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The Knowledge Bureau has submitted its pre-budget consultation recommendations to the Federal Government. Please indicate whether you agree:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> ® yes ® no ® why? 1. Reduce Tax Withholdings: Governments should withhold less tax at source so that Canadians can invest more, and sooner, to an RRSP and then to TFSA. Reduce business and personal taxes by increasing tax free zones. $1400 INVESTED ANNUALLY FOR A 40 YEAR WORKING LIFE GROWS TO: (30% marginal tax rate assumed) At 5% At 2% RATE DIFFERENCE INSIDE RRSP $177,576 $86,254 $91,322 OUTSIDE RRSP $122,513 $75,430 $47,038 TAX SAVINGS $ 55,063 $10,824 $44,239 $980 ANNUAL TAX SAVINGS REINVESTED IN A TFSA At 5% at 2% RATE DIFFERENCE INSIDE TFSA OUTSIDE TFSA TAX SAVINGS TOTAL SAVINGS BY LEVERAGING RRSP AND TFSA CONTRIBUTIONS: At 5% at 2% RATE DIFFERENCE RRSP SAVINGS TFSA SAVINGS TOTAL TAX SAVINGS Source: Knowledge Bureauís EverGreen Explanatory Notes: Retirement Income Calculator ® yes ® no ® why? 2. Income splitting: anyone generating a periodic pension from superannuation, RRSP, RRIF, LIFs, annuities should be able to split pension income with the spouse. Currently the rules discriminate again those with RRSP/LIF, who must wait to age 65 to take advantage of pension income splitting. Other families should be able to income split on any income source. ® yes ® no ® why? 3. Bring Back Income Averaging: Hard economic times bring unintended business results. Income averaging over a period of 5 years should be allowed, as in prior years. ® yes ® no ® why? 4. RRIF/LIF Minimums/Fund Access Barriers. Abolish them. This is not practical or desirable. TO REGISTER FOR THE KNOWLEDGE BUREAUíS COMPLETE T1 TAX UPDATE WORKSHOP TO PREPARE YOU AND YOUR STAFF FOR TAX SEASON 2009, CLICK HERE:
The Department of Finance has launched its budget consultations to protect the Canadian economy, and it is important for Canadians to participate, says best-selling author Evelyn Jacks, Founder and President of The Knowledge Bureau, who has submitted several recommendations to government. You can participate in two ways, by contacting the Department of Finance website or by answering our poll questions over the next few weeks. ìThe time is ripe to reverse the ìdouble troubleî Canadians faced in 2008,î says Mrs Jacks, a best-selling author who has just published her 42nd book, Master Your Taxes. ìTaxes now eat up almost 21% of average household budgets*, and even worse, Canadians are losing more and more control over the first dollars they earn as withholdings of deductions at source increase. If stimulation is required to keep a significant recession at bay, governments need to look seriously at tax erosion as a significant barrier for both consumers and savers.î According to the Canada Revenue Agency, average refunds reached a record $1440 in 2007. ìAt approximately $120 a month, this represents a significant loss of control of personal funds to pay for consumer needs, let alone personal or retirement savings, which everyone knows have been seriously eroded by the financial meltdown of the past several months,î says Mrs. Jacks. ìThe problem with increasing tax burdens, however, is that they are harder to identify, because governments continue to over deduct taxes at source, thereby using your money first.î And that trend is poised to continue into 2009, says Mrs. Jacks. ìWe know that premiums payable into the Canada Pension Plan (CPP) and Employment Insurance (EI) rise 3.4% and 2.9% respectively over 2008 levels. Even with an increase in the Basic Personal Amount to $10,100, Canadians who earn more than $42,000 will end up in a net loss position again in 2009.î Canadians need to take a hard look at their largest eroder of wealthóthe taxes they payóby taking three actions in early 2009: ìFirst, participate with your suggestions in the pre-budget consultations by visiting the Finance Canada website: http://www.fin.gc.ca/fin-eng.asp. Second, don't do it alone: learn how to take back control of the money you earn by asking better questions of your tax and financial advisors. Third, find out more specifically how to shave off tax dollars payable by digging for deductions and tax credits, filing returns as a family, participating in RRSP and TFSA savings opportunities and refusing to overpay governments with tax withholdings. Taxes continue to be the largest expense item for Canadians, despite ìtax-cutsî announced by various levels of governments. Statistics Canada confirmed in their report on family expenditures, released just before Christmas, that taxes, which increased of 6% over the year before to an average of $14,450 per household, consumed almost 21% of household budgets, costing average Canadian families more than housing and increased more significantly than the cost of living. Evelyn Jacks is one of Canada's most prolific international authors, speakers, educational publisher and an award-winning entrepreneur, having written 42 books, including the new Master Your Taxes, and the annual Essential Tax Facts series (annual editions in 2005 to 2009), published by The Knowledge Bureau. The Knowledge Bureau is a national post-secondary educational institute specializing in tax and personal finance courses and certificate training for professionals who practice real wealth management services for their clients. For publicity or to arrange author interviews, please contact Marion Trapp at 1-866-953-4769 or by email: email@example.com
