May 2025 Poll

Does the Liberal promise expected soon to cut the lowest personal income tax rate by 1% to 14%,  go far enough to help Canadians impacted by high costs?

Business owners, prepare to have your vexation factor reduced. The March 29 federal budget ó the Economic Action Plan 2012 with the subtitle Jobs, Growth and Long-term Prosperity ó promises to continue the government's battle against "red tape,î making your working life easier. "Red tape hampers economic growth and erodes trust between government and citizens,î says the budget plan. "The Government is committed to removing bureaucratic obstacles to businesses' efforts to create jobs and growth.î So, this year's budget promises to implement the recommendations of the Red Tape Reduction Commission as well as reduce the tax-compliance burden for businesses. The Red Tape Reduction Commission was an offshoot of the 2010 budget and came into being in January 2011. After a year of country-wide consultations, the commission delivered its Recommendations Report  in January 2012. The feds responded by introducing the "One-for-Oneî Rule, whereby the government will eliminate one existing regulation for each new one it introduces. So, when a new or amended regulation increases the administrative burden on business, the government will offset from existing regulations an equal amount of administrative burden. The budget promises the government will develop an action plan to address the commission's other recommendations in the coming months. The budget also promises to reduce tax compliance burdens by: ï doubling the thresholds for eligibility to use the GST/HST streamlined accounting methods ó which simplify compliance for small businesses and public service bodies ó increasing access; ï amending the Income Tax Act so that a single designated partner of a partnership can sign a waiver on behalf of all partners; ï allowing corporations to pay a single dividend and designate a portion of that as an "eligible dividend.î Under existing rules, if only a portion of a dividend is eligible for an enhanced dividend tax credit, that portion must be paid as a separate dividend; ï consolidating and clarifying the administrative policies pertaining to the Scientific Research and Experimental Development (RS&ED) tax incentive program that are currently contained in about 70 documents. These initiatives will complement the SR&ED Policy Review Project, according to the budget plan; ï allowing the Canada Revenue Agency (CRA) to reply electronically to questions submitted by businesses using the My Business Account portal. The CRA's written responses will increase businesses' confidence in the information provided by the CRA; ï enhancing businesses' electronic access to the CRA's web forms and to the secure My Business Account portal. As well, an improved business section on the CRA's website provides a "one-stop shopî for businesses and a clear path to available electronic services with a new task-based web page; ï introducing a new administrative policy to ensure that the CRA's penalty structure for late-filed information returns is both fair and reasonable. When a business is unable to comply in a timely manner with its reporting obligations, the CRA will reduce the penalties when the number of late-filed returns is small; ï adding information on recourse mechanisms to CRA notices of assessment and reassessment. The CRA is also updating publications related to tax fairness and developing new content and new types of content such as webinars on redress mechanisms. For more information on the March 29 federal budget, please see Knowledge Bureau Report's Special Report: Budget 2012. Additional educational resources: EverGreen Expanitory Notes  

Every so often a budget makes historic changes; the March 29, 2012, federal budget or Economic Action Plan 2012 is such a document. It will be remembered for three milestones: Moving the age eligibility for Old Age Security (OAS) to age 67 from age 65 starting in 2023, Eliminating the penny, Celebrating Canada as a world leader. Indeed, today Canada leads the G-7 countries ó the U.S., UK, Germany, France, Italy and Japan ó in economic growth, and has the distinction of being voted the "#1 Best Country for Businessî by Forbes Magazine (2011) among 134 countries. Certainly, the most important provision from the point of view of tax and financial advisors and their clients is the age eligibility for OAS. This is a "heads upî change for the 45- to 54-year-old crowd and one that is hugely unpopular, judging from the 77% of Knowledge Bureau Report poll respondents who were against the move.   