The Tax Planning Guide 2013-2014, an up-to-date fiscal ...en.planiguide.ca/files/2013/11/Tax-Planning-Guide-2013-2014.pdf · The Tax Planning Guide 2013-2014, an up-to-date fiscal

The Tax Planning Guide 2013-2014, an up-to-date fiscal reference, describes the latest individual income tax developments. The most recent tax changes are noted at the beginning of each section.

Raymond Chabot Grant Thornton not only offers its services throughout Quebec, but also in eastern Ontario and Edmundston, New Brunswick. Therefore, we have included a number of references to the rules that apply in these provinces.

The three detachable Individuals’ Taxation folders include the 2013 Quebec, Ontario and New Brunswick tax tables. As with previous editions, we have included a folder on Corporate Taxation.

The planning suggestions in this Guide are general in nature and should not be considered a substitute for the recommendations of your tax advisor.

We hope you enjoy this year’s edition.

FOLDERS – 2013

FOLDERS – INDIVIDUALS’ TAXATION

Quebec

Ontario

New Brunswick

The following tables are in each of the three above-mentioned folders:

Table I1 Tax Table

Table I2 Non-Refundable Tax Credits

Table I3 Marginal Rates

Table I4 Tax Brackets

FOLDER – CORPORATE TAXATION

Table C1 Business Income Eligible for SBD

Table C2 Business Income Not Eligible for SBD

Table C3 Investment Income

Table C4 Sales Tax

Table C5 SR&ED Tax Credits

Table C6 Capital Cost Allowance Rates

1

Raymond Chabot Grant Thornton 2013-2014 Tax Planning Guide

TABLE OF CONTENTS

Page

REMARKS .................................................................................................................................................10

ABBREVIATIONS .....................................................................................................................................10

SECTION I – TAX SYSTEM ......................................................................................................................12

1. TAX SYSTEM ...............................................................................................................................12 Quebec ..........................................................................................................................................12 Ontario ..........................................................................................................................................12 New Brunswick ..............................................................................................................................13

2. INCOME TAX RETURNS .............................................................................................................13 Filing Deadlines .............................................................................................................................14

3. INCOME TAX PAYMENTS ...........................................................................................................14 Deductions at Source ....................................................................................................................14 Refund – Quebec ..........................................................................................................................16 Retroactive Payments ...................................................................................................................17

4. ADMINISTRATIVE MEASURES ...................................................................................................17 Books and Supporting Documentation .........................................................................................17 Notice of Objection ........................................................................................................................18 Collection ......................................................................................................................................18 Fairness Measures ........................................................................................................................18

5. VOLUNTARY DISCLOSURE ........................................................................................................19

6. THIRD PARTY PENALTIES .........................................................................................................19

7. ELECTRONIC ACCESS TO PERSONAL FILES .........................................................................19

8. ONLINE PAYMENTS ....................................................................................................................19

SECTION II – INDIVIDUALS AND FAMILIES ..........................................................................................20

1. DEFINITIONS ...............................................................................................................................20 Spouse ..........................................................................................................................................20 Child ..............................................................................................................................................21

2. PARENTAL ASSISTANCE ...........................................................................................................21 Child Tax Credit – Federal ............................................................................................................21 Canada Child Tax Benefit .............................................................................................................21 Universal Child Care Benefit .........................................................................................................21 Child Assistance Payments – Quebec ..........................................................................................21 Ontario Child Benefit and Income Supplement .............................................................................22 Child Tax Benefit and Earned Income Supplement – New Brunswick .........................................23 Child Care Expenses ....................................................................................................................23 Children’s Activities .......................................................................................................................24 Adoption Expenses .......................................................................................................................25 Infertility Treatment .......................................................................................................................26

3. ASSISTANCE FOR DISABLED PERSONS, SENIORS AND CAREGIVERS .............................26

4. SUPPORT PAYMENTS ................................................................................................................26 Legal Expenses .............................................................................................................................27

2

Page


5. HOME ASSISTANCE ....................................................................................................................27 First-time Home Buyer Credit – Federal .......................................................................................27 Home Buyer’s Plan .......................................................................................................................27 Exemption – Principal Residence .................................................................................................28

6. OTHER CREDITS .........................................................................................................................28 Charitable Donation ......................................................................................................................28 Goods and Services Tax Credit ....................................................................................................30 Ontario Trillium Benefit ..................................................................................................................31 Solidarity Tax Credit – Quebec .....................................................................................................31 Political Contributions ....................................................................................................................31 Public Transit Passes ....................................................................................................................31 Top-Level Athletes – Quebec ........................................................................................................32 EcoENERGY Vehicle ....................................................................................................................32

7. TAX CREDIT TRANSFERS BETWEEN SPOUSES ....................................................................32

8. INCOME SPLITTING ....................................................................................................................32 Pension Income Splitting ..............................................................................................................32 Other Income Splitting Provisions .................................................................................................32

SECTION III – EDUCATION ......................................................................................................................34

1. INCOME ........................................................................................................................................34 Scholarships ..................................................................................................................................34 Research Grants ...........................................................................................................................34

2. DEDUCTIONS AND CREDITS .....................................................................................................35 Tuition Tax Credit ..........................................................................................................................35 Education Tax Credit .....................................................................................................................35 Textbook Tax Credit – Federal .....................................................................................................35 Credit for Interest Paid on Student Loans .....................................................................................36 Transfer and Carryover of Student Credits ...................................................................................36 Tax Credits for Children in Post-Secondary Studies – Quebec ....................................................37 Moving Expenses ..........................................................................................................................37 Child Care Expenses ....................................................................................................................37

3. REGISTERED EDUCATION SAVINGS PLAN .............................................................................37 Disabled Beneficiaries ...................................................................................................................37 Contributions .................................................................................................................................38 Eligible Investments ......................................................................................................................38 Canada Education Savings Grant .................................................................................................38 Canada Learning Bond .................................................................................................................38 Quebec Education Savings Incentive ...........................................................................................38 Summary – CESG and QESI ........................................................................................................39 Educational Assistance Payments ................................................................................................39 Reimbursement of government assistance ..................................................................................39 Transfer to an RRSP .....................................................................................................................39 Transfer to an RDSP .....................................................................................................................39

4. LIFELONG LEARNING PLAN ......................................................................................................40

SECTION IV – HEALTH AND CAREGIVERS ..........................................................................................41

1. MEDICAL EXPENSE CREDIT ......................................................................................................41 Eligible Expenses ..........................................................................................................................41 Adjustment for Medical Expenses Claimed for Dependents.........................................................42 Refundable Medical Expense Credit .............................................................................................42

3

Page


Credit for Medical Services Not Incurred in Taxpayer’s Area – Quebec ......................................42

2. DISABLED PERSONS ..................................................................................................................42 Certification ...................................................................................................................................43 Tax Credit for Persons With Disabilities ........................................................................................43 Tax Credit for Disabled Dependents – Federal ............................................................................43 Disability Supports Deduction .......................................................................................................43 Child Care Expenses ....................................................................................................................43 Other Related Measures ...............................................................................................................43

3. SENIORS ......................................................................................................................................43 Home-Support Services for Seniors – Quebec .............................................................................43 Refundable tax credit for expenses incurred by seniors during a stay in a transitional care

and rehabilitation unit – Quebec ..............................................................................................44 Refundable tax credit for the purchase or rental of equipment designed to help seniors

live independently at home – Quebec .....................................................................................44 Healthy Homes Renovation Tax Credit – Ontario .........................................................................44

4. CAREGIVERS ...............................................................................................................................45 Amount for Caregivers ..................................................................................................................45 Family Caregiver Tax Credit – Federal .........................................................................................45 Refundable Tax Credit for Caregivers – Quebec ..........................................................................45 Credit for Providing Volunteer Respite Services – Quebec ..........................................................45 Tax Credit for Respite of Caregivers – Quebec ............................................................................45

5. REGISTERED DISABILITY SAVINGS PLAN ...............................................................................46 Grants and Bonds Available .........................................................................................................46 Payments ......................................................................................................................................46 Repayment of CDSGs and CDSBs ...............................................................................................47 End of Plan ....................................................................................................................................47 Plan Transfers ...............................................................................................................................47

6. INDEMNITY FOR CLINICAL TRIAL – QUEBEC ..........................................................................47

SECTION V – EMPLOYEES .....................................................................................................................48

1. TAXABLE BENEFITS ...................................................................................................................48 Insurance Plans ............................................................................................................................48 Employer Automobile ....................................................................................................................48 Employee Loans ...........................................................................................................................51

2. STOCK OPTIONS .........................................................................................................................52 Shares of Canadian-Controlled Private Corporations ...................................................................52 Shares of Public Companies .........................................................................................................52

3. NON-TAXABLE BENEFITS ..........................................................................................................53 Automobile Allowance ...................................................................................................................53 Director’s Allowance ......................................................................................................................53 Professional and Union Dues .......................................................................................................53 Tuition and Training Costs ............................................................................................................54 Parking Costs ................................................................................................................................54 Overtime Payments .......................................................................................................................54 Social Events for Employees ........................................................................................................55 Emergency Volunteers ..................................................................................................................55 Gifts and Awards ...........................................................................................................................55 Collective or Public Transit Passes – Quebec ..............................................................................56 Other Non-Taxable Benefits .........................................................................................................56

4

Page


4. EMPLOYMENT EXPENSES ........................................................................................................57 Motor Vehicle Expenses ...............................................................................................................57 Meal, Travel and Entertainment Expenses ...................................................................................58 Supplies ........................................................................................................................................59 Workspace in Home ......................................................................................................................60 Professional and Union Dues .......................................................................................................60 Moving Expenses ..........................................................................................................................61 Computers and Telecommunications ...........................................................................................61 Legal Fees ....................................................................................................................................61 Employees Working in Forestry Operations .................................................................................61 Employed Musicians and Artists ...................................................................................................62 Cost of Tools for Tradespersons ...................................................................................................62

5. INCENTIVES FOR WORKERS ....................................................................................................62 Canada Employment Credit – Federal ..........................................................................................62 Working Income Tax Benefit – Federal .........................................................................................62 Work Premium – Quebec ..............................................................................................................63 Deductions for Workers – Quebec ................................................................................................63 Tax Credit for Experienced Workers – Quebec ............................................................................63

6. TIPS – QUEBEC ...........................................................................................................................63

7. TAX CREDIT FOR NEW GRADUATES WORKING IN REGION – QUEBEC .............................63

8. EMPLOYMENT OVERSEAS ........................................................................................................63 Tax Credit – Federal .....................................................................................................................64 Employment Deduction – Quebec ................................................................................................64

9. FOREIGN SPECIALISTS – QUEBEC ..........................................................................................64

10. VOLUNTARY FIREFIGHTERS TAX CREDIT ..............................................................................64

11. GST, HST AND QST REFUND ....................................................................................................64

12. SALARY DEFERRALS .................................................................................................................64 Bonus ............................................................................................................................................64 Employee Benefit Plan ..................................................................................................................64 Salary Deferral Arrangement ........................................................................................................65 Sabbatical .....................................................................................................................................65

SECTION VI – BUSINESSES....................................................................................................................66

1. OPERATING A BUSINESS ..........................................................................................................66

2. YEAR-END ....................................................................................................................................66 Optional Method ............................................................................................................................66 Information Return – Quebec ........................................................................................................67

3. INCOME ........................................................................................................................................67 Business or Professional Income ..................................................................................................67 Other Income ................................................................................................................................67 Professionals’ Work-in-Process ....................................................................................................67

4. BUSINESS LOSSES .....................................................................................................................67

5. INCENTIVES FOR WORKERS ....................................................................................................68

6. GENERAL BUSINESS EXPENSES .............................................................................................68 Meals and Entertainment Expenses .............................................................................................68 Capital Cost Allowance .................................................................................................................70 Interest ..........................................................................................................................................70

5

Page


Fines and Penalties .......................................................................................................................71 Professional Dues .........................................................................................................................71 Legal and Accounting Fees ..........................................................................................................71 Home Office ..................................................................................................................................71 Automobile ....................................................................................................................................72 Employee Public Transit or Employee Group Transportation – Quebec ......................................72 Private Health Insurance Plan – Federal ......................................................................................72

7. EMPLOYER CONTRIBUTIONS ...................................................................................................72

8. GST/HST AND QST ......................................................................................................................73

9. TAX CREDITS ..............................................................................................................................73 Credit for Reporting Tips – Quebec ..............................................................................................73 Scientific Research and Experimental Development ....................................................................73 Apprenticeship and Training Credits .............................................................................................73

10. FARMING ......................................................................................................................................74 Definition .......................................................................................................................................74 Related Business ..........................................................................................................................75 Methods of Reporting Income .......................................................................................................75 Farm Losses .................................................................................................................................76 Investment Tax Credit – Federal ...................................................................................................77 Transfer of Farm and Fishing Property .........................................................................................77

11. SHAREHOLDERS-MANAGERS ..................................................................................................78 Remuneration ................................................................................................................................78 Year-End Bonus ............................................................................................................................78 Loans and Advances .....................................................................................................................79 Capital Dividend ............................................................................................................................80 Responsibility of Corporate Directors ...........................................................................................80

12. INCORPORATION OF PROFESSIONALS ..................................................................................81

SECTION VII – INVESTMENTS ................................................................................................................82

1. NATURE OF TRANSACTIONS ....................................................................................................82 Disposal of Canadian Securities ...................................................................................................82

2. CAPITAL GAIN OR LOSS ............................................................................................................82 Reserve .........................................................................................................................................83 Share Exchange ............................................................................................................................83 Foreign Currency Transactions .....................................................................................................83 Donations ......................................................................................................................................83 Principal Residence ......................................................................................................................84

3. CAPITAL GAINS DEDUCTION ....................................................................................................84 $100,000 Deduction ......................................................................................................................84 $750,000 Deduction ......................................................................................................................84 Cumulative Net Investment Loss ..................................................................................................85 Allowable Business Investment Loss ............................................................................................85 Capital Gain – Reinvestment and Deferral of Taxation ................................................................85

4. INTEREST INCOME .....................................................................................................................85 Treasury Bills ................................................................................................................................85 Indexed Securities .........................................................................................................................86 Hybrid Financial Instruments ........................................................................................................86

6

Page


5. DIVIDEND INCOME ......................................................................................................................86 Spouse’s Dividend Income ...........................................................................................................86

6. INVESTMENT INCOME COMPARISON ......................................................................................87

7. FOREIGN INVESTMENTS ...........................................................................................................87 Foreign Tax Credit ........................................................................................................................87 Declaring Foreign Investments .....................................................................................................87

8. LEASING .......................................................................................................................................88 Income ..........................................................................................................................................88 Losses ...........................................................................................................................................88 Expenses ......................................................................................................................................88 Special Situations ..........................................................................................................................89

9. INTEREST AND FINANCIAL EXPENSES ...................................................................................89 Eligible Expenses ..........................................................................................................................90 Investment Advisors ......................................................................................................................91 Loss of Income Source .................................................................................................................91

10. INVESTMENT PROGRAMS .........................................................................................................91 Limited Partnerships .....................................................................................................................91 Labour-Sponsored Venture Capital Corporations .........................................................................92 Capital régional et coopératif Desjardins ......................................................................................92 Stock Savings Plan II ....................................................................................................................93 Cooperative Investment Plan ........................................................................................................93 Flow-Through Shares ....................................................................................................................93 Small Business Investor Tax Credit ..............................................................................................94 Mutual Funds ................................................................................................................................95 Segregated Funds .........................................................................................................................95 Income Trust and Publicly-Traded Partnership ............................................................................95

11. TAX-FREE SAVINGS ACCOUNT ................................................................................................95

12. ALTERNATIVE MINIMUM TAX ....................................................................................................97

13. HOLDING COMPANIES ...............................................................................................................97

SECTION VIII – FINANCIAL PLANNING AND PORTFOLIO MONITORING ..........................................98

1. BALANCE SHEET AND BUDGET ................................................................................................98 Balance Sheet ...............................................................................................................................98 Budget ...........................................................................................................................................98 Consider Systematic Saving .........................................................................................................99

2. INVESTMENTS AND PORTFOLIO MONITORING .....................................................................99 Portfolio Monitoring .................................................................................................................... 100

3. PROTECTION OF INVESTED CAPITAL IF SECURITIES CUSTODIAN BANKRUPT ............ 101 Investor Protection ..................................................................................................................... 101

4. ANNUITY ................................................................................................................................... 102 Factors Influencing Annuity Amount .......................................................................................... 102 Protection if Financial Institution Granting Annuity Goes Bankrupt ........................................... 102

5. RETIREMENT ............................................................................................................................ 103 Risk and retirement do not make a good mix ............................................................................ 103 Assessing Financial Security ..................................................................................................... 103 Retirement Income Sources ...................................................................................................... 104

7

Page


SECTION IX – RETIREMENT ASSISTANCE PROGRAMS .................................................................. 106

1. REGISTERED RETIREMENT SAVINGS PLANS ..................................................................... 106 Contributions .............................................................................................................................. 106 Unused Contributions ................................................................................................................. 108 Unused Deductions .................................................................................................................... 108 Information Supplied by the CRA ............................................................................................... 109 Contributions to a Spousal RRSP .............................................................................................. 109 Over-Contributions ..................................................................................................................... 109 Financing RRSP Contributions .................................................................................................. 110 Fund and Investment Transfers ................................................................................................. 110 Qualified Investments ................................................................................................................. 111 Prohibited Investments ............................................................................................................... 111 RRSP Benefit ............................................................................................................................. 112 Property Pledged as Security .................................................................................................... 112 Matured RRSPs ......................................................................................................................... 112 Deductions at Source on Withdrawals ....................................................................................... 112 Administration and Management Fees ...................................................................................... 113 RRSP and Alternative Minimum Tax ......................................................................................... 113 RRSP Beneficiaries Upon Death ............................................................................................... 113 Home Buyer’s Plan .................................................................................................................... 113 Lifelong Learning Plan ............................................................................................................... 113

2. REGISTERED RETIREMENT INCOME FUND ......................................................................... 113

3. EMPLOYER PENSION PLANS ................................................................................................. 114 Registered Pension Plan............................................................................................................ 114 Deferred Profit Sharing Plan ...................................................................................................... 114 Characteristics of RPPs and DPSPs ......................................................................................... 114 Deductible Contributions ............................................................................................................ 114 Transfer of RPP Funds .............................................................................................................. 115 Purchase of Past Service by RPP ............................................................................................. 115 Pooled Registered Pension Plans and Voluntary Retirement Savings Plans ........................... 116 Individual Pension Plan .............................................................................................................. 116 Simplified Pension Plan ............................................................................................................. 116 Retirement Compensation Arrangement ................................................................................... 116

4. PENSION INCOME SPLITTING ................................................................................................ 117 QPP and CPP Benefits .............................................................................................................. 117

SECTION X – VISITORS TO THE U.S. .................................................................................................. 118

1. TAX TREATY ............................................................................................................................. 118

2. SOJOURNING IN THE U.S. ...................................................................................................... 118 Deemed Residence .................................................................................................................... 118 U.S. Source Income ................................................................................................................... 119

3. U.S. REAL ESTATE ................................................................................................................... 119 Rental Income ............................................................................................................................ 119 Sale of Real Estate .................................................................................................................... 120

8

Page


4. U.S. ESTATE TAXES ................................................................................................................ 120

5. PERSONAL IDENTIFICATION NUMBER ................................................................................. 121

6. GOVERNMENT HEALTH INSURANCE PLANS ....................................................................... 121

7. TAX RATES ............................................................................................................................... 122 Corporation ................................................................................................................................ 122 Individuals .................................................................................................................................. 122

SECTION XI – ESTATE PLANNING ...................................................................................................... 124

1. FAMILY BUSINESS ................................................................................................................... 124 Succession Planning .................................................................................................................. 124

2. ESTATE FREEZE ...................................................................................................................... 125

3. TRUST ....................................................................................................................................... 126

4. LIFE INSURANCE ..................................................................................................................... 127

5. WILL PLANNING ....................................................................................................................... 127

SECTION XII – DECEASED PERSONS ................................................................................................ 129

1. TAX RESPONSIBILITIES .......................................................................................................... 129 Old Age Security Pension .......................................................................................................... 129 Quebec Pension Plan and Canada Pension Plan ..................................................................... 129 Goods and Services Tax Credit ................................................................................................. 129 Solidarity Tax Credit ................................................................................................................... 130 Canada Child Tax Benefit, Universal Child Care Benefit and Child Assistance Payment ........ 130 Instalments ................................................................................................................................. 130

2. TAX RETURNS .......................................................................................................................... 130 Filing of the Returns ................................................................................................................... 130

3. INCOME ..................................................................................................................................... 131 Allocation of Income ................................................................................................................... 131 Disposition of Capital Properties ................................................................................................ 132

4. REGISTERED PLANS ............................................................................................................... 133 RRSP and RRIF ......................................................................................................................... 133 TFSA .......................................................................................................................................... 134 RDSP ......................................................................................................................................... 134

5. DEDUCTIONS AND TAX CREDITS .......................................................................................... 134 Distribution ................................................................................................................................. 134 RRSP Contributions ................................................................................................................... 134 Deductions Relating to Investment Plans – Quebec ................................................................. 134 Funeral and Estate Administration Expenses ............................................................................ 135 Charitable Donations .................................................................................................................. 135 Medical Expenses ...................................................................................................................... 135 Capital Losses ............................................................................................................................ 135

6. ESTATE INCOME ...................................................................................................................... 135

7. DEATH BENEFITS .................................................................................................................... 135 Death Benefit ............................................................................................................................. 135 QPP or CPP Death Benefit ........................................................................................................ 135

9

Page


8. AMOUNTS REIMBURSED BY AN ESTATE ............................................................................. 135

9. DISTRIBUTION OF PROPERTY ............................................................................................... 136

10. PROBATE FEES ........................................................................................................................ 136

SECTION XIII – SOCIAL PROGRAMS AND BENEFITS ...................................................................... 137

1. EMPLOYMENT INSURANCE CONTRIBUTIONS AND QUEBEC’S PARENTAL INSURANCE PLAN .................................................................................................................... 137 Employment Insurance .............................................................................................................. 137 Quebec Parental Insurance Plan ............................................................................................... 138

2. QUEBEC PENSION PLAN AND CANADA PENSION PLAN .................................................... 139 Contributions .............................................................................................................................. 139 Benefits ...................................................................................................................................... 139 Adjustments to Benefits ............................................................................................................. 140 QPP supplemental retirement benefit and CPP post-retirement benefit ................................... 140

3. OLD AGE SECURITY PENSION ............................................................................................... 140 Complementary Provincial Benefits ........................................................................................... 141

4. HEALTH SERVICES FUND – QUEBEC .................................................................................... 142 Employers .................................................................................................................................. 142 Individuals .................................................................................................................................. 142

5. OCCUPATIONAL HEALTH AND SAFETY – QUEBEC ............................................................ 142 Quebec ....................................................................................................................................... 142 Ontario ....................................................................................................................................... 142 New Brunswick ........................................................................................................................... 142

6. COMMISSION DES NORMES DU TRAVAIL – QUEBEC ......................................................... 143

7. HEALTH CONTRIBUTION......................................................................................................... 143 Quebec ....................................................................................................................................... 143 Ontario ....................................................................................................................................... 143

8. EMPLOYER HEALTH TAX – ONTARIO .................................................................................... 143

9. DRUG INSURANCE .................................................................................................................. 144 Quebec ....................................................................................................................................... 144 Ontario ....................................................................................................................................... 144 New Brunswick ........................................................................................................................... 145

10. ASSISTANCE TO PARENTS AND FAMILIES ................................................................................. 145

11. SALES TAX CREDITS ...................................................................................................................... 145

INDEX ..........................................................................................................................................................1

10


REMARKS

Throughout this guide:

Unless otherwise specified, the measures discussed apply for federal, Quebec, Ontario and New Brunswick purposes;

The term Act designates both the federal Income Tax Act (federal, Ontario and New Brunswick) and the Taxation Act (Quebec).

This document is up to date as of August 2, 2013 and reflects the status of legislation, including draft amendments, at that date.

ABBREVIATIONS

AMT Alternative Minimum Tax

ARQ Agence du revenu du Québec

CAP Child Assistance Payment

CCPC Canadian-controlled private corporation

CCTB Canada Child Tax Benefit

CDSB Canada Disability Savings Bond

CDSG Canada Disability Savings Grant

CESG Canada Education Savings Grant

CPP Canada Pension Plan

CRA Canada Revenue Agency

CSST Commission de la santé et de la sécurité du travail

DPSP Deferred Profit-Sharing Plan

EI Employment Insurance

FMV Fair market value

FSFTQ Fonds de solidarité FTQ

GIS Guaranteed Income Supplement

GST Goods and services tax

HBP Home Buyers’ Plan

HSF Health services fund

HST Harmonized sales tax

IPP Individual Pension Plan

ITC Input tax credit

ITR Input tax rebate

LIF Life Income Fund

LIRA Locked-In Retirement Account

LIRIF Locked-In Retirement Income Fund

MPP Manufacturing and Processing Profits

OAS Old Age Security Pension

PRPP Pooled Registered Pension Plan

QESI Quebec Education Savings Incentive

QPIP Quebec Parental Insurance Plan

QPP Quebec Pension Plan

QPPDIP Quebec Public Prescription Drug Insurance Plan

QST Quebec sales tax

RAMQ Régie de l’assurance maladie du Québec

RDSP Registered Disability Savings Plan

RESP Registered Education Savings Plan

RPP Registered Pension Plan

RRIF Registered Retirement Income Fund

RRSP Registered Retirement Savings Plan

SBD Small business deduction

SR&ED Scientific research and experimental development

SSP II Stocks Savings Plan II

TFSA Tax-Free Savings Account

UCCB Universal Child Care Benefit

VRSP Voluntary Retirement Saving Plan

Section I – TAX SYSTEM 12


SECTION I – TAX SYSTEM

RECENT CHANGES

– In Quebec, the tax rate applicable to taxable income over $100,000 has been 25.75% since January 1, 2013.

– In Ontario, the tax rate applicable to taxable income over $509,000 has been 13.16% since January 1, 2013.

– In New Brunswick, the rates applicable to all tax brackets increased in 2013 and will increase again as of January 1, 2014.

1. TAX SYSTEM

In Canada, income tax is payable on the worldwide income of every person who resided in Canada at any time during the year. For provincial tax purposes, taxpayers report their income and pay their income taxes in the province in which they were resident on December 31. In general, individuals are considered resident of the province where they have substantial residential ties, i.e. where their residence or home is situated and where their spouse and children live, if any. The facts of each case have to be analyzed individually and a number of other criteria may also be taken into consideration.

Taxable income includes various types of income (employment, business, investment, taxable capital gains, and other) against which certain deductions can be claimed according to tax legislation. Income taxes are calculated at progressive rates depending on the level of income. Taxes are reduced by refundable or non-refundable tax credits. Taxpayers who have an unused refundable tax credit balance are entitled to a refund. In certain cases, additional tax may be payable during the year as AMT (refer to Section VII).

Full indexation applies to a large number of tax measures including the personal income thresholds for calculating income taxes as well as amounts used to determine certain credits.

The 2013 indexation and taxation rates and non-refundable credits amounts can be found in your province’s Folder – Individuals Taxation at the end of the Tax Planning Guide.

Quebec

Unlike the other provinces, Quebec taxpayers have to file a separate provincial income tax return.

Beneficiary of a Trust

A Quebec resident who is a beneficiary of a trust resident in Canada but outside Quebec must generally file a tax return and complete a declaration as to his/her status as a beneficiary. Failure to do so could result in penalties for the beneficiary.

Ontario

Ontario’s income tax system is based on taxable income for federal purposes and no provincial return has to be filed.

Lower income taxpayers may reduce or eliminate their Ontario income tax by claiming the Ontario tax reduction for the basic amount of $221 in 2013 and an additional $409 for each dependent child or disabled person. This measure is based on the individual’s taxable income and the number of eligible dependents.



The two-tiered surtax is also collected if the Ontario tax amount payable exceeds certain specific thresholds (refer to Table I4 of the Folder – Individuals Taxation (Ontario) at the end of the Tax Planning Guide.

New Brunswick

Like Ontario, New Brunswick’s income tax is based on taxable income for federal purposes, and taxpayers do not have to file a provincial income tax return.

Low-income taxpayers are entitled to a tax reduction such that they have to pay no provincial income tax if their income in 2013 does not exceed $15,667 (for single tax filers). This reduction is gradually withdrawn at the rate of 3% of income in excess of this threshold.

2. INCOME TAX RETURNS

Administration of the tax laws is based on a system of self-assessment, which means that every taxpayer is required to file an income tax return every year if:

There is income tax payable or a refund is claimed;

The tax authorities have requested a return be filed;

He/she and his/her spouse elected to split pension income;

He/she realized a taxable capital gain or disposed of a capital property;

He/she incurred a capital loss that can be applied in a subsequent year or deducted a capital gains reserve in the preceding year;

He/she has to repay all or a portion of OAS or EI benefits received;

He/she has not repaid all amounts withdrawn from an RRSP in connection with the HBP or the Lifelong Learning Plan;

He/she is claiming a refund or a refundable tax credit (including the GST/HST credit) or wants to transfer the unused portion of his/her non-refundable tax credits to his/her spouse (Quebec);

He/she wants to receive the CCTB and the CAP;

He/she wants to carry forward unused tuition fees and the education amount (federal) to a future year;

He/she has “earned income” for RRSP purposes and wants to update his/her maximum deductible for RRSP purposes;

He/she has to make CPP/QPP contributions on self-employment or employment income, or EI contributions on self-employment income or other eligible income if he/she has elected to do so;

He/she has to make a contribution in Quebec to the QPIP, HSF or QPPDIP or a health contribution;

The taxpayer or his/her spouse wants to receive the housing allowance or the solidarity tax credit (Quebec);

He/she received in the year advance payments of the tax credit for maintaining a senior at home, the work premium or the child care tax credit (Quebec) or the working income tax benefit (federal);

He/she operates an individual business and must pay annual registration fees for the Quebec enterprise register;

He/she is the beneficiary of a trust that is resident in Canada but outside Quebec (Quebec).



Filing Deadlines

Income tax returns must be filed no later than April 30 following the taxation year in question (June 15 if the taxpayer or his/her spouse is reporting business income). If April 30 (June 15) falls on a Saturday1 or Sunday, the returns have to be filed on the first working day thereafter. If returns are filed late, the taxpayer is subject to a 5% penalty charged by both governments on the balance unpaid as at April 30 and an additional penalty of 1% for each full month it is late, up to 12 months. The penalty may be more for repeat offenders.

File your income tax return within the prescribed times even if you are unable to pay the balance owing in

order to avoid late filing penalties.

Persons who file more than ten income tax returns per year for compensation are required to submit their returns electronically.

3. INCOME TAX PAYMENTS

Income tax payments are normally made by means of deductions at source for employment income or by instalments for other sources of income. Any balance owing at the end of a year is payable on April 30 of the following year whether the return has to be filed on April 30 or June 15.2

Deductions at Source

Employees and pension plan administrators who make certain payments are required to withhold amounts set by tax regulation and to remit them to the appropriate government.

Tax withholdings include deductions made by employers on remuneration paid to employees and on lump-sum payments.

The governments publish withholding tax tables with which payers must comply. However, lump-sum payments are subject to the following fixed rates:

2013 Quebec Other

provinces Federal Quebec Total

$5,000 and less 5% 16% 21% 10%

$5,001 – $15,000 10% 20%3 30%3 20%

$15,001 and more 15% 20%4 35%4 30%

Lump-sum payments from an RPP, a DPSP, an RRSP or a retiring allowance are not subject to withholding if they are transferred directly to another plan without being paid to the beneficiary.

1 Although Saturday is not considered a holiday, the federal authorities generally treat it as such administratively.

The ARQ can postpone the deadline at its discretion. In these circumstances, the deadline should therefore be verified.

2 If the payment deadline falls on a Saturday, Sunday or statutory holiday, the rule in footnote 1 in this Section generally applies.

3 Payments from an RRSP or an RRIF are subject to a 16% withholding tax in Quebec, for a combined rate of 26%. 4 Payments from an RRSP or an RRIF are subject to a 16% withholding tax in Quebec, for a combined rate of 31%.



Remuneration of a Self-Employed Fisherman

A self-employed fisherman may elect to have source deductions made on remuneration received at a rate of 20% (federal, including all provinces other than Quebec) and 16% (Quebec) by completing the prescribed forms.

Increase/Decrease of Withholdings

Individuals may have additional amounts withheld by their employer or pension plan administrator if they provide them with the appropriate forms.

In certain situations, a payer may reduce or even eliminate withholding tax on certain payments made to a taxpayer. However, the taxpayer has to obtain prior approval from the tax authorities. Significant RRSP contributions, a business loss for the year, deductible support payments, charitable donations, medical expenses, tuition fees and moving expenses may justify such a reduction.5

Transfer from a Province

Taxpayers residing in Quebec on December 31 can transfer to Quebec 45% of the income tax withheld at source by their employer for another province. This credit corresponds to the amount that will be transferred to Quebec by the CRA.

A similar provision provides for income tax that has been withheld in Quebec for a resident of another province.

Instalments

Taxpayers may be required to make instalments with respect to income tax, QPP/CPP, QPIP, HSF and QPPDIP and the health fund contribution.

Quebec residents are required to remit instalments to the federal government if their net income tax payable6 for the current year and one of the two previous years is greater than $1,800. The ARQ imposes the same conditions for provincial instalments. The $1,800 federal amount is increased to $3,000 for residents of provinces other than Quebec.

Instalments have to be paid on the 15th day of March, June, September and December. Individuals can authorize the CRA to withdraw pre-determined amounts directly from their bank account. The CRA must receive this authorization at least 30 days before it makes the first withdrawal.

Farmers and Fishermen

Self-employed taxpayers whose principal source of income for 2013 is from farming or fishing and whose net income tax payable for 2011 to 2013 exceeds $1,8007 are only required to make one instalment equivalent to two thirds of net tax payable and any other contributions no later than December 31.

Instalment Calculations

Individuals may choose one of three options to calculate their instalments:

1st method: Four payments of 25% each of their estimated income tax payable for the current year;

2nd method: Four payments of 25% each of their income tax payable for the preceding year;

5 Authorization may not be required if the employer transfers the amounts directly into the employee’s RRSP.

Additional information can be found in Guide T4001 – Employers’ Guide – Payroll Deductions and Remittances (federal) and TP-1015.G-V – Guide for Employers: Source Deductions and Contributions (Quebec).

6 Generally equals the amount owed on the tax return. 7 $3,000 for residents of provinces other than Quebec.



3rd method: Two payments of 25% each of the income tax payable for the year which is two years prior to the current year and two payments of 50% each of the excess of the income tax payable for the preceding year over the total of the first two instalments, as previously calculated.

Interest on Instalments

The tax authorities send instalment reminders in February and August showing the amounts to be paid on the prescribed dates. The calculations are based on the third method described above.

Taxpayers are free to choose the method that suits them; however, taxpayers who pay the “reminder” amounts by the due dates will not be subject to interest or penalties even if taxes payable are greater than these “reminder” amounts.

Example: After speaking with a consultant, Mr. Collins decided to make instalments based on his 2013 income, which should be lower than in 2012 because he retired in June of 2013. His March, June and September 2013 payments are in line with expectations. However, on December 1, 2013, he made a significant taxable capital gain on a real estate transaction. As the transaction was not taken into account in calculating the instalments, they are insufficient and will result in interest being charged.

Taxpayers who fail to make the required instalments, or whose instalments are insufficient, are subject to daily compound interest. The CRA also charges an additional penalty equal to 50% of the interest where interest charges are over $1,000.8 The ARQ, on the other hand, charges a further 10% interest if the instalments are less than 75% of the required amounts. However, interest costs may be reduced or eliminated by prepaying instalments or increasing subsequent ones. The interest and penalties are not deductible.

Example: If a taxpayer has to make quarterly tax instalments of $6,000 in 2013, no interest should be charged if, instead of making payments of $6,000 each on March 15 and June 15, the taxpayer paid $12,000 on May 1.

Be sure you make sufficient instalments in order to avoid high non-deductible interest costs.

Offsetting Interest on Income Tax Payments

In general, interest received on excess tax payments is only taxable to the extent it exceeds interest owing by the individual on insufficient tax payments for the same period.

Refund – Quebec

Accelerated Refund

Taxpayers can request an accelerated refund if they fulfil certain conditions. Among others, if they have filed a tax return for the preceding year and their return for the current year is filed on time, they do not owe anything to the ARQ or any other government body and they are not claiming a refund of more than $3,000.

The notice of assessment could adjust the amount of the refund and a taxpayer might have to repay any excess amounts received plus any interest. Deceased taxpayers and taxpayers who went bankrupt during the year are not entitled to accelerated refunds.

8 Or where interest exceeds 25% of the interest calculated as if no instalment was made during the year.



Refund Transferred to Spouse

Taxpayers may elect to transfer all or part of their refund to their spouse. However, they cannot subsequently rescind or reduce the amount transferred or request an accelerated refund of the remainder. Such a transfer is not possible in the year where one of the spouses deceases.

Retroactive Payments

Federal

Taxpayers who receive a lump-sum payment of at least $3,000 (excluding interest) may resort to a special mechanism to compute the tax on such amount as if it had been taxed in the year it should have been paid, provided this method is more advantageous to them. The CRA calculates all of the amounts and applies the necessary adjustments, case permitting. Income eligible for such treatment includes:

Employment income received and amounts as damages for the loss of employment if such amounts are paid pursuant to an order or judgment of a competent tribunal or an agreement whereby the parties agree to terminate legal proceedings;

Periodic retirement or pension benefits (other than CPP/QPP benefits), support payments, income insurance plan or EI benefits;

Income benefits for Canadian Forces members and veterans;

CPP/QPP and UCCB benefits in excess of $300 (not $3,000).

The interest portion of a lump-sum payment continues to be taxed in the year the payment is received.

Quebec

Taxpayers who receive a retroactive lump-sum payment of at least $300 can elect to exclude this payment from their income in the year they receive it and to pay the related tax as if the payment had been received during the year to which it refers.

Possible types of payments include:

Employment income received under the terms of a court judgment, or an agreement among the parties in connection with legal proceedings;

QPP/CPP, EI, OAS and UCCB benefits;

Interest on retroactive payments.

Similar rules apply when taxpayers must pay arrears on support payments or have to reimburse a support payment (this is mandatory, not optional).

All of the amounts are calculated by the ARQ and the additional income tax payable is included in the current year’s income taxes payable and refunds are paid in the form of a non-refundable tax credit.

4. ADMINISTRATIVE MEASURES

Books and Supporting Documentation

Every person who has to pay income tax, carries on business or makes source deductions must prepare and retain all records in respect thereof for six years following the year to which they relate. However, some “permanent” documents must be kept for a longer period.

Books and records may include documents that are not just financial or legal, i.e. books of account, vouchers, invoices, letters, agreements or memoranda, regardless of their format. These documents can be kept in paper or electronic readable format.



Notice of Objection

Taxpayers who object to a notice of assessment should first try to obtain additional explanations by telephone, by letter or by visiting the tax authorities’ offices. They can also object to the assessment by completing the required forms or by writing to the Chief Appeals Officer of the CRA district office for their area or the ARQ office, depending on the circumstances.

A notice of objection must be filed by an individual by the later of the following:

Within 12 months following the tax return filing due date (April 30 or June 15, depending on the circumstances); or

Within 90 days following the date the notice of assessment to which the notice of objection relates was mailed.

Example: Mrs. Dunlop was supposed to file her 2012 return on April 30, 2013 but was unable to do so. On October 1, 2013, she files her income tax return for 2012. She receives a notice of assessment dated March 1, 2014 from the federal authorities and wants to object to it. She asks about the deadline for filing a notice of objection.

She can object no later than one year following the statutory filing date or 90 days following her notice of assessment. Therefore, Mrs. Dunlop has until May 30, 2014 to file a federal notice of objection with respect to her 2012 return.

A taxpayer can deduct for tax purposes all costs incurred to prepare and file a notice of objection to an assessment of income tax, interest or penalty. After going through the objection phase, a taxpayer can appeal to the Tax Court of Canada or the Court of Quebec.

Collection

Any tax liability arising from an assessment or a reassessment is payable immediately. However, the tax authorities do not generally institute legal proceedings within 90 days from the date of mailing such assessments. If a taxpayer is unable to pay an amount owing, arrangements may be made for payment thereof with the respective authorities.

No collection measures will be undertaken if an individual files a notice of objection or appeals to the courts. However, interest continues to be charged on the amount owing.

Fairness Measures

The CRA can cancel or waive in whole or in part penalties and interest levied pursuant to the Income Tax Act, the Excise Tax Act, and the Employment Insurance Act as well as with respect to CPP contributions to be paid.

These fairness measures apply when the taxpayer is unable to make a payment or comply with a requirement within the required time in extraordinary circumstances such as the following:

A natural disaster or a catastrophe caused by man, such as a flood or fire;

Civil unrest or the interruption of services such as a postal strike;

A serious illness or accident;

Serious emotional problems or mental suffering from a serious event such as a death in the immediate family;

Financial difficulties.

Errors in documentation made available to the public that result in taxpayers filing returns or making payments based on incorrect information may also justify applying the fairness measures.

To take advantage of these measures, taxpayers or their representatives must send a written request to the CRA setting out the circumstances justifying their application.



There are similar measures in Quebec.

5. VOLUNTARY DISCLOSURE

Every year, taxpayers are required to file a tax return and calculate their income taxes payable. Taxpayers who knowingly, or in circumstances amounting to culpable conduct, do not comply with the tax laws in their return run a significant risk of being charged penalties when this failure to comply is discovered.

Taxpayers who find themselves in such a situation are encouraged to make a voluntary disclosure to correct the incorrect or incomplete information, or to provide information that had not been previously reported. While they will of course have to pay any income tax owing and related interest, the tax authorities may forego any penalty or legal action.

For such disclosure to be valid:

It must be voluntary and result from an initiative taken by the taxpayer, and not because the taxpayer is aware of an audit, investigation or other measure undertaken by the tax authorities;

There must be full disclosure of all incorrect, incomplete or missing information;

It must cover information for which a penalty could be applied;

It provides information that is at least more than one year late, or if it is less than one year late, must not be filed simply to avoid the penalties for late filing or late instalments.

Prior to making a voluntary disclosure, taxpayers and their representatives may discuss their situation with the tax authorities, either on an anonymous or hypothetical basis, for a maximum 90-day period.

6. THIRD PARTY PENALTIES

The federal government can impose civil penalties on third parties who make false statements or omit information with respect to tax matters. The legislation provides for two penalties. The first penalty deals with promoters and professionals involved in the planning, promotion or sale of an arrangement that includes a false statement or omission that could be used for tax purposes. The second affects professionals who make or participate in the making of a false statement or omitting information in a tax return, form, certificate or statement.

Quebec provides a penalty for “tax return preparers” who participate or encourage taxpayers to make a false return.

7. ELECTRONIC ACCESS TO PERSONAL FILES

My Account is an electronic service provided by the CRA on its Internet site to allow taxpayers to access certain information concerning their tax file, including the CCTB, UCCB, advance payments of the tax credits respecting the work premium, and GST/HST credits. Taxpayers may also authorize their representatives to consult their personal tax file on line.

The ARQ offers a similar service on its Internet site.

8. ONLINE PAYMENTS

My Payment is an online service that allows taxpayers to send payments to the CRA from their current account in a participating financial institution. The ARQ offers a similar service on its Internet site. These services make it possible for taxpayers to pay their instalments and balances owing to the tax authorities.

Section II – INDIVIDUALS AND FAMILIES 20


SECTION II – INDIVIDUALS AND FAMILIES

RECENT CHANGES

FEDERAL

– A super credit for a first-time charitable donation is available since March 21, 2013.

QUEBEC

– The non-refundable tax credit for contributions to provincial political parties is revoked in 2013.

– A refundable tax credit for youth activities is available since January 1, 2013.

– Additional incentives are available with respect to certain cultural charitable donations.

ONTARIO

– The annual amount for the Ontario Child Benefit has increased by $110 in July 2013 and will increase again by $100 as of July 2014.

– As of 2014, beneficiaries of the Ontario Trillium Benefit may elect to receive their benefit as a lump sum.

1. DEFINITIONS

Spouse

In tax legislation, the term “spouse” means married persons, individuals joined in civil union (only in Quebec) and common-law spouses, regardless of sex.

