Every Canadian taxpayer is allowed a personal exemption. For 2012, you can earn $10,822 before you begin paying federal income tax. And when your employer asks you to complete a TD1 Form so they can calculate how much tax to withhold, you claim this personal exemption amount.

But if you have two employers and they do not know about your other job, they both calculate your tax withholdings using this personal exemption amount. However, you are only entitled to claim this credit once. Unless you have told your employer you have another job, chances are you will owe taxes when you file.

You can avoid this by telling one or both of your employers about your other job. You can request that only one of them includes the basic personal amount in their calculation. You don’t have to tell your employer but it is recommended to make sure the right amount of tax is withheld. You need to ensure that you are not claiming the personal amount more than once so complete your TD1 Form correctly.

But whatever you decide, do have some sort of plan. It is disheartening to work two jobs only to face an unexpected expense at the end.

However, there are restrictions on the size of the property that can be covered by the exemption. The magic number is ½ hectare. If the land is in excess of ½ hectare, the excess portion will generally not be considered to be part of your principal residence and will not be covered by the exemption. There is an exception to this general rule if you can make a case that the excess portion was necessary to the use and enjoyment of the housing unit as a residence. This could possibly be the case if there was a minimum lot size restriction in effect at the time the property was acquired. However, recreational appendages, such as a stable for your children’s ponies, would not be considered necessary to the use and enjoyment of the housing unit.

For Canadian tax purposes, there is also no minimum period for which you have to own the property. In order to designate it as your principal residence for a particular year, you need only have inhabited it at some time during that year. As a result, you have the choice of designating a seasonal residence such as a cottage instead of your primary residence if that would be more beneficial. However, the occupancy requirement must be met for each year that you want to make the designation. For example, if you owned a property from 2003 to 2012, but only occupied it in 2003 and 2004, you would only be able to designate it as your principal residence for two of the ten calendar years during which you owned the property. When determining the amount of your exemption, you are allowed an additional freebie year in the proration calculation, so that in this example 30 per cent of the gain would be exempt, calculated as (2 + 1) ÷ 10.

Unfortunately, you can only claim one property as your principal residence regardless of how many properties you might have occupied during the year. For 1982 and subsequent years, you are also limited to one per family unit. A “family unit,” for this purpose, includes your spouse or common-law partner (unless you were separated throughout the year) and children under 18 who are not married or in a common-law relationship. So if you do have more than one property that you can designate, you have to make a choice. However, it does not have to be made on an annual basis. You can wait until you sell one of your properties and decide then for which of the years you owned it you want to make the designation.

If you convert a property from personal-use to an income-producing use, you are deemed to have disposed of it for its fair market value at that time. This would happen if you stopped living in your home and started to rent it out. However, you can elect for the change of use not to have occurred. This election, which is called a 45(2) election, also allows you to continue to designate the property as your principal residence for up to four years even though you are no longer occupying it. This four-year period is extended to six when you have moved as the result of a relocation by your employer. However, you must still report the rental income from the property and you cannot claim a deduction for capital cost allowance if you want the election to continue in effect. The election must be made with your tax return for the year in which the change of use occurs.

A deemed disposition will also occur if you convert a rental property into your principal residence. In this case you can make a parallel election under subsection 45(3) which will defer the capital gain resulting from the deemed disposition until you actually sell the property. You will also be able to designate it as your principal residence for up to four years prior to the deemed disposition. The election is made in the year in which you ultimately dispose of the property. Again it will only be allowed if you never claimed capital cost allowance during the years you were renting it out.

The Canada Revenue Agency provides Form T2091 Designation of a Property as a Principal Residence by an Individual for designating a property as your principal residence. However, the form only has to be filed if there is a capital gain to be reported on the property in the year you dispose of it. If you are able to designate the property as your principal residence for all the years you owned it, there will be no capital gain to report and Form T2091 will not be necessary.

Here are your options:

• Your financial institution: You can go to your bank and make a payment with a teller on April 30. Make sure you get a receipt with the date and time stamped on it, in case there are any issues later. You will also need the remittance form the CRA sent you with your tax package.

• Online banking: Many banks offer the Receiver General as a bill payment option. If you are paying online, you need to make sure your payment is received by April 30.

