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. 

Recent changes in section 60.02 of the Income Tax Act, will enable a rollover of an RRSP, RRIF or RPP or SPP (Saskatchewan Pension Plan) to the eligible beneficiary of an Registered Disability Savings Plan (RDSP). The beneficiary must be the child or grandchild of a deceased annuitant who was financially dependant on the deceased for support for reasons of mental or physical infirmity. Form RC4625 Rollover to a Registered Disability Savings Plan (RDSP) enables the transaction. The receiving RDSP issuer must keep this form and any relevant documentation as a record of the rollover transaction. A separate form must be completed for each rollover. Completing this form is the final step in the rollover process. Any rollover amounts are included in the RDSP lifetime contribution limit for the beneficiary. Unlike contributions to the RDSP, rollover proceeds will be reported as taxable income when paid out. Bill C-3 implemented two other important measures for RDSP beneficiaries. Beneficiaries with shortened life expectancies will be able to make withdrawals without triggering penalties under the 10-year repayment rule. An election must me made and certification by a physician is required. This measure is effective as of June 26, 2011. More information is available here. As well, applicants for the Disability Tax Credit (DTC) will be able to appeal a determination in all circumstances. A requirement for opening an RDSP is eligibility for the DTC. Before this law was enacted, the DTC could be denied if applicants had no taxable income, and there was no avenue for appeal. Because of this, some disabled residents were not able to open RDSP accounts. Contributions to RDSPs may be made by others such as parents, siblings and supporters of the disabled, so eligibility for the DTC by the beneficiary is of great importance. ADDITIONAL EDUCATIONAL RESOURCES: Tax Efficient Investment Income Planning  

The first increase to the Nova Scotia Child Benefit in a decade will boost payments by 22% per child per month as of July 1, 2011. The NSCB is a non-taxable benefit paid to parents of children younger than age 18. It is fully funded by the province and combined with the Canada Child Tax Benefit into a single monthly payment. Other improvements include the Income Assistance Program personal allowance which will rise by $15.00 per month. The Affordable Living Tax Credit and Poverty Reduction Credit will now be indexed to inflation. An additional 250 child care subsidies will allow more families to afford childcare, and foster care rates will increase by 10%. Income Assistance clients who work can keep more of their wages now. Before July 1st, only 30% of earnings could be kept before clawback of assistance payments. Now the first $150.00 earned is retained before the 30% clawback kicks in. Disabled recipients of income assistance can now keep $300.00 of earnings before assistance payments decrease. Nova Scotia continues to support its most vulnerable citizens despite the economic challenges faced by individuals, businesses and governments everywhere.   ADDITIONAL EDUCATIONAL RESOURCES: Debt and Cash Flow Management Pre-order now!    

Despite a fragile global economy, low income seniors in Canada will get a boost. Bill C-3 passed on June 26, 2011, and a top-up provision that applies to the Guaranteed Income Supplement will provide additional benefits, worth up to $600 per year, for some single seniors. There is $840 per year available to couples, and altogether more than 680,000 seniors may benefit from this increase. The new OAS monthly benefit payment rates for the third quarter have just been announced, and the GIS top-up is included in the new figures:   Maximum OAS: $533.70 Maximum GIS (includes top-up): $723.65 for singles and spouses* of those who are not in receipt of OAS, $479.84 for spouses of OAS or Allowance recipients Maximum Allowance: $1013.54  Maximum Allowance for the Survivor: $1134.70 *spouses include common-law partners    Will you or your parents qualify for the GIS top-up?? The measure works like this: The income test for GIS purposes excludes OAS, GIS and up to $3500 of employment earnings.  Single seniors with less than $2000 in GIS tested income will receive an extra $600 per year added to their GIS payment. This top-up will gradually reduce and disappear once this income level reaches $4400. Couples who take in less than $4000 in GIS tested income will receive an additional $850 annually. The top-up for couples declines until income reaches $7360, $8800 if the spouse does not receive OAS payments. Make sure that you or your parents file tax returns each year, on time, to continue to qualify for the Guaranteed Income Supplement and, when eligible, the new top-up! ADDITIONAL EDUCATIONAL RESOURCES: Financial Recovery in a Fragile World Available in December, 2011

