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.

Our family had a wonderful Christmas in Asia this year, reuniting with our son who has been working in Cambodia. While we were there, the Cambodia Daily News ran an interesting article written by Al Gore and David Blood entitled "Sustainable Capitalism in a Global Economy.î In it, the authors made the following observations: It's important to abandon short-term economic thinking in favor of "sustainable capitalism,î which maximizes long-term economic value by reforming markets to address real needs while integrating environmental, social and governance metrics in the decision-making process. We are at a rare turning point in history when dangerous challenges and limitless opportunities require clear, long-term thinking to solve disruptive threats such as climate change, water scarcity, poverty, disease, growing income inequality and massive economic volatility, to name a view. Companies and investors will ultimately be the ones to mobilize the capital needed to overcome these challenges. I found this extremely interesting. At the Knowledge Bureau, we have pioneered the development and implementation of a framework for building sustainable family wealth. We call it Real Wealth Managementô and thousands of students from across Canada ó most of them tax and financial advisors ó have taken our certificate programs over the past eight years. Real Wealth Management training facilitates joint decision-making between clients and their advisors following a strategic framework within which families accumulate, grow, preserve and transition wealth with future purchasing power, that is, after taxes, inflation and fees. Authors Gore and Blood argue that integrating sustainability into business practices enhances profitability. It helps companies save money by reducing waste and increasing efficiencies throughout their supply chains, and it improves human relations thereby increasing employee retention and reducing the cost of employee training. Sustainability modeling also helps companies achieve higher compliance standards and manage risk because they have a better and more holistic understanding of the issues that affect their businesses. This is entirely true of the Real Wealth Management framework for building sustainable family wealth. It challenges those who have trouble managing their income and creating capital to understand how they use their money and encourages them to take a future-oriented approach rather than a short-term, reactive response. Building individual and family net worth over the long term involves following Real Wealth Management's consistent strategy and measurable process. Taxation is an important factor in building sustainable family wealth because it can erode both income and capital over time. With tax season upon us, it makes sense to begin now to plan, so you can increase after-tax income for 2012 and accumulate and grow intact capital that will reliably produce income for the future. It's your money, your life. In a volatile economic environment, it makes sense to learn about the Real Wealth Management framework so you can better accumulate, grow, preserve and transition wealth. Given that it's the start of a brand new year, you may find yourself creating new opportunities for a brighter, more secure financial future. Wouldn't it be good to replace financial worries with peace of mind? Happy New Year! Evelyn Jacks is President of Knowledge Bureau, an educational institute that focuses on excellence in financial education. For more information on Real Wealth Management, please see http://www.knowledgebureau.com/. Evelyn is the author of 48 books; her latest is Essential Tax Facts 2012. She is also the co-author of Financial Recovery in a Fragile World with Robert Ironside and Al Emid.

The evidence is mounting: Canadians are taking a dark view of 2012. Shaken by global events and a battered U.S. economy, individuals, businesses and governments are expecting slower growth, prolonged belt-tightening and retrenchment. Rightly or wrongly, it seems pessimism reigns in 2012. Last month, Pollara Strategic Insights surveyed 2,878 Canadians and found Canadians the most pessimistic they have been in the 16 years Pollara has done the survey. As Pollara chairman Michael Marzolini told the Economic Club last week, Canadians are "seriously concerned and worried.î Pollara found: ï 70% of Canadians feel Canada is still in recession, even though the recession in Canada was relatively short-lived. (Canada came out of recession in third quarter 2009.) ï 80% believe it will take two years, if not three, for recovery to take hold of Canada's economy; only 20% expect a recovery in 2012. ï 50% expect their household income to fall behind the cost of living. ï 80% of Canadians say their overall financial situation is getting worse or holding steady; only 20% say they are getting ahead. ï 80% do not expect the job market to improve in 2012. "Canadians believe themselves to be under siege,î said Marzolini, "and they have entrenched accordingly in a return to basic economic survival issues.