Keep tax receipts for six years in case you get reassessed

The federal public transit deduction and provincial Solidarity Tax Credit were among the topics raised in the latest batch of reader letters. Here’s what readers wanted to know.

Q “I didn’t realize I was supposed to be keeping receipts for my monthly transit passes. I’ve just been tossing them. Will this be a problem?”

A Perhaps, if you have been claiming the public transit tax credit on your federal tax returns.

Canada Revenue Agency has been known to demand proof of payment from people who claimed the credit on their return (Line 364), and you could have the credit denied (even retroactively) if you can’t produce the receipts. They can be in the form of a smart card or electronic payment card, but will need to include the month covered and your name or “unique identifier” (such as the code number of an Opus card). If that information isn’t listed, CRA may also require credit card receipts or cancelled cheques as proof of purchase.

The tax guide doesn’t specify how long you should keep the supporting documents, but six years is the general rule. The credit applies to money spent on monthly (or longer) public transit passes for yourself, a spouse or common-law partner, and children 19 and under. (If the kids are buying their passes independently, you might want to remind them to keep the receipts and turn them over).

They can all be claimed by one partner if that produces a better tax result for the family.

If an employer is reimbursing part of the cost, only the amount you’re actually out of pocket gets included for the credit. It’s not an insignificant amount — 15 per cent of the overall cost — and can mean hundreds of dollars a year for a family.

Too bad Revenue Quebec doesn’t have a similar public transit incentive.

Q “I retired in March at age 62 and have a combined pension and Quebec Pension Plan income of about $105,000 per year. I have another $110,000 in an RRSP. Should I start withdrawing from the RRSP now to minimize the future Old Age Security (OAS) clawback or wait until age 71? My husband, who is four years younger, will retire in three to five years and has about $20,000 of contribution room in his TFSA (tax-free savings account). He earns more than I do, so income-splitting is not an option.”

A Caroline Nalbantoglu of CNal Financial Planning says the clawback (on OAS funds payable as early as age 65) is something you’re going to have to deal with anyway, since you’re already receiving income well above the threshold ($72,809 in 2016) and not that far from the point where it gets clawed back fully ($118,055).

All things considered, letting the funds grow tax-free in the RRSP until age 71 and drawing on them then might be the best solution, Nalbantoglu said.

“She doesn’t have a large RRSP portfolio. Assuming her return is 3 per cent per year for the next nine years, her RRSP will be worth $143,525. Since her husband is four years younger, she can base her withdrawal amount on his age (making the initial withdrawal percentage 4.3 per cent). The dollar amount won’t be significant in the overall picture. Tax rates might even be lower by then. Who knows?”