Mark Your Calendar: Critical Deadlines for May and June

Tax season never truly ends, it seems, as there are many more upcoming tax filing, investment planning and education milestones to discuss with your clients over the next six months. Check out our handy checklist below and then test yourself – what are the conversation openers you’ll use and with which clients? It’s your opportunity to shine with every member of the household:

On Aug. 13, Brian Ball and Bluewater Environmental (Western Canada) Inc. of Sarnia, Ont., pleaded guilty in the Ontario Court of Justice to 10 counts of making false statements on income tax returns and five counts of GST evasion. In total, the fines were just shy of $170,000, or 50% of the income taxes and GST evaded, adding considerably to Ball's and Bluewater's tax bills. From 2004-2008, Ball, the president of Bluewater, diverted funds from Bluewater, including GST that Bluewater had collected, to his personal account, using them to pay credit card bills, insurance, vehicle repairs and debit card purchases. He did not account for any of these funds in his or the company's income tax filings with the Canada Revenue Agency (CRA). Over the four-year period, Ball failed to report $197,499 of personal income taxes, $97,667 in federal taxes and failed to remit $44,305 in GST for Bluewater. In levying its fines, the Acting Assistant Commissioner of the Ontario Region of the CRA stated: "Canadian taxpayers must have confidence in the fairness of the tax system.î In order to maintain that confidence, tax evaders must be held accountable. As a result, Ball and Bluewater had to repay all the taxes owing, plus interest and penalties. They were also fined 50% of the amount owing, almost $170,000. It could have been worse, however. The court could have fined them up to 200% of the taxes evaded and imposed a jail term not exceeding five years. Voluntary Disclosure. If you have previously filed incomplete or incorrect information with the CRA, there is a way you can avoid liability. The CRA offers a Voluntary Disclosure Program (VDP) which allows taxpayers the opportunity to complete or correct previous information. You can only escape penalty or prosecution if you make a valid disclosure, however. Four conditions must be satisfied if the CRA is to consider your disclosure valid. The disclosure must be: ï voluntary, ï complete, ï involve the application or potential application of a penalty, and, ï generally include information that is more than one year overdue. If the CRA accepts your disclosure, it may, under subsection 220(3.1) of the Income Tax Act, cancel or waive penalties or interest otherwise payable. The VDP, however, is an administrative program and, as a result, there is no appeal to the Tax Court if you disagree with the CRA's assessment of your disclosure. You may request a second-level review within the CRA; if your disclosure is again deemed invalid, you can then apply to the Federal Court for judicial review on the basis that the decision is unreasonable. But that is a high threshold to meet. To make a disclosure, complete form RC199, Taxpayer Agreement ó Voluntary Disclosures Program. RC199 allows you to make a "no-nameî disclosure. In order to do this, however, you must provide the first three characters of your postal code so the CRA can ensure appropriate administrative attention. For the Federal Court's thinking on when a disclosure is voluntary, see Distinguished Advisor below.   Additional Educational Resource: EverGreen Explanatory Notes  

