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 Canada Revenue Agency (CRA) has announced some additional features added to the Represent a Client Service.   When registering with the service or updating information regarding a client, the option for providing an e-mail address is now available.  The CRA will be using the e-mail address to provide information on upcoming events, future enhancements or possible service interruptions.  It should be noted that the CRA will not be utilizing e-mail to contact representatives or businesses for tax related information.   In addition, a Client Summary feature has been added to the representatives screen of My Account, which will allow them to view a list of accessible information such as: account balances and instalment details assessment/reassessment details registered retirement savings plan/Home Buyers' Plan/Lifelong Learning Plan information disability details carryover amounts Another upgraded feature is providing the ability to tax preparation and payroll service businesses to create groups of representatives within the Represent a Client service. This will allow large tax service and payroll businesses to separate groupings of clients or businesses into more manageable sizes.

By Evelyn Jacks, President, The Knowledge Bureau Provincial budgets coming down in difficult times make the job of Finance Minister even more interesting. The question of how to build successful new economies is often the most difficult one moving forward. The federal government posted a paper on the issue before the financial crisis. Entitled Advantage Canada [1] the paper boldly pronounced that the modern world economy has changed and that from Canada's perspective, the new ground rules for success can be summarized in three core, fundamental truths: People and capital are mobile. Talented, creative people are the most critical asset to a successful national economy. A favourable business environment is essential to retaining, attracting and growing high-quality, innovative enterprises and encouraging them to compete with the very best. According to this document, the fundamental determinants of long-term economic growth in developed countries are: A skilled and highly educated workforce. High rates of private and public investment in research and innovation. Modern infrastructure. High rates of business investment in machinery and equipment. In turn, private investments in these key determinants of growth are encouraged by: Low public debt and low and stable inflation. Low taxes on work, savings and business investment. A high-quality and accessible education system. A competitive business environment, including effective regulation and competition policies. Stability and efficiency in the financial system. Openness to trade and investment. Flexible labour markets. Finally, the paper suggests that there are barriers and challenges to address if we are to improve our quality of life and become a world leader for today and future generations. These barriers and challenges include: High taxes that are discouraging investment and initiative. Income taxes on individuals and businesses in Canada remain high by international standards. Personal and corporate income taxes as a percentage of GDP are higher in Canada than in all other G7 countries. Business investment in equipment, innovation and training. Businesses in other OECD countries are investing on average more in research and development, and machinery and equipment than do our businesses. Participation in workplace training is also higher in other leading OECD countries. The need for skilled labour. There are shortages of skilled labour in a number of provinces and territories. These shortages are particularly acute in Alberta and Saskatchewan, where more than one-quarter of manufacturers report that labour scarcity is limiting operations. Now, your turn. What are your thoughts?   [1] Department of Finance Canada

The Minister of National Revenue and Minister of State (Agriculture) have provided taxpayers affected by flooding in Manitoba an opportunity to extend the deadline for filing their tax returns from April 30, 2009 to June 1, 2009.   The Honourable Jean-Pierre Blackburn announced that "the Government of Canada understands that taxpayers in Manitoba have encountered great difficulties during the flooding and we know that people are primarily concerned with protecting their homes and communities from damage and as a result may not be able to file their personal income tax returns on time."   For those unable to file their returns by June 1, 2009, a written request should be submitted using Form RC4288 Request for Taxpayer Relief by those taxpayers and businesses impacted by the flooding and are seeking an additional extension of the filing deadline for tax returns.    The form can be accessed by clicking here.

