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 tax-filing deadline is midnight April 30 ó unless you are self-employed, in which case the deadline is midnight June 15. But even if you qualify for the June 15 deadline, you still have to pay the Canada Revenue Agency (CRA) any amount owing on your 2011 taxes by April 30. So, filing by April 30 is the best and only way to avoid expensive late-filing penalties on this year's taxes. The CRA charges a penalty of 5% of the unpaid balance plus 1% for each full month the amount remains unpaid to a maximum of 12 months. The penalty is higher if you repeatedly file late. Nor does it pay to use the CRA to bankroll accumulating unpaid taxes: it charges interest on the amount owing based on the "prescribed rateî of interest, set quarterly by the CRA, plus 4%. This interest compounds daily ó it can add up quickly. So, if you have savings, cashing out to pay overdue taxes could pay off. But seek the advice of your tax and financial advisory team before you take action. From a tax planning point of view, you will want to tap into tax-paid savings such as a guaranteed investment certificates or Tax-Free Savings Accounts before withdrawing money from your RRSP or RRIF ó that will only result in a tax liability next year. What happens if you can't pay? If your balance is not paid within 30 days of the receipt of your Notice of Assessment or Reassessment, you will receive a letter or a phone call from the CRA. This is your opportunity to arrange a payment schedule with the CRA. If the CRA is satisfied you have exhausted all other means of paying ó cashing in savings, borrowing or arranging lines of credit ó it will work with you. Speak to a payment agent or ask your tax advisor do so for you. Promptly clearing up your bill with the CRA is to your advantage. Indeed, interest will be charged on the outstanding balances but you'll avoid receiving what the CRA calls the "final letter.î This will advise you that if you don't make arrangements that are satisfactory to the CRA within 90 days of the Notice of Assessment, the CRA can take legal action, such as garnishing your income or directing a sheriff to seize and sell assets. Also, don't expect a refund from any other statute administered by the CRA, such as your GST/HST account if you are self-employed. The CRA will use those amounts to pay off your income tax bill.   Itís Your Money. Your Life. Filing an income tax return on time and paying balances promptly will save you time, money and the stress of dealing with legal action. So, do make the time to see your tax advisor this week.   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      

If you are filing a return for either a testamentary trust or an inter vivos trust, you will want to review Canada Revenue Agency's T3 Trust Guide, 2011. There are a number of changes including the treatment of eligible dividends and Employee Life and Health Trusts (ELHT). An ELHT is a single-purpose inter vivos trust established by one or more employers to deliver benefits to employees and related persons. Employers' contributions to the trust are tax-deductible ó as long as the benefits delivered meet the conditions set out in subsection 144.1(4) of the Income Tax Act. Employees can also contribute to an ELHT but their contributions are not deductible. Their contributions may qualify, however, for the medical expense tax credit, to the extent that they are contributing to a private health services plan. The ELHT itself can deduct amounts paid to employees or former employees for designated benefits and can generally carry non-capital losses back or forward three years. The CRA notes that any amount received from an ELHT other than a designated benefit must be included in income. Payments of benefits to non-resident employees or former employees will generally not be subject to taxes under Part XIII. The T3 Trust Guide also notes that: ï If the trust for which you are reporting uses the International Financial Reporting Standards, you will need to note that on the T3. ï Effective Jan.1,2011, the gross-up rate for eligible dividends and the rate that applies to the taxable amount of eligible dividends, for purposes of the dividend tax credit, have changed. The CRA has also made it easier for those filing a T3 return for an estate that has only pension income, investment income or death benefits. An aptly placed symbol indicates the information you need, greatly reducing your reading time.   Additional Educational Resource: Use of Trusts in Tax and Estate Planning  

