CRA’s 100-Day Mandate – Will It Deliver?

It’s no surprise to you that the Canada Revenue Agency is far from peak efficiency. Difficulty reaching an agent, long delays in getting information, and inconsistent service have finally caught the attention of the minister responsible for the agency that collects our taxes. Over the past 50 years, Canada’s Income Tax Act has grown increasingly complex, making it harder for average taxpayers to file their own returns. When you add CRA’s service shortcomings to the mix, the result is clear: your expertise has never been more essential.

On 27 September 2011, Tiff Macklem, Senior Deputy Governor of the Bank of Canada, presented at the National Insurance Conference of Canada in Vancouver. His comments were instructive to investors and their advisors as it relates to risk management in a new economy.Mr. Macklem stated that recessions following financial crises are more severe and are more difficult to overcome than normal recessions. He declared that we find ourselves in a fundamentally new fiscal landscape in which government debt "can no longer be considered a risk-free asset in many advanced countriesî. Specifically, the tendency of using government bonds as the benchmark against which many financial assets are priced is likely to disappear. Slow economic recovery has also had the effect of accelerating the growth of emerging markets at the expense of more advanced economies. In the first half of 2011 the markets saw an increase in risky investments, with investors attempting to yield higher returns. Assets such as high-yield bonds, leveraged loans, emerging-market equity and debt, and commodities are among some of the examples. More recently however, investors have shifted their search for safety and stability, sending prices of risky assets lower. Macklem feels the early efforts to mitigate the sharp decline in the markets in 2008-2009 averted a much larger crisis, but stresses the fact that public confidence in governments is waning as a result of recent indecision as to which route to take. Bottom line for those on fixed incomes in particular: As the markets remain volatile, the importance of guaranteed income sources increases. Seniors relying on Old Age Security will want to ensure they make the most efficient use of their income and take advantage of all subsidies and credits; tax planning in the current economic climate is more important than ever. Now is a good time to discuss retirement income planning options with qualified Master Financial Advisors (MFAs) who specialize in this subject area. ADDITIONAL EDUCATIONAL RESOURCES: Tax Efficient Retirement Income Planning; Master Your Retirement.  

Cash-strapped seniors suffering from prolonged poor investment results will want to ensure that cash flow is supplemented from guaranteed sources like the Old Age Security. If a clawback based on prior year income levels is part of the equation, advisors can help by applying for a reduction in this recovery tax using a newly updated form T1213. Here's how it works: 1. Estimate income from all sources 2. Take deductions including investment carrying charges and interest expenses 3. Take non-refundable tax credits into account including the disability amount and eligible medical expenses and charitable donations, and 4. Provide information about tax deducted at source and paid through instalments If the result warrants a reduction of the OAS recovery tax, the senior will be provided a higher monthly income from this source. ADDITIONAL EDUCATIONAL RESOURCE: Introduction to Personal Tax Preparation Services; Distinguished Advisor Workshops, November 2 to 10.  

Where should your investment advice come from? According to a recent survey by Cisco's Internet Business Solution Group, (March 30, 2011), half of those under age 50 use social networking for their investment advice. That's a staggering number. Yet using the internet to make important financial decisions and then execute them without proper assistance could be a costly solution to your investment questions. It makes no sense to take investment advice from anyone you don't know and trust especially if they don't understand your investment needs and objectives. That's the response to the question "Should I accept investment advice offered over the internet: by The Canadian Securities Administrators, who have published a booklet on the subject, entitled "Investing and the Internetî, (http://www.osc.gov.on.ca/documents/en/Investors/res_investing-internet_en.pdf)   Fraud, in fact, is an increasing problem. Stats Canada reported on a 2009 General Social Survey on Victimization. Seven percent of adult Internet users in Canada, age 18 years and older, reported that they had been a victim of cyber-bullying at some point in their life. Seventy-three percent of those people reported receiving threatening or aggressive emails or instant messages and 8% had their identity assumed by someone sending threatening emails. In addition, the survey showed that amongst those who used the Internet in the 12 months prior to the survey, 4% reported being the victim of bank fraud; that is, reporting incidents where credit or debit cards (or information from them) were used from an Internet source to make purchases or withdraw money without authorization from the cardholder. It's Your Money. Your Life. Why take a chance? When it comes to making financial transactions of any kind over the internet, it's prudent to speak to your banking representative, or in the case of your investment transactions, a registered dealer or licensed investment advisor. Evelyn Jacks is President of Knowledge Bureau, a best-selling author and one of Canada's Top 25 Women of Influence. She blogs most weeks at http://www.evelynjacks.com/