Common-Law Spouse

A common-law spouse is a person cohabiting with another person in a marriage-like relationship in a year and who meets one of the following conditions:

This person had a child with the individual or the person adopted the other individual’s child, either legally or in fact. In the CRA’s view, to determine whether there has otherwise been a de facto adoption, the spouse must have custody of the child and exercise parental authority on a continuous basis. Simply cohabiting with the child is not sufficient;

This person has lived with the individual for at least 12 months without interruption.1

If both persons have lived separately for 90 days or more due to the breakdown of their conjugal relationship and they reconcile, they will not be considered as common-law spouses during the period of separation.

Example: Martin and Anne have lived in a marriage-like relationship for two years. On December 3, 2013, they separate but start living together again on January 15, 2014. As the separation lasted for less than 90 days, they will be considered as spouses on December 31, 2013.

A taxpayer may have two spouses for tax purposes: the person with whom he/she is legally married and a common-law spouse. Consequently, when the taxpayer dies, both spouses may be designated as RRSP or RRIF beneficiaries and take advantage of the transfer of these plans without any tax consequences. However, certain non-tax restrictions apply for purposes of the rules governing pension plans.

1 An interruption means a separation of 90 days or more.



Child

For purposes of tax legislation, the term “child” includes a child of a taxpayer’s spouse. However, this relationship ceases upon the death of the child’s natural parent.

2. PARENTAL ASSISTANCE

Child Tax Credit – Federal

Parents can claim a non-refundable tax credit for each dependent child under 18 years old at the end of the year. The credit is available to only one parent.

To find out the amounts applicable for 2013, consult Table I2 in the Individual Tax folder for your province at the end of the Tax Planning Guide.

Canada Child Tax Benefit

The CCTB is a non-taxable monthly benefit paid to low- and middle-income families2 to help them pay for the needs of their children who are 17 years or younger. To qualify, a taxpayer has to be the father or mother of the child, live with him/her and be the person primarily responsible for his/her care and education. Parents who share custody of a child more or less equally may elect to receive one-half of the benefit each.

The CCTB is paid over a 12-month period from July of a particular year to June of the following year. It is calculated based on the information in both parents’ tax returns for the preceding year. Accordingly, it is important for them to file tax returns even if they have no income. Payments cease automatically the month following the child’s 18th birthday. Parents must inform the CRA of any marital status change that occurs during the year.

Benefit for Disabled Children

The benefit for disabled children is a supplement to the CCTB and is paid in respect of children who qualify for the disability credit.

Universal Child Care Benefit

Families are entitled to a payment from the federal government of $100 per month for each child under age 6. The allowance is taxable in the hands of the lower-income spouse. A single parent head of household may, however, elect to include all UCCBs in the income of a dependent in respect of whom the eligible dependent credit is claimed or, if the credit cannot be claimed, in the income of a child for whom the UCCB was paid.3

Taxpayers who would like to receive the UCCB must send a CCTB application to the CRA. Parents who share custody of a child more or less equally may elect to receive one-half of the benefit each.

Child Assistance Payments – Quebec

The CAP is a non-taxable credit managed by the Régie des rentes du Québec (Quebec Pension Board). It is payable in advance in January, April, July and October of the year, or on the first of each month upon

2 For 2013, the CCTB is reduced when family net income of the preceding year (excluding income from the UCCB

and an RDSP) exceeds $43,561. Families whose net income is equal or less than $43,561 receive the National Child Benefit Supplement (reduced when net family income exceeds $25,356). For additional information and to estimate the benefits to which you are entitled, including provincial benefits administered by the federal government, refer to: http://www.cra-arc.gc.ca/bnfts/cctb/menu-eng.html.

3 This election is not available for Quebec tax purposes.



the taxpayer’s request.4 The credit is made up of a universal payment and additional assistance to low- and middle-income families. A child’s income has no impact on the amount of the credit.

To be entitled to the CAP, both spouses must have filed a Quebec tax return whether or not they have income.

Calcul@ide5 is a tool offered on the Internet site of the Régie des rentes du Quebec that helps you estimate the

amount of the CAP you are entitled to receive.

The following table shows the credit to which families are entitled as well as the income threshold that makes them eligible only for the basic minimum amount.

2013

CAP

Income threshold at which CAP reaches basic minimum6

$

Basicmaximum6

$

Basicminimum6

$

Couple

1 child 2,319 651 87,951 2 children 3,478 1,252 101,901 3 children 4,637 1,853 115,851 4 children 6,375 2,454 144,276 5 children 8,113 3,055 172,701

Single-parent family

1 child 3,132 976 87,508 2 children 4,291 1,577 101,458 3 children 5,450 2,178 115,408 4 children 7,188 2,779 143,833 5 children 8,926 3,380 172,258

Reduction threshold for couple $46,251

Reduction threshold for single-parent family $33,608

Reduction rate 4%

Monthly supplement for disabled child7 $183

Ontario Child Benefit and Income Supplement

The Ontario Child Benefit can reach a maximum amount of $1,2108 per year per child under 18 years old. The benefit is paid with the CCTB in a single monthly payment. It is reduced when family net income exceeds $20,000.

4 This request may be made on-line on the Régie des rentes du Québec website at:

http://www.rrq.gouv.qc.ca/en/services/services_en_ligne/soutien_aux_enfants/Pages/changement_frequence_sae.aspx.

5 Available at: http://www.rrq.gouv.qc.ca/en/enfants/naissance/paiement_soutien_enfants/montant.htm. 6 Indexed annually. 7 Regardless of family income. 8 Since July 2013 ($1,100 per year before this date). The annual benefit will increase to $1,310 as of July 2014.



Child Tax Benefit and Earned Income Supplement – New Brunswick

The government of New Brunswick pays families a non-taxable benefit of up to $250 a year for each child under age 18. The benefit is reduced when family net income exceeds $20,000. Some families may also be entitled to a supplement. These payments are included in the CCTB so that there is only a single monthly payment.

Low income families with children of school age may also be eligible for the New Brunswick school supplement.

Child Care Expenses

Child care expenses can be claimed if they are incurred by both parents of a family or the head of a single-parent family in order to be employed, carry on business, go to school or carry out research or similar work. These expenses entitle the taxpayer to a federal deduction and a refundable tax credit in Quebec.

Eligible child care expenses are those paid to an individual, a day-care centre,9 a boarding school or a day camp in respect of a child under 16 years of age (at a time in the year) or a child of any age who is mentally or physically disabled. The deduction may generally be claimed by the parent who earns the lower income. There are some exceptions, including if the parent with the lower income is at school. When custody is shared, the child care expenses are considered in the income tax return according to the amounts paid by each parent.

At the federal level,10 the deduction cannot exceed two-thirds of the earned income of the person claiming it and is limited to the following amounts:

Child Annual ceiling

$

Per week of boarding school

or day camp $

If a parent is at school

Per week of full-time study11

$

Per month of part-time study12

$

Under age 7 7,000 175 175 175

Between 7 and 16 years 4,000 100 100 100

Suffering from severe disability 10,000 250 250 250

Earned income includes employment or business income, an allowance received under the Act Respecting Manpower Vocational Training and Qualification, a taxable scholarship and the net amount of research grants.

Dividend income is not considered in calculating the child care deduction. Consequently, if the only income

of one of the parents is dividend income, child care expenses cannot be claimed.

9 Including, for federal purposes, parental contribution of $7 per day required from parents whose children attend an

early childhood centre or school day care in Quebec. 10 Including Ontario and New Brunswick. 11 Minimum of three consecutive weeks and 10 hours of courses per week. 12 Minimum of three consecutive weeks and 12 hours of courses per month.



Expenses eligible for child activity credits (see the following section below) must first be deducted as child care expenses at the federal level. Any excess may be claimed as a fitness amount or artistic activity, if the conditions are met.

Quebec

In Quebec, the child care tax credit rate varies between 26% and 75%13 based on the family net income. Generally, eligible expenses are calculated based on the same criteria as those for the federal child care expense deduction, subject to the maximum for child care expenses paid in respect of a child (other than a disabled child) under age 7, which is increased to $9,000. Eligible expenses are not limited by the parents’ earned income.

Quebec does not recognize the $7 parental contribution to early child care centres or school day care as child care expenses. However, certain related expenses, such as registration fees for the child, amounts paid to reserve a spot in a child care centre, certain additional amounts paid for pedagogical days or a parent’s late fees are eligible. The $14 contribution payable for subsidized child care services offered by schools during spring break is also eligible for the child care credit.

Child care expenses include costs incurred during the period during which the individual or his/her spouse receives QPIP benefits or EI benefits related to a birth or adoption.

Advance Payment – Quebec

Parents may receive part of the refundable child care tax credit to which they are entitled in advance provided certain conditions are met. The caregiver must confirm the rate and the number of days the child will be cared for during the year. In addition, the estimated credit must be more than $1,000 (unless the parent is entitled to a work premium of more than $500 for the year).

To receive the amount in 12 instalments, a request must be sent to the ARQ no later than December 1 of the year preceding the year for which the request is made. Payments are then made by direct deposit on the 15th of each month. Where two spouses believe they are entitled to the tax credit for the year, only one of them can make a request for the advance payment.

If you have children over 18 years of age, they could be paid to take care of their brothers and sisters. Amounts

paid for these services are deductible as child care expenses while there would be little or no tax on these

amounts in the caregiver’s hands.

Job Hunting

Child care expenses incurred while one of the parents is looking for work are generally eligible. Furthermore, child care expense reimbursements received by a taxpayer as part of an active employment measure established by Emploi-Québec are not taxable in Quebec: the expenses thus reimbursed are not, however, eligible for a child care credit.

Children’s Activities

Children’s Fitness Costs – Federal

Parents are entitled to a non-refundable tax credit for each child under 16 years old enrolled in an eligible program of physical activity. The non-refundable credit is 15% of the lesser of $500 or the eligible expenses incurred (maximum credit of $75). The “program of physical activity” has to be ongoing (at least

13 For 2013, the credit is 75% if the net family income does not exceed $33,740 and is gradually reduced to 26%

when that income exceeds $150,355.



once a week for a minimum of eight weeks or over a period of at least five consecutive days) and must contribute to one of the following objectives: cardio-respiratory endurance, muscular strength, muscular endurance, flexibility and balance.

An additional credit of $75 may be claimed for a child under 18 years of age who qualifies for the disability tax credit, provided a minimum of $100 has been paid for an eligible physical activity program.

Children’s Art Tax Credits – Federal

Parents are entitled to a non-refundable tax credit equal to 15% of an amount up to $500 of eligible expenses (maximum credit of $75) per child under 16 years old paid during the year in respect of qualifying artistic, cultural, recreational and developmental activities programs.

An additional credit of $75 is granted for a child under 18 years of age who is entitled to a disability tax credit, provided that a minimum amount of $100 has been paid in respect of an eligible program.

Refundable Tax Credit for Youth Activities — Quebec

In 2013, Quebec introduced a refundable tax credit equal to 20% of maximum expenses of $10014 (maximum credit of $20 in 2013) incurred to register a child who is at least 5 but not yet 16 years of age, in an eligible sports, artistic, cultural, recreational or developmental activity. An additional credit of $2015 is granted for a child who is at least 5 but not yet 18 years of age if the child has a disability, provided that a minimum amount equal to 25% of the general expenditure ceiling amount per child ($25 in 2013) was incurred for eligible expenses. The tax credit is offered to parents whose family income does not exceed $130,000.16

Ontario Children’s Activity Tax Credit

Ontario grants a refundable tax credit equal to 10% of the expense amount of up to $53517 (maximum credit of $53.50) in expenses incurred to enroll a child under 16 years of age in an eligible activity. An additional credit of $53.50 is granted for children under 18 years of age who are eligible for the disabled persons credit, provided that a minimum amount of $100 has been paid towards an eligible program. The eligible activities may be related to sports, arts or any domain that encourages a child to develop an active body and mind, including an extracurricular activity.

Adoption Expenses

Credits can be claimed for expenses incurred to adopt a minor child. While eligible expenses vary depending on the jurisdictions, they generally include legal and administrative expenses relating to the adoption, certain travel and living expenses, document translation fees, mandatory fees paid to a foreign institution and amounts charged by a certified adoption body.

In general, the credit must be claimed the year the adoption order in respect of the child is issued or recognized by Canadian authorities.

14 This amount will increase by $100 each year to reach a maximum of $500 in 2017. 15 In 2013, this amount will increase by $20 each year to reach a maximum of $100 in 2017. 16 Amount indexed annually as of 2014. 17 Amount for 2013. Indexed annually.



The following table summarizes the details of the federal, Ontario and Quebec adoption credits:18

2013 Federal Ontario Quebec

Credit Non-refundable Refundable

Rate 15% 5.05% 50%

Maximum expenses $11,66919 $11,68019 $20,000

Infertility Treatment

Quebec allows a refundable credit of 50% of the expenses paid by a taxpayer or his/her spouse to become a parent. The maximum annual amount of expenses is $20,000, for a maximum credit of $10,000.

Eligible expenses include amounts paid for prescribed drugs provided they have not or may not be reimbursed. Certain restrictions apply to expenses paid with regards to in vitro fertilization. Moreover, costs incurred for artificial insemination are not eligible for this credit. Such expenses may, nevertheless, be deductible as medical expenses.

For federal purposes, fertility treatment expenses are eligible for the medical expense credit (see Section IV).

3. ASSISTANCE FOR DISABLED PERSONS, SENIORS AND CAREGIVERS

See Section IV.

4. SUPPORT PAYMENTS

Any child support payment paid in accordance with a written agreement or a court order rendered on or after April 30, 1997 may not be deducted from the payer’s income nor included in the income of the recipient for tax purposes. In other cases, payments are deductible by the payer and taxable for the recipient. The agreement or judgment requiring that support payments be made to a former spouse must be registered with the CRA.

“Child support payment” covers a periodic allowance that is not solely for the benefit of the spouse or former spouse of the payer or the father or mother of a child of the payer. If the written agreement or the court order does not specify that an amount is intended exclusively for the spouse, it is considered a child support payment. Similarly, when the actual amount paid for child and spousal support is lower than the amount in the agreement or court order, the payments will first be deemed to be child support.

In general, lump-sum payments are not considered support payments. In addition, payments must normally be made directly to the beneficiary who has to be able to use it as he/she wants in order to qualify as a support payment. If payment is made to a third party, the rules should be analyzed carefully.

Agreements signed or judgments rendered before May 1, 1997 continue to be subject to the former rules (payments deductible by payer and taxable for recipient) unless the spouses agree to have the current rules apply. Once such an agreement has been made, the parties may no longer apply the former rules. Furthermore, changes to an existing agreement may result in a change of applicable taxation rules or may subject the support payments to the Support-Payment Collection Program managed by the ARQ.

18 No credit in New Brunswick. 19 Indexed annually.



Legal Expenses

The following table summarizes the tax treatment of legal expenses incurred by the recipient or payer of support payments, whether the recipient is the spouse or a child.

Deductibility of legal expenses Federal Quebec

EXPENSES PAID BY RECIPIENT

To establish right to support payments Yes Yes

To increase amount of support payments Yes Yes

To execute a right to support payments Yes Yes

To contest a reduction in support payments Yes Yes

To make support payments non-taxable20 Yes Yes

To review right to support payments No Yes

To collect arrears Yes Yes

EXPENSES PAID BY PAYER

To contest the right to support payments No Yes

To contest an increase in support payments No Yes

To reduce support payments No Yes

To terminate support payments No Yes

To review obligation to pay support payments No Yes

5. HOME ASSISTANCE

First-time Home Buyer Credit – Federal

An individual who acquires his/her first home to use as a principal residence is entitled to a non-refundable tax credit of 15% of $5,000 (maximum credit of $750). An individual will be considered to have purchased his/her first home if neither he/she nor his/her spouse owned and occupied another dwelling during the year of the purchase or the four preceding calendar years. The credit may also be claimed in respect of certain dwellings acquired by an individual who is entitled to the disability credit or for his/her benefit.

Home Buyer’s Plan

The HBP allows a taxpayer and his/her spouse to borrow, without any tax consequences, up to $25,000 from each of their RRSPs to purchase a home in which they are going to live. A number of conditions must be met, including:

The taxpayer and his/her spouse must not have owned a home they used as a principal residence during the year of the withdrawal21 or the four preceding calendar years.

Example: A taxpayer wants to make an HBP withdrawal on February 1, 2014. He/she must not have owned a home from January 1, 2010 to January 1, 2014.

20 Not applicable to support payments for which the former spouse is the recipient. 21 Except for the period ending 31 days before the date of the withdrawal.



When the amount is withdrawn, the taxpayer must have entered into a written agreement to buy or build a home that he/she intends to use as a principal residence.

The taxpayer must make annual repayments of the amount borrowed over a period of not more than 15 years. Any unpaid amount for a particular year, will be included in his/her income for the year. Each year, taxpayers who participate in the HBP receive a statement from the CRA showing repayments to date as well as the amount that has to be repaid the following year.

Contributions to the taxpayer’s RRSP or the RRSP of his/her spouse during the 89-day period preceding the withdrawal may not be deductible.

A shareholder of the FSFTQ or Fondaction may generally get his/her shares redeemed in order to benefit from the HBP if the prospectus permits it and certain conditions are met.

A taxpayer can make use of the HBP in a given year for a second time if, in the preceding year, he/she repaid the total HBP withdrawal previously made and he/she meets all the conditions required to be eligible once again.

Special rules are provided for disabled individuals and situations where the taxpayer who used the HBP turns 72, dies or leaves Canada.

Exemption – Principal Residence

The capital gain on a principal residence is not taxable provided the taxpayer designates it as his/her principal residence in his/her income tax return. Only one property may be designated as a principal residence for a year per family. A number of family residences may be eligible for the exemption even if they are only used on weekends, e.g. cottages or secondary residences in Canada or elsewhere.

Special rules apply when the taxpayer starts to rent all or part of his/her residence.

6. OTHER CREDITS

Charitable Donation

Individuals may claim non-refundable tax credits for charitable donations at the rates indicated in your province’s Folder – Individuals Taxation at the end of the Tax Planning Guide.

There is an overall annual limit of 75% of net income for the year and a maximum five-year carry-forward period for unused credits.

Donations made by one spouse may be claimed by the other. Combine donations in one tax return, if this

allows you to benefit from a higher credit.



Since 2013,22 the federal government is granting a super tax credit for a first-time gift, in addition to the tax credit for donations otherwise available. This credit is calculated at a rate of 25% of the amount of a monetary donation up to a maximum donation of $1,000 (maximum credit of $250). To be eligible, the donor and spouse must not have claimed a tax credit for a charitable donation for federal purposes after the 2007 taxation year. This additional credit can only be claimed once, may be shared between spouses and will be available until 2017 inclusively.

Donation in Year of Death

The annual limit is increased from 75% to 100% of net income for donations made in the year of death or in the preceding year.

Donation for Consideration

A donation is a voluntary transfer of property, without any monetary consideration or other benefit. Consequently, the charitable receipt may not be accepted for tax purposes if a charitable organization “compensates” donors for their contributions. According to the guidelines published by the CRA, the amount of the donation is equal to the excess of its value over the amount of the benefit to the donor. In addition, no charitable receipt can be issued if the value of the benefit exceeds 80% of the value of the property transferred. Any property that is given to participants at an event must only be included in the calculation of the benefit if its value exceeds the lesser of $75 or 10% of the value of the donated property.

Donation of Capital Property

The amount of non-cash donations equals the FMV of the property. Donations of capital property are dispositions of capital property that may trigger a capital gain or a capital loss, recaptured capital cost allowance or a terminal loss. The aforementioned annual limit of 75% of net income is grossed-up by 25% of the taxable capital gain and 25% of any recapture of capital cost allowance arising from such donations. The end result of these provisions is that a taxpayer may be entitled, in certain cases, to a credit on 100% of the taxable capital gain and recaptured capital cost allowance arising from the donation of a capital property.

Since donations may be carried forward five years, it may be advantageous to carry them forward a year so

as to benefit from a tax credit at a higher rate.

Donation of Cultural and Ecologically Sensitive Property

The 75% limit is increased to 100% with respect to certain donations of cultural properties and ecologically sensitive lands. Thus, the gain arising from such a donation generally results in no additional tax. In Quebec, such a measure also applies to the donation of musical instruments to an institution offering a musical training and additional incentives are available for certain large cultural donations.

Donation of Securities Listed on a Stock Exchange

The capital gain to be included in income from the donation of certain securities registered on a Canadian stock exchange (shares, debts, mutual fund or segregated fund trust, etc.) and on certain foreign stock exchanges is not taxable. However, despite the fact that the tax cost of a flow-through share is deemed to be nil (see Section VII), only the taxable gain portion attributable to the actual value increase (that is, the excess of the FMV over the actual cost of the share) realized on the donation of such a share is not taxable.

22 Donations must have been made after March 20, 2013 to be eligible for the additional credit for the 2013 year.



In addition, an employee who deals at arm’s length with his/her employer and who exercises options of a public company to make a charitable donation in the year and within the following 30 days may not have to pay any income tax on the taxable benefit, except in Quebec where the benefit generally continues to be partially taxable (see Section V).

If you are planning to make significant donations to a charity, consider giving shares of public corporations so

that you may benefit from the special rules regarding these donations.

Donation of Personal-Use Property

Personal-use property is property acquired by a taxpayer for his/her own personal use and not to earn business or property income, such as jewellery, furniture, works of art and stamp collections. The adjusted cost base and the minimum proceeds of disposition of a personal-use property are set at $1,000, unless an arrangement for donations of such property is concluded.

Anti-Avoidance Measures

The amount of non-cash donations is equal to the lesser of the cost or the FMV of the property if it was acquired either with a view to making a donation or less than three years before making the donation (except in the event of the death of the donor). The measures do not apply when the donation consists of ecologically sensitive property, property held in inventory, real property located in Canada, listed securities or certified cultural property.

There are specific rules for donations by a taxpayer of non-eligible securities, including a debt owed by the individual, or a share of the capital stock of a corporation with whom the individual does not deal at arm’s length (except for securities listed on a stock exchange in Canada).

Quebec also provides for similar rules for donations of works of art (except donations to a museum, art gallery or other similar body).

Goods and Services Tax Credit

Every individual, at least 19 years of age or who is married or a parent of a child, is entitled to a federal GST/HST credit.

Maximum annual credit Supplement for a single person

and single parent

Adult Child

July 2012 to June 2013 $260 $137 $137

July 2013 to June 2014 $265 $139 $139

The maximum credit is reduced by 5% starting at a family net income threshold in excess of $34,561 whereas the supplement for a single person is reduced by 2% of the net income in excess of $8,608.

Eligibility for the credit and the quarterly payment take account of any significant changes in the family before the end of the previous quarter. Parents who share custody of a child more or less equally may elect to each receive one-half of the credit paid in respect of the child.



Ontario Trillium Benefit

The Ontario Trillium Benefit lumps together in one amount the sales tax credit, the energy and property tax credit, and the Northern Ontario energy credit. The amount of the benefit is determined according to these three components and family net income in the preceding year. This contribution is paid on a monthly basis. In 2014, when filing their income tax returns for the 2013 year, claimants will be able to request this credit as a lump-sum payment.

Solidarity Tax Credit – Quebec

The solidarity tax credit amount is based on three separate components, i.e. the QST, housing, and accommodation in the northern village, and is reduced if family net income exceeds $32,480.23 The refundable tax credit is paid monthly to eligible taxpayers. To benefit from this credit, taxpayers have to apply for it with their income tax return and be registered for direct deposit. As well, they must notify the ARQ of any change in their situation during the year.

Political Contributions

For federal purposes, contributions to federal political parties are eligible for a tax credit. In Ontario and New Brunswick, such credit is available for provincial political contributions. These credits are subject to the following rates and maximums:

Credit Federal Ontario New Brunswick

75% of first $400 first $372 first $200

50% of next $350 next $868 next $350

33⅓% of next $525 next $1,581 next $525

Maximum contributions $1,275 $2,821 $1,075

Maximum credit $650 non-refundable

$1,240 refundable $500 non-refundable

If you are planning to make significant political contributions, consider spreading them over two years

to benefit from the higher rates allowed on the first dollars.

In Quebec, a taxpayer is entitled to a non-refundable tax credit of 85% of the first $50 portion and 75% of the additional $150 portion paid as contributions to finance municipal political activities (total maximum credit of $155).

Public Transit Passes

For federal purposes, individuals can claim a non-refundable tax credit of 15% of the cost of monthly (or longer) public transit passes (purchase of four consecutive weekly passes is also eligible) purchased for themselves, their spouse or dependent children under age 19. In Quebec, an incentive measure is available for employees and employers (see Sections V and VI).

23 Threshold for 2013. Indexed annually.



Top-Level Athletes – Quebec

A refundable tax credit is available to compensate athletes for expenses related to training and to the purchase, rental and maintenance of equipment required for their sport. The credit, which is available to athletes recognized by the Secrétariat au loisir et au sport as belonging to the “Excellence”, “Élite” or “Relève” performance level. The credit varies depending on the type of sport (individual or team sports) and is calculated pro rata based on the number of days the recognition applies on amounts between $1,000 and $4,000 depending on the circumstances.

EcoENERGY Vehicle

In Quebec, an individual who acquires or leases under a long-term lease a vehicle whose engine type includes a form of electrification can obtain a rebate to the extent that the contract is concluded before January 1, 2016. The amount of the rebate will vary depending on the vehicle’s motorization and year of purchase.

In Ontario, an incentive in the amount between $5,000 and $8,500 is offered on the purchase or lease for new hybrid vehicles that can be connected to a network, or new electric battery-powered vehicles.

7. TAX CREDIT TRANSFERS BETWEEN SPOUSES

For federal purposes, most credits can be transferred between spouses when one of them does not have sufficient income to claim them, i.e. pension amount, various disability credits, education credit, etc. Moreover, an individual may elect to declare all taxable dividends received by his/her spouse to the extent it enables him/her to claim or increase the amount of the spousal credit (see Section VII).

For Quebec purposes, a transfer mechanism makes it possible for an individual to deduct the unused portion of most of the non-refundable tax credits, except for the deduction with respect to the AMT carryover (see Section VII), among others.

8. INCOME SPLITTING

Income splitting involves sharing an individual’s income amongst family members in order to take advantage of lower tax rates and reduce the amount of income taxes payable.

Pension Income Splitting

See Section IX.

Other Income Splitting Provisions

There are a number of provisions that attempt to prevent income splitting. Certain attribution rules ensure, for example, that a taxpayer’s income that was to be split by transferring an income-producing property to a spouse or a child, is attributed back to the transferor and included in that individual’s income. However, there are still certain income-splitting opportunities, provided they are properly structured, that should be considered, in particular:

Gifts or loans to a spouse or children to enable them to carry on their own business. There is, however, a provision to discourage this type of splitting with minor children in situations where the business is carried on by the parent instead of the child;

Gifts and non-interest bearing loans made to a child and used to acquire property that generates a capital gain;

Gifts to adult children, regardless of the use they make of it. However, as a gift of property, it may result in a capital gain and recapture of capital cost allowance for the donor;

Income earned on attributed income. Thus, if a parent makes an interest-free loan of $20,000 to his/her child and the child earns interest of $1,000 on the amount loaned, the income will be



attributed to the parent. However, if the child reinvests the $1,000 and earns $50 on the reinvested amount, the $50 will be taxed in the hands of the child;

The payment of a reasonable salary to a spouse or children;

An estate freeze under certain circumstances (see Section XI).

Take advantage of relatively low prescribed rates (1% in September 2013) to lend money to your spouse at that

rate; rules to discourage splitting do not apply to such a loan.

Minor Children – Tax on Split Income

The following income received by minor children is taxed at the highest marginal tax rate rather than the normal progressive rates:

Dividends or other benefits received on unlisted shares owned directly or through a trust or partnership;

Income earned from a partnership or trust where the income is derived from a business carried on by a relative of the child or in which the relative participates or from leasing property to such a business;

A capital gain realized directly or through a trust, where there was a disposition of shares of a corporation to a person who does not deal at arm’s length with the minor, if taxable dividends on the shares are subject to the tax on split income.

However, income from property acquired on the death of a relative is not covered by this provision.

Section III – EDUCATION 34


SECTION III – EDUCATION

RECENT CHANGE

– The rate of the non-refundable tax credit for tuition fees in Quebec has dropped from 20% to 8% with regard to fees paid after the end of the 2013 winter session, subject to certain transitional measures.

1. INCOME

Main sources of income for students include scholarships, research grants, training allowances, and RESP payments.

Scholarships

A scholarship is an amount granted to a student to help him/her continue studying and includes any amount received as a bursary or fellowship. A scholarship also includes reimbursements or allowances to pay education-related costs, such as lodging, travel, supplies, textbooks or materials as well as benefits in kind, such as free housing or materials.

Federal

Scholarships received by a primary or secondary school student as well as a student registered in a program entitling him/her to the education tax credit are not taxable. There is a $500 exemption in other cases, including post-doctoral scholarships. Certain limits may apply if the student is registered part-time in a program.

Awards for achievements in the arts, sciences or public service (e.g. Governor General’s literary award or other public recognition awards) are completely tax-free.

Quebec

In Quebec, scholarships and awards are not taxable and are not subject to the 1% contribution to the HSF.

Program offered by an employer

Expenses paid or reimbursed by an employer in connection with a program enabling an employee’s family members to continue their studies may, under certain conditions, be considered for a scholarship received by the student rather than a taxable benefit received by the employee. In Quebec, such treatment is only available as financial aid for post-secondary studies.

Research Grants

Research grants are taxable. However, taxpayers can deduct reasonable travelling expenses (meals, lodging, travelling) for working out of town, fees paid to assistants, the cost of equipment and laboratory fees up to the amount of the grant.



2. DEDUCTIONS AND CREDITS

Tuition Tax Credit

Tuition fees for students enrolled on a full- or part-time post-secondary1 basis in Canada and, in certain instances, outside Canada2, are eligible for a non-refundable tax credit, provided they total more than $100 per establishment. In Quebec, the $100 threshold applies to total expenses and the credit rate amounts to 8% for fees incurred after the end of the 2013 winter session.3

Tuition fees include entrance fees, use of library or laboratory facilities, issuance of a certificate or diploma and related expenses charged to all students, other than payments to a student association.

Examination fees required to obtain a professional status, certification or licence allowing the individual to practice a profession or trade within Canada are eligible for the credit.

New Brunswick

Students who pay tuition fees and attend a teaching establishment that is recognized for purposes of the federal tuition fees credit can accumulate a non-refundable credit equal to 50% of the fees paid since 2005, up to $20,000 lifetime. Once they find a job, they can claim a credit of a maximum of $4,000 per year against their provincial income tax. A student has 20 years to claim the accumulated credits.

The credit is in addition to the general tuition fees credit.

Education Tax Credit

For federal, Ontario and New Brunswick purposes, students may claim a non-refundable credit for each month (or part of month) of study inside or outside Canada at an accredited teaching establishment or during which they are registered full-time or part-time in a cooperative program or an eligible training program. To be eligible for the credit, the study program must normally be at the post-secondary level and lead to the receipt of a college diploma, a bachelor’s degree, a master’s degree, a doctoral degree or any equivalent level.

The credit applies on $400 ($515 in Ontario) per month for full-time students4 and on $120 ($154 in Ontario) per month for part-time students.5

A student who is registered in an eligible training program on a part-time basis because of a mental or physical disability is entitled to a credit as though he/she were a full-time student provided he/she is entitled to the disability credit. A student who takes post-secondary courses related to his/her job can claim the education credit provided the costs are not reimbursed by his/her employer.

Textbook Tax Credit – Federal

A non-refundable tax credit for textbooks may be claimed for each month during which a student claims an education tax credit. This tax credit equals 15% of $65 for each month the student is registered in a full-time program or of $20 for each month the student is registered in a part-time program.

1 Or in a professional school if the student is at least 16 years of age. 2 A student must be enrolled in a post-secondary program of study outside of Canada for a minimum of three

consecutive weeks. No minimum duration is provided for a program of study being followed in an establishment in Canada.

3 The rate is 20% for fees relating to a year prior to 2013. The 20% rate also applies to certain tuition fees incurred before March 28, 2013 and to exam fees paid for exams taken before May 1, 2013.

4 Minimum of three consecutive weeks and 10 hours of courses per week. 5 Minimum of three consecutive weeks and 12 hours of courses per month.



On its Internet site, the CRA proposes a series of questions to help you determine the credits to which

you are entitled as a student. 6

Credit for Interest Paid on Student Loans

A taxpayer may claim a non-refundable tax credit on interest paid in the year on a student loan granted under a federal or provincial program.

Before renegotiating a student loan, remember that you cannot claim a credit for interest paid on any loan other

than a loan granted under a federal or provincial program nor on a student loan merged with another

type of loan.

Transfer and Carryover of Student Credits

Students must first claim the education tax credit, the tuition tax credit, the textbook credit and the interest credit on any student loans in their own tax returns. They can then carry over the unused portion of those credits or transfer them as follows:

Carryover period Transfer to parent or grandparent

Transfer to spouse

Federal7 Quebec Federal7 Quebec Federal7 Quebec

Tuition fees Indefinitely Yes

Maximum of $5,000 in

total8

Yes Yes

Maximum of $5,000 in total8

Yes9

Education Indefinitely n/a

n/a n/a

Textbooks n/a n/a

Interest on student loan

5 years Indefinitely No

To maximize the transfer of tax credits, reduce your net income as a student by maximizing the permitted

deductions, such as the moving expense deductions and transfer only the amount that will be deducted by

your parent.

6 Refer to CRA Internet site at: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-

350/323/menu-eng.html. 7 Includes Ontario and New-Brunswick, except for the textbook credit that is not available in those provinces. 8 $6,620 in Ontario. 9 Possible under spouse transfer mechanism for non-refundable tax credits (see Section II).



Tax Credits for Children in Post-Secondary Studies – Quebec

Minor Child

A person supporting a student under 18 years old can claim a non-refundable tax credit in respect of the student if the student is enrolled in vocational training or post-secondary studies. The credit equals to 20% of $2,065 per semester up to a maximum of two semesters per year and is reduced by 80% of the income earned by the student, excluding scholarships. To be entitled to it, the taxpayer must support the student who must also ordinarily live with him/her during the year. The dependent student can be the child, grandchild, brother, sister, nephew or niece of the supporting person or of his/her spouse.

Adult Child – Transfer Mechanism for the Recognized Parental Contribution

A full-time adult student in a recognized establishment can transfer the unused portion of his/her basic tax credit for the year up to $7,380 ($5,315 if only one semester is completed in the year) to his/her father or mother, or allocate it between the two. There is a $1,625 supplement for single-parent families who have no minor children. The transferable amount is reduced by 80% of the child’s income, excluding scholarships.

Moving Expenses

Expenses incurred for moving from one place to another in Canada or elsewhere to be at least 40 kilometres closer to an educational institution where the student will attend full-time post-secondary courses are deductible. These expenses are only deductible from amounts included in income from taxable scholarships, fellowships, bursaries and research grants. For Quebec purposes, they can only be deducted from research grants. Undeducted moving expenses can be carried forward to the following year.

Moving expenses incurred to change residence in connection with a job, including a summer job, are deductible if the conditions described in Section V are satisfied. However, the deduction may not exceed net employment income.

Keep your receipts for moving expenses (travel by plane or otherwise, meals, temporary lodging) to claim

a deduction for such expenses or use the simplified method.

Child Care Expenses

See Section II.

3. REGISTERED EDUCATION SAVINGS PLAN

An RESP allows individuals to contribute to a trusteed plan to finance the cost of post-secondary studies for themselves or a child. Although these contributions are not deductible, they may be remitted to the contributor at maturity with no tax consequences. The income accumulates in the plan tax-free until it is paid to the student as an Education Assistance Payment.

An RESP, which has a maximum life of 35 years, may be an individual (family or otherwise) or group plan. With the exception of a family plan, there is no restriction as to the age of or relationship of the contributor with the beneficiary. The maximum contribution period is 31 years.

Disabled Beneficiaries

When an RESP beneficiary is eligible for disability tax credit, the maximum life of an RESP is 40 years and the contribution period is 35 years. These rules apply only to single beneficiary RESPs. Therefore, if



the disabled person is a beneficiary of a family plan, he/she can transfer his/her share to a single beneficiary plan in order to take advantage of these measures.

Contributions

There is no annual contribution limit and the cumulative ceiling is $50,000 for each beneficiary, regardless of the number of subscribers. Overcontributions are computed at the end of each month and are subject to a special 1% monthly tax. It is possible to reduce overcontributions by withdrawing funds from an RESP.

Interest and similar expenses relating to a loan for contributions to an RESP are not deductible.

Eligible Investments

Eligible RESP investments are generally the same as for an RRSP (see Section IX).

Canada Education Savings Grant

The federal government pays a subsidy for each child that is a beneficiary of an RESP, from the day the child is born until his/her 17th birthday. The annual maximum CESG per beneficiary amounts to $500, i.e. 20% of the first $2,500 of contributions paid annually. Low- and middle-income families may benefit from an additional grant. Each child is entitled to a cumulative maximum of $7,200.

A family that did not contribute to its child’s RESP for a year or more and therefore has unused contribution room for future years can receive a grant of not more than $1,000 as a CESG in a year (i.e. the CESG on a maximum contribution of $5,000).10

Example: In March 2013, a father contributes $800 to an RESP set up for his 3-year old daughter Jennifer with a CESG eligible contribution limit of $2,500 in 2013. A CESG of $160 (20% of $800) is paid directly to the RESP trustee. In November of the same year, Jennifer’s grandmother contributes $2,500 to another RESP for her. Only $1,700 of the second contribution will give entitlement to a CESG. Thus, in 2013, RESPs for Jennifer will have received $3,300 in contributions and a CESG of $500, the prescribed annual maximum amount. If the grandmother had not contributed to the RESP in that year, the contribution limit for CESG purposes (i.e. $1,700) would have been carried forward to a future year.

Canada Learning Bond

A family that receives the National Child Benefit Supplement in connection with the CCTB (see Section II) may also be entitled to the initial Canada Learning Bond of $500 plus a $100 supplement each year in respect of each child born after December 31, 2003, until the child turns 15 years of age (cumulative maximum of $2,000). For this purpose, it is only necessary to open an RESP and not necessary to contribute to the plan.

Quebec Education Savings Incentive

Families that contribute to an RESP are entitled to financial assistance from Quebec up to $3,600 lifetime for each child. The assistance equals 10% of the annual RESP contributions for a child under 18 years old, up to $250 (on a $2,500 contribution). Unused entitlements up to $250 of preceding years may be added to the basic amount. Hence, a family that has accrued benefits may be eligible for a maximum amount of $500 annually, provided it makes a minimum $5,000 contribution to the plan. Low- and middle-income families can get additional financial assistance. In general, the rules governing the QESI are the same as for the CESG.

10 For more information see: http://www.hrsdc.gc.ca/eng/jobs/student/savings/index.shtml.



If you want to take full advantage of the RESP and grants and retain control over amounts invested for

education purposes, you could make an RESP contribution that will maximize the grants and invest

the excess in a family trust.

Summary – CESG and QESI

2013 CESG QESI

Annual maximum per beneficiary 20% of first $2,500 of contribution(max. $500)

10% of first $2,500 of contribution(max. $250)

Increase: Family income $43,561 or less

(QESI: $41,095) 40% of first $500 (additional

$100 per beneficiary) 20% of first $500 (additional

$50 per beneficiary)

Family income between $43,561 and $87,123 (QESI: $41,095 and $82,190)

30% of first $500 (additional $50 per beneficiary)

15% of first $500 (additional $25 per beneficiary)

Cumulative ceiling per beneficiary $7,200 $3,600

Educational Assistance Payments

Education Assistance Payments are distributions of income accumulated in the RESP, the QESI, the CESG and Canada Education Bonds. To be entitled to them, a beneficiary must be registered in a qualifying post-secondary program. RESP beneficiaries can receive payments from the plan up to six months following the termination of their registration in a qualifying program. A $5,000 limit applies to Educational Assistance Payments paid to full-time students during the first 13 consecutive weeks of an eligible training program, following which there is no limit as long as the child continues to be registered in a qualifying program. Part-time students who take at least 12 hours of courses per month can generally receive Educational Assistance Payments up to $2,500 per semester.

Payments are included in the student’s income the year they are paid to him/her.

Reimbursement of government assistance

If no beneficiaries of a family plan or beneficiaries of an individual plan are not continuing post-secondary studies, the amount of QESI, CESG and Canada Education Bonds must be reimbursed to the government. Such reimbursements may also be required in other particular instances such as the revocation of the RESP or early withdrawal of certain contributions.

Transfer to an RRSP

If all intended beneficiaries are not pursuing higher education by age 21 and the plan has been in place for at least 10 years, a contributor is allowed to withdraw the income from the plan. Withdrawals are taxed and are subject to an additional 12% tax for federal purposes and 8% for Quebec purposes (for residents of other provinces, federal withholding is 20%). The contributor can avoid the additional tax by transferring these funds as a contribution to an RRSP under which the contributor or his/her spouse is the annuitant, if he/she has unused contribution room. The transfer is limited to $50,000.

Transfer to an RDSP

As of 2014, parents who save in an RESP for a child with a severe disability will be allowed to transfer RESP amounts to an RDSP if the plans share a common beneficiary.



4. LIFELONG LEARNING PLAN

Somewhat similar to the HBP (see Section II), taxpayers can make tax-free withdrawals from their RRSPs (other than a locked-in RRSP or retirement account) to finance full-time education for themselves or their spouses. An eligible training program must last at least three months at an accredited institution. A disabled student who is registered part-time is also eligible.

Even though only one spouse is going back to school, both spouses may withdraw amounts from their RRSP

as part of the Lifelong Learning Plan.

Withdrawals may not exceed $10,000 in a year and a total of $20,000 for four calendar years. Withdrawals are repayable, without interest, in equal instalments over a period of 10 years. The first instalment is due no later than 60 days after the fifth year following the year of the first withdrawal. An individual may take advantage of this program as many times as he/she wants; however, he/she will only be allowed to register again after all previous withdrawals have been repaid.

Special rules provide for earlier repayment if the taxpayer is not a full-time student for at least three months in each of two consecutive years in the four-year period following the year of the first withdrawal.

Consider using a Lifelong Learning Plan during retirement or early retirement to make your education

or cultural dreams come true and benefit from a tax deferral until the courses are finished.

Many features of the program resemble those of the HBP. For example, contributions made to the taxpayer’s RRSP or that of his/her spouse in the 89 days preceding a withdrawal may not be deductible and any amount required to be repaid in a year, but which is not, must be included in the recipient’s income. Specific rules are provided, among other things, if the beneficiary dies or leaves Canada.

A taxpayer who makes withdrawals within this program must file an income tax return for each year even if he/she has no income tax payable.

Section IV – HEALTH AND CAREGIVERS 41


SECTION IV – HEALTH AND CAREGIVERS

RECENT CHANGE

– The Quebec tax credit for home-support services for seniors and the caregivers tax credit relating to a senior spouse increased in 2013.

1. MEDICAL EXPENSE CREDIT

An individual is entitled to a non-refundable credit for medical expenses paid for himself/herself, his/her spouse or a dependent during a 12-month period ended in the year1 and which was not used in the prior year.

Example: In 2013, an individual whose receipts cover the period from August 1, 2012 to December 31, 2013 can use medical expenses for the period from August 1, 2012 to July 31, 2013 or any other 12-month period ending in 2013.

The expenses must not have been reimbursed nor be reimbursable. Details about this tax credit for 2013 can be found in Table I2 of the Folder – Individuals Taxation for your province at the end of the Tax Planning Guide.

Eligible Expenses

The list of eligible medical expenses is updated periodically to take new technologies or other changes into account. The list includes:2

payments to medical practitioners, dentists or nurses, or to public or licensed private hospitals in respect of medical or dental services;

additional costs related to the purchase of non-gluten food products;

expenses paid for training courses for a taxpayer or a related person in respect of the care of a person with a mental or physical impairment, who lives with or is a dependent of the taxpayer;

cost of purchased or leased products, equipment or devices that provide relief, assistance or treatment for any illness;

certain travel and moving expenses to provide a person with access to care or accommodation that is more suitable to his/her needs;

premiums paid to private health insurance plans as well as the premium paid to the QPPDIP (including deductible and co-insurance portions);

employer premiums or payments to a private health insurance plan that are included in the employee’s income as a taxable benefit for the year (Quebec);

remuneration for tutoring persons with learning disabilities, or other mental impairments, if the need for such services is certified by a medical practitioner;

reasonable supplemental expenses for the construction or renovation of a residence to enable a person with a serious, prolonged handicap to have access to this residence, to move about therein and to carry out activities of daily living.

