2016 Personal Income Tax Return Update
March 10th. 2017
The deadline for filing your 2016 personal income tax return is April 30th or June 15th for self-employed individuals. A checklist to assist you in gathering and summarizing your information can be accessed through our web site at: www.scpllp.com. We request that you forward this completed checklist, together with your 2016 personal tax information, to our office as soon as possible. Please ensure that you have received all of your information slips prior to forwarding us your information. Most information slips are issued by the end of February, however T3 and T5013 slips do not have to be sent before the end of March. We respectfully request that we receive your personal income tax information before April 15th in order to guarantee that your return will be ready before the filing deadline.
Please remember that after your tax return has been prepared, we must have Form T183, “Information Return for Electronic Filing of an Individual’s Income Tax and Benefit Return”, signed and returned to our office, before the deadline, in order to e-file your return. We will send this form to you with your completed tax return.
Our hours throughout March and April are Monday to Friday from 8:30 a.m. to 5:00 p.m. There will often be staff here earlier and later than these hours, as well as on weekends, to accommodate your needs.
As you gather information for your 2016 income tax return there are several things that you should keep in mind.
Personal tax rates
The following chart is an overview Ontario’s two highest marginal tax rates for 2015, 2016 and 2017.
Reporting of sale of principal residence (new in 2016)
New for 2016, taxpayers are required to report certain information about the sale of a principal residence in order to claim the full principal residence exemption. Previously, the Canada Revenue Agency (CRA) did not require any reporting related to the sale of a principal residence, if the property was the taxpayer’s principal residence for every year it was owned. However, if the property was not a principal residence for every year of ownership, then Form T2091, Designation of a Property as a Principal Residence by an Individual, would have to be filed. This is relevant where an individual owned more than one property that could qualify as a principal residence (i.e. cottage).
Starting with the 2016 tax year, individuals who sell their principal residence will have to report the sale on schedule 3 of their personal tax return. The information required includes the address of the property, the date it was acquired and the amount of the proceeds of disposition. Similar to the old rule, if the residence is not designated as a principal residence for all the years it was owned, Form T2091 will still need to be completed. Taxpayers failing to report the disposition of their principal residence as well as the basic information on schedule 3 of their personal tax return can be reassessed beyond the normal reassessment period in respect of that disposition. The designation can be filed late but will be subject to a late designation penalty which is the lesser of $8,000 or $100 times the number of completed months between the filing due date of the personal tax return and the date the designation is filed with the CRA.
You are only allowed to designate one property as your principal residence at any point in time. If you own two or more residences in a year, the choice of which property you designate as your principal residence for a year requires serious consideration. We strongly recommend that you keep the purchase document as well as all your receipts for improvements made to each property in order to keep track of the cost of each property. This will simplify the calculation of the capital gain on each property and will help you make a better decision as to which property should be designated as your principal residence.
Please note that a change of use of a principal residence to an income producing property, will trigger a deemed disposition and consequently the requirement to complete schedule 3 or Form T2091.
Home Accessibility Tax Credit
Effective for 2016 and subsequent years, an individual may be eligible to claim a non-refundable tax credit calculated at the rate of 15% of the renovation expenditure incurred for the benefit of a qualifying individual (i.e. a person aged 65 or older at year-end) or of a disabled person (who is entitled to claim the disability tax credit). The individuals who may claim this credit are the qualifying individual or an eligible individual. An eligible individual is:
1. a spouse or common-law partner of a qualifying individual; or
2. for a qualifying individual who is 65 years of age or older, an individual who has claimed the amount for an eligible dependant, caregiver amount or amount for infirm dependant age 18 or older for the qualifying individual, or could have claimed such an amount if:
3. if b. does not apply, an individual who is entitled to claim the disability amount for the qualifying individual spouse or common-law partner.
The expenditure must be incurred for the home that is the principal residence of the qualifying individual or eligible individual. Further, the total eligible expenses cannot be more than $10,000 for the year. In order for the expenses to qualify they must be incurred to improve the qualifying individual’s mobility, improve the accessibility and functionality or reduce the risk of harm for the individual.
Canada Child Benefit
As of July 1, 2016, the Government has replaced the Universal Child Care Benefit (UCCB) and Canada Child Tax Benefit (CCTB) with the new Canada Child Benefit (CCB).
The UCCB payments received from January – June 2016 are taxable in the hands of the spouse with the lower taxable income. Payments for the new CCB started in July 2016 for those who are eligible. This new monthly benefit is tax-free. The amount received declines as household income rises.
Eligible Educator School Supply Tax Credit
Starting in 2016, teachers or early childhood educators can claim a 15% refundable tax credit on up to $1,000 of eligible teaching supplies purchased in a year. Eligible supplies must be directly consumed or used in the performance of teaching or facilitating learning.
In order to be eligible you must be employed at an elementary school, secondary school or regulated child care facility and must hold a valid teacher’s certificate, license, permit or diploma or a certificate or diploma in early childhood education. In order to verify you were eligible for the credit the CRA may ask for certification from your employer attesting to the eligible supplies expense.
