taxdetective-Sandusky-Register

Earlier this week, several senior staff in a meeting at Surrey Tax Office informed those in attendance they don't feel they should have to 'mother' taxpayers about how to calculate instalments if they are new at being self-employed.

Something snapped. I've been working on individuals tax compliance for over 25 years now, and it's galling, it's pathetic, it's insulting that this particular calculation isn't highlighted. Those of us in public practice can tell you, taxpayers get trapped into a sense of complacency in their first two years of business that costs them the rest of their financial future happiness. I'm really tired of the attitude that someone just came right out and said it, only made me more determined to do something.

Then there's the BC Education curriculum, and in the tax arena, they include an extremely basic payroll, T4 and T1 calculation for a simple, employed, single individual, but only if teacher's have time and inclination. That's it.  There are 7 mentions about tax in the entire curriculum, and only 3 related directly to income tax.

Doesn't anyone realize that our self-assessing system is so complex there is no way, that without help and 'mothering' there's no way taxpayers can figure out how to comply anymore?  Even I need my hand held to figure out some things, because folks, tax is complicated and it's not getting any easier any time soon.  So how do you prepare your children for the world we live in?  We need to teach them about how taxation works, and not just the basics of being employed, because that simply is NOT enough.

Do you want your children to learn about tax?  If you do, I've put together a Student WorkBook, with case studies, and videos to explain how to use TurboTax (TurboTax online is free, create up to 20 sample files) to learn how about tax.  I've put resource links to reading about each case, and some Questions and Solutions to cement the learning. 

This is just the beginning.  Like I said, something snapped.

More on the saga of German pensions..

Annual report for Canada reports that between income taxes, other taxes, EI premiums and other income, our revenue / inflows were $237,091 Million.

In spite of that income, there's a shortfall in income of $33,372 Million for 2011, year ended March 31, 2011.  The money had to come from somewhere.  Canada had to borrow because of that shortfall, our deficit grew by the same amount, $33,372 Million, during the period from April 1, 2010 to March 31, 2011.

See Table 4 which shows the major categories of expenses for Canada, what makes up the $270,463 Million we spent? Transfers to seniors for OAS and GIS, EI payments, children, funding for health and social programs, fiscal arrangements (not sure what this is...) cities, crown corporations, national defence, and the cost of borrowing.

We have an accumulated deficit at the end of March, 2011. What we've borrowed net of assets we hold of $550,327 Billion.  The carrying cost on this debt is around $30 Million per year.  That's about 5.8% of total debt.

The population of Canada in 2011 is approximately 33 Million.  That means our deficit grew by $1,011 for every person in Canada. 

Makes me wonder, if...
... we all paid our taxes and added a thousand dollars, would the deficit actually disappear or would our politicians find a way to spend more than we make?

... everyone who was supposed to pay taxes actually did pay their taxes?

Just for fun, let's do some math. Let's say that there was a segment of the population who paid tax on $30,000 and didn't report an additional, let's estimate, $20,000 of income and pay tax on that extra income. Let's say there's 15% of Canadians, or 5 Million who didn't pay $5,000 (the rate would be effectively 25% on the extra income not reported at Federal plus BC tax rates) 

How many people do you know who only report $30,000 a year?  I've met a few over the years. In fact, in 2008, the national average reported income was less than that...http://www.statcan.gc.ca/daily-quotidien/100617/dq100617c-eng.htm

Just sayin'...it costs me way more than that just to live a frugal life, well, maybe I eat out once in a while, but only breakfast, or a burger, never an alcoholic drink, and camping holidays, makes ya wonder...this year the campgrounds filled with fifth wheels, hardly any tents.

Would people who only reported $30,000 have any savings in their RRSP?
How on earth did they manage to save at that income level?
Does any of this add up?
Mortgage or rent $1,500 x 12 = $18,000 / year
Utilities $4,000 / year
Cell phone $1,000 / year
Vehicle costs $8,000 / year (gas $1,400, insurance $1,400, repairs,$1,500 loan payments $3,700)
Groceries $125/week, $6,000 / year per person
I'm already up to $37,000... and this doesn't include education, clothes, cosmetics, entertainment, fitness, arts or medical expenses.

It's no wonder the seniors in my community are out every Monday morning collecting everything they can out of the recycling boxes. Between the two of them, they probably bring in OAS, CPP and GIS, for a total of about $30,000 combined.

