As of July 8, 2011, corporations filing Alberta income tax returns have been offered the option of filing their returns in electronic format (net file). To be eligible to net file, corporations must meet certain criteria. An electronic return in net file format can be submitted by a taxpayer or a service provider and no access code or registration is required. However, the return must be generated and submitted using tax return preparation software certified by the Alberta Tax and Revenue Administration. For more information, please see the Alberta website. 

The Honourable Jim Flaherty, Minister of Finance, today announced that the automobile expense deduction limits and the prescribed rates for the automobile operating expense benefit will remain unchanged for 2011. The Government reviews these rates and limits annually. Specifically:

• The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2010. This ceiling restricts the cost of a vehicle on which CCA may be claimed for business purposes.
• The maximum allowable interest deduction for amounts borrowed to purchase an automobile will remain at $300 per month for loans related to vehicles acquired after 2010.
• The limit on deductible leasing costs will remain at $800 per month (plus applicable federal and provincial sales taxes) for leases entered into after 2010. This limit is one of two restrictions on the deduction of automobile lease payments. A separate restriction prorates deductible lease costs where the value of the vehicle exceeds the capital cost ceiling.
• The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes for 2011 will remain at 52 cents per kilometre for the first 5,000 kilometres driven and 46 cents for each additional kilometre. For Yukon, the Northwest Territories and Nunavut, the tax-exempt allowance will remain at 56 cents for the first 5,000 kilometres driven and 50 cents for each additional kilometre.
• The general prescribed rate used to determine the taxable benefit relating to the personal portion of automobile operating expenses paid by employers for 2011 will remain at 24 cents per kilometre. For taxpayers employed principally in selling or leasing automobiles, the prescribed rate will remain at 21 cents per kilometre. The additional benefit of having an employer-provided vehicle available for personal use (i.e., the automobile standby charge) is calculated separately and is also included in the employee’s income.

Can’t pay your taxes? Contact the Canada Revenue Agency about a payment arrangement

Did you know…?

If you can’t pay the full amount of taxes you owe to the Canada Revenue Agency (CRA), you may be able to make a payment arrangement. If we determine that you are unable to make a full payment, an agent can work with you to develop a plan to help you pay your taxes.

Important questions

I owe more than I can pay. What do I do?

If you have reasonably tried to pay your taxes owing, contact the CRA to make a payment arrangement by:

• calling the CRA Debt Management Call Center at 1-888-863-8657;
• making a pre-authorized debit payment using My Account; or
• calling 1-866-256-1147 to make a TeleArrangement.

For more information, visit Payment Arrangements.

How do I make a payment?

There are several different ways to make a payment on your taxes. You can pay:

• through My Payment, a secure, online payment service available on the CRA Web site;
• through your financial institution by Internet or telephone banking;
• by mailing the CRA a cheque or money order; or
• in person at a Tax Services Office, using a cheque, money order, debit card, or cash (exact change is required). 

For more information, see Electronic payments for individuals.

What happens if I pay my taxes late?

If you think your payment will be late, contact the CRA as soon as possible. Late or insufficient payments can result in interest charges. Interest is calculated on the amount owing starting on the date the payment is due, and is compounded daily at the prescribed rate. You should always try to pay as much as you can on time. This will reduce the amount of interest you will be charged.

The CRA sets the interest rate on a quarterly basis. The current quarterly prescribed interest rate charged by the CRA is 5%.

Are there other consequences of paying or filing late?

Late or insufficient payments and late returns can also result in penalties being charged. The amount of the penalty will depend on various factors, including how late the payment or return is, how much is owed, and whether you have been late with a payment or return in the past.

Depending on the situation, you may face other consequences as well. For example, if you are entitled to a refund, the CRA could withhold your refund or family benefits, such as the GST/HST credit, until you file all outstanding returns. Furthermore, the CRA can withhold some or all of your refunds and apply them to other amounts you owe.

Statistics

Last year, through the CRA Debt Management Call Centre, some 296,000 payment arrangements were made with individual taxpayers who were unable to pay their taxes when due. They met their tax obligations by filing on time and concluding a payment arrangement for amounts due.

Published by the Knowledge Bureau at www.knowledgebureau.com

 Plan Now to Take Advantage of TFSAs in 2012

The amount you can contribute to a tax-free savings account (TFSA) will remain at $5,000 in 2012. Despite earlier speculation that indexing would push the contribution limit higher for 2012, Canada Revenue Agency has announced it will stay the same.

