As simple filing system would be a big help this season.  Start by gathering all your receipts, T-slips and other required tax documents. Next step is to organize your tax documents. Remember to keep it as simple as possible.  It can be in a printed format or you can keep a folder on your computer as well, depending on which format you find most convenient.

Here are some of the documents you will need.  This will give you an idea when you are gathering and organizing for this tax season:

1. Your previous Notice of Assessment. This will help you confirm if you had any carry-forwards from the last income tax return you filed.
2. T-slips such as T3, T4, T4A, T5, etc.
3. Donation receipts
4. RRSP slips
5. Medical Receipts
6. Childcare Receipts
7. Child fitness and arts receipts.  Remember that parents can now claim the Children’s Arts Tax Credit which gives the opportunity for parents of children who participate in paid artistic, cultural, recreational and developmental programs to enjoy the same benefits as parents whose children participate in paid programs of physical activity.
8. Transit passes
9. Capital gains/losses
10. Tax shelter documents (donation slips and T5003)
11. Super Flow through’s (T5013, T5018, T101)
12. Employment Expenses (T2200)
13. Education Amounts (T2202)
14. Business (Income & Expenses or Corporate Wages)
15. Rental (Income & Expenses)
16. Interest on money borrowed to invest
17. Other investments
18. First time home buyer documents

These are the basic categories of documents you will need for this tax season.  We suggest you start early and not wait the last minute!

About Kustom Design Group

Kustom Design is a group of interconnected companies, each company striving for the same goal: to provide excellent Accounting and Financial products and services to help clients SAVE on taxes, properly manage their finances and ultimately, achieve Financial Freedom and Lasting Wealth.

The Kustom Design Group offers a complete line of products and services in key areas of accounting, finance and tax; from accounting, consulting and strategic planning to financial and tax education. Visit our website for more information about our products and services.

Contact Us: www.kustomdesign.ca | (403) 219-0602 | Calgary, AB

Change in relationship

Even if the shareholder who received the loan ceases to be a shareholder, the loan received can continue to result in a taxable benefit.

Interest expense deduction

The amount of interest included as a taxable benefit can be included as part of an interest expense deduction when the proceeds of the loan were used to produce income from the business or property.

Forgiven loans

The forgiven amount must be included as income of the shareholder in the year that the year of forgiveness of the loan.

Loans to shareholder-employees

For shareholder loans, the benefit is always included in the taxable income of the actual recipient of the loan.  There is a different rule for employee loans where in the benefit is always included in the taxable income of the employee even if the actual recipient is a third party.

It is required that an examination of the facts is made if a shareholder is also an employee. It should be determined whether the debt was incurred by virtue of employment or by virtue of shareholdings.

Tracking shareholder loans

Records of advances or loans must be kept in a general ledger account to proper tracking.

Converting a shareholder loan to employment income or dividends

In cases where funds are advanced to a shareholder/employee throughout the year, salary or dividends must be paid or recorded at the end of the year to clear the balance of the shareholder loan.

Note:  A loan from the corporation to the shareholder is considered an asset of the corporation.  If the loan is very substantial, it could disqualify a business from being a “small business corporation” meaning the business would not be eligible for the $750,000 lifetime capital gains exemption for the shareholder upon disposal of the shares.

Again, we would like to remind you that Kustom Design is here to help you with any of your concerns regarding Shareholder Loans. Please contact us today to book an appointment with one of our accountants!

Reference:  http://taxtips.ca/smallbusiness/shareholderloans.htm

About Kustom Design Group

Kustom Design is a group of interconnected companies, each company striving for the same goal: to provide excellent Accounting and Financial products and services to help clients SAVE on taxes, properly manage their finances and ultimately, achieve Financial Freedom and Lasting Wealth.

The Kustom Design Group offers a complete line of products and services in key areas of accounting, finance and tax; from accounting, consulting and strategic planning to financial and tax education. Visit our website for more information about our products and services.

