Koroll & Company Blog

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 OAS clawback is a product, in part, of the way in which Canada’s government-sponsored retirement income system is structured. OAS is one of the two main components of that system – the other being the Canada Pension Plan (CPP).

While many retired Canadians receive both OAS and CPP benefits, the two plans are quite different. 

As just about everyone knows, individual income tax returns for the 2016 tax year should have been filed, by most Canadians, and any tax balance owed must've been paid by all individual Canadians, on or before May 1, 2017. And, most Canadians do file that return, and pay any tax balance owed, on or before the deadline.

As of April 24, 2017, the Canada Revenue Agency (CRA) had received just over 18 million individual income tax returns for the 2016 tax year. There are, however, a significant minority of Canadians who don’t file a return, or pay taxes owed (or both) by the annual deadline.

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.

For the majority of Canadians, the due date for filing of an individual tax return for the 2016 tax year was May 1, 2017. (Self-employed Canadians and their spouses have until June 15, 2017 to get that return filed.) In the best of all possible worlds, the taxpayer, or his or her representative, will have prepared a return that is complete and correct, and filed it on time, and the Canada Revenue Agency (CRA) will issue a Notice of Assessment indicating that the return is “assessed as filed”, meaning that the CRA agrees with the information filed and tax result obtained by the taxpayer.

Not infrequently, though, the taxpayer realizes that information has been inadvertently misstated, or perhaps omitted because an information slip was received (or located) after the return was filed.

In such situations, the taxpayer is often at a loss to know how to proceed, but the process for amending a return is actually quite straightforward.

Many Canadians are called upon to act as a caregiver for a family member who either cannot live independently or who requires varying degrees of assistance in order to be able to continue to live on their own.

Sometimes that family member is a disabled adult child, while in other cases it’s an aging parent who needs help.

Whatever the circumstances, caregiving is a demanding and often stressful role. And, while such caregiving imposes demands on caregivers in a number of areas, one of those demands is almost always financial. Sometimes that takes the form of financial support, or disability-related costs incurred for the dependent relative, while in other cases a caregiver’s income is reduced because of the need to re-allocate time from paid employment to unpaid caregiving.

The Canadian tax system recognizes the financial costs which are borne by caregivers and has, for many years, provided those caregivers with the opportunity to claim tax credits, which seek to mitigate those financial costs.

The Canada Pension Plan (CPP), together with the Old Age Security (OAS) program, forms the cornerstone of Canada’s retirement income system. There are other retirement savings options available to Canadians, but the CPP is unique in that it is Canada’s only compulsory retirement savings program.

Canadians can, of course, contribute to registered retirement savings plans (RRSPs) and individuals who were residents of Canada for at least 20 years of their adult lives will be able to receive OAS benefits after age 65. And, an ever-decreasing minority of Canadians can look forward to receiving payments from an employer-sponsored registered pension plan (RPP).

However, despite the availability of these options, the hard fact is that many Canadians, now in the work force, will not have enough income from all sources, public and private, to ensure a financially comfortable retirement – or even, in some cases, to provide a reasonable standard of living.

For most Canadian taxpayers, income tax is an “out-of-sight, out-of-mind” subject, with most taxpayers giving serious thought to their tax situation only when it’s time to file the annual tax return. And, too often, that approach leads to an unexpected (or higher than expected) tax amount owing when the return is filed – and seemingly no way to fix that problem.

While it is true that nearly all tax planning and tax saving strategies need to be implemented before the end of the calendar year in order to be effective for that year (the RRSP contribution deadline of 60 days after year-end being the only major exception), it’s not the case that nothing can be done at tax filing time to minimize the tax bill payable.

The time has come when the annual chore of gathering together the various pieces of information needed to complete one’s annual tax return, and getting that return completed and filed can’t be delayed any longer.

For those wishing to put that chore off as long as possible, there is one (very small) bit of good news. Individual Canadians (other than the self-employed and their spouses) are required to file the annual return by April 30 of the following year, and to pay any tax amount owed by the same deadline.