2012 Federal Budget

The Minister of Finance, Jim Flaherty, today presented the 2012 Federal Budget. As with Tuesday's Ontario Budget, there are no personal income tax rate changes. However, there is a significant change to the age of eligibility for Old Age Security ("OAS") which will be pushed back to age 67 from age 65 for anyone who has not yet reached the age of 54 as of March 31, 2012.

There are no corporate income tax rate changes, however, there are various measures related to the Scientific Research and Development Program ("R&D") and taxpayer compliance.

Other than the OAS change for individuals and the R&D changes for corporations, I don't think there is much to get most people excited about in the budget. Thus, I am going to take the lazy way out, and link to my firm Cunningham LLP's budget summary (which I helped write) for those who want details of the budget.

As someone who is just below the OAS age cut-off, I feel like my year of birth, has been a little unlucky. It was bad enough that I was born too late for Woodstock and got stuck with Disco, now I get screwed on the OAS cut-off :).

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

2012 Ontario Budget

The Minister of Finance Dwight Duncan today presented the 2012 Ontario budget. There are no significant personal income tax measures in the budget. The corporate tax measures essentially relate to a freezing of corporate income tax rates that have already dropped significantly over the last few years.

The budget is heavy on spending cuts and government restraint; however, I will leave the political pundits to deal with those issues. Personally, I see little chance the Liberal government will eliminate the deficit by 2017-2018, because of the inherent issues the province has, essentially caused by the loss of the manufacturing sector.

Personal Income Tax Measures

Ontario Trillium Benefit

As noted in my blog last week, many Ontarians have been surprised that they are not receiving refunds upon filing their income tax returns, as the sales tax and property tax credits are now part of a monthly Ontario Trillium Benefit. Many Ontarians were unhappy with the monthly payment voicing complaints in this regard (at least in newspapers and blogs). In the budget the government notes that “Ontarians are now receiving their refundable tax credits earlier and more frequently than if they were paid as a lump sum when people file their tax returns”, however, they seem to have listened to the people and now say that they will look at options for providing a choice of a monthly payment or lump sum amount after the year has ended.  

Ontario Drug Benefit Program

Starting in August, 2014, single seniors with an income greater than $100,000 will now have to pay a deductible of $100 (the current deductible) plus 3 per cent of their income.

For couples with an income above $160,000, the deductible will rise to $200 per couple plus 3 per cent of the family income.

Healthy Homes Renovation Tax Credit

The government provides a reminder of its Healthy Homes Renovation Tax Credit for renovations that improve accessibility or help seniors with their mobility at home. Details of the credit are noted here.

The credit would be worth up to $1,500 each year, calculated as 15 per cent of up to $10,000 in eligible home renovation expenses that would help seniors stay safely in their homes. It could be claimed by senior homeowners and tenants, and people who share a home with a senior relative.

Corporate Income Tax Measures

The Ontario corporate income tax rate was scheduled to fall from the current 11.5% to 11% July 1, 2012 and 10% on July 1, 2013. The 11.5% rate is being frozen until the Ontario budget is balanced (thus, I guess this rate will be in effect forever :).

The corporate rate for Manufacturing and processing companies will also be frozen at 10%.
For Canadian Controlled Private Corporations, the corporate rate will be frozen at 4.5%

Business Education Tax

The government proposes to freeze the Business Education Tax (“BET”) reduction plan beginning in 2013. The government says they will ensure businesses building new facilities will benefit from the full implementation of the BET reductions.

Scientific Research and Development

Ontario did not make any changes to the Scientific Research and Development (R&D) program. They are essentially going to piggyback the Federal government. The budget comments that Ontario agrees with the federal panel that there is a need for greater federal-provincial collaboration regarding R&D tax support. As the federal panel suggested a reduction in federal R&D support, simplification of the program and a reduction in compliance costs, Ontario companies undertaking R&D will be impacted by any federal changes. It is expected the federal government will address R&D in Thursday’s federal budget.

Apprenticeship Training

The government says that it will review the effectiveness of the Ontario Apprenticeship Training Credit and consider linking support to the completion of apprenticeships.

