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In an April 17, 2019 Technical Interpretation, CRA was asked whether clothing reimbursements paid to maintenance employees were taxable benefits. Employees were not required to wear specific uniforms and were reimbursed based on receipts, to an annual maximum.

CRA referred to Guide T4130 Taxable Benefits and Allowances, which states that clothing is generally a personal expense, except where either of the following applies:

• the employee is required to wear a distinctive uniform while carrying out their employment duties; or

• by law, the employee has to wear protective clothing on the work site.

In the situation reviewed, CRA indicated that reimbursements for safety footwear would not be taxable; however, other reimbursements to compensate for increased wear and tear on clothing would be taxable.

Similar to clothing reimbursements, an employer’s direct provision of work clothing, that does not meet the criteria above, would be taxable.

According to CRA’s current guidance, a discount on merchandise provided to employees would not generally result in a taxable benefit unless the price is reduced to below the employer’s cost. In 2017, CRA had announced a change in its position such that discounts would be taxable as a result of a number of court decisions. However, due to public outcry, the Prime Minister subsequently announced that such discounts would not be taxable. CRA is currently reviewing their specific policy and has committed to provide guidance in light of the Prime Minister’s comments in the future.

ACTION ITEM: If providing work clothing, consider including distinctive visual markings such that it would be considered a uniform and therefore not subject to tax for the employee.

In a January 29, 2019 Technical Interpretation, CRA discussed the criteria for tax-exempt allowances for board and lodging received for periods an employee was working at a special work site.

To be a special work site, the following criteria must be met:

• the work performed at the location must have been of a temporary nature;

• the employee must have maintained a self-contained domestic establishment (SCDE) elsewhere which was used as their principal place of residence;

• the SCDE must have been available to the employee throughout the entire time and not rented out to anyone else;

• the employee could not have been expected to return daily to the SCDE given the distance; and

• the work must have required the employee to be at the special work site for at least 36 hours.

In general, the employee must own or lease the SCDE and be responsible for its maintenance, alone or with other persons. However, a property that the employee neither owns nor leases may still be a SCDE if the employee pays expenses to, or for, the actual owner or tenant on a regular basis. Payments on a random or irregular basis in respect of the property would not be sufficient.

To exclude these allowances from income on the employee’s T4 slip, Form TD4 Declaration of Exemption – Employment at a Special Work Site should be completed and retained with the payroll records in case CRA would like to review it at a later date. Both the employer and employee have sections to complete in the Form.

ACTION ITEM: If planning to sell your residence because most of your time is spent at a special work site, note that your allowance may become taxable. To explore options, ensure to consult in advance.

• CRA’s limited review of corporate tax return projects have a reassessment rate of approximately 40%. In the past few years, these projects have focused on areas such as automobile expenses, professional fees, travel, and eligibility for the small business deduction.

• Many states in the U.S. have recently enacted laws requiring foreign sellers making sales to customers within the state to collect and remit sales tax, regardless of whether the seller has a physical presence. To view a chart summarizing legislation of this type and their effective dates, go to: https://www.salestaxinstitute.com/resources/remote-seller-nexus-chart

• In May and June of 2019, the provincial courts of appeal in Ontario and Saskatchewan ruled that the Greenhouse Gas Pollution Pricing Act (the Carbon Tax) was constitutional. Ontario has indicated that leave to appeal to the Supreme Court of Canada will be sought. Alberta is currently challenging it in the Provincial Court of Appeal.

Budget 2019 proposed the new Canada Mortgage and Housing Corporation (CMHC) first-time home buyer incentive, which is a shared equity mortgage that would give eligible first-time home buyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC. Funding of 5% of the home purchase price would be available, enhanced to 10% if the home is newly constructed. To be eligible, the following requirements must be met:

• the individual must be a first-time home buyer and the household income must be under $120,000 per year;

• the insured mortgage combined with the incentive cannot exceed four times the annual household income; and

• the minimum down payment for an insured mortgage must be made.

Regular repayments would not be required. Details of the ultimate repayment were not provided, although repayment when the home is sold was noted as an example in the Government documents. The Budget papers were also unclear on whether CMHC would share in appreciation, or any decline, in the house value, which is typically a feature of shared equity mortgages.

Many commentators are reporting that this would only assist on the purchase of homes valued at up to $480,000 (4 x $120,000). However, based on the details released thus far, it appears that it is not the house price, but rather the total mortgage that is limited to $480,000. For example, where a $25,000 down payment is paid (assuming 5% down), a house valued at approximately $500,000 could be purchased (assuming family income was just under $120,000, and the mortgage totalled $475,000).

