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Does the Liberal promise expected soon to cut the lowest personal income tax rate by 1% to 14%,  go far enough to help Canadians impacted by high costs?

There are many changes coming for retirees tapping into CPP, so now is a great time to update your clients and provide some tax efficient retirement income planning. Service Canada has produced a detailed fact sheet, Changes to the Canada Pension Plan, which explains the upcoming modifications, with examples included. Here is a summary of the new CPP rules, as outlined by CRA, and what to expect in the future: 1. Beginning in 2011, the monthly CPP retirement pension amount will increase by a higher percentage if taken after age65 Before the changes, a CPP retirement pension increased by 0.5% for each month after age 65 (and up to age 70) that an individual delayed receiving it. This meant that an individual who started receiving their CPP pension at 70 received 30% more than if they had taken it at65. From 2011 to 2013, the Government of Canada will gradually increase this percentage from 0.5% per month (6% per year) to 0.7% per month (8.4% per year). This means that, by 2013, an individual who starts receiving their CPP pension at the age of 70 will receive 42% more than if they had taken it at 65. The following table shows the monthly increase for each year. Year % (monthly increase) 2011 0.57 2012 0.64 2013 0.70 For a person who starts receiving the retirement pension at age 70, this adjustment represents a maximum increase of 34.2% in for those who begin to receive CPP in 2011, 38.4% in 2012, and 42% in 2013. 2. Beginning in 2012, the monthly CPP retirement pension amount will decrease by a larger percentage if taken before age 65 Before the changes, a CPP retirement pension was reduced by 0.5% for each month before age 65 that an individual began receiving it. This meant that an individual who started receiving their CPP pension at 60 received 30% less than if they had waited to take it at 65. From 2012 to 2016, the Government will gradually change this early pension reduction from 0.5% to 0.6% per month. This means that by 2016, an individual who starts receiving their CPP pension at the age of 60 will receive 36% less than if they had taken it at 65. The following table shows the monthly reduction for each year. Year % (monthly reduction) 2012 0.52 2013 0.54 2014 0.56 2015 0.58 2016 0.60 For a person who applies for and receives their CPP retirement pension at age 60, this represents a maximum reduction of 31.2% if he begins to receive CPP in 2012, 32.4% in 2013, 33.6% in 2014, 34.8% in 2015, and 36% in2016. 3. Beginning in 2012, the number of years of low or zero earnings that are automatically dropped from the calculation of the CPP pension will increase Before the changes, when Service Canada calculated an individual's average earnings over their contributory period (from the earliest of January 1, 1966, or age 18 until the effective date of their retirement pension if effective before the age of 70), 15% of their lowest earnings were automatically dropped. This is called the "general drop-out provision.î Under this provision, if someone took their CPP retirement pension at 65, up to 7 years of their lowest earnings were automatically dropped from the calculation of their average earnings. Starting in 2012, the percentage of low earnings will increase to 16%, allowing up to 7.5 years of the lowest earnings to be dropped from the calculation, which will likely increase the benefit amount. In 2014, the percentage will increase again to 17%, allowing up to 8 years of the lowest earnings to be dropped from the calculation. 4. Contributors will be able to receive their CPP retirement pension without any work interruption Starting in 2012, contributors no longer have to stop working or significantly reduce earnings for two consecutive months to receive the CPP retirement pension before the age of 65. This will make it easier for Canadians to make a gradual transition to retirement, combining CPP and part-time work, for example. 5. Post-Retirement Benefit Starting in 2012, anyone who receives a CPP or QPP retirement pension and works outside the province of Quebec may have to continue making CPP contributions, which will increase their payments through the new Post-Retirement Benefit (PRB). The amount of the new benefit will depend on the level of earnings and contributions individuals make to the CPP after they begin receiving the retirement pension. Before the age of 65, contributions will be mandatory for individuals and their employers. From age 65 up to age 70, contributions will be optional (employers will have to contribute if employees do). Individuals who choose not to contribute to the PRB may later change this decision and start contributing. However, only one change can be made per calendar year. Self-employed individuals will have to pay both the employee and employer portions. Some additional facts about the PRB, from Service Canada: Working CPP retirement pension recipients who wish to opt out of contributing to the Plan after age 65 will be required to inform the Canada Revenue Agency. Contributions made while beneficiaries are receiving their CPP retirement pensions will build up only the PRB. These contributions will not create eligibility or increase the amount of other CPP benefits, nor be subject to a credit split or retirement pension sharing. Each year of work will provide an additional post-retirement benefit that will begin the following year and will be paid for life. The PRB will be added to an individual's CPP retirement pension, even if the maximum pension amount is already being received. The current CPP contribution rate of 9.9% is