May 2025 Poll

Does the Liberal promise expected soon to cut the lowest personal income tax rate by 1% to 14%,  go far enough to help Canadians impacted by high costs?

Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) Age eligibility for the OAS and GIS programs increases to age 67 from age 65 beginning in 2023 and concluding in 2029. The eligibility for the (spouse's) Allowance and the Allowance for Survivors will also increase to age 62 from age 60 in the same time period. Option to defer OAS Beginning on July 1, 2013, seniors will have the option to defer receiving their OAS pension for up to five years, in a manner similar to the deferral of Canada Pension Plan (CPP) benefits. Those who begin to receive their pensions later will receive a proportionately larger pension. Medical expenses Budget 2012 will add blood coagulation monitors for use by individuals who require anti-coagulation therapy ó including associated disposable peripherals such as pricking devices, lancets and test strips ó to the list of expenses eligible for the Medical Expense Tax Credit in 2012 and subsequent years. The devices must be prescribed by a medical practitioner. Registered Disability Savings Plans (RDSPs) Family members as plan holder Under the current rules, many adults with disabilities have had difficulty establishing plans because their legal capacity to enter into a contract is doubtful. Provincial law requires that, to open an RDSP, the individual must be declared legally incompetent and a legal guardian named. Budget 2012 will allow, on a temporary basis, certain family members (spouse or common-law partner or parent) to become the plan holder of the RDSP for an adult individual who might not be able to enter into a contract. This measure will ensure that individuals may still benefit from RDSPs. In the meantime, the provinces and territories are expected to make more accommodating provisions. Where the disabled individual is found not to be contractually competent, a legal representative of the disabled individual may replace the family member as the plan holder. This measure will become effective upon Royal Assent and will be in effect until Dec. 31, 2016. Repayment of grants and bonds For withdrawals from RDSPs after 2013, the "10-year Replacement Rule" will be replaced with a "Proportional Repayment Rule." Under the old rule, if any amount is withdrawn from a RDSP, any Canada Disability Savings Grant (CDSG) and Canada Disability Savings Bond (CDSB) amounts received in the past 10 years must be repaid (except for SDSPs). Under the new rule, the repayment amount will be the lesser of the amount removed times three, and the amount of the CDSG and CDSB amounts received in the past 10 years. Example: Proportional Repayment Rule vs 10-year Replacement Rule Issue: Arthur is the beneficiary of an RDSP. In the period 2008 to 2013, CDSG and CDSB contributions totalled $21,000. In 2014, he withdraws $1,000 from his RDSP. How much does he have to repay? Answer: Under the 10-year Replacement Rule, he would have to repay the full $21,000 government assistance contributed. Under the Proportional Replacement Rule, he will have to repay $1,000 x 3 = $3,000 of government assistance. Maximum annual limits for withdrawals For withdrawals made after 2013, the maximum Lifetime Disability Assistance Payment (LDAP) will be increased to no less than 10% of the fair market value of the assets in the plan at the beginning of the year. Where the maximum amount under the existing LDAP formula exceeds 10% of the asset value, then the maximum is the amount determined under the LDAP formula. Rollovers of Registered Education Savings Plans (RESPs) Beginning in 2014, the current RESP rollover provisions to RRSPs will be extended to RDSPs. RESP investments, after Canada Education Savings Grants and Canada Education Savings Bonds have been repaid, may be rolled into an RDSP, so long as the plan holder has sufficient RDSP contribution room. These contributions will not generate CDSB or CDSGs. Withdrawals of rolled-over RESPs will be taxable. Termination of RDSPs when a beneficiary is no longer disabled When an RDSP beneficiary ceases to qualify for the Disability Amount, currently the RDSP must be terminated immediately. Beginning in 2014, when this happens, the beneficiary may make an election to continue the plan for up to four calendar years after the end of the calendar year in which the beneficiary ceases to be eligible for the Disability Amount. During the election period: No contributions will be permitted. No new CDSBs or CDSGs will be paid into the plan. Withdrawals will be permitted subject to the new Proportional Repayment Rule. Current RDSPs which would be required to be terminated before 2014 will not be required to be terminated until the end of 2014. Mineral Exploration