Immigrants prorate non-refundable tax credits for part-year residents

The following addresses when a part-year resident of Canada needs to prorate non-refundable tax credits, and what changed in ProFile to handle these situations.

When to prorate non-refundable tax credits

The CRA publications T4055 - Newcomers to Canada and T4056 - Emigrants and Income Tax both provide guidance. These publications highlight which non-refundable tax credits you can fully claim for the period that you were not a resident of Canada, provided that you are reporting Canadian-source income (for example, Canada Pension Plan or Quebec Pension Plan contributions).

For other non-refundable tax credits, these publications state the following:

In addition, if the Canadian-source income you are reporting for the part of 2013 that you were not a resident of Canada represents 90% or more of your net world income for that part of the year (or if you had no income from sources inside and outside Canada for that part of the year), you can claim the remaining applicable federal non-refundable tax credits in full. See the General Income Tax and Benefit Guide for the remaining federal non-refundable tax credits.

Note: If you are claiming full federal non-refundable tax credits, attach a note to your return stating your net world income (in Canadian dollars) for the part of 2013 that you were not a resident of Canada. Show separately the net income you received from sources inside and outside Canada for that part of the year. We cannot allow the full amount of these federal credits without this note.

How ProFile handled non-refundable tax credits for part-year residents in 2012

ProFile did not track the income that a part-year resident earned during the period of non-residency so was unable to definitively ascertain whether non-refundable tax credits should be prorated or not. On the Info page, the question Prorate non-refundable tax credits for part year resident? defaulted to Yes, but this was an editable field, and a preparer could select No if they felt that the taxpayer qualified for a full non-refundable tax credit claim.

How ProFile handled non-refundable tax credits for part-year residents in 2013

The CRA implemented four new boxes (5263, 5267, 5292 and 5293) for part-year residents in 2013. ProFile displays these boxes on the Info page when a preparer enters a date of entry and/or a date of departure. 

This is information that ProFile did not previously have available in a tax return, and helps determine whether a part-year resident needs to prorate their non-refundable tax credits.

As stated in the CRA publications above, the part-year resident of Canada can claim full non-refundable tax credits if they reported Canadian-source income that represents 90% or more of the taxpayer's net world income for the part of the year they were not resident of Canada or did not have any sources of income during the period of non- residency. Accordingly, ProFile will not prorate non-refundable tax credits if:

• The amount in box 5292 divided by (amount in box 5292 plus amount in box 5293) >= 90%
• The amount in box 5292 and 5293 are both 0

It is important that the preparer complete these boxes so that the appropriate treatment is obtained. If you are unsure about the taxpayer's income during non-residency but believe the non-refundable tax credits should be prorated, you could insert a nominal amount in box 5293 in the interim until you can obtain the complete information from the taxpayer.