The much-watched consumer price index (CPI)  rose just 1.3% in the 12 months ended July, following a 1.5% gain in June. Even more important, the Bank of Canada's core index added 1.7% in those same 12 months, following a 2.0% gain in June ó putting paid to speculation that the central bank will raise interest rates any time soon. "We expect this benign inflationary environment to persist in the second half of 2012,î reported TD Bank Group senior economist Sonya Gulati, "given the absence of upward pressure from the usual drivers [such as] oil and gasoline prices. The modest economic growth environment will also do little to drive inflation higher over the near term.î That will give the Bank of Canada little reason to tighten monetary policy, as it hinted in June (Knowledge Bureau Report, June 6)  when it spoke of "some modest withdrawal of the present considerable monetary policy stimulus.î Gulati sees little action in the overnight rate until March 2013. Bank of Montreal economist Robert Kavcic puts the time for tightening as "well into next year.î And CIBC economist Emanuella Enenajor noted: "While we expect core inflation to recover from its 1.7% pace in the months ahead, it should remain within a range to provide the Bank of Canada with ample justification to stand pat on rates and wait for calmed global economic waters before taking the plunge to tighten policy.î In the 12 months, every major component of the CPI rose except clothing and footwear, which was down 0.7%. Leading the increase were higher prices in two components: food and household operations, furnishings and equipment. Both were up 2.1% year over year. Higher costs for telephone services and financial services led to year-over-year price gains for the household operations, furnishings and equipment component, says Statistics Canada. Behind increased food prices were food from restaurants, 2.4% more costly in July than a year ago; meat prices, up 5.3%; and cereal products, costing 3.7% more. In contrast, prices for fresh vegetables declined for the fifth consecutive month. Still, economists are keeping their eyes on food inflation. Drought in the U.S. is pushing global prices for corn and soybeans higher. Although it will take as much as a year for higher raw food prices to show up on the grocery aisles, CIBC's Enenajor suggests food inflation is likely to "edge upî to 4% in the months ahead. Even so, TD's Gulati does not see that as threatening: "The food category represents just 14% of the entire consumption basket. As a consequence, the muted inflationary picture ought to continue in spite of these developments.î That usual driver of inflation, energy prices, was down 1.2% in the 12 months. Natural gas prices dropped 15.2% on a year-over-year basis, continuing a pattern of declines observed since January 2011; gasoline prices fell 1.3% in the 12 months, the third consecutive year-over-year decline. The cost of electricity, however, increased 3.7% year over year, after a 5.9% rise the month before. Increases in electricity prices in Ontario were the biggest factor in this rise. There is some concern that another much-watched indicator, the Labour Force Survey, may be heralding the onset of wage inflation. As CIBC economist Avery Shenfeld noted in a report entitled "Are Canadian wages really heating up?î: "We have several months in which Canada's widely watched Labour Force Survey has shown accelerating year-on-year wage gains. Average hourly pay for permanent employees, a category tracked by the Bank of Canada, is up 3.9% in the year to July, the sharpest run-up since early 2009.î That raises questions about the ability of employers to hold the line on wages and about Canada's "output gap.î But in the end, Shenfeld concluded the evidence isn't conclusive. The recent gains may be simply an indication of soft figures a year ago. "If we're right,î he wrote, "as two healthy monthly gains from August to September 2011 drop out of the 12-month calculation, average wages for permanent workers won't look at all troublesome from an inflation perspective two months from now.î Shifting economic conditions and modest gains in consumer prices have ended any thought that interest rates might rise late in 2012. Borrowers have a little breathing space, as it now appear it will be well into 2013 before rates go higher.   Additional  Educational Resource: Advanced Payroll for Professional Bookkeepers      

Turns out, mom was right. Taking time to choose the right mate has huge benefits, not the least of which are financial. Statistics Canada research tells us that women who have enduring relationships are much better off in old age than divorced and even widowed women. Its June study should be required reading in all high schools. In "Impact of widowhood and divorce on income replacement among seniors, 1983 to 2007î StatsCan looked at Canadians who became widowed or divorced later in life and remained so. Using data from its Longitudinal Administrative Databank, StatsCan compared the family income of married people at ages 54 to 56 with the family income of always married, widowed, or divorced or separated people at age 78 to 80. These comparisons took into account changes in family size. The first thing to note: for men, separation and divorce had little effect on income maintenance in old age. Widowhood, in fact, increased their financial resources, largely because they no longer shared family income. But for married women, the story was different. Here's what we learned: If you remained married at age 78 to 80, statistically you had a median family income that was 83% of your family income at age 54 to 56. If you became a widow after the age of 55, your income at age 78 to 80 was 79% of earlier income. But if you became divorced or separated in your senior years, you had only 73% of the family income you had in your mid-50s. That is 10 percentage points less than the woman who was still married and living with her husband at the age of 78 to 80. The impact is felt even more among women who married wealthy men with lots of pension and investment income. Amongst the 20% of women at the top of the family-income distribution range, those in their mid-50s had the best income security 25 years later if they remained married; they lived on 74% of the income they had in their mid-50s. But if they got divorced, their median family income dropped to 53% of what it was. If they outlived their husbands, the replacement income ratio was 65%. Presumably, however, if you were in the top 20% of income, that 65% represented more income than someone in the lower income ranges. The issue for these women is access to their husbands' pension and investment assets after the relationships have ended. Seeking professional assistance before that event and planning for tax-efficient transfers is probably a good idea. As for those at the bottom of the income scale, widowhood and divorce didn't have a negative effect. Thanks to Canada's public pension system, low-income women all had higher incomes in their late 70s than they did in their mid-50s. It's Your Money. Your Life. This could change, of course, as women's participation in the workplace continues to evolve. But it doesn't alter the lesson. Couples who stay together and share their pensions and investments are financially better off. You cannot always anticipate divorce or loss of a spouse, but you should always be prepared. Shore up your own pensions and investments so, if you are alone at 79 to 80, you can have the kind of retirement you anticipated while together with your spouse. And be prepared to look after yourself in case of disability. 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.  

