tax planning guide - planiguideen.planiguide.ca/files/2016/11/tax-planning-guide-2016-2017.pdf ·...

2016-2017

TAX PLANNING GUIDE

Taxes are a complex issue. Few documents present a comprehensive compilation of the most recent tax information to help individuals and managers avoid nasty surprises. Because we constantly strive to provide managers with the means to achieve their ambitions, we have developed the Tax Planning Guide to help you find the answers to your tax questions.

The Tax Planning Guide is tailored to today’s users and can be accessed anytime, anywhere, in several formats:

• Download the free iPhone or iPad mobile app from the Apple Store.

• Go to our optimized Website (www.en.planiguide.ca), that can be used easily with your Android, Apple and BlackBerry devices.

This PDF version presents the most recent tax changes under What’s new in 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 2016 Quebec, Ontario and New Brunswick tax tables. We have included a folder on Corporate Taxation and U.S. Federal Tax.

The planning suggestions in the Tax Planning 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 version!

With the tax season in full swing, Raymond Chabot Grant Thornton is pleased to offer its free 2016-2017 Tax Planning Guide for individuals, an innovative tool to help with tax planning and filing your income tax returns.

https://itunes.apple.com/ca/app/le-planiguide-fiscal-2011/id475766546?mt=8

http://en.planiguide.ca/

http://en.planiguide.ca/tables/

FOLDERS – 2016

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 AND U.S. FEDERAL TAX

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

Table US1 U.S. federal tax – Individuals

Table US2 U.S. federal tax – Corporations

Raymond Chabot Grant Thornton Tax Planning Guide 2016-2017

TABLE OF CONTENTS

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REMARKS ...................................................................................................................................................1

ABBREVIATIONS .......................................................................................................................................1

SECTION I – TAX SYSTEM ........................................................................................................................2

1. TAX SYSTEM .................................................................................................................................2 Quebec ............................................................................................................................................2 Ontario ............................................................................................................................................2 New Brunswick ................................................................................................................................3

2. INCOME TAX RETURNS ...............................................................................................................3 Filing Deadlines ...............................................................................................................................3 Auto-fill My Return ...........................................................................................................................4

3. INCOME TAX PAYMENTS .............................................................................................................4 Deductions at Source ......................................................................................................................4 Refund – Quebec ............................................................................................................................6 Retroactive Payments .....................................................................................................................7

4. ADMINISTRATIVE MEASURES .....................................................................................................7 Books and Supporting Documentation ...........................................................................................7 Notice of Objection ..........................................................................................................................7 Collection ........................................................................................................................................8 Fairness Measures ..........................................................................................................................8

5. VOLUNTARY DISCLOSURE ..........................................................................................................8

6. THIRD PARTY PENALTIES ...........................................................................................................9

7. ELECTRONIC ACCESS TO PERSONAL FILES ...........................................................................9

8. ONLINE PAYMENTS ......................................................................................................................9

SECTION II – INDIVIDUALS AND FAMILIES ..........................................................................................10

1. DEFINITIONS ...............................................................................................................................10 Spouse ..........................................................................................................................................10 Child ..............................................................................................................................................11

2. PARENTAL ASSISTANCE ...........................................................................................................11 Canada Canada Child Benefit ......................................................................................................11 Universal Child Care Benefit .........................................................................................................11 Child Assistance Payments – Quebec ..........................................................................................11 Ontario Child Benefit and Income Supplement .............................................................................13 Child Tax Benefit and Earned Income Supplement – New Brunswick .........................................13 Child Care Expenses ....................................................................................................................13 Children’s Activities .......................................................................................................................15 Adoption Expenses .......................................................................................................................16 Infertility Treatment .......................................................................................................................16 Family Caregiver Tax Credit – Federal .........................................................................................16

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3. SUPPORT PAYMENTS ................................................................................................................16 Legal Expenses .............................................................................................................................17

4. HOME ASSISTANCE ....................................................................................................................17 RénoVert Tax Credit – Quebec .....................................................................................................17 First-time Home Buyer Credit – Federal .......................................................................................18 Other Credits or Home Assistance Program.................................................................................18 Home Buyer’s Plan .......................................................................................................................18 Exemption – Principal Residence .................................................................................................18

5. OTHER CREDITS AND ASSISTANCE MEASURES ...................................................................19 Charitable Donation ......................................................................................................................19 GST-HST Tax Credit .....................................................................................................................21 Ontario Trillium Benefit ..................................................................................................................21 Solidarity Tax Credit – Quebec .....................................................................................................22 Political Contributions ....................................................................................................................22 Resident of a Remote Area ...........................................................................................................22 Public Transit Passes ....................................................................................................................22 Top-Level Athletes – Quebec ........................................................................................................23 Tax Shield – Quebec .....................................................................................................................23

6. TAX CREDIT TRANSFERS BETWEEN SPOUSES ....................................................................23

7. INCOME SPLITTING ....................................................................................................................23 Pension Income Splitting ..............................................................................................................23 Other Income Splitting Provisions .................................................................................................23

SECTION III – EDUCATION ......................................................................................................................25

1. INCOME ........................................................................................................................................25 Scholarships ..................................................................................................................................25 Research Grants ...........................................................................................................................25

2. DEDUCTIONS AND CREDITS .....................................................................................................26 Tuition Tax Credit ..........................................................................................................................26 Education Tax Credit .....................................................................................................................26 Textbook Tax Credit – Federal .....................................................................................................26 Credit for Interest Paid on Student Loans .....................................................................................26 Transfer and Carryover of Student Credits ...................................................................................27 Tax Credits for Children in Post-Secondary Studies – Quebec ....................................................28 Moving Expenses ..........................................................................................................................28 Child Care Expenses ....................................................................................................................28

3. REGISTERED EDUCATION SAVINGS PLAN .............................................................................28 Disabled Beneficiaries ...................................................................................................................28 Contributions .................................................................................................................................29 Eligible Investments ......................................................................................................................29 Canada Education Savings Grant .................................................................................................29 Canada Learning Bond .................................................................................................................29 Quebec Education Savings Incentive ...........................................................................................29 Summary – CESG and QESI ........................................................................................................30 Educational Assistance Payments ................................................................................................30 Reimbursement of Government Assistance .................................................................................30 Transfer to an RRSP .....................................................................................................................30 Transfer to an RDSP .....................................................................................................................30

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4. LIFELONG LEARNING PLAN ......................................................................................................30

SECTION IV – HEALTH, SENIORS AND CAREGIVERS ........................................................................32

1. MEDICAL EXPENSE CREDIT ......................................................................................................32 Eligible Expenses ..........................................................................................................................32 Adjustment for Medical Expenses Claimed for Dependents.........................................................33 Refundable Medical Expense Credit .............................................................................................33 Credit for Medical Services Not Incurred in Taxpayer’s Area – Quebec ......................................33

2. DISABLED PERSONS ..................................................................................................................34 Certification ...................................................................................................................................34 Tax Credit for Persons with Disabilities ........................................................................................34 Tax Credit for Disabled Dependents – Federal ............................................................................34 Disability Supports Deduction .......................................................................................................34 Child Care Expenses ....................................................................................................................34 Non-taxable Benefits .....................................................................................................................35

3. HOME ASSISTANCE – SENIORS AND PERSONS WITH DISABILITIES ..................................35 Home-Support Services for Seniors – Quebec .............................................................................35 Tax Credit for the Purchase or Rental of Equipment Designed to Help Seniors Live

Independently at Home – Quebec ...........................................................................................35 Assistance Program to Offset Municipal Tax Increase – Quebec ................................................35 Home Accessibility Tax Credit – Federal ......................................................................................36 Healthy Homes Renovation Tax Credit – Ontario .........................................................................36 Seniors’ Home Renovation Tax Credit – New Brunswick .............................................................36 Home Buyers’ Plan .......................................................................................................................36

4. OTHER ASSISTANCE MEASURES FOR SENIORS ..................................................................36 Tax Credit for Expenses Incurred by Seniors During a Stay in a Transitional Care and

Rehabilitation Unit – Quebec ...................................................................................................36 Tax Credit for Seniors’ Activities – Quebec ..................................................................................36

5. CAREGIVERS ...............................................................................................................................37 Amount for Caregivers – Federal ..................................................................................................37 Family Caregiver Tax Credit – Federal .........................................................................................37 Tax Credit for Caregivers – Quebec .............................................................................................37 Credit for Volunteer Respite Services – Quebec ..........................................................................37 Tax Credit for Respite of Caregivers – Quebec ............................................................................37

6. REGISTERED DISABILITY SAVINGS PLAN ...............................................................................38 Grants and Bonds Available .........................................................................................................38 Payments ......................................................................................................................................38 Repayment of CDSGs and CDSBs ...............................................................................................39 End of Plan ....................................................................................................................................39 Plan Transfers ...............................................................................................................................39

7. INDEMNITY FOR CLINICAL TRIAL – QUEBEC ..........................................................................39

SECTION V – EMPLOYEES .....................................................................................................................40

1. TAXABLE BENEFITS ...................................................................................................................40 Insurance Plans ............................................................................................................................40 Employer Automobile ....................................................................................................................41 Employee Loans ...........................................................................................................................43

2. STOCK OPTIONS .........................................................................................................................43 Shares of Canadian-Controlled Private Corporations ...................................................................44

3. NON-TAXABLE BENEFITS ..........................................................................................................44 Automobile Allowance ...................................................................................................................44

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Director’s Allowance ......................................................................................................................44 Professional and Union Dues .......................................................................................................45 Tuition and Training Costs ............................................................................................................45 Parking Costs ................................................................................................................................45 Overtime Payments .......................................................................................................................46 Social Events for Employees ........................................................................................................46 Emergency Volunteers ..................................................................................................................46 Gifts and Awards ...........................................................................................................................46 Collective or Public Transit Passes – Quebec ..............................................................................47 Other Non-Taxable Benefits .........................................................................................................47

4. EMPLOYMENT EXPENSES ........................................................................................................48 Motor Vehicle Expenses ...............................................................................................................49 Meal, Travel and Entertainment Expenses ...................................................................................50 Supplies and Equipment ...............................................................................................................50 Employees Working in Forestry Operations .................................................................................51 Employed Musicians and Artists ...................................................................................................51 Workspace in Home ......................................................................................................................51 Professional and Union Dues .......................................................................................................52 Moving Expenses ..........................................................................................................................52 Legal Fees ....................................................................................................................................53

5. INCENTIVES FOR WORKERS ....................................................................................................53 Canada Employment Credit – Federal ..........................................................................................53 Working Income Tax Benefit – Federal .........................................................................................53 Work Premium – Quebec ..............................................................................................................53 Deductions for Workers – Quebec ................................................................................................54 Tax Credit for Experienced Workers – Quebec ............................................................................54

6. TIPS – QUEBEC ...........................................................................................................................54

7. NEW GRADUATES WORKING IN REGION – QUEBEC ............................................................54

8. FOREIGN SPECIALISTS – QUEBEC ..........................................................................................54

9. VOLUNTEER FIREFIGHTERS AND SEARCH AND RESCUE VOLUNTEERS ..........................55 Volunteer Firefighters ....................................................................................................................55 Search and Rescue Volunteers ....................................................................................................55 Accumulating Hours ......................................................................................................................55

10. GST/HST AND QST REFUND .....................................................................................................55

11. SALARY DEFERRALS .................................................................................................................55 Bonus ............................................................................................................................................55 Employee Benefit Plan ..................................................................................................................55 Salary Deferral Arrangement ........................................................................................................55 Sabbatical .....................................................................................................................................56

SECTION VI – BUSINESSES....................................................................................................................57

1. OPERATING A BUSINESS ..........................................................................................................57 Internet-based Activities ................................................................................................................57

2. YEAR-END ....................................................................................................................................57 Optional Method ............................................................................................................................57 Information Return – Quebec ........................................................................................................58

3. INCOME ........................................................................................................................................58 Business or Professional Income ..................................................................................................58 Other Income ................................................................................................................................58 Professionals’ Work-in-Process ....................................................................................................58

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4. BUSINESS LOSSES .....................................................................................................................58

5. INCENTIVES FOR WORKERS ....................................................................................................58

6. GENERAL BUSINESS EXPENSES .............................................................................................59 Meals and Entertainment Expenses .............................................................................................59 Capital Cost Allowance .................................................................................................................61 Interest ..........................................................................................................................................61 Fines and Penalties .......................................................................................................................61 Professional Dues .........................................................................................................................62 Legal and Accounting Fees ..........................................................................................................62 Home Office ..................................................................................................................................62 Automobile ....................................................................................................................................62 Employee Public Transit or Employee Group Transportation – Quebec ......................................62 Private Health Insurance Plan – Federal ......................................................................................63

7. EMPLOYER CONTRIBUTIONS ...................................................................................................63

8. GST/HST AND QST ......................................................................................................................63

9. TAX CREDITS ..............................................................................................................................63 Credit for Reporting Tips – Quebec ..............................................................................................63 Scientific Research and Experimental Development ....................................................................64 Apprenticeship and Training Credits .............................................................................................64

10. FARMING ......................................................................................................................................65 Definition .......................................................................................................................................65 Related Business ..........................................................................................................................65 Methods of Reporting Income .......................................................................................................66 Income Averaging .........................................................................................................................67 Farm Losses .................................................................................................................................67 Investment Tax Credit – Federal ...................................................................................................67 Donation of Agricultural Products – Quebec and Ontario .............................................................68 Transfer of Farm and Fishing Property .........................................................................................68

11. SHAREHOLDERS-MANAGERS ..................................................................................................68 Remuneration ................................................................................................................................69 Year-End Bonus ............................................................................................................................69 Loans and Advances .....................................................................................................................69 Capital Dividend ............................................................................................................................71 Responsibility of Corporate Directors ...........................................................................................71

12. INCORPORATION OF PROFESSIONALS ..................................................................................71

SECTION VII – INVESTMENTS ................................................................................................................73

1. NATURE OF TRANSACTIONS ....................................................................................................73 Disposal of Canadian Securities ...................................................................................................73

2. CAPITAL GAIN OR LOSS ............................................................................................................74 Reserve .........................................................................................................................................74 Share Exchange ............................................................................................................................74 Foreign Currency Transactions .....................................................................................................75 Donations ......................................................................................................................................75 Principal Residence ......................................................................................................................75

3. CAPITAL GAINS DEDUCTION ....................................................................................................75 Cumulative Net Investment Loss ..................................................................................................76 Allowable Business Investment Loss ............................................................................................76 Capital Gain – Reinvestment and Deferral of Taxation ................................................................76

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4. INTEREST INCOME .....................................................................................................................76 Treasury Bills ................................................................................................................................76 Indexed Securities .........................................................................................................................77 Hybrid Financial Instruments ........................................................................................................77

5. DIVIDEND INCOME ......................................................................................................................77 Spouse’s Dividend Income ...........................................................................................................77

6. INVESTMENT INCOME COMPARISON ......................................................................................78

7. FOREIGN INVESTMENTS ...........................................................................................................78 Foreign Tax Credit ........................................................................................................................78 Declaring Foreign Investments .....................................................................................................78

8. LEASING .......................................................................................................................................79 Income ..........................................................................................................................................79 Losses ...........................................................................................................................................79 Expenses ......................................................................................................................................79 Special Situations ..........................................................................................................................80

9. INTEREST AND FINANCIAL EXPENSES ...................................................................................81 Eligible Expenses ..........................................................................................................................81 Investment Advisors ......................................................................................................................82 Loss of Income Source .................................................................................................................82

10. INVESTMENT PROGRAMS .........................................................................................................82 Limited Partnerships .....................................................................................................................82 Labour-Sponsored Venture Capital Corporations .........................................................................82 Capital régional et coopératif Desjardins ......................................................................................83 Cooperative Investment Plan ........................................................................................................83 Flow-Through Shares ....................................................................................................................84 Small Business Investor Tax Credit ..............................................................................................85 Mutual Funds ................................................................................................................................85 Segregated Funds .........................................................................................................................85 Income Trust and Publicly-Traded Partnership ............................................................................86

11. TAX-FREE SAVINGS ACCOUNT ................................................................................................86

12. ALTERNATIVE MINIMUM TAX ....................................................................................................87

13. HOLDING COMPANIES ...............................................................................................................87

SECTION VIII – RETIREMENT ASSISTANCE PROGRAMS ...................................................................88

1. REGISTERED RETIREMENT SAVINGS PLANS ........................................................................88 Contributions .................................................................................................................................88 Unused Contributions ....................................................................................................................90 Unused Deductions .......................................................................................................................90 Information Supplied by the CRA ..................................................................................................90 Contributions to a Spousal RRSP .................................................................................................91 Over-Contributions ........................................................................................................................91 Financing RRSP Contributions .....................................................................................................92 Fund and Investment Transfers ....................................................................................................92 Qualified Investments ....................................................................................................................93 Prohibited Investments ..................................................................................................................93 RRSP Advantage ..........................................................................................................................94 Property Pledged as Security .......................................................................................................94 Matured RRSPs ............................................................................................................................94 Deductions at Source on Withdrawals ..........................................................................................94 Administration and Management Fees .........................................................................................95 RRSP and Alternative Minimum Tax ............................................................................................95

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RRSP Beneficiaries Upon Death ..................................................................................................95 Home Buyer’s Plan .......................................................................................................................95 Lifelong Learning Plan ..................................................................................................................95

2. REGISTERED RETIREMENT INCOME FUND ............................................................................95

3. EMPLOYER PENSION PLANS ....................................................................................................95 Registered Pension Plan...............................................................................................................95 Deferred Profit Sharing Plan .........................................................................................................95 Characteristics of RPPs and DPSPs ............................................................................................96 Deductible Contributions ...............................................................................................................97 Transfer of RPP Funds .................................................................................................................97 Purchase of Past Service by RPP ................................................................................................97 Pooled Registered Pension Plans and Voluntary Retirement Savings Plans ..............................98 Individual Pension Plan .................................................................................................................98 Simplified Pension Plan ................................................................................................................98 Retirement Compensation Arrangement ......................................................................................99

4. PENSION INCOME SPLITTING ...................................................................................................99 QPP and CPP Benefits .................................................................................................................99

SECTION IX – VISITORS TO THE U.S. ................................................................................................. 100

1. TAX TREATY ............................................................................................................................. 100

2. SOJOURNING IN THE U.S. ...................................................................................................... 100 Deemed Residence .................................................................................................................... 100 U.S. Source Income ................................................................................................................... 101

3. U.S. REAL ESTATE ................................................................................................................... 101 Rental Income ............................................................................................................................ 101 Sale of Real Estate .................................................................................................................... 102

4. U.S. ESTATE TAXES ................................................................................................................ 102

5. INDIVIDUAL TAX IDENTIFICATION NUMBER ........................................................................ 103

6. GOVERNMENT HEALTH INSURANCE PLANS ....................................................................... 103

7. TAX RATES ............................................................................................................................... 103

