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:

A Defined Framework Sets The Stage For Global Participation in Disciplined Action For The Worst Crisis Since The Great Depression A Report By Evelyn Jacks, President, The Knowledge Bureau At this weekend's meeting of the G8 Finance Ministers, there was a breath of good news in the air for investors badly bruised by the effects of the economic downturn. The G8 Finance Ministers have confirmed there are signs of stabilization in the global economies, including a recovery of the stock markets and a decline in interest rate spreads. And the bad news? We are clearly still in the middle of the worst financial crisis since The Great Depression and must manage the ongoing significant risks of this global crisis including impending increases in global unemployment. Investors, their professional advisors and financial leaders within families would be well advised to reflect on these significant issues, and discuss courses of action required, if any, to protect family wealth from uncertainty and to be poised to benefit from the impending recovery. Following are highlights of the Ministers' discussions and agreed strategies, including principles and standards for financial propriety, integrity and transparency in The Lecce Framework. The action plans outlined signify a collaborative plan to address ongoing risks to global economies: Addressing Global Unemployment Increases. Should unemployment continue to rise in the short term while global economies recover, the G8 Ministers agreed on the following four-part strategy to help those devastated by job loss: Promotion of targeted active labor market policies, Enhancement of skills development, Ensuring effective social protection systems and Assistance in enabling labour markets to respond to broader structural changes. Addressing Restoration of Consumer and Investor Confidence. To put the global economy on a strong, stable and sustainable growth path, the ministers pledged to: continue to provide macroeconomic stimulus consistent with price stability and medium-term fiscal sustainability and restore lending. address the liquidity and capital needs of banks, as necessary, and to take all necessary actions to ensure the soundness of systemically important institutions. Addressing Exit Strategies. The ìextraordinary policy measuresî employed during this crisis must be unwound with precision to negate future burdens in the longer term including taxes and inflation. The IMF will undertake the necessary analytical work. Understanding Future Challenges. The Ministers agreed that the future stewardship over sound financial economies must include standards of propriety, integrity and transparency. To that end they pledge to develop The Lecce Framework, which is a set of common principles and standards regarding the conduct of international business and finance. This Framework will build on existing initiatives and lay the foundation for a stable growth path over the long term for not only the G8 countries but in time, the G20 and beyond. Implementing Regulatory Reform. The Ministers are swiftly implementing the decisions taken at the London Summit to ensure an international level playing field and called on the FSB to develop a toolbox of measures to promote adherence to prudential standards and cooperation with jurisdictions. Trading Tax Information. The Ministers pledged to continue their negotiations of agreements on the exchange of information for tax purposes, to make further progress in the implementation of the OECD standards, to involve the widest possible number of jurisdictions, including developing countries, and develop a peer-review for compliance with the same standards. The Ministers also pledged to discuss tax havens in the G20 countries at the next OECD Ministerial meeting. Fighting Money Laundering. To improve the fight against money laundering and the financing of terrorism by working with the G20 countries and FATF on improving and implementing international standards by, amongst other things, identifying uncooperative jurisdictions, like Iran and North Korea. End Engagement in Protectionism. The leaders reaffirmed their commitment to refrain from protectionism. Excess volatility of commodity prices poses risks to growth and the ministers will consider ways to improve the functioning and transparency of global commodity markets, including considering IOSCO work on commodity derivative markets. More Resources for the IMF. Additional resources will be provided to expand lending capacity and in particular for concessional lending through the sale of gold or other means. Additional elements to be considered include a clearer division of labor and collaboration among institutions, enhanced balance sheet flexibility, good governance, better risk management, effective use of aid, progress on promoting innovation, and an adequate focus on the world's poorest. Sustainable Food and Health Systems Security. The ministers in particular pledge to reiterate their commitment to address medium and long-run food security in poor developing countries by raising sustainable agricultural productivity and food security, with a particular focus on assisting small-scale