Newsletters

Tax Alerts
October 19, 2020

The year 2020 has been one of significant personal and economic dislocation for Canadians. The ongoing pandemic and the resulting impact to everyone’s way of life has led many to reassess their current circumstances and, often, to make changes. For older Canadians, one of those changes is likely to be consideration of whether it makes sense to accelerate retirement plans. Like the rest of the workforce, many older Canadians have lost jobs or faced reduced hours — and, therefore, reduced income — as a result of the pandemic. Older Canadians have reason to feel particularly vulnerable to the risk of falling seriously ill during the pandemic, and many of those who are nearing retirement are likely considering, as the pandemic continues with no certain end in sight, whether it makes sense to return to full-time work (if and when that work becomes available again) and continue to incur such risks.


Each year, the due date for payment of all income tax amounts owed for the previous year falls on April 30. In 2020, however, that payment deadline has been something of a moving target. Earlier this year, the federal government, in recognition of the financial disruption and hardship caused by the pandemic, extended the payment deadline by four months, to September 1, 2020. In mid-September that date was extended again, such that all individual income taxes owed for 2019 were due and payable by Wednesday September 30. There has been no further extension.


Notwithstanding the ongoing pandemic, the real estate market in most of Canada continues to thrive and home prices continue to rise. Some of that may be attributable to the fact that, while prices are rising, the cost of financing a home purchase is near historic lows.


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. There are, however, some circumstances in which an RRSP contribution must be (or should be) made by December 31, in order to achieve the desired tax result.


When the Canada Pension Plan was introduced in 1965, it was a relatively simple retirement savings model. Working Canadians started making contributions to the CPP when they turned 18 years of age and continued making those contributions throughout their working life. Those who had contributed could start receiving the CPP retirement benefit at any time between the ages of 60 and 65. Once an individual was receiving retirement benefits, he or she was not required (or allowed) to make further contributions to the CPP, even if that individual continued to work. The CPP retirement benefit for which that individual was eligible therefore could not increase (except for inflationary increases) after that point.


Between mid-February and mid-August of this year, the Canada Revenue Agency (CRA) received and processed just over 29 million individual income tax returns filed for the 2019 tax year. The sheer volume of returns and the processing turnaround timelines mean that the CRA does not (and cannot possibly) do a manual review of the information provided in a return prior to issuing the Notice of Assessment. Rather, all returns are scanned by the Agency’s computer system and a Notice of Assessment is then issued.


When the state of emergency was declared in March of this year, the federal government extended the usual deadlines for both the filing of individual tax returns and payment of taxes owed, for both 2019 and 2020. Sometimes those deadlines (like the deadline for filing of individual income tax returns for 2019) were put off until June, but most such deadlines were deferred until September 30. A summary of the federal individual income tax deadlines which will fall this year on September 30 is set out below.


Of all the many financial relief programs introduced by the federal government to address the economic impact of the pandemic, probably none has had a bigger impact than the Canada Emergency Relief Benefit (CERB). As of August 16, nearly 9 million Canadians had applied for and received payments under the CERB program, and the program had paid out just over $70 billion.


Most Canadians who participate in the paid work force do so as employees. Consequently, they receive a regular paycheque from their employer and they pay income taxes by means of amounts deducted from that paycheque and remitted to the federal government on their behalf.


It’s an acknowledged reality that times of crisis bring out both the best and the worst in people. While most Canadians would never consider using the current pandemic as a means of defrauding others, this is not, unfortunately, true of everyone.

This is a time when Canadians are particularly vulnerable to scammers and fraud artists, for a number of reasons. First, of course, is the financial dislocation which has resulted from the pandemic — many Canadians have lost income and may be in real financial difficulty, making them especially vulnerable to fraudulent communications indicating that there is money available to them. Second, the federal government has instituted a great number of programs to provide financial assistance to those hit hard by the pandemic. The sheer number of those programs, however, and the fact that they have had to be revised frequently to take account of changing conditions has resulted in an inevitable degree of confusion about just what is available, who is eligible for the different benefits, and how to claim them. That confusion makes it easier for fraud artists to convince their victims of the validity of what they are “offering”. It also makes taxpayers vulnerable to phone calls or voice mails in which they are, in effect, accused of receiving benefits to which they were not entitled and demanding that they send funds in repayment.


