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. 

This year's tax filing deadline compels most ó but not all ó of Canada's many tax filers to arrange their affairs and reconcile last year's taxes by midnight on May 2, 2011. However, there are many procrastinators, and and many personal tax returns are late filed.  This year May 2nd may be busier than usual as we get out to vote, so plan to file well in advance of the deadline! FIling a tax return, even when you have no income, allows you to receive federal benefits such as  the GST/HST credit and the Child Tax Benefit, along with provincial payments from programs administered by CRA.  Filing on time means that you will not have to pay late-filing penalties, even if your tax return is reassessed and you are found to owe money.  Failure to file on time may cause you to delay or miss important planning opportunities. For example, tax form T1032 Joint Election to Split Pension Income must be filed by your tax filing due date (which for most people is April 30).  Adjustments to the the T1032 is only allowed for the prior 3 years, so this is the last chance to request or change this election for 2007! This is a very lucrative income splitting opportunity for those receiving qualifying pension income and it would be a shame to miss or delay the extra tax refunds due to tardy tax filing habit. Those advisors in the tax and financial services industry should be sure to call all clients who have not yet filed a return by April 30 to maximize availability of this type of provision and of course avoid late filing penalties.  June 15th is also an important date as proprietorship tax returns are due and the 2nd quarterly instalment payments are also required.  Even with this deadline you should have a good idea of what you owe for 2010 by May 2nd, so pay up by then as the interest clock will start ticking on May 3rd!  CRA should continue to be on the radar screen even after this year's tax filing deadlines have passed. Please be sure to diarize milestones that maximize your rights under the Income Tax Act: KNOWLEDGE BUREAU CHECKLIST: INCOME TAX DEADLINE MAXIMIZER WITHIN THE TAX FILING YEAR 2011   April 15th May 2 U.S. Tax Filing Due Date Tax Filing Deadline for 2011: Personal Tax Returns May 1 Interest accrues daily on overdue taxes owing June 15 CRA owes interest to tax filers on late processed refunds (in fact, the agency has an obligation to process refunds within 30 days of receipt of the return after April 30).    Tax Filing Deadline: Proprietorship Returns - T2125 Quarterly Instalment Due Date Closer Connection Exception Statement for Aliens (IRS Form 8840) June 30 Tax-Free Savings Account Returns due July 1 New Benefit Year: Child Tax Benefit, GST Credit, Old Age Security (file 2009 tax return to determine benefit levels) August 31 Working Income Tax Benefit Advance Payment Application for 2010 September 15 Quarterly Instalment Payment Due December 15 Quarterly Instalment Payment Due December 31 Annual Instalment Due for Farmers, Fishers 2012   January 30 Requirement to pay interest on inter-spousal loans February 29 T4, T5 Slip Completion and Distribution RRSP deadline! March 15 Quarterly Tax Instalment due March 31 T3 Slip Completion and Distribution Pension Adjustment Reversal Deadline Interest Penalty Due on RRSP Excess Contributions (T1-OVP Form)

Quebec Weighs in on Retirement Savings The Quebec provincial budget was tabled in March with a retirement savings plan announced similar to the federal government's proposed Pooled Registered Pension Plan (PRPP). The Voluntary Retirement Savings Plan (VRSP) shares many of the goals of the PRPP and is based its framework. It is designed to provide an opportunity for Quebeckers who don't have access to a pension plan to participate in a low cost savings vehicle that is easy to access and administer. The focus in Quebec is very much on reducing management costs to participants through oversight and economies of scale, in order to maximize investment returns. Bothe the VRSP and PRPP are still in the planning stages. However, it is interesting to note key differences so far between the two initiatives: VRSPS will be available to every citizen age 18 or over, whether they are employees, self-employed or savers. PRPPs are intended for employees and the self-employed. The proposed framework indicates that employers may choose to offer PRPPs, although it may be mandatory in certain jurisdictions. VRSPs will have to be offered by employers to employees who are not covered by a pension plan. Both types of plans allow employees to opt out, if desired, and both build in portability among plans. Contributions will be deductible for both PRPPs and VRSPs, and employer contributions are not mandatory. It will be interesting to watch these plans develop, especially when it comes to mandatory participation by employers and how that may differ among provinces. The PRPP and VRSP have the potential to significantly change the retirement savings landscape for consumers and those who provide financial products and advice. ADDITIONAL EDUCATIONAL RESOURCES: DFA-Tax Services Specialistô  

