2020 Tax Tips: Families

The Registered Disability Savings Plan (RDSP) is a savings plan that is intended to help parents and others save for the long-term financial security of a person who is eligible for the Disability Tax Credit.

• Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59 years of age.
• To help you save, the Government pays an annual matching grant of up to $3,500. You can carry forward unused grant entitlements for up to ten years.
• Contributions that are withdrawn are not included in the income of the beneficiary, although the Canada disability savings grant, Canada disability savings bond, and investment income earned in the plan will be included in the beneficiary’s income for tax purposes when paid out of the RDSP.
• There is no annual limit on amounts contributed to an RDSP of a particular beneficiary, but the overall lifetime limit is $200,000.
• A deceased individual’s RRSP or RRIF can be transferred tax-free into the RDSP of a financially dependent infirm child or grandchild.

For 2016 and subsequent tax years, the Government implemented a non-refundable Home Accessibility Tax Credit.

The tax credit is available for eligible expenses incurred in making a home more accessible to individuals aged 65 or older or to individuals who are disabled or infirm.

Either the individual who incurred the expenses or the individual for whom the expenses are made can claim the tax credit. The individual who incurred the expenses can only claim the tax credit in respect of expenses incurred for his or her spouse or common-law partner, or for disabled or infirm dependants.

You can claim up to $10,000 in eligible expenses under the Home Accessibility Tax Credit, resulting in a non-refundable tax credit worth up to $1,500. Expenses eligible for the claim must be permanent and non-routine renovations to the home. The alterations must allow the individual for whom the expenses were incurred to be mobile within the home and/or reduce the risk of harm to the individual within the home.

If you are planning to adopt a child

You can claim an amount for eligible adoption expenses related to the adoption of a child who is under the age of 18. The maximum claim is $16,563 per child and must be included in the tax return for the year that includes the end of the adoption period.

If you are considering fertility treatments

Ontario offers support to eligible residents participating in fertility treatments. All residents of Ontario, under the age of 43, with valid OHIP and a doctor’s referral for fertility treatments may be eligible. The following expenses are covered:

• Unlimited cycles of Intrauterine Insemination (IUI)
• One cycle of in-vitro fertilization (IVF) per patient per lifetime which includes one egg retrieval and embryo freezing and transfer of all viable embryos originating from the funded retrieval.
• Fertility preservation (FP) – One egg retrieval and/or one surgical sperm retrieval and freezing of one batch of egg and/or sperm sample.

Canada Caregiver Credit

The Infirm Dependent tax credit, the Caregiver tax credit and the Family Caregiver tax credit have been replaced by a new 15 per cent non-refundable Canada Caregiver Credit (CCC). The amount in respect of which the CCC is calculated is $7,140 and may be claimed for the care of an infirm dependent relative. The credit amount is phased out when the net income of a dependent exceeds $23,906.

Ontario Childcare Access and Relief from Expenses Credit

In 2019, the province of Ontario introduced the Ontario Childcare Access and Relief From Expenses (CARE) tax credit for low and moderate income families that pay child care expenses. The CARE is a refundable tax credit that is only available to families with household income under $150,000.

The CARE tax credit is in addition to the existing Child Care Expense Deduction. Families could receive up to $6,000 per child under the age of seven, up to $3,750 per child between the ages of seven and 16, and up to $8,250 per child with a severe disability.

Canada Workers Benefit

For 2019 and subsequent taxation years, the Working Income Tax Benefit is replaced by the Canada Workers Benefit (CWB) which is a federal refundable tax credit. The amount of the CWB will be computed as 26 per cent of earned income over $3,000, to a maximum credit of $1,381 for single individuals without children and $2,379 for families (couples and single parents).

The maximum credit is reduced by 12 per cent of adjusted net income over $13,064 for single individuals without children and $17,348 for families.

In addition, in 2019, the government introduced an amendment to clarify that kinship care providers would be considered the parents of a child in their care for the purposes of the CWB. As a result, Kinship care providers would be eligible for the CWB amount available for families, provided all other eligibility requirements are met.

On January 1, 2018, the government introduced the TOSI rules which impact the ability to split dividend generally applicable to dividends paid by private corporations) and other types of investment income (with adult family members . If TOSI applies, the income is taxed in the hands of the recipient individual at the highest marginal tax rate, regardless of their income level. The TOSI rules aim to curtail the splitting of income with related family members who have not otherwise made a meaningful contribution to the business, be it labour, capital, and/or an assumption of business risks. The TOSI rules are complex. If the family member is over the age of 17 and is actively engaged in the business (I.e., works at least 20 hours per week) that is paying the dividend income, income splitting may be achieved if all other eligibility criteria are met. Contact your Crowe Soberman advisor for more information on the application of the rules and potential exceptions.

Consider the following acceptable ways of shifting income to family members whose taxable income is below the lowest tax bracket, approximately $45,142. This will allow them to take advantage of certain non-transferable credits as well as lower tax rates.

Income splitting with children over the age of 17 (“adult children”)

• Shift investment income by gifting money to your adult children or to a trust for their benefit, if you wish to maintain control.
• Lend funds (at the prescribed interest rate which is currently only one per cent) to, or purchase shares in a corporation whose shareholders are, your adult children.

Income splitting with adult or minor children

• Purchase appreciating assets in the names of your children regardless of their ages. Capital gains will be taxed in their hands, not yours.
• Lend money to your children with actual interest payable at the prescribed interest rate. Earnings in excess of this rate will be taxed in their hands.
• Consider reorganizing the shareholdings of your private corporation to have your adult children (over the age of 24) own shares directly that give them 10 per cent of the votes and value (i.e., “excluded shares” for purposes of the TOSI rules). Dividends can be paid by the corporation on these shares to your adult children without the TOSI applying. This planning is beneficial if your adult children are not otherwise active in the business and not already earning income that puts them at the highest marginal tax bracket. Note that this planning only works if the corporation earns business income, is not a professional corporation and is not in the provision of services.

Income splitting with your spouse or common-law partner

• Lend money to your spouse or common-law partner to earn business income, which is exempt from income tax attribution rules.
• Have the higher-income spouse or common-law partner incur all household expenses, thus allowing the lower income person to acquire investments, which could be taxed at a lower rate.
• Lend money to your spouse or common-law partner with interest payable at the prescribed rate, which is currently only one per cent. Earnings in excess of this rate will be taxed in your spouse or common-law partner’s hands. Note that the interest payable for the 2021 calendar year must be paid to the lending spouse on or before January 30, 2022.
• Consider reorganizing the shareholdings of your private corporation to have your spouse (over the age of 24) own shares directly that gives them 10 per cent of the votes and value. Dividends can be paid by the corporation on these shares to your spouse without TOSI applying. This planning is beneficial if your spouse is not otherwise active in the business and not already earning income that puts them at the highest marginal tax bracket. Note, this planning only works if the corporation earns business income, is not a professional corporation and is not in the provision of services.

File and pay your taxes on time

• Even if you are receiving a refund, you should file your taxes on time. Filing on time avoids the possibility of late- filing penalties that may be applicable on CRA reassessments.
• The deadline for filing your 2020 personal tax return is Thursday, April 30, 2021. If you, or your spouse or common-law partner, are self- employed, the deadline for filing your tax return for 2020 is extended to June 15, 2021. Regardless of your filing due date, if you have a tax balance owing for 2020, you still must pay the balance due on or before April 30, 2021.
• The penalty for late filing your return is five per cent of the unpaid taxes, plus an additional one per cent for each complete month your return is late (up to 12 months). Penalties are higher for repeat offenders or gross negligence omissions.