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:

The Canada Revenue Agency is sponsoring a national video contest that will tackle the long standing issue of the underground economy. Titled The Underground Economy - Not Your Problem? the contest invites video submissions from Canadians on why the underground economy is bad for all of us.    The Minister of National Revenue, The Honourable Jean-Pierre Blackburn, had a meeting with students at Algonquin College in mid-February for a discussion regarding the underground economy and its impact on them both personally and professionally.  Many of the students who will be graduates of the college will become tradespeople and have significant potential for exposure to the underground economy.   The underground economy offers both an unfair and illegal advantage to those that operate within it by non-compliance with Canada's tax laws.  By exposing college students to this at an early stage, and particularly in a genre they are familiar with, YouTube videos, they are opening up their eyes to the impact it can have on aspects of the economy.   The CRA YouTube channel is being launched to provide all Canadians with an opportunity to present their ideas on how the underground economy can impact them, their businesses, and their own communities.  Submissions will be accepted until April 30, 2009.  For more information on the contest, link here.   

By Evelyn Jacks , PresidentThe Knowledge Bureau If happiness is a by-product of achievement, then planning for one of life's most important transitionsófrom economic activity in the workplace to ìeconomic inactivityî in retirementócan provide tremendous peace of mind. It can also result in the satisfaction of knowing your lifetime of work will not only fund your lifestyle, but provide an opportunity to transfer your life's workóboth wealth and wisdomófrom one generation to the next. This is, in large part, the key to opening the discussion around retirement income planning for many boomers. Often the soft issuesóthe difference between wants and needsóare the most difficult to approach in the discussion around finances in the last third of life. Busy, full lives are not often conducive to discussions about how to tap into the capital that's been accumulated or what we leave behind. That of course has always been the reason behind financial planning: to ensure there are enough resources available to meet personal needs and goalsóno matter what lifecycle you find yourself inóand then, if possible, to preserve and pass on a legacy. When you add tax efficiency to that planning mix (which very few do, by the way) you have the recipe for a ìgourmetî retirement. At the beginning of a retirement period clients are more concerned about the former issueówill I have enough to retire? However, as people move through this lifecycle towards the end of retirementódeathóthe legacy issue becomes more important. Legacy planning requires gazing beyond the grave, culminating with an understanding of how existing wealth will crystallize, on an after-tax basis for the use of survivors and more importantly, the family wealth stewards. Therefore a process that helps to identify the structure of stewardship for the transition of wealth from one generation to another is the starting point in a discussion about estate planning. Only then can the right roadmap be crafted for the completion of the journey from a life of work, to life's work, to a life's legacy. Simply put, there are three prerequisites for successful tax and financial planning that transitions underlying capital from a retirement income plan to an effective estate plan: A structure for identifying issues of concern A formal strategic plan for financial results A process for real wealth management: after tax, inflation-adjusted, cost-controlled Such a process should also deliver, as required, in regular and pre-defined time periods: Ongoing evaluation of the structure by the stewards of the plan Annual measurement and evaluation of net worth In short, for boomers, it's really not about retirement. . .it's all about transitioning from economic activity to a healthy and active lifestyle and an intact financial legacy. Tax and financial advisors need to have awareness of these issues; a deep understanding of the triggers that motivate boomers to come to the table for planning will enable the tax and financial advisor to quarterback the successful transition of both wealth and wisdom. The Knowledge Bureau is pleased to provide the Retirement Income Specialist Designation Program by self study which provides designated training in real wealth management focused on tax efficient retirement income planning.

Most of us are aware that on November 27, 2008 the Government proposed that the minimum RRIF required withdrawal be reduced by 25% for the 2008 tax year. The following should be noted with regard to the RRIF withdrawals and re-contribution amounts. Changes to RRIFs Payouts could reduce taxes. Registered retirement income funds or RRIFs and the requirement to withdraw certain minimums from them every year. This was of particular concern to many retirees given the financial crisis of late 2008. No one wanted to be required to realize losses because of the financial meltdown if they could afford to wait it out. The RRIF withdrawal rules do not provide for such an option. For example, if an individual would be required to make a $20,000 withdrawal under the current rules then that minimum amount would be reduced to $15,000 under the new rules. Taxpayers who have already withdrawn more than the reduced minimum amount would be allowed to re-contribute the excess amount (up to $5,000 in this example) back into the RRIF. The deadline for recontribution to RRIFs, Life Income Funds or other locked-in RRIFs is the later of March 1, 2009 and 30 days after the proposed rules receive Royal Assent (which has not occurred at the current date). Taxpayers making these recontributions will be allowed to claim a deduction for the amount recontributed on their 2008 returns. Note that RRIF annuitants who turned 71 in 2008 and who withdraw a minimum amount are not affected by the proposed changes as the 2008 minimum amount for these people is deemed to be nil after changes in the law in 2007. Therefore significant milestones for the month of March 2009 are the following: March 2 Age eligible taxpayers with unused RRSP contribution room may make contributions to that plan. March 15 Quarterly instalment payment due Later of March 1, 2009 or thirty days after legislation passes (which has not occurred yet) - Recontributions to an RRIF   For more tax tips, purchase a copy of Essential Tax Facts written by The Knowledge Bureau's President, Evelyn Jacks, to learn how to ace your 2008 tax return and save money all year long.

