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 OECD is calling on the Bank of Canada to raise interest rates this fall with a target for the overnight rate of 2.25% by year end. Yet with household debt at an all-time high and more than one million Canadian families burdened with a debt-service ratio of more than 40%, higher interest rates will be costly ó making reducing debt a top priority. The Knowledge Bureau's Debt-Reduction Solutions Calculator can help you do just that. The first step in reducing debt is to assess the family's current cash flow situation and address the issue of spending.  Clearly, debt cannot be reduced if spending consistently exceeds income.  Deficit financing may have been the only solution in tough economic times when income levels dropped, but the long-term effects are devastating.  Financial health depends on finding a way to spend less than you earn. Once you have balanced spending vs income, it's important to develop a plan to reduce, then eliminate debt.  Even for families whose income exceeds expenses, debt service can be a financial drain on family wealth. So, you need a plan to eliminate "bad" debt, even if you are doing well financially. The Debt-Reduction Solutions Calculator, which is featured in the Debt and Cash Flow Management course helps advisors crunch the numbers for three debt-reduction options.  After cash flow has been tamed and you have determined a monthly amount to be used to service debt, the calculator shows the way to becoming debt-free using the following three strategies: Maximum mortgage payment - by using the full amount available for debt service to pay the mortgage, the debt can be eliminated in the shortest possible time. Fixed-term mortgage - by leaving some cash available for emergencies, you can eliminate the debt over a planned mortgage period. All-in-one account - for maximum flexibility, the all-in-one account allows the family to deposit all income into one account and use that account to pay expenses and the remainder each month to reduce family debt. Additional Educational Resources: Debt and Cash Flow Management and The One Financial Habit That Could Change Your Life.     

  When it comes to eroding your capital, there is no match for the expensive penalties you pay for failing to file your annual income tax return. But, on the bright side, if you file overdue returns before the Canada Revenue Agency (CRA) comes after you, you can avoid the big penalties. So, if you are delinquent, file your returns now ó and save money. The CRA has been proactively slapping penalties on delinquents of $1,000 for each missed return, be it personal, corporate or GST. A real estate agent in Ontario paid $2,000 for failing to file her 2007 and 2008 personal tax returns and ignoring CRA demand notices. A British Columbia couple was fined $12,000 for failing to file 2006 and 2007 personal returns; four tax returns for their numbered company, five corporate tax returns and a GST return for one year. A New Brunswick man was fined $8,000 for failing to file his 2008 and 2009 personal tax returns and several GST returns and failing to comply with a court order. Unfortunately, the tax pain won't end there if you have a balance due. The taxes will need to be paid along with hefty late filing penalties: First failure to file a return on time: 5% of the unpaid taxes owing plus 1% a month up to a maximum of 12 months from the filing due date; Subsequent failure to file on time within a three-year period: 10% of unpaid taxes plus 2% a month to a maximum of 20 months from filing due date. If you try to pull any tricks when filing those late returns, the penalties get bigger: Gross negligence penalties of 50% of taxes payable, minimum penalty of $100, if you knowingly or under circumstances amounting to gross negligence make a false statement or omission; Tax evasion penalties of up to 200% of taxes payable if the CRA can prove you intentionally cheated by understanding income or overstating deductions or credits. Jail time is a possibly, too. Interest, too, will compound daily at the prescribed rate, plus 4% on all the combined amounts due. And take note: even if you have a June 15 filing deadline for your unincorporated business, interest is due on balances as the interest clock starts ticking as of the April 30 deadline. It's Your Money. Your Life. Up-to-date tax preparation is the mandatory first step in your wealth-management plan. Avoid big penalties and minimize interest charges by filing your late returns now. Doing so before the CRA comes after you will preserve your wealth. Evelyn Jacks is president of Knowledge Bureau and has authored several of its tax courses and books.   Additional Educational Resource: DAW Audit Defence Workshops and Advanced Tax Preparation and Research course.  

