Changes to Paper Filing Disempowering

Last tax season, only 7% of all Canadian tax filers filed on paper. The CRA is pushing for zero. It continues to steer the holdouts to digitized filing by adding lots of obstacles. Most recently, it is removing almost all the schedules from the tax return package it mails. This seems unfair to people who paper file because they can’t afford a computer and internet, distrust the security of online filing and those who are neither tax or computer literate. Here’s what they are up against:

High net-worth (HNW) families in Ontario and their advisors will want to review the province's new tax rate that takes effect July 1. Anyone whose taxable income exceeds $500,000 ó 25,000 high-income earners or 0.4% of Ontario taxpayers ó will see his or her tax rate go up by 2%. But concerns are mounting that the new tax, which was meant to boost Ontario's lagging tax revenues and reduce the deficit, may have unintended consequences. The top 1% of Ontario taxpayers already provides 27% of Ontario's income tax revenues. (The bottom 75% provides only 12% of Ontario's tax revenues.) Yet, as of July 1, high-income earners will pay more. Once the 56% provincial surtax is applied to that 2%, the increase comes to 3.1 percentage points, boosting the combined federal/provincial tax rate to 49.5% from 46.4%. Half those amounts will apply in 2012, as the tax takes effect July 1. But a June 13 report by the C.D. Howe Institute, entitled Ontario's Tax on the Rich: Grasping at Straw Men notes the tax may have unintended longer-term results. Although only a small percentage of Ontario taxpayers, writes the report's author Alexandre Laurin, associate director of research, the targeted HNW families are very important to the personal tax system. If they were lost to other tax jurisdictions, all Ontario residents would feel the impact. And this is a definite possibility. Economic studies citied in the report note that taxes have a significant effect on behaviour. Given that skilled, high-income individuals are highly mobile, they can respond to higher taxation by moving to lower-taxed jurisdictions (provincial or international). In addition, HNW families can afford to work with professionals who can initiate more aggressive tax planning, and reduce tax loads by modifying the type and timing of compensation and sources of investment income. The chart below illustrates the difference a move can make; note the double-digit, after-tax return from eligible dividend income, for example, when compared to Alberta. Income modification can also reduce tax burdens.     Prov. 2012 taxable income range Ordinary income   (%) Capital gains   (%) Dividends: Small bus. corps. (%) Eligible dividends   (%)   BC More than $132,406 43.70 21.85 33.71  25.78   AB More than $132,406 39.00 19.50 27.71 19.29   SK More than $132,406 44.00 22.00 33.33 24.81   MB More than $132,406 46.40 23.20 39.15 32.26   ON $132,407 to $500,000 46.41 23.20 32.57 29.54   NS More than $500,000 47.97 23.98 34.52 31.69   $132,406 to $150,000 46.50 23.25 31.83 32.23   More than $150,000 50.00 25.00 36.21 36.06 Source: Knowledge Bureau, Inc. All rights reserved. The numbers tell the story: effective tax planning can preserve wealth from this new tax. The C.D. Howe report estimates that, with proper planning, high-income earners will probably reduce their taxable income by about 2% in the short term and by more than 10% in the long run, as planning kicks in. These responses may affect federal tax revenues as well. Most significant, the report concludes, if high-income earners respond by reducing their labour supply and earning less over the longer term, this tax will be ineffective, putting our fragile economic recovery at risk and robbing tax treasuries rather than supplementing them. It's Your Money. Your Life. Arranging your financial affairs within the framework of the law to pay the least taxes possible is your legal right and duty under the Income Tax Act. Astute tax and wealth advisors will want to work closely with their HNW clients to determine the right response to this new tax and thwart its eroding effect on their incomes and capital. The more effective the planning, the more wealth will be created and preserved, adding to future tax revenues and fighting the eroding effects of inflation and other unforeseen economic events. Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax and personal finance books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov 11 to 14.   Additional Educational Resources: Client Relationship Toolkit; DFA-Tax Services Specialist designation  

