Appendix A provides a checklist of information that will be needed to complete your 2001 Personal Income Tax Return.

57(3)

DISABILITY TAX CREDIT (DTC)

The 2001 DTC is based on $6,000 ($4,293 in 2000) and is available to an individual who has a severe and prolonged disability which markedly restricts his/her activities of daily living.

The DTC is also available to persons who need life-sustaining therapy to support a vital function such as clapping therapy to help in breathing or, kidney dialysis.

To qualify, a Form T2201 Disability Tax Credit Certificate must be completed and signed by a medical practitioner.

The unused DTC may be transferred to a supporting parent or child or, for 2000 and subsequent years, to a supporting brother, sister, aunt, uncle, niece or nephew.

MOVING EXPENSES

The Income Tax Act permits a deduction for moving expenses if a taxpayer moves from one residence where he/she ordinarily resides to another residence where he/she ordinarily resides to carry on business, to be employed or to be a student.

In an October 26, 2001 Tax Court of Canada case, the taxpayer received a teaching job in Keyano College in Fort McMurray from January 3, 1998 to April 30, 1998.  He therefore relocated to a residence in the college even though his wife continued to live in his house in Delta, British Columbia and to work in British Columbia.

The Court permitted the moving expenses from Delta to Fort McMurray and back on the basis that the taxpayer was taking up a new residence where he would ordinarily reside.

57(4)

EMPLOYMENT EXPENSES

In a September 10, 2001 Technical Interpretation, CCRA note that the Income Tax Act provides a deduction from employment income for supplies consumed in employment.  Because tools do not fall into this category, they are not eligible for a deduction by employees.

EMPLOYER-PROVIDED COMPUTERS

In a January 1, 2001 Advance Income Tax Ruling, an international corporation wished to provide its employees with a personal desktop computer (including monitor, mouse, keyboard, printer, speakers, and internal 56K modem) or a laptop computer (including printer, mouse, and internal 56K modem), pre-installed internet access free for at least one year, Microsoft software and access to the company’s internal network.

One of the advantages to the company is that this allows employees to better balance their work and personal lives thereby increasing the company’s staff retention.  Also, by being part of a worldwide program, the participants are able to communicate with their parent company and its subsidiaries at any time, from home, or work.

CCRA ruled that the employees will not have a taxable employment benefit.

REIMBURSEMENT OF COMPUTERS

In a November 9, 2001 Technical Interpretation, an employer proposed to reimburse of a portion of the employees’ costs to purchase personal computers and software, for the use in their homes, that are compatible with equipment used by the employer.

CCRA note that this will be a taxable employment benefit notwithstanding that the assets may be used for employment-related purposes.

ALLOWANCES

Commencing January 1, 2001, where a travel allowance paid by a employer is a combination of a flat-rate and a reasonable per-kilometre rate that covers the same use for the vehicle, the total combined allowance must be included in the employee’s income for tax purposes.

Therefore, the employer cannot claim a GST Input Tax Credit for these combined allowances.  However, the employee or partner may deduct motor vehicle expenses and, therefore, be eligible for a GST rebate.

GIFTS AND AWARDS

CCRA has a new policy effective January 1, 2001 to permit up to $500 of tax deductible, non-taxable gifts (maximum two) and up to $500 tax deductible, non-taxable awards (maximum two) to an employee.

These positions do not apply to cash or near-cash gifts and awards such as gift certificates, gold nuggets, and any items that can easily be converted to cash.

57(6)

OFFICE-IN-THE-HOME EXPENSES

In a September 27, 2001 Tax Court of Canada case, the Court permitted a deduction for office-in-the-home expenses incurred by a physician.  The Income Tax Act permits a deduction if:

(a)   the office is the principal place of business or,

(b)   is used exclusively to earn income and, is used on a regular and continuous basis for meeting clients, customers or patients.

RENTAL LOSS

In a September 19, 2000 Tax Court of Canada case, the taxpayer acquired a rental property in a major ski resort area in 1989 and incurred losses from 1989 to 1994 of approximate $6,500 per year on gross revenues each year of approximately $6,000.  CCRA disallowed the loss in 1994 on the basis that there was no reasonable expectation of profit.

