Toronto,Ontario, March 22, 2012… The Honourable Gail Shea, Minister of National Revenue, accompanied by Mr. Bernard Trottier, MP for Etobicoke-Lakeshore, today visited the Toronto Board of Trade to promote a new credit introduced in the 2011 Economic Action Plan to help small businesses grow. The hiring credit for small business (HCBS) puts up to $1,000 back into the accounts of Canadian businesses, and business owners don’t even need to apply for it – it’s automatically calculated for them.  

“The hiring credit for small business allows employers to offset some of the additional cost of hiring new employees. About 600,000 Canadian small businesses are eligible for this credit,” said Minister Shea.

“Our government is working hard to reduce red tape and the hiring credit for small business, which is automatically calculated by the CRA, is just one way tax savings introduced by our government are working for you,” added MP Trottier.

The actual amount credited (up to $1,000) is equal to the increase in the Employment Insurance (EI) premiums paid by a business in 2011 over those paid for 2010. The HCSB is available to employers whose total employer EI premiums were $10,000 or less in 2010. The credit is automatically applied when the 2011 T4 information returns are filed. To be eligible, the 2011 T4 return must be received prior to January 1, 2015. Eligible employers who have outstanding debt remain eligible for the HCSB. The CRA will apply the amount of the credit towards any outstanding debt owed. Employers who created a new business in 2011 may also be eligible.

“Our government is proud to support small businesses throughout Canada to help grow the Canadian economy. Almost 610,000 more Canadians are working today than when the recession ended, resulting in the strongest rate of employment growth by far among G-7 countries,” said Minister Shea.

This is the government’s signature event to mark Tax Savings Day. Many similar events are taking place across the country.

For more information about the hiring credit for small business, go to www.cra.gc.ca/hiringcredit.

Did you know?

As a self-employed individual, you have until midnight on June 15, 2012 to file your 2011 income tax and benefit return. You must pay any balance owing for 2011 on or before April 30, 2012, regardless of your filing date.

Important facts

• If you earned self-employment income from a business you operate yourself or with a partner, you should report it on your general income tax and benefit return. For more information, go to www.cra.gc.ca/selfemployed.
• Keep adequate records if you are carrying on a business or engaged in a commercial activity in Canada. The records have to provide enough detail to determine your tax obligations and entitlements and have to be supported by original documents.
• If you receive income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by instalments. This can happen if you receive rental, investment, or self-employment income, certain pension payments, or income from more than one job. For more information, go to www.cra.gc.ca/instalments.

The Canada Revenue Agency’s (CRA) online services make filing even easier

With the CRA’s online services, you can file your return, track your refund, and change your personal information. You can also sign up for direct deposit to receive your refund directly into your account at your Canadian financial institution – no more waiting for cheques to arrive in the mail. It’s fast, easy, and secure. For more information, go to www.cra.gc.ca/getready.

April 11, 2012

It really is time to do that income tax return, with the April 30 deadline for individual filers fast approaching. And reporting interest income deserves particular attention this year, if you are among the worried investors who exchanged stocks for the “safe” havens of interest-bearing debt obligations such as guaranteed investment certificates (GICs) and Canada Savings Bonds.

Indeed, the guaranteed return of principal and income resulting from the government using your money is attractive. But it is not all it appears to be: these interest-bearing investments are neither tax-efficient nor inflation-proof. If you take taxes and inflation into account, over time, you will actually lose both principal and purchasing power.

Consider the tax filing rules. Interest reporting follows two basic tax rules:

• You must report the interest in the taxation year in which it is received or receivable.

• Compounding allows you to earn interest on interest during the term of the contract. On your income tax return, you must report all interest income that accrues in the year ending on the debt’s anniversary date. So, you pay taxes on income you haven’t received as you’ve effectively reinvested the pre-tax interest at the same rate as the principal pays.

The issue date of the debt instrument is important because reporting stems from that date rather than the date of ownership. For example, because of the annual reporting rules, which apply to investments acquired after 1989, an issue date of Nov. 1, 2011, does not require interest reporting until the following year, that is 2012. In other words, the accrual of interest for the two-month period of Nov. 1 to Dec. 31 is not reported in the 2011 tax year.

Things get even more tricky when investment contracts have unique features, such as:

• they do not bear interest and are sold at a discount to their maturity value;

• the interest rate of the instrument is adjusted for inflation over time;

• the rate of interest may increase as the term progresses;

• interest payments may vary with the debtor’s cash flows or profits;

• if the instrument is transferred before the end of the term, a reconciliation of interest earnings must take place.

Interest received or accrued each year must be reported as investment income on Schedule 4 – Statement of Investment Income and Line 121 of the tax return. Remember: you must report interest income earned even if you did not receive a T slip. Get help from your tax advisor in the trickier situations.

This report was written by Evelyn Jacks,  president of Knowledge Bureau.

With the 2011 RRSP contribution deadline fast approaching, we thought it would be timely to remind people that an RRSP deduction is discretionary.  In other words, a taxpayer can deduct from 0% to 100% of an RRSP contribution in any given taxation year.  Any undeducted RRSP contribution can be carried forward to be deducted in a future year.

The timing of the RRSP deduction can result in significant tax savings (or loss if the timing is not optimal).  For example, if a taxpayer is currently in a lower tax bracket then they expect to be in a future year, they could make their RRSP contribution (to begin the tax-free compounding) but defer the deduction until a later year when they are in a higher tax bracket.

For example, a university student may be in a low tax bracket and/or have tuition credits to eliminate tax in the current year.  If the student has sufficient earned income or RRSP room, she could make an RRSP contribution but defer the deduction to a post university year when she may be in a higher tax bracket.  If she can utilize the deduction at the highest marginal tax rate, she can save 46%, compared to, say, 20% if she used the deduction at the lowest marginal tax rate.   This 26% after-tax savings is  significant.

If finances do not allow the taxpayer to fund the RRSP contribution, they may consider a loan from a family member or a bank.  The pros and cons of borrowing to make an RRSP contribution are beyond the scope of this tax tip.

Readers are reminded  that it is better to make an RRSP contribution early in the year instead  of waiting  for the deadline.  The earlier the contribution is made, the earlier the benefits of tax free compounding begin.  Many people may be focused on meeting the February 29, 2012 deadline for a contribution to be deducted in 2011.  By that date they will already be 60 days late for making their 2012 contribution.

If finances permit, it may be worthwhile to make both the 2011 and 2012 RRSP contributions at the same time.

This material provided in “Tax Tip of the Week by the Tax Specialist Group” is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

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.