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. 

The June 15 Tax Filing Deadline is fast approaching for proprietors. Those who fail to file their 2008 tax returns by midnight June 15 face a late filing penalty as well as interest dating back to May 1.Recently CRA has announced a number of convictions for those who fail to comply with their requirements to report and pay taxes, including a Manitoba-based tax preparer who is going to jail for failing to report a half million dollars in income, an Alberta based plumber who was fined for failure to report $200,000 in income, and an Ontario businessman who was fined over $1 Million for failure to report $2.4 Million in income. (Both penalties and interest, as well as the taxes must be paid in those cases).Nationwide convictions can be reviewed on the CRA site: http://www.cra-arc.gc.ca/nwsrm/cnvctns/menu-eng.htmlCanadians can avoid penalties and jail by making voluntary disclosures ó that is filing missed tax returns or reported missed income or correcting overstated deductions and credits ó on a voluntary basis.

Taxable benefits are so important to the payroll cycle that CRA has written a separate payroll guide to explain them. Every payroll clerk should have this guide at hand to determine income reporting and statutory deduction withholding requirements on an ongoing basis. In all cases, where a taxable benefit arises the value of the benefit to be included in income is reduced by any payment the employee makes to the employer with respect to the benefit. There are four basic facts about taxable benefits to remember in processing a payroll: 1. Add their Value to Gross Pay. The taxable benefit must be added to the employee's cash compensation each pay period and normal statutory deductions must be withheld from the total amount. Remember that the value of the taxable benefit is reduced by any payment the employee made to compensate the employer for providing the benefit. 2. Annualized Tax Withholding is Possible. Where a non-cash benefit is very large so that withholding of income tax will cause undue hardship, the value of the benefit and the related withholdings can be spread over the remainder of the year. 3. CPP Deductions Required. If the benefit or allowance is taxable, it will also be pensionable. Therefore Canada Pension Plan (CPP) contributions will be required to be withheld, as will income tax. 4. EI Deductions May Be Required. If the taxable benefit is paid in cash and relates to insurable employment, it is insurable. Employment Insurance (EI) premiums will therefore be required. However, if the employment is not insurable under the Employment Insurance Act, taxable benefits paid in cash are not insurable and are not subject to EI premiums. Finally, if the taxable benefit is a non-cash benefit, it is not insurable. In that case, the benefit does not attract EI premiums. The T4130 Guide available in EverGreen contains a chart which clearly identifies, in alphabetical order, the various types of taxable benefits and their source remittance. This table is also reproduced electronically on the CRA web site. The CRA has released payroll tables to be used beginning July 1, 2009, which incorporate the 2009 provincial budget changes. The CRA has also announced that it will no longer be printing payroll deduction tables due to the small number of requests for them.  You can link to the July 1, 2009 payroll deduction formulas for computer programs by clicking here. Excerpted from Advanced Payroll for Professionals, one of the courses that comprise the Bookkeeping Services Specialist program.

The new Home Renovation Tax Credit (HRTC) introduced in the 2009 Federal budget means that if you've been planning on renovating your home, this is a good year do it. For eligible home renovation expenditures made after January 27, 2009 and before February 1, 2010, families will be able to claim a 15% non-refundable tax credit for certain amounts paid to renovate their residence. This non-refundable tax credit will be available for this period for families completing renovations to their personal residence, which may include a cottage as well as the taxpayer's principal residence. Eligible expenditures include the cost of labour, building materials, fixtures, equipment rental, and permits. The cost of financing the renovations will not be eligible. Renovation costs do not include regular repair expenses, costs of audio-visual equipment or items that have value independent of the home, such as furniture, draperies and construction equipment. Some examples of eligible expenses are: Renovating bathroom, kitchen or basements New bathroom floors New carpets Building an addition, deck or retaining wall New furnace or hot water heater Interior or exterior painting Driveway resurfacing New sod Ineligible expenses would include: Contracts regarding maintenance (i.e. snow removal, furnace cleaning, lawn care) Purchase of furniture and appliances The credit will apply to the costs of renovations in excess of $1,000 to a maximum cost of $10,000. The maximum credit is thus $1,350 ($9,000 x 15%). The maximum credit applies to all renovations (renovations made to more than one residence may be pooled for claiming the credit). The credit will not be reduced by grants received through the ecoENERGY Retrofit program related to the renovation or by claiming the renovation expenses as a medical expense if they so qualify. Excerpted from EverGreen Explanatory Notes. For more information on tax planning provisions and compliance requirements, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.