SECTION X – ESTATE PLANNING ....................................................................................................... 104

1. FAMILY BUSINESS ................................................................................................................... 104 Succession Planning .................................................................................................................. 104

2. ESTATE FREEZE ...................................................................................................................... 105

3. TRUST ....................................................................................................................................... 106

4. LIFE INSURANCE ..................................................................................................................... 107

5. WILL PLANNING ....................................................................................................................... 107

SECTION XI – DECEASED PERSONS ................................................................................................. 109

1. TAX RESPONSIBILITIES .......................................................................................................... 109 Old Age Security Pension .......................................................................................................... 109 Quebec Pension Plan and Canada Pension Plan ..................................................................... 109 Goods and Services Tax Credit ................................................................................................. 109 Solidarity Tax Credit ................................................................................................................... 110 Canada Child Benefit and Child Assistance Payment ............................................................... 110 Instalments ................................................................................................................................. 110

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2. TAX RETURNS .......................................................................................................................... 110 Filing of the Returns ................................................................................................................... 110

3. INCOME ..................................................................................................................................... 111 Allocation of Income ................................................................................................................... 111 Disposition of Capital Properties ................................................................................................ 112

4. REGISTERED PLANS ............................................................................................................... 112 RRSP and RRIF ......................................................................................................................... 112 TFSA .......................................................................................................................................... 113 RDSP ......................................................................................................................................... 114

5. DEDUCTIONS AND TAX CREDITS .......................................................................................... 114 Distribution ................................................................................................................................. 114 RRSP Contributions ................................................................................................................... 114 Deductions Relating to Investment Plans – Quebec ................................................................. 114 Funeral and Estate Administration Expenses ............................................................................ 114 Charitable Donations .................................................................................................................. 114 Medical Expenses ...................................................................................................................... 115 Capital Losses ............................................................................................................................ 115

6. ESTATE INCOME ...................................................................................................................... 115

7. DEATH BENEFITS .................................................................................................................... 115 Death Benefit ............................................................................................................................. 115 QPP or CPP Death Benefit ........................................................................................................ 115

8. AMOUNTS REIMBURSED BY AN ESTATE ............................................................................. 116

9. DISTRIBUTION OF PROPERTY ............................................................................................... 116

10. PROBATE FEES ........................................................................................................................ 116

SECTION XI – SOCIAL PROGRAMS AND BENEFITS ........................................................................ 117

1. EMPLOYMENT INSURANCE CONTRIBUTIONS AND QUEBEC’S PARENTAL INSURANCE PLAN .................................................................................................................... 117 Employment Insurance .............................................................................................................. 117 Quebec Parental Insurance Plan ............................................................................................... 117

2. QUEBEC PENSION PLAN AND CANADA PENSION PLAN .................................................... 119 Contributions .............................................................................................................................. 119 Benefits ...................................................................................................................................... 119

3. OLD AGE SECURITY PENSION ............................................................................................... 121 Complementary Provincial Benefits ........................................................................................... 122

4. HEALTH SERVICES FUND – QUEBEC .................................................................................... 122 Employers .................................................................................................................................. 122 Individuals .................................................................................................................................. 122

5. OCCUPATIONAL HEALTH AND SAFETY ................................................................................ 123 Quebec ....................................................................................................................................... 123 Ontario ....................................................................................................................................... 123 New Brunswick ........................................................................................................................... 123

6. LABOUR STANDARDS – QUEBEC .......................................................................................... 123

7. HEALTH CONTRIBUTION......................................................................................................... 123 Quebec ....................................................................................................................................... 123 Ontario ....................................................................................................................................... 124

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8. EMPLOYER HEALTH TAX – ONTARIO .................................................................................... 124

9. DRUG INSURANCE .................................................................................................................. 125 Quebec ....................................................................................................................................... 125 Ontario ....................................................................................................................................... 125 New Brunswick ........................................................................................................................... 126

10. ASSISTANCE TO PARENTS AND FAMILIES ................................................................................. 126

11. SALES TAX CREDITS ...................................................................................................................... 126

INDEX

1


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 July 19, 2016 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

CCB Canada Child Benefit

CDSB Canada Disability Savings Bond

CDSG Canada Disability Savings Grant

CESG Canada Education Savings Grant

CNESST Commission des normes, de l’équité, de la santé et de la sécurité du travail

CPP Canada Pension Plan

CRA Canada Revenue Agency

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 2


SECTION I – TAX SYSTEM

RECENT CHANGES

– Since 2016, for federal purposes, the tax rate applicable to the second tax bracket is reduced from 22% to 20.5% and a new 33% tax bracket applies to taxable income over $200,000.

– Since 2016, in New Brunswick, the top marginal tax rate of 25.75% is eliminated and the rate applicable to taxable income over $150,000 has been decreased from 21% to 20.3%.

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 2016 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 $231 in 2016 and an additional $427 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 2016 does not exceed $16,285 (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;

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 (see Section II);

He/she wants to receive the CCB;

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);

In the last year, he/she received advance payments of a tax credit or benefit or the work premium;

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 statutory holiday 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.

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



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 and delaying the

payment of certain income-based benefits.

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

Auto-fill My Return

The CRA offers a secure service which allows individuals to automatically fill-in parts of their income tax return. The information is taken from tax information slips filed for the individual and information available in the CRA’s files.

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 Interest is compounded daily on any balance due after this limit date.

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:

2016 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.

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.

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%.



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.

Think about increasing your source deductions to avoid having a high balance or instalments to pay when filing

your income tax return.

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 payable 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 2016 is from farming or fishing and whose net income tax payable for 2014 to 2016 exceeds $1,8006 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 $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 2016 income, which should be lower than in 2015 because he retired in June of 2016. His March, June and September 2016 payments are in line with expectations. However, on December 1, 2016, 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 $1,000.7 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 2016, 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 by the deadlines in order to avoid non-deductible penalties

and 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.

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.

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



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 contacting the tax authority office. 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 2015 return on April 30, 2016 but was unable to do so. On October 1, 2016, she files her income tax return for 2015. She receives a notice of assessment dated March 1, 2017 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, 2017 to file a federal notice of objection with respect to her 2015 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 Auto-fill my return service can also be used through My Account (see point 2 in this section).

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 10


SECTION II – INDIVIDUALS AND FAMILIES

RECENT CHANGES

– In Ontario, the tax credit for children’s activities will be eliminated as of January 1, 2017.

– In New Brunswick, low and middle-income families can benefit from a new HST refundable tax credit.

– The deduction for residents of remote areas was increased in 2016.

– The capital gain on certain donations involving private corporation shares or real estate will not be tax-exempt in 2017, as this measure was cancelled.

FEDERAL

– The UCCB and CCTB were cancelled and replaced by the new CCB, payable as of July 2016.

– The family tax cut is eliminated as of 2016.

– The tax credits for fitness and artistic activities for children were reduced in 2016 and will be eliminated as of 2017.

– Since 2016, individuals subject to a marginal tax rate of 33% benefit from an enhanced tax credit for charitable donations.

QUEBEC

– A temporary tax credit is offered for eco-friendly home renovation.

– The tax shield is effective in 2016 and its base is broadened.

– Since April 1, 2016, a new supplement is added to the child assistance payment for handicapped children with exceptional care needs.

– The tax credit for charitable donations is increased for 2016 and 2017.

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.8

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.

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



Example: Martin and Anne have lived in a marriage-like relationship for two years. On December 3, 2015, they separate but start living together again on January 15, 2016. As the separation lasted for less than 90 days, they will be considered as spouses on December 31, 2015.

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.

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

Canada Canada Child Benefit

The CCTB and UCCB were replaced by the CCB in 2016. The CCB is a non-taxable monthly benefit paid to low- and middle-income families to help them pay for the needs of their children. The maximum annual benefit amount is $6,400 per child under 6 years of age and $5,400 per child aged 6 to 17 years. Benefit amounts start to be reduced when the family income reaches $30,000.

To qualify, an individual 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 receive one-half of the benefit each.

The CCB 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.9 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.

Disabled Children

An additional amount up to $2,730 is payable in respect of a child who qualifies for the disability credit.

Universal Child Care Benefit

UCCB payments ceased after June 2016. These payments from the federal government reached $160 per month for each child under age 6 and $60 per month for each child aged 6 to 17 years. 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.10

Child Assistance Payments – Quebec

The CAP is a non-taxable credit managed by Retraite Québec (Quebec Retirement). It is payable in advance in January, April, July and October of the year, or on the first of each month upon the taxpayer’s

9 Therefore, the entitlement to the CCB paid for the period from July 2016 to June 2017 is based on the 2015 income. To estimate the benefit amount you are entitled to, including provincial benefits administered federally, visit: http://www.cra-arc.gc.ca/bnfts/clcltr/cfbc-eng.html.

10 This election is not available for Quebec tax purposes.



request.11 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@ide12 is a tool offered on the Internet site of Retraite Québec 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, based on the number of children under the age of 18 in the family, as well as the income threshold that makes them eligible only for the basic minimum amount.

2016

CAP

Income threshold at which CAP reaches basic minimum7

$

Basicmaximum7

$

Basicminimum13

$

Couple

1 child 2,392 671 90,690 2 children 3,587 1,291 105,065 3 children 4,782 1,911 119,440 4 children 6,575 2,531 148,765

Single-parent family

1 child 3,231 1,006 90,281 2 children 4,426 1,626 104,656 3 children 5,621 2,246 119,031 4 children 7,414 2,866 148,356

Reduction threshold for couple $47,665

Reduction threshold for single-parent family $34,656

Reduction rate 4%

Monthly supplement for disabled child14 $189

11 This request may be made on-line on the Retraite Québec website at: http://www.rrq.gouv.qc.ca/en/services/services_en_ligne/soutien_aux_enfants/Pages/changement_frequence_sae.aspx.

12 Availble at: http://www.rrq.gouv.qc.ca/en/enfants/naissance/paiement_soutien_enfants/montant.htm.

13 Indexed annually. 14 Regardless of family income. Since April 1, 2016, an additional amount of $947 per month (indexed annually as of

2017) is added to this supplement where the handicapped children have exceptional care needs.



Ontario Child Benefit and Income Supplement

The Ontario Child Benefit can reach a maximum amount of $1,356 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 $20,706.15

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,16 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,17 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 study18

$

Per month of part-time study19

$

Under age 7 8,000 175 175 175

Between 7 and 16 years 5,000 100 100 100

Suffering from severe disability 11,000 250 250 250

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.

15 Benefit amount and income threshold for 2016; indexed annually. 16 Including, for federal purposes, parental contribution and the additional contribution required, where applicable, from

parents whose children attend a subsidized early childhood centre or school day care in Quebec. 17 Including Ontario and New Brunswick. 18 Minimum of three consecutive weeks and 10 hours of courses per week. 19 Minimum of three consecutive weeks and 12 hours of courses per month.



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.

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%20 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. Additionally, weekly ceilings that apply for amounts paid to attend a boarding school or camp have been increased by $25 each.21 Eligible expenses are not limited by the parents’ earned income.

Quebec does not recognize parental contributions (including the additional 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 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.

Since 2016, households subject to a decrease in their child care tax credit due to an increase in their income from work can benefit from some tax relief under the tax shield (see point 5 of this section).

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).

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. Provided the conditions are met, 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.

20 For 2016, the credit is 75% if the net family income does not exceed $34,800 and is gradually reduced to 26% when that income exceeds $155,095.

21 The ceilings of $175, $100 and $250 shown in the previous table increase respectively to $200, $125 and $275 in Quebec.



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 refundable tax credit equal to 15% of the lesser of $500or the eligible expenses incurred (maximum credit of $7522) for each child under 16 years old enrolled in an eligible program of physical activity. The “program of physical activity” has to be ongoing (at least 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.

This credit will be eliminated in 2017.

Children’s Art Tax Credits – Federal

Parents are entitled to a non-refundable tax credit equal to 15% of an amount up to $250 of eligible expenses (maximum credit of $37.5023) 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.

This credit will be eliminated in 2017.

Tax Credit for Youth Activities — Quebec

In 2016, Quebec grants a refundable tax credit equal to 20% of maximum expenses of $40024 (maximum credit of $80) 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 $8025 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 ($100 in 2016) was incurred for eligible expenses. The tax credit is offered to parents whose family income does not exceed $134,095.26

Ontario Children’s Activity Tax Credit

Ontario grants a refundable tax credit equal to 10% of the expense amount of up to $556 in 2016 (maximum credit of $56) in expenses incurred to enroll a child under 16 years of age in an eligible activity. An additional credit of $56 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. This credit will be eliminated in 2017.

22 Maximum expense amount reduced to $500 in 2016 ($1,000 in 2015). 23 Maximum expense amount reduced to $250 in 2016 ($500 before this date). 24 This amount will increase to $500 in 2017. 25 In 2016. This amount will increase to $100 in 2017. 26 Amount indexed annually.



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.

The following table summarizes the details of the federal, Ontario and Quebec adoption credits:27

2016 Federal Ontario Quebec

Credit Non-refundable Refundable

Rate 15% 5.05% 50%

Maximum expenses $15,45328 $12,21421 $20,000

Infertility Treatment

Quebec allows a refundable credit to offset a maximum amount of $20,000 of eligible infertility treatment costs by 20% to 80%. The credit rate varies according to the income and conjugal situation of the individuals incurring the costs. Subject to conditions, advance payments of this tax credit can be requested.

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).

Family Caregiver Tax Credit – Federal

Parents who have a child under 18 years of age with a prolonged and indefinite impairment are eligible for the family caregiver tax credit (see Section IV).

3. 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.

27 No credit in New Brunswick. 28 Indexed annually.



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.

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-taxable29 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

In the case of de facto spouses, legal fees incurred to negotiate a civil union or cohabitation contract or a breakup agreement to establish or negotiate the right to support payments are not deductible.

4. HOME ASSISTANCE

RénoVert Tax Credit – Quebec

A refundable tax credit is available for expenses paid by an individual before October 1, 2017 for eco-friendly residential renovations done to a dwelling that is the individual’s principal place of residence or winterized cottage whose initial construction was completed before 2016. The tax credit is equal to 20% of the eligible expenditures that exceed $2,500 to a maximum credit of $10,000 per eligible dwelling. To be entitled to the tax credit, the work done must satisfy certain recognized energy or environmental standards and be carried out by a contractor pursuant to an agreement entered into after March 17, 2016 and before April 1, 2017.

29 Does not apply to support payments for which the former spouse is the recipient.



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.

Other Credits or Home Assistance Program

Various tax credits and home assistance programs are available for seniors and persons with disabilities (see Section IV).

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 withdrawal30 or the four preceding calendar years.

Example: A taxpayer wants to make an HBP withdrawal on February 1, 2017. He/she must not have owned a home from January 1, 2013 to January 1, 2017.

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 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.

30 Except for the period ending 31 days before the date of the withdrawal.



5. OTHER CREDITS AND ASSISTANCE MEASURES

Charitable Donation

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

For federal purposes, there is an overall annual limit in donations of 75% of the taxpayer’s net income.31 Any unused creditscan be carried forward for a maximum five-year period. For federal purposes, since 2016, an individual with income taxed at the highest marginal rate of 33% can benefit from a tax credit for charitable donations calculated at this same rate. This credit rate applies to the lesser of the following amounts:

the amount by which the total gifts for the year exceeds $200, and

the amount by which the taxable income exceeds $200,000.

In Quebec, a similar measure will apply as of 2017 to allow individuals with income taxable at the highest marginal rate of 25.75% to benefit from a credit for donations at this rate.

Donations made by an individual may be claimed by his/her spouse. Combine donations in one tax return,

if this allows you to benefit from a higher credit.

First-Time Gift – Federal

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.

Since donations may be carried forward five years, it may be advantageous to carry them forward so as to benefit from a tax credit at a higher rate or maximize

the first-time donation super-credit.

Donation in Year of Death

The federal annual limit is increased from 75% to 100% of net income for donations made in the year of death or in the preceding year (see Section XI).

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.

31 This limit is eliminated in Quebec since 2016.



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 federal 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.

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.

The deferral period is increased from five to ten years for donations of ecologically sensitive property made after February 10, 2014.

Donation of Securities

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.

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.

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.

Donation of Agricultural Products

Ontario farmers donating certain agricultural products to food banks are entitled to an non-refundable tax credit equal to 25% of the value of the products donated.

In Quebec, the amount of a donation of eligible agricultural products made by an agricultural producer to a Moisson member, an Associate member or the Food Banks of Quebec can be



increased by 50% for the purposes of the calculation of the non-refundable tax credit for charitable donations.

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). However, the measures generally 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).

GST-HST Tax Credit

Federal

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 2015 to June 2016 $272 $143 $143

July 2016 to June 2017 $276 $145 $145

The maximum credit is reduced by 5% starting at a family net income threshold in excess of $35,926 whereas the supplement for a single person is reduced by 2% of the net income in excess of $8,948.

The CRA automatically determines eligibility for the credit. The quarterly payment takes 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.

New Brunswick

A new HST tax credit is offered as of 2016. Individuals with an income of less than $35,000 benefit from the maximum credit of $300 per person, $300 for a spouse and $100 for a child under 19 years of age, except for the first child from a single-parent family, for which $300 may also be granted. The credit is reduced by two cents for every dollar of income over $35,000.

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 unless the claimant elects to receive 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 $33,685.32 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. Since 2016, this tax credit is determined annually, rather than monthly, based on the information contained in the tax return for the previous year; it is paid on a monthly, quarterly or annual basis, depending on the value determined. The individual must be able to prove that he or she is, alone or jointly, the owner, tenant or subtenant of an eligible dwelling.33

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 $399 first $200

50% of next $350 next $930 next $350

33⅓% of next $525 next $1,697 next $525

Maximum contributions $1,275 $3,026 $1,075

Maximum credit $650 non-refundable $1,330 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 for a total maximum credit of $155.

Resident of a Remote Area

An individual who lives in a remote area for at least six consecutive months, beginning or ending in the year, can claim a deduction for the higher cost of living in these areas. The deduction is limited to 20% of the individual’s net income and includes two components. First, a deduction for housing of $11 per day34 is granted to an individual living in a prescribed northern zone. Second, employees in a remote area who receive taxable benefits from their employer related to travel can deduct certain expenses related to these travel. The deduction for a resident of a remote area is reduced by half for residents of a prescribed intermediate zone.

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

32 Threshold for the period from July 2016 to June 2017. Indexed annually. 33 Owners of a rental property must provide their tenants with an RL-31 slip for this purpose (see Section VII). 34 Since 2016 ($8.25 per day before this date). This deduction amount can be doubled if only one member of the

household requests the housing deduction.



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).

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.

