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:

Employers - with so many summer students leaving their jobs to head back to school, it's time to brush up on the rules related to "interruption of earnings" or what is more commonly referred to as a "termination of employment".   A record of employment (ROE) form is required by the government once an employee has a break in employment. The government uses the information on the ROE to determine whether a person qualifies for EI benefits, the benefit rate and the duration of his or her claim. An ROE must be issued by an employer even if the employee has no intention of filing a claim for EI benefits. An interruption in earnings could be due to the employee's quitting or the employer terminating the employment, but only arises if it involves or is expected to involve 7 consecutive calendar days without work or insurable earnings from the employer. An interruption of earnings also occurs where a salary falls below 60% of normal earnings due to illness, injury, quarantine, pregnancy, the need for a parent to care for either newly born or adopted children, or the need to provide care or support to a family member who is gravely ill with a significant risk of death. Special rules apply to casual workers. When a part-time or casual worker has not worked for 30 days, is no longer on the employer's active employment list or the employee or the government requests an ROE form, a form must be completed by the payroll department. FINAL PAY Other than vacation pay and severance, an employee may be owed other amounts. The employee may earn incentive based bonuses through the course of employment. If an employee terminates, a prorated bonus amount may need to be calculated. If an employee terminates and does not work out the notice period, then pay in lieu of notice is paid if it is the employer's decision to not have the employee work out this time. If the employee fails to complete the proper notice period, then the employer is not normally required to pay this amount to the employee. These rules vary by province and therefore it is important to refer to provincial labour standards for the correct notice period rules. An employee may owe amounts at the time of termination to the employer for a health plan, an RRSP plan or donation plan or any similar arrangement. These amounts must be deducted from the final pay. A termination checklist is useful in helping the payroll department to determine that all payments and all deductions are captured for the final pay. It can also be used to ensure that all internal policies relating to a termination have been complied with. When an employee is terminated a termination letter is usually prepared by the payroll or human resource department which outlines the reason for the termination, monies owing to the employee and continuation of any benefits or other coverage. The letter should also describe any non-competition agreement terms and any other actions required by both the employer and the employee. An employee may or may not work their notice of termination period ñ the period from the announcement that employment is terminated until the last day of work. As noted above, if an employee chooses not to work their notice period, the employer generally does not have to pay the employee for the notice period. On the other hand, if an employer chooses not to have the employee work out their notice period then the employer must pay the employee for this period. As mentioned earlier in the course, this payment is referred to as "pay in lieu of notice". Notice period rules vary by province and can be found in provincial labour standards. Educational Resources: Excerpted from Advanced Payroll for Professional Bookkeepers,  one of the courses that comprise the Bookkeeping Services Specialist program.

The CRA has announced that they have revoked the charitable registration of a Toronto based charity, The Mission Against Poverty Shelter.  The charity allegedly issued receipts for transactions that didn't qualify as gifts, and failed to maintain proper records to support its activities.    With tax freedom day finally behind us, many Canadians start working for themselves and their communities in the summer months. But be aware of where you are donating your time and money, as numerous charities have had their charitable status revoked in the last year due to non-compliance with the rules for maintenance of their registration.    Last year the CRA revoked the status of 38 charitable organizations, after auditing 845 charities, for serious infractions and this trend is continuing in 2009.  Many other charities lost their status after failing to file their annual returns.  Once an organization has their charitable status revoked it can no longer issue official tax receipts for donations and it is no longer a qualified donee under the Income Tax Act.   Some reasons that CRA will revoke a charity's status include the following: lack of control over spending of charitable funds poorly maintained books and records issuance of tax receipts in excess of gifts received failure to meet charitable activity spending requirements   Following is an excerpt from the Tax Efficient Retirement Income Planning Course, providing some insight on the giving qualities of Canadians as a whole: Facts on Canadian Philanthropy 5.7 million Canadians contributed $6.9 billion to charitable organizations in 2006. Statistics Canada reported that the total market value of stock held by Canadians at the end of 2006 was $1.4 trillion, an increase of $100 billion over the previous year Approximately one-half of that market value represents unrealized capital gains, suggesting that the opportunity for many shareholders to donate stock and save tax is very significant. TD Economics estimates that the market value of stock held by Canadians in 10 years' time could exceed $3 trillion, with as much as two-thirds of that in unrealized gains. Demographic Trends Potential for philanthropy is immense: In Canada, between $15 and $20 trillion is expected to shift from parents to their children between now and the middle of the century. Baby boom generation is having significant impact on the world of charitable giving: not content to simply write a cheque and move on, donors expect transparency and accountability - they want to be involved. Many charities are revisiting the way they operate in order to attract these younger philanthropists. General Rules At some point during the year many Canadians give to charities. Those gifts, usually of money, will be claimed on Schedule 9 of the tax return. Unclaimed donations from the previous five years may also be claimed in the current year. Donations made through payroll deductions should also be claimed. These will show on the T4 slip. Generally you can claim all or part of your total donations, up to a limit of 75 percent of your net income reported on line 236. For the year a person dies and the year immediately prior, this limit is 100 percent of the person's net income. It is generally most beneficial to claim donations made by both spouses together on one tax return. This is because the first $200 of donations is eligible for only a 15 percent tax credit, while any additional donations attract a tax credit of 29 percent. Combining donations will ensure the couple is subjected to the 15 percent limit on the first $200 only once, not twice. Donations made during the year do not have to be claimed on that year's return and may be carried forward to a subsequent year, up to five years. This may be of benefit, if, for example, you already have sufficient non-refundable tax credits to completely eliminate taxes payable. So remember, only donations made to Canadian registered charities and other qualified donees may be claimed. A registered charity will show its charity registration number on the receipt. The slip must also indicate the Web address of the CRA. Click here for more information on the Tax Efficient Retirement Income Planning Course and to register in the Retirement Income Specialist program.

