February 2005 Archives

Reminder: RRSP Deadline March 1, 2005

A reminder that March 1st, 2005 is the deadline for making a deductible contribution to your Registered Retirment Savings Plan (RRSP) for the 2004 tax year. Contributions made after March 1, 2005 may be applied to your 2005 tax year contribution limit.

If you do not know your RRSP deduction limit for 2004, the amount is shown on your Notice of Assessment or Notice of Reassessment for the previous tax year. The Canada Revenue Agency also allows you to see this amount using its online "My Account" feature available on the CRA Web site or you can call the Tax Information Phone Service (T.I.P.S.) at 1-800-267-6999.

2005 Federal Budget Highlights

The Minister of Finance, Ralph Goodale, presented the 2005 federal budget on February 23. Somewhat driven by being a minority government, the budget proposes several tax cuts - most of them modest and phased-in over time. Some highlights include the following:

* increasing spending in many areas including the environment, health care, municipalities, and the military;
* reducing debt;
* sharing federal gas tax revenue with the municipalities;
* increasing the basic personal amount, albeit gradually, to $10,000 for 2009 (i.e. the amount of income a Canadian can earn tax-free);
* increasing personal credits in respect of a spouse or common-law partner or a wholly dependent relative;
* increasing Guaranteed Income Supplement benefits for low-income seniors;
* enhancing tax assistance for persons with disabilities and caregivers;
* eliminating the 30% foreign property limit on pension and registered retirement savings plan investments (a surprise move done "in the name of enhancing global investing");
* increasing the RRSP and RPP deduction limits;
* expanding the list of eligible medical expenses;
* introducing a 16% non-refundable adoption expense tax credit;
* eliminating the corporate surtax on January 1, 2008;
* reducing the general corporate income tax rate over several years - this will not apply to small business income or investment income of Canadian-controlled private corporations as they continue to be eligible for their own special tax provisions; and
* revising the previously proposed "reasonable expectation of profit" test as a result of public consultation.

There are several good links through which you can find general and detailed information as well as commentary on the budget.

Canada Revenue Agency
http://www.fin.gc.ca/budtoce/2005/budliste.htm

Certified General Accountants of Canada
http://www.cga-canada.org/budget2005/

Canadian Insitute of Chartered Accountants
http://www.cica.ca/index.cfm/ci_id/25160/la_id/1.htm

Many accounting firms and law offices will also have valuable insight into the budget.

Caren MacLeod
Scott Rankin & Gardiner
www.srgg.com

CTF Rates Federal Budget 2005

The Good, the Bad and the Ugly

*Personal income tax relief starts out measly, rises by 2009
*More money down the Kyoto sinkhole – Talk of green taxes
*Program spending in 2004/05 up 11.8% – Original target was 4.6%
*But Wait (a Little) More Good: Debt re-payment continues and federal gas tax revenue finally starts to flow to cities

Ottawa: The Canadian Taxpayers Federation (CTF) reacted to the 2005/06 federal budget, which was tabled in the House of Commons by Finance Minister Ralph Goodale this afternoon.

The Good: Tax Relief for Canadians

"Starting in 2006 Canadian taxpayers will have a little more money in their pockets thanks to a higher personal income tax exemption, but the initial tax savings is laughable although it will grow overtime," said CTF federal director John Williamson. "In 2006 an individual taxpayer’s personal income tax bill will be cut by a measly $16, but rise to $192 a year in 2009. The savings for two-income families will be $32 in the first year and $384 by 2009, whereas families with a stay-at-home spouse are slightly short-changed with savings of $30 in 2006 and $370 in 2009."

"Despite Ottawa’s multi-year and multi-billion dollar surpluses, which really represents an ongoing over-taxation of Canadians, the government is delaying until 2009 what is at best described as modest tax relief until 2010," noted Williamson.

The Bad: More Tax Money for Kyoto – Still No Plan

The federal government will continue its largely ineffective Kyoto Protocol strategy of spending billions of dollars. Budget 2005 commits $1-billion into a Clean Fund to encourage business to reduce greenhouse gas emissions; another $200-million will be dedicated to wind power; $300-million for the Green Municipal Fund; $225-million for home renovations; and $97-million on hydro development. More ominous for taxpayers is the potential shifting of strategies: The Case for Green Taxes (see annex four of the budget, page 314-327), in which the federal governments makes a public policy argument in favour of a green tax.

"Despite all assurances that any new taxes introduced that will be offset by taxes in other areas, taxpayers are deeply concerned this sort of rhetoric will result in new taxes and a higher tax burden for Canadians," said Williamson. "The CTF opposes a ‘green tax’ and will loudly oppose any new increase that does not include an equivalent reduction in other broadly-based taxes, for instance lower personal incomes taxes."