Contact Us: www.kustomdesign.ca | (403) 219-0602 | Calgary, AB

A shareholder loan is a loan by a corporation to one of its shareholders or to a person or partnership who does not deal at arm’s length with the shareholder.  This loan may result in a deemed taxable benefit to the shareholder.

The person or partnership is a shareholder of a corporation, is connected with (not dealing at arm’s length with) a shareholder of a corporation or a member of a partnership, or a beneficiary of a trust, that was a shareholder of a corporation.

In addition to these, the person or partnership because of that shareholding received a loan or incurred a debt to that corporation, a corporation related to that corporation or a partnership of which that corporation or any related corporation was a member.

The loan amount from this transaction will be included in the income of the person or partnership for the year in which the loan is made, except in certain circumstances.  However, there is an exception to this rule. This rule does not if the entire loan is repaid within 1 year after the end of the taxation year of the lender, as long as the repayment was not a part of a series of loans or other transactions and repayments.

In addition to this, according to taxtips.ca, another benefit will be deemed to have been received by the shareholder unless interest has been paid on the loan in an amount greater than or equal to interest calculated at the prescribed rate.  Please note that the payment of interest should have been made within 30 days after the end of the year.

If it is reasonable to conclude that the rate of interest on any loan is the same or greater than the rate which would have been agreed upon by the parties dealing at arm’s length, there will be no taxable benefit related to the interest of the loan.

We will continue to cover more details about the Shareholder Loans on the next blog!

If you have any questions about the Shareholder Loans, Kustom Design will be glad to help you out! We have experts in this specific area who will be able to provide you with the knowledge and guidance you need so please contact us today!

Reference:  http://taxtips.ca/smallbusiness/shareholderloans.htm

About Kustom Design Group

Kustom Design is a group of interconnected companies, each company striving for the same goal: to provide excellent Accounting and Financial products and services to help clients SAVE on taxes, properly manage their finances and ultimately, achieve Financial Freedom and Lasting Wealth.

The Kustom Design Group offers a complete line of products and services in key areas of accounting, finance and tax; from accounting, consulting and strategic planning to financial and tax education. Visit our website for more information about our products and services.

Contact Us: www.kustomdesign.ca | (403) 219-0602 | Calgary, AB

Good facts about RRSPs:

1. Tax Deduction in the year you contribute
2. Long Term Growth of Investments
3. Deferred tax on Growth of Investments
4. Forced Savings program

Bad facts about RRSPs:

1. You are eventually taxed
2. There is a limit on how much you can contribute (may be a good)
3. Unlike other investment vehicles, you cannot use RRSPs as collateral
4. You are restricted as to what you can invest in
5. There are age and income restrictions to RRSPs
6. Government is in control of the rules
7. RRSPs are in trust for the government
8. You cannot receive the tax favorable benefits of Capital Gains and Dividend Income inside of an RRSP
9. You cannot deduct investment losses on your taxes

10.You cannot deduct interest and carrying charges if you borrow money to invest in an RRSP

This gives you an idea of some of the main Goods and Bads of using RRSPs.  Your bottom line is that you need to plan thoroughly to decide if using RRSPs is for you or not!  Again remember the key if you are using RRSPs is to contribute when your income is high and withdraw when your income is low.

If you are contributing to RRSPs definitely consider using a self directed RRSP as there are many advantages.  Also if you are considering withdrawing from your RRSP, do it in increments of $5,000 or less as the withholding tax is lower.  The key in withdrawing an RRSP is to have a tax plan.  Kustom Design can help you plan a tax effective RRSP withdrawl if this is what you are looking at doing.

There are many more strategies available with and without RRSPs so do come plan with Kustom Design to ensure you maximize your potential and minimize your tax.  Some of the other things you can look at is using your RRSP to give yourself a “Self Directed Mortgage”, where your RRSP holds your mortgage!  Other strategies could be tax shelters and flow through shares.  Come take our Financial Boot Camp to learn more about all of these topics and more.  You can sign up for the Financial Boot Camp on our website at www.kustomdesign.ca

About Kustom Design Group

Kustom Design is a group of interconnected companies, each company striving for the same goal: to provide excellent Accounting and Financial products and services to help clients SAVE on taxes, properly manage their finances and ultimately, achieve Financial Freedom and Lasting Wealth.

