when taxable income reaches $55,867.
• The Canadian tax system provides (for 2024) a non-refundable tax credit of $8,790 for taxpayers who are age 65 or older at the end of the tax year. The amount of that credit is reduced once the taxpayer’s net income for the year exceeds $44,325.
• Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2024, the full credit is payable to individual taxpayers whose family net income is less than $44,324.
• Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits through a mechanism known as the “OAS recovery tax”, or clawback. Taxpayers whose net income for 2024 is more than $90,997 will have a portion of their future OAS benefits “clawed-back”.

What other sources of income are currently available?

More and more, Canadians are not automatically leaving the work force at the traditional retirement age of 65. Those who continue to work at paid employment and whose employment income is sufficient to finance their chosen lifestyle may well prefer to defer receipt of OAS. Similarly, a taxpayer who begins receiving benefits from an employer’s pension plan when they turn 65 may be able to postpone receipt of OAS benefits.

Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence?

Nearly all Canadians who were employed or self-employed after the age of 18 paid into the Canada Pension Plan and are eligible to receive CPP retirement benefits. While such retirement benefits can be received as early as age 60, receipt can also be deferred and received any time up to the age of 70. As is the case with OAS benefits, CPP retirement benefits increase with each month that receipt of those benefits is deferred. Taxpayers who are eligible for both OAS and CPP will need to consider the impact of accelerating or deferring the receipt of each benefit in structuring retirement income.  

Does the taxpayer have private retirement savings through an RRSP?

Receipt of a monthly pension from an employer-sponsored pension plan is no longer the reality for the majority of Canadian retirees; such retirees have generally saved for their retirement through a registered retirement savings plan (RRSP). While taxpayers can choose to withdraw amounts from such plans at any age, they are required to collapse their RRSPs by the end of the year in which they turn 71, and to begin receiving income from those savings. There are a number of options available for structuring that income but, whatever the option chosen (usually converting the RRSP into a registered retirement income fund (RRIF) or purchasing an annuity), it will mean that the taxpayer will begin receiving taxable income amounts from those RRSP funds in each year after they turn 71. Taxpayers who have significant retirement savings in RRSPs should, in determining when to begin receiving OAS benefits, consider the tax impact that receipt of that additional taxable income amount from their RRSP will have in every future year.

The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing of each of those income sources must be considered, and none can be considered in isolation from the others.

Individuals who are undertaking that decision-making process will find some assistance on the Service Canada website. That website provides a very helpful Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. To use the calculator, it is necessary to know the amount of Canada Pension Plan benefit which will be received. Taxpayers who are registered for online access to My Service Canada Account can find that information there; those who are not can obtain that figure by calling Service Canada at 1-800 277-9914.

The Retirement Income Calculator can be found at https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html.

In the 2024-25 Federal Budget released earlier this year, the federal government announced changes to the rules which govern mortgage lending in Canada. Those changes had two goals: making it easier for first-time home buyers to qualify for a mortgage, and providing an incentive to encourage the building of new residential properties in Canada. Finance Canada recently announced two additional changes to mortgage lending rules; the first of those changes builds on one of the Budget announcements, while the second reduces the amount of the down payment which some home purchasers are required to make.

In the 2024-25 Federal Budget released earlier this year, the federal government announced changes to the rules which govern mortgage lending in Canada. Those changes had two goals: making it easier for first-time home buyers to qualify for a mortgage, and providing an incentive to encourage the building of new residential properties in Canada. Finance Canada recently announced two additional changes to mortgage lending rules; the first of those changes builds on one of the Budget announcements, while the second reduces the amount of the down payment which some home purchasers are required to make.

To understand the purpose and impact of these changes, a bit of background on how mortgage lending works is necessary. In Canada, all home purchasers must make a down payment on the purchase price of a home. The current required minimum down payment is a percentage of the purchase price, as follows:

A mortgage is a loan obtained to help finance the purchase of a home, and the mortgage amount is the difference between the down payment made and the purchase price. Where any home purchaser makes a down payment of less than 20% of the purchase price of the property, they are required to obtain (and pay for) mortgage default insurance through the Canada Mortgage and Housing Corporation (CMHC). The home purchaser must, as well, repay that mortgage (known as a “high-ratio mortgage”) within 25 years (known as the “amortization period”). Where the down payment amount is more than 20% of the purchase price of the home, there is no limit on the length of time the homeowner can take to repay the full mortgage amount (although, as a practical matter, the maximum amortization period which most major mortgage lenders in Canada will provide is 30 years.).

In its Budget for the 2024-25 fiscal year, the federal government announced that an extended amortization period would be provided for first-time home buyers purchasing a new residential property. In July of this year, Finance Canada provided details of that change, announcing that mortgage lenders would be allowed to provide 30-year amortization periods on insured mortgages to all first-time home buyers who were purchasing a new residential property. In other words, the existing 25-year limit on amortization periods for high-ratio mortgages insured by the Canada Mortgage and Housing Corporation would be extended to allow for 30-year amortization periods – but only for first-time home buyers purchasing new residential properties. That change was effective as of August 1, 2024. On September 16, Finance Canada announced that eligibility for a 30-year amortization (that is, the option to repay a mortgage over 30 years rather than 25 years) would be expanded to become available to ALL first-time home buyers and to ALL buyers of new residential properties. That change will take effect on December 15, 2024.

In the same announcement made on September 16, changes were made to the rules which determine how large a down payment a home purchaser must make. Specifically, the current requirement to make a minimum 20% down payment on a home costing $1 million or more is increased to apply only to homes costing $1.5 million or more. That change is also effective for any mortgage taken out on or after December 15, 2024. As of that date, required down payments will be as follows:

As with all such measures, there are additional rules which must be consulted to determine eligibility for either an extended amortization period and/or the ability to make a lower down payment. Those rules are outlined in detail in a Backgrounder to the September 16 announcement; that Backgrounder can be found on the Finance Canada website at https://www.canada.ca/en/department-finance/news/2024/09/delivering-the-boldest-mortgage-reforms-in-decades.html. The press releases for the July and September announcements are available on the same website at https://www.canada.ca/en/department-finance/news/2024/07/government-announces-30-year-amortizations-for-insured-mortgages-to-put-homeownership-in-reach-for-millennials-and-gen-z.html, and https://www.canada.ca/en/department-finance/news/2024/09/government-announces-mortgage-reform-details-to-ensure-canadians-can-access-lower-monthly-mortgage-payments-by-december-15.html.

Two quarterly newsletters have been added – one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added – one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #69 Corporate

Personal:

Issue #69 Personal

While the current state of the Canadian health care system is far from perfect, Canadians are nonetheless fortunate to have a publicly funded health care system, in which most major medical expenses are covered by provincial health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others – which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a 15% federal non-refundable medical expense tax credit (METC) to help offset out-of-pocket medical and para-medical costs which must be incurred.

While the current state of the Canadian health care system is far from perfect, Canadians are nonetheless fortunate to have a publicly funded health care system, in which most major medical expenses are covered by provincial health care plans. Notwithstanding, there is a large (and growing) number of medical and para-medical costs – including dental care, prescription drugs, physiotherapy, ambulance trips, and many others – which must be paid for on an out-of-pocket basis by the individual. In some cases, such costs are covered by private insurance, usually provided by an employer, but not everyone benefits from private health care coverage. Self-employed individuals, those working on contract, or those whose income comes from several part-time jobs do not usually have access to such private insurance coverage. Fortunately for those individuals, our tax system acts to help cushion the blow by providing a 15% federal non-refundable medical expense tax credit (METC) to help offset out-of-pocket medical and para-medical costs which must be incurred.