The Ugly: Budgets Not Being Followed, Spending Set to Shoot Up (Again)

Under Prime Minister Paul Martin, the Liberal government’s program spending (this figure excludes public debt charges) totaled $141.4-billion in 2003/04 (last year), it increased to $158.1-billion in 2004/05, and will jump to $161.3-billion in 2005-06. In addition, estimated gross surplus figures will be $3.0-billion this year, $4.0-billion in the coming fiscal year, and $5.0-billion in 2006/07.

"The government appears incapable of living within the budgets it has set for itself. For instance when the budget was tabled last year, Minister Goodale said program spending in 2004/05 would be $148-billion. When the Economic Update was delivered in November we were told it would, in fact, rise to $151-billion. And today the budget reveals spending in 2004/05 will be $158-billion. Ottawa missed its original budget target by an astounding $10-billion. This is not a government that is budgeting responsibly and its actions make a mockery out of future spending projections, which should be increased by at least a factor or two."

"Since the budget was balanced, program spending has risen 48 per and is projected to climb by 82 per cent in 2009/10," Williamson noted. "Mr. Martin’s spending still outpaces the combined growth of inflation and population growth, which breaks his own Budget 2000 pledge that spending will be limited to inflation and population growth."

More Good: The Debt & Surplus Picture

"We are pleased Minister Goodale will reduce the debt by $4-billion this year," Williamson stressed. "And we applaud the federal government for reducing more than $60-billion in net debt over the past 8 years. Unfortunately the government has again refused to implement a legislated debt reduction schedule. Debt servicing will chew up $35-billion this year, an astonishing 20 cents of each dollar collected. Ottawa should set yearly debt reduction targets as was done with the deficit and make those targets the law."

And a Little More Good: Infrastructure Initiatives — Cities & Communities Agenda

The 2005 budget will – finally – begin to share federal gas tax revenue with municipalities. Last year, Ottawa rebated the GST paid by city governments. In 2005/06, the share of the federal gas tax dedicated to cities and communities will be $600-million. By 2009-10, the share will increase to $2-billion, representing 5 cents per litre. Since 1999, the CTF has advocated dedicating half of the federal fuel tax revenue with all Canadian municipalities regardless of size. Ottawa collects approximately $5-billion in fuel taxes, yet returns a paltry 3 per cent to roads.

"Early in February the Infrastructure Minister John Godfrey announced Ottawa would allocate gas tax revenues on a per capita basis," noted John Williamson. "We completely agree with this approach because it treats all municipalities equitably and includes all cities, big and small alike. We believe the money should be used for infrastructure projects, highway maintenance and roads. The government appears to be doing what we have advocated on this file, and that’s good news for taxpayers."

John Williamson
Canadian Taxpayers Federation
www.taxpayer.com

The full text of this posting including tables and figures is available at:
http://www.taxpayer.com/main/news.php?news_id=1926

2005 Federal Budget

Scarcely half an hour ago, at 4:00pm EST, the 2005 Federal Budget documents became available on the Government of Canada Finance Department web site.

With the issues of the gun registry, sponsorship scandal, mad cow disease, SARS, the war in Iraq, and Kyoto still fresh in our minds, the Budget predictably responds with its stated priorities of maintaining sound financial management, securing Canada's social foundations, achieving a productive and growing economy, moving towards a green economy and sustainable communities, and meeting our global responsibilities.

Support for health care is re-emphasized in this budget as is further solidification of our role in international aid and assistance. New to this budget is a deal for Canadian communities, allowing them to share in the proceeds of the gas tax revenues. Job creation and innovation also play a role in the budget as money is allocated to invest in people, skills, ideas, and regional development. More than $10 billion is also dedicated to enhancing the quality of our air, land, and water through environmental programs.

The issue of tax primarily appears in the Budget's "A Fair and Competitive Tax System" found in "Chapter 4 - A Productive, Growing and Sustainable Economy".

Tax highlights include:

- improving tax assistance for persons with disabilities;
- increasing to $10,000 the limit Canadians may earn without paying tax;
- removing 860,000 taxpayers from the tax rolls, including about 240,000 seniors;
- proposing the elimination of the corporate surtax and reducing the general corporate income tax rate by 2%; and
- enhancing tax incentives for efficient and renewable energy generation equipment.

Budget 2005 claims that most of the tax benefits will go to low- and modest-income Canadians. (Over 70 per cent of the tax relief will go to those earning less than $60,000 per year.) While the Budget increases to $10,000 the limit Canadians may earn without paying taxes, the RRSP annual contribution limit is also raised to $22,000 by 2010. The question remains, how many low- and modest- income Canadians can afford to put $22k a year into their RRSPs?

Time and a closer examination of the Budget details will shed light on the benefits to Canadians of modest incomes. Over the coming days and weeks, we will no doubt see a flood of response, analysis, and critiques of the first budget delivered by a minority government in more than two decades. Stay tuned.

Full details of the 2005 Federal Budget can be found at:
http://www.fin.gc.ca/budtoce/2005/budliste.htm

Turbo-Charge Your Retirement Savings With An IPP

Retirement Planning

Interest in Individual Pension Plans (IPP) has been growing. That's because an IPP may be able to provide higher pension benefits for small business owners and others who meet specific criteria.