The German Tax Office (Finanzamt Neubrandenburg RiA) is giving Canadian residents who receive German pensions some relief from filing German income tax returns. To speed up the process, Canadian residents no longer need to file tax returns to Germany. Instead, the German Tax Office will send you an assessment. Effective Jan. 1, 2005, Germany changed its law on taxation of pensions, making social security pensions received from Germany taxable in Germany. (Knowledge Bureau Report, Dec. 28, 2010.) That meant Canadian residents who receive German social security pensions had to file a German tax return to determine their tax liabilities. As the Canada Revenue Agency (CRA) explains, only a portion of the pension received is taxable in Germany. (The CRA website provides guidance on how this is calculated.)  As a result of this change, Germany issued "requests to fileî to Canadian residents who received such pensions in the 2005 to 2009 tax years. Those request proved too much for many older pensioners. So, the German Tax Office changed its approach. It now automatically sends assessment for taxes owing each year alleviating the need to file a German tax return. This year, Germany is assessing only the tax years 2005 and 2006; next year, it will assess the years 2007 to 2011. In June, the German Tax Office began sending reply letters (Antwort) to all pension recipients whom it had not yet reached. Should you receive this letter, there is no need to do anything. Usually, about one week later, the official assessment notice (Bescheid) follows. One you receive the assessment notice, you have about two months to pay the required taxes. After you paid your taxes to Germany, you will need to file a T-1 Adjustment (Foreign Tax Credit) with the CRA in order to get back the part that has been double taxed. Article 18 of the Taxation Agreement states that the country paying the pension has first right to taxation. Article 23 states that if you live in a country that also taxes the German pension, that country has to refund via the Foreign Tax Credit any double taxation amounts. If your non-German income is below a pre-determined limit, you can file an objection. As a result, you will be evaluated as "unrestricted.î If approved, you may qualify for paying a lower tax or no taxes at all. Quite often if you receive government supplements, you may qualify for the unrestricted tax category. Only for the unrestricted category do you submit a Declaration with the proper documentation every year. It is important to know that the German Tax Office cannot apply an automatic deduction from your pension. If this is something you would like, then contact the Federal Ministry of Finance in Germany requesting the law to be changed to allow for such an option. Siegfried Merten, MFA, is the head of Merten Financial Inc.,  a tax preparation and financial planning practice in St. Catharines, Ont. He is fluent in English and German and you can reach him at mertenfinancial@cogeco.net.   Additional Educational Resource: EverGreen Explanatory Notes  