The Kustom Design Group offers a complete line of products and services in key areas of accounting, finance and tax; from accounting, consulting and strategic planning to financial and tax education. Visit our website for more information about our products and services.

Contact Us: www.kustomdesign.ca | (403) 219-0602 | Calgary, AB

Another interesting fact about RRSPs is that you don’t have to contribute cash.  You can contribute stocks or securities that you already own.  They key is that they must be RRSP eligible investments.

There is so much to learn about RRSPs…let’s go on.  You can also take a withdrawal from your RRSP to purchase your first home.  This is called the Home Buyer’s Plan.  You are not taxed on this withdrawal, but must pay it back over the next 15 years, or claim it as income over the next 15 years.

There is also something called the Lifelong Learning Plan (LLP), you can withdraw up to $10,000 a year, or up to $20,000 in total each time you participate in the LLP to help pay for your education. All you have to do is repay at least 10% per year for up to ten years.  Participants must start to make repayments two years after their last eligible withdrawal, or five years after the first withdrawal, depending on which due date comes first. Amounts withdrawn must be repaid within 10 years.

RRSPs are one of the few “after the year” tax planning opportunities that the government allows.  You can contribute to an RRSP for up to 60 days after the end of the calendar year and still have it qualify for that calendar year.  This is an interesting factor as you can contribute to your RRSP in February 2012 and get a tax deduction for 2011.(an example)  Why would the government allow this?  There are a few reasons, such as RRSPs can bring out hidden money into the financial realm which earns income for financial companies, and those financial companies pay tax on the revenue generated.  Also we must keep in mind that RRSPs are actually in trust for the government.  If the government were in a position where they were collapsing financially they could take all the RRSPs as they are in trust essentially for the government if they need them!  …This is of course a scary thought, but it must be considered!

About Kustom Design Group

Kustom Design is a group of interconnected companies, each company striving for the same goal: to provide excellent Accounting and Financial products and services to help clients SAVE on taxes, properly manage their finances and ultimately, achieve Financial Freedom and Lasting Wealth.

The Kustom Design Group offers a complete line of products and services in key areas of accounting, finance and tax; from accounting, consulting and strategic planning to financial and tax education. Visit our website for more information about our products and services.

Contact Us: www.kustomdesign.ca | (403) 219-0602 | Calgary, AB

Basically there are 2 sides to the RRSP, the tax deduction (which we just discussed) and the investment side.  Once you make the RRSP contribution you can now invest the money from within your RRSP.  You can either have someone who is licensed invest it for you, or you can set it up as Self Directed RRSP and invest it yourself.

Another thing to understand is that some RRSP’s are locked in and some or not.  This is typically a choice that must be made.  Unless you have a specific purpose for locking in the RRSP, then you are best to go with an RRSP that is not locked in.  If your RRSP is locked in then you will not be able to withdraw it until you are in your elder years (currently 71) and can transition it into a RRIF (Registered Retirement Income Fund)

Although the majority of people that do RRSPs contribute to their own RRSP, you can also contribute to a spousal RRSP which gives you a tax deduction, but allows your spouse to withdraw it later on.  The other main type of RRSPs is group RRSPs, which are typically contributed to through employment arrangements and are deducted off of paycheques.

About Kustom Design Group
Kustom Design is a group of interconnected companies, each company striving for the same goal:  to provide excellent Accounting and Financial products and services to help clients SAVE on taxes, properly manage their finances and ultimately, achieve Financial Freedom and Lasting Wealth.

The Kustom Design Group offers a complete line of products and services in key areas of accounting, finance and tax; from accounting, consulting and strategic planning to financial and tax education. Visit our website for more information about our products and services www.kustomdesign.ca.