An IPP is an employer-sponsored, defined benefit pension plan. This means that an actuary determines the level of contributions that the employer must make to ensure a stable pension income stream for the employee. Similar to an RRSP, contributions accumulate and compound within the plan sheltered from taxes. At retirement, taxes are payable on amounts withdrawn. With an IPP, there is the potential to save more funds for retirement because of higher contribution limits than RRSPs. It's important to note that funds invested in an IPP cannot be withdrawn until retirement or plan termination.

IPPs are best suited for individuals over 45 years of age and earning over $100,000 per year. You should currently be contributing the maximum allowable to your RRSP and have at least a five-year time horizon until retirement. Additionally, an employer must be willing to set up, administer and fund the IPP.

Most financial institutions that offer IPPs will provide you with a variety of eligible investments. Like RRSPs, investments within your IPP are subject to foreign content restrictions. In addition, all investments must comply with applicable pension legislation investment guidelines. An IPP strategy should be considered within the context of a comprehensive financial and estate plan. To learn more about IPPs and how they may fit into your overall financial plan, contact a professional investment advisor.

Daniel Saikaley, CA CFP EPC
Investment Advisor
CIBC Wood Gundy
E-mail: daniel.saikaley@cibc.ca.
Website: www.danielsaikaley.com

The information contained herein is considered accurate at the time of posting. CIBC and CIBC World Markets Inc. reserve the right to change any of it without prior notice. It is for general information purposes only. Clients are advised to seek advice regarding their particular circumstances from their personal tax advisor.

Given the complexities involved, specialized tax and pension advice must be sought to ensure an IPP is appropriate to individual situations. Also, an IPP strategy must be considered within the context of a comprehensive financial and estate plan.

Invest tax-efficiently with flow-through shares

Tax Planning

An important part of my job is to help investors invest tax-efficiently. If tax-efficient investing is of interest to you, you may want to consider an investment in "flow-through shares."

Flow-through shares are issued by exploration or mining companies specifically to finance exploration activities such as ground sampling, geophysics and drilling. Often such companies have little or no current income from which to deduct such expenses, and little tax payable from which to deduct associated tax credits. However, the Income Tax Act permits them to "flow" these deductions and credits through to investors. Usually, the entire investment is deductible in the year of investment, resulting in a zero adjusted cost base. Taxpayers can use these to reduce tax liabilities, however, they are most effective for taxpayers in the highest marginal tax bracket.

Often investors invest in flow-through shares through "flow-through limited partnerships." These provide a certain degree of diversification, as the limited partners pool their capital to invest in a portfolio of various flow-through issues. They also provide the expertise of an experienced general partner, who selects and manages the portfolio. The deductions and tax credits flowed through to the partnership are subsequently allocated among the partners.

Even if a security is flow-through, it is not necessarily a suitable investment. Many flow-through investment opportunities are on the market today. Contact a professional investment advisor, who is experienced in flow-through investments, to help you select an appropriate investment for your portfolio.

Daniel Saikaley, CA CFP EPC
Investment Advisor
CIBC Wood Gundy
E-mail: daniel.saikaley@cibc.ca.
Website: www.danielsaikaley.com.

Alternative Federal Budget 2005

In anticipation of this week's federal budget release, you might be interested in viewing an alternative budget. The Canadian Centre for Policy Alternatives has released its Alternative Federal Budget 2005.

A voice in public policy debates, the CCPA is an independent, non-partisan research institute concerned with issues of social and economic justice. The National (Ottawa) Office has three ongoing projects: the Education Project, the Trade and Investment Research Project, and the Alternative Federal Budget Project.

The Alternative Budget is the CCPA's way of offering a different opinion on how the federal budget -- that is, your tax dollars -- should be spent. In this year's Alternative Budget, the CCPA critizes the federal government's "U-shaped" budget surplus, that being one in which surpluses are projected in the current fiscal year, dropping off precipitously, and then recurring again somewhere down the road. Rather, the CCPA claims that the federal government has forseeable surpluses.

"The federal government will have an estimated $45 billion in surplus over the next three years – money that could significantly reduce poverty and inequalities in Canada and lay to rest overheated squabbles over cash transfers to the provinces, says the 2005 Alternative Federal Budget (AFB)."

The CCPA also critiques where the government is spending its dollars, indicating that the budget could do more to improve federal/provincial relations and make good on past promises to provide a more equitable split between deficit reduction and spending on social programs.

"In order to begin the critical process of rebuilding the federation and repairing fragile federal-provincial relations, the AFB would:

- assure adequate funding for the Canada Social Transfer (CST) by increasing funding for the transfer by more than $13 billion over the next 3 years;

- build in accountability and transparency by dividing the social transfer into separate Social Transfer and Post-Secondary Education funds and having a separate envelope for each social item within the CST; and

- attack poverty in Canada by increasing the Canada Child Tax Benefit, the GST credit, creating a national child care program, enhancing the EI program, creating affordable housing, increasing OAS and GIS benefits and providing significant funds to address the needs of Aboriginal communities."