It's also no wonder that anyone who is widowed and knows that their widower's GIS will be cut off if they live with someone, or remarry, after one year would want to lie about their living arrangements.

Imagine living on Persons with Disability allowance, in BC, about $10,000 per year.  Choose between food or shelter. Shop at the Thrift Store, and see how you make out.  Oh yes, and someone watches your bank account like a hawk.  The minute you go over their threshold, your benefits are cut off until you get rid of your savings. We're really good at marginalizing those who can't help themselves. Hasn't changed much since we were kids in the playground it seems...

The additional cost to provide a similar GIS for Persons with a Disability, 800,000 persons with a disability (this is about how many are qualified for the DTC in Canada) x $5,000 = $4,000 Million, about 1.5% of our annual spending.

You could argue, there are already hidden costs, most persons with a disability have their medical costs covered because our Medical Services Plan doesn't require premiums to be paid, and their medical care is covered. You'd be right.  But does that make it OK to not allow them to save, or to have to choose between food and shelter?

RDSP uptake isn't what was expected. 

Why aren't people with disabilities opening up an account, even just for the $1,000 a year bond?

No definitions of disability, infirmity, support or documentation to be concerned with. What's not factored into those reports is how much it costs to administer all of these credits, only how much the credits themselves cost us.

What if we got rid of credits and deductions, got rid of the administration, and reduced our tax rates instead?  Wouldn't that be simpler and whole lot fairer?  Of course, if you're the recipient of deduction largesse or credits bring your tax payable to nil , you might not be paying any tax at all, and the thought of a world where you had to pay something might be very stressful.

But, what if we were able to increase the amount paid to compensate for the lack of credits, by increasing the amount paid, I mean what if we paid persons with a disability, for example, the same amount as is considered the basic amount a senior should be able to live with?  Instead of reducing the tax of the person providing support, increase the direct support and stop marginalizing those people by refusing to allow them to have savings.

How many times have you trained a bookkeeper, only to have them leave in a month or six months?  You may have spent thousands of dollars on classroom training already.

Are you ready to stop the expensive bookkeeper training cycle and curb your exorbitant training expenses?  What if you could do that, for only $399?

Did your bookkeeper quit because they discovered they really don't like doing bookkeeping, or maybe  they didn't get the attention and training they needed to feel they were doing a good job.

Maybe there wasn't time, skills or the thousands required to pay for expensive training and even if you had, it wouldn't have done the trick.

Now you don't have to pay for that training over and over and maybe they won't quit because they'll get the training they need and you can recycle the training to everyone in the business, even your kids and spouse could benefit all for the one low price. 

See what this series could do for you Download, save it on your computer, watch the bonus video for free right now

Buy the video series, download and save it to watch as you have the time, 20 hours of top notch training

     

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Why a fabulous deal? 

These videos are only $399, that's for 20 hours of training on using QuickBooks software,

At $19.95 per hour; you can't get training for $19.95 an hour.  

If you are or have hired a member of www.IPBC.ca then you're in for an even better deal.

The videos are only $199 for IPBC members, that's $9.95 per hour

If you're a bookkeeper, that's about half the cost of a membership for a year to get even more benefits, including free access to my next series on working papers in Jan/Feb 2012.



Why would I say recycled?

Everyone in the business, the owner, their spouse, the manager, the bookkeeper, the accountant, the sales manager, the parts manager (not just the person who took the training and quit) can watch them, over and over if necessary, and they can move around within the video to revisit a topic.

Everyone at home can watch them too, high school kids, university students and CGA students can watch these videos to improve their understanding and their marks in Business Ed courses. It might encourage them to help you out with the business too.

As of June 2011, administrative changes for reporting marital status changes were to be increased from 90 days post separation to by the end of the month following...

CRA conveniently leaves out the administrative changes suggested in the federal budget from their list of budget changes...interesting how that works.

That isn't what's showing on the CRA website yet, but it's probably best to follow those procedures as the budget points out, the repayment of child tax benefits or GST/HST credits can be onerous and why go there?

You can change you rmarital status online in My Account or submit RC65, signed by both parties.

The Annual Report of the federal government was just released along with the Fiscal Reference Tables - 2011

There's another link under this information, which isn't updated yet with 2011 information and once it is, will make interesting reading. 

It's the Tax Expenditure Reports under the tab of that name on the sidebar that I find interesting. At the moment it only shows up to 2010.