Contact Us: www.kustomdesign.ca | (403) 219-0602 | Calgary, AB

Everyone has a different opinion on RRSP’s, but the key is to have your own understanding of RRSP’s, knowing the goods and the bads, and seeing if RRSP’s will work for your retirement plan.  Every one and every situation is unique, so while RRSP’s may work for some, they don’t work for others.  The key is not to take the facts and opinions of the people selling RRSP’s, form your own opinion!  Everyone should have an RSP (Retirement Savings Plan), but an RRSP is a choice.

Here is a statement by the CD Howe Institute, a very reputable research firm “Millions of Canadians accept the homogenous advice of governments and the financial community and put billions into RRSPs. However, for many lower-income Canadians RRSPs are a terrible investment. They are victims of a fraud, however unintentional. Only when more Canadians are aware of the perverse treatment of lower-income citizens’ savings will Ottawa be forced to develop measures that reward, rather than punish, their savings efforts.”  So we see clearly here that RRSP’s are not good for lower-income Canadians!  Other studies show that very few Wealthy people do RRSP’s, as there retirement plans are Real Estate, Businesses and other investments held outside of RRSPs.  So we can now see that the group of people in Canada that are eligible to do RRSP’s are the middle class!

Part two coming soon, so keep watch!

Filing your information returns electronically has several advantages.

• Filing electronically through the CRA’s Web Forms Service is simple and eliminates the need to send paper copies of your information returns to the CRA.
• Filing electronically can save you the cost to print the information returns and to send them to the Canada Revenue Agency
• The Web Forms Service is convenient.  There is no need to purchase or download a software. You will only need to fill in the data online.
• The CRA’s Web Forms Service is secure.  This service allows filers to:
  • file original, additional, amended and cancelled slips directly from the CRA website;
  • create an electronic information return;
  • validate information in real-time with prompts to correct errors before filing;
  • calculate the totals for the summary;
  • save and print slips.
• Filing electronically is fast.  Immediately after you securely submit your encrypted return of over the internet, you will get a confirmation receipt.

To get started with electronically filing your information returns, you will need your access code for the Webs Forms application by the end of January.  If you have not received your access code or have misplaced it, you can retrieve it online by going to www.cra.gc.ca/iref-wac.

Once you have your access code, you may start filing electronically by going to www.cra.gc.ca/webforms.

You can also file your information returns through the My Business Account Service by using either the Web Forms or the internet file transfer application without a web access code. My Business Account will keep you up to date by allowing you to check the status of your return, view your account balance and transactions, and much more.

For more information on filing information returns electronically, please go to www.cra.gc.ca/iref.

The survey found out that only 25% of the respondents asked last December are optimistic about the economy this new year, a decline from 2011’s 36% and 2010’s 54%.

This growing worry comes in the heels of the recent predictions by most economists that Canadian growth this year will be less than 2% with minimal growth in jobs. These pessimistic predictions will certainly do little for the 1.5 million unemployed Canadians.

The survey also found out that about 70% of respondents believe that the country is already in a mild recession though technically, a recession occurs only when there have been two successive quarters of economic shrinkage.

According to Michael Marzolini, chairman of Pollara Strategic Insights, which conducted the survey on behalf of the Economic Club, “This is the most pessimism we’ve seen, except for briefly in 2008, since 1996.  Canadians not only believe we’re now in a recession, but expectations for the length of the recession are actually longer than they were in any year since 2008.”

Most of the survey’s respondents were also worried about how the state of the economy will affect their personal finances with about 47% saying they believe income will fall below the cost of living.

The survey results were collected online from 2,878 Canadians in December 2011 by Pollara research firm.

A similar survey was also conducted by the Canadian Imperial Bank of Commerce. Results from this survey concluded that Canadians are feeling slightly less optimistic about their financial situations this 2012 than they were a year ago.