farmers, protecting natural resources, supporting infrastructure, innovation and catalyzing private investment. Possible joint initiatives by the World Bank, the African Development Bank and IFAD were discussed. The Ministers also noted the publication of the report by the High Level Task Force (HLTF) that presents proposals to accelerate progress in the health systems of the world's poorest countries. The Effects of Climate Change. Finally, the ministers discussed the economic, financial and developmental aspects of climate change, noting that financial and investment needs will be substantial in the future. Against this impending threat, all resources should be used in the most effective way to achieve true emission reductions, the use of market-based mechanisms to drive private finance, and the Ministers recommended: ìall but the least developed countries should commit to measurable, verifiable and reportable mitigation actions and financial participation. Adaptation is a development challenge and, therefore, international financing should primarily target the poorest countries, be fully integrated in their development strategies and follow the principles of aid effectiveness.î For a full text of the prepared announcement on the Lecce Framework see below.   EDUCATIONAL RESOURCE: For Advisors: The Economic Policies for Canadian Investors Stemming from The Global Financial Crisis will be discussed at DAC (Distinguished Advisor Conference) hosted by The Knowledge Bureau in Tucson, Arizona November 8-11. Fifteen speakers will address leading tax and financial professionals on the technical and soft skills required to embrace Leadership and Opportunity in Turbulent Times. For Advisors and Their Clients: The MASTER YOUR PERSONAL FINANCE Series of Books provide financial education for decision makers. Published by The Knowledge Bureau, they help investors and their advisors have better conversations about their money and the decisions required to accumulate, grow, preserve and transition it to the next generation.   THE LECCE FRAMEWORK: Common Principles and Standards for Propriety, Integrity and Transparency<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> We are in the middle of the worst crisis since the Great Depression. The breadth and intensity of the prolonged downturn have revealed the importance of strengthening our commitment to standards of propriety, integrity and transparency. Excessive risk taking and the violation of these basic principles contributed to undermine international economic and financial stability. This occurred both in areas that relied on self regulation and market discipline and in fields with formal rules and oversight, revealing flaws in the functioning of markets. For the market economy to generate sustained prosperity, fundamental norms of propriety, integrity and transparency in economic interactions must be respected. The magnitude and reach of the crisis has demonstrated the need for urgent action in this regard. Reform efforts must address these flaws in international economic and financial systems with resolve. This will require promoting appropriate levels of transparency, strengthening regulatory and supervisory systems, better protecting investors, and strengthening business ethics. Today, we, the G8 Finance Ministers, discussed the need for a set of common principles and standards for propriety, integrity and transparency regarding the conduct of international business and finance. We have agreed on the objectives of a strategy, ìthe Lecce Frameworkî, to create a comprehensive framework, building on existing initiatives, to identify and fill regulatory gaps and foster the broad international consensus needed for rapid implementation. The Lecce Framework recognizes that there is a wide range of instruments, both existing and under development, which have a common thread related to propriety, integrity and transparency and classifies them into five categories: corporate governance, market integrity, financial regulation and supervision, tax cooperation, and transparency of macroeconomic policy and data. Specific issues covered include, inter alia, executive compensation, regulation of systemically important institutions, credit rating agencies, accounting standards, the cross-border exchange of information, bribery, tax havens, non-cooperative jurisdictions, money laundering and the financing of terrorism, and the quality and dissemination of economic and financial data. International institutions and fora have already developed a significant body of work addressing a number of important issues in these areas, but, in many cases, the initiatives suffer from insufficient country participation and/or commitment. Today, we agreed to create a coherent framework which builds on work done by the IMF, World Bank, OECD, FSB, FATF, and other international organizations, to strengthen the global market system. To ensure effectiveness, we will make every effort to pursue maximum country participation and swift and resolute implementation. We are committed to working with our international partners to make progress with the Lecce Framework, with a view to reaching out to broader fora, including the G20 and beyond.

