Time’s Up: CRA’s 100 Day Mandate for Improvement

After years of frustration on the part of tax professionals and taxpayers alike, the Finance Minister ordered the Canada Revenue Agency to clean up its act in 100 days. Specifically, the improvement plan was to run from September 2 through December 11. Finance Minister and Minister of National Revenue, Francoise-Phillippe Champagne instructed CRA to fix “unacceptable wait times and service delays.” Time’s up this week and CRA has released an update on progress. What gets measured, gets done. Let’s see what CRA’s metrics show. 

The maximum OAS Benefit for the first quarter of 2011 is $524.23, representing an indexing factor of .5%. The Guaranteed Income Supplement (GIS) is a non-taxable benefit available to low-income seniors who are eligible for Old Age Security (OAS). The dollar amounts available depend on income level but for 2011 the maximum benefits are the following: Single person $661.69 Spouse of OAS recipient $436.95 Spouse of OAS non-recipient $661.69 Spouse of Allowance Recipient $436.95 Income Security Programs Information Card is available: http://www.servicecanada.gc.ca/eng/isp/statistics/rates/janmar11.shtml All taxable income, with the exception of OAS payments and up to $3500 in employment earnings, is included in the income test and there are several maximum levels of income depending upon family composition and ages. Taxpayers and their advisors are urged to be careful with planning income withdrawals, as they will affect GIS and OAS claw backs. The Table of Rates for OAS, GIS and the Allowance allows specific rate calculations: http://www.servicecanada.gc.ca/eng/isp/oas/tabrates/tabmain.shtml ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes and the Knowledge Bureau certificate course: Tax Efficient Retirement Income Planning

January 1, 2011, is launch day for E.I. special benefits for those who run their own business or work for a corporation and control more than 40% of the voting shares. Independent workers who are eligible for regular E.I., including taxi drivers, hair dressers and fishers, are not eligible. Maximum coverage of 15 weeks maternity, 35 weeks parental, 15 weeks sickness and 6 weeks compassionate care benefits will be offered. Parental benefits in Quebec are already offered separately. Only Canadian citizens and permanent residents may apply. Special E.I. benefits for the self-employed can be accessed once 12 months has passed from the date of registration. If you registered before April 1, 2010 you are eligible as of January 1, 2011. In order to receive benefits you must experience at least a 40% reduction in the time devoted to your business as a result of childbirth, newborn care, your own illness or care of a gravely ill family member. At the moment the minimum amount of self-employment earnings that you would have had to have earned in the calendar year before your claim is $6000. There is a two week waiting period to receive benefits in most cases. Some people have employment and self-employment earnings. You can apply for either as long as you qualify for both. To apply for self-employment special benefits your income from both sources will be considered. When applying for regular benefits only your employment earnings will be included. The premium rate currently is $1.73 per $100 of insurable earnings everywhere but Quebec to a maximum of $747.37 (based upon maximum insurable earnings of $43,200). No matter when you register for special EI benefits for the self-employed you will have to remit deductions based on your full year's earnings! Unlike CPP premiums for the self-employed, you do not have to remit the employer's portion. Weekly special benefits are 55% of average weekly self-employment earnings for the calendar year before your claim. For benefits calculated from the 2010 tax year the maximum weekly benefit is $457. Benefits may be lower if you continue to work or your business has earnings. Self-employment earnings are defined as gross earnings minus operating expenses. For sickness or maternity benefits deductions are dollar for dollar of earned income. For parental or compassionate care benefits in excess of $200 per week you can earn 25% of your weekly benefit before your earnings are deducted dollar for dollar. The amount that you can earn per week before claw back when your weekly benefit is less than $200 per week is $50. You must file bi-weekly reports during the entire benefit period and all earnings must be declared. If you cancel your participation in the program within 60 days of registering you do not have to pay any premiums. You can leave the program after the 60 days as long as you have not collected benefits; there will be no refund of premiums and you must pay until the end of the calendar year in which you terminate participation. Your eligibility will extend to that date as well. Once you have made a claim and collected special E.I. benefits for the self-employed you will have to continue paying premiums for the duration of your self-employed career. Are E.I. Special Benefits for Self-Employed Persons for you? Every situation is unique so do your homework before you decide. Consider the nature of your business ñ do you have a key employee who can keep the income flowing in your absence? What about your own financial situation ñ is there more than one wage-earner in the household? Is there a spouse with employment income who may choose to take parental leave? Look at the risk management measures that you have in place such as life, disability, critical illness and office overhead insurance and buy/sell agreements. Does special E.I. for the self-employed fill a gap in your planning and is the cost/benefit ratio reasonable? Your financial planner, accountant or book keeper may be able to assist you with these questions. ADDITIONAL EDUCATIONAL RESOURCES: The Distinguished Advisor National Workshop Tour January 11-20 will cover these and other 2011 changes.

Wishing you all a safe and Happy Holiday Season. Our next KBR will be published January 5, 2011.