Wondering where to make your next investment? You're not alone. The current investment climate is stormy and that makes decision-making difficult. However, two important clues come from recent reports: first, taking a global view is critical in today's environment and, second, debt management is key to positioning your investments for future growth. The G20 leaders meeting in Mexico recently confirmed that Greece should stay in the euro zone. But that doesn't mean the euro zone crisis is resolved. The World Bank believes Europe's struggle will continue as it shoulders its way through a prolonged financial crisis, dampening global growth. Nor will developing countries offer relief, as the World Bank warns that they, too, face a long period of financial market volatility and weaker growth. Against this reality, the World Bank has lowered its forecast for global growth in 2012 to 2.5%. IHS Global Insight, whose Country Intelligence report provides daily analysis of world events, shares the World Bank's pessimism. It has downgraded the euro zone's outlook to a recessionary -0.1% for 2013. Continued uncertainty on whether Greece stays in the euro zone, which analysts at HIS Global Insight doubt, extends concerns that the break-up of the euro zone could trigger yet another global financial crisis. The IHS Global Insight report, moreover, puts a strong emphasis on debt management. A good way to position for growth in this climate, it says, is to focus on building strong balance sheets. This is important advice for individual households, as well. In today's fragile economic recovery, debt management is as important as choosing the right investments. It may well be that paying down potentially unmanageable debt is a smarter use of your money than investing in unpredictable markets. There is another important risk-management tool used to protect accumulated wealth that is not making the headlines today: tax efficiency. Taking a tax-efficient approach to investing ó splitting income, using losses wisely, transferring assets to family members at the right time, managing tax on accrued gains ó all can add significantly to the ultimate returns on your investments. So, if you are venturing into the marketplace, or considering ways to protect your wealth, position your investments properly for tax efficiency. That way, when the markets return to normal, your portfolio will be ready to reap after-tax results. It's Your Money. Your Life. When making plans to grow your personal wealth, put as much focus on your debt-to-asset ratio as you do on your return on investment (ROI). Then, employ a tax-efficiency strategy to move forward in these stormy seas. Evelyn Jacks is president of Knowledge Bureau and founder of the Distinguished Advisor Conference, now in its ninth year. This annual event attracts hundreds of top advisors from across Canada to discuss recent trends in economics, tax, investment and retirement and estate planning. Additional Educational Resources: Debt and Cash Flow Management Course, Distinguished Advisor Conference and Financial Recovery in a Fragile World.  

No one could have predicted the unsettling events of the past four years. Yet, many people blame their financial advisors and, as a result, have lost confidence in them. At this year's Distinguished Advisor Conference (DAC) Nov. 11-14, image consultant Catherine Bell will tell advisors how they can regain their client's trust and build loyalty by projecting a professional image. Bell, who is a president of PRIME Impressions, maintains that communications, behaviour and appearance all play vital roles in allaying the fears of clients battered by the uncertain global economy. What clients see, experience and hear all carry tremendous weight when they decide to whom they will entrust their wealth, says Bell. The dynamic speaker and author joins a lineup of respected and knowledgeable speakers in Naples, Florida, for the ninth annual DAC. This year's theme is the role planning plays in "Navigation: Charting a New Course.î A Day 2 speaker, Bell is one of only 14 Certified Image Professionals in Canada, an Association of Image Consultants International (AICI) Hall of Fame inductee and AICI's Ethics Chair. A frequent guest on Canadian television and regularly quoted in newspapers and magazines, Bell is well aware of how to communicate her professionalism successfully. To view the agenda, click here. To take advantage of early bird pricing, click here.  

The recent passage of Bill C-25 or the Pooled Registered Pension Plans Act brings PRPPs one step closer to becoming another option for retirement savings. But there are still significant hurdles to clear, says Douglas Nelson, Winnipeg financial planner and author of Master your Retirement, and numerous variables to consider before their value as a planning tool can be assessed. "It is difficult to know exactly how PRPPs fit into the range of retirement options,î adds Nelson, "until we see an actual product with real pricing.î Envisioned as a low-cost retirement savings option for Canadians who do not have access to workplace pension plans, PRPPs will pool employee and employer contributions under the administration of a qualified third party. These licensed administrators will be subject to a fiduciary standard of care, explains the federal government, ensuring that funds are invested in the best interests of plan members. "Since these plans will involve large pooled funds, plan members will also benefit from lower investment-management costs,î said Minister of State (Finance) Ted Menzies in a press release. The Act now proceeds to the Senate for approval. Then, it will be up to provincial governments to enact enabling legislation based on the federal framework. After that, licensed administrators ó probably financial institutions and investment counselors ó will launch PRPPs. As Nelson points out, there are numerous unknown variables that will become clear as the process develops. There are a number of things for which Nelson, who is a Real Wealth Managementô specialist in retirement and business succession planning, will be watching: ï Costs. Many pension options for mid-sized to large companies charge annual fees around 1%, vs. 2.5% for a mutual fund. Will fees for PRPPs be closer to 2.5% ó or 1%? ï Employer contributions. PRPPs will be available to employees with or without a participating employer. If employer contributions to PRPPs are optional, are small business owners likely to opt out? If so, what impact does this have on an employee whose employer does make contributions? Also, with many large pension plans today, employers have underfunded their contributions; what happens if employer contributions to PRPPs are underfunded? ï Taxation. PRPPs will allow for greater income splitting at an earlier age, but what happens if the pension payout amount is less than a retiree would have received from a group RRSP? The pensioner would probably transfer his or her money to another income option, so as to have more control. Then the pensioner would be back where he or she started ó with income from a life income fund (LIF) that can't be split prior to age 65. ï Survivor benefits. Will PRPPs have better-than-average survivor benefits for the surviving spouse and heirs? "It will be interesting to see what happens to other product offerings,î says Nelson. "Will the pricing for group RRSPs decline so they are more competitive, allowing a small-business owner to offer a lower-cost group RRSP, in which employees choose where to invest their money?î Still, PRPPs could be a great enhancement to the Canadian retirement savings system but it comes down to implementation. And for that, we will no doubt have to wait some months to see how things evolve.   Additional Educational Resources: Master Your Retirement 2012 Edition and Elements of Real Wealth Management Course.  

