Category: Domestic Tax

Psychotherapy and Counselling Therapy: GST/ HST?

Posted on by dflanagan

As of June 20, 2024, certain psychotherapy and counselling therapy services have become exempt from GST/HST. This means that those providing these exempt services are no longer required to collect GST/HST on their services, and these service providers are no longer able to claim input tax credits (ITCs) on inputs acquired to provide these services.

Psychotherapy and counselling therapy services are now exempt if the provider:

  • is licensed with a provincial body responsible for the regulation of psychotherapy services (regulated only in Ontario) or counselling therapy services (regulated only in New Brunswick, Nova Scotia, and Prince Edward Island); or
  • operates in a province with no regulatory body but has the equivalent qualifications required to meet the licensing requirements in a regulated province.

In addition, to be exempt from GST/ HST, those providing the services must do so within the profession’s scope of practice in the respective regulated province.

If all of a registrant’s services are GST/ HST exempt, they may close their GST/ HST account with CRA. If only some of their services are exempt, they must keep their account open and continue to charge GST/HST on nonexempt services and goods.

In addition, on June 20, 2024, there may be a deemed sale and repurchase of certain capital property (e.g. computers, furniture) used in the provision of these services due to the change from a taxable to exempt supply. This generally means that the taxpayer will have to repay all or part of the GST/HST they claimed (or were entitled to claim) as an ITC when they bought the property and when they made any improvements to it. The required repayment of GST/HST is adjusted if the assets have declined in value since the acquisition.

If psychotherapy or counselling therapy services are provided, consideration should be provided to determine if the supply is now exempt.

CEBA: Collection Process

Posted on by dflanagan

Where borrowers cannot repay their CEBA loan in full when it becomes due, the loan may be assigned from the taxpayer’s financial institution to the CEBA program for collection. CRA is assisting with the collection of loans that are assigned and began said work in the Spring of 2024. Loans may have been assigned if they are in default for reasons such as:

  • not repaying the principal or interest when due;
  • becoming insolvent; or
  • failing to observe the terms of the loan.

When a loan is assigned, a loan assignment notice will be mailed to the taxpayer containing details on how to make payments and how to set up a payment arrangement with CRA. A 12-digit CEBA identification number commencing with “967” will be issued for use in registering for a CEBA portal account. The portal provides information on the outstanding balance, the payment arrangement, payment history, charge history, monthly statements, and contact information. Payment and charge history for only the period that commenced with the assignment to the CEBA program is available on the portal.

While CRA may contact the taxpayer to set up a payment arrangement, taxpayers may also initiate communications by contacting the CRA CEBA contact centre (1.800.361.2808) once the loan assignment notice has been issued.

Payments made to an assigned CEBA loan are applied in the following order:

  • fees outstanding;
  • interest outstanding;
  • principal outstanding; and finally
  • interest accrued.

Authorized third parties, such as a family member, accountant, or lawyer, can request information about the loan through the general CEBA call centre (1.888.324.4201), but they cannot access the loan or sign into the taxpayer’s CEBA portal account. To authorize new third parties or manage existing third parties, the taxpayer must contact the CRA CEBA contact centre.

The CEBA program also provided the following guidance in respect of changes to an entity’s business.

  • Business closure – Taxpayers must repay the loan even if the business is closed.
  • Ownership change – The impact of a change in ownership of the borrower depends on the business’s legal structure (e.g. whether the business is a sole proprietor or a corporation) and the type of ownership change. The general CEBA call centre should be contacted for more information once loans are assigned.
  • Insolvency – The CEBA FAQ stated that the CEBA program cannot provide insolvency advice.
  • Bankruptcy/consumer proposal/ receivership – If a business has filed for bankruptcy, the appointed licensed insolvency trustee can contact the CEBA call centre. The process for entering into payment arrangements does not apply to insolvent taxpayers.

Ensure that a reasonable repayment schedule is established if satisfying the full outstanding CEBA loan immediately is problematic.

Tax Planning: 2024 Year-end Considerations for Businesses and Individuals

Posted on by dflanagan

RSM Canada’s 2024 year-end tax guide summarizes the key federal, provincial, and territorial tax updates that may create risk or opportunity for middle market taxpayers going into 2025.

