DISTINGUISHED ADVISOR WORKSHOP WINTER 2017: 2017 Advanced Personal Tax Update

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1 DISTINGUISHED ADVISOR WORKSHOP WINTER 2017: 2017 Advanced Personal Tax Update Brought to you by: Toll Free: Fax: Online:

2 presents ADVANCED PERSONAL TAX UPDATE With EVELYN JACKS, MFA, DFA-Tax Services Specialist PRESIDENT, KNOWLEDGE BUREAU And Guest Instructors WALTER HARDER, BSc, DFA - Tax Services Specialist ALAN ROWELL, MFA, DFA-Tax Services Specialist ISBN No Publisher: Printed and bound in Canada. Knowledge Bureau, Inc. 187 St. Mary s Road, Winnipeg, MB R2H 1J Knowledge Bureau, Inc. All rights are reserved. No part of this work print, audio or online INCLUDING charts, data, logos, art, videos, design, architecture, articles, quotes may be reproduced or transmitted in any form or by any means, or stored in a data base and retrieval system, without prior written consent from Knowledge Bureau, Inc. Under no circumstances may any content or derivative thereof be used for commercial use nor may it be merged, distributed, modified or incorporated in whole or part without permission from Knowledge Bureau, Inc. For further information or to request permission for reproduction call us at or by at admin@knowledgebureau.com. Educational Institutions should contact their CANCOPY license administrator for information about licensing agreements Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

3 Knowledge Bureau is a national post-secondary education institute and publisher, which provides an academic path to continuing professional development of tax accountants and financial advisors. Our comprehensive certificate courses help professionals attain ongoing CE/CPD Credits and credentials, train staff or advance professional careers by demonstrating mastery of specialized fields of study with the prestigious Distinguished Financial Advisor and MFA (Master Financial Advisor) Designations. D I S C L A I M E R Users of the intellectual properties published by Knowledge Bureau, Inc. (including books, website, news services, educational works and any other aspects of the products and services of Knowledge Bureau, Inc.) are responsible for their own actions and outcomes and are advised to seek legal counsel or other professional advice before acting on any information or recommendations received. The owners, publishers, authors, instructors, coaches and contributors therefore expressly disclaim all and any liability to any person in respect of anything and any consequence as a result of the use of the works which may be taken through Knowledge Bureau, Inc., including any news releases or commentary, self-study courseware, live workshops, conferences, webcasts or other information resource herein referred. Knowledge Bureau Inc. makes no representations or warranties with respect to software used in its programs and accepts no responsibility with respect to its use by the student. Only those warranties available from software developers are applicable. Users of the intellectual properties of Knowledge Bureau including its websites, courses or other services of Knowledge Bureau, Inc. are also herewith notified that the company, its principals, shareholders, employees, writers, instructors or subcontractors are not involved in any aspect of any business conducted by any persons or companies for which it supplies or offers courseware, information or intellectual property management services, including resellers of its courseware, and does not endorse any such person or companies or its products or services. Knowledge Bureau, Inc. therefore expressly disclaims any responsibility for any consequence any person or entity has in relation to dealings with any such person or company. The examples used in the intellectual property published by Knowledge Bureau, Inc. are fictitious unless otherwise stated and any resemblance to real life people, facts or circumstances is purely coincidental. Much care has been taken to trace ownership of copyrighted material contained in this material; however, the publisher will welcome any information that enables it to rectify any reference or credit for subsequent editions and or any errors or omissions that require correction. Please contact Manager, Content Development at T R A N S P A R E N C Y A N D A D V I C E In managing, developing and distributing intellectual property, the philosophy of Knowledge Bureau is that it interprets the news as it relates to wealth and health management issues and provides perspective. It does not provide advice. It is also not a platform for any other company and does not associate itself with individuals who wish to use Knowledge Bureau, Inc. as a platform to sell other products or services from which they benefit financially, unless they are prepared to make full disclosure. Knowledge Bureau has the following expectations of its speakers, instructors, associates, authors, and lecturers: Advice. They will not provide advice unless they are appropriately registered and licensed, and appropriately qualified to do so. We expect that our associates will and have made themselves aware what type of advice is under jurisdiction of regulators. Transparency. We expect our associates to make full disclosures of any compensatory relationship (monetary or otherwise) with the company that hires them or pays them consulting or other fees or commissions. They are required to state how they will benefit if the audience is being invited to consider and/or buy a product from a company with which the speaker has a compensatory relationship, including receipt of consulting fees, commissions or trailer or any beneficial ownership. Based on these written policies and our stated and expected conduct of our speakers and instructors, neither Knowledge Bureau, Inc. nor any of our employees can take responsibility for the results of any actions taken by any persons that may have adverse financial consequences Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