The Canada Revenue Agency (CRA) takes the obligations of Canadian taxpayers to pay their taxes honestly and fairly very seriously. As three recent cases show, the CRA is becoming increasingly diligent in its pursuit of that goal ó and the courts equally as conscientious. ï Two British Columbia men, Sikander Singh Bath and Manjit Singh Khangura, were given jail terms of four and a half years and three years, respectively. Their crime: fraudulent GST rebates. Over a period of three years, the two filed false GST refunds that totaled more than $11 million. Bath was charged with six counts of fraud and Khangura three. Their scheme took place between August 1994 and August 1997 and involved 13 fictitious companies. Although the companies claimed to be in the lumber business ó and claimed and received GST refunds accordingly ó the court found the companies did no real business to support the GST refunds. Earlier this year, a co-accused, Paramjit Gill, pleaded guilty to three charges of fraud related to the activities totaling almost $3 million. He was sentenced to two years less a day for his part in the scheme. (Judges often hand down this sentence because it relieves the courts of placing those offenders usually seen as less culpable in a federal penitentiary.) ï Colwood, B.C., contractor Brian Mark Buchan was convicted of tax evasion on April 16 and fined $28,000. The CRA showed that Buchan failed to report almost $190,000 in business income from self-employment for the taxations years 2004-2006, thus evading $25,432 in federal income taxes. The CRA identified the amount of unreported income by reviewing the T5018 Statement of Contract Payments forms of some of Buchan's larger customers and using other investigative tactics. ï Earlier this month, Ontario resident Wallace Dove was fined $59,388 and given a nine-month conditional sentence, including four and a half months under house arrest, and 12 months probation. Dove pleaded guilty to creating false documents in order to obtain false refunds from the CRA. The case revolves around a CRA notice that stated Dove was liable for $118,777. Dove altered the notice to say that $118,777 had been withheld from him, and the CRA owed him a $118,777-refund. During a subsequent audit, the fraud was revealed and Dove was charged. His fine was half the amount of his attempted fraud.Individuals convicted of tax evasion must repay the full amount of taxes owing, plus interest and any civil penalties that may be assessed by the CRA. Additionally, the court may fine them up to 200% of the taxes evaded and impose a jail term of up to five years. 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.  

Manitobans will pay more taxes following the April 17 Manitoba budget, thanks to increased user fees, broader application of retail sales taxes and a 3.5% hike in income taxes for the province's 680,000 taxpayers. The government of Canada's central province will also cut spending in a determined effort to reduce its deficit; the deficit will drop to $460 million in the fiscal year ending March 31, 2013, from $1 billion in 2011/12. Debt is weighing down provincial governments across Canada and Manitoba is no exception. Debt service costs on Manitoba's $16-billion net debt is 6.2¢ for every $1 of revenue. And debt servicing costs will increase by $45 million in 2012/13, which represents 5.9% of all expenditures. Family services, by comparison, represents 7.4% of expenditures; education, 25.7%; health, 38.5%; community, economic and resource development, 16.1%; and, justice and other expenses, 6.4%. The budget assumes real GDP growth in Manitoba of 2.4%, in line with Canada's rate, and nominal GDP growth of 4%. Here are the budget's highlights: It's going to cost more to drive in Manitoba. Drivers will pay 2.5¢ a litre more in taxes when they fill up their tanks; diesel fuel will increase by the same amount and marked gasoline used by farmers will increase by 3¢ a litre. As well, car registration fees will increase by $35. Smokers will now pay 25¢ a cigarette in taxes, up from 22.5¢; taxes on fine cut tobacco will increase to 24¢ a gram, up from 21.5¢; and raw leaf tobacco will be 22.5¢, up from 20¢ a gram. Services such as spa services and haircuts over $50 are now subject to the 7% provincial retail sales. Risk management will cost more, with insurance premiums for property, liability, group life insurance premiums, trip cancellation and baggage insurance all subject to 7% provincial sales taxes. The basic personal amount of Manitoba income taxes will increase $250 to $8,634 in 2012. In real dollar terms that amounts to 10.8% or $27. The dividend tax credit for eligible dividends from corporations subject to the general tax rates will decrease to 8% from 11%, adding $13.5 million to provincial revenues. In some cases, those collecting and remitting the PST will have to file their returns less frequently: if collections are more than $5,000, you will file monthly; if collections are between $500 and $5,000, you will file quarterly; and if they are less than $500, annually. It will cost more to owe the province money on provincially administered taxes or repayments of refundable tax credits: the prime rate plus 6%, up from prime plus 4%. Bouncing a cheque will cost more: service fees are increased to $25 from $20 for each occurrence.  