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 arrival of T4 and T5 slips ó by the end of February ó signals the official start of the annual tax-preparation rush. One important rule you and your tax preparer will want to follow is completing all family tax returns together, starting with the lowest-earning family member and progressing to the highest. This will allow you to take advantage of provisions for transferring income to children and provide savings opportunities for the young. Filing returns for minors. There are many reasons to file a tax return for minors. First of all, your minor child is taxable and required to file a return if he or she earned $10,822 or more in 2011, be it income from employment (for example, working at a local restaurant) or self-employment (babysitting and lawn-care services). But even if your minor's income doesn't meet that threshold, filing a return is important. Each year, 18% of his or her earned income will go toward creating RRSP contribution room; in time, when the child does become taxable, he or she will be able to contribute to an RRSP creating a RRSP deduction that will reduce income and taxes. This is important planning tool if you are going to be the one supporting your child when he or she attends post-secondary school. Before unabsorbed educational credits can be transferred to you, the student must first claim tuition, education and textbook credits to reduce his or her taxable income to zero. An RRSP deduction will reduce the student's income, allowing you to transfer more of the credits to your return.   Your minor child also needs to include in income any survivor and/or disability benefits from the Canada Pension Plan. This will boost his or her net income. If you are a single parent, this could be particularly significant because the claim for "eligible dependentî or spousal equivalent for tax purposes will be reduced or eliminated. But there is a tax special provision for minors available only to single parents: you can transfer taxable Universal Child-Care Benefits (UCCB) to the child, and he or she can include it in income. This will be of advantage to you if you are in a higher marginal tax bracket than the child. It's Your Money. Your Life. File tax returns for all family members together, including minor children. The objective is to maximize the tax free zone of $10,822 and, if necessary, reduce income levels further with an RRSP deduction. What's required is that the minor has eligible RRSP room, which is created by filing a return. This filing strategy can create savings on a supporting parent's return as well, with the transfer of certain available tax provisions ó to the benefit of the entire family unit. Next Time: Making claims for minor children on your return 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  

Canada Revenue Agency recently released new rules concerning Registered Disability Savings Plan (RDSP) and the taxation of withdrawals from the plan. In a five-part series, Knowledge Bureau Report will examine RDSPs and explore the tax implications of the new rules. In this first report, Greer Jacks looks at what payments from RDSPs are taxable. Contributions. A plan holder(s) is the person or persons who opens the account on behalf of the disabled person, who becomes the plan's beneficiary. There is no limit to the amount the plan holder(s) can contribute annually to an RDSP, but the overall lifetime limit for a beneficiary is $200,000. Plans can qualify for a Canada Disability Savings Grant and the Canada Disability Savings Bond, as well as designated provincial programs, which are outside the contribution limit. Contributions can be made to the plan until the end of the year in which the beneficiary turns 59. A beneficiary can only have one RDSP at any given time, although the RDSP can have multiple plan holders throughout its existence. Payments. Three types of payments can be made from an RDSP: disability assistance payments (DAPs), repayments of grants and bonds to the government, and transfers of all property from the beneficiary's current RDSP to a new RDSP for the same beneficiary. Only the beneficiary or the beneficiary's legal representative acting on the beneficiary's behalf can receive DAPs, which is the only type of payment that is taxable. The beneficiary must include those amounts in his or her annual income. Reporting the income. When payments are from the RDSP, RDSP issuers report the taxable part of the payments from the plan in box 131 of the T4A slip, located in the "Other informationî area, and send two copies of the slip to the beneficiary or the beneficiary's legal representative. The beneficiary must include this amount as income on line 125 of his or her tax return for the year in which he or she receives it. For more details, see CRA's information circular IC99-1, www.cra-arc.gc.ca/E/pub/tp/ic99-1/ and CRA publication RC4460 www.cra-arc.gc.ca/E/pub/tg/rc4460/. 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.  

