Koroll & Company Blog

While Canadians typically think of taxes only in the spring when the annual return must be filed, taxes are a year-round business for the Canada Revenue Agency (CRA). The CRA is busy processing and issuing Notices of Assessment for individual tax returns during the February to June filing season.

To date, in 2017, the CRA has received and processed just under 28 million individual income tax returns. That volume of returns and the CRA’s self-imposed processing turnaround goals (two to six weeks, depending on the filing method) mean that the CRA cannot possibly do an in-depth review of each return filed prior to issuing the Notice of Assessment.

The traditional idea of retirement – working full-time until age 65 and then leaving the workforce completely to live on government-sponsored and private sources of retirement income – has undergone a lot of changes over the past couple of decades, and Canada’s government-sponsored retirement income system has evolved in response.

Generally, the changes to the Canada Pension Plan (CPP) and Old Age Security (OAS) programs have increased the flexibility of those programs and, in particular, have given individuals a greater range of choices with respect to, especially, the timing of their receipt of CPP and OAS.

The downside of that increased flexibility has been to make the system — and therefore the choices available to Canadians — more complex. One aspect of that complexity is the (relatively) new CPP post-retirement benefit, or PRB.

Sometime around the middle of August, millions of Canadians will receive unexpected mail from the Canada Revenue Agency (CRA), and that mail will contain unfamiliar and unwelcome news. Specifically, the enclosed form will advise the recipient that, in the view of the CRA, he or she should make instalment payments of income tax on September 15 and December 15^th of this year – 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 tax to the CRA during the year (instead of when he or she files the return for the year next April) 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 variety of amounts and kinds of income, deductions taken, and credits claimed on individual income tax returns filed by Canadians each spring is almost limitless. However, each of those returns has one thing in common, and that is that each will be assessed by the Canada Revenue Agency (CRA), and each will result in a Notice of Assessment summarizing the Agency’s conclusions with respect to the information filed by the taxpayer.

Most important, from the taxpayer’s point of view, the CRA will communicate the amount of federal and provincial tax it believes the taxpayer is required to pay for the tax year just passed.

Tax-free savings accounts (TFSAs) have been part of the Canadian tax system now for nearly a decade, and millions of Canadians utilize them as a savings vehicle, whether for short-term or long-term purposes.

Of all of the tax-deferral or tax-savings plans available to Canadians, TFSAs undoubtedly provide the greatest flexibility, as the TFSA rules allow taxpayers to both carryover allowable contribution room to future years and to re-contribute amounts withdrawn.

However, that very flexibility (especially the ability to re-contribute previous withdrawals) also has the potential to cause taxpayers to run afoul of the rules by getting into an inadvertent over contribution position, resulting in the imposition of penalty taxes.

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.

While Canadians are contacted every day by would-be fraud artists, there seems to be something about a communication from the tax authorities, whether real or fake, that makes people especially vulnerable. Perhaps it is the fact that most Canadians are unfamiliar with the workings of a system. Most of us only interact with the CRA once a year.

If spring is the season for real estate sales in Canada, then summer is the time when all those real estate buyers and sellers pack up their belongings and move to their newly purchased homes. And, while buying a new home and making that move is usually something home buyers are doing by choice, that doesn’t make the actual process of moving any less stressful or costly.

Many Canadians are aware that a tax claim of some kind can be made in respect of costs incurred in relation to a move, but few are aware that such tax claims can only be made in specific circumstances, or that there are detailed rules which govern what expenses can be claimed, and in what amounts.

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Once they’ve completed and filed their 2016 tax return, most Canadians give a sigh of relief that the dreaded annual chore is done, and that income taxes will be out of sight and out of mind until the next filing deadline rolls around.

If all goes as planned, that is how events will unfold. In the best case scenario, the Canada Revenue Agency (CRA) will issue a Notice of Assessment which indicates that the Agency agrees with the taxpayer’s summary of his or her income, deductions, credits, and taxes payable for the past year, and that it has no further questions or concerns. And, for the vast majority of Canadians, that is exactly how things will unfold. For many others, however, there will be a few more questions to be answered or steps to be taken before the tax filing and assessment process for the year is finally completed.