When states of emergency were being declared across the country in March of this year, thousands of businesses were forced to close their doors and, as a result, were faced with the necessity of laying off some or all of their employees.

The question of when, or even whether, those employees could and would be recalled to work was essentially unknown at that time. To address that reality the federal government established the Canada Emergency Wage Subsidy (CEWS) program. As the name implies, the program involved the payment of a subsidy to the employer, who would use those funds to keep employees on the payroll pending the re-opening of the business and the return to work.


For post-secondary students the upcoming academic year is going to be unlike anything they have previously experienced. Post-secondary institutions across the country are now determining whether, and to what extent, students should return to in-class learning or whether, at least for the fall semester of the 2020-21 academic year, programs should be delivered entirely through online or remote learning. While some institutions have already indicated that they will be only providing online learning, and a smaller group intends to continue entirely with the traditional in-class model, most universities and colleges have taken a “wait and see” approach, choosing to employ a “hybrid” model which combines in-class learning with online courses.


When the Canada Pension Plan was put in place on January 1,1966, it was a relatively simple retirement savings model. Working Canadians started making contributions to the CPP when they turned 18 years of age and continued making those contributions throughout their working life. Those who had contributed could start receiving CPP on retirement, usually at the age of 65. Once an individual was receiving retirement benefits, he or she was not required (or allowed) to make further contributions to the CPP. The CPP retirement benefit for which that individual was eligible therefore could not increase (except for inflationary increases) after that point.


Just over a decade ago, it was possible to buy a home in Canada with no down payment — financing 100% of the purchase price — and extending the repayment period for that borrowing over a 40-year period.


While Canadians had an extended time this year to file their income tax returns for the 2019 tax year, the extended filing deadlines (June 1 for the majority of Canadians, and June 15 for self-employed individuals and their spouses) have passed and returns should be filed.


While the standard (and accurate) advice is that tax and financial planning are best approached as activities to be carried on throughout the year, it’s also the case that a mid-year tax and financial checkup makes good sense, and that’s especially the case this year.


The baby boom generation, which is now in or near retirement, has always been able to factor receiving Old Age Security benefits, once they turn 65, into their retirement income plans. While receipt of such benefits can be still be assumed by the vast majority of Canadian retirees, the age at which such income will commence is no longer a fixed number. Rather, retirees are now faced with a choice about when they want those benefits to start. For the past four years, Canadians have had the option of deferring receipt of their Old Age Security benefits, for months or for years past the age of 65, and that election to defer continues to be available. The difficulty that can arise is how to determine, on an individual basis, whether it makes sense to defer receipt of OAS benefits and, if so, for how long. It’s a consequential choice and decision, since any election made to defer is irrevocable.


As the Canada Revenue Agency (CRA) notes on its website, new tax scams are devised every single day of the week. And, despite the cautionary tales which appear frequently in the media and the warnings posted by the CRA on its website, Canadians continue, with regularity, to fall victim to each new (and old) tax scam and tax fraud.


In recent years, it seems that the arrival of spring has coincided with a natural or man-made disaster somewhere in Canada. Spring is also, of course, tax return preparation and filing season for most Canadian taxpayers, but it’s likely taxes were the last thing on the minds of families and individuals affected by this spring’s floods. And, in most cases, those families and individuals will not be penalized for failing, in such circumstances, to fulfill their tax obligations in a timely way.


Older taxpayers who have recently completed and filed their tax returns for 2016 may face an unpleasant surprise when that return is assessed. The unpleasant surprise may come in the form of a notification that they are subject to the Old Age Security “recovery tax” – known much more familiarly to Canadians as the OAS clawback.


The Canadian tax system is in a constant state of change and evolution, as new measures are introduced and existing ones are “tweaked” through a never-ending series of budgetary and other announcements. However, even by normal standards, 2017 is a year in which there are larger than usual number of tax changes affecting individual taxpayers. And, unfortunately, most of those changes involve the repeal of existing tax credits which are claimed by millions of Canadian taxpayers.