Opportunity: Canadian Dollar Stabilizes, Somewhat

Things have started to turn around for the Canadian dollar in the second quarter of 2025. It hit a 22 year low in January of 2025. Investors and property owners, who have been swooning at the high burn rate in their travel plans and property maintenance abroad, may wish to consider recent more positive trends and consider some risk mitigation opportunities now that the dollar is stabilizing somewhat.  

The off-return implications of pension income splitting can vary significantly by province. Here's some feedback received from our readers. Dan Reynen of Dan Reynen Business Services in Campbell River BC writes: In BC the Per Diem rate charged to people in Care (Senior's Housing etc) is based on their Total Income from the previous year. This means their 2009 Per Diem rate will be based on their 2007 Income Tax Return. The government allows pensioners to file a form declaring they are separated due to medical reasons. They then only use the person in care's income in determining how much they are charged at the home. Splitting pension in this case can seriously affect how much is charged to the person in care. If the person in care is not the pensioner splitting the pension will increase the Per Diem. The Per Diem increase can be far more than the tax saved. Check carefully. You could have a situation where they are already paying the maximum Per Diem anyway so the splitting of pensions won't affect them. The two other items to be taken into account from this are, will one or the other be going into care in the near future and which one first. You really need to get to know your elderly clients well before deciding the best way to split the pension income. You could try to use your crystal ball. Since this does not actually affect them until two years (1.5 years) down the road. Peter Coles, Tax Research and Training Specialist of H&R Block writes: Ö it appears that the decision to split pension income may sometimes involve more than the tax considerations. For example, in Saskatchewan, nursing home fees could be adversely affected by an increase in the Line 150 amount of the pension transferee. The Alberta Seniors benefit could also be affected (although this would only affect low-income seniors who probably would not have much pension income to split). By the way, Nova Scotia Pharmacare works the same way as Manitoba Pharmacare and could be adversely affected by an increase in the pension transferee's Line 150 amount. We are hoping that the various provincial governments will fix their regulations to take pension income splitting into account. Manitoba Health has already advised us that they are currently reviewing pension income splitting provisions. However, it might be dangerous to assume that all provincial governments will follow through. It is also worth noting that where spouses or common-law partners are involuntarily separated (for example, where one of them is in a nursing home), the Guaranteed Income Supplement (GIS) that each receives will be recalculated based on their individual income. Transferring pension income in this situation could therefore adversely affect the GIS entitlement of the pension transferee. Ö there could be other government programs affected by pension income splitting that we are unaware of. Our policy is to ask our clients whether they are receiving benefits under any federal or provincial income-dependent programs. If they are, then we check them out to see if pension income splitting could have any adverse consequences.

Recently there has been a modicum of good news for investors in the Crocus Fund, a Manitoba-based Labour-Sponsored Investment Fund. The fund ceased trading 1995. In an out-of-court settlement reached recently, 34,000 unit holders may receive a portion of $12 Million. The settlement is expected to take place sometime this fall.  What will the tax consequences be?  That will depend on whether the money is held in a registered or non-registered account. But first, it is important to note that under normal circumstances LSIF investors who redeem their investments before the required 8-year holding period would be required to repay the tax credits earned by the investment. Exceptions can be made in such circumstances as terminal illness, disability or severe hardship so one would expect that an exception will be made for Crocus investors as the redemption was not voluntary.  In fact, the Manitoba government has already confirmed that this will be the case. Of course, there will be no tax relief for investors whose fund units were held in their RRSPs. Any investor who holds the units in a non-registered account will be able to claim a capital loss in the year that the proceeds of disposition are final. In most cases, one would expect that the ACB of the investment would be the sum of the initial investment and the tax credits claimed, but the Income Tax Act specifically exempts LSIF units from this rule so the ACB will be the amount initially invested.

Andrew Brash Update Andrew Brash, Knowledge Bureau Faculty member, began the first leg of his journey back to the summit of Mt. Everest Tuesday when he boarded a plane in Calgary. Andrew's return follows aprevious triumphant defeat and display of personal heroism and human compassion: the saving of fellow mountaineer Lincoln Hall, who was left for dead 200 meters from the summit. Despite unrest in Tibet over Chinese rule and the potential "closing of the mountain" to take the Olympic torch to the top, Andrew still has high hopes to complete his "unfinished business". There is always the Nepalese side available to climb if the Tibetan side is unavailable. We will be featuring an ongoing update on his dangerous return to climb Mt. Everestas part of Breaking Tax and Investment News. We will also be linking you to Andrew's website andrewbrash.com for live updates from the expedition. Join us as we journey to the top of the world with Canadian Hero, Andrew Brash! Bookmark knowledgebureau.com and stay tuned for updates!