Tax trends and topics discussed as the Canadian economy moves into 2025 include:

  • Increase to the capital gains inclusion rate
  • Introduction of the Digital Services Tax Act and Global Minimum Tax Act
  • Enactment of the excessive interest and financing expense rules
  • Updates to the general anti-avoidance rule
As year-end approaches, companies and individuals alike must carefully consider tax-planning opportunities in light of economic uncertainty and evolving tax legislation and regulations. Learn more in the year-end planner.  
 
 
Download the Guide
 
Federal and Provincial Tax Rates

Federal and provincial tax rates, limits and phase-outs directly affect your business and personal tax planning strategies. Download the federal and provincial/territorial rate cards.

 

Download the Rate Cards

 

Canadian Tax Integration of Private Company Income

Tax integration is achieved when a particular stream of income is subject to the same or similar total tax rate once it reaches the individual taxpayer level. These tables provide an illustration of how the Canadian income tax integration system works.

 
Learn More

GST/HST New Residential Rental Property Rebates – Where Do We Currently Stand?

Posted on by dflanagan

On September 14, 2023, the Department of Finance announced a new enhanced GST/HST New Residential Rental Property Rebate (“NRRPR”) for certain New Purpose-Built Rental Housing (“PBRH”).  The purpose of the enhanced rebate is to provide relief on the GST costs related to building new residential rental properties in order to assist with stimulating build of PBRH.

Background

The rental of a residential complex or a residential unit in a residential complex is generally exempt for GST/HST purposes. Therefore, builders cannot claim HST paid in relation to these properties.  Typically, the major GST/HST cost is paid or payable on the purchase of a residential complex from a builder or that they accounted for on the “self-supply” of the complex.

However, eligible residential builders can file for the NRRP Rebate for the GST up to a maximum of 36% of the GST payable on the purchase or self-supply of a qualifying residential unit (an Ontario NRRP HST rebate is also available in that province). The amount of the NRRP Rebate is progressively reduced when the fair market value (“FMV”) of the property exceeds $350,000 (no NRRP Rebate is available if the fair market value is $450,000 or more).  Further, the Ontario NRRP Rebate becomes capped at $24,000, which can result in significant GST/HST costs to builders.

Pursuant to the PBRH Rebate rules, to the extent the new residential rental project meets certain requirements, the rebate percentage is increased from 36% to 100%. Moreover, the PBRH Rebate does not have any phasing-out rule or the $450,000 fair market value limitation per unit.

PBRH – What Properties Qualify?

The PBRH Rebate is only available for a residential unit that qualifies for all the following conditions:

  1. Construction has begun after September 13, 2023, and on or before December 31, 2030;
  2. Construction is substantially completed by December 31, 2035; and
  3. It is in a building with at least:
    a. Four private apartment units (i.e., a unit with a private kitchen, bathroom, and living areas), or at least 10 private rooms or suites; and
    b. 90% of residential units designated for long-term rental.

An “addition” to an existing building also qualifies to the extent that such addition includes 4 or more residential units and at least 4 of those units contain private kitchen, bath, and living area (or 10 or more private rooms or suites).

The purpose of this legislation is to increase the supply of new residential properties, therefore, existing residential complexes that undergo a substantial renovation do not qualify for the PBRH.

What is Considered “Construction” to the Canada Revenue Agency (“CRA”)?

Those involved in the construction industry will know there are various stages of “construction”, and this is a crucial element of builders being eligible for the PBRH.  The term “construction” is not defined in the Excise Tax Act (“ETA”) which has left many builders wondering what CRA considers “construction”.

On June 20, 2024, the CRA published new GST/HST Notice 336 (“336”). Included in 336 is the CRA’s comments and administrative view that states CRA’s position is that the construction of a residential complex is generally considered to begin at the time the excavation work pertaining to the property. CRA also implies that the signing of a purchase and sale agreement relating to a newly constructed units prior to September 14, 2023, would not prevent the builder’s eligibility for the PBRH Rebate if the construction of the complex began after September 13, 2023, but before 2031. CRA also confirms that newly constructed long-term care facilities that otherwise meet the relevant conditions would be eligible for the PBRH Rebate.

Although the CRA announcement from June of 2023 is welcomed, there is still remains some subjectivity.  The CRA announcement is an administrative position, meaning, it isn’t legislation – which comes with some element of risk.  For instance, there are many stages of excavation work, including the initial clearing of land.  It appears that further clarification will still be required, which will likely come in the form of taxpayer’s disputing what “construction” is, as CRA challenges these rebate filings.