1 The reference period is 24 months in the year of death of the taxpayer or a dependent. 2 Certain conditions have to be met. Details are provided in government publications, including the list of eligible

medical expenses published by the CRA at: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/330/menu-eng.html.



Remember to include premiums paid to a private health services plan by you or your spouse and your employer (for Quebec purposes only in the latter case) as medical

expenses.

The CRA has stated that the Ontario health premium is not an eligible expense for the medical expense credit. While the authorities have not stated their position on the Quebec health contribution, it should also not be eligible.

Expenses paid strictly for aesthetic purposes (such as teeth whitening, face-lift or liposuction) are normally not eligible. For Quebec purposes, the amount for the purchase of frames for eyeglasses is limited to $200 per person.

Adjustment for Medical Expenses Claimed for Dependents

For federal purposes, taxpayers can claim the amount by which the medical expenses paid for a dependent (grandfather, grandmother, nephew, niece, etc.) exceeds the lesser of 3% of the dependent’s net income and $2,152.3

In Quebec, there is no maximum and taxpayers are not required to take account of the net income of a dependent in respect of whom a medical expense credit is being claimed.

Refundable Medical Expense Credit

An adult may claim a refundable credit for medical expenses if he/she is also claiming the non-refundable credit for medical expenses or the disability supports deduction and if his/her earned income is at least $3,333 ($2,895 in Quebec). The maximum credit is $1,142 ($1,130 in Quebec) and is reduced when net family income exceeds $25,278 ($21,870 in Quebec).4

Credit for Medical Services Not Incurred in Taxpayer’s Area – Quebec

Quebec offers a non-refundable medical credit for travel and accommodation costs paid to obtain medical care not available in the area where the taxpayer or the dependent lives. The care must be obtained in a location at least 250 kilometres from the patient’s residence. Moving expenses incurred to move to a location in Quebec that is within 80 kilometres of the health care establishment also qualify for this special medical credit if the treatment will last at least six months and equivalent medical care is not available at least 250 kilometres from the former residence. While these expenses could also be claimed as medical expenses, there is no 3% threshold as there is for the medical expense credit.

2. DISABLED PERSONS

Special provisions apply for disabled persons. A person is generally considered disabled if he/she has a serious and prolonged mental or physical impairment that has lasted, or is expected to last (including in the year of death), for a continuous period of at least 12 months.5

A disability is serious if a taxpayer’s ability to perform his/her day-to-day activities is significantly limited. Day-to-day activities are activities such as talking, seeing, hearing, walking, eliminating, feeding and dressing, perceiving, thinking and remembering.

3 $2,167 in Ontario (up to a maximum amount of $11,680 in expenses) and $2,125 in New Brunswick. No expense

limit is applicable in jurisdictions other than Ontario. Amounts for 2013, indexed annually. 4 Amounts for 2013, indexed annually. 5 There is a series of questions on the CRA’s Internet site for determining eligibility for the mental or physical

disability credit amount at: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/316/menu-eng.html.



Certification

The first time a taxpayer claims a disability deduction or credit, he/she must obtain a certificate from a doctor of from an optometrist, an audiologist, an occupational therapist, a physiotherapist, a speech therapist or a psychologist for disabilities related to their areas of competence.

Tax Credit for Persons With Disabilities

Persons suffering from a disability may benefit from a non-refundable tax credit. At the federal level,6 a supplement is added for children under 18 years of age. The supplement is reduced by the amount by which child care and attendant expenses claimed as a deduction or a medical expense credit for the child exceed the prescribed maximum.

Details about the amounts applicable for 2013 are included in Table I2 of the Folder – Individuals Taxation for your province at the end of the Tax Planning Guide.

Transfer of Credit – Federal

The disability credit and the supplement may be transferred to the spouse or another person in charge who is the dependent’s child, grandchild, mother, father, grandparent, sister, brother, aunt, uncle, niece or nephew or one of his/her spouse’s.

Tax Credit for Disabled Dependents – Federal

An individual who supports a child or a member of his/her or his/her spouse’s family (parent, grandparent, brother, sister, uncle, aunt, niece or nephew) who is 18 years of age and older and who suffers from a serious or prolonged mental or physical disability is entitled to a non-refundable tax credit for dependent disabled persons (see Folder – Individuals Taxation for your province at the end of the Tax Planning Guide). The taxpayer may also claim the credit for an eligible dependent7 but not the amount for caregivers in respect of the same individual.

Disability Supports Deduction

The disability supports deduction includes attendant care expenses as well as other disability supports expenses incurred by disabled persons for education and employment purposes, or for carrying on a business unless such expenses were reimbursed (except if the refund is taxable) or were claimed for purposes of the medical expense credit.

Child Care Expenses

See Section II.

Other Related Measures

When a taxpayer is entitled to claim a credit for a disabled person, he/she may not have to include in his/her income certain benefits received from his/her employer (see Section V). In addition, there are a number of specific provisions in the HBP rules relating to the acquisition of a residence that is adapted to the needs of handicapped persons (see Section II).

3. SENIORS

Home-Support Services for Seniors – Quebec

The tax credit for home-support services for seniors allows individuals who are 70 years or older to reduce the costs of certain home support services in their area. The refundable tax credit is 31% of

6 Including Ontario and New Brunswick. Quebec does not allow a supplement. 7 It is not possible to claim the credit for a disabled dependent if someone else claims an eligible dependent amount

in respect of the same individual.



eligible expenses.8 The annual expense limit is $19,500 ($25,500 for seniors recognized as being dependent)9 for a maximum annual credit of $6,045 ($7,905 for seniors recognized as being dependent). The credit is reduced based on the income of the senior and his/her spouse in excess of $54,790, unless the senior is considered a dependent senior.10

Eligible Expenses

Two types of services are eligible for the credit, i.e. personal support services, and maintenance and supply services. A few examples of eligible expenses are amounts paid for services related to:

day-to-day activities, such as dressing and hygiene (bath);

nursing services;

meal preparation, excluding the cost of the food;

household chores, such as cleaning and appliance maintenance (oven cleaning);

minor outdoor jobs like cutting the grass;

remote monitoring and locating by GPS.

The eligible expense calculation differs depending on whether it is a seniors’ residence or another type of dwelling. The expenses for which this credit is claimed cannot be claimed otherwise as medical expenses in Quebec (see point 1 of this section).

Seniors may request payment of the credit in advance provided certain conditions are met. If both spouses are entitled to the credit, only one of them may claim it based on the couple’s eligible expenses incurred and the total of their annual expense limits.

Refundable tax credit for expenses incurred by seniors during a stay in a transitional care and rehabilitation unit – Quebec

A taxpayer aged 70 years or older is entitled to a refundable tax credit equal to 20% of amounts paid as expenses during a stay in a transitional care and rehabilitation unit, up to a maximum stay of 60 days.11 The stay must have begun or ended in the year. The expenses may not have been refunded to the taxpayer (unless the refund is taxable) and cannot entitle the taxpayer to any other tax credit or deduction.

Refundable tax credit for the purchase or rental of equipment designed to help seniors live independently at home – Quebec

A taxpayer aged 70 years or older is entitled to a refundable tax credit equal to 20% of expenses incurred in excess of $500 for the acquisition, rental and installation in the taxpayer’s home of the following goods: a GPS remote monitoring or tracking device, devices to facilitate the use of a toilet, shower or bathtub, a mechanized rail-mounted chairlift to go up and down a staircase and a hospital bed. The expenses may not have been refunded to the taxpayer (unless the refund is taxable) and cannot entitle the taxpayer to any other tax credit or deduction.

Healthy Homes Renovation Tax Credit – Ontario

Home owners or renters aged 65 or older as well as person sharing a home with a senior parent are entitled to a refundable tax credit equal to 15% of expenses incurred up to $10,000 per couple (maximum credit of $1,500) for eligible home renovations designed to help seniors remain safely at home. 8 In 2013 (30% before that date). The tax credit will increase by 1% per year, reaching 35% in 2017. 9 Limits for 2013 ($15,600 and $21,600 respectively, before that date). 10 Three percent reduction. Threshold indexed annually. Since 2013, no reduction applies based on family income

regarding seniors who are considered as being dependent. 11 There is no limit to the number of stays.



4. CAREGIVERS

Amount for Caregivers

The federal government12 is offering a non-refundable tax credit to individuals residing with and providing in-home care for a parent or grandparent 65 years of age or over, or a disabled dependent relative who is at least 18 years of age. The credit amount is reduced based on the dependent’s net income.

To learn more about the applicable amounts for 2013, see Table I2 of the Folder – Individuals Taxation for your province at the end of the Tax Planning Guide.

Family Caregiver Tax Credit – Federal

Caregivers who support individuals who suffer from a mental or physical disability can benefit from a non-refundable tax credit equal to 15% of $2,040.13 This amount is added to one of the following non-refundable tax credits that may be claimed with regards to a dependent who is suffering from a deficiency: the spousal credit, the credit for eligible dependents, child tax credit for children under 18 years or the caregiver credit. The maximum amount for dependents aged 18 years and older suffering from a disability automatically includes the additional caregiver amount. Only one family caregiver tax credit may be claimed per eligible dependent.

Refundable Tax Credit for Caregivers – Quebec

Individuals who house an eligible close relative or who live with an eligible close relative incapable of living alone may claim a refundable tax credit for caregivers if the individual lived with the relative for a period of 12 consecutive months, including a six-month period during the year. In 2013, this tax credit is composed of a basic universal amount of $622, and a $509 supplement, reduced when the relative’s income exceeds $22,620 (supplement nil at $25,801).14

The relative must be 70 years or older and be the parent, grandparent, uncle, aunt, great-uncle or great-aunt of the taxpayer or of his/her spouse. However, if the relative has a serious or prolonged disability and was an adult person during the housing period for the year, the relative may also be the child, grandchild, nephew, niece, brother or sister of the taxpayer or of his/her spouse.

Caregiver of an elderly spouse

The refundable tax credit for caregivers also applies to natural caregivers who take care of their elderly spouse that is at least 70 years old in their home. Under such circumstances, the basic credit amount is $775 in 2013 and will increase by $75 per year to reach $1,000 in 2016.15

Credit for Providing Volunteer Respite Services – Quebec

Caregivers can allocate from a $1,000 envelope available to them annually an amount of not more than $500 to a person who has volunteered respite services of at least 400 hours during the year. The designated person can claim a refundable tax credit on the attributed amount.

Tax Credit for Respite of Caregivers – Quebec

Caregivers may claim a refundable tax credit equal to 30% of the total expenses paid in the year, up to $5,200 (maximum credit of $1,560) for specialized respite services for the care and supervision of a severely disabled person who ordinarily lives with them. The credit is reduced based on the income of the caregiver and his/her spouse in excess of $54,790.16

12 Including Ontario and New Brunswick. 13 2013 amount. Indexed annually. 14 The reduction rate is 16%. Amounts and thresholds are indexed annually. 15 Indexed annually as of 2017. 16 The threshold reduction rate is 3%. Amount indexed annually.



5. REGISTERED DISABILITY SAVINGS PLAN

The RDSP is generally comparable to the RESP (see Section III) and is intended to encourage saving for the long-term financial security of a person eligible for the disability tax credit. An RDSP may be set up by the disabled person, one of his/her parents or his/her legal representative. Once it has been set up, anyone can contribute to it up to a lifetime maximum of $200,000 per beneficiary. There is no annual limit. Contributions may be made until the end of the year the beneficiary attains 59 years of age.

Grants and Bonds Available

RDSP contributions are eligible for the CDSG, up to the following amounts:

Maximum CDSG federal contribution

(cumulative maximum of $70,000 per beneficiary)

Family income thresholds17 Up to $87,123 Greater than $87,123

300% of first $500 contributed $1,500 –

200% of next $1,000 contributed $2,000 –

100% of amount contributed – $1,000

Maximum total grant per year $3,500 $1,000

The CDSB is also available to individuals whose family net income is relatively low. The CDSB is paid into the RDSP of a beneficiary regardless of the amount contributed in the year, up to the following amounts:

Maximum CDSB federal contribution

(cumulative maximum of $20,000 per beneficiary)

Family income thresholds17 Up to $25,356

From $25,357 to $43,561

Greater than

$43,561

Annual amount of CDSB $1,000 $1,000 amount prorated

Nil

CDSGs and CDSBs may be paid into a RDSP until the end of the year the beneficiary attains 49 years of age. Since 2011, unused CDSG and CDSB entitlements may be carried forward ten years, subject to certain prescribed limitations.

Payments

Payments from an RDSP must start before the end of the year the beneficiary attains 60 years of age. The annual payments are subject to a limit based on the life expectancy of the beneficiary and the FMV of the property held in the plan. However, the beneficiary, or his/her legal representative, may make withdrawals for certain purposes and in amounts specified in the plan. As of 2014, a minimum mandatory withdrawal will generally be applicable as of the year when the beneficiary turns 60 years old.

17 These thresholds, indexed annually, are those used to establish the rights for 2013, considering the income

declared in 2011. The net family income of the parents (or tutors) is considered until the beneficiary attains 19 years of age, following which time the relevant income is the income of the beneficiary and his/her spouse even if the beneficiary still lives with his/her parents.



The contributions are not deductible for tax purposes and are therefore not taxable when withdrawn. The investment income and the capital gains realized in the plan and the grants and bonds that have been put into the plan are taxable in the hands of the beneficiary when he/she withdraws them.

Repayment of CDSGs and CDSBs

The grants and bonds must be repaid to the government if they were put into the RDSP during the 10 years preceding a payment from the plan or the end of the plan. This rule is more flexible with regards to beneficiaries with a reduced life expectancy. With regard to the withdrawals made as of 2014, the 10-year repayment rule will be replaced by a proportional repayment rule, subject to some exceptions. Therefore, $3 of the CDSG or CDSB received over the preceding 10 years will have to be repaid for each dollar withdrawn from the plan.

End of Plan

When the beneficiary of an RDSP ceases to be eligible for the disability tax credit or dies, the funds in the RDSP are generally paid to the beneficiary or his/her estate. The amount received, net of the contributions and any repayments, has to be included in the taxable income of the beneficiary for the year the amount is received or for the year of death.

Plan Transfers

For RRSP, RRIF or RPP transfers upon death, see Section XII. For an RESP transfer to an RDSP, see Section III.

6. INDEMNITY FOR CLINICAL TRIAL – QUEBEC

The first $1,500 of income from indemnities paid to a research subject who participates in clinical trials carried out by another person, in accordance with the standards established by the Food and Drug Regulations, is not taxable.

Section V – EMPLOYEES 48


SECTION V – EMPLOYEES

RECENT CHANGE

– The increase in the Quebec non-refundable tax credit for experienced workers initially announced for the 2013 and following years has been cancelled.

It is essential to determine a person’s tax status as self-employed or employees. The consequences are significant for both the worker and employer. The deductions permitted when calculating an employee’s taxable income are far more restricted than those applying to self-employed workers. In addition, mandatory tax deductions by the employer only exist for employees, which encourages some employers to opt for hiring freelancers.

There is no legislation which clearly defines employed versus self-employed status. Nevertheless, the case law on the issue makes it possible to identify the following criteria regarding employee status:

Exclusivity of employee services;

Non-competition clause;

Professional responsibilities assumed by employee;

Tools provided by employer;

Inability for employee to be replaced;

Employment-related benefits (insurance, pension plans, etc.).

In general, an employee’s income includes all income received in the year by virtue of his/her employment in the form of salary, commissions, bonuses, and tips. Unless otherwise provided, employees are also taxable on the value of the benefits they receive from their employer.

1. TAXABLE BENEFITS

Insurance Plans

While there are numerous rules surrounding insurance plans, generally, any premiums paid by the employer to a non-group insurance plan are considered a taxable benefit, whether it is a health insurance, accident insurance, disability insurance, life insurance or wage-loss insurance plan. Exceptions apply, however, when an employer pays premiums in respect of certain group plans.

In Quebec, employer contributions to group sickness, drug or dental plans are considered taxable employee benefits and can be claimed as medical expenses for purposes of the provincial tax credit for medical expenses (see Section IV).

The tax treatment of the benefits paid to an employee-beneficiary varies depending on whether all or a portion of the premiums were paid by the employer.

Employer Automobile

The employee benefit relating to the use of an automobile includes:

a standby charge, and

a benefit for operating costs.



An automobile is a motor vehicle for transporting individuals (maximum seating capacity of nine persons), subject, however, to several exceptions.1

The use of the automobile by the employee to travel from home to the employer’s place of business is normally considered personal use. In certain specific circumstances, the travel expenses may be considered otherwise.

Calculation of Benefits

1) Standby charge:2

Employer-owned automobile:

Automobile cost3 x 2%4 x

Number of days in a year automobile is available to employee

30 days

Employer-leased automobile:

Lease cost5 x ⅔ x

Number of days in a year automobile is available to employee

30 days

Given that the standby charge is calculated on the initial cost of an automobile, consider purchasing the

automobile after a few years.

A standby charge benefit must be calculated, whether employees use an automobile for personal purposes or not. The fact that the vehicle is available for their use and at their discretion is sufficient. However, the benefit may be reduced if the employee uses the automobile more than 50% of the time for work-related purposes and if personal use is less than 1,667 kilometres per month:

1 Exceptions include taxis, some vans and pick-up trucks of three seats or less used for transporting merchandise.

Further details can be obtained from Raymond Chabot Grant Thornton’s document on the tax consequences of the use of an automobile published on its Internet site at: http://www.rcgt.com/en/publications/taxation/auto-route/.

2 The benefit is reduced by all amounts repaid by the employee in the year. 3 Automobile cost includes commodity taxes. 4 For automobile salespersons, the employer may use a 1.5% rate if the following three conditions are met:

the taxpayer is employed primarily in selling or leasing automobiles; an employer-owned automobile is made available to the taxpayer; the employer acquires at least one automobile in the year.

The cost of the automobile is the greater of: the average cost of all automobiles acquired by the employer for sale or rent in the year; the average cost of all new automobiles acquired by the employer for sale or rent during the year.

5 Lease cost includes commodity taxes and excludes insurance costs.



Standby charge previously calculated x

Kilometres for personal use

1,667 km x Number of months automobile is available

to the employee

Example: An employee drives 25,000 km for work-related purposes and 15,000 km for personal purposes. Because the personal-use portion is not more than 20,004 km (1,667 km × 12 months) per year and the automobile is used more than 50% of the time for work-related purposes, the reduced standby charge calculation applies. In this situation, the taxable benefit for the standby charge represents 75% (15,000/20,004) of the standby charge.

2) Operating costs benefit:6

$0.277 × number of personal-use kilometres;

Optional method if the following conditions are met:

Automobile is used more than 50% of the time for office or employment purposes;

Employee notifies employer before the year-end that this method will be used.

In this case, the benefit is equal to 50% of the standby charge benefit excluding any reimbursement by the employee.

Motor Vehicle Other Than an Automobile

The benefits related to the actual personal use (and not the availability) of motor vehicles excluded from the definition of an automobile8 are also taxable. The benefit is equal to the FMV of the benefit therefrom, e.g. the amount the employee would normally pay to lease a similar vehicle in an arm’s length transaction, including operating costs. If the employee uses the vehicle solely to travel between home and place of work, the calculation can be based on a per kilometre amount for equivalent transportation.

Logbook

The CRA requires that employers maintain adequate records so that it can verify an employee’s remuneration and so that the appropriate amounts can be deducted at source. Consequently, employers must make every effort to ensure that employees to whom an automobile is provided keep a record of the kilometres travelled.

In Quebec, an employee must provide the employer with a logbook containing the following information:

The number of days in the year the automobile was made available to him/her;

The number of kilometres driven every day for personal as well as for employment purposes.

Raymond Chabot Grant Thornton has designed “L’Auto-route” to help you easily and efficiently

compile the data required for the logbook.

You can download this Excel file at www.rcgt.com. This tool enables you to quickly enter your personal

data, which are compiled automatically.

6 The benefit is reduced by any amount reimbursed by the employee no later than within 45 days of the end of the

year. 7 In 2013. $0.24 for individuals employed in selling or leasing automobiles. 8 See footnote 1.



Quebec tax authorities allows employees to record total kilometres driven on a weekly or monthly basis provided the number of kilometres driven in the course of their employment is recorded on a daily basis. In addition, each point of departure and arrival for business-related travel must be indicated.

The logbook must be given to the employer no later than January 10 of the following year if the automobile is available to the employee at the end of the year or within ten days following the end of the period during which the automobile was available to him/her. A penalty of $200 will be charged to employees who fail to comply with these requirements.

Employee Loans

Interest-free and Low-interest Loans

Taxable benefits are usually calculated when an employee receives an interest-free or low-interest loan or debt at a rate lower than the government prescribed rate. The rate, which is fixed quarterly, is set at 1% for the first three quarters of 2013. The benefit is reduced by interest paid by the employee no later than 30 days following the end of the year. The creditor does not need to be the employer; the fact that the debt is contracted in connection with the employee’s office or employment is sufficient.

The prescribed rates of interest on loans to employees remain low. Therefore, it would be advantageous to get

an interest-free loan from your employer. The cost of such a loan is only the tax on the deemed loan interest.

Loans to Purchase a Family Home

If the loan is made to enable the employee to purchase a family home, the amount of the benefit must be computed based on the lesser of the prescribed rate when the loan was made and the prescribed rate for the year. If the loan repayment period is greater than five years, the employee is deemed to have received a new loan at the prescribed rate for the period of the year starting five years after the date of the loan.

If possible, negotiate an interest-free home purchase loan when prescribed interest rates are low in order to reduce the taxable benefit on the loan for the next five

years.

Home Relocation Loan

Generous measures apply when a loan is made for the purchase of a residence by an employee who moves to start or continue working at a job in Canada if the new home is at least 40 kilometres closer to the new work location. In such circumstances, employees are entitled for a maximum of five years to a deduction equal to the lesser of the amount included in his/her income in respect of this benefit for the year and the amount of the benefit that should have been calculated if the employee had received a $25,000 interest-free loan.



2. STOCK OPTIONS

An employee who acquires shares in the employer’s corporation9 under a stock option plan is deemed to have received a taxable benefit in the year equal to the amount by which the FMV of the shares when they are acquired exceeds the price paid for them.

However, the employee is generally entitled to a 50% deduction for federal purposes (25% for Quebec purposes)10 of the benefit if the amount paid to acquire a share is at least equal to its FMV at the time the option was granted. Any increase (decrease) in value subsequent to the date of acquisition will be taxed as a capital gain (loss) in the year of disposal.

Shares of Canadian-Controlled Private Corporations

If a stock option plan pertains to shares of a CCPC, the amount of the benefit is normally taxable as employment income in the year of disposal of the shares. In such a situation, the employee is entitled to the above-mentioned deductions provided the shares are kept for at least two years, even if the price paid for the shares is less than their FMV at the date the stock option is granted.

Example: On December 20, 2007, ABC Ltd. (a CCPC) grants John, its employee, the right to purchase 1,000 shares for $10 per share, i.e. their FMV at that time. In June 2008, John exercises his option. The FMV of the shares at that time was $15 per share. On May 1, 2013, John sells all of his shares for $12,000.

Tax consequences: There are no tax consequences in 2007 when the option is granted. There is no taxable benefit for John in 2008 because ABC is a CCPC and the gain on the shares qualifies for the deferral. In 2013, when the shares are sold, John has to include a taxable employment benefit of $5,000 ($15,000 - $10,000) in his income. He can also claim a deduction of $2,500 ($5,000 × 50%) for federal purposes and $1,250 ($5,000 × 25%) for Quebec purposes, and a deductible capital loss of $1,500 (($12,000 - [$10,000 + $5,000]) × 50%). Unfortunately, the loss on the disposition of the shares cannot be applied to reduce the taxable benefit.

Shares of Public Companies

Employees of a public company had been able to elect to defer the income taxes on all or part of the taxable benefit arising on the exercise of a stock option until the optioned securities were sold. This election was repealed for stock options exercised after 4:00 p.m. EST on March 4, 2010.

Temporary Tax Relief for Individuals who Made the Election

Temporary relief is provided for employees who have made this election and who, because the shares lost value, receive insufficient proceeds of disposition to pay the income taxes deferred (if the shares are disposed of before 2015). In general, the relief is intended to ensure the income taxes payable on the benefit arising on the exercise of the stock option does not exceed the proceeds of disposition received when the optioned securities are sold while taking account of the tax benefit resulting from the deductible capital loss on those securities.11

To take advantage of this relief, the election must be filed no later than the individual’s filing deadline for the taxation year during which the shares are sold, i.e. generally April 30 (see Section I). A different election may be made in Quebec.

9 Or a company not at arm’s length with the employer. The same tax treatment applies to options granted by mutual

fund trusts. 10 50% if the option is granted after March 14, 2008 by an “innovative SME”, i.e. in general a corporation whose total

assets are less than $50M and that has been entitled to certain SR&ED tax credits over the past few years. 11 For Quebec residents, the total income taxes payable will always exceed the proceeds of disposition received if

the election is made both at the federal and provincial levels.



You should consult a tax specialist to determine if this relief is worthwhile for you based on your own

situation, in particular considering the possibility of deducting the capital loss arising on the sale of the

shares.

3. NON-TAXABLE BENEFITS

Automobile Allowance

Reasonable automobile allowances are not taxable. An allowance is considered reasonable if it is computed solely based on the number of kilometres driven in connection with business. The allowance will be considered reasonable even if certain expenses12 are reimbursed to the employee if these expenses were not taken into account in determining the allowance.

The tax authorities tend to consider that the allowance is reasonable if the rate is not more than $0.54/km for the first 5,000 kilometres and $0.48/km for any additional kilometres.13 The allowance must take into account the actual kilometres driven to ensure it is not taxable. It is therefore essential to keep a record of the distance travelled by the employee to ensure that benefits are not taxable.

If the allowance is not reasonable because it is insufficient to cover the travelling costs, the employee can include the allowance in income and deduct the actual eligible amount of the expenses.

Combined Allowance

A combined automobile allowance is composed of a fixed amount and an amount based on a reasonable per kilometre rate. If an employer pays a combined allowance to employees, the total allowance is taxable if both parts of the allowance are paid with respect to the same general use of the vehicle. The employee can then deduct eligible automobile expenses.

Director’s Allowance

For federal purposes, an automobile allowance or a reimbursement of expenses is not taxable if the expenses are incurred to go to a registered charity’s board of directors’ meeting.

In Quebec, a taxpayer who is a representative of a corporation, an association or an organization is not required to include in income an amount received as a travel allowance or reimbursement of travelling expenses to attend board or committee meetings provided:

the amount is reasonable;

the taxpayer deals at arm’s length with the organization; and

the meetings are held in a location that is at least 80 kilometres from his/her residence:

The location is related to the territory where the not-for-profit organization carries on its activities;

In any other case, the location is in the local municipality or metropolitan area where the organization’s place of business is located.

Professional and Union Dues

For federal purposes, if an employer pays or reimburses an employee’s professional dues because membership in the association is of benefit to the employer, the amount is not a taxable benefit for the 12 For example, additional business insurance, parking, highway tolls or ferry costs. 13 2013 rates.



employee. However, fees paid or reimbursed to join a professional order are a taxable benefit to the employee.

In Quebec, dues paid to associations governed by the Office des professions du Québec, a recognized artistic association as well as to the Association professionnelle des chauffeurs de taxi du Québec are a taxable benefit for the employees (see Table in point 4 of this Section).

Remember to claim the Quebec tax credit for professional dues included in your income as a taxable

benefit.

Tuition and Training Costs

There is no taxable benefit to the employee if the principal beneficiary of the training is the employer. Training includes:

courses (including associated costs such as meals, travel, etc.) leading to a diploma that will serve to maintain or upgrade the employer-related skills to the extent it is expected that the employee will return to his/her employment for a reasonable period of time after completion of the course;

business related training, even though not necessarily dealing directly with the employer’s business, e.g. stress management.

However, costs paid by the employer for courses taken primarily for the employee’s benefit are a taxable benefit for the employee, but expenses paid for an employee’s family member to continue their studies may benefit from a generous tax treatment (see Section III).

Parking Costs

A parking space provided to an employee free of charge, or for an amount that is less than its FMV, constitutes a taxable benefit equal to the FMV of the parking space, including commodity taxes. The benefit is not taxable when it is impossible to determine the FMV thereof (e.g. parking space in a shopping centre available to the general public or a parking lot where the number of spaces is less than the number of users and the spaces are used on a first-come basis).

When an employee is required to use an automobile regularly in the course of employment (three or more days a week), the value of the parking space is not a taxable benefit. If the employee uses his/her automobile on an irregular basis, the benefit may be reduced to take into account the number of days the employee has to use his/her automobile compared to the number of days the parking space is provided to him/her.

Overtime Payments

Allowances paid or meals provided to employees for overtime worked will not constitute a taxable benefit to the extent that:

overtime of at least two hours is expected to be worked at the request of the employer;14

overtime is only put in on an occasional basis;

the allowance is reasonable.15

14 Three hours in Quebec. 15 In general, the CRA considers an amount up to $17 reasonable.



The same tax treatment applies to allowances paid to employees for travelling from work to home if the aforementioned conditions are satisfied and public transportation is not available or if, under the circumstances, the individual’s safety may be in danger because of the time at which he/she has to travel. Quebec’s administrative policy requires the employer to reimburse expenses rather than pay an allowance for this measure to apply.

Social Events for Employees

Dinners or other activities for all employees are not taxable benefits to the employees provided they do not cost more than $100 per person, including related costs (transportation, temporary lodging, etc.).

Emergency Volunteers

Volunteers providing emergency services (volunteer firefighters,16 ambulance technicians and other emergency service volunteers who are called upon to assist in emergencies) are entitled to a $1,000 ($1,100 in Quebec)17 tax exemption for allowances received. Amounts paid in excess of this limit are taxable.

Gifts and Awards

Employers may give their employees tax-free gifts and awards to mark special occasions or in recognition of certain exceptional accomplishments provided their total combined value does not exceed $500. In Quebec, there is a separate $500 limit for gifts and for rewards, which means an employer can give, on a tax-free basis, a total value of $1,000 per year to each employee. This exemption does not apply to rewards granted in exchange for work (e.g., for meeting a specific sales or performance objective).

For federal purposes, in addition to gifts and rewards, a non-cash gift of a maximum of $500 may also be given to an employee tax-free once every five years as a reward for years of service or for a birthday.

The following table summarizes the different rules:

Federal Quebec

Eli

gib

le Non-cash gifts and rewards of an annual

total value of $500; AND Maximum gift of $500 every five years as

a reward for years of service or to mark a birthday.

Non-cash gifts of an annual total value of $500; AND

Non-cash awards of an annual total value of $500.

No

t el

igib

le Cash gifts and awards;

Gift certificates; Coins.

Gifts and awards: –– In cash; –– Easily convertible into cash18;

Employer-paid insurance premiums.

Tre

atm

ent

First $500 is not taxable in hands of employee. Excess is taxable;

Deductible by employer.

First $500 of gifts and first $500 of rewards are not taxable in hands of employee. Excess is taxable;

Deductible by employer.

16 Volunteer firefighters who claim the tax credit for volunteer firefighters (see point 10 of this section) cannot benefit

from this exemption with regards to the amounts received in connection with this function. 17 2013 amount, indexed annually in Quebec. 18 In Quebec, gift certificates or cards used to purchase goods or services at one or more stores are not considered

as gifts and rewards easily convertible into cash.



Collective or Public Transit Passes – Quebec

The cost of public transit passes paid or reimbursed by an employer (see Section VI) for an employee to travel to work is not a taxable benefit for the employee. The use of an intercity public transit service provided by the employer also does not give rise to a taxable benefit for the employee.

Other Non-Taxable Benefits

In some circumstances, reimbursement of moving expenses, including reasonable expenses related to the relocation of services, connection of appliances as well as the modifications required to install moved property. An allowance paid for incidental relocation expenses does not constitute a taxable benefit provided it is not greater than the equivalent of two weeks of the employee’s salary (for Quebec purposes) or not more than $650 (federal);

Reimbursement of a loss from the disposal of an employee’s residence subsequent to a move at the employer’s request, up to a maximum of $15,000 (see point 4 of this section);

An expense allowance paid to a member of a municipal organization, to the extent that it does not exceed one third (one half in Quebec), according to the circumstances, of the remuneration and allowance received;

Employer’s contributions to an RPP, a supplementary employment benefit plan or a DPSP;

Discounts granted to all employees;

Use of the employer’s recreational facilities, subject to certain conditions;

Subsidized meals provided the employee is required to pay a reasonable amount for the cost of food. The ARQ accepts the following formula for calculating the benefit for hotel and restaurant employees: 80% of the lesser of the minimum cost of a meal (including all taxes) or $7.41 (in 2013) less any amount paid by the employee;

Uniforms and special clothing required for work;

Transportation to the work location, where such transportation is provided by the employer for safety reasons;

Meals, lodging and transportation when an employee is performing duties at a remote location or, in some circumstances, at a special work site;

Certain transportation passes to employees of bus, subway, rail or air companies, except for airline employees for whom the benefit is taxable if they are travelling on a space-confirmed basis and paying less than 50% of the economy class fare. Free or reduced-price passes given to employees’ family members or retired employees are a taxable benefit to the employee;

Counselling services relating to mental or physical health, re-employment or retirement of an employee;

Allowances paid to a part-time employee for travel expenses provided the employee deals at arm’s length with the employer, holds another job or carries on a business, that the amount is reasonable and that this part-time function is performed at a location at least 80 kilometres from his/her normal place of residence and principal place of employment;

Travel expenses incurred by an employee’s spouse where his/her presence is required by the employer and he/she has a role to play in achieving the business objectives of the trip;

Expenses paid to an attendant to assist a disabled employee perform duties of employment, within certain limitations;

Transportation and parking expenses paid by the employer to a blind or motor-impaired employee, including an allowance for the use of a taxi or adapted public transportation;



Reasonable allowances for travel costs other than the use of an automobile (e.g. food, beverages or lodging) paid to an employee whose work does not involve selling goods or negotiating contracts to cover travel costs outside the municipality or metropolitan area where the establishment where the employee works is located. Such allowances paid for travelling inside the municipality or metropolitan area are not taxable if they are paid primarily for the benefit of the employer;

Reasonable allowances for travel costs paid to an employee whose work involves selling goods or negotiating contracts;

Membership dues to a sports club paid by the employer, provided it is principally for the employer’s own advantage;

Internet services, computer devices, and cellular telephones made available to employees, to the extent that they use it in carrying out their work or where such use mainly benefits the employer. For federal purposes, a taxable benefit must be calculated according to the percentage of personal use of the Internet. In Quebec, a taxable benefit must be added to the employee’s income if personal use of the Internet or telephone results in additional fees for the employer or if the employer pays the employee an allowance;

For federal purposes, reimbursement of child care expenses by an employer if the employee is required to work out of town at the request of the employer;

Points accumulated by an employee in connection with loyalty programs are non-taxable provided the points are not converted into cash and the employer does not control them. Accordingly, for example, points accumulated through the use of a company’s credit card are taxable.

Consider asking your employer to provide you with non-taxable benefits instead of a salary raise.

4. EMPLOYMENT EXPENSES

Employees can only deduct expenses specified in the Act in computing their employment income. In general, employees may claim expenses if the employment contract requires them to pay their own expenses, if they are usually required to work away from their employer’s place of business, and if they do not receive a non-taxable allowance for travelling expenses.

Commissioned salespersons may deduct all of their expenses (except capital expenditures, professional dues and memberships in sports or leisure associations) up to the amount of the commissions received. The limit does not apply to depreciation and interest for an automobile.

Motor Vehicle Expenses

An employee required to work away from the employer’s establishment may deduct motor vehicle expenses if such expenses have to be paid by him/her under the terms of his/her employment contract and he/she does not receive a non-taxable allowance in respect thereof (see point 3 of this section). Use of a vehicle to travel from home to work usually constitutes personal use.



Calculation of Deduction

The maximum amounts eligible for capital cost allowance, interest and lease costs are as follows:

Capital cost Interest Monthly leasing costs

$30,000 + tax19 $10.00/day

The lesser of:

(Actual leasing costs + tax) × ($30,000 + tax) 85% of suggested retail price, before tax (minimum $35,294 + tax)

$800 + tax

The deduction is calculated in the following manner:

Operating costs20 + Depreciation + Interest × Employment km

Total km

or

Operating costs20 + Leasing costs × Employment km

Total km

The capital cost allowance rate for a motor vehicle is 30%. There are also certain specific rules that apply to the capital cost allowance calculation in the first and last years the motor vehicle is used depending on whether the capital cost before taxes is greater than the limit mentioned in the previous table.

If you claim automobile expenses, keep a log for each vehicle used for business.

Meal, Travel and Entertainment Expenses

Employees who are required to travel in the performance of their duties may deduct reasonable travel expenses (airline, bus, train or taxi fares), lodging (hotel) and food.

However, food costs are only deductible if the employee is required to be away for a period of at least 12 hours from the municipality where he/she normally works. The maximum deduction is equal to 50% of the amount paid or the amount that is considered reasonable under the circumstances. The limitation does not apply if the meals are included in the cost of the ticket (airplane, train and bus). Parking costs, insofar as they are not paid for parking at the employer’s establishment (daily or monthly), are deductible.

19 $33,863 in Quebec for automobiles acquired between 2008 and 2010, and $34,178 for those acquired in 2011 and

$34,493 for those acquired since 2012. 20 Gas, oil, maintenance, repairs, insurance, licence, registration.



Commission Employees

Commission employees can deduct the entertainment expenses paid to earn income. In general, the deduction is limited to 50% of the amount paid in this respect (see Section VI). Commission employees in Quebec do not have to respect the requirement of being away for a period of at least 12 hours to be able to deduct the costs of their meals with clients.

Transportation Industry

Transportation industry employees do not have to comply with the aforementioned 12-hour requirement, as long as they usually travel such a distance and for such a duration that they are required to spend the night away from the municipality.

For purposes of the deduction for meal expenses, a simplified method that requires no receipts is available. Accordingly, such employees can claim a deduction based on a fixed rate of $17 per meal. Employees who travel to the United States can deduct the Canadian dollar equivalent of US$17 per meal.

For federal purposes, the number of meals is limited to one meal every four hours up to a maximum of three meals per day. For Quebec purposes, the number of meals is limited, based on the hours the taxpayer is away:

From 4 to 10 hours: 1 meal;

More than 10 hours but less than 12 hours: 2 meals;

From 12 to 24 hours: 3 meals;

More than 24 hours: 1 meal every 4 hours, up to a maximum of 3 meals per day.

Taxpayers can still continue to use the detailed method and keep receipts. The employee can deduct 50% of this fixed rate or 50% of the actual costs incurred, depending on the method used. The deductible portion of food and beverages consumed by long-haul truck drivers is 80% (see Section VI).

Supplies

Employees are allowed to deduct the cost of supplies they are required to pay under their employment contract and that are required for their work and cannot be reused – paper, pencils, pens, paper clips, stamps, telephone directories, listings, fax expenses, long distance calls. Such costs do not include basic telephone service, cellular phone start-up costs, or the costs for computers or similar equipment. Interest on funds borrowed to acquire this type of equipment, depreciation and the cost of uniforms and tools are not deductible.

Teachers’ Supplies

For federal purposes, teachers can deduct the cost of supplies they purchase in connection with their duties to the extent it can be demonstrated that the acquisition of the supplies is an express or implicit condition of their employment contract and that it was understood by the employer and the employee that the employee was required to pay these expenses.

Hairdressers

A salaried hairdresser can deduct expenses for the use of products (shampoo, conditioner, etc.) insofar as the employment contract requires that he/she provides them. Employees in this industry could also be recognized as tradespeople for the purposes of tradespeople’s tool expenses (see further on in this section) for the purchase of a hair dryer or curling tongs, for instance.



Workspace in Home

Office expenses are deductible if the employment contract requires the employee to have an office and pay the costs thereof. However, expenses related to the use of an office at home may only be deducted if:

the workspace is where the taxpayer mainly does his/her work; or

the workspace is used exclusively to earn employment income and used on a regular and continuous basis to meet clients and customers.

Reasonable maintenance, electricity and heating costs relating to the office (i.e. based on prorata portion of the space occupied) may be deducted. Property taxes, insurance premiums, mortgage interest and capital cost allowance may not be deducted. However, commission employees may deduct a portion of the property taxes and insurance premiums relating to the office. If the employee rents a residence, the portion of the rent for the area used as an office may be deducted. While the amounts cannot be greater than the employment income to which they relate, expenses that cannot be deducted in a year may be carried forward indefinitely.

Professional and Union Dues

The following table summarizes the tax treatment for the employee of professional and union dues:

Federal Quebec

CONTRIBUTIONS PAID BY EMPLOYER

Not a taxable benefit for employee if employer is the main beneficiary

Taxable benefit on total amount paid by employer (commodity taxes included)

No deduction Employee can claim credit for: –– Annual contribution (commodity taxes

included) –– Amount paid to the Office des professions du

Québec

Employee not entitled to GST/HST refund Employee not entitled to QST refund

CONTRIBUTIONS PAID BY EMPLOYEE

Deduction of the amount including: –– Annual fee to the professional order

(including commodity taxes) –– Amount paid to the Office des professions du

Québec

Non-refundable tax credit for: –– Annual contribution (commodity taxes

excluded) 21 –– Amount paid to the Office des professions du

Québec

Entitled to GST/HST refund if the employer is a registrant that is not a designated financial institution (e.g. bank, broker)

Entitled to QST refund if the employer is a registrant

The GST/HST/QST refund is taxable in the year it is received

The GST/HST/QST refund is not taxable

Amounts paid for liability insurance required to maintain professional status are deductible.

21 Insofar as the employee is entitled to a GST/HST/QST refund.



Moving Expenses

When an individual moves within Canada to take up a new job, he/she may deduct eligible moving expenses incurred to move from the former residence, providing he/she moves at least 40 kilometres closer to the new place of work. Moving expenses incurred abroad may also be deducted if the individual is deemed to be a resident of Canada for tax purposes. In every case, the total deduction for moving expenses is limited annually to the employment income earned in the new work location. Any excess may be carried forward to subsequent years.

Eligible expenses include moving expenses, meals and lodging for the individual and his/her family, costs for moving furniture, costs related to leaving a residence and certain expenses for the acquisition of a new one. Moving expenses include the costs of maintaining a former residence that has been left vacant. These expenses include mortgage interest, municipal taxes, insurance premiums, heating and electricity, up to $5,000.

In calculating moving expenses, a taxpayer may elect to use a simplified method requiring no receipts. The method allows the taxpayer to claim a fixed rate of $17 per meal per person up to $51 per day, while moving his/her family to the new residence and to deduct $0.57 for every kilometre travelled from Quebec ($0.55 for Ontario and $0.49 for New Brunswick) for the use of a vehicle to get there.22 A taxpayer may of course continue to use the detailed method and retain receipts.

Certain moving expenses paid by employers on behalf of employees are taxable benefits. Thus, the first $15,000 paid to an employee (or a related individual) to offset an actual loss incurred on the sale of a former residence in connection with an eligible relocation is non-taxable. Any amount paid to an employee in addition to this amount is taxable at 50%. An interest-free loan granted directly or indirectly to an employee to purchase a new home following a move confers a taxable benefit on the employee except for home relocation loans (see point 1 of this section) but some allowances paid by the employer are not taxable (see point 3 of this section).

Computers and Telecommunications

A deduction is available for leasing costs relating to a computer, a cellular telephone, a fax machine or other similar equipment, as well as the costs of calls made on a cellular telephone in order to earn commission income.

As a commissioned employee, you should lease computer equipment instead of buying it, since lease

expenses are deductible while the depreciation and interest costs are not.

Legal Fees

Taxpayers may generally deduct legal fees paid in the year to collect salary owing or to establish their right thereto even if they have not yet collected the amount. Employees are also entitled to deduct expenses paid to collect or establish the right to a retiring allowance or a pension benefit.

Employees Working in Forestry Operations

An employee working in a forestry operation may deduct expenses incurred for the use of a power saw or brush cutter, if the conditions of employment require that he/she provides and maintains these tools and is not reimbursed therefor. In general, expenses include the cost of equipment, fuel, repairs, leasing costs, interest and insurance premiums. Expenses incurred for clothing or shoes acquired to protect the 22 Amounts for 2012. 2013 amounts will be available in January 2014. For updated rates and amounts, refer to the

CRA Internet site at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/255/rts-eng.html.



employee from job-related dangers are not deductible. However, allowances paid by an employer to acquire such clothing and shoes are generally not taxable.