Tax Shield – Quebec

Since 2016, a household subject to a reduced child care expense or work premium tax credit resulting from an increase in family income from work can benefit from a refundable tax credit, the tax, shield, that aims to offset part of this loss. The amount of the tax credit is determined by comparing the amount the couple would be entitled to for these two credits based on actual income to the amount the couple would have been entitled to based on “modified income”.

This credit is calculated according to a maximum increase in work income of $3,000 per spouse. The tax shield may be claimed by one of the two spouses or separated equally between them.

6. 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.

7. 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. The federal tax decrease for families is in line with this (see point 2 of this section)

Pension Income Splitting

See Section VIII.

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 2016) 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;

from a business or rental property, when one of the child’s parents is actively involved in this activity or is a partner of a partnership that earns such income.

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 25


SECTION III – EDUCATION

RECENT CHANGES

– For federal purposes, the education and textbook tax credits will be eliminated as of 2017.

– In Ontario, the education and tuition tax credits will be eliminated for courses starting after September 4, 2017.

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 undertake 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-secondary35 basis in Canada and, in certain instances, outside Canada36, 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%.37 In Ontario, the tuition tax credit will be eliminated and may no longer be claimed for courses starting after September 4, 2017.

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.

Education Tax Credit

For federal purposes, 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 ($539 in Ontario) per month for full-time students38 and on $120 ($161 in Ontario) per month for part-time students.39 This credit will be eliminated as of 2017.40

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. This credit will be eliminated as of 2017.

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. In Ontario and New Brunswick, this credit also applies to interest paid on Canadian loans to apprentices.

35 Or in a professional school if the student is at least 16 years of age. 36 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.

37 A transitional rule applies for certain tuition fees incurred before March 28, 2013 that are carried forward to a subsequent year.

38 Minimum of three consecutive weeks and 10 hours of courses per week. 39 Minimum of three consecutive weeks and 12 hours of courses per month. 40 In Ontario, the credit will no longer be available for courses starting after September 4, 2017.



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 tax 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 of the student

and his/her spouse

Transfer to spouse

Federal41 Quebec Federal7 Quebec Federal7 Quebec

Tuition fees Indefinitely Yes Maximum of

$5,000 in total42

Yes Yes

Maximum of $5,000 in total8

Yes43

Education Indefinitely n/a

n/a n/a

Textbooks n/a n/a

Interest on student loan

5 years Indefi-nitely 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.

41 Includes Ontario and New-Brunswick, except for the textbook credit that is not available in those provinces. It will still be possible to carry forward the balances for unused education and textbook tax credits following the elimination of these credits in 2017.

42 $6,922 in Ontario in 2016. 43 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 2016 credit equals to 20% of $2,130 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 2016 up to $7,610 ($5,480 if only one semester is completed in the year) to his/her father or mother, or allocate it between the two. There is a $1,675 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 VIII).

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).44

Example: In March 2016, 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 2016. 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 2016, 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; it is 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 for a child. Low- and middle-income families can get additional financial assistance. In general, the rules governing the QESI are the same as for the CESG.

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.

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



Summary – CESG and QESI

2016 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 $45,282 or less (QESI: $42,390)

40% of first $500 (additional $100 per beneficiary)


Family income between $45,282 and $90,563 (QESI: $42,390 and $84,780)



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 nor beneficiaries of an individual plan are 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.45 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

Parents who contribute to an RESP for a child with a severe disability can transfer RESP amounts to an RDSP (see Section IV) 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 an IPP) to finance full-time education for themselves or their spouses. An

45 For residents of provinces other than Quebec, the additional federal tax is 20%.



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 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.

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, SENIORS AND CAREGIVERS 32


SECTION IV – HEALTH, SENIORS AND CAREGIVERS

RECENT CHANGES

– A new federal tax credit for home accessibility for seniors and persons with disabilities is effective since 2016.

– Since 2016, in Quebec, the age required to be eligible for the age amount tax credit has gradually increased, and will reach 70 years in 2020.

– Since 2016, in Quebec, some seniors may be compensated for the increase in municipal taxes resulting from a significant review of the assessment roll.

– The Ontario healthy homes renovation tax credit will be eliminated as of January 1, 2017.

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 year46 and which was not used in the prior year.

Example: In 2016, an individual whose receipts cover the period from August 1, 2015 to December 31, 2016 can use medical expenses for the period from August 1, 2015 to July 31, 2016 or any other 12-month period ending in 2016.

The expenses must not have been reimbursed nor be reimbursable. Details about this tax credit for 2016, including the minimum eligible expense threshold, 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:47

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 and the New Brunswick Drug Plan (including deductible and co-insurance portions);

46 The reference period is 24 months in the year of death of the taxpayer or a dependent. 47 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.



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 around and to carry out activities of daily living.

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 (see Section V).

The Quebec and Ontario health premium (see Section XII) is not an eligible expense for the medical expense credit.

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 $2,237.48

In Quebec, there is no maximum for medical expenses incurred for a dependent and taxpayers are not required to take account of the net income of a dependent, for the purposes of the minimum expense threshold, 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 $3,465 ($2,985 in Quebec). The maximum credit is $1,187 ($1,166 in Quebec) and is reduced when net family income exceeds $26,277 ($22,560 in Quebec).49

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% minimum expense threshold as there is for the medical expense credit.

48 $2,266 in Ontario (up to a maximum amount of $12,214 in expenses) and $2,208 in New Brunswick. No expense limit is applicable in jurisdictions other than Ontario. Amounts for 2016, indexed annually.

49 Amounts for 2016, indexed annually.



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, for a continuous period of at least 12 months.50

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.

Certification

The first time a taxpayer claims a disability deduction or credit, he/she must obtain a certificate from a doctor or 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,51 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 2016 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 family52 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 dependent53 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.

50 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.

51 Including Ontario and New Brunswick. Quebec does not allow a supplement. 52 Parent, grandparent, brother, sister, uncle, aunt, niece or nephew. 53 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.



Non-taxable Benefits

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).

3. HOME ASSISTANCE – SENIORS AND PERSONS WITH DISABILITIES

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. In 2016, the refundable tax credit is 34% of eligible expenses.54 The annual expense limit is $19,500 ($25,500 for seniors recognized as being dependent) for a maximum annual credit of $6,630 ($8,670 for seniors recognized as being dependent) in 2016. The credit is reduced based on the income of the senior and his/her spouse in excess of $56,515, unless the senior is considered a dependent senior.55

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.

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.

Assistance Program to Offset Municipal Tax Increase – Quebec

Since 2016, seniors may partially offset a municipal tax increase pursuant to a substantial assessment roll increase in their principal residence. The potential subsidy amount is indicated on the tax bill sent by the municipality and the subsidy will be claimed on the tax return. To be eligible, the individual must be at least

54 The tax credit will increase to 35% in 2017. 55 Three percent reduction. Threshold indexed annually. No reduction applies based on family income regarding

seniors who are considered as being dependent.



65 years of age before the beginning of the year, have owned56 the residence for at least 15 years and his/her family income cannot exceed $50,000.57

Home Accessibility Tax Credit – Federal

Since 2016, a new non-refundable tax credit equivalent to 15% of up to $10,000 of expenses (maximum credit of $1,500) may be claimed for expenses incurred to renovate or alter a dwelling to make it more acces-sible for specified individuals, that is persons who are 65 years of age or older or persons with disabilities. The credit may be claimed by the specified individual or his/her spouse or by a member of his/her family who has claimed (or could claim) the amount for an eligible dependent, the amount for caregivers or the amount for persons with a disability over 18 years of age.

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. This tax credit will be eliminated as of January 1, 2017.

Seniors’ Home Renovation Tax Credit – New Brunswick

Seniors who own or rent a dwelling and family members who live with a senior may claim a refundable tax credit of a maximum amount of $1,000 per year in respect of eligible renovation expenses incurred up to a maximum of $10,000.

Home Buyers’ Plan

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).

4. OTHER ASSISTANCE MEASURES FOR SENIORS

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.58 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.

Tax Credit for Seniors’ Activities – Quebec

Quebec provides for a refundable tax credit equal to 20% of the expense up to a limit of $200 (maximum credit of $40) incurred by an individual to register for an eligible physical, artistic, cultural or recreational activity program. To be eligible, the individual must be at least 70 years of age at the end of the year and his/her taxable income must not exceed $40,865.59

56 Him/herself or his/her spouse. 57 Amount for 2016, indexed annually as of 2017. 58 There is no limit to the number of stays. 59 In 2016. Indexed annually.



5. CAREGIVERS

Amount for Caregivers – Federal

The federal government60 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 2016, 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 $2,121.61 This amount may be claimed in respect of a child under 18 years with a disability or 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 eligible dependent credit 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.

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 2016, this tax credit is composed of a basic universal amount of $642, and a $525 supplement, reduced when the relative’s income exceeds $23,330 (supplement nil at $26,611).62

If the relative is 70 years or older, he/she may 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 $1,000 in 2016.63

Credit for 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 equal to 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 $56,515.64

60 Including Ontario and New Brunswick. 61 2016 amount. Indexed annually. 62 The reduction rate is 16%. Amounts and thresholds are indexed annually. 63 Indexed annually as of 2017. 64 The reduction rate is 3%. Amount is indexed annually.



6. 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 thresholds65 Up to $90,563 Greater than $90,563

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 thresholds20 Up to $26,364 From $26,365 to $45,282 Greater than $45,282

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. CDSG and CDSB entitlements that are unused since the coming into force of the RDSP in 2008, 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.

The contributions are not deductible for tax purposes and are 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.

65 These thresholds, indexed annually, are those used to establish the rights for 2016, considering the income declared

in 2014. 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.



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. Therefore, $3 of the CDSG or CDSB received over the preceding 10 years must be repaid for each dollar withdrawn from the plan. This rule is more flexible with regards to beneficiaries with a reduced life expec-tancy. Furthermore, the total CDSG and CDSB amount received by the plan during the preceding 10 years must also be repaid when an RDSP ends.

Refunded amounts that were previously included in the beneficiary’s taxable income are tax-deductible.

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 XI. For an RESP transfer to an RDSP, see Section III.

7. 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 40


SECTION V – EMPLOYEES

RECENT CHANGES

– Since 2016, a new federal school supply tax credit is available for teachers and early childhood educators.

– The eligibility age for the tax credit for experienced workers will be decreased annually, reaching 62 years in 2018 and, since 2016, this tax credit is reducable according to work income.

– Since 2016, in Quebec, households without children benefit from an enhanced work premium.

It is essential to determine a person’s tax status as self-employed or employee. 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 criteria regarding employee status, including:

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;

a benefit for operating costs.

Personal Use

The use of the automobile by the employee to travel from home to the employer’s place of business is normally considered personal use under all tax rules, mainly those used to calculate taxable benefits.

Calculation of Benefits

1) Standby charge:66

Employer-owned automobile:

Automobile cost67 x 2%68 x

Number of days in a year automobile is available to employee

30 days

Employer-leased automobile:

Lease cost69 x ⅔ x

Number of days in a year automobile is available to employee

30 days

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:

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.

66 The benefit is reduced by all amounts repaid by the employee in the year. 67 Automobile cost includes commodity taxes. 68 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.

69 Lease cost includes commodity taxes and excludes insurance costs.



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

automobile after a few years.

2) Operating costs benefit:70

$0.2671 × 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

For tax law purposes, an automobile is a motor vehicle for transporting individuals with a maximum seating capacity of nine persons. However, this definition is subject to several exceptions.72

The benefits related to the actual personal use (and not the availability) of motor vehicles excluded from the definition of an automobile are also taxable. The benefit is therefore 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.

Employees can 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.

70 The benefit is reduced by any amount reimbursed by the employee no later than within 45 days of the end of the year; no benefit if all fees are reimbursed.

71 In 2016. $0.23 for individuals employed in selling or leasing automobiles. 72 Exclusions include primarily taxis and certain vans and minivans with three seats or less used to transport

merchandise. For more details, consult the document on the tax consequences related to the use of an automobile, published on Raymond Chabot Grant Thornton’s website: http://www.rcgt.com/en/on-line-tax-strategies/auto-route/.



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.

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 2016. 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.

When the prescribed rates of interest on loans to employees are low, it is 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 corporation73 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.

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



However, the employee is generally entitled to a 50% deduction for federal purposes (25% for Quebec purposes)74 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, 2010, 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 2011, John exercises his option. The FMV of the shares at that time was $15 per share. On May 1, 2016, John sells all of his shares for $12,000.

Tax consequences: There are no tax consequences in 2010 when the option is granted. There is no taxable benefit for John in 2011 because ABC is a CCPC and the gain on the shares qualifies for the deferral. In 2016, 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.

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 expenses75 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.76 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 employee considers that 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.

74 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.

75 For example, additional business insurance, parking, highway tolls or ferry costs. 76 2016 rates.



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 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;

overtime is only put in on an occasional basis;

the allowance is reasonable.77

The same tax treatment applies to allowances paid to employees for travelling from work to home to work overtime 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,78 ambulance technicians and other emergency service volunteers who are called upon to assist in emergencies) are entitled to a $1,000 ($1,130 in Quebec79) 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.

77 In general, the CRA considers an amount up to $17 reasonable. 78 Individuals who claim the tax credit for volunteer firefighters or for search and rescue volunteers (see point 9 of this

section) cannot benefit from this exemption with regards to the amounts received in connection with this function. 79 2016 amount. Indexed annually in Quebec.



The following table summarizes the different rules:

Federal Quebec E

lig

ible

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 cash80

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 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 $8.09 (in 2016) less any amount paid by the employee;

Distinctive uniforms, special clothing and safety equipment required for work;

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

80 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.



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 (outside the sole fact that an employer can, to a certain extent, benefit from having healthier employees);

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. The employer must certify that the employee’s working conditions enable him/her to deduct certain 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). Therefore, only the expenses incurred in connection with the employment are deductible. The 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 + tax81 $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 costs82 + Depreciation + Interest × Employment km

Total km

or

Operating costs17 + 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.

81 $34,493 for automobiles acquired since 2012. 82 Gas, oil, maintenance, repairs, insurance, licence, registration.



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.

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. Also, when the employer provides facilities to a work team to cook, for example in a train, each individual can claim $34 maximum per day to purchase provisions.

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 and Equipment

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.

A deduction is available for leasing costs relating to a computer, cellular telephone, 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.

Teachers and Early Childhood Educators

Since 2016, for federal purposes, teachers and early childhood educators are entitled to a 15% refundable tax credit based on an amount of up to $1,000 of expenses incurred during a taxation year for the purchase of eligible teaching supplies, as certified by the employer in a written statement.

For federal purposes, teachers can also deduct the cost of supplies not eligible for the credit that 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.

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. The first $1,161 ($1,140 in Quebec) of such costs is not deductible.83

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 for the purchase of a hair dryer or curling tongs, for instance.

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 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 their 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.

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

83 2016 amounts, indexed annually.



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 Non-refundable tax credit84 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 credit19 for: – Annual contribution (commodity taxes

excluded) 85 – 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.

Moving Expenses

When an individual moves within Canada to take up a new job (including a summer job) or to operate a business, 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.

84 Rate of 10%. 85 Insofar as the employee is entitled to a GST/HST and QST refund.



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, property 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 $0.50 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.86 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. However, 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. Only half of the amount paid to an employee in addition to this amount is taxable.

Additionally, 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), whereas some allowances paid by the employer are not taxable (see point 3 of this section).

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.

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 $1,16121 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 in the previous year, family situation and province of residence. An individual may apply for an advance payment of one-half of the benefit to which he/she is entitled for the year.87

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.88

86 Amounts for 2015. 2016 amounts will be available in January 2017. For updated rates and amounts, refer to the CRA Internet site at http://www.cra-arc.gc.ca/travelcosts/.

87 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.

88 The following site provides more information: http://www4.gouv.qc.ca/EN/Portail/Citoyens/Evenements/DevenirParent/Pages/credt_impot_prime_travail.aspx.



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. A full-time student can only benefit from the work premium if he/she is the parent of a child with whom her/she resides.

Since 2016, households subject to a decrease of their work premium due to an increase in their income from work can benefit from some tax relief under to the tax shield (see Section II).

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 $1,130.89

Tax Credit for Experienced Workers – Quebec

In 2016, individuals aged 64 and over90 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 $4,000 ($6,000 if the taxpayer is aged 65 and over).91 This tax credit can neither be carried over nor transferred to a spouse and, since 2016, is reduced when the work income exceeds $33,505.92

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. 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 diplomas and $8,000 for new graduates of a secondary school professional program).

8. 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.

89 For 2016. Indexed annually. 90 The eligibility age will decrease to 63 as of 2017 and 62 as of 2018. If the worker reaches the eligibility age during

the year, only the income earned from that time will be eligible for the tax credit. 91 Amounts for 2016; $4,000 (63 years old), $6,000 (64 years old) and $8,000 (65 years old and over) in 2017. Amounts

revised to $4,000 (62 years old), $6,000 (63 years old), $8,000 (64 years old) and $10,000 (65 years old and over) as of 2018.

92 Amount indexed annually. A transitional rule applies to taxpayers who were already aged 65 and over in 2015.



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.

9. VOLUNTEER FIREFIGHTERS AND SEARCH AND RESCUE VOLUNTEERS

Volunteer Firefighters

Volunteer firefighters who perform at least 200 hours of service during a year are eligible for a 15% (16% in Quebec) non-refundable tax credit on an amount of $3,000.

Search and Rescue Volunteers

Ground, air and marine search and rescue volunteers who perform at least 200 hours of service during a year are entitled to a 15% (16% in Quebec) non-refundable tax credit on an amount of $3,000.

Accumulating Hours

Individuals may only claim one of these tax credits. If individuals provide both volunteer firefighter and volunteer search and rescue services, they can accumulate hours from both activities in order to attain the total of 200 hours required to claim one of the credits. Moreover, individuals who claim one of these credits may not take advantage of the tax exemption for honoraria in respect of their duties as emergency service volunteers (see point 3 of this section).

10. 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. In Quebec, the refund received in respect of professional or union dues is not taxable (see point 4 of this section).

11. 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. However, if the bonus is paid within 180 days following the end of the taxation year it is declared, it can be deducted in the year (see Section VI).

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 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 57


SECTION VI – BUSINESSES

RECENT CHANGE

– In Quebec, forest producers benefit from an income-averaging mechanism for activities in respect of a private forest.

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.

Internet-based Activities

Self-employed workers who earn income from at least one web page or website must disclose information about their Internet activities to the CRA by attaching the prescribed form to their income tax return.

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, 2016. In his/her 2016 income tax return, he/she will have to include the net business income earned during the year ended March 31, 2016 plus an estimated amount equal to 9/12 of income for the same fiscal year. The additional amount that was added to income in 2015 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.93

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 twenty subsequent years.94

If you have business losses to be carried over against other income, ensure the amount will not cause you to lose your non-refundable tax credits (personal credits,

dividend tax credits, etc.).

