We list the major changes below, including income tax changes that have been announced but were not law at the time of printing. If they become law as proposed, they will be effective for 2012 or as of the dates given. For more information about these and other changes, see the areas outlined in this guide.

Healthy Homes Renovation Tax Credit

As a senior 65 years or older in Ontario, you could qualify for a tax credit to help with the cost of making your home safer and more accessible.

The Healthy Homes Renovation Tax Credit is a permanent, refundable personal income tax credit for seniors and family members who live with them. If you qualify, you can claim up to $10,000 worth of eligible home improvements on your tax return. The amount of money you get back for these expenses is calculated as 15 per cent of the eligible expenses you claim. For example, if you spend and then claim $10,000 worth of eligible expenses, you could get $1,500 back.

The Healthy Homes Renovation Tax Credit can help with the costs of improving safety and accessibility in your home. Explore the interactive house below for examples of changes you could make.

Do I qualify?

To qualify for the credit, you need to be:

• 65 years old or older by the end of the year for which you are claiming the credit; or
• living with a family member who is a senior

Your income doesn’t matter — seniors and their family members at all income levels are eligible.

Family members

If you are living with a senior relative in your home, you could qualify for a total tax credit of up to $1,500 every year, regardless of income.

For more information, see Healthy Homes Renovation Tax Credit

Do you qualify to split your pension income?

You (the Pensioner) and your spouse or common-law partner (the Pension Transferee) can elect to split your eligible pension income received in the year if you meet the following conditions:

• you are married or in a common-law partnership with each other in the year and are not, because of a breakdown in your marriage or common-law partnership, living separate and apart from each other at the end of the tax year and for a period of 90 days or more commencing in the year (see the note below); and
• you are are both resident in Canada on December 31 of the year; or
• if deceased in the year, resident in Canada on the date of death; or
• if bankrupt in the year, resident in Canada on December 31 of the year in which the tax year (pre- or post-bankruptcy) ends.
• you received pension income in the year that qualifies for the pension income amount.

Note
You and your spouse or common-law partner will still be eligible to split pension income if living apart at the end of the year for medical, educational, or business reasons (rather than a breakdown in the marriage or common-law partnership).

Eligible pension income can only be split between you (the Pensioner) and your spouse or common-law partner (the Pension Transferee).

You are not prevented from splitting your eligible pension income because of the age of your spouse or common-law partner.

What is eligible pension income?

Eligible pension income is generally the total of the following amounts received by the pensioner in the year (these amounts also qualify for the pension income amount):

• the taxable part of life annuity payments from a superannuation or pension fund or plan; and
• if they are received as a result of the death of a spouse or common-law partner, or if the pensioner is age 65 or older at the end of the year:
  • annuity and registered retirement income fund (including life income fund) payments; and
  • Registered Retirement Savings Plan annuity payments.

Note
Old Age Security and Canada or Quebec Pension Plan or Saskatchewan Pension Plan payments, as well as amounts received under a retirement compensation arrangement, do not qualify. Generally, variable pension benefits paid from a money purchase provision of a Registered Pension Plan are not considered life annuity payments and do not qualify unless the pensioner is age 65 or older at the end of the year or the variable benefits are received as a result of the death of a spouse or common-law partner.

How do you split your pension income?

You (the Pensioner) and your spouse or common-law partner (the Pension Transferee) must make a joint election on Form T1032, Joint Election to Split Pension Income, and submit it with your and your spouse’s or common-law partner’s income tax returns for the year by your filing due date.

You can allocate up to half (50%) of your eligible pension income to your spouse or common-law partner.

Only one joint election can be made for a tax year. If both you and your spouse or common-law partner have eligible pension income, you will have to decide which one of you will split his or her pension income.

For more information, see Form T1032, Joint Election to Split Pension Income.

Note
If you and your spouse or common-law partner elected to split eligible pension income in 2008, you do not have to use the same percentage in 2009.

How do you report your split-pension income amount?

Pensioner

If you (the Pensioner) and your spouse or common-law partner (the Pension Transferee) have jointly elected to split your eligible pension income by completing Form T1032, Joint Election to Split Pension Income, you (the Pensioner) can deduct on line 210 of your return the elected split-pension amount from line E of Form T1032.

Pension Transferee

If you (the Pension Transferee) and your spouse or common-law partner (the Pensioner) have jointly elected to split your spouse’s or common-law partner’s eligible pension income by completing Form T1032, Joint Election to Split Pension Income, you (the Pension Transferee) must enter on line 116 of your return the elected split-pension amount from line E of Form T1032.

How do you claim the pension income amount?

If you (the Pensioner) and your spouse or common-law partner (the Pension Transferee) elected to split your eligible pension income, follow the instructions at Step 4 on Form T1032, Joint Election to Split Pension Income, to calculate the amount to enter on line 314 of your and your spouse’s or common-law partner’s Schedule 1.

You (the Pensioner) will be able to claim whichever amount is less: $2,000 or the amount of your eligible pension income, after excluding amounts allocated to your spouse or common-law partner (the Pension Transferee).

