November 2015 Newsletter


Year-end tax planning tips for TFSAs and RRSPs

Most Canadians are aware that the deadline for contributing to one’s registered retirement savings plan (RRSP) is 60 days after the calendar year end. Many also know that contributions to a tax-free savings account (TFSA) can be made at any time during the year. Consequently, when Canadians start thinking about year-end tax planning or saving strategies, RRSPs and TFSAs aren’t often top-of-mind. The fact is, however, that there are some situations in which planning strategies involving TFSAs and RRSPs have to be put in place by the end of the calendar year; some of those are outlined below.

Accelerate any tax-free savings account withdrawals into 2015

Each Canadian aged 18 and over can contribute up to $10,000 per year (as of 2015) to a Tax-Free Savings Account (TFSA). Where amounts are withdrawn from a TFSA, the withdrawn amount is added to the taxpayer’s TFSA contribution limit for the following year.

Consequently, it makes sense, where a TFSA withdrawal is planned within the next few months, perhaps to pay for a winter vacation or to make an RRSP contribution, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA before December 31st, 2015 will have the amount withdrawn added to his or her TFSA contribution limit for 2016. If the same taxpayer waits until January of 2016 to make the withdrawal, he or she won’t be eligible to replace the funds until 2017.

Make spousal RRSP contributions before December 31

Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plan (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals from a spousal RRSP taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2015, the contributor can claim a deduction for that contribution on his or her return for 2015. The spouse can then withdraw that amount as of January 1, 2018 and have it taxed in his or her hands. If the contribution isn’t made until January or February of 2016, the contributor can still claim a deduction for it on the 2015 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2019. It’s an especially important consideration for couples approaching retirement who may plan on withdrawing funds in the relatively near future. Even where that’s not the case, making the contribution before the end of the calendar will ensure maximum flexibility if an unanticipated withdrawal becomes necessary.

When you need to make your RRSP contribution before December 31st

While most RRSP contributions to be deducted on the return for 2015 can be made any time up to and including February 29, 2016, there is one important exception to that rule.

Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71—usually by converting the RRSP into a registered retirement income fund (RRIF) or purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31st is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31st.


Financing education through a Lifelong Learning Plan

One of the many changes resulting from developments in Canada’s economy over the past quarter century has been the need for, more or less, continuous learning. At one time, it was possible to set a career goal, acquire the necessary training or skills for that work and make a lifelong career in that field. It’s abundantly clear that that is no longer the reality for most Canadian workers, whatever their field of work.

In some cases, skills have been acquired to work in sectors, like the manufacturing sector, which no longer employs Canadians in the numbers it once did. In other cases, changes—especially changes in technology—have created the need to learn new skills in order to continue to work and advance in one’s chosen field. Finally, today’s economy of contract positions and part-time work means that most Canadians will change jobs and career paths several times throughout their working lives, and that some of those changes will involve a move into a different field altogether.

Whatever the circumstances or the motivator, acquiring new skills or qualifications through a return to school is expensive. And, particularly in the case of an individual who no longer has a job because of a corporate downsizing or bankruptcy, or a plant closure, money for re-training can be hard to find. One source which can be tapped to raise the necessary funds, without the need to create interest-bearing debt, is one’s own retirement savings, through a government-sanctioned program known as the Lifelong Learning Plan.

The Lifelong Learning Plan, or LLP, allows Canadians to withdraw funds from their RRSPs, without paying tax on those withdrawals, where the funds will be used to further their education, or that of their spouse. (Education costs for one’s children do not qualify for the Lifelong Learning Plan.)

Amounts withdrawn to finance education programs must be paid back to the RRSP over a period of 10 years. Any qualifying individual can withdraw up to $10,000 in a calendar year, and can continue making withdrawals until January of the fourth calendar year after the year of the first withdrawal. So, an individual who first withdraws funds under an LLP in September of 2015 can continue to make withdrawals (assuming, of course, that there are sufficient funds within the RRSP to do so) until January 2019. The maximum amount which can be withdrawn under an LLP is $20,000.