 

Canada Pension Plan: Changes to Certain Benefits

Posted on by dflanagan

Several changes have been introduced to targeted measures and benefits under the Canada Pension Plan (CPP). None of the below changes are expected to impact contribution rates.

Death benefit

The CPP death benefit is increased to $5,000 (from $2,500) where all of the following criteria are met:

  • the estate would otherwise be eligible for the regular death benefit;
  • the deceased had not received any retirement or disability benefits, or similar benefits under a provincial pension plan; and
  • no survivor’s benefit is payable as a result of the individual’s death.

The increased benefit applies to deaths after December 31, 2024.

Children’s benefits

Prior to the change, the CPP surviving child benefit was only payable to children of a deceased parent if the child was under 18 or between the ages of 18 and 25 and was a fulltime student. While this benefit is still available, a similar benefit has now been introduced for part-time students, equal to 50% of the amount payable to full-time students.

In addition, eligibility for the disabled contributor’s child benefit is extended such that it continues to be available even when the disabled parent reaches age 65. Previously, the benefit ended when the disabled parent reached age 65.

Survivor benefits

Previously, couples who were legally separated but still married or in a common-law relationship could be eligible for CPP survivor pension on their partner’s passing. However, after this change, the survivor pension is not payable after a legal separation where there has been a division of their CPP pensionable earnings following the separation.

Ensure you apply for these enhanced benefits if you are eligible.

Business Receipts: What is Sufficient?

Posted on by dflanagan

In a recent Tax Tip, CRA stated that an acceptable receipt for income tax purposes must contain all of the following:

  • the date of the purchase;
  • the name and address of the seller;
  • the name and address of the buyer;
  • the full description of the goods or services purchased; and
  • the vendor’s business number if the vendor is a GST/HST registrant.

Credit card statements are not generally acceptable unless they contain all the above information.

To avoid disputes when claiming deductions, ensure that receipts contain all the required information.

TFSA: Caution with Over Contributions

Posted on by dflanagan

Taxpayers who contribute excess amounts to their TFSA are subject to a penalty tax of 1%/month that the excess contribution remains in the TFSA. If subject to the tax, an individual may apply to have the tax waived. If the individual is unsuccessful after the CRA’s first and second review of the application, the individual may apply for a judicial review of the denial in the Federal Court.

Moving Funds between TFSA Accounts

In an April 9, 2024, French Federal Court case, the taxpayer withdrew $40,000 from a TFSA at one financial institution and deposited it into another TFSA at a different financial institution at a time when he only had a TFSA contribution room of $6,270, leading to an overcontribution. Withdrawals from a TFSA are only added to an individual’s contribution room at the start of the following year. Had the taxpayer directly transferred $40,000 between the two TFSAs, there would have been no overcontribution. CRA held that the overcontributions were not the result of a reasonable error, so they could not waive the penalty tax.

The Court noted past cases that supported CRA’s interpretation that neither ignorance of the tax law nor bad advice constitutes a reasonable error. The taxpayer’s failure to transfer funds by direct transfer between the two TFSA issuers resulted in the penalty tax being properly applied CRA’s decision to deny relief was reasonable, and the application for judicial review was dismissed.

Relying On CRA Portals

In a March 27, 2024, Federal Court case, the taxpayer made TFSA contributions in line with the available TFSA room listed on CRA’s My Account; however, the balances online did not reflect some contributions, resulting in the taxpayer making excess contributions. CRA alerted the individual after the excess contributions were made. As the individual continued to contribute based on the values posted on My Account, the Court found CRA’s decision to deny relief on the penalty tax reasonable.

Do not overcontribute to your TFSA, as the penalty tax can become costly and difficult to pay. Balances posted in My Account may not be timely nor accurate.

It’s Not Too Late to Optimize Your Real Estate Structures for EIFEL

Posted on by RSM US LLP
Executive summary

Middle market real estate taxpayers should assess the impact of EIFEL rules on their investment structures to avoid denied interest expenses or penalties. Areas of focus may be the use of partnerships in real estate development or investment, non-residents with Canadian real estate, and sector-specific exemptions.

 

Middle market taxpayers in the real estate (RE) sector will need to understand the impact of Excessive Interest and Financing Expense Limitation (EIFEL) rules on their investment or development structures. Failing to model the outcome of EIFEL could lead to diminished returns on investment in the form of denied interest expenses, or penalties under the Act for non-compliance.