Tax Credit The Mineral Exploration Tax Credit will be extended for one more year for flow-through agreements entered into before March 31, 2013. With the "look-back rule," this means that the credits extend to agreements up to March 31, 2014. Eligible and other than eligible dividends For taxable dividends paid after March 28, 2012, the government will allow the payer of a dividend to designate what portion of that dividend is eligible and what portion is not for up to three years after the dividend is paid (a late designation). Example: Reclassification of Dividends Issue: In 2012, Harvey's corporation earned $550,000. At the end of the fiscal year (July 2012), the corporation issued a $100,000 dividend to Harvey as an other than eligible dividend as was done in prior years. In 2013, Harvey discovered that $50,000 of the dividends could have been eligible dividends because the corporation paid taxes on $50,000 at the higher tax rate. What can be done? Answer: under the new rule, the corporation may make a late designation to designate $50,000 of the dividends as eligible. Group Sickness and Accident Insurance Plans Employer contributions made to a plan after March 28, 2012, that relate to coverage after 2012 and are not in respect of a wage-loss replacement benefit payable on a periodic basis (i.e. the benefits will not be taxable to the employee) will be a taxable benefit. Such contributions made in 2012 will be included in income in 2013. Retirement Compensation Arrangements (RCAs) New prohibited investment and advantage rules will apply to RCAs that have a beneficiary who has a significant interest in the employer (a "specified beneficiary"). These rules parallel the rules for TFSAs. Prohibited investment rules Beginning March 29, 2012, the custodian of an RCA will be liable for a 50% tax on the fair market value of any prohibited investments in the RCA. The tax may be refunded if the prohibited investment is disposed of by the end of the year following the year in which it was acquired. Advantage rules A special tax equal to 100% of the fair market value of any RCA advantage will be payable in respect of any advantage extended, received or receivable after March 29, 2012. The definition of an advantage for an RCA will be adapted from the advantage rules from RRSPs. Advantages occurring before March 30, 2012, will not be subject to the tax if the amount of the advantage is included in income of the "specified beneficiary." RCA tax refunds Refunds of RCA taxes on contributions made after March 28, 2012, will not be refunded if the RCA property declines in value unless the decline cannot be reasonably attributed to prohibited investments or advantages. Employee profit-sharing plans (EPSPs) A special tax at the top marginal rate of the "specified employee" will be assessed for contributions to an employee profit-sharing plan for a "specified employee" to the extent that the contribution exceeds 20% of the employee's salary received that year. A "specified employee" is an employee who has a significant equity interest in the employer or does not deal at arm's length with the employer. This measure will apply to EPSP contributions made by an employer on or after Budget Day, other than contributions made before 2013 pursuant to a legally binding obligation arising under a written agreement or arrangement entered into before Budget Day. Where this tax is applied, a deduction will be allowed for the excess EPSP contribution so that it is not taxed twice. Life insurance policy exemption test The criteria for determining if a life insurance policy is an exempt policy will change for policies issued after 2013. The government has made several technical proposals and will consult with key stakeholders on these proposed changes over the coming months. Gifts to foreign charitable organizations For gifts to foreign charitable organizations to be eligible for the donation tax credit, the organization must be a "qualified donee." Currently, the Canadian government must donate to these organizations for them to qualify. Beginning in 2013, foreign organizations that pursue activities: related to disaster relief or urgent humanitarian aid, or in the national interest of Canada may apply to receive "qualified donee" status, even if they do not receive a donation from the government of Canada. Canada Revenue Agency will develop guidelines for granting such status. Travellers' exemptions Beginning June 1, 2012, the tariff exemption for goods brought into Canada will increase to $200 from $50 for travellers who are out of Canada for 24 hours or more, and to $800 for travellers who are out of Canada for 48 hours or more.   Additional Educational Resources: Introduction toPersonal Tax Preparation Services, Essential Tax Facts 2012 Edition and EverGreen Explanitory Notes.  