When the federal government introduced the TFSA in 2009, it said the TFSA limit would be indexed to inflation and rounded to the nearest $500. The 2.8% indexing factor for 2012, when added to the 1.4% indexing factor for 2011 and the 0.6% for 2010 results in a calculation of $5,243.23, which, when rounded to the nearest $500, leaves the limit at $5,000 for 2012.The contribution limit for 2013 is likely to be $5,500 — unless inflation is less than 0.13% this year.

A TFSA is an important savings vehicle for individuals and families. Since 2009, Canadian residents 18 years of age or older have been able to contribute $5,000 in after-tax dollars annually to a TFSA. Although a contribution to a TFSA is not deductible for income tax purposes — nor is interest on money borrowed to invest in a TFSA — income generated in a TFSA can be withdrawn tax-free.

As well, unused contribution room can be carried forward to later years, and withdrawals in a particular calendar year are added to the TFSA contribution room for the next calendar year. That means that a Canadian resident who has not opened a TFSA has $20,000 in unused contribution room come January 1, 2012.

A TFSA is also “attribution-free” because it is after-tax dollars, allowing you to make a contribution to a spouse’s or child’s account without having the gift attributed to you. However, it will not reduce your tax liability, the way a RRSP will. For many, then, the order of investing will be an RRSP up front to generate tax savings; then, assuming you have contribution room, you will leverage that tax refund into a TFSA.

Did you know…?

Significant changes to the Canada Pension Plan (CPP) will occur in January 2012 to reflect the way Canadians are living, working, and retiring. The changes will affect both employees and self-employed workers aged 60 to 70. The changes will not affect you if you are already receiving a CPP or Quebec Pension Plan (QPP) retirement pension and you remain out of the workforce.

What’s new?

Contribution changes (what you will pay):

• All workers aged 60 to 65 will be required to make CPP contributions—even if they are receiving a CPP or QPP retirement pension.
• Workers who are 65 to 70 years of age and who are receiving a CPP or QPP retirement pension will be required to contribute unless they have elected to stop their CPP contributions. To elect to stop contributing to the CPP, workers will have to be at least 65 years of age and do the following:
  • Employees (who may also have self-employment income) will have to complete Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election and give a copy to their employer. In addition, employees should send the original to the Canada Revenue Agency (CRA). The election will take effect on the first day of the month after the employee gives the form to their employer.
    • Note: The CRA has been accepting Form CPT30 since December 1, 2011, but only from those employees who as of December 31, 2011 are at least 65 years of age and in receipt of a CPP or QPP retirement pension.
  • Self-employed workers will have to complete Schedule 8, CPP Contributions on Self-Employment and Other Earnings, when they file their income tax and benefit return for 2012 or any subsequent year. The election will be effective on the first day of the month referred to in Schedule 8.

Benefit changes (what you will receive):

Changes to CPP retirement pension benefits began in 2011 and will continue to be phased in until 2016. If you are retired, or are planning your retirement, go to www.servicecanada.gc.ca/cppchanges for tools and information on how the changes to CPP retirement pension benefits may affect you.

Statistics

• Since 1998, Canada’s average retirement age has been increasing. 
• From a low of 22% in 1996, the employment rate of individuals 55 and older climbed steadily to 34% in 2010.

According to Statistics Canada’s Labour Force Survey, the average retirement age was 60.9 in 1998, and it rose to 62.1 in 2010.

In the ongoing saga to evade the taxman as much as is legally possible, sometimes characterization is key. The Income Tax Act (the Act) taxes sources of income. Section 3 identifies the following sources: employment, office, business, property, capital gains and other. Since the Act only provides deductions from employment income in limited circumstances (subsection 8(2) prohibits the deduction of any employment-related expense unless it is specifically authorized elsewhere in the Act), it is much more advantageous for a taxpayer to be characterized as an independent contractor because deductions from business income are presumed unless the Act specifically prohibits them in subsection 9(1).

Other advantages derive from independent contractor status. For one, employment income is always calculated on a calendar-year basis, whereas business income is determined on a fiscal-period. Secondly, tax is withheld on employment income at the source and is held in trust for the Crown, but business income is not subject to any systematic withholding at the source; independent contractors must make installment payments on account of their estimated tax payable. Finally, employment income is generally taxable on a cash basis whereas independent contractors are taxable on accrual, no matter when the taxpayer receives the income.