• CRA Online: Even if you are not signed up for telephone or Internet banking, you can still make the payment electronically using the CRA’s “My Payment” option.

• Mail: If you are mailing your return and cheque, it must be postmarked by midnight on April 30. The same applies if you are only mailing a cheque. You cannot simply put it in your local mailbox on April 30 at midnight. You need to make sure Canada Post received it on April 30 and stamped it accordingly.

• CRA Office: You can go to a CRA office to make a payment. The CRA no longer accepts cash, so make sure you have a cheque or money order if you choose this option.

If you do owe, ensure your payment is received by April 30. Otherwise you will be charged interest. The prescribed annual interest rate for overdue taxes for the second quarter of 2012 is 5 per cent. And even if you cannot pay the entire balance, file the return by April 30 to avoid the late filing penalty.

In our experience with Million Dollar Neighbourhood, errors on tax returns may be more common than you think. Out of the tax returns with errors that led to refunds, the average received back was $1,500. That is a significant amount of money hiding in your tax return.

Some of the mistakes made in Aldergrove include:

• Not claiming the amount for eligible dependant: Single parents with custody are allowed to claim the amount for eligible dependant which is sometimes referred to as the equivalent to spouse. The 2011 credit means about $1,580 in federal tax savings. You will also have provincial tax savings depending on your province of residence.

• Missing employment expenses: In most cases, you are allowed to claim the GST/HST rebate on your employment expenses if you have a signed T2200 Form (Declaration of Conditions of Employment)

• Not calculating capital gains accurately: Not calculating your capital gains properly can lead to a bigger tax bill than you actually need to pay. You can carry capital losses back three years if you had capital gains to offset them against in those years. Or you can carry forward your capital losses indefinitely until you have gains to claim them against.

If you have doubts or questions about your tax return, you can always come to H&R Block for a free Second Look review. A tax professional will review up to three years of returns prepared by someone else to see if you are missing out on any deductions or credits.

And if you do discover you have missed a credit, the money is not lost. You can always file a T1 Adjustment Request to amend your return. No one should overpay the government.

• Ontario Trillium Benefit: The Finance Minister, interviewed by CTV Toronto, indicated the government will offer people the choice of monthly instalments or a lump sum payment. However, the budget papers did not provide any details on this. The government did say it would look at options for giving people a choice, starting next year. But if you were hoping to choose a lump sum payment for the Ontario credits on your 2011 return, that is not possible.

• Ontario Child Benefit: This provincial supplement to the Canada Child Tax Benefit will be increased $110 to $1,210 starting in July 2013. It will be increased to $1,310 in July 2014.

• Contract Workers: The province is going to strengthen its administrative practice when determining the employer-employee relationship when it comes to the Employer Health Tax. This will make it more difficult for employers to avoid paying the EHT by designating employees as self-employed or on contract.

• Seniors and prescriptions: Starting in August 2014, seniors with a family income of more than $100,000 will be required to pay a higher percentage of their prescription drug costs.

The Ontario income tax brackets have been indexed for inflation. And the Ontario Basic Personal Amount for 2012 will rise to $9,405.

• Active Families Benefit: The program has been expanded to include children under the age of 18. This is a refundable credit of up to $150 for the cost of registering children in cultural, recreational and sports activities.

• Saskatchewan First-Time Homebuyers Credit: If you closed on a house on January 1, 2012 or later, you may be able to claim this non-refundable credit. The definition of a first-time homebuyer is the same as the Federal Credit but it is slightly more generous. Saskatchewan covers the first $10,000 of a qualifying home purchase, resulting in tax savings of about $1,100. Disabled taxpayers do not need to meet the first-time homebuyer definition to qualify, provided they are moving into a home that is more functional or accessible for them.

• Graduate Retention Program: The credit is changing from refundable to non-refundable. This means it can no longer create a refund on its own. However, graduates who cannot use the non-refundable portion will be provided with a refundable credit equal to the unused portion. Refundable credits can create a refund, so the impact on students should be relatively minor.

The other budget measures affecting taxes were relatively minor, with a 2.8 percent indexing of the provincial tax brackets. And the basic personal amount for 2012 will rise slightly to $14,942.

