March 2004

Personal Tax

Taxpayer-Requested Adjustments
Effective January 1, 2005, individuals and testamentary trusts can no longer request the Canada Revenue Agency to revise a return for a taxation year dating back to 1985. In order to avoid administrative problems with such outdated taxation years, the new rule proposes to limit the look back period to 10 years.

For corporations, no adjustments can be requested and no reassessments can be made (except for instances of gross negligence) beyond the normal 3 to 4 year reassessment period.

Canadian companies can avoid creating a permanent establishment in the U.S. by soliciting customers through independent agents. Where employees are sent to the U.S. to solicit business, actual orders would be sent back to Canada for processing and approval. In contrast, the concept of nexus covers a greater scope of activities that would not otherwise constitute a permanent establishment, such as: company employees visiting U.S. clients, delivering goods to U.S. clients using own trucks, driving through a particular state in the course of business, and employees soliciting orders regardless of where the contract is concluded.

Is School More Affordable?
Beginning in 2004, the education tax credit will be extended to employees who take post-secondary education courses to improve their employment related skills provided the costs are not paid for by their employer.

To enhance access to education for low to middle income families, the Canada Education Savings Grant has been enhanced, a new Canada Learning Bond has been created and the availability of post-secondary education grants has increased.

Tax Relief for Canadian Forces
Beginning in 2004, a member of the Canadian Forces or a Canadian police force deployed to an international high-risk operational mission is able to exclude from their income for tax purposes any employment income earned while on such a mission. The tax relief is intended to be in recognition of the contribution that these individuals have made to their country.

Tax Fairness for Persons with Disabilities
The government proposes to replace the attendant care deduction with a broader disability supports deduction which is extended to cover expenses incurred for education or employment purposes in addition to attendant care expenses. Under the new deduction no tax will be paid on income used to pay for disability related expenses. This may increase eligibility for income-tested benefits.

Caregiver Related Medical Expenses
Under the proposal effective 2004, a caregiver would now be able to claim a greater amount of qualifying medical and disability-related expenses incurred on behalf of a dependent relative (in excess of the lesser of $1,813 or 3% of the dependant's net income), to a maximum of $5,000.

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