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 Some 2009 year-end tax planning tips include:

 

1.         Certain expenditures made by individuals by 31 December 2009 will be eligible for 2009 tax deductions or credits including: moving expenses, child care expenses, safety deposit box fees, charitable donations, political contributions, medical expenses, alimony, eligible employment expenses, union, professional, or like dues, carrying charges and interest expenses, certain public transit amounts, and children’s fitness amounts.

 

2.         The 2009 Federal Budget proposes to introduce a temporary Home Renovation Tax Credit for expenditures made after 27 January 2009 and before 1 February 2010 in excess of $1,000, to a maximum of $10,000, resulting in a maximum Federal credit of $1,350 ($9,000 x 15%).

 

Please provide details of renovation costs (example – carpets, landscaping, additions, fences, painting, etc).

 

For details, see www.cra.gc.ca and click on Home Renovation Tax Credit.

 

3.         You have until 1 March 2010 to make tax deductible Registered Retirement Savings Plan (RRSP) contributions for the 2009 year.

 

Consider contributing to a spousal RRSP to achieve income splitting in the future.

 

4.         If you own a business, consider paying a reasonable salary to family members for services rendered to the business.

 

5.         An individual whose 2009 net income exceeds $66,335 will lose all, or part, of their old age security.

 

Senior citizens will begin to lose their income tax age credit if net income exceeds $32,312.

 

6.         Consider purchasing assets eligible for capital cost allowance before the year-end.

 

7.         Consider selling capital properties with an underlying capital loss prior to the year-end if you had taxable capital gains in the year, or any of the preceding three years. This capital loss may be offset against the capital gains.

 

8.         Registered Education Savings Plan (RESP):

 

 

9.         Health and dental premiums for the self-employed:

 

 

10.        A refund of Employment Insurance paid for non-arm’s length employees may be available upon application to CRA.

 

11.        Taxpayers that receive “eligible” dividends from private and public corporations will have a significantly lower tax rate on the dividends. Notification from the corporation to the shareholder is required when such dividends are paid.

 

12.        Eligible public transit passes will be entitled to a tax credit.

 

13.        A fitness tax credit for children under 16 enrolled in certain organized sports is available.

 

14.        A Registered Disability Savings Plan may be established for a person who is eligible for the Disability Tax Credit. Non-deductible contributions to a lifetime maximum of $200,000 are permitted which are eligible for grants and bonds. 

 

Please contact your professional advisors for assistance in any of these matters.

 

 

Some general guidelines to follow in remunerating the owner of a Canadian-controlled private corporation earning “active business income” include:

 

1.         Bonusing down active business earnings in excess of the annual business limit may reduce the overall tax payable. However, reinvesting within the company any active business income over this amount does allow one to defer income taxes.

 

2.         Notification must be made to the shareholders when a company pays an “eligible” dividend – usually in the form of a letter dated on the date of the dividend declaration. If all shareholders are directors, the notification may be made in the Directors’ Minutes.

 

3.         Elect to pay out tax-free “capital dividend account” dividends.

 

4.         Consider paying dividends to obtain a refund of “refundable dividend tax on hand” by the corporation.

 

5.         Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral. The effect on the “Qualified Small Business Corporation” status should be reviewed before selling the shares.

 

6.         Dividend income, as opposed to salaries, will reduce an individual’s cumulative net investment loss balance thereby providing greater access to the capital gain exemption.

 

7.         Excessive personal income affects receipts subject to clawbacks, such as old age security, the age credit, child tax benefits, GST credits and certain provincial incentives.

 

8.         Salary payments require source deductions to be remitted to the Canada Revenue Agency on a timely basis.

 

9.         Individuals that wish to contribute to the Canada Pension Plan or a Registered Retirement Savings Plan may require a salary to create “earned income”.

 

10.        Salaries paid to family members must be reasonable.

 

 

 

In 2009 the Government has proposed several changes to the Canada Pension Plan (CPP) to be effective starting in 2012. First, individuals will be able to apply for CPP early (between ages 60 to 65) without the previously required two-month period of reduced earnings or cessation of employment. Second, employed individuals below age 65 will be required to contribute to CPP even if receiving CPP benefits, while employed individuals over age 64 can continue contributing to CPP on a voluntary basis. Third, the number of years dropped in computing one’s average contributions (used in calculating one’s pension) will increase over three years from 15% to 17% (from a maximum of seven years to a maximum of eight years). Fourth, the pension reduction in taking CPP before age 65 would be increased from 0.5% to 0.6% per month, while the pension increase for taking CPP after one’s 65th birthday would be increased from 0.8% to 0.7% per month (up to age 70).