The key focal points of EIFEL for taxpayers operating in the RE sector should be the impact of EIFEL on partnerships, non-residents with Canadian real estate, and targeted EIFEL exemptions that are tied to the RE sector.

What are the EIFEL rules?

Initially introduced in Budget 2021, EIFEL rules are now effective for tax years of corporations and trusts starting on or after October 1, 2023. Broadly, EIFEL aims to restrict a taxpayer’s deduction for interest and financing expenses (IFE), net of interest and financing revenues (IFR), to a fixed ratio of earnings before interest, taxes, depreciation, and amortization (EBITDA), referred to in the Income Tax Act (Act) as adjusted taxable income (ATI). This fixed ratio is 30% of ATI, subject to a 40% ratio that applies for tax years that began after September 30th and before January 1, 2024.

EIFEL and Partnership Structures

Partnership structures are commonly used in RE investment or development due to their flexibility in structuring agreements, ease of resource pooling, and flow-through treatment of income, expenses, and certain tax credits. While EIFEL does not apply directly to partnerships, partners that are in scope of the rules will need to communicate and model the application of EIFEL, particularly where a partnership or its members will be leveraged with debt to facilitate RE activities.

A partnership is not a taxpayer for the purpose of EIFEL. Instead, the IFE and IFR of a partnership are attributed to partners who are corporations or trusts. The share of partnership IFE and IFR is based on the taxpayer’s share of each source of income or loss of the partnership. Where a partner determines that it will have a denied percentage of IFE, this will generally be applied to their share of IFE from a partnership and cause an income inclusion at the partner level in the amount denied (similar to the operation of thin-capitalization rules). The partnership itself will not suffer EIFEL consequences. Further, in respect to sharing IFE, certain members of a partnership may be subject to ‘at risk’ rules, which generally limit deductions to the extent a partner has invested into the partnership or earned income from the partnership. The amounts that are not included in a non-capital loss of a taxpayer because of the ‘at risk’ rules will be excluded from a partner’s EIFEL computation.

Most mitigation strategies for EIFEL will be considered at the taxpayer level, that is, the corporation or trust that is a member of a partnership. However, an election can be filed to exclude debt or lease financing amounts from the computation of EIFEL, if the debt or financing arrangement is between members of the same group for the purpose of EIFEL (generally, related or affiliated within the meaning of the Act). When a partnership is a payer or payee in these circumstances, the rules permit partnerships and their members to benefit from this election to effectively exclude a lending or lease financing arrangement from the scope of EIFEL. However, this election requires that all members of the partnership are part of the same EIFEL group as the lender or borrower, or for a partnership counterparty, each member of the lender or borrower. Additionally, all member of the partnership must be taxable Canadian corporations or a partnership which in turn is only made up of taxable Canadian corporations.

Non-residents with Real Property in Canada

Canadian residents paying rent to non-resident real property owners must withhold 25% of the payment and remit it to the CRA. Without further action, this becomes the non-resident’s final tax liability in Canada in respect to that payment. The Act allows non-resident owners of Canadian real estate to be taxed on net rental income rather than gross income if they file a section 216 return for the relevant year. The non-resident and payer can also elect for the payer to withhold on a net basis based on projected expenses, which may have cash-flow benefits for the non-resident.

For US-resident corporations or trusts that have real property in Canada and file under section 216 to be taxed on a net basis, the main exclusions from the EIFEL rules may not apply. Non-resident corporations earning income from property in Canada do not qualify. This means that section 216 filers with IFE will need to track EIFEL balances yearly to determine IFE that is denied, or available carryforward deduction capacity under EIFEL. For US middle market taxpayers that have Canadian property portfolios that are leveraged with debt, it will be important to model the application of EIFEL and explore mitigation strategies.

Multi-family and P3 Exemptions

Entities subject to EIFEL rules can exclude certain IFE amounts related to the RE sector from the IFE denial calculation. For investment funds with significant RE holdings, the benefits of relying on these exemptions are compounded. Presently, the relevant exemption is for third party IFE that is incurred in the context of public-private partnership (P3) infrastructure projects. Generally, corporations, trusts, and partnerships that act as borrowers while developing property that is owned by a public sector authority (PSA) can access this exemption, if the PSA is reasonably considered to bear these expenses.