The difficulty for such individuals is that while the tax credit claimable is simple in concept, it can be difficult to determine just what kinds of expenses are claimable for purposes of that credit (not all are, and others are claimable only if certain criteria are met), the extent to which expenses can be claimed (only expenses which exceed a certain amount can be claimed, and that amount changes with the income of the taxpayer), and who should claim the expenses (usually, but not always, it makes more sense for the lower-income spouse to claim medical expenses incurred by the entire family).

It's not hard to see why taxpayers can become confused and frustrated when trying to file a claim for medical expenses on the annual return. However, the process of determining the available claim really comes down to answering three questions, as follows.

1. Which of my expenses are claimable and are there additional criteria imposed?
2. Of my total medical expenses, how much can I claim?
3. Should I or my spouse should make the claim for the medical expense tax credit?

Which of my expenses are claimable, and are there additional criteria imposed?

The good news for taxpayers is that there are a great number of different kinds of medical expenses which qualify for the medical expense tax credit, and the Canada Revenue Agency provides a detailed alphabetical (and searchable) listing of those expenses on its 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-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

While each of the medical expenses listed on the CRA website are eligible to be claimed for purposes of the medical expense tax credit, for each such expense it’s necessary to determine whether there are additional criteria which must be met in order to make that particular expense eligible for the credit.

Probably the most important criterion for most taxpayers is that, in some cases, a particular expense is only claimable if a prescription has been obtained from a medical doctor indicating a need on the part of the taxpayer to incur that expense. However, making a determination of when it’s necessary to obtain a prescription from a medical professional in order to ensure that the planned expenditure will qualify for the credit is far from intuitive. For instance, in order to claim the medical expense tax credit for the cost of a cane or a walker, it is necessary to obtain a prescription for that cane or walker. However, where costs are incurred to purchase a wheelchair, those costs are eligible for the medical expense credit, with no requirement that a prescription of any kind be obtained.

The listing of eligible medical expenses found on the CRA website does indicate the kinds of expenses for which a prescription is required; where the amount of a planned expenditure for a medical expense is significant, it’s well worth consulting the CRA website to ensure that the purchase is done in a way that will make it possible to claim the METC for the cost incurred.

Other types of medical expense costs can be claimed for purposes of the credit only where the person incurring that expenditure qualifies for the federal disability tax credit. Once again, the listing found on the CRA website indicates the types of expenditures to which this requirement applies.

Of my total medical expenses, how much can I claim?

Here again, the basic rule which determines how much a taxpayer can claim in a particular taxation year can be stated simply, but is more complex to apply. The basic rule is that for a taxation year a taxpayer can claim eligible medical expenses which exceed 3% of the taxpayer’s net income, or $2,759, whichever is less.

Put in more practical terms, the rule for 2024 is that any taxpayer whose net income for the year is $91,967 or less will be entitled to claim medical expenses that are greater than 3% of his or her net income for the year. Those having income of more than $91,967 will be limited to claiming qualifying expenses which exceed the $2,759 threshold.

Take, for example, a taxpayer who has $60,000 in net income for 2024 and incurs $3,400 in eligible medical expenses during the year. The computation of the available METC claim for 2024 is as follows. Based on the 3% of net income rule, the taxpayer will be entitled to claim medical expenses incurred which are more than $1,800 (3% of net income for the year). That taxpayer will therefore be able to claim $1,600 ($3,400 minus $1,800) in medical expenses for purposes of the METC.

The other aspect of determining the total expenses which can be claimed for purposes of the medical expense tax credit is that it’s possible to claim medical expenses which were incurred prior to the current tax year but weren’t claimed on the return for the year that the expenditure was made. The actual rule is that the taxpayer can claim qualifying medical expenses incurred during any 12-month period which ends in the current tax year, meaning that each taxpayer must determine which 12-month period ending in 2024 will produce the greatest amount eligible for the credit. That determination will obviously depend on when medical expenses were incurred so there is, unfortunately, no universal rule of thumb which can be used.

Which spouse should make the claim for the medical expense tax credit?

Medical expenses incurred by family members – the taxpayer, their spouse, and children who are under the age of 18 at the end of 2024, as well as certain other dependent relatives – can be added together and claimed by either spouse. In most cases, it’s best to make that claim on the tax return of the lower-income spouse, in order to maximize the amount of claimable expenses (remembering that only expenses greater than 3% of net income can be claimed).

That said, it’s also necessary to ensure that the spouse making the claim has tax payable for the year. The reason for this is that the METC is a non-refundable credit, meaning that it can be used to reduce tax otherwise payable, but cannot create or increase a refund. So, in order to maximize the use of the METC in a year, it should be claimed by the spouse whose tax payable for the year is at least as much as the amount of the METC to be claimed.

As the end of the calendar year approaches, it’s a good idea to add up the medical expenses which have been incurred during 2024, as well as those paid during 2023 and not claimed on the 2023 return. Once those totals are known, it will be easier to determine whether to make a claim for 2024 or to wait and claim 2024 expenses on the return for 2025. And if the decision is to make a claim for 2024, knowing what medical expenses were paid, and when, will enable the taxpayer to determine the optimal 12-month period for that claim.

Finally, it’s a good idea to look into the timing of medical expenses which will have to be paid early in 2025. Where those are significant expenses (for instance, a particularly costly medication which must be taken on an ongoing basis, or some expensive dental work) it may make sense, where possible, to accelerate the payment of those expenses to November or December 2024, where that means they can be included in 2024 totals and claimed on the return for this year.

The federal government provides a number of non-refundable tax credits and benefits to Canadians under the umbrella term “child and family benefits”, but likely the most widely available and most generous of those programs is the Canada Child Benefit (CCB).

The federal government provides a number of non-refundable tax credits and benefits to Canadians under the umbrella term “child and family benefits”, but likely the most widely available and most generous of those programs is the Canada Child Benefit (CCB).

The CCB is paid as a non-taxable monthly benefit to Canadian residents who have and live with one or more children under the age of 18 for whom they are primarily responsible. The CCB program, which was first introduced in 1993, replaced the former Family Allowance program, and has since gone through a number of iterations and name changes. What follows is a summary of what is available to Canadian families under the CCB program in 2024.

The CCB program has two types of benefits – the basic Canada Child Benefit (CCB) and a Child Disability Benefit (CDB). The first, the basic CCB, is provided to eligible residents of Canada who have one or more children who are under the age of 18 and who live with that child or children. The child disability benefit (CDB) is an additional monthly benefit intended to provide financial assistance to families who are caring for children who have a severe and prolonged impairment in physical or mental functions. Generally, where a child is eligible for the federal disability tax credit, parents who live with that child will be eligible to receive the CDB.

The current benefit year for both the CCB and the CDB runs from July 2024 to June 2025. During this benefit year, maximum benefits payable under the basic CCB are as follows:

• $7,787 per year ($648.91 per month) for each eligible child under the age of 6; and
• $6,570 per year ($547.50 per month) for each eligible child aged 6to 17.

Benefit eligibility under the CCB program is affected by family net income earned during the previous tax year. In other words, the amount of benefit which can be received during the 2024-25 benefit year is determined, in part, by the amount of family net income for 2023. For the 2024-25 benefit year, families having 2023 net income of $36,502 or less will receive the maximum CCB. Where that 2023 net income is greater than $36,502, the amount of benefit receivable is reduced by specified percentages and amounts, which are based on family net income and the number of children in the family. The actual benefit reduction percentages and amounts are as follows.