The repercussions of Ontario's March 27 budget will be felt across Canada ó especially among the corporations that bear the brunt of the changes. Consumers and employees, too, will feel the squeeze as, thanks to the "trickle downî effect, corporations pass on the additional cash drains through cost-cutting, reduced employment and price increases. Ontario is no longer the manufacturing giant it once was; it is now a service-based economy. At the head of the pack is the financial services industry. Toronto is one of the 10 largest financial centres in the world and handles 70% of Canada's financial services. As a result of Ontario's budget, this large corporate segment will pay 13% more taxes ó affecting consumers and employees nation-wide. Ontario's public service will also feel the impact of what can only be termed an "austerityî budget, as the Ontario government attempts to balance its budget by 2017-2018 "by finding savings and curtailing planned spending.î To reduce wage costs, Ontario plans to impose a two-year wage freeze on 1.2 million government employees. It intends to do this through negotiation and the collective-bargaining process. But the provincial government has indicated it will introduce legislation to force the freeze if the public-service unions disagree. This is all going to happen without the government increasing taxes. Apparently "not increasing taxesî does not include eliminating previously announced tax cuts and increasing fees.ï Taxation Corporations expecting to take advantage of long-promised reductions in the general corporate tax rate will have to wait a little longer, at least until there is a balanced budget. The general tax rate for corporations ó which was scheduled to drop by 0.5% on July 1, 2012, and an additional 1% on July 1, 2013 ó is frozen at 11.5%. This 1.5% cut to the corporate tax rate represents a 13% increase in funds no longer available for investment. This will ultimately filter through, increasing costs and pricing as well as decreasing employment. The removal of the tax reduction, however, does not affect manufacturing and processing or small business which currently have provincial tax rates of 10% and 4.5%, respectively. Also frozen at its current level is the Business Education Tax (BET), a component of commercial property taxes. Ontario's phased-in cuts to BET, which started in 2007, will halt until Ontario reaches a balanced budget. Neither of these freezes sound like a big deal on the surface, but for a province that is in financial difficulty to hobble the commercial engine that drives employment and the economy sounds a little counterproductive. The proposed Healthy Homes Renovation Tax Credit designed to provide a 15% non-refundable tax credit on expenditures "that improve accessibility or help seniors with their mobility at homeî will remain. Even though this legislation has not yet been passed, the qualifying period began October 1, 2011, and expires December 31, 2012, to be claimed on the 2012 personal tax return. Although this program is currently in place and active, it is important to note that this legislation has not been passed and it does form part of the budget. It may ultimately be defeated. In another move, as of March 27, the Ontario government has taken back the determination process regarding employee-employer relationships for the purpose of assessing taxes under the Employer Health Tax from the Canada Revenue Agency (CRA). While CRA rulings will remain, Ontario is no longer bound by the rulings for the purpose of the Employer Health Tax. Retail Sales Tax (RST) was harmonized with the GST/HST on July 1, 2010. Ontario taxpayers have had the ability to apply for RST rebates and refunds until June 30, 2014. This period has been shortened; the deadline is now Dec. 31, 2012. Administratively, the Ontario government plans to amend various statutes to enhance its ability to collect tax revenue, including the garnishment of monies to be loaned or advanced to taxpayers. Research & Development tax credits, the Apprenticeship Training Tax Credit and Tobacco Tax Enforcement are also under review but the budget gave no details on what changes, if any, will be implemented. Collectively, the tax measures proposed in Tuesday's budget should increase Ontario's revenue by $325 million in 2012-2013, $1.04 billion in 2013-2014 and $1.675 billion in 2014-2015.ï Pension Systems Public-sector defined-benefit pension plans also came under the gun as the Ontario government targeted unfunded liabilities. Ontario is proposing legislative changes within the following parameters: In case of a deficit, a plan will be required to reduce future benefits or ancillary benefits before increasing employer contributions. In exceptional circumstances, a limit will be set on the amount or value of benefit reductions before additional contribution increases can be considered. Any benefit reductions will involve future benefits only, not those already accrued. Current retirees will not be affected. If employee contributions are currently less than employer contributions, increased employee contributions can be employed to reduce pension deficits. When plan sponsors cannot agree on benefit reductions through negotiation, a new third-party dispute resolution process will be invoked; the framework will be reviewed after the budget is balanced. Alan Rowell, Distinguished Financial AdvisorñTax Services Specialist, is president of The Accounting Place in Stoney Creek, Ont.   Additional Educational Resources: Esstential Tax Facts 2012 Edition and Introduction to Personal Tax Preparation Services.  