But, as you can see from the 2010 report, this document can be an excellent commentary on our tax system, why we have the credits, when they were instituted is often mentioned, and what's important to know about each credit.

Given the relative newcomers to our Parliament in the last election, I'm sure this report will be very useful for them to learn how our political choices influence our tax system. Sometimes you can get a pretty good sense of the mood of the bureaucrats toward the social programming benefits of our personal tax credit system from this report.

Good news this a.m. on the involuntary separation front.  My client, whose spouse is in extended care appeared on my doorstep, Service Canada envelope in hand. Inside, a letter with an explanation and an election form for 2009 income tax year, to remove pension income splitting for GIS, ALW or ALWS Calculation purposes, and the forms says this decision won't affect CRA's assessment of income taxes. 

Because of a change in my client's personal situation, the client is in an extended care facility as of March 2011, and calculation of GIS for July 2010 to June 2011 is based on 2009 income, an election can be made to exclude the split pension income transferred to the client by the spouse in 2009. 

At first glance, I thought, why aren't they sending a form for 2010, then I checked the client's file. We had reversed out the pension split for 2010 because of the cost of care calculation. If you've amended someone's return to take out the pension splitting for a prior year, you'll want to read this.  Be careful, you may not want to reverse your decision to un-do the split as that could still cost you. Just because the feds have figured out that they should be fair and reverse out the income inclusion doesn't mean that the provincial social workers who calculate the cost of care will be as forgiving.

I do want to see if this form is on the Service Canada website though, and to see what it says on their website....hmmm the cover letter says you can download forms from their website, so maybe I'll find another form there.

I call Service Canada 1-800-277-9914 (you may have more luck than I did getting through) for information or go to their website servicecanada.gc.ca for more information.  I finally get through, just as my client arrives, the dog barks and the person answering the phone hangs up on me even while I'm telling her via speaker phone that it's my client and we have questions.

I can't find anything about this election or a copy of the form on the website, but if you find it, please forward a link to me eileen@taxdetective.ca

On the involuntary separation front...

Credit splitting on divorce or separation doesn't talk about involuntary separation...
http://www.servicecanada.gc.ca/eng/isp/pub/factsheets/credit.shtml

Funny, how life events doesn't include involuntary separation either... this isn't the first time I've run across this challenge, there was a time when it was a race by the families of each of the seniors as to who filed their returns first to get the GST/HST credit as only one is allowed even if you live on opposite sides of the country:
http://www.servicecanada.gc.ca/eng/lifeevents/index.shtml

Ahhh right at the bottom, contact Service Canada, but not told why or how there will be an impact...
http://www.servicecanada.gc.ca/eng/isp/pub/cppoas/lifeevent/index.shtml... now if only I could get through on the phone again, sigh.

Bank's can't sell insurance online that they were prohibited from selling in their branches...

If you own bank shares, dividends might be taking a dip...

http://www.fin.gc.ca/n11/11-096-eng.asp

…empty board seats…job postings for honest managers in 2012?
Safeguarding Charitable Assets through Good Governance

If the individual

Hmmm who knew?  These corporations enjoy the same 'qualified donee' status as registered charities, meaning they can issue official receipts for gifts, and receive funds from registered charities.

CRA is going to making a list publicly available and requiring books and records to support official donation receipting, so watch for the new listing on the CRA website in 2012.

You'll find more on the Chariteis and Giving web pages next year.

Low-Cost Housing Corporations for the Aged

This credit is a one time credit, so if you don't take advantage by the end of 2011, it's gone.

One time credit is based on increase in employers EI premiums for 2011 over those paid for 2010.

Who knew? and... if you don't claim it by January 1, 2015, it's really gone.

If you are in business, self-employed, corporate, partnership, or you manage a trust, and you hire consultants, paying 'fees for services', you'll want to be watching the new reporting requirements on the re-designed T4A form with more than just a little interest. 

Your business could be the recipient of T4A's that you'll need to reconcile with your income to ensure that you are reporting what's been claimed on the slips too. 

I can see it's only a matter of time before CRA may require you to provide a listing of your sales by customer on a desk audit basis, to verify that you've included these amounts in your income.

There's a comment in the 2011 Federal Budget about Box 48 and how that box is to be used which leads one to believe that if you're in business, and you, for example, hire a coach, or a computer technical person who works for themselves, and invoices you, that you're going to have to provide a T4A. 