On Aug. 11, the federal government pre-published its first package of proposed regulations for the Pooled Registered Pension Plan (PRPP) Act, opening a 30-day public comment period prior to final consideration. A second package of regulations under the PRPP Act will follow at the earliest opportunity, the Department of Finance promises. This first package of proposed regulations addresses the following provisions: ï the licensing conditions for a potential administrator of a PRPP; ï the management and investment of funds in members' accounts; ï details with respect to the investment options offered to members; ï criteria against which the requirement to provide low-cost PRPPs can be assessed; ï conditions under which a PRPP member is allowed to set his or her contribution rate to 0%; and ï information that plan administrators must disclose to plan members, employers and the Superintendent of Financial Institutions. As the government's impact analysis statement explains: ï The Office of the Superintendent of Financial Institutions (OSFI) will be the licensing body for PRPP administrators. Any Canadian corporation may administer a PRPP providing it submits a five-year business plan, demonstrates that it has the financial resources and operational capacity required to administer a PRPP, demonstrates that the officers and directors are of good character, and provides any other information required by OSFI. Licensing fees will be levied on a cost-recovery basis. ï To provide a minimum level of protection for plan holders, the Regulations will curtail concentration risk by limiting the amount of assets an individual member can invest in any one entity or associated entities to a maximum of 10%; provide a quantitative limit on control of corporations (i.e. a maximum of 30% on voting rights to elect directors); and, limit administrators' investments in related parties. ï Administrators may provide plan members with a maximum of six investment options, including a default option, that represent a mix of risk and expected returns. If a plan member does not communication his or her choice within 60 days, the default option would automatically apply. ï A member may set his or her contribution rate to 0% at any time after 12 months from when he or she begins to contribute to a PRPP account. The rate can stay at 0% for between three months and five years. There will be no limit on the number of times that the contribution rate may be set to 0%. ï To facilitate transparency and comparability across PRPPs, industry standards relating to the disclosure of mutual funds and capital accumulation plans will apply to PRPPs, as appropriate. Administrators will provide information on a website and on the request of a member or employer, such as a description of each investment option, a statement of transfer options available to plan members, and a description of any fees, charges or other levies. A written annual statement will include information such as the investment option in which the member is invested in, account balance information, a summary of transactions and specific information related to the member's investment option. The second package of regulations will address the transfer of funds from a member's account, the manner and frequency of remittances, the form and content of notices, locking-in rules, variable payments, electronic communications, and other technical rules related to the implementation of the framework. PRPPs will be available across Canada once federal tax legislation is passed and the provinces implement their PRPP legislation.   Additional Resources: FREE TRIAL - Tax Efficient Retirement Income Planning, Master Your Retirement    

With Canada's economic growth a modest 2% and inflation about 2%, it is hard to grow new wealth in today's fragile world. One sure solution is keeping firm control of the costs that will erode your wealth. That means monitoring investment fees and limiting the amount of income taxes you pay, two things in an otherwise unpredictable environment that you can control. Let's talk about tax efficiencies first. Consider investing any new money in the order in which it will most boost your after-tax results, choosing the biggest booster first. For example, a contribution to an RRSP would take precedence over a contribution to a Tax-Free Savings Plan (TSFA). If you have taxable income, are age eligible and have RRSP contribution room, the RRSP will provide a win for you because of the tax savings it generates. Thanks to your ability to deduct the amount of your RRSP contribution from your taxable income, you will pay less income taxes ó and generate extra dollars for investing ó by the amount of your marginal tax rate. For example, if you are in a 30% marginal tax bracket, every $1,000 invested in the RRSP takes $300 off your income taxes. If you don't have RRSP contribution room or don't qualify to contribute to an RRSP, a TFSA is the next best choice because income earned in your TSFA account is not subject to taxes. However, TFSA contributions are not tax deductible the way RRSP contributions are and they are limited to $5,000 annually. You also need to be a resident of Canada to contribute. But, if you have available TFSA room, a TSFA is a great place to park savings and earn tax-free investment income. What's next in your tax-efficient investing plan, once you have topped up your RRSP and TFSA? Now, you should consider non-registered accounts and the tax implications of various types of investment returns. How much of your non-registered portfolio should be generating interest, dividends or capital gains to get the after-tax results you need? Given recent public pension reforms, you should also consider how long you intend to work. If you work past the age of 60, you can increase future income by continuing to contribute to the Canada Pension Plan. By July 2013, you'll also be able to postpone taking your Old Age Security for up to five years, thereby increasing pension benefits later. These are important opportunities that should be carefully considered when you are planning your retirement. Let's turn now to the fees you pay for having your money managed. How much do you pay each year to invest your money? Should you pay an investment-management fee based on a percentage of your capital, or a cost per transaction? Are there savings to be had? Depending on how much money you have invested, you can sometimes negotiate lower investment-management fees. And investment-management fees are tax-deductible, unlike the fees changed for mutual funds and transaction costs. Either way, you'll want to factor in exactly how much more of a return you will need over a defined period of time to offset the fees. Then, weigh the costs of the advice against the value of the advice. If the good advice received and the consistent process for sound decision-making helps you get better results, it will be worth it. It's Your Money. Your Life. When returns on investments are low and unpredictable, investors must manage risks more closely. The returns needed to cover the effects of inflation, taxes and fees must be part of your planning. Whether you invest on your own or within a collaborative professional team, be sure these factors are considered in constructing ó and reconstructing ó your investment portfolio. 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.   Additional Educational Resources: FREE TRIAL - Elements of Real Wealth Management, Financial Recovery in a Fragile World Book.