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:

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.  

Tax time is a good time to evaluate the tax-efficiency of your investment strategy. This is especially true if the market volatility of recent years has spooked you into replacing the equities in your portfolio with "saferî investments that guarantee your principal and interest.  In the Knowledge Bureau Report of April 11, I promised you a look at the eroding effects of both taxes and inflation on your investment returns. The picture is not pretty. Recall that reporting interest on your income tax return follows two basic tax rules: ï You report interest in the tax year in which it is actually received or receivable. ï You report interest accrued from compounding investments on the debt's anniversary date, even though you haven't received the cash. What effect do those rules, and the annual inflation rate, have on your real returns? Consider the following chart, which analyzes the real return on a $1,000 Canada Savings Bond. In this scenario, we are assuming a 1.8% interest rate, 3% annual inflation and a 10-year hold period. The taxpayer is in the 31% tax bracket. Amounts shown are in current-year dollars (i.e. adjusted for inflation from year 0). Real after-tax return of $1,000 Canada Savings Bond, compounding interest Year Interest earned (1.8%) Taxes (31%) Inflation adjustment(3%) Principal and earnings left Real after-tax return Principal $1,000.00 0 Plus: Less: Less: 1 $18.00 ($5.58) ($30.00) $982.42 (1.76%) 2 $18.32 ($5.68) ($29.47) $965.59 (1.71%) 3 $18.65 ($5.78) ($28.97) $949.49 (1.67%) 4 $18.99 ($5.89) ($28.48) $934.11 (1.62%) 5 $19.33 ($5.99) ($28.02) $919.43 (1.57%) 6 $19.68 ($6.10) ($27.58) $905.42 (1.52%) 7 $20.03 ($6.21) ($27.16) $892.08 (1.47%) 8 $20.39 ($6.32) ($26.76) $879.39 (1.42%) 9 $20.76 ($6.44) ($26.38) $867.34 (1.37%) 10 $21.14 ($6.55) ($26.02) $855.90 (1.32%) Total $1,195.30 ($60.54) ($278.86) $855.90 (14.41%) Source: Essential Tax Facts, 2012 by Evelyn Jacks   After 10 years, your return after taxes and inflation is actually a loss of 14.41% in real dollar terms. Was this a safe investment? At the outset, you may have said "Yesî because the principal is guaranteed. Unfortunately, your principal has lost purchasing power because it could not compete with the eroding factors of annual taxes and inflation. Both time and money are precious. Always consider the real rate of return ó after taxes, after inflation and after taking into account the costs associated with the investment ó that you must earn to create purchasing power when you need it. And be sure to discuss the role of interest in your overall portfolio with your advisors. 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  

As of early April, taxpayers have filed slightly more than eight million tax returns, with more than 80% of filerschoosing one of three electronic filing methods ó netfile, efile or telefile. This is a remarkable uptake of the electronic filing options that were pioneered in the early 1990s. The Canada Revenue Agency (CRA) also reports that the average refund on returns filed as of that date is $1,533. Of the 10% of filers who owed a balance, the average paid was slightly more than $3,187, which, unfortunately, may require some of those taxpayers to pay quarterly tax installments. Twenty per cent of those filing returns had no income, which means they filed in order to receive social benefits. The tax-filing deadline for most individuals is midnight April 30. For proprietors and their spouses, the deadline is June 15, although interest on any balances owing by those proprietors begins accruing on May 1.   Additional Educational Resources: Introduction to Personal Tax Preparations Services course and Essential Tax Facts 2012 Edition.  