However, if we are to understand the full effects of the changes, there are substantive details to explore, including one provision that starts soon. Effective July 1, 2013, Canadians will be able to participate in a voluntary deferral of the OAS pension for up to five years in order to receive a higher annual pension later. Healthy seniors, therefore, may be able to supplement the returns on their investments by postponing the OAS. It speaks to the need for a highly skilled retirement income planner well versed in tax efficiencies. The phase-in of the age eligibility of 67 is a good decade away and this allows for a savings period in which to fill the gaps left by the OAS. However, today's budget forecasts continued low interest rates and increasing inflation for at least half that period. Achieving the shortfall may be difficult, given the investment climate predicted by private sector economists in the budget. The size and effect of that OAS capital gap will also depend on who you are: (a) The highest-income earners will not be affected at all. If your income is more than $69,562 in 2012, for example, your OAS is already being clawed back. (b) Clearly low-income pensioners will suffer the most; for this constituency, an alternative to the OAS and Guaranteed Income Supplement (GIS) will need to be developed. Like the OAS, the eligibility age for the Allowance and the Allowance for the Survivor will also gradually increase, from 60 today to 62 starting in April 2023. (c) Middle-income earners — those with incomes today that fall under the claw-back threshold of $69,562 — will need to plan now. They may plan to work longer before retiring. If they work until 67, this will give them two additional years to compound savings and earn pension credits. However, if they decide to retire at age 65 or before, they will need to withdraw more money from private savings. Those withdrawals will come at the beginning of the retirement period, which has a big impact on capital accumulations for the entire period. The budget tells us that those who were born on or after Feb. 1, 1962 will have an age of eligibility of 67. Those who were born between April 1, 1958 and Jan. 31, 1962 will have an age of eligibility between 65 and 67. Someone born in April 1960 will be eligible for OAS/GIS at age 66 and one month, as illustrated below:   OAS/GIS Age of Eligibility by Date of Birth     1958 1959 1960 1961 1962 Month of birth                Jan. 65 65 + 5 mon. 65 + 11 mon.   66 + 5 mon. 66 + 11 mon. Feb. – Mar. 65 65 + 6 mon. 66 66 + 6 mon. 67 Apr. – May 65 + 1 mon.   65 + 7 mon. 66 + 1 mon. 66 + 7 mon. 67 June – July 65 + 2 mon. 65 + 8 mon. 66 + 2 mon. 66 + 8 mon. 67 Aug. – Sept. 65 + 3 mon. 65 + 9 mon. 66 + 3 mon. 66 + 9 mon. 67 Oct. – Nov. 65 + 4 mon. 65 + 10 mon. 66 + 4 mon. 66 + 10 mon. 67 Dec. 65 + 5 mon.    65 + 11 mon.    66 + 5 mon. 66 + 11 mon.   67     Note: mon. = months Source: Table 4.2 March 29, 2012, Federal Budget So, how do you fill the gap? Consider the following case: a pre-retiree who will have $500,000 in savings when he retires at age 65 by which time the new rules are fully phased in. He will not receive OAS until age 67. That requires $6,500 more be withdrawn (using today's dollars and OAS pension levels) in each of first two years of an average 20-year retirement period. Here's what this means to you: If your plan is to live off the return earned on the capital and protect the $500,000 for your heirs, the loss of $6,500 in the first two years of retirement will result in a depletion of capital of about $26,5001 — you'll only have $473,500 at the end of the 20 years instead of the planned $500,000. Alternatively, if you were not withdrawing but rather saving your $6,500 OAS receipts each year in the two-year period and the money was invested at 3% return for 20 years, you would be giving up after-tax growth (taxes at 22%) of $23,767. For a couple, that amounts to $47,534. This is not small change. The run-up time is also going to be plagued by low interest rates. So, just how much you need to save depends on how much time you have to do so, and the rate of return. The young have it easier: to recover the full $13,000 over a 20-year period and assuming a constant rate of return, compounding and no adjustment for inflation, the chart below speaks for itself. Rate of return   Investment required 1%   $10,654 2%   $8,749 3%   $7,198 4%   $5,993 5%   $4,900 6%   $4,053 7%   $3,359   Formula: Future value/ (1+R)t = $13,000/(1.01)20 =$10,654 A Tax-Free Savings Account (TFSA) is the logical place to turn. Astute investors will be developing a completely tax-free pension plan for themselves, propelling their wealth much further than the heavily taxed generations of the 90s, for example. How much can a TFSA Help? This depends on the rate of return in the TFSA. What do retirement savers today need to know? (A special thank you to Robert Ironside's finance class at Kwantlen Polytechnic University, Vancouver, B.C., for these calculations). Assume that: You are currently 40 years old; The average annual inflation rate