Helping First Nations, Inuit and Metis with Tax Filing

The Canada Revenue Agency is trying to reach out to Canada’s First Nations, Inuit and Metis to encourage them to file their tax forms on time and could use your help to make sure these communities get all the tax benefits they are entitled to. But filing tax returns are not always easy, especially when there is income on and off the reserve.

The repercussions of Ontario's March 27 budget will be felt across Canada ó especially among the corporations that bear the brunt of the changes. Consumers and employees, too, will feel the squeeze as, thanks to the "trickle downî effect, corporations pass on the additional cash drains through cost-cutting, reduced employment and price increases. Ontario is no longer the manufacturing giant it once was; it is now a service-based economy. At the head of the pack is the financial services industry. Toronto is one of the 10 largest financial centres in the world and handles 70% of Canada's financial services. As a result of Ontario's budget, this large corporate segment will pay 13% more taxes ó affecting consumers and employees nation-wide. Ontario's public service will also feel the impact of what can only be termed an "austerityî budget, as the Ontario government attempts to balance its budget by 2017-2018 "by finding savings and curtailing planned spending.î To reduce wage costs, Ontario plans to impose a two-year wage freeze on 1.2 million government employees. It intends to do this through negotiation and the collective-bargaining process. But the provincial government has indicated it will introduce legislation to force the freeze if the public-service unions disagree. This is all going to happen without the government increasing taxes. Apparently "not increasing taxesî does not include eliminating previously announced tax cuts and increasing fees.ï Taxation Corporations expecting to take advantage of long-promised reductions in the general corporate tax rate will have to wait a little longer, at least until there is a balanced budget. The general tax rate for corporations ó which was scheduled to drop by 0.5% on July 1, 2012, and an additional 1% on July 1, 2013 ó is frozen at 11.5%. This 1.5% cut to the corporate tax rate represents a 13% increase in funds no longer available for investment. This will ultimately filter through, increasing costs and pricing as well as decreasing employment. The removal of the tax reduction, however, does not affect manufacturing and processing or small business which currently have provincial tax rates of 10% and 4.5%, respectively. Also frozen at its current level is the Business Education Tax (BET), a component of commercial property taxes. Ontario's phased-in cuts to BET, which started in 2007, will halt until Ontario reaches a balanced budget. Neither of these freezes sound like a big deal on the surface, but for a province that is in financial difficulty to hobble the commercial engine that drives employment and the economy sounds a little counterproductive. The proposed Healthy Homes Renovation Tax Credit designed to provide a 15% non-refundable tax credit on expenditures "that improve accessibility or help seniors with their mobility at homeî will remain. Even though this legislation has not yet been passed, the qualifying period began October 1, 2011, and expires December 31, 2012, to be claimed on the 2012 personal tax return. Although this program is currently in place and active, it is important to note that this legislation has not been passed and it does form part of the budget. It may ultimately be defeated. In another move, as of March 27, the Ontario government has taken back the determination process regarding employee-employer relationships for the purpose of assessing taxes under the Employer Health Tax from the Canada Revenue Agency (CRA). While CRA rulings will remain, Ontario is no longer bound by the rulings for the purpose of the Employer Health Tax. Retail Sales Tax (RST) was harmonized with the GST/HST on July 1, 2010. Ontario taxpayers have had the ability to apply for RST rebates and refunds until June 30, 2014. This period has been shortened; the deadline is now Dec. 31, 2012. Administratively, the Ontario government plans to amend various statutes to enhance its ability to collect tax revenue, including the garnishment of monies to be loaned or advanced to taxpayers. Research & Development tax credits, the Apprenticeship Training Tax Credit and Tobacco Tax Enforcement are also under review but the budget gave no details on what changes, if any, will be implemented. Collectively, the tax measures proposed in Tuesday's budget should increase Ontario's revenue by $325 million in 2012-2013, $1.04 billion in 2013-2014 and $1.675 billion in 2014-2015.ï Pension Systems Public-sector defined-benefit pension plans also came under the gun as the Ontario government targeted unfunded liabilities. Ontario is proposing legislative changes within the following parameters: In case of a deficit, a plan will be required to reduce future benefits or ancillary benefits before increasing employer contributions. In exceptional circumstances, a limit will be set on the amount or value of benefit reductions before additional contribution increases can be considered. Any benefit reductions will involve future benefits only, not those already accrued. Current retirees will not be affected. If employee contributions are currently less than employer contributions, increased employee contributions can be employed to reduce pension deficits. When plan sponsors cannot agree on benefit reductions through negotiation, a new third-party dispute resolution process will be invoked; the framework will be reviewed after the budget is balanced. Alan Rowell, Distinguished Financial AdvisorñTax Services Specialist, is president of The Accounting Place in Stoney Creek, Ont.   Additional Educational Resources: Esstential Tax Facts 2012 Edition and Introduction to Personal Tax Preparation Services.  

