Helping First Nations, Inuit and Metis with Tax Filing

The Canada Revenue Agency is trying to reach out to Canada’s First Nations, Inuit and Metis to encourage them to file their tax forms on time and could use your help to make sure these communities get all the tax benefits they are entitled to. But filing tax returns are not always easy, especially when there is income on and off the reserve.

Short of Cash? Flip Investments Into RRSPs to Create More Cash strapped, but RRSP-eligible investors can use the tax system in a variety of ways to generate new money, and with tax season just around the corner it will pay to review RRSP contribution opportunities now for those reasons. Taxpayers can generate a tax deduction via an RRSP contribution without coming up with new capital simply by "flipping" assets held in interest-bearing vehicles from their maturing Canada Savings Bonds or other non-registered accounts into their RRSP. Be aware that a tax reporting event occurs before accumulations from non-registered accounts are transferred into registered accounts. That is, interest income earned up to the date of the transfer must be reported on the tax return. The same rule holds true whenever investments in non-registered accounts are transferred into any of the tax deferred vehicles mentioned above. Note that losses generated by such a flip cannot be claimed as they are considered to be superficial losses. Subscribe to EverGreen Explanatory Notes for more information. Or attend The Knowledge Bureau's November Year End Tax Planning Workshop coming to a city near you November 14 to 21. Next Time: Avoid Your December 15 Instalment to Generate Cash  

Time To Brush Up On Canada Deposit Insurance Corporation (CDIC) Protection Facts Given recent market volatility, taxpayers are concerned about the safety of their capital, and may wish to discuss what guarantees or insurance may be available to them for their money. The Canada Deposit Insurance Corporation provides some comfort, insuring deposits of their member companies which include most Canadian chartered banks, loan companies and trust companies, as well as associations governed by the Cooperative Credit Association Act. Up to $100,000 of amounts on deposit will be insured in case of failure of the member institution. However, deposits in credit unions and caisses populaires, Canadian branches of foreign banks and some Canadian chartered banks are not covered. Deposits with credit unions and caisses populaires may be covered by provincial deposit insurance programs. For a complete listing of institutions which are covered, see the CIDC web page. The following types of deposits are covered by member institutions of the CDIC, in Canadian dollars: savings accounts and chequing accounts GICs and other term deposits that mature in 5 years or less money orders, certified cheques, travellers' cheques and bank drafts accounts that hold realty taxes on mortgaged properties Accounts and products NOT insured by CDIC include: mutual funds and stocks GICs and other term deposits that mature in more than 5 years bonds Treasury bills any accounts or products in U.S. dollars or other foreign currency. any accounts or products held in banks or other institutions that are NOT CDIC members. This is information all advisors should discuss with their clients about interest-bearing investments, in conjunction with devising a tax efficient investment income plan. For more information on the new Knowledge Bureau Certificate Course entitled Tax Efficient Investment Income Planning available October 31.