is 2.5% over the next 25 years; The real rate is 3% a year that time frame; The nominal rate is 5.5% a year. Then: a) To replace $6,000 of today's purchasing power will require $11,124 of income in 25 years; b) To replace the lost two years of OAS, you will need to save an additional $21,285; c) The 40-year-old will need to save an extra $416 a year (or $35 a month) for 25 years (based on a nominal yield of 5.5%). The additional savings will drop as the current age of the future retiree drops. For example, a person who is 20 today will need to save an extra $189 a year to replace the lost OAS of $18,227 a year for two years starting 45 years from today. However, if economic forecasts are accurate, achieving those required rates of return will not be easy, particularly on interest-bearing investments: Interest rates will remain relatively low over the next five years: three-month Treasury bills are expected to pay 0.9% in 2012, 1.3% in 2013 and an average of only 2.3% a year in the period 2014-16. Ten-year government bond will pay only 2.2% in 2012, 2.8% in 2013 and 3.5% on average in that same period. Inflation, however will exceed those returns in the near future: consumer price index inflation is expected to be 2.1% in 2012 and 2% in 2013, averaging 2% for the period. GDP inflation is higher: 2.4% in 2012 and 2.0% in 2013 leveling off to 2.1% for the period 2014-16. In other words, real returns, for investors will be nil. The growth in the Canadian economy will fall behind that of the U.S.: for the period ending 2016; Canada's average growth is expected to be 2.3%; for the U.S., the number is 2.6%. 1 Calculation based on return rates of 1% in the first year, 2.5% in the second, 3.5% in the third year and 4% in subsequent years.  The original plan for $14,518 withdrawal in the first year increased by 2.7% annually.  The original plan results in maintenance of $500,000 investment.  By removing $6,500 extra in the first two years to cover missing OAS payments results in a reduction in ending capital to $473,500. Evelyn Jacks, president of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World.   To purchase your books, visit www.knowledgebureau.com/books.asp Follow on Evelyn on Twitter @evelynjacks   Additional Educational Resource: Distinguished Advisor Conference 2012 - Navigation: Charting a New Financial Course  

The federal government's budget, Economic Action Plan 2012, may be ground-breaking both for its changes to the eligibility age for Old Age Security (OAS) and the disappearance of the penny. But for a government that wants to get its fiscal house in order yet build long-term prosperity, it is a balancing act. And that will require some balancing, too, on the part of professional financial advisors as they work with their clients to build their long-term prosperity. "It is clear that wealth advisors and tax and retirement planners must pay much more attention to the combined effect of taxes and inflation on returns, after fees, given the numbers in the budget,î says Evelyn Jacks, president of Knowledge Bureau, which teaches Real Wealth Management strategies in its designation programs. "With personal tax increases of 6.5%, GDP inflation rates of 2.4% and three-month Treasury bills returning only 0.9%, careful investment choices will be required,î she adds, "especially given today's changes to the OAS.î In her story below, Jacks looks at how pre-retirement income planning has changed. "Its not what you earn that counts,î concludes Jacks, "it's what you keep and what that's worth in the future that matters.î Knowledge Bureau Faculty Member Alan Rowell, DFA-Tax Services Specialist, and contributor to this Budget 2012 Special Report agrees: "This is the point at which financial advisors need to look across the board and do what needs to be done, not with regards to return on investment alone, but with in-the-pocket net cash when you need it.î Rowell tackles the changes Budget 2012 has made to the corporate tax regime in his story below. Advisor Douglas Nelson, MFA and author of Master Your Retirement: How to fulfill your dreams with peace of mind, puts it this way: "In the study of Real Wealth Management, we learn that how well an inter-advisory team of financial professionals coordinates all aspects of a family's financial affairs into one strategic plan is often the greatest contributor to the financial success achieved by that family. "When the ripple effect of every financial change is weighed, the financial outcome is often much more positive and highly predictable,î he adds. "When changes in a federal budget affect tax rates, inflation rates, government benefits and rates of return, the importance of the Real Wealth Management approach is underscored. This is about how well the advisory team and the client respond to these changes.î In this Special Report, Nelson assesses the changes Budget 2012 have made to the retirement system in Canada. Also, for more on the impact of the budget on personal income taxes, see the story below by Walter Harder and Greer Jacks.   Additional Educational Resource: EverGreen Explanitory Notes  