With every federal budget, we anticipate the continued reform of personal and corporate tax systems. The March 29 budget is no different. If the age of eligibility for Old Age Security (OAS) is pushed back, Thursday's budget could be both historically significant and hugely unpopular (or so indicates Knowledge Bureau's polling). You will do well to pay close attention to this budget and project its effects onto your retirement and estate plan. In the aftermath of the global financial crisis, governments are forced to rein in spending and reduce deficits. So, you should be prepared for possible tax increases ó such as social benefit clawbacks, increased user fees or changes to our taxing framework, which is based on another significant tax reform introduced in 1969. Canada's then-minister of finance, the Hon. E. J. Benson, not only proposed increases to personal and corporate taxes but also, most significantly, brought capital gains into taxable income. His reasons were interesting in the context of today's choices. "The needs of the federal and provincial governments for money to do useful and important things are so great,î he began his proposed reforms, "that we cannot now afford to reduce the over-all revenues from personal and corporate income taxes.î Over time, inclusion of net capital gains in taxpayers' income has added extensively to government coffers. In the first year ó the reforms took effect Jan. 1, 1972 ó it was estimated that single provision generated net government revenue of $60 million; by its fifth year of existence, it produced $245 million. Those were large sums for the times. But Benson did something else: he recognized the punitive effect of including in income "irregularî sources of income that would push taxpayers into a higher tax bracket and cause taxes to be paid at a higher tax rate that year than in a normal year. The "General Income-Averaging Optionî ó which averaged out income and taxes payable over five years ó was introduced to help taxpayers avoid tax-rate spikes. Unfortunately, that provision was abolished years ago. Benson's reforms were effective in their mission. They redistributed the income-tax burden and increased government revenue from personal and corporate taxes. The burden, however, landed squarely on the large, baby-boomer taxpayer base that was just graduating from university and beginning its work life. Yet, despite high tax rates on both income and capital, boomers were incented to work in this country, rather than leave for more competitive tax jurisdictions. Most attempted to save for retirement, despite high taxation in the 1990s (which was needed to reduce previous governments' deficits and debt) and the debilitating effects of the recent global crisis. Retiring boomers now need to count on what's left of their private savings, the Canada Pension Plan and the OAS to make it in a very different world. Unfortunately, heavily indebted federal and provincial governments once again face great needs to do important things. The federal government will have to make significant choices come Thursday's budget. So may you, too. In fact, engaging with well-informed tax and financial advisors to mitigate any losses with sound tax and financial planning is a good first line of defense.   It's Your Money. Your Life. The degree to which the March 29, 2012, federal budget changes your tax burden will be of special interest. To find out what it means to you and your savings, please join the Knowledge Bureau Report team at http://www.knowledgebureau.com/ for our Special Budget Report. We'll be there to help you decipher Budget 2012. Evelyn Jacks, president of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. To purchase your books, visit www.knowledgebureau.com/Books.asp. Follow on Evelyn on Twitter @evelynjacks  

If you have not been totally forthcoming with Canada Revenue Agency (CRA), you should take advantage of the CRA's Voluntary Disclosures Program (VDP) and set the record straight. The CRA is making it very clear it will not tolerate taxpayers shirking their responsibilities. Take, for example, tax advisor Christopher Patterson of Toronto. According to the CRA, Patterson was selling false charitable donation receipts to clients. When he prepared their tax returns, he duly claimed those charitable donations as deductions on line 144 of the income tax return. For the 2004 to 2008 taxation years, he claimed more than $1 million in false charitable donation deductions, reducing the amount of taxes payable by his clients. Overall, unwarranted refunds totaling $313,992 were issued to Patterson's clients. Patterson has pleaded guilty to fraud and received an 18-month conditional sentence and 200 hours of community service; he is also prevented from preparing or filing tax returns for anyone but himself. Tax protestors in Saskatchewan may have received even harsher punishments. (Tax protestors commonly use the "natural personî argument to claim that they are not legally required to pay taxes, a claim the CRA does not accept.) Douglas Amell was sentenced to 16 months in jail and fined $189,796 for tax evasion. Heidi Keyzer was sentenced to five months in jail and fined $33,106, and Robert Amell was sentenced to three months and fined $20,334. The offences occurred during the taxation years 2003 to 2006.The fines represent 100% of the taxes sought to be evaded and benefits received. But you may avoid these penalties if you make a valid disclosure. A valid disclosure meets four conditions: it must be voluntary, complete, involve the application or potential application of a penalty, and generally include information that is more than one year overdue. You must complete form RC199, Taxpayer Agreement ñ Voluntary Disclosures Program. If the CRA accepts the disclosure as valid, you may only have to pay the taxes or charges owing, plus interest. Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.  

