November 2015 Newsletter

A call option is an option under which the holder has the right, but not the obligation, to buy a particular property at a set price (exercise price). On the other hand, a put option gives the holder the right to sell a property at a set price (also, the exercise price).

Depending on the terms of the option, it may be exercised by the holder (so that the property is sold or purchased, as the case may be) over a period of time or at a specific set time. If the option is not exercised, it normally just expires and the property will not be sold or purchased under the option.

Basic withholding tax

A non-resident individual who earns rental income from real estate in Canada is subject to non-resident withholding tax at the rate of 25% of the gross rental income. The resident payer of the rent must withhold the 25% tax from the rental payments and submit the amount withheld to the CRA on behalf of the non-resident tax liability. Unlike the withholding tax on other forms of passive investment income (e.g. dividends), the 25% rate is not reduced under Canada’s income tax treaties.

Unless the non-resident chooses the alternative method of reporting the rental income (discussed below), that is basically the end of the matter. The non-resident does not file a Canadian tax return, and the 25% tax withheld is generally the final tax liability for the relevant year.

Subject to monetary limits (discussed below) child care expenses are deductible in computing your income if they enable you to:

  • be employed;
  • carry on business;
  • carry on research for which you received a grant; or
  • attend post-secondary or secondary school.

On September 16, 2015, the CRA announced the prescribed interest rates that apply to amounts owed to the CRA and to amounts the CRA owes to individuals and corporations for the current calendar quarter. The amounts are subject to change every calendar quarter. The following rates are in effect from October 1, 2015 to December 31, 2015, and remain unchanged from the last several quarters.

  • The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums is 5%, compounded daily.
  • The interest rate paid on late CRA refunds paid to corporations is 1%, compounded daily.
  • The interest rate paid on late CRA refunds paid to other taxpayers is 3%, compounded daily.
  • The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans is 1%.

Travel expenses did not qualify as medical expenses

In general terms, medical expenses that qualify for the medical expenses credit include travel expenses incurred to go to a location for medical services at least 40 kilometres from the patient’s home. They must be paid for services that are not provided in the home locality of the patient.

In the recent Tallon case, the taxpayer incurred travel expenses to Thailand and Indonesia for the purpose of “obtaining medical services”. The taxpayer suffered from temporomadibular joint dysfunction which was a debilitating condition that led to the replacement of joints with prosthetic devices. The prosthetic devices were adversely affected by the cold winter climate of Thunder Bay where the taxpayer lived. According to the taxpayer, the warmer climates in Thailand and Indonesia should have been considered “services” that were not provided by the taxpayer’s home locality.

The CRA denied the deduction, but the Tax Court of Canada allowed the taxpayer’s appeal. However, the CRA appealed further to the Federal Court of Appeal, which allowed the appeal, ruling that the Tax Court was wrong. The beneficial effects of a warmer climate were not “medical services”. As a result, the taxpayer’s deduction was denied.