With this in mind, we will now examine some of the characteristics that the court examines in order to determine source of income from a business as opposed to an ordinary employment relationship. Some of the defining characteristics that have been elicited from centuries of common law jurisprudence are the degree of control, ownership of tools, chance of profit/ risk of loss, and the degree of integration.

Older cases identified an employment relationship as one of a master-servant, however today technology and societal advancements have made it possible, in fact common, for employees to have skills that are beyond the control of their masters. Therefore, some of the older tests are not as helpful. Recently, the courts have stressed the intent of the parties as revealed by their actions and their agreements. No test is truly determinative however and the onus is on the individual to establish the nature of his/her particular relationship.

After a comprehensive review of the case law, Bowman CJ in Lang v MNR (2007), in determining that the appellants were independent contractors, stated: “intent is a test that cannot be ignored but its weight is as yet undermined. It varies from case to case from being predominant to being a tiebreaker. It has not been considered by the Supreme Court, [however]…trial judges who ignore intent stand a very good chance of being overruled in the Federal Court of Appeal.”

It appears as though intent will play an increasingly important role in the characterization of income from either an employment relationship or a business; all taxpayers should welcome this development as it respects their relationships and intentions in an unprecedented manner in this area.

Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients. His subject is a bitterly disputed, and expensive one and he reflects on his experiences in reading recent cases.  Published by the Knowledge Bureau at www.knowledgebureau.com.

Despite volatile times, Canadian workers were better off during the last economic recession than during the two recessions in the 1980′s and 1990′s. This news comes from an article released by Statistics Canada on September 20, 2011, which outlined the factors involved. Information was derived from the study “Workers Laid-off During the Last Three Recessions: Who Were They, and How Did They Fare?”

In the early 1980s, 2.9% of workers were laid off either temporarily or permanently. In the 1990s, 2.7% of workers were laid off, while only 2.0% of employees were laid off between October 2008 and December 2010.

Workers also fared better due to the fact that the last recession was also much shorter in duration than previous recessions. In terms of employment, it took 27 months to return to its pre-downturn level, while it took 40 months during the early 1980s and 53 months during the early 1990s.

Education planning pays off in recessionary times. Common characteristics were found between workers who were more likely to be laid off. These workers were typically between 15 and 24 years of age, held no university degree, had less than two years of seniority, or were employed in the goods sector.

Holding a university degree seemed to improve workers chances of finding a job in the short term. Seniority also played a factor, as well as initial expectations to be recalled.

While many Canadian workers are still feeling the effects of the recession, conditions are slowly starting to improve.  Unemployment levels in 2011 continue to decrease overall, with minor fluctuations over time. The unemployment rate in Canada was last reported at 7.5 percent in November of 2011.

Published by the Knowledge Bureau at www.knowledgebureau.com

The federal government has announced increases to federal tax brackets, non-refundable and refundable credits based on an indexing increase of 2.8% for 2012. This brings the Basic Personal Amount, Spousal Amount and Amount for Eligible Child up to $10,822. The latter two amounts will be further increased to $12,822 under the new Family Caregiver Tax Credit. The indexing adjustment also raises the top tax bracket up to $132,406; this is the amount of taxable income that will be subject to the top federal tax rate of 29%.

Be well-informed when making investments

Did you know…?

Under the Income Tax Act, you may lower the amount of income tax payable as permitted under the law by making investments in certain arrangements, such as in RRSPs or TFSAs. However, you should be aware of the potential risks of other types of arrangements. The Canada Revenue Agency (CRA) is aware that abusive investment arrangements are offered by unscrupulous promoters and advises investors to take a number of precautions to protect their interests.

Important Facts

• Abusive investment arrangements can take many forms. Typically these involve investing with the expectation that income deductions and tax credits will result in tax savings in excess of the cash paid.
• Before investing, you should:
  • do your research on who is promoting the arrangement, and read any documents concerning the investment;
  • pay particular attention to any statements in the documents about the income tax consequences of the investment; and
  • obtain independent professional legal and tax advice about the investment arrangement.
• It is important to remember that if the promoted return on investment sounds too good to be true, it probably is.

If you believe you have participated in an abusive investment arrangement and you wish to correct your tax return, you can do so through the Voluntary Disclosures Program (VDP). Taxpayers will not be penalized or prosecuted if they make a valid disclosure before they become aware of any compliance action being initiated against them. More information is available at www.cra.gc.ca/voluntarydisclosures.