Regular salary to an owner-manager is easy for the payroll department to record, but when a payment is made to an owner, a process needs to be in place to ensure proper recording. Identifying the nature of the payment is very important to its proper recording. Communication between ownership/management and the payroll department is necessary to determine the payments structure. For example: a drawing from a shareholder account has no impact for the payroll department whereas a payment for salary does have an impact. Proper recording is important to ensure the accounting records are maintained properly and to ensure that tax treatment is optimized. An owner/manager may take his or her compensation in varying ways and may not take a regular salary if cash flow does not permit or if the receipt of a dividend is more efficient from a tax perspective. A salary is usually paid to an owner or manager to allow a regular flow of earnings. Payment of a salary creates contribution room for an RRSP because salary is earned income for RRSP purposes, maximizes CPP contributions and permits the deduction of child care expenses, if applicable. How do the Statutory Deductions Work When I am Paying an Owner or Manager? The statutory deductions for regular payments to owners or managers are the same as regular employees, except that an owner must meet certain criteria to be covered by employment insurance. Withdrawals that are charged to a shareholder loan account and dividends are not subject to any withholding. At the end of the year, payments for regular salary, commissions, employee RPP contributions and employer RRSP contributions are to be recorded on a T4 slip. Dividend distributions should be recorded at the end of the year on a T5 slip. There is no reporting requirement for withdrawals that are charged to a shareholder loan account. Excerpted from Advanced Payroll for Professional Bookkeepers, one of the courses that comprise the DFA, Bookkeeping Services Specialist designation program.

  Evelyn Jacks, founder and President of The Knowledge Bureau, stands inside her new company headquarters in Winnipeg. Jacks bought the 4500-square foot facility to house her 9 employees and 25 associated faculty members and construct a state-of-the-art training centre because business at her financial educational institute is growing rapidly. "Financial experts need to continually increase and update their knowledge," says Jacks, "whatever the state of the economy."

Statistics Canada released two studies in April that point to a need for a different approach to financial planning for dual earning couples in Canada and, in particular, for highly educated working women, who have recently closed the earnings gap with their male counterparts. Advisors in the know about needs of this constituency have a great opportunity to win trust and provide ongoing service to this demographic. According to the study entitled Hours and Earnings Of Dual-Earner Couples released on April 24, 2009, the gap has been closing on the difference in earnings and working hours of Canadian husbands and wives. From 1997 to 2008, the average weekly hours worked by wives increased steadily, while during the same period, husbands were putting in fewer hours on the job. At the same time, women's average weekly earnings increased at a faster pace, although most dual earner wives still contributed less than half of the total family income. Education is one of the reasons for the closing of the earnings gap. The National Graduate Survey, published on April 22, noted ìshowed differences in terms of earnings from one level of education to another. The largest earnings gap existed between the bachelor's and master's levels, suggesting that investing in further postgraduate work is financially beneficial.î The survey also showed that the employment rate among master's graduates remained stable for men at 94%, while it rose for women, from 89% in 2002 to 92% in 2007. Consequently, among graduates with a master's degree, the gap in employment rates between women and men nearly closed. Further, a higher proportion of graduates of master's programs were working full time in 2007, compared with college, bachelor's or doctorate graduates.  A link to the study is available here.    These statistics tell an interesting story of the ìideal clientî for investment and retirement planning services. Financial advisors will in fact be planning for two retirements and tapping income and capital from multiple public and private pension accumulations as well as a variety of capital accounts from each member of a dual income family. High levels of education and experience will lend to a different relationship, as clients will demand more information and involvement in decision-making. This changed reality requires a different approach, new processes for specialized retirement and investment planning services, and leadership in preparation of a support team to assist with providing services to these new clients. Leadership and Opportunity in Turbulent Times, the theme of this year's Distinguished Advisor Conference broaches these new demographic issues with experienced advisors at this year's event, being held November 8-11 in Tucson, Arizona. In fact, the roster of speakers on the substantive agenda are reflective of a new guard of leaders in financial services as well, featuring a number of high profile women: Lisa Langley, Executive Director, International Money Management Institute covers Compliance Issues in Managing Wealth  Nicola Elkins provides insight into Mastering Your Philanthropy Robin Taub, CA and Wayne Cadogan, Regional Director, Investor's Group offer a male-female discussion of Character-Based Leadership Kerry Breeze, Publicist, tells us how to Blog, Twitter and Tweet Your Way to Success   Evelyn Jacks, President, The Knowledge Bureau will speak on the discipline of team-based Real Wealth Management For more information and to see the full conference agenda, visit the Knowledge Bureau's website at www.knowledgebureau.com/DAC.