• For families with one eligible child, benefits are reduced by 7% of family net income between $36,502 and $79,087. Where family net income is more than $79,087, the benefit reduction is $2,981 plus 3.2% of family net income over $79,087.
• For families with twoeligible children, benefits are reduced by 13.5% of family net income between $36,502 and $79,087. Where family net income is more than $79,087, the benefit reduction is $5,749 plus 5.7% of family net income over $79,087.
• For families with three eligible children, benefits are reduced by 19.0% of family net income between $36,502 and $79,087. Where family net income is more than $79,087, the benefit reduction is $8,091 plus 8.0% of family net income over $79,087.

The Canada Disability Benefit provides eligible families with both an additional benefit amount and higher income thresholds which determine eligibility for that additional benefit amount. For the 2024-25 benefit year, the CDB provides up to $3,322 per year ($276.83 per month) for each child eligible for the disability tax credit (DTC). The CDB starts being reduced when family net income is more than $79,087, with the reduction calculated as follows: for families with one child eligible for the DTC, the reduction is 3.2% of the amount of 2023 family net income over $79,087, and for families with two or more children eligible for the DTC, the reduction is 5.7% of the amount of 2023 family net income over $79,087.

The number of variables – age of children, number of children and family net income – can make it difficult to easily calculate the amount of CCB or CDB for which a family is eligible during the current benefit year. To assist in that calculation, the federal government provides an online calculator which will determine that amount, based on information provided by the taxpayer. That online calculator can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/child-family-benefits-calculator.html.

There are two significant ways in which the CCB program differs from other federal tax credit and benefit programs. The first is that the CCB and CDB are paid once per month, throughout the benefit year (most other such credits are paid on a quarterly basis). CCB and CDB are paid around the 20^th of each month – a listing of actual payment dates during 2024 can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview/canada-child-benefit-payment-dates.html.

The second difference between the CCB and other programs is more significant – unlike some other programs, CCB amounts are not paid automatically to eligible recipients. In order to receive the CCB and the CDB, it is necessary both to apply for the benefit(s) and to file an annual tax return in order to ensure that benefit payments continue. Information on how to apply is available at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview/canada-child-benefit-apply.html.

The costs of raising children are many and varied, and the financial resources required have never been small. Over the past few years, increases in both interest rates and, especially, the rate of inflation have added to nearly every one of those costs to a significant degree. Receipt of a CCB payment each month can make a substantial contribution toward meeting those costs: a Canadian family which has two children, aged 5 and 7, and whose family net income for 2023 was $50,000 can receive just over $1,000 each month in tax-free benefits during the 2024-25 benefit year.

Finally, many (although not all) Canadian provinces and territories provide a benefit to families with children living in that province or territory, which is additional to any available federal CCB which a family can claim. Detailed information on both the federal and provincial/territorial child and family benefit programs can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview.html.

Canada’s tax system is a self-assessing one, meaning that the onus rests on individual taxpayers to file their annual return each spring and to pay any amounts owed. The compliance rate in Canada is high – most Canadian taxpayers comply with those tax obligations, filing returns and making any required payments on a consistent basis. Where such tax obligations aren’t met, however, the Canada Revenue Agency (CRA) has the authority to impose both penalties and interest charges.

Canada’s tax system is a self-assessing one, meaning that the onus rests on individual taxpayers to file their annual return each spring and to pay any amounts owed. The compliance rate in Canada is high – most Canadian taxpayers comply with those tax obligations, filing returns and making any required payments on a consistent basis. Where such tax obligations aren’t met, however, the Canada Revenue Agency (CRA) has the authority to impose both penalties and interest charges.

The types and amounts of penalties which can be assessed vary widely, depending on the nature of the non-compliance and, frequently, whether the taxpayer is a “repeat offender”. However, interest charges levied are always the same where taxes aren’t paid in full and on time, and those interest charges can be very substantial.

By law, the CRA charges interest at a rate which is four percentage points higher than commercial interest rates. For the third quarter of 2024, the CRA charges interest on outstanding tax amounts owed at a rate of 9.0%. More significantly, all such interest charges are compounded daily, meaning that each day the taxpayer is charged interest on both the tax amount owed and on the previous day’s interest charges. In such circumstances, interest charges can accumulate very quickly.

Where a failure to meet one’s tax obligations is simply the result of carelessness or negligence on the part of the taxpayer, it’s really not possible to avoid such charges. Sometimes, however, taxpayers fail to meet their tax obligations for reasons that are entirely outside their control. When that happens, the CRA may be willing to extend relief by forgiving interest and penalty charges, in whole or in part, through the Agency’s Taxpayer Relief Provisions.

It's important to note, at the outset, that while the CRA has issued guidelines on the circumstances in which interest and penalty relief may be provided, the decision to provide such relief is entirely discretionary on the Agency’s part – there is no right to interest and penalty relief. Second, while interest and penalty relief may be available to the taxpayer, no relief is provided with respect to actual tax amounts owed. No matter the circumstances, tax amounts owed must always be paid.

The guidelines issued by the CRA on when interest and penalty relief may be available fall into two general categories. The first addresses taxpayers who are unable to meet their tax obligations as the result of extraordinary circumstances. The first such circumstance is natural or man-made disasters which are, of course, becoming more and more common as each year increasing numbers of Canadians are forced to evacuate due to wildfires and floods. At such times, meeting one’s tax obligations is understandably a very low priority and, in the worst case scenario, the natural disaster which forced the evacuation may also result in the destruction of the taxpayer’s financial and tax records and supporting documentation, making it difficult or impossible to file returns or determine or pay amounts owed.

The other extraordinary circumstances in which the CRA is prepared to provide relief from penalty and interest charges are those which are specific to the taxpayer involved. As outlined on the CRA website, such circumstances generally involve either serious illness or accident, or serious emotional or mental distress, such as would result from a death in the taxpayer’s family.

Finally, the CRA is prepared to consider providing interest relief where the taxpayer is experiencing significant financial hardship. The CRA’s guidelines, as outlined on the Agency’s website, indicate that it would consider providing relief where paying interest amounts owed would make it difficult to provide basic necessities, such as food, medical help, transportation, or shelter, or where interest charges make up the majority of the amount owed and the taxpayer is unable to make a reasonable payment arrangement with the CRA.

In order to receive relief in situations of financial hardship, a taxpayer must be able to provide the CRA with detailed information on their current financial situation. That financial situation is outlined on a prescribed CRA form, which is available at Form RC376, Taxpayer Relief Request – Statement of Income and Expenses and Assets and Liabilities for Individuals. In addition to the information submitted on that form, the taxpayer must also provide supporting documentation, such as current mortgage statement(s), property assessment(s), rental agreement(s), loans and recurring bills, bank and credit card statements for the most recent three months, and current investment statements

Regardless of the reasons or circumstances which have led the taxpayer to submit an application for relief, the process of filing that application is the same. Taxpayers who have registered for the CRA online service My Account can file their application using that service. Those who are not registered for My Account, or would prefer filing a paper application, can find the required form on the CRA website at Form RC4288, Request for Taxpayer Relief – Cancel or Waive Penalties and Interest. The address to which the completed form should be sent can be found on the last page of Form RC4288.

Whatever the method by which an application for relief is filed, the CRA will review the information submitted and make a determination of whether to cancel interest and/or penalty amounts owed, in whole or in part, in order to allow the taxpayer to pay off their tax debt. The factors considered by the Agency in determining whether to grant relief will, of course, depend in part on the circumstances giving rise to the application. In general, however, the Agency will consider the taxpayer’s tax return filing and payment history, whether the taxpayer knowingly let a balance owing exist (resulting in additional interest charges), whether reasonable care was taken in the management of the taxpayer’s tax affairs, and, finally, whether the taxpayer acted quickly to correct any delay or omission.