When the federal government tables its 2012-2013 budget tomorrow, the emphasis will be on reduced spending and deficit reduction. And, by all indications, the feds may be in a good position to put the brakes on federal spending without bringing the recovery to a screeching halt. ï Growth in real gross domestic product (GDP) has met expectations. According to Statistics Canada, real GDP rose 0.4% in the fourth quarter of 2011, after advancing 1% in the third quarter, with consumer spending and exports contributing the most to fourth-quarter growth. Economists are now pegging 2012 growth at 2.2% and 2013 growth at 2.4%-2.5%, which is pretty much in line with Bank of Canada expectations. "The catalyst behind this positive adjustment,î wrote TD Bank economists in a recent report, "is an improvement in the near-term environment for the global economy and financial markets, which is expected to pay off in terms of higher world commodity prices, more robust exports and stronger confidence at home.î ï Federal government revenues have steadily increased quarter after quarter with fourth-quarter 2011 revenue up 4.8% year over year, according to StatsCan's Government Finance Statistics. TD economics forecasts revenue of $244.5 billion in 2012 and $256.7 billion in 2013. The upshot? Report TD economists: "Improved economic assumptions and lower than-anticipated spending numbers suggest that the federal govern­ment is enjoying a brighter fiscal outlook than just a few months ago ó the deficit is now estimated at $26 billion (1.5% of GDP) for fiscal 2011-12.î That is a $5-billion improvement on the Bank of Canada's fall update. ï Inflation is within the range the Bank of Canada has targeted, with the February consumer price index (CPI) advancing 0.4%, taking annual inflation to 2.6%, a slight edge upward from 2.5% last month. As has been the story lately, energy prices ó more specifically, gasoline prices ó and food prices pushed CPI higher. Core inflation also rose 0.4% in February, boosting the underlying rate of inflation to 2.3% from 2.1% in January. Doug Porter, deputy chief economist at Bank of Montreal, notes core inflation is running a "bit hotterî than the 2.1% the Bank of Canada expected. But, he says in a recent report, "Even with some further upward pressure from gasoline prices in next month's reading, inflation should begin to recede in March thanks to some very favourable year‐ago comparisons for both headline and core.î Adds Paul Ferley, assistant chief economist at Royal Bank of Canada, in a report: "With the Canadian economy continuing to operate with unused capacity, as evidenced by a still high unemployment rate, inflation is expected to drop back below 2% during the course of 2012. Under this scenario, the Bank of Canada can focus on sustaining the recovery.î ï Interest rates are low ó the Bank of Canada overnight rate is 1% ó and are expected to stay that way until mid-2013. In the short to medium term, that should support Canada's housing market and consumer spending. ï Unemployment is expected to hold around 7.5% this year, before easing to 7% in 2012, note TD economists. Although national employment growth has stalled over the past six months, economists expect the labour market to snap out of its recent lull. But prospects for job creation in 2012 are not great, with governments at all levels reducing payrolls and businesses able to meet increased export demand through higher productivity. ï Consumer debt as a percentage of disposable income has breached the 150% barrier. Since much of this debt is real estate-related ó either mortgages or home equity lines of credit ó the spectre of a collapse in the housing market strikes fear in the hearts of economists and policymakers. Estimates of just how overvalued the Canadian housing market is range from 10%-15% to 25%. Throw in higher interest rates and many Canadian households will be stretched to the limit. Yet, consumer spending is a mainstay of our economic growth ó and thus constitutes a potential, longer-term problem. So, the government is in a position to move forward with deficit reduction while keeping the economy on a firm footing. But it is not without its challenges, as Evelyn Jacks notes below. The government needs money to meet its commitments to Canada's aging population. It will definitely require some juggling.   Additional Educational Resources: Debt and Cash Flow Management and Financial Recovery in a Fragile World.  