î According to Marzolini, Canadians have a new hierarchy of economic priorities and concerns: "At first, these were oriented around their families and their personal financial situations. Now, they have expanded to include any government policies that affect their ability to make ends meet.î Topping the concerns of 80% of Canadians is a rising cost of living. There is a pervasive fear that inflation will return in 2012 (60% of Canadians), fueled in part by higher taxes ó 65% of Canadians foresee higher taxes this year ó as governments at all levels come to terms with overspending. In fact, 72% of Canadians are concerned about the size of government debt. Second concern is having enough money to retire. Only 14% of Canadians expect share values to improve in 2012 while 41% expect to see a huge loss in the value of their investments. "Canadians have tightened their belts for three years,î Marzolini said. "They consider themselves financially brutalized. They are frustrated that the public sector, at all three levels, has yet to tighten its own belt.î Whether that pessimism is justified or not, Canadian businesses are taking their cue from consumers. The Bank of Canada's Business Outlook Survey, released this week, found that 41% of the 100 businesses surveyed expects sales in 2012 to be less than in 2011; 22% say sales will stay the same and 37% expect greater sales. That puts the balance of opinion ó percentage of firms expecting faster growth minus percentage expecting slower growth ó into negative territory. "Overall, the weak U.S. economic outlook, concerns about adverse effects from the situation in Europe and an expected slowing in household spending were among the factors dampening sales prospects,î the report explains. When it comes to investment in machinery and equipment and employment in 2012, the businesses are more upbeat. The balance of opinion on investment in machinery and equipment continues to point toward increased spending over the next 12 months: 41% expect investment levels to be the same as last year, 40% expect to invest more and 19% less. Businesses, however, remain cautious. Says the report: "Intentions to increase investment are being supported by efforts to reduce costs, seize new opportunities or reposition through expansion.î On the employment front, survey numbers indicate higher employment with the Prairies the main driver of growth: 41% expect employment to be the same, 40% intend to increase employment and only 9% foresee lower employment. That businesses will increase spending, even modestly, is good news for the economy as governments set about curtailing their stimulus spending and start the long process of reducing deficits. In its 2011 Article IV review of Canada, the International Monetary Fund reported: "Staff projects growth to decelerate to around 2% on average in 2011 and 2012, constrained by weak external demand and ongoing fiscal adjustment. Private demand will remain the driving force behind growth, with investment expected to play a key role.î The IMF report applauds the federal government's handling of the financial crisis and feels its fiscal consolidation is on schedule. But, it says, risks are tilted toward the downside. The "spilloverî effect of crises in Europe and the U.S. as well as domestic pressures arising from record household debt ó now more than 150% of disposable income ó and rising housing prices could throw the Canadian economic recovery off track. "Should the recovery be accompanied by further sustained increases in mortgage debt as a share of disposable income spurred by low interest rates," says the IMF review, "a tightening of macroprudential policies by the government may be needed.î It seems Canadians have every reason to be seriously concerned and worried as we move into 2012. Additional Educational Resource: Financial Recovery in a Fragile World  

From Jan. 1 to March 31, 2012, the Canada Revenue Agency (CRA) will charge you 5% interest on overdue taxes, Canada Pension Plan contributions and Employment Insurance premiums. Interest on overpayments owed by the CRA to corporate taxpayers will be 1% and to non-corporate taxpayers 3%. To calculate taxable benefits for employees and shareholders from interest-free and low-interest loans, the rate is 1%. Rates are calculated quarterly. The federal government would like your input on Pooled Registered Pension Plans (PRPPs). The Department of Finance has released for consultation draft legislation for changes to the Income Tax Act and the Income Tax Regulations to accommodate PRPPs, a broad-based, low-cost, defined-contribution pension vehicle available to employers, employees and self-employed individuals. You can submit comments to PRPPtaxrules-RPACreglesfiscales@fin.gc.ca until Feb.14,2012. The backgrounder and explanatory notes can be found at www.fin.gc.ca/n11/11-134-eng.asp.