Reference:

• “Canadians increasingly worried about economy”, The Canadian Press, January 5, 2012
• “Canadians’ confidence in finances wanes”, Financial Post Staff, January 3, 2012

• April 5 –   GST/HST credit payments must be made by this date.
• April 20 – Universal Child Care Benefit, Canada Child Tax Benefit and integrated payments must be made by this date.
• April 26 – Old Age Security and Canada Pension Plan benefits paid.
• April 30 – Deadline to file 2011 Personal income tax return if you have no self-employment income. Please note that if you file your return after April 30, 2012, your GST/HST credit (including any related provincial credit), Canada Child Tax Benefit payments (including those from certain related provincial or territorial programs), and Old Age Security benefit payments may be delayed.  For the tax return of an individual who died in 2011, the due date for the final return will depend on the date of death and whether or not the deceased or his or her spouse or common-law partner carried on a business in 2011.
• May 18 – Universal Child Care Benefit, Canada Child Tax Benefit and integrated payments must be made on this date.
• May 29 – Old Age Security and Canada Pension Plan benefits paid.
• June 15–
  • Second instalment due for taxpayers required to remit quarterly.
  • Deadline to file 2011 personal income tax return for self-employed taxpayers (if you or your spouse is self-employed).  Note that any taxes owing must have been paid by April 30.
• June 20 – Universal Child Care Benefit, Canada Child Tax Benefit and integrated payments must be made by this date.
• June 27 – Old Age Security and Canada Pension Plan benefits paid.
• June 30 – Deadline for paying any taxes owed from 2011 on a Tax Free Savings Account including those for excess contributions and contributions by non-residents.

Reference:

• “Key dates that will save you money:  2012 tax calendar”, cbcnews.ca, January 5, 2012
• CRA website: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ll-dts/frms-eng.html

• January 1 –
  • General net corporate tax rate cut from 16.5% to 15%.
  • The new rules for CPP have come into effect on this date regarding employees aged 60-65 who have been receiving their CPP to continue paying premiums.
• January 5 – GST/HST credit payments must have been made on this date.
• January 20 – Universal Child Care Benefit, Canada Child Tax Benefit and integrated payments must be made on this date.
• January 27 – Old Age Security and Canada Pension Plan benefits must be paid by this date.
• Early February – 2011 General Income Tax and Benefit packages for a province or territory available at post offices in that province or territory.
• February 13 – First day for the electronic filing of 2011 personal income tax returns using Netfile.
• February 20 – Universal Child Care Benefit, Canada Child Tax Benefit and integrated payments must be made on this date.
• February 27 – Old Age Security and Canada Pension Plan benefits must be paid by this date.
• February 29 –
  • Deadline for issuing T4, T4A and T5 tax slips.
  • Deadline for making RRSP contributions for 2011 tax year.
  • Deadline to receive a written offer to enrol in a qualifying educational program for people who withdrew RRPS fund under the Lifelong Learning Plan.
• March 15 – First instalment due for taxpayers required to remit quarterly.
• March 20 – Universal Child Care Benefit, Canada Child Tax Benefit and integrated payments must be made on this date.
• March 28 – Old Age Security and Canada Pension Plan benefits paid.
• March 30 – Deadline to pay any 2011 penalty tax owing on excess RRSP contributions.
• March 31 – Last day to complete home renovations and obtain a post-retrofit evaluation under the ecoEnergy Retrofit program.

Key dates for the rest of 2012 tax year will be posted on the next blog.

Reference:

• “Key dates that will save you money:  2012 tax calendar”, cbcnews.ca, January 5, 2012
• CRA website: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ll-dts/frms-eng.html

In this latest report, the top Canadian CEOs earned, on average, $8.4 million in 2010, a 27% increase from 2009.  This includes salary, bonuses, stock grants and options.  The average Canadian worker, on the other hand, earned less during the 2008-09 recession, if inflation is take into account.

Workers on minimum wage working on a full-time basis made an average of $19,798 in 2010.