On December 16th, 2008 Canada's Department of Finance and the U.S. Department of the Treasury each announced the entry into force of the fifth Protocol amending the Canada-U.S. Income Tax Convention (the "Treaty"). The 5th Protocol was signed on September 21, 2007 and ratified by Canada in December 2007. For a copy of the Protocol click here. For a copy of the Technical Explanation click here. For a copy of the News Release issued by Canada's minister of Finance click here. For a copy of the comment on the Fifth Protocol prepared by the US Joint Committee on Taxation click here. For a copy of the testimony of Treasury Deputy Assistant Secretary for International Tax Affairs Michael F. Mundaca before the US Senate Committee on Foreign Relations click here.
The Department of Finance has released explanatory notes for the Notice of Ways and Means Motion tabled on November 28, 2008. These proposals, a thorough review of the pertinent changes to the 2008 personal tax return, the tax impact of the current financial crisis on households for 2009/2010 and the tax consequences of debt management will be discussed in detail on The Knowledge Bureau Nationwide Update Tour January 9 to 17, 2009 . Spaces are still available for locations in Toronto, Winnipeg, Calgary, Edmonton and Vancouver. There are a number of tax initiatives contained in the Motion from the 2008 budget as well as tax changes released in July 2008. These initiatives were presented in the July 16th and July 23rd Breaking Tax and Investment issues. Click here for a link to those archived versions. The Motion also includes provisions that were proposed in the 2008 Economic and Fiscal Statement issued on November 27, 2008. Other provisions outlined in the Motion are as follows: Changes for Employees Employee Benefit Plans Because of changes to the Canada US Income Tax Convention (Fifth Protocol), S. 6(1)(g) is adjusted so that only employee contributions to an employee benefit plan which not deductible are excluded from income when received. Exchange of Employee Security Options S. 7(1.4)(b) is amended to ensure that when a SIFT is reorganized into a corporation, any employee securities options in the successor corporation are deemed to be the same as the original options for SIFT units. Canada Employment Credit S. 118(10) is amended so that income received under the new Wage Earner Protection Program Act (WEPP) is eligible for the Canada Employment Credit, beginning in 2008. Changes for Investors TFSA After Death S. 12(1)(z.5) stipulates that income earned after death and during the first year of the trust created by that death, on capital that was part of a TFSA at the time of death will be included in the income of the recipient if paid out of the trust and otherwise in the income of the trust if not paid out. Definition of Investment Contract S. 12(11) is amended to exclude a TFSA from the definition of "Investment Contract" so that TFSA earnings will not be included in income by virtue of S. 12(4). Capital Gains - Identical Property S. 40(3.5)b.1) is amended to deem that shares in capital stock in as SIFT wind-up corporation be identical to equity in a SIFT wind-up entity. This change is to ensure that no deemed dispositions occur when a SIFT is converted to a corporation. Annuities in TFSA S. 56(1)(d) is amended to ensure that income from an annuity held within a TFSA is not included in income. TFSA as Collateral for Loans S. 146.2 is amended to ensure that taxpayers may use their TFSA as collateral for arm's length loans with no income tax consequences. SIFT Unit for Share Exchange S. 85.1 is amended to allow for a tax-deferred exchange of SIFT units for shares in the successor corporation so long as the fair market value of the units and exchange shares are the same. Where the FMV of the exchange shares exceeds the FMV of the SIFT units, the taxpayer must include the difference in income as a shareholder benefit. Where the FMV of the exchange shares is less than the FMV of the SIFT units and it is reasonable to regard that excess as a benefit that the taxpayer wanted to be conferred on a non-arm's length person or partnership, the taxpayer must