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.

Why do Canadians willingly prepay more income taxes than required, at the expense of investing and benefiting from the time value of money? If you believe in the power of compounding, you'll raise an eyebrow at the size of the average income tax refund  in Canada this year: slightly more than $1,600, or about $130 a month. That number has risen dramatically over the past several years. In 2006, just six years ago, the average tax refund was $1,240, or 27% less. With the debt-to-disposable income ratio at a record high of debt is 152% of household income and Canadians saving only 4% of their disposable income, they could certainly use that money in more financially productive ways ó for example, to pay down debt and save for retirement. Reducing the amount of income taxes withheld from paycheques would create savings room and this can make a big difference in wealth accumulation and preservation. Think of what you could do with the extra money. You could maximize contributions to Tax-Free Savings Accounts (TFSAs) and RRSPs, for example. According to Statistics Canada, only 26% of 24.5 million eligible taxpayers ó about six million Canadians ó contributed to an RRSP in 2010 (Knowledge Bureau Report, Feb. 1) and contributed slightly less than $3,000 (the median contribution was $2,790). In fact, some 21 million taxfilers had unused contribution room. As for TFSA, by June 2011 the average account held only $6,354 out of $15,000 in available room, according to Investor Economics. (Today, available room has gone up another $5,000 to an accumulative $20,000). A survey commissioned by Bank of Montreal in November 2011 found only 44% of Canadians had TFSAs and those investors left tax-free compounding room on the table, investing on average only $3,700 a year. If they put the average tax refund to work, they could have contributed the $5,000 maximum. In today's volatile markets, when investors are eeking out small returns, it's important to maximize every available new dollar of income and shelter it from taxes. Reducing your income tax prepayments will put more money into your hands with every pay period and allow you to leverage your investment returns tax-efficiently. Indeed, tax-efficient investing begins when you take control of the first dollar you earn. So, take a good look at the amount of taxes you are paying at source. Start the process by taking stock of the various deductions and credits to which you'll be entitled in 2012 ó a tax pro can help ó and then ask your employer to reduce your withholding taxes. Two forms will help: the TD1 Tax Credit Return  and the T1213 Request for Reduction of Tax at Source. That way you'll get back your refund with every pay period ó instead of waiting until the spring of next year. It's Your Money. Your Life. Make the time value of money work for you. Remember, indebted governments expect you to be more self-reliant in the future; you'll be better able to do that if you reduce withholding taxes and invest the difference. 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.    

If you have been vacationing in another province, say in B.C.'s Okanagan or Ontario's Niagara wine districts, you can now bring your favourite wines home with you. The federal government has amended the Importation of Intoxicating Liquors Act, which governs the interprovincial and international trade of intoxicating liquors, allowing you to bring personal quantities of wine across provincial borders. Subsection 3(2) of the Act was amended by adding the following exception to the restrictions contained in subsection 3(1): (h) the importation of wine from a province by an individual, if the individual brings the wine or causes it to be brought into another province, in quantities and as permitted by the laws of the latter province, for his or her personal consumption, and not for resale or other commercial use. Each province will determine how much wine will be considered "personalî consumption. In fact, provincial authorities still have the ability to limit legal consumption ages, set no-drinking areas and generally restrict access to alcohol in manners to which we have become accustomed in Canada. This new federal law does not apply to beer, cider or spirits, leaving many observers perplexed, to say the least.   Additional Educational Resources: EverGreen Explanatory Notes  

If you are an American living in Canada or a dual U.S.-Canada citizen and you are behind on filing your U.S. income tax returns, the Internal Revenue Service (IRS) has good news for you. The IRS ó the U.S. equivalent to the Canada Revenue Agency (CRA) ó has a plan that will help U.S. citizens residing overseas catch up on their tax filings and address issues with foreign retirement plans. The U.S. requires that U.S. citizens regardless of where they live file income tax returns on their world-wide assets. Tax treaties (see Knowledge Bureau Report, June 20) among countries strive to eliminate double taxation. The IRS initiative will allow U.S. citizens who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns, says the IRS press release, and owe $1,500 or less in taxes for any of the covered years. U.S. truant taxpayers will be required to file delinquent tax returns, with appropriate related information returns, for the past three years and to file delinquent Reports of Foreign Bank and Financial Accounts (FBARs) for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years. In addition, the IRS will streamline the process for U.S. citizens and dual citizens who have contributed to RRSPs or Registered Retirement Income Funds (RRIFs) in Canada to take advantage of the provision in the Canada-U.S. Tax Treaty allowing deferral of taxation in the U.S. of income in those accounts. The new procedure takes effect on Sept. 1, 2012.   Additional Education Resource: Cross Border Taxation Course - Newly updated version available September 2012 Pre-register now!  

