Time’s Up: CRA’s 100 Day Mandate for Improvement

After years of frustration on the part of tax professionals and taxpayers alike, the Finance Minister ordered the Canada Revenue Agency to clean up its act in 100 days. Specifically, the improvement plan was to run from September 2 through December 11. Finance Minister and Minister of National Revenue, Francoise-Phillippe Champagne instructed CRA to fix “unacceptable wait times and service delays.” Time’s up this week and CRA has released an update on progress. What gets measured, gets done. Let’s see what CRA’s metrics show. 

Debt Management Strategy At the Forefront of Cautious Optimism The federal government is moving forward with a three part "Plan Aî in this budget. That is, there are no new taxes, no significant spending cuts and targeted financial stimulus to better support Canada's unemployed, develop innovation and stimulate spending by businesses on energy projects and clean energy generation. This is all based indications that Canada has returned to economic growth after a brief but deep recession. However, there are many unknowns for Canada due to the fragile state of global economic recovery, and therefore the budget proposes an ambitious plan to bring its $56 Billion budget deficit back to balance in five years, in advance of any other G7 Nation, with a Debt Management Strategy. Specifically, the deficit is projected to decline to $27.6 billion in 2011ñ12, $17.5 billion in 2012ñ13 and $1.8 billion in 2014-15. Deficit reduction will be accomplished largely through projected increases in budget revenues as the economy grows, largely coming from a 30% increase ($34.6 Billion) in personal income taxes, as well as $17.6 Billion in spending cuts, an increased revenues from Employment Insurance. In addition several tax loopholes being closed: the removal of the deferral of taxation on stock option benefits, the removal of cosmetic procedures from the medical expense credit and a change to the payment of interest by the government to corporations on overpaid taxes will provide significant savings for government. For more information see Tax Changes, below. PRIVATE SECTOR FORECASTS Of particular interest to investors and their advisors are the private sector forecasts, which show significant economic indicators now until 2014: Real GDP growth averaging 2% over the period, but rising to 3.2% in 2011 A GDP and CPI inflation rate averaging 1.7% now to 2014, but rising to 2.1% by 2014 a 3 month treasury bill rate rising to 4.4% by 2014 a 10 year bond rate rising to 4.5% by 2014 Canadian dollar close to par with the US dollar starting in 2011. An unemployment rate of 7.9% in 2011, dropping to 6.6% by 2014. For detailed analysis see EverGreen Explanatory Notes. To subscribe click here.

By Evelyn Jacks It is a time when Canadian savings rates are low and personal bankruptcies are increasing. Governments are also concerned about the ability of over-leveraged home owners to pay off mortgages when interest rates rise in the future. Here is what we think was missing from this budget to help with these issues: For Savers: Increase the TFSA contribution limit ó perhaps up to $1000 a month For Pre-retirees: remove the 18% RRSP contribution level for lower income earners. Anything you can save for your RRSP is a good thing, up to the normal maximum dollar limits. For Pensioners: anyone receiving periodic pension income from either RPP or RRSP/RRIFs should be able to income split at any age and spend/reinvest their savings. Also, the government should consider permanently removing the requirement to minimum amounts out the RRIF ó last yearís temporary measure was a good one in turbulent times.  For Students: increase the amount of tuition fees that can be transferred to parents or supporting individuals from $5000 to anything the student can't use. For Caregivers: Allow a deduction for all costs of giving home care to the terminally ill. There is an expectation that families will help fill gaps the medical system can't fund. There is a huge economic cost to this and the tax system should recognize this. For the Sick and Disabled: Remove the 3% of net income limitation on the claimability of medical expenses and make this a deduction rather than a tax credit for anyone with a Disability Tax Credit claim. Evelyn Jacks is President of The Knowledge Bureau and author of Essential Tax Facts 2010, Master Your Taxes, and Make Sure It's Deductible; all available from the Knowledge Bureau bookstore at bulk purchase pricing for advisors and their clients.

The Minister of Finance, The Honourable Jim Flaherty releases the Federal Budget on March 4, 2010 at 4 p.m. Eastern time.    The Knowledge Bureau will issue a full report of the budget changes that are introduced within EverGreen Explanatory Notes, as well as a highlights version in a Special Edition of the Knowledge Bureau Report on March 5th, 2010.   Stay tuned to Knowledge Bureau Report for highlights from the Federal Budget 2010 and see EverGreen Explanatory Notes for a complete summary of the budget.  Sign up today!