The CRA’s goal is to make a decision on straightforward applications made under its Taxpayer Relief Provisions within six months (180 days) after the application is received. However, not surprisingly, the Agency is currently receiving a higher-than-usual number of applications, meaning that the timeline for making decisions on those applications is now closer to eight months (or longer, for complex applications).

Where the taxpayer’s request is denied, they can make on online request to have the decision reviewed. If that decision is also negative, the only recourse is to ask a judge to review the CRA’s decision. In the great majority of cases, however, the cost of taking that step is likely to be greater than the amount of interest and penalties at issue.

In all cases, the best course of action for the taxpayer is to be proactive – to contact the CRA as soon as the taxpayer is aware that filing of a required return, or full payment of taxes owed, will not be possible. Taking the initiative and moving quickly to resolve the problem will both minimize the amount of interest which will accrue on unpaid taxes and will count in the taxpayer’s favour when the CRA considers whether to allow an application for waiver of those interest and penalty charges.

Detailed information on the Taxpayer Relief Provisions is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/complaints-disputes/taxpayer-relief-provisions.html.

The past five years have been a tough financial slog for most Canadian families, as they struggled to cope with the pandemic, followed by inflation which tripled from under 2% in mid-2020 to over 6% by the end of 2022, and, finally, interest rate increases which saw the Bank Rate go from less than 1% in April of 2020 to over 5% in April of 2024.

The past five years have been a tough financial slog for most Canadian families, as they struggled to cope with the pandemic, followed by inflation which tripled from under 2% in mid-2020 to over 6% by the end of 2022, and, finally, interest rate increases which saw the Bank Rate go from less than 1% in April of 2020 to over 5% in April of 2024.

While the relentless upward climb in both the rate of inflation and interest rates are finally showing signs of slowing, it’s nonetheless a fact that the cost of two truly non-discretionary components of a family budget – food and shelter – are still much more expensive than they were five years ago, and nearly all Canadian families are feeling the pinch.

While there’s plenty of financial pain to go around, one group of Canadians that is especially likely to be dealing with bad financial news in the near future is those who are renewing a mortgage. Home buyers who purchased a home five years ago and took out a five-year mortgage (as the majority do) likely got that mortgage at an interest rate of around 4% – or even less. Those seeking to renew that mortgage this year are likely facing renewal at a rate of at least 6%. That’s about a 50% increase in the mortgage interest rate, which can be enough to make the difference between a mortgage payment that is affordable, and one that is not.

To see why that’s the case, it helps to understand how mortgage payments are calculated. All mortgage payments are determined by three figures. The first is the size of the mortgage – the “principal amount”, which is the cost of the property purchased minus any downpayment made. The second is the interest rate which is charged on that principal amount. And the third is the length of time over which the principal amount of the mortgage is to be repaid – known as the “amortization period”.

Under Canadian law, anyone purchasing a home must make a down payment, and the amount of that downpayment depends on the purchase price of the property, as follows:

Where any home purchaser makes a down payment of less than 20% of the purchase price of the property, they must obtain mortgage default insurance through the Canada Housing and Mortgage Corporation (CHMC) and must, as well, repay that mortgage within 25 years. In other words, the maximum amortization period on a mortgage principal amount which represents more than 80% of the purchase of the property is 25 years. (Finance Canada recently announced that a 30-year amortization period would be allowed on some insured mortgages; however, that measure applies only as of August 1, 2024 and only to a relatively small group – first-time home buyers purchasing a newly-built property.)

Where the home purchaser makes a down payment of more than 20% (which would likely be the case for those who are already homeowners and are purchasing as part of a move up the “property ladder”), the length of the amortization period – the time frame in which the mortgage must be repaid – is not subject to that 25-year restriction. Rather, the length of that amortization period is something which is determined by agreement between the borrower and the financial institution which provides the mortgage financing.

The impact on monthly mortgage payments of a 2% change in a mortgage interest rate can be seen in the following example.

Assume that in 2019 a property owner sold their first home and, using the proceeds of that sale, is able to put down a $200,000 deposit on a home costing $650,000. The remainder of $450,000 of the purchase price is financed through a five-year mortgage at 4.0%, amortized over 25 years. The monthly mortgage payments are $2,367.

In 2024 that mortgage comes up for renewal, but the interest rate is now 6.0%, and the amortization period is now down to 20 years. Payments made over the previous five years have reduced the mortgage principal amount from $450,000 to $392,000, but the increased interest rate means that monthly payments will now be $2,800 – an increase of almost $450 per month, or $5,400 per year.

It's important to remember, as well, that mortgage payments are made out of after-tax income. In other words, in order to come up with the $5,400 per year needed to meet the increased mortgage payment obligations, a homeowner will either have to reallocate that $5,400 from the payment of other household expenditures, or will have to generate additional pre-tax income of almost $8,000 annually, which is $5,600 in after-tax income, assuming a marginal tax rate of 30%. Neither is a realistic scenario for most Canadian households right now.

Homeowners facing a mortgage renewal which will result in monthly mortgage payment obligations which cannot be met out of current household resources are between the proverbial rock and a hard place. Realistically, the only component of a mortgage over which a homeowner who is renewing that mortgage has any element of choice is the amortization period. The principal amount of the mortgage is the amount which was originally borrowed, less any principal repayments made, and can only be reduced by making additional payments. The interest rates in effect at the time of renewal are set by the lender and, while subject to negotiation, are not likely to be significantly less than the lender’s posted rates. Where a homeowner is facing an increase in monthly mortgage payments which simply aren’t manageable, the options are limited. The first is a sale of the home and the purchase of a smaller, less expensive property, but that’s rarely a situation which any homeowner wants to be forced into. The second option (with the agreement of the lender) is to extend the amortization period of the mortgage, in order to reduce monthly mortgage payments.

Extending the amortization period of a mortgage can have a dramatic effect on the amount of monthly mortgage payments, but it’s a choice that also comes with a cost, in the form of increased total interest payments over the life of the mortgage.

Continuing with the above example, assume that the homeowner who is renewing the mortgage at 6.0% for a five-year term chooses to extend the amortization period on that mortgage from the current 20 years to 30 years. (Although there is no legal limit on an amortization period for an uninsured mortgage, most major Canadian lending institutions do not provide amortizations of more than 30 years.)

The change in the amortization period from 20 years to 30 years will result in a monthly mortgage payment of $2,332 on a principal amount of $392,000 at 6% interest, meaning that the new mortgage payment amount will be slightly less than it was over the previous five years since the home was purchased, making it a manageable amount for the homeowner.

The cost of making this choice lies in the amount of interest which is paid on the mortgage over that amortization period, and that cost can be very substantial. If the homeowner had renewed their mortgage based on a 20-year amortization and a monthly mortgage payment of $2,800, the amount of interest which would be paid over that 20-year period would be $278,000. If the amortization period is changed to 30 years, reducing the monthly mortgage payment to $2,332, the amount of interest that would be paid over that 30-year period will be $447,000. Choosing to extend an amortization is a very consequential financial decision.