The CRA has released an updated guide for Past Service Pension Adjustments (Guide T4104) which contains general instructions and information for pension plan administrators to calculate past service pension adjustments (PSPA). These PSPA calculations may be required for employees that are being provided with new lifetime retirement benefits or when existing benefits are improved for members. The guide will provide information on the following: What is a PSPA How a PSPA arises How to calculate a PSPA How to report PSPA's Common situations and examples are provided in the guide to calculate figures needed for PSPA, benefit increases that may be excluded when calculating pension credits, the two methods for calculating the PSPA amounts and special rules that may impact multi-employer plans. This guide is important because the last time the CRA issued guidance on calculating PSPA's was in 1999, and the T4104 guide should be used to calculate PSPA's for any year until a new version is issued. To view the new T4104 guide, click here.    

In a previous edition of Breaking Tax and Investment News, we wrote about the tax advantages offered by the various provincial governments and how they rank, per the Alberta budget papers. Depending on your province of residence at December 31, 2009 and your income level, you could be paying a difference of anywhere from $4,400 to $9,800 in provincial taxes based on where you live. Here is a review of taxes you would be paying in the various provinces at income levels of $30,000, $75,000 and $125,000 with two children: Employment Income - $30,000 - One Income - Two Children Provincial Rank ProvincialIncome Tax ProvincialSales Tax Health CarePremium PayrollTax FuelTax Total 1. Quebec (4447) 1157 - 630 456 (2204) 2. Saskatchewan (3060) 596 - - 450 (2014) 3. Alberta (1301) - - - 270 (1031) 4. Ontario (423) 871 225 279 441 1393 5. BC 480 497 - - 435 1412 6. Manitoba 267 885 - 221 345 1718 7. NB 456 1196 - - 321 1973 8. NS 861 1124 - - 465 2450 9. PE 1066 1287 - - 435 2788 10. NL 1004 1202 - 173 495 2874 A lower income taxpayer living in Quebec would pay just over $5,000 less in provincial tax than if they lived in Newfoundland. Employment Income - $75,000 - Two Incomes - Two Children Provincial Rank ProvincialIncome Tax ProvincialSales Tax Health CarePremium PayrollTax FuelTax Total 1. Alberta 2,679 - - - 405 3,084 2. Saskatchewan 2,675 913 - - 675 4,263 3. BC 2,107 1,289 972 - 653 5,021 4. Ontario 2,480 1,643 563 698 662 6,046 5. NB 4,364 1,971 - - 482 6,817 6. Manitoba 4,520 1,446 - 554 518 7,038 7. Quebec 2,596 2,216 - 1,575 684 7,071 8. NS 4,522 1,869 - - 698 7,089 9. NL 3,889 2,032 - 433 743 7,097 10. PE 4,724 2,146 - - 653 7,523 A middle income family living in Alberta would pay approximately $4,400 less in provincial tax than if they lived in Prince Edward Island. Employment Income - $125,000 - Two Incomes - Two Children Provincial Rank ProvincialIncome Tax ProvincialSales Tax Health CarePremium PayrollTax FuelTax Total 1. Alberta 6,895 - - - 405 7,300 2. BC 5,209 1,980 972 - 653 8,814 3. Saskatchewan 7,834 1,364 - - 675 9,873 4. Ontario 6,196 2,498 788 1,163 662 11,307 5. NB 10,015 2,958 - - 482 13,455 6. NL 9,120 3,057 - 721 743 13,641 7. Manitoba 10,027 2,176 - 923 518 13,644 8. NS 10,725 2,788 - - 698 14,211 9. PE 10,331 3,230 - - 653 14,214 10. Quebec 10,628 3,191 - 2,625 684 17,128 A higher income family living in Alberta would pay $9,800 less in provincial tax than if they lived in Quebec. Therefore, depending on your family profile and income level, a careful review if you are contemplating a move in 2009 could make it very worthwhile from a tax standpoint.