According to a new report released by the Parliamentary Budget office, the current financial structure of the government is not sustainable, and the national debt is expected to increase substantially if the government continues to operate in the manner they are currently. The report, authored by Parliamentary Budget Officer Kevin Page, suggests that for long term financial sustainability, some type of permanent fiscal action such as increased taxes, reductions in program spending or a combination of the two needs to be put in place. The document titled The Fiscal Sustainability Report, is an independent report released for the first time and advises that Canada's aging population will be the government's top priority over the next few decades. The report predicts that the shift of baby boomers moving from working age to retirement is currently right around the corner and the government better be prepared to take action in the very near future to ensure that the Canada's economy is sustainable. The impact of the demographic shift will be in two areas: health care funding and elder benefits and the smaller tax base the government will have to collect from. The sustainability report advises that "although it is important to acknowledge that many elements of a long-term projections are uncertain, the demographic transition underway in Canada is notî. The report also goes on to say that as of 2008 there were five prime age working Canadians (aged 15-64) for every one person aged 65 and over. This ratio is expected to drop to one in four by the year 2019 and to 2.5 to 1 by 2033. This considerable decline is part of trend that has existed for the past several decades, for example, in 1971 there were just under eight workers for every retiree. Gross domestic product (GDP) growth is also projected to decline over the next few years, which goes against the current trend of GDP growing annually by approximately 2.1 percent. This amount is expected to decline to an average growth rate of .9%. The report warns "The fiscal action required to achieve sustainability does not need to be taken immediatelyÖ however, a significant delay in implementing fiscal actions substantially increases the required amount of corrective measures,î On March 4th Canadians will see first hand what the Federal government has planned for the future when they present their annual budget. Educational Resources:  To deepen your knowledge consider enrolling in a Knowledge Bureau course today by visiting our website or calling 1-866-953-4769 for a personal consultation.

Will your clients overpay their March 15th instalment payment?  It is important that they don't, particularly if their income has taken a hit over the past year.  Canadians taxpayers may find that due to employment layoffs or possibly due to their portfolio tanking,  overall income may have taken dropped off.  There may be a bit of good news to offset the bad, at least from a tax point of view, if you are a quarterly instalment payer. Many people don't realize that instalments remitted to CRA (often by post-dated cheques) can be adjusted to actual income earned in the year. Others don't know that the CRA "billing method" of collecting quarterly instalments is only one of three methods of payment. The other two are optional: Current-Year Option. Under this option, the taxpayer's income tax liability for the current taxation year is estimated, then one-quarter of the estimated amount over $3,000 is due on each of the four due dates: March 15, June 15, September 15 and December 15. (Farmers and fishers must only make one instalment payment, on December 31 on 2/3 of the estimated taxes owing.) Prior-Year Option. Under this option, the first two instalments are estimated at one-quarter of the taxes due in the second prior year (since the prior year's return is not available when these instalments are due) and the last two instalments are calculated at one-half of the excess of taxes due in the prior year over taxes due in the second prior year. If you know your income will drop this tax year over last, write a letter to CRA to recalculate your instalment payment base and return the last post-dated cheques. Note that, for 2008 and subsequent years, the instalment threshold for individuals is $3,000 ($1,800 for Quebec filers). You will not be required to make an instalment payment at all if the actual tax owing will not exceed $3,000 during the year ($1,800 in Quebec). Suggested Educational Resources: Learn more about tax planning in these Knowledge Bureau courses:  Introduction to Personal Tax Preparation, Tax Preparation for Proprietorships or subscribe to EverGreen Explanatory Notes for more information.

This week, the Task Force on Financial Literacy released a discussion paper entitled Leveraging Excellence. The Task Force was formed by Finance Minister Jim Flaherty and is charged with making a cohesive national strategy on financial literacy.     Evelyn Jacks, the founder and President of The Knowledge Bureau, is a member of the Task Force. "We are hoping to find ways to strengthen financial education among young people and help Canadian adults become more confident and knowledgeable financial decision-makers. Tax and financial advisors may have a unique view and may want to participate in the consultation process to help us strengthen the financial literacy of all Canadians." Mr. Flaherty advises that financial literacy is a key priority for the current Government and thata national strategy for improving Canadian'sfinancialliteracy is importantto "ensure Canadians are able to make informed and prudent financial decisions throughout their lives." The release of the discussion paper kicks off the beginning of national consultations which will take place over a three-month period, with The Task Force meeting with Canadians in 15 cities and will also be hosting an interactive online forum.   For more information on the Task Force and the upcoming consultations, click here.