In order to participate in an LLP, an individual must meet four qualifying criteria and must continue to fulfill those criteria throughout the four-year period during which withdrawals take place. The conditions are, however, ones which can be fairly easily met in most cases, and are as follows:

  • the taxpayer must have an RRSP;
  • the taxpayer must be a Canadian resident:
  • the taxpayer must be enrolled (or have received an offer to enroll) as a full-time student in a qualifying educational program at a designated educational institution; and
  • if the taxpayer has made an LLP withdrawal in a previous year, the repayment period has not begun.

Some of the terminology used does require explanation. For purposes of the LLP, a qualifying education program is one that lasts at least three consecutive months and requires a student to spend 10 hours or more per week on courses or work in the program. The definition of a designated educational institution would include most Canadian community colleges or universities. A taxpayer who has a question about whether a particular educational institution does or does not qualify can obtain that information by calling the Canada Revenue Agency’s (CRA’s) Individual Income Tax Enquiries line at 1-800-959-8281.

Withdrawing funds under an LLP

In order to withdraw funds from an RRSP under an LLP, the taxpayer must complete Form RC 96, Lifelong Learning Plan (LLP) Request to Withdraw Funds from an RRSP, and provide that form to his or her RRSP issuer. Assuming that the taxpayer does qualify for an LLP under the four criteria listed above, the RRSP issuer will provide the taxpayer with up to $10,000 from the RRSP, and no withholding tax will be required on amounts up to the $10,000 limit. The issuer will provide the taxpayer with a T4RSP slip showing the amount of the withdrawal, and all such LLP withdrawals must be reported on the tax return for the year. However, even though all amounts received are reported on the return, they do not count as taxable income and no income tax is payable on those amounts. The non-taxable status of such withdrawals applies, however, only to the first $10,000 withdrawn under an LLP. Amounts withdrawn in excess of the $10,000 limit are treated as regular income and taxed as such.

Making repayments to an LLP

While everyone who has an LLP must repay amounts withdrawn over a 10-year period and must repay 10% of the outstanding balance each year, the date on which those withdrawals must commence can vary. The task of figuring out what amounts must be repaid and when is made easier by the fact that everyone who withdraws funds under an LLP receives a Statement of Account each year, after they file their tax return. That Statement of Account will show total LLP withdrawals, the LLP balance, the amounts which have been repaid to date, and the amount which must be repaid in the following year.

While the rules governing when repayments must commence can be complicated, those rules are essentially as follows. The latest date on which anyone who has an LLP must commence repayment of amounts withdrawn is the fifth year after the first withdrawal. In most cases, however, repayments must start before that date. Generally, if an LLP student is not a full-time student for at least 3 months in the calendar year for two consecutive years, repayment to the LLP must start in the second of those two years. Assuming the LLP student continues to meet that requirement, repayment can be deferred until the fifth year following the year the first withdrawal is made. The CRA provides the following example of the application of the repayment rules under each scenario.

Sarah makes LLP withdrawals from 2011 to 2014. She continues her education from 2011 to 2016, and is entitled to claim the education amount as a full-time student for at least three months on her income tax and benefit return every year. Sarah’s repayment period begins in 2016, since 2016 is the fifth year after the year of her first LLP withdrawal. The due date for her first repayment is March 1, 2017, which is 60 days after the end of 2016, her first repayment year.

Joseph makes an LLP withdrawal in 2013 for a qualifying educational program he is enrolled in during the same year. He is entitled to the education amount as a full-time student for five months of 2013. Joseph completes the educational program in 2014, and he is entitled to the education amount as a full-time student for five months in 2014. He is not entitled to the education amount for 2015 or 2016. Joseph’s repayment period begins in 2016.

Deciding whether to tap into one’s RRSP in order to finance further education involves a balancing of factors. Using RRSP funds in this way means that no interest will have to be paid on funds used for education costs, unlike more traditional borrowings, including government student loans. As well, there are no tax costs to using an LLP, assuming that any withdrawals made are within statutory limits and repayments are made on schedule and in the amounts required. On the other hand, there is a “cost” in that funds withdrawn will not, during the 10 to 15-year period starting with the first withdrawal and ending with the last repayment, be earning income inside the RRSP, so the amount available in the RRSP on retirement will certainly be less. The expectation, as with all borrowings related to education, is that the costs involved will be more than offset by greater earning capacity in the future, and consequently greater ability to save for retirement.

At the end of day, the decision of whether to participate in an LLP will come down to the individual circumstances of the taxpayer involved. In making that determination, the taxpayer will need to consider the following.

