Mark Your Calendar: Critical Deadlines for May and June

Tax season never truly ends, it seems, as there are many more upcoming tax filing, investment planning and education milestones to discuss with your clients over the next six months. Check out our handy checklist below and then test yourself – what are the conversation openers you’ll use and with which clients? It’s your opportunity to shine with every member of the household:

According to a new report released by the Parliamentary Budget office, the current financial structure of the government is not sustainable, and the national debt is expected to increase substantially if the government continues to operate in the manner they are currently. The report, authored by Parliamentary Budget Officer Kevin Page, suggests that for long term financial sustainability, some type of permanent fiscal action such as increased taxes, reductions in program spending or a combination of the two needs to be put in place. The document titled The Fiscal Sustainability Report, is an independent report released for the first time and advises that Canada's aging population will be the government's top priority over the next few decades. The report predicts that the shift of baby boomers moving from working age to retirement is currently right around the corner and the government better be prepared to take action in the very near future to ensure that the Canada's economy is sustainable. The impact of the demographic shift will be in two areas: health care funding and elder benefits and the smaller tax base the government will have to collect from. The sustainability report advises that "although it is important to acknowledge that many elements of a long-term projections are uncertain, the demographic transition underway in Canada is notî. The report also goes on to say that as of 2008 there were five prime age working Canadians (aged 15-64) for every one person aged 65 and over. This ratio is expected to drop to one in four by the year 2019 and to 2.5 to 1 by 2033. This considerable decline is part of trend that has existed for the past several decades, for example, in 1971 there were just under eight workers for every retiree. Gross domestic product (GDP) growth is also projected to decline over the next few years, which goes against the current trend of GDP growing annually by approximately 2.1 percent. This amount is expected to decline to an average growth rate of .9%. The report warns "The fiscal action required to achieve sustainability does not need to be taken immediatelyÖ however, a significant delay in implementing fiscal actions substantially increases the required amount of corrective measures,î On March 4th Canadians will see first hand what the Federal government has planned for the future when they present their annual budget. Educational Resources:  To deepen your knowledge consider enrolling in a Knowledge Bureau course today by visiting our website or calling 1-866-953-4769 for a personal consultation.

Will your clients overpay their March 15th instalment payment?  It is important that they don't, particularly if their income has taken a hit over the past year.  Canadians taxpayers may find that due to employment layoffs or possibly due to their portfolio tanking,  overall income may have taken dropped off.  There may be a bit of good news to offset the bad, at least from a tax point of view, if you are a quarterly instalment payer. Many people don't realize that instalments remitted to CRA (often by post-dated cheques) can be adjusted to actual income earned in the year. Others don't know that the CRA "billing method" of collecting quarterly instalments is only one of three methods of payment. The other two are optional: Current-Year Option. Under this option, the taxpayer's income tax liability for the current taxation year is estimated, then one-quarter of the estimated amount over $3,000 is due on each of the four due dates: March 15, June 15, September 15 and December 15. (Farmers and fishers must only make one instalment payment, on December 31 on 2/3 of the estimated taxes owing.) Prior-Year Option. Under this option, the first two instalments are estimated at one-quarter of the taxes due in the second prior year (since the prior year's return is not available when these instalments are due) and the last two instalments are calculated at one-half of the excess of taxes due in the prior year over taxes due in the second prior year. If you know your income will drop this tax year over last, write a letter to CRA to recalculate your instalment payment base and return the last post-dated cheques. Note that, for 2008 and subsequent years, the instalment threshold for individuals is $3,000 ($1,800 for Quebec filers). You will not be required to make an instalment payment at all if the actual tax owing will not exceed $3,000 during the year ($1,800 in Quebec). Suggested Educational Resources: Learn more about tax planning in these Knowledge Bureau courses:  Introduction to Personal Tax Preparation, Tax Preparation for Proprietorships or subscribe to EverGreen Explanatory Notes for more information.

This week, the Task Force on Financial Literacy released a discussion paper entitled Leveraging Excellence. The Task Force was formed by Finance Minister Jim Flaherty and is charged with making a cohesive national strategy on financial literacy.     Evelyn Jacks, the founder and President of The Knowledge Bureau, is a member of the Task Force. "We are hoping to find ways to strengthen financial education among young people and help Canadian adults become more confident and knowledgeable financial decision-makers. Tax and financial advisors may have a unique view and may want to participate in the consultation process to help us strengthen the financial literacy of all Canadians." Mr. Flaherty advises that financial literacy is a key priority for the current Government and thata national strategy for improving Canadian'sfinancialliteracy is importantto "ensure Canadians are able to make informed and prudent financial decisions throughout their lives." The release of the discussion paper kicks off the beginning of national consultations which will take place over a three-month period, with The Task Force meeting with Canadians in 15 cities and will also be hosting an interactive online forum.   For more information on the Task Force and the upcoming consultations, click here.