Employed Musicians and Artists

Employed musicians can deduct expenses related to the use of the instrument to the extent they do not exceed the net employment income earned for the year as a musician. Eligible expenses include maintenance or lease costs, insurance premiums and capital cost allowance (Class 8 – 20%) on purchased instruments.

For federal purposes, artists may deduct their expenses in accordance with the rules for salaried employees or treat such expenses as expenses of an employed artist and deduct the expenses incurred to earn employment income from an eligible artistic activity up to the lesser of $1,000 or 20% of employment income from that activity.

Cost of Tools for Tradespersons

Tradespersons can deduct up to $500 per year for the cost of new tools acquired as a condition of their employment. However, in 2013, the first $1,117 ($1,110 in Quebec) of such costs is not deductible.

5. INCENTIVES FOR WORKERS

Canada Employment Credit – Federal

The Canada Employment Credit is a non-refundable tax credit equal to 15% of the lesser of $1,11723 or the employee’s employment income.

Working Income Tax Benefit – Federal

Low-income Canadian workers who are at least 19 years of age are entitled to a refundable tax credit up to 25% of earned income (employment or business income) in excess of a threshold amount, up to an annual limit. Disabled persons are entitled to a supplement. The benefit, which can only be claimed by one spouse, is based on the applicant’s net income, family situation and province of residence.24

The parameters of this tax benefit for 2013 are as follows:

Working income tax benefit

Province of residence Ontario and New Brunswick Quebec

Single with no children

$ Family

$

Single with no children

$ Family

$

Maximum benefit25 989 1,797 1,599 975

Based on earned income in excess of 3,000 3,000 2,400 3,600

Reduction threshold (net income)

25 11,231 15,509 10,853 16,794

Benefit lost (net income) 17,827 27,489 18,850 21,668

Maximum disability supplement 495 514

An individual may apply for an advance payment of one-half of the benefit to which he/she is entitled for the year. 23 In 2013. Indexed annually. 24 For additional information and to estimate the amount to which you are entitled, go to the CRA Internet site at:

http://www.cra-arc.gc.ca/bnfts/wtb/menu-eng.html. 25 Indexed annually.



Work Premium – Quebec

The work premium is a refundable credit comparable to the federal working income tax benefit that can be claimed by Quebec residents who receive work income, i.e. employment or business income, of at least $2,400 for a single person or a head of a single-parent family, or at least $3,600 for a couple, whether or not they have children. The credit is determined based on the family situation and the applicant’s income.26 An application for advance payment may be made for part of the premium provided certain conditions are met.

Individuals with a severely limited capacity for employment can benefit from the Adapted Work Premium, which is calculated using more flexible parameters than the Work Premium. Moreover, a supplement is added for long-term recipients giving up last-resort financial assistance during labour market integration.

Deductions for Workers – Quebec

An employee may deduct an amount equal to 6% of his/her work income, including self-employment income, up to a maximum of $1,100 in 2013.

Tax Credit for Experienced Workers – Quebec

Individuals aged 65 and over27 are eligible for a non-refundable tax credit of 15.04% of their work income over $5,000, up to a maximum amount of income of $3,000. This tax credit can neither be carried over nor transferred to a spouse.

6. TIPS – QUEBEC

Quebec requires most employees who work in an establishment that serves food or alcoholic beverages, or delivers meals (excluding, among others, cafeterias and fast-food restaurants) and receive tips, to declare in writing the amount of such tips to his/her employer. This declaration makes it possible for employers to take into account tips received by employees (in addition to their regular salary) in calculating deductions at source. This requirement does not apply to the portion of the tips received when service charges are added directly to the customer’s bill.

7. TAX CREDIT FOR NEW GRADUATES WORKING IN REGION – QUEBEC

New college or university graduates who find a job in an eligible region within 24 months of graduating are entitled to a non-refundable tax credit equal to 40% of their eligible salary (annual maximum of $3,000; cumulative lifetime maximum $10,000 for graduates holding college or university diplomas28 and $8,000 for new graduates of a secondary school professional program).

8. EMPLOYMENT OVERSEAS

A Canadian resident working in a foreign country for a period of at least six consecutive months (30 days in Quebec) on a mining, oil or gas, agricultural, engineering or construction project and who is employed by a Canadian company (or a foreign affiliate thereof) is entitled to a tax credit (deduction in Quebec). Quebec also includes computerized, automated or data communications system installations, scientific and technical services as well as the management and administration of such activities.

26 To estimate the amount to which you are entitled, go to calculaide.gouv.qc.ca. 27 If the worker reaches 65 years of age during the year, only the work income earned after this time is eligible for the

tax credit. 28 The $10,000 limit applies to individuals who begin a new job after March 20, 2012 ($8,000 for jobs that started

before this date).



Tax Credit – Federal

For federal purposes, the credit makes it possible to eliminate the income tax payable on 60% of up to $60,000 of the employment income spread over 365 days.29 In New Brunswick, taxpayers are entitled to a credit of 57% of the federal credit, compared to 38.5% in Ontario.

Employment Deduction – Quebec

In Quebec, a portion of foreign employment income may be deducted for each consecutive 30-day period worked abroad. Allowances for foreign employment are completely tax-free provided they do not exceed 50% of foreign employment income. In summary, for the 2013 year, 75% of eligible income earned abroad may be exempt from Quebec income tax. Subject to certain transitional rules, eligible income will be reduced to 50% in 2014, 25% in 2015, and the deduction will be eliminated as of 2016.

9. FOREIGN SPECIALISTS – QUEBEC

Quebec grants a tax exemption for salaries paid to certain foreign specialists for a maximum continuous period of five years. Eligible employees include foreign specialists in an international financial centre, a stock exchange or a clearing house, professors employed by a Quebec university, certain specialists performing research in Quebec or those working in biotechnology development. Some foreign researchers at the postdoctoral level and specialists working in innovation activities, and in a new financial services corporation are also eligible.

Eligible individuals can deduct 100% of their salary for the first and second years of the five-year period, 75% for the third year, 50% for the fourth year and 25% for the fifth year. However, the percentage for the fifth year is 37.5% for specialists employed by an international financial centre, a stock exchange or a clearing house.

10. VOLUNTARY FIREFIGHTERS TAX CREDIT

Volunteer firefighters who perform at least 200 hours of service during a year are eligible for a non-refundable tax credit on an amount of $3,000. Volunteer firefighters who currently receive honoraria in respect of their duties as volunteer firefighters may choose between the tax credit and the existing tax exemption of up to $1,000 ($1,100 in Quebec)30 on their honoraria (see point 3 of this section).

11. GST, HST AND QST REFUND

Employees of GST/HST and QST registrants may be entitled to a refund of the taxes paid on taxable expenses that are deductible in computing their employment income. Any refund has to be included in income in the year it is received by the employee or applied to reduce the cost of property if it relates to a property.

12. SALARY DEFERRALS

Bonus

A bonus can be deferred for a maximum of three years. Since the employee is taxed only upon receiving the amount, the employer may only claim the deduction at that time if the bonus is paid within 180 days following the end of the taxation year it is declared.

Employee Benefit Plan

Under an Employee Benefit Plan, the employer deposits a portion of an employee’s salary at his/her request. The employee is taxed when amounts are paid by the plan and the employer may only deduct 29 For 2013. Factor reduced to 40% in 2014 and 20% in 2015 (maximum income of $40,000 and $20,000

respectively). The credit will be completely eliminated as of 2016. Certain transitional rules apply. 30 Amounts for 2013, indexed annually in Quebec.



plan contributions when amounts become taxable to the employee as income from an office or employment. Generally, investment income generated by plan funds must be attributed to the employees annually and taxed in their hands.

Salary Deferral Arrangement

The salary deferral arrangement rules limit income tax deferrals. When the conditions are met, the employee has to include the value of the amount owing in the year the services were rendered and not in the year the payment is received.

Sabbatical

Sabbatical leave is an exception to the salary deferral arrangement. The employer withholds a portion of an employee’s salary for up to six years so that the employee may be paid during his/her sabbatical leave. The employee is taxed when amounts are received, at which time the employer claims the related expense. Certain conditions relating to the length of the leave and the employee’s return must be met in order for the employee to be able to defer taxation of the amounts.

Section VI – BUSINESSES 66


SECTION VI – BUSINESSES

RECENT CHANGES

– The deduction limit for restricted farm losses is increased for taxation years ending as of March 21, 2013.

– Expenses incurred after March 31, 2014 for certain trade categories related to information technology will no longer be eligible for the Ontario apprenticeship training tax credit.

1. OPERATING A BUSINESS

A business carries on an activity for a profit. This includes a manufacturing or service business, a profession (alone or in partnership), child care, commission sales (for self-employed individuals) and any undertaking that involves a business-type risk.

To determine whether a taxpayer is carrying on a business, it is necessary to verify whether the activity is carried on for a profit or is a personal undertaking. If the activity does not include any personal or recreational element, it is commercial in nature and the expectation of profit is, therefore, clearly established. On the other hand, when the nature of the business includes certain personal or recreational elements, it is necessary to ensure that this income source is exploited in a commercial manner, i.e. with the clear intention of profit. The reasonable expectation of a profit will be determined primarily by the results over a number of years and will be based on the status of the entrepreneur, his/her ability to manage the business, his/her experience and his/her commitment to the business. To the extent that taxpayers are recognized as carrying on a business, they may generally deduct their expenses.

2. YEAR-END

Business income is reported on an accrual basis, i.e. revenues have to be recorded in the taxation year they are earned, regardless of when the cash is received, and expenses are deducted in the year they are incurred, regardless of when they are actually paid.

In general, the fiscal period of an individual who carries on a business must end on December 31. This measure also applies to a partnership of which a professional corporation carrying on the practice of an accountant, dentist, lawyer, notary, medical doctor, veterinarian or chiropractor is a partner as well as to a partnership of which one member is an individual, a professional corporation or another partnership, itself subject to this measure.

Optional Method

An optional method makes it possible to elect to retain a year-end date other than December 31. This election has to be made at the end of the first fiscal year for taxpayers who are starting a business and has to be renewed each year. Taxpayers may elect to have a December 31 year-end in a subsequent year, in which case it becomes irreversible.

Taxpayers who choose the optional method must annually add to income the estimated business income that will be earned between the year-end date for the current year and December 31. This estimate is equal to the business income earned in the current fiscal year prorated based on the number of days during the rest of the calendar year.

Example: An individual’s year-end date is March 31, 2013. In his/her 2013 income tax return, he/she will have to include the net business income earned during the year ended March 31, 2013 plus an estimated amount equal to 9/12 of income for the same fiscal year. The additional amount that was added to income in 2012 has to be deducted.



Information Return – Quebec

Taxpayers whose business is registered in the enterprise register of Quebec have to update the information therein by filing an annual update declaration. If there is a change during the year, a current updating declaration is also required. These obligations may be fulfilled on-line on the Internet site of the Registraire des entreprises du Québec.1

3. INCOME

Business or Professional Income

An individual who carries on a business must include the proceeds from all sales, including commissions and professional fees, for which the individual is paid (or is to be paid) in cash or equivalent, or in the form of a barter.

Other Income

Business income includes amounts and benefits received during the year, such as:

The value of trips awarded as a bonus or gifts received for work performed by the business;

Grants and subsidies received from an organization or government;

The collection of a debt that had been written off as a doubtful account in a previous year;

Incidental investment income.

Professionals’ Work-in-Process

Certain professionals (accountants, dentists, lawyers, notaries, physicians, chiropractors and veterinarians) may elect to exclude work-in-process from income at the end of a year but still deduct in the year all the costs relating to the work. The election is binding for all subsequent years, unless the tax authorities allow to revoke it.

4. BUSINESS LOSSES

Taxpayers must deduct business losses incurred in the year against all other types of income. Any undeducted loss can be carried over to the three preceding years and the subsequent years, based on the taxation year in which they are realized:

Taxation year ended Carry-forward period

After December 31, 2005 20 years

From March 23, 2004 until December 31, 2005

10 years

If you have business losses to be applied against other income, ensure the amount will not cause you to lose

your non-refundable tax credits (personal credits, dividend tax credits, etc.).

1 http://www.registreentreprises.gouv.qc.ca/en/services_ligne/default.aspx.



5. INCENTIVES FOR WORKERS

Like employees, persons in business may benefit from the following measures (see Section V):

Working income tax benefit – federal;

Deduction for workers – Quebec;

Work premium – Quebec;

Tax credit for experienced workers – Quebec.

6. GENERAL BUSINESS EXPENSES

Taxpayers in business may deduct any reasonable expense incurred to earn business income provided such deduction is not expressly prohibited by the Act and is not a capital expenditure. Repairs and major expenditures made to prolong the useful life of a property or increase the value above its initial state are normally not deductible and are included in the cost of the property. However, an expense that will recur after a certain period of time or was incurred to put a property back in its original state is generally a current operating expense. Any expense related to a property that is used in part to carry on a business and in part for personal use must be prorated based on the extent to which it is used in the business.

Meals and Entertainment Expenses

Entertainment expenses are expenses incurred to canvass or retain clients. They generally include all meals and beverages (including expenses that are not incurred for entertainment purposes) as well as tickets for the theatre or a sports event.

As a general rule, the deductibility of entertainment expenses is subject to a 50% limit. Any related incidentals, such as taxes, tips and admission fees, are subject to this limit, with the exception of transportation costs for getting to such activities, which are fully deductible. In addition, expenses related to food and beverage that are products sold by the taxpayer or included in the service provided in the normal course of his or her company’s activities are not included in this restriction.

Specific Limit – Quebec

The deductibility of entertainment expenses is also limited to between 1.25% and 2% of the taxpayer’s sales for the year.

Sales Limit

$32,500 or less 2%

From $32,501 to $51,999 $650

$52,000 or more 1.25%

Example: The sales of a self-employed individual amount to $135,000 for a taxation year and his/her expenses for meals with clients total $4,000. For federal purposes, the deduction for entertainment expenses is $2,000, i.e. 50% of the expenses incurred. However, for Quebec purposes, the deduction is limited to $1,687, i.e. 1.25% of sales. For sales of $40,000, the deduction would be $650.

Under certain circumstances, this limit does not apply, in particular with respect to expenses not subject to the 50% limit. A taxpayer who is a member of a partnership cannot deduct any amount for entertainment expenses other than entertainment expenses deducted in computing the income of the partnership. The limit applies at the partnership level.



Truck Drivers’ Meal Expenses

The deductible portion of meal and beverage costs incurred by long-haul truck drivers2 in connection with certain trips3 is 80%. Moreover, self-employed truck drivers may not use the simplified method (see Section V) to determine their meal expense deduction.

Use of Recreational and Sports Facilities

Expenses incurred for the use and maintenance of a golf course or facility, a hotel chalet or a pleasure boat (unless it is the taxpayer’s regular business) are not deductible. However, 50% of meals and beverages consumed at a golf club are generally deductible to the extent they are clearly identified.

Membership Fees and Dues for Recreational and Sports Clubs

Membership fees and dues paid to recreational or sports facilities are not deductible. Other entertainment expenses incurred on the premises, i.e. meals and beverages, are generally deductible and subject to the 50% rule.

Conferences

When registration fees for conferences or other similar meetings include meals, beverages or entertainment but no reasonable amount is shown on the invoice for these items, an amount of $50 per day is deemed to have been paid for meals, 50% of which is deductible. The rule applies to full and partial days. Training, travel and lodging costs of participants to these events are still fully deductible.

Taxpayers may normally deduct the cost of attending a maximum of two conferences per year.

Cultural Events – Quebec

The cost of a subscription to at least three different presentations of cultural events in Quebec and the purchase of all, or substantially all (90%), of the tickets to attend a presentation of such an event are fully deductible. The events must be one of the following:

a concert given by a symphony orchestra, a classical or a jazz ensemble concert;

an opera;

a dance production;

a concert by a singer that is not held in a sports facility;

a play;

a variety show (e.g. a comedy or a musical comedy production);

a museology exhibit.

In addition to being fully deductible, these expenses are not subject to the sales limit.

When participating in social activities, consider cultural events that are 100% deductible in calculating business

income in Quebec.

2 A truck or tractor designed and used mainly to transport merchandise and whose normal gross weight is more than

11,788 kg. 3 Of a minimum of 24 hours and at least 160 kilometres away from the municipality where the driver or his/her

employer’s business is located.



Reimbursed Expenses

Entertainment expenses are fully deductible if they are reimbursed by the client and are shown specifically on the invoice.

Social Events for Employees

The 50% limit does not apply if the expenses are incurred by an employer for food, beverages or entertainment provided to all of the employees, either at the employer’s place of business or in facilities rented for the purpose. Receptions for all of the employees of one or more of an employer’s business places are also fully deductible.

This exemption is limited to a maximum of six special events during a year for each place of business of the employer.

Example: The Christmas party and the annual field day for all employees are considered as two separate events. If a business has three places of business (e.g. Montréal, Québec City and Sherbrooke), each place can have six events.

Capital Cost Allowance

Taxpayers may deduct capital cost allowance on capital property used to earn business income. There are a number of complex rules that must be followed. The half-year rule, among others, applies to most classes such that only one-half of the capital cost allowance is allowed in the year in which a property is acquired. Another measure stipulates that only property that is “available for use” qualifies for the deduction.

Acquire capital property before the end of the year in order to maximize your capital cost allowance expense or consider disposing of a property before the end of

the year if it will trigger a terminal loss.

Property is grouped together into classes and capital cost allowance for each class varies according to rates and specific depreciation methods. A taxpayer is never required to claim the maximum capital cost allowance and the unamortized balance of the class is always available for future years.

The most frequently used capital cost allowance rates are shown in Table C6 – Capital Cost Allowance Rates at the end of the Tax Planning Guide.

Consider limiting the capital cost allowance claimed, for example when a loss is incurred, or to allow certain

credits based on income to be claimed.

Interest

Interest is deductible if it is incurred to earn income from a business. Taxpayers may also elect to capitalize interest on amounts borrowed to acquire depreciable property used in their business by adding such amounts to the cost of the property instead of claiming a deduction.



Keeping track of the specific use made of the borrowed funds (generally with separate accounts) facilitates the

deductibility of interest when the borrowed funds have been used to earn business income. This makes it

possible to distinguish between borrowed funds that were used for business versus personal purposes.

Fines and Penalties

Fines and penalties levied by a state (federal, provincial or foreign), a public or regulatory body, a tribunal or any other person who has been given the authority by law to levy fines and penalties are not deductible. This measure is aimed in particular at fines and penalties imposed by a professional corporation or in connection with environmental regulations or public safety as well as organizations that govern a particular industry, e.g. the construction industry.

Exceptions

Fines and penalties under the Excise Act are deductible for federal purposes only. There is no restriction on penalties and damages paid under a private contract.

Professional Dues

For federal purposes, professional dues are deductible. In Quebec, they are eligible for a tax credit (see Section V).

Professionals who no longer practice but are required to carry liability insurance to cover acts when they were in practice may deduct the premiums in computing their income.

Legal and Accounting Fees

Legal and accounting fees incurred for advice and assistance in preparing income tax returns and notices of objection or appeals are generally deductible. However, such expenses must be included in the cost of the property if they are incurred to acquire a capital property used in a business.

Home Office

Taxpayers who have an office in their home4 may deduct certain expenses provided the office is their principal place of business or is used solely to earn business income. Expenses must be allocated on a reasonable basis, e.g. number of square feet used. Expenses include: electricity, heating, maintenance, property taxes, home insurance and mortgage interest.

A capital cost allowance is also permitted but may lead to capital gains and a recapture of capital cost allowance when the residence is sold. If the residence is rented, the expenses related to the office portion are deductible. Taxpayers may not use home office expenses to create or increase a business loss. Expenses that cannot be deducted in a year may, however, be carried forward.

Quebec imposes an additional limit, restricting the deduction for home office expenses to 50% of the amount otherwise deductible. The limit also applies to a partnership of which an individual is a member and that carries on a business in the individual’s home. Expenses such as heating and lighting the office portion, which are primarily related to the business use, are fully deductible.

4 For home office expenses of an employee, see Section V.



Automobile

Expenses incurred for the use of a motor vehicle to earn business income are deductible within the limits prescribed by the Act. Expenses should be recorded in a logbook. For additional details regarding automobile expenses, see Section V.

Entrepreneurs may keep a simplified travel logbook, based on a representative period, in order to compile

their motor vehicle expenses.

For 2013, employers may deduct travel expenses paid to employees of up to $0.54 for each of the first 5,000 kilometres and $0.48 for each additional kilometre.

Employee Public Transit or Employee Group Transportation – Quebec

Employers may claim a deduction for twice the cost of public transit passes paid for or reimbursed to employees for them to travel to work. The same applies for expenses incurred by employers who offer an inter-municipal public transit service to their employees, provided certain conditions are respected.

The amounts paid are not a taxable benefit for employees (see Section V).

Private Health Insurance Plan – Federal

Amounts paid by an individual for a private health insurance plan are deductible provided:5

The taxpayer is carrying on an active business as a sole proprietor or a member of a partnership;

The business constitutes more than 50% of his/her income for the year or his/her income from other sources is not more than $10,000; and

All of the taxpayer’s employees who are eligible for the plan are entitled to insurance coverage that is at least equal to his/her own coverage.

If the number of eligible employees represents at least 50% of all insurable persons in the business, the deductible amount of the premium, for the individual and persons living with him/her, is limited to the amount that would be paid for an employee in an identical situation to his/her own. In any other case, the premiums are deductible up to $1,500 for the individual and persons who are 18 years of age or older and are living with him/her, and $750 if the persons are under 18 years of age. Furthermore, the premium cannot exceed the cost of equivalent coverage for an eligible employee. Contributions that are deducted from business income are not eligible for the medical expense credit.

Example: Mr. Martin is the sole proprietor of an accounting firm that has three arm’s length employees. Mr. Martin is insured for a maximum of $7,500 per year (annual premium of $2,100). Employees are offered coverage of $5,000 per year (annual premium of $1,500). The Company only pays 55% of the premiums attributable to the employees’ coverage (i.e. $825 per employee). Mr. Martin may deduct $825 with respect to his personal coverage, i.e. the cost of the coverage offered to his employees. The excess of $1,275 ($2,100 - $825) may be included in medical expenses for purposes of the medical tax credit (see Section IV).

7. EMPLOYER CONTRIBUTIONS

Employer EI, QPP/CPP, HSF and QPIP contributions are discussed in Section XIII.

5 There is no deduction in Quebec.



8. GST/HST AND QST

Businesses that are registered for GST/HST/QST purposes may usually apply for ITCs and ITRs for the taxes paid on purchases made in the course of commercial operations. Credits received with respect to an expense may be included in income or deducted from the expense. When they are received following the acquisition of depreciable property, they are applied to reduce the cost of the property for capital cost allowance purposes.

A professional who is a member of a partnership and claims certain expenses in his/her personal income tax returns may be eligible for a tax refund provided the partnership is registered for GST/HST/QST purposes, the expenses have not been reimbursed by the partnership and the partnership has not claimed the ITC and ITR in respect thereof.

9. TAX CREDITS

Credit for Reporting Tips – Quebec

An employer who operates an establishment covered by the measures relating to employee tips must file an annual report of tips for each employee, no later than the last day of February of the following year. Employers are entitled to a refundable tax credit equal to 75% of employer contributions to the extent they cover the tips received directly by an employee as well as those attributed by the employer under an attribution mechanism. Indemnities paid on general statutory holidays or for family or parental leave under the Act Respecting Labour Standards are eligible for the credit.

Scientific Research and Experimental Development

For federal and Quebec purposes6, individuals who carry out SR&ED work are entitled to a tax credit. To learn more about the 2013 rates, see Table C5 in the Corporate Taxation Folder at the end of the Tax Planning Guide.

Apprenticeship and Training Credits

Apprenticeship Job Creation Credit – Federal

Employers may claim a non-refundable tax credit equal to 10% of salaries and wages paid in respect of apprentices who carry on a trade included in the Red Seal trades.7 The maximum annual credit is $2,000 per apprentice. Unused credits can be carried back three years and forward twenty years.

Credit for On-the-Job Training – Quebec

A taxpayer who engages a trainee or apprentice for eligible training is entitled to a refundable tax credit. Eligible expenses for this credit include the trainees’ or apprentices’ salaries as well as those of their supervisors. The eligibility conditions vary depending on the training provided.

The tax credit (for unincorporated taxpayers) is 15% of the eligible expenses and the weekly maximum for such expenses is $600 or $750 depending on the type of training. The maximum number of hours of training supervision varies from 10 to 20 hours per week.

The tax credit is increased to 20% and the maximums to $750 and $1,050 in respect of expenditures incurred to hire certain immigrant or handicapped trainees. In addition, the number of supervisory hours is doubled.

Apprenticeship Training Credit – Ontario

Individuals who carry on a business are entitled to a refundable tax credit varying between 35% and 45% on expenses incurred with respect to eligible trainees. The maximum 45% tax credit rate is attained when 6 In Ontario and New Brunswick, the credits are only offered to corporations. 7 Source: http://www.red-seal.ca/[email protected]?cid=22.



the business’s payroll for the previous year does not exceed $400,000. The employer is entitled to a maximum tax credit of $10,000 per trainee annually up to a maximum of $40,000 for the first 48 months of the apprenticeship training program.

The trainee has to work in a specialized trade, i.e. a trade in the industrial, construction or motive power sectors or a trade related to services such as electronic service technician, microelectronic manufacturer, cable network specialist or information technical support analyst. Expenses incurred after March 31, 2014 for certain trade categories related to information technology will no longer be eligible for the credit.

Cooperative Education Tax Credit – Ontario

An employer who hires a student registered in a cooperative education program is entitled to a refundable tax credit of 25% to 30% of expenses, up to a maximum credit of $3,000 per apprenticeship (maximum of four apprenticeships for the same student). Expenditures include salaries, wages and payments by the business to a university or college, or a placement agency.

If you hire trainees, consult a tax specialist to ensure you claim all the credits to which you are entitled.

10. FARMING

Definition

For tax purposes, farming includes tillage of the soil, live stock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees, but does not include an office or employment under a person operating a farming enterprise.

Farming can also include other activities such as forestry operations, the operation of a hunting reserve, as well as an artificial incubation business, which includes the purchasing and incubating of eggs and the sale of chicks. Under certain specific circumstances, farming includes fish breeding, market gardening, the operation of nurseries and greenhouses, aquaculture and hydroponic culture.

To be able to benefit from the specific farming rules, farming operations have to be of a business nature. The following are some of the criteria for determining whether a farming operation is a business rather than a hobby:

The extent of the activity in relation to businesses of a similar nature and size in the same locality, in particular the area used for farming;

The time devoted to farming compared to the time devoted to a job or other means of earning income;

The financial commitments for future expansion in light of the taxpayer’s resources;

The taxpayer’s entitlement to some sort of provincial farm assistance, providing the assistance requires the recipient to carry on a farm business, or whether it is simply assumed this is the case.

A farm business that only generates a small amount of gross revenue over a number of years might be indicative of a hobby rather than a business. However, it has to be remembered that this could be the situation during the initial years of operation or during certain periods where there are special circumstances such as prolonged droughts, frost periods or floods.



Do not hesitate to consult a tax specialist to help you with the complex farm business rules.

Related Business

Raising of Racehorses

The raising and maintaining of horses for racing is considered a farm business to the extent the taxpayer can demonstrate it is not a hobby. Moreover, services such as animal training and boarding are not usually considered of a farming nature, unless they are considered accessories for such a business.

Sharecropping

Sharecropping (rent in kind) is an agreement whereby a landowner receives part of the harvest from the tenant as rent. The portion of the harvest received under a sharecropping agreement is leasing income and not farming income.

Christmas Tree Producers

Persons who plant, maintain and harvest conifers in order to sell them during the Christmas season and persons who purchase land on which trees have been planted for this purpose are deemed to carry on a farm business.

Marketing Quotas

Payments received by farmers in consideration for the right granted to other farmers to use their marketing quotas (e.g. eggs, milk, fowl) are considered as income from a farm business.

Sale of Sand, Gravel and Top Soil

The proceeds from the sale of sand, gravel and top soil, or similar materials taken from the land of a farmer who carries on an active farm business are considered income from a farm business.

Forestry Plantation and Woodlots

Taxpayers who do not saw or cut down any trees and who reforest land with the intention of letting the trees grow until they have matured, i.e. from 40 to 60 years or longer, are considered to carry on a farm business. With the exception of income from occasional cuttings to make clearings, no income can be earned from this operation until the trees have matured. In the meantime, the taxpayer has to pay the periodic costs, i.e. property taxes, planting, fertilizing and cutting clearings. If the facts indicate that reforestation was carried out on a systematic basis and is managed like a business in accordance with sound forestry practices and provides hope for profits when the trees have matured, the loss created by these costs can be deducted as a farm loss, subject to the restricted rules discussed hereinafter.

If a woodlot operation is carried on jointly with a farm business, the two together are considered a farm business if the taxpayer elects to report the income from them on a cash basis.

Methods of Reporting Income

Taxpayers who carry on a farm business can calculate their income using either the accrual or cash method.



Accrual Method

The accrual method is based on generally accepted accounting principles, which means that revenues should be recorded in the year they are earned, regardless of when the cash is received. Similarly, expenses are deducted in the year they are incurred, not when they are actually paid. Inventories at the end of the fiscal year also have to be taken into account.

Cash Method

Under the cash method, revenues and expenses should be recorded when they are received or paid. The taxpayer is not required to take into account amounts receivable or payable or to include inventories in determining income with the exception of a farmer’s mandatory or optional inventory adjustments.

Change in Method

Farmers may switch from the accrual method to the cash method simply by filing an income tax return using the cash method. Business income must continue to be calculated using the same method in subsequent years, unless permission is obtained from the tax authorities to do otherwise.

Inventories

There are rules for calculating the inventories of a farm business, which prevent taxpayers from using inventories to create a loss.

Farm Losses

There are two types of deductible farming losses:

Farm loss Restricted farm loss

Loss from carrying on a farm business which constitutes the principal source of the taxpayer’s income.

Loss incurred in a farm business that does not constitute the principal source of income for the taxpayer.

Deductible from all sources of a taxpayer’s income. Only a portion of a restricted farm loss is deductible from all other sources of the taxpayer’s income. Any excess can only be deducted from farming income.

May be carried back three years and forward twenty years.8

Taxpayers for whom farming is a hobby cannot deduct any loss.

Restricted Farm Loss

The amount of the loss deductible against other sources of income for the year is equal to the lesser of:

the farm loss for the year;

$2,500 + (50% × [farm loss - $2,500]);

$17,500.9

Example: Frank, for whom ostrich raising is not his principal source of income, incurs a $12,000 loss from the business in 2013. The loss he can deduct against other sources of income will be equal to $7,250, i.e. $2,500 + (50% × [$12,000 - $2,500]). The balance of $4,750 can only be deducted against farming income earned by Frank in future years.

8 Ten years for losses incurred before 2006, but after March 22, 2004. 9 For taxation years ending after March 20, 2013, that is, in general, as of 2014 for individuals ($8,750 before this

date).



Investment Tax Credit – Federal

A person who carries on a farm business10 in the Atlantic provinces and the Gaspé Peninsula up to the western edge of Kamouraska (La Pocatière) can claim an investment tax credit equal to 10% of the cost of acquiring buildings, machinery and rolling stock (other than rolling stock used on roads).

Transfer of Farm and Fishing Property

There are specific rules to encourage the transfer of farm or fishing property or businesses.

Capital Gains Deduction

Subject to certain conditions, individuals can take advantage of the capital gains deduction of $750,00011 (see Section VII) with respect to the capital gain on the sale of a qualified farm or fishing property such as:

a building used in carrying on a farm or fishing business;

a share of the capital stock of a family farm or fishing corporation;

an interest in a family farm or fishing partnership;

a qualified capital property used in carrying on a farm or fishing business, e.g. a quota or fishing permit.

To be able to take advantage of the deduction, the individual, his/her spouse, child, grandchild, father or mother has to have actively participated in carrying on the business, which means a certain level of activity, but not necessarily full time.

Intergenerational Transfer

In addition to the rules with respect to the capital gains deduction, there is a deferral for all, or part of, the income tax arising on the sale of a farm or fishing property to a child, grandchild and great-grandchild. In these circumstances, it is possible to elect proceeds of disposition for the property that are between the tax cost and the FMV. However, if a parent gives a qualified property to a child, grandchild or great-grandchild or if he/she sells such a property for less than its tax cost, the proceeds of disposition will equal the tax cost.

There are similar rules for the transfer of such property when a taxpayer dies.

Woodlots

An intergenerational tax-deferred rollover for woodlots is also provided to the transferor or a family member actively involved in the management of the woodlot to the extent required by a forest management plan that provides for the necessary care to ensure the growth, health, quality and composition of the lot.

When transferring a farm or fishing business, consult a tax specialist to maximize the tax benefits available.

10 This credit is also available for enterprises in the following sectors: fishing, logging, manufacturing and processing,

storing grain, harvesting peat, and certain energy production and conservation sectors. 11 $800,000 as of 2014. Amount indexed annually as of 2015.



Capital Gains Reserve

In general, individuals who realize a capital gain on the sale of a capital property have to include one-half of the gain in income for the year of the sale. If all or part of the proceeds of disposition are payable after the end of the taxation year, a reserve can be deducted. The reserve has to be reasonable and can be claimed no longer than five years (see Section VII). However, if a farm or fishing property is sold to a child, grandchild or great-grandchild, the reserve can be claimed for a maximum of ten years.

11. SHAREHOLDERS-MANAGERS

There are specific tax consequences for individuals who carry on their business through a corporation.

Remuneration

Each year, shareholders-managers must determine the optimal salary/dividend combination to maximize their cash flow.

In 2013, receipt of a salary of $134,833 will allow the shareholder-manager to make a maximum RRSP contribution ($24,270) in 2014. A salary also enables a shareholder to contribute to the QPP/CPP or eventually participate in an IPP (see Section IX).

The following must also be considered before making a final decision:

maintaining the corporation’s small business corporation status;

unpaid advances;

availability of a dividend refund to the corporation;

shareholder’s income from other sources, including the impact on the calculation of the cumulative net investment losses and the AMT (see Section VII);

possibility of deducting child care expenses;

possibility of paying a non-taxable dividend (capital dividend);

deductions at source;

impact on tax instalments and on contributions to the HSF;

impact on the contribution required under the Act to promote workforce skills development and recognition.

Paying a salary to your spouse and children may be a way to split income provided they are active in the

business and the amounts paid are reasonable for the work performed.

Year-End Bonus

Year-end bonuses may be paid to enhance the shareholder-manager remuneration. These bonuses should be declared before the end of the corporation’s fiscal year and paid no later than the 180th day after year-end. Bonuses, like salaries, are subject to deductions at source and may also allow for certain deferrals (see Section V).



If a corporation declares a bonus on December 31, the tax will be deferred if you receive it at the beginning of

the following year.

In the CRA’s view, a bonus will be considered reasonable, and therefore deductible, if it is the corporation’s usual practice to distribute its profits in this way or if the corporation has a policy of declaring bonuses to shareholders to compensate them for the profits earned that are attributable to their abilities, knowledge or interpersonal skills.

Loans and Advances

Loans and advances to a shareholder by a corporation are taxable in the calendar year during which the loan was received. The shareholder may not claim a dividend tax credit nor can the corporation claim a deduction. The shareholder will be able to claim a deduction in the year the loan is reimbursed.

There are two types of exceptions to the inclusion rule.

General Exceptions

A loan will not be included in the shareholder’s income if the loan is:

Between non-residents;

Obtained from a company whose activities include lending money and if arrangements are made in good faith for the repayment of the loan within a reasonable time period;

Reimbursed within one year following the end of the company’s fiscal year during which the loan was granted and if the reimbursement was not part of a series of loans or repayments;

Example: If the corporation’s fiscal year ends on July 31, an advance made on August 3, 2011 and not reimbursed by July 31, 2013 will be included in the individual’s taxable income for the 2011 tax year, i.e. the calendar year during which the loan was granted. However, if the shareholder effectively reimburses the loan in 2014, a deduction equal to the amount of the reimbursement may be claimed in the 2014 income tax return.

Bona fide arrangements for the repayment of the loan must be made on the date the loan is granted. The shareholder should actually comply with the planned repayment terms.

Specific Exceptions

A loan is not included in the shareholder’s income if:

The shareholder owns less than 10% of the issued shares of a class of capital stock of the lender and the loan was obtained because of employment;

The shareholder owns 10% or more of the issued shares of a class of capital stock of the lender and the loan was obtained because of employment and the purpose of the loan is to enable the shareholder to acquire either:

A dwelling for his/her own use;

Treasury shares of the lending or a related corporation;

An automobile to be used by him/her in the performance of employment duties.

In addition, bona fide arrangements must have been made for the loan to be repaid within a reasonable time. The following criteria can be used to determine whether a specific loan was granted by reason of the shareholder’s employment:



Granting of similar benefits to all other non-shareholder employees or to other employees occupying similar positions;

The degree of or absence of control over the corporation by the shareholder who received the loan;

The relationship between the benefit and services rendered to the corporation and the salary earned.

Low-Interest Loans

A loan to a shareholder or a person not at arm’s length with the shareholder can result in a taxable benefit when the interest rate applicable to the loan is less than the rate prescribed quarterly by the tax authorities (i.e., 1% for the third quarter of 2013). The benefit amount is equal to the interest calculated at the prescribed rate, less any amount refunded by the debtor to the corporation by January 30 of the following year at the latest. However, no benefit has to be included as interest with respect to a loan whose amount is included in the shareholder’s income.

Example: On January 2, the Company in which Frank is a shareholder and employee loaned him $200,000 interest-free to purchase a home. If the prescribed rate was 1% throughout the year and Frank did not repay any principal before the end of the year, he has to include deemed interest of $2,000 in income for the year.

If your corporation advances non-interest bearing funds which are repaid by declaring a dividend, it is in

your interest to have the dividend declared at the beginning of the year.

The taxable interest benefit may be deductible from income if the loan is used to earn property or business income provided the interest deductibility criteria are satisfied (see Section VII).

It is sometimes more advantageous to pay income taxes on a deemed benefit than to pay non-deductible

interest, e.g. to purchase a home. In those circumstances, consider getting an interest-free loan

from your company.

Capital Dividend

A private company has an account which enables it to distribute certain gains in the form of capital dividends (tax free) which would not have been taxable if the gains were received directly by the taxpayer. This account is mainly composed of the non-taxable portion of net capital gains, capital dividends received from other companies and the net proceeds of a life insurance policy received upon the death of an individual. Prescribed documents have to be filed with the tax authorities beforehand for a dividend to qualify as a capital dividend.

Responsibility of Corporate Directors

Corporate directors may be held responsible for the corporation’s income taxes, employee withholdings, CPP/QPP, EI, QPIP and HSF contributions as well as unpaid taxes or excess refunds.

As a general rule, corporate directors will not be held responsible if they demonstrated competence and diligence in ensuring that an appropriate system of deduction and remittance of amounts withheld at source is in place and that it operates adequately.

In addition, no legal action may be instituted against a former corporate director more than two years after terminating his/her mandate. A corporate director’s mandate ends with his/her resignation, removal or dismissal, death or inability to carry out his/her duties.



Consider resigning as a director of a corporation which is having serious difficulties; ensure that this resignation

is in writing and recorded in the minute book.

12. INCORPORATION OF PROFESSIONALS

One important benefit of incorporation is the fact that corporations enjoy a lower tax rate. In general, this benefit is only maximized if the income is not withdrawn from the company and is used to make capital expenditures or repay debts. Incorporation often results in a higher tax cost if all of the income earned by the company is paid out to the shareholder.

A decision to incorporate your professional practice requires a comprehensive analysis of the terms,

conditions and restrictions applicable in each case. A tax specialist should be consulted to determine the best

scenario for your situation.

Apart from the benefits (or lack thereof) related to corporate tax rates, income splitting possibilities, estate planning and opportunities for the use of the capital gains deduction by shareholders, as well as numerous corporate tax or administrative requirements, are other elements to consider in deciding whether or not to incorporate a professional practice.

When incorporating a business, consider income splitting by including your spouse and adult children as

shareholders of the corporation, provided your professional order allows you to do so.

Section VII – INVESTMENTS 82


SECTION VII – INVESTMENTS

RECENT CHANGES

– The annual TFSA contribution limit was increased to $5,500 in 2013.

– The tax rate applicable to ordinary (non-eligible) dividends will increase as of 2014 due to adjustments to gross-up and credit rates applicable to these dividends.

– The capital gains deduction cumulative limit will increase to $800,000 as of 2014 and will be indexed on an annual basis thereafter.

– The federal tax credit for a labour-sponsored venture capital corporation will gradually be eliminated starting in 2015.

– Expenditures incurred for renting a safety deposit box will no longer be deductible for federal purposes for taxation years starting on or after March 21, 2013.

– The federal mineral exploration tax credit for flow-through shares has been extended.

Property income (including dividend, interest and rental income) is often considered like a return on equity and generally requires very little work and energy. Capital gains are also generally considered investment transactions.

1. NATURE OF TRANSACTIONS

When a security is disposed of, it is important to determine whether the transaction is of a capital or income nature in order to determine the appropriate tax treatment. Tax legislation does not make a clear distinction between these two types of transactions. Accordingly, the nature of each transaction will be based on the particular facts, which will be determined in accordance with the following criteria:

The intention of the taxpayer at the time of purchase, i.e. quick gain or long-term investment;

The duration of the possession of the property;

The relationship between the transaction and the taxpayer’s usual activities;

The frequency of similar transactions;

The circumstances surrounding the transaction.

Disposal of Canadian Securities

A taxpayer may ensure that losses or profits on a disposition of Canadian securities (shares, bonds, mutual fund units, notes, mortgages, etc.) are treated as capital gains or losses by making an irrevocable election, valid for the current and subsequent years, on prescribed forms filed with his/her federal income tax return. Securities brokers cannot make this election.

2. CAPITAL GAIN OR LOSS

A capital gain or loss is generally the difference between the proceeds of sale, net of expenses, and the cost of the property. The taxable capital gain is 50% of the gain and the allowable capital loss is 50% of the loss. Allowable capital losses can only be deducted from taxable capital gains.



If you have generated capital gains during the year, an evaluation of your portfolio prior to year-end may enable you to minimize income taxes by realizing

unrealized capital losses, as the case may be.

Any capital loss that is not deducted in one year may be carried over and deducted from taxable capital gains of any of the three preceding years or of any subsequent year.

Reserve

When part of the proceeds of disposition becomes payable after the end of the taxation year, a taxpayer may normally claim a reserve. This reserve must be reasonable1 and limited to a period of five years, i.e. a minimum of 20% of the capital gain must be included in income annually.

Example: In 2013, Mr. Smith sold a property for $120,000 payable over four years at the rate of $30,000 per year. The cost of the property was $40,000. In his 2013 income tax return, Mr. Smith will have to report a capital gain of $80,000. However, he may deduct $60,000 as a capital gains reserve, i.e. the lesser of 80% of the actual capital gain ($64,000) and a reasonable amount ($80,000 × $90,000 / $120,000 = $60,000). In 2014, he will have to pay tax on a capital gain of $60,000 representing the reserve claimed in 2013. However, he will be able to claim a new reserve based on the balance receivable.

In the case of farm or fishing property and small business corporation shares transferred to a child, the five-year period is extended to ten years.

Share Exchange

Under certain circumstances, a taxpayer may have an opportunity to exchange the shares held in one corporation for those of another corporation. Such an exchange is a disposal and could trigger a capital gain. However, where all conditions are met, the taxpayer can use rollover provisions to defer reporting the capital gain until the disposition of the new shares.

If you hold shares in a corporation that is undergoing a reorganization and that offers a share exchange without immediate tax impact, you may choose to exchange the

shares at FMV in order to realize a capital gain from which you could deduct your capital losses.

Foreign Currency Transactions

When a taxpayer reports the disposition of a capital property in a foreign currency, he/she is required to do so in Canadian dollars, using the exchange rate in effect on the date of acquisition for the cost of the property and the exchange rate in effect on the date of disposition for the proceeds of disposition.

Only the amount of an individual’s foreign exchange gain or loss in excess of $200 has to be taken into consideration.

