Post Assessment Scrutiny of Rent, Tuition and Education Amount

Canada Revenue Agency (CRA) as indicated in my earlier blog carries out Post Assessment Scrutiny in Spring-Summer after most of the tax returns have been filed with them.

CRA carries out post assessment scrutiny for many items of income, credits and deductions claimed on the taxpayer’s return of income. Rent paid in Ontario and Tuition and education amount is very common and therefore discussed below:

Rent Paid in Ontario:

If you lived in Ontario during and at the end of the year 2015, you can claim rent payments made during 2015 on your tax return for Ontario Trillium Benefit payments. Ontario Trillium Benefit payments are made by the Ontario Government by way of Direct Deposit payments from July to June each year. If the total benefit amount is below $300, Ontario Government usually pays it in one shot.

Rent payment is one of the parameters for deciding the amount of Ontario Trillium Benefits and when audited by CRA, it looks for verification of the following aspects:

1)      The Rent payment should be confirmed by the landlord who received the rent during 2015 either by way of a letter or monthly receipts issued by the landlord. In the absence of both, copies of cancelled cheques or bank drafts are acceptable as evidence.

2)      Monthly receipts should show the relevant details such as the name of the taxpayer who paid the rent, amount of rent paid, month for which the rent was paid, address for which the rent was paid.

3)      The rent payment should be for a principal residence which means that you should be living in the place for which the rent is claimed.

4)      If the you changed your residence during the year, separate receipts/letter should be provided for each residence.

5)      Lease agreements cannot be provided in the place of rent receipts since CRA looks for proof of payment and legality of tenancy.

Tuition and Education Credit Claimed:  

CRA Looks for following details when the Tuition and Education Amount is claimed on the Tax Return:

1)      The amount of Tuition fees paid.

2)      The education months for which tuition fee paid.

3)      The name of the course/program for which it is claimed.

4)      The name of the Institution who issued the receipt.

5)      The name of the taxpayer who claimed it.

6)      The tuition fees receipt should be printed and not handwritten.

If the above proofs are not submitted within a period of 30 days normally, CRA will disallow the same and can allow the claim when the proof is submitted after 30 days.

What is Post Assessment Scrutiny of CRA?

What is the Process?

After you file your Income Tax and Benefit Return for the year 2015, the Canada Revenue Agency would assess your Income Tax Return within its specified time limit and release an Income tax refund, if any.

Why Post Assessment?

After issuing Notice of Assessments to tax payers, Canada Revenue Agency (CRA) undertakes the program of conducting Post Assessment scrutiny of the tax returns filed by the tax payers. This is done in order to have faith in the self- assessment system of filing tax returns. A self-assessment tax system means you assess your own tax owing or tax refund.

Time Period Allowed:

As a part of conducting this program, CRA requests various tax documents and tax slips, in support of the tax payer’s claim on his income tax return already filed. CRA normally provides 30 days’ time period to taxpayers to submit the documents to them. In case if the tax return is e-filed, they may ask e-filers to submit the tax documents in addition to asking the tax payer for the same.

In case if no response is received either from the e-filer or the tax payer, CRA will disallow the claim made on the income tax return and ask for the tax owing. E-filers are registered with CRA and therefore CRA is able to track them and communicate with them.

Not all the returns are selected for the post assessment scrutiny but only a small percentage of the tax returns are selected for it.

Selection Criteria:

The selection for the post assessment scrutiny is very objective and not subjective. CRA selects income tax returns based on objective criteria determined each year (e.g. a claim made on the particular line of the income tax return, unusually large amounts of claim made or apparent mistake claims).

Tax Documents submitted after the Time Limit:

If the documents asked by CRA are not submitted within the specified time limit, they may be admitted by CRA later on when the documents are submitted after the time limit as well. However, in the meantime CRA will ask for the tax owing due to the disallowance of the claim.

Therefore, it is extremely important to make the claim on your income tax return when you have the adequate documents in support of your claim (e.g. rent claim made in Ontario for claiming Ontario Trillium Benefit). The taxpayer must ensure that he has a rent receipt before such claim is made on his income tax return.

 What happens If you disagree with the reassessment of CRA?  

 In case if you disagree with the reassessment of CRA, you can formally object to their reassessment within 90 days from the date of reassessment.

How to Pay the Outstanding Taxes to Canada Revenue Agency for Individual Taxes

When you prepare your individual tax return, you may have either tax payable or a tax refund. The last date for payment of individual taxes without interest charges is April 30, 2016. After April 30^th, CRA will charge interest at the rate declared by it for the Quarter April-June 30, 2016. Currently, CRA charges interest at the rate of 5% per annum on overdue taxes.