In the case of the Allowance and the Allowance for the Survivor the age limit will be increased from 60-64 to 62-66 starting in April 2023. This change will not affect you if you are 49 years of age or older as of March 31, 2012.

Not anticipated by most commentators is a supplementary provision beginning on July 1, 2013 that will allow you to postpone receiving OAS benefits for up to five years and receive higher annual benefits.

Assuming the proposals are passed, Canada will follow in the path of the United Kingdom which announced last year that the state pension will be raised to age 67 by 2028. The United States is also in the process of increasing the retirement age of Social Security Benefits to 67 over a 22-year period which began in 2000.

The budget contained no changes to the federal tax rates or taxable income thresholds. The few tax measures are discussed below.

Medical Expenses

Effective for the 2012 taxation year, the list of expenses eligible for the medical expense tax credit has been expanded to include blood coagulation monitors for use by individuals who require anti-coagulation therapy, including associated disposable peripherals such as pricking devices, lancets and test strips. The devices must have been prescribed by a medical practitioner.

Registered Disability Savings Plans

A number of technical changes have been made to the rules governing Registered Disability Savings Plans (RDSPs). In particular:

• At present individuals who are mentally incompetent have experienced difficulties opening a plan owing to their inability to enter a contract. In order to avoid the waits required while an individual is declared legally incompetent and a guardian appointed on his or her behalf, the budget proposes to allow a qualifying family member to open a plan on the individual’s behalf. However, this provision will only take effect on a temporary basis until the end of 2016 while the provinces and territories develop long term solutions to address RDSP legal representation issues.

• Under current rules, any Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSB) received by an RDSP in the immediately preceding 10-year period must generally be repaid if a withdrawal is made from the plan. The budget proposes to replace this 10-year repayment rule with a proportional repayment rule which will require that, for each $1 withdrawn from an RDSP, $3 of any CDSGs or CDSBs paid into the plan in the 10 years preceding the withdrawal be repaid, up to a maximum of the assistance holdback amount. Repayments will be attributed to CDSGs or CDSBs that make up the assistance holdback amount based on the order in which they were paid into the RDSP, beginning with the oldest amounts However, this new rule will only take effect for withdrawals made after 2013. The existing10-year repayment rule will continue to apply where the RDSP is terminated or deregistered, or the RDSP beneficiary ceases to be eligible for the disability tax credit or dies.

• The rules governing maximum and minimum withdrawals from RDSPs will be modified to allow for greater flexibility and to ensure that RDSP assets are used to support the RDSP beneficiary during their lifetime.

• New rules will allow for transfers from a beneficiary’s Registered Education Savings Plan (RESP) to a beneficiary’s  RDSP where one of the following conditions are met:
  • The beneficiary has a severe and prolonged mental impairment that can reasonably be expected to prevent the beneficiary from pursuing post-secondary education;
  • The RESP has been in existence for at least 10 years and each beneficiary is at least 21 years of age and is not pursuing post-secondary education; or
  • The RESP has been in existence for more than 35 years

The measure will only apply to transfers after 2013.

• At present, an RDSP must be terminated by the end of the subsequent year if the planholder becomes ineligible for the disability tax credit. The budget proposes to modify this rule if, a medical practitioner certifies in writing that the nature of the beneficiary’s condition makes it likely that the beneficiary will, because of the condition, be eligible for the DTC in the foreseeable future.

• This measure will generally take effect after 2013. However, RDSPs that would otherwise be required to be terminated prior to 2014 will be allowed to take advantage of this measure if they can obtain the necessary medical certification on or before December 31, 2014.

Elimination of the Overseas Employment Tax Credit

If you work for a Canadian employer in oil and gas or engineering projects overseas, you will not be happy to learn that the Overseas Employment Tax Credit is being phased out over a four-year period beginning in 2013. The OETC currently provides you with an 80 per cent credit on your first $100,000 of qualifying employment income. As a result, the tax savings are substantial.

During the phase-out period, the rate used to calculate the credit will be reduced from 80 per cent to 60 per cent for the 2013 taxation year, 40 per cent for the 2014 taxation year and 20 per cent for the 2015 taxation year. The credit will be completely eliminated for 2016 and subsequent taxation years.