4 CANADA CHILD TAX BENEFIT WORKING INCOME TAX BENEFIT THE PROVINCES - WHAT S NEW in 2016? FEDERAL AND PROVINCIAL NON-REFUNDABLE TAX CREDIT AMOUNTS FOR CARRY FORWARD INFORMATION EXEMPT INCOME: REVIEW PRESCRIBED INCOME TAX INTEREST RATES SIMPLIFIED PER KILOMETRE METHOD: TRAVEL EXPENSES-MEDICAL, MOVING, NORTHERN RESIDENTS AVERAGE EXCHANGE RATES 2015 AND PRESCRIBED INTEREST RATES FOR LEASING RULES MOST COMMON TAX ERRORS: CRA 2015 SEASON TAX TRIVIA WARM UP: What are the tax rules? TAX FORM TRIVIA: THE AUXILIARY TAX FORMS REVIEW SHAKE OUT THE COBWEBS! TAX TRIVIA WARM-UP LINE LINKING EXERCISE YOUR LINE-BY-LINE PROFESSIONAL T1 TAX GUIDE REPORTING INCOME ON THE T1 RETURN: LINES 101 TO 150 LINE 101 EMPLOYMENT INCOME LINE 103 WAGE LOSS REPLACEMENT CONTRIBUTIONS LINE 104 OTHER EMPLOYMENT INCOME LINE 113 OLD AGE SECURITY LINE 114 CPP INCOME LINE 115 PENSION AND SUPERANNUATION Example LINE 116 ELECTED SPLIT-PENSION AMOUNT LINE 117 UNIVERSAL CHILD CARE BENEFIT LINE 119 EMPLOYMENT INSURANCE LINE 120 DIVIDEND INCOME LINE 121 INVESTMENT INCOME LINE 122 NET PARTNERSHIP INCOME LINE 125 RDSP INCOME LINE 126 RENTAL INCOME LINE 127 CAPITAL GAINS AND LOSSES LINE 128 SUPPORT PAYMENTS LINE 129 RRSP INCOME LINE 130 OTHER INCOME LINES 135 TO 143 SELF-EMPLOYMENT LINE 146 NET FEDERAL SUPPLEMENTS Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