Uncertainty over yet another euro zone debt crisis took its toll on the world's wealth and, for the second time in four years, the aggregate investible wealth of high net-worth individuals (HNWIs) declined in 2011. According to the World Wealth Report 2012, produced by Capgemini and RBC Wealth Management, the euro zone crisis increased market volatility and slowed global economic growth, unsettling investors and triggering losses in asset values. In 2011, the number of HNWIs globally did increase marginally, by 0.8% to 11 million, with most of the growth ó 1.1% ó coming in the $1 million-$5 million "wealth band,î which represents 90% of the global HNW population. That followed two years of healthy growth in 2009 and 2010 after the devastating effects of 2008. Canada, however, bucked the trend with the number of HNWIs declining by 0.9% in 2011, dropping to 279,900 from 282,300 in 2010. It was aggregate investible wealth, as measured by asset values, that took the real hit in 2011. It declined by 1.7% in 2011 to US$42.0 trillion. "The global population of Ultra-HNWIs declined 2.5% to 100,000 in 2011,î says the report, "and their wealth declined by 4.9%, after gaining 11.5% in 2010. The number of mid-tier millionaires declined 1% to 970,000 and their wealth by 1.2%. These two segments account for just 9.7% of the global HNW population, but 56.9% of its investible wealth.î The Asia-Pacific region, with 3.37 million HNWIs, now boasts more HNWIs than second-place North America with 3.35 million and third-place Europe with 3.17 million HNWIs. But North America retains top ranking for the amount of investible wealth, at US$11.4 trillion in 2011 ó though that was down 2.3% from 2010. Asia-Pacific had investible wealth of US$10.7 trillion in 2011 and Europe US$10.1 trillion. The countries that suffered the greatest loss in wealth in 2011 were India and Hong Kong. "Equity-market capitalization plunged in India in 2011,î explains the report, "wiping out asset values and levels of investible wealth.î India's HNW populations dropped by 18%. Likewise, in Hong Kong ó where, says the report, HNWIs tend to be very exposed to equities ó the HNW population declined by 17.4%. The bulk of the world's HNW population remains concentrated in the three top-ranked countries ó the U.S., Japan, and Germany, numbers one, two and three, respectively. Together, the three countries accounted for 53.3% of the world's HNWIs in 2011. Canada ranked seventh in the world by HNW population in 2011 and 2010. Additional Education Resources: Financial Recovery in a Fragile World and Elements of Real Wealth Management.    