Personal Finance 101: When mom told you to save for a rainy day, she was right, and this might be it. If you aren't positioned for six to eight months of "safety cash", now is the time to put that in place. Assess Your State: State of emergency or Stable condition? If you don't have a good handle on your financial condition, check it out now. Review your cash flow, personal balance sheet and budget and get on the right side of debt managementómore assets than liabilities. Cash is King: If you are sitting on excess cash be ready to do two things (a) pay down bad debtócredit cards, non-deductible debt next (mortgages). Then get ready to invest back into the market at "sale prices" when the time is right Get Your Investment Priorities Right: What comes first this year: your RRSP contribution? The new Tax Free Savings Account, Investments in RESPs? Non-registered accounts? Need Cash? Look in the right places: the tax system is a good place to start: unfiled tax returns, errors or omissions on prior returns leading to refunds. Don't cash in RRSPs if you can help itówill cause a tax problem. Be More Productive: You can get a second job or start a business working out of your homeóa good way to save money on gas and coffee breaksóbut either way cut back on work-related expenses. Avoid Overpaying Tax Instalments: Will your income be lower in 2008 than it was last year? Can you avoid making the December 15 instalment payment? Write CRA a letter to do so. Take Advantage of Tax Losses: Whether you panicked and locked in losses, or generated them as part of your year end planning strategies check out your cash flow advantages by carrying back losses to offset gains of the previous 3 hot years in the marketplace. Reconsider your charitable donations? You can often generate fast cash on your tax return by increasing donations before year end. Defer Income. Put off taking income 'til next year, to minimize tax and instalment payments for next year. Problem: seniors and RRIFs. Stop drawing if you have met your minimum withdrawal requirements Increase social benefit payments: Reducing your net income with an RRSP contribution, could decrease OAS Clawbacks, increase Child Tax Benefits. In both cases you'll have a monthly cash flow bonus. Buy assets? Interest rates are coming downósit tight and see whether there are opportunities to leverage into sale prices on homes, cars, commercial buildings. If you are in business that will increase your write-offs too. Manage the credit crunch with deductible interest: Know your options when you are in trouble: deducting interest on assets with diminishing value, CRA garnishees, foreclosures, repossessions. Get professional help Stress happensówrite off prescriptions. Getting extra therapeutic massages, taking more prescription drugs? Do you know what medical expenses to write off? Do you have your will up-to-date? Year end planning: reconsider education savings: disadvantage in RESPs? Switch to TFSAs for better flexibility? Evelyn Jacks, President, The Knowledge Bureau: knowledgebureau.com for free information about Breaking Tax and Investment News, self study courses on tax and personal finances, or books on personal finance. Call: 1-800-953-4769.

Taxes Just Keep Rising for Pre-Retiring Baby Boomers and their Heirs   By Evelyn Jacks The last federal budget (February 26, 2008) predicted that personal tax revenuesóby far the largest revenue line item for the governmentówill increase by $2 Billion in 2007-2008 and thereafter increase faster than personal income growth to $125,475 Billion in 2009-2010. It's time to revisit this trend in light of the current global economic crisis, as this party too, may end soon. The need for governments to rein in spending and expectations for revenue growth may be as necessary as it is for families. Why? Canada's primary taxpaying base is disappearingóthe baby boomersóare getting ready to retire, against the backdrop of financial uncertainty. Add to this a global economic crisis the likes of which has never been experienced before and you have the potential for unprecedented hard times for governments and the taxpayers who depend on redistributed tax dollarsósometimes too much. As a bear market descends firmly upon usófor what seems to be more than a short termósolid financial fundamentals are required to take us through to the next generation, a smaller taxpaying base, which may not have the same potential to fund the numerous needs our society demands of them. To have the opportunity to spend in the right places, when needed, requires budgeting with new precision and above all waste management. It also requires some creative thinking about going back to the same trough over and over again. Security comes in many formsóand people need to be safe from financial insecurity. Canadians and their governments need to master their finances, now in a time of relative wealth, to be ready for tomorrow. FACTS ON FINANCIAL LITERACY: A Canadian survey found that respondents considered choosing the right investments to be more stressful than going to the dentist. United States ó 50% of adults and 66% of high school students fail basic economics test. United Kingdom ó fewer than 40% of respondents confident about making financial decisions. Japan ó only 1% of consumer education professionals believe that consumers have adequate level of financial knowledge. Australia ó 37% of those with investments did not understand that investments can fluctuate in value Source OECD Study, 2005. Note The Knowledge Bureau is publishing a series of books on Mastering Your Personal Finances starting in November 2008.

Dr. Jerry L. Gray Why is it when you are on your way to Scotland to play golf, your golf clubs go to Hong Kong? Do you really think airlines are so incompetent that they can't get your luggage to where you want to go? Or that there is really no airline seats available for upgrade? Do you really believe that a police officer enjoys giving you a speeding ticket? If you see the world this way, prepare to be changed. If you don't know how to deal with people, the world will be against you. If you do, the world will be your oyster. Dr. Gray, Dean Emeritus and Senior Scholar at the Asper School of Business at the University of Manitoba and management consultant and author, has been developing, practicing and teaching his philosophy of interpersonal relationships for over 35 years. Thousands of individuals have been exposed to his technique and have had their lives transformed. His humorous and captivating presentation will be remembered for years to come. Based on solid and scientific concepts, Jerry's humorous, yet informative and practical presentation will transform how you deal with people. When you see the results that can be obtained by simply understanding the fundamental motivation of people and how you can use this to achieve your goals, you will experience a dramatic and significant change in your relationships with others. Regardless of the situation ñ business, social or family ñ the fundamentals of developing positive relationships do not change.