The Underground Economy

Ontario plans to adopt measures similar to Quebec to address the tax leakage from the underground economy. These measures include:

· measures to mitigate the use of point-of-sale software to conceal sales.

· Measures to enhance information sharing across Ontario ministries and with the CRA.

· Measures to help identify those who facilitate or participate in tax evasion schemes.

Corporate Tax Avoidance

Again, using Quebec as the model, Ontario will consider implementing various measures used by Quebec to fight aggressive tax planning. It should be noted Quebec measures include a requirement for taxpayers to disclose any transaction in which they retained an advisor and there was a tax benefit of at least $25,000, or the taxpayer’s income was affected by $100,000 or more. Thus, some real “Big Brother” measures.

Employer Health Tax

Ontario plans to strengthen its administrative practice in the determination of whether an employer-employee relationship exists. In common language, watch out if you engage contractors.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Confessions of a Tax Accountant -2012- Week 3 - My T3's Near Death Experience

I typically base my confession posts on client comments or client related income tax issues that arise during tax season (subject to my usual caveat that I embellish or slightly change the facts to protect the innocent); however, this week's confession is based upon my own personal experience.

Last week when my wife and I separated the junk mail from the "real" mail we had received that day, we made our usual junk mail pile on the counter for me to recycle. The next morning my wife was about to hand me the junk mail pile to place in the blue bin; but as she often does, she took a quick second look to ensure no "real" mail was included in the junk mail pile. To my surprise, my wife pulled an envelope from the junk mail pile that had an investment company logo stamped on it and she then asked if I was sure this was junk mail. I did not recall seeing that envelope the day before (it must have been stuck in between some of the junk mail) so I opened the envelope and found a T3 inside. This T3 slip was just seconds away from becoming recycled paper and potentially putting me at risk for a 20% income tax penalty in the future, even though the T3 was for less than $100.

In honour of my T3 surviving its near recycling death experience, today I am going to recycle a blog post  I wrote last year on an insidious 20% penalty you will be charged if you fail to report income twice within a four year period.

To quickly re-iterate my blog post from last year, under Subsection 163(1) of the Income Tax Act, where a taxpayer has failed to report income twice within a four-year period, she/he will be subject to a penalty. The penalty is calculated as 10% of the amount you failed to report the second time. A corresponding provincial penalty is also applied, so the total penalty is 20% of the unreported income. It is important to note that the amount of income that was unreported the first time is not relevant in the calculation. If you failed to report $100 the first time and $10,000 the second time, the penalty will be $2,000, a somewhat ludicrous result considering if the slips were missed in the reverse order the penalty would only be $20.

So besides my own experience, why am I recycling this topic again?  Two reasons. Firstly, a couple colleagues told me that they had clients who were charged the penalty in 2011 and secondly, our firm had a couple clients reassessed in the fall for slips they did not report on their tax return. These clients are now at risk of having to pay a penalty if they fail to report income again in any of the next three years. 

For those who are unaware, missing T-slips are an issue because the Canada Revenue Agency ("CRA") undertakes a matching program in the late summer or early fall, that cross-checks T-slip data it received from the financial institutions with the social insurance number of the T-slip recipient. If the T-slip has not been reported, the CRA issues a reassessment and the clock starts ticking for three more years.

You may be asking yourself how can this happen? Between the accountant and the client, shouldn’t someone be tracking all the tax slips? If you have a few slips, the answer is yes. But many people have multiple slips and actively trade or move money around. In addition, although you would expect that your investment institution would issue all the T-slips for your account, for some investments, such as money market funds, the money market company themselves may issue the T-slip, so you are not even expecting to receive such.

Income trusts are also often problematic. You would assume all your income trusts would form part of one all encompassing T3 slip from your broker. However, the same brokerage will often issue multiple T3 slips for the various income trusts you hold, even though they are all held in the same account; so often you have no idea how many T3 slips you should be receiving (to be fair, some of the major institutions provide a listing of slips that are outstanding).

Finally, people move, slips get stuck in junk mail as I experienced or the T-slip is lost in the mail.