Any way you measure it, credit rating agency Moody's Investors Service doesn't like Ontario's increasing debt. It has put the province on notice, revising its outlook to negative from stable. Ontario's 2012-2013 budget will determine whether the province's Aa1 rating is downgraded come spring. Certainly, Ontario has accumulated a mountain of debt ó $238.4 billion as of the province's March 31, 2012, fiscal year end. According to data from RBC Economics Research, that is the highest provincial debt by far; the next closest is Quebec, at $166.1 billion, with third-place British Columbia, at $36.5 billion, presenting another sizeable gap. Alberta is at the other end of the spectrum, with an $11.3-billion surplus. Ontario's debt is surpassed only by the federal debt of $585.2 billion. On a per-capita basis, Ontario's debt is $17,830, second only to Quebec's $20,829. Federally, debt per capita is $16,970. But perhaps a more important indicator is net debt as a percentage of gross domestic product (GDP). For the 2011-2012 fiscal year, Ontario's debt-to-GDP ratio is 37.4% and, although the province promises to balance the books by 2016-2017, debt is expected to rise for the next few years. Derek Burleton, deputy chief economist at TD Bank Group, expects the debt-to-GDP ratio to reach an uncomfortably high 40.6% before it stabilizes in 2015-2016. As part of its undertaking to reduce its $16-billion 2011-2012 deficit, Ontario's government has promised to keep increases in program spending over the next six years to 1%-1.5% a year. Burleton says that represents "the longest period of austerity Ontario has seen in the Post-War period.î Ontario's ability to stick to the plan worries not only Burleton but also Moody's. It is concerned an unexpected economic shock could knock Ontario plans "off target.î Ontario has already adjusted its projections for economic growth downward because of the worsening global outlook. In its November 2011 Economic Outlook and Fiscal Review, it projected real GDP growth for 2011 and 2012 at 1.8%, revised from 2.4%. Growth in 2013 will be 2.5%, it says, and 2.6% in 2014.

Consumer prices rose 2.9% in the 12 months ended November, matching the increase in October. Prices in all eight components of the Consumer Price Index (CPI) rose ó led by transportation and food ó and every province experienced higher prices. According to Statistics Canada, the cost of transportation increased 5.7% in the 12 months from November 2010 to November 2011, fuelled by a 13.5% increase in gasoline prices. And that is the good news. Gasoline prices advanced 18.2% in October and the November increase was the smallest year-over-year gain since the beginning of 2011. As well, consumers paid 4.4% more for passenger vehicle insurance and 1.8% more for passenger vehicles. Food prices rose 4.8% in the 12 months. Says StatsCan, consumers paid 5.7% more for food purchased from stores as prices increased for common staples, including meat (6.2%), fresh vegetables (13.2%) and bread (11.9%). Prices for food purchased from restaurants also went up. As for prices in the remaining categories: ï household operations, furnishings and equipment increased 2.4%, ï health and personal care was up 1.6%, ï shelter gained 1.5% on the back of a 24.4% increase in the price of fuel oil, ï clothing and footwear was up 1.1% ï Alcoholic beverages and tobacco products gained 0.9% ï Recreation, education and reading was up a slight 0.5%. The provinces hit hardest by price increases were the eastern provinces with prices in Newfoundland and Labrador up 4.1%, New Brunswick up 3.9% and Nova Scotia up 3.7%. At the other end of the scale Ontario and British Columbia had the smallest consumer price increases with 2.5% and 2.3%, respectively. The Bank of Canada's core index, which excludes eight of the CPI's most volatile components as well as the effects of changes in indirect taxes on the remaining components, rose 2.1% from November 2010 to November 2011.