not expected to increase as a result of these modifications. What may change, however, is the context in which the decision to begin receiving to Canada Pension Plan income is made. There is no doubt that Canadians who are fully retired at age 60 and need additional income for living expenses should apply for CPP, in spite of the reductions to monthly income upon early takeup. Those who plan to keep working but at a slower pace with less income may consider early CPP as well. Consult with your tax advisor to project your marginal tax rate for the year in which you begin to draw your CPP; there's no point in giving half of it back to the tax man! Fully-employed Canadians who are already in a high tax bracket should think twice about early CPP ñ deferral looks better now with these changes. Why not wait until retirement or later and enjoy an increased CPP payment at a lower tax rate? No one has a crystal ball and decisions can only be made with the information available at the time. The Canada Pension Plan is not like private retirement savings or employment pension plans. It is most valuable to the person who contributed to it throughout a working lifetime. Upon death, survivor and child benefits are available but these are subject to many restrictions and maximums, depending upon the circumstances of those left behind. In the case of single Canadians, your CPP pension dies with you. This is why it is important to seek expert advice when it comes time to make decisions about retirement, especially when government tax credits, pension and benefits are involved. Education will put you in the driver's seat for the benefit of you and your family! ADDITIONAL EDUCATIONAL RESOURCES: Master Your Retirement

While there are no changes to the CPP, EI or federal tax rates, income thresholds, or personal amounts on July 1, 2011, there are some provincial changes for Manitoba, New Brunswick, Nova Scotia and Saskatchewan. CRA has just released T4127-Payroll Deductions Formulas for Computer Programs.  This is a draft version of changes effective July 1, 2011. This publication contains a wealth of information about payroll taxes, rates and forms ñ it's worth taking a look!  Note that, in some cases, changes effective as of January 1, 2011 are reflected in prorated amounts as they are just being implemented for the latter half of the year. The upcoming provincial tax changes as noted in the T4127 are included below: The Manitoba budget, tabled on April 12, 2011, announced that effective January 1, 2011, the province will increase the basic personal amount to $8,384 from $8,134. Since $8,134 has been used for employees for the first six months of this year, a basic personal amount of $8,634 will be applied for the remaining six months commencing with the first payroll in July. The Option 2 thresholds will not be prorated (the Option 2 formula applies to employees whose remuneration fluctuates from pay period to pay period and is based upon cumulative averaging). Effective July 1, 2011, the prorated amounts for Option 1 (the general tax formula used for most employees) are as follows: The basic personal amount is revised to $8,634 (formerly $8,134). The spouse or common-law partner amount is revised to $8,634 (formerly $8,134). The New Brunswick budget, tabled on March 22, 2011, announced that effective January 1, 2011, the province will increase the fourth income tax bracket to 14.3% from 12.7%. Since employees in this income tax bracket have been taxed at 12.7% for the first six months of this year, a tax rate of 15.9% will be applied for the remaining six months commencing with the first payroll in July. The Option 2 tax rate will not be prorated. Effective July 1, 2011, the rates and tax brackets for Option 1 are as follows: 9.1% on income less than or equal to $37,150; 12.1% on income greater than $37,150, but less than or equal to $74,300; 12.4% on income greater than $74,300, but less than or equal to $120,796; and 15.9% (formerly 12.7%) on income greater than $120,796. The Nova Scotia budget, tabled on April 5, 2011, announced that effective January 1, 2011, the province will increase the basic personal amount to $8,481 from $8,231. Since $8,231 has been used for employees for the first six months of this year, a basic personal amount of $8,731 will be applied for the remaining six months commencing with the first payroll in July. The Option 2 thresholds will not be prorated. Effective July 1, 2011, the prorated amounts for Option 1 are as follows: The basic personal amount is revised to $8,731 (formerly $8,231). The spouse or common-law partner amount is revised to $7,413 (formerly $6,989). In the Saskatchewan provincial Budget 2011 of April 18, 2011, changes were announced to the provincial personal tax credits.  Effective July 1, 2011: The basic personal amount is revised to $14,535 (formerly $13,535); The spouse or common-law partner amount is revised to $14,535 (formerly $13,535); The child amount is revised to $5,514 (formerly $5,014). The Manitoba, Nova Scotia and Saskatchewan TD1 forms have been revised for July 2011 and will be available soon. General refiling of the 2011 Form TD1 is not necessary, but a new employee, a new pensioner, or an individual who wishes to change his or her provincial claim amounts will have to complete the July 2011 Form TD1. ADDITIONAL EDUCATIONAL RESOURCES: Master Your Taxes