Information from this report suggests that the gap between the country’s rich elite and regular Canadians is getting bigger and bigger each year. According to the report’s author, economist Hugh Mackenzie, “The average of Canada’s CEO elite 100 make 189 times more than Canadians earning the average wage.  If you think that’s normal, it’s not.  In 1998, the highest paid 100 Canadian CEOs earned 105 times more than the average wage, itself likely more than double the figure a decade earlier.”

In addition to this, according to the report, “inequality between Canada’s richest and the rest has been growing since the mid-1980s, reversing a trend since 1930s that saw increasing equality between the rich, middle and poor.”

The top earning executive on the centre’s list was Frank Stronach, chairman of Magna Internat Wolf until May of last year, although technically not a CEO.  He made $61.8 million in 2010, more than $40 million in bonuses according to the report.

The lowest paid executive was Pierre Beaudoin of Bombardier Inc. who earned #3.9 million last year.

The total earnings of the top 100 CEOs of 2010 was $8383 million according to the report, more than the projected deficits this year for provincial governments like Manitoba, New Brunswick, Nova Scotia and Prince Edward Island.

Reference:  “Top CEOs make average worker’s salary in 3 hours of first working day of year” by Derek Abma, January 3, 2012, Financial Post

Here are the new tax rules that you have to be aware of as we get into the full swing of the new year:

• CRA announced a 2.8% indexation increase for this year.  According to the article, “This indexation factor is arrived at by taking the percentage change in the average Consumer Price Index or CPI data as reported by Statistics Canada for the 12-month period ended September 30, 2011 to the average CPI for the 12-month period ended on September 30, 2010.
• For this year, the four indexed federal tax brackets are:  $0 to $42,707 (15%), $42,707 to $85,414 (22%), $85,414 to $132,406 (26%), and above $132,406 (29%).
• Basic personal amount is up to $10,822 for 2012.
• Amount for children under 18 years old is now $2,191 per child. Both the personal amount and amount for children are multiplied by 15% to determine the federal tax credits.
• Maximum RRSP contribution limit this year has increased to $22,970 from $22,450 last year.
• TFSA contribution limit for 2012 remain at $5,000, same as the previous years.

The author notes that the Annual TFSA contribution limit would have been determined “by indexing $5,000 to inflation and rounding the result to the nearest $500.”  He adds that, “One would have thought that with three years’ cumulative indexation, surely we would be at $5,500 by now. But a check of the math confirms that if we index $5,000 by the inflation factors for 2009 (0.6%), 2010 (1.4%), 2011 (2.8$), we get $5,243 which rounded to the closes $500 gives us a $5,000 TFSA limit yet again for 2012.

Also, take note of all the new tax credits introduced this year:

• Temporary Hiring Credit for Small Businesses to encourage additional hiring.
• Volunteer Firefighters Tax Credit for volunteer firefighters.
• Family Caregiver Tax Credit to assist caregivers of all types of infirm dependent relatives
• Children’s Arts Tax Credit for programs with children’s artistic, cultural, recreational and developmental activities

Reference:

• “New year brings new tax rules” by  Jamie Golombek, December 31, 2011, Financial Post
• “Minister of Finance Introduces the Keeping Canada’s Economy and Jobs Growth Act”, October 4, 2011

The CRA website uses the phrase “excess contributions” which refers to a situation where in a TFSA holder contributes too much money into their Tax Free Savings Account per tax year.  This simple phrase made it difficult for anyone wanting more information on the rules of the TFSA.

According to an internal study obtained by the Canadian Press through the Access to Information Act, Canadian taxpayers who are trying to find out more about TFSAs online through the search engine, Google, type in the phrase “over contribution,” a phrase not found on the CRA’s website pages.   Google searches using this phrase would not lead to the official Tax Free Savings Account for Individuals web page which was specifically made to provide clarity to TFSA rules.

In addition to this, if one is persistent and is able to land on the TFSA web page, the web page lacks information on exactly how to remedy the over-contribution scenario.

A 10% drop on the number of visits to the TFSA website was recorded last year although the number of general visits to the CRA website increased.