For more information on the Alternative Federal Budget 2005 and the CCPA, please see:
http://www.policyalternatives.ca

Child Tax Benefit payments, Feb. 18

Today the Canada Revenue Agency issued the February Canada Child Tax Benefit (CCTB) payments. Payments totalled more than $736 million, to more than 2.9 million recipients across Canada.

From the CRA Web site:

"Recipients who are expecting a benefit payment and have not received it by February 25, should contact the Agency's CCTB enquiry service at 1-800-387-1193. This service is available weekdays from 8:15 a.m. to 5:00 p.m., local time.

In order to receive, or continue to receive, CCTB payments, recipients and their spouses or common-law partners have to file a tax return."

More information is available at:
http://www.cra-arc.gc.ca/newsroom/releases/2005/feb/0218cctb-e.html

CRA Extended Hours for Business Support

The Canada Revenue Agency has indicated that they will be providing extended service on its business enquiries telephone lines to include two Saturdays, February 19, and 26, 2005, from 10:00 a.m. to 4:00 p.m. (local time).

While the business enquiry telephone service operates year round, the extended service is intended to assist employers who may need help preparing T4 slips for employees.

More information can be found on the CRA site at:
http://www.cra-arc.gc.ca/newsroom/releases/2005/feb/0218saturday-e.html

Automobile Benefits

Whether you're an employer (including a corporation you own) responsible for correctly reporting taxable benefits or an employee in receipt of taxable benefits, you need to be informed. Although there are a variety of benefits that are taxable, automobile benefits are among the most common. So read on for some general information on automobile benefits bearing in mind that this is an introduction to the topic.

An automobile is considered to be available to an employee if that employee has access to or control over the automobile. Personal driving is any driving for reasons not related to the employee's employment - including travel between home and the place of employment. If there is no personal use, there is no taxable benefit, even if the automobile was available to the employee.

Where there is personal use, the taxable benefit that must be reported on a T4 slip consists of two parts - a standby charge and an operating benefit. The standby charge represents the benefit an employee receives when the employer's automobile is available for his/her personal use. Where the employer pays for the operating expenses of the automobile, the operating benefit represents the portion of those expenses related to personal use.

In general, the standby charge is 2% per month of the car's original cost (including GST and PST, but not including any reduction for a trade-in), or 2/3rds of the monthly lease costs, calculated with reference to the number of days the automobile was available to the employee. Where the employee is required to use the employer's automobile in the course of the employer's business, then if the employee's personal travel during the year is less than 20,000 km (1,667 km per month) and more than half of the employee's travel is business travel, the standby charge may be reduced. The reduction factor is equal to the number of kilometres driven personally divided by 20,000 kilometres.

In general, if the employer pays any amount of operating expenses of the automobile, there is an operating cost benefit. The amount of this benefit is, for 2004, $0.17 per kilometre of personal use. For 2005, the rate is $0.20 per kilometre of personal use. Where the employee reimburses the employer in the year or within 45 days after the end of the year, for all operating expenses attributable to personal use, there is no operating benefit to be included in employment income. If the employee reimburses the employer for part of the automobile's operating costs, the amount reimbursed is deducted from the originally calculated benefit.

There is an optional method for calculating the operating benefit. Where a standby charge has been included in the employee's income, the employee used the automobile more than 50% of the time for employment purposes, and the employee notifies the employer in writing before the end of the taxation year to use this method, then the operating cost benefit can be calculated as 1/2 of the standby charge - before deducting any reimbursements made by the employee. Obviously this is only preferential if it results in a lower taxable benefit.

Where the employer is a GST registrant, there is a GST element to certain taxable benefits, including taxable automobile benefits. The logic behind this is that the employer would have claimed an input tax credit (ITC) at the time of incurring the expense or outlay (e.g. purchase of vehicle, repair costs, etc). By adding the benefit to the employee's income, the employee is now the one to have incurred a portion of the GST ITC's previously claimed by the employer. The employer is considered to have collected GST on the taxable benefit at the end of February in the following calendar year (i.e. T4 filing deadline). The employer has to include this amount as GST collected in the GST return for the reporting period that includes the last day of February. The amount of GST considered to be collected equals 6/106ths of the standby charge and 5% of the value of the operating benefit (before any reimbursement by the employee).

As you can see, taxable benefits are not always straight forward and can have implications beyond the obvious. It's never a bad idea to get assistance - from your human resources/payroll department, the Canada Revenue Agency, or your accountant.