A computer "glitchî has materialized at Canada Revenue Agency with the processing of T1 returns of deceased taxpayers. In short, assessments are being processed without taking ITA S. 111(2) into consideration regarding capital losses and capital loss carry forwards. In years other than the year of death, capital losses may only be deducted against capital gains in the year, the prior three years, or subsequent years. In the year of death, S.111 (2) allows capital losses from the current year and capital losses carried forward from previous years to be applied to reduce any type of income. There are two methods permitted. For Method A, the capital losses must be used in this order: Capital losses applied to reduce capital gains in the year of death Remaining capital losses applied against capital gains in the 3 years prior to death Reduce any remaining unapplied losses by the amount of capital gains deductions claimed in prior years Apply any remaining loss against other income in the year of death or immediately preceding year. For Method B: First deduct capital gains deductions claimed in prior years. The remaining capital losses may be used to reduce income in the year of death and/or the immediately preceding year. The assessments are currently being processed to carry-forward capital losses for use in future years of the deceased taxpayer. Tax and Financial Advisors should review their client files and notify any clients that may fall into this category to review the NOA and any changes applied prior to remitting additional tax to CRA. Many thanks to Alan Rowell - DFA, Tax Services Specialist, for bringing this to our attention!   ADDITIONAL EDUCATIONAL RESOURCES: Death of a Taxpayer  

by Evelyn Jacks It's not just your imagination. Retail prices are up significantly, according to the latest measure of CPI inflation (total CPI) produced by Statistics Canada. In fact, the rate has tripled according to the latest data reported by the Bank of Canada. As at the end of April 2011, total CPI was a whopping 3.3%! The Consumer Price Index (CPI) is used to estimate how the purchasing power of money changes over time. The CPI measures inflation by comparing the retail prices of a representative "shopping basket" of goods and services at two different points in time. Here's how this year's figures compare to prior years: at the end of the second quarter of 2009, total CPI was 1.2 %. At the end of the same period in 2010, it was 1.4%. How is that affecting Canadians? The many respondents of the Knowledge Bureau Poll in June concur that they are spending more, citing food and gas prices as main culprits. Respondent Pat Harris says "We are seeing a huge decrease in discretionary spending as people struggle to pay for basic necessities such as food, electricity, heating fuel and gasoline. As people who live in rural Ontario with NO access to public transit, many are finding it difficult just to get to work.î Over on the West Cost, Peter McG states: "Gasoline, fresh fruits & vegetables, meat and grains all significantly up in price. Government reaching into our pockets for ever more money. House prices are ridiculous (Vancouver)! Been to Dairy Queen lately? They want $5.00 for a Sundae and $3.00 for a simple Ice Cream Cone. Ridiculous. Really feel for young families who would like to buy a home to raise their family. Not even a dream for most!î This bears out when you look at core inflation, the year-over-year growth in a variant of the CPI that excludes the eight most volatile components ówhich account for 19 per cent of the CPI basketó(fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation, and tobacco products). That figure rates core inflation at only 1.6% at the end of April, while core inflation excluding food, energy and the effect of change in indirect taxes was only 1%. Now is the time to take a hard look at Real Wealth Management  as a process to kill wealth eroders like taxes, inflation and investment fees.  Itís not that difficult.  You need to know some basic terms and work with a professional advisory team who knows your objectives and concerns to help you make decisions about your spending and savings. Excerpted from Evelyn Jacks' blog: Your Money. Your Life. 

Here are some important initiatives contained in the June 11, 2011 Federal Budget. These financial measures will have implications for all Canadians so watch for news and developments in the months ahead. PRPPs - In December 2010, Finance Ministers agreed on a framework for defined contribution Pooled Registered Pension Plans (PRPPs) to provide Canadians with a new, low-cost, accessible vehicle to meet their retirement objectives. Federal, provincial and territorial officials are working together to implement PRPPs as soon as possible. On June 15, 2011, the Department of Finance released a consultation document entitled "Tax Rules for Pooled Registered Pension Plans (PRPPs)". Feedback is being sought on these proposed modifications with a deadline of August 12, 2011. Financial advisors will be interested in the details of this document ñ it looks like full speed ahead for PRPPs! RDSP - A review of Registered Disability Education Plans will be conducted in 2011, coinciding with the three-year anniversary of the introduction of RDSPs in 2008.  Bill C-3 amends the Income Tax Act and related legislation to allow beneficiaries of Registered Disability Savings Plans who have shortened life expectancies to withdraw more of their plan savings by permitting annual withdrawals without triggering the 10-year repayment rule, subject to specified limits and certain conditions.  It also amends the Income Tax Act to ensure that individuals have the legal authority in all circumstances to appeal a determination concerning their eligibility for the disability tax credit.  This measure will apply after 2010 to withdrawals made after Royal Assent to the enacting legislation - this occurred on June 26, 2011. However, as a transitional rule, beneficiaries making an election under this measure may utilize their 2011 withdrawal limit in 2012 provided that the required medical certification was obtained before 2012. CPP Enhancement -  Federal, provincial and territorial governments are continuing work on options for a modest enhancement to the CPP. Any changes would require a consensus among governments and reflect the need to protect Canada's economic recovery. Provincial Finance Ministers will discuss options and concerns further at their next meeting.   These meetings occur every June and December, but Minister Flaherty cancelled the June meeting in order to devote time to implementing the Federal Budget.  Junior Finance Minister Ted Menzies will visit all provincial and territorial finance departments this summer instead. ADDITIONAL EDUCATIONAL RESOURCES: Knowledge Bureau Fall Catalogue