Permanent residents of certain regions of northern Canada can claim the Northern Residents Deduction (NRD) on their personal income tax return, which in turn could significantly reduce their tax bill. However, it is crucial that you understand the qualification rules and guidelines provided by the Canada Revenue Agency (CRA) in order to take advantage of these deductions.
Qualifying as a Northern Resident:
You are considered a “northern resident” if:
You have lived on a permanent basis in either a northern or intermediate zone listed by the CRA for a continuous period of at least six consecutive months.
This period can either begin or end in the year for which you are filing. If at the time of filing your tax return you have not lived in a prescribed zone (see below) for 6 continuous months you are not qualified to claim the deduction. However, you can file for an adjustment with the CRA once you have met the 6-month requirement. The CRA will adjust your return to include the credit.
There are two types of deductions available which are added together to come up with your NRD:
- A residency deduction for having lived in a prescribed zone, and
- A deduction for travel benefits you received from employment in a prescribed zone that was included in your income.
The aforementioned prescribed zone consists of two levels of locations that qualify for the NRD:
- Prescribed Northern Zones (Zone A) where you can claim full deductions, and
- Prescribed Intermediate Zone (Zone B) where you can only claim half of the deductions.
The CRA determines whether you live in the prescribed zone by considering:
- The number of your absences from the prescribed zone, and
- The purpose and length of your absences.
You can use the CRA’s website to determine whether the area you live in qualifies as Zone A or Zone B.
Calculating your Deduction:
You determine your claim amount by calculating the number of days in the year that you’ve lived in a prescribed zone. There are two amounts that you can claim:
- Basic residency amount, and
- Additional residency amount.
If you are living alone in your prescribed zone, you have the ability to claim the basic residency as well as the additional residency amount.
If you live in a Prescribed Intermediate Zone (Zone B) you will be entitled to deduct half of the amounts.
Additional Deduction Opportunity:
If you qualify, you can claim a deduction for travel benefits you received from employment in a prescribed zone that was included in your income.
You must meet all of the following qualifications in order to deduct:
- You qualify to claim NRD,
- You are an employee dealing at arm’s length with your employer, and
- You must have included in your income (in the same year that you have the travel expenses) the taxable travel benefits that you received from your employment in a prescribed zone.
Personal Tax Planning:
It’s important for those hoping to claim NRD that they determine which of these options is most advantageous for the household. It is key that you connect with a professional to discuss the opportunities available to you. Contact KBH Chartered Accountants today to take advantage of all the possibilities available to you: info@kbh.ca