It was only in April that the CRA corrected the wordings on their website, replacing “excess contributions” to “over-contributions.” But by then, many Canadians have already filed their income tax returns for the April 30^th deadline.

The Tax Free Savings Account was launched in 2009.  Canadians can deposit up to $5,000 each year and earnings are tax-free.

Last June, about 72,000 taxpayers received tax notices informing them of their violations of the key restriction on the TFSA.  According to the rules, any withdrawals can only be restored on the subsequent year the withdrawal was done.  Making withdrawals and putting back the amount in the same year will result in an over-contribution.

Reference: “Taxman’s website source of TFSA confusion” by Dean Beeby, The Canadian Press

The Internal Revenue Service granted relief to an estimated one million US citizens including dual citizens, living in Canada, who were not up to date with their US tax filings.  This was announced through a fact sheet published on the IRS website.

Unlike other countries such as Canada where in we have a resident-based taxation system, the US requires all of its citizens to file a US income tax return as well as Reports of Foreign Bank and Financial Accounts (FBARs) no matter where they currently reside.  And if a US citizen fails to comply, the IRS will look for six years’ worth of tax returns and FBARs.

According to the mentioned article:  In most cases, since U.S. citizens won’t end up owing any U.S. federal tax due to offsetting foreign tax credits for taxes paid  in the foreign jurisdiction, such as Canada, there would not be any income tax penalties assessed.

For the FBARs that were filed late, the American citizen must include a statement with his FBARs presenting his reason for the late filing.  Late filed FBARs generally result in a willful and non-willful civil penalty.  For willfully failing to file an FBAR, the civil penalty will be up to the greater of $100,000 or 50% of the total balance of the foreign account at the time of the violation. For non-willfully failing to file an FBAR, the civile penalty is $10,000 per violation unless the IRS determines that the late filings were due to reasonable cause in which penalties will be waived.

But although relief was given to a million Americans for failing to comply with their US tax obligations, the reasonable cause to which these tax reliefs are given is a subjective determination which means that all these Americans are still at the mercy of the IRS.

Reference: “Americans in Canada still at the mercy of IRS” by Jamie Golombek, December 17, 2011,

Statistics Canada released the following data showing a picture of what the current Canadian household debt looks like:

• The ratio of credit-market debt-to-personal disposable income rose to a new high of 150.8% in the third quarter of 2011.  This means that for every dollar that an average Canadian earns, he or she has a debt of $1.50. This ratio includes all personal debt like mortgage, car payments and credit cards.
• Total credit-market debt is almost $1.6 trillion. This includes a $25 billion increase in mortgage debt.
• Consumer credit has also increased to $448 billion.
• 99% of liabilities are accounted for by credit-market debt factors in consumer credit and mortgages.

The rise in household debt is of great concern to the Bank of Canada.  Mark Carney, governor of the Bank of Canada once said, “The greatest risk to the domestic economy is household debt.”

However, Douglas Porter, deputy chief economist at BMO Capital Markets, criticized the Bank of Canada, saying that they are the ones who encourage excessive borrowing in the first place by extending low interest rates.

And there’s more bad news:

• According to StatCan, Canadian household net worth declined 2.1% to $6.2 trillion largely because of losses in personal equity holdings and pension assets as the S&P/TSX composite index fell more than 12% in the quarter.
• Per capita household net worth dropped to $180,100 from $184,700 in the prior quarter.

With all these statistics, one can say that this was the sharpest drop in household net worth since the fourth quarter of 2008.

Reference:  “Household debt hits new high” by Eric Lam, December 13, 2011, Financial Post, http://business.financialpost.com/2011/12/13/canadian-debt-climbs-to-new-highs-statcan/

Taxtips.ca recently came out with a new tax alert providing information about the Age Amount Tax Credit.  According to the website, this tax credit can be claimed on line 301 of the personal income tax return.  The federal age amount for 2011 is $6,537 and $6,720 for 2012.  This amount is reduced by 15% of the income exceeding a threshold amount of $32,961 for 2011 and $33,884 for 2012 and is eliminated when income exceeds $76,541 for 2011 and $78,684 for 2012.

