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. 

With the tax filing deadline arriving in less than 45 days (yikes!), we should give some thought to how to claim all those tuition fees that were paid out to various educational institutes. Advisors and clients should check the points below for a better understanding of qualifying criteria. Here is a review of the basic definitions for non-refundable credits and what qualifies for the tuition credit and education amounts: EDUCATION AND TEXTBOOK AMOUNTS Full-Time Students. The education credit for full-time students is $400 per month, the textbook credit is $65 per month. A full-time education amount may be claimed for each whole or part month in the year that the student was enrolled in a qualifying educational program at a designated educational institution and the student: was enrolled full-time, was enrolled part-time and qualified for the disability amount, or was enrolled part-time because of a mental or physical impairment. Qualifying educational programs (FULL-TIME): a program that lasts at least 3 consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (not including study time). Instruction or work includes lectures, practical training, and laboratory work. It also includes research time spent on a post-graduate thesis. After 2003, a program taken by the student in connection with the student's employment duties, even if that student receives income from that employment, will qualify provided only that the employer does not reimburse the tuition cost. Prior to 2004, the opposite was the case: such programs did not qualify, whether the employer reimbursed the student or not. Non-qualifying educational programs: Students who receive, from a person with whom he or she deals at arm's length, a grant, reimbursement, benefit, or allowance for that program do not qualify. However, receipt of a scholarship, fellowship, bursary, or prize received, or any benefit received under the Canada Student Loans Act, Canada Student Financial Assistance Act, or the Act respecting financial assistance for education expenses of the Province of Quebec does not disqualify the education program. Scholarship Exemption: Beginning in 2010, where a scholarship, fellowship, or bursary is received in connection with a part-time program, the scholarship exemption will be limited to the amount of the tuition paid for the program plus the cost of program-related materials. This limitation does not apply to students who are entitled to the Disability Tax Credit. Programs that are research-based and qualifying for the education amount, and leading to a degree or diploma will qualify for the exemption. Post doctoral fellowships will however, be taxable. Part-Time Students. The education credit is $120 per month, the textbook credit is $20 per month. These may be claimed for each whole or part month in the year that the student was enrolled in a specified educational program at a designated educational institution. A specified educational program is a program that lasts at least 3 consecutive weeks and requires at least 12 hours of instruction each month. NOTE: KNOWLEDGE BUREAU SELF STUDY COURSES QUALIFY!  See our website at www.knowledgebureau.com for more information on our programs. Only one education amount may be claimed for each month ó the full-time amount or the part-time amount. Educational resources: For more information on tax planning provisions and compliance requirements, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.

The 2010 BC budget was tabled on March 2, 2010. The budget focused on retaining vital services and looking to the future for economic growth within the province.   Basic Personal Amount   The Basic Personal Amount for B.C. residents will increase to $11,000 in 2010.   Corporate Tax Rates   General corporate income tax rates will decrease to 10% as of January 1, 2011, the rate is currently 10.5%.  The small business rate will be 0% as of April 1, 2012 (current rate is 2.5% on income under $400,000).   Property Tax Deferral program This program will come into effect in early 2010 allowing homeowners with children under 18 to defer provincial and local property taxes to recognize the resources required to raise families.   Tax Credit Programs Introduced   Various tax credit programs were introduced in the budget as follows:   BC HST credit program established Flow through share tax credits Digital animation credits Film and television credits Interactive media credits Production services credits

Let the Knowledge Bureau Report be your go-to resource for provincial budget information over the next few weeks.  The schedule of provincial budget releases is as follows:   March 2nd, 2010 ñ B.C. Budget Released - see synopsis below   March 23rd, 2010 - Manitoba Budget to be released   March 24th, 2010 - Saskatchewan Budget to be released   No firm dates have been set for the following:  Ontario, Quebec, Nova Scotia, Newfoundland and Labrador and Prince Edward Island.   Stay current and up-to-date on provincial tax changes by reading the Knowledge Bureau Report every week.

