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. 

Much was learned about banking systems and procedures from the recent global economic crisis. Canada's relative strength during the recent global financial crisis can be explained by several factors, not the least of which are higher standards for banks that exceeded international requirements; this according to Mark Carney, Governor of the Bank of Canada, who reported to the International Centre for Monetary and Banking Studies in Geneva last month. Specifically Canadian banks have higher capital requirements, are subject to greater supervision and more stringent mortgage regulation, than prescribed by international standards. In addition, the ownership of mortgage liability stayed with the bank in the majority of cases, rather than being bundled up and sold as a security. Requirements for mortgage insurance through CMHC and other sources offered additional protection. Finally, the absence of mortgage interest deductibility here in Canada has also been an important factor, as this can be an incentive to take on too much debt. The speed at which weaknesses in financial institutions and their regulation spread from continent to continent illustrates the importance of global reform, said Mr. Carney, concluding his address with a call for action. Reform, he said, will be a dynamic process and all participants will have to identify and address weaknesses as they strive for stability in the immediate future. The full text of the speech is available: http://www.bankofcanada.ca/en/speeches/2010/sp091110.html ADDITIONAL EDUCATIONAL RESOURCES: Financial Literacy: Assessing Risk and Return, a certificate course from The Knowledge Bureau.  

A significant tax ruling has set some new legislative matters in motion to ensure benefit potential Registered Disability Savings Account beneficiaries are not penalized by a recent ruling by the Tax Court of Canada. In, "Tozzi v. The Queenî, Giovanni Tozzi applied for the Disability Tax Credit (DTC) and was denied. He was unable to appeal because he did not have enough income for the tax credit to be of financial benefit to him. He explained to the court that in order to be a beneficiary of a Registered Disability Savings Account he has to be eligible for the DTC and CRA must allow appeals for reasons other than tax reduction. The judge dismissed Mr. Tozzi's appeal as it is beyond the jurisdiction of Tax Court but in doing so noted that Parliament should address this issue. And this is exactly what has happened. On November 25, 2010, Minister of Finance Jim Flaherty announced that the government will introduce legislation that will allow an individual to appeal a decision by CRA even when there is no tax owing (a "nilî assessment). Currently an appeal is not allowed when tax payable is not affected For Mr. Flaherty's announcement: http://www.fin.gc.ca/n10/10-113-eng.asp For the Tax Court ruling: http://decision.tcc-cci.gc.ca/en/2010/2010tcc545/2010tcc545.html ADDITIONAL EDUCATIONAL RESOURCES: Essential Tax Facts 2011, Introduction to Personal Tax Preparation Course  

Legislation that will give Ontario parents of active children a refundable tax credit has passed into law. This will put up to $50 per child age 16 and under, and up to $100 per disabled child age 18 and under, directly into the pockets of families, by filing a 2010 tax return. The costs of both fitness and non-fitness activities are eligible back to January 1st, 2010. According to the Ontario Finance Department, the following are eligibility criteria: Fitness activities: the same as for the federal Children's Fitness Tax Credit; that is, the activities must require a significant amount of physical activity that contributes to cardio-respiratory endurance, plus one or more of muscular strength, muscular endurance, flexibility, and balance. Non-fitness activities must fall under one of the following categories: Instruction in language, music, dramatic arts, dance and visual arts. Activities with a substantial focus on wilderness and the natural environment. Structured interaction among children where supervisors teach or help children develop interpersonal skills. Enrichment or tutoring in academic subjects. This tax credit would not support programs that promote illegal activities. ADDITIONAL EDUCATIONAL RESOURCES: Distinguished Advisor Workshops January 2011, which will discuss personal tax changes in detail.

It's trueóthere are fewer places for tax dodgers to hide these days. Global finance ministers are clamping down on tax havens. Canada has agreed to comply with the standard for the exchange of tax information set by the OECD (Organization for Economic Co-operation and Development). Did you know that within the past year and a half Canada has signed 11 Tax Information Exchange Agreements (TIEAs)? "These agreements will help Canadian tax authority's combat international tax evasion,î says Finance Minister Jim Flaherty. Countries with whom Canada does not have tax treaties have signed TIEAs with Canada. These include San Marina, Anguilla, Bermuda, the Cayman Islands and the Turks and Caicos Islands. Additional agreements with other countries are in progress. For more information: http://www.fin.gc.ca/n10/10-107-eng.asp ADDITIONAL EDUCATIONAL RESOURCES: Cross Border Taxation Course

Now is the best time to discuss whether the December 15 quarterly instalment will be necessary for clients who previously met the profile. Farmers, who must make one instalment on December 31 should be especially careful. The prairie rainfall wiped out many crops and it is quite possible a reduced or no tax instalment will be required this year. CRA's billing system, however, may tell a different story. Any professional advisor and their clients will avoid overpayment however by completing an estimation of 2010 income and collaborating with financial advisors to maximize RRSP contribution room to get the results needed to avoid the payment. To help, CRA released a new version of "Paying Your Income Tax by Instalmentsî (Publication number P110) on November 18. This is a great resource for information on instalment payment amounts, remittance schedules, how to reduce required instalment obligations and interest and penalties for late or missing payments. In the past, tax instalment calculations include net tax owing and CPP payments on earnings. Voluntary E.I contributions for the self-employed on line 430 are now part of the formula as well. The complete publication is available: http://www.cra-arc.gc.ca/E/pub/tg/p110/README.html ADDITIONAL EDUCATIONAL RESOURCES: Essential Tax Facts, 2011 and Introduction to Personal Tax

On November 4, CRA released an update to the P151 publication; an excellent reference for Canadians who vacation or spend part of the year in the U.S. The guide includes information on completion of both Canadian and U.S. Tax returns. The Internal Revenue Service (IRS) has contributed to the information contained in the section on U.S. Tax Laws. Readers will find information on health coverage, ownership of U.S. property and a discussion of residential ties. U.S. gambling and lottery winnings are also discussed. This is a must-read for anyone who plans to travel to our neighbor to the south this year! ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes and Cross Border Taxationóa certificate course from the Knowledge Bureau. (link) TAX EVASION: FAILURE TO ACCOUNT FOR MIXED USE EXPENSES A real estate agent from Hammonds Plains, NS has been fined $25,126 for evading taxes by falsifying business expenses. This amount is more than 120% of the taxes owed. Personal expenses were altered to look like business expenses and she arranged for invoices for shared expenses to be reissued as her expenses alone. HST returns were also falsified. In addition to court-imposed fines, persons convicted of tax evasion must file or re-file the tax returns in question and pay the taxes owing plus interest. Civil penalties may also be assessed by CRA. For more information see: http://www.cra-arc.gc.ca/nwsrm/cnvctns/ns/ns101103-eng.html ADDITIONAL EDUCATIONAL RESOURCE: Essential Tax Facts 2011