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. 

The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums will remain at 5% for the first quarter of 2011, while the rate paid on taxpayer overpayments on corporate returns will be 1% and non-corporate returns 3%. The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.

For corporations other than Canadian controlled private corporations which qualify for the small business deduction, the net tax rate will decrease from 18% effective January 1, 2010 to 16.5% effective January 1, 2011 and 15% effective January 1, 2012. In other good tax news for business, computer hardware acquired before February 2011 will qualify for a 100% tax write off with no half year rule (Class 52) if the asset will be situated in Canada, not used for any other purpose before acquisition and is for use in a business carried on in Canada. ADDITIONAL EDUCATIONAL RESOURCE: KB Introduction to Corporate Tax Preperation and EverGreen Challenge 2010

Taxpayers should prepare to file their TD1 Personal Tax Credits Return before the end of December to ensure their withholding taxes on their January pay cheques are correct. Each year certain tax and benefit amounts are indexed to inflation. This year these credits and thresholds have increased by 1.4 %. The link to the form is http://www.cra-arc.gc.ca/E/pbg/tf/td1/README.html The Basic Personal Amount for 2010 was $10,382 in 2010; it has been increased to $10,527 for 2011, or $877.25 a month. The actual annual dollar equivalent is $1579.05 on the federal side; provincial credits will increase these amounts. For seniors the following credits are important, and most are indexed for 2011: Age Amount: This has risen by $91 to $6537 Infirm Dependant Amount: An increase of $49 to $4282 Disability Amount: Up by $102 to $7341 Caregiver Amount: A $59 increase to $4282 Pension Amount: Remains at $2000 Canadians are also curious about making claims under the Medical Expense Tax Credit. For 2011, eligible medical expenses in excess of 3% of net income--up to a ceiling of $2052ócan be claimed. This ceiling level has increased by $28 for the 2011 tax year. Medical expenses are claimed in the best 12 month period ending in the tax year. Unchanged in 2011, the amounts of eligible donations claimable qualify for a federal non-refundable tax credit of 15% for amounts less than $200 and 29% for amounts over $200 to a maximum of 75% of net income. Unused donations can be carried forward for five years. To take advantage of tax savings sooner, best to make donations before year end. The Distinguished Advisor Workshops (DAW), being held across Canada January 11 to 20 will cover details behind all of these and other important deductions and credits, as well as a thorough review of tax, investment and retirement planning options for 2011. Registrations are excerpted until January 7 for Winnipeg, Calgary, Edmonton, Vancouver, Toronto, Ottawa, Montreal and London venues. (hotlink) ADDITIONAL EDUCATIONAL RESOURCES: Essential Tax Facts by Evelyn Jacks (hotlink)

Canadian residents are required to pay tax on world income in Canadian funds and tax treaties in place with over 80 countries assist governments to help Canadians avoid double taxation with provisions like the foreign tax credit. Generally, only the portion of benefits received under the social security program of another country that would have been taxable in the originating country has to be included in income on a Canadian tax return. In Germany, the taxable portion began at 50% in 2005 and will rise incrementally depending upon the type of income, when it started and the status of the recipient. By 2040 100% of German Social Security Income will be taxable. More detailed information on taxation of German Social Security Pension income is available: http://www.cra-arc.gc.ca/tx/nnrsdnts/ntcs/grmny2005-eng.html Canadians receiving social security pensions from Germany have recently been required to file a tax return in Germany to report their pensions there for tax years 2005 to 2009, and this new requirement has hit a snag here in Canada, as CRA is grappling with how to treat the potential double taxation. According to Siegfried Merten, MFA, it is important to file a notice of objection and request for cancellation of penalty interest with the German Tax Office. As well, check the non-German income thresholds for non-German income to see if it is possible that the taxpayer is exempt from German tax. The current tax treaty with Germany refers to the exchange of info between Canada and Germany regarding Social Security Benefits: "With reference to Article 18, paragraph 3, subparagraph (c), the competent authority of a Contracting State shall notify the competent authority of the other Contracting State of changes made to the amount of social security benefits excluded from the taxable income of a resident of the first-mentioned State receiving such benefits.î Article 23 of the tax treaty deals with measures to eliminate double taxation and, according to Mr. Merten, this should apply to the current situation with Germany. The full text of the tax treaty with Germany is available: http://www.collectionscanada.gc.ca/webarchives/20071126010425/http:/www.fin.gc.ca/news01/data/01-042_1e.html Unfortunately, these tax assessments have come as a surprise to most of the Canadian pension recipients, it seems, many of whom are elderly, disabled and understandably distressed about this. The German government has provided short timelines for filing and stringent penalty and interest provisions without fairness provisions for the hardship scenarios this is causing in some cases, especially the disabled or those who are alone without access to help. The German Consulate will not answer questions here; referring callers to the International Tax Office here in Canada, who has told Knowledge Bureau reporters they have no further information at this time. According to that office, we do not yet know whether extra taxes paid in Germany this year will qualify for a foreign tax credit in 2010 in Canada, whether all taxes paid there this year will be allowed for credit in 2010 or if taxpayers will have to adjust prior filed returns to access relief from double taxation. We will keep you posted; in the meantime here is contact information for those seeking German tax filing information: German Tax Office: Financzamt Neubrandenburg, Postfach 110164, 17041 Neubrandenburg, Germany, Phone -11149 395 4422247 000; Fax ñ 01149 395 380 1059 and email: ria@financzamt-neubrandenburg.de International Tax Office in Canada: 1-800-267-5177 ADDITIONAL EDUCATIONAL RESOURCES: Cross Border Taxation course and EverGreen Explanatory Notes.

