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 federal government is tackling an area the Organization for Economic Co-operation and Development (OECD) highlighted as a trouble spot in its June Economic Survey of Canada: Canada's overheated housing market. As of July 9, the feds are making adjustments to the rules governing government-backed insured mortgages that should slow the rush of Canadians to acquire homes by taking on too much debt. The Department of Finance has announced four measures for new government-backed insured mortgages with loan-to-value ratios of more than 80%: ï The maximum amortization period will be 25 years, reduced from 30 years. The maximum amortization period was set at 35 years in 2008 and reduced to 30 years in 2011. ï The maximum amount Canadians can borrow when refinancing will be 80% of the value of their homes, not 85%. ï The maximum gross debt-service ratio will be set at 39% and the maximum total debt service ratio at 44%. ï Government-backed insured mortgages will be available only on homes with a purchase price less than $1 million. The changing rules are meant to help Canadians with high loan-to-value mortgages reduce their total interest payments, build up home equity and reduce the risk that higher interest rates would jeopardize their financial stability. For example, a household with a $350,000 mortgage bearing a 3% interest rate would save $184 a month by reducing the amortization period to 25 years from 30. Over the life of the mortgage, that becomes a $33,052 savings. As interest rates go higher, the savings are greater. At 5% interest rates, the borrower would save $61,765 with an amortization period of 25 years vs 30 years. As Finance Minister Jim Flaherty said in the press release: "The adjustments we are making today will help [Canadians] realize their goals, build on the previous measures we have introduced to keep the housing market strong, and help to ensure households do not become overextended.î Additional Educational Resources: Debt and Cash Flow Management Course and Financial Recovery in a Fragile World.  

On June 18, New Brunswick farmer and second-time offender Merlyn Anderson was sentenced to 15 months in jail and fined $37,212 for tax evasion. This case is a good example of how repeat offenders under the Income Tax Act generally receive harsher sentences than first-time offenders. From Jan. 1, 2006, to Dec. 31, 2009, Anderson filed false harmonized sales tax (HST) returns for his farming business and claimed fraudulent input tax credits totalling $74,425 to which he was not entitled. In 2007, he had been fined $56,300 for similar offences. Since this was Anderson's second offence under the Act, and the first was a similar charge, his sentence was aggravated. Says the Canada Revenue Agency (CRA): "Taxpayers who claim false expenses, credits or refunds are liable not only for corrections to their tax returns and payment of the full amount of tax owing, but also to penalties and interest. In addition, if convicted of tax evasion, the court may fine them up to 200% of the tax evaded and sentence them for up to a five-year jail term.î Anderson's inability to learn from his first run-in with the CRA opened him up to a harsher penalty ó 15 months in jail ó the second time around. The CRA reminds taxpayers who have made errors or omissions on their tax returns, that they can came forward and obtain some relief under the Voluntary Disclosures Program.    

Aggrieved Canadian corporate taxpayers are much more likely to get cases heard in the highest court of the land than their American counterparts. And a recent study shows the Internal Revenue Service (IRS) ó the U.S. equivalent of the Canada Revenue Agency (CRA) ó has a better chance of succeeding than corporate taxpayers, for a few reasons. The study, conducted by two U.S. tax scholars, Joshua Blank, faculty director of the graduate tax program at New York University Law School, and Nancy Staudt, a tax scholar at the University of Southern California Gould School of Law, looked at more than a century of tax-abuse cases that went to the U.S. high court. The 69-page study, entitled "Corporate Shams,î will be published in the New York University Law Review in December. According to Reuters news agency, which reported on the study, from 1909 to 2011, 919 income tax cases reached the U.S. Supreme Court. Of those, 364 involved corporations. In cases involving blatant abuse of the governing act, the IRS won 61% of the time. In all other circumstances, the IRS prevailed 68% of the time. A look at Canadian statistics tells a similar story. From 1920 to 2003, the Supreme Court of Canada (SCC) heard 356 corporate income tax cases; the CRA won about 66% of the time and corporations a third. SCC cases from 2004 to 2012 reveal no significant change. But these numbers do not tell the whole tale. In the U.S., the study tells us, only about 2% of all applications to the U.S. Supreme Court are granted, indicating how hard is the road aggrieved corporate taxpayers must travel. In Canada, the SCC's leave-to-appeal statistics tell another story. The SCC statistics reveal that slightly more than 12% of leave applications in Canada are granted ó a far cry from 2%. That means, ultimately, corporations ó as well as other aggrieved taxpayers ó are up to six times more likely to succeed in their cases before the SCC than in cases before the Supreme Court of the U.S. 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.  

