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A thorough analysis of today’s financial news—delivered weekly to your inbox or via social media. As part of Knowledge Bureau’s interactive network, the Report covers current issues on the tax and financial services landscape and provides a wide range of professional benefits, including access to peer-to-peer blogs, opinion polls, online lessons, and vital industry information from Canada’s only multi-disciplinary financial educator.

This Week’s Edition of KBR:

June Poll

The CRA recently signed a secret settlement with wealthy KPMG clients involved in an offshore tax scheme.  Do you agree with this?
Yes: 19 votes
No: 370 votes

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Federal Budget Pre-Consultations - Fix Pension Income Splitting, CPP & Charitable Giving Rules

The Knowledge Bureau suggests a quick fix for fairness and equity this time around. Winnipeg, MB. January 29, 2008. The Knowledge Bureau, Canada's leading educator in the tax and financial services, has submitted its pre-budget suggestions to The Federal Finance Department recommending changes to improve fairness and equity in the tax system for Canadians. Tax savings from new pension income splitting rules introduced for tax year 2007 are lucrative, in some cases can add up to six figures in savings to the wealth of Canadians earning qualified pension income over an average 20 year retirement period, says Evelyn Jacks, President of The Knowledge Bureau and best-selling author of Essential Tax Facts. However because eligibility for income splitting is tied into the criteria for claiming the $2,000 pension income amount, the existing rules favor those who retire with employer-sponsored plans, (they can split income at any age), over those who have self-funded private pension savings from RRSPs, (who must be age 65 to benefit from pension income splitting). The flaw is in the age criteria for the pension income amount, says Mrs. Jacks. which results in a considerable disadvantage to the self employed and others who are not members of Registered Pension Plans. This needs fixing. Second, The Knowledge Bureau suggests improvements to two features of the Canada Pension Plan: Couples who have each maximum funded their CPP throughout their working lifetimes will find that on the death of one spouse, there will be no CPP survivor benefit. Surviving spouses should be able to benefit from the deceased's lifetime contributions. CPP lump sum death benefits, currently set at a single payment of $2500 are not indexed. They should be, especially in light of the survivor pension issue. Third, the cost of education has been rising in Canada, yet the amount of tuition, education and textbook credits that can be transferred to supporting parents, spouses or grandparents has remained at $5000. This threshold should be increased substantially to reflect the real costs of supporting a student financially. Finally, charitable giving rules should recognize both time and money. If we can figure out a way to give a community-based Fitness Credit for children, says Mrs. Jacks, why not give credits to those who volunteer at the community centre or other worthwhile community endeavors by creating tax recognition for volunteer time? Evelyn Jacks is one of Canada's most prolific international authors, speaker, educational publisher and an award-winning entrepreneur, having written 40 books, including the Essential Tax Facts series (annual editions in 2005 to 2008), Make Sure It's Deductible (3rd Edition, McGraw Hill) Evelyn is also co-author of a cutting edge team leadership title: Get Your People to Work Like They Mean It (McGraw Hill). The Knowledge Bureau, is a national post-secondary educational institute specializing in training inter-advisory teams in the tax and financial services to practice Real Wealth Management: the after tax, after cost accumulation, growth, preservation and transition of wealth. This includes planning strategically and tactically for financial stewardship, business succession, retirement income and tax efficiency with their clients. Her latest course is entitled Tax Efficient Retirement Income Planning, one of six courses in the Retirement Income Specialist Program, leading to the MFA Designation, offered exclusively by The Knowledge Bureau.

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Tips are Taxable Income

Remember Canadians who earn tips and gratuities are required to report this income on their annual income tax returns. Restaurant servers, hairdressers, valets, taxi drivers and others who earn tips may not have all of their income recorded by the employer and therefore not included on their T4 slips. The Income Tax Act is clear regarding the treatment of income from tips and gratuities. All tips are taxable and it is your responsibility to report any you receive. The Canada Revenue Agency is committed to administering and enforcing the Income Tax Act in a fair and equitable manner, ensuring that the requirements under the law are met while respecting the rights of the individuals involved. When people earn tips and do not report them, they are increasing the tax burden on their friends, family, and neighbours who have all of their income reported by their employers on their T4 slips. Even if you do not get a T4 slip to show your income from tips, you are still required to report all tips received in the course of your work and report the amount on line 104 of your return. In preparing to file your tax return, you may have to contact your employer to find out if any or all of your tips will be included on your T4 slip. It is your responsibility to keep track of all amounts received in the course of your employment. During a review or audit, CRA officers use the available records to confirm taxable income. If such records are not available, officers use other supporting information or documents available at the time of the review.

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Claiming Medical Expenses

Did you know that you can claim, as a non-refundable tax credit, medical expenses for yourself, your spouse or common-law partner, and your children born in 1990 or later? The total expenses for 2007 have to be more than 3% of your net income, or $1,926, whichever is less. You may also be able to claim medical expenses for the following persons if they depend on you for support: you or your spouse or common-law partner's child or grandchild who was born in 1989 or earlier; and you or your spouse or common-law partner's parent or certain close relatives who lived in Canada at any time in the year.