5 DEDUCTIONS ON THE T1 RETURN: LINES 207 TO 256 LINE 207 REGISTERED PENSION PLAN LINE 208 RRSP/PRPP DEDUCTION LINE 205 PRPP EMPLOYER CONTRIBUTIONS LINE 210 DEDUCTION FOR ELECTED SPLIT-PENSION AMOUNT LINE 212 ANNUAL UNION DUES, ETC LINE 213 UCCB REPAYMENT LINE 214 CHILD CARE EXPENSES LINE 215 DISABILITY SUPPORTS DEDUCTION LINE 217 BUSINESS INVESTMENT LOSSES LINE 219 MOVING EXPENSES LINE 220 SUPPORT PAYMENTS MADE LINE 221 CARRYING CHARGES AND INTEREST LINE 222 CPP CONTRIBUTIONS ON SELF-EMPLOYED EARNINGS LINE 224 EXPLORATION AND DEVELOPMENT EXPENSES LINE 229 EMPLOYMENT DEDUCTIONS LINE 231 CLERGY RESIDENCE DEDUCTION LINE 232 OTHER DEDUCTIONS LINE 235 SOCIAL BENEFITS REPAYMENT LINE 244 CANADIAN FORCES PERSONNEL AND POLICE DEDUCTION LINE 248 HOME RELOCATION LOAN DEDUCTION LINE 249 SECURITIES OPTION DEDUCTION LINE 250 OTHER PAYMENT DEDUCTIONS LINE 251 LIMITED PARTNERSHIP LOSSES OF OTHER YEARS LINE 252 NON-CAPITAL LOSS CARRY-OVERS Example LINE 253 NET CAPITAL LOSSES OF OTHER YEARS LINE 254 CAPITAL GAINS DEDUCTION LINE 255 NORTHERN RESIDENTS DEDUCTIONS LINE 256 ADDITIONAL DEDUCTIONS SCHEDULE 1: FEDERAL TAX INDEXING OF FEDERAL TAX BRACKETS LINES NON-REFUNDABLE CREDITS LINE 300 BASIC PERSONAL AMOUNT LINE 301 AGE AMOUNT LINE 303 SPOUSE OR COMMON-LAW PARTNER AMOUNT LINE 305 AMOUNT FOR AN ELIGIBLE DEPENDENT LINE 367 FAMILY CAREGIVER AMOUNT FOR CHILDREN UNDER 18 YEARS OF AGE LINE 369 FIRST-TIME HOME BUYERS TAX CREDIT LINE 306 AMOUNT FOR INFIRM DEPENDANTS OVER Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

6 LINES 308 AND 310 CPP CONTRIBUTIONS LINES 312 AND 317 EI PREMIUMS LINE 362 VOLUNTEER FIREFIGHTERS AMOUNT LINE 395 SEARCH AND RESCUE VOLUNTEERS AMOUNT LINE 363 CANADA EMPLOYMENT CREDIT LINE 364 CREDIT FOR PUBLIC TRANSIT PASSES LINE 370 CHILDREN S ARTS AMOUNT LINE 313 ADOPTION EXPENSE TAX CREDIT LINE 314 PENSION INCOME AMOUNT LINE 315 CAREGIVER AMOUNT LINE 316 DISABILITY AMOUNT FOR SELF LINE 318 DISABILITY AMOUNT TRANSFERRED LINE 319 INTEREST PAID ON STUDENT LOANS LINE 323 TUITION, EDUCATION, AND TEXTBOOK AMOUNTS LINE 324 TUITION, EDUCATION, AND TEXTBOOK AMOUNTS TRANSFERRED FROM A CHILD LINE 326 AMOUNTS TRANSFERRED TO SPOUSE LINE 330 TO 332 MEDICAL EXPENSES LINE 338 CALCULATED CREDITS LINE 349 CHARITABLE DONATIONS PAGE 2 OF SCHEDULE 1 LINE 424 FORM T1206 TAX ON SPLIT INCOME LINE 425 FEDERAL DIVIDEND TAX CREDIT LINE 427 FORM T691 ALTERNATIVE MINIMUM TAX LINE 405 FEDERAL FOREIGN TAX CREDIT LINE 410 POLITICAL CONTRIBUTION CREDIT Example LINE 412 INVESTMENT TAX CREDIT LINE 414 LABOUR-SPONSORED FUNDS TAX CREDIT LINE 415 WORKING INCOME TAX BENEFIT ADVANCE PAYMENTS LINE 418 SPECIAL TAXES PAGE 4 OF THE TI GENERAL RETURN LINE 420 NET FEDERAL TAX LINE 421 CPP ON SELF-EMPLOYMENT LINE 430 EMPLOYMENT INSURANCE PREMIUMS PAYABLE ON SELF-EMPLOYMENT AND OTHER ELIGIBLE EARNINGS LINE 422 SOCIAL BENEFITS REPAYMENT LINE 428 PROVINCIAL TAX LINE 437 TOTAL INCOME TAX DEDUCTED LINE 440 REFUNDABLE QUEBEC ABATEMENT LINE 448 CPP OVERPAYMENT Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