April 6, 2011 saw another province table a "hold the lineî budget. Prince Edward Island announced no income tax changes this year as it works to eliminate its deficit by 2013-14. Increased tax on tobacco and liquor will add to provincial coffers, while centralization of government services and other cost-cutting measures are in place to reduce expenditures. Per cigarette, the tax rises to $25.4 cents from 22.45 cents. The tax on gasoline is unchanged. The estimated deficit for 2011-2012 is $42.99 million, down from $53.7 million in the previous fiscal year. Modest increases to pre-school and kindergarten education and a 3% increase to post-secondary institution grants were announced. Funding for physician and ambulance services and primary health care initiatives will help to address healthcare issues, while senior care and housing projects focus on an aging population. Municipalities, public transit and community organizations will benefit from moderately enhanced support in this budget.

CRA has updated RC192 Information for Students ñ Educational Institutions Outside Canada. Students should seek professional advice in advance of leaving for foreign studies so they are aware of their Canadian tax filing requirements. Determining whether the sojourn is a temporary absence or if the student is severing ties with Canada is the first thing to establish. A temporary absence would make you a factual resident of Canada while a permanent move would make you a non-resident. A factual resident has to file a tax return every year to report worldwide income, using the tax package from your most recent province of residence. Even with no income it is important to record tuition, education and textbook amounts and apply for tax credits. Form CPT20 will allow CPP contributions when there is employment income outside Canada, and this income also counts for RRSP contribution room. Tax treaties avoid double taxation, so depending where you end up your residency and income treatment may be affected. CRA provides a link to tax treaties where your tax advisor can research terms and conditions for current agreements. Some countries, like the U.S., have special rules for students. Students who are away temporarily will have to file in Canada and usually also in the country where they are residing. Your advisor should research the tax filing requirements of the host country. Foreign tax credits can offset foreign tax paid, and there are federal (Form T2209) and provincial (form T2036) credits available. Make sure that you are made aware of the rules for reporting as some types of income that is tax-exempt in Canada, such as scholarships, may be taxable in another country. The complete details for reporting income and claiming deductions, credits and benefits is available through RC192, which provides links to other publications and web pages. This publication will be familiar to tax professionals who work with student pursuing educational opportunities outside of Canada. Note that the recent federal budget proposed reducing the duration of eligible courses from 13 to 3 consecutive full-time weeks for the purpose of claiming Tuition, Education and Textbook credit and accessing Educational Assistance Payments from RESPs.   EverGreen digs deeper ...  

Nova Scotia Finance Minister Graham Steel spent much of 2010 conducting pre-budget consultations with interested residents, groups, organizations and business leaders. The result is a "back to balanceî plan with a target of 2013-2014 to eliminate the deficit. A program of disciplined spending with few across the board cuts has been implemented. Cost-reduction measures such as downsizing the civil service by 10% and eliminating "March Madnessî spending by departments at the end of the fiscal year will also improve the bottom line. The government of Nova Scotia surpassed projections by ending the past year with a surplus of 447.2 million, allowing a net debt reduction of 37.8 million. This can be attributed in part to one-time revenues from other years, but spending constraints played a role as well. The government has planned for a 389.6 million deficit this year as it holds the line on the health budget with its "Better Care Soonerî plan. Health and Welfare cost increases will be limited to 1.2%. It plans to focus on economic growth with its "jobsHereî strategy, encouraging productivity, innovation, co-operative education opportunities, small business lending and international commerce. Students will be pleased to learn that a maximum "debt capî of $28,560 is being implemented, and the popular Graduate Retention Rebate will continue. However, declining enrolments means that grants to regional school boards has been cut by 1.67%, although the per-student funding is increased. Grants to universities have been cut by 4% along with a 3% cap on tuition increases. A reduction in the small business corporate tax rate from 4.5 to 4% has been announced, effective January 1, 2012; this applies to the first $400,000 of taxable income. On July 1, 2011, the Large Corporations Tax on capital of non-financial institutions falls to 0.05% from 0.10% and it will be eliminated on July 1, 2012. In December, 2010, the province announced that it had removed the total production costs cap for the Film Industry Tax Credit, allowing producers to claim 50-65% of eligible Nova Scotia labour. Personal tax changes for 2011 include an increase of $250 to the Basic Personal Amount, bringing it to $8481. Non-refundable tax credits will rise in proportion to this. The Nova Scotia Affordable Living Tax Credit and Poverty Reduction Credit, two refundable tax credits, will be indexed by 2.2% effective July 1, 2011.  As announced in the fall, seniors receiving the GIS in 2010 will be refunded the full amount of provincial tax paid upon filing for 2010. Last year the government introduced the 21% 5th personal income tax bracket for income above $150,000, along with the corresponding removal of the 10% surtax on provincial tax in excess of $10,000 payable. These measures will remain in place until the province returns to a fiscal balance.   ADDITIONAL EDUCATIONAL RESOURCES:   Essential Tax Facts: 2011 Edition    