As is almost always the case in financial planning, there isn’t a “right” answer – the right course of action depends almost entirely on the individual circumstances involved. For homeowners who are faced with a choice between extending an amortization period or being forced into either defaulting on the mortgage or selling the house, the decision to extend an amortization period may well be justified in the circumstances. However, where the choice made is to extend an amortization period, it’s important to treat that decision as a short-term measure taken solely to gain some temporary financial relief. A homeowner who extends the amortization period on a mortgage for the upcoming mortgage term can (and should, if at all possible) plan to reduce that mortgage amortization period at the next mortgage renewal date. As well, if and when household finances improve over the next five years, any available funds should be used to make additional payments on the mortgage or, where such additional payments aren’t allowed, to set such funds aside to make a lump-sum payment at the time of the next renewal. Both measures will work to reduce the amount of interest which must be paid over the life of the mortgage.

Being unable to afford one’s mortgage payments and facing the prospect of going into default on the mortgage is a situation that most homeowners would do almost anything to avoid. Those are undeniably stressful circumstances, but in most cases solutions are possible. The federal government, through the Financial Consumer Agency of Canada, provides an extremely useful webpage (at https://www.canada.ca/en/financial-consumer-agency/services/mortgages.html) which contains a wealth of information on mortgages and mortgage financing. That webpage includes a Mortgage Calculator (found at https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MC-CH-eng.aspx) which can be used to calculate the effect that different interest rates and amortization periods will have on both the amount of monthly mortgage payments and total interest costs which will be paid over the life of the mortgage. Taking the time to do so will enable a homeowner facing a mortgage renewal to make the most informed choice in their particular circumstances.

Members of the baby boom generation who were born between 1946 and 1965 are now between 59 and 78 years of age, and make up about a quarter of the Canadian population. Many, if not most, are now retired, and the older members of that generation are likely experiencing the changes to physical health, strength, and agility that come with age. The process of aging is an extremely variable one – some individuals are healthier and more active at age 80 than others are at 60, but the physical changes that accompany aging come, inevitably, to everyone. And when those changes take place, it’s necessary to make some hard decisions about a number of things.

Members of the baby boom generation who were born between 1946 and 1965 are now between 59 and 78 years of age, and make up about a quarter of the Canadian population. Many, if not most, are now retired, and the older members of that generation are likely experiencing the changes to physical health, strength, and agility that come with age. The process of aging is an extremely variable one – some individuals are healthier and more active at age 80 than others are at 60, but the physical changes that accompany aging come, inevitably, to everyone. And when those changes take place, it’s necessary to make some hard decisions about a number of things.

One of the most consequential decisions to be made when age-related physical changes become a factor in decision-making is whether one’s current living arrangements are still suitable. The overwhelming choice of older Canadians is to “age in place” – that is, to remain in the homes they already occupy, living independently in a familiar community and close to family and friends. While that’s the ideal, existing living arrangements can, in some cases, no longer meet the needs of the individual, or can even be unsafe.

Almost always, changes can be made to an existing home to make it both more convenient and safer to live in for an older resident. Those changes can range from something as small as the installation of a grab bar in a shower or bath to something as extensive as renovations which will allow for one-floor living. All such changes, however, come with a price tag. Fortunately, the federal government (and some provincial governments) offer programs to help mitigate that cost.

The federal program – the Home Accessibility Tax Credit (HATC) – allows individuals who own and live in their own homes to claim a non-refundable tax credit equal to 15% of the cost of making permanent changes to their home which will make it more accessible or safer for them to live in.

The HATC is in many ways an unusually flexible and generous tax credit. First, the criteria which determine whether a particular expenditure does or does not qualify for the credit are extremely broad, covering both safety and convenience. Specifically, changes made which meet either of the following criteria can qualify for the HATC. Changes made must:

• allow the individual to gain access to, or be mobile or functional within, the dwelling; or
• reduce the risk of harm to the individual within the dwelling or in gaining access to the dwelling.

Second, there is no requirement for any kind of assessment or certification by a medical professional that a particular kind of change to the home is needed, or is justified by the homeowner’s state of physical ability or disability – such determination is made solely by the owner/resident of the home. Where a homeowner decides that the installation of a railing along a hallway in their home, or a change to a non-slip floor in the bathroom, are necessary for their mobility or safety within the home, then the cost of making those changes can qualify for the credit.

Third, expenses incurred for purposes of the HATC can also be claimed as medical expenses for purposes of the medical expense tax credit. In other words, two different tax credits can be claimed for the same expenditure.

Finally, the credit can be claimed by all “qualifying individuals” meaning anyone who is age 65 or older by the end of the year in which the expenditure is made, or who is eligible for the disability tax credit. There are no income thresholds imposed – the full credit is claimable by any qualifying individual who incurs an eligible expenditure, regardless of their income.

While the eligibility criteria for expenditures under the HATC are very broad, the credit is intended to assist with the cost of changes which become a permanent part of the dwelling, and not those that represent regular maintenance costs or charges for household services. The following types of expenses are specifically not eligible for the HATC:

• amounts paid to acquire a property that can be used independently of the qualifying renovation;
• the cost of annual, recurring, or routine repairs or maintenance;
• amounts paid to buy household appliances;
• amounts paid to buy electronic home-entertainment devices;
• the cost of housekeeping, security monitoring, gardening, outdoor maintenance, or similar services;
• financing costs for the qualifying renovation; or
• the cost of renovation incurred mainly to increase or maintain the value of the dwelling.

In order to qualify for the credit, eligible expenditures must be made to a “housing unit” which is owned and occupied by the person making the claim. That housing unit could be a detached or semi-detached or row house, or a condominium or co-op unit.

Where a qualifying individual (that is, someone who is age 65 or older, or who is eligible for the disability tax credit) lives with and is dependent on another family member (generally, a parent, grandparent, child, grandchild, sibling, aunt, uncle, nephew, or niece) who owns the home in which they both live, that family member can also make a claim for the HATC for changes made to the home to assist their older or disabled relative. For this purpose, such family members are characterized as “eligible individuals”.

Finally, there is a limit on the amount of expenditures which can be claimed for purposes of the HATC, and that limit is $20,000 per year for a particular dwelling. The tax credit claimable is 15% of the eligible expenditure, such that the maximum tax credit which can be claimed is $3,000 per year. The HATC is a non-refundable tax credit, meaning that it can reduce or eliminate federal tax payable, but cannot create or increase a refund. Where the amount of the credit exceeds the tax payable by the qualifying individual and so cannot be fully utilized, the claim can be split between that qualifying individual and any family member who qualifies as an “eligible individual”, as outlined above.

The federal HATC can be claimed by qualifying individuals and eligible individuals who are resident in any province or territory in Canada. Several of those provinces and territories provide similar programs to help offset the cost of incurring such home accessibility changes, but there is unfortunately no uniformity among those programs. Both eligibility criteria (age, income, etc.) and the type of assistance provided (loan, forgiveable loan, refundable or non-refundable tax credits) are different in each province or territory which offers such assistance. However, information on those programs is available on the particular provincial government website, and can usually be found by searching "seniors' home renovations” on those websites.

Detailed information on the federal HATC is available on the federal government 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/line-31285-home-accessibility-expenses.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 seeking to recover amounts which they believe are owed to them, particularly where those amounts involved 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 they were personally required to pay in order to collect wages or salary owed and for which they were 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 (but not including any amounts received which were transferred to the individual’s registered pension plan or registered retirement savings plan). Where the amount of legal fees incurred is greater than the total retiring allowance or pension amount received in the year, the excess can be carried forward and claimed in any of the subsequent seven 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 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:

• to collect overdue support payments owing;
• to establish the amount of support payments from a current or former spouse or common-law partner;
• to establish the amount of support payments from the legal parent of one’s child (who is not a current or former spouse or common-law partner), but only where that support is payable under the terms of a court order; or
• to try to get an increase in support payments.

