By Evelyn Jacks
It’s hard not to get caught up in the trade wars saga, and of course it has serious economic repercussions. In times like these, our tax system can help. There are new measures, the details of which are to come in the next few weeks and quite likely, in the fall Federal Budget which will no doubt be a difficult balancing act. However, there are lots of tax-related provisions available right now, especially for people who are behind in their taxes.
Long-term: The important miss – so far, at least. Tax professionals have been calling for comprehensive tax reform for some time. That time is now. If Canada is serious about being competitive interprovincially and on the world stage, this is a critical first step and something we should all be looking forward to as an announcement in early fall, given the environment we are currently in.
Short term: What the Federal Government Intends to Do. We have been here before in the pandemic. Now the federal government must act to support the business community again, as well as the workers it employs. Specifically, we know that three pillars of support will be enacted:
1. Business loans through regional development agencies. The Business Development Bank of Canada and regional agencies will be empowered to provide rapid liquidity and working capital to businesses impacted. This means tax write-offs for interest costs on the loans provided and capital cost allowance claims that could create losses that can be carried back to offset business income in the previous three years under current tax rules.
2. Specific industry relief. The Prime Minister announced on Friday that financial and structural aid for firms specifically hit with the 50 percent tariffs will remain in place as long as necessary and may extend beyond the life of the current U.S. Administration as well. This will provide some assurance, from a long-term decision-making point of view, that investments by businesses in Canada will be supported until we get past the next U.S. election.
3. Protection for workers. The Employment Insurance (EI Work-Sharing Program will be adjusted to help companies affected by the tariffs to prevent layoffs and retain key talent in the trades. We have been here before with the pandemic supports and it appeared to work quite well. For workers, this will mean reporting both salary and EI components in income; for employers, it will mean extra record-keeping and further audit potential in the future.
The fourth pillar. There are a myriad of income-tested provisions already present in the Income Tax Act, poised to help Canadians. Because of its complexity, so many miss out. However, you can recover missed provisions up to 10 years back – tax year 2016 forward, specifically. This includes access to federal provisions such as:
• The Canada Child Benefit
• The Canada Groceries and Essentials Benefit (formerly the GST/HST Credit)
• The Canada Training Credit
• The Canada Worker’s Benefit
It’s also important to file a tax return to qualify for the Canada Dental Benefit. In the case of job loss and resulting lower income, families may qualify for some of these provisions for the first time. Students may also wish to check into the forgiveness of Canada Student Loan programs.
For Families with Disabled and Senior Members: There are a host of provisions that are missed out on because these families have not had time or supports to help with income tax filings. This includes:
• The Canada Disability Benefit
• The Refundable Medical Expense Supplement
• The Home Accessibility Tax Credit
• The Refundable Home Renovations Tax Credit
• The Canada Child Disability Amount
• The Canada Caregiver Amount
• The Disability Tax Credit
• Refund of Federal Excise Tax if Disability Prohibits Use of Public Transit
• Revisit of Pharmacare Deductibles
• Canada Dental Care Plan
There are also options for those who may have been considering retirement and for whom this time of turmoil seems like the right time to pull the plug. You may wish to consider;
1. Taking Early Canada Pension Plan Benefits
2. Initiating Old Age Security benefits, or postponing them, if a large lump sum severance payment or other windfalls or planning scenarios may cause a clawback of the benefits.
3. Guaranteed Income Supplement to help low-income households, even if this is only in the transitional years
There are provincial options for low-income earners as well, which include social assistance, workers’ compensation and a wide variety of child benefits.
Tax filing is your ticket to success. The ticket to most of these benefits is the filing of a tax return. If you haven’t done so yet, it’s high time to catch up! The good news is that if you do, it’s possible the government will owe you money – often more than most people think – as a result of missed refunds, credits and deductions. Remember, you can go back 10 years under the Taxpayer Relief provisions to recover these benefits.
You can also catch up on important provisions like creating RRSP contribution room, recording capital losses that can reduce your taxes in three prior years or indefinitely into the future, or the important aggregation of the Canada Training Credit, which can offset your tuition fees if you are going back to school.
The bad news is that catch-up time can trigger a tax audit. But it’s always better if you initiate the correction of errors or filing for omissions to avoid gross negligence or even tax evasion penalties.
Get your affairs in order now. The future may be cloudy with business and job security in doubt for some. But be comforted that filing a tax return is always a good idea. Get organized and see a professional tax practitioner for help. These folks are highly trained and can help, especially if you fear aggressive collection efforts.
Evelyn Jacks is a best-selling Canadian financial author and podcaster. Listen to Real Tax News with Evelyn Jacks and Friends to understand your tax system better. Go to learn.knowledgebureau.com/courses/real-tax-news-podcast.