taxdetective-Sandusky-Register

To do:  Start summer reading list:

Canadian Credit Institute articles

The 2012 budget included something that is going to increase how much tax you pay for 2013.

Employers who paid for these benefits on your behalf, not those who deducted these premiums from your pay cheque will be required to add that benefit to your income for 2013.

Do you know how much those contributions are currently? 

Ask your employer (payroll dept) if the premiums don't appear as an employer paid, but tax free for 2012, benefit shown on your pay cheque.  Since your employer just paid those premiums for you, you may never have known how much was spent on that benefit for you.

Wage loss replacement benefits paid by your employer will continue to be a tax free benefit.  That's because when you collect on that type of insurance, if your employer paid the premiums, you will pay tax on any claims on that policy.

If you paid those premiums for wage loss replacement yourself, any resulting claims would be tax free income.  If you aren't sure whether you pay the premiums, look for LTD (Long Term Disability) It should show up as a deduction from net pay.  If you don't pay the premiums, if you have a claim on your LTD, your income from that insurance plan will be taxable to you.

http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa06-eng.html

That's where you'll find me presenting once or twice a year, on various topics to do with accounting and tax, often with a focus on using Intuit software products, QuickBooks, Quicken, Profile. I enjoy  presenting at both Computer User Groups, Vancouver at Hycroft and in Cloverdale the Fraser Valley group.

Here's where to find out more information about these groups:
https://www.cga-bc.org/members.aspx?id=5314

As you'll see on the above link, I host a tax study group, and it meets online. The Canadian Virtual Tax Study Group is only for CGA's  and we meet once a month. There is a maximum of 15 participants. Here's where to find more information and remember this is only for CGA's. http://www.taxdetective.ca/taxclubs.html

This month and next, is a two part series on estates, accounting and tax.  I've just finished reading the CCH publication, The Executors HandBook and am looking forward to this and next month's meetings. You can join in to the discussion, plus you'll get access to my TaxLinks Pro Portal for only $30 per month.

The portal subscription is $30 annually, if you don't want to join the tax study group, with an annual subscription renewal when I change the password each October 1.
http://www.taxdetective.ca/catalog/item/8512122/6259277.htm

If you aren't a CGA, I'm introducing a new tax discussion group, called TaxDetective Boot-Camp, with a similar format. The first topic is medical expenses. This month's meeting on June 25th might interest you! (PS: if you are a CGA, you can claim your PD points)
http://www.taxdetective.ca/BootCamp.html

In mid May this year, a student taking the Canadian Payroll Association Management course chose Box 85 on the T4 as her research project. She contacted me by email, asking me to share more of my story as she'd come across information on my website that intrigued her.

After her presentation was completed, and she scored almost perfectly, Arlene and her employer were thrilled to share her presentation, both the MP3 recording and the written report with me and with all of you.

If you work in payroll management and haven't adopted a mandatory reporting for your employees, please listen to Arlene's report carefully, as she shares how much her organization has saved by adopting this strategy of full disclosure for their employees!  All I can say is WOW and if you haven't adopted full disclosure for Box 85 on the T4 yet, what's stopping you?

Thank you Arlene Jamison, PCP and St. Joseph's Health Centre for allowing me to share this with all of you.  St. Joseph's and their staff are very fortunate to work with Arlene.

Arlene's MP3 presentation (you might want to SAVE this to your desktop rather than open it as it might take some time to load as it is 6 MB):
http://db.tt/Uxdx3rGN

Arlene's 2 page written report: (not the same as the presentation) (31 KB word file)
http://db.tt/gUqb0PKa

Many of you may not know that one of my more passionate lobbies to the Minister of Finance has been to create a mandatory reporting of Extended Health and Dental Premiums on the T4.  It took a few years, but in 2007 or 2008, Box 85 was added as optional. It's never been made mandatory as someone complained about the compliance required.

I believe reporting in Box 85 should be made mandatory instead of optional, and in addition, I believe as an employee, you should receive a full reconciliation of everything that reduces your pay cheque from gross pay down to net pay. 

How else can you review what you're paying for out of your pay cheque?  It never ceases to amaze me how almost 40% (yes, that's over $30,000) of my husband's pay as a teacher in Vancouver, BC is funneled off to a multitude of other purposes, some of which we may never benefit from, and some of which we may pay into but never see a dime if we don't live long enough to collect.