  The majority of Knowledge Bureau Report readers think the rich and corporations should pay more taxes, judging by the responses to Knowledge Bureau's June poll. When asked "Should high-income earners and corporations pay higher marginal tax rates?î 101 readers responded; 61% said "Yesî and 39% said "No.î But the "Nosî were more voluble when it came to explaining their positions. Of the 38 readers who left comments on Knowledge Bureau's website, there were 22 in the "Noî camp and 16 in the "Yes.î And from both camps, slightly less than a quarter raised the idea of a "flat taxî in which everyone is taxed the same percentage, such as Alberta uses. Those who believe high-income earners and corporations should pay higher income taxes often cited the dreadful state of government finances. Governments at both the federal and provincial levels are struggling with deficits, they said, and could use the additional revenue. "With Canadians demanding the Cadillac of services,î wrote Walburga Pagniello, "how do we think our governments can provide it? We must strive for balanced budgets at all levels and pay down our national debt ó or we are heading for disaster, like other countries globally!î Added Patricia: "It may be an unpopular idea and many may argue that these people employ other people etc., but the country needs more tax revenue. The provinces are broke. Everyone argues that what people pay in taxes should be commensurate with their ability to pay. Well, this is a step in the right direction.î But many on the other side of the argument feel the government doesn't deserve any additional tax revenue. Governments' inefficiency and spendthrift ways have gotten them to where they are today. "Our governments take almost six months of our income through the current tax system,î wrote a former civil servant, "and they still cannot make it work. Giving them more tax monies will not work. The annual findings of the federal and provincial auditors general on governments' wasteful spending are only the tip of the iceberg.î Added another reader: "We really need to find out where the powers-that-be are spending the money first. I'm not against paying my fair share, but I would like to see an accountable system, instead of throwing more money at the problem.î Or, as another reader succinctly put it: "It's time the government became responsible for handling our money! Many in the "Noî camp, however, labour under the misconception that high-income earners do not pay their fair share of taxes. A recent C.D. Howe Institute report entitled Ontario's Tax on the Rich: Grasping at Straw Men maintains that is not the case. For example, the top 1% of Ontario earners account for 12% of the province's income from taxable sources yet provides 27% of its income tax revenues. The top 10% provide 66% of all net income taxes, says the report's author Alexandre Laurin, while the bottom 75% of tax filers deliver only 12% of the province's income taxes. Although Ontarians may have a heavier tax load than the rest of Canada, the numbers are not so different across the country. For the rest of Canada, the top 1% has a 10.9% share of taxable personal income yet shoulders 18.7% provincial income tax burden. "These groups already pay a highly disproportional share of the total tax burden,î commented Carl Davidson, "whereas low-income individuals often pay no income taxes at all.î Those who are against raising the taxes of high-income earners also fear that those individuals will move or, through tax planning, rearrange their incomes so they pay less taxes ó a fear shared by Evelyn Jacks, president of Knowledge Bureau (see Knowledge Bureau Report, June 27). Overtaxing of corporations could likewise have unintended consequences, they have pointed out. "Raising the corporate tax rate will have a negative effect on job creation and production,î wrote a reader. "Corporate tax rates were extremely high in the past and we are now seeing the benefit of having reduced the corporate tax rate.î Bill Kelsall had a suggestion: "Perhaps corporations should have a sliding scale similar to personal taxpayers, instead of the all-or-nothing $500,000 small business limit. I also believe that lower tax rates for corporations should be tied to the amount of investment in capital and employees in Canada." Nine of the 38 who left comments suggested a flat tax would be a good idea. Alan's comment was typical: "I am a proponent of a simplified, flat tax system with a high basic exemption.î That would even the playing field. Knowledge Bureau Report would like to thank readers for participating in June's poll. July's questions is "Should governments have regulated exorbitant credit card rates instead of mortgage amortization periods?î We look forward to hearing from you. Additional Educational Resource: Tax Strategies for Financial Advisors      

The federal government wants to know how best to employ the $400 million it has earmarked in its Economic Action Plan 2012 to boost venture-capital investments in start-up companies. It wants Canadians' input on the financing needs of high-growth firms in Canada, the factors that influence private-sector participation in venture capital, and the role that governments can play in developing an environment that supports a sustainable private-sector-led venture capital market. According to the Department of Finance press release,  the government is seeking to increase the capital and expertise available for growing, innovative firms while focusing resources on companies most likely to become global leaders. Its discussion paper outlines the questions the government would like to see discussed during its consultation: ï What are the key challenges facing high-growth firms in Canada in accessing the capital they need to innovate? What are the unique challenges confronting early- or late-stage companies? ï What barriers do Canadian and international investors (e.g., financial institutions, pension funds, endowments) face in participating in venture-capital markets? ï What models of venture-capital support should the government consider in order to encourage private-sector participation and investment? Should a priority be placed on attracting corporate strategic investors, foreign venture-capital participation or some other form of private-sector investment? ï Does Canada have the right mix of large-scale and small-scale funds? Should a portion of public support target any particular stage of company development? ï What criteria should the government consider in allocating the new resources to support venture capital in order to meet its objectives? The government has appointed Samuel Duboc, a partner in private equity firm EdgeStone Capital Partners, as a special advisor on venture capital. To make your voice heard, submit your comments by e-mail to ConsultationsVentureCapital-CapitaldeRisque@fin.gc.ca. The closing date for comments is July 27.   Additional Educational Resources: Tax Strategies for Financial Advisors.