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.

93 http://www.registreentreprises.gouv.qc.ca/en/services_ligne/default.aspx. 94 Ten years for losses incurred in a taxation year beginning before 2006.



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 (whether or not these expenses are 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 drivers95 in connection with certain trips96 is 80%. Moreover, self-employed truck drivers may not use the simplified method (see Section V) to determine their meal expense deduction.

95 A truck or tractor designed and used mainly to transport merchandise and whose normal gross weight is more than 11,788 kg.

96 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.



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.

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 in the Folder – Corporate Taxation and U.S. Federal Tax 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.

Exception

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 home97 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.

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.

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

their motor vehicle expenses.

For 2016, 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. For additional details regarding automobile expenses, see Section V.

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).

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



Private Health Insurance Plan – Federal

Amounts paid by an individual for a private health insurance plan are deductible provided:98

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 XII.

8. GST/HST AND QST

Businesses that are registered for GST/HST and 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 and 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.

98 There is no deduction in Quebec.



Scientific Research and Experimental Development

For federal and Quebec purposes99, individuals who carry out SR&ED work are entitled to a tax credit. In Quebec, the first $50,000100 in annual expenses does not give entitlement to the credit. To learn more about the 2016 rates, see Table C5 in the Corporate Taxation and U.S. Federal Tax 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.101 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 12% 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 16% 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.

When the following conditions are met, the 12% and 16% credit rates are increased to 20% and 25%, respectively:

The trainee is a student trainee;

It is at least the third consecutive taxation year for which the taxpayer is entitled to a tax credit for a student trainee;

The eligible expenditure in respect of a student trainee is at least $2,500 for each of these three years.

Apprenticeship Training Credit – Ontario

Individuals who carry on a business are entitled to a refundable tax credit varying between 25% and 30% on expenses incurred with respect to eligible trainees. The maximum 30% tax credit rate is attained when the business’s payroll for the previous year does not exceed $400,000. The employer is entitled to a maximum tax credit of $5,000 per trainee annually up to a maximum of $15,000 for the first 36 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.

99 In Ontario and New Brunswick, the credits are only offered to corporations. 100 Excluded expenses threshold applicable to a taxpayer whose total assets amount to less than $50M (amount

increased gradually up to $225,000 when the assets reach $75M). 101 Source: http://www.red-seal.ca/w.2lc.4m.2-eng.html.



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.

Income Averaging

In Quebec, for the purposes of income tax and the individual contribution to the HSF, a temporary mechanism makes it possible to average a portion of the income generated by non-retail sales of timber produced in a private forest for a period not exceeding seven years This mechanism applies to a certified forest producer (or a member of a qualified corporation) for taxation years ending after March 17, 2016, but before January 1, 2021.

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.102

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.103

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.

Example: Frank, for whom ostrich raising is not his principal source of income, incurs a $12,000 loss from the business in a taxation year. 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.

Investment Tax Credit – Federal

A person who carries on a farm business104 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).

102 Or, if the taxpayer’s main source of income is a combination of agriculture and another income source subordinate to agriculture.

103 Ten years for losses incurred in a taxation year beginning before 2006. 104 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.



Donation of Agricultural Products – Quebec and Ontario

See Section II.

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 (see Section VII) of $1M 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 (or a combination of these activities) such as 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 (or a combination of these activities) 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 (see Section XI).

Woodlots

An intergenerational tax-deferred rollover for woodlots is 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.

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 2016, receipt of a salary of $144,500 will allow the shareholder-manager to make a maximum RRSP contribution ($26,010) in 2017. A salary also enables a shareholder to contribute to the QPP/CPP or eventually participate in an IPP (see Section VIII).

The following must also be considered before making a final decision:

maintaining the corporation’s small business corporation status;

non-reimbursed 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 (see Section II);

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

Bonuses may be paid to enhance the shareholder--manager remuneration. When these bonuses are declared before the end of the corporation’s fiscal year, the corporation can immediately deduct them if they are 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 no later than 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 inter-personal 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 in this regard 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, 2014 and not reimbursed by July 31, 2016 will be included in the individual’s taxable income for the 2014 tax year, i.e. the calendar year during which the loan was granted. However, if the shareholder effectively reimburses the loan in 2017, a deduction equal to the amount of the reimbursement may be claimed in the 2017 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%105 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 more13 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 share-holder’s employment:106

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 2016). 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.

105 Alone or with persons with whom the shareholder is not dealing at arm’s length. 106 For rules concerning employee loans, see Section V.



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.107 In general, this benefit is only maximized if the income is not withdrawn from the company and is used to make capital

107 As of 2017, in Quebec, new criteria on the minimum number of hours worked will restrict eligibility for the SBD for

corporatons with a small number of employees. This new measure will notably impact professionals wishing to incorporate their practice.



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 73


SECTION VII – INVESTMENTS

RECENT CHANGES

– Since January 1, 2016, the annual ceiling for contributing to the TFSA is $5,500.

– The gradual adjustment to taxation parameters for eligible dividends planned for 2017 and subsequent years has been cancelled such that the federal tax credit rate and rate of increase applicable to these dividends remains unchanged after 2016.

– In New Brunswick, the credit rate applicable to ordinary dividends has been progressively reduced in 2016 and 2017 while the credit rate applicable to eligible dividends has progressively increased in 2016 and 2017.

– In Ontario, the tax credit rate for ordinary dividends was reduced as of January 1, 2016.

Federal

– The federal mineral exploration tax credit for flow-through shares has been extended.

– Since 2016, the tax credit for a labour-sponsored venture capital corporation has been re-established to a 15% rate.

Quebec

– The increased credit rate for acquiring Fondaction shares will be maintained until June 2018.

– The tax credit rate relating to the purchase of Capital régional et coopératif Desjardins shares has been reduced for shares acquired after February 29, 2016.

– Since 2016, owners of rental buildings must provide an RL-31 slip for tenants who are present as at December 31.

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 the nature of capital or income resembling business income 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 reasonable108 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 2016, 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 2016 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 2017, he will have to pay tax on a capital gain of $60,000 representing the reserve claimed in 2016. 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 reserve 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.

108 The CRA generally uses the following formula to calculate a reasonable reserve: Capital gain × Balance of proceeds of disposition Proceeds of disposition



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 private company shares, real property or certain securities listed on a Canadian stock exchange to a registered charity may be exempt from income tax (see Section II).

Principal Residence

See Section II.

3. CAPITAL GAINS DEDUCTION

Taxpayers who realize a capital gain upon disposition of the shares of a qualified small business corporation are entitled to a deduction of up to $824,176,109 i.e. taxable capital gain of $412,088. A ceiling of $1M applies to farming and fishing property (see Section VI). These ceilings constitute the limit of the taxpayer’s lifetime deduction for this type of property and other properties that were until 1994 subject to a $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.

109 Ceiling for 2016 indexed annually.



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 $800,000 on the sale of qualifying small business shares will only be entitled to a capital gains deduction of $600,000 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, 2016 that matures in June 2017 does not have to include in 2016 interest accrued as of December 31, 2016. In 2017, the individual is required to report interest earned from July 1, 2016 to June 30, 2017.

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 2016 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 2016. These calculations are based on the maximum marginal tax rate. Thus, in Quebec, an eligible dividend of 3.10% before taxes is equal to a 4% interest return before taxes, for a net tax return of about 1.9% in both cases.

2016 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 2.557 3.10 3.33

5 3,18 3.88 4.16

6 3.82 4.66 4.99

7 4.46 5.43 5.82

Ontario 4 2.54 3.06 3.40

5 3.17 3.83 4.25

6 3.81 4.60 5.10

7 4.44 5.36 5.95

New Brunswick 4 2.55 2.84 3.45

5 3.18 3.55 4.31

6 3.82 4.26 5.17

7 4.46 4.97 6.03

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 on foreign property income earned by a Canadian resident (see Section IX). 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 specified foreign investments (by filing form T1135 with his/her tax return) if the total cost of a Canadian taxpayer’s foreign property exceeds CAN$100,000110 at any time during the year. Taxpayers who do not comply with these various foreign reporting requirements are subject to stiff penalties.

Specified foreign property includes:

110 Since 2016, a simplified income tax regime is available when the cost of foreign property is lower than $250,000.



funds and bank accounts held abroad;

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 VIII).

Mandatory reporting (Quebec)

In Quebec, the RL-31 slip must be prepared by all persons or corporations that own a building with at least one rental unit. For the 2016 year, a copy of this slip will have to be remitted before February 28, 2017 to all individuals renting or subletting a unit as at December 31, 2016. Information provided on this slip is required for the purposes of the Solidarity Tax Credit (see Section II).

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. When a taxpayer makes major repairs to a rental property, he/she has to determine whether the expense is current or capital. 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.

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.

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 expenses111 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.

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 of the Forder – Corporate Taxation and U.S. Federal Tax 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.

111 In Quebec, an eligibility certificate may be required from the Régie du bâtiment.



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.

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;112

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;

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.

112 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.



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 VIII).

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 2015 to purchase common shares of 123 Inc. On January 5, 2016, 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, 2016.

Example: In 2013, Mr. Green borrowed $10,000 to purchase common shares of ABC Inc. On March 12, 2016, 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 corporations113

Federal Quebec New

Brunswick

Non-refundable tax credit 15%114

15% or 20%115

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 VIII).

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.

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 40% non-refundable116

Maximum annual credit $2,000 (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.

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

113 No credit is offered in Ontario. 114 10% in 2015. 115 The credit base rate is 15%. This rate is increased to 20% for shares issued by Fondaction before June 1, 2018. 116 Rate applicable to shares acquired after February 29, 2016 (45% before this date).



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.

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, 2017.

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

10%



Federal Quebec Ontario

Surface exploration expenses or oil and gas exploration expenses incurred in Quebec

10%

Issuance expenses 100%117

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 50%, up to $125,000 per year for annual investments up to $250,000 per investor.118 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.

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, 2016, Mr. George and Mr. Lake each acquired an interest in ABC Fund for a unit cost of $1,000. During 2016, ABC Fund earned $300 per unit that will be distributed at the end of the year. On December 8, 2016, 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 2016 on the sale of his unit. Mr. Lake sold his interest on January 15, 2017 when the FMV of his unit was $800. He will have to include the $300 distribution in income in his 2016 tax return. In 2017, 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.

117 Maximum of 12% of issue proceeds. 118 For additional information, refer to http://www2.gnb.ca/content/gnb/en/departments/finance/taxes/credit.html.



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 2016 is $5,500.119 Unlike the RRSP, TFSA contributions are not deductible for tax purposes. However, capital and income withdrawals are not taxable.

Consider making a donation to your child or adult grand-child to invest in a TFSA so that the amounts

invested can earn income tax-free

The following table compares the main features of the most common registered plans, i.e. RRSP, RESP and TFSA.120

RRSP RESP TFSA

Contributions

Annual maximum Lesser of: 18% of previous

year’s earned income Annual limit ($25,370

in 2016)

No limit $5,500/year since 2016 and for the 2013and 2014 years

$10,000 in 2015 $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

119 Amount indexed annually since 2010 and rounded to nearest $500 (corresponding to $5,559 in 2016, before rounding). Contribution ceiling was $10,000 in 2015, $5,500 in 2013 and 2014 and $5,000 for 2009 to 2012.

120 Parents who want to save for the financial security of a handicapped child can also invest in an RDSP (see Section IV).



RRSP RESP TFSA

Annual maximum None Withdrawals do not

create new contribution room

Unlimited for full-time studies121

$2,500 per part-time session

None Withdrawals create

new contribution room next year

Particularities based on savings objectives

Education Withdrawal limits applicable122

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 these purposes

Retirement Accumulated savings must be withdrawn or transferred to another vehicle before December 31 of the year of the annuitant’s 71st birthday

12. ALTERNATIVE MINIMUM TAX

The AMT was designed to ensure that all individuals123 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 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

Generally, the income taxes currently payable on investment income earned through a corporation resident in Quebec are basically the same, although slightly higher 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.

121 Limit of $5,000 for first full-time session. 122 Under terms of Lifelong Learning Plan ($20,000) and HBP ($25,000). 123 Including testamentary and inter vivos trusts. The AMT does not apply in the year of death.

Section VIII – RETIREMENT ASSISTANCE PROGRAMS 88


SECTION VIII – RETIREMENT ASSISTANCE PROGRAMS

RECENT CHANGE

– The process for enrolling in the Ontario Retirement Pension Plan should begin in January 2017 and the first contributions should be collected starting in 2018.

The purpose of retirement assistance programs is to provide individuals with financial independence based on their desired lifestyle when they retire, by complementing public retirement savings plans (see Section XII). Given today’s longer life expectancies, individuals must plan for and invest increasingly greater amounts to cover longer retirement periods.

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 when 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;

the annual limit for the year, as shown in the following table:

Year RRSP Limit

2015 $24,930

2016 $25,370



2017 $26,010

2018 Indexed124

Make your RRSP contribution at the beginning of the year to maximize the tax-deferred investment income.

To contribute the maximum in 2016, 2015 earned income must have been more than $140,944. To contribute the maximum in 2017, 2016 earned income must be at least $144,500.

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.

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 2016 is indicated in a special box on the 2015 T4 slip.

124 Indexed based on the average salary increase in the industry.



Example: An individual who had earned a salary of $70,000 in 2015 and who was not a member of an RPP or a DPSP may contribute $12,600 to an RRSP in 2016. If in 2014 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 2015), his/her deductible contribution for 2016 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 $25,370 to his/her RRSP for 2016 but only contributes $9,500. Assuming his/her 2016 earned income is sufficient for the maximum $26,010 deduction in 2017, he/she could contribute and deduct up to $41,880 in 2017 ($26,010 + [$25,370 - $9,500]).

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 2016 could carry forward all or part of his/her deduction to 2017 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: This year, 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. Never-theless, 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:125

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 2016. No withdrawal should be made before January 2019 (assuming no additional contributions are made to the spousal RRSP after 2016).

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.

Example: An individual with earned income of $50,000 in 2015 who contributed $10,500 in 2016 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 $ –

125 Rule does not apply if, when the withdrawal is made, the spouses are living separately due to the breakdown of their union. When funds are withdrawn from a RRIF, rule applies to amount in excess of mandatory minimum withdrawals.



However, if the taxpayer contributes $14,000 in 2016, a penalty will be charged on $3,000. The penalty could cease to apply as of January 2017 provided the individual has earned income in 2016 creating new contribution room.

Consider making a gift of $2,000 to a major child or grandchild 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 that is not 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 penalties.126 Included among the main prohibited investments are:

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.

126 Certain transitional rules may apply with respect to investments that became prohibited investments due to the introduction of these rules on March 23, 2011. This relief applies to the income and capital gain made on such an investment before 2022. An election must be filed in this regard by March 1, 2013 to benefit from this relief.



RRSP Advantage

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;

specified non-qualified 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,

also 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 XI). Upon death, an RRSP may be transferred to an RDSP belonging to the deceased’s child or grandchild (see Section XI).

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 only127

Maximum annual contributions

Based on actuarial needs

No annual limit128

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

127 Amount of contribution is based on company’s earnings. 128 If contributions are required to finance benefits not exceeding maximum limits permitted.



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 2015 to 2017, the limits are:

Year Benefits limit – defined

benefits RPP129

Contribution limits130

Money purchase RPP DPSP131

2015 $2,819 $25,370 $12,685

2016 2 890 $ 26 010 $ 13 005 $

2017 Indexed132 Indexed133 Indexed10

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.134 Moreover, a taxpayer’s participation in an RPP during calendar years covered by the purchase has an impact on the applicable rules.

129 Per year of service. 130 Contribution is limited to the lesser of 18% of the compensation for the year or the annual limit. 131 Limit equals one-half of the money purchase RPP limit. 132 1/9 of the RPP specified contribution limit. 133 Indexed based on average industries salary increase. 134 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 purpose of PRPPs, implemented by the federal government, and VRSPs, implemented by the Quebec government, is to offer defined-contribution pension plans adapted to the needs of self-employed workers and small businesses. 135

Quebec employers are subject to one of these plans, according to their area of activity. For businesses doing business under federal jurisdiction, the PRPP rules 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 at least five employees aged 18 or over with at least one year of continuous service will have to offer a VRSP by the following dates if they do not already offer a wage-deduction based retirement savings plan to their employees:

December 31, 2016, if they have 20 or more employees at their service on June 30, 2016;

December 31, 2017, if they have 10 to 19 employees at their service on June 30, 2017;

The date that will be determined by the Government,136 if they have 5 to 9 employees at their service.

Past this date, any employer who is required to offer VRSPs as at December 31 of a given year, will have one year to comply.

Conversely, the federal law establishing PRPPs does not oblige employers to offer this plan to their employees. In both cases eligible employers who wish to do so can offer such a plan to their employees as of now.

Participants’ contributions to these plans are deductible from their taxable income and are added to those made to an RRSP for the purposes of the annual deduction limit.

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).

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.137

135 By January 2017, Ontario should have implemented the Ontario Retirement Pension Plan, which is a new mandatory public retirement plan for employees who do not have a pension plan with their employer. The process for enrolling in this new plan should being in January 2017 and the first contributions are expected to be collected in 2018.

136 This date cannot be prior to January 1, 2018. 137 For additional information, go to the Internet site of the Retraite Québec at: http://www.rrq.gouv.qc.ca/en.



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).

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;

Certain PRPP or VRSP benefits.

Eligible pension income of individuals who are under 65 years of age138 includes, for federal purposes, RPP life annuity payments 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 XII) benefits can be split between spouses upon request. They simply need to make a request with the relevant tax authorities.

138 In Quebec, an individual may not split any retirement income before 65 years of age.

Section IX – VISITORS TO THE U.S. 100


SECTION IX – VISITORS TO THE U.S.

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. It is important to note that not all states apply the Canada – United States Tax Treaty.

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.139 Each U.S. state has its own residence rules, and the filing period is similar with that of the United States.

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 2014, 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 2014, 2015 and 2016 respectively.

In 2016, Ms. Lawson will be considered a U.S. resident by virtue of the three-year criterion, calculated as follows:

2016 – Current year 144 days

2015 – Preceding year: 1/3 × 114 38 days

2014 – Second preceding year: 1/6 × 132 22 days

Total 204 days

139 As Canadian residents, they are still subject to Canadian income tax.



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 (2015), they sojourned in the U.S. less than 183 days;

They do not have and have not applied for a green card (permanent resident of the United States);

Their habitual residence is in Canada;

They have maintained close social and economic ties with Canada.

As mentioned previously, U.S. states have their own residence rules and filing Form 8840 does not prevent their application.

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 income140 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;141 for state purposes, the filing deadline remains April 15 if the U.S. source income is subject to the state tax of one or more states.