Canadian residents age 65 and older will receipt the Old Age Security pension if they have made application to receive the benefit and their income is under prescribed thresholds. The maximum pension is $537.97 for each month in the fourth quarter in 2011: October, November and December (an increase of $4.27 per month from the previous quarter). The OAS will be "clawed backî on the income tax return when an individual's net income is $110,123. This clawback is known as the OAS Recovery Tax. However, many don't realize that the recovery tax can be reduced by filing a Request to Reduce Old Age Security Recovery Tax at Source (Form T1213OAS, recently revised by CRA). This is possible if there are significant deductions from current year income, such as carrying charges, moving expenses or RRSP amounts, or significant non-refundable tax credits like the disability amount, medical expenses or charitable donations. ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes and the Tax Efficient Retirement Income Planning Course  

Wealth advisors looking for the ideal client to work with should develop new relationships with the self-employedóa large and vibrant market for financial services. There are 2.7 million Canadians, or 16% of the entire workforce, reporting self-employment as their main job in 2010. The self employed have twice the wealth as other households in Canada and, as a result of their higher motivation to manage that wealth, better financial literacy as well, according to a summation of data released by Statistics Canada from the Survey of Labour and Income Dynamics, the Survey of Household Spending and the Canadian Financial Capability Survey. The median net worth of the self-employed was $520,000 in 2009, 2.7 times the median of $195,000 for paid employees, according to the summation released on September 23, 2011. Yet, the median household income of the self employed amounted to 81% that of paid employees. The self employed may leave funds in their businesses for reinvestment purposes or as a reserve fund, thereby reducing income at the same time as they are increasing net worth. There are other important differences in dealing with the self employed. They tend to work longer and therefore plan to retire later than employees: about 74% of the self-employed reported that they were preparing for retirement, compared to 85% of paid employees. That could point to a greater need for critical illness, disability or life insurance to protect the business and/or family with financial support if the owner-manager becomes ill or dies. ADDITIONAL EDUCATIONAL RESOURCES: Elements of Real Wealth Management, Tax Planning for the Corporate Owner-Manager and Master Your Investment in the Family Business  

When government have large debt, investors must be particularly vigilant about future inflationary spikes when lending money. In this excerpt from Financial Recovery in a Fragile World, a soon-to-be-published book from Knowledge Bureau, co-author Robert Ironside explains why below: Any form of taxation is a transfer of purchasing power from Party A to Party B. With the ëinflation tax', the transfer of purchasing power is from creditors to debtors. In Canada and the U.S., as in most other countries, the largest debtor is the Government. The inflation tax works like this: The Government issues a fixed coupon, long-term bond. Let's assume that the bond in question has a $1,000 face value, a 4% coupon and ten years to maturity. The bond sells in the market at par, based on current inflation expectations of 2%. The bond investor is thus expecting a 2% real return as compensation for deferring consumption. After the bond is issued, the Central Bank allows several years of 6% inflation. At the bond's maturity date, the bond investor receives a payment of $1,000 in exchange for her bond, but due to inflation, the $1,000 received will purchase a much smaller basket of goods and services than the $1,000 that was initially used to purchase the bond. There has been an effective transfer of wealth from the bond investor to the bond issuer. Although the bond's coupon of 4% compensated for a portion of the loss in purchasing power, it is not sufficient to totally offset the loss of purchasing power due to the unexpected inflation. The unexpected inflation has led to a confiscation of wealth that is every bit as real as an income tax, but most investors are never aware that a portion of their wealth has been expropriated. It is for this reason that inflation has always been used by weak governments that have become over-indebted. As long as the government's debt is held by the domestic population and denominated in the domestic currency, any government can inflate its way back to fiscal solvency. The holders of long-term government bonds become the unwilling (and often unwitting) taxpayers who make it possible. A Government that can print its own currency and that issues debt denominated in its own currency which will never default. It will simply redeem its debt with a depreciated currency that will purchase fewer goods and services than it formerly did. The U.S. government, for example, would only default on its debt if it were not allowed to issue more debt (as occurred during the summer of 2011) or if the Central Bank refused to purchase debt issued by the government. As long as the government has the ability to create new debt and as long as the Central Bank is willing to monetize the debt of the government, the U.S. government will never default on its debt, although the holders of that debt may suffer significant losses in wealth. This does not mean that the purchase of long Government bonds is a bad idea. It just means that a bond investor must always remain vigilant to possible changes in inflation that might erode the real (or purchasing power) value of the bond's face value. ADDITIONAL EDUCATIONAL RESOURCES: Financial Recovery and Elements of Real Wealth Management