In this year’s Budget, the federal government announced the creation of a program — the First-time Home Buyers’ Incentive, or FTHBI, to provide assistance to individuals seeking to enter the housing market. Under that FTHBI, the Canada Mortgage and Housing Corporation (CMHC) (an agency of the federal government) will add a specified amount to the down payment made on a home purchase by a qualifying buyer, with the effect of reducing the amount of the monthly mortgage payment required of the new home owner.

In this year’s Budget, the federal government announced the creation of a program — the First-time Home Buyers’ Incentive, or FTHBI, to provide assistance to individuals seeking to enter the housing market. Under that FTHBI, the Canada Mortgage and Housing Corporation (CMHC) (an agency of the federal government) will add a specified amount to the down payment made on a home purchase by a qualifying buyer, with the effect of reducing the amount of the monthly mortgage payment required of the new home owner.

When the program was announced as part of the Budget, few details were provided, and those details have been released on a piecemeal basis throughout the year. The goal was to launch the FTHBI on September 2, 2019, although the program website indicated that such launch date was contingent on “unforeseen circumstances”.

The FTBHI website now indicates that the program will launch as scheduled on September 2. The federal government has set up an information line for the program, which is now live, and the toll-free number for that information line is 1-877-884-2642. As well, applications for the FTHBI should be available on the program website on September 2. Finally, the website has been updated to include a “live training” component for which interested individuals can register, and that registration site is available at http://www.cvent.com/events/first-time-home-buyer-incentive-live-training/event-summary-f4e28738d84b4077acbadb261c42f3f8.aspx.

The main features of the FTHBI have not changed, and remain as follows:

To qualify for the program, applicants must generally be Canadian residents who have not owned and occupied a home within the previous four years. Where an applicant qualifies for the FTHBI, CMHC will provide additional funds to augment the applicant’s existing down payment. The amount of those additional funds is 5% or 10% of the purchase price, depending on the type of property purchased. Specifically, the incentive by property type is:

• 5% for a first-time buyer’s purchase of an existing resale home; or
• 5% for a first-time buyer’s purchase of a new or re-sale mobile/manufactured home; or
• 5% or 10% of a first-time buyer’s purchase of a newly constructed home.

The total borrowing amount (first mortgage plus incentive amount) is capped at four times the applicant’s annual income. Since the program is available only to those having an annual income of up to $120,000, the maximum total borrowing amount would therefore be $480,000.

Any funds advanced under the program will become a second mortgage on the property. No interest is charged and no regular payments (i.e., mortgage payments) are required on such funds.

Participants in the program are required to repay the incentive amount after 25 years, or when the property is sold, whichever is earlier. Participants can also repay the incentive amount earlier without incurring any pre-payment penalty.

More details of the FTHBI including, as of September 2, the application form, can be found on the FTHBI website at https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive.

Canadians are fortunate to benefit from a publicly funded health care system, in which most costs of care ranging from routine visits to a family doctor to intensive care in a hospital setting are paid for by government-sponsored health insurance.

Canadians are fortunate to benefit from a publicly funded health care system, in which most costs of care ranging from routine visits to a family doctor to intensive care in a hospital setting are paid for by government-sponsored health insurance.

While there is no doubt that most medical costs are not the financial responsibility of the individual, it is nonetheless a fact that a significant (and growing) number of medical and para-medical costs must be paid for on an out-of-pocket basis by the person incurring those costs. And those costs can, in some instances, run to thousands of dollars per year.

The costs which first come to mind are, of course, those which must be incurred for prescription medicine. While some Canadians have full or partial coverage for such costs through an employer-sponsored benefits plan, the majority of Canadians (especially those working on a part-time or contract basis) don’t. Similarly, visits to a dentist must be paid for by those who don’t have private medical insurance on an out-of-pocket basis. The same goes for services provided by any number of medical and, especially, para-medical practitioners, including physiotherapists, psychologists, and registered massage therapists.

It’s a virtual certainty that nearly all Canadians will incur one or more of those uninsured costs over the course of a year. The good news for those individuals and families is that in many instances a federal and provincial tax credit can be claimed to help offset those costs. The bad news is that the rules on determining just what expenses qualify for the credit and how and when to claim it can be complex.

First, the basics. The technical rule is that, for 2019, taxpayers can claim a tax credit for qualifying medical expenses which exceed 3% of their net income for the year or $2,352, whichever is less. That’s a confusing calculation to many Canadians, and it’s perhaps easier to think of it in these terms:

• For 2019, taxpayers who have income of $78,400 or less can claim all qualifying medical expenses which exceed 3% of their income for the year. As an example, someone who has $50,000 in income for 2019 can claim qualifying medical expenses over $1,500 ($50,000 × 3% = $1,500).

