Be aware of the changes that affect your 2016
income tax filing and beyond.
As you gather your 2016 tax data together for your
CPA, take a few moments to read about the following
changes and assess the impact they may have on
you and your family’s filing for 2016 and after.
There has been a significant change in the CRA’s
policies regarding principal residency that must be
followed by all taxpayers. Prior to 2016, there was
a requirement to fill out form T2091 to designate
your home as a principal residence. The form
required you to designate the years in which the
home was your principal residence. Although this
form was required to be filed in the year of disposition,
most individuals never filed the form because
the resulting capital gain was often fully eliminated by
claiming the principal residence exemption. Administratively,
the CRA had waived this requirement to file if
the exemption eliminated the gain.
Significant Rule Changes
For the taxation years that end on or after October 3,
2016 (e.g., the 2016 calendar year), if you sell your principal
residence, you are required to report the sale and
the resulting capital gain or loss on Schedule 3 of your
T1. You are also required to file the form T2091 if you
are claiming the principal residence exemption. These
requirements are imposed regardless of whether or not
the gain is fully exempt as a result of the designation.
A failure to file and disclose the information will have
serious implications. Firstly, there is no limitation
period (i.e., after which your returns are considered
“statute-barred”) on the CRA’s ability to reassess in
the future. Therefore, the deadline which would otherwise
restrict the CRA’s ability to re-open the tax return
would not start unless the information had been fully
disclosed in the year of disposition.
Secondly, the principal residence exemption itself will
only be allowed if the sale and the designation of principal
residence are reported on your income tax return.
Should you realize subsequent to the year of sale and
filing of your income tax return that you did not file
the sale of your principal residence, the CRA is not
obligated to accept a late filing that designates the
sale as a principal residence sale. Even if the CRA
accepts the late filing, the taxpayer will be liable for
penalties that are the lesser of $8,000 or $100 for each
complete month from the original filing due date to
the date the required information was received by the
CRA in an acceptable format.
Since these rules will be effective for the 2016 calendar
year, you should remember to report the sale of
your principal residence if you had a disposition during
Basic Personal Amount
The Federal Basic Personal Amount will increase to
$11,474 for 2016, up from $11,327 in 2015. For 2017,
the amount will be $11,635.
Marginal rates remain the same in 2017.
There have been no changes in the overall federal
marginal tax rates; however, the thresholds for taxable
income have been changed as indicated in the comparison
table below. Keep in mind that these rates do
not include the provincial rate nor do they include the
various credits and deductions that may reduce the
overall income tax for which you may be liable.
- The 15% children’s fitness and arts tax credit,
as well as the education and textbook tax credit,
will be eliminated effective January 1, 2017. For
2016, the maximum Children’s Fitness and Arts
tax credit will be 50% of the previous allowable
amounts. Unused textbook and education tax credits
from previous years may be carried forward
and applied to reduce future taxable income.
- Teachers and early childhood educators will be able
to purchase up to $1,000 of eligible school supplies
for use in the classroom. From January 1, 2016, a
15% tax credit will be available on those purchases.
For instance, if $500 is spent, a tax credit of $75
would become available to reduce taxable income.
Teachers and early childhood educators should
familiarize themselves with the allowable expenses
and prepare a summary supported by the original
receipts to assist in meeting Canada Revenue
- Prior to January 1, 2016, if a couple was supporting
a child under the age of 18, the couple was able
to split income to reduce the overall family tax
liability. Effective January 1, 2016, income splitting
is no longer available.
- Northern residents will have their residency
deduction increased for the 2016 taxation year.
The northern residency deduction will increase
from $8.25 to $11 per day (or from $16.50 to $22
per day for living in a self-maintained dwelling)
if you lived in Zone A for at least six consecutive
months. If you lived in Zone B, the intermediate
area, the deduction will increase from $4.125 to
$5.50. ($8.25 to $11 per day for living in a self-maintained
dwelling). The zone for deductions is determined
on a province-by-province basis. Thus, to
ensure the appropriate tax deductions are available to
you, consult the CRA website, click on your province’s
name, and search for your place of residence.
Make sure your CPA is aware you resided in a
zone that provided deductions for line 255 of the
Check with Your CPA for the Required Documents
There have been changes in personal tax issues in
the 2016 year, but none are as important as the principal
residence rules. If you have sold your principal
residence in 2016, contact your CPA to find out what
documentation is required to ensure you are meeting
the CRA reporting requirements.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.