Here are a few reminders when planning to claim this tax credit:

• Please make sure you enter your date of birth in the “Information about you” area on page 1 of your return.  And remember to claim the corresponding provincial or territorial non-refundable tax credit to which you are entitled, on line 5808 of your provincial or territorial Form 428

• You may also be able to transfer all or part of your age amount to your spouse or common-law partner or to claim all or part of his or her age amount.  If your spouse or common-law partner does not need to claim some or all of certain non-refundable tax credits to reduce his or her federal tax to zero, then you may be able to transfer those unused amounts.

• If the taxpayer dies before their birthday in the tax year in which they would have turned 65, no age amount tax credit can be claimed on their behalf.

• If the taxpayer who is eligible has income from a gain from a disposition of property to a creditor regarding settlement of debt on certain foreclosures, repossessions and similar transactions then that income is excluded from net income for tax purposes in the age amount calculation.  We recommend you see a tax professional to ensure that this is properly handled.

Reference:

• CRA Website:  http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/301/menu-eng.html
• Taxtips.ca:  http://www.taxtips.ca/filing/ageamount.htm?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A++TaxtipscaWhatsNewTaxTips.ca+What%27s+New

Please note that rates may vary quarterly as these are calculated every quarter based on applicable legislation.

Here are the prescribed interest rates related to income tax, other taxes, duties and charges.

Income Tax Related Interest Rates as per the CRA:

• The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums will be 5%.
• The interest rate to be paid on corporate taxpayers overpayments will be 1%.
• The interest rate to be paid on non corporate taxpayers overpayments will be 3%.
• The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.

Interest Rates Related to other taxes, duties and charges:

Interest rates on overdue and remittances:

• 5% for GST, HST, Air Travellers Security Charge, Excise Tax, Excise Duty (except for brewer licensees) and Softwood Lumber Products Export Charge.
• 3% for Excise Duty for brewer licensees.

Interest rates on overpaid remittances for corporate taxpayers:

• 1% for GST, HST, Air Travellers Security Charge, Excise Tax, Excise Duty (except for brewer licensees) and Softwood Lumber Products Export Charge.
• Not applicable for Excise Duty for brewer licensees.

Interest rates on overpaid remittances for non-corporate taxpayers:

• 3% for GST, HST, Air Travellers Security Charge, Excise Tax, Excise Duty (except for brewer licensees) and Softwood Lumber Products Export Charge.
• Not applicable for Excise Duty for brewer licensees.

For the prescribed rates applicable until December 31, 2011 and the prescribed rates of other calendar quarters, please visit www.cra.gc.ca/interestrates.

Reference:  CRA Newsroom, http://www.cra-arc.gc.ca/nwsrm/rlss/2011/m12/nr111215-eng.html?utm_source=mediaroom&utm_medium=eml

Gary Dent, national tax leader at Grant Thornton, “Just a little bit of planning in November or December can go a long way in reducing your tax burden for this year.”

You can start by taking advantage of the higher corporate tax rates this year by accelerating your business expenses into 2011.

According to Vikram Barhat, author of Advisor.ca’s “Tax Tips:  Claim business expenses now,” Canadian corporate tax rates will be decreasing in the new year.  The federal corporate income tax rate of 16.5% will fall to 15% next year.   Therefore, he says, it makes sense to accelerate your business expenses to reduce the amount of income being taxed now.

Dent says that, “if you have any expenses that you can deduct this year, you should try to deduct them.” He also mentions an example to drive home this point, “For example , if you’re going to make an acquisition of a new piece of equipment, you may want to but it before the end of the year so you can put it in your write off pool and claim depreciation, or capital cost allowance as it’s referred to on the tax side, against your income.”

As long as you purchase the asset this year, the claim can be made this year even if you but it on December 30.

Reference:  “Tax Tips:  Claim Business Expense Now” by Vikram Barhat, December 7, 2011, www.advisor.ca