It's no wonder that gov't can persuade other professionals to work on contract by forcing them to incorporate as "Personal Services Businesses" to avoid onerous employer contributions to pensions, benefits, and gov't programs.  That's the employer contributions on top of the employee contributions deducted from net pay.

Did you know that insurance agents and financial planners tell you you'll only need 80% of your current income to live on because 20% of your gross is being syphoned off to a variety of 'employee benefits and pensions, plus CPP, EI and Tax and if you don't live long enough, you'll probably see minimal benefit for all those contributions?

But back to the story of Box 85. In about 2004 I started writing to the Minister, asking why, since Union Dues were a mandatory reporting box, why weren't these premiums paid to private health plans equally important to be reported as paid to third parties by the employee.  After all, the premiums in many cases would breach the 3% of net income threshold for the family, and permit any extra costs for dental or other medical expenses not covered by the insurance to be claimed. 

Remember, and this is where many people don't realize that the wording of what you can claim is tricky. The key thing to remember, there is NO ceiling on how much you can claim. There is a threshold or minimum amount paid for medical expenses and that includes these premiums, that must be crossed before you can start to claim your expenses. I always use the example, of the millionaire who has a heart attack in Texas. The open heart surgery costs $200,000 and all but the threshold amount, which tops out at about $2,000 is fully claimable. Yes. $198,000 is claimable.

You don't have to believe me, it's on this fact sheet for 2011, you'll see that the medical expense tax credit 3% of net income ceiling is $2052 and for 2010 it was $2024.
http://www.cra-arc.gc.ca/nwsrm/fctshts/2010/m12/fs101201-eng.html

Check out the annual practitioners letter to send to clients!

CGA-Canada has posted its analysis of yesterday’s budget, along with several products, including its annual practitioner’s newsletter. 

In case you missed it, because I know how busy you've been with tax season and all, (me too), now that June 15 has passed...

You might like this link to the personal tax measures in the spring federal budget, and on pages 180-183 there's some measures relating to the RDSP, including an announcement of an expert panel.

http://www.budget.gc.ca/2012/plan/chap3-4-eng.html

Where would you start?

I just had a call yesterday. Dad has just been diagnosed with dementia and he's been moved into a home.  It was bound to happen.

Now you're cleaning up his place and there's all this paper to be dealt with. What do you need to find?

Start by gathering information about the person whose shoes (financial shoes) you need to walk in, whether they are still with you, but no longer competent, or have passed on and you're the executor.

It's especially tough if they've been operating very close to the vest their whole life.
I've written a draft of a book, which is morphing into a story, but for now, the forms I've developed and the draft book, are both available for sale on my website.

Over 25 years of interviewing clients about their financial life, I've created 24 fillable forms, which you can view by clicking to see...

I've had orders for 10 copies to hand out to clients or family to assist everyone with their journey. 

Whose walk would you like to document so that when the time comes stepping into their shoes isn't so difficult to imagine?

Walking the financial walk, isn't just about the money, it's about much more, identification, relationships, important people, hopes, dreams and last wishes.

http://www.taxdetective.ca/catalog/item/8512116/8611894.htm

Next Friday is not only the deadline for filing your personal tax return if you have self-employed, commission or professional income to report, it’s also the deadline for filing your annual GST/HST return if you’re an annual filer.

I've been receiving email for weeks now, ever since I asked how the ACB of my life insurance policy from 1975 is calculated. You'd think this would be a running calculation provided by the company on an annual basis, but it doesn't seem to be and in fact it's been weeks since I first asked for this calculation.

This must be quite the production! More on this once I hear back from the company about their deliberations on what the ACB of my policy is. They've told me the NCPI but not the ACB.

I've been informed the ACB of any policy is defined in S. 148(9) of the Income Tax Act and it's calculated as (and this seems to require a manual calculation)
1) add premiums paid $11607  (26.08/month)
2) deduct dividends allotted ?
3) deduct any previous withdrawals ?
4) deduct pure cost of insurance ?

I've been informed my NCPI is $7215.33 which seems to be close to the total reported summary of my dividends that are added to my premiums paid to calculate my cash surrender value.

Re: 4) Since Bill C-139 introduced in 1982, we're required to deduct the Net Cost of Pure Insurance (NCPI) from any policy issued after Dec 1, 1982. NCPI is how we're taxed on the savings element of a life insurance policy. We're taxed on some formula where the pure cost is deducted from the ACB. 

