The Gateway:  Maximizing the Impact of the Disability Tax Credit

In addition to reducing income tax through a non-refundable credit, the Disability Tax Credit (DTC) serves as a gateway to a wide range of additional tax benefits and government programs. Eligibility for the DTC can unlock enhanced credits, financial supplements, and long-term savings opportunities that go well beyond the tax return. Understanding how the DTC connects to these broader supports is essential for maximizing financial stability—both for individuals living with disabilities and the family members who support them.  Unfortunately, many taxpayers miss this credit and their tax and financial advisors can certainly help when this happens.

The British Columbia Supreme Court has fined a Richmond. B.C., company $100,000 for selling retailers and restaurants software that erases sales records allowing those companies to evade federal and provincial taxes. InfoSpec Systems Inc. and its "Zapperî software has been the subject of a couple of actions by the BC. Supreme Court and the Canada Revenue Agency (CRA) beginning in 2010. InfoSpec, which sells computers and software to restaurants and retail outlets, designed the Zapper software to work with point-of-sale systems and electronic cash registers. It erases sales records, allowing InfoSpec's customers to suppress income and evade taxes. The first to feel the sting of the CRA was InfoSpec salesman David Au. On Dec. 16, 2010, the BC Supreme Court convicted Au of one count of fraud over $5,000 in relation to the sale of the Zapper software. Au was sentenced to two years and six months in jail. Upon sentencing Au, the court noted: "It is particularly aggravating that Mr. Au continued to sell the Zapper to customers after he became aware of the CRA investigation of InfoSpec and attempted to assist his customers to evade detection during the CRA's audits. As a consequence, Mr. Au's actions are highly blameworthy and attract a sentence that both denounces his misconduct and acts as a general and specific deterrent for him and like-minded others.î Then, on June 22, 2012, InfoSpec itself was found guilty of one count of fraud over $5,000 in relation to the sale of the software. On July 20, 2012, the court gave its sentence ó a $100,000 fine. The court concluded that Pius Chan, the president of InfoSpec, was the "directing mind of the corporationî and he "intended to defraud the public by providing or distributing a Zapper programî that allowed InfoSpec customers to suppress income and thereby evade taxes.   Additional Educational Resources: EverGreen Explanatory Notes  

Prospects for global growth have gotten a whole lot cloudier over the summer. The risks to our economic well-being seem to be increasing, not decreasing, as Europe struggles with recession, emerging markets such as China experience decelerating growth, and Canada's growth stalls at 2%. The time has come to think about how you are going to manage the accumulating risks ó and for many of us risk management means debt management. Certainly, Canadians are between the metaphorical rock and a hard place. With 2% economic growth and 2% inflation ó the Bank of Canada notes in its July Monetary Policy Report (MPR)  it expects core inflation to sit around 2% for the next few years ó investors aren't likely get much in the way of returns that beat inflation. And Canadians have been piling on the debt. The debt-to-income ratio of Canadians is at an all-time high of 153%, according to June 2012 reports from the Bank of Canada. Much of that debt is priced significantly higher than 2%, indicating growth in debt is likely to outpace growth in personal income. Yet, a lot is riding on consumer spending. As the MPR notes, the Bank of Canada's 2%-inflation scenario is not without risk: ï On the upside, the Bank says, higher global inflationary pressures, stronger Canadian exports and stronger momentum in Canadian household spending could push inflation higher. ï On the downside, the European crisis, weaker global momentum and weakening growth in Canadian household spending could push inflation lower. It all points to managing risk ó and managing debt. Consider mortgages. It's not a bad idea to move upmarket to a better home if you can sell the old house at a tax-exempt profit and get a low-interest rate mortgage on the new place for a long period of time. But it is not such a good idea if you are carrying a variable-rate mortgage. According to the Canada Canadian Association of Accredited Mortgage Professionals, about 30% of Canadian mortgages are at variable rates. That means one-third of Canadians could very well face higher interest rates when they renew. That could boost debt and descimate savings plans. Those who have used low-rate lines of credit or business loans to acquire appreciating assets are in the same boat. Although a low-interest rate environment can be the right time to acquire such assets, what happens to your balance sheet if rates head higher? Consider what would happen to your mortgage payments,loan payments and retirement savings plans if interest rates increased 2%. You need to manage that possibility when you take on big, long-term debt. So, be sure to discuss the following questions with your financial advisor: 1. Should you lock in your variable-rate mortgage now, when interest rates are low? 2. Should you make paying down debt a priority? 3. Should you lock in savings at today's low interest rates at the expense of paying off debt? It's Your Money. Your Life. If you have debt, it's prudent to anticipate your "Plan Bî should interest rates rise. Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax- and wealth-planning books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov 11 to 14.   Additional Educational Resources: Debt and Cash Flow Management Course, Financial Recovery in a Fragile World Book.      