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When the Bears Emerge, Return to Portfolio Planning

By Doug Nelson What an interesting couple of weeks in the financial markets. . .this is when financial planners really earn their stripes! If you haven t been on the phone with your clients, you should be. It s time to revisit and reassure and to discuss some tax, retirement and portfolio planning principles. Here are some of my favorites: TOP TEN PORTFOLIO PLANNING IDEAS Benchmarks. Consider the following in measuring all other investment and planning concepts: a) annuitize all assets for life, based on 100% to the last survivor and b) discuss the amount of money your clients wish to pass on to their kids c) calculate the premium for a joint last survivor life insurance policy for this amount. This is your benchmark because it achieves two things: 100% security for a lifetime of income and 100% security of money to the kids. All other investment alternatives should be compared against this basic benchmark so as to determine just how much portfolio risk needs to be taken to achieve better lifetime results. Taxes Count. To compliment tax planning provisions, investment product selection is important. Reduce taxable income today consider the use of a T-SWP product that pays out return of capital. Or consider the use of a prescribed annuity as a way to provide significant, tax free annual income. Discuss Risk and Return. Always measure both the risk and the return characteristics of a portfolio. Fully disclose these characteristics to the client. Example: Use 3 standard deviations to discuss volatility, look at the frequency in which a portfolio will produce a 1 year negative return as well as the historical range between the worst and the best performance years of the portfolio and / or benchmark. How the client reacts to this information will tell you if you have them in the right risk / return category. Manage Risk and Return. Preferred Shares do have some volatility and one needs to be wise in their selection, however, a 5% preferred share from a major Canadian bank is roughly equivalent, on an after-tax basis, to a 7% GIC. If you could provide your client with a 7% GIC today, would you? Manage the Product Selection. Avoid products that have above average fees, are complex and hard to understand, are ill-lliquid and / or ones where you may not receive the full benefit of their value for 10, 20 or 30 years. Balance with Simplicity. To create a balance between growth investments and income investments, consider using a 10 year prescribed annuity in combination with a growth oriented investment with the same 10 year time horizon. Cut the Fees. By eliminating management fees from your fixed income investments the yield on those investments will significantly increase. For example, if a bond fund currently yields 4% and the management fee is 1.5% (for a net return of 2.5%), by eliminating the management fees you can increase the net yield by 60% (= 1.5 / 2.5). Fix Up Cost Savings. To reduce the management fees on your fixed income investments consider eliminating the use of all balanced funds. Balanced funds charge an equity equivalent management fee (e.g. 2%) even though 20% to 50% may be in fixed income investments. Alternatively, if the client owned GIC's and one or more equity mutual funds (or a bond ladder, or a basket of preferred shares) the after fee rate of return on the fixed income investments would make a huge leap. Exchange the Fees . To reduce the management fees on your equity holdings consider the use of exchange traded funds. For example, to own the TSX 60 index (a basket of the 60 largest companies in Canada, to which most mutual fund managers would also own) costs the client only 0.18% per year. This is 1 / 13th the cost of the typical mutual fund. Then, charge the client a separate advice related fee for portfolio design, portfolio monitoring and tax work. Show Your Expertise. Take the Financial Literacy as well as the Portfolio Construction courses in The Knowledge Bureau s New Retirement Income Specialist Designation program....word has it they are really good! Douglas Nelson is the author of The Knowledge Bureau s Advising Family Businesses course. He is a regular speaker on the subject of the Six Step Succession Mapping Process and How To Be In Sync With Your Entrepreneurial Clients. Doug is an independent financial planner who has survived first hand the family business succession experience and provides regular consulting services to both entrepreneurial families and their advisors. Doug attained his Master Financial Advisor (MFA) designation from The Knowledge Bureau in 2007.

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Online Pre-Budget Consultations for Budget 2008

The Government has launched an online budget consultation process. They are seeking your answers to these following questions: What steps should the Government take in Budget 2008 (and beyond) to ensure that Canada is prepared to deal with the implications of an aging population? Should the Government be implementing broad-based policies that will help all sectors of the economy to succeed or should it focus on developing policies to assist specific industries facing special challenges? In what areas should the Government focus its resources in Budget 2008 (and beyond)? If resources need to be redirected from other areas, what areas should these be? What steps should the Government take in Budget 2008 (and beyond) to ensure that the Canadian economy remains internationally competitive, continues to attract investment and creates high value-added jobs? What tax and other measures should the Government take to ensure that Canada keeps its best and brightest, attracts highly skilled immigrants, encourages as many people as possible to enter the workforce, and rewards Canadians for their hard work, while respecting the Government s fiscal goals? What other issues would you like to address? You may participate in this consultation by February 11, 2008 at:

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