Caren MacLeod
Scott, Rankin & Gardiner Chartered Accountants
www.srgg.com

CRA Tax Tip: Getting help filing tax returns

The Canada Revenue Agency has released a tax tip reminding Canadians that help is available for filing your tax return:

"If you are a student, senior, person with a disability, a newcomer to Canada, or a low-income earner with a simple tax-filing situation, you can contact the Community Volunteer Income Tax Program (CVITP) at: 1-800-959-8281 to ask for help. CVITP volunteers work with members of local community organizations who can help you complete and file your return."

For more information, see:
http://www.cra-arc.gc.ca/newsroom/taxtips/2005/0217help-e.html

BC Budget 2005

On February 15, 2005, the Government of British Columbia announced a number of changes to the taxation statutes administered by the BC Ministry of Provincial Revenue.

Summaries of the changes to legislation are outlined in the Budget Bulletin 2005, Changes to Legislation Administered by the Ministry of Provincial Revenue.

Among the changes in Consumer Taxes include:

- the tax refund program for alternative fuel vehicles is replaced with a point of sale tax reduction,
- the amount of sales tax relief is enhanced, and
- changes are made to the definition of a hybrid electric vehicle.

Important changes to Income Tax for individuals and companies include:

- The BC Tax Reduction reduces taxes payable by up to $360 for individuals with a net income of $16,000 or less. Individuals with a net income between $16,000 and $26,000 are eligible for a reduced credit. The credit is decreased by 3.6% of net income above $16,000

- The British Columbia “business limit” to which the low rate of corporate income tax may be applied is increased to $400,000 from $300,000, effective January 1, 2005.

For other changes to the Social Service Tax (PST), Hotel Room Tax, Motor Fuel Tax, Tobacco Tax, Income and Corporate Taxes, Corporation Capital Tax, International Financial Activity Act, Insurance Premium Tax, Property and Property Transfer Taxes, Home Owner Grant, School Tax, Rural Area Property Tax, and Miscellaneous information, view the bulletin at:
http://www.rev.gov.bc.ca/budget/budgetbulletin.pdf

For further information see also:
http://www.rev.gov.bc.ca/budget/budget.htm

CRA Tax Tip: Claiming transport costs for medical treatment

Canada Revenue Agency has released a new tax tip on its web site reminding Canadians that you may be eligible to claim transportation travel costs relating to medical treatment unavailable where you live.

"To claim transportation costs, the place where the treatment is received must be at least 40 kilometers from where the patient lives. To claim additional travel costs such as meals and lodging, the place where the treatment is received must be at least 80 kilometers from where the patient lives."

For more information, see:
http://www.cra-arc.gc.ca/newsroom/taxtips/2005/0215medical-e.html

Taxpayer Issues Back on Radar Screen?

CTF Gets Together With Finance Minister in Pre-Budget Meeting Tomorrow

Ottawa – The Canadian Taxpayers Federation (CTF) welcomes the news, reported over the weekend, of possible tax savings for Canadians that will be announced in the 2005/06 budget. Federal Director John Williamson will meet with Finance Minister Ralph Goodale on Tuesday morning in Ottawa to discuss this issue as well as other CTF budget priorities.

"The CTF will take this opportunity to discuss the need to provide broadly based personal income tax relief, particularly when Ottawa is over-taxing Canadians and running multi-year billion dollar surpluses," said Mr. Williamson. "It appears two signature CTF issues are on the budget drawing board, namely a gas tax transfer to cities on a per capita basis, and a tax cut in the form of either a higher basic personal exemption or lower rates. We also want to discuss the need to control government spending, and pay down Canada’s $500-billion debt."

The CTF’s top budget priorities include:

- Raising both the Basic Personal Exemption (BPE) and Spousal Exemption to $15,000 within five years to provide tax relief for all Canadians. This change will remove 1.8 million Canadians from the tax rolls and benefit the remaining 13.8 million taxpayers.

- Adopting the CTF’s Municipal Roadway Trust as the most expedient and equitable way to return gas tax revenues to roads in Canadian cities.

- Limiting expenditure growth to a maximum annual amount of inflation and population growth.

- Redressing inequalities in the Employment Insurance payroll tax regime by lowering and harmonizing employer premiums with those of employees.

- Abandoning proposals to subsidize institutional daycare and instead introduce a per child tax credit that is available to all Canadian families. Public policy bias on this issue must be neutral as parents are best able to decide what type of child care arrangements most suits their family.

- Instituting a legislated debt repayment schedule with annual payment of 5 per cent of revenues.

"Hopefully, Minister Goodale will give taxpayers reason to believe the government is preparing a more balanced approach to budgeting by offsetting spending increases with debt repayment and tax relief," concluded Williamson.

John Williamson
Federal Director
Canadian Taxpayers Federation
www.taxpayer.com

GNWT Budget Address & Risk Capital Investment Tax Credit

On February 10, 2005, Finance Minister Floyd Roland presented the new Fiscal Responsibility Policy along with the 2005-06 budget of the Government of the Northwest Territories (GNWT).