High net-worth (HNW) families in Ontario and their advisors will want to review the province's new tax rate that takes effect July 1. Anyone whose taxable income exceeds $500,000 ó 25,000 high-income earners or 0.4% of Ontario taxpayers ó will see his or her tax rate go up by 2%. But concerns are mounting that the new tax, which was meant to boost Ontario's lagging tax revenues and reduce the deficit, may have unintended consequences. The top 1% of Ontario taxpayers already provides 27% of Ontario's income tax revenues. (The bottom 75% provides only 12% of Ontario's tax revenues.) Yet, as of July 1, high-income earners will pay more. Once the 56% provincial surtax is applied to that 2%, the increase comes to 3.1 percentage points, boosting the combined federal/provincial tax rate to 49.5% from 46.4%. Half those amounts will apply in 2012, as the tax takes effect July 1. But a June 13 report by the C.D. Howe Institute, entitled Ontario's Tax on the Rich: Grasping at Straw Men notes the tax may have unintended longer-term results. Although only a small percentage of Ontario taxpayers, writes the report's author Alexandre Laurin, associate director of research, the targeted HNW families are very important to the personal tax system. If they were lost to other tax jurisdictions, all Ontario residents would feel the impact. And this is a definite possibility. Economic studies citied in the report note that taxes have a significant effect on behaviour. Given that skilled, high-income individuals are highly mobile, they can respond to higher taxation by moving to lower-taxed jurisdictions (provincial or international). In addition, HNW families can afford to work with professionals who can initiate more aggressive tax planning, and reduce tax loads by modifying the type and timing of compensation and sources of investment income. The chart below illustrates the difference a move can make; note the double-digit, after-tax return from eligible dividend income, for example, when compared to Alberta. Income modification can also reduce tax burdens.     Prov. 2012 taxable income range Ordinary income   (%) Capital gains   (%) Dividends: Small bus. corps. (%) Eligible dividends   (%)   BC More than $132,406 43.70 21.85 33.71  25.78   AB More than $132,406 39.00 19.50 27.71 19.29   SK More than $132,406 44.00 22.00 33.33 24.81   MB More than $132,406 46.40 23.20 39.15 32.26   ON $132,407 to $500,000 46.41 23.20 32.57 29.54   NS More than $500,000 47.97 23.98 34.52 31.69   $132,406 to $150,000 46.50 23.25 31.83 32.23   More than $150,000 50.00 25.00 36.21 36.06 Source: Knowledge Bureau, Inc. All rights reserved. The numbers tell the story: effective tax planning can preserve wealth from this new tax. The C.D. Howe report estimates that, with proper planning, high-income earners will probably reduce their taxable income by about 2% in the short term and by more than 10% in the long run, as planning kicks in. These responses may affect federal tax revenues as well. Most significant, the report concludes, if high-income earners respond by reducing their labour supply and earning less over the longer term, this tax will be ineffective, putting our fragile economic recovery at risk and robbing tax treasuries rather than supplementing them. It's Your Money. Your Life. Arranging your financial affairs within the framework of the law to pay the least taxes possible is your legal right and duty under the Income Tax Act. Astute tax and wealth advisors will want to work closely with their HNW clients to determine the right response to this new tax and thwart its eroding effect on their incomes and capital. The more effective the planning, the more wealth will be created and preserved, adding to future tax revenues and fighting the eroding effects of inflation and other unforeseen economic events. Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax and personal finance books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov 11 to 14.   Additional Educational Resources: Client Relationship Toolkit; DFA-Tax Services Specialist designation  