• For 2019, taxpayers who have income over $78,400 can claim their qualifying medical expenses which are greater than $2,352.

There is also some degree of flexibility in the timing of a claim made for the medical expense tax credit. Specifically, a claim made on the return for 2019 can include any qualifying medical expense incurred in any 12-month period which ends in 2019. Consequently, taxpayers can, in order to maximize the expenses claimed for the year (and so exceed the statutory thresholds outlined above) can pick any 12-month period ending during 2019.

For example, an individual might have incurred significant medical expenses in the last half of 2018 and the first half of 2019. That taxpayer would likely benefit from choosing the period July 1, 2018 to June 30, 2019, and claiming all medical expenses incurred during that period on his or her return for 2019.

There is, unfortunately, no formula or rule-of-thumb which allows a taxpayer to easily or quickly pick the time period which will provide the greatest credit amount, since that determination depends on when qualifying medical expenses were incurred. To determine the optimal period for a medical expenses tax credit claim, it’s really a matter of trial and error, or doing the computation for different time periods and choosing the one that gives the best result.

In aggregating those medical expenses, it’s also possible for families to include all qualifying expenses incurred by both spouses and by any children who were born in 2002 or later. The claim for the credit (using the total family medical expenses) can then be made by either spouse. Since the amount of the allowable expense claim increases as income decreases, it makes sense for the claim for total family medical expenses to be made by the lower-income spouse on his or her return for the year, as long as that spouse’s tax payable for the year is greater than the amount of the credit to be claimed.

Of course, the first determination which must be made when calculating a medical expense tax credit claim for the year is which expenses do or do not qualify for the credit. The number and kind of expenses which can be incurred for medical care are almost limitless in their scope and variety, and the list of qualifying and non-qualifying expenses for purposes of the credit reflects that reality.

The Canada Revenue Agency (CRA) helpfully provides a chart of the types of expenses which can qualify for the medical expense tax credit, and that chart includes other requirements which must be met in order for a particular expense to qualify. It’s well worth reviewing that chart (which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-330-331-eligible-medical-expenses-you-claim-on-your-tax-return.html#mdcl_xpns) as the requirements imposed in order to qualify can be very specific and are not necessarily intuitive. For instance, to claim the cost of a walker as a medical expense, it is necessary to have a doctor’s prescription for that equipment. However, the cost of a wheelchair can be claimed with no requirement for a prescription. Finally, although the chart listing eligible medical expenses is 14 pages long, the CRA notes that such listing is “not exhaustive”. A full listing can be found in CRA Income Tax Folio S1-F1-C1, Medical Expense Tax Credit, which is available at https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-1-health-medical/income-tax-folio-s1-f1-c1-medical-expense-tax-credit.html.

The exercise of determining eligible medical expenses for all family members, calculating the optimal time period for making a medical expense tax credit claim, and determining the actual credit claimable can be a time-consuming process. However, given that such expenses are usually unavoidable, the dollar figure costs are often significant, and the effort has to be made only once a year, it is an annual effort worth making.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required), to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government by a specified deadline.

The Canadian tax system is a “self-assessing system” which relies heavily on the voluntary co-operation of taxpayers. Canadians are expected (in fact, in most cases, required), to complete and file a tax return each spring, reporting income from all sources, calculating the amount of tax owed, and remitting that amount to the federal government by a specified deadline.

While it’s doubtful that many Canadians approach the task with any degree of enthusiasm, the fact is that millions of Canadians do sit down each spring to complete their annual tax return for the previous calendar year (or more often, they pay someone else to do it for them). Although the rate of compliance among Canadian taxpayers is very high — for the last filing season, just under 30 million individual income tax returns were filed with the Canada Revenue Agency (CRA) — there are, inevitably, those who do not file or pay on time.

There are a lot of reasons why individual Canadians don’t file their returns or pay their taxes on a timely basis, and almost all of them are based on a lack of understanding of how our tax system works, or on incorrect information about that system.