As well, the recipient of support payments can deduct legal fees incurred to try to make child support payments 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 outlined on the Canada Revenue Agency (CRA) website, a payer of support cannot claim legal fees incurred 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 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 Québec Pension Plan.

Detailed information on the rules which govern the deduction of legal fees incurred is available on the Canada Revenue Agency 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/line-23200-other-deductions.html#toc2. The specific rules which govern the deductibility of legal fees relating to support obligations are outlined in the CRA publication P102 Support Payments, which can be found on the Agency’s website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p102.html.

By the middle of August, most students who are beginning post-secondary education this fall have hopefully received an offer of admission from their college or university of choice and are in the final stages of planning the move away from the family home for the first time. While deciding where to live and choosing courses for the upcoming fall semester is undoubtedly exciting, the hard reality is that all such choices come with a price tag – sometimes a very steep one. Regardless of geographic location, housing arrangements, or program choices, post-secondary learning is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in a university residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

By the middle of August, most students who are beginning post-secondary education this fall have hopefully received an offer of admission from their college or university of choice and are in the final stages of planning the move away from the family home for the first time. While deciding where to live and choosing courses for the upcoming fall semester is undoubtedly exciting, the hard reality is that all such choices come with a price tag – sometimes a very steep one. Regardless of geographic location, housing arrangements, or program choices, post-secondary learning is expensive. There will be tuition bills, of course, but also the need to find housing and pay rent in what is, in most college or university locations, a very tight and very expensive rental market. Those who choose to live in a university residence and are able to secure a place will also face bills for accommodation and, usually, a meal plan.

Fortunately for students (and the parents who are likely footing much of the bill), there are tax credits and benefits which can be claimed to offset such costs: the credits and benefits which can be claimed by post-secondary students (or their spouses, parents, or grandparents) in relation to the upcoming 2024-25 academic year are summarized below.

Tuition fees

A federal tax credit continues to be available for the single largest cost associated with post-secondary education – the cost of tuition. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution (which would include most Canadian universities and colleges) can claim a non-refundable federal tax credit equal to 15% of such tuition costs. Many of the provinces and territories (excepting Alberta, Ontario, and Saskatchewan) also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.

The charges imposed on post-secondary students under the heading of “tuition” include a myriad of costs which may differ, depending on the particular program or institution, and not all of those costs will qualify as “tuition” for purposes of the tuition tax credit. The following specific amounts do, however, constitute eligible tuition fees for purposes of the tuition tax credit:

• Admission fees;
• Charges for use of library or laboratory facilities;
• Exemption fees;
• Examination fees (including re-reading charges);
• Application fees (but only if the student subsequently enrolls in the institution);
• Confirmation fees;
• Charges for a certificate, diploma, or degree;
• Membership or seminar fees that are specifically related to an academic program and its administration;
• Mandatory computer service fees; and
• Academic fees.

The following charges, however, do not constitute tuition fees for purposes of the credit:

• Extracurricular student social activities;
• Medical expenses;
• Transportation and parking;
• Board and lodging;
• Goods of enduring value that are to be retained by students (such as a microscope, uniform, gown, or computer);
• Initiation fees or entrance fees to professional organizations, including examination fees or other fees;
• Administrative penalties incurred when a student withdraws from a program or an institution;
• The cost of books (other than books, compact disks, or similar material included in the cost of a correspondence course); and
• Courses taken for purposes of academic upgrading to allow entry into a university or college program. These courses would usually not qualify for the tuition tax credit as they are not considered to be at the post-secondary school level.

Certain ancillary fees and charges, such as health services fees and athletic fees, may also be eligible tuition fees. However, such fees and charges are limited to $250 unless the fees are required to be paid by all full-time students or by all part-time students.

At both the federal and provincial levels, the credit is a non-refundable one, meaning that it can reduce or eliminate tax otherwise payable, but cannot create or increase a tax refund. Where, as is often the case, a student doesn’t have tax payable for the year because their income isn’t high enough, credits earned can be carried forward and claimed by the student in any future tax year or transferred (within limits) in the current year to be claimed by a spouse, parent, or grandparent.

Rent, food, and other personal and living expenses

Unfortunately, although housing and food costs will take up a very big chunk of each student’s budget, there is not (and never has been) a tax deduction or credit which is claimable for such costs. In all cases, living costs incurred by a post-secondary student (whether on campus or off) are characterized as personal and living expenses, for which no tax deduction or credit is allowed.

Student debt

Most post-secondary students in Canada must incur some amount of debt in order to complete their education, and repayment of that debt is typically not required until after graduation. Once repayment starts, a 15% federal tax credit can be claimed for the amount of interest being paid on such debt, in some circumstances. And, while other types of credits related to post-secondary education (like the tuition tax credit) can be transferred to and claimed by other family members, the student loan interest tax credit can be claimed only by the student – no transfer of the credit is allowed.

Students who are still in school and arranging for loans to finance their education should be mindful of the rules which govern that student loan interest tax credit, since decisions made while still in school with respect to how post-secondary education will be financed can have tax repercussions down the road, after graduation. That’s because while interest paid on a qualifying student loan is eligible for the credit, only some types of student borrowing will qualify for that credit. Specifically, only interest paid on government-sponsored (federal or provincial) student loans will be eligible for the credit. Interest paid on loans of any kind from any financial institution will not.

It’s not uncommon for students (especially students in professional programs, like law or medicine) to be offered lines of credit by a financial institution, often at advantageous or preferential interest rates. As well, financial institutions sometimes offer, once a student has graduated and begun to repay a government-sponsored student loan, to consolidate that student loan with other kinds of debt, also at advantageous interest rates. However, it should be kept in mind that interest paid on that line of credit (or any other kind of borrowing from a financial institution which is used to finance education costs) will never be eligible for the student loan interest tax credit.

As explained in the Canada Revenue Agency publication on the subject: “[I]f you renegotiated your student loan with a bank or another financial institution, or included it in an arrangement to consolidate your loans, you cannot claim this interest amount”. In other words, where a government student loan is combined with other debt and consolidated into a borrowing of any kind from a financial institution, the interest on that government student loan is no longer eligible for the student loan interest tax credit.

Students who are contemplating borrowing from a financial institution rather than getting a government student loan (or considering a consolidation loan which incorporates that government student loan amount) must remember, in evaluating the benefit of any preferential interest rate offered by a financial institution, to take into account the loss of the student loan interest tax credit on that borrowing in future years.

Finally, the federal government announced, in 2023, that interest would no longer be charged on Canada Student Loans, effective as of April 1, 2023 (although graduates are still responsible for any interest which was levied and accumulated prior to that date). Provincial and territorial student loan programs are not affected by the federal announcement and such loans may still be subject to interest charges, depending on the province. Where interest is levied on a loan provided under a government (federal or provincial) student loan program, that interest will be eligible for the student loan interest tax credit, as outlined above.

Other credits and deductions

While the available student-specific deductions and credits are more limited than they were in previous taxation years, there are nonetheless a number of credits and deductions which, while not specifically education-related, are frequently claimed by post-secondary student (for instance, deductions for moving costs). The Canada Revenue Agency publishes a very useful guide which summarizes most of the rules around income and deductions which may apply to post-secondary students. The current version of that guide (which was last updated in May 2024), entitled Students and Income Tax, is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p105.html.

During the 2024 calendar year, hundreds of thousands of Canadians will reach their 71^st birthday, and a significant percentage of that group are likely to have saved money for retirement through a registered retirement savings plan (RRSP). Every one of those individuals, whether they are retired, partly retired, or still in the work force, and regardless of the amount of savings accumulated in their RRSPs, will be required, by the end of the calendar year, to make a decision on how to structure and invest their retirement income for the remainder of their lives.