"The Fiscal Responsibility Policy was presented as a cornerstone of the Budget and the government’s fiscal strategy. The policy sets out the guidelines for how much the government may borrow, what it should borrow for, and how it will be held accountable for its borrowing decisions"

Included in the budget was the announcement that the Risk Capital Investment Tax Credit will be re-introduced in 2005. The program makes up to $2 million in annual tax credits available for the next three years.

For more information, see:
http://www.fin.gov.nt.ca/pr20050210.shtml
http://www.fin.gov.nt.ca/riskcapital.shtml

CRA Tax Tip: Home tax deductions for the self-employed

As a self-employed individual running your business out of your home or apartment may allow you to deduct a corresponding part of your operating costs, such as utilities. Furthermore, any specific expenses that are directly related to the business are also deductible.

For more information, including conditions and rates, see the CRA web site:
http://www.cra-arc.gc.ca/newsroom/taxtips/2005/0211home-e.html

CRA Tax Tip: Charitable Donations

The Canada Revenue Agency issued a new Tax Tip on its web site today reminding Canadians about the tax credit benefits of making charitable donations.

"You get a 16% federal tax credit on the first $200 of charitable donations, and you get a 29% federal credit for donations of more than $200 (provincial and territorial rates vary)."

For more information see:
http://www.cra-arc.gc.ca/newsroom/taxtips/2005/0208help-e.html

Rae Review Gets a Failing Grade from CTF

According to the Canadian Taxpayers Federation's Provincial Director, Tasha Kheiriddin, taxpayers should be worried by former Premier Bob Rae's recommendations for a substantial hike in spending on post-secondary education.

As the Ontario government forecasts a deficit of over $2 billion, the CTF asks where the extra $1.8 billion over the next two years will come from: higher taxes or higher debt?

Read more at:
http://www.taxpayer.ca/main/news.php?news_id=1912

RRSPs: Key Strategies

RRSP season is here and if you are like many investors, you probably leave it to the last minute to make your annual contribution. To get you thinking about this year’s RRSP contribution, below are some excellent RSP tips every investor should remember.

Develop a fully balanced portfolio:
Consider the full range of investments available, along with the risk and return ratio of each. With the help of your Investment Advisor, develop a balanced, diversified portfolio of RRSP assets.

Consider a spousal RRSP:
You get the tax savings but the money compounds tax-free in your spouse’s name for retirement. This could mean two lower tax brackets at retirement instead of one higher one. The goal here is to equalize income in retirement. You can make spousal contributions even if you contribute to your own plan, but the total amount must not exceed your own maximum allowable contribution. Keep in mind that although the assets belong to your spouse in this case, you should watch out for the attribution rules.

Take advantage of the foreign content allowance:
Many Canadians are not aware that you can invest up to 30 percent of your RRSP’s book value in certain non-Canadian securities. International investing can build greater stability through diversification, and offers other growth opportunities.

Consolidate your RRSP holdings for easier record keeping – and better growth:
There’s no limit to the number of RRSPs you can own. But, review your holdings periodically to make sure you’re getting the most from them. And remember that when you mature your RRSPs at retirement, it’s easier to move your savings into a Registered Retirement Income Fund from one or two sources than from several.

Understand RRSP over-contribution limits:
All RRSP holders 18 years of age or older now have a lifetime over-contribution allowance of $2,000. Beyond that, a penalty of one percent per month is payable on the excess contribution.

Rely on professional advice:
Professional Investment Advisors can help you set your goals and objectives. They will work with you to build an investment plan around these objectives and determine the right investment choices for your RRSP.

Avoid taking a short-term view:
By taking a long-term approach to investing, volatility becomes less of a concern and temporary downturns in the market can become buying opportunities. Remember – RRSPs are intended to be long-term investments.

Daniel Saikaley, CA CFP EPC
Investment Advisor
CIBC Wood Gundy
E-mail: daniel.saikaley@cibc.ca.
Visit my website at www.danielsaikaley.com.

T-Slips

Following is a quick refresher on some of the various T-slips you may receive and when you should expect to receive them.

T4
T4's are used to report employment income including salaries and wages, commission income, and taxable allowances and benefits. These payments are subject to payroll withholdings (CPP, EI and income tax as applicable). Employers are required to file their T4 returns and issue the T4 slips to their employees by February 28. Don't forget to ensure your employer has a current Form TD1 on file, especially if your circumstances warrant reduced income tax withholding.

T4A
T4A's are issued if you received pensions, retiring allowances, annuities and other income. Such payments may be subject to income tax withholding depending on the nature of the income. T4A returns must also be filed by February 28, along with the issuance of the T4A slips.

Other T4 slips that may be applicable include T4A(P) for CPP benefits, T4A(OAS) for Old Age Security payments, T4E for Employment Insurance benefits, T4RSP for Registered Retirement Savings Plan income (including withdrawals from an RRSP other than those withdrawn under the Home Buyers Plan), and T4RIF for registered retirement income funds.

