Confirmed:  The CCR for Small Business is Tax Free

Ottawa has confirmed that the CCR for Small Business received by eligible Canadian-controlled private corporations (CCPCs) will be tax free for the 2019-20 to 2023-24 fuel charge years, as will the final payment for the 2024-2025 fuel charge year.  Draft legislation was released on June 30, 2025 with this announcement; and will be introduced for law making in Parliament this Fall.   Some of the more significant details are discussed below.

Canada Revenue Agency (CRA) is putting some high-flying Tax-Free Savings Accounts (TFSAs) and their "unusualî transactions under its microscope. It seems the ability of some TFSA holders to turn a $5,000 annual contribution into, for example, $300,000 in one year has attracted Ottawa's attention. The CRA recently sent questionnaires to selected TFSA holders and is threatening a penalty of close to 100% of the value of the TFSA for any missteps. Since the introduction of TFSAs in 2009, some TFSAs have grown beyond what the CRA believes are the TFSAs' natural limits using "qualifiedî investments ó that is, investments in properties, including money, guaranteed investment certificates (GICs), government and corporate bonds, mutual funds and securities listed on a designated stock exchange. Indeed, the CRA believes holders of some TFSA have employed complicated, and prohibited, "swap transactions,î transferring properties or assets ó such as thinly traded securities with large differences in "bidî and "askî prices ó between the TFSA and the holder of the TFSA or a person not at arm's length from the holder. When those securities are swapped out of a TFSA into non-registered accounts, they may triple in value; repeated swaps can quickly turn $5,000 into $300,000. But, says CRA, such "aggressiveî tax planning gives rise to unfair advantages. On that basis, the CRA is going after certain TFSA holders. (Most need not worry: the CRA is only after those who have misused TFSAs in order to gain unfair advantages through circuitous transactions and prohibited investments.) How to identify an improper TFSA advantage. An advantage is any benefit, loan or debt that depends on the existence of a TFSA. An improper advantage is any benefit that increases the fair market value (FMV) of a TFSA that can reasonably be attributed, directly or indirectly, to one of the following: ∑ a transaction, event or series of transactions that would not have occurred in an open market between arm's length parties acting prudently, knowledgeably and willingly, one of the main purposes of which is to enable the holder (or another) to benefit from the tax-exempt status of the TFSA; ∑ a payment received in substitution for services rendered by the holder of the TFSA or a person not at arm's length with the holder, or a payment of a return on investment or proceeds of disposition for property held outside of the TFSA by the holder or a person not dealing at arm's length with the holder; ∑ a swap transaction; ∑ specified non-qualified investment income that has not been distributed from the TFSA within 90 days of the holder of the TFSA receiving a notice from the CRA requiring them to remove the amount from the TFSA; ∑ any benefit that is income (including a capital gain) and is reasonably attributable to deliberate overcontribution or a prohibited investment.   Prohibited investments. These are investments to which the TFSA holder is closely connected and include: a debt of the holder; a debt or equity investment in an entity in which the holder has a significant interest (generally 10% or greater); and a debt or equity investment in an entity with which the holder or an entity does not deal at arm's length.   Not included in this prohibited designation are mortgage loans that are insured by the Canada Mortgage and Housing Corporation (CMHC) or by an approved private insurer. Most TFSA holders need not worry about these audits; they pertain only to aggressive and abusive use of the TFSA. But those faced with audits should seek professional advice as soon as possible. Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.  