7 LINE 450 EMPLOYMENT INSURANCE OVERPAYMENT LINE 452 REFUNDABLE MEDICAL EXPENSE SUPPLEMENT LINE 453 WORKING INCOME TAX BENEFIT LINE 454 REFUNDABLE INVESTMENT TAX CREDIT LINE 456 PART XII.2 TRUST TAX CREDIT LINE 457 GST/HST REBATE LINE 459 CHILDREN S FITNESS TAX CREDIT LINE 469 ELIGIBLE EDUCATOR SCHOOL SUPPLY TAX CREDIT LINE 476 TAX PAID BY INSTALMENTS LINE 479 PROVINCIAL OR TERRITORIAL CREDITS ANNUAL LINE-BY-LINE T1 TAX UPDATE 2015 QUIZ Appendix A: PRINCIPAL RESIDENCE BASIC CONCEPT... A.1 DEFINITION OF PRINCIPAL RESIDENCE... A.1 WHAT S NEW FOR A.1 SUMMARY... A.11 Appendix B: AUXILLIARY FORMS T B.2 Provincial T1 Tax Forms Alberta... B.5 British Columbia... B.7 Manitoba... B.12 Example Ontario... B.19 EVALUATIONS 2017 Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

8 REPORTING INCOME ON THE T1 RETURN: LINES 101 TO 150 LINE 101 EMPLOYMENT INCOME What s New? Increased Canada Employment Credit: $1,161 Prescribed Rates for Reasonable Auto Allowances Decreases by one cent per km RC18 Calculating Auto Benefits, Prescribed auto rates No changes in year Working Income Tax Benefit Increased to $1,028 (single) / $1,868 (couple) in most provinces Newly updated Forms: TD1, RC201 WITB Advance Payments Application for 2017 Pooled Retirement Pension Plans: PRPPs are not yet available in any province except where employment is federally regulated. Quebec has the equivalent of a PRPP with their VRSP. Employer contributions will not be a taxable benefit for employees (and will not be subject to payroll taxes for employers). However, employer contributions will result in a reduction of the employee s RRSP/PRPP contribution room. am What Do You Need to Know? pl e Taxable and Non-Taxable Employment Benefits Ex Employment Tax Credit. For 2016, the maximum claim under the Canada Employment Credit rises to $1,161 increasing to $1,178 in This amount is indexed annually. See Canada Employment Credit (CEC) under non-refundable tax credits for more details. This credit has no effect on employees claims for employment expenses but it is used in the calculation for deductions for employee-purchased tools. Automobile Deduction Limits 2016 Rates: The deduction limits for passenger vehicles remain the same for 2016 as they have been since Maximum cost for CCA on Class 10.1 vehicle: $30,000 + taxes Maximum lease amount deductible: $800 per month + taxes Maximum interest deduction: $300 per month Maximum Per-Kilometre Rate for Non-Taxable Auto Benefits 2016 Rates: Most provinces: 54 cents/km for the first 5,000 km (48 cents/km thereafter) NT, YT, NU: 58 cents/km for the first 5,000 km (52 cents/km thereafter) Taxable Benefit relating to the Personal Portion of Automobile Operating Expenses paid by Employers 2016 Rates: 2017 Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

9 The prescribed rate for 2016 is 26 cents per kilometre and 23 cents per kilometre for auto salespersons. Employer s GST Remittance for Taxable Benefits Most employers who provide taxable benefits to their employees are required to remit the GST included in those benefits by applying a prescribed rate to the amount of the taxable benefit. These remittance rates are summarized as follows: Benefits in General Auto Operating Cost Benefit GST Provinces (BC, AB, SK, MB,NU, NT, YT) 4/104 3% Ontario 12/112* 9%** New Brunswick 13/113 (to 6/30) 15/115 (after 6/30) 10% Nova Scotia 14/114 11% Prince Edward Island 13.25/ %*** Newfoundland and Labrador 13/115 (to 6/30) 15/115 (after 6/30) 10% pl e Province am The lower rate applicable to the operating cost benefit reflects the fact that insurance is typically included in operating costs, and it is exempt from GST/HST. * 4/104 for large corporation in Ontario ** 6% for large corporations in Ontario ***6.63% for large corporations in PE Ex GST/HST Rebates The GST/HST rebate rate for 2016 is 5/105 for GST. For HST participating provinces, the rebate rate varies by province and the date of the expenditure as shown in the following table: GST/HST Rate Paid GST/HST Rebate Rate Rate applies to the following provinces 5% 5/105 Non-participating 13% 13/113 ON, NB (to 6/30), NL (to 6/30) 14% 14/114 PE (to 9/30) 15% 15/115 NS, NB (after 6/30), NL (after 6/30), PE (after 9/30) Employee Stock Options When an employee has deferred stock option taxable benefits and subsequently disposes of the securities, the taxable benefits must be reported on line 101. If the employee is still employed by the same employer, the benefit may be included on the T4 slip. If the employee is no longer employed with the same employee, the amount is calculated on T1212. No new deferrals in Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

