Underused Housing Tax
The Canada Revenue Agency (CRA) understands that there are unique challenges for affected owners in the first year of the Underused Housing Tax Act (UHTA) administration.
To provide more time for affected owners to take necessary actions to comply, the Minister of National Revenue is providing transitional relief to affected owners. The application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.
This transitional relief means that although the deadline for filing the UHT return and paying the UHT payable is still April 30, 2023, no penalties or interest will be applied for UHT returns and payments that the CRA receives before November 1, 2023.
Documentation Requirements for Personal Tax Returns
Many of our clients have experienced delays in the processing and assessment of their tax returns due to the information required to claim certain tax deductions and credits. We have listed below the more troublesome amounts:
Home office expenses - Flat rate method for the 2020, 2021 and 2022 Tax years
If you worked more than 50% of the time from home for a period of at least four consecutive weeks in the year (2020, 2021, or 2022) due to the COVID-19 pandemic, you can claim $2 for each day you worked from home during that period.
You can then also claim any additional days you worked at home in the year due to the COVID-19 pandemic.
The maximum amount that can be claimed is $400 per individual in 2020 and $500 per individual in 2021 and in 2022. This method can only be used for 2020, 2021 and 2022 tax years.
Child care expenses
Expenses for daycare, preschool, or day camps can be claimed to a maximum of $8,000 per child born between 2015 and 2021, and a maximum of $5,000 per child for children born between 2005 and 2014.
The expenses can only be claimed as a deduction against the employment income of the lower-income parent.
In order to claim child care expenses, you must have a receipt from the child care provider. If the child care provider is an individual, the receipt must have the provider’s social insurance number.
Further information can be found at: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/214/menu-eng.html
In order to claim employment expenses, an employee must have a form T2200 completed and signed by their employer.
An employee can claim automobile expenses for mileage incurred in the course of employment, where the employee is not going between their regular place of work and their home. In order to calculate the automobile expenses, receipts for gas, auto repairs, and insurance must be tabulated. A record of kilometres driven for employment purposes and total kilometres driven should be kept.
A full list of deductible expenses can be found at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4044/employment-expenses.html
Some of the more common expenses are home office costs, cell phone, supplies, and travel costs.
Employees who are paid commission can also claim business entertainment expenses.
Moving expenses can be claimed when a taxpayer has moved more than 40 kilometres in order to be closer to a new work location. The expenses can only be claimed to the extent of the income earned in the new locale. If the moving expenses are not used in the current year, they can be carried forward and claimed in the two following years.
In order to claim the expenses, the following information must be provided:
- The distance to the new work locale from previous residence
- The distance to the new work locale from new residence
- Full addresses of previous and current residences
- Date that employment started at new locale and name of employer
- Date of move
A large range of expenses can be claimed:
- Costs of selling the previous residence, such as commission and legal fees. Please provide us with the statement of adjustments to calculate these amounts.
- Temporary accommodation and meal costs. Actual receipts can be submitted for meals or a per diem rate of $69.00 claimed.
- Cost of movers and storage. Please provide receipts.
- Costs of purchasing a new residence, including property purchase tax. Please provide us with the statement of adjustments for the purchase.
- Travel costs of $0.56 per kilometre for vehicle travel.
The cost of spousal support can be a deductible expense, if periodic payments are made as a result of a separation or divorce agreement. In order to claim these amounts, we require:
- A copy of the separation or divorce agreement
- The name, address, and social insurance number of the recipient of the payments
- The amount of the payments
The CRA often also asks for copies of cheques for proof of payment. If the agreement includes child support as well as spousal support, proof that the child support has been paid may also have to be provided.
Apprenticeship tax credit
Apprentices who are registered in an I.T.A. (Industry Training Authority) program are eligible for a training tax credit for each level completed. In order to claim the tax credit, please provide us with your certification of completion for each level.
Taxpayers who have severe or prolonged physical or medical impairments may qualify for the disability tax credit. An application form must be completed by the attending physician and submitted to Canada Revenue Agency to qualify. The form can be found at: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2201.html
The application does not need to be made on an annual basis. Once Canada Revenue Agency has determined that someone is eligible, the eligibility will continue until Canada Revenue Agency requests an updated application be submitted.
The determination of eligibility by the Canada Revenue Agency usually takes at least a month. If a tax return needs to be filed before eligibility is determined, the tax return can be adjusted once confirmation of eligibility is received.
Equivalent to Spouse
Taxpayers who are married or in a common-law relationship can claim an additional tax credit if the taxpayer is financially supporting their partner.
