As we enter a new year, the process of planning for
the 2018 personal tax return season becomes top of
mind for many. The primary objective is to ensure
that the least amount of income tax is paid within the
legal framework. The following are a few of the more
commonly missed items when taxpayers are submitting
their income tax returns.
Medical Expenses: Qualifying medical expenses can
be claimed for a non-refundable tax credit. Expenses
could include orthodontics, prescriptions, prescription
eyeglasses, dentures, etc. Eligible medical expenses
not previously claimed for any twelve-month period
ending in 2017 can be claimed on the 2017 tax return.
It is a chronological 12-month period, which allows the
taxpayer to alter the choice of the 12-month period in
order to optimize the value of the credit.
For example, the earliest date for which expenses can be
claimed may begin sometime in the 2016 calendar year
and end 12 months later, in 2017. Taxpayers may claim
medical expense paid in respect of themselves, their
spouse or common-law partner, as well as dependent
children of the taxpayer or taxpayer’s spouse who are
under the age of 18. The formula for calculating the
federal tax credit is 15 percent of the qualifying medical
expenses in excess of the lesser of three percent of the
taxpayer’s net income and $2,268 for 2017.
The formula is designed to create a minimum threshold
below which the legislators consider expenses to be
normal expenses that should be paid out-of-pocket,
without tax assistance. In addition, the taxpayer may
claim medical expenses related to certain non-arm’s-
length individuals who are dependent on the taxpayer.
The definition of this group of dependants is more
far-reaching than anywhere else in the Income Tax Act.
Dependants for this credit include the children of the
taxpayer or taxpayer’s spouse who are over the age
of 18, parents, grandparents, aunts, uncles, nieces or
nephews. Dependency is based on the facts of the
situation but the Canada Revenue Agency (CRA) will
look for evidence that the taxpayer is providing the
dependant with the basic necessities of life such as food,
shelter and clothing, on a regular and consistent basis.
The breadth of this opportunity should not be
overlooked. Seldom do we see the recognition of a
dependant relationship to such a great extent.
The federal tax credit for this second group of individuals
is calculated as 15 per cent of the amount of the medical
expenses in excess of the lesser of $2,268 (2017 figure)
and three per cent of the dependant’s net income. This
second calculation is completed for each dependant,
with medical expenses being claimed by the taxpayer.
The medical expense tax credit is not refundable and
can only reduce the individual’s overall income tax
liability. This means that couples should review their
situation and claim this credit on the tax return that
generates the most tax savings.
Charitable donations: Qualifying charitable donations
made in the 2017 calendar year (or unclaimed donations
made in any of the previous five years) can be claimed
by the taxpayer for a tax credit. There is an annual limit
that caps the amount of charitable donations that may
be claimed in a year at 75 percent of the individual’s net
For many years, the top federal marginal tax rate was
29%, and the federal government generously applied
this top marginal tax credit to all donations over $200.
However, with the introduction of the new federal
marginal tax rate of 33%, the government opted not to
apply the 33% across all donations above $200. Instead,
they created a notched formula that provides a 33% tax
credit for donations made by individual’s whose income
falls within the 33% tax bracket.
The result is a formula that appears more complex than it
actually is. The federal tax credit for 2017 is calculated as:
Step 1: 15% of the first $200 of donations
Step 2: 33 % of donations equal to the lesser of:
(a) Amount of taxable income in excess of
(b) Amount of donations in excess of $200
Step 3: 29% of total donations not included in steps 1
For example, assume an individual with taxable income
of $212,800 in 2017 donates $12,200 also in 2017.
Step 1: 15% x $200
Step 2: 33% x the lesser of:
(a) $212,800 – $202,800 = $10,000; and
(b) $12,200 – $200 = $12,000
= 33% x $10,000
Step 3: 29% x ($12,200 – $200 (step 1 donation) –
$10,000 (step 2 donation) = 29% x $2,000
Total federal credit = $30 + $3,300 + $580
In addition to the federal tax credit, the taxpayer will
be eligible for a provincial donation tax credit. While
Canada’s tax system is written in a way that requires
each individual taxpayer to claim his/her own donations,
the CRA’s administrative position generally allows one
spouse to claim the donations made by the taxpayer and
his/her spouse or common-law partner.
A charitable donation receipt is required to prove that
a gift was completed. The receipt should identify the
donor, the date of gift, the charity and the charity’s
Public transit pass: This tax credit was eliminated in
the 2017 federal budget; however, it is still available for
qualifying expenditures made from January 1 to June
30, 2017. Eligible passes include:
• Passes that allow unlimited travel on public transit
systems within Canada;
• short-term passes that entitle the user to unlimited
• travel for five consecutive days and the user buys at
least 20 days’ worth during a 28-day period; and
• electronic payment cards issued by a public transit
authority who tracks and provides a receipt if the user
travels at least 32 one-way trips over a 31-day period.
Interest expense and carrying charges: In simple
terms, interest on money borrowed to earn business or
investment income is generally tax deductible; however,
interest expense on money borrowed to generate
a capital gain is not tax deductible. It is important
to review the investments for which the money was
borrowed to ensure that there is no prohibition, in
respect of the investment, to pay dividends or interest as this is generally an indication that the investment
was more likely to be capital in nature rather than for
investment income purposes.
Child care expenses: Generally, the deduction is claimed
by the lower income spouse except when the lower
income spouse is attending post-secondary education
on a full-time basis.
The deduction is equal to the lesser of three amounts:
• the total qualified child care expenses incurred;
• $8,000 per child under age seven plus $5,000
for each child over age six but under age 16 and
$11,000 for each child for whom the taxpayer has
claimed the disability tax credit; and,
• two-thirds of the earned income of the
spouse making the claim.
Child care expenses generally include payments in
respect of caregivers, day nursery schools, day care
centres, and day camps where the primary goal is to
care for the children. Eligible child care expenses do not
include amounts paid to a parent of the child for whom
the amount is being claimed or a person under the age
of 18 who is related to the taxpayer making the claim.
Carry forward information: The CRA sends all taxpayers
a notice of assessment after they have filed their income
tax return. The notice of assessment from the prior year
contains a wealth of valuable information that should be
reviewed as the current year’s return is being prepared.
The notice of assessment should include the taxpayer’s
RRSP contribution limit and any carry-forward amounts
such as capital losses. Tax return preparation should
begin by reviewing last year’s tax return together with
last year’s notice of assessment. It is important to locate
and have on hand all income reporting receipts together
with receipts for all deduction and credits being claimed.
While the electronic processing of income tax returns
means taxpayers are no longer required to submit
receipts at the time the return is filed (paper filers
still submit all receipts), it is common for the CRA
to systematically audit electronic returns, at a later
date, by asking taxpayers to submit select receipts for
If a taxpayer owes money when the income tax return
is complete, the only way to delay the payment is to
consider delaying the filing until the April 30th deadline.
Alternatively, if the taxpayer is owed money, then it is to
the taxpayer’s benefit to file as early as possible.
Edition 307 – January/February 2018
for Advanced Financial Education
This commentary is published by the Institute in consultation with an editorial board comprised of recognized authorities in the fields of law, life insurance and estate administration.
The Institute is the professional organization that administers and promotes the CLU and the CHS designations in Canada.
The articles and comments are not intended to provide legal, accounting or other device in individual circumstances. Seek professional assistance before acting upon information included in this publication.
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Copyright 2017 ISSN 0382-7038
Contributors to this edition:
James W. Kraft, cpa, ca, mtax, tep, cfp, clu, ch.f.c.
Deborah Kraft, mtax, tep, cfp, clu, ch.f.c.