Excerpted from EverGreen Explanatory Notes, an online reference published by The Knowledge Bureau. Permission to reprint required. Although the Income Tax Act does not specifically address the issue, it is possible for spouses to arrange to transfer accrued but unrealized capital losses between them. This strategy is advantageous where one spouse is about to realize a capital loss but has no capital gains ó either currently or in the three-year carry back period ó to offset the loss against, but where the other has such gains. This strategy is based on the following framework: Spouses are affiliated persons, under S. 251.1. Accordingly, the stop loss rules will apply when a loss is realized on the transfer of property from one spouse to another. Where the transferor and transferee are affiliated individuals, as is the case for spouses, any loss arising on the transfer of property between them is a superficial loss, as that term is defined in S. 54. A superficial loss includes a loss that is realized in circumstances where an affiliated person acquires identical property within a period that starts 30 days before the transfer and ends 30 days after the transfer. A superficial loss is deemed to be nil, by virtue of S. 40(2)(g). The attribution rules generally cause property to transfer between spouses at tax cost, so that no gain or loss arises.  It is, however, possible to elect under S. 73(1) to have the transfer between spouses accounted for at fair market value (FMV). If this election is made, the loss arising on the transfer will be realized. The loss remains a superficial loss, however. Furthermore, any income and loss (under S. 74.1(1)), and capital gain and capital loss (under S. 74.2(1)) realized on transferred property attribute back to the transferor spouse. However, if the transferee spouse paid fair market value for the property, the attribution rules will not apply, pursuant to S. 74.5. Payment can be made with cash, cash and debt, or all debt. However, if debt is used, it must bear interest at not less than the prescribed rate and such interest must be paid, in cash, no later than 30 days following each calendar year end. Taken together, these provisions give rise to the following strategy for transferring capital losses between spouses. Example: Transferring Capital Losses Between Spouses Issue: Judy holds marketable securities with an unrealized loss of $25,000. She acquired them a couple of years ago for $60,000. She has no capital gains accrued on other property, nor did she realize capital gains in the current or prior three years to use the loss against. Her husband, Steve, though, has the potential to report $100,000 in unrealized capital gains this year. Judy transfers the securities to her husband in return for a promissory note in the amount of $35,000, the fair market value of the funds. Normally, this transfer would be deemed to occur at $60,000, the adjusted cost base of the securities. However, Judy files an election under S.73(1) with her income tax return, in which she elects not to have that subsection apply. Accordingly, she accounts for the disposition at fair market value, and realizes a capital loss of $25,000. What are the tax consequences of this situation and what actions must be taken by the couple in order to optimize their tax status? Answer: The loss that Judy realizes is a superficial loss. Therefore, although Judy reports the disposition on her tax return, she adjusts the loss to nil, noting that it is a superficial loss. The cost of the shares to Judy's husband is the $35,000 he paid. The adjusted cost base of the shares, however, is $60,000, as a superficial loss is added to the cost base of the property under S. 51(1)(f). As Judy and her husband do not wish to have the attribution rules apply, the promissory note that Judy takes back is interest bearing. Judy and her husband are careful to calculate interest on the note as long as it is outstanding, and her husband pays her the interest before January 30 of the year following the year of the transfer. Her husband holds the shares for at least 30 days. He must do this, in order that the loss he will realize on their disposition not be treated as a superficial loss to him. He then sells both the shares he acquired from Judy and his property that gives rise to the capital gain. He can deduct the allowable loss on Judy's shares, $12,500, against the taxable gain on his own shares, $50,000, in computing his net income.