In an effort to retain graduates, provinces have recently begun to reimburse tuition paid to post-secondary graduates if they remain in the province. Saskatchewan will reimburse 100% of the tuition paid if the graduate remains in the province long enough, while Manitoba will reimburse up to 60%, and New Brunswick will reimburse 50%. This reimbursement is in addition to the credits allowed to students in the year that the tuition is paid (or in a later year if carried forward). For students who continue to live and work in the same province after graduation, the result is a reimbursement of more than the amount of tuition paid (in Manitoba and Saskatchewan). Assuming a four-year program with $5,000 per year tuition ($20,000 total tuition), 8 months of full-time attendance, and a student paying taxes in the lowest bracket while in school, the following table shows the recovery of tuition fees each year over time in each province: Prov Years 1 to 4 Years 5 / 6 Year 7 Year 8 Years 9 -10 Years 11 - 12 Total Recovered % recovered AB $2,310 $9,240 46% BC $1,642 $6,568 33% SK $2,210 $2,000 $2,000 $2,000 $4,000 $4,000 $28,840 144% MB $2,202 $2,000 $2,000 $2,000 $2,000 $20,808 104% ON $1,837 $7,348 37% NB $2,138 $4,000 $2,000 $18,552 93% NS $2,112 $8,448 42% PE $1,785 $7,140 36% NL $1,849 $7,396 37% YT $1,922 $7,688 38% NT $1,792 $7,168 36% NU $1,657 $6,628 33%   Many frenzied parents find the "back to school" rush a financial burden. Besides clothing, school supplies, transit passes and books, there is tuition for university students, a rising cost across the country. Now is the time to consider the monthly credits earned by post-secondary students, which will turn into cash at tax time for students or their supporting parents, grandparents or spouses. No receipts are necessary to benefit from this lucrative credit, but Form T2202A must be received from the university or designated educational institute. Advisors and clients should check the points below for a better understanding of qualifying criteria. EDUCATION AMOUNT Full Time Students. The credit for full-time students is $400 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. Part Time Students. The credit is $120 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.   Join us next time in Breaking Tax and Investment News for more tax savings tips related to education and tuition credits.   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.    

By now, most of us have heard of the Tax-Free Savings Account (TFSA) which was introduced in the February 26, 2008 Federal Budget. It is a registered account in which investment earnings, including capital gains, accumulate tax free. Beginning in January 2009, taxpayers over the age of 17 may contribute up to $5,000 each year to such an account. If a taxpayer's contribution room is not used in one year it may be carried forward to the next year allowing for a larger contribution in that year. In some ways the TSFA is similar to an RRSP and in a lot of ways it is not. Contribution room in TFSA does not depend on "earned income" but is a flat $5,000 per year. Unlike the RRSP, contributions to a TSFA do not result in an income tax deduction and withdrawals from a TFSA are not reported as income nor included in income for any income-tested benefits, such as the Canada Child Tax Benefit or Goods and Services Tax Credit. The CRA will establish contribution room for all taxpayers on the basis of income tax returns filed. Taxpayers who do not file for a number of years may establish their contribution room by filing those returns. Upon death of the TFSA holder, the funds within the account may be rolled over into their spouse's TFSA (before the end of the calendar year following the year of death) or they may be withdrawn tax-free. If the TFSA is not rolled over, any amounts earned within a TSFA after the death of the taxpayer are taxable to the estate or the recipient if paid out before the end of the first calendar year following the year of death. If the contents of a TFSA are donated to a registered charity in the taxpayer's will, the donation is deemed to have been made immediately before the taxpayer's death. One question that many people ask is who can receive the proceeds when the TFSA account holder dies? Although TFSAs are federally regulated accounts, provincial legislation determines if a beneficiary can be named in a TFSA contract. Under the Income Tax Act, the tax exempt status of the account only applies to the spouse or common law partner, so if the named beneficiary of the account upon death is someone other than a spouse or partner, the account is no longer considered to be a TFSA. Most provinces and territories have now enacted legislation allowing TFSA beneficiaries to be named that aren't spouses or partners, and therefore, upon the death of a TFSA holder, the beneficiary can have the TFSA assets passed on to them without going through the estate and subject to expensive probate fees. We have provided a summary below of the successor holder and beneficiary recognition by province:                                                         Province Designation of Successor Holder and Beneficiary Allowed? Effective Date Alberta Yes January 1, 2009 British Columbia Yes November 27, 2008 Manitoba Yes June 11, 2009 New Brunswick   Yes January 1, 2009 Newfoundland Yes May 28, 2009 Northwest Territories Yes February 2009 Nova Scotia Yes November 25, 2008 Nunavut Yes February 2009 Ontario Yes June 16, 2009 Prince Edward Island Yes December 3, 2008 Quebec No N/A Saskatchewan Yes May 14, 2009 Yukon   Yes May 14, 2009   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.