include that excess in income as a shareholder benefit. Non-Resident Income Earned in Canada S. 115 is amended to ensure that amount received by a non-resident under the new Wage Earner Protection Program Act (WEPP) are considered to be income earned in Canada for 2008 and subsequent taxation years. Former Resident ñ Replaced Shares S. 128.3 is amended to allow for the replacement of SIFT units with shares in a successor corporation to be treated as if they were the same property. This will affect the taxation status of former residents who owned SIFT units when they departed which were subsequently replaced with shares when the SIFT was reorganized. Other Provisions Income Assistance S. 56(1)(r) is amended to ensure that assistance received under government assistance programs that are similar to income replacement payments provided under the Employment Insurance Act are to be included in the recipient's income. This will include income received under the new Wage Earner Protection Program Act (WEPP), beginning in 2008. Moving Expenses S. 62(1)(c) is amended to include WEPP (Wage Earner Protection Program Act) payments paid with respect to work at a new location to be included in income earned at the new work location for the purposes of limiting moving expenses to income earned at the new work location. RRIF Minimum Payments and Re-Contributions S. 60.021 and S. 146.3 are added to implement the proposed changes to RRIFs for 2008 that was announced on November 28. For tax year 2008 only, the minimum withdrawals from RRIFs are reduced to 75% of the minimum withdrawal amount otherwise calculated. Taxpayers who have already withdrawn more than the new minimum may re-contribute any excess to the RRIF and exclude the re-contribution from income. The deadline for recontribution is the later March 29, 2009 and 30 days after the legislation receives Royal Assent. RPP Variable Benefit Minimum Amount ITR 8506 are amended for the tax year 2008 only to adjust the minimum amount required to be received as variable benefits under a money-purchase RPP to be consistent with the 25% reduction in the minimum amount for RRIF withdrawals. Refundable Medical Expense Supplement S. 122.51 is amended to ensure that income received under the new Wage Earner Protection Program Act (WEPP) is included in "earned income" for the limitation of the Refundable Medical Expense supplement. Working Income Tax Benefit S. 127.2 is amended to income received under the new Wage Earner Protection Program Act (WEPP) in the definition of "working income" for the purpose of the Working Income Tax Benefit. Investment Tax Credit Carryover S. 127(9.01) is amended to allow unclaimed ITCs to be carried forward for 20 years, beginning with unclaimed amounts from tax year 1998. Likewise, S. 127(36) is amended to allow for recapture of ITCs claimed back to 1998. TFSA Abuse Rules S. 207 is adjusted to further clarify the circumstances under which the penalty for the extension of an advantage to a non-arm's length person in respect of a TFSA. S207.02 is adjusted to clarify that a person's TFSA contribution room is not increased by a distribution that is necessary to remove any excess TFSA amount. S. 207.01 is adjusted to remove "exempt contributions" from the definition of excess TFSA amounts. Exempt contributions are amounts rolled over from the TFSA of a deceased taxpayer to the TFSA of a surviving spouse or common-law partner. The rules surrounding "exempt contributions" in S207.01 are modified to require that the transfer be made by the end of the taxation year following the death and extending the deadline for the designation to 30 days after the date that the transfer is actually made. S. 207.03 is amended to allow a noon-resident to make qualifying transfers or exempt contributions to their TFSA without attracting a penalty tax. S. 207.06 is amended to remove the minister's authority to waive penalty tax on prohibited investment income earned within a TFSA. Business Numbers S. 241 is amended to allow sharing of Business Number information with other levels of government Disclosure of Personal Information S. 241 is amended to allow an official to share with a representative of a government entity the business number and the name of the holder of a business number so long as that entity uses the business number as an identifier in connection with a program, activity or service. A "government entity" is defined in S. 241(10) to include federal, provincial, municipal and aboriginal entities, including boards or commissions established by such groups to perform administrative or regulatory functions. New S. 241(9.3) allows the minister to make public the business number and name of the holder in connection with a program, activity or service provided or undertaken by the minister. New S. 241(9.4) allows a representative