Family Tax Cut
The family tax cut which allowed couples with children under the age of 18 to transfer up to $50,000 of taxable income to the lower income spouse and create tax savings of up to $2,000 has been eliminated for 2016 and subsequent years.
Child Fitness Amount Tax Credit
For 2016, an individual is entitled to claim a refundable child fitness tax credit (Federal) calculated at a rate of 15% on up to $500 of eligible fitness expense incurred for a child who was under 16 at the beginning of the year and was registered in a prescribed program of physical activity. A similar provincial credit, “The Ontario Children’s Activity Tax credit”, is also available in 2016, calculated at a rate of 10% on up to $560 of eligible fitness expense.
Both the Federal and Ontario credit will be eliminated for 2017 and subsequent years.
Children’s Arts Amount Tax Credit
The maximum eligible expense for 2016 has been reduced to $250 per eligible child. This credit is also being eliminated for 2017 and subsequent tax years.
Labour-sponsored funds tax credit
The tax credit for the purchase of shares of provincially and territorially registered labour-sponsored venture capital corporations has been restored to 15% for 2016 and later tax years. The tax credit for the purchase of shares of federally registered labour-sponsored venture capital corporation has decreased to 5% and will be eliminated for 2017 and later tax years.
Lifetime Capital Gains Exemption (LCGE)
Individuals who realize a gain on the disposition of Qualified Small Business Corporation (“QSBC”) shares, qualified farm property and qualified fishing property may be able to offset part or all of the gain by claiming a capital gain deduction. For dispositions in 2016 of qualified small business corporation shares, the LCGE is $824,176.
For dispositions of qualified farm or fishing property, the LCGE is $1,000,000.
Foreign currency gain
With the falling Canadian dollar continuing in 2016, many taxpayers holding bank accounts denominated in foreign currency will have taken advantage of the opportunity to convert these funds into Canadian dollars or use the funds to pay for various expenses in order to take advantage of the currency gain. However, there are tax implications to these conversions. Please note that the CRA requires taxpayers to report capital gains on foreign currency transactions when the transactions are on capital account. Holding funds in a foreign currency will generally be considered on account of capital. If you held funds in foreign currency and you converted these funds to Canadian dollars in 2016, you will likely have realized a capital gain or loss on the foreign currency. If you used your foreign currency to purchase assets or pay for expenses, you likely realized a capital gain or a capital loss on the foreign currency. If you only hold foreign currency without converting into Canadian dollars or another foreign currency, or without using the funds, you will likely not have realized a foreign currency gain or loss, even though the value will have changed.
Foreign currency gains or losses are calculated and treated in the same way as any other capital gains or losses, except that there is a $200 per year exemption in the case of a capital gain of this nature. A capital loss from foreign exchange holdings will result only to the extent the loss exceeds $200 for the year.
In order to properly track foreign currency gains and losses, you must calculate the adjusted cost base on your cash in the same way you would for securities. For example, assume that you transferred $100,000 CDN to a US bank account when the exchange rate was par. Your adjusted cost base of your US cash is therefore $100,000 CDN. In 2016, you decided to convert your US funds into CDN and received $127,000. Your foreign currency gain will therefore be $27,000 and you will have to report in your tax return a gain of $26,800 ($27,000 - $200).
The calculation of the adjusted cost base can however, be more cumbersome when there are multiple transactions in the foreign currency account. It is therefore very important that you keep track of the transactions.
Canadian residents who hold specified foreign property with a cost amount over $100,000 in the aggregate at any time during the year continue to be required to file the information return T1135 – Foreign Income Verification form along with their personal income tax return.
Please note that a specified foreign property includes (but is not limited to):
Although Form T1135 is only an information return, it is extremely important that it is completed accurately. Not only are there severe penalties for failure to file this information return with the CRA, but the reassessment period for the tax return can now be extended by an additional three years if the T1135 return is filed late, incorrect or incomplete or if the taxpayer fails to report in their personal tax return, the income from a specified foreign property. If the reassessment period is extended by an additional three years, this means that the CRA will have six years from the date of your original Notice of Assessment to audit your return and reassess it.
Taxpayers who own specified foreign property costing more than $100,000 but less than $250,000 throughout the year can file form T1135 using a simplified method.
Since this information is not readily available to us during the preparation of your personal income tax return, we kindly ask that if you hold specified foreign properties at any time in 2016 with an aggregate cost of at least $100,000 that you provide us with the information. We recommend that you ask your broker for assistance.
Ontario healthy home renovation tax credit
The Healthy Homes Renovation Tax Credit will be eliminated for 2017 and subsequent taxation year. However, it can still be claimed in 2016. Seniors (65 or older) or a family member living with an elderly relative can claim a refundable Ontario Healthy Home Renovation tax credit for eligible expenses incurred to make their homes more user friendly.
The maximum refundable credit is $1,500, which represents 15% of the maximum eligible expenditure of $10,000. Please ensure that you keep your receipts in case the Canada Revenue Agency reviews your renovation expenses.
For a list of eligible expenses, please visit the Ontario site at: http://www.ontario.ca/taxes-and benefits/healthy-homes-renovation-tax-credit
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