The CRA has announced changes to their administrative policy regarding employee taxable benefits, resulting in reduced administration for employers. For most employees, the value of all benefits accruing to them as a result of employment is included in their income under Section 6 of the Income Tax Act. Taxable benefits are included in income in Box 14 of the T4 Statement of Remuneration Paid (slip), so need not be added to income again. Some benefits also qualify for certain deductions: Housing, Board and Lodging: which can include a cleric's housing allowance, rent-free or low-rent apartments provided to caretakers, or subsidized meals or travel in a prescribed zone or for medical travel. Offsetting deductions may be included for clerics or those who qualify for the northern residents deduction. Amounts for employee's personal use of employer's auto: It is possible that the employee may offset this benefit with a claim for Employment Expenses using Form T777 Statement of Employment Expenses. Interest-Free Loans and Low Interest Loans: A deduction for carrying charges may be possible if the loan is used for investment purposes. Employee home relocation deduction: a deduction may be possible on Line 248. Security Options Deductions: a deduction may be possible on Line 249. Other taxable benefits, including amounts included for health or educational benefits may qualify for non-refundable credits like medical expenses or Tuition, Education and Textbook Amounts. Employment Commissions included in income may qualify for Employment Expenses on Line 229. As part of the Government's 2007 Federal Budget, changes were to be implemented regarding tax-free gifts and awards to employees, lowering the work hours required for tax-free meal allowances for employees and a reduction in reporting for employee allowances for travel. We will review the CRA administrative policies regarding the updates to the current gift and awards policy beginning in 2010. Non-cash gifts and awards to arm's length employees will be considered non-taxable if the value of all the non-cash gifts and awards to the employee total less than $500 annually. Values in excess of the $500 annual amount will be taxable. Non-cash anniversary or long service awards will also qualify for the non-taxable status if they are under the $500 threshold amount, but any excess amount will be taxable. The award must be for service of more than five years, or it must have been more than five years since the last service award was presented to the employee. Employee gifts such as coffee or tea, coffee cups, company logoed T-shirts, plaques or trophies with nominal value will not be included as a taxable benefit to employees. The CRA's administrative policy with regard to the qualifying nature of gifts will remain unchanged, so that performance related awards and cash or near cash gifts (gift cards or certificates) will be included in employees' taxable income. The Canadian Payroll Association is supportive of the changes by the Government with respect to the administrative relief provided by the changes in employee taxable benefit treatment, while the Federal government believes the changes will reduce the paperwork of small business and ìallow Canada's entrepreneurial advantage to be developed.î To see the full news release, click here. 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.

Under our system of personal taxation, Canadians are taxed as individuals, not households. Taxpayers are, in general, prohibited from splitting income with family members. That is, if a taxpayer gifts or transfers money or other property to his or her spouse or common-law partner or minor children, resulting income is usually attributed back to the taxpayer and added to his or her income.   With the low prescribed rates set by CRA that are currently available for inter-spousal loans, it is timely to review the attribution rules so that tax planning opportunities are used to their best advantage. The Income Tax Act covers these rules as follows:   Transfers and loans to spouse or common-law partner If an individual transfers or loans property either directly or indirectly, by means of a trust or any other means to a spouse or common-law partner for that person's benefit, any resulting income or loss from that property is taxable to the transferor (S. 74.1(1)). Transfers and loans to minors Where property is transferred or loaned either directly or indirectly to a person who is under 18 and who does not deal with the transferor at arm's length or who is the niece or nephew of the transferor, the income or loss resulting from such property is reported by the transferor until the transferee attains 18 years of age (S. 74.1(2)). Gain or Loss Deemed That of Transferor When property that is transferred to the individual's spouse or common-law partner generates a taxable capital gain (or loss), such gain or loss will be reported by the transferor (S. 74.2(1)). Deemed Gain or Loss When property that is transferred to a minor generates a taxable capital gain or loss, the capital gain or loss is deemed to be the income of the minor (S. 74.2(2)). These rules are in place largely due to the result of Canada's progressive tax system and graduated tax rates. That is, individuals with higher income levels are subject