On July 13, 2009 The Honourable Jean-Pierre Blackburn, Minister of National Revenue and Minister of State (Agriculture and Agri-Food) announced the official launch of a new national advertising campaign for the popular new Home Renovation Tax Credit (HRTC) introduced in the 2009 Federal budget.   This credit is a one-time, time limited one, however, which means that if you've been planning on renovating your home and plan to use the credit on your 2009 tax return, eligible home renovation expenditures must be made between January 27, 2009 and before February 1, 2010. Families will be able to claim a 15% non-refundable tax credit for certain amounts paid to renovate their residence or cottages, up to a maximum credit of $1350, if they spend at least $1,000. However, the credit has already caused some significant controversy. That's because the eligibility for the credit is ìfamily basedî. For the purposes of the credit, a family will be considered to be an individual, the individual's spouse or common-law partner, and their children who were under the age of 18 throughout 2009. Yet, if two or more families have an eligible family dwelling in which they share ownership, each family can qualify for the tax credit on their tax returns. So it is possible that with three families sharing a home or cottage, up to $30,000 in renovations could be claimed, equalling a total of $4,050 tax credit, much higher than the benefits accruing to a single family! Some people are questioning the fairness of this tax credit, while others are saying that with the economy in the dumps, who can afford to spend any money on renovations, so the fact that families sharing a home are getting a better tax break is meaningless. Other detractors of the program insist that contractors are unavailable to complete the work, and other contractors are actually invoicing for work yet to be completed.   We would like to hear from you regarding the home renovation tax credit program and the rules regarding this "family based" tax credit program.   You can contact us by clicking on the link below.

It's half time, and that's a good time to review the income requirements of the owner-manager you may be working for. How should you begin this process? Here are some tips to consider: First, in determining the optimum income plan, each individual family member's total income and type will be critical. It is important to ensure that the family member has enough total income to utilize fully his or her personal credits, excluding those that can be transferred to other family members. These are discussed below. So, the total amount of income is important. The type of income is equally important. The payment of a reasonable salary, for example, will increase both net and taxable income. It will also normally attract CPP and (often) EI contributions, both of which give rise to additional personal credits and may increase the family member's Canada Employment Credit. A decision to pay additional salary must take these into account. Another key issue is the fact that a salary is earned income for purposes of creating RRSP contribution room. If it is desirable to allow family members to accumulate retirement income there may be a preference for paying a salary. Dividend income, on the other hand, increases both net income and taxable income as well, but also provides the dividend tax credit. Issues that need to be taken into account in evaluating the payment of a dividend as compensation include: the taxable amount of the dividend is greater than the cash amount, so dividends have a greater effect on clawbacks than do salary, dollar for dollar; dividend income is not earned income and does not create RRSP contribution room; dividend income is investment income for purposes of computing the Cumulative Net Investment Loss account, and the receipt of a dividend may increase access to the capital gains deduction; dividends paid from a private corporation to a minor will normally attract the kiddie tax, meaning that they are taxed at the highest possible rate; because of the dividend tax credit, the tax treatment of the dividend must be modeled closely where the taxpayer has relatively low income and may be in danger of not utilizing all of his or her personal credits. For more information on owner-manager tax planning, take The Knowledge Bureau's certificate course entitled Tax Planning for Corporate Owner-Managers.   Join us in our next edition of Breaking Tax and Investment News for some Back To School Tips for taxpayers.