Some taxpayers don’t file because they believe that there’s no requirement to do so if they don’t owe anything and aren’t expecting a refund. While that can be true, it is also necessary to file in order to receive a number of income-tested tax credits and benefits, including the harmonized sales tax (HST) credit, the Canada Child Benefit, and a range of provincial tax credits. Those who don’t file cannot have their eligibility for such credits determined and, therefore, no credits can be paid to them. Others don’t file because they have a balance owing but don’t have the funds to pay that balance on filing. That, too, is the wrong approach, as anyone who owes taxes but doesn’t file a return by the filing deadline gets hit with an immediate penalty of at least 5% of the outstanding amount owed. In such circumstances, the right approach is to file on time and to contact the CRA in order to come to an agreement on a payment arrangement over time. Finally, there is a persistent (and completely false) tax myth that has been circulating for decades, that the federal government does not have the legal right to collect taxes, and every year some taxpayers fall victim to someone peddling that myth.

There are also a number of Canadians who file returns in which income amounts are underreported and/or deductions or credits to which that taxpayer is not entitled are claimed. While the overall percentage of taxpayers who don’t file or pay on time, or who file returns which are not accurate isn’t high, there are a lot of such returns when measured by absolute numbers. And, although each such instance of non-compliance represents lost revenue to the Canadian government, the resources needed to track down each and every instance of non-compliance simply aren’t available, especially since in many cases the amount recovered may be less than the costs which must be incurred to recover that amount.

With all of that in mind, several years ago the CRA instituted a program intended to encourage non-compliant taxpayers to come forward and put their tax affairs in order. The incentive to do so arose from the fact that, in most cases, while such taxpayers would have to pay outstanding tax amounts owed, plus interest, they would not be subject to penalties which would normally be imposed and would, in addition, avoid the risk of criminal prosecution.

That program, the Voluntary Disclosure Program (VDP), generally fulfilled its objectives but was criticized as being a means by which those who engage in deliberate tax avoidance could escape the consequences of their actions. As a result, changes were made to the VDP in March of 2018, with the effect of narrowing the eligibility criteria for the program and imposing additional conditions on participants.

The changes made in 2018 did not alter the basic requirements for participation in the VDP, which are still as follows. To qualify for relief, an application made with respect to non-compliance with income tax filing and payment obligations must:

• be voluntary (meaning that it is done before the taxpayer becomes aware of any compliance or enforcement action by the CRA);
• be complete;
• involve the application or potential application of a penalty;
• include information that is at least one year past due; and
• include payment of the estimated tax owing.

Under the current VDP structure, there are two separate programs for income tax disclosures — the Limited Program and the General Program — and the kind and extent of relief available depends on the track to which a particular application is assigned.

While the CRA will make a determination of whether an application should proceed under the Limited or the General Program on a case-by-case basis, there are guidelines in place. The CRA’s intention is to restrict the Limited Program to instances in which applications disclose non-compliance which appears to include intentional (as distinct from inadvertent) conduct on the part of the taxpayer. In making its determination of the appropriate track for a disclosure, the factors which the CRA will consider include the following:

• the dollar amounts involved;
• the number of years of non-compliance; and
• the sophistication of the taxpayer; and
• whether efforts were made to avoid detection through the use of offshore vehicles or other means.

Those whose applications are accepted under the Limited Program will not be subject to criminal prosecution and will be exempt from the more stringent penalties which usually apply in cases of gross negligence on the part of the taxpayer. Interest on outstanding tax balances will be payable, however, and other penalties will be levied.

Taxpayers whose conduct does not consign them to the Limited Program will instead be considered under the General Program. Under that Program, no penalties will be charged and no criminal prosecutions will take place. As well, the CRA will provide partial interest relief, specifically for the years preceding the three most recent years of non-compliance — that is, for the years preceding the three most recent years of returns required to be filed. For example, a taxpayer who makes an application to the VDP and who has failed to file returns for the 2010 through 2017 taxation years may be provided with interest relief with respect to taxes owed for the 2010-2014 taxation years. Such relief is generally equal to 50% of interest owed (i.e., the taxpayer will be required to pay only half of the interest charges which would otherwise be levied for those years). No interest relief will, however, be provided on tax amounts owed for the three most recent (2015-2017) taxation years. Since interest charges levied by the CRA are, by law, greater than current commercial rates and interest charged is compounded daily, having interest amounts forgiven, even in part, can make a significant difference to the overall tax bill faced by the taxpayer.

In order to benefit from the VDP, taxpayers must first make an application to the program. That application must include payment of the estimated taxes owing, as a condition of participation in the VDP. Where a taxpayer is financially unable to make that tax payment, he or she can request that the CRA consider a payment arrangement.