 

 

 

In a 18 June 2009 Tax Court of Canada case, the taxpayer made excessive contributions to an RRSP and was assessed a 1% per month tax plus interest.

 

The taxpayer’s waiver request was refused.

 

 

In a 4 May 2009 Tax Court of Canada case, the taxpayer/ director was assessed for personal liability for unpaid GST/HST of $236,344 plus interest of $7,372 plus penalties of $9,651 for a total of $253,367.

 

 

The Court noted that where the director has little understanding of financial documents, he may rely on others to handle the financial aspects without incurring personal liability for unpaid GST/HST.

 

Also, in a 12 May 2009 Technical Interpretation, CRA notes that directors cannot be assessed more than two years after they cease to hold office.

 

 

Legal advice is needed in this area.

 

 

In a 22 January 2008 Technical Interpretation, CRA notes that a taxpayer’s loss from the disposition of property is deemed nil to the extent that it is a “superficial loss”.

 

 

 

A recent federal court of appeal decision ruled that discretionary investment management fees qualified as GST exempt financial services. Therefore clients may be entitled to claim a rebate for GST paid on these fees. Although CRA has not appealed the decision to the Supreme Court of Canada it is possible that the Federal government may amend the legislation to deem these types of investment management fees not to be exempt which could retroactively nullify any rebate. 

 

Despite the Federal Court of Appeals decision, CRA maintains the position that fees for discretionary investment management services are still subject to GST. Accordingly, most investment managers are continuing to charge the GST. 

 

As there is both cost and uncertainty of ultimate collection on any GST rebate claims, clients may decide to wait until the Department of Finance clarifies the GST status of such services before incurring professional fees to prepare the necessary rebate claims. Clients, however, should note that a rebate claim must be generally filed within two years after the day the amount was paid. Please contact your Rolfe, Benson advisor should you wish to proceed with a possible GST rebate claim on investment management fees paid.

 

 

In corporate structures, it is important to ensure that it is the recipient of the supply that pays the expense and claims the ITC. CRA has made reassessments where the wrong person in a corporate group has claimed the ITCs.

 

 

See your professional advisor for more information.

 

 

 

We have approached the Christmas and holiday season with great anticipation for all the joy it brings. We celebrate the completion of our 50 years in practice with a total of staff and partners that has also reached 50. We thank all our wonderful clients and staff for what success we have had. We try as a firm to think of those who are less fortunate than us and in particular we all go to the Salvation Army for one evening and supply and serve those who are less fortunate. We have been doing this for some years and has become part of our tradition. Shamash Valji who has now retired as a partner is on the Board of the Salvation Army and he tells us that this kind of assistance is much appreciated. We also continue our tradition of making significant donations to at least three charities in lieu of sending out Christmas cards. This too has become part of our tradition. 

 

We recognize our staff at this time of the year with our long and well established profit sharing plan and it was interesting to note that we have not had any staff leave us in the last year. We have seen Greg Lonsbrough, Ken Mitchell and Brian Kerr all retire but we don’t allow them to really retire and they all will be back during tax time to help out along with former staff members Margot Magee and Margaret Rolfe. We describe ourselves as a family firm not just because we have family members here (Susan Tufts, Natalie Chadwick and the two Madrazo sisters) but also because we try to encourage a family relationship among our staff and our clients. Many of you drop in to see us from time-to-time even when we are not doing work for you (and we don’t send a bill). We have been in our building at 900 West Hastings for 32 years and are hoping to acquire some more space so that we can continue to remain in this excellent location. 

 

Our newsletter a year ago talked about the rise in gas prices and the fall in the stock market. It would seem that gas prices have come down (particularly natural gas) and the stock market seems to have gone up. These encouraging changes along with the Olympics in 2010 would seem to set a stage for a good year and we would like to wish you all the Compliments of the Season and a Happy New Year.

 

DRLR