In order to avoid paying interest charges to CRA, it is important to pay taxes by April 30, 2016.

There are the following options with regard to the manner of payment of taxes.

1)      Pay Online to CRA:

Visit CRA website: www.cra.gc.ca

On the Home Page, click the tab of “My Payment” under Online Services

Check whether you have the bank account/do online banking with the specified financial institution

Click the tab of “My Payment”

Choose Tab of “Individuals”

Choose the link of “Individual Income Tax”

Choose “2015-Tax return”

Choose online screen instructions and complete the payment

You can use the following link directly to avoid the above steps.

            https://apps.cra-arc.gc.ca/ebci/fppp/mypymnt/prot/slctVchrTp.do?vt=voucherType.ri.pof

2)      Pay by filling out the Payment Form TD7R (A):

This is fairly simple in the sense that you can complete the payment form received from CRA and take it to your bank and complete the payment. The Bank will issue you a stamped payment receipt.

3)      Mail a Cheque to CRA with a letter:

You can write the cheque in favour of Canada Revenue Agency and make sure that you write your social insurance number and the words “Payment of taxes for 2015” in the memo section of the cheque. Attach your covering letter with it.

Canada Revenue Agency does not accept the cash payment of taxes at any of its offices.

Medical Expenses Tax Credit-For Individual Tax Return

Medical expense is an important tax credit for an individual for saving taxes. The following points should be remembered for claiming medical expense tax credit:

1)      In order to claim medical expenses on the tax return, it should be prescribed by a medical doctor.

2)      Medical expenses can be claimed for any 52 weeks’ period which ends in the current taxation year which means that for the tax year 2015 any medical expenses for 2014 and 2015 can be claimed but only 52 week’s period can be chosen for it deductibility.

3)      Medical expenses that you can claim should be net of its reimbursement if any, claimed from anyone including the employer, insurance company etc.

4)      Medical expenses that are in excess of 3% of net income (Line 236) of the taxpayer, can only be claimed on the individual tax return subject to a maximum of $2208. Generally, it is beneficial for the spouse having lower net income (Line 236) to claim medical expenses.  

5)      Any spouse can claim medical expenses for themselves, their spouse, and children under 18.

6)      Medical expenses can also be claimed for any dependent which is in excess of 3% of the net income (line 236) of such dependent.

7)      Medical expenses not only include traditional medicines but also “needs based expenses” such as: voice recognition software, expenses required for modification of automobiles if prescribed for a disabled taxpayer, cost of an air conditioner if prescribed by the doctor etc.

Disclaimer: Any discussion on this blog relating to the tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there could be a different tax strategy in a particular case. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situation or a problem, you are advised to seek the professional advice.

Non-Refundable Credits-Home Buyers Amount, Public Transit Amount and Children’s Art Amount

We will discuss few more Non –Refundable tax credits as mentioned above.

Home Buyer’s Amount:

This is a $750 Federal Tax Credit granted to you if you or your spouse acquired a qualifying home during the year. Qualifying conditions require that you or your spouse did not live in another home owned by you or your spouse in any of the four preceding years.

The condition of First Time Home Buyer is not required to be met in case if a disabled taxpayer buys the home for himself or you buy a home for the benefits of a relative who is eligible for a disability tax credit.

If the taxpayer is disabled, Canada Revenue Agency (CRA) will approve it if applied in the Form T2201. T 2201 Form needs to be signed by the doctor or any other professional specified in the form.

Qualifying homes can be: detached, semi-detached, town house, condominium, mobile home etc.

You need to disclose the address of the property qualifying for the credit and the closing date for the same.

If both spouses want to claim this credit, the total of this credit should not exceed $5,000

Public transit Amount:

You are entitled to this tax credit if you or your spouse paid for public transit passes (monthly or weekly). Tokens or “week end” passes are not entitled to this credit. This tax credit is a Federal tax credit offered to taxpayers in an initiative to encourage them to use public transportation for reducing pollution.

You can claim this tax credit or public transit passes bought on for yourself, your spouse and/or child under 19 years of age who is dependent on you.

It is generally beneficial for the higher income spouse to claim this credit.

In case if you use Presto cards, you are entitled to this credit if your one way rides exceed 32 in a month.

If CRA picks up your tax return for post assessment inquiry, it is not enough to send them the copies of the passes but you must send them the proof of purchase.

Children Art’s Amount:

You are entitled to a credit of maximum of $500 on your tax return if you or your spouse pay for your child under the age of 16 years, the cost of registration or membership in a prescribed program of artistic, cultural, recreational, or developmental activity. This way you can deduct the fees paid for your child for activities such as: math classes, music classes, painting classes etc.