Once all the members of your family — including minors and young adults — have filed their tax returns, you can turn your attention to teaching the next generation the long-term benefits of investing their returning social benefits and refunds wisely. Contributing up to $5,000 to a Tax-Free Savings Account (TFSA) each and every year is one way young adults can build a tax-free pension for retirement. Investment income earned in a TFSA accumulates tax-free, which means that future withdrawals from the TFSA are not taxed. This is extremely powerful. Imagine, future generations not needing to pay taxes on their retirement savings! But to make this a reality, your young adults must make maximum TFSA contributions part of a disciplined annual savings program. Contributing to a RRSP is also very important and may, in fact, come before a TFSA in order of investing if your adult children have net or taxable income and sufficient contribution room. An RRSP deduction reduces net income, which increases refundable tax credits (such as the GST/HST credit) and enables the transfer of tuition, education and textbook amounts. Putting money into an RRSP early not only helps your young adults reduce taxes but will also create a three-part savings plan — for home ownership, life-long learning and retirement — all within the same vehicle. If you wish to add to your child's nest egg, you can generally loan funds for investment purposes to your adult child without invoking the Attribution Rules in Section 74.1 of the Income Tax Act, which attribute resulting interest and dividends back to the lender. But beware of Section 56 (4.1) of the Act, which can attribute income back to the lender if it is reasonable to assume that the lender made the loan, or the recipient incurred the indebtedness, to reduce or avoid taxes. The Section 56 (4.1) rules are broader than the Section 74.1 rules and relate to all income earned on transferred property. It's important to stay clear of the tax auditor. So, be sure to structure your affairs properly. It's Your Money. Your Life. By filing audit-proof tax returns for all family members at the same time, starting with the lowest-income earner and moving to the highest, you can increase after-tax results for the family as a unit. Then, leverage any tax windfalls by teaching young adults the proper order for investing, so that they can maximize their opportunities to build tax-efficient, million-dollar futures with their tax-sheltered accounts. Evelyn Jacks, president of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. Knowledge Bureau also publishes The One Financial Habit That Could Change Your Life by Robert Ironside and Edwin Au Yeung and The Smart, Savvy Young Consumer by Pat Foran, both good guides for young investors. To purchase your books, visit www.knowledgebureau.com/books.   Follow Evelyn on Twitter @evelynjacks    

On Thursday, March 29, after the federal Minister of Finance Jim Flaherty presents his 2012-2013 federal budget in the House of Commons, Knowledge Bureau Report will issue a Special Report, analyzing and assessing the impact of Budget 2012 on your finances. Tax expert and Knowledge Bureau President Evelyn Jacks will weigh in on the tax consequences, while other Knowledge Bureau experts will comment on the economic and financial and retirement planning implications. So, watch your email for this Special Report.   Additional Education Resources: Financial Recovery in a Fragile World and Debt and Cash Flow Management  

At tax time, Canada Revenue Agency (CRA) releases a steady stream of bulletin and notices to help taxpayers. Recently, the publication T4060 CRA Collections Policies ó Individual Income Tax (T1) and Notice 270 concering elimination of the HST in British Columbia in 2013  appeared on the CRA website. There are few changes to report in T4060, which sets out the procedures for taxpayer remittance and CRA collection of taxes. But worth noting is the Frivolity Penalty, found in section 179.1 of the Income Tax Act. If you are planning on appealing a CRA assessment or reassessment, make sure your appeal has legs. The Frivolity Penalty allows the CRA to impose a penalty of 10% of tax owing if your appeal proves to be frivolous or groundless and you launched an appeal only to defer paying taxes. Notice 270 is a meatier document detailing the ramifications of the April 1, 2013, elimination of the 12% HST. As of that date, HST will no longer apply on taxable supplies or services made in B.C. or to taxable property or services imported to B.C. As of that date, B.C. reverts to the 5% GST. The key date, then, is April 1, 2013. Consider the following CRA example: In December 2012, a consumer buys a refrigerator on a layaway plan. According to the written agreement, the consumer must make six equal, monthly payments starting in January. Possession and ownership of the refrigerator will be transferred to the consumer after the final payment is made in June 2013. HST at the rate of 12% applies to the monthly payments made before April 1, 2013. Payments made on or after April 1, 2013, are subject to GST at the rate of 5%. As you can see, the CRA intends to draw the line at April 1, 2013, so that any payment obligation arising on or after that date will be a GST payment obligation, notwithstanding contractual relations that take into account taxes payable. Additional Educational Resources: Knowledge Bureau ToolKit and Master Your Retirement 2012 Edition.  

