THE BASICS OF CANADIAN DEPARTURE TAX
When an individual, who was resident in Canada for tax purposes, ceases to be resident in Canada, there is generally a deemed disposition of assets owned by that individual at their fair market value. Any resulting deemed gain must be reported on the final tax return filed as a resident. This is commonly called “departure tax” which is calculated and payable when the individual filing his/hers last income tax return.
Scope and exemptions
The deemed disposition at fair market value immediately prior to emigration generally applies to all property owned by the individual at that time. However, there are many important exceptions, including:
- Direct interests in Canadian real property
- Interests in Canadian “Registered Retirement Savings Plans” and “Tax Free Savings Accounts”
- Rights under various types of employee benefit or pension plans, as well as rights under stock option plans
- In the case of an individual who was resident in Canada for not more than 60 months in the 120 months prior to departure, property that was owned by that individual at the time when he or she last became a Canadian resident, or that was acquired by gift or bequest after that time,
- Interests in a personal trust resident in Canada that was not acquired for consideration, and
- Interests in a non-resident testamentary trust that was not acquired for consideration
Where applicable, the deemed dispositions must be reported in the tax return for the last year in which the individual was resident.
That tax return should also include two special schedules: T1161 (which is a listing of assets owned on emigration) and T1243 (which reflect the deemed disposition).
Election to defer payment of tax
It is possible to elect to defer the payment of any tax resulting from the deemed disposition until the time that there is an actual disposition of the relevant property.
The election is made by filing form T1244 with final tax return as a resident and subsequently providing adequate security to the Canada Revenue Agency. No interest is charged on the deferred tax.
Special consideration for Canadians moving to the US
In cases where a Canadian expat has realized a deem gain when moving to the US, it is possible for that individual to make an election, under Article XIII(7) of the Canada-US Tax Convention, that will avoid potential double taxation of the deem gain.
By making that election, the individual will have a deemed cost base, for US tax purposes, equal to the fair market value of the relevant property at the time of emigration from Canada. Thus, the gain that was taxed in Canada on departure will not be taxed in the US when there is an actual sale.
Auditor-General Michael Ferguson found that approx. 30% of answers CRA gave to taxpayers are wrong.
In addition, the CRA actively blocked calls from taxpayers so that it could say it met its service standard of keeping people waiting no more than two minutes. There were 29 million calls it blocked between March, 2016, and March, 2017 – more than half of its total call volume [53.5 million]. Those calls either get a busy signal, a message to visit the agency’s website or a message to call back later.
National Revenue Minister Diane Lebouthillier said the government agrees with the Auditor-General, adding that Ottawa has invested $50-million over four years to improve service at the CRA’s call centres.
Refer Global and Mail for detail.
Teacher and Early Childhood Educator School Supply Tax Credit
Budget 2016 proposes to introduce a teacher and early childhood educator school supply tax credit for 2016 and subsequent taxation years. This measure will allow an employee who is an eligible educator to claim a 15% refundable tax credit based on an amount of up to $1,000 of purchases of eligible teaching supplies by the employee in a taxation year.
This measure has received Royal Assent. Eligible educators, regardless of their income level, who purchase educational materials, will qualify for a refund of up to $150 each year.
WHO IS AN ELIGIBLE TEACHER OR EARLY CHILDHOOD EDUCATOR?
The new tax credit can only be claimed by an eligible teacher or early childhood educator employed at an elementary or secondary school or a regulated child care facility:
- An eligible teacher holds a teacher’s certificate that is valid in the province or territory in which they are employed.
- An eligible early childhood educator holds a certificate or diploma in early childhood education that is recognized in the province or territory in which the individual is employed.
WHAT IS AN ELIGIBLE SUPPLIES EXPENSE?
An eligible supplies expense is an amount paid in the year by an eligible teacher or early childhood educator for teaching supplies that are:
- purchased by the teacher or educator for teaching or facilitating learning, and directly consumed or used in an elementary or secondary school or in a regulated child care facility in the performance of the teacher or educator’s duties of employment;
- not reimbursable and not subject to an allowance or other form of assistance (unless the reimbursement, allowance or assistance is included in the income of the teacher or educator and not deductible); and
- not deducted or used in calculating a deduction from any person’s income for any taxation year.
WHAT KINDS OF TEACHING SUPPLIES ARE ELIGIBLE?
To be an eligible supplies expense, the teaching supplies must be purchased in the taxation year, by an eligible teacher or early childhood educator to use in a school or in a regulated child care facility for the purpose of teaching or helping students learn.
Teaching supplies include consumable goods. Some examples are:
- Construction paper for activities, flashcards for activity centres;
- Items for science experiments, such as seeds, potting soil, vinegar, baking soda and stir sticks;
- Art supplies such as paper, glue and paint; and
- Various stationary items, such as pens, pencils, posters and charts.
And the only durable goods that qualify as teaching supplies are listed below:
- games and puzzles;
- books for the classroom;
- containers such as plastic boxes or banker boxes; and
- educational support software.
IS COMPUTER, TABLET OR RUG (FOR KIDS TO SIT ON) AN ELIGIBLE EXPENSE?
Computers, tablets and rugs are not eligible expenses because they are durable goods (which can be used repeatedly or continuously for a relatively long time) that are not included in the above list of durable goods that qualify as teaching supplies.
THE YEAR OF WHICH THE TAX CREDIT CAN BE CLAIMED MUST BE THE YEAR IN WHICH THE SUPPLIES WERE PURCHASED
The expense is included in calculating the tax credit for the taxation year in which the supplies were purchased. E.g. if supplies are purchased in December 2016, but used in the school or facility in the following calendar year, 2017, it should be deducted in 2016 as the tax credit is calculated based on when the supplies were purchased.
EXPENSE THAT IS NOT PURCHASED IN THE YEAR IS NOT ELIGIBLE
A teaching supply has to be purchased in the same year that it is included in calculating the tax credit, and must have been purchased for the purpose of teaching or facilitating students’ learning.
If you brought some used books, games and puzzles from home for the children to use in the classroom. You can’t claim either a part of the original cost or current value.
DOCUMENTS TO SUPPORT THE CLAIM
If you claim this tax credit, the CRA may ask you to provide a certification from your employer (or a delegated official of the employer) attesting to the eligible supplies expense. You should request the certification from your employer in a timely manner and keep it in your files, along with your receipts, in case the CRA requests it.
WHAT WOULD HAPPEN IF I CAN’T PROVIDE THE EVIDENCE WHEN THE CRA REQUESTS IT
If the CRA requests that you provide certification from your employer and you do not provide it, even if you can provide receipts for the purchases, your claim for the tax credit will be denied.
Employer Guide for the Teacher and Early Childhood Educator School Supply Tax Credit
Please contact our office if you need a copy of the employer guide.