T3 ñ Statement of Trust Income Allocations and Designations Taxpayers will receive a T3 slip if they received income from a trust. The following is a guide to what the various box numbers mean, and where the amount will end up on the T1 Tax Return.   Box Where do I put it? What is it? What else is relevant? 21 Schedule 3, Line 176 Capital gains Subtract the amount in Box 30 to get the amount of capital gains that are not eligible for the capital gains deduction. If any portion of this amount is foreign non-business income, a footnote will indicate the amount that is to be entered on Line 433 of Schedule 1 in the calculation of Foreign Tax Credit. 22 Line 130 Lump-sum pension benefits This amount is eligible to be transferred to the taxpayer's RRSP. 23   Actual amount of dividends other than eligible dividends This amount is used to calculate the amount shown in Box 32. Do not include this amount on the return. 24 Line 135 and Form T2209 Foreign business income Complete Form T2209 Federal Foreign Tax Credits, to determine the credit for taxes shown in Box 33. 25 Schedule 4 and Line 433 on Schedule 1 Foreign non-business income Include this amount on Line 433 of Schedule 1 in the calculation of Foreign Tax Credit. 26 Line 130 Other income Reduce the amount in Box 26 by the amount in Box 31 and enter the result on Line 130. If a footnote indicates that a portion of the amount in this box is for eligible capital property, enter that amount on Line 173 of Schedule 3. 30 Schedule 3 Capital gains eligible for the capital gains deduction The footnotes will tell you how much is for qualified small business corporation shares enter on Line 107 of Schedule 3 and the amount that is for qualified farm or fishing property enter that amount on Line 110 of Schedule 3. 31 Line 115 Qualifying pension income This amount qualifies for the Pension Income Amount on Line 314 and thus for pension income splitting. 32 Line 120 Taxable amount of dividends other than eligible dividends This is 125% of the amount in Box 23. This amount is added to the taxable amount of eligible dividends and the total is reported in Line 120. This amount is also reported in Line 180. 33 T2209 Foreign business income taxes paid Complete Form T2209 Federal Foreign Tax Credits to determine the credit for foreign business taxes paid. 34 Schedule 1 Foreign non-business income taxes paid Include this amount on Line 431 of Schedule 1 in the calculation of Foreign Tax Credit for non-business income taxes paid. 35 Line 130 Eligible death benefits This amount may be reduced by the $10,000 exemption. 36   Miscellaneous The footnotes will indicate what type of income or deduction this is. 37 Schedule 3 Insurance Segregated Fund Capital Losses Enter this amount as a loss (negative amount) on Line 176 of Schedule 3. 38 Line 456 Part XII.2 tax credit. This is a credit for taxes already paid by the trust. 39 Schedule 1, Line 425 Dividend tax credit for other than eligible dividends This is the credit for the dividends reported in Box 23 (and shown grossed-up in Box 32). This amount is added to the dividend tax credit for eligible dividends reported in box 51 and the total is reflected in Line 425. 40 T2038(IND) Investment tax credit cost Use this amount in completing T2038(IND) Investment Tax Credit (Individuals). 41 T2038(IND) Investment tax credit Use this amount in completing T2038(IND) Investment Tax Credit (Individuals). 42   Amount resulting in cost base adjustment. This amount is not entered on the current year return, but is used to reduce the ACB of the mutual fund units owned by the taxpayer. 45 T1129 Other Credits Use the footnoted amount to complete Form T1129 Newfoundland Scientific Research and Experimental Development Tax Credit or the Form T1232 Yukon Research and Development Tax Credit. The credit will be transferred to Line 479. 46   Pension income qualifying for an eligible annuity for a minor. This amount is already included in Box 26. 47   Retiring allowance eligible for transfer to an RRSP or RPP. This amount is already included in Box 26. 48 Schedule 9 Eligible amount of charitable donations. Include on the appropriate line of Schedule 9, depending on the type of donation. 49   Actual amount of eligible dividends This amount is used to calculate the amount shown in Box 50. Do not include this amount on the return. 50 Line 120 Taxable amount of eligible dividends This is 145% of the amount in Box 49. This amount is added to the taxable amount of other than eligible dividends and the total is reported in Line 120. This amount is also reported in Line 180. 51 Schedule 1, Line 425 Dividend tax credit for eligible dividends This is the credit for the dividends reported in Box 49 (and shown grossed-up in Box 50). This amount is added to the dividend tax credit for other than eligible dividends reported in box 32 and the total is reflected in Line 425. For the most up-to-date information on tax forms and tax changes consult: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA.

There is significant news of interest to Canadian taxpayers and their professional advisors in this federal budget, the first since the bottom of the financial crisis that required global stimulus to avert a global financial disaster. This Special Report provides analysis from three points of view: The Economic Overview Tax Changes Editorial Comment: What Was Missing