At a time when the first of the baby boomers are looking towards retirement, you can rest assured that small to medium business, and the business community in general, are in good hands. With very little knowledge of what I was stepping into, I had the privilege of participating as a judge in the National competition of Students in Financial Education (SIFE). What I found out was inspiring. On May 10, 2011, university students from across Canada, winners of their regional competitions, converged on the Toronto Convention Centre to determine the National Championship. From homeless youth through seniors, business start-ups to going concerns, and everything in between, Canadian post-secondary students are volunteering and helping Canadians learn, implement and benefit through continuing financial education. Combined, Canadian students expended 273,000 volunteer hours directly impacting financial literacy in their respective communities. On behalf of the entire Knowledge Bureau Community, I applaud the efforts and dedication of these students and the measurable results they have achieved across Canada.  I congratulate the Memorial University of Newfoundland team members as the Canadian Champions and wish them the best of luck in the SIFE World Cup. To find out more regarding ACE and how you and your business can get involved, visit the website and locate one of the 52 universities and colleges in your neighbourhood. Alan Rowell MFA DFA-Tax Services Specialist What is ACE? Advancing Canadian Entrepreneurs or ACE is a national, charitable organization dedicated to teaching and igniting young Canadians to create brighter futures for themselves and their communities. Through a collaborative partnership between higher education and industry, ACE delivers programming that provides university and college students access to real world experience that complements in-class studies. By creating solutions to economic, social and environmental issues through outreach projects and business ventures, students make a meaningful contribution to their communities today, while also discovering their potential to achieve an even greater impact as the leaders of tomorrow. What is SIFE? Students In Free Enterprise or SIFE, encourages students to form teams on their campus and apply business concepts learned in the classroom to develop outreach projects that improve the quality of life and standard of living for people in need. Annual national competitions provide a forum for these teams to present the results of their projects, and to be evaluated by business leaders serving as judges. The national champion team advances to the prestigious SIFE World Cup. SIFE operates in 39 countries, on 1,500 college and university campuses and with direct involvement of over 48,000 students worldwide. ADDITIONAL EDUCATIONAL RESOURCES:  The Smart, Savvy Young Consumer Available in November, 2011!                                                                  

June 15th is the tax filing deadline for the self-employed and their spouses and common law partners; it is also the date the second quarterly instalment payment is due for some taxpayers. These are important milestones for compliance and wealth planning purposes and the following are tips for maximizing opportunities in each case. Proprietors. Form T2125 is used to report business or professional income and expenses for unincorporated business owners, including self-employed commission sales persons.  Farmers use form T2042, fishers report income and expenses on Form T2121, and home daycare providers have special reporting requirements noted in CRA Guide P134.  Each individual business category requires a host of unique reporting options, so take special note of income and deductions in these industries, and their related audit-sensitive provisions. In particular this year, because auto log reporting requirements have changed, it's important to seek guidance on audit-proofing. Tip: Because the interest clock starts ticking on May 2, when there is a balance due for 2010, don't wait until the June 15 tax filing due date to calculate the bottom line. Trap: Late filing penalties kick in for those who file past midnight of June 15. Investors, Pensioners and Self-Employed. June 15th is also the due date for the second quarterly instalment payment. Taxpayers who owe more than $3000 ($1800 in Quebec) in the current tax year or either of the two previous years will be directed to make instalment payments. Anything that you can do this year to reduce your net tax owing will reduce the required instalment payment for next year. Tip: Additional withholding tax from employment or pension income (ask for this on the TD1 or related forms) or from benefits such as CPP and OAS (use form ISP3520) is the easiest way to reduce instalment requirements, but not always the most tax efficient.  Remember, keeping more of the first dollar you earn and investing it sooner makes you richer in the long run.  Trap: Don't ignore Form T1213óRequest for Reduction in Tax Withholding. Use it if you are reducing your income throughout the year with deductible expenditures or non-refundable tax credits that are not found on form TD1 or related forms.  These include RRSP contributions, childcare expenses, support payments, employment expenses, rental losses and deductible carrying charges.  Don't include the deduction for the split-pension amount, as your withholding tax on that income has to be shared with your spouse. Tax credits such as medical expenses and charitable donations may be included on the T1213 as well.  Documentation has to be attached and the T1213 forwarded to CRA for approval.  Don't be shy about getting your tax refund all year long, with reduced tax withholding and/or decreased instalment payments. And, always file your tax return on time to avoid penalties and interest when you have a balance due. Finally, by knowing tax credits and deductions that will apply to you in 2011, you'll pull ahead. Now is the time to have those tax efficiency conversations. Ask for qualified professional assistance to file to your best tax advantage!