Donations

The capital gain arising from donations of certain securities listed on a Canadian stock exchange to a registered charity may be exempt from income tax (see Section II).

1 The CRA generally uses the following formula to calculate a reasonable reserve: Capital gain × Balance of proceeds of disposition Proceeds of disposition



Principal Residence

See Section II.

3. CAPITAL GAINS DEDUCTION

$100,000 Deduction

Up until 1994, taxpayers were entitled to deduct up to $100,000 of capital gains in computing their income. In 1994, taxpayers who had not used the exemption could have applied it on accrued capital gains on property which they owned at that time. Taxpayers who exercised this option must retain information in view of further disposition.

$750,000 Deduction2

Taxpayers who realize a capital gain upon disposition of the shares of a qualified small business corporation and qualified farm or fishing property are entitled to a deduction of up to $750,000, i.e. taxable capital gain of $375,000. The $750,000 limit is the taxpayer’s lifetime deduction limit for this type of property and other properties that were subject to the $100,000 limit.

If you own an unincorporated business and are planning to sell it, consult a tax specialist to see how

you can benefit from the capital gains deduction.

Small Business Shares

A taxpayer can take advantage of the capital gains deduction on the disposition of shares of a qualified small business corporation provided certain conditions are met, including the following:

During the 24 months preceding the disposition At the time of the disposition

The share belonged only to the taxpayer or persons related to him/her; and

90% of the FMV of the assets of the corporation are used in an active business.

More than 50% of the FMV of the assets of the corporation were used in an active business.

Certain restrictions may prevent a taxpayer from using the capital gains deduction (e.g. business investment losses and cumulative net investment losses). A capital gain may also trigger the AMT (see point 12 of this section).

If all the conditions are met, consider the possibility of crystallizing the deduction on shares of your business

while the corporation is eligible.

2 This limit will be increased to $800,000 as of 2014 and will be indexed on an annual basis starting in 2015.



Cumulative Net Investment Loss

In general, the cumulative net investment loss account represents the cumulative excess of investment expenses over investment income since 1988. Only taxable capital gains in excess of an individual’s cumulative net investment loss qualify for the deduction.

If you anticipate not being able to use your deduction due to cumulative net investment losses, consider

paying yourself a dividend or charging interest on loans granted by you to your corporation.

Allowable Business Investment Loss

An allowable business investment loss is one-half of a capital loss incurred on the disposition of a share or debt of a small business corporation. Unlike capital losses, an allowable business investment loss is deductible from any other source of income, not just capital gains.

However, this loss must be reduced by any capital gains deduction claimed in previous years. In addition, the available capital gains deduction is reduced by such losses incurred since 1985, including the current year.

Example: An individual who realizes a capital gain of $750,000 on the sale of qualifying small business shares will only be entitled to a capital gains deduction of $550,000 if he/she claimed a business investment loss of $200,000 in a previous year.

Capital Gain – Reinvestment and Deferral of Taxation

Individuals who dispose of shares of a small business corporation are entitled to defer all or part of the capital gain on such shares to the extent the proceeds of disposition are reinvested in new common shares of an eligible small business corporation that carries on an active business. Certain conditions must be respected.

4. INTEREST INCOME

Taxpayers must pay tax every year on the interest earned on investments (i.e. deposits, certificates, Treasury bills, bonds) on the anniversary date of the acquisition of the investment. This applies to interest received or interest accrued on compound interest investments.

Example: An individual who acquired a compound interest bearing investment on June 30, 2013 that matures in June 2014 does not have to include in 2013 interest accrued as of December 31, 2013. In 2014, the individual is required to report interest earned from July 1, 2013 to June 30, 2014.

When acquiring investments, give priority to those that mature after the year-end.

Treasury Bills

The difference between the purchase cost and the selling price of Treasury bills is deemed to be interest. A capital gain is realized only if market interest rates drop and the Treasury bills are sold before maturity. The capital gain equals the selling price less the purchase cost plus accrued interest up to the date of disposition.



Indexed Securities

Indexed securities are instruments that bear interest at a rate that is below the market rate but for which the amount payable upon maturity is generally adjusted based on the change in the purchasing power determined in accordance with an index, such as the consumer price index.

If there is an upward adjustment, the increase is included in the investor’s income as interest. If there is a downward adjustment, the opposite occurs – the adjustment is deductible by the investor if the conditions governing interest deductibility are met.

Hybrid Financial Instruments

Hybrid financial products provide a capital guarantee, at a determined date, and a return, based on a stock market index, that are paid at maturity. They may also include certain other conditions, such as minimum or maximum interest, an exercise period for freezing the return to maturity, etc. Examples include equity-linked notes, managed future notes, protected indexed notes, etc.

While tax legislation does not specifically provide for this type of transaction, the tax authorities consider that deemed interest must be calculated annually. If the return is not determinable before maturity, no amount has to be included in the taxpayer’s income before it is received or receivable. Moreover, if the maximum amount can be reasonably determined, the interest has to be included in the year where it is determinable.

5. DIVIDEND INCOME

The grossed-up amount of dividends received from Canadian corporations is taxable. However, taxpayers are entitled to a tax credit on the taxable amount of the dividend. A distinction has been made between two types of dividends paid by Canadian corporations.

Eligible dividend Other dividend

Paying corporation Public company Other company from income

not eligible for SBD (other than investment income)

CCPC from income eligible for SBD or from investment income

The 2013 gross-up and credit rates are shown in the Folder – Individuals Taxation for your province at the end of the Tax Planning Guide.

Consider acquiring preferred shares of public companies on which dividends are payable in order to

reduce the overall income taxes on your portfolio.

Spouse’s Dividend Income

If a taxpayer who has little income tax to pay cannot claim the dividend tax credit, the spouse may elect, for federal purposes to include the dividends in her/his own tax return and claim the related dividend tax credit. This election is possible only if it enables the taxpayer to claim or increase the claim for the spousal amount.

In Quebec, the inter-spousal transfer of the unused portion of the non-refundable tax credits produces a similar result (see Section II).



6. INVESTMENT INCOME COMPARISON

A number of factors have to be considered when acquiring an investment, in particular the inherent risk as well as the individual’s risk tolerance. The after-tax rate of return is still often a determining factor in this regard. The following table presents a comparison of pre-tax returns on various investment categories in 2013. These calculations are based on the maximum marginal tax rate. Thus, in Quebec, a 2.67% capital gain before taxes is equal to a 4% interest return before taxes, for a net tax return of about 2% in both cases.

Pre-tax interest rate

of (%)

Provides the same after-tax return as

Capital gain Eligible dividend Other dividend

at a pre-tax rate of: (%)

Quebec 4 2.67 3.09 3.25

5 3,33 3.86 4.07

6 4.00 4.63 4.88

7 4.67 5.40 5.69

Ontario3 4 2.79 3.04 3.18

5 3.49 3.80 3.98

6 4.19 4.56 4.77

7 4.89 5.32 5.57

New Brunswick 4 2.83 2.92 3.28

5 3.54 3.66 4.10

6 4.25 4.39 4.92

7 4.96 5.12 5.74

7. FOREIGN INVESTMENTS

All Canadian residents are required to declare income from all Canadian and foreign sources. The full amount of foreign property investment income, such as dividends and interest, must be included in the recipient taxpayer’s income. The taxable amount is the gross amount received, without taking into account tax withheld at source by the foreign country.

Foreign Tax Credit

The purpose of the foreign tax credit is to avoid double taxation when foreign tax is withheld at source on foreign property income earned by a Canadian resident (see Section X). As this income is also taxable in Canada, the taxpayer can generally claim a tax credit to take into account the tax paid to the foreign country. The credit may only be claimed in the year the income is included in the taxpayer’s income and foreign tax was withheld. The foreign tax amount preventing entitlement to the credit due to the limits prescribed by law may generally be deducted in the calculation of the taxpayer’s income.

Declaring Foreign Investments

Taxpayers resident in Canada must report the foreign investments in his/her tax return if the total cost of a Canadian taxpayer’s foreign property exceeds CAN$100,000 at any time during the year. Taxpayers who do not comply with these various foreign reporting requirements are subject to stiff penalties.

Foreign property includes:

funds and bank accounts held abroad;

3 These rates do not take into account the additional 2% rate applicable to income greater than $509,000 in 2013.



debt securities issued by a non-resident;

shares of foreign corporations, even if they are held by a Canadian broker;

shares of Canadian corporations on deposit with a foreign broker;

real estate; and

other tangible and intangible properties located outside Canada.

It does not include:

property used or held exclusively in the course of an active business carried on by the taxpayer;

registered pension fund investments;

foreign investments held in Canadian-registered mutual funds;

personal-use properties; and

shares or debt securities of a foreign affiliates.

Example: Mrs. Smith owns shares of non-resident corporations with a cost amount of $140,000. The shares are held by a Canadian broker. She must report this investment even if the shares are physically held in Canada, because the cost amount is greater than $100,000.

8. LEASING

Income

Rental income is income from property if the taxpayer rents space and provides basic services only, such as heat, light, parking and laundry facilities. However, if the taxpayer provides additional services to tenants such as cleaning, security and meals, the taxpayer may be considered to be carrying on a business. The following comments relate only to rental income from property.

Unlike other income from property, net rental income or loss is included in the calculation of earned income for RRSP purposes (see Section IX).

Losses

A taxpayer has a rental loss if rental expenses, before depreciation, exceed gross rental income. A rental loss is deductible against other sources of income if the rental expenses were incurred to earn a profit.

Expenses

A taxpayer may deduct any reasonable expenses incurred to earn rental income. Current expenses may be deducted in the year they are incurred but capital expenditures, which provide a lasting benefit or advantage, are deducted through capital cost allowance. Capital expenditures include the acquisition price of rental property, legal fees connected with the purchase of the property, transfer fees and the cost of furniture and equipment included in the rental property.

When a taxpayer makes major repairs to a rental property, he/she has to determine whether the expense is current or capital. An expense that restores a property to its original condition is usually a current expense, whereas the cost of a repair that improves a property beyond its original condition is a capital expenditure.

The most common deductible expenses include:

municipal taxes, insurance, electricity;

commissions paid for finding new tenants;

landscaping costs;



maintenance and utilities costs;

accounting fees, interest expense, advertising costs;

fees to reduce the interest rate;

lease cancellation payments.

Expenses that may not be deducted include the repayments of the mortgage principal, tax penalties and the value of the owner’s labour.

Finance costs (interest and other costs) have to be taken into account for purposes of AMT (see point 12 of this section) to the extent they create a rental loss. This may be particularly important to taxpayers deducting substantial rental losses.

Special Situations

Renovations for Disabled Persons

A taxpayer who renovates an existing rental property to accommodate disabled persons may deduct outlays and expenses4 as current expenses that do not have to be amortized. Expenses incurred for disability-related equipment such as elevator car with Braille position indicators, certain telephone devices and disability-specific computer attachments are also considered current expenses.

Soft Costs

Costs incurred during the period of construction, renovation or alteration of a property, such as interest, promotion expenses, legal fees, accounting fees and property taxes are not deductible and must be added to the cost of the property. This does not apply to landscaping costs, which are fully deductible in the year.

Motor Vehicle

Motor vehicle expenses may be deducted if the vehicle is used to transport tools and materials to the rental property and if the owner personally does the necessary repairs and maintenance to the property. A taxpayer who has more than one rental property may deduct expenses in respect of a motor vehicle used for collecting rents, supervising repairs and managing the properties.

Capital Cost Allowance

Capital cost allowance may not be used to create or increase a rental loss. Furthermore, a taxpayer may not claim capital cost allowance on the cost of land. A rental property that costs $50,000 or more must be included in a separate class. The most currently used capital cost allowance rates are indicated in Table C6 – Capital Cost Allowance Rates at the end of the Tax Planning Guide.

If you claim capital cost allowance on a rental property, you might have to include recaptured capital cost

allowance in your income in the year you sell it.

9. INTEREST AND FINANCIAL EXPENSES

Taxpayers should plan personal transactions properly so that the proceeds of a loan are used to earn income from a business or property. Interest will not be deductible if the loan proceeds are used to earn income from employment, realize a capital gain or for personal purposes.

4 In Quebec, an eligibility certificate may be required from the Régie du bâtiment.



If you plan to invest in shares, consider borrowing for this purpose and, if possible, using funds already

available to pay back personal loans which give rise to non-deductible interest such as the mortgage on a

personal residence.

Eligible Expenses

Eligible expenses include interest paid on a loan for the acquisition of:

bonds;

shares that may pay dividends;5

preferred shares of a cooperative (Cooperative Investment Plan);

an interest in a partnership.

Remember that interest paid on loans taken out solely to create capital gains, and not to generate income, is

not deductible.

The following financial expenses incurred to earn business or property income are also deductible:

investment administration or management fees;

safekeeping fees;

safety deposit box rental (federal purposes only);6

annual loan fees (obtaining a line of credit, access fees, guarantee fees, etc.).

Particular Measures – Quebec

Deductibility of investment expenses is limited to investment income including taxable capital gains and grossed-up taxable dividends (described under point 5 of this section) earned during a taxation year. Investment expenses not deducted in a taxation year may be carried over against investment income in one of the three preceding taxation years or in any subsequent taxation year. They can only be deducted from investment income.

If you carry a capital loss back to a preceding year, check the impact on the deductibility of your

investment expenses.

5 If a corporation’s official documents indicate it does not plan to pay dividends, the interest on the borrowed funds is

not deductible. On the other hand, if the corporation does not have an established dividend policy, or a policy of only paying dividends when its operations allow it, the interest is generally deductible.

6 This expense is no longer deductible for taxation years starting on or after March 20, 2013, that is, generally speaking, as of 2014 for individuals.



This measure does not apply to investment expenses incurred to earn active business income or income from the rental of an asset and on certain flow-through shares. Rental losses are not considered investment expenses for this purpose.

Investment Advisors

A taxpayer may deduct fees, other than commissions, paid to an investment advisor. The fees must be reasonable and paid to a person whose principal business is advising others whether to buy or sell shares or securities or whose principal business includes the administration or management of shares or securities.

Fees paid for other types of advice, such as general financial counselling or planning, are not deductible. Fees paid to an advisor relating to investments held in an RRSP are not deductible (see Section IX).

Loss of Income Source

If an income source to which interest relates is lost and the borrowed funds cannot be related to another income source, the interest is generally no longer deductible, subject to certain exceptions, e.g. corporation goes bankrupt or shares are sold at a loss and there is insufficient cash to repay the loan.

Example: Ms. Wood borrowed $50,000 in 2012 to purchase common shares of 123 Inc. On January 5, 2013, she sold those shares, but instead of repaying her loan, she used the funds to buy a recreational vehicle. As she no longer owns her shares and the funds were not invested in a new income source, she cannot deduct the interest paid on the loan after January 5, 2013.

Example: In 2010, Mr. Green borrowed $10,000 to purchase common shares of ABC Inc. On March 12, 2013, the company went bankrupt. Even though Mr. Green no longer owns shares after the bankruptcy, he could continue to deduct the interest payable on the balance of his loan.

10. INVESTMENT PROGRAMS

Specific tax measures exist for some investment programs, which are generally designed to encourage investments in certain sectors but can also have impacts on AMT calculation (see point 12 of this section).

When making an investment decision, take account of future potential profitability, immediate tax savings

obtained and inherent investment risk.

Limited Partnerships

As with investments in corporate shares, an investor’s liability as a limited partner in a limited partnership is restricted to the amount invested. The taxpayer’s share of income and losses is included in income in the same manner as for other partnerships. However, the “amount at risk” rules restrict the deductions a limited partner may claim.



Labour-Sponsored Venture Capital Corporations

Taxpayers who purchase shares of labour-sponsored venture capital corporations (e.g. FSFTQ and Fondaction) benefit from the following federal and provincial tax credits:

Labour-sponsored venture capital corporations7

Federal Quebec New Brunswick

Non-refundable tax credit 15%8 15% or 25%9 20%

Annual maximum investments eligible for the credit

$5,000 $5,000 $10,000

Carryforward of unused credit No Yes No

Certain conditions apply to be eligible for the credit. In Quebec, investors must be less than 65 years old. Furthermore, shares are subject to a minimal holding period.

The shares issued may be transferred to an RRSP, which provides a 100% deduction in calculating income where all other conditions relating to this deduction are met (see Section IX).

For Quebec purposes, interest incurred to acquire shares of the FSFTQ and Fondaction is not deductible because of the policy of these companies not to pay any dividends, which means that the shares are not acquired to earn income from a business or property. While the CRA has not yet indicated its position on this matter, it will most likely adopt a similar policy for the same reasons.

If you are planning to retire in the short or medium term, you may find FSFTQ or Fondaction shares to be

an attractive vehicle. The fact that they are generally locked-in until retirement should be of a lesser concern.

Capital régional et coopératif Desjardins

Capital régional et coopératif Desjardins is a corporation whose mission is to raise venture capital for resource regions and the cooperative sector. To encourage individuals to purchase shares of this corporation, Quebec offers the following non-refundable tax credit:

Capital régional et coopératif Desjardins

Tax credit 50% non-refundable

Maximum annual credit $2,500 (max. investment of $5,000)

Credit carryforward Credit carryforward to another year not permitted

The tax credit may be recovered by means of a special income tax if the shares are held for less than seven years. Capital régional et coopératif Desjardins shares are not an eligible investment for RRSP or RRIF purposes. The credit does not reduce the tax cost when calculating the capital gain on a disposition of such shares.

7 No credit has been offered in Ontario since 2012. 8 The federal credit rate will be reduced to 10% in 2015 and to 5% in 2016 and will be completely eliminated in 2017. 9 The credit rate is increased to 25% for the shares issued by Fondaction up until May 31, 2015.



Stock Savings Plan II

The SSP II is intended to facilitate capitalization of Quebec businesses. The following table summarizes the main features of the deduction, which is available in Quebec until December 31, 2014:

SSP II

Deduction rate 100% of cost

Maximum deduction 10% of the individual’s total income

Eligible securities Common shares and investment fund securities issued on the primary market

Minimum holding period Three December 3110

Mandatory replacement Must be replaced on last day of 2nd month following the month withdrawn and/or December 31 of the

year11

Example: Last year, Mr. Jones purchased shares eligible under the SSP II. On December 15 of this year, he decides to sell those shares. Mr. Jones will have to replace them by December 31 if he does not want to include an amount in his income for the year. Had he sold the shares in July, he would have had to buy new shares within two months after the month of the sale to avoid including an amount in income.

The deduction amount does not reduce the tax cost of the related shares.

Cooperative Investment Plan

Members and employees of a cooperative who purchase units in labour cooperatives and cooperatives whose main activities are production, processing or farming, as well as cooperatives that supply goods and services that make it possible for their customers to carry on a business are entitled to a deduction from their taxable income.

The following table summarizes the main features of this Quebec tax deduction:

Cooperative investment plan

Deduction rate 125% of cost

Maximum deduction 30% of total income, five-year carryover

Minimum holding period Five years, subject to certain exceptions (e.g. death)

Cooperative investment plan titles are an eligible investment for RRSP purposes. If a taxpayer makes a contribution to a self-administered RRSP and the plan acquires, as the initial purchaser, eligible cooperative investment plan securities, it is the plan annuitant who is deemed to have made the investment and is therefore entitled to the aforementioned deduction.

Flow-Through Shares

A flow-through share is a share of a corporation that operates in the resource sector (oil, gas, mining) and that has renounced, in favour of investors, certain tax deductions resulting from certain of their activities.

Flow-through shares give a deduction for 100% of the cost thereof, provided they are used solely to finance high-risk expenditures such as exploration and development.

10 Including December 31 of the year of acquisition. 11 An investor can purchase eligible shares on the Autorité des marchés financiers’ list that are not entitled to the

SSP II deduction but that could be used for replacement purposes.



The tax cost is nil, regardless of the price paid when they were acquired. Therefore, subject to the specific rule applicable to donations (see Section II), dispositions give rise to a capital gain taxable at 50% even if the proceeds of disposition are less than the original purchase price.

Federal

Individuals who invest in flow-through shares can claim a non-refundable tax credit on certain mining exploration expenses. This temporary credit applies to flow-through share agreements entered into before April 1, 2014.

Quebec

In Quebec, flow-through shares provide an additional deduction for exploration expenses incurred in the province. The capital gain realized on the sale of shares may be exempt up to the amount of the share purchase price, provided all of the other conditions are met.

If a portion of the amount invested is used to cover issue costs, such as underwriters’ commissions, legal and accounting fees, and printing costs, such amounts are deductible by the investor to the extent the expenses are allocated to him/her.

Ontario

Ontario grants a refundable tax credit for costs incurred in Ontario.

Summary

The following table summarizes the principal federal, Quebec and Ontario measures for flow-through shares:

Federal Quebec Ontario

Basic deduction

Exploration expenses in Canada 100% 100% 100%

Additional deductions

Mining exploration expenses incurred in Quebec 25%

Surface exploration expenses or oil and gas exploration expenses incurred in Quebec

25%

Issuance expenses 100%12

Tax credit 15% non-refundable

5% refundable

Small Business Investor Tax Credit

In New Brunswick, an individual who is 19 years of age or older who invests in an eligible small business in the province may be entitled to a non-refundable tax credit of 30%, up to $75,000 per year for annual investments up to $250,000 per investor.13 Any unused credit may be carried forward seven or back three years. Investors must hold their shares for four years following the purchase; otherwise, the tax credit must be refunded.

12 Maximum of 15% of issue proceeds. 13 For additional information, refer to http://www.gnb.ca/0162/tax/sbitc/smallbusiness.asp.



Mutual Funds

Mutual funds are funds which are managed by professionals whereby a large number of investors pool their funds in a type of investment or in a particular sector. If the fund is a trust, investors buy units. If it is a corporation, they purchase shares.

Income from the fund is paid annually to investors or reinvested on their behalf. In the case of trusts, this income, which is taxable to the holders, generally retains its nature, whether it constitutes interest, dividends or net capital gains. If the fund is incorporated, distributions will be in the form of dividends. A new tax cost must be calculated each time other units are purchased or distributions are reinvested. When an investor disposes of units, he/she has to recognize a capital gain or loss.

Most mutual funds allocate their income annually to registered owners around December 31 of the particular year. Taxpayers who acquire their units just before the allocation is made will therefore generally have to pay income tax on that income even if it was earned by the fund before they acquired their units.

Example: On January 2, 2013, Mr. George and Mr. Lake each acquired an interest in ABC Fund for a unit cost of $1,000. During 2013, ABC Fund earned $300 per unit that will be distributed at the end of the year. On December 8, 2013, Mr. George sells his ABC Fund unit for $1,100. Mr. George will not have to include anything in income in respect of the Fund’s distribution because he sold his interest before the income was allocated. However, he will have to report a capital gain of $100 in 2013 on the sale of his unit. Mr. Lake sold his interest on January 15, 2014 when the FMV of his unit was $800. He will therefore have to include the $300 distribution in income in his 2013 tax return. In 2014, he will have to report a capital loss of $200 on the sale of his interest.

It is generally preferable to purchase mutual fund units after the end of the year and to sell such units before

the end of the year in order to limit taxable distributions.

Segregated Funds

Segregated funds are annuity contracts that reflect the value of the mutual fund from which they originate. There is often a life insurance contract associated with the fund guaranteeing the capital after a certain number of years (e.g. ten years). Like mutual funds, income and gains attributed to the beneficiary retain their nature. Unlike mutual funds, however, segregated funds can attribute capital losses to the holder.

Income Trust and Publicly-Traded Partnership

Distributions from an income trust (other than a real estate investment trust) or from a publicly-traded partnership are generally taxable in the same manner as eligible dividends paid by Canadian corporations (see point 5 of this section). Distributions paid by a real estate investment trust generally benefit from a different tax treatment since a part of these distributions could be non-taxable capital that reduces the tax cost of shares held by the investor.

11. TAX-FREE SAVINGS ACCOUNT

Individuals who are 18 years of age or older may contribute annually to a TFSA and income earned on such amounts is sheltered from income tax. The maximum amount that can be invested in 2013 is $5,500.14 Unlike the RRSP, TFSA contributions are not deductible for tax purposes. However, capital and income withdrawals are not taxable.

14 Amount indexed annually, rounded to the closest $500. The contribution limit for 2009-2012 was $5,000.



The following table compares the main features of the most common registered plans, i.e. RRSP, RESP and TFSA.15

RRSP RESP TFSA

Contributions

Annual maximum Lesser of: 18% of previous

year’s earned income Annual limit ($23,820

in 2013)

No limit $5,500/year since 2013

$5,000/year from 2009-2012

Cumulative limit None $50,000 None

Deductibility Deductible Not deductible Not deductible

Unused contributions room

Can be carried forward

Excess contributions $2,000 permitted Penalty of 1% per

month in excess of that amount

Penalty of 1% per month Penalty of 1% per month

Withdrawals

Taxation Taxable Partially taxable Non-taxable

Specific conditions None Beneficiary must pursue post-secondary education

None

Annual maximum None Withdrawals do not

create new contribution room

Unlimited for full-time studies16

$2,500 per part-time session

None Withdrawals create

new contribution room next year

Particularities based on savings objectives

Education Withdrawal limits applicable17

Withdrawals taxable if not repaid within prescribed times

Annual contributions attract grant

Limited life of plan

Mechanism that responds to ongoing savings needs regardless of objectives

No maximum life

Home purchase Not intended for this purpose

Retirement Accumulated savings must be withdrawn or transferred to another vehicle before December 31 of the year of the annuitant’s 71st birthday

15 Parents who want to save for the financial security of a handicapped child can also invest in an RDSP (see

Section IV). 16 Limit of $5,000 for first full-time session. 17 Under terms of Lifelong Learning Plan ($20,000) and HBP ($25,000).



12. ALTERNATIVE MINIMUM TAX

The AMT was designed to ensure that all individuals18 pay their fair share of taxes and to prevent an undue reduction of taxes through devices such as the purchase of tax shelters with significant deductions or the realization of large capital gains.

In preparing their income tax returns, individuals must calculate taxable income twice – once to calculate their regular tax and the other (referred to as adjusted taxable income) to determine whether they are subject to AMT. The minimum tax is then calculated by multiplying the adjusted taxable income by the rates indicated in the Folder – Individuals Taxation of your province at the end of the Tax Planning Guide. The higher of the AMT and the regular tax is payable. The additional tax the taxpayer has to pay on account of the AMT may be applied against regular tax payable in the next seven years provided he/she is not subject to AMT again.

Among the amounts that are likely to give rise to AMT are a portion (60%) of the non-taxable capital gains, the deductions related to a number of tax shelters and losses deducted by members of a limited partnership and non-active partners of a partnership, losses related to tax shelters, carrying charges related to these investments and interest charges which increase a loss on a rental property.

13. HOLDING COMPANIES

The income taxes currently payable on investment income earned through a corporation resident in Quebec are basically the same as if the income had been earned directly by an individual resident in the province.

Individuals may prefer to earn this income personally, in particular because of the administrative costs associated with a holding company. However, other reasons may justify the use of holding companies. Such reasons include income splitting, estate freezing and limited liability for shareholders.

18 Including testamentary and inter vivos trusts. The AMT does not apply in the year of death.

Section VIII – FINANCIAL PLANNING AND PORTFOLIO MONITORING 98


SECTION VIII – FINANCIAL PLANNING AND PORTFOLIO MONITORING

1. BALANCE SHEET AND BUDGET

Balance Sheet

To be able to judge your financial situation accurately, you need to establish and analyze your personal balance sheet.

Make a list of your assets (house, cottage, cars, investments, etc.) and your liabilities (mortgage, line of credit, credit card balances, personal loan, etc.).

Determine your net worth by subtracting the value of your liabilities from the value of your assets.

Compare your current balance sheet to the previous year’s, and determine if your situation has improved. If your balance sheet has improved, determine by how much (as a percentage) and try to identify the source of this improvement. Perhaps your assets increased in value or you have managed to significantly reduce your debt. Conversely, if your balance sheet has remained stable or declined, try to determine why so that you can control or fix it.

Analyzing your personal balance sheet reveals your annual financial progress and helps define strategies to

grow assets and reduce liabilities to optimize savings planning.

Budget

A budget not only shows where money is spent but it is also an indispensable tool for forecasting the impact of certain purchasing decisions or making certain commitments.

To set a budget, you need to determine the family income available and compile all of the household’s expenditures:

Basic expenditures such as shelter, transportation, food, health care, education, daycare fees and loan repayment fees that are not otherwise included in housing or transportation fees; and

Discretionary expenses such as leisure activities and trips, restaurants, donations, gifts and the lottery.

Now calculate your budget by subtracting your expenditures from your available family income and qualify it: balanced, deficit or surplus.

Is your budget realistic? To make it easier to set your budget, a budget calculator is available on the Financial

Consumer Agency of Canada website. 1

Monitor your Expenses

To take a critical look at your spending habits, compare them to the average expenditures of Canadian households. In 2011, Canadian households spent on average $55,151 on various goods and services.

1 At the following address: http://www.fcac-acfc.gc.ca/eng/resources/toolcalculator/budgeting/index-eng.asp.



According to the income quintile,2 the share of the main expenditure categories in the budget for these households is presented in the following table:3

Inferior quintile

Second quintile

Third quintile Fourth quintile Fifth quintile

Average expenses per household $29,129 $45,057 $62,941 $86,682 $143,519

Shares of expenditure (in %)

Food 14.1 14.1 11.9 10.5 8.3

Shelter 31.8 25.7 22.6 20.2 16.4

Clothing and accessories 4.6 4.9 5.0 4.6 4.3

Transportation 15.8 16.4 17.6 16.4 13.2

Income tax 1.2 5.0 10.2 15.5 27.8

Consider Systematic Saving

By participating in a systematic saving program, you can save a fixed percentage of income on a regular basis. The chances of such a program succeeding increase if the withdrawals occur when funds are deposited. Payroll deductions are beneficial in this regard. Moreover, if these funds are invested in an RRSP, you could benefit from immediate tax savings due to reduced source deductions (see Section I).

Consider savings as the first expense that automatically reduces your take-home pay, and create sound savings

habits.

Structure your Interest Expense

Non-deductible interest (mortgage, personal loans, credit card balances) is paid with after-tax dollars. Consequently, you have to earn $200 in pre-tax dollars to repay a $100 in non-deductible interest.4

Renegotiate your loans if you can obtain better rates without too many penalties and stay below your

borrowing capacity in order to be able to deal with unforeseen situations and possible rate increases.

2. INVESTMENTS AND PORTFOLIO MONITORING

“To properly manage their savings, individuals must have basic knowledge and the ability to apply this knowledge to make decisions: they must be competent. Investors must also demonstrate rationality which can be likened to a lack of significant biases such as overconfidence.” 5 (Translation)

2 Quintiles are created by classifying households in ascending order of their total income, then dividing them into five

groups containing an equal number of households so that each quintile represents one-fifth of the total. 3 Statistics Canada, Survey of Household Spending, 2011, Table 2 – Shares of total expenditure by income quintile

(January 30, 2013). 4 Based on marginal tax rate of 50%. 5 Excerpt from Connaissance financière et rationalité des investisseurs : une étude canadienne, Cécile Carpentier

and Jean-Marc Suret, Université Laval and CIRANO, September 2011.



As a saver-investor, it is essential that you be aware of your short-, mid- and long-term objectives. You should also assess if you have the ability, interest and rationality required to manage your portfolio yourself.

Whether you opt for self-management or entrust the management of your investments to a third party, the following tips should guide you in your course of action:

Stay true to yourself in terms of your objectives and the progress of your financial life;

Be disciplined in terms of investment (per security) and portfolio monitoring (overall direction);

Compare your results, in particular with the data in the “Evolution of market performance” table (presented later on in this section);

Portfolio Monitoring

When you entrust your portfolio management to a third party, you should be able to appropriately monitor this person’s work. Portfolio monitoring involves analyzing several factors.

Management Style

By taking the time to understand the various portfolio management styles offered on the market, you will be able to select a style that is adapted to your objectives and needs.

Compliance

The terms and conditions of the contract with the portfolio manager are usually confirmed in writing and identify the investment policy and management framework. Compliance of the portfolio manager’s work can mainly be assessed in terms of compliance with the following aspects:

The assignment terms and conditions. For example, the contract could stipulate that the entire bond portion must have an overall rating of A or higher, that no security may make up more than 10% of the portfolio, that no single industry may make up more than 30%, etc.;

The investment policy, which stipulates the desired distribution between income and growth as well as the minimum and maximum to be allocated to each asset category;

The management style for which the portfolio manager was selected.

Performance

When assessing the portfolio manager’s performance, take into account the performance history and the level of risk assumed. To evaluate the performance of your portfolio, find out what your return was last year, by account and on a consolidated basis, and then compare, based on your portfolio’s asset allocation, if your results are better, the same or lower than the reference indices.

EVOLUTION OF MARKET PERFORMANCE AS AT MARCH 31, 2013 (REFERENCE INDICES)6

1 year 3 years 5 years

% % %

Treasury bills (Canada – 91 days) 1.03 0.91 1.09

Bonds (DEX universal bonds) 4.54 6.45 5.88

Canadian stocks (S&P/TSX) 6.11 4.86 2.06

US stocks (S&P500 – C$) 16.08 12.68 5.59

Foreign stocks (Europe & Asia) (MSCI E.A.E.O. – C$) 13.09 5.05 -1.08

6 Source: Morneau Shepell.



EVOLUTION OF MARKET PERFORMANCE AS AT MARCH 31, 2013 (REFERENCE INDICES)6

1 year 3 years 5 years

% % %

World stocks (MSCI World – C$) 13.69 8.51 2.02

Emerging markets (MSCI Emerging Markets) 3.99 3.62 1.18

Balanced portfolio (2% 91-day TB, 43% DEX Universe, 27.5% S&P/TSX, 27.5% MSCI World)

7.52 6.79 4.20

Service Quality

To assess the quality of the service you are receiving from your portfolio manager, you should meet with this person at least twice a year and document in writing the issues discussed during these meetings so that you can monitor the outcome of decisions made. The portfolio manager should also submit a complete and detailed management report on a regular basis.

Administration

You should assess the amount of the various fees paid, including: management, custodial or brokerage fees, as well as any interest charges, if applicable. You can then determine if the service you are receiving is appropriate and reasonably priced, according to your capital invested. There are significant variances between the management fees for various products and services offered on the market (private management, mutual funds, baskets, etc.).

Taxation

Portfolio monitoring also involves taking various tax aspects into consideration such as the deductibility of the various fees incurred as well as the management of gains and losses at the end of the year. In addition, after-tax rates of returns on various types of investments must also be considered (see Section VII).

3. PROTECTION OF INVESTED CAPITAL IF SECURITIES CUSTODIAN BANKRUPT

Basically, there are three players involved when dealing with investments:

The investor;

The advisor (broker, investment advisor, savings consultant, financial planner, portfolio manager, etc.);

The securities custodian (trust company, custodial service provided by brokers through a financial institution and direct discount broker).

Investor Protection

Cash and Investments

Canada Deposit Insurance Corporation protects cash and certain investments, such as guaranteed investment certificates, up to $100,000 (capital and interest). However, it does not cover mutual funds, shares and bonds. The guarantee for shares and bonds is the quality of the security. Investors have few means for controlling mutual funds other than the reputation of the fund manager.

Safekeeping of Securities

A guarantee of $1M applies with respect to the funds entrusted to a financial institution that is a member of the Canadian Investor Protection Fund. The assets are part of the financial institution’s balance sheet.



With respect to the funds entrusted to a trust company, there is no limit on the guarantee because the investments are in the name of the owner of the security, i.e. the investor. The assets are not included in the trust company’s balance sheet, which means the investor will not be affected financially if the custodian goes bankrupt. However, he/she will have to find a new trustee to hold his/her portfolio.

To protect cash in excess of $100,000, you should invest in securities in the name of the investor, such as

Treasury bills.

Normally investors do not run a significant risk of losing all their capital because, unless the custodian does wrong or the advisor commits fraud, every issuer of the securities in the portfolio would have to go bankrupt or go out of business.

4. ANNUITY

Life insurance companies offer various types of annuities to investors who want to convert their registered7 or non-registered capital into periodic fixed or growth payments:

during their lifetime (life annuity);

during their lifetime and the life of their spouse (survivorship annuity);

for a specified period (annuity certain, e.g. until age 90).

The total amount received from an annuity acquired with registered capital is taxable whereas only the interest portion of an annuity acquired with non-registered capital is taxable.

Factors Influencing Annuity Amount

Health, age, sex, capital available and long-term interest rates when the annuity is purchased, as well as the issuer selected, are important basic factors that will have some impact on the amount of the annuity.

In addition, the protection that can be obtained with respect to an annuity to protect the capital and/or the beneficiaries of the estate, e.g. guarantee, reversibility and indexing. There is an inherent cost to these factors that will be reflected in the amount of the payments offered.

Protection if Financial Institution Granting Annuity Goes Bankrupt8

The Assuris organization is a non-profit corporation that protects insured Canadians if their life insurance company goes bankrupt. If you are a Canadian citizen or resident and you purchase a product from a life insurance company that is a member of Assuris, you are protected up to certain limits. For example, if an insurer goes bankrupt, Assuris guarantees annuity contract holders payment of 85% of the expected monthly income up to a maximum of $2,000 per month. In the case of annuities purchased from financial institutions other than insurers, no amount is insured by either the Canada Deposit Insurance Corporation or the Autorité des marchés financiers.

7 RRSP, RRIF or other registered plans. 8 Additional information about the protection of your life insurance products may be found at www.assuris.ca.



5. RETIREMENT

Risk and retirement do not make a good mix9

As the prospect of retirement looms, protecting your wealth becomes more important than growing it. Investors must, therefore, grapple with the following three elements:

Increased longevity and longer life expectancy, which means that nowadays Canadians must ensure that they have income for a lengthier period of time. We estimate the expected retirement horizon at about 25 years. And this number increases where there is a younger spouse or in those situations where the family’s longevity history exceeds statistics.

Inflation which, if left unchecked, can erode retirement savings. Even if it stands at the relatively low rate of 2%, inflation reduces purchasing power nearly 40% over 20 years. To maintain their purchasing power, retirees must see to it that their income keeps pace with increases in the cost of living.

Market volatility is a major risk factor. In terms of retirement savings, the order of investment returns has a determining effect on the duration of capital. Hence, for a same annual average return (7% in the following example), the capital will be exhausted at an earlier or later time, based on the sequence of returns.

RETURNS10

Sequence of returns Age of retirees

where resources will be exhausted +/- month

+7%, +7%, +7% 86.5

+7%, -13%, +27% 83.3 -38

-13%, +7%, +27% 81.1 -65

+27%, +7%, -13% 94.9 +101

In this instance, constant returns will make it possible for the investor to benefit from his/her capital until age 86. However, a downturn in returns at the beginning of the savings period will shorten the amount of time that capital will last, whereas higher returns at the start of the savings period will ensure that it lasts longer.

Assessing Financial Security

Retirement is an investment withdrawal stage in life. Being overly optimistic or pessimistic does not help to properly evaluate long-term financial security. A 3%11 net rate of return should be used to analyze 30-year retirement period. It is also wise to do a number of simulations to determine various living costs as well as the impact of various projects on your long-term financial security.

9 Based on research conducted by Moshe A. Milevsky, Associate Professor of Finance at York University in Toronto

and Executive Director of the Individual Finance and Insurance Decisions Center. 10 Source: Asset Allocation and the Transition to Income, Milevsky & Salisbury, September 2006. Example based on

a $100,000 portfolio, from which a retiree withdraws $9,000 annually starting at age 65. 11 Net of portfolio fees and inflation.



Debt and Retirement

Recent Statistics Canada data confirm that among those age 55 and over, one-third of the retired and two-thirds of the not-yet-retired report having some form of debt.12 Retirement usually coincides with a drop in income and an increased reliance on savings. In these circumstances, having to manage debt can increase financial insecurity, both for retirees and those planning their retirement.

Consequently, Sun Life Financial’s 2013 Canadian Unretirement Index Report determines that only 27% of Canadians between 30 and 66 years of age expect to be retired at 66 (compared to 51% in 2008).13 Among those who responded that they expect to be working at 66, 63% said it was because they needed to while 37% said it was because they wanted to.

Retirement Income Sources

Canadian seniors’ income comes from public and private pension plans as well as personal savings and investments (see Sections IX and XIII).

AVERAGE INCOME OF CANADIAN SENIORS BY INCOME SOURCE14 (in constant 2010 dollars)

Description Income

($)

Income from public sources

OAS 6,200

CPP/QPP 6,900

Income from private sources

Investments 1,300

Pensions and RRSP 11,100

Employment income 2,200

State-run pension plans (combined OAS/GIS and CPP/QPP) represented 41% of the total income of seniors in 2010. A third (33%) of seniors’ income came from private pension plans and RRSPs. The remaining 26% came from investment income (10%) and other sources (16%), including other market income and other government transfers.

QPP – Is it better to take the retirement pension at age 60?

The QPP retirement pension is reduced if claimed before the annuitant’s 65th birthday. This penalty will gradually increase over the coming years (see Section XIII). This reduction can be avoided by waiting until age 65 instead of claiming the pension at age 60; however, the income is also lost for five years. Furthermore, postponing the retirement pension until age 70 makes it possible to increase the amount. Therefore, the question is: should you take the early retirement pension at 60 years of age, the normal retirement pension at 65 or the late pension at 70?

Once all of the QPP changes become effective in 2016, we can estimate that, on one hand, the pre-retirement profitability threshold will be age 71.15 Therefore, at age 71 there would be no difference between taking the annuity at age 60 or age 65 – the annuitant would receive the same amount of

12 Retiring with debt by Katherine Marshall (April 27, 2011). Product component No. 75-001-X, Statistics Canada

catalogue. 13 http://www.sunlife.ca/Canada/sunlifeCA/About+us/Canadian+Unretirement+Index?vgnLocale=en_CA. 14 Calculations of Human Resources and Skills Development Canada based on Statistics Canada data, CANSIM

Table 202-0407, 2010. 15 This age could vary according to calculation assumptions such as the inflation rate (2.24% rate used) and annual

growth of the maximum QPP insurable earnings (3.25% rate used).



money. After age 71, it is more profitable to have waited until age 65. On the other hand, compared to the normal pension, the late pension profitability threshold will then be attained at age 78. Subsequently, the late pension alone would become more profitable overall.

Opting for the early, normal or late pension should also take in account various factors such as your health,

marital status, the age of your spouse, your other income sources and the impact of any years without

income on the final pension level. It is a good idea to become well-informed before making this decision.

Section IX – RETIREMENT ASSISTANCE PROGRAMS 106


SECTION IX – RETIREMENT ASSISTANCE PROGRAMS

RECENT CHANGES

– Employers from sectors under federal jurisdiction may now offer PRPPs to their employees.

– Since 2013, certain forms of income from a retirement compensation arrangement and PRPP benefits are eligible for the pension income splitting mechanism.

The purpose of retirement assistance programs is to provide individuals with financial independence based on their desired lifestyle when they retire. Given today’s longer life expectancies, retirement programs have to provide increasingly greater amounts to cover longer retirement periods (see Section VIII).

Tax measures generally allow investment income to accrue in certain tax-sheltered plans. Accordingly, it accrues more quickly at very attractive rates. This becomes even more attractive if the taxpayer starts to save for retirement at a very early age as can be seen in the following table:

Starting age

Total investment ($5,000/year until age 65)

Portfolio value at age 65

4% return 6% return

25 years $200,000 $494,133 $820,238

30 years $175,000 $382,992 $590,604

40 years $125,000 $216,559 $290,782

50 years $75,000 $104,123 $123,363

Tax-assisted retirement saving measures are the same federally and provincially. The measures vary depending on whether it is an RRSP or an employer pension plan.

1. REGISTERED RETIREMENT SAVINGS PLANS

An RRSP is a vehicle for accumulating retirement savings sheltered from tax. RRSP contributions are deductible for tax purposes, subject to prescribed limits. Moreover, the income earned in such plans is only taxable if funds are withdrawn.

Contributions

RRSP contributions are deductible in a particular year if they are made during the year or within 60 days following the year-end. The annual contribution limit is calculated based on the individual’s participation in an RPP or a DPSP during the preceding year, earned income for that year and the contribution limit set by the CRA for the current year.

The maximum RRSP contribution a taxpayer who has not participated in an RPP or a DPSP can make for the year is equal to the lesser of:

18% of his/her earned income for the preceding year; or

the annual limit for the year, as shown in the following table:



Year RRSP Limit

2012 $22,970

2013 $23,820

2014 $24,270

2015 Indexed1

Make your RRSP contribution at the beginning of the year to maximize the tax-deferred investment income.