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. Filing extensions may also be granted by the states.

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.

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.

140 Income from properties in the U.S., partnerships, trusts, rentals, businesses or any other U.S. source income. 141 Or April 15, if the U.S. non-resident earned employment income subject to source deductions in the U.S.



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.

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 15% 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 or a member of his or her family occupies the residence for 50% or more of the days that the property is used by any individual for each of the two first 12-month periods following the sale date.

If the American income tax on the gain from the sale of the property will be less than the 15% 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 15%. 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 2016, 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$2,125,800 credit in 2016 is equal to a US$5,450,000 exemption. Consequently, a Canadian whose world estate is valued at less than US$5,450,000 will often not have to pay U.S. federal estate taxes.



Example: In 2016, 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$106,930 calculated as follows: basic tax of US$425,800 less a credit of US$318,870 (US$1,200,000 ÷ US$8,000,000 × US$2,125,800).

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 XI). As a full foreing tax credit (see section VII) 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. INDIVIDUAL TAX IDENTIFICATION NUMBER

Any person who is not an American citizen and does not have a social security number in the U.S. must get an individual tax 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 and ensure to get additional coverage where required.

7. TAX RATES

U.S. federal tax rates for individuals and corporations are available in tables US1 and US2 included in the Corporate Taxation and U.S. Federal Tax Rates folder, at the end of the Tax Planning Guide.

Section X – ESTATE PLANNING 104


SECTION X – ESTATE PLANNING

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. 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;

Power of attorney in the event of incapacity;

Will;

Life insurance;

Estate freeze;

Shareholders’ agreement, if any;

Business succession;

Planned charitable donations.

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 his or her succession plan 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 to business transfers, 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 take place several 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 XI). 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 matters relating to tax,

corporate law and matrimonial law may come into play. Accordingly, specialists should be consulted when any

plan for an estate freeze is developed.

3. TRUST

As the average life expectancy of Canadians is increasing, 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, including life insurance products can ensure the necessary financing pursuant to the shareholder agreement clauses relating to share transfers on death. It also has to be determined whether the insurance 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,142 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.

142 Common-law spouses are normally not recognized by law for this purpose.

Section XI – DECEASED PERSONS 109


SECTION XI – 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 CCB 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

As with the OAS pension, the right to receive an QPP or CPP annuity ceases as of the month following the death. Any beneficiary eligible for one or more death or survivor benefits paid out by the QPP and CPP upon the death of the plan’s subscriber or main beneficiary (see Section XII) 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

Solidarity Tax Credit payments cease in the month following the death of the beneficiary. 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.

Canada Child 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 CCB, 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 CCB 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; 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.143

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

143 If the deceased or his/her spouse carried on a business during the year of death.



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

The filing deadline for the income tax return of a surviving spouse who lived with his or her deceased is the same as that applicable to the deceased’s final return. However, any balance due calculated in the surviving spouse’s return must be paid no later than April 30 of the following year to avoid paying interest.

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;

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 (see Section I).

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 death;144

Uncashed matured bond coupons;

Unpaid bond interest earned up to a payment date before the date of death;

Unpaid dividends declared before the date of death;

144 Retroactive payments received pursuant to a collective agreement signed after the date of death are not taxable.



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 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 without taxing the capital gain accrued at the time of death. 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.145 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 or the capital gains deduction (see Section VII).

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.

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.

145 There are specific rules for depreciable property.



The following table summarizes the rules:

RRSP and RRIF at death

Heir/Beneficiary Amount taxable at

death

Transferable to:146

RRSP147 and RRIF Annuity

Spouse Nil4 Yes Yes

Child or grandchild financially dependent148 because of an infirmity

Nil4 Yes Yes

Child or grandchild financially dependent7 not because of an infirmity

Nil4 No Yes149

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.150 However, the amount transferred must not exceed the beneficiary’s RDSP contribution room and is not eligible for the CDSG and CDSB (see Section IV).

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.

146 Certain terms and conditions may apply. 147 The beneficiary must be 71 years of age or under at the time of the transfer. 148 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 with a disability (respectively $11,327 and $19,226 in 2015 for those deceased in 2016). Over these thresholds, dependence has to be proven.

149 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.

150 Child whose income for the previous year does not exceed a certain threshold ($19,226 for 2015 for the purposes of transfers made in 2016). If the child’s income exceeds that threshold, financial dependence has to be demonstrated.



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:151

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.

Tax credit transfer measures may be applied between spouses (see Section 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 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 this deduction.

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.

Funeral and Estate Administration Expenses

Funeral expenses 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 generally 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

151 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).



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

For deaths occurring after 2015, charitable donations made by will and designation are deemed to be made by the estate, and the legal representative may distribute the donation between the estate152 and both returns filed for the deceased’s last two taxation years.

Medical Expenses

Medical expenses (see Section IV) 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. Special rules apply when the deceased has already used his or her capital gains deduction.

6. ESTATE INCOME

The legal representative is 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.

The taxes payable by an estate are calculated according to the graduated rates applicable to individuals. Since 2016 and following, the graduated tax rates are only applicable to income earned during the first 36 months of the estate’s existence. Beyond this period, the estate becomes subject to a flat tax at the highest marginal rate.

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.

152 For its taxation year when the donation is made or a previous taxation year.



8. AMOUNTS REIMBURSED BY AN ESTATE

In Quebec, when an estate incurs a loss 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. With certain exceptions, an Estate Information Return must be filed with the Ministry of Finance within 90 days following the issuance of the Certificate of Appointment of Estate Trustee.

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 XI – SOCIAL PROGRAMS AND BENEFITS 117


SECTION XI – SOCIAL PROGRAMS AND BENEFITS

RECENT CHANGES

– A lower HSF contribution rate applies to all SMEs as of 2017.

– The gradual reduction of the Quebec health contribution has been sped up given that it will be abolished in 2018.

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)

2016

Employer

Employee and registered self-

employed worker

Contributions:

Rate 2.632% 1.880%

Maximum $1,337.06 $955.04

Maximum pensionable earnings $50,800

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 EI contributions in their income tax return for the taxation years in question. They must wait 12 months after registering before applying for a benefit.

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.153 With a few exceptions, the insurable earnings for both plans are the same.154

153 For additional information, refer to the following Internet site: http://www.rqap.gouv.qc.ca/index_en.asp. 154 For more information, consult the summary chart published by Service Canada:

http://www.esdc.gc.ca/en/reports/ei/roe_guide/information.page?&_ga=1.143434613.1982074214.1458828283.



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, and contribution rates.

2016 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 $71,500 $50,800

Contribution

Employer

– Rate 0.767% 2.128%

– Maximum $548.41 $1,081.02

Employee

– Rate 0.548% 1.520%

– Maximum $391.82 $772.16

Self-employed worker

– Rate 0.973% 1.520%155

– Maximum $695.70 $772.16

155 For registered self-employed workers.



2. QUEBEC PENSION PLAN AND CANADA PENSION PLAN

Contributions

Employer and employee QPP/CPP contributions for 2016 are as follows:156

Contributions QPP CCP

Maximum pensionable earnings $54,900.00 $54,900.00

Basic exemption for the year $3,500.00 $3,500.00

Maximum contributions:

– Employer Rate Maximum

5.325%157

$2,737.054.95%

$2,544.30

– Employee Rate Maximum

5.325%5

$2,737.054.95%

$2,544.30

– Self-employed worker

Rate Maximum

10.650%$5,474.50

9.90% $5,088.60

Benefits

QPP and CPP benefits for 2016 are as follows:158

Benefits QPP

$ CPP

$

Retirement Benefits

Maximum monthly benefit, starting at:

– age 60 699.20 699.20

– age 65 1,092.50 1,092.50

– age 70 1,551.35 1,551.35

Death Benefits

Single amount 2,500.00 2,500.00

Maximum monthly surviving spouse benefit:

– under age 45, without dependent children 530.42 593.62

– under age 45, with dependent children 847.39

– under age 45, disabled, with or without children 881.09

– age 45 to 64 881.09 593.62

– age 65 or over 655.50 655.50

Monthly orphan’s pension159 237.69 237.69

Severe and Prolonged Disability Benefits

Maximum monthly benefit 1,290.78 1,290.81

Monthly benefit of disabled pensioner’s child10 75.46 237.69

156 For additional information on the QPP, go to the Retraite Québec Internet site at www.rrq.gouv.qc.ca/en or the ESDC site for the CPP at http://www.esdc.gc.ca/eng/home.shtml.

157 The rate will increase to 5.4% in 2017 (rates doubled for self-employed workers). An automatic adjustment mechanism will be introduced starting in 2018.

158 Certain maximums apply to retirement benefits combined with a disability or survivor benefit. 159 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.



Adjustments to Retirement Benefits

When retirement benefits begin before age 65, the benefit amount is reduced by 0.6%160 for each month between the beginning of the benefit payment and the 65th birthday. Accordingly, for the purposes of both plans, a pensioner who is entitled to the maximum benefit will have his or her benefit amount reduced by 36% if he or she decides to retire at 60 years of age.161Similarly, 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, up to a maximum increase of 42% for a deferment period of five years.

These adjustments determine the benefit amount that will be paid for the entire retirement period. Therefore, they have an impact on the decision regarding the time to claim the benefit because, by requesting the amount at age 65 instead of 60, you avoid the reduction but also lose out on generating this income during five years. Also, delaying the benefit until age 70 increases the amount.

Aside from the economic factors that stimulate expected income, opting for an early, normal or late

pension must take account of personal factors such as your health, marital status, age of your spouse and your income from other sources. Make sure that you have all

the information before making a decision.

QPP Retirement Pension Supplement and CPP Post-retirement Benefit

The QPP and CPP allow workers who are already receiving benefits to continue to contribute to obtain a supplement, i.e., the QPP retirement pension supplement and the CPP post-retirement pension. Each year of work can therefore provide a contributing beneficiary with an additional benefit, payable for life. Like the basic pension, the amount of this supplement is indexed annually according to the cost of life.

It is not necessary to register for this benefit as it is paid automatically in the year following the contribution payments. Beneficiaries working in Quebec 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.

Continuing to work after you have begun receiving your QPP and CPP pension can allow you to increase

your pension amount for subsequent years.

160 For QPP purposes, the reduction factor varies according to the amount of the pension benefit; it is 0.5% if the benefit amount is very low and reaches 0.6% when the pensioner is entitled to the maximum benefit.

161 I.e., 0.6% X 60 months.



3. OLD AGE SECURITY PENSION

The maximum monthly OAS payments to eligible taxpayers in 2016 are as follows:162

2016 $

PENSION EXCLUDING GIS

January, February, March 570.52

April, May, June 570.52

July, August, September 573.37

October, November, December163 –

GIS164

Single 165 Married 166

January, February, March 773.60 512.96

April, May, June 773.60 512.96

July, August, September 856.39 515.53

October, November, December11 – –

SPOUSE ALLOWANCE12

60-64 yrs. old

Widowed 60-64 yrs. old

January, February, March 1,083.48 1,213.00

April, May, June 1,083.48 1,213.00

July, August, September 1,088.90 1,297.99

October, November, December11 – –

Receiving the OAS benefit 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%.

OAS benefits are reduced167 at the rate of 15% when an individual’s income reaches $73,756 and cease to be paid when income reaches $119,512.168 The GIS (with non-pensioner spouse), the spousal allowance and the surviving spouse benefit cease to be paid when the beneficiary’s income reaches $41,664, $32,160 and $23,424 respectively.169

162 The amounts and income thresholds are adjusted quarterly. For additional information: http://www.esdc.gc.ca/en/statistics/pension/index.page?&_ga=1.168791905.1982074214.1458828283

163 Data not available at date of publication. 164 Amounts shown 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.

165 Single, widowed or divorced pensioner or married pensioner whose spouse is not a pensioner. 166 Married couples when both spouses are pensioners. 167 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. 168 Thresholds as of the third quarter of 2016. 169 Thresholds as of the third quarter of 2016. The OAS and first $3,500 in employment income are not considered for

the purposes of these limits.



It is not financially advantageous to defer your OAS to after the age of 70. On the contrary, you could lose

benefits.

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. However, if the spouses live apart (e.g. if one of them is in a nursing home), both are eligible for the benefit.

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 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 $1M or less. In 2016, the rate is reduced to 1.60% for employers in the primary and manufacturing sectors.170 When the payroll exceeds $1M, the rate increases gradually up to 4.26% when the payroll reaches $5M.

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 contribution171

2016 contribution

$0 – $14,440 No contribution

$14,441 – $29,440 1% of income > $14,440

$29,441 – $135,200 $150 plus 1% of income > $50,200

$135,201 and more $1,000

170 The contribution rate for employers whose payroll is less than $1M will progressively be reduced as of 2017 to reach 1.45% (primary and manufacturing sectors) or 2% (other activity sectors) in 2021. Employers in the natural and applied sciences sectors may benefit from relief until 2020 with respect to the increase in payroll attributable to the hiring of specialized employees.

171 Indexed annually.



5. OCCUPATIONAL HEALTH AND SAFETY

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 CNESST as an employer and file an annual payroll return. When the CNESST receives the information, it bills the employer based on one of three rate systems.172

Employers pay their insurance premium based on salaries paid and the CNESST 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 full- 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.

6. LABOUR STANDARDS – QUEBEC

Generally, employers must make contributions under An Act respecting labour standards equal to 0.08% of all compensation paid to their employees. The insurable maximum for 2016 is $71,500 per employee.

7. HEALTH CONTRIBUTION

Quebec

Each adult resident in Quebec on December 31 has to pay a health contribution. The amount is defined according to the individual’s annual income. Contributions payable for 2016 and 2017 are determined as follows:

Individual Income173 2016 2017

$0 – $18,570 Nil Nil

$18,571 – $41,265 From $0.01 to $50 Nil

$41,266 – $134,095 From $50.01 to $175 From $0.01 to $70

$134,096 and over From$175.01 to $1,000 From $70.01 to $800

Until December 31, 2016, all persons aged 65 years and older who are exempt from paying the QPPDIP premium are exempt from paying the health contribution. The health contribution will be totally eliminated as of 2018.

This contribution is payable in instalments and in source deductions, according to what is applicable to individuals (see Section I).

172 For additional information (available in French only): http://www.csst.qc.ca/employeurs/acces_employeurs.htm. 173 Thresdholds indexed annually.



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, and is 1.95% for other employers.

However, private sector employers are entitled to a health tax exemption on the first $450,000174 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.

174 Amount indexed every five years since 2014. However, the exemption is not 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.175

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, 2016

Annualpremium

(per adult, based on income)

Monthly deductible

Co--insurance (% of drug

costs)

Maximum monthly

contri-bution

General

$0 to $660 $18.85 34.5% $87.16 Individuals 65 years of age or more who do not receive GIS176

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, who are enrolled in full-time studies and who are living at home;

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.

175 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/citizens/prescription-drug-insurance/Pages/prescription-drug-insurance.aspx.

176 Amounts reduced for persons 65 years of age or over who receive the GIS.



Different programs are available for individuals suffering from specific illnesses.177

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

New Brunswick residents must have drug insurance; those who are not covered by a private plan must enrol in the New Brunswick Drug Plan. The premiums are payable monthly and total $200 to $2,000 annually, based on the family income of the preceding year. Children under 18 years of age do not pay premiums, but one parent must have enrolled in the plan. All plan members must pay a 30% copayment, ranging from $5 to $30 based on their income, up to a maximum amount per prescription.178

For its part, the New Brunswick Prescription Drug Program offers coverage to low-income individuals, clients of the New Brunswick Social Development department, and others suffering from certain medical issues.179

10. ASSISTANCE TO PARENTS AND FAMILIES

See Section II.

11. SALES TAX CREDITS

See Section II.

177 For additional information, consult: http://www.health.gov.on.ca/en/public/programs/drugs/. 178 For additional information, consult:

http://www2.gnb.ca/content/gnb/en/departments/health/MedicarePrescriptionDrugPlan/NBDrugPlan.html. 179 For additional information, consult: http://www.gnb.ca//0212//intro-e.asp.