10 What Do You Need to Ask? Does client have a company owned automobile? Does client receive an allowance for mileage allowance for auto? Will Working Income Tax Benefits be applicable? Should taxable benefits be reviewed in renegotiation of employment contract? Were contributions made to an Employee Life and Health Trust? Were stock options exercised or stock sold? Should the amount for volunteer firefighters or for emergency services volunteers be claimed and the exempt income be included on line 101? What Do You Need to Do? pl e Review T4 for taxable benefit calculations Ensure Form TD1 is completed yearly (Federal and provincial) Review the status of stock options exercised or deferred Employment income qualify for lump-sum averaging and should be reported on T1198 if received under: o an order or judgment from a court or other competent tribunal; o an arbitration award; or o a lawsuit settlement agreement (including damages for loss of office or employment). am Real Wealth Management Issues Income: Could source deductions be decreased to enhance purchasing power? Will employer fund education, to increase earning power? Capital: Can employee tap into investment opportunities funded by employer s lower taxed corporate dollars? Debt: Can employer-provided investment loans increase future wealth? Can employerprovided vehicles, computers, other assets reduce the need for debt? Ex LINE 103 WAGE LOSS REPLACEMENT CONTRIBUTIONS What Do You Need to Know? Enter the taxpayer s total contributions to wage loss replacement plans as shown on supporting documents from their employer or insurance company Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

11 LINE 104 OTHER EMPLOYMENT INCOME What Do You Need to Know? Line 104 is used to record income from employment that is not reported on the taxpayer's T4 Statement of Remuneration Paid (slip). Amounts reported here are considered to be "Earned Income" for Child Care and for RRSP purposes. The most common types of income to be included on this line are detailed below. Casual Employment Income Employment income earned on a casual basis may not be reported to the taxpayer on a T4 slip. Nonetheless, this employment income must be included in income. Use line 104 to report this income. If the taxpayer has employment income from a foreign country, such as reported on a W2 from the US, report this income in Canadian funds on line 104. The income is eligible for a foreign tax credit for any foreign taxes paid. If the taxpayer will be filing a tax return to the foreign country to recoup some or all of the taxes withheld, be sure to claim a credit for only the net foreign taxes paid. Tips and gratuities in general received by an employee are taxable. As the amounts are not provided by the employer, they will not appear on the T4. CPT20 Election to Pay Canada Pension Plan Contributions is filed with the T1 return and is used to contribute to CPP on income that with would not automatically be subject to CPP contributions. The most common type of such income is tips made by employees in the service industry. These earnings are added to Schedule 8 and the earner pays premiums at the same rate as a self-employed taxpayer (since there is no employer to pay 50%). pl e Ex am Tips GST Rebates If the taxpayer received a GST/HST rebate in the year in respect of employment expenses claimed on the previous year's tax return, the amount received is reported on line 104 unless the amount relates to a capital asset such as a motor vehicle, aircraft or musical instrument. If the amount relates to a CCA claim, the UCC of the class is reduced by the amount of the rebate that relates to that claim. Group Term Life Insurance or Health Care Benefits Any benefit for employer-provided group term life or health care insurance when the benefit is conferred by a former employer, or reported by another party on behalf of the employer or former employer, will be reported on a T4A Statement of Pension, Retirement, Annuity and Other Income slip in Box 118. This benefit is considered to be employment income. Include it on line 104. Net Research Grants Research grants are included in computing income by virtue of S. 56(1)(o) to the extent that they exceed the aggregate of allowable expenses incurred in the year. S. 56(1)(o) allows the 2017 Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

