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. 

On May 31st, Minister of Finance Jim Flaherty met with 15 Canadian private sector economists to gather opinion on the economic future of our country. This is in order to make sure that the measures presented in the upcoming Federal budget are in line with expectations for the future. Mr. Flaherty last met with the economists in March in advance of the previous budget. According the Department of Finance, the economic planning assumptions that were solidified at the March meeting still apply to the upcoming budget. "The June 6 budget will provide fiscal projections based on the March private sector forecastsî says Mr. Flaherty. "While our economy grew solidly in the first quarter of this year, the global economic recovery remains uncertain. The Next Phase of Canada's Economic Action Plan will ensure we stay at the forefront of economic growth and job creation while we work to return to budget balance by 2014ñ15.î The Department of Finance has been relying on economists from the private sector to assist with planning since the federal budget of 1994. They provide insight for projections in areas such as inflation, GDP, and employment, to name a few. The average of their forecasts is used as a framework for economic assumptions used by the government. This strengthens the government's economic and fiscal forecasts by including an element of independence to the analysis. The March 2011 survey of private sector forecasters included Bank of America Merrill Lynch, BMO Capital Markets, Caisse de dépÙt et placement du Québec, CIBC World Markets, The Conference Board of Canada, Desjardins, Deutsche Bank of Canada, IHS Global Insight, Laurentian Bank Securities, National Bank Financial Group, Royal Bank of Canada, Scotiabank, TD Bank Financial Group, UBS Securities Canada, and the University of Toronto (Policy and Economic Analysis Program). ADDITIONAL EDUCATIONAL RESOURCES: Essential Tax Facts 2012 for the 2011 Tax Return

Have we mentioned that 30 is the new 20? Those of you with adult children may know what we mean! Statistics Canada has released an article, Measuring Voluntary Interhousehold Transfers in Canada, based upon data collected in 2008. The research looks at the assistance, financial or otherwise, that some Canadians receive from friends and family members. These are voluntary payments and they are made with no expectation of repayment. They are most often small, regular payments but they can be larger, emergency transfers as well. In 2008 there was $8.5 billion voluntarily transferred between Canadian households; this is twice as much as court-ordered alimony and child support payments and similar in size to social programs such as social assistance and child tax benefits! Payments are generally made by relatively well-off households to less economically stable households. In general the households giving the resources send a median of 3% of income to the receiving households, for whom the transfer represents 5% of household income. In Canada, between 1998 and 2008, the proportion of households that sent voluntary transfers to other households rose from 31% to 41%. In comparison, real household income increased 33% and charitable donations rose 32% over the same period. You can probably come up with many examples of voluntary interhousehold transfers. How many of us have given money to an adult child for a damage deposit or downpayment? How about sharing a car payment (but not the car!) for five years? The safety net that we provide our children is an important one, as long as it is gradually lowered and financial independence is on the horizon. Many newcomers to Canada send money home to relatives on a regular basis ñ living a frugal lifestyle here so that others may benefit. Increasing numbers of baby boomers care for their parents in real ways, providing transportation, household assistance and financial backing in order to ensure a comfortable and secure old age for those who supported them. Sometimes assistance is given to friends and neighbors who are struggling to cope with serious issues. We can all find ways to help in some small way, and together we can make a big difference. ADDITIONAL EDUCATIONAL RESOURCES:  The Smart, Savvy Young Consumer - Available in November, 2011!  

Farming proved more profitable in 2010 in most provinces, compared to 2009 figures. According to Statistics Canada, net farm income rose 46.1% in 2010, following a 16.6% drop in 2009. Realized net income (the difference between a farmer's cash receipts and operating expenses, minus depreciation plus income in kind) was up in all but two provinces ñ Alberta and New Brunswick. Revenues for oilseeds such as canola and soybeans increased, while wheat, barley and potato income fell due to lower prices for these crops and fewer of them brought to market. Farm operating expenses fell across the board as fertilizer, feed and pesticide costs dropped enough to more than offset higher labour and fuel expenses. Total net income adjusts realized net income for changes in farmer-owned inventories of crops and livestock. It represents the return to owner's equity, unpaid labour, and management and risk. Total net income rose to $2.7 billion in 2010, up $131 million from 2009. Declining inventories and production losses hampered further growth. Farm cash receipts for the first quarter of 2011 have been released by Statistics Canada and there is more good news for farmers for this year. Farm cash receipts include crop and livestock revenues and program payments. A record high of 12.1 billion was received by Canadian farmers with all provinces except Manitoba and British Columbia increasing revenue and with Quebec, PEI and Ontario showing double digit returns. Farm cash receipts had declined 0.2% in 2010. Prices for grains, dried peas and oilseeds rose due to lower supplies and increased demand for biofuels. Livestock, dairy and egg revenues have also been higher higher so far this year. Self-employed farmers are reminded that the filing deadline for unincorporated businesses is June 15th, 2011 - it's coming right up! ADDITIONAL EDUCATIONAL RESOURCES:  Master Your Investment in the Family Business

The Canadian Union of Postal Workers has given notice that it will begin strike activities on June 3, 2011. Talks are continuing and it is hoped that this will be settled before the strike date. However, Canadians should be prepared for a disruption in mail service if negotiations are unsuccessful. Canada Revenue Agency encourages taxpayers to set up for direct deposit so that payments upon which we all depend will continue to arrive safely and on time. Income tax refunds, federal and provincial GST/HST tax credit payments, Working Income Tax Benefit Advance Payments, the Canada Child Tax Benefit and the Universal Child Care Benefit can be received through direct deposit to your financial institution. Direct Deposit can be set up or changed online through My Account. Form T1 DD1 Direct Deposit Request - Individuals can be completed and mailed to your Tax Centre at any time. CRA does not accept banking information changes by phone, but they certainly can assist in completing the Direct Deposit Request form if you call them at 1-800-959-8281. Corporations may receive corporate income tax refunds and GST/HST refunds with a valid business number. Forms T2-DD Direct Deposit Request Form for Corporations and GST469 Direct Deposit Request should be completed and forwarded to your local tax services office or tax centre. Direct deposit is a safe, efficient way in which to receive payments. Make sure that you notify Canada Revenue Agency about any changes to your bank information or address so that your money will continue to arrive in your bank account. With a postal strike looking more certain each day, take time now to contact CRA with your direct deposit information. ADDITIONAL EDUCATIONAL RESOURCES: Essential Tax Facts 2012 for the 2011 Tax Return Available in November, 2011!

The Honourable Jim Flaherty, Minister of Finance, announced on May 25th  that the Federal budget originally tabled on March 22, 2011 will be delivered in Parliament on June 6th. In his announcement, Minister Flaherty said the new budget will restate all the same commitments from the March 22 budget, including support for seniors and family caregivers, help for small businesses to create new jobs, and assistance for Canadians to make their homes more energy efficient. The Government plans to return to balance by 2014ñ15, one year earlier than previously planned.  According to Mr. Flaherty, as part of the plan to reduce the deficit they will conduct a Strategic and Operating Review, which will be reported on and recorded in Budget 2012, when the review is completed. Watch for our special report following the budget.

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