Qualifying for the Canadian Northern Residents Deduction
Rainy Hollow, B.C.; Belcher, Manitoba; Flin Flon, Saskatchewan; Pickle Crow, Ontario. What do these places have in common (other than their intriguing names)? Well, their residents can claim a northern residents deduction. In recognition of additional costs of living incurred by those who live in remote areas of Canada, the CRA (Canada Revenue Agency) allows special tax deductions to help with the extra burden.
The actual deductions you can claim depend on where you live. The CRA has set up two different zones:
Northern zone: You are allowed the full northern residents deduction.
Intermediate zone: You can deduct half the potential amount.
If you think you may live in a northern zone or an intermediate zone, check out the CRA’s publication T4039, Northern Residents Deductions — Places in Prescribed Zones. You can find it on the CRA website.
Two types of northern residents deductions are available:
If you qualify for the northern residents deduction, you must fill out form T2222, Northern Residents Deductions, and file it with your personal tax return. Keep any supporting receipts in case the CRA asks to see them.
Claim your residency deduction
To claim the residency deduction, you need to live exclusively in one of the prescribed zones. To qualify, you must have lived, on a permanent basis, in one of the zones for at least six consecutive months beginning or ending in the current year.
You may be able to claim two separate types of residency deductions:
Basic residency amount: This is a credit for simply living in a zone. The credit is now $8.25 per day for living in a northern zone, and one-half of this, or $4.13, for living in an intermediate zone.
Additional residency amount: You can claim an additional credit of $8.25/$4.13 per day if the following situations apply:
You maintained and lived in a dwelling during your time up north.
You’re the only person claiming the basic residency amount for living in that dwelling for that time.
You’re considered to have maintained and lived in a dwelling even when your employer or another person paid for your accommodations and other costs relating to the dwelling.
If more than one taxpayer lived in the same dwelling at the same time during the year, either each taxpayer can claim the basic residency amount deduction ($8.25 or $4.13 per day), or one taxpayer can claim both the basic residency amount deduction and the additional residency deduction.
If you’re considered to receive a non-taxable benefit for board and lodging at a special work site in a northern or intermediate zone, the non-taxable benefit (as reported on your T4 or T4A slip) is to be deducted in calculating your residency deduction.
If you received non-taxable board and lodging benefits but the special work site is more than 30 kilometres away from an urban area having a population of at least 40,000, you do not have to reduce your residency deduction.
Take your travel deductions
The second type of northern residents deduction you may be eligible to claim is the travel deduction. Generally, whenever your employer pays for something on your behalf, you’re considered to have received a taxable benefit. This means that some travel benefits that your employer offers to you and your family may be taxable.
When you live in a remote northern area, the fact that your employer will pay for some trips for you and your family could be a popular employment perk. Unfortunately, it could also lead to a tax bill. In recognition of the costs involved in travelling in remote areas, some relief from the taxable benefit rules is available. You can claim an additional northern residents tax deduction under these conditions:
You qualify to claim a northern residents deduction.
You were an employee.
You received taxable travel benefits in connection with your employment in a northern and/or intermediate zone.
The travel benefits have been included in your employment income.
Box 32 of your T4 slip, or box 28 of your T4A slip, will report the taxable travel benefits you received in the year. If you received non-taxable benefits, such benefits will not show up on your slips and you’re not eligible to claim the travel benefits deduction.
You must claim the travel benefits deduction in the same year that you report the taxable benefit received from your employer.
Types of travel qualifying for deduction
Different rules apply depending on your reasons for travelling. If you’re travelling for medical services that are not available where you live, no limit applies on the number of trips you can make in the year. However, if you’re travelling for any other reason, you can claim a deduction for only two trips a year for each member of your household.
If you’re claiming a travel deduction for trips made for medical reasons, no one else can claim the expenditures as medical expenses as well.
If you’re travelling for medical reasons, ensure your employer notes this fact on your T4 or T4A slip.
If you’re travelling for medical reasons and cannot travel alone, you can claim a deduction for your travel expenses as well as those of another member of your household who will act as your attendant (assuming the other conditions for the deduction are met).
Amount of deduction available
Can you take a first-class, whirlwind trip and hope it qualifies as a travel deduction? Let’s not be greedy. As with many Canadian tax rules, maximum amounts that can be claimed do apply. In this case, the maximum deduction that can be claimed for each eligible trip in the year is the lowest of the following:
The taxable employment benefit you received from your employer for the trip.
The cost of the lowest return airfare available at the time of the trip between the airport closest to your residence and the nearest designated city, even if you did not travel by air, or to that city.
The total travel expenses for the trip. These travel expenses include such items as:
Air, train, and bus fares.
Meals. Actual cost (keep your receipts) or claim a flat rate of $17 per meal to a maximum of $51 per day per person for 2011. Rates for 2012 and later years can be found on the CRA website.
Motor vehicle expenses. You can claim motor vehicle expenses based on actual costs incurred, or on a fixed per-kilometre amount. The per-kilometre amounts are published in a CRA fact sheet titled Travel Expenses for Northern Residents Deductions, Medical, and Moving Expenses. You can find it on the CRA website.
Hotel and motel accommodations.
Other incidental expenses, such as taxis, road tolls, and ferry costs.
So, if you’re travelling from a northern or intermediate zone to Cape Breton, Nova Scotia, you’ll have to determine the airfare from the closest airport to your remote location to Halifax, Nova Scotia (which is the closest designated city to Cape Breton). This is the case even if you didn’t fly between these two locations, and even though you’re not planning on visiting Halifax! A list of designated cities can be found in the CRA guide entitled General Income Tax and Benefit Guide.