An offshoot of this issue are accounts held jointly with parents and "In-Trust" accounts for children. Many parents open joint accounts with their adult children. The CRA when matching tax slips will look at the social insurance number ("SIN#") on the T-slip. Whether technically correct or not (a true joint account would require a 50/50 split of the income reported) the parent often reports 100% of the income. If for some reason the child's SIN# appears first, the CRA will often reassess the child for the missing income.

Similarly, where a parent opens an "In-Trust" account or even an account in their child's name, with the parents SIN#; even if the income belongs to the child (i.e. the child had a summer job) and should be reported on the child's tax return, the CRA will assume the income belongs to the SIN number on the T-slip and reassess the parent.

In both the above cases, you typically can convince the CRA the income belongs on your parents or child’s return and thus, the income was properly reported or at minimum, reported, just on the wrong income tax return. 

Finally, if you miss a slip, but receive it after you file, you can avoid this issue by filing what is known as a T1 adjustment request before the CRA finds the missing slip on its own.

Be aware, an innocuous missing tax slip in year one, could result in a costly 20% penalty in the future, if you somehow miss a more substantial slip in the three subsequent years.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Confessions of a Tax Accountant -2012- Week 2 -This that and other useless tidbits

 

Electronic Donation Receipts

With the proliferation of online charitable donation sites, many people now make their charitable donations online. However, the electronic receipts you download that reflect your payment are not official charitable donations receipts, but just payment confirmations. Last week I had several clients provide the electronic payment receipt, but not the associated official charitable receipt. 

The Canada Revenue Agency (”CRA”) will not accept the electronic payment as evidence of a donation and will require an official donation receipt with the organizations charitable number. When making an online donation, you should ensure you download the official receipt immediately where it is available.

In many cases the donation receipt is not issued immediately, but follows in the subsequent day or so, therefore you need to be diligent to ensure you obtain the official donation receipt. I suggest creating a file for electronic receipts and as you receive the official donation receipt, you destroy the electronic payment receipt or move it to a paid bills file. Then, every month or two, review the file, if you have not received the official receipt, follow up with the organization at that time. This way, you will not be scrambling for an official receipt when you file your tax return.

Hey Dalton, where is my Refund!

With apologies to those outside of Ontario, many of my clients are asking why their children are not getting income tax refunds this year, thinking I have forgotten to claim Ontario tax credits for sales tax and rent. As The Blunt Bean Counter does not forget anything (okay, I forgot that I put a newspaper on the top of my car while getting in and drove away, but that is not tax related) I have to explain to them that the Ontario government has decided in its infinite wisdom that its lower income residents are better off receiving their tax credits over time than in one lump sum tax refund. Thus, many people expecting refunds will have to wait for their monthly cheque instead. Ellen Roseman recently had a good article on this issue.

TFSA Audits

I have had a couple clients and one reader ask about the supposed TFSA audit crackdown. I think most of these questions arise from reading Jonathan Chevreau’s article titled Taxman Probes TFSAs in which he discusses how the CRA has begun mailing out questionnaires to individuals that the CRA believes have achieved significant TFSA growth through swap transactions. The CRA is looking at swap transactions in which smaller cap stocks that have a large bid and ask difference were swapped into TFSAs at the lower bid price and later sold at the higher ask price; effectively creating tax-free money on the bid-ask difference. It is interesting to note that these types of transactions were in theory outlawed in October, 2009 by the CRA.

There will be some people who will have grown their TFSA through astute stock purchases who may receive the questionnaire. However, if these were typical stock purchases at market and not swaps, you should not have an issue.

If you are interested, Thorsteinssons LLP has a copy of the questionnaire and discussion on this issue here.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Do you need a Professional Accountant to prepare your Personal Income Tax Return?

A while back, Robb Engen, who is a rising star in the financial blogging and writing world (the Echo half of Boomer and Echo and writer for the Toronto Star’s Moneyville) asked me when should someone engage an accountant?

Some of the considerations I forwarded to Robb are discussed in a recent Moneyville blog he wrote titled Why I'm using a tax accountant this year.