Canada needs to focus its limited resources where they are likely to make a difference, argues Michael Hart in a new C.D. Howe commentary entitled Breaking Free: A post-mercantilist trade and productivity agenda for Canada. That makes East Asia a priority, he contends, although Canada should not forget its long-time trading party, the United States. "The rapidly expanding markets of China, India and other Asian countries are well worth the pursuit,î Hart writes, "but the U.S. market will remain the bread and butter of the Canadian economy for the foreseeable future.î Hart, who is the Simon Reisman Chair in Trade Policy at the Norman Paterson School of International Affairs at Carleton University in Ottawa, says Canada needs to adapt to a world of "value chains, evolving trade and investment patterns, and deepening global integration.î That means getting rid of "home-grown impedimentsî such as anti-dumping and countervailing duty regimes, ineffective subsidies and procurement preferences, tariff restrictions in supply-managed sectors, overabundant regulations and restrictions on foreign ownership. Since the late 1990s, Canada's trade performance has stagnated. Canada's share of the world export market has dropped to 2.5% from 4.5% in 2000. Going hand in hand with Canada's lagging trade performance is productivity. "To revitalize Canadian trade and improve Canada's productivity performance,î Hart writes, "Canadians will have to be prepared to address remaining barriers to greater global engagement. "Progress on these issues requires a better understanding of the nature of modern production and exchange, the changing patterns of Canadian trade and investment, and the barriers, both domestic and international, to gaining greater advantage from deepening global integration,î he maintains.   Additional Educational Resource: Distinguished Advisor Workshops  

Canadians may be well served by their banks but even so, at some point or other, we have all had a disagreement with our bank. The federal Bank Act requires banks to have a procedure for handling customer complaints but how that is done has become the subject of hot debate recently. Now, the Department of Finance has waded in with proposed legislation and it is looking for comments from interested parties. In 1996, what was to become the Ombudsman for Banking Services and Investments (OBSI)  was established to provide a free and independent service for resolving small-business owners' disputes with their banks. Over the next few years, OBSI's mandate expanded to include consumers of banking and investment services. Securities regulators require investment dealers to be members of OBSI, but the Bank Act has no such requirement. It is not mandatory for banks to be members ó and therein lays the problem. Two of the Big Five banks have withdrawn from OBSI ó Royal Bank of Canada in 2008 and TD Bank in late 2011 ó and hired a company called ADR Chambers Banking Ombuds Office to provide their dispute-resolution services. The feds responded with proposed legislation, first in 2010 and again in July. The 2010 legislation said banks could belong to only federally approved external complaints bodies and it gave the Financial Consumer Agency of Canada (FCAC) the authority to monitor and enforce compliance. The legislation  now proposed seeks to establish explicit standards that external complaint bodies must meet ó including standards for independence, timeliness and transparency. "These proposed regulations will also require banks to cooperate with their external complaints body,î says the Department of Finance press release, "by, for example, informing customers of the name and contact information of their external complaints body so that consumers clearly know who to contact when a dispute arises.î But many in the financial services industry feels the legislation doesn't go far enough. The government should simply legislate that all banks be members of OBSI. The Canadian Foundation for Advancement of Investor Rights (Fair Canada)  points out that the proposed legislation falls short of the G20 Principles on Financial Consumer Protection. "Banks will be able to entertain bids from approved service providers and choose the one that gives them the best deal and serves their interests,î FAIR pointed out in a recent newsletter. "This could result in severe risks to independence and impartiality, two principles which are fundamental to effective dispute resolution for consumers.î Furthermore, FAIR notes the difference between a private external complaints body and an ombudsman: "An ombudsman, such as OBSI, has a responsibility to assist consumers with the complaints process, including the articulation of their complaint. Current private, for-profit external complaints bodies typically do not provide this support to consumers. Vulnerable consumers, including seniors and immigrants, may abandon legitimate complaints due to the barriers they will face in articulating their claims.î The 30-day comment period began July 13 with the publication of the regulations in Canada Gazette. Comments must cite the Canada Gazette, Part Ⅰ, and its date of publication and be addressed to Jane Pearse, Director, Financial Institutions Division, Department of Finance, L'Esplanade Laurier, 15th Floor, East Tower, 140 O'Connor Street, Ottawa, ON K1A 0G5 (fax: 613-943-1334; email: finlegis@fin.gc.ca).   Free Trials: Certificate Self-Study Courses - Earn CE/CPD Credits, Too!  