With every federal budget, we anticipate the continued reform of personal and corporate tax systems. The March 29 budget is no different. If the age of eligibility for Old Age Security (OAS) is pushed back, Thursday's budget could be both historically significant and hugely unpopular (or so indicates Knowledge Bureau's polling). You will do well to pay close attention to this budget and project its effects onto your retirement and estate plan. In the aftermath of the global financial crisis, governments are forced to rein in spending and reduce deficits. So, you should be prepared for possible tax increases ó such as social benefit clawbacks, increased user fees or changes to our taxing framework, which is based on another significant tax reform introduced in 1969. Canada's then-minister of finance, the Hon. E. J. Benson, not only proposed increases to personal and corporate taxes but also, most significantly, brought capital gains into taxable income. His reasons were interesting in the context of today's choices. "The needs of the federal and provincial governments for money to do useful and important things are so great,î he began his proposed reforms, "that we cannot now afford to reduce the over-all revenues from personal and corporate income taxes.î Over time, inclusion of net capital gains in taxpayers' income has added extensively to government coffers. In the first year ó the reforms took effect Jan. 1, 1972 ó it was estimated that single provision generated net government revenue of $60 million; by its fifth year of existence, it produced $245 million. Those were large sums for the times. But Benson did something else: he recognized the punitive effect of including in income "irregularî sources of income that would push taxpayers into a higher tax bracket and cause taxes to be paid at a higher tax rate that year than in a normal year. The "General Income-Averaging Optionî ó which averaged out income and taxes payable over five years ó was introduced to help taxpayers avoid tax-rate spikes. Unfortunately, that provision was abolished years ago. Benson's reforms were effective in their mission. They redistributed the income-tax burden and increased government revenue from personal and corporate taxes. The burden, however, landed squarely on the large, baby-boomer taxpayer base that was just graduating from university and beginning its work life. Yet, despite high tax rates on both income and capital, boomers were incented to work in this country, rather than leave for more competitive tax jurisdictions. Most attempted to save for retirement, despite high taxation in the 1990s (which was needed to reduce previous governments' deficits and debt) and the debilitating effects of the recent global crisis. Retiring boomers now need to count on what's left of their private savings, the Canada Pension Plan and the OAS to make it in a very different world. Unfortunately, heavily indebted federal and provincial governments once again face great needs to do important things. The federal government will have to make significant choices come Thursday's budget. So may you, too. In fact, engaging with well-informed tax and financial advisors to mitigate any losses with sound tax and financial planning is a good first line of defense.   It's Your Money. Your Life. The degree to which the March 29, 2012, federal budget changes your tax burden will be of special interest. To find out what it means to you and your savings, please join the Knowledge Bureau Report team at http://www.knowledgebureau.com/ for our Special Budget Report. We'll be there to help you decipher Budget 2012. Evelyn Jacks, president of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. To purchase your books, visit www.knowledgebureau.com/Books.asp. Follow on Evelyn on Twitter @evelynjacks  

If you have not been totally forthcoming with Canada Revenue Agency (CRA), you should take advantage of the CRA's Voluntary Disclosures Program (VDP) and set the record straight. The CRA is making it very clear it will not tolerate taxpayers shirking their responsibilities. Take, for example, tax advisor Christopher Patterson of Toronto. According to the CRA, Patterson was selling false charitable donation receipts to clients. When he prepared their tax returns, he duly claimed those charitable donations as deductions on line 144 of the income tax return. For the 2004 to 2008 taxation years, he claimed more than $1 million in false charitable donation deductions, reducing the amount of taxes payable by his clients. Overall, unwarranted refunds totaling $313,992 were issued to Patterson's clients. Patterson has pleaded guilty to fraud and received an 18-month conditional sentence and 200 hours of community service; he is also prevented from preparing or filing tax returns for anyone but himself. Tax protestors in Saskatchewan may have received even harsher punishments. (Tax protestors commonly use the "natural personî argument to claim that they are not legally required to pay taxes, a claim the CRA does not accept.) Douglas Amell was sentenced to 16 months in jail and fined $189,796 for tax evasion. Heidi Keyzer was sentenced to five months in jail and fined $33,106, and Robert Amell was sentenced to three months and fined $20,334. The offences occurred during the taxation years 2003 to 2006.The fines represent 100% of the taxes sought to be evaded and benefits received. But you may avoid these penalties if you make a valid disclosure. A valid disclosure meets four conditions: it must be voluntary, complete, involve the application or potential application of a penalty, and generally include information that is more than one year overdue. You must complete form RC199, Taxpayer Agreement ñ Voluntary Disclosures Program. If the CRA accepts the disclosure as valid, you may only have to pay the taxes or charges owing, plus interest. 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.  