  • How much has already been saved in one’s RRSP, and what percentage of the funds saved currently in the plan will be needed for the LLP?
  • What are the job prospects and average earnings in the sector or position for which the taxpayer is being re-trained? In other words, is the investment to be made in re-training or education likely to be more than offset by the earnings which will be realized as the result of that re-training?
  • Finally, for older workers, are there enough years remaining before retirement to justify the costs and time involved in re-training? If the time needed to re-train is greater than the number of working years left after the re-training is completed, it’s likely that there are better strategies than investing significant funds in re-training costs.


Escaping the Canadian winter: planning for snowbirds

Thousands of Canadians, usually retirees, spend some or all of the Canadian winter as far south of the border as possible, often in Florida or Arizona. While the declining value of the Canadian dollar has made such sojourns much more expensive, meaning that some vacation plans may have to be scaled back, many Canadians will be planning at least a short stay in a warmer place this winter.

Leaving the Canadian winter behind for a few weeks or months, however, doesn’t mean leaving behind the Canadian tax system. No one gives a lot of thought to the tax implications of taking an out-of-country vacation, but the reach of our tax system is a long one, and there are financial and tax issues to consider when planning to spend an extended period of time outside the country.

For most Canadians who go south for a few weeks or even a couple of months during the winter, there aren’t typically a lot of such tax consequences. Such vacationers usually remain, as it is called in tax parlance, “factual residents of Canada”. In practical terms, the income of such taxpayers is treated, for Canadian tax purposes, as though they had never left Canada. Factual residence is determined by the Canada Revenue Agency (CRA) on the basis of whether a taxpayer has maintained “residential ties” to Canada. Such residential ties could include continuing to own a home in Canada, having a spouse or dependants who remain in Canada while the snowbird is out of the country, having personal property (like a car) in Canada, and continuing to hold a Canadian driver’s license and medical insurance.

The vast majority of snowbirds who winter down south do maintain sufficient residential ties to Canada to be considered factual residents. Consequently, when they file their tax returns for the year, they follow all the same rules as year-round Canadian residents. They report all income received during the year from both inside and outside Canada and claim all available deductions and credits. Income tax is paid to the federal government and to the province with which their residential ties are kept. Finally, snowbirds who remain factual residents of Canada remain eligible for the goods and services tax credit, which may be paid to recipients outside of Canada.

Health care coverage

One of the biggest concerns of many snowbirds is maintaining health care insurance coverage while out of the country. In all cases, the availability and degree of coverage will depend on the health care plan in effect for the province or territory of which the snowbird is a resident, so it’s not possible to provide a one-size-fits-all answer to the question of the availability and extent of out-of-country coverage. As well, the rules governing such coverage are subject to continual revision, and it’s therefore critical that anyone planning an out-of-country stay confirm in advance the current rules governing such coverage. The prudent course of action followed by most snowbirds is to obtain supplementary health-care coverage, and the premiums paid for such coverage can usually be claimed as a medical expense on the Canada tax return. As well, any out-of-pocket costs incurred for eligible medical expenses while out of Canada (whether for the individual or his or her spouse) can be claimed as a medical expense on that year’s tax return.

One note of caution with respect to private supplementary health insurance is, however, warranted. Such insurance can sometimes be obtained at the last minute over the phone or online, but that’s not necessarily the best approach. The requirements imposed on applicants for such insurance are becoming more and more difficult to fulfill, and it seems as well that insurers are scrutinizing claims much more stringently than they have in the past. In the circumstances, the best advice for those seeking to obtain travel medical insurance would be to start early, shop around, and read and complete the application forms and any other documentation provided by the insurer very thoroughly. It wouldn’t even be out of place to obtain professional advice from an independent insurance broker or a lawyer, to ensure that one’s understanding of the requirements of the application form and the terms of coverage provided by the travel medical insurance policy is correct. Taking such a step might seem extreme, but Canadians who have incurred unexpected out-of-country medical expenses for which coverage has been denied by their insurer have faced medical bills amounting to more than $100,000. For most retirees, such an occurrence would be a financial disaster, at a time of life when they can least afford it. Time taken to ensure that any coverage obtained will be available if and when it is needed is always time well spent.