All Canadian taxpayers who receive German pension income from German national institutions are being asked to file tax returns in Germany for tax years 2005 and onward. The German authorities will assess these returns to determine if taxes are owing. A response to an enquiry from The Knowledge Bureau to the German tax administration was received on December 10th and the key points are summarized below. 1. Forward German income tax returns for 2005-2009 to: Finanzamt Neubrandenburg (RiA) Neustrelitzer Strafle 120 17033 Neubrandenburg Deutschland 2. Tax forms (German language only) are available: http://www.regierung-mv.de/cms2/Regierungsportal_prod/Regierungsportal/de/fm/ or http://www.formulare-bfinv.de/ 3. Pension income documentation must be attached and details of the last residence and/or place of employment in Germany should be included. 4. A twelve week deadline from the date of notification has been given and an extension can be requested under certain circumstances. 5. Foreign tax credits: The tax treaty between Canada and Germany allows for the taxing of German pension in both Canada and Germany. However, a foreign tax credit is available in Canada for taxes paid on the same income in Germany. Canadian taxpayers should claim the amount of pension income that is taxable in Germany. German taxes paid on the pension income will be deducted from Canadian tax owing on the income as per Article 23 1. of the tax treaty: Article 23 Relief from Double Taxation "1. In the case of a resident of Canada, double taxation shall be avoided as follows: (a) Subject to the existing provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions, which shall not affect the general principle hereof, and unless a greater deduction or relief is provided under the laws of Canada, German tax (other than capital tax) payable in accordance with this Agreement on profits, income or gains arising in the Federal Republic of Germany shall be deducted from any Canadian tax payable in respect of such profits, income or gains.î Provisions may be available for more favorable tax treatment if 90% or more of the taxpayer's income is from Germany and the remaining income falls within certain amounts. 6. Professional help. It is strongly suggested that professional tax advice be obtained from a German-speaking tax professional with in-depth knowledge of German tax legislation. However, official representation in Germany by Canadian professionals is discouraged. Consultation with a specialist such as Siegfried Merten, MFA, should enable affected citizens to complete their tax filing requirements with Germany. Please see the links below that have been posted by the German Consulate General in Vancouver. They contain the tax treaty between Canada and Germany, CRA information on the taxation of German pensions and German language websites. http://www.vancouver.diplo.de/Vertretung/vancouver/en/Taxation_20of_20German_20old_20age_20pensions.html http://www.vancouver.diplo.de/Vertretung/vancouver/en/04/TaxationGermanPension__Seite.html Additional Resources: Cross Border Taxation Course and EverGreen Explanitory Notes

On December 7th, the federal government and province of Saskatchewan announced proposed changes to the Saskatchewan Pension Plan. The annual limit for contributions will rise from $600 to $2500, subject to available RRSP contribution room. This is good news for those who wish to tap into more of a good news story for those looking for financial stability in retirement. Since its inception in 1986 the SPP has averaged a return of over 8% per year. The SPP is a money purchase plan designed for those who have no access to an employee pension plan. The only requirement for joining the plan is that you are between 18 and 71 ñ and there are no residency requirements. In the past, you did not need earned income to contribute to the SPP and this was of great benefit to unwaged citizens such as homemakers. Their contributions were not deductible but the rules allowed them to build retirement savings with after-tax dollars. The government implemented the Tax Free Savings Account that can now be used in these circumstances as TFSA contribution limits are not dependent upon earnings and are available to every Canadian resident age 18 and older. Rollovers will be permitted to the RRSP or RDSP (Registered Disability Savings Plan) or a financially dependent child. Other rules regarding attribution and over-contributions that apply to RRSPs will also apply to SPP. For example, some or all withdrawals from spousal SPP accounts will be taxed to the contributing spouse when there have been spousal SPP contributions in the year of withdrawal or the two previous years. These attribution rules will apply to contributions made after 2010. As well, SPP contributions will be part of the annual RRSP contribution limit and therefore subject to over-contribution tax and penalties. The first $600 contributed for the 2010 tax year will be exempt from these rules SPP annuity payments will be eligible for pension splitting and the pension amount as they will no longer be referred to as a prescribed provincial pension plan and instead will be a specified pension plan. This is significant as, unlike RRIFs, the SPP will be eligible for pension sharing at age 55. With no residency requirements, this may be an attractive addition to your retirement plan! For further detail: http://www.saskpension.com/ http://www.saskpension.com/administration/limitincrease.php http://www.fin.gc.ca/n10/10-118-eng.asp   ADDITIONAL EDUCATION RESOURCES:  Tax Efficient Retirement Income Planning Course and EverGreen Explanitory Notes.

At this time of traditional giving, CRA is urging Canadians to exercise caution when donating to charity as the holiday season approaches, by avoiding fraud and tax receipts worth multiple times more than the actual donation. To avoid an unexpected tax headache down the line, Canadian taxpayers and their advisors should review the rules when giving to their favorite charity this holiday season: 1. Confirm Registered Charity status: Consult the CRA Charities Listings or call 1-800-267-2384. 2. Get proper receipting: An official donation receipt for cash must include a statement that it is an official receipt for income tax purposes, the name and address of the donor, the CRA registration number (Business Number) of the charity, the amount of the donation, the year of donation, the CRA name and charities website and a unique serial number. In-kind donations must include the fair market value of the gift. Contribution of your time or skill, fees for day-care, purchase of lottery tickets where proceeds benefit a charity and payment of certain tuition fees do not qualify. 3. Avoid Charitable donation schemes: CRA reviews all tax shelter arrangements, which by definition include tax shelter donation arrangements such as gifting trust arrangements, leveraged cash donations, and buy-low, donate-high arrangements. CRA routinely reduces the tax credit claimed to the amount of the taxpayers' cash donation or less, and may also charge interest and penalties. To date, the CRA has denied approximately $1.4billion in donations claimed, auditing over 70,000 taxpayers. Canada Revenue Agency provides detailed information on its website on fraud avoidance. Of particular interest are the 3 videos in the series Giving to Registered Charities 101. They offer an easy to understand look at the benefits of giving as experienced by both the donor and the recipient. This is an ideal introduction for teens and young adults ñ CRA even has a YouTube channel! http://www.cra-arc.gc.ca/chrts-gvng/dnrs/menu-eng.html ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes and the Knowledge Bureau certificate course: Fundamentals of Charitable Giving