The federal government earned the wrath of soon-to-be seniors recently when it suggested it might extend the age at which Old Age Security (OAS) benefits begin to age 67 from age 65. At this point, the proposal ó and it is only a proposal ó would not change OAS benefit amounts or indexing. This begs two important questions. Why is this being proposed? And, how will this change affect your retirement plan? In this issue of Knowledge Bureau Report, Knowledge Bureau author Douglas Nelson will explore the "whyî of the federal proposal. Next week, he'll look at the impact of this change on your retirement. Why is this change being proposed? First, let's put the proposed OAS changes into context by comparing them with the changes that have already taken place with the Canada Pension Plan (CPP). It is important to note that the CPP is a "fundedî program to which all Canadians contribute. It is based on employment income and both employers and employees contribute equally. (Self-employed people pay both portions). Federal and provincial governments do not contribute to this program. Beginning in 1997 and fully implemented in 2003, the federal government increased CPP contributions to 9.9% of employment income from 6%, with the goal of ensuring the CPP's long-term sustainability. Starting last year and ending in 2016, the feds are making further changes to the CPP, now encouraging Canadians to delay drawing their CPP retirement benefits until after age 65. (Our analysis suggests that, in many cases, the best approach is to delay drawing your CPP benefits until age 70, so that you get the very best value for your dollars invested in the plan. See Knowledge Bureau Report, Jan. 18.) So, over the past 15 years, there have already been huge changes to the CPP, all with the intention of boosting the financial soundness of the plan, in order to be ready for an aging population heading into retirement and the potentially shrinking tax revenues caused by that same population. OAS, on the other hand, is funded out of general tax revenues. In other words, Canadian's do not contribute to this plan in any way other than through the taxes they pay. Parliamentary Budget Officer Kevin Page last week released a report on this issue entitled Federal Fiscal Sustainability and Elderly Benefits. According to the report, 15.9¢ of every tax dollar collected in fiscal year 2010ñ2011 went to elderly Canadians.The report projects that by 2031 ó 19 years from now, when the last of the baby boomers reaches age 65 ó this figure will have climbed to 19.8¢ for every dollar of tax collected, a 3.9¢ increase. A small figure, indeed, but it is still an increase of 25%. From where will the extra money come? What corresponding cuts to federal spending do we want to see? Are we comfortable with cuts to health-care funding, for example? Or are we prepared to pay higher taxes? The overwhelming question, then, is: are we prepared to make the necessary sacrifice, whatever it may be? We have seen CPP contributions double and potential benefits reduced or delayed. Isn't it obvious, then, that these same changes need to take place with OAS? It appears that this small change, from a starting age of 65 to a starting age of 67, can have a large and positive impact on the overall financial situation of our country. But, once again, this point emphasizes that Canadians must rely on their own prudent savings to ensure a reasonable retirement income. Douglas Nelson, B.Comm.(hons.), CFP, CLU, MFA, CIM is the author of Master Your Retirement: How to fulfill your dreams with peace of mind. In this book, Nelson talks about the great killers of wealth and how they remove your ability to achieve your retirement goals. Master Your Retirement provides a roadmap ó including a 12-month game plan ó to financial security and peace of mind.  Doug is an independent financial advisor based in Winnipeg.  

We don't often think of the taxman as cupid, but this month, you may have received a Valentine's Day treat: the timely delivery of your 2011 RRSP Deduction Limit Statement. Canada Revenue Agency dropped this simple, one-page form ó complete with easy-to-read definitions ó into the mail early in February, to remind eligible Canadians of their correct RRSP deduction limits. This very useful information arrived in the usual fearsome, brown, CRA envelope. If you trembled and hid it at the bottom of your burgeoning pile of unopened mail, go dig it out. By noting the important information on this form and making the correct RRSP contribution, you'll reduce your net income (line 236 of your income tax form). That is the number used to generate a host of tax goodies: Refundable tax credits such as the federal GST/HST Credit, Canada Child Tax Benefits and Working Income Tax Benefit. Many provinces have refundables, too, so RRSP-reduced net income can influence cash flow throughout the year. Non-refundable tax credits, such as the Spousal Amount, Age Amount, Caregiver Amount, and Tuition, Education and Textbook amounts, to name a few. Social benefits such as the Old Age Security and Employment Insurance benefits, which are clawed back at certain net-income ceiling thresholds. Moreover, a lower net income can also decrease provincial pharmacy deductibles and per diems at nursing homes. So, take a peek at your RRSP Deduction Limit Statement. It is easy to read and tells you in very plain terms: Your RRSP deduction limit for 2010 and how much of that you used on last year's tax return. That leaves you with your unused RRSP deduction limit at the end of 2010. Your RRSP deduction limit for 2011, which may include a variety of adjustments related to your employer-sponsored pension plan, if you have one. Those adjustments might increase or decrease your RRSP deduction limit. This second figure is next to a prominent figure (A). Find it and circle it. For most people, this is the exact amount you can contribute to your RRSP and you should do so by Feb. 29, 2012, if you are to get the deduction that will reduce your 2011 net income. It is very helpful to show the statement to your financial advisor, or the person at your financial institution who will sell you the RRSP. That's because this form also notes whether you have any unused RRSP contributions available for 2011. This is labelled, albeit not as noticeably, as Amount (B). That's the amount you previously invested in your RRSP, but have not yet deducted on your tax return. It's important to pay attention to this number because sometimes too much of a good thing ó an excess contribution ó can attract a 1%-a-month penalty. That happens when your unused RRSP contributions (B) are more than your deduction limit (A) plus a $2,000 "buffer zone.î (Note: minors aren't allowed the buffer zone.) If that's too much information and the dreaded tax tremors are back, visit your tax advisor, who will know what to do about your over-contribution and excess contribution. Just between you and me, tax pros tremble at the thought of having to complete the dreaded 1% penalty form, a T1-OVP, so they're motivated to keep you out of the penalty zone! It's Your Money. Your Life. Treat yourself to more cash flow throughout the year and more accumulated, tax-deferred capital by looking over your 2011 RRSP Deduction Limit Statement and then making your correct RRSP contribution by Feb. 29. Evelyn Jacks, President of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. To get your copy, see www.knowledgebureau.com/books   Additional Educational Resources: Essential Tax Facts 2012 Edition and Introduction to Personal Tax Preparation Services.  