The new rules will not apply in connection with a project to which you have committed in writing with your employer before March 29, 2012. In this instance the rate will remain at 80 per cent for the 2013, 2014 and 2015 taxation years. However, the credit will still be eliminated for the 2016 and subsequent taxation years.

Employee Profit Sharing Plans

In order to discourage the use of Employee Profit Sharing Plans (EPSPs) to split income between members of family businesses and avoid paying CPP contributions, the budget proposes a new tax on any portion of an ESP contribution to a family member that exceeds 20 per cent of the family member’s salary.

The special tax will be made up of two components. The first component will be equal to the top federal marginal tax rate of 29 per cent. The second component will be equal to the top marginal tax rate of the employee’s province of residence. Taxpayers subject to the new tax will be allowed a deduction equal to the excess EPSP contribution to ensure it is not also subject to regular income tax.

This measure will apply in respect of EPSP contributions made on or after Budget Day, other than contributions made before 2013 pursuant to an agreement entered into before Budget Day.

Elimination of Tax Exemption for the Governor General

The income tax exemption for the Governor General’s salary will be eliminated effective for 2013. According to the budget papers this follows the example of Australia and New Zealand which also abolished the tax exemption for their Governor Generals in recent years.

Welcome to the club, Your Excellency.

Extension of the Hiring Credit for Small Businesses

The budget is extending by one year the temporary hiring credit for small businesses introduced in last year’s budget.

The credit is equal to the small employer’s increase in its 2012 EI premiums over those paid in 2011 to a maximum of $1,000. It does not have to be applied for but is credited automatically to the employer’s payroll account when the conditions are satisfied.

SR&ED Tax Credit Rate

The SR&ED investment tax credit rate will be reduced from 20 per cent to 15 per cent for taxation years that end after 2013. However, for a taxation year that includes January 1, 2014, the 5-percentage-point reduction will be pro-rated based on the number of days in the taxation year that are after 2013.

If you are a farmer, this will apply to the qualifying portion of your point-of-sale set-off on delivery of products to agricultural organizations.

The enhanced 35-per-cent SR&ED investment tax credit rate applicable in respect of eligible Canadian-controlled Private Corporations will remain unchanged on up to $3 million of qualified SR&ED expenditures annually.

Doubling of GST/HST Streamlined Accounting Methods

The budget proposes to double the existing streamlined accounting thresholds available to businesses to calculate their GST/HST input tax credits. In particular:

The annual taxable sales threshold at or below which eligible businesses can elect to use the Quick Method will increase from $200,000 to $400,000 of GST/HST-included taxable sales; and

The annual taxable sales and taxable purchases thresholds at or below which eligible businesses or can elect to use the Streamlined Input Tax Credit Method will increase:

• From $500,000 to $1,000,000 of taxable sales; and
• From $2,000,000 to $4,000,000 of taxable purchases.

This measure will be effective in respect of a GST/HST reporting period beginning after 2012.

Increased Duty Exemption for Travellers

Effective June 1, 2012 the value of goods that you can bring back to Canada after a 24-hour and 48-hour absence out of the country will be increased to $200 and $800 respectively. According to the budget papers, this will harmonize them with U.S. levels.

Fortunately, there is another option if you need help with the CRA. The Taxpayers Ombudsman is an independent and impartial person appointed to look into complaints about the service provided by the CRA. The Ombudsman reports directly to the Minister of National Revenue, and is not an employee of the CRA. The current Ombudsman is Paul Dubé.

Part of his position involves explaining his mandate and some of the efforts his office has undertaken on behalf of taxpayers. The duties of his office are varied and include conducting impartial and independent reviews of service-related complaints about the CRA to ensure it respects the Taxpayer Bill of Rights. The office also facilitates taxpayers’ access to assistance within the CRA, identifies and reviews systemic and emerging service-related issues with the CRA that have a negative impact on taxpayers, and provides advice and makes recommendations to the Minster of National Revenue about service-related matters in the CRA.