The equivalent to spouse tax credit gives similar relief to single parents with children under the age of eighteen. In order to claim the credit, the taxpayer can be the recipient but not the payor of child support.
When a taxpayer incurs medical costs that are greater than three percent of their net income, they can receive a tax credit. The medical expenses of the spouse, dependent children, and the taxpayer can be included in the calculation.
Most medical expenses are eligible. For a complete list of what can expenses can be included please go to 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/details-medical-expenses.html.
One expense that is frequently missed by our clients are the health and dental insurance premiums. If you pay the premiums yourself, they are considered eligible medical expenses.
The medical expenses can be for any twelve-month period ending in the taxation year. For example, a taxpayer could use medical receipts from July 2019 to June 2020 when filing the 2020 personal tax return. This allows the taxpayer to use the most advantageous period to maximize the credit.
In order to substantiate your medical costs, we will need to have the original receipts. The exception to this is if you have submitted your expenses to your health insurance provider for reimbursement. In this situation, please submit the statements from the insurance provider showing the amount of the original expense, and the amount reimbursed. Only the expenses that were not reimbursed by the insurance provider are eligible for the medical tax credit.
It is also important that you are able to show proof of payment.
For prescription drugs, the official receipt or a statement from the pharmacy is required to claim the expense. Cash register receipts are not acceptable. Over-the-counter medications are not eligible expenses, either.
Expenses incurred in travelling to a location to receive medical treatment are eligible expenses, as long as the treatment takes place eighty kilometres from the patient’s home, and equivalent medical services could not be provided at a closer locale. Please discuss with us if you wish to claim travel costs, as the mileage and reason for the travel has to be well-documented.
Seniors’ Home Renovation Tax Credit
This provincial tax credit assists seniors with the cost of home renovations needed to enhance mobility, accessibility, and safety. The tax credit can also be claimed by family members who have seniors living with them.
Up to $10,000 in eligible expenditures can be claimed, resulting in a tax credit of up to $1,000.
Eligible expenditures are renovations specifically undertaken to enhance mobility, accessibility, and safety. Expenditures that are not eligible are;
- Costs for regular house maintenance
- Purchase of mobility devices such as wheelchairs or home monitoring equipment
- Services for home monitoring, house maintenance, and home care
In order to claim the credit, please supply our offices with the supporting invoices detailing the work done or materials purchased.
Sale of your Principal Residence
When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale because of the principal residence exemption. This is the case if the property was solely your principal residence for every year you owned it.
Before 2016, if you sold your property, and it was your principal residence for every year you owned it, you did not have to report the sale to claim the principal residence exemption.
For dispositions in 2016, you had to report the sale and designate the property on Schedule 3, Capital Gains (or Losses) in all situations.
For dispositions in 2017 and later years, in addition to reporting the sale and designating your principal residence on Schedule 3, you also have to complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual.
For the sale of a principal residence in 2016 and subsequent years, Canada Revenue Agency will only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax return. If you forget to make this designation in the year of the disposition, it is very important to ask Canada Revenue Agency to amend your income tax return for that year.
Value of Foreign Assets
If you hold certain foreign assets with a combined cost of over $100,000, the assets must be reported on your tax return.
Foreign assets that do not have to be reported are:
- Foreign property held for personal use only
- Foreign assets held within an RRSP plan
- Foreign assets held within a mutual fund managed by a Canadian company
Foreign assets that do have to be reported are:
- Foreign stocks and bonds, even if held in a Canadian brokerage account
- Foreign bank accounts
- Foreign rental or business property
- Interests in foreign trusts
The threshold of $100,000 is based on the combined cost of the assets in Canadian funds. Below are some examples of when a taxpayer would or would not have to report their assets holdings:
Taxpayer A bought shares in a US technology company for $75,000 Cdn. He does not hold any other foreign assets. The shares are now worth $130,000 Cdn. Taxpayer A does not have to report his foreign holdings, as the original cost is less than $100,000.
Taxpayer B has a bank account in England arising from funds inherited from a family member. At the time the funds were inherited, the value was $40,000 Cdn. Taxpayer B also has shares in a US technology company, which cost $75,000. Taxpayer B must report his foreign asset holdings, as the combined cost is greater than $100,000.
Reporting must be done if the cost of the assets is greater than $100,000 at any time in the year.
Taxpayer C has a vacation cottage in the United States that cost $300,000, and bank accounts in the United States of $60,000. Taxpayer C does not have to report his foreign assets holdings, as the vacation cottage is a personal-use property.