An important message for those who are cash-strapped this Christmas: look to your tax filing habits for some cash flow relief. Some Canadians have to prepay income taxes by making quarterly instalment payments. This includes those who report income from self employment, investments, or other sums from which tax is not withheld at source. When you fall into an instalment payment profile, you will start receiving a regular billing notice from Canada Revenue Agency reminding you to pay on time. Trouble is, if your income has dropped since you last filed a tax returnóand that's quite possible given recent financial turmoil--CRA will not know to reduce your payments. Good news: reducing your quarterly instalments is easy, and this is important now, just before the final December 15 quarterly instalment is due, or the annual December 31 instalment for farmers and fishers is payable! Simply write a letter to request a revised billing based on your estimated income for the current year. This is a much better way to manage your cash flow at Christmas time and use the money to pay down credit cards more quickly, or better yet, fund a family vacation. Professional tax and financial advisors can help, but it is important to make that appointment with your advisor now.

Manitoba News Release ............................................................ December 1, 2010 PROVINCE ELIMINATES SMALL BUSINESS TAX - - - Manitoba First in Canada to End Tax: Wowchuk Finance Minister Rosann Wowchuk today announced Manitoba is the first province in Canada to eliminate the small business tax. "This is a very significant day for small business owners in Manitoba. Beginning today, they will no longer have to pay the provincial small business tax," said Wowchuk."When we entered office, small business was at a significant disadvantage, as it faced a tax of eight per cent, the second highest in the country.Today, we have fulfilled our promise to eliminate the tax." "Manitoba has developed an impressive reputation for innovation, quality, reliability and sustainability in the national and global marketplaces," said Entrepreneurship, Training and Trade Minister Peter Bjornson."As a government, we recognize the importance of small and medium-sized businesses to our economy and are continuously making it easier and better to do business in Manitoba." "This is great news for small business in Manitoba," said Janine Carmichael, Manitoba director for the Canadian Federation of Independent Business. "Small businesses are the cornerstone of our economy and our community." Wowchuk noted there are 103,192 businesses in Manitoba, 97 per cent of which are considered to be small in nature.Small businesses create about one-third of all new jobs in the province. "Small businesses invest in our economy, grow our communities, support our families and help keep Manitoba's unemployment rate one of the lowest in the country," said Wowchuk. The minister said government is proud of Manitoba's entrepreneurs and small businesses, and will continue to develop and enhance programs and services to support business including: providing active leadership to develop and maintain a skilled labour force; engaging all stakeholders (employers, educational institutions, community groups and workers) to develop training opportunities that support and expand Manitoba's economy; working with private industry and entrepreneurs to meet mutual economic goals; and encouraging and supporting local, national and international trade opportunities. "Because of our strong and stable economy, Manitoba is one of the most attractive locations for investment in Canada," said Wowchuk. "A major reason for our stability is the innovative and resilient small businesses that make up the bulk of our economy, both in our urban centres and across Manitoba. Manitoba businesses will save a total of more than $422 million annually when the tax measures in Budget 2010 are combined with the tax cuts previously delivered by the government, the minister said. The minister also announced the general Corporation Capital Tax continues to be on track for elimination by the end of 2010.It was already eliminated for manufacturers and processors in 2008, providing saving of $25 million annually. Information about tax incentives, trade assistance, employee training and more information can be found at www.gov.mb.ca/business.