T5018
If you are in the construction business, amounts paid to subcontractors must be reported on the T5018 "Contract Payments". Payors of such amounts can prepare the slips on either a calendar year basis or a fiscal year basis; however, issuance can be no later than six months after the end of the reporting period. For example, if the payor chooses the fiscal year basis and the fiscal year end is March 31 then the T5018 return is due September 30.

T5
T5's are used to report investment income including interest, dividends, and certain foreign income. These may be issued in Canadian dollars or in a foreign currency depending on the nature of the investments. The slip will clearly indicate which foreign currency, if any, is applicable so that the amounts can be converted to Canadian dollars for reporting on the tax return. Payors are required to file the T5 returns and issue the T5 slips by February 28.

T3
T3's are used to report income and designations from a trust or an estate. This covers a range of payments from interest and gains on mutual funds to certain distributions from inter vivos (living) trusts and testamentary trusts (created on death via a will). T3 returns must be filed and T3 slips must be issued within 90 days of the trust's taxation year. Only testamentary trusts are allowed to have a year end other than the calendar year, though many with that option still choose a December 31 taxation year. Thus, for the majority of trusts and estates, you can expect to receive the T3 slip around March 31.

If you don't receive your slips within a few days of the respective deadlines, you should contact the issuer to follow up. Always be sure the issuer has the correct and current information (i.e. name spelled correctly, correct SIN, current address).

Caren MacLeod
Scott, Rankin & Gardiner Chartered Accountants
www.srgg.com

Tax & Estate Planning: Strategies

Estate planning is the process of developing and maintaining a plan that will preserve your accumulated wealth and ensure an effective and beneficial distribution of your assets to your heirs. Whether your goals are to ensure your dependents are financially secure or to implement effective tax-planning strategies, every estate plan is unique. Throughout the process of developing an estate plan, you should be working with a team of professional advisors, specialized in the areas specific to your needs.

When it comes to estate planning, strategies to achieve your goals range from simple to complex. Overall, estate planning objectives may be grouped under four key headings: financial objectives; provision for family; plans for disposition of an estate; and philanthropy.

Before you begin, you need to decide what you wish to accomplish. Some strategies that you may wish to consider include: designating beneficiaries; registering property jointly, and establishing trusts. While estate planning is a significant commitment, you can rest assured that you have a plan in place. A professional Investment Advisor can assist you in developing strategies that will properly reflect your situation.

Determine Your Objectives
Depending on where you are in your life cycle, the estate planning process will mean something different to each of you. You may be at the stage when planning your retirement is your most important financial objective, or you may want to focus on providing for the needs of your family. Generally, estate planning objectives can be defined in many different ways.

Let's review the four key objective categories, as follows:

Financial objectives
Many times, the financial obligations of your estate are overlooked. If you want to ensure that your estate is distributed according to your wishes you'll need to ensure you've made adequate provisions in your planning. Have you taken steps to ensure that your plans include tax-effective strategies? Further, do you have enough liquid assets to cover your potential tax liability?

Provision for your family
Providing for your spouse and dependents is often the motivation for undertaking estate planning. Not only do you need to consider provisions for joint death in your planning, you also need to appoint a guardian for your children. Do your plans ensure that your family will be able to maintain their current lifestyle should something happen to you?

Plans for disposition of your estate
Considering how to bequeath your assets is also an important part of establishing your estate plan. Trusts are quickly gaining popularity as a way to ensure family members are provided for. Have you listed your family heirlooms and personal property for giving to specific individuals?

Philanthropy
Charitable giving plays an important part in many estate plans. Canadians give generously to charitable organizations. The recent changes by the Canada Revenue Agency are making charitable giving easier for many Canadians. Would you like to make provisions to support your favourite charity?

You need to decide what you wish to accomplish: minimize and defer taxes; provide adequate liquidity in your estate to provide for taxes; bequeath your property and holdings either intact or in cash. The estate planning objectives and subsequent strategies available to meet your goals vary from the simple to the complex. A professional Investment Advisor can assist you in developing a plan to best suit your personal situation.

Daniel Saikaley, CA CFP EPC
Investment Advisor
CIBC Wood Gundy
E-mail: daniel.saikaley@cibc.ca.
Website: www.danielsaikaley.com.

Federal Budget Coming Feb. 23, 2005

Want to know how your tax dollars are being spent? Minister of Finance Ralph Goodale has announced that the federal budget will be tabled on February 23, 2005. The Minister will present the budget in the House of Commons at approximately 4:00 p.m. EST that day.

For more information, see:
http://www.fin.gc.ca/news05/05-010e.html

Interest Paid on Student Loans Deductible

As of 1998 interest paid on a student loan has qualified as a tax credit. To be eligible to claim the interest paid on your loan in 2004 or the preceding 5 years, you must have received the loan under
the Canada Student Loans Act, the Canada Student Financial Assistance Act, or a law of a province or territory governing the granting of financial assistance to students at the post-secondary level.