The federal government's Economic Action Plan 2012 will change Canada's retirement system in significant ways. Here is what's ahead: The proposed changes: The age of eligibility for Old Age Security (OAS) and Guaranteed Income Supplements (GIS) will be gradually increased to 67 from 65, starting in April 2023, with full implementation by January 2029. An 11-year notification period, followed by a six-year phase-in period, is being provided to ensure that individuals have sufficient advance notification to plan their retirements and make adjustments. This proposed legislative change to the age of OAS/GIS eligibility will not affect anyone who is 54 years of age or older as of March 31, 2012 (that is, those born on March 31, 1958, or earlier). Those who were born on or after Feb. 1, 1962, will be eligible for OAS at 67. Those born between April 1, 1958, and Jan. 31, 1962, will have an age of eligibility between 65 and 67. Someone born in April 1960 ó one year and one month after the minimum eligibility age of March 31, 1958 ó will be eligible for OAS/GIS at age 66 and one month ó one year and one month later than the age 65 start date in place today. In line with the increase in age of OAS/GIS eligibility, the ages at which the Allowance and the Allowance for the Survivor are provided will also gradually increase from 60 and 64 today to 62 and 66 starting in April 2023. This change will not affect anyone who is 49 years of age or older as of March 31, 2012. The government will ensure that certain federal programs, including those provided by Veterans Affairs Canada and Aboriginal Affairs and Northern Development Canada that provide income-support benefits until age 65, are aligned with changes to the OAS program. The government will discuss the impact of the OAS changes on Canada Pension Plan (CPP) disability and survivor benefits with provinces and territories, who are joint stewards of the CPP, in the course of the next triennial review. To improve flexibility and choice in the OAS program, starting on July 1, 2013, the government will allow for the voluntary deferral of the OAS pension for up to five years, allowing Canadians the option of deferring take-up of their OAS pension to a later time and receiving a higher, actuarially adjusted, annual pension. GIS benefits, which provide additional support to the lowest-income seniors, will not be eligible for actuarial adjustment. The government will improve services for seniors by putting in place a proactive enrolment regime that will eliminate the need for many seniors to apply for OAS and GIS. This measure will reduce the burden on seniors of completing application processes and will reduce the government's administrative costs. Proactive enrolment will be phased-in from 2013 to 2015. On Nov. 17, 2011, the federal government introduced the Pooled Registered Pension Plans (PRPPs) Act. PRPPs will provide a new, accessible, large-scale and low-cost pension option to employers, employees and the self-employed. The PRPP Act will apply to employees in industries that are federally regulated. It will also apply to individuals employed in the Yukon, Northwest Territories and Nunavut. Provinces must introduce enabling legislation in their own jurisdictions to make PRPPs available throughout Canada. Where do we go from here? If you wish to make up this difference through self-funding, the good news is that the tools to make this happen in an efficient manner are already available: i) increase your RRSP contributions by $100 a month over the next 10 years;ii) put your RRSP refund back into your RRSP;iii) put your RRSP refund into a TaxFree Savings Account (TFSA)iv) review your household expenditures and reduce your monthly expenses in retirement by a few hundred dollars. By deferring OAS to age 67, the only loss is the additional income you would have received under the old rules for a two-year period. In today's dollars, this is equivalent to $400 to $800 a month of spendable, after-tax income, or a total of about $14,400. Considering that most Canadians will require additional savings in their pension plans and RRSP accounts of many hundreds of thousands of dollars, this small amount of money for a two-year period of time is easily recoverable. What's the best change to the retirement system in the budget? One of the most exciting changes occurring at this time is the launch of PRPP. One of the great hopes of this plan will be a lower-cost, stable pension structure for the vast majority of Canadians. Over their lifetime, many Canadians will pay hundreds of thousands of dollars in investment-management fees. While it is obvious that fees for investment products can never be zero, a reduction of 15% to 25% can add many thousands of dollars to income each and every year of retirement. Lowering fees to 1.5% of the value of the portfolio from 2.5% can provide as much as $10,000 of additional income each year of retirement. Over 20 years of retirement, this adds up $200,000. This will be far more beneficial to Canadians than a mere deferral of OAS benefits to an aging population. Douglas Nelson, B.Comm. (hons.), CFP, CLU, MFA, CIM, is an independent financial advisor in Winnipeg and the author of Master Your Retirement: How to fulfill your dreams with peace of mind.   