It really is time to do that income tax return, with the April 30 deadline for individual filers fast approaching. And reporting interest income deserves particular attention this year, if you are among the worried investors who exchanged stocks for the "safeî havens of interest-bearing debt obligations such as guaranteed investment certificates (GICs) and Canada Savings Bonds. Indeed, the guaranteed return of principal and income resulting from the government using your money is attractive. But it is not all it appears to be: these interest-bearing investments are neither tax-efficient nor inflation-proof. If you take taxes and inflation into account, over time, you will actually lose both principal and purchasing power. Consider the tax filing rules. Interest reporting follows two basic tax rules: ï You must report the interest in the taxation year in which it is received or receivable. ï Compounding allows you to earn interest on interest during the term of the contract. On your income tax return, you must report all interest income that accrues in the year ending on the debt's anniversary date. So, you pay taxes on income you haven't received as you've effectively reinvested the pre-tax interest at the same rate as the principal pays. The issue date of the debt instrument is important because reporting stems from that date rather than the date of ownership. For example, because of the annual reporting rules, which apply to investments acquired after 1989, an issue date of Nov. 1, 2011, does not require interest reporting until the following year, that is 2012. In other words, the accrual of interest for the two-month period of Nov. 1 to Dec. 31 is not reported in the 2011 tax year. Things get even more tricky when investment contracts have unique features, such as: ï they do not bear interest and are sold at a discount to their maturity value; ï the interest rate of the instrument is adjusted for inflation over time; ï the rate of interest may increase as the term progresses; ï interest payments may vary with the debtor's cash flows or profits; ï if the instrument is transferred before the end of the term, a reconciliation of interest earnings must take place. Interest received or accrued each year must be reported as investment income on Schedule 4 ñ Statement of Investment Income and Line 121 of the tax return. Remember: you must report interest income earned even if you did not receive a T slip. Get help from your tax advisor in the trickier situations.  Next time ó Evaluating CSB returns: Taking inflation into account   Evelyn Jacks is president of Knowledge Bureau and author of Essential Tax Facts 2012  and co-author of Financial Recovery in a Fragile World. Follow her on twitter @evelynjacks  

Over the past 125 years, whenever Canada has faced a recession or depression, exports have led the country into recovery. But this time around, says Mark Carney, governor of the Bank of Canada, exports have not measured up. "During the most intense phase of the Great Recession ó a nine-month period beginning in the fall of 2008 ó the level of Canadian exports plunged more than 16%, or more than twice the total drop during the previous two cycles,î Carney recently told an audience in Waterloo, Ont. "By the end of last year, exports still remained roughly 8% below their pre-recession peak.î To put that in perspective, considers the Canadian international trade merchandise numbers recently released by Statistics Canada.  In 2011, Canada's exports totalled $457.6 billion, an increase of 13% from 2010, as prices rose 8.6%. Imports increased 10.3% from 2010 to $456.4 billion, mainly on the strength of volumes, which were up 8.3%. That gives Canada a 2011 trade surplus of $1.2 billion, Canada's first annual trade surplus since 2008. So, Canada may be on the right track but it is not there yet. Indeed, Canada has steadily lost global market share. "Our performance has been the second worst in the G-20,î Carney said in his speech. "Our share of the world export market fell from about 4.5% to about 2.5% and our manufactured-goods export market share has been cut in half. Consistent with this drop, employment in Canada's manufacturing sector has fallen by more than 20%, representing nearly half a million jobs.î So, what is to blame for Canada's export challenge? Certainly the strong Canadian dollar has played a role but it seems Canada has also been selling the wrong products in the wrong markets. Our exports are concentrated in slow-growing advanced economies, particularly the United States, rather than fast-growing emerging markets. Since the recession, emerging economies have accounted for about two-thirds of global economic growth and half of the growth in global imports. In Emerging Asia, says Carney, "a massive new middle class is being formed, growing by 70 million people each year and representing a fast-rising share of global demand for all types of goods.î StasCan figures suggest some movement in the right direction. Although exports to the U.S. increased 10.4% year over year to $330.1 billion in 2011, the U.S. accounted for 73.7% of total exports in 2011, down from 87.1% in 2002. Exports to the United Kingdom increased 14.8% in 2011 to a record high of $18.8 billion and exports to China reached $16.8 billion, up 26.9% from 2010. Crude petroleum dominated exports to the U.S., up 32.3% to a record $68.4 billion. Precious metals and alloys represented more than 60% of Canadian exports to the United Kingdom and in trade with China, exports of iron ores and concentrates recorded the largest gains. Wood pulp and similar pulp remained the top export for a second consecutive year. Carney's prescription for reversing Canada's export record? Refocus, retool and retrain, he told his business audience. To read Carney's speech in full, click here .   Additional Educational Resources: Financial Recovery in a Fragile World