Now it doesn't say if this is on a cash or an accrual basis, but it's definitely there.  It does specifically say this won't be when you hire someone personally, and they use a hairdresser to do your hair as an example.

No idea if they intend to enforce it for 2011 as What's new for payroll stresses they are undertaking a review of what should be included in this new Box 48 and currently there are no penalties for not complying. 

You'll want to think twice...

The budget announces new very tough anti-avoidance rules that allow RRSP's to access their RRSP without including amounts in income.

RRSP and RRIF strips explained

You might want to beat the rush. Visit your doctor now to document claims for the new $2,000 family caregiver amount (FCA) as you'll be able to claim it on your 2012 tax return in April 2013. 

Here's the proposed legislation released October 2011.  You'll want to review all of the changes to the Income Tax Act S. 118, and not just for the $2,000 credit, there's other changes too.  The plain english version is found in the Budget summaries on the CRA website.

If you're a doctor, expect visitors. Not only will you be requested to complete a T2201 certifying disaiblity, but now you'll have to vet infirmity as well. Infirmity doesn't have the same definition as disability. Infirmity isn't defined, it takes it's common ordinary meaning from the dictionary.

If doctor's charge a reasonable amount for the certification, the amount can be recorded as a medical expense, so expectt to provide a receipt for the charge, and include it in income, (of course). There are over 150 medical expenses, most of which now require certification in writing in order to be claimed by your patients.  Only four of these expenses require the disability tax credit, most are common ordinary expenses claimed by ordinary people, who may have an infirmity, either mental or physical, and doctors may now be called upon to certify this infirmity. 

Oh yes, as as of 2010, if it was for cosmetic reasons, they can't write it off, so doctors and dentists may be required to provide additional proof that procedures were not for cosmetic purposes.

There are five possible bumps for dependants you support. What's it worth? $2,000 x 15% federal tax rate is $300 per person, then multiply $300 x the number of dependants who are 'infirm'.

Best to review your 2010 tax return now to see if you'll benefit. What do you have to do? Get your doctor to agree that dependants you support and claim on on your federal tax Schedule 1 are infirm:

1. Line 303: Spouse
2. Line 305: Eligible dependant
3. Line 367: Child under 18 at end of year
4. Line 306: Infirm dependant age 18 or older
5. Line 315: Caregiver amount

And, once you qualify, you may want to adjust your tax at source by completing a new TD1 federal and provincial/territorial to provide payroll with proof you don't need as much tax taken at source.

CRA explains in their explanation of the Budget 2011, that it will likely be necessary to obtain a signed statement from a medical doctor that provides the:

• Nature of the infirmity
• Commencement of the infirmity
• Duration of the dependant's impairment

"For children under 18, indicate that the child, by reason of mental or physical infirmity, is and likely to be, for a long-continued period of indefinite duration, dependant on others for significantly more assistance in attending to his or her personal needs and care when compared to children of the same age"

Now, if your doctor doesn't want to use that wording, it's going to be tougher to get the credit. If you are a doctor and feel offended by the wording, your clients aren't going to be very happy if you refuse to provide them with the necessary documentation.

If you're claiming for an infirm child and you are also eligible to claim for the same child as an eligible dependant, there's no double dipping on the $2,000, you'll only get one claim for $2,000 for each child.

You're allowed to reimburse km's tax free if the rate is reasonable, and CRA posts what that rate is on their website. But do you think I could find it with the search engine just now?  I tried all sorts of combinations, none of which brought up anything about reimbursement of km's tax free.

I had to resort to my own notes and TaxLinks for vehicles once again.  Here's what I was searching for:

Automobile allowance rates  (not a breath about tax free km's anywhere to be seen... but that's what we all call it)

And I noticed this article is posted there from 2006..

Just in case you were wondering about the complexities of vehicles and tax...

Driving my life away...

CGA Canada's remarks to House of Commons Standing Committee on Finance on its Pre-budget Consultations 2011

Key recommendation:

What's new 2011 more budget enactment, including personal tax credits like children's art's credit, and moves to damn up partnerships who use corporations to defer tax...

Finance has released Notice of Ways and Means for more of Budget 2011 today...

If you are hiring new employees, there's a special reduction in EI expenses you'll want to know about.

The caregiver credit is introduced, and with it, qualified medical practitioners are going to be asked for yet another letter, for infirmity for spouses this time.. you'll want to check this out if you care for anyone.