Additional Educational Resources: Elements of Real Wealth Management, Tax Efficient Retirement Income Planning and Tax Strategies for Financial Advisors.  

Corporations, for the most part, were left alone in the 2012 Federal Budget with only some tinkering and fine-tuning applied.   Capital Cost Allowance In 1994, the federal government added class 43.1 (30% declining) to Schedule II of the Income Tax Regulations in order to allow for the depreciation of clean energy and conservation equipment. This was enhanced in 2005 with class 43.2 (50% straight line) for the same equipment that met a higher standard of efficiency.   Today, the budget adds to Schedule II: Waste-fuelled thermal energy equipment,  Equipment of a district energy system that uses thermal energy provided by eligible waste-fuelled thermal energy equipment, Equipment used to distribute thermal energy primarily generated through waste-fuelled thermal energy equipment, Equipment that uses the residual of plants to produce electricity and heat. In addition, the restriction requiring thermal energy equipment be used in generating heat in an industrial process or greenhouse has been eliminated. This opens waste-fuelled equipment as an alternative to heating oil or to hot water. In the past, costs incurred to create and develop these systems had to be added to the capital cost of the equipment. Today's budget removes this restriction and intangible project start-up costs will now be fully expensed or, alternatively, passed on to investors using follow-through shares. Finally, in order to qualify for the accelerated depreciation of these classes, the equipment must meet the environmental laws and regulations governing the equipment.   Phased-Out Tax Credits Mineral Exploration and Development Tax Credit Budget 2012 will eliminate the current corporate 10% tax credit available for pre-production mining expenditures. The credit will remain in place for 2012, reduce to 5% for 2013 and disappear entirely in 2013. Pre-production development expenses will also be phased out, dropping to 7% in 2014, 4% in 2015 and be eliminated in 2016. Agreements in place as of March 29, 2012, will be applied at the 10% tax credit rate until Dec. 31, 2015. Atlantic Investment Tax Credit (AITC) The AITC currently offers a 10% tax credit for qualifying acquisitions of new buildings and machinery and equipment primarily used in farming, fishing, logging, mining, oil and gas, and manufacturing in the Atlantic provinces. The current rate of 10% will remain until 2014, drop to 5% in 2015 and be eliminated entirely as of Jan. 1, 2016, on qualifying equipment purchased before March 29, 2012.   Scientific Research and Experimental Development Investment tax credits are available to Canadian corporations to assist in the cost of qualifying expenditures incurred to innovate and create economic opportunities for Canadian corporations. Qualifying expenditures are eligible for an Investment Tax Credit of 20%. The credit is further enhanced for Canadian-controlled private corporations (CCPCs) to 35% up to $3 million. Effective Jan. 1, 2013 this credit will be reduced to 15% from 20% and will be pro-rated for yearends that straddle the Jan. 1, 2013 date. The SR&D tax credit for CCPCs remains unchanged at 35% of the first $3 million. Certain changes and limitations have also been made to the types of items that qualify as expenditures; as well, the amount of wages that can be included has been reduced. The qualified expenditure pool will be reduced to 60% of eligible expenditure from 65% in 2013, and to 55% in 2014. Corporate partnerships tax avoidance Budget 2012 addresses sections 88 and 100 of the Income Tax Act that deal with the General Anti-Avoidance Rules (GAR). Essentially, the budget strengthens rules against liquidating partnerships and increasing the asset value of income-producing assets and the sale to offshore or tax-exempt entities.   Alan Rowell, Distinguished Financial AdvisorñTax Services Specialist, is president of The Accounting Place in Stoney Creek, Ont.   Additional Educational Resources: Introduction to Corporate Tax Preparation and Tax Strategies for Financial Advisors.  