To contribute the maximum in 2013, 2012 earned income must have been more than $132,333. To contribute the maximum in 2014, 2013 earned income must be at least $134,833.

The aforementioned limits have to be reduced for the value of benefits accumulated in an RPP or DPSP. Accordingly, earned income, the pension adjustment, the pension adjustment reversal and the past service pension adjustment must be considered in calculating the annual contribution limit.

Earned Income

In most cases, 18% of earned income is the contribution limit for a particular year. The earned income calculation is subject to specific rules. For example, individuals who only have pension income or investment income, except rental income, are not entitled to contribute to an RRSP.

The following table summarizes the main items to be considered in calculating earned income:

Earned income for purposes of RRSP contribution limit

Include Deduct Exclude

Employment income Employment expenses All investment income, except rental income

Business income Business loss Pension income (including CPP/QPP and OAS)

Net rental income from real property

Rental loss from real property Retiring allowances and taxable DPSP payments

CPP or QPP disability benefits Union and professional dues Death benefits

Taxable alimony received Deductible alimony payments Amounts received from an RRSP and RRIF

Consider having your children file a tax return reporting income from various part-time work (paper

route, baby sitting, lawn mowing, etc.), even if they do not have to pay income tax, so they can create their

own RRSP contribution room.

1 Indexed based on the average salary increase in the industry.



Pension Adjustment and Past Service Pension Adjustment

An employee’s pension adjustment (PA) in a given year is equal to the deemed value of benefits accumulated in the preceding year on his/her behalf in a RPP or a DPSP. The PA amount to be used for 2013 is indicated in a special box on the 2012 T4 slip.

Example: An individual who had earned a salary of $70,000 in 2012 and who was not a member of an RPP or a DPSP may contribute $12,600 to an RRSP in 2013. If in 2012 he/she was a member of an RPP and the value of benefits accumulated on his/her behalf amounts to $6,400 (i.e. the PA calculated by the employer for 2012), his/her deductible contribution for 2013 is limited to $6,200 ($12,600 - $6,400).

The past service pension adjustment is also to be taken into account when an individual participates in an RPP. This adjustment takes into account changes in the value of the benefits accumulated in past years (e.g. if past services are purchased (see point 3 of this section)) and generally reduces the contribution for the current year.

Pension Adjustment Reversal

If an individual ceases to participate in an RPP or a DPSP before retirement, the benefits paid to him/her may be lower than the declared PA during the period when he/she was a member of the plan. The pension adjustment reversal increases the maximum deductible RRSP contribution, thereby restoring RRSP contribution entitlements which would otherwise be lost.

Unused Contributions

RRSP contributions are based not only on the contribution limit for that year, but also on the unused contribution room from prior years commencing in 1991.

Example: An individual is entitled to contribute $23,820 to his/her RRSP for 2013 but only contributes $7,500. Assuming his/her 2013 earned income is sufficient for the maximum $24,270 deduction in 2014, he/she could contribute and deduct up to $40,590 in 2014 ($24,270 + [$23,820 - $7,500]).

If you receive a bonus or retroactive payment and have unused contribution room, request that such amount

be transferred directly to your RRSP and avoid deductions at source thereon.

Unused Deductions

The rules generally permit contributions to an RRSP during a given year without claiming the deduction during that year if they do not exceed the amount of contributions to which the individual is entitled.

Example: A taxpayer who contributes $10,000 to his RRSP in 2013 could carry forward all or part of his/her deduction to 2014 and subsequent years.

This may be attractive to an individual who wants to accumulate income tax-free immediately but keep his deduction for a subsequent year when he expects to be in a higher tax bracket.

If your income fluctuates considerably from year to year or if a significant increase in income is anticipated

in the following year, consider the possibility of contributing in one year and using the RRSP deduction

in a subsequent year.



Information Supplied by the CRA

Taxpayers receive, along with their notice of assessment, a statement from the CRA indicating:

the maximum amount they may contribute to an RRSP for the year;

their unused contribution room after 1990; and

the RRSP contributions made but not deducted in a year.

Contributions to a Spousal RRSP

A taxpayer may contribute to an RRSP of which his/her spouse is the beneficiary. This allows income-splitting on retirement and, if the spouse is younger, a longer contribution period. Therefore, an individual who is 72 years of age or more, having accumulated contribution room, may contribute to a spousal RRSP until the end of the year during which the spouse reaches 71 years of age.

The amount invested in a spousal RRSP reduces the amount of contributions the taxpayer is entitled to make to his/her own RRSP. A spousal RRSP belongs to the spouse, and the taxpayer who contributes to such a plan has no legal rights to these amounts.

Example: In 2013, an individual’s annual contribution limit amounts to $10,000. If he contributes $7,000 to a spousal RRSP, his maximum contribution to his own RRSP will be limited to $3,000 for that year. Nevertheless, he will claim a total deduction of $10,000 in his tax return.

Contribute to a spousal RRSP if you expect your retirement income to be higher than that of your

spouse.

Anti-Avoidance Rule

If contributions are made to a spousal RRSP and the spouse withdraws funds from the RRSP, the taxpayer who deducted the contributions has to include in his income for the year of the withdrawal the lesser of:2

The amount paid to the spousal RRSP for the year of withdrawal and the two preceding years (funds must remain in plan for three consecutive December 31);

The amounts withdrawn by the spouse.

Example: An individual contributes to his/her spouse’s RRSP in February 2013. No withdrawal should be made before January 2016 (assuming no additional contributions are made to the spousal RRSP after 2013).

Contribute to a spousal RRSP prior to the end of the calendar year rather than at the start of the next year in

order to minimize the period during which the anti-avoidance rule is triggered if the spouse makes a

withdrawal.

Over-Contributions

There is a penalty of 1% per month for over-contributions made to an RRSP. However, over-contributions totalling up to $2,000 at any time in the year are allowed without penalty.

2 Rule does not apply if, when the withdrawal is made, the spouses are living separately due to the breakdown of

their union.



Example: An individual with earned income of $50,000 in 2012 who contributed $10,500 in 2013 will not be considered as having an over-contribution to which the penalty would apply:

Cumulative contributions after 1990 $ 10,500 Less:

Cumulative contribution room ($50,000 × 18%) 9,000 Additional $2,000 allowed 2,000 (11,000)

Cumulative excess $ –

However, if the taxpayer contributes $14,000 in 2013, a penalty will be charged on $3,000. The penalty could cease to apply as of January 2014 provided the individual has earned income in 2013 creating new contribution room.

Consider making a gift of $2,000 to a child or grandchild over 18 years of age who can invest it in an RRSP and deduct this contribution when he/she earns

eligible income.

Withdrawal of Excess Contributions

If a taxpayer withdraws excess RRSP contributions made, he/she must include the amount in income in the year the withdrawal is made even if the amount was never deducted in any preceding year tax returns. The taxpayer may still be entitled to a deduction if certain conditions are met.

This rule also applies to the $2,000 over-contribution that is not subject to the penalty. This over-contribution becomes attractive if it is an advance contribution that may be deducted in the future. On the other hand, there may also be double taxation, in particular if the taxpayer does not earn new contribution room allowing him/her to deduct such amount.

Financing RRSP Contributions

Borrowing to invest continues to be a leveraging strategy, which must be evaluated carefully taking into account all of an individual’s financial and human factors. The strategy should be compared to systematic saving. In general, if borrowing costs over the loan repayment period are higher than the return earned, systematic saving would be a better alternative. Interest paid on such borrowings is not deductible.

Fund and Investment Transfers

Transfers of property to an RRSP

Transfers of personally-held property to an RRSP are made at FMV and any capital gains arising on such transfers are taxable. However, capital losses on a transfer cannot be deducted because they are deemed to be nil.

Direct transfers between plans

Provided the plan has not matured, a taxpayer may transfer funds from his/her RRSP to another RRSP, an RPP, or an RRIF of which he/she is the beneficiary. Such transfers are tax-free, provided the transfer takes place directly between the issuers of the plans.

Marital Breakdown

A lump-sum amount can be transferred without immediate tax consequences from an RRSP, RRIF or RPP to a spouse’s plan pursuant to a court order or judgment or a written separation agreement with respect to the division of property between the taxpayer and his/her spouse or former spouse or if the



property is being transferred pursuant to the breakdown of the union in settlement of the rights arising from their union.

Retiring Allowance

A retiring allowance is an amount received upon or after an employee’s retirement in recognition of long service or in respect of a loss of office or employment whether or not received as damages or pursuant to an order or judgment of a competent tribunal.

Retiring allowances relating to years of service before 1996 are transferable to an RRSP, subject to a maximum based on the number of years of service. The amount transferable is equal to the total of:

$2,000 per year of service with the employer;

$1,500 for each year of service prior to 1989 during which the taxpayer was not a member of an RPP or a DPSP or, if he/she was, the employer’s contribution was not vested in him/her.

If you are contemplating the sale of a business carried on through a corporation, consider paying yourself a

retiring allowance for years of service before 1996.

Legal fees incurred by an individual to obtain a retiring allowance are deductible from the allowance received, except for the portion transferred to an RRSP.

Transfer of Income From an RESP to an RRSP

Under certain circumstances, the accumulated income of a contributor’s RESP may be transferred to the RRSP of the person who contributed to it (see Section III).

Qualified Investments

Taxpayers should pay particular attention to the types of investments chosen. Any non-qualified investment incurs significant penalties.

Qualified investments include:

Guaranteed investment certificates issued by a Canadian trust company;

Cash deposits;

Bonds guaranteed by a government;

Shares, bonds and other similar securities of a public company;

Units of mutual fund trusts;

Mortgage loans secured by property located in Canada, including a mortgage secured by the annuitant’s residence, provided certain conditions are met.

Prohibited Investments

The concept of prohibited investments limits the list of investments that may be held in an RRSP by imposing a specific set of penalties3. Included among the main prohibited investments are:

3 Certain transitional rules may apply with respect to investments that became prohibited investments due to the

introduction of these rules on March 23, 2011. An election must be filed in this regard by December 31, 2012 to benefit from this relief.



a debt of the annuitant of a registered plan;

an investment in an entity with which the annuitant does not deal at arm’s length;

an investment in an entity in which the annuitant holds a significant interest, i.e.:

a share or debt of a corporation, if the annuitant holds 10% or more of a class of shares of the capital stock of a corporation or any related corporation, alone or with one or more persons with whom the holder does not deal at arm’s length;

an interest in a partnership or trust, if the annuitant holds, alone or with one or more persons with whom the holder does not deal at arm’s length, an interest equal to at least 10% of the value of all of the interests in this entity.

RRSP Benefit

Generally, an annuitant who benefits from an advantage with regard to an RRSP is subject to tax equivalent to either the FMV of the advantage or, in the case of a debt, the debt amount. Among the main advantages subject to this tax are:

benefits from swap transactions between an RRSP and other accounts controlled by the same annuitant;

payments made for services such as, for example, dividends paid by a corporation into the RRSP of an individual in lieu of payment to the latter for services provided to the corporation;

determined prohibited investment income that is not withdrawn within 90 days following a notice from the Minister; and

the income, including a capital gain, attributable to a prohibited investment.

Property Pledged as Security

If property held in an RRSP is pledged as security, the FMV of the property must be included in the income of the taxpayer who is the beneficiary of the plan regardless of the amount of the loan. In the year the guarantee ceases, the beneficiary can claim a deduction of the same amount (ignoring any change in the FMV). If the RRSP is required to pay an amount to honour the guarantee, the amount does not have to be included in the beneficiary’s income a second time. However, the beneficiary loses the right to claim the aforementioned deduction.

Matured RRSPs

Taxpayers may terminate their RRSP at any time. However, plans automatically mature at the end of the calendar year during which the annuitant reaches 71 years of age. At that time, the value of the RRSP property must be included in income unless the annuitant uses the funds to purchase an eligible annuity or an RRIF.

In the year you turn 71, remember to make your annual RRSP contribution before December 31. In December, make an excess contribution equal to your contribution room for the following year. While the 1% penalty will

apply for one month, the contribution will be fully deductible the following year.

Deductions at Source on Withdrawals

Except for withdrawals made for the purposes of the HBP (see Section II) and the Lifelong Learning Plan (see Section III) as well as funds transfers between plans, all single lump-sum payments from an RRSP are subject to tax deductions at source according to fixed rates (see Section I). If certain conditions are



met, the CRA can accept the withdrawal of unused contributions without withholding any tax. Benefits from an RRSP under periodic annuity payments are not subject to any withholding tax.

If you withdraw a lump-sum from your RRSP, remember that the amount will be taxed in the year of

the withdrawal, in accordance with progressive tax rates applicable to your income level. Consider checking if

you will have tax to pay on the withdrawal in addition to the deduction at source.

Administration and Management Fees

RRSP investment advisory fees, plan administration and financing fees can be paid by either the plan or the annuitant without any tax consequences to either. However, plan administration fees paid by the annuitant are not deductible.

From a financial perspective, it is preferable for management and administration fees to be paid out of

the RRSP rather than personally.

RRSP and Alternative Minimum Tax

Transfers from an RPP or DPSP to an RRSP as well as RRSP contributions are not subject to AMT (see Section VII).

RRSP Beneficiaries Upon Death

In order to benefit from a tax-free rollover upon death, taxpayers are advised to designate their spouse, a dependent child or grandchild as the beneficiary of their RRSP (see Section XII). Upon death, an RRSP may be transferred to an RDSP belonging to the deceased’s child or grandchild (see Section XII).

Home Buyer’s Plan

See Section II.

Lifelong Learning Plan

See Section III.

2. REGISTERED RETIREMENT INCOME FUND

The rules governing RRIFs are similar to those of RRSPs, in particular with respect to advantages and eligible and prohibited investments. Revenue accumulates tax-free and withdrawals are fully taxable. The RRIF annuitant must, each year, withdraw a minimum amount determined according to prescribed rates which vary based on the age of the annuitant or his/her spouse.

Request that the minimum amount be determined based on the age of your spouse, if he/she is younger.



3. EMPLOYER PENSION PLANS

Registered Pension Plan

An RPP is a pension plan under which employers and employees (or employers only) make contributions to a retirement fund. There are two types of RPPs: money purchase and defined benefit plans.

Deferred Profit Sharing Plan

A DPSP is a contract between an employer and its employees or former employees to share in the profits of a business.

Characteristics of RPPs and DPSPs

Each of these plans has its own specific tax characteristics, which are summarized in the following table:

Characteristics of RPPs and DPSPs

Defined benefit RPP Money purchase RPP DPSP

Payment of contributions

Employer and employee; or Employer only.

Employer only4

Maximum annual contributions

Based on actuarial needs

No annual limit5

Lesser of: 18% of income Annual limit

Lesser of: 18% of income Annual limit

Retirement benefits Predetermined amount

Maximum benefits limit applicable per years of service

Determined based on amounts invested in name of employee and pension fund’s returns during life of plan

Based on amounts invested

Lump-sum withdrawal allowed (unlike RPP)

Deductibility of contributions

Fully deductible for payer5

Deductible in accordance with annual contribution limits

Fully deductible for employer

Deductible Contributions

The amount that can be deducted as an annual contribution to a money purchase RPP and a DPSP is subject to a limit. There is no limit for contributions to a defined benefit RPP for which the maximum benefits are limited. From 2012 to 2014, the limits are:

Year Benefits limit – defined

benefits RPP6

Contribution limits7

Money purchase RPP DPSP8

2012 $2,647 $23,820 $11,910

2013 $2,697 $24,270 $12,135

2014 Indexed9 Indexed10 Indexed10

4 Amount of contribution is based on company’s earnings. 5 If contributions are required to finance benefits not exceeding maximum limits permitted. 6 Per year of service. 7 Contribution is limited to the lesser of 18% of the compensation for the year or the annual limit. 8 Limit equals one-half of the money purchase RPP limit. 9 1/9 of the RPP specified contribution limit. 10 Indexed based on average industries salary increase.



Transfer of RPP Funds

An employee who leaves his/her office or employment before retirement age may choose to:

Leave the accumulated funds in the RPP and take a deferred annuity when he/she reaches retirement age;

Transfer the accumulated funds to another retirement savings vehicle. The choices may differ depending on the pension acts applicable to the annuitant. Possible transfers include transfers to:

An RPP of another employer;

LIFs or LIRIFs. These vehicles are similar to RRIFs except that they include certain conditions, including a maximum annual withdrawal;

A LIRA or a locked-in RRSP. These vehicles are similar to RRSPs except that the money is generally locked-in and, subject to a few exceptions, frozen until an annuity is purchased or the funds are transferred to a LIF. As is the case with RRSPs, these vehicles mature at the end of the year taxpayers reach 71. Funds have to be converted into a life annuity, a LIF or a LIRIF.

LIFs can be “unlocked” gradually by transferring each year a portion of the funds accessible to an RRSP.

There are a number of tax, financial and other consequences that have to be taken into consideration

before adopting such a strategy.

Purchase of Past Service by RPP

RPPs generally allow participants to buy periods during which they did not participate in the plan. The periods vary according to the plans and a purchase of past service has tax consequences that vary based on the date the services were rendered and the method of payment.11 Moreover, a taxpayer’s participation in an RPP during calendar years covered by the purchase has an impact on the applicable rules.

The following table summarizes the rules for the purchase of past service:

Purchase of past service

Before 1990 After 1989

No RPP contribution With RPP contribution

Maximum annual deduction

Federal: $3,500 Quebec: $5,500

Federal: $3,500 less contributions to RPP

Quebec: $5,500 less contributions to RPP

No limit

Carryover of undeducted balance

Yes Yes Contributions only deductible in the year

Overall limit (per calendar year eligible for purchase)

Federal: $3,500 Quebec: $5,500

No limit No limit

Impact Possibility of delay in deducting contributions due to limits

No impact on RRSP

Past service pension adjustment

11 Payment by transfer from an RRSP will have different tax consequences than a cash payment to an RPP.



Pooled Registered Pension Plans and Voluntary Retirement Savings Plans

The federal government implemented PRPPs in December 201212 and, in May 2013, the Quebec government tabled a bill to implement VRSPs which is set to become effective in January 2014. These plans aim to offer defined-contribution pension plans adapted to the needs of self-employed workers and small businesses.

Quebec employers will be subject to one of these plans, according to their area of activity. For businesses doing business under federal jurisdiction, the PRPP rules will apply, while the VRSP rules will apply to businesses under provincial jurisdiction. An employer subject to one of these laws may not apply the other plan.

In Quebec, employers under Quebec jurisdiction that employ five employees or more with at least one year of continuous service will have to offer a VRSP if they do not already offer a wage-deduction based retirement savings plan to their employees. Proposed legislation provides that they will have until January 1, 2016, that is, two years from the coming-into-effect of the VRSPs, to comply with this obligation. Conversely, the federal law establishing PRPPs does not oblige employers to offer this plan to their employees; however, eligible employers who wish to do so can offer such a plan to their employees as of now.

Individual Pension Plan

An IPP is a defined benefit RPP generally designed and structured for one or more individual members, normally the owner of a business or key executives. Employer contributions are deductible and the employee is only taxed when the amount is withdrawn.

One of the benefits of an IPP is that larger annual deductible contributions can be made compared to an ordinary RRSP. Under certain circumstances, the company may make additional deductible contributions in recognition for past years of service.

Participants in an IPP are required to withdraw annual minimum amounts from the plan starting in the year they reach the age of 72, as for RIFFs (see point 3 of this section).

There are a number of factors that have to be taken into consideration in setting up an IPP, such as the corporate structure, the tax position of the corporation and the intended participants, the investment policy and the costs of the plan.

Simplified Pension Plan

A simplified pension plan is a defined-contribution RPP for which the administrative rules applicable to the employer are not as onerous in order to make it easier for SMEs to use.13

Retirement Compensation Arrangement

A retirement compensation arrangement is a mechanism which results in an agreement between an employer and an employee whereby the employer makes contributions to a custodian who receives the funds, generates a return thereon and makes payments to the employee when he/she retires or loses his/her job, or when there is a significant change in the services rendered by the employee.

Contributions paid as well as the plan income are subject to a 50% tax that is refundable when amounts are paid to the employee. Contributions are deductible by the employer when paid. However, they are only taxable in the hands of the employee when attributed to him/her by the trust.

Such plans are subject to prohibited investments rules similar to these applicable to RRSPs (see point 1 of this section). 12 In its 2013 budget, the Ontario government committed to holding consultations on this topic. 13 For additional information, go to the Internet site of the Régie des rentes du Québec at:

http://www.rrq.gouv.qc.ca/en.



4. PENSION INCOME SPLITTING

An individual may allocate up to one-half of his/her income eligible for the pension income credit to his/her spouse. An annual election must be made by both spouses. Different amounts can be allocated for Quebec purposes than for federal purposes.

Eligible pension income for individuals who are 65 years of age or older includes:

RPP and DPSP benefits;

RRIF payments;

Life annuities from an RRSP (excluding simple RRSP withdrawals);

Certain retirement compensation arrangement income (since 2013);

Certain PRPP benefits.

Eligible pension income of individuals who are under 65 years of age includes RPP benefits as well as certain other payments received following the death of a spouse or common-law partner.

OAS benefits, the GIS, CPP or QPP payments and RRSP withdrawals (other than an annuity) are not eligible for splitting.

Consider splitting your pension income with your spouse in order to avoid repaying your OAS, to keep your age credit and to allow your spouse to claim the

pension income credit.

QPP and CPP Benefits

If certain conditions are met, QPP and CPP (see Section XIII) benefits can be split between spouses upon request. They simply need to make a request with the relevant tax authorities.

Section X – VISITORS TO THE U.S. 118


SECTION X – VISITORS TO THE U.S.

RECENT CHANGE

– Changes were made with respect to the U.S. estate tax in 2013.

This section discusses a number of tax aspects that Canadian residents who are not U.S. citizens should consider if they sojourn, work or do business in the United States.

Cross-border taxation is a complex subject and you should consult a tax specialist.

1. TAX TREATY

Taxpayers who travel between or sojourn in Canada and the U.S. may earn income from both countries. Canada signed a treaty with the U.S., as it has done with many other countries, to avoid double taxation of these taxpayers and to ensure tax is paid in the appropriate tax jurisdiction.

The Canada – United States Tax Treaty is intended for both Canadian residents who earn income from U.S. sources and American residents who earn income from Canadian sources. If there is a conflict between a country’s tax legislation and a treaty provision, generally the treaty provisions will take precedence.

2. SOJOURNING IN THE U.S.

Deemed Residence

Canadian residents who sojourn in the U.S. for 183 days or more in a year will generally be considered resident in the U.S. and will have to file a U.S. federal personal income tax return no later than April 15 of the following year.1

Canadian residents will also be considered residents of the United States for American tax purposes if they meet the “Substantial Presence Test” in the year. They meet the test if they spend more than 30 days in the U.S. in the current year and more than 183 days in total over a three-year period based on:

the total number of days spent in the United States in the current year;

one-third of the days spent in the United States in the preceding year; and

one-sixth of the days spent in the United States in the second preceding year.

Example: In 2011, Ms. Lawson acquired an apartment in Orlando, Florida and since then has spent a good part of the winter there. Her friends told her she should not spend more than 182 days in the U.S. if she does not want to be considered an American resident. Having listened to this advice, she spent 132 days, 114 days and 144 days in 2011, 2012 and 2013 respectively.

1 As Canadian residents, they are still subject to Canadian income tax.



In 2013, Ms. Lawson will be considered a U.S. resident by virtue of the three-year criterion, calculated as follows:

2013 – Current year 144 days

2012 – Preceding year: 1/3 × 114 38 days

2011 – Second preceding year: 1/6 × 132 22 days

Total 204 days

Taxpayers in the same position may avoid having to file a U.S. return if they file Form 8840 – Closer Connection Exception Statement for Aliens – with the U.S. tax authorities by June 15 of the following year providing they satisfy the following conditions:

For the year in question (2013), they sojourned in the U.S. less than 183 days;

They do not have and have not applied for a green card;

Their habitual residence is in Canada;

They have maintained close social and economic ties with Canada.

If you sojourn in the U.S. on a regular basis, be aware of the deemed resident rules.

U.S. Source Income

Investment income

A non-resident of the United States who receives U.S. investment income, such as interest, dividends, rent or other amounts, is subject to U.S. withholding tax of 30% of the amount received. However, the Canada – United States Tax Treaty provides for a reduction, or even a total exemption of the withholding tax under certain circumstances, of the amount withheld if the amounts are paid to a resident of Canada. In Canada, the taxpayer may be entitled to a foreign tax credit (see Section VII).

U.S. Income Reporting

Regardless of their country of residence, taxpayers who earn U.S. source income2 must file a U.S. income tax return if no amount was withheld in the U.S. or if the amount withheld is inappropriate. The income tax return must be filed by June 15.3 A six-month extension may be granted if Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return – is submitted no later than the deadline for the original filing, accompanied by the balance of any income taxes owing.

3. U.S. REAL ESTATE

Rental Income

Rental income paid to Canadian taxpayers in respect of a real property located in the U.S. is subject to a 30% U.S. federal withholding tax without any relief under the Canada – United States Tax Treaty. The withholding is calculated on the gross rent, before any deduction of expenses incurred to earn that income.

2 Income from properties in the U.S., partnerships, trusts, rentals, businesses or any other U.S. source income. 3 Or April 15, if the U.S. non-resident earned employment income subject to source deductions in the U.S.



The U.S. rules are numerous and complex. Do not hesitate to contact your tax advisor if you plan to rent a

property, including a condominium, located in the United States.

Taxpayers may elect not to be subject to the 30% withholding tax and instead be taxed on the net income (rental revenues minus rental expenses). Such an election applies to all rental income and is generally irrevocable for the year in question. Taxpayers must comply with American rules with respect to filing date and expense deductibility. Unlike under the Canadian rules (see Section VII), capital cost allowance is mandatory in the U.S. and must be claimed in the current year even if it creates a rental loss. If the allowance is not claimed, it will still be deemed to be deducted for purposes of calculating the U.S. capital gain.

If you earn rental income from a property located in the U.S. in respect of which you incur substantial

expenses, consider electing to use the net rental income method.

The tax paid in the U.S. may be eligible for a foreign tax credit in the taxpayer’s Canadian income tax return (see Section VII).

Some American states collect sales tax on the rental of real property located in the United States and require a tax return to be filed reporting the rental income.

Sale of Real Estate

When a Canadian sells real estate located in the U.S., the American rules provide for a 10% withholding tax on the gross selling price. Provided the selling price is under US$300,000, the withholding tax does not apply when the purchaser elects to make the property his/her principal residence.

If the American income tax on the gain from the sale of the property will be less than the 10% withholding tax, the taxpayer may get a certificate from the American tax authorities in order to only pay the actual income tax on the transaction. For this purpose, a completed Form 8288-B – Application for Withholding Certificate for Dispositions by Foreign Persons of U.S. Real Property Interests – must be sent to the Internal Revenue Service before the sale showing the income tax the taxpayer has to withhold instead of 10%. The Internal Revenue Service should issue a withholding exemption certificate within 90 days of receipt of the application.

A U.S. federal income tax return must be filed before June 15 of the following year to declare the sale. State income tax also has to be considered when selling property in the United States because most states tax dispositions of real property located on their territory.

4. U.S. ESTATE TAXES

U.S. residents and citizens are subject to U.S. estate taxes on the total value of the property they own at the time of death. Estate taxes are levied on the market value of the property of deceased taxpayers who are not citizens or residents of the United States provided they own property located there at the time of death worth more than US$60,000.

Properties most often subject to these taxes are:

Land and buildings located in the U.S. as well as the furniture therein;

Shares of U.S. corporations;



Jewellery, vehicles, boats and other tangible property in the U.S.;

Bank deposits in the U.S. if the amounts are related to a business carried on in that country;

Certain interests in a partnership or trust owning property in the U.S.

In 2013, estate taxes are calculated in accordance with a table of progressive rates ranging from 18% (on a taxable value of less than US$10,000) to 40% (on amounts exceeding US$1,000,000).

Canadian residents are entitled to a tax credit calculated on the proportion of U.S. properties of the deceased individual at the time of death to the total value of worldwide properties. This US$2,045,800 credit in 2013 is equal to a US$5,250,000 exemption. Consequently, a Canadian whose world estate is valued at less than US$5,250,000 will often not have to pay U.S. federal estate taxes.

Example: In 2013, a Canadian taxpayer dies. The taxpayer owned a residence (mortgage free) in Florida with a FMV of US$1,200,000 and other property in Canada worth US$6,800,000. His/her estate would have to pay American estate tax of US$118,930 calculated as follows: basic tax of US$425,800 less a credit of US$306,870 (US$1,200,000 ÷ US$8,000,000 × US$2,045,800).

Under certain circumstances, an additional credit may be available. The marital credit is the most common example, i.e. if the property is transmitted to a surviving spouse who is an American resident.

Some States also impose estate tax. The tax legislation in the States where any property is located should be consulted.

Some tax planning options are available to reduce the impact of U.S. estate tax.

Under Canada’s tax laws, the death of a Canadian taxpayer triggers a deemed disposition of all his/her property, which may result in a taxable capital gain (see Section XII). As a full credit for U.S. estate taxes might not be allowed against the Canadian income taxes, a taxpayer may be subject to double taxation when he/she dies.

5. PERSONAL IDENTIFICATION NUMBER

Any person who is not an American citizen and does not have a social security number in the U.S. must get a personal identification number if he/she:

is required to file an income tax return;

is claimed as a dependent;

is the spouse of an American taxpayer (and a joint return is filed);

files a return in order to get a tax refund;

would like to use certain provisions allowing a reduction of U.S. source deductions.

6. GOVERNMENT HEALTH INSURANCE PLANS

Provincial health insurance plans provide, subject to certain conditions, for continued coverage even when individuals spend long periods of time outside the country. These conditions differ from province to province and individuals must advise the government authorities prior to their departure.

Consequently, individuals who expect to sojourn outside the country should inquire as to what are the applicable provincial requirements.



If you sojourn outside the country, you should always ensure you have additional coverage for all or part of

the expenses that are not covered by your provincial health plan.

7. TAX RATES

The following tables show the 2013 U.S. individual and corporate federal tax rates.

Corporation

$50,000 or less 15% of taxable income

$50,001 – $75,000 $7,500 + 25% on next $25,000

$75,001 – $100,000 $13,750 + 34% on next $25,000

$100,001 – $335,000 $22,250 + 39% on next $235,000

$335,001 – $10M $113,900 + 34% on next $9.665M

$10M – $15M $3.4M + 35% on next $5M

$15M – $18.33M $5.15M + 38% on next $3.33M

$18.33M or more 35% of taxable income

The general 35% rate varies according to the company’s income. For American manufacturing companies, a deduction equal to 9% of production profits or taxable income is available, which translates into an effective rate reduction of 3.15%.

Individuals

SINGLE INDIVIDUAL


$8,926 – $36,250 $892 + 15% on next $27,325

$36,251 – $87,850 $4,991 + 25% on next $51,600

$87,851 – $183,250 $17,891 + 28% on next $95,400

$183,251 – $398,350 $44,603 + 33% on next $215,100

$398,351 – $400,000 $115,586 + 35% on next $1,650

$400,001 or more $116,164 + 39.6% on excess

SINGLE INDIVIDUAL, HEAD OF HOUSEHOLD


$12,751 – $48,600 $1,275 + 15% on next $35,850

$48,601 – $125,450 $6,652 + 25% on next $76,850

$125,451 – $203,150 $25,865 + 28% on next $77,700

$203,151 – $398,350 $47,621 + 33% on next $195,200

$398,351 – $425,000 $112,037 + 35% on next $26,650

$425,001 or more $121,364 + 39.6% on excess



MARRIED INDIVIDUALS WHO FILE INDIVIDUAL RETURNS


$8,926 – $36,250 $892 + 15% on next $27,325

$36,251 – $73,200 $4,991 + 25% on next $36,950

$73,201 – $111,525 $14,229 + 28% on next $38,325

$111,526 – $199,175 $24,960 + 33% on next $87,650

$199,176 – $225,000 $53,884 + 35% on next $25,825

$225,001 or more $62,923 + 39.6% on excess

MARRIED INDIVIDUALS WHO FILE JOINT RETURN AND SURVIVING SPOUSES


$17,851 – $72,500 $1,785 + 15% on next $54,650

$72,501 – $146,400 $9,982 + 25% on next $73,900

$146,401 – $223,050 $28,457 + 28% on next $76,650

$223,051 – $398,350 $49,919 + 33% on next $175,300

$398,351 – $450,000 $107,768 + 35% on next $51,650

$450,001 or more $125,846 + 39.6% on excess

Section XI – ESTATE PLANNING 124


SECTION XI – ESTATE PLANNING

When planning for retirement, the preservation and eventual transfer of family assets are becoming a major concern. Estate planning aims to minimize the income tax consequences of meeting these objectives.

Entrepreneurs may spend more than 80,000 hours building their businesses, but only ten hours looking

after their estate plans.

Estate planning is no picnic. Juggling financial interests and family interests and, in many cases, attempting to reconcile conflicts that may occur between the two, can often produce emotions that make an initial foray into the area difficult. Once the process is underway, the taxpayer should take the necessary time to plan the entire operation in a way that makes it possible to retain control of the process and achieve objectives.

Individuals who leave property at the time of their death want their estates to be transferred in accordance with their wishes, while paying as little income tax as possible. Therefore, planning has to be done during the person’s lifetime.

Accordingly, the estate planning process should be undertaken as soon as possible in order to maximize the tax planning possibilities. The main steps in the process include:

Financial planning;

Estate freeze;

Business succession;

Life insurance;

Shareholders’ agreement, if any;

Power of attorney in the event of incapacity;

Planned charitable giving;

Will.

Sound tax and financial planning allows individuals to accumulate and grow wealth, thereby making it possible for them to meet their spending objectives during their working and retirement years (see Section VIII).

Tax reasons may motivate some taxpayers to consider transferring all or part of their property during their lifetime, particularly shares of private corporations, which passes on this wealth to future generations.

1. FAMILY BUSINESS

The family business brings together a number of players, including shareholders, family members and employees. Over time, each player’s influence and interest becomes clear. In spite of disagreements and other problems that may arise, there is generally a common desire for the business to succeed.

Succession Planning

The survival of a business will depend on the development and implementation of a succession plan. The manager of a family business who thinks about this will have to consider a number of issues:



Continuation of the business;

Development of children’s talents;

Preparation of succession;

Choice of successor;

Transfer of ownership, leadership and control of the business;

Adequate retirement income;

Protection of family patrimony; and

Reduction of income taxes.

Raymond Chabot Grant Thornton has developed an integrated approach, based on the business owner’s situation, that takes into consideration the human, strategic, financial and tax aspects of the business

transfer process. Learn more from your consultant.

Owners who determine their objectives in advance and start the process for transferring their business early on have a better chance of succeeding. Owners have to plan when they will retire, their financial requirements during retirement and how the family business will contribute to those requirements.

Business succession planning should usually take place five to seven years before the business owner retires.

2. ESTATE FREEZE

Tax legislation provides that taxpayers are deemed to dispose of all of their property at FMV immediately prior to death (see Section XII). This can produce a significant income tax liability in the year of death, thereby eroding the estate that is passed on to the beneficiaries. If the patrimony includes shares of a small business, the lack of funds to pay this liability may even force the liquidator of the estate to sell the shares or liquidate the company, which may undermine the deceased’s objective, i.e. to keep the business in the family. While this deemed disposition can be deferred when assets are left to a spouse or a spousal trust, this is only a temporary solution to the problem and does not solve the issue of transmission to the children.

The purpose of an estate freeze is to transfer to other persons (children, grandchildren, key employees) the future increase in value of the assets (generally shares of a small business corporation) that an initiator of a freeze (the transferor) owns. The transferor retains the current value of his/her shares and defers the income taxes on the capital gain to the time of their actual or deemed disposition.

The freeze brings in new shareholders who will enjoy the benefits of the future growth of the business. This will result in a lower capital gain on the deemed disposition when the transferor dies. The primary reason for a freeze is to transfer the business to the next generation while allowing the transferor to retain control of the business and, if he/she wants, provide a source of income by paying dividends on his/her freeze shares.

Example: Fifteen years ago, Mrs. Travis incorporated a consulting business (Genius Ltd.) by subscribing for 100 common shares at a price of $100. The company is doing well. It is worth more than $950,000. Her valuators told



her that at the current annual rate of return for the business, her shares should be worth more than $2,000,000 within eight to ten years.

Mrs. Travis is nearly 50 years old and hopes to leave the business to her son Terry, a university student. He has shown an interest in the business. Mrs. Travis’ other investments, as well as her RRSPs, will enable her to maintain her lifestyle after she retires, without having to have any significant income from her business.

As owner of Genius Ltd., she is very satisfied with her financial position. Her son is the universal legatee of her will. Furthermore, as her other sources of income will ensure her a lifestyle to which she is accustomed, she is letting the company prosper and is happy to leave her son a highly valuable business. But is this really the ideal solution? If Mrs. Travis dies in ten years, there will be a deemed disposition of all her property, including the shares of Genius Ltd., which would generate a capital gain of nearly $2,000,000 on these shares alone. Would her estate be able to pay the income taxes and keep the wealth intact?

If Mrs. Travis were to decide today to carry out an estate freeze, she would retain freeze shares worth $950,000 and her son, by holding new common shares of the company, would benefit from the future appreciation in value. If Mrs. Travis were to die in ten years, the capital gain at that time would be cut in half. Furthermore, the freeze would make it possible to determine the amount of the tax liability with a certain degree of certainty and develop financing strategies for it, where applicable, by making use, for example, of insurance.

An estate freeze requires that you prepare or revise your will to ensure the objectives of the freeze are

achieved when the transferor dies.

When new shareholders are brought in pursuant to an estate freeze, a shareholders’ agreement should be prepared. This agreement should ensure, as a minimum, that there are provisions for the disposal of the company’s shares (purchase, redemption or transfer) as well as the financing for such transactions and the main situations that could trigger them.

An estate freeze is one of the most complicated areas of tax planning. A number of corporate and matrimonial legal issues may come into play. Accordingly, specialists should be consulted before any plan for an estate freeze is developed.

3. TRUST

As average life expectancy increases (see Section VIII), retirement income requirements must be planned with care. With this in mind, taxpayers planning on carrying out an estate freeze are often concerned that their assets may not be sufficient to ensure they will be comfortable when they retire. When freezing the value of a business, taxpayers must consider whether they will have enough income to retire and maintain their desired lifestyle.

Using a trust as part of an estate freeze can allow you to undo the freeze if you have any regrets as a result of

economic conditions.

In the current social context, taxpayers are also looking to trusts as a vehicle that will help protect their spouse, children and even living and future grandchildren. However, it is very difficult to provide for the needs of relatives. Certain children may have special needs that are impossible to predict today.

In addition to family members who are alive when a trust is created, family members who are born during

the term of the trust can also be named as trust beneficiaries.



A discretionary trust makes it possible to defer the specific identification of beneficiaries. Trustees of such a trust may exercise their discretion annually to determine how beneficiaries will share trust income and capital.

If you wish, the trust may give the trustees powers to benefit certain beneficiaries from time to time, to the

exclusion of others, at their sole discretion.

Business owners often feel a child may not be completely ready to take over. Accordingly, they may want to continue making decisions without any interference. They do not want to have to ask for permission for every decision they make and want to retain control over both the selection of their beneficiaries and the selection of those who will administer their property following a freeze of their business. All these factors should be considered when doing an estate plan and it will be extremely important to have a properly worded trust deed, will, and shareholders’ agreement.

4. LIFE INSURANCE

Life insurance is a fundamental estate planning tool. Tax exempt amounts received at the time of the beneficiary’s death can be used to replace lost income from the deceased, facilitate tax payments and other liabilities resulting from the death and ensure, where applicable, the required funds to pay the bequests and donations to charitable organizations provided in the deceased’s will.

In the case of an estate freeze, it is essential to include life insurance in the planning phase to ensure the necessary financing for the shareholder agreement relating to share transfers on death. It also has to be determined whether the beneficiaries should be the shareholders or the company. The decision may depend on a number of factors, such as the difference in the partners’ ages, how difficult it is for some of them to obtain medical certificates or the beneficiaries’ financial capacity.

If a company receives non-taxable insurance proceeds on the death of a shareholder, substantially all of the proceeds can be distributed tax-free to the shareholders by electing to pay out a capital dividend (see Section VI). However, the premiums for such insurance are generally non-deductible.

Life insurance is still an easy way to ensure the estate plan previously discussed is easily put in place while ensuring the deceased’s objectives are achieved. As taxpayers’ insurance needs are constantly evolving, it is important to review the coverage on a regular basis.

5. WILL PLANNING

To retain control over property accumulated over the years, protect the financial interests of loved ones and leave an estate in accordance with one’s personal wishes, every individual should carefully plan his/her succession. A number of items should be considered in the will to protect equity and the heirs, and to ensure that it reflects the individual’s wishes. The following questions may be useful in this exercise:

Do I have a will?

If so, is it up-to-date?

Does it take into account the partition of the family patrimony?

Does it make provision for a guardian for my children?

Does it give my liquidators sufficient flexibility to make elections and decisions to reduce the income taxes payable by my estate or my beneficiaries?

Does it transfer properties on which there is an unrealized gain to my spouse or a spousal trust?



Does it create trusts for the members of my family?

Is it properly drafted in order to ensure adequate transfer of my property held outside of Canada to my heirs while minimizing foreign income taxes?

Does it provide for any members of my family who are not involved in the business fairly and adequately?

Have I prepared a recent list of my property, the location thereof and the tax cost of such property?

Have I named a specific beneficiary of my RRSPs, my RRIFs or my life insurance policies?

Are there sufficient funds in my estate to cover the income taxes payable by my estate?

It is essential to ensure that the terms set out in your will are consistent with those set out in your marriage

contract and shareholder agreement, if any.

Will and estate planning ensure that an individual’s affairs are properly planned. The key element is a will. It sets down the parameters of an estate plan, indicating in particular the manner in which assets are to be distributed to the heirs and ensures that the wishes of the deceased are respected.

A will also makes it possible to minimize the taxes payable by the estate and the beneficiaries through the judicious use of the provisions in the tax legislation, e.g. testamentary trusts. Since amendments to the tax laws and changes in an individual’s personal situation might change his/her objectives, a will should be updated periodically.

A will is the only legal document that makes it possible to determine how an individual’s patrimony will be distributed among the heirs or trusts on their behalf; it also appoints a guardian for minor children as well as a liquidator.

In Canada, if an individual dies intestate, his/her estate will be distributed in accordance with the laws of the province where he/she resided. In such cases, the legislators divide the assets among the deceased’s spouse,1 children and family members in accordance with legal provisions. This may produce quite different results from what the individual would have wanted for his/her beneficiaries. In order to avoid such situations or jeopardize the estate, every individual should ensure that he/she has a proper will.

Ensuring that your last will and testament accurately reflects how you want your estate passed on by

consulting experienced professionals will make life easier for your family and will allow them to make the

best choices, from a tax perspective.

1 Common-law spouses are normally not recognized by law for this purpose.

Section XII – DECEASED PERSONS 129


SECTION XII – DECEASED PERSONS

When a loved one passes away, the family and legal representative have to ensure that legal formalities are complied with and deadlines met.

The deceased’s legal representative is the person named in the will or a person appointed by the heirs to handle the estate if there is no will or if a representative has not been named in the will (administrator). In Quebec, this person is called the liquidator of the estate.

1. TAX RESPONSIBILITIES

From a tax perspective, the main responsibilities of the legal representative are as follows:

To file all tax returns for the deceased (including required tax elections);

To pay all taxes for the deceased;

To obtain a clearance certificate or authorization from the tax authorities to distribute the assets of the deceased;

To let the beneficiaries know which of the amounts they receive from the estate are taxable based on elections made.

The legal representative is responsible for ensuring the income taxes for the deceased are paid. This may necessitate obtaining tax information that is available from the respective tax authorities. To have access to this information, the legal representative must, among other things, present a copy of the death certificate, a copy of the will or any other document indicating he/she is the legal representative of the deceased, accompanied by duly completed Forms T-1013 (federal) and MR-69 (Quebec).

Moreover, it is recommended that government authorities and financial institutions be notified as soon as possible of the date of death if:

the deceased was receiving OAS benefits, QPP or CPP benefits, GST/HST credits, or any advance payments for tax credits;

the deceased was receiving the solidarity tax credit (Quebec);

the deceased or his/her spouse was receiving the CCTB, the UCCB or the CAP or in the case of a deceased child in respect of whom these benefits were being paid;

the deceased was receiving payments under an RRIF or an RPP.