Old Age Security and Canada Pension Plan payments

Both Old Age Security (OAS) and Canada Pension Plan (CPP) benefits can be paid to benefit recipients who are living outside Canada, and there is no change in the amount of the benefits. As well, such payments can be made by direct deposit, and in US dollars.

Application of US tax laws

The application of US tax laws to snowbirds can, unfortunately, be a good deal more complex than the corresponding Canadian laws. Generally speaking, snowbirds who spend only a few weeks down south in the course of a calendar year are unlikely to be caught by any US tax filing or payment obligations. Those who extend their stay for longer than that—and certainly those who spend more than half of the year in the United States—should seek professional tax advice from an adviser familiar with cross-border taxation, to make certain that they are in compliance with any applicable US tax requirements. The US Internal Revenue Service also provides a (relatively) plain-language guide to the applicable rules on its website, at

The CRA no longer publishes its printed guide to the tax implications of spending extended periods of time outside Canada, but a section of the CRA’s website is devoted to issues affecting Canadians who spend part of the year down south, and that information can be found at


Claiming a deduction for professional and union dues

The Canadian tax system is a complex one, and while there are some deductions and credits—like RRSP contributions or charitable donations—which are familiar to just about every taxpayer, others are not so well known. One of those is the deduction which can be claimed by any taxpayer who must pay union dues or professional fees or professional liability insurance premiums.

All such claims are made on Line 212 of the annual tax return, and allow the taxpayer to deduct eligible amounts paid, in full, from their income. In effect, no tax is payable on any income amounts which are used to pay union or professional dues or insurance premiums. And, unlike other deductions, there is no dollar figure limit imposed on amounts which may be deducted for professional or union dues, or professional liability insurance.

While the definition of professional or union dues or premiums payable for professional liability insurance may seem straightforward, there can in fact be a number of different types of payments involved. In determining what does and doesn’t qualify for the deduction, it’s necessary to consider the different types of dues and premiums separately.

Professional dues and insurance premiums

Essentially, the rule for deduction of these amounts provides that dues paid are deductible only where membership in an organization is necessary for the taxpayer to maintain professional status. So, for example, dues paid by a doctor to maintain membership in the College of Physicians and Surgeons in the province (or provinces) in which he or she practices medicine are deductible: dues paid to maintain membership in the Canadian Medical Association are not.

Where the taxpayer who is seeking a deduction for such fees is an employee, it’s necessary that there be a reasonable degree of relationship between the payment of the membership fees and the requirements of the employee’s position. Continuing with the above example, a doctor who is employed by a hospital in whatever capacity should be able to claim a deduction for dues payable. A doctor who is working outside the medical field entirely but still wishes to maintain his or her membership in the College of Physicians and Surgeons will likely not be eligible to claim a deduction for dues paid.

The deduction of professional liability insurance premiums paid is more straightforward. A professional who is paying premiums for professional liability insurance is one who is working in his or her professional capacity. Such individuals can claim a deduction for the total amount of such premiums payable for insurance coverage during the calendar year for which the tax return is being filed.

Union dues

Like professional fees, union dues can be deducted where membership in a trade union is a requirement for the taxpayer to work in his or her trade or occupation. The Canada Revenue Agency’s (CRA’s) position is that membership dues and parity or advisory committee (or similar body) dues required under provincial or territorial law qualify for the deduction.

For both types of fees, other amounts can be included in the annual levy, but many of those amounts do not qualify for a deduction. Specifically, the CRA’s view is that dues eligible for the deduction do not include initiation fees, licenses, special assessments, or charges for anything other than the organization’s ordinary operating costs. It’s also not possible to claim charges for pension plans as membership dues, even if receipts received show them as dues.

Whether the fees in question are professional fees or union dues, a deduction can be claimed by an individual only where he or she is the person paying the fees or dues. Where those amounts are paid by an employer, and not shown as taxable benefit on the T4 slip for the year, no deduction for amounts paid is claimable by the employee.

There is, unfortunately, relatively little information provided by the CRA on the subject of claiming professional or union dues. The Agency once published interpretation bulletins on the subject, but those bulletins are now archived, meaning that they have not been updated in several years. The annual income tax guide does refer to those bulletins, however, as a source of information, and they can be found at (for union dues), and at (for professional fees). To obtain the most current information, taxpayers can call the CRA’s individual income tax enquiries line at 1-800-959-8281.