to higher marginal tax rates. In addition, different income sources are subject to varying tax treatment. Finally, each individual in Canada qualifies at least for the Basic Personal Amount (a "tax-free zone"). When taken together, these factors provide a financial advantage when several family members earn some income, as opposed to one family member earning all of it. If such rules were absent, the higher income family members could transfer some of their income to the lower income family members to take advantage of the lower tax brackets enjoyed by those persons. This would result in less total tax payable, and more after-tax funds for the family. For this reason, it is always best to look at tax filing from a "family" rather than an individual perspective, and to seek the best tax result for the household, as opposed to the individual. This can be attained despite the restrictions placed upon taxpayers as a result of the Attribution Rules. The Attribution Rules target two distinct categories - transfers or loans to a spouse and minor child. There are significant differences in the restrictions applicable to each. Transfers - Spouse Assets transferred to a spouse will result in the associated income and capital gains that are earned being taxed in the transferor's hands Where a spouse guarantees the repayment of a loan, for investment purposes, made to the other spouse, attribution will apply to any income earned from the funds whose repayment was guaranteed. Example: Guarantee of a Debt Issue: Joan is a medical doctor in the highest tax bracket, and her husband Billy is a student working on his Masters degree (lowest tax bracket). To attempt to reduce their total taxes, Billy takes a $150,000 loan from their bank and invests in interest bearing securities. Because Billy has no other earnings, the bank asks for Joan's guarantee. In the current year, Billy's investment earns $9,750 in interest. How will this income be treated under the Attribution Rules? Answer: The $9,750 of income must be reported as interest income in Joan's hands. This is because she provided a guarantee for Billy's investment loan. S. 74.5(7) treats the guarantee as if it were a loan from Joan to Billy. Transfers - Child Dividend and interest income resulting from assets transferred to a minor child will be attributed back to a non-arm's length transferor, but not capital gains or losses. Example: Loan to a Minor Issue: Bobby (16 years old) received $15,000 from his parents. He invested in shares of a publicly traded computer company. He sold the shares 2 months later for $45,000. What capital gain will need to be reported by his parents? Answer: Nil. Capital gains earned by minor children are not subject to the attribution rules.     See next week's edition of Breaking Tax and Investment News for details on Exemptions from the Attribution Rules.   Educational Resources: For more information on topics pertaining to compensation planning for owner managers and tax planning information, register for Tax Planning for Corporate Owner-Managers, a certificate course by self study from The Knowledge Bureau.

The Honourable Jim Flaherty, Minister of Finance, released The Fiscal Monitor for March 2009 late last week. One of the highlights, and that is what they called it in the news release, was a budgetary deficit of $3.6 billion in March 2009 compared to a $1.2 billion deficit at the same time in 2008. The Fiscal Monitor report also points out that in the same period from April 2007 to March 2008 there was a surplus of $11.4 billion. The revenues in the period from April 2008 to March 2009 went down by $9.2 billion (or 3.8%) largely due to a decrease in revenues provided through corporate income tax and goods and services tax. Higher transfer payments caused program expenses to increase through this same period by $6.8 million. What does this mean? As discussed in a Breaking Tax and Investment News editorial issued after the 2009 Federal Budget release, today's deficits will surely become the taxes of tomorrow. The trend of large deficits are of particular significance to the ten million or so baby boomers who make up approximately one-third of our population and just under 50% of the tax filers. By the year 2011, the first boomers will reach age 65. According to Infrastructure Canada, those age 65 and over are the most intensive users of the health care system, a financing burden yet to come for Canadian governments. At best, the deficits brought about by the Federal government will require taxpayers to ask hard questions, not only about the financial state of the nation, but about their own ability to fund retirement income and health care costs, if governments are stretched by new financing costs. What effects will deficit spending today have on public pensions and the health care system? How will deficits affect taxation on after-tax retirement income or wealth transition in the future? How will incomes of boomer offspring fare on an after-tax basis? Now is a good time to revisit retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future, which could certainly include tax increases on income or capital. We would like to know your thoughts on the deficit, and what the future holds for us with these kinds of deficits predicted for the next couple of years.