Your spouse or common-law partner (the Pension Transferee) will be able to claim whichever amount is less: $2,000 or the amount of his or her pension income that is eligible for the pension income amount (based on the calculation for line 314 on the federal worksheet), including the allocated pension income that is eligible for the pension income amount.

Notes
The pension that qualifies for the pension income amount for the pensioner does not necessarily qualify for the pension income amount for the spouse or common-law partner (the Pension Transferee), because eligibility can depend on age.

If your spouse or common-law partner (the Pension Transferee) was under age 65 on December 31 of the year and you (the Pensioner) are age 65 or older and you received any RRIF, RRSP, or other annuity payments (other than amounts received due to the death of his or her former spouse or common-law partner) that you want to allocate to your spouse or common-law partner (the Penion Transferee), see the note in Step 4 of Form T1032, to determine the amount to enter on line 314 of your spouse’s or common-law partner’s Schedule 1.

Protect yourself!

The CRA knows that most taxpayers, given the proper tools and information, will voluntarily meet their tax obligations.

The following contains information that will help taxpayers understand how to protect themselves against tax schemes, and understand the consequences they might face.

For example, some taxpayers don’t realize the financial and personal risks they are exposed to by paying cash for home renovations. And some taxpayers don’t know that participating in certain tax shelter schemes to avoid paying taxes could mean not only a loss of their principal, the repayment of taxes owed, and penalties and interest – it could also lead to fines and imprisonment.

Information is the key! Select a link below to find out more.

If you donate to a gifting tax shelter, expect to be audited

Each year, Canadian taxpayers participate in gifting arrangements that result in donation receipts worth three or four times the actual amount donated by the taxpayer. The Canada Revenue Agency (CRA) continues to warn Canadians against these gifting arrangements and audits those who participate.

To date, the CRA has denied over $4.5 billion in tax shelter gifting arrangement donations and reassessed over 130,000 taxpayers who have made donation claims through a gifting scheme.

For most claims, the CRA has denied the gift entirely. The CRA audits gifting arrangement tax shelters that provide donation receipts three or four times the out-of-pocket cost.

Decisions in recent court cases have concluded that the “donation” made by the taxpayer was not a gift or, where it was a gift, the amount did not exceed the out-of-pocket cost to the taxpayer. In the Maréchaux case, the Federal Court of Appeal upheld the Tax Court of Canada (TCC) decision that there was no gift given as a result of the defendant’s participation in a leveraged cash donation scheme. In the Lockie case, the TCC concluded that the gift in a buy-low-donate-high scheme was the amount paid by the taxpayer.

Tax shelter identification numbers

The CRA reminds taxpayers that tax shelter numbers are used for identification purposes only. Just because a tax shelter has an identification number does not mean that donations made to it will result in tax benefits.

Independent professional advice

Anyone thinking of investing in a tax shelter gifting arrangement should get independent legal and tax advice from a tax professional who is not connected to the arrangement or the promoter.

Packages from promoters will often claim to have legal or tax opinions from a law firm. You may find that these opinions contain very general comments and do not provide unconditional support for the scheme. Ask to see the opinions, and have them reviewed by an independent professional.

If the CRA has reassessed you for participating in a tax shelter donation scheme in the past, you may also wish to obtain independent tax advice to determine your best options.

 Current promotions

Some promoters of gifting arrangements are acknowledging that you, the taxpayer, will be audited and reassessed as a result of participating in these arrangements, but they contend that they have a defence fund to challenge a CRA reassessment.

As well, some promoters claim that even if you lose when you challenge the CRA, you can consider your tax refund a low interest loan from the CRA. In fact, any cash paid to the promoter or charity is gone for good and, when the entire donation claim is denied, you will have to repay the full tax refund plus interest. These cases can take years to get to court.

For more information, please go to:http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l101223-eng.html

Abuse of source deductions and GST/HST amounts held in trust

The Canada Revenue Agency (CRA) is warning businesses about the consequences of failing to report and remit source deductions and goods and services tax/harmonized sales tax (GST/HST) they hold in trust for the Government of Canada.

Trust funds and your obligations

TheIncome Tax Act and the Excise Tax Act require businesses to hold source deductions and GST/HST amounts in trust for the government. Employers are required to remit these source deductions—amounts withheld from employee salaries and wages to pay income tax, Canada Pension Plan/Quebec Pension Plan, and employment insurance premiums—to the federal government by certain dates. Businesses that collect GST/HST must also remit these amounts to the government by specified dates.

Funds held in trust must not be used as an alternate means of cash for a business. The CRA will use its legislated powers of recovery to make sure that amounts considered to be held in trust are paid to the government in full and on time.

There are consequences

Businesses that do not fulfill their obligations or comply with payroll requirements may be assessed penalties or interest or incur other consequences.

Businesses have to file their GST/HST returns and make payments on time. Failure to do so may result in penalties and interest on any returns or amounts the business has not remitted to the government by the filing due date.