Index 1


INDEX

A

Accelerated refund ............................................. 15 Accounting methods

Cash or accrual .............................................. 76 Optional – Year-end ....................................... 66

Adoption .............................................................. 24 Allowable business investment loss (ABIL) ....... 85 Allowance

Automobile expenses ..................................... 53 Director ........................................................... 53 Part-time employees ...................................... 57 Travel costs .................................................... 57

Alternative minimum tax (AMT) ......................... 96 Amount for post-secondary studies ................... 36 Automobile

Allowances ..................................................... 53 Capital cost allowance ................................... 58 Expenses .................................................. 58, 71 Logbook .................................................... 51, 71 Operating costs .............................................. 51 Parking ............................................................ 54 Salespersons .................................................. 58 Standby charge .............................................. 50 Taxable benefits ............................................. 49

B Beneficiary

RRSP ............................................................ 110 Trust ................................................................ 11

Benefits Child Tax Benefits .......................................... 20 Non-taxable .................................................... 53 QPP/CPP ...................................................... 135 Taxable ........................................................... 49 Universal Child Care Benefit .......................... 20 Working income tax benefit ...................... 62, 68

Bonuses ........................................................ 65, 78 Books and supporting documentation ............... 16 Business loss ...................................................... 67 Business or professional income ....................... 67

C

Canada Child Tax Benefit .................................. 20 Canada Disability Savings Bonds and Grant .... 47 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) ...................... 27, 77, 84 Principal Residence ........................................ 27 Reserve ..................................................... 78, 83 Share exchange .............................................. 83

Capital loss .......................................................... 82 Capital régional et coopératif Desjardins ........... 92 Car salespersons .......................................... 50, 58 Charitable donations ........................................... 28 Child .................................................................... 20 Child assistance payments ................................. 21 Child benefit – Ontario and New Brunswick ...... 22 Children's fitness costs ....................................... 24 Clinical trial – Indemnity ...................................... 48 Collection ............................................................. 17 Computers ..................................................... 57, 59 Conferences ........................................................ 69 Contributions

Employer ......................................................... 72 Employment insurance ................................. 133 Health Services Fund – Quebec .................. 138 Over-contributions (RRSP) ........................... 106 Pension plans ............................................... 112 Political ............................................................ 30 Professional and union dues ............. 54, 61, 71 QPP/CPP ...................................................... 135 RDSP .............................................................. 47 RESP ............................................................... 37 RRSP ............................................................ 103 TFSA ............................................................... 94 Unused ....................................... 38, 47, 95, 105

Cooperative Investment Plan (CIP).................... 92 CSST ................................................................. 138 Cumulative net investment loss (CNIL) .............. 84

D

Death benefits ................................................... 131 Decrease of withholdings ................................... 13 Deductions

At source ......................................................... 13 Disability supports ........................................... 43 Eligible expenses – businesses ..................... 68 Employment overseas .................................... 64 For workers ............................................... 63, 68 Moving ................................................ 37, 56, 61

Deferred Profit Sharing Plan (DPSP) ............... 111 Director

Allowance ........................................................ 53

Index 2


Responsibility ................................................. 80 Disabled persons .............................. 37, 38, 43, 89 Discounts (employees)....................................... 56 Distribution of property (death) ........................ 132 Dividend income ................................................. 86 Drug insurance ................................................. 140

E

Earned income (RRSP) ................................... 104 Educational assistance payments ..................... 38 Emergency volunteers ................................. 55, 64 Employee benefit plan ........................................ 65 Employee loans .................................................. 52 Employment expenses ....................................... 58 Employment insurance .................................... 133 Enterprise Register – Québec ........................... 67 Estate freeze .............................................. 32, 121 Expenses

Administration – RRSP ................................ 110 Adoption .......................................................... 24 Attendant care ................................................ 43 Automobile .......................................... 53, 58, 71 Business ......................................................... 68 Child care ........................................................ 22 Employment .................................................... 58 Entertainment ................................................. 68 Financial ......................................................... 89 Fitness (children) ............................................ 24 Funeral .......................................................... 131 Interest ................................................ 70, 89, 98 Leasing ........................................................... 88 Legal ................................................... 26, 62, 71 Medical ........................................................... 41 Moving ................................................ 37, 56, 61 Parking ............................................................ 54 Probate ......................................................... 132 Training ........................................................... 54 Travel ........................................................ 57, 59 Tuition ............................................................. 35

F Fairness measures ............................................. 17 Family Tax Cut – Federal ................................... 20 Farm loss ............................................................ 76 Farm property ............................................. 77, 128 Farmers .......................................... 14, 76, 77, 128 Farming ............................................................... 74 Filing deadline .................................................... 12 Final return ........................................................ 127 Fines and penalties ............................................ 71 Fishermen ....................................... 13, 14, 77, 128 Fishing property .......................................... 77, 128 Flow-through shares .................................... 29, 92 Fondaction .......................................................... 91 Foreign currency ................................................ 83 Foreign specialists .............................................. 64

Forestry operations ............................................. 62 Forestry plantation .............................................. 75 FSFTQ ................................................................. 91

G

Gifts and awards ................................................. 55 Golf ...................................................................... 69 GST/HST/QST .................................................... 72

Refund ....................................................... 61, 65 Tax credit (GST/HST) ..................................... 30

H

Hairdressers ........................................................ 60 Health contribution ............................................ 139 Health Services Fund (HSF) – Quebec ........... 138 Health tax (Employer) – Ontario ....................... 139 Holding companies ............................................. 96 Home Buyer’s Plan ............................................. 27 Home office ................................................... 60, 71 Hybrid financial instruments ............................... 85

I Income splitting ...........................................32, 114 Income tax

Instalments ...................................................... 14 Returns ....................................................12, 126

Incorporation of professionals ............................ 81 Increase of withholdings ..................................... 13 Indexed securities ............................................... 85 Individual pension plan ..................................... 114 Infertility treatment .............................................. 25 Information return ................................................ 67 Instalments .......................................................... 14 Insurance plans – Life and health ...................... 49 Interest

Expenses ........................................... 70, 89, 98 Income ....................................................... 85, 87 Instalments ...................................................... 14 Offsetting ......................................................... 15 Student loans .................................................. 36

Internet ................................................................ 57 Internet-based activities ...................................... 66 Investment advisors ............................................ 90 Investment income – Comparative .................... 86 Investment tax credit ........................................... 77

L Labour-sponsored venture capital

corporation ...................................................... 91 Leasing ................................................................ 88 Life insurance ..............................................49, 123 Lifelong Learning Plan ........................................ 39 Limited partnerships ........................................... 91 Loans

Employee ........................................................ 52 Shareholder ..................................................... 79

Index 3


Logbook – Automobile ................................. 51, 71 Loss

Allowable business investment loss (ABIL) ... 85 Business ......................................................... 67 Capital ............................................................. 82 Cumulative net investment loss (CNIL) ......... 84 Farm ................................................................ 76 Leasing ........................................................... 88

Loyalty program – Points ................................... 57 Lump-sum payments.......................................... 13

M

Meals ............................................................ 56, 68 Motor vehicle ................................................ 51, 58 Moving expenses ................................... 37, 56, 61 Musicians ............................................................ 62 Mutual funds ....................................................... 94 My Account ......................................................... 18

N

Notice of objection .............................................. 16

O

Objection (notice) ............................................... 16 Old Age Security (OAS) ........................... 125, 136 Online payments ................................................ 18 On-the-job training .............................................. 73 Over-contributions ...................................... 95, 106 Overseas employment ....................................... 64 Overtime ............................................................. 55

P

Parking ................................................................ 54 Past service pension adjustment ..................... 105 Pension adjustment .......................................... 105 Post-secondary studies ...................................... 36 Principal residence ............................................. 27 Private health insurance plan ...................... 41, 72 Probate fees ..................................................... 132 Professional and union dues ................. 54, 61, 71 Prohibited investments ............................. 108, 114 Property

Depreciable (CCA) ............................. 58, 70, 89 Distribution (death) ....................................... 132 Farming and fishing ................................ 77, 128 Foreign ............................................................ 87 Located in the U.S. ....................................... 117

Public transit passes .............................. 31, 56, 72 Purchase of past service (RPP) ....................... 112

Q

QPP/CPP .................................................. 125, 135 Qualified investments

RESP .............................................................. 37 RRSP ............................................................ 108

Quebec Education Savings Incentive ................ 38

Quebec Parental Insurance Plan ..................... 133

R

Racehorses ......................................................... 75 Recreative facilities ............................................. 56 Registered Disability Savings Plan (RDSP) ....... 47 Remote work site ................................................ 57 Rental income ..................................................... 88 Research grants .................................................. 34 RESP ............................................................. 37, 95 Retirement compensation arrangement .......... 114 Retroactive payments ......................................... 15 Rights or things ................................................. 127 RPP ................................................................... 111 RRIF .................................................................. 110 RRSP ..........................................................95, 103

S

Sabbaticals .......................................................... 65 Salary deferrals ................................................... 65 Scholarships ........................................................ 34 Segregated funds ............................................... 94 Share exchange .................................................. 83 Shareholder loans ............................................... 79 Small business Investor Tax Credit (N.B.) ......... 93 Social events for employees ........................ 55, 70 Sojourning in the U.S. ....................................... 116 Sports club .......................................................... 69 Spouse .......................................................... 19, 31

Dividends................................................... 31, 86 Refund ............................................................. 15 Rollover (death) ............................................ 128 RRSP ............................................................ 106

Stock options ................................................. 29, 52 Supplies ............................................................... 59 Support payments ............................................... 25

T

Tax credits Adoption .......................................................... 24 Apprenticeship ................................................ 73 Canada employment credit ............................ 62 Capital régional et coopératif Desjardins ....... 92 Caregivers ....................................................... 46 Child care expenses ....................................... 22 Children's activities ......................................... 24 Cooperative education – Ontario ................... 74 Disabled persons ............................................ 43 Donations ........................................................ 28 EcoRénov ........................................................ 26 Education ........................................................ 35 Employment overseas .................................... 64 Experienced workers ................................ 63, 68 Family caregiver ........................................ 25, 46 Family tax cut .................................................. 20 First-time home ............................................... 27

Index 4


Flow-through shares ...................................... 92 Foreign tax ...................................................... 87 GST/HST ........................................................ 30 Home accessibility .......................................... 45 Home-support services .................................. 44 Infertility ........................................................... 25 Interest on student loans ................................ 36 Investment tax credit ...................................... 77 Labour-sponsored venture capital ................. 91 LogiRénov ...................................................... 26 Medical expenses ........................................... 41 Medical services not incurred in area ............ 42 New graduates ............................................... 63 On-the-job training – Quebec ........................ 73 Political contributions ...................................... 30 Post-secondary studies .................................. 36 Public transit passes ...................................... 31 Search and rescue volunteers ....................... 64 Seniors activities ............................................. 45 Seniors home renovation ............................... 45 Small business investors – N.B. .................... 93 Solidarity – Quebec ........................................ 30 SR&ED ........................................................... 73 Textbooks ....................................................... 35 Tips ................................................................. 73 Top-level athletes ........................................... 31 Transfer between spouses ............................. 31 Tuition fees ..................................................... 35 Voluntary firefighters ...................................... 64

Tax returns.................................................. 12, 126 Tax treaty – Canada – U.S. ............................. 116 Tax-free savings account (TFSA) ...................... 94 Third party penalties ........................................... 18 Tips ............................................................... 63, 73 Tools for tradespersons ..................................... 62

Transfer Farm and fishing property .......................77, 128 From a province .............................................. 14 From RESP to RRSP ..................................... 39 Recognized parental contribution ................... 36 RPP funds ..................................................... 112 Student credits ................................................ 36

Transportation passes – Employees .................. 57 Treasury bills ....................................................... 85 Truck drivers ................................................. 59, 69 Trust – Estate freeze ........................................ 122

U

U.S. estate taxes ............................................... 118 U.S. investment income ...................................... 87 U.S. real estate ................................................. 117 Uniforms .............................................................. 56 Universal Child Care Benefit .............................. 20

V

Voluntary disclosure ........................................... 17 Volunteers (emergency) ............................... 55, 64

W

Will ..................................................................... 123 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

Table I1 – QUEBEC (2016)

Marginal rate applies on each dollar of additional income.

Federal1) Basic personal credit of $1,721.

2) Provincial abatement of 16.5% of basic federal tax.

3) Indexation rate of 1.3%.

Quebec1) Basic personal credit of $2,310.

2) Indexation rate of 1.09%.

TAX TABLETaxable Income

Tax Effective Rate

Marginal RateFederal Quebec Total Federal Quebec Total

$ $ $ $ % % % % 10,000 - - - 0.0 0.00 0.00 0.00 11,000 - - - 0.0 6.60 0.00 6.60 12,000 66 - 66 0.6 12.50 0.00 12.50 13,000 191 - 191 1.5 12.50 0.00 12.50 14,000 316 - 316 2.3 12.60 9.00 21.60 15,000 442 90 532 3.5 12.50 16.00 28.50 16,000 567 250 817 5.1 12.50 16.00 28.50 17,000 692 410 1,102 6.5 12.50 16.00 28.50 18,000 817 570 1,387 7.7 12.50 16.00 28.50 19,000 943 730 1,673 8.8 12.50 16.00 28.50 20,000 1,068 890 1,958 9.8 12.50 16.00 28.50 21,000 1,193 1,050 2,243 10.7 12.50 16.00 28.50 22,000 1,318 1,210 2,528 11.5 12.50 16.00 28.50 23,000 1,444 1,370 2,814 12.2 12.50 16.00 28.50 24,000 1,569 1,530 3,099 12.9 12.51 16.00 28.51 25,000 1,694 1,690 3,384 13.5 12.53 16.00 28.53 26,000 1,819 1,850 3,669 14.1 12.53 16.00 28.53 27,000 1,945 2,010 3,955 14.6 12.53 16.00 28.53 28,000 2,070 2,170 4,240 15.1 12.53 16.00 28.53 29,000 2,195 2,330 4,525 15.6 12.53 16.00 28.53 30,000 2,320 2,490 4,810 16.0 12.53 16.00 28.53 31,000 2,446 2,650 5,096 16.4 12.53 16.00 28.53 32,000 2,571 2,810 5,381 16.8 12.53 16.00 28.53 33,000 2,696 2,970 5,666 17.2 12.53 16.00 28.53 34,000 2,821 3,130 5,951 17.5 12.53 16.00 28.53 35,000 2,947 3,290 6,237 17.8 12.53 16.00 28.53 36,000 3,072 3,450 6,522 18.1 12.53 16.00 28.53 37,000 3,197 3,610 6,807 18.4 12.53 16.00 28.53 38,000 3,322 3,770 7,092 18.7 12.53 16.00 28.53 39,000 3,448 3,930 7,378 18.9 12.53 16.00 28.53 40,000 3,573 4,090 7,663 19.2 12.53 16.00 28.53 41,000 3,698 4,250 7,948 19.4 12.53 16.00 28.53 42,000 3,823 4,410 8,233 19.6 12.53 18.40 30.93 43,000 3,949 4,594 8,543 19.9 12.53 20.00 32.53 44,000 4,074 4,794 8,868 20.2 12.53 20.00 32.53 45,000 4,199 4,994 9,193 20.4 15.82 20.00 35.82 46,000 4,357 5,194 9,551 20.8 17.12 20.00 37.12 47,000 4,529 5,394 9,923 21.1 17.12 20.00 37.12 48,000 4,700 5,594 10,294 21.4 17.12 20.00 37.12 49,000 4,871 5,794 10,665 21.8 17.12 20.00 37.12 50,000 5,042 5,994 11,036 22.1 17.12 20.00 37.12 51,000 5,213 6,194 11,407 22.4 17.12 20.00 37.12 52,000 5,384 6,394 11,778 22.7 17.12 20.00 37.12 53,000 5,556 6,594 12,150 22.9 17.12 20.00 37.12 54,000 5,727 6,794 12,521 23.2 17.12 20.00 37.12 55,000 5,898 6,994 12,892 23.4 17.12 20.00 37.12 56,000 6,069 7,194 13,263 23.7 17.12 20.00 37.12 57,000 6,240 7,394 13,634 23.9 17.12 20.00 37.12 58,000 6,411 7,594 14,005 24.1 17.12 20.00 37.12 59,000 6,583 7,794 14,377 24.4 17.12 20.00 37.12 60,000 6,754 7,994 14,748 24.6 17.12 20.00 37.12 61,000 6,925 8,194 15,119 24.8 17.12 20.00 37.12

TAX TABLETaxable Income

Tax Effective Rate

Marginal RateFederal Quebec Total Federal Quebec Total

$ $ $ $ % % % % 62,000 7,096 8,394 15,490 25.0 17.12 20.00 37.12 63,000 7,267 8,594 15,862 25.2 17.12 20.00 37.12 64,000 7,439 8,794 16,233 25.4 17.12 20.00 37.12 65,000 7,610 8,994 16,604 25.5 17.12 20.00 37.12 66,000 7,781 9,194 16,975 25.7 17.12 20.00 37.12 67,000 7,952 9,394 17,346 25.9 17.12 20.00 37.12 68,000 8,123 9,594 17,718 26.1 17.12 20.00 37.12 69,000 8,294 9,794 18,088 26.2 17.12 20.00 37.12 70,000 8,466 9,994 18,460 26.4 17.12 20.00 37.12 71,000 8,637 10,194 18,831 26.5 17.12 20.00 37.12 72,000 8,808 10,394 19,202 26.7 17.12 20.00 37.12 73,000 8,979 10,594 19,573 26.8 17.12 20.00 37.12 74,000 9,150 10,794 19,944 27.0 17.12 20.00 37.12 75,000 9,321 10,994 20,315 27.1 17.12 20.00 37.12 80,000 10,177 11,994 22,171 27.7 17.12 20.20 37.32 85,000 11,033 13,003 24,036 28.3 17.12 24.00 41.12 90,000 11,889 14,203 26,092 29.0 21.19 24.00 45.19 95,000 12,949 15,403 28,352 29.8 21.71 24.00 45.71

100,000 14,034 16,603 30,637 30.6 21.71 24.65 46.36 105,000 15,120 17,836 32,956 31.4 21.71 25.75 47.46 110,000 16,205 19,123 35,328 32.1 21.71 25.75 47.46 115,000 17,291 20,411 37,702 32.8 21.71 25.75 47.46 120,000 18,376 21,698 40,074 33.4 21.71 25.75 47.46 125,000 19,462 22,986 42,448 34.0 21.71 25.75 47.46 130,000 20,547 24,273 44,820 34.5 21.71 25.75 47.46 140,000 22,718 26,848 49,566 35.4 24.12 25.75 49.87 150,000 25,130 29,423 54,553 36.4 24.22 25.75 49.97 160,000 27,551 31,998 59,549 37.2 24.22 25.75 49.97 170,000 29,973 34,573 64,546 38.0 24.22 25.75 49.97 180,000 32,394 37,148 69,542 38.6 24.22 25.75 49.97 190,000 34,816 39,723 74,539 39.2 24.22 25.75 49.97 200,000 37,237 42,298 79,535 39.8 27.56 25.75 53.31 250,000 51,015 55,173 106,188 42.5 27.56 25.75 53.31 300,000 64,792 68,048 132,840 44.3 27.56 25.75 53.31 350,000 78,570 80,923 159,493 45.6 27.56 25.75 53.31 400,000 92,347 93,798 186,145 46.5 27.56 25.75 53.31

INDIVIDUAL TAXATION

QUEBEC2016

Table I2 – MAIN NON-REFUNDABLE TAX CREDITS (2016)

Table I2 – MAIN NON-REFUNDABLE TAX CREDITS (2016) (Continued) Table I4 – TAX BRACKETS

Federal (15%)

Quebec (20%)

$ $Basic 11,474 11,550Spouse or eligible dependent 11,4741, 2 n/aPerson living alone n/a 1,3553

Supplement for single-parent family n/a 1,6754

Parental contribution for adult children engaged in studies n/a 7,6105

Post-secondary studies, minor dependent (per session) n/a 2,1306

Full-time / Part-time post-secondary studies: z Education amount (per month) z Textbook amount (per month)

400 / 120 65 / 20

n/a n/a

Disabled dependent aged 18 or older 6,7887 n/a8

Other dependent persons aged 18 or older n/a 3,1009

Physical activities for children (- 16 years of age) 50010 n/a8

Artistic, cultural and recreational activities for children (- 16 years of age) 25010 n/a8

Employment amount 1,16111 n/a12

Public transit passes Cost13 n/aAge amount (65 years of age14 and older) 7,12515 2,48516

Retirement income 2,000 2,21017

Person suffering from a disabilitySupplement (- 18 years of age)

8,001 4,66718

2,62519

n/aCaregiver 4,6672, 20 n/a8

Adoption fees 15,45310 n/a8

Volunteer firefighters 3,000 3,00021

Search and rescue volunteer 3,000 3,00021

Purchase of first home 5,000 n/aHome accessibility 10,00010 n/a

1 Reduced by the net income of the spouse or dependent.2 Potential $2,121 additional amount if eligible for family caregiver credit (also

offered for a dependent child under 18 years of age).3 Reduced by 15% for each $1 exceeding $33,505 (nil at $42,538).4 The person must not have a minor child in December.5 Reduced by 80% of child’s income (excluding scholarship). $5,480 if only one

session is completed during the year.6 Limited to two sessions per year; amount reduced by 80% of dependent’s

income, excluding scholarship.7 Reduced for each $1 exceeding $6,807 (nil at $13,595).8 Refundable tax credit in Quebec.9 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.