During the 2024 calendar year, hundreds of thousands of Canadians will reach their 71^st birthday, and a significant percentage of that group are likely to have saved money for retirement through a registered retirement savings plan (RRSP). Every one of those individuals, whether they are retired, partly retired, or still in the work force, and regardless of the amount of savings accumulated in their RRSPs, will be required, by the end of the calendar year, to make a decision on how to structure and invest their retirement income for the remainder of their lives.

The need to make that decision arises from the rule that all taxpayers who hold funds within an RRSP are required to collapse that RRSP by the end of the calendar year in which they turn 71 years of age – no exceptions and no extensions. It’s a very significant decision, as the course of action chosen will affect the individual’s income for the remainder of their life and, in some cases, actions taken cannot be undone.

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 exact. They are as follows:

1. Collapse the RRSP and include all of the proceeds in income for that year;
2. Collapse the RRSP and transfer all proceeds to a registered retirement income fund (RRIF); and/or
3. 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 using that amount to purchase an annuity means that every dollar in the RRSP will be treated as taxable income for that year. In some cases, where a substantial six figure amount has been saved in the RRSP, that can mean losing nearly half of the RRSP proceeds to income tax.  And, while any balance of proceeds left can then be invested, tax will be payable on all investment income subsequently earned.

As a practical matter, then, the choices come down to two: an 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 such living costs.

The annuity route has the great advantages of simplicity and reliability. In exchange for a lump-sum amount paid by the taxpayer, the issuer of the annuity agrees to pay the taxpayer a specific sum of money, usually once a month, for the remainder of their life. Annuities can also provide a guarantee period, in which the annuity payments continue for a specified time period (five years, 10 years), even if the taxpayer dies during that time. Finally, annuities can be set up as joint annuities, in which annuity payments will continue until the death of the last annuitant – such joint annuities are most often purchased by spouses. Regardless of how the annuity is structured, the amount of monthly income which can be received is determined by the amount used to purchase the annuity, and also by the gender and, especially, the age of the annuity purchaser(s).

The other factor influencing the amount of income which can be received from an annuity is the interest rates which prevail at the time the annuity is purchased. Between 2009 and 2022, interest rates were so low that an annuity purchase had very little to recommend it. Beginning in early 2022, however, the Bank of Canada increased its benchmark rate several times, and annuity payment rates increased as a result. Currently (as of July 2, 2024) annuity rates for each $100,000 paid to the annuity issuer by a taxpayer who is 70 years of age range from $630 to $662 per month for a male taxpayer and from $574 to $613 for a female taxpayer (the actual rate is set by the company which issues the annuity, and will differ slightly 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, they are locked into that annuity arrangement for the remainder of their 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 or is structured as a joint annuity, there is no way of knowing how many payments the taxpayer will receive. If they die within a short period of time after the annuity is put in place, there is usually 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. An RRIF operates in much the same way as an RRSP, with two major differences. First, it’s not possible to contribute funds to an RRIF. Second, the taxpayer is required to withdraw an amount from their 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 (and pay tax on that withdrawal), they cannot withdraw less than the minimum required withdrawal for their age group.

Where a taxpayer holds savings in an RRIF, they can invest those funds in the same investment vehicles that were used while the funds were held in an RRSP. And, as with an RRSP, investment income earned by funds held inside an RRIF are not taxed as they are earned. While the ability to continue holding investments that can grow on a tax-sheltered basis provides the taxpayer with a lot of flexibility, that flexibility has a price in the form of investment risk. As is the case with all investments, investments held within an 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 that result is never guaranteed.

On the death of an RRIF annuitant, any funds remaining in the RRIF can pass to the RRSP or RRIF of the annuitant’s spouse on a tax-free basis. Where there is no spouse, the balance of funds in the RRIF will be treated, for tax purposes, as income to the RRIF annuitant in the year of death, and must be reported as income on the tax return for the year of death.

While the above discussion of RRIFs versus annuities focuses on the benefits and downsides of each, it’s 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 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, whether in retirement or not, 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 for growth and to provide the income for non-discretionary spending.

Such a secure income stream to cover non-discretionary expenses can, of course, be created by purchasing an annuity. As well, although most taxpayers don’t think of them in that way, the Canada Pension Plan (CPP) and Old Age Security (OAS) 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 July 2024, the maximum OAS benefit for most Canadians (specifically, those who have lived in Canada for 40 years after the age of 18) is about $718 ($790 for those aged 75 and older) per month. The amount of CPP benefits receivable by the taxpayer will vary, depending on their work history, but the maximum current benefit which can be received at age 65 is about $1,365. As a result, a single taxpayer who receives the maximum CPP and OAS benefits at age 65 will have $25,000 in annual income ($2,083 per month). And, for a married couple, of course, the total annual income received from CPP and OAS can be about $50,000 annually, or $4,166 per month. While $25,000 a year isn’t usually 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 needed 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.

Most Canadians contemplate retirement with a mixture of anticipation and trepidation. While the benefits of an end to the day-to-day grind of work and commuting (while also having more free time to spend with family and friends) are undeniable, giving up a regular paycheque also means experiencing a degree of financial anxiety. For the majority of Canadians who are not members of a defined benefit pension plan, the overriding concern is how to manage retirement savings in a way that will generate sufficient income to provide a comfortable retirement, while still ensuring that accrued savings will last the remainder of one’s life. How, in other words, to avoid the dismal prospect of outliving one’s savings, or spending too much early in retirement and being left with insufficient income to meet one’s expenses late in life? And, of course, it’s impossible to find a definitive answer to that question, since none of us knows what the future holds, in terms of either health or longevity.

Most Canadians contemplate retirement with a mixture of anticipation and trepidation. While the benefits of an end to the day-to-day grind of work and commuting (while also having more free time to spend with family and friends) are undeniable, giving up a regular paycheque also means experiencing a degree of financial anxiety. For the majority of Canadians who are not members of a defined benefit pension plan, the overriding concern is how to manage retirement savings in a way that will generate sufficient income to provide a comfortable retirement, while still ensuring that accrued savings will last the remainder of one’s life. How, in other words, to avoid the dismal prospect of outliving one’s savings, or spending too much early in retirement and being left with insufficient income to meet one’s expenses late in life? And, of course, it’s impossible to find a definitive answer to that question, since none of us knows what the future holds, in terms of either health or longevity.

Typically, expenses are higher early in retirement, when retirees are likely to be healthier and more active, and retirement plans may include travel and the pursuit of hobbies and interests. However, while such activities and their associated costs likely dwindle as retirees age, other types of expenses come into play – especially expenses related to the need to pay for medical costs, household and personal services, and, ultimately, the prospect of paying for personal and/or medical care in an assisted living facility. The prospect of such future costs can make retirees reluctant to spend accrued savings (or annuity income), out of concern that such funds will be needed in the future to pay for care.

The worry about reaching an age where some degree of care is required (and must be paid for) is an entirely realistic one for retirees. According to Statistics Canada’s figures, the average Canadian who has reached the age of 75 has a life expectancy of another 12 years. And, since that figure represents an average, a significant number of 75-year-olds can expect to live longer than that. Again, according to StatsCan figures, in 2023 there were over 896,000 Canadians aged 85 or older.