Does a recession increase or decrease an advisor's need to get, keep and grow his/her client base?   By Jim Graddon The answer, of course, is that these challenging economic times put a premium on all three of these important objectives. But what may not be as obvious is ìhow?î How do you get new clients? What do you do to retain your best clients? And what are some of the strategies for growing your existing client relationships? Now is the time to plan for the ìother side of the valleyî when business will be picking up (and you won't have the time to improve your infrastructure). You have a window now to make changes and invest in your own business to ensure you prosper in the face of adversity and fierce competition. Now is the time to leverage technology and automated processes to streamline operations and reduce the burden on people and salaries. The core technology of an advisor's business is a CRM, or customer relationship management software. An advisor-focused CRM delivers a combination of scheduling management, activity management, contact management, and sales/service workflow automation in a single integrated platform. Implementing a web-based advisor practice management system recruits the evolving resources of the Web for you and frees you forever from the limitations of office-bound systems. Today, many advisors access a myriad of proprietary websites and transaction systems. This can be compared to asking an airline pilot to constantly cross-reference a myriad of airline, weather, and airport systems while in flight. The result would be disastrous. Similarly, a financial advisor's ëcockpit' that lacks an integrated set of information and controls places the advisors' own ëpassengers' at a high level of risk. What should an advisor ëcockpit' ñ or CRM ñ address? At a minimum, a CRM should address these three critical areas: 1- Get Clients ∑ List management (including do not call list identification) ∑ Marketing campaigns (including automated follow-up scheduling) ∑ Mail merge & full integration with Microsoft Office ∑ Lead/opportunity tracking integrated with website leads ∑ Event management and registration tracking 2- Keep Clients ∑ Detailed client file including notes, documents, emails, policy and investments data ∑ Access data 7/24 wherever you are through web browser and/or wireless device ∑ Automated compliance audit trail and client review processes and scheduling ∑ Holistic client account aggregation and valuation of on book and off book data ∑ Automated triggers and alerts to drive client interaction and reviews ∑ Client data privacy and security meeting international security standard levels 3- Grow Clients ∑ Mine client data and automate cross-marketing campaigns The most efficient advisor CRM is one designed by and for Financial Advisors. Though this is the worst recession in memory for most advisors, the survivors will not freeze like a deer in the headlights. Instead, stay cool, keep your poise, and take the opportunity to bring your own practices and systems to the next level. Jim Graddon is the GM of the Canadian subsidiary for E-Z Data, creators of the web-based SmartOffice advisor platform. Jim has been a change catalyst for insurance and investment operations and technology for over three decades, with a focus on Canadian financial advisor technology since 1981. He can be reached at 866-568-9809, jgraddon@ez-data.com; or by referencing contact info at www.ezdata.ca.

Tax practitioners, financial advisors and their clients should be aware of a new audit focus for taxpayers reporting German pensions which they were entitled to receive prior to 2005. These taxpayers qualify for a 50 percent exemption on Line 256; however, that exemption will become a fixed amount, in Euros, starting in tax year 2007, based on the amount of qualifying pension income received by the client in 2006. Once the fixed amount has been calculated, it is used for the balance of the taxpayer's lifetime, except in the year of death. This is clear as mudóif not outright misleading--on the CRA website, which only makes reference to this ìfixationî under the explanation of the tax treatment for those who qualified for the pensions after 2005, leading most readers to believe that the 50% treatment for pensions started before 2005 is not affected.   Worse however, is the fact that the audit process, which focuses on the 2007 tax return, has been disallowing the entire claim on Line 256, even though the taxpayer qualifies for this ìfixed amountî of exemption. Be sure to request an adjustment.   As no other or clearer information is available on this provision, taxpayers or practitioners who claimed an exemption of 50% on Line 256 may wish to make an appeal under the Taxpayer Relief Provisions, to reverse interest charges.   Evelyn Jacks, President, The Knowledge Bureau.  For free information about Breaking Tax and Investment News, self study courses on tax and personal finances, or books on personal finance. Call: 1-800-953-4769.