TheIncome Tax Act and the Excise Tax Act allow for the recovery of source deductions and GST/HST amounts by:

• enhanced garnishments to collect amounts considered to be held in trust for the government;

• assessment of the directors of a corporation for the corporation’s failure to remit either source deductions or GST/HST amounts;

• seizure and sale of assets of a debtor corporation, an assessed director or a sole proprietor; and

• any other means of recovery allowed under federal legislation.

Come to us before we come to you

If you have collected source deductions or GST/HST amounts and have not remitted them on time, please contact the CRA as soon as possible to make arrangements to pay the outstanding amounts.

Employers or businesses that have failed to file returns, remit source deductions or GST/HST amounts for current or previous years can voluntarily correct their tax affairs by participating in the Voluntary Disclosures Program. The Voluntary Disclosures Program allows taxpayers to come forward to correct inaccurate or incomplete tax information and disclose information they have not reported to the CRA. Taxpayers will not be penalized or prosecuted if they make valid disclosures before they become aware of any CRA compliance action against them. These taxpayers may only have to pay the taxes owing, plus interest. For more information, please go to:http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l100521-eng.html

Come to us before we go to you

The CRA is always on the lookout for tax schemes. Have you reported illegitimate business losses? If so, you may want to come forward and correct your tax affairs through the CRA’s Voluntary Disclosures Program (VDP). If you make a valid disclosure before you become aware of any compliance action being initiated by the CRA, you may only have to pay the taxes owing plus interest, and you will not have to pay penalties or face prosecution in the courts. More information on the VDP is available at www.cra.gc.ca/voluntarydisclosures.

Remember, if it sounds too good to be true, it probably is.

For more info, please go to:http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l100519-eng.html

Why do Audits?

As part of our regular activities, the Canada Revenue Agency (CRA) selectively audits tax returns and claims for rebates. Our objective is to ensure the fairness and integrity of our self-assessment tax system. We do this by making sure that tax returns and claims are prepared properly, and that taxpayers receive all the amounts to which they are entitled.

What does an Auditor do?

The auditor will begin by giving you some general information, such as the scope of the

audit, what years will be covered, how much time the audit may take, and what information the auditor will need from you to do the work. The auditor will respond to your questions, inform you of your rights and obligations, and respect the confidential nature of information obtained during the audit. The auditor may conduct an audit relating to any of the statutes or regulations administered by the CRA.

What are your Responsibilities?

By law, you have to keep adequate books and records to determine your tax obligations and your entitlements. Generally, books and records must be kept for a minimum of six years. If you use a computer to maintain your accounting records, you must keep the books and records in an electronically readable format, even if they are also kept on paper. Using the services of a tax professional does not relieve you of these responsibilities.

For an audit, we ask you to make available to the auditor your books and records (both paper and electronic), any supporting documents, and explanations to the questions the auditor will have.

What happens in an Audit?

We strive to establish a relationship based on co-operation, openness, and transparency— key factors in an efficient audit. The Canadian public and the CRA have a mutual interest in making sure our audits are conducted efficiently and concluded in a timely fashion.

Location and materials – The auditor will generally do the audit on your premises. However, in some situations, the auditor will borrow your books and records and give you a detailed receipt for the borrowed documents. It may also be necessary at times to make copies of your electronic records.

Time involved – The time an audit takes depends on the state of your accounting records and related documents, as well as the size and complexity of your business. Your co-operation will help keep this time to a minimum.

Discussing issues – During an audit, the auditor will identify issues and discuss them with you. At any time, you can also raise your concerns with the auditor.

Responding to an adjustment proposal – The auditor will discuss any proposed adjustments and explain the rationale for them. The auditor will give you a reasonable amount of time (usually 30 days) to respond to the proposal. Before finalizing the audit, the auditor will carefully consider your explanations and respond to your questions about the findings. If issues remain unresolved, you can contact the auditor’s supervisor to discuss them further.

Notice of Assessment and Notice of Reassessment– If we have to adjust your return, the auditor will arrange to have a notice of assessment or notice of reassessment mailed to you.

If the adjustment results in an increase in the amount of your refund, a payment may accompany the notice.

Interest charges – If the adjustment results in an increase in your balance owing, we can provide an estimate of the amount before we issue a notice of assessment or notice of reassessment. This will give you the opportunity to prevent further interest charges from accruing by paying all or part of what you owe right away.

What happens when you disagree with your assessment or reassessment?

We encourage you to follow the procedures outlined above in “Discussing issues” and “Responding to an adjustment proposal.” However, if you still disagree with your notice of assessment or notice of reassessment once you receive it, you can file an objection no later than 90 days after we mailed your notice. For more information, see our brochure called P148 Resolving Your Dispute: Objection and Appeal Rights Under the Income Tax Act, and Chapter 31 of the GST/HST Memoranda Series. These publications are available online or from the Appeals Division of your tax services office.

Need more information?

To get more information about our audit programs and policies, or to comment on the audit process, contact your tax services office. You can find the telephone number and location in the government section of your telephone book or by clicking on “Contact us” on our Web site at www.cra.gc.ca