Old Age Security Pension

The OAS pension is paid for the month during which the taxpayer died and has to be reported in one of the tax returns (see point 2 of this section) of the deceased. Any amounts received for months following the month of death have to be returned to the federal government.

Quebec Pension Plan and Canada Pension Plan

Any beneficiary eligible for one or more survivor benefits paid out by the QPP and CPP upon the death of the plan’s subscriber or main beneficiary (see Section XIII) must submit the appropriate related request to the government authorities in question.

Goods and Services Tax Credit

The GST/HST credit is paid in July, October, January and April. If a single individual dies in a month before the credit payment is sent, the cheque must be returned. The estate is entitled to it if the individual dies during one of these months.



The surviving spouse may be eligible for the GST/HST credit. The spouse should contact the CRA and request any remaining credit for the year and file a tax return for the preceding year if this has not already been done.

Solidarity Tax Credit

If the deceased was the spouse of a beneficiary, this individual must file a new application with the ARQ in order to receive the solidarity tax credit. The change in the spouse’s situation will be taken into consideration beginning in the month following the death.

Canada Child Tax Benefit, Universal Child Care Benefit and Child Assistance Payment

A surviving spouse who is the father or mother of a child in respect of whom the deceased was receiving the CCTB, the UCCB or the CAP should contact the government authorities in order to have the benefits transferred to him/her. If, on the other hand, the surviving spouse was the recipient of these benefits, he/she can ask the government authorities to recalculate the benefits taking only his/her income into consideration.

If the person now responsible for the care of the child is someone other than the father or mother, this person has to submit a written request to the government authorities to be eligible to receive these payments.

If the deceased was an eligible child, the CCTB and UCCB entitlements cease the month following the death. The CAP ceases the first day of the quarter following the death of the child. Any amounts received after these dates have to be returned.

Instalments

No instalments have to be paid for a deceased for the period following the date of death. Nevertheless, the legal representative should ensure that any amounts due prior to the date of death were in fact paid.

2. TAX RETURNS

When a person dies, the legal representative is required to file tax returns for the year of death and any prior years for which the deceased had not filed a tax return, as applicable.

The legal representative may be able to elect to file more than one return for the year of death. Thus, in addition to the final return, there may be as many as three optional returns filed for a deceased taxpayer, being:

A rights or things return;

A return reporting testamentary trust income; and

A return reporting business income.

By filing multiple returns, income taxes on the deceased’s income may be reduced, or even eliminated in certain cases.

Filing of the Returns

Final Return

The deadlines for filing a final return and paying the balance owing vary depending on the date of death.



Date of death Filing deadline Payment deadline

From January 1 to October 31 (or from January 1 to December 15 for persons in business)1

April 30 of the following year (or June 15 for persons in business)1

April 30 of the following year

From November 1 to December 31 (or from December 16 to December 31 for persons in business) 1

Six months after the date of death

Optional Returns

The filing dates for separate returns and the payment of any balances owing are the same as those for a final return, except for the rights or things return, for which the filing and payment deadlines are the later of: one year following the date of death or 90 days after the date a notice of assessment or reassessment is mailed in respect of the final return.

Prior Year’s Return

If a taxpayer dies after the end of the year but before the date for filing the tax returns (April 30 or June 15) and he/she has not filed a tax return for the year prior to the year of death, the legal representative has a maximum of six months after the date of death to file the return and pay any balance owing. On the other hand, if the person dies after April 30 (or June 15), no additional time is allowed for filing the return for the prior year and paying any balance owing. Interest and penalties, if any, will be charged.

3. INCOME

All income for the period beginning January 1 to the date of death, inclusively, must be reported in the final and optional returns of a deceased taxpayer. Income earned after that date should generally be reported in the estate’s return (see point 6 of this section). These returns are similar to the returns filed by all taxpayers. The following comments focus on items that are treated differently because of the death.

Allocation of Income

Periodic amounts earned prior to death such as salary, interest, rent and most annuities must be reported in the final return even if the deceased did not receive them before the date of death. However, certain amounts owed prior to death and certain amounts considered as having matured at the time of death can be reported in an optional return.

Rights or Things

Rights or things are income amounts that the deceased was entitled to receive before the date of death but that had not yet been paid. Examples are:

Employment income (salaries, commissions, vacation pay) payable at the time of death for a pay period that ended before the date of death, as well as retroactive payments paid pursuant to a collective agreement signed before the date of death2;

Uncashed matured bond coupons;

Unpaid bond interest earned up to a payment date before the date of death;

1 If the deceased or his/her spouse carried on a business during the year of death. 2 Retroactive payments received pursuant to a collective agreement signed after the date of death are not taxable.



Unpaid dividends declared before the date of death;

Supplies on hand, inventory and receivables if the deceased was a fisherman or farmer and used the cash method;

OAS, EI, QPP, CPP and QPIP benefits not received for a period ended before the date of death;

Work-in-process if the deceased carried on business and had elected to exclude work-in-process when calculating income;

Retroactive payment of a disability annuity or EI benefit paid after the date of death but to which the deceased was entitled prior to that date.

If the legal representative elects to file an optional return, all rights or things have to be reported therein except those transferred to beneficiaries. Rights or things transferred to a beneficiary before the filing deadline for an optional return have to be reported by the beneficiary.

Income from a Testamentary Trust

The legal representative may elect to report income from a testamentary trust earned between the end of the fiscal year and the date of death in an optional return if the beneficiary of the trust dies after the end of the trust year and the fiscal year of the trust was not the calendar year.

Income of a Partner or Sole Proprietor

The legal representative may elect to report the business income earned between the end of the fiscal year and the date of death in an optional return if the deceased carried on business as a partner or sole proprietor and used the optional method (see Section VI).

Disposition of Capital Properties

The deceased is deemed to have disposed of capital properties at FMV and to have received proceeds of disposition immediately before death. In general, properties cannot be transferred tax-free to the next generation. However, there are certain exceptions to this rule.

Spousal Rollover

When the capital property of the deceased, other than depreciable property, vests indefeasibly in a spouse or a spousal trust, the proceeds of disposition are deemed to be equal to the tax cost of the properties immediately before death, rather than the FMV, provided certain conditions are satisfied.3 In such cases, the death does not result in any immediate tax considerations; such considerations are rather deferred until such time as the property is disposed of by the spouse or the spousal trust. However, the representative may elect proceeds of disposition equal to the FMV of the property in order to use tax balances, such as a loss carryover.

Farm and Fishing Property

There are specific rules for farm and fishing property owned by a taxpayer at the time of death (see Section VI) when, among other things, the property is transferred to the taxpayer’s children.

To claim the capital gains deduction, consider electing deemed proceeds of disposition at FMV for eligible

property transferred to a spouse, or for farm or fishing property left to a child.

3 There are specific rules for depreciable property.



4. REGISTERED PLANS

RRSP and RRIF

The deceased is deemed to have received the FMV of all property held in an RRSP or RRIF at the date of death. However, no amount is included in the deceased’s income if the designated beneficiary or heir is an eligible beneficiary and certain conditions are met. An eligible beneficiary who acquires rights in an RRSP or an RRIF under such circumstances has several options for deferring the income tax on those amounts.

The following table summarizes the rules:

RRSP and RRIF at death

Heir/Beneficiary Amount taxable at

death

Transferable to:4

RRSP5 and RRIF Annuity

Spouse Nil4 Yes Yes

Child or grandchild financially dependent6 because of an infirmity

Nil4 Yes Yes

Child or grandchild financially dependent6 not because of an infirmity

Nil4 No Yes7

Other FMV No No

Income earned in an RRSP or an RRIF after the date of death does not have to be included in the deceased’s income.

Home Buyers’ Plan and Lifelong Learning Plan

Amounts that have not been repaid in connection with the HBP or the Lifelong Learning Plan must be included in the final income tax return of the deceased. Tax elections are available to transfer the responsibility for these repayments to the surviving spouse.

Decreases in Value of RRSP and RRIF Investments

If certain conditions are met, losses in the value of investments held in an RRSP or an RRIF that occur after the death of the annuitant and before the final distribution of the investments to the beneficiaries may be deducted in the tax return of the deceased person.

Transfer from an RRSP or RRIF to an RDSP

It is possible to transfer funds held in an RRSP or an RRIF at the time of death to an RDSP of a child or grandchild who was financially dependent on the deceased because of a mental or physical disability.8 However, the amount transferred must not exceed the beneficiary’s RDSP contribution room and is not eligible for the CDSG (see Section IV).

4 Certain terms and conditions may apply. 5 The beneficiary must be 71 years of age or under at the time of the transfer. 6 Child living with the annuitant whose net income in the previous years was less than the basic personal amount or

the increased amount in case of a child suffering from a disability (respectively $10,822 and $18,368 in 2012 for those deceased in 2013). Over these thresholds, dependance has to be proven.

7 The annuity may provide for payments for a period of not more than 18 years, less the age of the child or grandchild when the annuity is purchased. Annuity payments must start no later than one year after the purchase.

8 Child whose income for the previous year does not exceed a certain threshold ($18,368 for 2012 for the purposes of transfers made in 2013). If the child’s income exceeds that threshold, financial dependence has to be demonstrated.



TFSA

The TFSA tax consequences upon death of a TFSA holder vary depending on several factors. Generally, the TFSA ceases to be tax exempt as of the death of its holder. However, it is possible, under certain circumstances, to transfer the TFSA to a spouse without affecting the spouse’s contribution room.

RDSP

The RDSP is generally terminated upon the death of its beneficiary. The amounts accumulated in the plan, once the CDSB and CDSG have been reimbursed (see Section IV), are taxable under the estate.

5. DEDUCTIONS AND TAX CREDITS

Distribution

In general, refundable tax credits and amounts claimed as a refund of various taxes paid by the deceased prior to his/her death can only be reported in the final income tax return. Furthermore, certain amounts are only deductible in this return, including losses from previous years and the capital gains deduction.

Three types of amounts can be claimed in an optional return:9

Amounts that can be fully claimed in each return;

Amounts relating to certain specific income that is included in this return;

Amounts that can be split between various returns.

When a credit or deduction can be split between various returns, the total amount claimed may not exceed the total entitlement if only one income tax return had been filed for the year.

Transfer measures may be applied between spouses (see Module II) in the year in which one of the spouses passes away. Such transfers may only be requested with respect to the deceased’s final return, whether it involves transferring an amount to the surviving spouse or applying an amount transferred by the surviving spouse.

RRSP Contributions

RRSP contributions paid by a deceased, prior to his/her death, are deductible provided all the other conditions are satisfied. In addition, if there is unused contribution room, the legal representative may elect to make a contribution to a spousal plan on behalf of the deceased and deduct these additional amounts in the deceased’s final return. The representative has 60 days after the end of the year of death to make these contributions.

Deductions Relating to Investment Plans – Quebec

No deduction can be claimed for SSP II shares or securities, or preferred units in a cooperative that is eligible for the Cooperative Investment Plan acquired in the year of death unless the taxpayer died on December 31, as an individual must live in Quebec on the last day of the taxation year to be entitled to these deductions.

However, the deemed disposition of the shares at the time of death is not considered a withdrawal for purposes of the SSP II and no recapture of previous deductions has to be included in the deceased’s income. Nevertheless, such deemed disposition may give rise to a capital gain or loss.

9 For more information, refer to Guide T4011 – Preparing Returns for Deceased Persons (federal) and the Guide to

Filing the Income Tax Return of a Deceased Person – IN-117 (Quebec).



Funeral and Estate Administration Expenses

Funeral and estate administration expenses are personal expenses and are therefore not deductible in computing the income of the deceased or the estate.

Charitable Donations

Donations pursuant to a taxpayer’s will are considered as having been made in the year of death and are eligible for the donations tax credit in the year of death. The same benefits apply to donations of an RRSP, an RRIF or a life insurance to organizations specifically designated as beneficiaries. The limit is increased from 75% to 100% of net income for donations made in the year of death or in the preceding year.

Medical Expenses

Medical expenses can cover a 24-month period (including the date of death).

Capital Losses

Capital losses for the year of death and unused capital loss carryovers (reduced by the capital gain exemption used previously and in the year of death) can be applied against income from any source in the year of death and in the preceding year.

6. ESTATE INCOME

The legal representative is also responsible for the administration of the estate while it is in the process of being settled, including the payment of debts and the distribution of the properties. This normally results in the creation of a trust for tax purposes for which the legal representative is required to file a tax return as long as the estate is not settled. However, this will not be the case if all of the estate properties are distributed immediately after the death, or if the estate has not earned any income prior to the distribution.

7. DEATH BENEFITS

Death Benefit

A death benefit is an amount received from an employer following the death of an individual in recognition of employment services rendered. The beneficiaries are entitled to a total deduction equal to the lesser of the amount received and $10,000.

If you are a shareholder-employee of a private company, consider including a resolution in the minute book specifying payment of a death benefit of $10,000

to your estate following your death.

QPP or CPP Death Benefit

A death benefit paid pursuant to the QPP or CPP (see Section XIII) is generally included in the income of the estate for both federal and Quebec purposes. If a trust is not created for tax purposes, it will be included in the income of the beneficiaries in accordance with their respective share of the estate. However, in certain specific cases for federal purposes, the benefit may be paid to another person who must then include it in his/her income.

8. AMOUNTS REIMBURSED BY AN ESTATE

In Quebec, when an estate incurs a loss from an office or employment owing to the reimbursement of an amount included in the calculation of income from an office or employment of the deceased for a prior



year, the legal representative may elect that such loss be deemed a loss incurred by the individual in the year of his death and not a loss of the estate.

As well, a legal representative who reimburses benefits received by the deceased under the QPP and CPP, the QPIP or the EI, the amount of which was included in the deceased’s income for a prior year, may elect that such amount be deemed to have been reimbursed by the deceased immediately prior to his death rather than by the estate.

Such election must be made no later than the filing due date applicable to the estate for the taxation year during which the reimbursement is made. An amended tax return must also be filed for the deceased within this time period for the year of the individual’s death.

9. DISTRIBUTION OF PROPERTY

The legal representative should obtain a clearance certificate or authorization before distributing the property. These certificates attest to the fact that the deceased’s tax debts have been paid or the tax authorities have accepted security therefor.

If the legal representative distributes the property without having obtained these certificates (except for an amount of $12,000 that can be distributed without a certificate in Quebec), he/she becomes personally liable for the payment of the taxes, interest, penalties and costs pursuant to a tax law, or that could become payable within the following 12 months, up to the value of the distributed property.

10. PROBATE FEES

In Ontario, a deceased’s estate has to pay probate fees on the gross value of the deceased’s property. The fees are equal to $5 per $1,000 for the first $50,000 plus $15 per additional $1,000.

The probate fees in New Brunswick are equal to $25 per $5,000 for the first $20,000 plus $5 per additional $1,000 of gross value.

Individuals should consult a tax specialist to evaluate the probate fees applicable to their estate or try to

reduce or eliminate them.

Quebec does not levy probate fees. However, non-notarized wills must be authenticated by the Superior Court of Quebec. Nominal fees apply.

Section XIII – SOCIAL PROGRAMS AND BENEFITS 137


SECTION XIII – SOCIAL PROGRAMS AND BENEFITS

RECENT CHANGES

– The temporary Hiring Credit for Small Business for EI premiums has been extended for the year 2013.

– There will be an increase of 0.15% per year in the employee and employer QPP contribution rates until 2017.

– Adjustment factors applicable to the QPP and the CPP retirement benefits claimed before age 65 will be adjusted for 2013 and coming years.

– Since 2013, workers who contributed to the CPP post-retirement benefit have started receiving it.

– Starting on July 1, 2013, payment of the OAS benefit can be deferred for a maximum of five years, and a higher benefit may then be received

– Since 2013, the Quebec health contribution has been determined according to individual income and payable through source deductions.

– As of 2014, payroll exempt from paying the Ontario Employer Health Tax will increase from $400,000 to $450,000, and employers whose payroll exceeds $5M will no longer be eligible for the exemption.

1. EMPLOYMENT INSURANCE CONTRIBUTIONS AND QUEBEC’S PARENTAL INSURANCE PLAN

Employment Insurance

EI contributions for employers and employees in provinces other than Quebec are as follows:

Contributions – EI (Residents outside Quebec)

2013

Employer

Employee and registered self-

employed worker

Contributions:

–– Rate 2.632% 1.880%

–– Maximum $1,247.57 $891.12

Maximum pensionable earnings $47,400

Self-Employed Workers

Self-employed workers who want to qualify for parental, maternity, adoption, sickness and compassion benefits may register and make EI contributions. Registered self-employed workers must calculate and pay employment insurance contributions in their income tax return for the taxation years in question. They must wait 12 months after registering before applying for a benefit.

Hiring Credit

A credit of up to $1,000 is offered to encourage hiring new workers. The credit calculation is based on the increase in the employer’s EI premiums paid out in 2013. There is no need to complete a form. The CRA will calculate the credit automatically based on the T4 information returns produced in 2012 and 2013.



Quebec Parental Insurance Plan

The QPIP is payable in addition to EI. Workers covered must contribute to both plans. As a result, adjustments were made to the EI plan in order to integrate both programs.

The QPIP provides additional benefits to EI, including:

elimination of the two-week waiting period;

increase in maternity, parental and adoption benefits;

paternity leave of up to five weeks.

Employee contributions are subject to employer deductions at source. Self-employed workers’ contributions must be taken into account in calculating their income tax instalments.1

The following table compares the main conditions of the QPIP and the federal EI plan and illustrates the principles governing both plans, including persons subject thereto, insurable earnings and contribution rates.

2013 QPIP EI

Applicable to

Employers Yes Yes

Employees controlling more than 40% of employer’s voting shares Yes No

Employees who do not control more than 40% of employer’s voting shares Yes Yes

Self-employed workers Yes On a voluntary basis

Contribution (Quebec resident)

Maximum insurable earnings $67,500 $47,400

Contribution

Employer

–– Rate 0.782% 2.128%

–– Maximum $527.85 $1,008.67

Employee

–– Rate 0.559% 1.520%

–– Maximum $377.33 $720.48

Self-employed worker

–– Rate 0.993% 1.520%2

–– Maximum $670.28 $720.48

1 For additional information, refer to the following Internet site: http://www.rqap.gouv.qc.ca/index_en.asp. 2 For registered self-employed workers.



2013 QPIP EI

Insurable compensation3

Net business income Yes Yes2

Regular salary and wages, including commissions, bonuses, tips, etc. Yes Yes

Taxable cash benefits Yes Yes

Taxable non-cash benefits No No

Taxable allowances Yes Yes

Non-taxable benefits No No

Retiring allowances, accumulated sick leave, or job termination payments No No

RRSP contributions paid by employer Yes Yes

2. QUEBEC PENSION PLAN AND CANADA PENSION PLAN

Contributions

Employer and employee QPP/CPP contributions for 2013 are as follows:4

Contributions QPP CCP

Maximum pensionable earnings $51,100.00 $51,100.00

Basic exemption for the year $3,500.00 $3,500.00

Maximum contributions:

–– Employer Rate Maximum

5.10%5 $2,427.60

4.95%$2,356.70

–– Employee Rate Maximum

5.10%5 $2,427.60

4.95%$2,356.20

–– Self-employed worker Rate Maximum

10.20% $4,855.20

9.90%$4,712.40

Benefits

QPP and CPP benefits for 2013 are as follows:

Benefits QPP

$ CPP

$

Retirement Benefits

Maximum monthly benefit, starting at:

–– age 60 708.75 684.45

–– age 65 1,012.50 1,012.50

–– age 70 1,437.75 1,437.75

Death Benefits 3 For additional information, consult the summary published by Service Canada:

http://www.servicecanada.gc.ca/eng/ei/employers/roe_guide_chp4.shtml#Summary. 4 For additional information on the QPP, go to the Régie des rentes du Québec Internet site at

www.rrq.gouv.qc.ca/en or the HRSDC site for the CPP at http://www.hrsdc.gc.ca/eng/retirement/index.shtml. 5 The rate will increase to 5.175% in 2014, 5.25% in 2015, 5.325% in 2016 and 5.4% in 2017 (rates doubled for self-

employed workers). An automatic adjustment mechanism will be introduced starting in 2018.



Benefits QPP

$ CPP

$

Single amount 2,500.00 2,500.00

Maximum monthly surviving spouse benefit: 6

–– under age 45, without dependent children 495.83 556.64

–– under age 45, with dependent children 800.76

–– under age 45, disabled, with or without children 833.18

–– age 45 to 64 833.18 556.64

–– age 65 or over 607.50 607.50

Monthly orphan’s pension7 228.66 228.66

Severe and Prolonged Disability Benefits

Maximum monthly benefit 1,212.87 1,212.90

Monthly benefit of disabled pensioner’s child7 72.60 228.66

Adjustments to Benefits

Retirement benefits paid before age 65 are reduced according to a certain factor for each month between the beginning of the benefit payment and the 65th birthday. The monthly reduction factor applicable to CPP contributions claimed before age 65 is 0.54% in 2013 (0.56% in 2014, 0.58% in 2015 and 0.6% as of 2016). For QPP purposes, the reduction factor is 0.5% in 2013. As of January 1, 2014, this adjustment factor will vary according to the amount of the pension benefit; it will remain 0.5% if the benefit amount is very low and may reach 0.53% in 2014, 0.56% in 2015 and 0.6% in 2016 when the pensioner becomes entitled to the maximum benefit. Those born before January 1, 1954 are not affected by this change in Quebec.

Since January 1, 2013, for the purposes of both plans, the benefit that begins to be paid after age 65 is increased by 0.7% for each month following the 65th birthday (maximum increase of 42% for a deferment period of five years). These changes will have an impact on the decision regarding the time to claim the benefit (see Section VIII).

QPP supplemental retirement benefit and CPP post-retirement benefit

The QPP and CPP allow workers who are already receiving benefits under one of these two plans to continue to contribute to obtain a supplement, i.e., the QPP retirement benefit supplement and the CPP post-retirement benefit. It is not necessary to register for this benefit as it is paid automatically in the year following the contribution payments.

Quebec beneficiaries must contribute to the QPP when their employment income exceeds the general exemption of $3,500. Beneficiaries between age 60 and 65 who work outside Quebec must still contribute to the CPP to finance the post-retirement benefit, whereas those aged 65 to 70 may choose to contribute or not. Worker and employer contributions are based on the same rates as those applicable in the regular plan.

3. OLD AGE SECURITY PENSION

The maximum monthly OAS payments to eligible taxpayers in 2013 are as follows:8

6 Specific rules apply when the benefit is combined with a pension or disability benefit. 7 The QPP orphan’s benefit and the monthly benefit of a disabled pensioner’s child are payable until age 18. The

CPP pays such benefits to a child under age 18, or under age 25, if he/she is studying full-time. 8 The amounts are adjusted quarterly. For additional information:

http://www.servicecanada.gc.ca/eng/isp/statistics/rates/infocard.shtml. Between 2023 and 2029, the OAS and GIS



2013 $

PENSION EXCLUDING GIS January, February, March 546.07 April, May, June 546.07 July, August, September 549.89 October, November, December9 – GIS10 Single 11 Married12 January, February, March 740.44 490.96 April, May, June 740.44 490.96 July, August, September 745.62 494.40 October, November, December9 – – SPOUSE ALLOWANCE10 60-64

yrs. old Widowed

60-64 yrs. old January, February, March 1,037.03 1,161.01 April, May, June 1,037.03 1,161.01 July, August, September 1,044.29 1,169.14 October, November, December9 – –

Since July 1, 2013, the OAS benefit payment may be deferred for a maximum of five years. The benefit is then increased by 0.6% for each month of deferral, up to a maximum of 36% (60 months).

OAS benefits are reduced at the rate of 15% when an individual’s income reaches $70,954 and cease to be paid when income reaches $114,793.13 The GIS (with non-pensioner spouse), the spousal allowance and the surviving spouse benefit cease to be paid when the beneficiary’s income reaches $39,984, $30,864 and $22,464 respectively.14

Complementary Provincial Benefits

Low-income seniors benefit – New Brunswick

An annual benefit of $400 is offered to seniors 60 years of age and over living in New Brunswick. To be eligible, the person must have received a federal GIS or a federal OAS allowance for the preceding year. A single benefit is paid per couple.

Guaranteed annual income system – Ontario

The guaranteed annual income system guarantees Ontario’s seniors (65 years and older) who receive OAS benefits and the GIS a minimum income by paying them a monthly benefit of up to $83 ($166 per couple) based on the total family income. It is not necessary to apply for this amount. The Ontario

eligibility age will gradually increase from 65 to 67 years of age and the eligible age range for the spousal allowance will increase from 60-64 to 62-66 years of age.

9 Data not available at date of publication. 10 Amounts shown as GIS and spouse allowance are the maximum amounts, calculated on the basis of the spouses’

income for the previous year and entitlement thereto is based on meeting several requirements. An increased GIS is available for individuals with very low income.

11 Single, widowed or divorced pensioner or married pensioner whose spouse is not a pensioner. 12 Married couples when both spouses are pensioners. 13 Threshold as of the third quarter in 2013, subject to review if maximum benefits for the following quarter are

increased. Benefits are generally recovered by means of a withholding mechanism, which eliminates the need for individuals to repay the benefits when filing their tax returns for the year.

14 For the third quarter of 2013. The limits are revised each quarter depending on the benefit limits.



government determines eligibility and the amount of the benefit using information it receives from the federal government.

4. HEALTH SERVICES FUND – QUEBEC

Employers

The employer HSF contribution rate is generally 2.7% for employers whose total worldwide annual payroll for all associated corporations is $1,000,000 or less. The rate varies from 2.7% to 4.26% for employers whose total payroll is greater than that amount.15

Individuals

Every individual, other than a trust, resident in Quebec has to pay an HSF contribution. All of the individual’s income (i.e. business income earned in Quebec, pension income, property income and capital gains) is subject to the contribution except, among others, employment income, taxable support payments received, the grossed-up portion of dividends received from taxable Canadian corporations as well as any OAS benefits. Certain deductions can reduce the amount subject to the contribution. The contribution must be included in the calculation of instalments to be paid by individuals.

Income subject to contribution16 2013 contribution

$0 – $14,000 No contribution

$14,001 – $29,000 1% of income > $14,000

$29,001 – $133,670 $150 plus 1% of income > $48,670

$133,671 and more $1,000

5. OCCUPATIONAL HEALTH AND SAFETY – QUEBEC

Quebec

Every business, including a self-employed worker, having an establishment in Quebec and at least one full- or part-time employee, must be registered for the CSST as an employer and file an annual payroll return. When the CSST receives the information, it bills the employer based on one of three rate systems.17

Employers pay their insurance premium based on salaries paid and the CSST has made arrangements with the ARQ for collecting the periodic payments.

Ontario

Most Ontario-based employers must register with the Workplace Safety and Insurance Board within 10 days following the hire of their first or part-time employee. The premiums are collected on the insurable payroll of the targeted employers.

New Brunswick

Employers who have three employees or more (25 employees in the fishing industry) are required to register with WorkSafety NB, which collects premiums according to the insurable payroll.

15 The reduction of HSF contributions for employees 65 years of age and over initially expected as of 2013 has been

postponed for an undertermined amount of time. 16 Indexed annually. 17 For additional information (available in French only): http://www.csst.qc.ca/employeurs/acces_employeurs.htm.



6. COMMISSION DES NORMES DU TRAVAIL – QUEBEC

Generally, employers must make contributions to finance the Commission des normes du travail equal to 0.08% of all compensation paid to their employees. The insurable maximum for 2013 is $67,500 per employee.

7. HEALTH CONTRIBUTION

Quebec

Each adult resident in Quebec on December 31 has to pay a health contribution. Since 2013, the amount is defined according to the individual’s annual income:

Individual Income Calculation of

contribution in 2013

$0 – $18,000 Nil

$18,001 – $20,000 5% of income in excess of $18,000

$20,001 – $42,000 $100 plus 5% of income in excess of $40,000

$42,001 – $150,000 $200 plus 4% of income in excess of $130,000

$150,001 and over $1,000

Adults are exempt from paying the health contribution if their family income for the year is equal to or less than the amount of exemptions granted for the purposes of calculating the QPPDIP. All persons aged 65 years and older who are exempt from paying the latter premium are also exempt from paying the health contribution.

This contribution is payable in instalments and, since 2013, in source deductions.

Ontario

Individuals resident in Ontario on December 31 of the year have to pay a contribution based on their taxable income. The contribution is paid through source deductions for employed individuals or with tax instalments for self-employed individuals. The actual amount of the contribution is calculated when individual tax returns are prepared. No contribution has to be paid if taxable income does not exceed $20,000. The maximum contribution of $900 is reached when taxable income is greater than $200,600. The contribution is not an eligible expense for the medical expense credit (see Section IV).

8. EMPLOYER HEALTH TAX – ONTARIO

In Ontario, employer health tax contributions are 0.98% when the total annual payroll is $200,000 or less. The rate varies from 1.101% to 1.829% for employers with payrolls from $200,001 to $400,000,18 and is 1.95% for other employers.

However, private sector employers are entitled to a health tax exemption on the first $400,00019 of remuneration. The exemption has to be shared by associated employers. The contribution rate is determined based on an employer’s total payroll before the exemption.

18 Indexed annually as of 2014. 19 $450,000 as of 2014. However, the exemption will no longer be available to private sector employers with a payroll

of more than $5M (including related corporations).



9. DRUG INSURANCE

Quebec

In general, any person residing in Quebec must be covered by basic medical insurance, either through a private insurance plan (often available through an employer) or through the government plan.20

Under the government drug insurance plan, the maximum payable includes an annual premium, a deductible and a co-insurance portion. These amounts are reviewed on July 1 of each year.

The annual premium takes account of a taxpayer’s ability to pay and has to be paid with the tax return. The premiums have to be taken into consideration for those who have to make tax instalments.

The following table summarizes the maximum amounts payable for the various components of the government program:

Since July 1, 2013 Annual premium(per adult, based

on income)

Monthly deductible

Co-insurance (% of drug costs)

Maximum monthly

contribution

General

$0 to $607 $16.25 32% $82.66 Individuals 65 years of age or more who do not receive GIS21

When the maximum monthly contribution is reached, the person no longer pays for drug purchases for the rest of the month.

The following persons do not have to pay any premium or any other amount:

Children of persons insured under the government program under 18 years of age or from age 18 to 25 who do not have a spouse and who are enrolled in full-time studies;

Persons over 65 years old who receive almost the total maximum GIS (between 94% and 100%);

Last-resort assistance recipients (social assistance).

The premium, deductible and co-insurance payments made by taxpayers who purchase prescription drugs qualify as medical expenses for both federal and provincial purposes. For federal purposes, in view of the fact the premium is only paid during the year following the taxation year to which it relates, it is only eligible for the medical expense credit in the year following the year to which it relates. For Quebec purposes, taxpayers wishing to do so may claim the premium as a medical expense by choosing a 12-month period that includes December 31 of the year to which the premium refers to claim their medical expenses.

Ontario

The Ontario Drug Benefit Program (basic program) is a prescription drug insurance plan available to persons who are 65 years of age and older. Although there is no annual premium, there is an annual deductible that varies based on family income. An additional amount is added to the deductible for each prescription.

Different programs are available for individuals suffering from specific illnesses.22

20 Every person under age 65 who has access to a private plan must join it. Persons 65 years of age or older have

various options. The RAMQ site provides a questionnaire to ensure taxpayers are covered by the proper program: http://www.ramq.gouv.qc.ca/en/citoyens/assurancemedicaments/index.shtml.

21 Amounts reduced for persons 65 years of age or over who receive the GIS. 22 For additional information, consult: http://www.health.gov.on.ca/en/public/programs/drugs/.



The Trillium Drug Program supplements coverage for persons who are not eligible for the Ontario Drug Benefit Program. However, they have to pay a deductible that is based on income.

New Brunswick

In general, persons who are 65 years of age and more and eligible for the GIS or persons whose annual income does not exceed prescribed limits are eligible for New Brunswick’s Prescription Drug Program. Individuals who receive the GIS have to pay a maximum deductible of $9.05 per prescription up to an annual limit of $500. Individuals who are not eligible for the GIS have to pay a maximum deductible of $15 per prescription with no annual limit. This program includes programs for individuals suffering from specific illnesses.23

10. ASSISTANCE TO PARENTS AND FAMILIES

See Section II.

11. SALES TAX CREDITS

See Section II.

23 For additional information, consult: www.gnb.ca/0212/intro-e.asp.

Index 1


INDEX

A

Accelerated refund ........................................... 16 Accounting methods

Cash or accrual ............................................ 76 Optional – Year-end ..................................... 66

Adoption ........................................................... 25 Allowable business investment loss (ABIL) ..... 85 Allowance

Automobile expenses ................................... 53 Director ......................................................... 53 Part-time employees .................................... 56 Travel costs .................................................. 57

Alternative minimum tax (AMT) ........................ 97 Amount for post-secondary studies ................. 37 Automobile

Allowances ................................................... 53 Capital cost allowance .................................. 58 Expenses ................................................ 57, 72 Logbook .................................................. 50, 72 Operating costs ............................................ 50 Parking ......................................................... 54 Salespersons ................................................ 57 Standby charge ............................................ 49 Taxable benefits ........................................... 48

B

Beneficiary RRSP .......................................................... 113 Trust ............................................................. 12

Benefits Child Tax Benefits ........................................ 21 Non-taxable .................................................. 53 Taxable ......................................................... 48 Universal Child Care Benefit ........................ 21 Working income tax benefit .......................... 62

Bonuses ..................................................... 64, 78 Books and supporting documentation .............. 17 Business loss ................................................... 67 Business or professional income ..................... 67

C

Canada Child Tax Benefit ................................ 21 Canada Disability Savings Bonds and

Grant ............................................................. 46 Canada Education Savings Grant (CESG) ...... 38 Canada Employment Credit ............................. 62 Capital cost allowance (CCA)

Automobile ................................................... 58 Classes ......................................................... 70

Rental property ............................................. 89 Capital dividend ............................................... 80 Capital gain ................................................ 82, 87

Deferral ........................................................ 85 Exemption (Deduction) .................... 28, 77, 84 Principal Residence ..................................... 28 Reserve .................................................. 78, 83 Share exchange ........................................... 83

Capital loss ...................................................... 82 Capital régional et coopératif Desjardins ......... 92 Car salespersons ....................................... 49, 57 Charitable donations ........................................ 28 Child ................................................................. 21 Child assistance payments .............................. 21 Child benefit – Ontario and New Brunswick .... 22 Children's fitness costs .................................... 24 Clinical trial – Indemnity ................................... 47 Collection ......................................................... 18 Computers ....................................................... 61 Conferences ..................................................... 69 Contributions

Employer ...................................................... 72 Employment insurance (EI) ........................ 137 Health Services Fund (HSF) – Quebec ..... 142 Over-contributions (RRSP) ........................ 109 Pension plans ............................................. 114 Political ......................................................... 31 Professional and union dues ............ 54, 60, 71 QPP/CPP ................................................... 139 RDSP ........................................................... 46 RESP ........................................................... 38 RRSP ......................................................... 106 Unused ........................................... 47, 96, 108

Cooperative Investment Plan (CIP) ................. 93 CSST ............................................................. 142 Cumulative net investment loss (CNIL) ........... 85

D

Death benefits ................................................ 135 Decrease of withholdings ................................. 15 Deductions

At source ...................................................... 14 Disability supports ........................................ 43 Eligible expenses – businesses ................... 68 Employment overseas ................................. 63 For workers ............................................ 63, 68 Moving .............................................. 37, 56, 61

Deferred Profit Sharing Plan (DPSP) ............. 114 Director

Allowance ..................................................... 53

Index 2


Responsibility ............................................... 80 Disabled persons ................................. 38, 42, 89 Discounts (employees) ..................................... 56 Distribution of property (death) ...................... 136 Dividend income ............................................... 86 Drug insurance ............................................... 144

E

Earned income (RRSP) .................................. 107 Educational assistance payments (EAP) ......... 38 Emergency volunteers ..................................... 55 Employee benefit plan (EBP) ........................... 65 Employee loans ................................................ 51 Employment expenses ..................................... 57 Employment insurance (EI) ............................ 137 Enterprise Register – Québec .......................... 67 Estate freeze ............................................ 33, 125 Expenses

Administration – RRSP ............................... 113 Adoption ....................................................... 25 Attendant care .............................................. 43 Automobile ....................................... 53, 57, 72 Business ....................................................... 68 Child care ..................................................... 23 Employment ................................................. 57 Entertainment ............................................... 68 Financial ....................................................... 90 Fitness (children) .......................................... 24 Funeral ....................................................... 135 Interest .............................................. 70, 90, 99 Leasing ......................................................... 88 Legal ................................................. 27, 61, 71 Medical ......................................................... 41 Moving .............................................. 37, 56, 61 Parking ......................................................... 54 Probate ....................................................... 136 Training ................................................... 34, 54 Travel ...................................................... 56, 58 Tuition ........................................................... 35

F Fairness measures ........................................... 18 Farm loss .......................................................... 76 Farm property ........................................... 77, 132 Farmers ........................................15, 76, 77, 132 Farming ............................................................ 74 Filing deadline .................................................. 14 Final return ..................................................... 130 Fines and penalties .......................................... 71 Fishermen .......................................... 15, 77, 132 Fishing property ....................................... 77, 132 Flow-through shares .................................. 29, 93 Fondaction ....................................................... 92 Foreign currency .............................................. 83 Foreign specialists ........................................... 64 Forestry operations .......................................... 61

Forestry plantation ........................................... 75 FSTQ ............................................................... 92

G

Gifts and awards .............................................. 55 Golf .................................................................. 69 GST/HST/QST ................................................. 73

Refund .................................................... 60, 64 Tax credit (GST/HST) .................................. 30

H

Hairdressers ..................................................... 59 Health contribution ......................................... 143 Health Services Fund (HSF) – Quebec ......... 142 Health tax (Employer) – Ontario .................... 144 Holding companies .......................................... 97 Home Buyer’s Plan .......................................... 27 Home office ................................................ 60, 71 Hybrid financial instruments ............................. 86

I Income splitting ........................................ 32, 117 Income tax

Instalments ................................................... 15 Returns ................................................. 13, 130

Incorporation of professionals .......................... 81 Increase of withholdings .................................. 15 Indexed securities ............................................ 86 Individual pension plan .................................. 116 Infertility treatment ........................................... 26 Information return............................................. 67 Instalments ....................................................... 15 Insurance plans – Life and health .................... 48 Interest

Expenses ......................................... 70, 90, 99 Income ................................................... 85, 87 Instalments ................................................... 16 Offsetting ...................................................... 16 Student loans ............................................... 36

Internet ............................................................. 57 Investment advisors ......................................... 91 Investment income – Comparative .................. 87 Investment tax credit ........................................ 77

L Labour-sponsored venture capital

corporation ................................................... 92 Leasing ............................................................ 88 Life insurance ........................................... 48, 127 Lifelong Learning Plan ..................................... 40 Limited partnerships......................................... 91 Loans

Employee ..................................................... 51 Shareholder .................................................. 79

Logbook – Automobile ............................... 50, 72 Loss

Index 3


Allowable business investment loss (ABIL) ........................................................ 85

Business ....................................................... 67 Capital .......................................................... 82 Cumulative net investment loss (CNIL) ........ 85 Farm ............................................................. 76 Leasing ......................................................... 88

Loyalty program – Points ................................. 57 Lump-sum payments ........................................ 14

M

Meals .......................................................... 56, 68 Motor vehicle .............................................. 50, 57 Moving expenses ................................. 37, 56, 61 Musicians ......................................................... 62 Mutual funds ..................................................... 95 My Account ...................................................... 19

N

Notice of objection ............................................ 18

O

Objection (notice) ............................................. 18 Old Age Security (OAS) ......................... 129, 141 Online payments .............................................. 19 On-the-job training ........................................... 73 Over-contributions .................................... 96, 109 Overseas employment ..................................... 63 Overtime ........................................................... 54

P

Parking ............................................................. 54 Past service pension adjustment ................... 108 Pension adjustment ........................................ 108 Post-secondary studies .................................... 37 Principal residence ..................................... 27, 28 Private health insurance plan ..................... 41, 72 Probate fees ................................................... 136 Professional and union dues ................ 54, 60, 71 Prohibited investments ........................... 111, 116 Property

Distribution (death) ..................................... 136 Farming and fishing .............................. 77, 132 Located in the U.S. ..................................... 119

Public transit passes ............................ 31, 56, 72 Purchase of past service (RPP) ..................... 115

Q

QPP/CPP ............................................... 129, 139 Qualified investments

RESP ............................................................ 38 RRSP .......................................................... 111

Quebec Education Savings Incentive .............. 38 Quebec Parental Insurance Plan ................... 138

R

Racehorses ...................................................... 75

Recreative facilities .......................................... 56 Registered Disability Savings Plan (RDSP) .... 46 Remote work site ............................................. 56 Rental income .................................................. 88 Research grants ............................................... 34 RESP ......................................................... 37, 96 Retirement compensation arrangement ........ 116 Retroactive payments ...................................... 17 Rights or things .............................................. 131 RPP ................................................................ 114 RRIF ............................................................... 113 RRSP ....................................................... 96, 106

S

Sabbaticals ...................................................... 65 Salary deferrals ................................................ 65 Scholarships .................................................... 34 Segregated funds ............................................. 95 Seniors ............................................................. 44 Share exchange ............................................... 83 Shareholder loans ............................................ 79 Small business Investor Tax Credit (N.B.) ....... 94 Social events for employees ...................... 55, 70 Sojourning in the U.S. .................................... 118 Sports club ....................................................... 69 Spouse ....................................................... 20, 32

Dividends ............................................... 32, 86 Refund .......................................................... 17 Rollover (death) .......................................... 132 RRSP ......................................................... 109

Spouse’s Dividend Income .............................. 86 Stock options ............................................. 30, 52 Stock Savings Plan II (SSP II) ......................... 93 Supplies ........................................................... 59 Support payments ............................................ 26

T

Tax credits Adoption ....................................................... 25 Apprenticeship training – Ontario ................. 73 Canada employment credit .......................... 62 Child ............................................................. 21 Child care expenses .................................... 23 Children's activities ...................................... 24 Cooperative education ................................. 74 Disabled persons ......................................... 42 Donations ..................................................... 28 Education ..................................................... 35 Employment overseas ................................. 63 Experienced workers ............................. 63, 68 First-time home ............................................ 27 Flow-through shares .................................... 93 Infertility ........................................................ 26 Interest on student loans .............................. 36 Investment tax credit .................................... 77 Medical expenses ........................................ 41

Index 4


Medical services not incurred in area ........... 42 New graduates ............................................. 63 On-the-job training – Quebec ....................... 73 Political contributions .................................... 31 Post-secondary studies ................................ 37 Public transit passes .................................... 31 Seniors ......................................................... 44 Small business investors – N.B. ................... 94 Solidarity – Quebec ...................................... 31 SR&ED ......................................................... 73 Textbooks ..................................................... 35 Tips ............................................................... 73 Top-level athletes ......................................... 32 Transfer between spouses ........................... 32 Tuition fees ................................................... 35 Voluntary firefighters .................................... 64 Young people moving to a remote region .... 63

Tax returns ............................................... 13, 130 Tax treaty – Canada – U.S. ............................ 118 Tax-free savings account (TFSA) .................... 95 Telecommunications ........................................ 61 Third party penalties ......................................... 19 Tips ............................................................. 63, 73 Tools for tradespersons ................................... 62 Transfer

Farm and fishing property .................... 77, 132 From a province ........................................... 15 From RESP to RRSP ........................... 39, 113

Recognized parental contribution ................ 37 Transportation passes – Employees ............... 57 Treasury bills .................................................... 85 Truck drivers .............................................. 59, 69 Trust – Estate freeze ..................................... 126

U

U.S. estate taxes ............................................ 120 U.S. investment income ................................... 87 U.S. real estate .............................................. 119 U.S. tax rates ................................................. 122 Uniforms ........................................................... 56 Universal Child Care Benefit ............................ 21

V

Voluntary disclosure......................................... 19 Volunteers (emergency) ............................ 55, 64

W

Will ................................................................. 127 Woodlot ...................................................... 75, 77 Work premium ............................................ 63, 68 Working income tax benefit ....................... 62, 68 Work-in-process ............................................... 67 Workspace in home ................................... 60, 71