Good News!

The Court allowed the loss and noted that the decision to purchase was taken for business, not personal, reasons.  The Court must not substitute its business judgment for that of the purchaser’s.  The taxpayer did what he could to minimize the losses in a difficult market.

57(7)

In two September 28, 2001, Supreme Court of Canada cases, the Court allowed a deduction for interest expense.

LUDCO

In this case, the taxpayer borrowed funds to purchase shares in two offshore companies in which the dividend income of $600,000 was significantly less than the $6 million of interest expense.  Upon redemption, the taxpayer realized a capital gain of $9.2 million.  CCRA disallowed the interest expense deduction on the basis that the funds were borrowed for the purpose of earning a capital gain, not for the purpose of earning “income” from property.

The Court noted that interest on money borrowed to invest in shares, or property, is deductible if it is incurred to earn amounts that must be included in the computation of “income”.

SINGLETON

This case involves a Vancouver lawyer who withdrew funds from his partnership account to acquire a house and, on the same day, borrowed funds against the house to redeposit into his partnership capital account.  Mr. Singleton took the position that the funds were now being borrowed to finance his partnership capital account and the interest expense was deductible.  CCRA argued that the debt was really related to the acquisition of the house and the interest should not be deductible.

Good News!

The Court permitted the interest expense deduction and rejected CCRA’s contention that the “economic reality” should be considered in interest expense deduction cases.

Editor’s Comment

On October 18, 2001, officials in the CCRA Rulings Directorate advised that they are reviewing the Ludco and Singleton decisions with respect to their interpretive and administrative positions.

57(11)

LAND AND ASSOCIATED REAL PROPERTY

On October, 2001 CCRA introduced GST/HST Memoranda Series 19.5 which notes that all supplies of land situated in Canada are taxable, unless explicitly exempted.  This Memoranda reviews adventures or concerns in the nature of trade, expropriated property, real property sold back to a vendor, farmland, residential complexes, residential trailer parks, land allowances, options, land swaps and joint tenancy of farmland.

THE QUICK METHOD

In a November 6, 2001 Technical Interpretation, CCRA note that certain Registrants may elect to use the quick method.  Under the quick method, registrants remit an amount lower than the actual GST collectible, thereby experiencing an overall net gain that is retained in the business, in lieu of claiming ITCs for their current expenses and inventory.

50% LIMITATION FOR FOOD, BEVERAGES AND ENTERTAINMENT

Input tax credits for food, beverage and entertainment expenses are effectively limited to 50% where the expenses are subject to the 50% limitation for income tax purposes.

57(12)

EI AUDITS

On December 7, 2001 the Supreme Court of Canada ruled that information obtained by Customs Officials and forwarded to Employment Insurance (EI) auditors for purposes of determining that an EI claimant was out of the country and, therefore, not eligible for EI does not breach a taxpayer’s privacy.

This Supreme Court decision overturns the previous decision in the Federal Court of Appeal.

Human Resources Minister Jane Stewart notes that EI auditors will continue the practise of seeking information from other branches of government.

 

APPENDIX A

2001 PERSONAL INCOME TAX RETURN CHECKLIST
INFORMATION REQUIRED INCLUDES:

1.     All information slips such as T3, T4, T4A, T4A(OAS), T4A(4PT), T4A(P), T4E, T4F, T4PS, T4RIF, T4RSP, T5, T10, T2200, T2202, TFA1, T100, T101, T600, T1163, T1164, CTB, TL11A, T5003, T5007, T5008, T5013, T5018 (Subcontractors) and corresponding provincial slips.

2.     Details of other income for which no T slips have been received such as:

-          other employment income (including stock option plans and Election Form T1212),

        -       business income,

        -       partnership income,

        -       rental income,

        -       alimony, separation allowances, child maintenance,

        -       pensions,

        -       interest income earned but not yet received - example Canada Savings Bonds, Deferred Annuities, Term Deposits, Treasury Bills, Mutual Funds, Strip Bonds, Compound Interest Bonds

        -       professional fees,

        -       director fees,

        -       scholarships, fellowships, bursaries,

        -       replacement properties acquired.

