Canadian Tax Changes for 2017

(2018 Filing Season)

Canada Revenue Agency (CRA) has ramped up measures to encourage and enforce compliance with tax laws, and has issued information indicating the following areas of concentration:

  1. High Risk Personal Returns:  On December 4, 2013, CRA has indicated that it will send about 33,000 letters to Taxpayers who show rental or business losses, and who claim employment expenses.  This will significantly increase the chance of an audit in these areas.
  2. International Tax Evasion and Aggressive Tax Avoidance:  CRA has increased scrutiny of international transactions and their related tax reporting requirements.  As part of this initiative, the statute of limitations for certain international transactions and specifically as required for reporting on form T1135 will be increased to six years from three.
  3. As of January 7, 2015 Canada Revenue Agency has launched the Electronic Funds Transfer initiative, which requires banks and financial intermediaries to report to the CRA incoming and outgoing international EFT's of $10,000 or more.  This move has been made to identify high risk taxpayers who engage in aggressive international tax avoidance and who attempt to conceal assets offshore.

During the current tax preparation season, we will be requesting additional information for reporting in these areas to ensure compliance.

As a result of the likelihood for increased government scrutiny of all returns filed, we have this year implemented our "Prepaid Audit Assurance Program" .Under this Program, we cover the costs of representation in the event you are audited.

New Provisions Affecting 2017 Personal Income Tax Returns:

  • Principal Residence Exemption:  Capital gains which arise on the disposition of a principal residence are exempt from tax to the extent that the property was occupied for the entire time owned as a principal residence.  Where the property was occupied for only part of the time it was owned, the exempt portion of the capital gain on disposition was determined by the use of a formula where the number of years occupied plus one is divided by the number of years owned.  For 2017 returns, the "plus one" year has been removed, thus making the exempt portion of the gain equal to:

                       Number of years occupied as a principal residence divided by the  Number of years owned

This will potentially cause some of the capital gain on sale to be taxable in a case where one moves out of the home prior to its sale.

Further, for 2017 and future tax years, all dispositions of a principal residence must now be reported on a revised schedule 3, even if no gain is reportable. 

Although only the proceeds are reportable if the entire gain is exempt from tax, a late filed election to treat a property as a principal residence will be subject to a penalty under subsection 220(3.5) of up to $8,000.  (CRA has eliminated the statutory three year limitation for the examination of a return where the disposition of real estate has not been reported.)

This new provision also applies to deemed dispositions (ie on death, departure from Canada, or change of use).

  • Professionals - Work in Progress:  Certain professionals, including accountants, chiropractors, dentists, lawyers, medical doctors and veterinarians can elect to exclude their work in progress from income in the current taxation year.  This election is to be eliminated over time for tax years beginning after March 22, 2017.
  • Home Relocation Loans:  The tax deductible benefit of imputed interest on up to $25,000 of borrowings for eligible home relocations will be eliminated for the 2018 and subsequent tax years.
  • Child Care Space Investment Tax Credit:  The tax credit for creating child care space is eliminated for investments made after March 22, 2017.  Transitional provisions apply for written agreements entered into prior to this date.
  • Tax Rates for 2017: The indexing factor for income tax brackets and tax credits is 1.4% for 2017.
  • Disability Tax Credit: Effective March 22, 2017  nurse practitioners have been added to the approved list of medical practitioners qualified to certify eligibility for the Disability Tax Credit.
  • Canada Caregiver Credit: This new credit will replace the former caregiver tax credit.
  • Tuition Tax Credit:  Eligibility for the tuition tax credit has been extended to certain courses which help an individual improve their occupational skills.
  • Public Transit Tax Credit: This credit is available only until June 20, 2017 and is eliminated thereafter.
  • First Time Donor's Super Credit:  The super credit for first time donors will end on December 31, 2017.
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  • Anti Avoidance Rules for RDSP's, RESP's:  Additional anti avoidance rules related to Registered Disability Savings Plans (RDSP's) and Registered Education Savings Plans (RESP's) will be introduced.

Please contact us to review the impact of these or other changes as they may apply to your specific situation.