Y

Year-end .......................................................... 66

Individual Taxation 2013 1




TABLE I1 – QUEBEC (2013)

TAX TABLE

Taxable Income

Tax Effective Rate

Marginal Rate Federal Quebec Total Federal Quebec Total

$ $ $ $ % % % % 10,000 - - - 0.0 0.0 0.0 0.0 11,000 - - - 0.0 12.0 0.0 12.0 12,000 120 - 120 1.0 12.6 0.0 12.6 13,000 246 - 246 1.9 12.5 0.1 12.6 14,000 371 1 372 2.7 12.5 16.0 28.5 15,000 496 161 657 4.4 12.5 16.0 28.5 16,000 621 321 942 5.9 12.5 16.0 28.5 17,000 747 481 1,228 7.2 12.5 16.0 28.5 18,000 872 641 1,513 8.4 12.5 16.0 28.5 19,000 997 801 1,798 9.5 12.5 16.0 28.5 20,000 1,122 961 2,083 10.4 12.5 16.0 28.5 21,000 1,248 1,121 2,369 11.3 12.5 16.0 28.5 22,000 1,373 1,281 2,654 12.1 12.5 16.0 28.5 23,000 1,498 1,441 2,939 12.8 12.5 16.0 28.5 24,000 1,623 1,601 3,224 13.4 12.5 16.0 28.5 25,000 1,749 1,761 3,510 14.0 12.5 16.0 28.5 26,000 1,874 1,921 3,795 14.6 12.5 16.0 28.5 27,000 1,999 2,081 4,080 15.1 12.5 16.0 28.5 28,000 2,124 2,241 4,365 15.6 12.5 16.0 28.5 29,000 2,250 2,401 4,651 16.0 12.5 16.0 28.5 30,000 2,375 2,561 4,936 16.5 12.5 16.0 28.5 31,000 2,500 2,721 5,221 16.8 12.5 16.0 28.5 32,000 2,625 2,881 5,506 17.2 12.5 16.0 28.5 33,000 2,751 3,041 5,792 17.6 12.5 16.0 28.5 34,000 2,876 3,201 6,077 17.9 12.5 16.0 28.5 35,000 3,001 3,361 6,362 18.2 12.5 16.0 28.5 36,000 3,126 3,521 6,647 18.5 12.5 16.0 28.5 37,000 3,252 3,681 6,933 18.7 12.5 16.0 28.5 38,000 3,377 3,841 7,218 19.0 12.5 16.0 28.5 39,000 3,502 4,001 7,503 19.2 12.5 16.0 28.5 40,000 3,627 4,161 7,788 19.5 12.5 16.0 28.5 41,000 3,753 4,321 8,074 19.7 12.5 19.6 32.1 42,000 3,878 4,517 8,395 20.0 12.5 20.0 32.5 43,000 4,003 4,717 8,720 20.3 15.1 20.0 35.1 44,000 4,154 4,917 9,071 20.6 18.4 20.0 38.4 45,000 4,338 5,117 9,455 21.0 18.4 20.0 38.4 46,000 4,522 5,317 9,839 21.4 18.4 20.0 38.4 47,000 4,705 5,517 10,222 21.7 18.4 20.0 38.4 48,000 4,889 5,717 10,606 22.1 18.4 20.0 38.4 49,000 5,073 5,917 10,990 22.4 18.4 20.0 38.4 50,000 5,256 6,117 11,373 22.7 18.4 20.0 38.4 51,000 5,440 6,317 11,757 23.1 18.4 20.0 38.4 52,000 5,624 6,517 12,141 23.3 18.4 20.0 38.4 53,000 5,807 6,717 12,524 23.6 18.4 20.0 38.4 54,000 5,991 6,917 12,908 23.9 18.4 20.0 38.4 55,000 6,175 7,117 13,292 24.2 18.4 20.0 38.4 56,000 6,359 7,317 13,676 24.4 18.4 20.0 38.4 57,000 6,542 7,517 14,059 24.7 18.4 20.0 38.4 58,000 6,726 7,717 14,443 24.9 18.4 20.0 38.4 59,000 6,910 7,917 14,827 25.1 18.4 20.0 38.4 60,000 7,093 8,117 15,210 25.4 18.4 20.0 38.4 61,000 7,277 8,317 15,594 25.6 18.4 20.0 38.4



TAX TABLE

Taxable Income

Tax Effective Rate

Marginal Rate Federal Quebec Total Federal Quebec Total

$ $ $ $ % % % % 62,000 7,461 8,517 15,978 25.8 18.4 20.0 38.4 63,000 7,644 8,717 16,361 26.0 18.4 20.0 38.4 64,000 7,828 8,917 16,745 26.2 18.4 20.0 38.4 65,000 8,012 9,117 17,129 26.4 18.4 20.0 38.4 66,000 8,196 9,317 17,513 26.5 18.4 20.0 38.4 67,000 8,379 9,517 17,896 26.7 18.4 20.0 38.4 68,000 8,563 9,717 18,280 26.9 18.4 20.0 38.4 69,000 8,747 9,917 18,664 27.0 18.4 20.0 38.4 70,000 8,930 10,117 19,047 27.2 18.4 20.0 38.4 71,000 9,114 10,317 19,431 27.4 18.4 20.0 38.4 72,000 9,298 10,517 19,815 27.5 18.4 20.0 38.4 73,000 9,481 10,717 20,198 27.7 18.4 20.0 38.4 74,000 9,665 10,917 20,582 27.8 18.4 20.0 38.4 75,000 9,849 11,117 20,966 28.0 18.4 20.0 38.4 80,000 10,767 12,117 22,884 28.6 18.4 22.2 40.6 85,000 11,686 13,230 24,916 29.3 20.3 24.0 44.3 90,000 12,700 14,430 27,130 30.1 21.7 24.0 45.7 95,000 13,786 15,630 29,416 31.0 21.7 24.0 45.7

100,000 14,871 16,830 31,701 31.7 21.7 25.8 47.5 105,000 15,957 18,117 34,074 32.5 21.7 25.8 47.5 110,000 17,042 19,405 36,447 33.1 21.7 25.8 47.5 115,000 18,128 20,692 38,820 33.8 21.7 25.8 47.5 120,000 19,213 21,980 41,193 34.3 21.7 25.8 47.5 125,000 20,299 23,267 43,566 34.9 21.7 25.8 47.5 130,000 21,384 24,555 45,939 35.3 22.9 25.8 48.7 140,000 23,679 27,130 50,809 36.3 24.2 25.8 50.0 150,000 26,101 29,705 55,806 37.2 24.2 25.8 50.0 160,000 28,522 32,280 60,802 38.0 24.2 25.8 50.0 170,000 30,944 34,855 65,799 38.7 24.2 25.8 50.0 180,000 33,365 37,430 70,795 39.3 24.2 25.8 50.0 190,000 35,787 40,005 75,792 39.9 24.2 25.8 50.0 200,000 38,208 42,580 80,788 40.4 24.2 25.8 50.0 250,000 50,316 55,455 105,771 42.3 24.2 25.8 50.0 300,000 62,423 68,330 130,753 43.6 24.2 25.8 50.0 350,000 74,531 81,205 155,736 44.5 24.2 25.8 50.0 400,000 86,638 94,080 180,718 45.2 24.2 25.8 50.0

Marginal rate applies on each dollar of additional income.

Federal 1) Basic personal credit of $1,656. 2) Provincial abatement of 16.5% of basic federal tax. 3) Indexation rate of 2%.

Quebec 1) Basic personal credit of $2,239. 2) Indexation rate of 2.48%.



TABLE I2 – NON-REFUNDABLE TAX CREDITS (2013)

Federal (15%) Quebec (20%)

$ $ Basic 11,038 11,195 Spouse or eligible dependent 11,0381, 2 n/a Person living alone n/a 1,3103 Supplement for single-parent family n/a 1,6254 Dependent child under 18 years of age 2,2342 n/a5 Parental contribution for adult children engaged in studies n/a 7,3806 Post-secondary studies, minor dependent (per session) n/a 2,0657 Full-time / Part-time post-secondary studies: Education amount (per month) Textbook amount (per month)

400 / 120 65 / 20

n/a n/a

Disabled dependent aged 18 or older 6,5308 n/a9 Other dependent persons aged 18 or older n/a 3,00510 Fitness for children (- 16 years of age) 50011 n/a12 Artistic, cultural and recreational activities for children (- 16 years of age) 50011 n/a12 Employment amount 1,11713 n/a14 Public transit passes Cost15 n/a Age amount 6,85416 2,41017 Retirement income 2,000 2,14018 Person suffering from a disability Supplement (less than 18 years of age)

7,697 4,49019

2,54520 n/a

Caregiver 4,4902, 21 n/a9 Adoption fees 11,66911 n/a9 Volunteer firefighters 3,000 3,000 Experienced workers n/a 3,00022 Purchase of first home 5,000 n/a

1 Reduced by the net income of the spouse or dependent. 2 Potential $2,040 additional amount if eligible for family caregiver credit. 3 Reduced by 15% for each $1 exceeding $32,480 (nil at $41,213). 4 The person must not have a minor child. 5 In Quebec, CAP are a benefit administered by the Régie des rentes du Québec. 6 Reduced by 80% of child’s income (excluding scholarship). $5,315 if only one session is completed during the year. 7 Limited to two sessions per year; amount reduced by 80% of dependent’s income, excluding scholarship. 8 Reduced for each $1 exceeding $6,548 (nil at $13,078). 9 Refundable tax credit in Quebec. 10 Reduced by 80% of the dependent’s income (excluding scholarship). The parent must not benefit from the transfer of the parental contribution for

adult children engaged in studies. 11 Maximum amount of eligible fees. 12 Refundable tax credit for youth activities in Quebec. 13 Amount equal to taxpayer’s employment income for the year (max. $1,117). 14 In Quebec, deduction for workers (max. $1,100). 15 Cost of public transit passes valid for at least one month. 16 Reduced by 15% for each $1 exceeding $34,562 (nil at $80,256). 17 Reduced by 15% for each $1 exceeding $32,480 (nil at $48,547). 18 Reduced by 15% for each $1 exceeding $32,480 (nil at $46,747). 19 Reduced by child care and caregiver expenses which exceed $2,630 (nil at $7,120). 20 Reduced if a supplement for a disabled child is included in CAP. 21 Reduced for each $1 exceeding $15,334 (nil at $19,824). 22 Employment income in excess of $5,000 eligible for credit at rate of 15.04%.



TABLE I2 – NON-REFUNDABLE TAX CREDITS (2013) (Continued)

Federal Quebec

Medical expenses

15% of expenses which exceed the lesser of $2,152 or 3% of applicant’s net income

20% of expenses which exceed 3% of net family income

Charitable donations

Max. donations: 75% of net income

15% on the first $200 and 29% on excess amount

Additional 25% credit for first-time donation not exceeding $1,000



Additional credit for certain cultural donations

TABLE I3 – MARGINAL RATES (2013)

Tax Brackets Other

Income %

Capital Gain

%

Dividends1

Eligible2 %

Ordinary3 %

QUEBEC

$14,000 – $41,095 28.5 14.3 5.6 11.7 $41,096 – $43,561 32.5 16.3 11.2 16.7 $43,562 – $82,190 38.4 19.2 19.2 24.0 $82,191 – $87,123 42.4 21.2 24.7 29.0 $87,124 – $100,000 45.7 22.9 29.4 33.2 $100,001 – $135,054 47.5 23.7 31.8 35.4 $135,055 and over 50.0 25.0 35.2 38.5

ALL PROVINCES

Federal For all provinces, except Quebec 29.0 14.5 19.3 19.6 Quebec only 24.2 12.1 16.1 16.4

Provincial4 Alberta 39.0 19.5 19.3 27.7 British Columbia 43.7 21.9 25.8 33.7 Manitoba 46.4 23.2 32.3 39.1 New Brunswick 45.1 22.5 24.9 33.1 Newfoundland and Labrador 42.3 21.2 22.5 30.0 Northwest Territories 43.1 21.5 22.8 29.6 Nova Scotia 50.0 25.0 36.1 36.2 Nunavut 40.5 20.3 27.6 29.0 Ontario 49.5 24.8 33.8 36.5 Prince Edward Island 47.4 23.7 28.7 38.6 Quebec 50.0 25.0 35.2 38.5 Saskatchewan 44.0 22.0 24.8 33.3 Yukon 42.4 21.2 15.9 30.4

1 Rates applicable to actual dividends received (not grossed-up). 2 38% gross-up. 3 25% gross-up (18% as of January 1, 2014). 4 Combined rates, federal and provincial.



TABLE I4 – TAX BRACKETS

FEDERAL – 2013

$43,561 or less 15%

$43,562 – $87,123 $6,534 + 22% on next $43,562

$87,124 – $135,054 $16,118 + 26% on next $47,931

$135,055 and over $28,580 + 29% on excess

15% rate used for AMT.

Quebec abatement is 16.5% of basic federal tax.

Indexation rate of 2% for 2013.

QUEBEC – 2013

$41,095 or less 16%

$41,096 – $82,190 $6,575 + 20.00% on next $41,095

$82,191 – $100,000 $14,794 + 24.00% on next $17,810

$100,001 and over $19,069 + 25.75% on excess1


Indexation rate of 2.48% in 2013.

TAX CREDIT FOR DIVIDENDS FROM CANADIAN CORPORATIONS – 20132

Eligible Dividends3

Ordinary Dividends4

Federal 15.02% 13.33%5

Quebec 11.90% 8.00%6

1 Since January 1, 2013 (24% before that date). 2 Rates applicable to grossed-up dividends. 3 38% gross-up. 4 25% gross-up (18% as of January 1, 2014). 5 11% as of January 1, 2014. 6 7.05% as of January 1, 2014.





TABLE I1 – ONTARIO (2013)

TAX TABLE

Taxable Income

Tax Effective Rate

Marginal Rate Federal Ontario Total Federal Ontario Total

$ $ $ $ % % % % 10,000 - 22 22 0.2 0.0 5.0 5.0 11,000 - 72 72 0.7 14.4 5.1 19.5 12,000 144 123 267 2.2 15.0 5.1 20.1 13,000 294 173 467 3.6 15.0 5.1 20.1 14,000 444 224 668 4.8 15.0 5.1 20.1 15,000 594 274 868 5.8 15.0 5.1 20.1 16,000 744 325 1,069 6.7 15.0 5.1 20.1 17,000 894 375 1,269 7.5 15.0 5.1 20.1 18,000 1,044 426 1,470 8.2 15.0 5.1 20.1 19,000 1,194 476 1,670 8.8 15.0 5.1 20.1 20,000 1,344 527 1,871 9.4 15.0 5.1 20.1 21,000 1,494 577 2,071 9.9 15.0 5.1 20.1 22,000 1,644 628 2,272 10.3 15.0 5.1 20.1 23,000 1,794 678 2,472 10.7 15.0 5.1 20.1 24,000 1,944 729 2,673 11.1 15.0 5.1 20.1 25,000 2,094 779 2,873 11.5 15.0 5.1 20.1 26,000 2,244 830 3,074 11.8 15.0 5.1 20.1 27,000 2,394 880 3,274 12.1 15.0 5.1 20.1 28,000 2,544 931 3,475 12.4 15.0 5.1 20.1 29,000 2,694 981 3,675 12.7 15.0 5.1 20.1 30,000 2,844 1,032 3,876 12.9 15.0 5.1 20.1 31,000 2,994 1,082 4,076 13.1 15.0 5.1 20.1 32,000 3,144 1,133 4,277 13.4 15.0 5.1 20.1 33,000 3,294 1,183 4,477 13.6 15.0 5.1 20.1 34,000 3,444 1,234 4,678 13.8 15.0 5.1 20.1 35,000 3,594 1,284 4,878 13.9 15.0 5.1 20.1 36,000 3,744 1,335 5,079 14.1 15.0 5.1 20.1 37,000 3,894 1,385 5,279 14.3 15.0 5.1 20.1 38,000 4,044 1,436 5,480 14.4 15.0 5.1 20.1 39,000 4,194 1,486 5,680 14.6 15.0 6.2 21.2 40,000 4,344 1,548 5,892 14.7 15.0 9.2 24.2 41,000 4,494 1,639 6,134 15.0 15.0 9.2 24.2 42,000 4,644 1,731 6,375 15.2 15.0 9.2 24.2 43,000 4,794 1,822 6,616 15.4 18.1 9.2 27.3 44,000 4,975 1,914 6,889 15.7 22.0 9.2 31.2 45,000 5,195 2,005 7,200 16.0 22.0 9.2 31.2 46,000 5,415 2,097 7,512 16.3 22.0 9.2 31.2 47,000 5,635 2,188 7,823 16.6 22.0 9.2 31.2 48,000 5,855 2,280 8,135 16.9 22.0 9.2 31.2 49,000 6,075 2,371 8,446 17.2 22.0 9.2 31.2 50,000 6,295 2,463 8,758 17.5 22.0 9.2 31.2 51,000 6,515 2,554 9,069 17.8 22.0 9.2 31.2 52,000 6,735 2,646 9,381 18.0 22.0 9.2 31.2 53,000 6,955 2,737 9,692 18.3 22.0 9.2 31.2 54,000 7,175 2,829 10,004 18.5 22.0 9.2 31.2 55,000 7,395 2,920 10,315 18.8 22.0 9.2 31.2 56,000 7,615 3,012 10,627 19.0 22.0 9.2 31.2 57,000 7,835 3,103 10,938 19.2 22.0 9.2 31.2 58,000 8,055 3,195 11,250 19.4 22.0 9.2 31.2 59,000 8,275 3,286 11,561 19.6 22.0 9.2 31.2 60,000 8,495 3,378 11,873 19.8 22.0 9.2 31.2 61,000 8,715 3,469 12,184 20.0 22.0 9.2 31.2



TAX TABLE

Taxable Income

Tax Effective Rate

Marginal Rate Federal Ontario Total Federal Ontario Total

$ $ $ $ % % % % 62,000 8,935 3,561 12,496 20.2 22.0 9.2 31.2 63,000 9,155 3,652 12,807 20.3 22.0 9.2 31.2 64,000 9,375 3,744 13,119 20.5 22.0 9.2 31.2 65,000 9,595 3,835 13,430 20.7 22.0 9.2 31.2 66,000 9,815 3,927 13,742 20.8 22.0 9.2 31.2 67,000 10,035 4,018 14,053 21.0 22.0 9.2 31.2 68,000 10,255 4,110 14,365 21.1 22.0 9.2 31.2 69,000 10,475 4,201 14,676 21.3 22.0 9.2 31.2 70,000 10,695 4,294 14,989 21.4 22.0 11.0 33.0 71,000 10,915 4,403 15,318 21.6 22.0 11.0 33.0 72,000 11,135 4,513 15,648 21.7 22.0 11.0 33.0 73,000 11,355 4,623 15,978 21.9 22.0 11.0 33.0 74,000 11,575 4,733 16,308 22.0 22.0 11.0 33.0 75,000 11,795 4,843 16,638 22.2 22.0 11.2 33.2 80,000 12,895 5,405 18,300 22.9 22.0 15.5 37.5 85,000 13,995 6,178 20,173 23.7 24.3 17.4 41.7 90,000 15,210 7,049 22,259 24.7 26.0 17.4 43.4 95,000 16,510 7,919 24,429 25.7 26.0 17.4 43.4

100,000 17,810 8,790 26,600 26.6 26.0 17.4 43.4 105,000 19,110 9,660 28,770 27.4 26.0 17.4 43.4 110,000 20,410 10,531 30,941 28.1 26.0 17.4 43.4 115,000 21,710 11,401 33,111 28.8 26.0 17.4 43.4 120,000 23,010 12,271 35,281 29.4 26.0 17.4 43.4 125,000 24,310 13,142 37,452 30.0 26.0 17.4 43.4 130,000 25,610 14,012 39,622 30.5 27.5 17.4 44.9 140,000 28,358 15,753 44,111 31.5 29.0 17.4 46.4 150,000 31,258 17,494 48,752 32.5 29.0 17.4 46.4 160,000 34,158 19,235 53,393 33.4 29.0 17.4 46.4 170,000 37,058 20,976 58,034 34.1 29.0 17.4 46.4 180,000 39,958 22,717 62,675 34.8 29.0 17.4 46.4 190,000 42,858 24,458 67,316 35.4 29.0 17.4 46.4 200,000 45,758 26,199 71,957 36.0 29.0 17.4 46.4 250,000 60,258 34,904 95,162 38.1 29.0 17.4 46.4 300,000 74,758 43,609 118,367 39.5 29.0 17.4 46.4 350,000 89,258 52,314 141,572 40.4 29.0 17.4 46.4 400,000 103,758 61,018 164,776 41.2 29.0 17.4 46.4


Federal 1) Basic personal credit of $1,656. 2) Indexation rate of 2%.

Ontario 1) This table takes into account the 20% surtax on tax over $4,289 and additional 36% surtax on tax

over $5,489. 2) This table does not take into account the low income tax reduction. 3) Basic personal credit of $483. 4) Indexation rate of 1.8%.




Federal (15%) Ontario (5.05%)

$ $ Basic 11,038 9,574 Spouse and eligible dependent 11,0381, 2 8,1293 Dependent child under 18 years of age 2,2342 n/a Full-time / Part-time post-secondary studies: Education amount (per month) Textbook amount (per month)

400 / 120 65 / 20

515 / 154 n/a

Disabled dependent aged 18 and older 6,5304 4,5135 Fitness for children (- 16 years of age) 5006 n/a7 Artistic, cultural and recreational activities for children under (- 16 years of age) 5006 n/a7 Employment amount 1,1178 n/a Public transit passes Cost9 n/a Age amount 6,85410 4,67411 Retirement income 2,000 1,324 Person suffering from a disability Supplement (less than 18 years of age)

7,697 4,49012

7,735 4,51113

Caregiver 4,4902, 14 4,51315 Adoption fees 11,6696 11,6806 Volunteer firefighters 3,000 n/a Purchase of first home 5,000 n/a

1 Reduced by net income of spouse or dependent. 2 Potential $2,040 additional amount if eligible for family caregiver credit. 3 Reduced for each $1 exceeding $813 (nil at $8,942). 4 Reduced for each $1 exceeding $6,548 (nil at $13,078). 5 Reduced for each $1 exceeding $6,414 (nil at $10,927). 6 Maximum amount of expenses eligible for the credit. 7 Children’s activity refundable tax credit available in Ontario. 8 Amount equal to taxpayer’s employment income for the year (max. $1,117). 9 Cost of public transit passes valid for at least one month. 10 Reduced by 15% for each $1 exceeding $34,562 (nil at $80,256). 11 Reduced by 15% for each $1 exceeding $34,798 (nil at $65,958). 12 Reduced by child care and caregiver expenses exceeding $2,630 (nil at $7,120). 13 Reduced by child care and caregiver expenses exceeding $2,642 (nil at $7,153). 14 Reduced for each $1 exceeding $15,334 (nil at $19,824). 15 Reduced for each $1 exceeding $15,438 (nil at $19,951).




Federal Ontario

Medical expenses 15% of expenses which exceed the lesser

of $2,152 or 3% of applicant’s net income No limit

5.05% of expenses which exceed the lesser of $2,167 or 3% of applicant’s net income

Maximum medical expenses for dependent of $11,680






5.05% on the first $200 and 11.16% on excess amount


Tax Brackets Other

Income %

Capital Gain

%

Dividends1 Eligible2

% Ordinary3

%

ONTARIO

$11,000 – $39,723 20.1 10.0 0.0 2.8 $39,724 – $43,561 24.2 12.1 3.8 7.9 $43,562 – $69,958 31.2 15.6 13.4 16.6 $69,959 – $79,448 33.0 16.5 14.2 17.8 $79,449 – $82,420 35.4 17.7 17.5 20.8 $82,421 – $87,123 39.4 19.7 19.9 23.8 $87,124 – $135,054 43.4 21.7 25.4 28.8 $135,055 – $509,000 46.4 23.2 29.5 32.6 $509,001 and over 49.5 24.8 33.8 36.5

ALL PROVINCES

Federal For all provinces, except Québec 29.0 14.5 19.3 19.6 Québec only 24.2 12.1 16.1 16.4






FEDERAL – 2013

$43,561 or less 15%

$43,562 – $87,123 $6,534 + 22% on next $43,562

$87,124 – $135,054 $16,118 + 26% on next $47,931




ONTARIO – 2013

$39,723 or less 5.05%

$39,724 – $79,448 $2,006 + 9.15% on next $39,725

$79,449 – $509,000 $5,641 + 11.16% on next $429,552

$509,001 and over $53,579 + 13.16% on excess1

AMT of 33.67% of federal AMT.

20% surtax on tax over $4,289 and additional 36% surtax on tax over $5,489.

Indexation rate of 1.8% for 2013.


EligibleDividends3

Ordinary Dividends4

Federal 15.02% 13.33%5

Ontario 6.40% 4.50%6

1 Since January 1, 2013 (12.16% in 2012). 2 Rates applicable to grossed-up dividends. 3 38% gross-up. 4 25% gross-up (18% as of January 1, 2014). 5 11% as of January 1, 2014. 6 3.71% as of January 1, 2014.





TABLE I1 – NEW BRUNSWICK (2013)

TAX TABLE

Taxable Income

Tax Effective

Rate

Marginal Rate

Federal New

Brunswick Total Federal New

Brunswick Total $ $ $ $ % % % %

10,000 0 57 57 0.6 0.0 9.4 9.4 11,000 0 151 151 1.4 14.4 9.4 23.8 12,000 144 245 389 3.2 15.0 9.4 24.4 13,000 294 339 633 4.9 15.0 9.4 24.4 14,000 444 433 877 6.3 15.0 9.4 24.4 15,000 594 527 1,121 7.5 15.0 9.4 24.4 16,000 744 621 1,365 8.5 15.0 9.4 24.4 17,000 894 715 1,609 9.5 15.0 9.4 24.4 18,000 1,044 809 1,853 10.3 15.0 9.4 24.4 19,000 1,194 903 2,097 11.0 15.0 9.4 24.4 20,000 1,344 996 2,340 11.7 15.0 9.4 24.4 21,000 1,494 1,090 2,584 12.3 15.0 9.4 24.4 22,000 1,644 1,184 2,828 12.9 15.0 9.4 24.4 23,000 1,794 1,278 3,072 13.4 15.0 9.4 24.4 24,000 1,944 1,372 3,316 13.8 15.0 9.4 24.4 25,000 2,094 1,466 3,560 14.2 15.0 9.4 24.4 26,000 2,244 1,560 3,804 14.6 15.0 9.4 24.4 27,000 2,394 1,654 4,048 15.0 15.0 9.4 24.4 28,000 2,544 1,748 4,292 15.3 15.0 9.4 24.4 29,000 2,694 1,842 4,536 15.6 15.0 9.4 24.4 30,000 2,844 1,935 4,779 15.9 15.0 9.4 24.4 31,000 2,994 2,029 5,023 16.2 15.0 9.4 24.4 32,000 3,144 2,123 5,267 16.5 15.0 9.4 24.4 33,000 3,294 2,217 5,511 16.7 15.0 9.4 24.4 34,000 3,444 2,311 5,755 16.9 15.0 9.4 24.4 35,000 3,594 2,405 5,999 17.1 15.0 9.4 24.4 36,000 3,744 2,499 6,243 17.3 15.0 9.4 24.4 37,000 3,894 2,593 6,487 17.5 15.0 9.4 24.4 38,000 4,044 2,687 6,731 17.7 15.0 9.5 24.5 39,000 4,194 2,782 6,976 17.9 15.0 13.5 28.5 40,000 4,344 2,917 7,261 18.2 15.0 13.5 28.5 41,000 4,494 3,052 7,546 18.4 15.0 13.5 28.5 42,000 4,644 3,186 7,830 18.6 15.0 13.5 28.5 43,000 4,794 3,321 8,115 18.9 18.1 13.5 31.6 44,000 4,975 3,455 8,430 19.2 22.0 13.5 35.5 45,000 5,195 3,590 8,785 19.5 22.0 13.5 35.5 46,000 5,415 3,725 9,140 19.9 22.0 13.5 35.5 47,000 5,635 3,859 9,494 20.2 22.0 13.5 35.5 48,000 5,855 3,994 9,849 20.5 22.0 13.5 35.5 49,000 6,075 4,128 10,203 20.8 22.0 13.5 35.5 50,000 6,295 4,263 10,558 21.1 22.0 13.5 35.5 51,000 6,515 4,398 10,913 21.4 22.0 13.5 35.5 52,000 6,735 4,532 11,267 21.7 22.0 13.5 35.5 53,000 6,955 4,667 11,622 21.9 22.0 13.5 35.5 54,000 7,175 4,801 11,976 22.2 22.0 13.5 35.5 55,000 7,395 4,936 12,331 22.4 22.0 13.5 35.5 56,000 7,615 5,071 12,686 22.7 22.0 13.5 35.5 57,000 7,835 5,205 13,040 22.9 22.0 13.5 35.5 58,000 8,055 5,340 13,395 23.1 22.0 13.5 35.5 59,000 8,275 5,474 13,749 23.3 22.0 13.5 35.5 60,000 8,495 5,609 14,104 23.5 22.0 13.5 35.5 61,000 8,715 5,744 14,459 23.7 22.0 13.5 35.5



TAX TABLE

Taxable Income

Tax Effective

Rate

Marginal Rate

Federal New

Brunswick Total Federal New

Brunswick Total $ $ $ $ % % % % 62,000 8,935 5,878 14,813 23.9 22.0 13.5 35.563,000 9,155 6,013 15,168 24.1 22.0 13.5 35.564,000 9,375 6,147 15,522 24.3 22.0 13.5 35.565,000 9,595 6,282 15,877 24.4 22.0 13.5 35.566,000 9,815 6,417 16,232 24.6 22.0 13.5 35.567,000 10,035 6,551 16,586 24.8 22.0 13.5 35.568,000 10,255 6,686 16,941 24.9 22.0 13.5 35.569,000 10,475 6,820 17,295 25.1 22.0 13.5 35.570,000 10,695 6,955 17,650 25.2 22.0 13.5 35.571,000 10,915 7,090 18,005 25.4 22.0 13.5 35.572,000 11,135 7,224 18,359 25.5 22.0 13.5 35.573,000 11,355 7,359 18,714 25.6 22.0 13.5 35.574,000 11,575 7,493 19,068 25.8 22.0 13.5 35.575,000 11,795 7,628 19,423 25.9 22.0 13.9 35.980,000 12,895 8,322 21,217 26.5 22.0 14.5 36.585,000 13,995 9,045 23,040 27.1 24.3 14.5 38.890,000 15,210 9,768 24,978 27.8 26.0 14.5 40.595,000 16,510 10,491 27,001 28.4 26.0 14.5 40.5

100,000 17,810 11,214 29,024 29.0 26.0 14.5 40.5105,000 19,110 11,937 31,047 29.6 26.0 14.5 40.5110,000 20,410 12,660 33,070 30.1 26.0 14.5 40.5115,000 21,710 13,383 35,093 30.5 26.0 14.5 40.5120,000 23,010 14,106 37,116 30.9 26.0 14.5 40.5125,000 24,310 14,829 39,139 31.3 26.0 15.5 41.5130,000 25,610 15,606 41,216 31.7 27.5 16.1 43.6140,000 28,358 17,213 45,571 32.6 29.0 16.1 45.1150,000 31,258 18,820 50,078 33.4 29.0 16.1 45.1160,000 34,158 20,427 54,585 34.1 29.0 16.1 45.1170,000 37,058 22,034 59,092 34.8 29.0 16.1 45.1180,000 39,958 23,641 63,599 35.3 29.0 16.1 45.1190,000 42,858 25,248 68,106 35.8 29.0 16.1 45.1200,000 45,758 26,855 72,613 36.3 29.0 16.1 45.1250,000 60,258 34,890 95,148 38.1 29.0 16.1 45.1300,000 74,758 42,925 117,683 39.2 29.0 16.1 45.1350,000 89,258 50,960 140,218 40.1 29.0 16.1 45.1400,000 103,758 58,995 162,753 40.7 29.0 16.1 45.1


Federal 1) Basic personal credit of $1,656. 2) Indexation rate of 2%.

New Brunswick 1) This table does not take into account the low income tax reduction. 2) Basic personal credit of $882. 3) Indexation rate of 2%.




Federal (15%)

New Brunswick (9.39%)1

$ $

Basic 11,038 9,388 Spouse and eligible dependent 11,0382, 3 7,9714 Dependent child under 18 years of age 2,2343 n/a Full-time / Part-time post-secondary studies (per month): Education amount Textbook amount

400 / 120 65 / 20

400 / 120 n/a

Disabled dependent aged 18 and older 6,5305 4,4346 Fitness amount for children under 16 years of age 5007 n/a Artistic, cultural and recreational activities for children under 16 years of age 5007 n/a Employment amount 1,1178 n/a Public transit passes amount Cost9 n/a Age amount 6,85410 4,58411 Retirement income 2,000 1,000 Person suffering from a disability Supplement (less than 18 years)

7,697 4,49012

7,600 4,43413

Caregiver 4,4903, 14 4,43415 Adoption fees 11,6697 n/a Volunteer firefighters 3,000 n/a Purchase of first home 5,000 n/a

1 Since January 1, 2013 (9.1% before that date). 9.68% as of January 1, 2014. 2 Reduced by net income of spouse or dependent. 3 Potential $2,040 additional amount if eligible for family caregiver credit. 4 Reduced for each $1 exceeding $798 (nil at $8,769). 5 Reduced for each $1 exceeding $6,548 (nil at $13,078). 6 Reduced for each $1 exceeding $6,290 (nil at $10,724). 7 Maximum amount of expenses eligible for the credit. 8 Amount equal to taxpayer’s employment income for the year (max. $1,117). 9 Cost of public transit passes valid for at least one month. 10 Reduced by 15% for each $1 exceeding $34,562 (nil at $80,256). 11 Reduced by 15% for each $1 exceeding $34,124 (nil at $64,684). 12 Reduced by child care and caregiver expenses exceeding $2,630 (nil at $7,120). 13 Reduced by child care and caregiver expenses exceeding $2,596 (nil at $7,030). 14 Reduced for each $1 exceeding $15,334 (nil at $19,824). 15 Reduced for each $1 exceeding $15,140 (nil at $19,574).




Federal New Brunswick

Medical expenses 15% of expenses which exceed the lesser

of $2,152 or 3% of applicant’s net income

9.39%1 of expenses which exceed the lesser of $2,125 or 3% of applicant’s net income






9.39%1 on the first $200 and 17.95% on excess amount


Tax Brackets Other

Income %

Capital Gain

%

Dividends2

Eligible3 %

Ordinary4 %

NEW BRUNSWICK

$11,000 – $38,954 24.4 12.2 0.0 7.2 $38,955 – $43,561 28.5 14.2 2.0 12.3 $43,562 – $77,908 35.5 17.7 11.6 21.0 $77,909 – $87,123 36.5 18.2 13.0 22.3 $87,124 – $126,662 40.5 20.2 18.5 27.3 $126,663 – $135,054 42.1 21.0 20.8 29.3 $135,055 and over 45.1 22.5 24.9 33.1

ALL PROVINCES

Federal For all provinces. except Québec 29.0 14.5 19.3 19.6 Québec only 24.2 12.1 16.1 16.4


1 Since January 1, 2013 (9.1% before that date). 9.68% as of January 1, 2014.





FEDERAL – 2013

$43,561 or less 15%

$43,562 – $87,123 $6,534 + 22% on next $43,562

$87,124 – $135,054 $16,118 + 26% on next $47,931




NEW BRUNSWICK – 20131

$38,954 or less 9.39%

$38,955 – $77,908 $3,658 + 13.46% on next $38,954

$77,909 – $126,662 $8,905 + 14.46% on next $48,754

$126,663 and over $15,960 + 16.07% on excess

AMT of 57% of federal AMT.



Eligible Dividends3

Ordinary Dividends4

Federal 15.02% 13.33%5

New Brunswick 12.00% 5.30%

1 Since January 1, 2013 (9.1%, 12.1%, 12.4% and 14.3% respectively in 2012). Tax increased to 9.68%, 14.82%, 16.52% and 17.84% respectively

as of 2014. 2 Rates applicable to grossed-up dividends. 3 38% gross-up. 4 25% gross-up (18% as of January 1, 2014). 5 11% as of January 1, 2014

Corporate Taxation 2013 1




TABLE C1 – BUSINESS INCOME ELIGIBLE FOR SBD1

2013 % Combined %

Federal 11.0

Provincial

Alberta 3.0 14.0 British Columbia 2.5 13.5 Manitoba 0.0 11.0 New Brunswick 4.5 15.5 Newfoundland and Labrador 4.0 15.0 Northwest Territories 4.0 15.0 Nova Scotia 3.52 14.5 Nunavut 4.0 15.0 Ontario 4.5 15.5 Prince Edward Island 4.53 15.5 Quebec 8.0 19.0 Saskatchewan 2.0 13.0 Yukon

Without MPP / With MPP 4.0 / 2.5 15.0 / 13.5

TABLE C2 – BUSINESS INCOME NOT ELIGIBLE FOR SBD

2013 % Combined %

Federal 15.0

Provincial Alberta 10.0 25.0 British Columbia 11.04 26.0 Manitoba 12.0 27.0 New Brunswick 12.05 27.0 Newfoundland and Labrador

Without MPP / With MPP 14.0 / 5.0 29.0 / 20.0 Northwest Territories 11.5 26.5 Nova Scotia 16.0 31.0 Nunavut 12.0 27.0 Ontario

Without MPP / With MPP 11.5 / 10.0 26.5 / 25.0 Prince Edward Island 16.0 31.0 Quebec 11.9 26.9 Saskatchewan

Without MPP / With MPP 12.0 / 10.0 27.0 / 25.0 Yukon

Without MPP / With MPP 15.0 / 2.5 30.0 / 17.5

1 $500,000 eligible for the SBD for federal purposes and all provinces and territories except Manitoba and Nova Scotia where it is $400,000 ($425,000 and $350,000 respectively as of January 1, 2014). In all jurisdictions other than Ontario, the SBD is progressively reduced when paid-up/taxable capital of all associated corporations is greater than $10M and is eliminated when it is $15M.

2 Since January 1, 2013 (4% before that date). Rate reduced to 3% as of January 1 2014. 3 Since April 1, 2013 (1% before that date). 4 Since April 1, 2013 (10% before that date). 5 Since July 1, 2013 (10% before that date).



TABLE C3 – INVESTMENT INCOME1

2013 % Combined % RDTOH 2

%

Federal 34.673

Provincial Alberta 10.00 44.67 26.67 British Columbia 11.004 45.67 26.67 Manitoba 12.00 46.67 26.67 New Brunswick 12.005 46.67 26.67 Newfoundland and Labrador 14.00 48.67 26.67 Northwest Territories 11.50 46.17 26.67 Nova Scotia 16.00 50.67 26.67 Nunavut 12.00 46.67 26.67 Ontario 11.50 46.17 26.67 Prince Edward Island 16.00 50.67 26.67 Quebec 11.90 46.57 26.67 Saskatchewan 12.00 46.67 26.67 Yukon 15.00 49.67 26.67

1 Investment income includes interest, taxable capital gains and other property income, but not deductible dividends. 2 Investment income of CCPCs gives rise to refundable dividend tax on hand (RDTOH), which is refunded at the rate of $1 for every $3 of taxable

dividends paid. 3 15% rate for non-CCPCs. 4 Since April 1, 2013 (10% before that date). 5 Since July 1, 2013 (10% before that date).



TABLE C4 – SALES TAX

2013 Rate %

Combined %

Federal 5

Provincial

Alberta – 5 British Columbia1 7 12 Manitoba 82 13 New Brunswick 83 13 Newfoundland and Labrador 83 13 Northwest Territories – 5 Nova Scotia 103 154 Nunavut – 5 Ontario 83 13 Prince Edward Island5 93 14 Quebec 9.975 14.975 Saskatchewan 5 10 Yukon – 5

1 Provincial sales tax of 7% since April 1, 2013 (HST of 12% before that date). 2 Since July 1, 2013 (7% before that date). 3 Provincial component of HST. 4 Rate scheduled to be reduced to 14% in 2014 and 13% in 2015. 5 HST applicable since April 1, 2013. Provincial sales tax of 10% (15.5% combined) before that date.



TABLE C5 – SR&ED TAX CREDITS1

2013 Eligible Persons Credit Rate Refund Rate2

Federal CCPC 35% of the first $3M in expenditures3

100% for current expenditures

40% for capital expenditures4

20%5 of excess 40% for eligible corporations6

Other corporations 20%5 0%

Individuals 20%5 40%

Quebec7 Canadian-controlled corporations

37.5% of the first $3M in R&D salaries8

17.5% of excess

100%

Other corporations and individuals

17.5% 100%

Ontario9 Corporations 4.5% 0%

Corporations 10% of the first $3M10 in eligible expenditures11

100%

New Brunswick Corporations 15% 100%

1 Limits and ceilings are based on the preceding year and refer to the group of associated corporations. Alberta, British Columbia, Manitoba,

Newfoundland/Labrador, Nova Scotia, Saskatchewan and Yukon also have SR&ED credits. 2 Unused credits may be carried back three years or forward 20 years. 3 The limit is progressively eliminated when taxable income is between $500,000 and $800,000 or taxable capital used in Canada is between $10M

and $50M. 4 Capital expenditures do not qualify for the credit as of 2014. 5 15% as of 2014. 6 Zero refund rate if taxable income is greater than $500,000. 7 Quebec also has the following credits: tax credit for university research or research carried out by a public research centre or a research

consortium, tax credit for pre-competitive research, tax credit for private partnership pre-competitive research and tax credit for fees and dues paid to a research consortium. An increased rate applies to biopharmaceutical companies.

8 Rate gradually decreases from 37.5% to 17.5% when world assets are between $50M and $75M. 9 Ontario also has the Ontario Business Research Institute Tax Credit. 10 Ceiling is progressively eliminated when taxable income is between $500,000 and $800,000 or taxable capital in Canada is between $25M and

$50M. 11 Includes 100% of current expenditures and 40% of capital expenditures.



TABLE C6 – CAPITAL COST ALLOWANCE RATES (2013)

Description of Property Rate1 Class

Buildings acquired since 1988, including component parts 4%

1

Buildings acquired on or after March 19, 20072 and used 90% + for manufacturing and processing (separate class)

10%3

Buildings acquired on or after March 19, 20072 and used 90%+ for non-residential purposes

(separate class) 6%3

Fences, greenhouses, wood buildings (farming and fishing) 10% 6

Assets not included in any other class such as accessories, equipment, furniture, photocopiers, telephones, tools costing more than $500 and outdoor advertising

panels 20% 8

Automobiles, panel trucks, trucks, tractors, trailers 30% 10

Passenger vehicles, the cost of which is equal to or exceeds prescribed amounts ($30,000 + tax since 2001 – see Section V) 30% 10.1

Application software, small tools, cutlery, linen, uniforms, moulds, medical instruments costing less than $500 and rented videotapes

100% 12

Leasehold improvements Lease term4 13

Taxis, automobiles acquired for short-term leasing and coin-operated video games

40% 16

Trucks and tractors designed for hauling freight 40%5 16

Parking areas or similar surface construction 8% 17

Manufacturing or processing equipment acquired before March 19, 2007 and after 2015

30% 43

Manufacturing or processing equipment acquired on or after March 19, 2007 and before 2016

50% Straight-line 29

Computer equipment, systems software and related equipment acquired after March 18, 2007 but before January 28, 2009 or after January 2011

55% 50

Data network infrastructure equipment acquired after March 22, 2004 30% 46

1 Rates are declining balance unless otherwise indicated. 2 Building must not have been acquired or used by anyone before March 19, 2007. 3 Includes additions and modifications made on or after March 19, 2007 to a building included in a separate class even though the building was

acquired before March 19, 2007. 4 Straight-line capital cost allowance over the lease term (including the first renewal period), for a minimum of 5 years and a maximum of 40 years. 5 60% rate in Quebec for new vehicles acquired after March 30, 2010. Moreover, subject to some conditions, new vehicles that run on liquefied

natural gas acquired after March 30, 2010 and before January 1, 2016 benefit from an additional deduction equal to 85% of the amount deducted at the 60% rate.

Documents

The Tax Planning Guide 2013-2014, an up-to-date fiscal ...en.planiguide.ca/files/2013/11/Tax-Planning-Guide-2013-2014.pdf · The Tax Planning Guide 2013-2014, an up-to-date fiscal