The Federal budget released on April 19, 2021, was a bittersweet one for Northerners. In a year where the territories are subject to self-isolation rules if they venture outside the border, the federal government has proposed to greatly expand the Northern Resident's Travel Deduction, making it accessible to more Northerners.
Previously, taxpayers had to receive a travel benefit from their employer (the coveted box 32 on the T4), in order to be able to claim vacation travel as a tax deduction.
For 2021 and later years, provided you meet the residency requirement - meaning you have lived in a prescribed northern area for at least six months beginning or ending in the tax year - the requirement of having a box 32 in order to claim travel changes, with the proposed introduction of a $1,200 standard amount that can be claimed by an individual for themselves and their eligible family members instead. However, be cautioned, the definition of eligible family members will be changed as well. If you previously claimed travel for an adult child while a university student, for example, that deduction will no longer be allowed, although the student may be able to claim a travel amount themselves.
Those in households where no taxpayers receive an employer-provided travel benefit will see the biggest change. Budget 2021 will allow the household to make a travel claim for eligible family members using the $1,200 standard amount, per person. This is welcome news for many, particularly retirees and the self-employed, who previously could not make a claim related to travel.
For those in households where an individual already receives an employer-provided travel benefit, the changes are only advantageous if the benefit paid by the employer is less than $1,200 per person in the household for the year. For example, if a married individual with a minor child receives a box 32 of $2,500 for the year from their employer, the changes would allow the household to claim up to $3,600 of travel instead.
An important item to note however is that Budget 2021 proposes that across all taxpayers in a given individual's household, a maximum of 2 trips per person would be allowed. For some, this could mean a reduction in what they are able to claim for travel, as the household is now capped at two trips per person, although the deduction can still be spread over multiple returns.
Of course, the travel deduction is still subject to other limits, being the amount actually spent on a particular trip, as well as the amount of the lowest return airfare to the nearest gateway city.
Many northerners are already trained to retain their travel receipts to facilitate making a claim, but for some, this is going to be new advice! And keep in mind that a trip doesn't mean that you have to leave the territory. stay-cations can also be tax-deductible!
As these new proposed changes complicate a tax deduction that was already difficult to understand, we encourage you to reach out to your trusted Crowe MacKay tax advisor if you have questions about what these changes may mean for you and your family.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.