Residents of certain regions of northern Canada can claim the Northern Residents Deduction (NRD) on their personal Income Tax and Benefit Return This deduction reduces their taxable income on Line 26000, which lowers their tax liability and could increase a refund or lower a balance due. The deduction includes a basic amount, an additional amount and an amount for travel expenses. For Quebec residents, please review this link for more detailed information.
What Is the Northern Residents Deduction and Who Is Eligible?
The NRD is a tax deduction that provides relief to those who live in a prescribed northern zone and are often faced with a higher cost of living, environmental hardship, and limited access to services. There are two zone types, Zone A – Prescribed Northern Zones, and Zone B – Prescribed Intermediate Zones. CRA lists the places and zones by province here.
To qualify, you must live in the prescribed zones continuously for at least six months. This means that you must live there on a permanent basis, but it does not mean you must be physically present in the zone for the full period. Short absences from the prescribed zone do not affect your eligibility. The CRA considers the length of the absences as well as the reasons for them when determining your eligibility.
Every person living in the same dwelling can claim the NRD and the calculation for all three components of the claim are made on Form T2222 – Northern Residents Deduction.
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Calculating the Basic Amount and the Additional Amount of the NRD
The basis for calculating the NRD is the Basic Residency Amount. This amount is $11 per day for people living in a prescribed northern zone and $5.50 per day for those living in a prescribed intermediate zone. To calculate your basic deduction, multiply the number of days when you resided in a prescribed zone by the amount applicable to your zone.
You may also qualify for the Additional Residency Amount, which is the same dollar amount as the basic residency amount, effectively doubling the amount of the deduction. To qualify for the additional amount, you must be the only person in your dwelling who is claiming the NRD. Depending on your spouse and children’s situation, it may be more advantageous to claim the additional amount rather than have two or more people claim the basic residency amount.
Calculating the Deduction for Travel Benefits
The other aspect of the NRD is the deduction for travel benefits. If you otherwise qualify for the NRD and certain travel benefits have been added to your income because they were paid by your employer, you may claim this part of the NRD as well.
You can deduct expenses such as airfare, hotels and meals up to a limit that is the lowest of the following three amounts:
- The actual cost of the trip
- The amount that your employer included in your income
- The amount of the lowest return airfare from your residence to a designated city
Claiming the NRD
Beginning in 2021, individuals who qualify for the northern residents deduction can now claim the travel deduction using a standard rate of $1,200. Under the previous rules, travel deductions were limited to the least of one of the following: the amount of a travel benefit received from an employer, the actual expenses for the trip, and the lowest return airfare. The new rules allow for a $1,200 standard rate in place of an employer allowance if an individual did not receive one, or if the ($1,200) rate is higher than the actual allowance provided.
To claim the NRD, you must fill out Form T2222, Northern Residents Deduction. Parts 1 and 2 comprise the basic residency amount and additional amount, while the third part calculates the travel benefits deduction. You can claim the travel benefits deduction even if you do not claim the basic residency amount. In other words, if you have decided that your spouse will claim both the basic residency amount and the additional amount, you can still claim the travel expenses deduction.
References & Resources
- Canada Revenue Agency: Northern residents deductions
- Canada Revenue Agency: T2222 Northern Residents Deductions
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