The program should be at least for eight weeks, be suitable for the child, and be supervised.

Among the conditions of prescribed programs, the program should focus on any of the following:

1)      Developmental activity of the child,

2)      Creative or artistic skills,

3)      Cultural activity,

4)      Intellectual Skills

5)      Help child develop interpersonal skills

6)      Provide child enrichment or tutoring in academic subjects etc.

Disclaimer: Any discussion on this blog relating to the tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there could be a different tax strategy in a particular case. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situation or a problem, you are advised to seek the professional advice.

   

  

  

Spousal Tax Credit:(Non-Refundable Tax Credits-Continued)

Spousal Tax Credit:

Another very important tax credit for supporting your spouse is spousal tax credit. This credit can be claimed either by married or common-law partners. The taxpayer can file his tax return as married if on the last day of the year your marital status is “married”. The taxpayer can file his tax returns as common-law in case if he lives with his partner together for a continuous period of 12 months which includes December 31. Hence, if the taxpayer is living with his partner from say February 2015, he would not be regarded as common-law since at the end of the year 2015, he would not have completed 12 months of staying together.

For the year 2015, spousal Tax credit is calculated by the following formula:

      $11,327-Net Income of the Spouse

The net income refers to Line 236 of the Income Tax and Benefit Return for the year.

In case if the taxpayer is married during the year then this credit is calculated by considering the income of the spouse for the full year and not the income after the date of marriage.

In the year of separation for a married couple, the tax return will be filed as separate if there is a physical separation as on the last day of the year. The spousal tax credit in such a case is calculated by considering the income of the spouse up to the date of separation.

In case of common-law partners’ separation, they are regarded as separate only when they are separate for at least 90 days which includes December 31.

Another issue is with regard to getting this tax break when the spouse is a non-resident of Canada and has never entered Canada. In such a case this tax credit is calculated by the same above mentioned formula. However, there is one additional condition to be satisfied and that is that the taxpayer must have sent the money as a measure of support and the same should be enough as per the other country’s standard of living.

What is meant by Non-Refundable Credits for Individual Tax Return?

       When you file your individual income and benefit tax return, non-refundable tax credits play a very important part in reducing your balance owing or increasing your tax refund.

       

       Non-refundable tax credits reduce your income tax owing to zero but do not cause tax refunds. It can be best understood by comparing with a situation similar to when you visit a grocery store, purchase something, say for $100 and qualify for a coupon worth $20, admissible at the time of your next purchase.

       When you purchase next time from that grocery store, say of worth $15, the store cashier will not refund the balance $5 but request you to utilize the remaining $5 to use your coupon fully. This is the exact nature of a non-refundable tax credit.

       Non-refundable tax credits are both Federal and Provincial which reduce Federal Tax owing and Provincial Tax owing respectively. While most non-refundable tax credits are similar, the maximum amount of those tax credits differ. At the same time, these credit amounts increase from year to year.

Broadly to state, major non-refundable tax credits are currently based on whether you have any dependents to claim (i.e. spouse, kids), whether you have school fees to claim, or whether you or any of your dependents have any personal disability.

Let us start understanding those Federal tax credits and how they operate.

1)      Basic Personal Amount: Federal Amount - $11,327

Every Canadian Resident taxpayer can avail this tax-credit and earn income without paying any tax.

If you are a new immigrant or emigrant (taxpayers leaving Canada during the year), this tax credit is prorated based on the number of days present in Canada in that year.

In the year of death, you could be required to file multiple tax returns but this credit is not prorated between January 01 and date of death, and period after the date of death till the year end due to the special situation.

In the year of taxpayer declaring bankruptcy, he is required to file two tax returns; one from January 01 to date of declaring bankruptcy and another for the post-bankruptcy period.

Non-resident taxpayers do not qualify for this credit unless they file their tax return in Canada, their income from Canada is more than 90% of their world income.

2)      Age Amount: Federal Amount- $7,033

Age amount is granted to taxpayers who are over the age of 65 years during or at the end of the year. In case of a new immigrant or emigrant, this amount is prorated.

The age amount is also phased out depending on your income if you qualify for the same.

If your Net Income (Line 236) for the year is $35,466 or less, you may be entitled to the full age amount credit. If your Net Income is $82,353 or more, there will be no age credit amount that you will qualify for and if your Net Income is in between the above two amounts, the age credit is phased out at 15%.

   There are other non-refundable tax credits which we will consider in my next blog.