TD Economics calls the Canadian housing market "slightly overbuilt and overpricedî and certainly a number of indicators lend credence to that view. The number of building permits issued in December reached their highest level since June 2007, multi-unit housing starts continue to edge higher and prices of both new and resale housing are making gains, albeit moderate gains. It all comes down to continuing demand. Certainly, low interest rates will support demand but labour market weakness could put the brakes on growth. And a lot seems to be riding on the Toronto condo market. According to Statistics Canada, municipalities issued building permits worth $6.8 billion in December, the highest level since June 2007. The majority of that ó $4.5 billion ó came from the residential sector, mostly in Ontario. And almost half of that ó $1.9 billion ó was for multi-family dwellings. That represented a 28.9% increase month over month, the second consecutive monthly increase and the highest level recorded since December 2005. "The growth was due to major condominium and apartment building projects initiated in Ontario,î StatsCan says. Canadian housing starts, however, dipped 1% in January to 197,900 annualized units from 199,900 units in December, lead by Ontario. "Overall Canadian residential construction appears to be settling in at a well-behaved pace just below 200,000 units per year,î says Bank of Montreal economist Robert Kavcic, in a report, "slightly below the average of the past decade.î But, Kavcic points out: "Multi-unit starts rose 0.4% in January, while singles fell 7.8%, continuing the theme of much stronger construction activity in the condo market. Multis are now up a hefty 35.4% in the past year, versus a gain of just 0.8% for singles.î On the pricing side, StatsCan's New Housing Price Index rose 0.1% in December, following a 0.3% increase in November, with the metropolitan regions of Toronto and Oshawa and Montréal taking the lead. In its release of January sales, the Canadian Real Estate Association reported its national MLS HPI composite rose slightly by 0.3%, following a decline of 0.2% in December and 0.1% in November. Relative to a year ago, the national composite was up 5.2%. Of the five markets comprising the national composite, Toronto recorded the strongest year-over-year rise of 7.6%.   Additional Educational Resources:  Debt and Cash Flow Management and Financial Recovery in a Fragile World  

Canadians seem to be less concerned about the disappearance of defined-benefit pensions than the experts. According to a new report by BMO Retirement Institute, Canadians generally like the increased flexibility of capital-accumulation plans such as defined-contribution plans and group RRSPs. Yet, the report, entitled Perfecting the Workplace Pension: The Quest Continues, points out: "Capital-accumulation plans do have a serious drawback: instead of having a guaranteed income, how much retirement income you can count on depends a lot on how much you have saved and how well you have invested.î Certainly, the number of employer-sponsored pension plans has decreased. As the report states, only 33% of working Canadians are part of an employer-sponsored plan, down from 41% in 1991. Over the past 20 years, DB plans in particular have become scarce, with membership dropping to less than 16% of private sector workers from 31%. From 2008-2009 alone, membership in private sector DB plans declined nearly four percentage points. Public sector employees have fared better. More than 80% of public sector employees, but representing less than one-quarter of the workforce, still have DB pension coverage. Yet, most Canadians seem unconcerned. BMO Retirement Institute asked Canadians aged 25 to 64 who are not yet retired to name the factor that was most important to them when they considered a job opportunity. Respondents across all age ranges placed a relatively low priority on a good retirement pension. Overall, only 7% of all respondents selected a good retirement pension as the most important factor. Salary (47%) and flexible work arrangements (22%) were considered far more important. "Even as Canadians continue to be inundated in the media with dire warnings of a future retirement income shortfall,î says the report, "they are demonstrating a clear preference to maintaining control, whether over their current remuneration, work hours or work locations, as compared with the promise of a future benefit.î For a copy of the report, go to www.bmo.com/retirementinstitute.   Additional Educational Resources: Master Your Retirement 2012 Edition and Tax-Efficient Retirement Income Planning