According to the Organization for Economic Co-operation and Development (OECD), Canada  pays less in tax and social security as a percentage of labour costs than many OECD countries. In 2010, the tax and social security burden on labour income for Canada increased slightly for single parents with low earnings and decreased or remained constant for all other household categories.  The Netherlands, Spain and Ireland experienced increases in 2010, while Greece, Hungary and Germany declined the most. Has the cost of employing people risen? The OECD  seems to think so overall. Its annual report, Taxing Wages, maintains that in 2010 the average tax and social security burdens on employment income rose in 22 of the 34 OECD countries. It looks at the difference between the total cost of employing someone and that person's net take-home pay, including child and family benefits. It defines the "tax wedgeî as "the total taxes paid by employers and employees, net of cash transfers received, divided by the employer's total payroll costs.î  Increased employer social security charges were a factor in those countries for which the tax wedge increased, while lower income taxes and/or wages helped reduce the tax wedge in other countries.  Table 0.1 in Taxing Wages lists for all OECD countries the total tax wedge for 2010 as percentage of labour costs for a single worker without children at the average wage.  That number was 30.3% in Canada, compared to the highest at 55.4% in Belgium and the lowest, 7% in Chile . Since 2000 the tax wedge in Canada has decreased for all family types and is lower than the OECD average in all categories of households. It is interesting to note that in Canada, single parents with low earnings have a negative tax wedge ñ they receive more in government transfers than they pay in taxes.  The OECD points out that, on average, all governments that were able to reduce taxes during the past decade directed these efforts at working families, especially those with children and/or low incomes. The following table from Taxing Wages illustrates the 10 year picture in Canada. Tax Wedge in % of labour costs for different wage levels and household types, 2000 and 2010 What does this mean? The OECD concludes that, since taxes on wages have an impact on hiring decisions, governments should redirect tax increases to indirect measures such as higher property taxes. They should increase the flow of taxes by reining in spending rather than increasing personal income tax rates. This should give employers reason to hire, and workers the satisfaction of keeping more of what they earn.      

These days it is not unusual for Canadians to have to miss deadlines because of circumstances beyond their control, especially when extreme weather is involved. Manitoba is dealing with the worst flooding in 300 years, so it may be expected that some self-employed residents of that province may still be pumping out their basements or drying out documents on the June 15th filing deadline. CRA provides taxpayer relief provisions for times like these ñ perhaps this is a good time to review them. CRA may waive or cancel penalties and/or interest when the request is because of a natural or man-made disaster, a civil disturbance or disruption such as a strike, a serious illness or accident, or serious emotional or mental distress as in the loss of a loved one. As well, actions by the CRA such as publication errors, communication delays and processing errors may be grounds for taxpayer relief. If an amount owing to CRA cannot be paid due to loss of employment and the ensuing financial hardship, or because of a large interest charge, some, or all, of the interest portion of the bill may be waived. In this case a payment schedule must be agreed upon and all payments made on time. For individuals there is usually a 3 year limitation period from the end of the tax year to file a tax return to claim a refund, and a 3 year limitation period from the date of the original Notice of Assessment to ask for an adjustment. However, section 152.2 of the Income Tax Act allows for a longer period of reassessment with the taxpayers consent. There is a rolling 10 year period for requests under the Taxpayer Relief Provisions that is reset on January 1st of each year; therefore in 2011, requests can be made as far back as the 2001 tax year. Form RC 4288 Request for Taxpayer Relief may used to submit information, although it is not mandatory. It should be completed in full, including a detailed explanation of the circumstances and documentation attached when required. CRA expects that, before requesting relief due to financial hardship, current year remittances have been made to date, a payment arrangement has been set up and all tax filing is current. The taxpayer's history with CRA will also be taken into account. If a request for taxpayer relief is denied there will be two opportunities to have CRA review the file and, if these are unsuccessful, an application for judicial review may be made. For detailed information on taxpayer relief, consult the CRA publication IC07-1, Taxpayer Relief Provisions.