The Corporate Capital Tax will increase to 4%. There are also a number of changes to tax credits available to corporations: A new Data Processing Investment Tax Credit will allow a 4% credit on the capital cost of new buildings and 7% on the capital cost of machinery and equipment purchased or leased for use in data-processing centres after budget date and before 2016. Costs to replace or improve property will be eligible, too. Accommodation costs for up to $250 a night will be allowed as eligible costs under the Film & Video Production Tax Credit after April 17, 2012. After 2012, the Co-op Education & Apprenticeship Tax Credit will expand for apprentices and journey people outside of Winnipeg. For Early Level Apprentices the credit is enhanced to 15% of wages to a maximum of $3,000 (up from 10% to a maximum of $2,000); for Advanced Level Apprentices, the credit doubled to 10% of wages to a maximum amount of $5,000; the same is true of credits on wages for journey people. The Nutrient Management Tax Credit provides for a credit of 10% of capital cost of prescribed nutrient management equipment, used to clean up lakes and water systems. Starting in 2012, half of the Manitoba Research & Development Tax Credit of 20% will become a refundable tax credit for companies that do in-house R&D. New economic initiatives in the budget include the first bilingual World Trade Centre to provide Manitoba businesses with access to a global network, $1.5 million to the Metis Economic Development Fund and a new Mining Academy to open in Flin Flon. When ranked across all other provinces, Manitoba boasts an ideal standard of living for single graduates who earn $50,000. Total personal costs and taxes for that person amount to $15,535, when graduate tax credits are taken into account. Only New Brunswick's costs are lower at $13,634. By comparison, costs in British Columbia are $32,959; in Ontario, $26,576; and in Alberta, $20,316. Evelyn Jacks is president of Knowledge Bureau and covered the budget for province-wide news station CJOB with host Richard Cloutier. Additional Educational Resources: EverGreen Explanatory Notes and Financial Recovery in a Fragile World.  

Across Canada, provincial governments are cutting spending in a concerted effort to reduce deficits generated during the recession-fighting years. But as one after another present their Spring budgets, it is clear the challenges are greater for some provinces than others.   Saskatchewan is the only one of the eight provinces that have presented their budgets ó Prince Edward Island and Newfoundland & Labrador are due later this month ó that is in the black. For the fiscal year ended Mar. 31, 2012, it reported a surplus of $56 million; that is expected to grow to $95 million in fiscal 2013. The rest are battling deficits but British Columbia, Alberta, Manitoba, Quebec and Nova Scotia forecast balanced budgets in 2013/14. New Brunswick is back in the black in fiscal 2015 but Ontario ó with a chart-topping deficit of $15.3 billion in 2011/12 ó does not expect to see a balanced budget until fiscal 2018. Provincial budgets 2012 ($mil.) 11/12 est. 12/13 13/14 14/15 15/16 16/17 17/18 British Columbia -2,497 -968 154 250 Alberta* -1,318 -886 952 5,193 Saskatchewan* 56 95 131 146 168 Manitoba -1,120 -460 23 Ontario -15,283 -15,153 -13,300 -10,700 -7,800 -4,200 0 Quebec* -2,452 -589 1,041 700 1,155 1,629 New Brunswick -471 -183 -99 6 Nova Scotia -261 -24 15 20 23 * The figures are net transfers from the three provinces' surplus or rainy-day funds. Source: Bank of Montreal and provincial budgets Certainly the western-most provinces have the rosiest outlook. Even given governments' conservative estimates, resource-rich B.C., Alberta and Saskatchewan can look forward to healthier growth in GDP than their eastern counterparts. Alberta expects growth of 3.8% this year; Ontario and Quebec, by contrast, are looking at growth of 1.7% and 1.5%, respectively. That translates into healthier revenues. Thanks in part to the oil sands, Alberta can expect to outpace the other provinces with a 4.6% increase in government revenue to $40.3 billion. According a Bank of Montreal report entitled, "Provincial Budgets: Fiscal Repair Underway,î combined provincial revenue growth will be 3.9% in 2012/13, a modest "pick-upî from the previous year. "Across the provinces,î say the report's authors Michael Gregory and Robert Kavcic, "revenue outlooks are based on starkly different economic climates, with high commodity prices fuelling strong growth in the West, while depressed manufacturing and fiscal restraint weigh in much of Central and Atlantic Canada.î Lacking burgeoning growth in revenues ó except, perhaps, Alberta ó provincial governments have turned to cost cutting to reduce deficits and, generally, increases in program spending have been low to moderate with the average in fiscal 2012/13 at 1.9%. The outliers are Alberta at 3.3% and Nova Scotia at 3.2%. It an all out effort to tame its deficit, Manitoba's April 17 budget froze or cut spending in 10 departments while putting money where it perceived it was needed ó health, education, family services and infrastructure ó a trend that is apparent in a number of provinces. Deficit-fighting is one thing ó assuming the provinces continue on their prescribed paths. But it doesn't address the provincial governments need for funding and their accumulated debts. Report the BMO economists: "Net debt ratios are proving slow to stabilize overall. Provinces tend to account for their capital spending programs ëoff budget' and the financing of these programs leads to net new debt issuance.î In fact, borrowing requirements for the provinces surpass the aggregate deficits. Ontario, alone, will add another $22.8 billion in net debt in the 2013 fiscal year. Debt reduction is still to come and while the provinces may be addressing their deficits, there is still a lot of heavy lifting to be done if provincial governments are to pay down their debts.   Additional Educational Resources: Free Trials in Debt and Cash Flow Management, Basic Bookkeeping for Business and Elements of Real Wealth Management.  