The savings government has booked for itself in this budget include the removal of a significant tax savings measure for executives as well as a change in the computation of interest on overpaid taxes owed by government to corporations. Vain Canadians are targeted too, as botox, hair replacement therapies, liposuction and teeth whitening are removed from the list of allowable medical expenses. In addition there is important news for investors in RRSPs, RESPs and RDSPs, students and those receiving US Social Security Benefits. Here's an overview of the changes:A. FOR FAMILIES There are four significant tax changes: Joint Access to Child Tax Benefits, Universal Child Care Benefits and Child GST Benefits in Joint Custody situations UCCB for Single Parents: The parent may elect to exclude the UCCB from their income and instead include it in income of the child who was claimed under the amount for an eligible dependant (formerly known as the equivalent-to-spouse amount), resulting in the elimination of tax on the benefit in most cases. Medical Expenses: For expenses incurred after March 4, 2010, expenses for procedures done for purely cosmetic purposes are not claimable, unless the services are necessary for medical or reconstructive purposes. US Social Security Survivor Benefits: For US Social Security Benefits received after January , 2010, including Tier 1 Railroad Retirement Benefits, recipients of benefits dating to service prior to January 1, 1996 will use a 50% income inclusion rate, rather than the post 1995 inclusion rate of 85%. Online Notices. Taxpayers will be allowed to authorize CRA to provide them with certain Notices, including Notices of Assessment and Reassessment, online. B. FOR STUDENTS: Scholarship Exemption: Where a scholarship, fellowship, or bursary is received in connection with a part-time program, beginning in 2010, the scholarship exemption will be limited to the amount of the tuition paid for the program plus the cost of program-related materials. This limitation does not apply to students who are entitled to the Disability Tax Credit. Programs that are research-based and qualifying for the education amount, and leading to a degree or diploma will qualify for the exemption. Post doctoral fellowships will however, be taxable. Education Amount: The budget clarifies that a post-secondary program that consists principally of research will be eligible for the Education Amount (and scholarship exemption) only if it leads to a college or CEGEP diploma, or a bachelor, masters or doctoral degree (or an equivalent degree). Post-doctoral fellowships will not be eligible. C. FOR INVESTORS RRSP Rollovers to RDSPs (Registered Disability Savings Plans): As of March 5, 2010, the rollover rules for RRSPs at death are extended to allow tax-free rollovers from the deceased taxpayer's RRSP to the RDSP of a surviving child or grandchild. Such rollovers are limited to the recipient's RDSP contribution room and will generate a Canada Disability Savings Grant. Such rollover contributions will not be allowed until July 2011 to give the government and financial institutions time to adjust their systems to deal with such rollovers. Where the taxpayer died after 2007 and before March 5, 2010, transition rules will be available to allow similar rollovers. Catch-Up of RDSP Grants and Bonds: Starting in 2011, When an RDSP is opened, CESG and CDSB entitlements will be calculated for the 10 years prior to the opening date (but after 2008) based on the beneficiary's income in those years. Provincial Support of RESP and RDSP Plans: The budget proposes to clarify that all payments made by provincial or territorial governments will not affect the amount for federal grants or bonds. D. FOR EXECUTIVES Employee Stock Options: There are three important changes: Cash Outs: For options exercised after March 4, 2010, the stock option deduction will only be available when the employee actually acquires the shares. Employees who cash out their options with their employer will not be eligible for the deduction. This closes a loop-hole where the employer could deduct the amount paid to the employee while the employee effectively paid tax on the cash at one-half the normal rate. Election to Defer Taxable Benefit: The budget proposes to eliminate the deferral of the stock option taxable benefit currently available using form T1212 on all stock options exercised after March 4, 2010. As of 2011, employers will be required to withhold tax on the taxable benefit like all other taxable benefits. This change will accelerate the payment of tax on such stock options and discourage employees from exercising options and retaining the shares. For many employees, the cash to pay the tax on the taxable benefit will only be available if the stocks are sold immediately. Special Tax Relief for Taxpayers who Deferred the Taxable Benefit: The budget proposes that, in a year in which a taxpayer is required to include in income a deferred stock option benefit, the taxpayer may elect to pay a tax equal to the taxpayer's proceeds of disposition of the optioned shares. In Quebec the tax is 2/3 of the proceeds. This election is not available for shares disposed of after 2014. The election will only make sense where the proceeds from the sale of the stock are less than the tax on the taxable benefit. E. FOR BUSINESSES Interest Paid to Corporations on Overpaid Taxes: Effective July 1, 2010, the interest rate payable by the CRA to corporations on overpaid taxes, GST/HST, EI premiums, CPP, excise tax and duty will be set at the average yield of three-month Government of Canada Treasury Bills sold in the first month of the preceding quarter, rounded up to the nearest percentage point. Reportable Anti-Avoidance Transactions: To help identify aggressive tax planning, leading to abusive tax avoidance transactions, the government is proposing that a new regime be introduced under which a tax "avoidance transaction" that features at least two of three "hallmarks" would be a "reportable transaction" that must be reported to the Canada Revenue Agency. Consultations on the matter will be held. CCA Changes: There are four changes of note for the depreciation of Television Set-top Boxes as well as clean energy generation, heat recovery equipment and distribution equipment in Class 43.1 and 43.2 Mineral Exploration Tax Extension: Budget 2010 proposes to extend eligibility for the mineral exploration tax credit for one year, to flow-through share agreements entered into on or before March 31, 2011. F. INTERNATIONAL TAXATION Taxable Canadian Property: After March 4, 2010, Section 116 compliance obligations forthese properties will be eliminated. Tax Refund Availability: Section 164 of the Income Tax Act will be amended to permit, for returns filed after March 4, 2010, the refund of an overpayment of tax if in respect of a required withholding under section 105 of the Income Tax Regulations or section 116 of the Income Tax Act where the taxpayer files a return no more than two years after the date of theassessment. FIEs and Non Resident Trusts: New measures regarding foreign investment entities, proposed to apply for taxation years that end after March 4, 2010 and others on the attribution of trust income from non-resident trusts to resident contributors are proposed to apply to taxation years that end after March 4, 2010, after a public consultation process. For details of the above provisions see EverGreen Explanatory Notes. To subscribe click here.