The RRSP has a new sibling, just over a year old.  The Tax-Free Savings Account is young, but already powerful.  This dynamic duo can make investment planning a pleasure for the average Canadian who simply plans to invest tax refunds into the TFSA for power savings.     Taxpayers over the age of 17 may contribute up to $5,000 each year to a TFSA account, or their relatives and supporting individuals may make contributions for them. The amount is indexed each year to the nearest $500. However, the amount will remain at $5,000 in 2010 due to the low inflation rate in 2009. The TFSA is exempt from the normal "Attribution Rulesî which require higher earners who transfer or loan money to their spouses or family to report earnings on the transferor's return. There is no upper age limit and no earned income qualification under this plan. This makes it an ideal tax shelter for those who have RRSP contribution restrictions.   Compliance Alert: Many people are not aware of the new form and schedules used to calculate the taxes and penalties imposed on excess contributions or prohibited or non-qualified investments to TFSA's. RC243 Tax-Free Savings Account (TFSA) Return 2009 RC243-SCH-A Schedule A - Excess TFSA Amounts RC243-SCH-B Schedule B - Non-Resident Contributions to a Tax Free Savings Account (TFSA) For more information on this and other tax planning strategies, purchase the January 2010 Line by Line Workbook from the Distinguished Advisor Workshop tour.   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.  Call: 1-800-953-4769 to order today.

A popular question from taxpayers at tax time is "Can I write off my home and car against employment income?".  The answer is "Perhaps".     The newly released Form T2200, Declaration of Conditions of Employment contains some of the answers.  There are a number of changes to the form including questions regarding allowance or reimbursement of expenses by the employer and if the employee is required to be away from the municipality or metropolitan area for at least twelve consecutive hours. Review the new version of the form by linking to it here.     The Income Tax Act is very specific about the expenses that may be claimed by employees. They are specified in S. 8, generally deductible on Form T777 Statement of Employment Expenses and generally require the completion of Form T2200 Declaration of Conditions of Employment by the employer.     Form T2200 Declaration of Conditions of Employment required: All employees who claim employment expenses are required by S. 8(10) to complete Form T2200 for each year in which tax deductible expenses are claimed and have this signed by their employers.   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. Additonal Resource:  Make Sure It's Deductible, 4th Edition, by Evelyn Jacks.

By Evelyn Jacks Every year I have the privilege of travelling across the country twiceóin November and Januaryóto host the Knowledge Bureau's Distinguished Advisor Workshops for tax and financial advisors who require continuing education credits and updating for their professional practices. This teaching tour always results in inspiration about the important work these highly informed and engaged people do. As an education company, we are privileged to spur on their enthusiasm for personal and corporate taxation matters, and then watch the lights go on throughout the room as both tax and financial advisors start thinking about how working together can help them get better results and ultimately, peace of mind, for their clients. Peace of mindómy definition of "affluence"óoccurs when you stop worrying about whether your money will cover the necessities plus emergencies, and focus instead on how to use your money as a tool to build wealth for future generations. If advisors could get more people focused on the twin goals of filing annual tax returns and minimizing their tax bills with fully funded RRSP contribution room, we could be more impactful in helping families build sustainable wealth for the future. Here are some simple, but critical action items, stemming from the discussions at the Distinguished Advisor Workshops, for you to impart proactively to your clients at tax time: Many Canadians are behind in filing their tax returns. This means they are likely missing out on tax refunds and refundable credits like the Child Tax Benefit and GST Credit. What to do about it? a. Advisors should ask whether prior returns are missing and if so, encourage their clients to file to recover missed refunds or avoid penalties and interest charges. b. Advisors should inform clients that they are not building RRSP or TFSA contribution room and that can have a big impact on their ability to build and grow family wealth. c. They are likely also missing out on reporting capital losses, which help average income taxes downward by offsetting capital gains of the current year, three years back and indefinitely into the future. Most Canadians are still underfunding their RRSP contribution room, giving up double-digit tax savings which could be leveraged into TFSAs or used to pay down non-deductible credit card debt. Show your clients the folly of missing these important opportunities. Many Canadians are still not benefiting from pension and investment income splitting opportunities that come from filing tax returns as a family. Tax and financial advisors can show their clients the benefits, working together. They can also review prior filed returns and adjust them if income splitting has not been maximized. February is an important month when tax and financial advisors do some of their most important work in the pursuit of their communities' financial well-being. You are celebrated for your leadership! Evelyn Jacks is President of The Knowledge Bureau and author of Essential Tax Facts 2010, Master Your Taxes, and Make Sure It's Deductible; all available from the Knowledge Bureau bookstore at bulk purchase pricing for advisors and their clients.