3.     Details of other expenses such as:

        -       employment related expenses - Provide Form T2200,

        -       business and employment purchases like vehicles, supplies, etc.,

        -       interest on money borrowed to purchase investments,

        -       investment counsel fees,

-       moving expenses - including costs of maintaining a vacant former residence,

-       child care expenses,

-       alimony, separation allowances, child maintenance,

-       safety deposit box fees,

-       accounting fees,

-       pension plan contributions,

-       film and video production eligible for tax credit,

-       mining tax credit expenses,

        -       business research and development,

        -       clergy residence deduction information, including Form T1223.

4.     Details of other investments such as:

        -       real estate or oil and gas investments - including financial statements,

        -       labour-sponsored funds,

        -       Registered Education Savings Plans.

5.     Details and receipts for:

        -       Registered Retirement Savings Plan (RRSP) contributions (note that eligible foreign content is increasing to 30% for 2001),

        -       professional dues,

        -       tuition fees - including mandatory ancillary fees, and Forms T2202, TL11A and TL11D,

        -       charitable donations (including publicly traded securities),

        -       medical expenses (including medical related modifications to new or existing home and travel expenses),

        -       political contributions.

6.     Details of capital gains and losses realized in 2001.

        Also, new rules now permit rollovers for foreign share spin-offs and various foreign share reorganizations.

7.     Details of previous capital gain exemptions claimed, business investment losses and cumulative net investment loss accounts.

8.     Name, address, date of birth, S.I.N., and province of residence on December 31, 2001.

9.     Marital/common-law status and spouse/partner’s income, S.I.N. and birthdate.  New rules which apply to same-sex couples in 2001 may also be used for 1998, 1999 and 2000.

10.   List of dependents - including their incomes and birthdates.

11.   If you or one of your dependents was in full time attendance at a college or university, details concerning name of institution, number of months in attendance, tuition fees, income of dependent, Form T2202.

12.   Are you disabled or are any of your dependents disabled?  Provide Form T2201 - disability tax credit certificate.  This also includes extensive therapy such as kidney dialysis and certain cystic fibrosis therapy.  Also, the transfer rules include relatives such as parents, grandparents, child, grandchild, brothers, sisters, aunts, uncles, nephews or nieces. 

13.   Details regarding residence in a prescribed area which qualifies for the Isolated Area Deduction.

14.   Information regarding child tax credit receipts.

15.   Details regarding RRSP - Home Buyers’ Plan withdrawals and repayments; RRSP - Lifelong Learning Plan repayment.

16.   Receipts for 2001 income tax installments or, payments of tax.

17.   Copy of 2000 personal tax returns, 2000 Assessment Notices and any correspondence from Canada Customs and Revenue Agency (CCRA).

18.   2001 Personalized Tax information which CCRA may have sent you.

19.   Do you want your tax refund or credit deposited directly to your account in a financial institution?  Yes/No.

        To start direct deposit, or to change banking information, attach a “void” personalized cheque or your branch, institution and account number.

20.   Details of carry forwards from previous years including losses, donations, forward averaging amounts, registered retirement savings plans.

21.   Details of foreign property owned at any time in 2001 including cash, stocks, trusts, partnerships, real estate, tangible and intangible property, contingent interests, convertible property, etc..

22.   Details of income from, or distributions to, foreign entities such as foreign affiliates and trusts.

23.   Details of your “Pension Adjustment Reversal” if you ceased employment and were in a Registered Pension Plan or a Deferred Profit Sharing Plan.  (T10 Slip)

24.   If you provided in-home care for a parent or grandparent (including in-laws) 65 years of age or over, or an infirm dependent relative, a federal tax credit may be available.

        Also, the caregiver may claim related training costs as a medical expense credit.

25.   Individuals carrying on a business may deduct amounts paid for Private Health Service Plan coverage.

26.   Alternative Minimum Tax paid since 1994 on RRSP contributions may be refunded.

27.   Interest paid on qualifying student loans is eligible for a tax credit.

28.   Retroactive lump-sum payments

        Individuals receiving qualifying retroactive lump-sum payments over $3,000 after 1994 may be allowed to use a special mechanism to compute the tax.