The Canada Revenue Agency (CRA) and the Manitoba Vital Statistics Agency have teamed up to offer a convenient and secure way for Manitobans to apply for child benefit programs for their newborns. RC4476-MB or "Birth Registration and Canada Child Benefitsî explains the new program. After the mother ó who must be a Canadian citizen or permanent resident and primarily responsible for the care and upbringing of the child ó registers the child's birth with the province of Manitoba and gives her consent, the Manitoba Vital Statistics Agency will send the registration information over a secure communication network to the CRA. There is no need for separate communication with the CRA. The CRA will then determine eligibility for benefits, including the Canada Child Tax Benefit, the Universal Child Care Benefit, the GST/HST credit and any related provincial/territorial programs that the CRA administers. To register, you must: complete and sign the registration-of-birth form; consent to the Manitoba Vital Statistics Agency sharing your information with the CRA; provide your social insurance number. For more information, download RC4476-MB on the CRA website. The CRA also recently released various forms related to reporting GST: ï GST20 Election for GST/HST Reporting Period  provides the necessary form and explains how to change your GST reporting period. ï GST20-1 similarly provides the form for a listed financial institution to change its GST reporting period. ï Excise and GST/HST News, No. 84 brings together in one document all the measures related to GST/HST and excise tax proposed in the March 29 federal budget.   Additional Educational Resources: The Smart, Savvy Young Consumer,  One Financial Habit That Could Change Your Life and Introduction to Personal Tax Preparation Services.  

April employment numbers heralded a second month of strong gains in employment, fuelling optimism about Canada's economic strength. The only ones unlikely to celebrate are the under-25s. According to Statistics Canada's Labour Force Survey, the youth unemployment rate remained at 13.9% in April, little changed since July 2009. April saw employment increase by 58,000 jobs, following an 82,000 increase in March. Compared with a year ago, says StatsCan, employment was up 1.2% or 214,000 positions. Derek Burleton, deputy chief economist at TD Bank Group, puts it another way: "Over the past six months, net job creation ó a good indicator of the underlying trend ó is now running at around 26,000 a month. Job growth since 2002 has averaged about 20,000 a month.î Even better news is the quality of the jobs created. Full-time employment enjoyed the biggest gains in April ó more than 44,000 positions. All of the growth over the past 12 months, adds StatsCan, was in full-time work, up 217,000 positions or 1.6%, while part-time employment was unchanged. The greatest strength was in the goods sector, with increases in construction, manufacturing, natural resources and agriculture. It is the public sector that registered losses, which is not surprising given that governments, federal and provincial, have vowed to reduce public sector spending and trim their deficits. Services hiring was down 12,000 positions, led by a 32,000-drop in public administration positions, notes CIBC economist Avery Shenfeld. "The tilt toward full-time and private sector workî adds Shenfeld, "is further reassurance that after a long slumber, the Canadian economy is waking up.î But it is not all coming up roses. The jobless rate did creep upward to 7.3% in April, put down to unemployed workers, encouraged by recent gains, returning to the labour market. The participation rate moved to 66.7%, marginally higher than March's 66.6%. Despite gains in the 25-plus category, Burleton notes that the share of adult Canadians with jobs continues to sit more than a full percentage point below its 10-year average of about 63%. Geographically, employment increased in Quebec, British Columbia, Alberta, Saskatchewan, New Brunswick, Newfoundland and Labrador, and Prince Edward Island. There was little change in the other three provinces, says StatsCan. Perhaps of more interest is comparison to the U.S. When adjusted to U.S. concepts, Canada's employment rate was 62.6% vs. 58.4% in the U.S. ó a 4.2-percentage-point difference. Until 2002, says StatsCan, Canada's employment rate was "markedlyî lower than that of the U.S.: "Since 2002, the adjusted employment rate in Canada has been higher, with the gap between the two countries widening since late 2006.î Additional Educational Resources: Financial Recovery in a Fragile World and Tax Strategies for Financial Advisors.    