Want to start 2012 on a sound financial footing? Your family's tax returns are a great place to look for year-end tax-planning opportunities. Following are seven tax tips to discuss with your tax and financial advisors before the year end that may yield you gold: Recover taxes owing from prior years. Sometimes, individuals put off filing their income tax returns because they think they owe money. In fact, the tax department may owe them. (It's always nice when that happens!) So, if you're a delinquent filer, get caught up ó and remember, by filing a return, you create RRSP contribution room as well as capital loss carry forward or carry back opportunities. Or, you may have filed your returns but missed an important tax-saving provision. Tax refunds resulting from errors and omissions may be recovered for up to 10 years. So, if you're in this later category, refile your returns; if one of those missed opportunities is for 2001, be sure to adjust your tax returns by December 31, before the time runs out. After all, it is your legal right to arrange affairs within the framework of the law to pay the least income taxes possible. Don't overpay your quarterly instalments. If you pay your income taxes in quarterly instalments, you had an instalment due on December 15 or, in the case of farmers, it is due December 31. If you haven't yet paid, be sure to calculate your estimated income for the current tax year first. If your 2011 income is lower than in past years, you may be able to reduce that payment or not make it at all. To use the optional "current yearî or "prior yearî methods of calculating your instalments, check out the Canada Revenue Agency's publication P110 Paying Your Income Taxes by Installment. This is a nice way to create new capital for investment purposes or that much needed vacation! Compute your family RRSP advantage: Most Canadians do not maximize the opportunity to contribute to their RRSPs and that's a shame for a number of reasons. One important consideration: a RRSP deduction reduces net income ó that line on your tax return upon which refundable and non-refundable tax credits are based. Lower net income increases those credits and, therefore, cash flow, leaving more money for investment opportunities. Contributing to an RRSP can truly save you a lot of money and, taken on a family basis, can boost your family net income. So, plan now to contribute to an RRSP for each family member who has contribution room. (Check last year's Notice of Assessment for this figure.) RRSPs are also important planning tools for couples wanting to split retirement income under a spousal plan. If cash is scarce this time of year, consider moving assets you have in a non-registered account into a RRSP. Talk to your tax and financial advisors about superficial loss rules and how they may apply. Consider tax-loss selling activity. Year end is a good time to consider selling losers in your portfolio to offset the winners. Capital losses generated by the sale or transfer of stocks and bonds in a non-registered portfolio before year end will offset capital gains incurred this year. Unused losses can be carried back three years to offset capital gains you reported in any of those years ó a great way to reach back and recover taxes previously paid. Or, you can carry unused capital losses forward indefinitely ó an important way to manage taxes on your next winning investment. Split income and transfer assets. Today's low interest rates make it opportune to borrow money to increase your investment portfolio. Interest on your loan is tax-deductible provided there is a reasonable expectation that your investment will generate income ó interest, dividends, rents or royalties ó in the future. (Note: capital appreciation is not considered income from investment.) For family income-splitting purposes, a spouse can lend money to a lower-income spouse to enable the reporting of investment income in that person's hands. Just draw up a bona fide loan and charge your spouse the interest rate prescribed by Canada Revenue Agency. Your spouse, however, must actually pay you the interest by January 30 following each taxation year and you must, of course, report the interest on your tax return. A TFSA is a must. Give your adult children a valuable Christmas gift: open a Tax-Free Savings Account and make sure you and/or they maximize the opportunity to put up to $5,000 in it each year. The earnings that accumulate in the account are tax free and using this valuable savings room can build family millionaires. Donate securities. Capital gains can be avoided entirely when qualifying securities with accrued gains are transferred to your favorite charity before year end. A receipt for the donation will also offset taxes payable. That's a win-win and worth a portfolio review. Other tax saving tips to consider and discuss with your advisor before year end include: maximizing medical expenses, annualizing taxes on bonus payments, buying a car or computer before year end to maximize capital cost allowance deductions, finalizing the auto log for 2011, then qualifying for " loggingî only three months next year, moving before year end if your new job or business is in a province with a lower tax rate, avoiding clawbacks on Old Age Security and refundable tax credits with net income planning, avoiding promotional expense claim restrictions for rookie commissioned-sales reps, planning for early retirement with new CPP changes starting in 2012, sorting receipts early: this year, be on time and be audit-proof. It's your money, your life. A tax-wise investor becomes wealthier over the long run regardless of the economic cycle. Most people leave tax savings on the table. Maximize your potential to reduce your after-tax income before year end! Evelyn Jacks, a best-selling Canadian author of 48 books including Essential Tax Facts 2012, is the Founder and President of The Knowledge Bureau, a national educational institute focused on Real Wealth Managementô. Learn tax preparation and tax-efficient retirement income planning: see www.knowledgebureau.com. ADDITIONAL EDUCATIONAL RESOURCE: Distinguished Advisor Workshop - Annual T1 Update