10 Maximum amount of expenses eligible for the credit.11 Amount equal to taxpayer’s employment income for the year (max. $1,161).12 In Quebec, deduction for workers (max. $1,130).13 Cost of public transit passes valid for at least one month.14 In Quebec, the age of eligibility is 66 in 2016 and will increase by one year every

year to reach 70 years in 2020. 15 Reduced by 15% for each $1 exceeding $35,927 (nil at $83,427).16 Reduced by 15% for each $1 exceeding $33,505 (nil at $50,072).17 Reduced by 15% for each $1 exceeding $33,505 (nil at $48,238).18 Reduced by child care and caregiver expenses which exceed $2,734 (nil at

$7,401).19 Reduced if a supplement for a disabled child is included in CAP.20 Reduced for each $1 exceeding $15,940 (nil at $20,607).21 16% credit rate.

1 Rate of 25.75% for certain donations as of 2017.1 Rates applicable to actual dividends received (not grossed-up).2 38% gross-up.3 17% gross-up since January 1, 2016 (18% before that date).4 Combined rates, federal and provincial.

FEDERAL – 2016

$45,282 or less 15%

$45,283 – $90,563 $6,792 + 20.5% on next $45,281

$90,564 – $140,388 $16,075 + 26% on next $49,824

$140,389 – $200,000 $29,029 + 29% on next $59,612

$200,001 and over $46,317 + 33% on excess

z 15% rate used for AMT.

z Quebec abatement is 16.5% of basic federal tax.

z Indexation rate of 1.3% for 2016.

QUEBEC – 2016

$42,390 or less 16%

$42,391 – $84,780 $6,782 + 20.00% on next $42,390

$84,781 – $103,150 $15,260 + 24.00% on next $18,370

$103,151 and over $19,689 + 25.75% on excess


z Indexation rate of 1.09% in 2016.

Federal Quebec

Medical expenses

z 15% of expenses which exceed the lesser of $2,237 or 3% of applicant’s net income

z 20% of expenses which exceed 3% of net family income

Charitable donations

z Max. donations: 75% of net income

z 15% on the first $200 and 29% or 33% on excess amount

z Additional 25% credit for first-time donation not exceeding $1,000

z 20% on the first $200 and 24% on excess amount1

z Additional credit for certain cultural donations

Table I3 – MARGINAL RATES (2016)

Tax BracketsOther

Income %

Capital Gain

%

Dividends2

Eligible3 %

Ordinary4 %

QUEBEC $15,000 – $42,390 28.53 14.26 5.64 14.85 $42,391 – $45,282 32.53 16.26 11.16 19.53 $45,283 – $84,780 37.12 18.56 17.49 24.90 $84,781 – $90,563 41.12 20.56 23.01 29.58 $90,564 – $103,150 45.71 22.86 29.35 34.95 $103,151 – $140,388 47.46 23.73 31.77 37.00 $140,389 – $200,000 49.97 24.98 35.22 39.93$200,001 and over 53.31 26.65 39.83 43.84

ALL PROVINCESFederal

For all provinces, except Quebec 33.00 16.50 24.81 26.30Quebec only 27.56 13.78 20.72 21.96

Provincial5Alberta 48.00 24.00 31.71 40.24British Columbia 47.70 23.85 31.30 40.61Manitoba 50.40 25.20 37.78 45.69New Brunswick 53.30 26.65 34.20 45.81Newfoundland and Labrador 49.80 24.90 40.54 41.51Northwest Territories 47.05 23.53 28.33 35.72Nova Scotia 54.00 27.00 41.58 46.77Nunavut 44.50 22.25 33.08 36.35Ontario 53.53 26.76 39.34 45.30Prince Edward Island 51.37 25.69 34.22 43.87Quebec 53.31 26.65 39.83 43.84Saskatchewan 48.00 24.00 30.33 40.06Yukon 48.00 24.00 24.81 40.17

TAX CREDIT FOR DIVIDENDS FROM CANADIAN CORPORATIONS – 20161

Eligible Dividends2

Ordinary Dividends3

Federal 15.02% 10.52%4

Quebec 11.90% 7.05%

1 Rates applicable to grossed-up dividends.2 38% gross-up.3 17% gross-up since January 1, 2016 (18% before that date).4 Since January 1, 2016 (11.02% before that date).

Table I1 – ONTARIO (2016)

Marginal rate applies on each dollar of additional income.Federal1) Basic personal credit of $1,721.2) Indexation rate of 1.3%.

Ontario1) This table takes into account the 20% surtax on tax over

$4,484 and additional 36% surtax on tax over $5,739.2) This table does not take into account the low income tax

reduction.3) Basic personal credit of $506.4) Indexation rate of 1.5%.

TAX TABLE

Taxable Income

Tax EffectiveRate

Marginal Rate

Federal Ontario Total Federal Ontario Total$ $ $ $ % % % %

10,000 - - - 0.0 0.00 4.99 4.99 11,000 - 50 50 0.5 7.89 5.05 12.94 12,000 79 100 179 1.5 15.00 5.05 20.05 13,000 229 151 380 2.9 15.00 5.05 20.05 14,000 379 201 580 4.1 15.00 5.05 20.05 15,000 529 252 781 5.2 15.00 5.05 20.05 16,000 679 302 981 6.1 15.00 5.05 20.05 17,000 829 353 1,182 7.0 15.00 5.05 20.05 18,000 979 403 1,382 7.7 15.00 5.05 20.05 19,000 1,129 454 1,583 8.3 15.00 5.05 20.05 20,000 1,279 504 1,783 8.9 15.00 5.05 20.05 21,000 1,429 555 1,984 9.4 15.00 5.05 20.05 22,000 1,579 605 2,184 9.9 15.00 5.05 20.05 23,000 1,729 656 2,385 10.4 15.00 5.05 20.05 24,000 1,879 706 2,585 10.8 15.00 5.05 20.05 25,000 2,029 757 2,786 11.1 15.00 5.05 20.05 26,000 2,179 807 2,986 11.5 15.00 5.05 20.05 27,000 2,329 858 3,187 11.8 15.00 5.05 20.05 28,000 2,479 908 3,387 12.1 15.00 5.05 20.05 29,000 2,629 959 3,588 12.4 15.00 5.05 20.05 30,000 2,779 1,009 3,788 12.6 15.00 5.05 20.05 31,000 2,929 1,060 3,989 12.9 15.00 5.05 20.05 32,000 3,079 1,110 4,189 13.1 15.00 5.05 20.05 33,000 3,229 1,161 4,390 13.3 15.00 5.05 20.05 34,000 3,379 1,211 4,590 13.5 15.00 5.05 20.05 35,000 3,529 1,262 4,791 13.7 15.00 5.05 20.05 36,000 3,679 1,312 4,991 13.9 15.00 5.05 20.05 37,000 3,829 1,363 5,192 14.0 15.00 5.05 20.05 38,000 3,979 1,413 5,392 14.2 15.00 5.05 20.05 39,000 4,129 1,464 5,593 14.3 15.00 5.05 20.05 40,000 4,279 1,514 5,793 14.5 15.00 5.05 20.05 41,000 4,429 1,565 5,994 14.6 15.00 6.95 21.95 42,000 4,579 1,634 6,213 14.8 15.00 9.15 24.15 43,000 4,729 1,726 6,455 15.0 15.00 9.15 24.15 44,000 4,879 1,817 6,696 15.2 15.00 9.15 24.15 45,000 5,029 1,909 6,938 15.4 18.95 9.15 28.10 46,000 5,218 2,000 7,219 15.7 20.50 9.15 29.65 47,000 5,423 2,092 7,515 16.0 20.50 9.15 29.65 48,000 5,628 2,183 7,812 16.3 20.50 9.15 29.65 49,000 5,833 2,275 8,108 16.5 20.50 9.15 29.65 50,000 6,038 2,366 8,405 16.8 20.50 9.15 29.65 51,000 6,243 2,458 8,701 17.1 20.50 9.15 29.65 52,000 6,448 2,549 8,998 17.3 20.50 9.15 29.65 53,000 6,653 2,641 9,294 17.5 20.50 9.15 29.65 54,000 6,858 2,732 9,591 17.8 20.50 9.15 29.65 55,000 7,063 2,824 9,887 18.0 20.50 9.15 29.65 56,000 7,268 2,915 10,184 18.2 20.50 9.15 29.65 57,000 7,473 3,007 10,480 18.4 20.50 9.15 29.65 58,000 7,678 3,098 10,777 18.6 20.50 9.15 29.65 59,000 7,883 3,190 11,073 18.8 20.50 9.15 29.65 60,000 8,088 3,281 11,370 18.9 20.50 9.15 29.65 61,000 8,293 3,373 11,666 19.1 20.50 9.15 29.65

TAX TABLE

Taxable Income

Tax Effective Rate

Marginal Rate

Federal Ontario Total Federal Ontario Total$ $ $ $ % % % %

62,000 8,498 3,464 11,963 19.3 20.50 9.15 29.65 63,000 8,703 3,556 12,259 19.5 20.50 9.15 29.65 64,000 8,908 3,647 12,556 19.6 20.50 9.15 29.65 65,000 9,113 3,739 12,852 19.8 20.50 9.15 29.65 66,000 9,318 3,830 13,149 19.9 20.50 9.15 29.65 67,000 9,523 3,922 13,445 20.1 20.50 9.15 29.65 68,000 9,728 4,013 13,742 20.2 20.50 9.15 29.65 69,000 9,933 4,105 14,038 20.3 20.50 9.15 29.65 70,000 10,138 4,196 14,335 20.5 20.50 9.15 29.65 71,000 10,343 4,288 14,631 20.6 20.50 9.15 29.65 72,000 10,548 4,379 14,928 20.7 20.50 9.15 29.65 73,000 10,753 4,471 15,224 20.9 20.50 10.71 31.21 74,000 10,958 4,578 15,537 21.0 20.50 10.98 31.48 75,000 11,163 4,688 15,851 21.1 20.50 10.98 31.48 80,000 12,188 5,237 17,425 21.8 20.50 11.91 32.41 85,000 13,213 5,832 19,046 22.4 20.50 16.47 36.97 90,000 14,238 6,656 20,894 23.2 25.38 17.41 42.79 95,000 15,507 7,526 23,034 24.2 26.00 17.41 43.41

100,000 16,807 8,397 25,204 25.2 26.00 17.41 43.41 105,000 18,107 9,267 27,374 26.1 26.00 17.41 43.41 110,000 19,407 10,138 29,545 26.9 26.00 17.41 43.41 115,000 20,707 11,008 31,715 27.6 26.00 17.41 43.41 120,000 22,007 11,879 33,886 28.2 26.00 17.41 43.41 125,000 23,307 12,749 36,056 28.8 26.00 17.41 43.41 130,000 24,607 13,619 38,227 29.4 26.00 17.41 43.41 140,000 27,207 15,360 42,568 30.4 28.88 17.41 46.29 150,000 30,096 17,101 47,197 31.5 29.00 18.97 47.97 160,000 32,996 18,998 51,994 32.5 29.00 18.97 47.97 170,000 35,896 20,895 56,791 33.4 29.00 18.97 47.97 180,000 38,796 22,792 61,588 34.2 29.00 18.97 47.97 190,000 41,696 24,689 66,385 34.9 29.00 18.97 47.97 200,000 44,596 26,586 71,182 35.6 33.00 19.91 52.91 250,000 61,096 36,539 97,635 39.1 33.00 20.53 53.53 300,000 77,596 46,804 124,400 41.5 33.00 20.53 53.53 350,000 94,096 57,069 151,164 43.2 33.00 20.53 53.53 400,000 110,596 67,333 177,929 44.5 33.00 20.53 53.53

INDIVIDUAL TAXATION

ONTARIO2016

Table I2 – MAIN NON-REFUNDABLE TAX CREDITS (2016) Table I4 – TAX BRACKETS

Federal (15%)

Ontario (5.05%)

$ $Basic 11,474 10,011Spouse and eligible dependent 11,4741, 2 8,5003

Full-time / Part-time post-secondary studies:

z Education amount (per month) z Textbook amount (per month)

400 / 120 65 / 20

539 / 161 n/a

Disabled dependent aged 18 and older 6,7884 4,7195

Physical activities for children (- 16 years of age) 5006 n/a7

Artistic, cultural and recreational activities for children (- 16 years of age) 2506 n/a7

Employment amount 1,1618 n/aPublic transit passes Cost9 n/aAge amount 7,12510 4,88811

Retirement income 2,000 1,384Person suffering from a disabilitySupplement (- 18 years of age)

8,001 4,66712

8,088 4,71913

Caregiver 4,6672, 14 4,71915

Adoption fees 15,4536 12,2146

Volunteer firefighters 3,000 n/aSearch and rescue volunteer 3,000 n/aPurchase of first home 5,000 n/aHome accessibility 10,0006 n/a7

1 Rates applicable to actual dividends received (not grossed-up).2 38% gross-up.3 17% gross-up since January 1, 2016 (18% before that date).4 Combined rates, federal and provincial.

FEDERAL – 2016

$45,282 or less 15%

$45,283 – $90,563 $6,792 + 22% on next $45,281

$90,564 – $140,388 $16,075 + 26% on next $49,824

$140,389 – $200,000 $29,029 + 29% on next $59,612



z Indexation rate of 1.3% for 2016.ONTARIO – 2016

$41,536 or less 5.05%

$41,537 – $83,075 $2,098 +9.15% on next $41,539

$83,076 – $150,0001 $5,898 +11.16% on next $66,925

$150,001 – $220,0001 $13,367 +12.16% on next $70,000

$220,001 and over $21,879 +13.16% on excess

z AMT of 33.67% of federal AMT.

z 20% surtax on tax over $4,484 and additional 36% surtax on tax over $5,739.


Table I2 – MAIN NON-REFUNDABLE TAX CREDITS (2016) (Continued)

Federal Ontario

Medical expenses

z 15% of expenses which exceed the lesser of $2,237 or 3% of ap-plicant’s net income

z No limit for dependents

z 5.05% of expenses which exceed the lesser of $2,266 or 3% of applicant’s net income

z Maximum medical expenses for dependent of $12,214






z 5.05% on the first $200 and 11.16% on excess amount


Tax BracketsOther

Income %

Capital Gain

%

Dividends1

Eligible2 %

Ordinary3 %

ONTARIO $15,000 – $41,536 20.05 10.03 0.00 6.13 $41,537 – $45,282 24.15 12.08 0.00 10.93 $45,283 – $73,145 29.65 14.83 6.39 17.37 $73,146 – $83,075 31.48 15.74 8.92 19.51 $83,076 – $86,175 33.89 16.95 12.24 22.33 $86,176 – $90,563 37.91 18.95 17.79 27.03 $90,564 – $140,388 43.41 21.70 25.38 33.46 $140,389 – $150,000 46.41 23.20 29.52 36.97 $150,001 – $200,000 47.97 23.98 31.67 38.80 $200,001 – $220,000 51.97 25.98 37.19 43.48$220,001 and over 53.53 26.76 39.34 45.30


For all provinces. except Québec 33.00 16.50 24.81 26.30Québec only 27.56 13.78 20.72 21.96


1 Reduced by net income of spouse or dependent.2 Potential $2,121 additional amount if eligible for family caregiver credit (also

offered for a dependent child under 18 years of age).3 Reduced for each $1 exceeding $850 (nil at $9,350).4 Reduced for each $1 exceeding $6,807 (nil at $13,595).5 Reduced for each $1 exceeding $6,707 (nil at $11,426).6 Maximum amount of expenses eligible for the credit.7 Refundable tax credit available in Ontario.8 Amount equal to taxpayer’s employment income for the year (max. $1,161).9 Cost of public transit passes valid for at least one month.10 Reduced by 15% for each $1 exceeding $35,927 (nil at $83,427).11 Reduced by 15% for each $1 exceeding $36,387 (nil at $68,974).12 Reduced by child care and caregiver expenses exceeding $2,734 (nil at

$7,401).13 Reduced by child care and caregiver expenses exceeding $2,762 (nil at

$7,481).14 Reduced for each $1 exceeding $15,940 (nil at $20,607).15 Reduced for each $1 exceeding $16,143 (nil at $20,862).


Eligible Dividends3

Ordinary Dividends4

Federal 15.02% 10.52%5

Ontario6 10.00% 4.29%7

1 The $150,000 and $220,000 brackets are not indexed annually.2 Rates applicable to grossed-up dividends.3 38% gross-up.4 17% gross-up since January 1, 2016 (18% before that date).5 Since January 1, 2016 (11.02% before that date).6 Ontario surtax applies before the dividend tax credits.7 Since January 1, 2016 (4.5% before that date).

Marginal rate applies on each dollar of additional income.Federal1) Basic personal credit of $1,721.2) Indexation rate of 1.3%.

New Brunswick1) This table does not take into account the low income tax

reduction.2) Basic personal credit of $945.3) Indexation rate of 1.3%.