Today, I would like to expand on this topic and discuss when you should engage an accountant to prepare your personal income tax return. I would suggest that you always should engage an accountant if you have a corporation.

In general, unless you have self-employment income, commission income, rental income, or significant investment income, an accountant will be somewhat limited in the planning they can do for you.

I say this because, if you do not have these sources of income, an accountants experience, discretion and know-how are pretty much muted and you may as well purchase an income tax software program and file your income tax return yourself. That is not to say you may not want to engage an accountant on a one-off basis where required, it just means you are most likely paying for services you do not require if your personal return is simple.

Just so I don’t have a hundred accountants in an uproar, saying that I am steering away business from the profession (although some accountants are not keen to take on personal tax only clients anyways), I also suggested to Robb that you can look at an accountant as insurance. Like life insurance, or disability insurance, you don’t like paying it, but when you need it, you are glad you have it; although, at least we provide a yearly tax return with our yearly charge. 

I told Robb that there may be years when an accountant may not provide much in the way of income tax planning, but there will be a year somewhere along the line, when your accountant may provide advice that covers their fees for the next ten years and part of the reason for the tax savings may be your accountant’s familiarity with your personal situation.

I further suggested to Robb that another reason many people like having a relationship with an accountant, is because when they have a question or have a significant issue such as a new job offer, inheritance or they have lost their job, they can call someone they know who will accept their call and who understands their personal situation. 

The aforementioned situations are typically very stressful, and are often subject to severe time constraints in which a significant financial decision must be made. Without having an established accountant relationship, you may not be able to find someone who can assist you on a timely basis and/or is willing to drop current client work to assist someone with whom they have no prior relationship. That may sound harsh, but it is the reality for many established professionals, be they accountants or lawyers.

Finally, where you have a relationship with an accountant, they may provide unsolicited value-added advice in respect of such financial matters as wills, estate planning or how to deal financially with your children. For example, I recently had a corporate client come in to drop off their personal income tax information. They made some comment about one of their children that led me to ask if they had updated their will recently (which they had not). I then asked if they had upgraded their life insurance to account for the income tax they would incur if they passed away because of the increase in the value of an investment they had (they had not). I then asked them how that investment would be split with an arms-length partner if either of them died (we had discussed the issue before but they still had not officially addressed this in a legal agreement). All these issues are important and will hopefully be addressed in the near future by my client.

Now, ignoring the fact you are probably thinking I have a fixation with death, these are the kind of “add-ons” many accountants provide in the course of working with a client.  

In my opinion, if you have the types of income I note at the outset, I would suggest engaging an accountant is worth the cost. However, if you do not have these types of income, you have to weigh whether the less tangible benefits I note above are worth the cost of the accountants tax preparation fee.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Confessions of a Tax Accountant-2012- Week 1

The Children’s Arts and Fitness Amounts

The federal government in its infinite wisdom has now added a Children’s Arts Amount credit to the Children’s Fitness Amount credit. From an accountant’s perspective, these credits are a nuisance. Already early this tax season, there has been much confusion with my clients because of the overlap of these credits and how these credits integrate with making a child care claim. Thus, I thought today, I would try and clarify the confusion surrounding these credits.

The maximum eligible expenses for each of the Fitness Amount and the Children’s Art Amount are $500. The first misconception most people have is that they think they save $500 dollars for each of these amounts or that each amount is worth a $500 deduction.

However, both the Fitness and Arts Amounts are actually tax credits worth at maximum, $75 each per child federally. The federal credit is calculated as $500 x 15% refundable credit=$75. There may also be a provincial credit for these amounts. For example, in Ontario, there is a Children’s activity credit worth $50.90 ($509x10%), that is a hybrid of the fitness and arts credit-i.e. both fitness and arts program are eligible for the credit.

Thus, the maximum tax savings per child who undertakes both eligible activities for fitness and the arts in Ontario is $209 ($75 fitness amount, $75 arts amount and $50.90 activity credit).

Children’s Arts Amount

The CRA discusses the details of the Children’s Arts Amount at this link.

