Federal Budget 2011 Overview

The budget highlights below are not comprehensive and only refer broadly to some of the changes that have been made in the budget. For a complete review of the 2011 budget, please direct yourself to the official government website.

BUSINESS

· Charities

o Monetary penalties and suspension of receipting privileges for charities who issue improper donation receipts.

· Hiring Credit

o A one-time temporary hiring credit is available to employers with total employment insurance premiums of $10,000 or less. This credit of up to $1,000 has been introduced on the excess of 2011 employment insurance premiums over those paid in 2010.

· Changes in Accelerated CCA

o Clean Energy Generating Equipment

§ Class 43.2 has been expanded to include clean energy generation equipment that has been acquired on or after March 22, 2011. Depreciation will be at 50% on a declining basis.

o Manufacturing and Processing Equipment

§ Class 29 manufacturing and processing equipment acquired between March 18, 2007 and before 2014, are able to be depreciated at a 50% CCA rate on a straight-line basis, subject to the half year rule. Subsequent to 2013, the rate will be decreased to 20%.

· Stub Period- Corporate Deferrals With Use of Partnerships

o New rules to limit deferral opportunities for corporations with involvement in partnerships. Income earned in a fiscal year by the corporation for its participation in a partnership will need to be claimed on a calendar year basis. Therefore income will need to be accrued for the income from the partnership for the portion of the year that falls within the corporate tax year.

INDIVIDUAL

· Changes To Tax Credits

o Family Caregiver Tax Credit

§ New non-refundable tax credit at 15% of $2,000. This credit is available to caregivers of infirm dependent relatives.

o Medical Expense Tax Credit

§ Currently there is a cap of $10,000 on medical expenses that caregivers can claim for dependent relatives. The budget proposes to remove this limit to years beginning in 2011.

o Child Tax Credit

§ Changes to the current legislation to repeal the limit of one claimant per household. This will allow for multiple families sharing a home to each claim this credit.

o Tuition Tax Credit

§ Changes to the credit that will allow for fees paid to an education institution, provincial ministry, professional association or similar institution to be recognized.

§ Tuition abroad will now be eligible for programs that are three consecutive weeks, instead of the former 13 weeks.

§ Certain exam fees are now tax deductible such as purchase of examination materials, lab coats, calculators, etc.

o Children’s Arts Tax Credit

§ New non-refundable tax credit at 15% of $500 for children under 16 years of age at the start of the tax year. Eligible activities include arts, cultural, recreational and developmental activities. This credit is available for tax years beginning in 2011.

o Volunteer Firefighters Tax Credit

§ Volunteer firefighters are now able to claim a 15% non-refundable tax credit at a base rate of $3,000.

o RESP Transfers

§ Changes to RESPs will allow for subscribers of separate plans to allocate assets among siblings.

· Guaranteed Income Supplement (GIS)

o Seniors will receive increase GIS payments.

· Registered Disability Savings Plan (RDSP)

o Individuals with shortened life expectancies will be allowed to withdraw annual amounts without triggering the ten year repayment rule. This is to allow for these individuals to more easily access their funds.

· RESP Transfer

o Changes to RESPs will allow for subscribers of separate plans to allocate assets among siblings.

· Individual Pension Plan

o The budget proposes that minimum withdrawals be made from the IPP on an annual basis.

Easy Ways To Reduce Your Personal Income Tax Bill

There are many simply ways to reduce the time, and therefore cost, of preparing your personal tax returns without having to have any knowledge of tax.

Accountants frequently charge based on the amount of time it takes to complete a tax. If you organize your documents in a logical and efficient way, your accountant can process your documentation quicker and therefore spend less time on your return, which should translate into a lesser bill. Below are some common mistakes clients make that add to the cost of their return:

· Open your envelopes: If you do not open your mail from the government, small dividend cheques, etc, then someone will need to spend time to take each piece of mail from its envelope and read each item to determine if it is useful or not.

· Extra Information: Do not provide clutter to your accountant. Only provide documentation that is related to your tax return. If you are an employee and have a T4 slip, your accountant likely will not need a pile of your pay slips.

· Do Some Work Yourself: If you are self-employed, why not prepare an income statement. If you tally all your expenses and turn them into an income statement, an accountant can quickly enter your information and notice what expenses you may have missed.

· Totals: Many people summarize their self-employed expenses, medical expenses, etc on a spreadsheet and do not include a column for the total. This will cause someone to have to manually add up your entire column of numbers. By including a total column for each expense on your spreadsheet, it will certainly help to reduce your accountant’s time.