You have prepared for many aspects of retirement but you have one nagging concern: how much will you be able to withdraw from your non-registered investments each year and still have enough to last as long as you do ó and possibly leave a legacy? To help you sort through the options, Knowledge Bureau has built the Fixed vs Variable Income Calculator, part of the Knowledge Bureau's Client Relationship Toolkit. Generally, you are well-prepared for retirement: you have several sources of cash flow; you know how much you need to cover daily costs; and you know how much is coming in each month from fixed income sources such as Canada Pension Plan (CPP), Old-Age Security (OAS) and your RRIF. But what it comes to your savings, you are stymied. If you withdraw too much each year, you're liable to run out of money; if you take too little, you may not be able to meet your lifestyle goals. There are three options to consider: you can live off the earnings from your investments and leave the capital to your children; you can take a fixed amount each year and leave the capital to your heirs; you could take the maximum fixed amount each year using some or all of the capital to finance your desired lifestyle. Using the using the Fixed vs Variable Income Calculator, letís examine the three options using the calculatorís defaults: $500,000 in mutual or segregated funds (income will be taxed and the adjusted cost base (ACB) of the funds will be reduced);) life expectancy 20 years from now; 45% marginal tax rate; 2.7% inflation; returns on your investments of 1%, 2.5%, 3.5% in years one, two and three, respectively, then 4% annually thereafter. Option 1: Fixed income: Optimize for capital preservation Given the above rate of returns and you withdraw only the income earned by your investments, you can withdraw an annual cash amount of $14,518 (before taxes, indexed at 2.7% for inflation) for 20 years. At the end of that time, your nest egg will be $500,049. Option 2: Variable income: Use 1% of capital annually If you withdraw cash earned by your investments at the above rate plus 1% of capital a year, at the end of 20 years, you will still have $408,953. Option 3: Fixed Income: Optimize for Income If you want to maximize withdrawals to use up all your capital, you can withdraw an annual amount of $27,873 (before taxes, indexed). At the end of 20 years, your nest egg will be depleted to $47. The calculator allows you to enter your own beginning capital, marginal tax rate, inflation adjustment, life expectancy and expected rates of return. You can also look at RRSP/RRIF investments (income is not taxed but withdrawals are) or other investments (such as GICs) where the income is taxed but no tax liability accrues due to ACB adjustments. If you've not taken a look at this powerful calculator, sign up for a free trial today.

It isn't just the weather ó the record-high temperatures, the lack of rain, the surplus of rain ó that has made this summer chaotic. The economic environment has played its part, as well. Record-low interest rates, euro zone uncertainty and unusually volatile markets continue to take their toll on Canadians' accumulated wealth. Yet, since the 2008 start of the financial crisis, some Canadians have fared better than others ó those who have stayed true to their investment strategy and made the most of tax-efficient investing. Consider these numbers from Statistics Canada. In 2010, the latest year for which statistics are available, the number of taxfilers reporting investment income (7.5 million) and the amount of investment income they reported ($50 billion) declined. (Investment income is the sum of dividend income from taxable Canadian corporations and interest income from investments in non-tax-sheltered vehicles.) But those with dividend income fared dramatically better than those with only interest income. ∑ The number of savers ó those who report interest income ó declined 15.3% to slightly less than 3.8million taxfilers. Total interest income reported decreased 24.2% to$6 billion. ∑ Investors, those who report both dividend income and interest income, held their ground, or even showed marginal gains. In this case, 3.7 million investors reported $44 billion in income. Although the number of investors declined by 0.3%, the total dividend and interest income reported increased 0.4%. Clearly, in a low-interest rate environment, if you are counting on interest-bearing investments to provide the bulk of your future income, you're losing ground ó even before the eroding effects of inflation and taxes. Bring taxes into the mix and, again, investors make out better than savers. As the table below demonstrates, dividend income is subject to significantly lower marginal tax rates (MTR), providing an important hedge against inflation. The source of your income, then, makes a difference in how much you keep ó and that's what tax-efficient investing is all about. As the table below shows, depending on the taxpayer's province of residence, a taxpayer in the middle-income tax bracket pays a MTR anywhere from 29.7% to 36.95% on "ordinary income,î that is, income from employment, pensions and interest. The lowest MTR, however, is on "eligible dividends,î those earned from investments in publicly traded companies and certain large private corporations. The marginal tax rates that apply to various categories of income:     Province   2012 taxable income range ($)   Ordinary income (%)   Capital gains (%)   Dividends: small bus. (%)   Eligible dividends (%)   British Columbia  Alberta  Saskatchewan  Manitoba  Ontario  Nova Scotia                        42,708 to 74,028<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> 42,708 to 85,414 42,708 to 85,414 42,708 to 67,000 42,708 to 68,719 42,708 to 59,180  29.70   32.00 35.00 34.75 31.15 36.95 14.85 16.00 17.50 17.38 15.58 18.48 16.21 18.96 22.08 24.58 16.65 19.90 6.46 9.63 12.39 16.19 13.42 18.05 Source: Knowledge Bureau's EverGreen Explanatory Notes Indeed, the difference between the highest and lowest MTR is 30.49 percentage points. You would be further ahead, for example, to earn eligible dividends in British Columbia than interest in Nova Scotia. It's Your Money. Your Life. Today, the negligible returns on money put into savings accounts are erased by taxes and inflation. Indeed, some will turn negative. Statistics suggest that those who have made even slight headway in building financial wealth have had investment portfolios that contained suitable exposure to equities. Particularly in these uncertain times, you need a strategic plan that will allow you to grow your wealth and manage your  risk. Tax and investment professionals can help with that planning as well as help mitigate behavioural responses that can reduce your long-term wealth accumulation. Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax and wealth planning books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov 11 to 14. Additional Educational Resources: Financial Recovery in a Fragile World and EverGreen Explanatory Notes.