The facts of Ruff v The Queen (2012) are unusual, to say the least. Charles Ruff, a lawyer in Calgary whom you would expect to be more skeptical than most, was a victim of fraud. But the issue is not the fraud, but whether in computing income from his legal practice, Ruff could deduct the amount lost to the fraud. Ruff's troubles began in April 2005 when he received an email from Purity Adams asking for his help. Purity's father, "a wealthy cocoa and gold merchant in South Africa,î had been assassinated, she told Ruff, but not before he had left US $8.5 million in a container with a security company in Abidjan, CÙte d'Ivoire, during a business trip. The remaining members of the Adams family needed financial assistance to obtain the release of that container and Purity was soliciting Ruff's help. Most people who receive emails from people in far-off lands asking for money simply delete them. Ruff, however, was convinced this was genuine ó notwithstanding some rather embarrassing observations made by the court during the hearing. The court took note of the purported security company's website: "One obvious observation in looking at the page in colour is that of the five pictures at the top of the page, two of the pictures are clearly taken in an area where there is snow. One picture is of a house with snow in the driveway and snow on the roof and another is of a dog standing on a roadway that is snow-covered. The security company was supposedly located in Abidjan, CÙte d'Ivoire, which is very close to the equator. Given the proximity of Abidjan, CÙte d'Ivoire, to the equator, one would have expected that the climate would be a tropical climate and not one where one would find snow-covered houses or roads. The Appellant stated that he had not noticed this until it was brought to his attention during argument following the hearing.î There were other troubling aspects that should have alerted Ruff to the suspicious nature of the request. After Ruff had paid numerous charges to have the container released and shipped, Aeroground Diplomatic Courier Services notified Ruff that the container had arrived in London but the freight had not been paid and additional funds were required. According to this letter: "During the random checks, we discovered the delivery charge has not been paid from the origin (Cote d'Ivoire). Please see the reverse side of your Airway bill shipment document. It was stated that on no account we should not deliver any diplomatic consignment to any customer on credit. This is part of our company policy.î The double negative in "on no account we should not deliver,î should have alerted Ruff the lawyer. But it did not and Ruff continued to slide further into the trap ó divesting himself of even more money in the pursuit of the elusive container. In total, Ruff spent $398,995, which he then wanted to deduct from his law practice income as a business expense. The Canada Revenue Agency (CRA) took issue with this and the matter ended up in the Tax Court of Canada. The CRA claimed that since this was fraud there was no source of income. Ruff counterclaimed that his law practice was his source of income and he was pursuing profit through those means. This argument became futile when the court decided that all of the expenses were unreasonable and that the CRA had properly disallowed the expenses under Section 67 of the Income Tax Act. What makes this decision doubly interesting is that the tenor of the court seemed to imply that if the losses to fraud had been reasonable, the losses could have been deducted from Ruff's income. The fact that every aspect of Ruff's transaction would seem unreasonable to almost any observer denied him any prospect of deducting these losses against his income. As the judge remarked: "It seems to me that there are simply too many inconsistencies and too many questions about the story for the appellant to have a reasonable belief that the container existed.î This case reveals that losses to fraud may be deductible if they are lost from a "sourceî of income (business, investment, etc.) and they are reasonable. 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.