The decision to apply to the VDP and to “come clean” about all previous tax transgressions is one which many taxpayers may well view with trepidation. Those who are unsure about whether they want to move forward with a VDP application can take advantage of the CRA’s “pre-disclosure discussion service”. As the name implies, that service allows taxpayers to participate in preliminary discussions, on an anonymous basis”, to gain some knowledge about the VDP program, the process involved and the potential relief available.

Taxpayers who decide to move forward with an application to the VDP can complete and file Form RC199, Voluntary Disclosures Program Application, which is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/rc199.html. While use of this form is not mandatory — a letter will suffice — there’s really no downside to using the prescribed form, and doing so will ensure that all of the needed information is provided to the tax authorities. Once the application is received, the CRA will check to make certain that the applicant is eligible to apply and that all of the required information, documentation, and payment has been sent. The CRA will then let the taxpayer know of his or her acceptance into the VDP and the effective date of that acceptance. The next step is for the CRA to evaluate the application to ensure that the five criteria for participation in the VDP (as listed above) are satisfied and to determine the program (Limited or General) to which the application should be assigned, and the taxation year(s) for which relief is being considered. The taxpayer will be provided with that information in writing. The CRA’s advice is that taxpayers should contact them (for individual taxpayers, by calling the Individual Income Tax Enquiries line at 1-800-959-8281) if they have not heard from the CRA within four or five weeks of submitting an application.

If the decision made is that the application is not eligible for the VDP, that the necessary information, documentation, or payment was not received, that the five conditions of a valid application are not met, or that the circumstances are such that relief is not typically considered the taxpayer will also be advised in writing, with reasons, of the CRA’s decision to deny the application.

Where the decision made by the CRA is one with which the taxpayer does not agree, he or she is entitled to ask for a second review of the application. If that decision is also unfavourable, it is possible for a taxpayer to ask a court to review the decision and direct the CRA to re-consider the VDP application. However, taxpayers should be aware that the circumstances in which courts can do so are very limited and such applications to court are more often than not unsuccessful. In any case, a taxpayer who is considering a court application with respect to a decision made under the VDP should obtain legal advice before doing so.

Finally, taxpayers should recognize that the VDP Program can’t be used as a kind of “get out of jail free card” with respect to repeated failures to meet their tax filing and payment obligations. The CRA website makes it clear that the Agency expects taxpayers who have benefitted from the VDP to thereafter meet their tax obligations and a second review will be provided for the same taxpayer only in unusual situations where the circumstances are beyond the taxpayer’s control.

Detailed information on the VDP program can be found on the CRA website at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/voluntary-disclosures-program-overview.html.

By now, news of yet another data breach resulting in unauthorized access to personal information — especially financial information — has become so frequent as to seem almost commonplace. Notwithstanding, the recent data breach affecting Capital One was, in many ways, a singular event.

By now, news of yet another data breach resulting in unauthorized access to personal information — especially financial information — has become so frequent as to seem almost commonplace. Notwithstanding, the recent data breach affecting Capital One was, in many ways, a singular event.

The magnitude of the Capital One data breach was unprecedented in many respects. The number of Canadians affected by the breach, the volume of information obtained and, particularly, the nature of the information lost were all on a scale not previously seen, in Canada or elsewhere.

According to information provided by Capital One, approximately 6 million Canadians (or one in every six Canadians) have had the privacy of their personal information compromised. Part of the reason that such a huge number of individuals has been affected is the time frame involved. The breach affected, not just those who held credit products issued by Capital One, but those who applied for such products (whether or not they were ever obtained) for a fifteen-year period, from 2005 through early 2019. The personal information obtained through the breach included personal information Capital One routinely collects at the time it receives credit card applications, including names, addresses, postal codes, phone numbers, email addresses, dates of birth, income, credit scores, credit limits, balances, payment history and contact information.

While a privacy breach involving any of the above information is problematic for those affected, the most significant aspect of the Capital Once breach is that the Social Insurance Numbers (SIN) of 1 million Canadians were obtained by an unauthorized person or persons as a result of the privacy breach. A SIN is the “gold standard” of personal identification for Canadians — it is used to file tax returns, obtain government benefits, and open bank accounts. Having someone’s SIN makes it easier to obtain other identifying information and that information, in the aggregate, facilitates identity theft.

Anyone who has been the victim of a personal information data breach can take steps to mitigate the possible impact of that breach. Affected credit cards can be cancelled and re-issued and bank account numbers changed. Individuals can change passwords and e-mail addresses. While all of that is time consuming, aggravating and inconvenient, it can be done.