One of the most frustrating areas of tax return preparation is preparing a return properly when the employer won't issue a T4 slip with the proper numbers. In my practice, this issue comes up with two government departments (one provincial and one federal) who claim that they cannot re-issue T4 slips but instead issue a letter along with the T4 slip which indicates the portion of the employee's income that is not subject to income tax because it is earned on a reserve and the taxpayer is a status Indian. The first step in the process of preparing an accurate return is to prorate the proper amounts on the T4 slip, according to the percentage provided by the employer. In addition to the employment income shown in Box 14, the following amounts need to be prorated: CPP pensionable earnings in Box 26 and the resulting CPP premiums in Box 16 (although the employee may elect to participate in CPP on the exempt earnings)  RPP Contributions in Box 20 Pension Adjustment in Box 52 Union Dues in Box 44. If you miss prorating the RPP and union dues deductions, CRA will eventually reassess the return to disallow the portion of the RPP contributions and union dues that relate to the non-taxable income. In my experience though, they do not prorate the pension adjustment unless you request them to do so. File the return, either by EFILE (in which case you need to put the non-taxable portion of the income in Box 71 as well) or on paper. If filing on paper, be sure to include a copy of the letter from the employer. Either way, the return should pass initial assessment as filed. However, you can expect that some time in the summer your client will receive a Notice of Reassessment as the numbers reported don't match the numbers on the T4 slip and the matching program has automatically made the ìcorrectionî. That reassessment can easily be reversed by contacting CRA and straightening out the situation. For an EFILE return, the letter from the employer will be needed at this time. If the taxpayer has a spouse and children, you can expect that the spouse's return will likely be reassessed as well to move claims for child care expenses and reporting of the UCCB if they become the lower-income spouse as a result of the taxpayer's reassessment. Once the taxpayer's reassessment is reversed, the spouse's can be as well. The whole process is not only frustrating for the preparer but also for the client.

The individual provinces and territories provide health care insurance and many provide subsidies for the cost of prescription medications for their residents. The cost of the programs and the amount of subsidies are often linked to the taxpayer's income. While splitting pension income may reduce income taxes, preparers need also to be aware of the possible negative effects on health costs for their clients. Provincial Health Insurance Most provinces build the cost of provincial health coverage into their income tax rates but three provinces, BC, AB, and ON levy a clearly identifiable fee for health insurance. In BC and AB, the fee is billed and paid directly. In Ontario, the Health Premium is calculated and paid along with the normal Ontario Tax. BC and Alberta have premium assistance plans which are based on the couple's prior year net income (for BC) and the prior year's taxable income (for AB). Since transfer of pension income does not affect either the couple's combined net or taxable incomes, there are no effects in either province if pension income is split. The Ontario Health Premium, on the other hand is calculated based on the individual's taxable income. Thus pension income splitting will affect the amount of the Ontario Health Premium. For low-income seniors, the result will often be a reduction in the premium if income is split. For higher-income seniors, the health premiums may rise, but not nearly as much as the amount of tax that may be saved by splitting of pension income. PharmaCare Most provinces have a plan to help reduce the costs of prescription drugs for their residents and for seniors in particular. The majority of these plans have deductible or co-pay amounts that are based on a couple's combined net incomes. In those provinces, splitting of pension income will not affect the cost of prescription drugs. Some of the notable exceptions are: Saskatchewan: The new flat rate for seniors comes into effect on July 1, 2008. Seniors will quality if their individual net income (based on 2006) is below the $64,044 threshold. If splitting of pension income in 2007 brings one spouse's income below the threshold and does not bring the spouse's above the threshold, it would appear that seniors may lose their eligibility for the Senior's Drug Plan once the base year becomes 2007. Manitoba: Currently, the deducible for prescription drugs is based on the family total income. Since pension income splitting increases the transferee's total income but does not affect the transferor's total income, transferring pension income increases family total income. One would expect that the Manitoba government will adjust the criteria so that this anomaly will not affect the cost of prescription drugs for seniors before 2007 become the base year for determining the deductible amount.

On March 11, the government tabled a Notice of Ways and Means to amend the Income Tax Act. The majority of the content of the Notice is comprised of the detailed changes required to implement the measures announced in the February 26 budget. The changes implemented include: Establishing the Tax-Free Savings Account, effective for the 2009 tax year. Enhancing the flexibility of Registered Education Savings Plans by increasing by 10 years the time they may remain open and accept contributions, effective for the 2008 tax year. Increasing the residency component of the Northern Residents Deduction by 10 per cent, effective for the 2008 tax year. Extending eligibility for the Medical Expense Tax Credit to certain devices, effective for the 2008 tax year. Extending the Mineral Exploration Tax Credit by one year. Extending the capital gains tax exemption for certain donations of listed securities to certain exchangeable shares and partnership interests, for donations made on or after February 26, 2008. Adjusting the rate of gross-up of eligible dividends and the Dividend Tax Credit to reflect corporate income tax reductions, beginning in 2010. Increasing the benefits available to small and medium-sized businesses under the Scientific Research and Experimental Development Program, generally effective for taxation years that end on or after February 26, 2008. Amending the penalty for failure to remit source deductions when due and excusing early remittances from the financial institution remittance rules, effective for remittances on or after February 26, 2008. Reducing the paper burden associated with dispositions by non-residents of certain treaty-protected property, effective for dispositions that occur after 2008. Ensuring that the tax incentive for donations of medicines benefits recipients in developing countries to the greatest extent possible. Modifying the provincial component of the Specified Investment Flow-Through tax to better reflect actual provincial tax rates, generally effective for the 2009 tax year. Amending the Excise Act, the Excise Act 2001, and the Customs Tariff to improve tobacco tax enforcement and compliance, adjusting excise duties on tobacco sticks and tobacco for duty-free markets, and equalizing the excise treatment of imitation spirits and other spirits. Implementing Goods and Services Tax/Harmonized Sales Tax (GST/HST) as detailed in the budget. In a surprise move, the Notice also includes changes that effectively reverse the changes to Registered Education Savings Plans which were included in Bill C-253, as passed on March 6.  These reversing provisions will be enacted if Bill C-253 receives Royal assent and will become effective retroactive to the day Bill C-253 receives assent, ensuring that there is no time period when RESP contributions are deductible.