· Multiple Drop Offs of Documents: If you are at your accountant’s office two, three, even four times to drop off papers you forgot to include, expect a higher bill. Every time someone goes into your file to keep entering in information you forgot, the time will increase and so will your bill. Perhaps make a list of all the items you give to your accountant and refer to it each year before you drop everything off.

· Organize your papers: Separate your tax papers into piles by type of document. For example, keep all the donations together in an envelope (or better yet, add them yourself and give the total to your accountant). Keep medical in another separate area. Keep children fitness receipts in another.

· Stapling: A way to reduce time on your file is to avoid stapling all of your documents together. Accountants frequently make photocopies of your slips in order to keep a copy for you, themselves, as well as provide a copy to the government (if paper filing). If all your documents are separated into stapled piles, someone will need to remove the staples from all your pages in order to make photocopies. Simply use paper clips das a faster alternative.

· Multiple Family Members: If you are providing information to your accountant for several people in your family, ensure that your documents are separated by individual. It will be much faster for the processer to enter your returns and not have time spent sorting which papers belong to which family member.

· Use a Professional: It may be initially cheaper to use a tax preparing software or go to a booth in the mall to prepare your return. However, these methods do not often have the knowledge to maximize your refund or know how to help you avoid being a target for an audit. An accountant will know what credits or expenses you may be missing, how to determine which spouse claims which expenses and will be able to help you avoid (or help you through) a tax audit.

Employing these strategies will make completing your personal tax return easier for you, and your accountant!

Dentists and Taxes

When we think of dentists and we think of taxes, we usually consider the medical expenses incurred at the dentist to claim on our personal tax returns.

However, in 2010 the Canada Revenue Agency has made some changes to the medical expense tax credit. Procedures that are purely cosmetic are now ineligible to be claimed as medical expenses.

For instance, your decision to whiten your teeth will no longer provide a tax credit but your root canal extraction will. If the expense is for medical or reconstructive purposes, then the expense will still qualify.

Another change to the dental industry is the decision by the government in the 2010 Budget to have GST/HST be charged on the cosmetic procedures. So now not only will your cosmetic treatments not get you a tax credit, you will also be paying 13% GST/HST on top of the cost.

The rationale is that cosmetic procedures are not basic health care and therefore are subject to tax. For details on which specific procedures qualify, visit the CRA website at www.cra-arc.gc.ca.

Charity Scandals 101

Time and time again, clients walk into our offices because of their involvement in a charity scandal. Although there are many variations of these schemes, the most popular one is as follows:

Mr. Doe wants to increase his tax refund. His accountant suggests that he makes a contribution to a charity to help him decrease his taxes by increasing his donation credit. Mr. Doe then receives a donation receipt for a far greater amount than the actual cash outlay. Mr. Doe’s accountant then proceeds to record the inflated donation on Mr. Doe’s tax return. Then Mr. Doe finds himself in trouble with the government, and his accountant has disappeared.

It is not common practice for your accountant to ask you for money that he will donate on your behalf to a charity. If your accountant suggests this to you, you may want to look for a different accountant. If he/she claims to have a professional designation, contact their related institute to determine if they are in good standing and have not lost any type of licence.

When you do want to make a legitimate donation, investigate the charity first. The CRA website has a list of all authorized charities, as well as charities that have lost their statuses.

Charity receipts are required by Canada Revenue Agency to include specific information about their organization, including, the following: Statement that it is an official receipt for income tax purposes, charity’s registration number, name and address of the charity, serial number of the receipt, place receipt issued, day/year of donation, full name of donor, amount of the donation, the eligible amount of the donation, a signature of an individual authorized with the CRA from the charity, and the CRA website address.

Make sure that the amount on the donation receipt matches the donation you have made. If you make your donation with a cheque, keep the cancelled cheque so that you have proof of payment in case any CRA enquiries arise.

If you have contributed tangible goods to a charity, do not record the goods on your return as a donation and a capital gain. When this is done, it appears that you have both received funds and donated the same goods.

If the government discovers that you have participated in one of these scandals, they will likely revise your tax return to reflect the actual cash outlay of the donation. If this puts you into a tax owing position, interest and penalties will be applied to the balance from May 1^st of the tax year that this occurred.

It can take many years for the CRA to look into charity scandals and it is quite common for returns from 2002, 2003, etc to be looked at now. This means that 8+ years of daily compounding interest and penalties that apply can easily end up doubling the tax debt.

Protect yourself and do not involve yourself in these type of schemes. It may appear to save you some money now, but the consequences when you are caught are just not worth it. It is in your best interest to make a donation to a registered charity and take the donation credit you deserve.

RRSP Deadline Fast Approaching

It’s that time of year again when we all start to think about taxes. How much money did I make this year? How much tax do I have to pay? Will I ever be able to afford to retire?