The situation is different when it comes to SINs. SINs are issued by the federal government and the government’s policy is to NOT provide an individual with a new SIN where the original number is compromised in a data breach. (A new SIN can be requested only in circumstances in which an individual can prove that his or her SIN was used fraudulently.) The stated reasons for that policy, as outlined on the Service Canada website, are as follows:

A new Social Insurance Number does not protect you from fraud and identity theft

A new SIN is not a fresh start or protection from fraud or identity theft.

If someone else uses your old SIN and the business does not check the person’s identity, you may have to prove you were not involved in the fraud or pay the impostor’s debts.

 A new Social Insurance Number is a complex affair

The Government can only share your new SIN with the federal departments and agencies that use your SIN.

This means that it would be up to you to provide your new SIN to all the financial institutions, creditors, pension providers, recent and current employers, and any other organizations with which you shared your old SIN.

Not doing so or failing to do so properly risks not receiving benefits or leaves the door open to subsequent fraud or identity theft.

You double your monitoring efforts with two Social Insurance Numbers instead of one

A new SIN does not erase your old SIN. You would therefore need to monitor your accounts and credit reports for both SINs on a regular and ongoing basis. This would put added burden on you. Numerous SINs multiply the risk of fraud.

Consequently, individuals whose SINs have been obtained by unauthorized persons through the Capital One hack will need to be vigilant, now and for some time into the future, to guard against unauthorized use of that number. Such individuals may rightfully expect Capital One to take responsibility for and cover the cost of such monitoring efforts, and the company has indicated that it will take the following actions.

The company began directly notifying Canadians affected by the cyber incident by email on August 7, 2019, and that process will continue by e-mail or regular mail, over several weeks. The difficulty, of course, is that e-mail addresses were one of the kinds of information obtained as part of the data breach. Consequently, anyone who receives an e-mail from Capital One will need to take steps to ensure that such e-mail is not part of a further phishing attempt. Any suspicious e-mails received should be forwarded, without opening (and especially without clicking on any links) to abuse@capitalone.com In order to help those affected spot fraudulent emails or messages, Capital One has posted a number of tips on its website at https://www.capitalone.ca/help/fraud-protection/.

Capital One has also announced that it will not be contacting anyone affected by the data breach by telephone or text. Consequently, any phone call or text which purports to be from Capital One is fraudulent and should be ignored. Where personal information has mistakenly been provided in response to such a call or text, the following steps should be taken:

• call Capital One to report that account information may have been compromised;
• sign in to Capital One online banking and change passwords; and
• check accounts for suspicious activity.

Finally, the company has indicated that it will provide and pay for two years of credit monitoring and identity theft insurance from TransUnion to everyone impacted. Details of the data breach and the company’s response are outlined on the Capital One website at https://www.capitalone.ca/facts2019/.

One of the reasons that so many SINs were compromised in the Capital One data breach is that Canadians have become accustomed to being routinely asked for their SIN in situations in which that request shouldn’t be made. And, in too many cases, Canadians routinely provide those SINs without fully considering the potential risks.

The number of instances in which individuals are required to provide their SINs is actually quite limited, and such information can generally be requested only by an employer, by agencies of the federal government, or by private institutions (like banks or credit unions) which are required to provide taxpayer-specific information to the federal government, especially the tax authorities, and then only in specific circumstances.

Notwithstanding, SINs are requested in any number of situations in which they don’t have to be provided, including the following:

• proving your identity (except for specific government programs);
• completing a job application before you get the job;
• completing an application to rent a property;
• negotiating a lease with a landlord;
• completing a credit card application;
• cashing a cheque;
• completing some banking transactions (mortgage, line of credit, loan);
• completing a medical questionnaire;
• renting a car;
• subscribing to long distance or cellular telephone services;
• writing a will;
• applying to a university or college; and
• making funeral arrangements.

Somewhat surprisingly, it’s not actually against Canadian law for an individual or company to ask for a SIN in circumstances in which they aren’t entitled to it. Consequently, the onus falls on the individual to refuse to provide his or her SIN in such circumstances. That’s not always as easy as it sounds — for instance, SINs are routinely requested in residential tenancy applications and, in a tight rental market, individuals may be reluctant to refuse where doing so could mean losing out on hard-to-find rental accommodation. Individuals will therefore need to determine, in each instance, whether the risks inherent in providing one’s SIN number are justified in the circumstances. And no matter what those circumstances are, the best advice is always this: if you don’t have to disclose identifying and/or personal financial information, then don’t!