When the federal government tables its 2012-2013 budget tomorrow, the emphasis will be on reduced spending and deficit reduction. And, by all indications, the feds may be in a good position to put the brakes on federal spending without bringing the recovery to a screeching halt. ï Growth in real gross domestic product (GDP) has met expectations. According to Statistics Canada, real GDP rose 0.4% in the fourth quarter of 2011, after advancing 1% in the third quarter, with consumer spending and exports contributing the most to fourth-quarter growth. Economists are now pegging 2012 growth at 2.2% and 2013 growth at 2.4%-2.5%, which is pretty much in line with Bank of Canada expectations. "The catalyst behind this positive adjustment,î wrote TD Bank economists in a recent report, "is an improvement in the near-term environment for the global economy and financial markets, which is expected to pay off in terms of higher world commodity prices, more robust exports and stronger confidence at home.î ï Federal government revenues have steadily increased quarter after quarter with fourth-quarter 2011 revenue up 4.8% year over year, according to StatsCan's Government Finance Statistics. TD economics forecasts revenue of $244.5 billion in 2012 and $256.7 billion in 2013. The upshot? Report TD economists: "Improved economic assumptions and lower than-anticipated spending numbers suggest that the federal govern­ment is enjoying a brighter fiscal outlook than just a few months ago ó the deficit is now estimated at $26 billion (1.5% of GDP) for fiscal 2011-12.î That is a $5-billion improvement on the Bank of Canada's fall update. ï Inflation is within the range the Bank of Canada has targeted, with the February consumer price index (CPI) advancing 0.4%, taking annual inflation to 2.6%, a slight edge upward from 2.5% last month. As has been the story lately, energy prices ó more specifically, gasoline prices ó and food prices pushed CPI higher. Core inflation also rose 0.4% in February, boosting the underlying rate of inflation to 2.3% from 2.1% in January. Doug Porter, deputy chief economist at Bank of Montreal, notes core inflation is running a "bit hotterî than the 2.1% the Bank of Canada expected. But, he says in a recent report, "Even with some further upward pressure from gasoline prices in next month's reading, inflation should begin to recede in March thanks to some very favourable year‐ago comparisons for both headline and core.î Adds Paul Ferley, assistant chief economist at Royal Bank of Canada, in a report: "With the Canadian economy continuing to operate with unused capacity, as evidenced by a still high unemployment rate, inflation is expected to drop back below 2% during the course of 2012. Under this scenario, the Bank of Canada can focus on sustaining the recovery.î ï Interest rates are low ó the Bank of Canada overnight rate is 1% ó and are expected to stay that way until mid-2013. In the short to medium term, that should support Canada's housing market and consumer spending. ï Unemployment is expected to hold around 7.5% this year, before easing to 7% in 2012, note TD economists. Although national employment growth has stalled over the past six months, economists expect the labour market to snap out of its recent lull. But prospects for job creation in 2012 are not great, with governments at all levels reducing payrolls and businesses able to meet increased export demand through higher productivity. ï Consumer debt as a percentage of disposable income has breached the 150% barrier. Since much of this debt is real estate-related ó either mortgages or home equity lines of credit ó the spectre of a collapse in the housing market strikes fear in the hearts of economists and policymakers. Estimates of just how overvalued the Canadian housing market is range from 10%-15% to 25%. Throw in higher interest rates and many Canadian households will be stretched to the limit. Yet, consumer spending is a mainstay of our economic growth ó and thus constitutes a potential, longer-term problem. So, the government is in a position to move forward with deficit reduction while keeping the economy on a firm footing. But it is not without its challenges, as Evelyn Jacks notes below. The government needs money to meet its commitments to Canada's aging population. It will definitely require some juggling.   Additional Educational Resources: Debt and Cash Flow Management and Financial Recovery in a Fragile World.  

