Time’s Up: CRA’s 100 Day Mandate for Improvement

After years of frustration on the part of tax professionals and taxpayers alike, the Finance Minister ordered the Canada Revenue Agency to clean up its act in 100 days. Specifically, the improvement plan was to run from September 2 through December 11. Finance Minister and Minister of National Revenue, Francoise-Phillippe Champagne instructed CRA to fix “unacceptable wait times and service delays.” Time’s up this week and CRA has released an update on progress. What gets measured, gets done. Let’s see what CRA’s metrics show. 

Many 50-something parents may not find this particularly surprising, but sometimes validation is gratifying. Stats Canada has found that, at ages 20 to 29, members of Generation Y (born between 1981 and 1990) were more likely to be in school and at home with their parents than their counterparts in the Baby Boom and X generations. This will have implications on pension accumulations (CPP and private) and pension vesting later in life for this generation. Here are the statistics: At age 20-29, 31% of members of Generation X (born between 1969 and 1978) lived at home with their parents as compared to 51% of Generation Y. At the same age, 29% of Generation X members had children, compared to 19% of Generation Y. So, if Generation Y is just getting on its feet at age 30 or so, what does this mean for them and their parents? Lifestyle choice is paramount ñ the days of overextended credit to fuel lavish spending should be over for everyone, especially when the time horizon for asset accumulation has been shortened for Generation Y, and pre-retirement saving opportunities for their parents have been diminished due to other financial demands.   But possibly the most important long term issue for Generation Y is this: retirement planning begins with the first dollar saved, the subject of Evelyn Jacks' blog this week.  Financial education and the implementation of a savings strategy is of great importance to both generations ñ with shorter time horizons, everybody will have to make sure that they get it right sooner rather than later to benefit from tax efficient compounding and expected higher interest rates on the horizon! BLOG: RETIREMENT PLANNING STARTS WITH DOLLAR ONE ADDITIONAL EDUCATIONAL RESOURCES: Debt and Cash Flow Management

Minister of State (Finance) Ted Menzies launched a summer tour in Toronto on July 18th to discuss Pooled Registered Pension Plans with stakeholders and the public.  He will be meeting with provincial and territorial finance ministers to prepare to discuss PRPPs at the next Finance Ministers' meeting scheduled for December, 2011. So far, media availability has been scheduled at small business locations in Fredericton on July 19th and in Halifax on July 20th. "PRPPs will play a critical role in improving the range of retirement savings options available to Canadians by providing a low-cost retirement savings opportunity for employees as well as the self-employed,î said Minister Menzies. "This is especially important for small business and its employees who will now have access to a private pension plan for the very first time.î It is well known that many Canadians are not able to save enough for retirement. Pooled Registered Pension Plans are being developed to allow employers to offer a low cost, flexible savings vehicle that may encourage regular retirement contributions. Self-employed individuals will be able to take part too. This initiative is especially targeted at the 20-40 demographic, who still have many years in which to build a retirement nest egg. The consultation process will fill in the framework for PRPPs that was announced by the federal government last December. There are many financial experts who would rather see the Canada Pension Plan expanded than a new savings plan put into place. The federal government has not ruled out further changes to the CPP. However, it is hoped that once the details of Pooled Registered Pension Plans are established they will be seen to be a welcome addition to the retirement vehicles currently available, offering the benefits of pension plans to a wider group of working Canadians. According to the Framework for Pooled Registered Pension Plans announced in December, 2010, "A PRPP will be subject to most of the existing rules applying to defined contribution RPPs (referred to as money purchase RPPs in the tax rules), but with some exceptions as well as new requirements to deal with its broad-based nature.î The benefits of pension splitting, access to the pension amount before the age of 65, ease of portability between employers and a low fee structure would be welcome news indeed! ADDITIONAL EDUCATIONAL RESOURCES: Master Your Real Wealth

Too much golf and sun? A large number of new retirees may find themselves back at work this fall, and if so, they'll need to know new CPP source deduction rules starting January 1, 2012. Here's what we know so far for those who  continue to work while drawing Canada Pension Plan payments: Beginning January 1, 2012, the work cessation rules for early uptake of CPP no longer apply. Anyone can work while drawing Canada Pension. For those between 60 and 65, employee and employer contributions will be mandatory. Once you reach age 65 and continue to work, contributions are optional but if the employee wants to keep contributing so must the employer. Form CPT30, Election to Stop Contributing to the Canada Pension Plan or Revocation of a Prior Election, must be filed if you have been working and contributing to CPP and you plan to continue working but want to discontinue your contributions at age 65. The change will be effective on the first day of the month following the election, and will have to be filed with your employer and sent to CRA. Form CPT30 has not yet been released, and details of the revocation process are not yet available. It is known, however, that revocation of a previous election cannot be undertaken until the calendar year following the election. Self-employed individuals must use Schedule 8 to elect to cease CPP contributions after age 65. Those with both employment and self-employment earnings may use form CPT30 to stop both types of CPP contributions. You must revoke the prior election if, after the age of 65, you wish to restart CPP contributions that had been previously stopped. Contributions are not permitted after age 70. Decisions, decisions Ö if you are considering working past age 65, consult a tax professional for help in determining the best course of action! ADDITIONAL EDUCATIONAL RESOURCES: Financial Recovery in a Fragile World Available in December, 2011!  