One example of his work has already led to changes. At the presentation, he spoke about a single mother with three children who was asked to prove her children were born in Canada; the CRA was withholding her Canada Child Tax Benefit (CCTB) until it had sufficient evidence. She provided the CRA with a comprehensive list of documents to prove her case, including a letter from the doctor who delivered the children. The CRA still did not recognize the claim. She was referred to the Taxpayers’ Ombudsman, who reviewed the case and found she had provided more than enough evidence to confirm the childrens’ status. This case led to a review by the Taxpayers’ Ombudsman, which found similar experiences and cases. The office wrote a report, called Proving your Status, which resulted in changes to the policy for establishing CCTB eligibility.

There are steps the Ombudsman cannot take. For example, he cannot review complaints that relate to CRA policies or programs or cases before the courts. Nor can he direct the CRA to take action. But he can look at mistakes, misunderstandings, undue delays, poor or misleading information and staff behaviour.

Sometimes dealing with the CRA feels a little like “David and Goliath,” even as a tax professional who understands the system. If you do not have experience dealing with the CRA, it is easy to get overwhelmed if you have an issue. If you have exhausted your options, the Taxpayers’ Ombudsman can be a great resource.

Mr. Dubé is a lawyer by trade who started practicing law in New Brunswick. He was very active in the legal community for years before leaving for Ottawa. So if you are hitting a wall with the CRA, review the Taxpayers Bill of Rights and see if you can submit a request to the Taxpayers’ Ombudsman. To contact the Ombudsman’s office, visit www.oto-boc.gc.ca or call 1-866-586-3839. Doing so may help you get past the wall.

The simplest option is using the house as a personal-use property and spending a few weeks or months a year enjoying it. Escaping the Canadian winter for a little while is never a bad idea. But the length of your stay in the U.S. could mean you need to file a tax return. If you are not a U.S. citizen or green card holder, you should complete a substantial presence test calculation to determine if you need to file an 8840 Closer Connection Statement or a 1040 return.

For personal-use property, the major tax action comes when you sell the property and need to report the capital gain. You are allowed a capital gains exemption on your principal residence but not your second property. You need to report your capital gain in both countries, although they are taxed differently.

If you are planning on renting out your condo or house in Florida to help pay off the mortgage, your tax situation is significantly different, because now you have rental income. There is no way to avoid taxes once income is involved.

Rental income has to be reported on both your U.S. and Canadian tax returns. Canadians who are not U.S. citizens or green card holders who receive rental income from U.S. property are required to file Form 1040NR. Rental income in the U.S. is subject to a 30 per cent holding tax on the gross rent. You can make a one-time election the first time you file a U.S. return to pay tax only on your profit. The good news is you are allowed a foreign tax credit on your Canadian tax return for any U.S taxes paid on the rental property income or sale of the property.

Your rental statements for Canada and the U.S. will most likely look different. Each country has its own rules for reporting income, for depreciation and for claiming expenses. You are allowed to claim expenses like mortgage interest, property taxes, utilities, normal maintenance, insurance, accounting fees and management fees in both countries. In Canada, you don’t have to claim capital cost allowance if you opt not to, but under U.S. tax law depreciation is a mandatory claim.

The other interesting point is you do not have the right to operate a business or rental in the U.S, so you will need to hire a property management company to collect rent, look after the property and report to you. This also means you cannot go to the U.S. and do your own renovations or repairs. If you want to do the work, you will need to apply for the appropriate work visas, meaning it may be easier to let your property management company help.

To file a U.S. return, you need to apply for an ITIN – Individual Taxpayer Identification Number. This is similar to your Canadian Social Insurance Number (SIN) but is assigned to people who aren’t U.S. citizens or residents. The filing deadline for the 1040NR is June 15 for a resident of Canada but the tax owing is due April 15, so you will be charged interest for a late payment if you wait until the later date.

And the Canada Revenue Agency (CRA) wants to know about your property too. If the property is a rental and the cost is more than $100,000, you must file Form T1135 Foreign Income Verification Statement with the CRA. This form is not required if you are using the property for personal use only.

If you are thinking you don’t need to report your income in both Canada and the U.S., be aware that the Internal Revenue Service (IRS) and CRA exchange information. As a resident of Canada, you are required to report your worldwide income on your tax return. Failure to do so will bring penalties and interest. It is important to keep both the IRS and CRA happy.