Additionally, a focal point of Canada’s Budget 2024 was housing affordability. The government proposed a new EIFEL exemption applicable to the RE sector that is poised to be available until January 1, 2036. Taxpayers will be entitled to elect to exclude arm’s length interest from their EIFEL computation related to building or acquiring new purpose-built rental housing. This exemption is not yet passed into law but should represent welcome relief for RE developers of multi-family homes in Canada.

EIFEL for Real Estate

Middle market taxpayers in the RE sector should proactively assess and model the impact of the EIFEL rules on their investment or development structures. Of particular significance to RE developments are the impact of EIFEL on partnership structures, non-residents with Canadian real estate, and targeted exemptions that are tied to the RE sector.

This article was written by Simon Townsend, Mamtha Shree, Neil Chander, Nicole Lechter and originally appeared on 2024-09-16. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/tax-alerts/2024/optimize-your-real-estate-structures-for-eifel.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

Proposed changes to the trust reporting requirements

Posted on by RSM US LLP
Executive summary

The Department of Finance has proposed amendments to new trust filing rules introduced last year to relieve certain trusts from the obligation to file or to report certain information.

 

The types of trusts obligated to file a T3 tax return and information trusts must disclose were expanded for taxation years ending after Dec. 30, 2023. The changes were criticized as being overly broad and unclear, eventually resulting in the CRA administratively waiving the new filing requirement for bare trust arrangements just days before the filing deadline. On Aug. 12, 2024, the CRA released proposed technical amendments to the legislation (August Draft Legislation) to narrow the scope of the trusts required to file a T3 return. As these are only proposed amendments at the date of this article, they are subject to change.

Current Reporting Requirements

For taxation years ending after Dec. 30, 2023, Canadian resident express trusts must file a T3 return. For any trust which is a listed trust or is not a Canadian resident express trust, a T3 return must only be filed where income from the trust property is subject to tax and the trust:

  • has Part I tax payable,
  • is a Canadian resident trust who has a taxable capital gain or disposed of capital property in the year,
  • is a non-resident trust who, except for excluded dispositions, has a taxable capital gain or disposed of Canadian capital property in the year, or
  • Meets another criterion listed in the Canada Revenue Agency’s T3 Trust Guide (Guide).

Listed trusts include:

  • Trusts in existence for less than three months during the year.
  • Trusts who hold $50,000 or less in certain assets, including money or shares of a publicly traded company, throughout a year,
  • General trust accounts for lawyers and;
  • Non-profit organizations and graduated rate estates.

Additionally, these new rules introduce a filing requirement for bare trust arrangements.

All trusts which are not listed trusts must disclose information, including names and addresses, of each trustee, beneficiary, settlor and person who has the ability to exert influence over the trustees’ decisions regarding the appointment of income or capital of the trust. (Schedule 15 Requirement)

Proposed Amendments – Listed Trusts

Listed trusts are only required to file a T3 where they meet one or more criterion listed in the Guide and are exempted from the Schedule 15 Requirement. As a result, a listed trust will have less trust reporting requirements than other Canadian resident express trusts.

The August Draft Legislation amended the listed trusts to remove the restriction concerning type of assets for trusts at or below the $50,000 asset value limit mentioned above. As such, trusts who hold assets valued at $50,000 or less throughout the year, irrespective of the type of assets, will be considered listed trusts. The August Draft Legislation also proposed the following additional listed trusts:

  • Trusts where:
    • All trustees and beneficiaries where individuals and the beneficiaries are related to each trustee,
    • The trust only holds certain types of assets, which includes money, GICs, shares of a publicly traded company, or personal use property throughout a year, and;
    • The value of those assets does not exceed $250,000 throughout the year.
  • Trust that are required under rules of professional conduct or federal or provincial law to hold funds for the purposes of activities that are regulated under those rules or laws, provided the trust account that holds only $250,000 or less in money4 throughout the year, and no other assets. This would include lawyer’s trust accounts held for specific client(s).

and clarified that trusts created by statute, such as bankruptcy trustees or provincial guardians, will be considered listed trusts.

These amendments are proposed to apply to taxation years ending after Dec. 30, 2024.

Proposed Amendments – Bare Trusts

A bare trust arrangement is effectively where a trustee is acting as an agent of the trust beneficiaries in respect of the trust property. The trustee holds legal title of the trust property and deals with the property at the direction of the beneficiaries. These arrangements are common in the real estate, oil, gas and mining industries and partnership and joint venture business structures but may be used elsewhere, even unknowingly. Bare trusts are largely ignored for tax purposes, including that no tax is paid by the trust. Instead, any income of the bare trust is included in the beneficiaries’ taxes for the year.