There are corporate tax implications when a business is terminated and a corporation ceases to exist. Generally, a corporation ceases to exist on: a winding up of the corporation pursuant to provisions outlined in subsections 88(1) or 88(2) of the Act; amalgamation with another corporation under subsection 87(1) of the Act; and Dissolution of its charter by filing Articles of Dissolution in the jurisdiction in which the corporation was incorporated. There are differing tax consequences which will result to the corporation and its shareholders, depending on the manner in which the corporation is terminated. For instance, there are generally tax deferral provisions available to a wholly owned subsidiary that is wound-up into its parent, pursuant to subsection 88(1) of the Act. Similarly tax deferrals are accorded for a statutory amalgamation under Subsection 87(1). However, a winding-up under subsection 88(2) and distribution of the corporation's assets to its shareholders will generally result in the realization of the corporation's assets at fair market value (S. 88(2)(a)(iv)) and the taxation of such distribution to its shareholders as a dividend at fair market value. Filing Implications - Business Cessation On the Federal T2 return, if any of lines 072 (wind-up of subsidiary), 076 (amalgamation) and 078 (dissolution) apply, it is the corporation's final taxation year. Example: Tax Planning Consider and quantify the corporate tax impact of effecting a dissolution or termination of the corporation. Will there be corporate tax payable on resulting capital gains and recaptured capital cost allowance or the realization of reserves and deferred amounts? Consider the utilization of losses to the successor corporation and the fact that an additional taxation year will occur on an amalgamation with another corporation. Record Retention- The records of the dissolved corporation must also be kept for two years after the day the corporation is dissolved [Reg. 5800(1)(b)]. Clearance Certificates The responsible representative of the corporation must obtain a clearance certificate from CRA pursuant to S. 159(2) before distributing any of the corporate property to avoid possible liability for the corporation's tax obligations. See Information Circular 82-6, Clearance Certificate, for more details. Inactive Corporations If the articles of the corporation are still legally in force, despite the corporation being inactive, the corporation must file a tax return. Shareholder Implications   Evaluate that tax implications to the shareholders. If the shareholders are individuals they may be subject to tax on deemed dividend treatment on the wind-up of a corporation. If the shareholders are corporations consider the potential implications of Section 55 of the Act. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />  Provincial Laws While each province has legislation for its own corporate tax laws, the federal government administers returns and collects taxes for most provinces and territories. However, Quebec, and Alberta administer their own corporate tax returns. To learn how this topic pertains to corporate taxation at the provincial level, refer to the applicable provincial legislation, guides and information circulars. In Alberta, if it is the last return for the corporation, the reason for the final return must be listed (i.e. amalgamation, discontinuance of permanent establishment, bankruptcy, wind-up into parent, and dissolution of corporation). Quebec asks if the corporation has ceased activities at line 29 of Form CO17 and corporations in Ontario must obtain a Letter of Consent from the MCBS to voluntarily dissolve.     Educational Resources: For more information on topics pertaining to corporate tax preparation and tax planning information, register for Introduction to Corporate Tax Preparation, a certificate course by self study from The Knowledge Bureau.    

CRA has provided us with the lowest prescribed rates in the last 25 years - 1% once again this quarter- for the application to outstanding sums for shareholder loans, employee benefits and interspousal loans. This is a great opportunity to use low-taxed corporate dollars to fund family income splitting, the purchase of new vehicles, new investments or to fund employer-required moves. Advisors and their clients should be discussing these strategies in the post June 15 period, after filing 2008 proprietorship returns. The Canada Revenue Agency announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporations. These rates are calculated quarterly in accordance with applicable legislation and will be in effect from July 1, 2009, to September 30, 2009. Income tax The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance Premiums will be 5%. The interest rate paid on overpayments will be 3%. The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%. Other taxes The interest rate on overdue and overpaid remittances for the following taxes will be: Tax and Duty Overdue remittances Overpaid remittances GST 5% 3% HST 5% 3% Air Travellers Security Charge 5% 3% Excise Tax (non GST) 5% 3% Excise Duty (except Brewer Licensees) 5% 3% Excise Duty (Brewer Licensees) 3% N/A Softwood Lumber Products Export Charge 5% 3%   <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />  Educational Resource: 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.