Canada Revenue Agency (CRA) is putting some high-flying Tax-Free Savings Accounts (TFSAs) and their "unusualî transactions under its microscope. It seems the ability of some TFSA holders to turn a $5,000 annual contribution into, for example, $300,000 in one year has attracted Ottawa's attention. The CRA recently sent questionnaires to selected TFSA holders and is threatening a penalty of close to 100% of the value of the TFSA for any missteps. Since the introduction of TFSAs in 2009, some TFSAs have grown beyond what the CRA believes are the TFSAs' natural limits using "qualifiedî investments ó that is, investments in properties, including money, guaranteed investment certificates (GICs), government and corporate bonds, mutual funds and securities listed on a designated stock exchange. Indeed, the CRA believes holders of some TFSA have employed complicated, and prohibited, "swap transactions,î transferring properties or assets ó such as thinly traded securities with large differences in "bidî and "askî prices ó between the TFSA and the holder of the TFSA or a person not at arm's length from the holder. When those securities are swapped out of a TFSA into non-registered accounts, they may triple in value; repeated swaps can quickly turn $5,000 into $300,000. But, says CRA, such "aggressiveî tax planning gives rise to unfair advantages. On that basis, the CRA is going after certain TFSA holders. (Most need not worry: the CRA is only after those who have misused TFSAs in order to gain unfair advantages through circuitous transactions and prohibited investments.) How to identify an improper TFSA advantage. An advantage is any benefit, loan or debt that depends on the existence of a TFSA. An improper advantage is any benefit that increases the fair market value (FMV) of a TFSA that can reasonably be attributed, directly or indirectly, to one of the following: ∑ a transaction, event or series of transactions that would not have occurred in an open market between arm's length parties acting prudently, knowledgeably and willingly, one of the main purposes of which is to enable the holder (or another) to benefit from the tax-exempt status of the TFSA; ∑ a payment received in substitution for services rendered by the holder of the TFSA or a person not at arm's length with the holder, or a payment of a return on investment or proceeds of disposition for property held outside of the TFSA by the holder or a person not dealing at arm's length with the holder; ∑ a swap transaction; ∑ specified non-qualified investment income that has not been distributed from the TFSA within 90 days of the holder of the TFSA receiving a notice from the CRA requiring them to remove the amount from the TFSA; ∑ any benefit that is income (including a capital gain) and is reasonably attributable to deliberate overcontribution or a prohibited investment.   Prohibited investments. These are investments to which the TFSA holder is closely connected and include: a debt of the holder; a debt or equity investment in an entity in which the holder has a significant interest (generally 10% or greater); and a debt or equity investment in an entity with which the holder or an entity does not deal at arm's length.   Not included in this prohibited designation are mortgage loans that are insured by the Canada Mortgage and Housing Corporation (CMHC) or by an approved private insurer. Most TFSA holders need not worry about these audits; they pertain only to aggressive and abusive use of the TFSA. But those faced with audits should seek professional advice as soon as possible. Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.  

Once all the members of your family — including minors and young adults — have filed their tax returns, you can turn your attention to teaching the next generation the long-term benefits of investing their returning social benefits and refunds wisely. Contributing up to $5,000 to a Tax-Free Savings Account (TFSA) each and every year is one way young adults can build a tax-free pension for retirement. Investment income earned in a TFSA accumulates tax-free, which means that future withdrawals from the TFSA are not taxed. This is extremely powerful. Imagine, future generations not needing to pay taxes on their retirement savings! But to make this a reality, your young adults must make maximum TFSA contributions part of a disciplined annual savings program. Contributing to a RRSP is also very important and may, in fact, come before a TFSA in order of investing if your adult children have net or taxable income and sufficient contribution room. An RRSP deduction reduces net income, which increases refundable tax credits (such as the GST/HST credit) and enables the transfer of tuition, education and textbook amounts. Putting money into an RRSP early not only helps your young adults reduce taxes but will also create a three-part savings plan — for home ownership, life-long learning and retirement — all within the same vehicle. If you wish to add to your child's nest egg, you can generally loan funds for investment purposes to your adult child without invoking the Attribution Rules in Section 74.1 of the Income Tax Act, which attribute resulting interest and dividends back to the lender. But beware of Section 56 (4.1) of the Act, which can attribute income back to the lender if it is reasonable to assume that the lender made the loan, or the recipient incurred the indebtedness, to reduce or avoid taxes. The Section 56 (4.1) rules are broader than the Section 74.1 rules and relate to all income earned on transferred property. It's important to stay clear of the tax auditor. So, be sure to structure your affairs properly. It's Your Money. Your Life. By filing audit-proof tax returns for all family members at the same time, starting with the lowest-income earner and moving to the highest, you can increase after-tax results for the family as a unit. Then, leverage any tax windfalls by teaching young adults the proper order for investing, so that they can maximize their opportunities to build tax-efficient, million-dollar futures with their tax-sheltered accounts. Evelyn Jacks, president of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. Knowledge Bureau also publishes The One Financial Habit That Could Change Your Life by Robert Ironside and Edwin Au Yeung and The Smart, Savvy Young Consumer by Pat Foran, both good guides for young investors. To purchase your books, visit www.knowledgebureau.com/books.   Follow Evelyn on Twitter @evelynjacks