There is nothing in this story that Canadians donít already know. Itís just that Statistics Canada now has the numerical proof. According to its Income of Canadians 2010, after-tax income for families of two or more people in 2010 was virtually unchanged from 2009, making it the third consecutive year that family incomes have stayed flat. Indeed, 2010 median after-tax income was $65,500 vs. $65,400 in 2009, expressed in constant 2010 dollars. (The median is the level of income at which half of the population had higher income and half had lower.) The report, based on 2010 annual income information provided by participants in the Survey of Labour and Income Dynamics, tells us two-parent families with children fared slightly better, with median after-tax income of $78,800 in 2010 vs $77,200 in 2009. It heads downward from there and that, too, is no surprise. The median for female lone-parent families was $38,700, while families headed by a senior had a median after-tax income of $46,800. Unattached seniors received $23,400 in 2010 while unattached non-seniors had a median income of $27,500. According to StatsCan, 3 million Canadians, or 9.0% of the population, lived in low income in 2010, virtually the same number as in 2009. In 2000, this proportion was 12.5%. StatsCan also measures absolute mobility, which indicates how many people had an increase in income and how many experienced a decline. Between 2009 and 2010, after-tax income rose for 52.8% of individuals, while 47.2% experienced a decline. Between 2006 and 2007, before the economic downturn, income rose for 62.4% and declined for 37.6%.   Additional Educational Resources: Tax Strategies for Financial Advisors and Introduction to Personal Preparation Services courses.  

Although Canada's economy has weathered recent global mayhem relatively well, Canadians aren't home free. If we are to sustain our standard of living, says the Organization for Economic Cooperation and Development (OECD) in its latest Economic Survey of Canada, Canada has to increase productivity. The report calls productivity growth Canada's "main long-term challenge.î Over the past few decades, the OECD notes, the amount of labour, capital and natural resources needed to produce a unit of GDP has remained constant. Indeed, since 2002, Canada's overall productivity has fallen, while U.S productivity has grown by about 30%. The OECD makes two recommendations: first, more support for business investment in research and development (R&D) and, second, improve quality and access to tertiary education to maintain the supply of highly skilled workers. The report notes Canada's business sector devotes only about 1% of GDP to R&D, compared with 2% in the U.S. and more than 2.5% in Japan, Korea and some of the Nordic countries. Says Peter Jarrett, one of the authors of the study: "Canada is blessed with abundant natural resources. But it needs to do more to develop other sectors of the economy if it is to maintain a high level of employment and an equitable distribution of the fruits of growth.î The OECD also takes note of Canada's rising real estate prices and high household indebtedness. There is certainly no escaping Canadians growing debt burden. In its June issue of Financial System Review,  the Bank of Canada rated overextended Canadians as the country's greatest domestic risk. "The risks associated with high levels of household debt and a potential corrections in the housing market are elevated and have not diminished since December,î the Review notes. Bank of Montreal economist Sal Guatieri brought that home yet again in BMO's June 25 Focus: ï household credit market debt rose to a new high of 152% of disposable income in the first quarter of 2012. Household borrowing slowed slightly, but so did income growth, nudging the ratio higher; ï the proportion of "vulnerableî households ó those with debt service ratios of 40% or more of income ó is slightly more than 6%, pushing it over the norm for the past decade; ï the proportion of debt held by "vulnerableî households is slightly more than 11%, also mildly higher than normal. Clearly, Canadians shouldnít be too complacent and ignore the caution signs along the road to global recovery. The time to invest in our future is now.   Additional Educational Resources: Financial Recovery in a Fragile World and EverGreen Explanatory Notes.