With all of these demographic and financial realities in mind, a new kind of annuity – the advanced life deferred annuity, or ALDA – was created in 2019 and is now available to Canadians in the annuities marketplace. As is the case with all annuities, the issuer of an ALDA agrees, in exchange for receiving a specified lump sum amount, to provide an annual income of a specified amount to the annuitant. The difference, however, is while an ALDA can be taken out at any time, payments under the ALDA can be deferred to as late as the end of the year in which the annuitant turns 85.

For example, a retiree who turns 71 in 2024 and who has accumulated $500,000 in retirement savings could transfer $400,000 from his or her RRSP to an RRIF, and use the remaining $100,000 to purchase an ALDA, under which payments would begin at age 85. The retiree now has the security of knowing that the $400,000 held in the RRIF (plus any additional amounts earned from investment returns) doesn’t need to last for the unknown number of years remaining in their life, but instead for a specified period of time (in this case, 14 years), at which time the income stream from the ALDA will begin, to augment or replace the income from the RRIF.

There is a limit on the amount which can be used to purchase an ALDA. That limit is 25% of the amount held in an individual’s RRSP or RRIF, to a lifetime maximum. That lifetime maximum is indexed to inflation and stands at $170,000 for 2024. Taking the example outlined above, the retiree who has accumulated $500,000 in RRSP savings would be using 20% of that amount (or $100,000) to purchase the ALDA, and would be safely under the $170,000 lifetime limit.

While the security provided by such a retirement income structure would certainly be welcome to most retirees, the obvious concern where payments under an annuity are deferred is the possibility that the annuitant won’t live long enough to collect those payments, and that the funds expended to purchase the ALDA will effectively be wasted. There are two options to address that (legitimate) concern. First, an ALDA can be structured as a “joint-life” contract, under which payments will be made to the surviving annuitant (most often the spouse of the ALDA purchaser) for the remainder of their life. It’s also possible to structure the ALDA to provide for a lump sum death benefit to be paid to a beneficiary or beneficiaries (for example, the annuitant’s children) on the death of the annuitant. That death benefit can be any amount up to the amount of the original ALDA purchase, minus any amounts already paid out to the original annuitant. So if the original ALDA purchase was for $100,000 and $25,000 in benefits under the ALDA were paid out prior to the death of the original annuitant, the maximum death benefit amount would be $75,000.

Being able to have certainty of income for one’s very old age is a major benefit of purchasing an ALDA. There is, however, another benefit to be obtained, and that is income and tax deferral.

All Canadians who hold savings in an RRSP must collapse that RRSP by the end of the year in which they turn 71 and, in most instances, such individuals open an RRIF and transfer funds held in the RRSP to that RRIF. Once funds are held in an RRIF, a specified percentage of those funds must be paid out in each year to the RRIF holder. All such withdrawals constitute taxable income to the holder of the RRIF, and that taxable income can affect the RRIF holder’s eligibility for certain tax credits and benefits, like the age credit, Old Age Security benefits, and the GST/HST tax credit. Even if the RRIF holder does not actually need the total amount which must be withdrawn, there is no option to withdraw a lesser amount, and all funds withdrawn are treated as taxable income which can affect eligibility for tax credits and benefit – with no exceptions.

Where an RRIF holder purchases an ALDA, the amount used for that purchase is no longer included in the total balance on which the calculation of required RRIF withdrawals is based. Continuing the above example, if the RRIF holder used $100,000 of their retirement savings to purchase the ALDA, the amount which they would subsequently be required to withdraw from the RRIF each year would be calculated as a percentage of the remaining $400,000 – not the $500,000 which was held in the RRIF prior to the purchase of the ALDA.  Both the RRIF holder’s required income and their tax payable for the year will therefore be lower, and the loss of partial or full eligibility for tax credits and benefits will be less likely.

As is the case with most annuities, the terms of an ALDA (purchase amount, single vs. joint annuity, existence of a death benefit, age at which the income stream begins) are up to the ALDA purchaser and the issuer, as long as the basic tax rules governing such plans are adhered to. Everyone’s financial, health, and tax circumstances are different and, as is the case with any retirement income plan, those particular circumstances will drive the decisions made on the best retirement income structure for that individual. Purchasing an ALDA may be the right approach for some retirees, but not for others – but for everyone, having that option adds another element of flexibility to retirement income planning.

More information on ALDAs can be found on the federal government website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/alda.html.

By the time summer arrives, nearly all Canadians have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their tax refund or, more grudgingly, paid any balance of tax owing.

By the time summer arrives, nearly all Canadians have filed their income tax returns for the previous year, have received a Notice of Assessment from the tax authorities with respect to that return, and have either received their tax refund or, more grudgingly, paid any balance of tax owing.

It’s a surprise, therefore, when unexpected mail arrives from the Canada Revenue Agency (usually in mid- to late July), and the information in that mail will likely be both unfamiliar and unwelcome. Specifically, the enclosed Instalment Reminder form will advise the recipient that, in the view of the CRA, they should make instalment payments of income tax on September 15 and December 15 of 2024 – and will helpfully identify the amounts which should be paid on each date.

No one particularly likes receiving unexpected mail from the tax authorities, and correspondence which suggests that the recipient should be making payments of income tax for 2024 to the CRA during the year (instead of when they file the return for 2024 in April 2025) is likely to be both perplexing and somewhat alarming. It’s fair to say that most Canadians aren’t familiar with the payment of income tax by instalments, and are therefore at a loss to know how to proceed the first time they receive an Instalment Reminder.

The reason that the instalment payment system is unfamiliar to most Canadians is that most of us pay income taxes during our working lives through a different system. Every Canadian employee has tax automatically deducted from their paycheque (“at source”), before that paycheque is issued, and that tax is remitted by the employer to the CRA on the employee’s behalf. Such deductions and remittances accrue to the employee’s benefit, and they are credited with those remittances when filing the annual tax return for that year. It’s an efficient system, but it’s also one which is largely invisible to the employee, and certainly one which operates without the need for the employee to take any steps on their own.

Where an individual is no longer an employee – for instance, they start a business and become self-employed, or retire and begin to receive retirement income from various government and non-government sources – such deductions and remittances are no longer automatically made. However, Canadian tax rules provide that, where the amount of tax owed when a return is filed by the taxpayer is more than $3,000 ($1,800 for Québec residents) in the current (2024) year and either of the two previous (2022 and 2023) years, that taxpayer may be subject to the requirement to pay income tax by instalments.

The reason that first instalment reminders are issued in August has to do with the schedule on which Canadians file their tax returns. The amount of tax payable on filing for the immediately preceding year can’t be known until the tax return for that year has been filed and assessed, and the tax return filing deadline for individuals is April 30 (or June 15 for self-employed taxpayers and their spouses). Consequently, by the middle of July, the CRA will have the information needed to determine whether a particular taxpayer should receive a first instalment reminder for the current year.

Taxpayers who receive that first Instalment Reminder in July may also be puzzled by the fact that it is a “Reminder” and not a “Requirement” to pay. The reason for that is that those who receive it are not actually required by law to make instalment payments of tax. There are, in fact, three options open to the taxpayer who receives an Instalment Reminder.

First, the taxpayer can pay the amounts specified on the Reminder, by the respective due dates of September 15 and December 15. A taxpayer who does so can be certain that they will not have to pay any interest or penalty charges even if they have to pay an additional amount on filing in the spring of 2024. If the instalments paid turn out to be more than the taxpayer’s tax liability for 2024, they will of course receive a refund on filing.

Second, the taxpayer can make instalment payments based on the total amount of tax which was owed and paid for the 2023 tax year (including any balance that was owed on filing). If a taxpayer’s income has not changed between 2023 and 2024 and their available deductions and credits r