Tax time isn’t just a deadline. It also allows us review tax strategies. So, as you dig into your return this spring, here’s what’s new.
Principal residence reporting
As announced in October 2016, to claim the principal residence exemption, you must report the disposition. Any principal residence designation must also be reported.
Under proposed changes, Canada Revenue Agency will be able to accept a late designation in certain circumstances, but a penalty may apply.
The same legislation also proposes that for tax years that end after October 2, 2016, CRA may reassess you at any time if you fail to report the sale or other disposition of real estate, despite the normal statute of limitations period for reassessments being three years.
“It’s prudent that taxpayers now report those dispositions, even though they may not give rise to income tax,” says Silvia Jacinto, tax partner at Crowe Soberman in Toronto.
Trusts holding principal residence properties are also subject to new rules. Previously, a family trust, for example, could own a principal residence, and, as long as one or more trust beneficiaries lived in the property, any gain on the sale of the property would be sheltered by the principal residence exemption (PRE).
Now, “any dispositions after December 31, 2016, will not be eligible for the principal residence exemption inside the trust,” says Jacinto. “Some planning will be required to distribute that property to one or more of those beneficiaries that live in it, so that the distribution happens on a tax-free basis. When the property is ultimately sold, it is those individuals who will claim the principal residence exemption on their personal tax returns.”
Alternatively, clients may have non-tax reasons to keep a property held in a trust and deal with the tax on disposition—for creditor proofing, for example, or to retain control.
Family trusts and other non-eligible trusts remain eligible for the PRE with respect to gains accrued until December 31, 2016, so long as certain conditions apply.
Canada child benefit
The universal child care benefit (UCCB) and the family tax cut—along with the Canada child tax benefit and the national child benefit supplement—were repealed and replaced in 2016 with the Canada child benefit (CCB). Unlike the UCCB, the new benefit is tax-free and falls as taxpayers earn more income.
Eligible clients must apply, says Jacinto, and high-income earners won’t receive the CCB, which is based on family income. To get the CCB, the primary caregiver must file a return every year, even if she has no income, as must her spouse or common-law partner. For heterosexual couples, a male primary caregiver must attach a note from the female parent, stating he is the primary caregiver.
New tax brackets
As of the 2016 tax year, clients with income greater than $200,000 are in a new federal tax bracket (33%, up from 29%), while rates decreased for middle-income earners (to 20.5%, down from 22% for income between $45,282 and $90,563).
The new brackets also provide incentive to more efficiently allocate income among family members through a spousal loan, or by gifting money or shares to a child.