Interest rates are putting policymakers and politicians between a rock and a hard place. When the Bank of Canada recently left the overnight rate at 1%, it confirmed the likelihood the stable, low-interest-rate environment would continue into 2013. But those same low interest rates have fostered Canada's overvalued real estate market and record levels of household debt. As TD Bank chief economist Craig Alexander puts it in a recent report, this imbalance "poses a clear and present danger to Canada's medium-term economic outlook.î He calls on policymakers to address the imbalance and take action to minimize the risks associated with the higher interest rates that will eventually, but surely, come. Certainly, mortgage rates are low enough to make acquiring a home, even at inflated prices, attractive. In a battle for market share, non-bank lenders are offering 10-year closed mortgages around the 4% mark, while bank rates may be a two percentage points higher. In fact, it is currently more expensive to owe Canada Revenue Agency money. The CRA's rate on overdue taxes, Canada Pension Plan contributions and Employment Insurance premiums, calculated quarterly, for the period April 1 to June 30, is 5% of the overdue amount. If you owe taxes for 2011 and don't file your 2011 return on time, the CRA charges a late-filing penalty of 5% of your 2011 balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12months. The CRA recommends taxpayers file their returns on time and pay what they can ó even if they can't pay the whole amount. Alexander's concern is highly leveraged households. He notes growth in household debt over the past decade has been fuelled by "real-estate secured loansî such as mortgages and home equity lines of credit. Either sinking house prices or rising interest rates could provide the economic shock that sends Canadians reeling. "We have estimated,î he writes, "that once interest rates return to more normal levels, more than one million Canadian households (roughly 10% of households that currently have debt) will have to devote 40% or more of their income to making their monthly debt payments ó a level that the Bank of Canada deems puts households in a financially vulnerable position.î Alexander outlines three option: ï shorten the maximum amortization on mortgages to 25 years from 30 years; ï in­troduce a minimum interest-rate floor on all income tests, say 5.5%, when qualifying for mortgages or home equity loans; ï raise the minimum down payment modestly, say to 7% from 5%. He does not recommend all three be instituted at once: "Tighter standards should be imposed in a gradualist fashion to avoid triggering a sharp unwinding of the imbalances that are present.î He admits nothing can be done about the real estate and personal debt imbalance but policy action could prevent that imbalance from becoming larger.   Additional Educational Resources: Financial Recovery in a Fragile World  

If you are supporting an adult who is dependent on you because of mental or physical impairment, the Canada Revenue Agency (CRA) offers tax relief on this year's federal tax return in the form of several, important, non-refundable tax credits. ï Amount for an Infirm Dependant Over 18. (Line 306) If an adult is dependent on you because of an impairment in mental or physical functions, you may be eligible to claim this amount. The dependent adult's net income ó including social assistance and world income ó in 2011 must be less than $10,358. ï Caregiver Amount. If the dependant lives with you in your home, you may also be able to claim the Caregiver Amount. The dependant's net income threshold is higher in this instance than the infirm-dependant amount. The tax credit begins to be clawed back around the $14,600 mark, making this credit accessible to more taxpayers, particularly seniors who are receiving public and private pension benefits. ï Disability Amount. If that adult child is markedly restricted in daily living activities and a medical practitioner completes form T2201 Disability Tax Credit Certificate, you can also claim the Disability Amount ó provided the disability is expected to last for a continuous period of 12 months or more. This amount is not income-tested; if the dependant does not have enough taxable income to absorb it, you ó as the supporting individual ó may claim it. ï Medical expenses. Medical expenses for the dependent adult, too, may be claimed. Note that as of 2011, there is no longer a $10,000 ceiling on the amount of these expenses. ï Child-care costs. Working parents note: you are also eligible for a lucrative tax deduction for infirm adult children who qualify for the Disability Amount. If you incur child-care costs at your expense, you may be able to claim those child-care expenses, up to a maximum of $10,000 a year. It's Your Money. Your Life. If you are supporting an infirm adult, claim your tax credit. Or, if you know of a family that is taking care of an infirm adult, pass along this information. Often, these tax preferences assist greatly, especially if the caregiver's ability to earn is curtailed because of the responsibilities of care. In fact, knowing about these tax opportunities can create important new money for investments such as a Tax-Free Savings Account or RRSP, which can bring further tax-advantaged cash flow into the family. Next Time: Investing Tips for Young Adults 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 Evelyn on Twitter @evelynjacks