As discussed in a previous issue of Breaking Tax and Investment news, the RDSP may be established for an individual who has a severe and prolonged physical or mental impairment and qualifies for the disability tax credit during the year of establishment, or would have if the restriction for the attendant care amount were disregarded. Contributions may not be made to the plan in years for which the individual is not DTC-eligible. In that case the plan must be terminated by the end of the year following the year in which the beneficiary ceases to the DTC-eligible.  The deadline for contributions for the 2008 year is March 2, 2009 so don't miss out on the government sweeteners as outlined in our article on January 21st. Some additional points to note regarding the Registered Disability Savings Plans are as follows: The maximum annual CDSB contribution is $1,000 and is earned where family income does not exceed $21,278. The CDSB amount is phased out completely when family income is $37,885. Again, the limits are 2008 amounts and will be indexed annually. There is a lifetime maximum of $20,000 for CDSBs. Like the CDSG, CDSBs will not be paid after the beneficiary of the RDSP turns 49. Note: Repayments of all CDSGs and CDSBs will be required in the ten years preceding one of the following events: (a) a withdrawal from the plan, (b) loss of eligibility for the DTC or (c) death of the beneficiary. Death or Cessation of Qualification Where the beneficiary dies, or ceases to qualify for a RDSP (presumably when the disability ceases), any CDSG or CDSB funded to the plan within the ten years preceding death, and the income earned on such amounts, must be repaid. Amounts in excess of contributions, after taking into account the repayment, will be included in income of the beneficiary in the year of death (or cessation of disability). It is not clear what happens if withdrawals and/or investment performance result in the RDSP having less than is required to be repaid. Presumably any shortfall represents a debt of the estate. Impact on Other Means-tested Support RDSP withdrawals will not affect any other means-tested support delivered through the income tax system including, in particular, the OAS or Employment Insurance benefits. The Federal government intends to work with the provinces to ensure that the benefits of the RDSP are not eroded by a clawback of provincially provided support. Director of the Plan. An RDSP may have one or more directors responsible for the principal decision making with respect to the plan including directing investments and the amount and timing of payments out of the plan. This could include, for example, the mother and father of the beneficiary, a parent and the beneficiary of the plan, once that beneficiary reaches the age of majority, a parent who is a successor director (in the event of the death of one parent); and an entity which acquires the rights of a director in the event of that director's death. Directors are jointly liable with the beneficiary or the beneficiary's estate for taxes arising in a non-compliant plan, described below. Non-taxable Portion of RDSP Payments. The non-taxable portion is the same as the proportion that contributions to the plan is to the total value of the plan's assets, less the assistance holdback amount, described below. Assistance Holdback Amount. A disability assistance payment will not be allowed to be made if the payment causes the fair market value of the plan's assets to fall below the ìassistance holdback amountî. This is the amount that could be required to be repaid under the Canada Disability Savings Actóthe total amount of grants and bonds paid into the plan by the government in the ten-year period preceding the disability assistance payment, plus associated investment income. Should the plan become ìnon-compliantî it will be automatically deregistered and the taxable portion will be included in income. If a repayment is subsequently made, a deduction is possible. Repayments of amounts received under the Canada Disability Savings Act, effective the 2007 tax year will qualify for a deduction on Line 232. ITA Section 4(3)(a) and 60(z). Withholding taxes. It is expected that the Regulations will allow $15,000 to be withdrawn annually without the requirement for withholding taxes. Payments over this amount will be subject to the same withholding rules as RRIFs. Only the taxable portion of the payment are taken into account for these purposes. Interest on money borrowed. Amounts borrowed to make a contribution to a registered plan, including a RDSP is not deductible. Interest is usually deducted on Line 221 Carrying Charges for eligible investments. ITA Section 18(11). Gains and Losses. Taxpayers who sell investments outside a registered plan to invest into one will be prohibited from claiming the losses on the disposition of the assets for that purpose. This rule is extended to the RDSP investor effective 2008. ITA Section 40(2)(g). Attribution Rules. Contributions made to an RDSP will not be subject to the usual attribution rules which require that income from property transferred to a spouse or common law spouse or other individuals under 18 must be reported by the transferor. ITA 74.5(12)and 75(3)(a) Tax Free Rollovers. A tax-deferred rollover of property may be accomplished when the transferor is a RDSP trust so that funds can move from one such plan to another on a tax free basis in cases where the beneficial ownership  does not change. ITA 107.4(l)(j). Trusts and Their Beneficiaries. The 21 year deemed disposition rule will not apply to RDSPs. ITA 108(1) GST Credits. For the purpose of this refundable federal credit, the definition of adjusted income will exclude  payments from an RDSP so as not to reduce GSTC payments, effective 2008. ITA 122.5(1) Canada Child Tax Benefits. For the purpose of this refundable federal credit, the definition of adjusted income will exclude payments from an RDSP so as not to reduce CCTB payments, effective 2008. ITA 122.6 OAS Benefits. For the purpose of recovering OAS benefits, the definition of adjusted income will exclude payments from an RDSP from the base upon which the tax on OAS benefits is calculated. ITA 180.2 Changes in Residency. Beneficiaries of RDSPs will not be treated as having disposed of their rights under an RDSP upon immigration or emigration, similar to the rules in place now for RRSPs and other deferred income plans. ITA 128.1(10) Death of a Beneficiary. In this case, the plan must allow for remaining amounts to be paid into the beneficiary's estate and for the plan to be terminated by the end of the year following the year of the beneficiary's death. ITA 146.4(4)(n)   For more tax tips, purchase a copy of Essential Tax Facts written by The Knowledge Bureau's President, Evelyn Jacks, to learn how to ace your 2008 tax return and save money all year long.