What’s new on the 2016 tax return?

Although individual Canadians file the same T1 Income Tax Return form each year, the rules governing the information to be provided on that return form and the tax consequences flowing from that information is in a constant state of change. And, it’s a safe bet that very few taxpayers read the annual Income Tax Guide carefully to find out what’s changed on this year’s return.

As a result, it’s easy for a situation to arise in which taxpayers to fail to report income received, or in which they miss out on newly available deductions or credits, both due to a lack of knowledge. And, it’s worth noting that while the Canada Revenue Agency (CRA) will almost certainly pick up on a taxpayer’s failure to report income as required, the CRA does not (and, in fact, cannot) provide the taxpayer with deductions or tax credits to which he or she is entitled, but has failed to claim on the return.

There were a significant number of tax changes which took effect during the 2016 tax year which affected individuals, and which are reflected on the 2016 return to be filed this spring. Some of the more important of those changes are outlined below.

Changes to child and family benefits

As of July 1, 2016, the child and family benefits paid to Canadian families underwent a significant change. Prior to July 1, the federal child and family benefit program consisted of the Canada Child Tax Benefit (which was not taxable), the National Child Benefit Supplement (which was not taxable) and the Universal Child Care Benefit (which was taxable). All of those benefits were replaced, effective July 1, with the Canada Child Benefit, which is not taxable.

What all of that means from the perspective of a family which received child and family benefits from the federal government during 2016 is that the only amount which must be reported on a return for 2016 (generally, on the return of the parent with the lower net income) is any Universal Child Care Benefit which was received between January and June 2016. Any and all other child and family benefits received during the year are not taxable and so do not need to be included in income on the return for 2016.

Changes to children’s fitness and arts credits

For several years, parents have been able to claim a non-refundable tax credit to help offset the cost of enrolling their children in fitness or arts-related activities.

Those credits may still be claimed on the return for 2016, but they have been reduced. For 2016, the maximum eligible fees per child for purposes of the children’s fitness tax credit has been reduced to $500. Eligible fees per child for purposes of the children’s arts credit have been reduced even further, to $250.

Looking ahead, it’s worth noting that both credits have been entirely eliminated as of 2017, so parents should not plan on claiming either credit when they file their returns for the current taxation year in the spring of 2018.

Elimination of Family Tax Cut

In 2014 and 2015, families with children under age 18 were able to engage in income splitting, through the notional reallocation of income from a higher earning spouse to the spouse with the lower income. That strategy, known as the “Family Tax Cut”, generally allowed up to $50,000 in taxable income to be notionally reallocated to the lower earning spouse, and taxed (at a lower rate) in his or her hands. The maximum tax savings which could be claimed was $2,000.

However, taxpayers who search the 2016 return form for a place to claim the Family Tax Cut won’t find it, as it has been eliminated for 2016 and subsequent taxation years.

New home accessibility expense tax credit claim

Beginning with the 2016 taxation year, taxpayers can claim a non-refundable tax credit for changes made to a home in order to make it safer or more accessible for a senior or for someone who is disabled. The credit is equal to 15% of qualifying costs incurred, to a maximum of $10,000 in such costs.

The home accessibility tax credit is claimable, not just by the person for whom the qualifying renovations are made but, generally, by family members who support that individual.

In order to be claimed on the return for 2016, any eligible renovations must of course have been done before the end of that year, so the deadline for making such renovations claimable on the 2016 has passed. However, as many common home “renovation” projects do qualify for the credit (for example, installing a grab bar in a bath or shower), it’s worth checking to see whether any such expenditures were made during 2016.

And, of course, such qualifying expenditures made during 2017 will be claimable on the return next spring. More information on the kinds of home renovation expenses that will or won’t qualify for the credit is available on the Canada Revenue Agency website.

Reporting the sale of a principal residence

For many years, Canadian taxpayers have received a tax exemption (the “principal residence exemption”) on any profit (or “gain”) they make on the sale their home, as such amounts are not included in taxable income. Until now, it hasn’t even been necessary to report the sale of one’s home on the annual tax return. As of the 2016 tax year, that has changed.

An individual taxpayer who sells his or her home must now report the sale on Schedule 3 to the annual return. On that Schedule 3, the taxpayer is required to certify the year the property was acquired, the number of years during which the property was his or her principal residence during the period of ownership and the amount for which the property was sold.

There is a related change with respect to the CRA’s ability to enforce the new reporting requirement. Also effective as of 2016, the Agency can at any time (meaning that the usual time limits for reassessments don’t apply) reassess your income tax return if you fail to report a sale of real estate.
Complete our Sale or Disposition of Primary Residence Worksheet to provide the necessary data to your accountant.

Claiming a labour-sponsored funds tax credit

Taxpayers who invest in the shares of federally or provincially (or territorially) registered labour-sponsored venture capital corporations (LSVCCs) can claim a federal tax credit for that investment. Changes have been made, effective for the 2016 tax year, to the percentage claims which can be made.

For 2016 and subsequent years, the federal credit rate percentage for investments in provincially or territorially registered LSVCCs has been restored to 15%.

Conversely, the federal tax credit for the purchase of shares of federally registered LSVCCs has decreased to 5% for 2016. As well, 2016 is the last year for which a credit can be claimed for investments in federally registered LSVCCs, as the federal credit is eliminated for 2017 and later tax years.

It is important to get your taxes completed on time or as soon as possible. Contact us today and let us help you, and visit our Personal Tax Resources page for useful tax filing information.

This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.