12 taxpayer to claim any expenses incurred by the taxpayer in carrying out the research except for: Personal living expenses Amount reimbursed to the taxpayer Amounts deductible under some other section of the Act. Typical types of expenses include: If the expenses are incurred in the year before the grant is received (but after the grant is announced) or in the year after the grant is received, they must be deducted in the year the grant is received rather than the year in which they occur. If the expenses exceed the amount of the grant, no amount of grant should be reported. Expenses may not decrease income from other sources. Expenses incurred more than one year before or after the year in which the grant was received are not deductible from the grant income. Royalties from Work or Invention Royalties from the taxpayer's work or invention are reported in Box 17 of a T5 slip. Where the royalties are received by virtue of the taxpayer's employment, they should be reported as other employment income. If received by virtue of a taxpayer s business activities, it should be reported on Form T2125. If the royalties are not so received, they should be reported as investment income on Schedule 4 Statement of Investment Income. am pl e Costs of supplies or equipment required by the research Travel expenses (including all amounts spent for transportation and lodging while travelling) that the taxpayer incurs while away from home in the course of carrying on the work Salary or wages for a research assistant Supplementary Unemployment Benefits A supplementary unemployment benefit plan is defined in S. 145(1) as "an arrangement under which payments are made by an employer to a trustee in trust exclusively for the payment of periodic amounts to employees or former employees of the employer who are or may be laid off for any temporary or indefinite period." This does not include a wage loss replacement plan which is designed to supplement income temporarily when the employee is unable to work. Supplementary Unemployment Benefits are taxable under S. 145(3) and S. 56(1)(g). These amounts will be included in Box 152 of a T4A slip. Ex Wage Earner Protection Plan Benefits Benefits received under the Wage Earner Protection Plan Act (WEPP) must be included under S. 56(1)(r). These are reported in Box 132 of a T4A slip. Wage Loss Replacement Plan Benefits Wage loss replacement plan benefits in excess of employee contributions to the plan are taxable under S. 6(1)(f). These are reported in Box 107 of a T4A slip. Be sure to record contributions made on line 103. Lump sum receipts from a wage loss replacement plan that relate to two or more years may be eligible for income averaging and should be reported on T Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required

13 Other Various other payments reported in Boxes 119, 127, and 156 of the taxpayer's T4A slip must be reported on line 104, as well as certain payments under a deferred profit sharing plan reported in Box 35 of the taxpayer's T4PS Statement of Employee Profit-Sharing Plan Allocations and Payments slip. What Do You Need to Ask? Was the taxpayer in receipt of other income related to employment aside from that stated on the T4 slip? Was the taxpayer in receipt of a research grant? If so, were related expenses in excess of the grant? Was the taxpayer unemployed during the year and was in receipt of periodic payments from a supplementary unemployment benefit plan under the current or former employer? Did the taxpayer receive a GST rebate during the year? Did the taxpayer receive any tips during the year? pl e What Do You Need to Do? Discuss other employment income sources with clients. am Real Wealth Management Issues Ex Income: Are premiums paid for wage loss replacement plans properly allocated to maximize tax efficiency should a disability occur and benefits be paid? Are CPP benefits being paid on tips and casual earnings to maximize future retirement income? Are severance packages being negotiated for continuation of the group health benefits by former employees? LINE 113 OLD AGE SECURITY What s New? Benefit rates increased in January, July and September See rates below. Clawback zones have been indexed. As of July 2013, seniors have the option to defer receiving their Old Age Security pension for up to five years, in a manner similar to the deferral of the Canada Pension Plan. Taxpayers exercise this option by simply not applying for their pension at age 65. Those who have already started receiving OAS have six months to elect not to continue. Upon election, the OAS benefits already received will have to be repaid Those who begin to receive their pensions later will receive a proportionately larger pension 2017 Knowledge Bureau Inc. All Rights Reserved. Permission to reproduce required