Canada Revenue Agency (CRA) is putting some high-flying Tax-Free Savings Accounts (TFSAs) and their "unusualî transactions under its microscope. It seems the ability of some TFSA holders to turn a $5,000 annual contribution into, for example, $300,000 in one year has attracted Ottawa's attention. The CRA recently sent questionnaires to selected TFSA holders and is threatening a penalty of close to 100% of the value of the TFSA for any missteps. Since the introduction of TFSAs in 2009, some TFSAs have grown beyond what the CRA believes are the TFSAs' natural limits using "qualifiedî investments ó that is, investments in properties, including money, guaranteed investment certificates (GICs), government and corporate bonds, mutual funds and securities listed on a designated stock exchange. Indeed, the CRA believes holders of some TFSA have employed complicated, and prohibited, "swap transactions,î transferring properties or assets ó such as thinly traded securities with large differences in "bidî and "askî prices ó between the TFSA and the holder of the TFSA or a person not at arm's length from the holder. When those securities are swapped out of a TFSA into non-registered accounts, they may triple in value; repeated swaps can quickly turn $5,000 into $300,000. But, says CRA, such "aggressiveî tax planning gives rise to unfair advantages. On that basis, the CRA is going after certain TFSA holders. (Most need not worry: the CRA is only after those who have misused TFSAs in order to gain unfair advantages through circuitous transactions and prohibited investments.) How to identify an improper TFSA advantage. An advantage is any benefit, loan or debt that depends on the existence of a TFSA. An improper advantage is any benefit that increases the fair market value (FMV) of a TFSA that can reasonably be attributed, directly or indirectly, to one of the following: ∑ a transaction, event or series of transactions that would not have occurred in an open market between arm's length parties acting prudently, knowledgeably and willingly, one of the main purposes of which is to enable the holder (or another) to benefit from the tax-exempt status of the TFSA; ∑ a payment received in substitution for services rendered by the holder of the TFSA or a person not at arm's length with the holder, or a payment of a return on investment or proceeds of disposition for property held outside of the TFSA by the holder or a person not dealing at arm's length with the holder; ∑ a swap transaction; ∑ specified non-qualified investment income that has not been distributed from the TFSA within 90 days of the holder of the TFSA receiving a notice from the CRA requiring them to remove the amount from the TFSA; ∑ any benefit that is income (including a capital gain) and is reasonably attributable to deliberate overcontribution or a prohibited investment.   Prohibited investments. These are investments to which the TFSA holder is closely connected and include: a debt of the holder; a debt or equity investment in an entity in which the holder has a significant interest (generally 10% or greater); and a debt or equity investment in an entity with which the holder or an entity does not deal at arm's length.   Not included in this prohibited designation are mortgage loans that are insured by the Canada Mortgage and Housing Corporation (CMHC) or by an approved private insurer. Most TFSA holders need not worry about these audits; they pertain only to aggressive and abusive use of the TFSA. But those faced with audits should seek professional advice as soon as possible. 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.