It is uncertain whether there will be a cap on the maximum deposit or house value. More details will be released later this year, with the program expected to be operational by September 2019.

The Budget also announced financing to work with the broader financial community to assist third party providers of shared equity mortgages in scaling up their business and to encourage new players to enter this market.

ACTION ITEM: Watch out for details of this new incentive to be released in the fall.

The HBP allows first-time home buyers (special rules apply for those with a disability) to withdraw amounts from their RRSP to buy or build a home. Budget 2019 proposed to increase the HBP withdrawal limit to $35,000 from $25,000. As the HBP is avilable to each individual, a couple could access up to $70,000 to assist in a first-time home purchase. This increase is effective for withdrawals made after March 19, 2019.

Taxpayers are considered first-time home buyers if, in essence, they did not occupy a home that they or their current spouse or common-law partner owned in the last four years. Specifically, they could not have occupied the home in the period beginning on January 1 of the fourth year before the year the funds are withdrawn, and ending 31 days before the funds are withdrawn.

Funds must be repaid into the RRSP over a 15-year period. If no repayment is made for a year, the individual will have an income inclusion equivalent to the required repayment. However, this could still be advantageous as the tax on the withdrawal is at least deferred to later years.

Budget 2019 also proposed an expansion to the rules such that individuals who experience a breakdown of a marriage or common-law relationship may be eligible even if they do not meet the first-time home buyer requirement. This will allow access to the HBP for either a new home or acquiring the former spouse’s interest in the couple’s existing house. However, where an individual’s principal place of residence is a home owned and occupied by a new spouse or common-law partner, the individual will not receive access to the HBP.

ACTION ITEM: Consider whether an RRSP contribution should be made now in order to benefit from the tax deduction, while making equity available for a later home purchase. Funds withdrawn under the plan must be in the RRSP at least 90 days prior to the withdrawal.

In a December 4, 2018 Technical Interpretation, CRA was asked whether the costs of installing a steam shower (sauna) and hydrotherapy pool could be eligible for the medical expense tax credit (METC). The use of these devices was recommended as treatment to maintain strength and mobility.

CRA noted that, for renovations to be eligible, they must:

1. enable the patient to gain access to the dwelling or be mobile and functional within it;

2. not typically be expected to increase the value of the dwelling; and

3. not normally be undertaken by individuals with normal physical development or who do not have a severe and prolonged mobility impairment.

While the expenses contemplated may meet criteria (a), CRA opined they would likely fail criteria (b) and (c) and, therefore, not be eligible for the METC. However, eligibility remains a question of fact, with the onus on the taxpayer to demonstrate that all requirements were met.

Also, CRA noted that a renovation cost incurred for the main purpose of enabling a qualifying individual to gain access to the dwelling or be mobile and functional within it (the same as criteria (a) for the METC) could be eligible for the home accessibility tax credit (HATC).The HATC is a non-refundable credit that provides tax relief on up to $10,000 annually of renovations to a home to enhance mobility or reduce risk of harm for a qualifying individual (those 65 years of age or older at the end of the taxation year or eligible for the disability tax credit). The HATC requirements do not exclude costs failing criteria (b) or (c) above.

ACTION ITEM: There are several renovations that can be eligible for one or both of these credits. Receipts, invoices and/or other supporting documents should clearly identify the health benefits and purpose.

• Guidance from the Government of Canada on the new CPP regime, with a specific focus on the age to start your CPP retirement pension is now available. The website provides commentary on changes commencing in 2019, estimating future receipts, and determining past contributions. It also contains an explanatory video and links to the Canadian Retirement Income Calculator. For more information, see https://www.canada.ca/en/employment-social-development/campaigns/cpp-choice.html.

• Interest rates on Canada Student Loans and Canada Apprentice Loans will be lowered starting in 2019-20. The floating rate will be reduced to prime (from prime plus 2.5%), and the fixed rate will be reduced to prime plus 2% (from prime plus 5%). Also, the Canada Student Financial Assistance Act will be amended so that student loans will not accumulate any interest during the six-month grace period after a student leaves school, during which repayments are not required.

• Resolving objections with CRA can take a long time! For example, formal income tax objections resolved in April that were considered “medium complexity” (which includes many that we deal with) were completed by CRA in an average of 224 days from the date the objection was submitted.