of a government agency to make public the information provided to them by the minister under S. 241. Medical Expenses ITR 5700 is amended to add the following medical devices, the cost of which is an allowable medical expense, beginning in 2008: altered auditory feedback devices for the treatment of a speech disorder; electrotherapy devices for the treatment of a medical condition or a severe mobility impairment; standing devices for standing therapy in the treatment of a severe mobility impairment; and pressure pulse therapy devices for the treatment of a balance disorder. New ITR 5701 describes the types of substances, the cost of which is an allowable medical expense, for expenses after February 26, 2008. To qualify, the substance must meet the following criteria: be manufactured, sold or represented for use in the diagnosis, treatment or prevention of a disease, disorder or abnormal physical state, or its symptoms, or in restoring, correcting or modifying an organic function; be prescribed for a patient by a medical practitioner; and may, in the jurisdiction in which it is acquired, be lawfully acquired for use by the patient only with the intervention of a medical practitioner. This change allows medicines that are available without a prescription to be claimed so long as they are made available to the patient by a medical practitioner (such as a pharmacist). Auto Expenses ITR 7305.1 is amended to agree with the automobile benefit rates for 2008 that were announced on December 24, 2007. ITR 7306 is amended to agree with the automobile deduction limits for 2008 that were announced on December 24, 2007. Pension Credits ITR 8308 is amended consequential to the changes to the Fifth Protocol so that individuals who accrue benefits under an unregistered foreign pension plan in respect of employment with an employer who is carrying on business in Canada do not accrue RRSP contribution room in respect of that employment. Corporations Taxable Income Earned in a Province, etc. Part IV of the ITR provides prescribed rules for the determination of the net income of a corporation earned in the year. Subsection 400(1) of the Regulations is amended to refer to the definition of taxable income earned in the year in a province in subject 124(4) and clarifies the prescribed rules. The 2009 and subsequent tax years will be impacted by the amendment. International Banking Centres - New Subsection 400(1.1) provides for amounts related to a corporation's income or loss from its international banking centre business. This will also apply for 2009 and subsequent taxation years. Permanent Establishment - Subsection 400(2)(e.1) provides that for a corporation that doesn't have a permanent establishment, the jurisdiction of its head office or registered office is deemed to be their permanent establishment. Foreign Net Insurance Premiums New subsection 403(4) provides that net premiums for insurance on property located in a country other than Canada will be deemed to be a premium to respect of insurance on property to the corporation's permanent establishment is located.
It's already time to start your tax planning for NEXT year! Employers should include a copy of the new TD1 forms to all employees with their year end pay cheques in order that the correct source deductions are deducted for 2009. Form TD1, Personal Tax Credits Return, is to be completed by employees and provided to their employers. The forms are used by the employer to determine the amount of federal and provincial or territorial tax that is to be deducted or withheld from the employee's employment income. Generally employees will complete a Federal TD1 plus a TD1 for the province or territory of employment. The federal TD1 has been revised to include the increased non-refundable tax credits available to taxpayers at the end of the year. The basic personal amount and spousal amount have now been increased to $10,100 and the amount that may be claimed for every child born in 1992 or later is now $2,089. For a link to the CRA website and the TD1 form click here. Form T1213 is to be completed by taxpayers when requesting reduced tax deductions at source for deductions or non-refundable tax credits that don't appear on Form TD1, Personal Tax Credits Return. For example, if there are registered retirement savings plan (RRSP) contributions being made outside of contributions made through your employer or there are support payments made and tax deductions at source should be lowered due to these deductions, it is appropriate for a taxpayer to use Form T1213 to request reduced tax deductions at source for the tax year. For a copy of Form T1213, click here. For more tax tips, purchase a copy of Essential Tax Facts written by The Knowledge Bureau's President, Evelyn Jacks, to learn how to ace your 2008 tax return and save money all year long.