The August Draft Legislation repeals the requirement for bare trust arrangements to file a T3 return for their 2024 taxation year. For the 2025 taxation year onward, it proposes that “deemed trusts” will be treated as express trusts for the purposes of filing an income tax return. As such, all Canadian resident deemed trusts will be required to file a T3 return if they are not a listed trust. Listed trusts and non-Canadian resident deemed trusts must file where income from the trust property is subject to tax and a criterion in the Guide is met. The Schedule 15 Requirement will apply to all deemed trusts who are not listed trusts.

Deemed trusts are bare trusts. However, the legislative definition is intended to be clearer and better rely on existing ownership concepts in trust law than the current definition of bare trusts in the Income Tax Act.

A deemed trust is defined as:

An arrangement where one or more persons (trustees/legal owners) have legal ownership of property that is held for the use of, or benefit of one or more persons or partnerships (beneficiaries), and the trustees can reasonably be considered to act as agent for the beneficiaries.

It also exempted the following arrangements which would otherwise be captured by the above definition:

Arrangement

Example

All legal owners are also beneficiaries

A joint spousal bank account

Legal owners are individuals and related persons, and the trust property is the principal residence of one or more of the legal owners.

A parent goes on title of their child’s house due to mortgage requirements. Child is also on title of the house.

The legal owner is an individual and the property would be their principal residence for the year (under the Income Tax Act), and the property is used by or held for for the benefit of their spouse or common-law partner.

A husband is solely on title of the family home where he and his spouse live.

A partner (other than a limited partner) holds property solely for the use of, or benefit of the partnership.

Two companies form a limited liability partnership to develop a piece of real estate and incorporate a general partner. The general partner goes on title for the piece of real estate.

The legal owner is holding the property due to a court order.

 

Canadian resource property is held for the use or benefit of one or more publicly listed companies (or subsidiaries or partnerships of such companies)

A publicly traded corporation holds the rights to explore and drill for petroleum at a particular site in Canada and allows use of that right by its wholly own subsidiaries.

A non-profit organization holds funds it received from federal or provincial governments for the use or benefit of other non-profits.

 

These amendments are proposed to apply to taxation years ending after Dec. 30, 2025.

 

This article was written by Cassandra Knapman, Deanna Fisher and originally appeared on 2024-09-10. Reprinted with permission from RSM Canada LLP.
© 2024 RSM Canada LLP. All rights reserved. https://rsmcanada.com/insights/tax-alerts/2024/proposed-changes-to-the-trust-reporting-requirements.html

RSM Canada LLP is a limited liability partnership that provides public accounting services and is the Canadian member firm of RSM International, a global network of independent assurance, tax and consulting firms. RSM Canada Consulting LP is a limited partnership that provides consulting services and is an affiliate of RSM US LLP, a member firm of RSM International. The member firms of RSM International collaborate to provide services to global clients but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmcanada.com/about for more information regarding RSM Canada and RSM International.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

Canada Pension Plan: Timing of Starting Payments

Posted on by dflanagan

Individuals can start collecting Canada Pension Plan (CPP) retirement benefits as early as age 60. However, benefits are decreased by 0.6%/ month (7.2% per year) prior to age 65 for a maximum reduction of 36%. They are increased by 0.7%/month (8.4% per year) that CPP is delayed past age 65 to a maximum increase of 42% if collection is deferred to age 70. In other words, monthly retirement benefits are more than 2.2 times as large for someone who waits until age 70 rather than collecting at age 60.

A recent National Institute on Aging report indicated that an individual with median CPP benefits and an average life expectancy loses over $100,000 of CPP benefits, in current dollars, by starting CPP at age 60 instead of 70. The report noted that 9 out of 10 individuals opt to start CPP by age 65 or earlier.

The report also noted that collecting earlier may be a rational decision for individuals with financial hardship or poor health, resulting in reduced life expectancy. However, it suggested that most individuals would be better off drawing on other savings (such as RRSPs) to bridge the gap until reaching age 70. The report indicated that 4 in 5 individuals with RRSPs or RRIFs would receive higher lifetime income using this approach.

Consider the lifetime benefits and costs when deciding at what age to commence CPP payments.