Ontario Budget Much like the Federal budget of last week, the Ontario budget announced today reads like a biography of everything that has gone well since 2003. There are very few changes on a tax front with "Deficit Controlî being the keyword. However, the Ontario government did announce a couple of lateral "tax tweaks." Ontario Trillium Benefit The Ontario government currently provides three refundable tax credits to Ontario residents, the Ontario Sales Tax Credit, the Ontario Energy and Property Tax Credit, and the Northern Ontario Energy Credit. The Province proposes to combine these refundable tax credits into the Ontario Trillium Benefit (OTB) in July 2012.  While there is no change in the value of the credits, in order to better align the receipt of these credits with the expenses that people face, the payments of these three credits would be delivered on a monthly basis. Ontario Book Publishing Tax Credit The Ontario Book Publishing Tax Credit is a 30 per cent refundable tax credit, to a maximum of $30,000, available to Ontario book-publishing corporations for qualifying expenditures related to publishing and promoting a book by a Canadian author in an eligible category of writing.  For expenditures incurred after March 29, 2011, the Budget proposes to change the 12-month period for qualifying marketing expenditures to a period beginning one-year before and ending one year after the date of publication. New Brunswick Budget The 2011 budget was unveiled in New Brunswick last week. As most governments are focused on slaying deficit dragons, tax cuts and spending increases were front and centre. Pre-budget consultations in New Brunswick resulted in an awareness of public concerns that was reflected in the budget measures. Residents identified health and senior care, economic development, job creation and prudent financial management as primary concerns. Spending initiatives addressed in the budget include healthcare, job strategies, poverty reduction, and education. The government plans to balance the budget by 2014-2015. Debt and deficit reduction is the main theme of the New Brunswick budget, with new revenue from increased tobacco and gas tax rather than higher income tax rates. This should also help Nova Scotia communities close to the New Brunswick border who have been losing customers to New Brunswick, more so since the HST rate in Nova Scotia rose to 15% last July. The tax on a pack of smokes in New Brunswick has risen from $2.94 to $4.25, while fuel tax on gasoline increased from 10.7 cents per litre to 13.6 cents. Government wage restraint will also play a part in moving toward a balanced budget, as will the delay in further personal income tax rate reductions. For 2011, the lowest tax rate for New Brunswick residents dropped from 9.3% to 9.1% on the first $37,150. For the next $37,150, the 2010 rate of 12.5% was reduced to 12.1% in 2011. Income from $72,843 to $118,427 attracts a 12.4% rate, down from 13.3% in 2010. The highest tax rate is 14.3% and this is unchanged from 2010, reversing the announced reduction in last year's budget. The latest budget confirmed that, for 2012, all rates will remain the same with 2% indexing on personal income levels. The corporate tax rate is scheduled to fall from 13% in 2008 to 10% in 2012, rather than the previously planned reduction to 8%. The small business corporate tax rate has been at 5% since 2008 and is scheduled to creep down to 4.5% in 2012. The small business limit will remain at $500,000, the same level since 2009. Saskatchewan Budget Resource-rich Saskatchewan can afford to address debt reduction, tax relief and a broad range of spending initiatives. Increased funding for healthcare, child care, tourism, the environment, education, child welfare, infrastructure, policing, rural initiatives, research and innovation, energy and resources and affordable housing have been written into this surplus budget. Personal tax relief is highlighted by increases in the personal exemption rates. The basic personal and spousal/equivalent amounts for 2011 will rise from $13,535 to $14,535. The net income threshold for the spousal/equivalent amounts consequently rises from $1,354 to $1,454. The amount for children will also increase by $500 to $5514. Personal tax rates for 2011 are unchanged, although income levels have been indexed. Tax of 11% is payable on the first $40,919 of income with 13% due on the next $75,992 and 15% on higher income levels. The small business corporate tax rate has fallen from 4.5% to 2%.  Consequently, the dividend tax rate for small business dividends will be reduced from 6% in 2010 to 5% for 2011 and 4% for 2012.   ADDITIONAL EDUCATIONAL RESOURCES: