The Canadian government passed legislation in 2004 giving tax exemptions to Canadian Forces members and Canadian police officers deployed overseas on hazardous and moderate-risk missions. Thousands Canadian Forces members and police officers qualified for the tax break. It’s aimed at improving the quality of life for those who risk their lives in defence of Canadian interests, a worthy goal!
“The Canadian Forces has four steps to rate the hazard involved with mission deployments for tax purposes,” says Barrie, Ontario tax accountant John Sutter. “Level 1 includes the lowest risk missions and these personnel aren’t eligible for the Canadian Forces and police deduction. At the other end of the scale, level 3 and 4 missions are the highest risk. These personnel are always eligible for the deduction. Personnel on moderate risk missions rated level 2 can be eligible, but only if a level 2 mission is designated by the Minister of Finance.” These designated missions must have an assessed risk score between 1.99 and 2.50, determined by the Department of National Defence.
Prior to March 2013, level 2 missions — those of moderate risk — required recognition by the Department of National Defence and approval by the Cabinet to qualify as eligible “prescribed missions.” Then Bill C-60 streamlined this procedure to eliminate a possible loophole that allowed a level 1 mission to qualify for the deduction. The bill also gave the Minister of Finance signatory approval over which designated level 2 missions qualify, based on the recommendations of the Ministry of National Defence.
You can find earnings that are eligible for this deduction in box 43 of the T4 slip issued by the Canadian Forces or your police force. If you’re a resident of the province of Quebec, the same amount should appear in box A-7 of your RL-1 slip. Because deployment in moderate and high-risk areas may include hazard pay and hardship allowances on top of base pay, some personnel may earn substantially over their pay grade. The maximum amount that a taxpayer can deduct for this benefit can’t exceed the highest non-commissioned member’s pay level. For Quebec, police officers make an additional calculation using the amount from box A-7 on their RL-1 slips to calculate the amount for entry on line 297 of the return (TP1). Report the portion of your employment income that qualifies you for this deduction, along with a note specifying the Canadian Forces personnel and police deduction on line 25000 for use with the box A-7 calculation.
Declaring the Deduction
Declaring the Canadian Forces personnel and police deduction on your T1 general tax return is simple and the effects of the deduction are easy to see. Simply transfer the amount shown in box 43 on your T4 slip to line 24400 (T1) on your tax return. Let’s assume your net income was $60,000 and box 43 shows $10,000. If the Canadian Forces and police deduction was your only income adjustment, line 24400 would be subtracted from your net income, reducing your taxable income to $50,000. If your tax deduction at source was based on an annual income of $60,000, the deduction will likely produce a tax refund.
References & Resources
- John Sutter, Certified Public Accountant; Barrie, Ontario
- Canada Revenue Agency: Line 244 — Canadian Forces Personnel and Police Deduction
- Oleg Zabielin/iStock/Getty Images