By Robert Ironside On March 27, 2009 The Honorable Jim Flaherty released regulations designed to provide "temporary solvency funding relief for federally regulated defined benefit pension plans". The intent of the new regulations is to reduce the pension funding burden on organizations that are struggling during the current economic downturn. The announcement was significant for two reasons. First, because it provided some temporary relief to firms struggling with the worst economic downturn in decades and second, because of why the announcement was necessaryóspecifically, what that means for defined benefit pension plans in Canada. It is worth noting that the funding relief applies only to employees in federally regulated industries, which includes telecommunications, banking and interprovincial transportation. The Office of the Superintendent of Financial Institutions (OSFI) is responsible for the supervision of federally regulated pension plans. OSFI supervises some 1,350 pension plans or about 7% of all pension plans in Canada. Of the 1,350 pension plans supervised by OSFI, 446 are defined benefit pension plans1. However, this announcement begs a more important question: how long will any organization, other than government, be able to retain their defined benefit pension plans? Pension plans come in two primary variations, these being defined benefit and defined contribution. Defined benefit pension plans pay benefits based on some ratio that typically includes years of service and the average pay earned during the last few years of service. From the employee's perspective, defined benefit pension plans provide certainty of income during retirement (although not necessarily certainty of purchasing power, unless the pension income is also indexed to inflation). From the employer's perspective, however, defined benefit pension plans represent a significant risk, as they are responsible for maintaining the plan with a sufficient level of funding to meet the actuarially determined liabilities of the pension plan. Defined contribution pension plans allow the employee to contribute a usually fixed percentage of their income during their working lives, which may or may not be matched in some fashion by the employer. The real difference occurs at retirement. Whereas the defined benefit pension plan provides a relatively certain retirement income, based on the formula agreed to by both the employee and the employer, the defined contribution pension plan provides no such guarantee of retirement income. For those employees who are retiring today, during the depths of a major correction in equity markets, retirement looks significantly different than it did only a few months ago. Defined benefit pension plans present significant risk to the employer; defined contribution pension plans present significant risk to the employee. Who should bear this risk and how should the risk be managed? Based on the numbers, it would appear that employers have spoken and their answer is clear - most employers would prefer not to bear pension risk. Based on numbers provided by the Federal Department of Finance, there are slightly more than 19,000 pension plans in Canada. According to a study done by the Certified General Accountants Association of Canada in 2004 and updated in 2005, there are approximately 2,800 defined benefit pension plans in Canada. Stated differently, approximately 15% of all pension plans are defined benefit2. According to the CGA's 2005 update on the state of defined benefit pension plans in Canada, 59% of Canadian defined benefit pension plans were in deficit as of December 31, 2004. If indexation of benefits were to be included, 96% of plans were in deficit as of the same date. Why would any employer willingly undertake the risks attached to a defined benefit pension plan in an era of volatile stock markets coupled with continuous pressure from Bay Street to increase the firm's EPS and share price? In an earlier age, there was an implied social contract between employers and employees, wherein employees were loyal to their employers and employers in turn assumed a more patriarchal role towards their employees. That era ended as pressure on management to deliver continuous increases in share price ramped up. It is my contention that no private sector employer today would willingly undertake the risks associated with a defined benefit pension plan. Those plans that are in existence will be changed, as and when possible, to defined contribution pension plans. The result is a huge increase in risk exposure by individuals. It is also my belief that most individuals are neither capable nor desirous of assuming this increased level of risk exposure. There are only two potential solutions: One is for government to assume a larger role in protecting the pension income of all Canadians. The second is for the development of new technology around risk mitigation. While it is tempting to assume that government should provide cradle to grave security, the development of new and enhanced methods of risk mitigation probably holds the true key to certainty of pension income. Robert Ironside, ABD, Ph.D. is a faculty member of The Knowledge Bureau and Professor, Finance School of Business, Kwantlen Polytechnic University 1 Regulatory Impact Analysis Statement, Solvency Funding Relief Regulations 2009, Department of Finance, Canada, 2009-032 2 Addressing the Pensions Dilemma in Canada, 2004 & The State of Defined Benefit Pension Plans in Canada: An Update, 2005 both by the Certified General Accountants Association of Canada