I bought this $25,000 whole life policy back in the early 70's and I've never really understood why it's supposed to be such a great deal. The agent always tells me never let this one go.  So I pay $26/month and wonder just how much of a sucker I've been.  I've paid out over $12,000 over almost 40 years.

If I had saved $26.08 for 480 months at 5% annual yield, I'd have $40,000 in the bank.  If I died, the total death benefit is $38,424 because there's this special maturity dividend on death of $9200.

But my cash surrender value is $18,768.  Guaranteed value seems to be what I paid over the years at $26.08 per month =  $11607.50, plus special maturity dividends and dividends on deposit. 

Someone once told me that I could create a pension for myself out of this policy at some point, but I have no idea how you do that or how much that would provide in the way of income. 

Should I surrender the $18,768 and pay down my mortgage instead. Any thoughts?  Maybe when I find out the ACB it will provide some insight into how much tax would result if I surrender.

 

It used to be that if you couldn't claim the Small Business Deduction (SBD) because you didn't have Active Business Income (ABI) but, it wasn't that bad, you would still be able to claim the CCPC General Rate Reduction.

You'll find all the technical links to definitions and the rules in the Income Tax Act at
www.taxdetective.ca/psb.html

But before you go there, here's some background...

Lack of Active Business Income (ABI) was usually the result of an employment situation where the employer said, I'll hire you on contract, but only if you have a Corporation.  So you created a Corporation so you could get the work. It was simple, no Corporation, no work. 

This wasn't exclusively the purvey of IT consultants, (currently the focus of CRA auditors), we're talking all kinds of professionals get this ultimatum. Engineers, researchers, movie industry services and support like craft service (snack truck) and/or first aid, commission sales reps for foreign and domestic product lines, Project Managers for Construction or Maintenance, Chief Financial Officer's Chief Operating Officers, ... I could go on, but I'm sure you get the idea.

Anyone who makes enough money as a professional who could to afford to incorporate could be subjected to pressure to incorporate. Why? To save the employer on long term commitment to employee costs. And because they weren't really a member of a union, so they fell outside the usual union rules.

Why did this work? Because professionals had the resources and the savvy to create and maintain a corporation and employers knew it, so employers and professionals were both taking advantage because they could and the rules let them.

And because the tax rates were favourable. Employers probably adjust the pay scale for these 'incorporated employees' to take into account the tax savings possible for corporate employees, at least those tax savings used to exist, before new legislation dated October 31, 2011.

The employer benefited by not having to abide by union, pension, benefits, EI & CPP, employment standards, an end run around all sorts of costs of hiring employees, keep costs down, get out of paying severance, holiday pay, etc.  Professionals, to get and keep work, would oblige.

There were two major rules for the 'incorporated employee' 
1) you could only deduct as expenses against this revenue, the same sorts of expenses the employer was able to deduct, essentially your salary or commission expenses and benefits.  All other corporate expenses would be paid by the company, and would be added back on the T2 S1, (that's the schedule where you reconcile income for accounting with income for tax purposes).  As long as those purchases were not employment benefits, they wouldn't be added to your pay, and of course, they would reduce retained earnings available for dividends.  You could live with this.
2) you weren't allowed to claim the SBD for ABI of 17% federal

For the 'incorporated employee', it wasn't really all that bad, because even though you did not get to claim the 17% SBD, if you qualified as a CCPC, you could instead claim the Canadian Controlled Private Corporations (CCPC) General Rate Reduction. The CCPC General Rate Reduction was 11.5%.

Both these rates are the federal rates only - similar provincial rates would be applicable depending on the rules in your province for the small business deduction.  You'd have to look up the rates, determine which period they apply to in order to do the math...

So, the penalty for having Personal Services Business income (PSB) was actually not 17%, it was only 5.5% (17% less 11.5%) and if you played your cards right, you could dividend out some of the profits to other shareholders who wouldn't pay any tax or paid tax at a lower rate, who weren't even active in the business.

This all changed on October 31, 2011 when the feds introduced new legislation, amending the rules for CCPC general rate reduction, removing it as something you could claim if you were a Personal Services Business. The penalty for being an 'incorporated employee' increased from 5.5% to 17%.  That's a pretty big jump on just the federal rate of tax, and when you add to that the provincial/territorial rate increase for a similar penalty, this could be substantial.