Despite total CPI inflation up 3.7% in the 12 month period ending in May (the largest increase since March, 2003), the BOC held its overnight interest rate at 1%. This announcement made on July 19th was largely expected as the Canadian economy had slowed in the second quarter. The bank expects it to pick up during the latter half of the year and to see inflation head toward the target 2% rate by the middle of 2012. This suggests that there may be an interest rate hike before the end of this year. In the short term it is expected that inflation will continue in the 3%+ range. The Bank made the interest rate call on the assumption that the sovereign debt crisis in Europe will be resolved in an orderly manner. Slow growth and debt issues in the US could cause problems with economic projections as well. The next interest rate announcement by the Bank of Canada is due on September 7, 2011. Not everyone agrees with the decision to maintain the status quo. The CD Howe Institute's Monetary Policy Council was hoping that the overnight rate would be raised to 1.25%. This is a group of Canadian financial-market and monetary economists who provide an independent assessment of monetary policy. The consensus of the group is that the overnight rate should rise to 2.25% by July 2012. Although they agree with the Bank of Canada that higher interest rates ahead of any U.S. upward moves would hamper domestic growth, global inflationary pressures are of concern as well. They would like to see a modest increase in 2011 as the risks of European and U.S. debt concerns are made clear. If all goes well, more aggressive rate hikes would occur in 2012. ADDITIONAL EDUCATIONAL RESOURCES: The One Financial Habit That Could Change Your Life

Start the tax year 2012 on the right financial footing: keep more of what you earn by carefully completing the TD1 Personal Tax Credits Return released last week by the Canada Revenue Agency (www.cra-arc.gc.ca/formspubs/frms/td1-eng.html). The TD1 determines the amount of personal income taxes that will be deducted from your employment income, or other income such as pension income, received after Jan. 1, 2012. There are federal and provincial/territorial TD1s. You should also review the tax credits portion of the TD1, particularly in light of the new $2,000 Family Caregiver Tax Credit, available starting in 2012. A new worksheet for computing the Age Amount, Caregiver Amount and Amount for Infirm Dependents accompanies the TD1 for these purposes. Of particular interest: ∑ Age Amount: The maximum credit is $6,720 in 2012 and this amount will be reduced when individual net income exceeds $33,884 in that tax year. ∑ Caregiver Amount and Amount for Infirm Dependent age 18 and older: A new calculation arises when a dependent is infirm, to account for the $2,000 increase. The CRA defines "infirmî as: A mental or physical infirmity such that the person is likely to be dependent on others for his or her personal needs and care for the long term, and needs a full-time attendant, as certified in a letter from a medical practitioner. Talk to your tax professional and your payroll administrator. It is up to you to complete your TD1 as soon as possible and give it to your employer. Additional Educational Resources: Introduction to Personal Tax Preparation Services and Esstential Tax Facts 2012  

An Individual Pension Plan (IPP) is a defined benefit Registered Pension Plan set up for as few as one employee, usually owners and/or managers of a business. It allows for deductible contributions and withdrawal mechanisms that can be structured to provide what has been perceived as an unfair advantage over other retirement savings plans.  For that reason, the March 22, 2011 budget, recently reintroduced on June 6, has made two significant changes to reduce these benefits, as explained below. The current rules for IPPs allow the commuted value of a pension to be transferred into an IPP. The result is often a large pension surplus that does not require withdrawals, and that provides a tax deferral that is not available to contributors to other retirement savings plans. The 2011 Federal Budget proposes, therefore,  to mandate minimum withdrawals from IPPS, similar to the rules for RRIFs. This will apply beginning in 2012. Contributions and transfers into any retirement plan will have an effect on RRSP contribution room. Cash contributions are deductible, while transfers from other registered plans are not. Currently, an employee who switches from RRSP savings to RPP savings later in his or her working career, and who is able to have past service recognized under an IPP, is able to fund a far greater amount of past service in an IPP than the reduction in RRSP contribution room and assets required under existing rules.   This ability to contribute to an IPP in respect of past service can provide a significant tax advantage. The 2011 budget proposes that contributions made to an IPP that relate to past years of employment will have to come from all existing RRSP assets and by reducing the RRSP contribution room, before new deductible contributions (i.e. cash) in relation to the past service may be made. This will certainly reduce the tax deduction for past service funding for business owners who have accumulated large RRSPs. This measure is in effect as of March 22, 2011. Watch for more discussion on IPPs and the proposed Pooled Registered Pension Plans later this summer! ADDITIONAL EDUCATIONAL RESOURCES:  Master Your Investment in the Family Business