The most popular savings options for Canadians is the Registered Retirement Savings Plan (RRSP). This plan allows for one to receive a tax deduction equal to the amount of the contribution.

For example, a $20,000.00 contribution to your RRSP account will allow for a $20,000 deduction from the total income calculated on your tax return.

The concept is that you will be making less money when you retire and therefore will choose to pay the tax on the contribution when you collapse your RRSP in retirement, instead of paying the tax now at a presumably higher tax bracket.

The CRA adjusts the contribution limit of the RRSP annually. The 2010 contribution limit is $22,000. In order to ‘earn’ room to contribute to your RRSP you must be earning an income.

If you earned $50,000 last year, the government will multiply your prior year earned income by 18% to determine your contribution room. $50,000 x 18%= $9,000.00. Any unused room can be carried forward and used in future tax years.

The CRA considers earned income to include employment income, self-employed income, rental income, taxable support payments, CPP or provincial disability income, etc.

Dividend and interest income do not count as earned income and therefore do not contribute to your earned income, unless they are an active part of your business. This is especially important for shareholders who want to contribute to their RRSP but pay themselves with a dividend and not a salary each year.

Another option to reduce taxes using your RRSP is to contribute to your spouse or common-law partners RRSP account. However, keep in mind that this will reduce YOUR deduction limit.

RRSP’s are a flexible way to save for retirement, but they may not be for everyone. For instance, if you know that in the near future you will need a larger some of cash to invest in a business, you may want to stay more liquid and decide to invest less in your RRSP this year. As well, if you are already in a low tax rate, you may decide to wait until you are in a higher bracket to begin deferring any taxes.

The important idea to take away from this is that RRSPs can be a beneficial and structured way to plan for your retirement, but they are not for everyone. There is still a month left to make a contribution for your 2010 tax return (March 1, 2011). So please take the time to consider your current cash and retirement needs to decide if the RRSP is a good retirement strategy for you.

Do I Need a Lawyer To File My Taxes? NO!

You’ve heard the ads and seen the billboards from law firms all over the city promoting themselves as the professionals to use when you need to file multiple years of tax returns. But do you ever think about why you would go to a lawyer instead of Chartered Accountant?

One of the most common marketing lines used by the law firms is that they have privilege, whereas accounting firms do not. However, if you are attempting to catch up on your taxes with the voluntary disclosure program (VDP), then there is no privilege necessary as the VDP requires full disclosure. There is nothing you are hiding from the government that would require a lawyer’s services.

Secondly, it is not only lawyers who can obtain an agent relationship with the government. If you are intimidated by dealing with the CRA yourself, you can fill out a simple form with an accountant that will allow for him or her to be your representative and deal with the government for you. We are able to negotiate payment plans with the CRA and work with the collections agents on your behalf.

Finally, lawyers are not accountants. While the law firms may attempt to discredit the accountants with their advertising, they still use them in order to prepare your tax returns. Is this not contradictory to speak poorly about the very employees who are relied upon to complete the actual tax returns?

Going through tax amnesty program does not require legal services, so spare yourself the large retainer fee and contact Mark Feldstein & Associates Chartered Accountants.

Taxpayers Have Rights!

Many people may not realize that while the Canada Revenue Agency has a lot of power to get you to pay your taxes, you have power too! There is a Taxpayer Bill of Rights that states what your rights are as a taxpayer.

For instance, you have a right to object to a reassessment. If you do not agree with changes made to your personal or corporate return, you can file a Notice of Objection explaining why you object to the changes on the reassessment.

You also have a right to a formal review and appeal. Your final answer is not necessary the first one you get. If you do not agree with the result of the review, apply for an appeal.

If the CRA does make an error that causes you to end up owing interest and penalties, you can apply for Taxpayer Relief which will refund you for interest and penalties paid that arose from a CRA error.

As a taxpayer you also have the right to not pay income taxes that are in dispute until a partial review occurs. However, the interest on the balance owing will still continue to accrue.

If somehow you feel you were not treated in a professional, courteous or fair manner by the CRA, whether it be your auditor, collections officer, etc; there is a formal complaint process in place to deal with these types of matters.

You also have the right to have another individual represent you with matters regarding the CRA. By filling out a simple form, an authorized individual, such as your accountant, we can become your agent and discuss all matters on your behalf with the government.

And finally, the CRA does not get to enter your house without your consent! Many people who are audited assume that when the CRA asks for the audit to take place at their residence that there is no choice in the matter. This is not the case.

To view all fifteen rights included in the Taxpayer Bill of Rights, visit the CRA website at www.cra-arc.gc.ca