Wondering where to make your next investment? You're not alone. The current investment climate is stormy and that makes decision-making difficult. However, two important clues come from recent reports: first, taking a global view is critical in today's environment and, second, debt management is key to positioning your investments for future growth. The G20 leaders meeting in Mexico recently confirmed that Greece should stay in the euro zone. But that doesn't mean the euro zone crisis is resolved. The World Bank believes Europe's struggle will continue as it shoulders its way through a prolonged financial crisis, dampening global growth. Nor will developing countries offer relief, as the World Bank warns that they, too, face a long period of financial market volatility and weaker growth. Against this reality, the World Bank has lowered its forecast for global growth in 2012 to 2.5%. IHS Global Insight, whose Country Intelligence report provides daily analysis of world events, shares the World Bank's pessimism. It has downgraded the euro zone's outlook to a recessionary -0.1% for 2013. Continued uncertainty on whether Greece stays in the euro zone, which analysts at HIS Global Insight doubt, extends concerns that the break-up of the euro zone could trigger yet another global financial crisis. The IHS Global Insight report, moreover, puts a strong emphasis on debt management. A good way to position for growth in this climate, it says, is to focus on building strong balance sheets. This is important advice for individual households, as well. In today's fragile economic recovery, debt management is as important as choosing the right investments. It may well be that paying down potentially unmanageable debt is a smarter use of your money than investing in unpredictable markets. There is another important risk-management tool used to protect accumulated wealth that is not making the headlines today: tax efficiency. Taking a tax-efficient approach to investing ó splitting income, using losses wisely, transferring assets to family members at the right time, managing tax on accrued gains ó all can add significantly to the ultimate returns on your investments. So, if you are venturing into the marketplace, or considering ways to protect your wealth, position your investments properly for tax efficiency. That way, when the markets return to normal, your portfolio will be ready to reap after-tax results. It's Your Money. Your Life. When making plans to grow your personal wealth, put as much focus on your debt-to-asset ratio as you do on your return on investment (ROI). Then, employ a tax-efficiency strategy to move forward in these stormy seas. Evelyn Jacks is president of Knowledge Bureau and founder of the Distinguished Advisor Conference, now in its ninth year. This annual event attracts hundreds of top advisors from across Canada to discuss recent trends in economics, tax, investment and retirement and estate planning. Additional Educational Resources: Debt and Cash Flow Management Course, Distinguished Advisor Conference and Financial Recovery in a Fragile World.  

No one could have predicted the unsettling events of the past four years. Yet, many people blame their financial advisors and, as a result, have lost confidence in them. At this year's Distinguished Advisor Conference (DAC) Nov. 11-14, image consultant Catherine Bell will tell advisors how they can regain their client's trust and build loyalty by projecting a professional image. Bell, who is a president of PRIME Impressions, maintains that communications, behaviour and appearance all play vital roles in allaying the fears of clients battered by the uncertain global economy. What clients see, experience and hear all carry tremendous weight when they decide to whom they will entrust their wealth, says Bell. The dynamic speaker and author joins a lineup of respected and knowledgeable speakers in Naples, Florida, for the ninth annual DAC. This year's theme is the role planning plays in "Navigation: Charting a New Course.î A Day 2 speaker, Bell is one of only 14 Certified Image Professionals in Canada, an Association of Image Consultants International (AICI) Hall of Fame inductee and AICI's Ethics Chair. A frequent guest on Canadian television and regularly quoted in newspapers and magazines, Bell is well aware of how to communicate her professionalism successfully. To view the agenda, click here. To take advantage of early bird pricing, click here.