Why did they do this?  PSB's could choose how to disperse their earnings out of the corporation.  They could pay part of their earnings out as salary, or because the tax rates were still favorable, you could split income by paying dividends to anyone who owned shares in the company, as long as those shares were entitled to dividends. There was a tax incentive to being classed as a PSB, in spite of the fact that you weren't allowed to deduct expenses and claim the SBD.

That's gone as of October 31, 2011. Now, the best way it seems, to deal with the loss of the CCPC GRR (general rate reduction) is to pay all salary out as salary, and not have taxable income in the corporation.

An alternative you could consider might be to team up with a bunch of professional buddies to get around the more than five full time employees rules, but then you're faced with what do we do about change? 

Change is inevitable.  Employees will want to quit, or they'll die. You would have to be constantly monitoring to make sure you didn't go offside. It would seem that to minimize the risk of this, you'd want to up the ante, by having more than five, maybe even ten employees, to ensure that there were always enough active employees in the company. Of course, there's a cost to keeping records,  compliance and legal.

Even then, would you really get around the rules?  If you consider that in any 'incorporated employee' situation, each contract is considered in isolation, so I'm not so sure this would work either, unless of course, you all worked for the same boss.

Why would I bring that up?  Well, I understand there's an interesting group of 'incorporated employees' who are hired by various levels of government, as 'on-contract' professional employees.  Gov't, it would seem, to get around their own rules, hire professionals on contract and insist they have corporations in order to ensure that they don't get caught out by their own employee/self-employed rules (See CRA's guide on this topic).  WCB (at least in BC) sees through that and requires the employer to pay the WCB premiums for 'on-contract.

It will be interesting to see how professionals 'on contract' through their corporations and their employers deal with this attack on how they have taken advantage of income splitting and favorable tax rates.

Take away the financial incentive provided by the CCPC tax rate reduction and 'on-contract' may lose significant appeal for 'incorporated employees' unless employers ante up with more benefits.





  

Sometimes it would be nice if someone left a comment, but then on the other hand, that would mean I'd have to figure out what they meant,

So...hi, glad you stopped by, happy you were here, but if you didn't leave any footprints other than an increase in the counter, you were still noticed!

That's where the taxpayer relief provisions come in handy. 

Under the 'fairness' rules, you can, for up to ten years, make a claim for a tax credit you missed, or if you overpaid your tax, request a refund.

But be careful, when you open up those years to audit, especially if they've been statute barred, you're once again open to review of the whole return for a further three years until they are statute barred again.

Form RC4288 can be helpful as its a pretty thorough review of what CRA is looking for when you ask for a fairness or relief request.

http://www.cra-arc.gc.ca/E/pbg/tf/rc4288/README.html

IC-07 sets out the guidelines for relief:
http://www.cra-arc.gc.ca/E/pub/tp/ic07-1/README.html

and for you history buffs, here's a little bit of the public relations commentary on the policy behind the relief program from December 2011:
http://www.cra-arc.gc.ca/gncy/pr/txrmcmpgnv_cmt-eng.html

And more information about refunding or reducing tax payable beyond statute barred is found here:
http://www.cra-arc.gc.ca/gncy/cmplntsdspts/rfndrdc/menu-eng.html

Here’s the CRA web-page with information about moving and inconveniently there's no mention that medical moves are another reason to use Form T1M

Families: there's lots to know when it comes to personal taxes and claiming credits or expenses! 

But not only that, there's other programs, sometimes dependent on those same credits, or based on income, means or needs testing.

This link is found under the Links > Complimentary Links > Families
And under that same section, there's other pages of useful links

All free and very useful!

Don't forget to sign up for the RDSP

...and please, open an RESP for every newborn!

Both programs provide for bonds (free money) but you have to have an account! There are some qualifiers, but for the most part, everyone who qualifes should have an open account, just to receive the annual payment on account. You don't have to put money in to get this money.

I know it takes a leap of faith to believe that the gov't is actually going to give you something for nothing, but in these two cases, it's true.

Here's the revised tax camp idea (thanks Lisa)

This is the very first Monthly TaxDetective Boot-Camp

This topic should be hot because everyone has them...

Click here for information about the inaugural meeting!

Deloittes has done a great job of highlighting what to expect for builders and others to do with residential properties in their Canadian Indirect Taxation edition today