The federal government's Economic Action Plan 2012 is squarely onside to eliminate the deficit by fiscal year 2014-15 ó without introducing draconian budget cuts or new taxes. In fact, Finance Minister Jim Flaherty's budget "remains focused on an agenda that will deliver high-quality jobs, economic growth and sound public finances.î The deficit ó $24.9 billion for 2011-12 ó will decline by steps over the five years reaching a surplus of $3.4 billion in 2015-16 and $7.8 billion in 2016-17. By that point, federal debt as a percentage of gross domestic product (GDP) will drop to 28.5% ó down from 33.9% in 2010-11 and in line with pre-recession levels. Another telling indicator, program expenses as a share of GDP, will likewise decline to pre-recession levels, hitting 12.7% by 2016-17 from 14.7% in 2010ñ11. As has been the habit for the past two decades, the feds have based the budget on the input of private sector economists. The March consultation with economists produced growth in real GDP of 2.1% in 2012 and 2.4% in 2013. But as those economists were quick to point out, those projections are not without downside risks. As a result, the government has adjusted the private sector forecast for nominal GDP downward by $20 billion a year over the 2012ñ2016 period. This adjustment for risk, says the federal budget, represents a $3-billion adjustment in fiscal revenues in each year of the forecast. The budget outlines revenues of $248 billion in 2011-12, a 4.6% increase based on year-to-date results and economic projections. Over the remainder of the forecast horizon until 2016-17, revenues are projected to grow at an average annual rate of 4.7%. Personal income taxes ó the largest component of budgetary revenues ó will increase by $7.4 billion or 6.5% to $120.9 billion in 2011ñ12. Over the remainder of the projection period, average annual growth is expected to be 5.4%. Corporate income tax revenues are projected to increase by 8.8% to $32.6 billion in 2011ñ12 and by 4.1% annually until 2016-17. Program spending, coming in at $241.9 billion in this fiscal year, will increase gradually to $268.6 billion in 2016-17. Under the heading of transfers to persons comes elderly benefits, one of the largest government expenses. Comprised of Old Age Security, Guaranteed Income Supplement and Spousal Allowance payments to qualifying seniors, elderly benefits are projected to grow to $50.1 billion over the planning period from $38.1 billion, or about 5.6% a year. This increase, says the budget, is due to consumer price inflation, because benefits are fully indexed, and a projected increase in the seniors' population to 6.0 million from 4.8 million over the time frame. Major transfers to other levels of government include the Canada Health Transfer (CHT) with a 6% annual escalator and Canada Social Transfer with a 3%-a-year escalator. Budget measures to support jobs and growth will cost $3.6 billion over the next five years. But, at the same time, the budget will reduce departmental spending by $20.1 billion between 2011ñ12 and 2016ñ17 after taking into account workforce adjustment costs. Overall, on a net basis, say the feds, budget measures will reduce spending by $20.8 billion in the current fiscal year and the next five years.   Additional Educational Resources: Debt and Cash Flow Management and Financial Recovery in a Fragile World.