It appears Canadians are heeding the warnings about high household debt and are taking a more prudent approach to spending. For the year ending Feb. 29, growth in consumer credit slowed to its lowest rate since 2002, likewise slowing the accumulation of household debt. Perhaps, it is the threat of higher interest rates as early as this fall (Knowledge Bureau Report, April 25); maybe it is a response to Bank of Canada Governor Mark Carney's repeated musings, but Canadians are "hunkering down,î in the words of TD Bank Group economist Francis Fong. Consumer credit ó which includes unsecured lines of credit, home equity lines of lines, personal loans and credit cards ó grew by 2.3% year over year. Consumer credit outstanding actually declined in March, CIBC economist Benjamin Tal reports in Household Credit Analysis. As well, growth in lines of credit has steadily declined over the past three years, coming in at 5% increase this year vs. a 21% increase three years ago. The amount of credit card lending has actually declined by 6.6%. "The moderation in debt accumulation,î Fong notes, in a report entitled Are Canadians Prepared for Higher Interest Rates?, "speaks to a more cautious approach to consumer spending. Indeed, retail sales growth has decelerated in lockstep, with the slowdown being felt mostly in non-discretionary areas.î Canadian households are continuing to spend, he adds, "but an increasing number simply do not hold a balance on their cards.î The one source of credit that has stayed constant for the past three years is residential mortgage credit. It has grown at a rate of 7% to 8% a year and there is no indication of that changing. Both Fong and Tal point to "substitutionî in which credit card and other forms of debt are replaced by lower-priced mortgage debt. But there is also a robust housing market ó the average price of an existing house has grown by about 30% in the past three-plus year, says Fong ó keeping mortgage credit growing at a brisk pace. If housing prices gradually soften by about 10% over the next two year, as Tal suggests, the growth in mortgage credit will likewise soften. So, will Canadians be in a better position to handle higher interest rates when they come? It appears so. Some households will fare better than others, of course. The Canadian Association of Accredited Mortgage Professionals suggests 21% of current mortgage holders ó or 1.2 million mortgages ó may face financial difficulty. The Bank of Canada's analysis suggests normalized rate could affect 7.5% of households. But Fong is not unduly concerned. "While excessive debt levels remain the economy's largest domestic medium-term threat,î he concludes, "a combination of slowing credit accumulation, gradual increase in interest rates and efforts to lock-in at still-low fixed rates will help to ease the adjustment on households.î   Additional Educational Resource: Debt and Cash Flow Management Course.  

As of April 30, the deadline for filing your taxes, the Canada Revenue Agency (CRA) had already processed 17 million tax returns. And for the 66% of those filers who got money back, the average refund was $1,570. If you are on the receiving end, you want to be sure to put your refund to work for you. Consider the following six strategies for spinning your refund into gold: Put it into a Tax-Free Savings Account (TFSA). Withdrawals from a TSFA are tax-free ó meaning investment returns can accumulate inside your TFSA without generating taxes ó making a TFSA tomorrow's tax-free pension. So, do maximize this opportunity. Put it into an RRSP. It's the next best thing to a TFSA, if you have contribution room. It will not only increase your tax refund next year, but it will also add to your tax-sheltered savings and, in some cases, increase social benefits such as the Child Tax Credit. Given that the median annual RRSP contribution is about $2,800, Canadians can increase total sheltered retirement savings by 56% just by contributing the average refund. Pay down non-deductible debt. Debt that is not business- or investment-related ó and, therefore, tax deductible ó such as credit card debt, home mortgages and lines of credit erode your potential for savings. You can't effectively optimize saving room if you are paying down debt, particularly debt bearing high interest rates. Shore up risk management. Every family should be able to go six months without earning income, in case of job loss, illness or caregiving responsibilities. How have you managed your risk? Do you have an emergency fund or insurance? Your tax refund can help. Reduce your withholding taxes at source. Next year, reduce that tax refund. Instead of loaning money to the government interest-free, it could be funding your future. You are obligated to pay only the correct amount of taxes ó no more. So, review the amount of taxes withheld from your pay cheque. Reducing the deduction at source allows you, rather than the government, to maximize the time value of money. See a professional advisor. If you expect a major life event ó such as a marriage or a divorce, a birth or a death ó professional help can be a good use of at least some of that refund. It's Your Money. Your Life. Remember, Canadians under the age of 54 will now wait two additional years, until age 67, to receive their $6,500 annually in Old Age Security. By taking control of your tax refund and investing it tax-efficiently, you are taking a giant step toward financial freedom: $1,570 invested each year for 11 years (age 54 to 65) amounts to slightly more than $17,000 ó which means you can retire at 65 after all! Evelyn Jacks is president of Knowledge Bureau and author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World with Al Emid and Robert Ironside. Follow her on twitter @evelynjacks.    Additional Educational Resources: Take Home Pay Calculator