What if I'm late paying my taxes?

The tax implications of making a child co-owner of your home and the penalties for missing the tax-filing deadline were among the topics raised in recent reader emails. Here's what they wanted to know.

Q: My husband died and our home is registered in both names. We have only one child and I would like to take my husband's name off and add our daughter. Is this a good idea? What would be the tax implications, if any? We also have a rental property, still registered in both names. My intent is to leave everything to my daughter in my will. What happens to my RRIF (Registered Retirement Income Fund) and LIF (Life Income Fund) at my death?

A: Jonathan Bicher, tax partner at EY Private in Montreal, doesn't recommend adding your daughter's name to the ownership of your residence, because it could fragment the principal-residence exemption that now shelters gains in value.

While assets that transfer between spouses do so tax free, it's not the case for children.

“Assuming that the home meets the qualifications for a principal residence and your daughter no longer lives in the house, at this point it would not make sense to put the house in her name,” he said. “The future growth of her share — which would have been fully sheltered as your principal residence — would be taxable in her hands.”

If you transfer all or part of the rental property to your daughter, that will be a taxable transaction, equivalent to a sale, whether you do it now or in your will, Bicher said. “In order to determine the timing of a transfer, you would have to compare the appreciation since you acquired the property to your estimate of future growth in value, to determine whether it's worthwhile to pay tax now or later.”

As for your RRIF, it will be reported and taxed on your final tax returns. You should discuss the options for the LIF with the plan administrator, Bicher said.

Q: What happens if I file my taxes late?

A: Normally, if you submit your income-tax returns after the April 30 deadline, and owe money, you'd be subject to a five per cent penalty on the balance owing from both Canada Revenue Agency and Revenue Quebec, plus an additional one per cent for every full month that your return remains unfiled. And the penalties could double if you were late in any of the previous three years.

But Revenue Quebec announced last week it won't charge the penalty this year for provincial returns filed as late as May 30. Canada Revenue Agency is sticking with the April 30 deadline, but says it's open to payment arrangements “on a case-by-case basis” from those who might have trouble paying sums owed because of the pandemic.

Both tax agencies already had waived interest charges for a year on outstanding 2020 balances for individuals who received COVID-19 financial assistance through programs such as Employment Insurance, Canada Emergency Response Benefit (CERB) and Canada Recovery Benefit.

Under normal circumstances, anyone who filed on time but had an unpaid balance would be charged interest at an annual rate of five per cent on the outstanding amount by both agencies. Even if you don't have to pay right away, it's a debt you may want to retire sooner than later, unless you're unfazed by the prospect of potentially paying twice in 2022. If you don't owe money, it's still important to file on time so that any government benefits paid to you aren't held up.

Q: I'm a student from overseas based in Montreal until the end of my university studies. Am I eligible to receive the Solidarity Tax Credit from the Quebec government?

A: You could be eligible for the government money, even as a temporary resident, if certain conditions are met. For starters, you need to be at least 18, identify Quebec as your place of residence on Dec. 31 and file a provincial tax return (applying for the credit on Schedule D). You also need to have lived here at least 18 months prior to Dec. 31 of the tax year in question.

Solidarity payments are intended as assistance with shelter costs and provincial sales tax for people earning around $50,000 a year or less. It's paid in 12-month cycles starting in July. Spouses who live together can submit only one application. If you leave the province permanently, you have to inform Revenue Quebec and the payments will be discontinued.

He didn't phrase it as a question, but a reader wanted to draw attention to one of the tax aftershocks of the pandemic for workers who normally collect the federal Canada Workers Benefit and the provincial Work Premium.

These are tax credits that can amount to thousands of dollars a year for people with modest employment income. (The Canada Workers Benefit has an income threshold of $23,904 for single people; Quebec's Work Premium is for those who collect at least $2,400 a year from employment but whose maximum income does not exceed $20,000.) CERB replaced lost wages for some of those workers idled by the pandemic, but it's not “working income” so it doesn't qualify for the credits, and actually reduces them by bumping up overall net income.

The reader said many may discover, as he did, that they'll be receiving much smaller sums this year. “This will be a shock to many low-income workers,” he said, “and it's terrible that there was no warning.”