Table I1 – NEW BRUNSWICK (2016)TAX TABLE

Taxable Income

TaxEffective

Rate

Marginal Rate

FederalNew

Brunswick Total FederalNew

Brunswick Total$ $ $ $ % % % %

10,000 0 23 23 0.23 0.00 9.68 9.6811,000 0 120 120 1.09 7.89 9.68 17.5712,000 79 217 296 2.47 15.00 9.68 24.6813,000 229 314 543 4.17 15.00 9.68 24.6814,000 379 411 790 5.64 15.00 9.68 24.6815,000 529 507 1,036 6.91 15.00 9.68 24.6816,000 679 604 1,283 8.02 15.00 9.68 24.6817,000 829 701 1,530 9.00 15.00 9.68 24.6818,000 979 798 1,777 9.87 15.00 9.68 24.6819,000 1,129 895 2,024 10.65 15.00 9.68 24.6820,000 1,279 991 2,270 11.35 15.00 9.68 24.6821,000 1,429 1,088 2,517 11.99 15.00 9.68 24.6822,000 1,579 1,185 2,764 12.56 15.00 9.68 24.6823,000 1,729 1,282 3,011 13.09 15.00 9.68 24.6824,000 1,879 1,379 3,258 13.57 15.00 9.68 24.6825,000 2,029 1,475 3,504 14.02 15.00 9.68 24.6826,000 2,179 1,572 3,751 14.43 15.00 9.68 24.6827,000 2,329 1,669 3,998 14.81 15.00 9.68 24.6828,000 2,479 1,766 4,245 15.16 15.00 9.68 24.6829,000 2,629 1,863 4,492 15.49 15.00 9.68 24.6830,000 2,779 1,959 4,738 15.79 15.00 9.68 24.6831,000 2,929 2,056 4,985 16.08 15.00 9.68 24.6832,000 3,079 2,153 5,232 16.35 15.00 9.68 24.6833,000 3,229 2,250 5,479 16.60 15.00 9.68 24.6834,000 3,379 2,347 5,726 16.84 15.00 9.68 24.6835,000 3,529 2,443 5,972 17.06 15.00 9.68 24.6836,000 3,679 2,540 6,219 17.28 15.00 9.68 24.6837,000 3,829 2,637 6,466 17.48 15.00 9.68 24.6838,000 3,979 2,734 6,713 17.67 15.00 9.68 24.6839,000 4,129 2,831 6,960 17.84 15.00 9.68 24.6840,000 4,279 2,927 7,206 18.02 15.00 12.29 27.2941,000 4,429 3,050 7,479 18.24 15.00 14.82 29.8242,000 4,579 3,198 7,777 18.52 15.00 14.82 29.8243,000 4,729 3,347 8,076 18.78 15.00 14.82 29.8244,000 4,879 3,495 8,374 19.03 15.00 14.82 29.8245,000 5,029 3,643 8,672 19.27 18.95 14.82 33.7746,000 5,218 3,791 9,010 19.59 20.50 14.82 35.3247,000 5,423 3,939 9,363 19.92 20.50 14.82 35.3248,000 5,628 4,088 9,716 20.24 20.50 14.82 35.3249,000 5,833 4,236 10,069 20.55 20.50 14.82 35.3250,000 6,038 4,384 10,422 20.84 20.50 14.82 35.3251,000 6,243 4,532 10,776 21.13 20.50 14.82 35.3252,000 6,448 4,680 11,129 21.40 20.50 14.82 35.3253,000 6,653 4,829 11,482 21.66 20.50 14.82 35.3254,000 6,858 4,977 11,835 21.92 20.50 14.82 35.3255,000 7,063 5,125 12,188 22.16 20.50 14.82 35.3256,000 7,268 5,273 12,542 22.40 20.50 14.82 35.3257,000 7,473 5,421 12,895 22.62 20.50 14.82 35.3258,000 7,678 5,570 13,248 22.84 20.50 14.82 35.3259,000 7,883 5,718 13,601 23.05 20.50 14.82 35.3260,000 8,088 5,866 13,954 23.26 20.50 14.82 35.3261,000 8,293 6,014 14,308 23.46 20.50 14.82 35.32

TAX TABLE

Taxable Income

TaxEffective

Rate

Marginal Rate

FederalNew

Brunswick Total FederalNew

Brunswick Total$ $ $ $ % % % %

62,000 8,498 6,162 14,661 23.65 20.50 14.82 35.3263,000 8,703 6,311 15,014 23.83 20.50 14.82 35.3264,000 8,908 6,459 15,367 24.01 20.50 14.82 35.3265,000 9,113 6,607 15,720 24.19 20.50 14.82 35.3266,000 9,318 6,755 16,074 24.35 20.50 14.82 35.3267,000 9,523 6,903 16,427 24.52 20.50 14.82 35.3268,000 9,728 7,052 16,780 24.68 20.50 14.82 35.3269,000 9,933 7,200 17,133 24.83 20.50 14.82 35.3270,000 10,138 7,348 17,486 24.98 20.50 14.82 35.3271,000 10,343 7,496 17,840 25.13 20.50 14.82 35.3272,000 10,548 7,644 18,193 25.27 20.50 14.82 35.3273,000 10,753 7,793 18,546 25.41 20.50 14.82 35.3274,000 10,958 7,941 18,899 25.54 20.50 14.82 35.3275,000 11,163 8,089 19,252 25.67 20.50 14.82 35.3280,000 12,188 8,830 21,018 26.27 20.50 16.19 36.6985,000 13,213 9,639 22,853 26.89 20.50 16.52 37.0290,000 14,238 10,465 24,704 27.45 25.38 16.52 41.9095,000 15,507 11,291 26,799 28.21 26.00 16.52 42.52

100,000 16,807 12,117 28,925 28.92 26.00 16.52 42.52105,000 18,107 12,943 31,051 29.57 26.00 16.52 42.52110,000 19,407 13,769 33,177 30.16 26.00 16.52 42.52115,000 20,707 14,595 35,303 30.70 26.00 16.52 42.52120,000 22,007 15,421 37,429 31.19 26.00 16.52 42.52125,000 23,307 16,247 39,555 31.64 26.00 16.52 42.52130,000 24,607 17,073 41,681 32.06 26.00 17.62 43.62140,000 27,207 18,835 46,043 32.89 28.88 17.84 46.72150,000 30,096 20,619 50,715 33.81 29.00 20.30 49.30160,000 32,996 22,649 55,645 34.78 29.00 20.30 49.30170,000 35,896 24,679 60,575 35.63 29.00 20.30 49.30180,000 38,796 26,709 65,505 36.39 29.00 20.30 49.30190,000 41,696 28,739 70,435 37.07 29.00 20.30 49.30200,000 44,596 30,769 75,365 37.68 33.00 20.30 53.30250,000 61,096 40,919 102,015 40.81 33.00 20.30 53.30300,000 77,596 51,069 128,665 42.89 33.00 20.30 53.30350,000 94,096 61,219 155,315 44.38 33.00 20.30 53.30400,000 110,596 71,369 181,965 45.49 33.00 20.30 53.30

NEW BRUNSWICK2016

INDIVIDUAL TAXATION

Table I2 – MAIN NON-REFUNDABLE TAX CREDITS (2016) Table I4 – TAX BRACKETS

Federal (15%)

New Brunswick

(9.68%)$ $

Basic 11,474 9,758Spouse and eligible dependent 11,4741, 2 8,2863

Full-time / Part-time post-secondary studies (per month):

z Education amount z Textbook amount

400 / 120 65 / 20

400 / 120 n/a

Disabled dependent aged 18 and older 6,7884 4,6085

Physical activities for children (- 16 years of age) 5006 n/aArtistic, cultural and recreational activities for children (- 16 years of age) 2506 n/aEmployment amount 1,1617 n/aPublic transit passes amount Cost8 n/aAge amount 7,1259 4,76510

Retirement income 2,000 1,000Person suffering from a disabilitySupplement (- 18 years of age)

8,001 4,66711

7,900 4,60812

Caregiver 4,6672, 13 4,60914

Adoption fees 15,4536 n/aVolunteer firefighters 3,000 n/aSearch and rescue volunteer 3,000 n/aPurchase of first home 5,000 n/aHome accessibility 10,0006 n/a15

1 Rates applicable to actual dividends received (not grossed-up).2 38% gross-up.3 17% gross-up since January 1, 2016 (18% before that date).4 Combined rates, federal and provincial.

FEDERAL – 2016

$45,282 or less 15%

$45,283 – $90,563 $6,792 + 20.5% on next $45,281

$90,564 – $140,388 $16,075 + 26% on next $49,824

$140,389 – $200,000 $29,029 + 29% on next $59,612




NEW BRUNSWICK – 2016

$40,493 or less 9.68%

$40,494 – $80,985 $3,920 + 14.82% on next $40,493

$80,986 – $131,665 $9,921 + 16.52% on next $50,679

$131,666 – $150,000 $18,293 + 17.84% on next $18,335

$150,001 and over $21,564 + 20.30% on excess

z AMT of 57% of federal AMT.


Table I2 – MAIN NON-REFUNDABLE TAX CREDITS (2016) (Continued)

Federal New Brunswick

Medical expenses

z 15% of expenses which exceed the lesser of $2,237 or 3% of applicant’s net income

z 9.68% of expenses which exceed the lesser of $2,208 or 3% of applicant’s net income






z 9.68% on the first $200 and 17.95% on excess amount


Tax BracketsOther

Income %

Capital Gain

%

Dividends1

Eligible2 %

Ordinary3 %

NEW BRUNSWICK $15,000 – $40,493 24.68 12.34 0.00 12.32 $40,494 – $45,282 29.82 14.91 1.82 18.34 $45,283 – $80,985 35.32 17.66 9.38 24.77 $80,986 – $90,563 37.02 18.51 11.73 26.76 $90,564 – $131,665 42.52 21.26 19.32 33.20 $131,666 – $140,388 43.84 21.92 21.14 34.74 $140,389 – $150,000 46.84 23.42 25.28 38.25 $150,001 – $200,000 49.30 24.65 28.68 41.13$200,001 and over 53.30 26.65 34.20 45.81


For all provinces. except Québec 33.00 16.50 24.81 26.30Québec only 27.56 13.78 20.72 21.96


1 Reduced by net income of spouse or dependent.2 Potential $2,121 additional amount if eligible for family caregiver credit (also

offered for a dependent child under 18 years of age).3 Reduced for each $1 exceeding $829 (nil at $9,115).4 Reduced for each $1 exceeding $6,807 (nil at $13,595).5 Reduced for each $1 exceeding $6,539 (nil at $11,147).6 Maximum amount of expenses eligible for the credit.7 Amount equal to taxpayer’s employment income for the year (max. $1,161).8 Cost of public transit passes valid for at least one month.9 Reduced by 15% for each $1 exceeding $35,927 (nil at $83,427).10 Reduced by 15% for each $1 exceeding $35,471 (nil at $67,238).11 Reduced by child care and caregiver expenses exceeding $2,734 (nil at

$7,401).12 Reduced by child care and caregiver expenses exceeding $2,698 (nil at

$7,306).13 Reduced for each $1 exceeding $15,940 (nil at $20,607).14 Reduced for each $1 exceeding $15,738 (nil at $20,347).15 Refundable tax credit available in New Brunswick.


Eligible Dividends2

Ordinary Dividends3

Federal 15.02% 10.52%4

New Brunswick 13.50%5 3.63%6

1 Rates applicable to grossed-up dividends.2 38% gross-up.3 17% gross-up since January 1, 2016 (18% before that date).4 Since January 1, 2016 (11.02% before that date).5 Since January 1, 2016 (12% before that date). 14% starting January 1, 2017.6 Since January 1, 2016 (4% before that date). 3.5% starting January 1, 2017.

Table C1 – BUSINESS INCOMEELIGIBLE FOR SBD1

Table C2 – BUSINESS INCOMENOT ELIGIBLE FOR SBD2016 % Combined

%Federal 15.00Provincial

Alberta 12.00 27.00British Columbia 11.00 26.00Manitoba 12.00 27.00New Brunswick 14.006 29.00Newfoundland and Labrador 15.007 30.00Northwest Territories 11.50 26.50Nova Scotia 16.00 31.00Nunavut 12.00 27.00Ontario

Without MPP / With MPP 11.50 / 10.00 26.50 / 25.00Prince Edward Island 16.00 31.00Quebec 11.908 26.90Saskatchewan

Without MPP / With MPP 12.00 / 10.00 27.00 / 25.00Yukon

Without MPP / With MPP 15.00 / 2.50 30.00 / 17.50

2016 % Combined %Federal 10.502

ProvincialAlberta 3.003 13.50British Columbia 2.50 13.00Manitoba 0.00 10.50New Brunswick 3.504 14.00Newfoundland and Labrador 3.00 13.50Northwest Territories 4.00 14.50Nova Scotia 3.00 13.50Nunavut 4.00 14.50Ontario 4.50 15.00Prince Edward Island 4.50 15.00Quebec

Without MPP / With MPP 8.00 / 4.005 18.50 / 14.50Saskatchewan 2.00 12.50Yukon

Without MPP / With MPP 3.00 / 1.50 13.50 / 12.00

1 $500,000 eligible for the SBD for federal purposes and all provinces and terri-tories except Manitoba ($450,000 since 2016; $425,00 before thtat date) and Nova Scotia ($350,000). In all jurisdictions, 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 The planned 0.5% per-year rate reduction, to reach 9% on January 1, 2019, was cancelled in the March 22, 2016 budget. The rate will remain 10.5% after 2016.

3 Rate reduced to 2% as of 2017.4 3.5% since April 1, 2016 (4% before that date). Average rate of 3.63% for 2016.5 Rate reduced up to 4% since April 1, 2015 for manufacturing SMEs, based on

the proportion of their manufacturing activities. This reduced rate will also apply to SMEs in the primary sector starting January 1, 2017.

6 14% since April 1, 2016 (12% before that date). Average rate of 13.5% for 2016.

7 Since January 1, 2016 (14% before that date). MPP deduction canceled since January 1, 2016.

8 Rate reduced by 0.1% per year as of January 1, 2017, to reach 11.5% on January 1, 2020.

Table C3 – INVESTMENT INCOME1

2016 % Combined %

RDTOH 2%

Federal 38.673

ProvincialAlberta 12.004 50.67 30.67British Columbia 11.00 49.67 30.67Manitoba 12.00 50.67 30.67New Brunswick 13.504 52.17 30.67Newfoundland and Labrador 15.005 53.67 30.67Northwest Territories 11.50 50.17 30.67Nova Scotia 16.00 54.67 30.67Nunavut 12.00 50.67 30.67Ontario 11.50 50.17 30.67Prince Edward Island 16.00 54.67 30.67Quebec 11.906 50.57 30.67Saskatchewan 12.00 50.67 30.67Yukon 15.00 53.67 30.67

1 34.67% before 2016. 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) of 30.67% (26.67% before 2016). This income tax is refundable at the rate of 38.33% when taxable dividends are paid (33.33% for dividends paid before 2016).

3 15% rate for non-CCPCs.4 14% since April 1, 2016 (12% before that date). Average rate of 13.5% for

2016.5 Since January 1, 2016 (14% before that date).6 Rate reduced by 0.1% per year as of January 1, 2017, to reach 11.5% on

January 1, 2020.7 Provincial component of HST.8 Since July 1, 2016 (8% before that date).9 Since July 1, 2016 (8% before that date).10 Since October 1, 2016 (8% before that date).

Table C4 – SALES TAX2016 Rate

%Combined

%Federal 5.00Provincial

Alberta – 5.00British Columbia 7.00 12.00Manitoba 8.00 13.00New Brunswick 10.007, 8 15.00Newfoundland and Labrador 10.007, 9 15.00Northwest Territories – 5.00Nova Scotia 10.007 15.00Nunavut – 5.00Ontario 8.007 13.00Prince Edward Island 10.007, 10 15.00Quebec 9.975 14.975Saskatchewan 5.00 10.00Yukon – 5.00

CORPORATE TAXATION AND U.S. FEDERAL TAX RATES

2016

Table C6 – CAPITAL COST ALLOWANCE RATES (2016)

Description of Property Rate1 ClassBuildings acquired since 1988, including component

parts 4%

1Buildings 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 panels20% 8

Automobiles, panel trucks, trucks, tractors, trailers 30% 10Passenger vehicles, the cost of which is equal to or

exceeds prescribed amounts ($30,000 + tax – see Section V)

30% 10.1

Application software, small tools, cutlery, linen, uniforms, moulds, medical instruments costing less

than $500 and rented videotapes100% 12

Leasehold improvements Lease term4 13Taxis, automobiles acquired for short-term leasing

and coin-operated video games 40% 16

Trucks and tractors designed for hauling freight 40%5 16Parking areas or similar surface construction 8% 17

Manufacturing or processing equipment acquired before 2016

50% Straight-line 29

Manufacturing or processing equipment acquired after 2015 and before 2026 50% 53

Computer equipment, systems software and related equipment 55% 50

Data network infrastructure equipment 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 that date.

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.

TABLE C5 – SR&ED TAX CREDITS1

2016 Eligible Persons Credit Rate Refund Rate2

Federal CCPC 35% of the first $3M3 in eligible expenditures

100%

15% of excess 40% for eligible corporations4

Other corporations

15% 0%

Individuals 15% 40%Quebec5 Canadian-

controlled corporations

z 30% of the first $3M in eligible expendi-tures6

z 14% of excess

100%

Other corporations and individuals

14% 100%

Ontario7 Corporations 3.5%8 0%Corporations 8%9 of the first

$3M10 in eligible expenditures

100%

New Brunswick Corporations 15% 100%

1 Limits and ceilings are based on the preceding year and applicable to the group of associated corporations. Alberta, British Columbia, Manitoba, Newfoundland and 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 0% if taxable income is greater than $500,000 or when the taxable capital

used in Canada exceeds $50M.5 An excluded expenditures threshold varying from $50,000 to $225,000 applies

annually, based on total asset value. Other credits offered in Quebec: tax credit for university research or research carried out by a public research centre or a research consortium, tax credit for private partnership pre-competitive research and tax credit for fees and dues paid to a research consortium.

6 The $3M ceiling is reduced by the excluded expenditures threshold. Rate gradually decreases from 30% to 14% when world assets are between $50M and $75M.

7 Other credit offered in Ontario: the Ontario Business Research Institute Tax Credit.

8 Since June 1, 2016 (4.5% before that date).9 Since June 1, 2016 (10% before that date).10 Ceiling is progressively eliminated when taxable income is between $500,000

and $800,000 or taxable capital used in Canada is between $25M and $50M.

Single individual$9,275 or less 10% of taxable income$9,276 – $37,650 $928 + 15% on next $28,375

$37,651 – $91,150 $5,184 + 25% on next $53,500$91,151 – $190,150 $18,559 + 28% on next $99,000

$190,151 – $413,350 $46,279 + 33% on next $223,200$413,351 – $415,050 $119,935 + 35% on next $1,700$415,051 or more $120,530 + 39.6% on excess

Single individual, head of household$13,250 or less 10% of taxable income$13,251 – $50,400 $1,325 + 15% on next $37,150$50,401 – $130,150 $6,898 + 25% on next $79,750

$130,151 – $210,800 $26,835 + 28% on next $80,650$210,801 – $413,350 $49,417 + 33% on next $202,550$413,351 – $441,000 $116,259 + 35% on next $27,650$441,001 or more $125,936 + 39.6% on excess

Married individuals who file individual returns$9,275 or less 10% of taxable income$9,276 – $37,650 $928 + 15% on next $28,375

$37,651 – $75,950 $5,184 + 25% on next $38,300$75,951 – $115,725 $14,759 + 28% on next $39,775

$115,726 – $206,675 $25,896 + 33% on next $90,950$206,676 – $233,475 $55,909 + 35% on next $26,800$233,476 or more $65,289 + 39.6% on excess

Married individuals who file joint return and surviving spouses

$18,550 or less 10% of taxable income$18,551 – $75,300 $1,855 + 15% on next $56,750$75,301 – $151,900 $10,368 + 25% on next $76,600

$151,901 – $231,450 $29,518 + 28% on next $79,550$231,451 – $413,450 $51,791 + 33% on next $182,000$413,451 – $466,950 $111,819 + 35% on next $53,500$466,951 or more $130,579 + 39.6% on excess

$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

Table US1 – U.S. FEDERAL TAX – INDIVIDUALS (2016)

Table US2 – U.S. FEDERAL TAX – COPORATIONS (2016)1

1 American manufacturing companies can benefit from a rate reduction.

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