You can not claim interest that you have already claimed but amounts you do not claim this year can be carried forward to any of the next five years. Only you can claim the interest paid on your student loans even though someone other than you (such as a parent) may have paid it.

For more information see the CRA web site for information on completing line 319 of your 2004 tax return:
http://www.cra-arc.gc.ca/tax/individuals/topics/income-tax/return/completing/deductions/lines300-350/319-e.html

Alberta recycling tax on computers & TVs

The Canadian Press has reported that on February 1st a new tax came into effect in the province of Alberta. The province has instituted a recycling tax on computers and TVs in a move to keep them out of Alberta landfills.

A levy of $15 to $45 on new televisions, depending on size, and $30 on a desktop computer system came into effect February 1st.

Ontario and Saskatchewan are looking at similar programs.

For more information see:
http://www.mytelus.com/news/article.do?pageID=canada_home&articleID=1833048

$500k fine and 2 years for GST fraud

Today the Canada Revenue Agency issued a news release citing a case of GST tax fraud in British Columbia.

The news release stated that Rolf Van Nuys and Valley Heavy Equipment Inc. pleaded guilty to 14 counts of GST fraud in Abbotsford Provincial Court. The Abbotsford businessman was sentenced to two years and six months in jail. He and the company were fined $501,830.

More information is available on the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/releases/2005/feb/0202vancouver-e.html

The CRA also reported a near $350,000 fine to a London travel agency director for tax evasion. According to the CRA web site, Walter T. Whale, director of 556032 Ontario Limited (operating as Travelsource Network) was fined $254,060 for failing to remit $127,030 in GST, and fined $7,760 for evading the payment of federal corporate income taxes for the taxation years of 1995 to 1999.

More information is available on the CRA web site at:
http://www.cra-arc.gc.ca/newsroom/prosecutions/on/0202london-e.html

CRA Tax Tip: Deducting Moving Expenses

The Canada Revenue Agency posted a new tax tip on its web site today reminding Canadians that moving expenses may be tax deductible.

If you move within Canada to start a new job or business, some of your moving expenses may be deductible from the income you earn in the new location. Expenses that can be deducted include hiring movers or renting vans to move, furniture storage, meals and lodging for you and your family, and the cost of breaking a lease or selling your home. Expenses are deductible from the income earned at the new location in the year you move. Expenses that are not claimed in the year of the move can be carried forward and claimed in years after you move against income earned at the new work location.

For more information see:
http://www.cra-arc.gc.ca/newsroom/taxtips/2005/0202moveon-e.html

Creation of First Nations Advisory Committee

Recognizing the need to build new partnerships with First Nations, the CRA announced today the creation of an advisory committee aimed at supporting First Nations peoples in accessing benefits while recognizing their rights to certain tax exemptions.

From the Canada Revenue Agency web site:

Ottawa, February 1, 2005 -- Minister of National Revenue John McCallum and Assembly of First Nations (AFN) National Chief Phil Fontaine today announced the creation of a First Nations Advisory Committee (FNAC) to help the Canada Revenue Agency (CRA) identify and address tax and benefit administration issues affecting First Nations peoples.

For the full news release, see:
http://www.cra-arc.gc.ca/newsroom/releases/2005/feb/0201committee-e.html

Onward Judge Gomery!

Judicial Inquiry’s $60-Million Budget the Price of Accountability

Ottawa – The Canadian Taxpayers Federation (CTF) today reacted to reports the judicial inquiry into the sponsorship program will cost the federal government $60-million. This amount is nearly three times the $21-million originally approved by the Martin government when it named Judge John Gomery to probe the dysfunctional program. It is estimated the commission will spend $20-million by the end of March, and will require an additional $40-million to complete the report by year’s end.

"Should Ottawa spend $60-million to discover how ministerial and bureaucratic oversight of the sponsorship program collapsed, to learn how $250-million of tax money was misspent and how $100-million of this amount ended up in the pockets of Liberal-friendly advertising firms? The answer is an emphatic yes," said CTF federal director John Williamson. "The Gomery Commission is essential to ensure accountability and Canadian taxpayers want it to proceed. Nothing we have witnessed to date indicates tax money is being, or has been, used improperly."

"This amount represents the price of accountability, just like funding the office of the Auditor General of Canada," noted Williamson. "Canadians are demanding answers and spending $60-million on funding this public inquiry is a better use of tax dollars than most of Ottawa’s discretionary budget items, particularly spending on government grants and contributions. Are Canadians each willing to pitch in a toonie to learn the truth? I think they are."

"While Judge Gomery has the best seat in town, every taxpayer has an interest in the outcome," said Williamson. "Canadians expect the inquiry to report what went so terribly wrong, untangle the political and bureaucratic web that resulted in hundreds of millions of dollars being squandered, and assign blame where deserved. So long as Judge Gomery proceeds with this in mind, the public will support his efforts."

John Williamson
Federal Director
Canadian Taxpayers Federation
www.taxpayer.com