You can claim a maximum of $500 in eligible expenses per child for fees paid in 2011 relating to the cost of registration or membership of your child in a prescribed program of artistic, cultural, recreational, or developmental activity. The cost covers registration for each child under the age of 16 at the beginning of the year. To qualify for this amount, a program must:

Be ongoing (either a minimum of eight consecutive weeks long or, in the case of children's camps, five consecutive days long) and be supervised and be suitable for children.

The program also has to meet one of the following criteria:

1) It contributes to the development of creative skills or expertise in an artistic or cultural activity;
2) It provides a substantial focus on wilderness and the natural environment;
3) It helps children develop and use particular intellectual skills;
4) It includes structured interaction among children where supervisors teach or help children develop interpersonal skills; or
5) It provides enrichment or tutoring in academic subjects.

The art's amount is entered on line 370 of Schedule 1, to a maximum of $500 per child.

There will be situations where an amount paid will qualify for both the Fitness and Art’s amounts. However, the CRA states in the notes on eligibility that amounts that can be claimed as the federal children’s fitness amount cannot be used for the Arts credit and thus, any excess amount over $500 already claimed for the Fitness Credit cannot be claimed for the Art’s amount. This was confirmed by calls our firm made to the CRA.

If you have paid an amount that would qualify to be claimed as a child care expense and that amount also qualifies for the children's arts amount, you must first claim this amount as a child care expense (as per the notes to this link). Any amount in excess of the child care claim may be claimed as a children's arts amount as long as the requirements are met, but the same amount may not be claimed once as child care and once as an art's credit.

Children’s Fitness Credit

As this credit has been around for a few years, I will not go into much detail about this program. Essentially the Children’s Fitness Amount, is a non-refundable credit and allows parents to claim a maximum of $500 paid towards an eligible program. The cost covers registration for each child under the age of 16 at the beginning of the year. It does not cover the costs of things such as equipment or travel expenses.

Details of the program are available here.

As per the CRA in its notes to the Fitness Tax Amount, if you have paid an amount that would qualify to be claimed as child care expenses, and the children's fitness amount, you must first claim this amount as child care expenses. Any unused part can be claimed for the children's fitness amount as long as the requirements are met.

So in summation, where an art's or fitness amount qualifies as child care, it must first be claimed as child care and any excess amount may then be claimed as an art's or fitness credit if the expense qualifies for either of the credits. Where an amount meets the criteria for both the art's and fitness credits, you can only make one claim, either the art's credit or the fitness credit, but you cannot claim both.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Can R&D or Mining save Ontario?

In the February 20th edition of the Globe and Mail, John Ibbitson had an article titled “Other provinces have no cause to gloat over Ontario’s woes.” The essence of the article is summarized in his final paragraph in which Mr. Ibbitson says “If things go badly, Ontario’s problem could become everyone’s problem, with a vengeance.”

The irony of this article was not lost on me, as recently over dinner, some friends and I debated the quality of Dalton McGuinty’s leadership and Ontario’s woes. We also discussed how Ontario can remain prosperous with a diminished manufacturing sector. Since my friends are huge McGuinty supporters, which I am not, they sarcastically asked me for my brilliant solution for Ontario’s issues.

I responded that I had not given this issue the proper thought, but that as part of the solution Ontario needs to expand its Research and Development sector. I suggested that Ontario be more targeted in its R&D program and cut-out fringe R&D claims. I proposed monetizing R&D credits which would allow companies who have unutilized R&D credits to sell or exchange them for cash, thus ensuring true R&D companies can further fund their development.

The irony of this situation continued when I reached for the business section. Staring at me on the first page was an article by Barrie McKenna titled “A glaring need to determine what is legitimate R&D.” ( If you wish a SR&ED primer, you can read my two blogs, The benefits of undertaking SR&ED and SR&ED-ing the Misconceptions).

In the article, Mr. McKenna discusses Federal Taxpayers’ Ombudsman Paul Dubé’s probe into the $3.5 billion annual SR&ED tax credit. Mr. McKenna notes that rather than identifying what was wrong with the program, Mr. Dubé quietly closed the probe into SR&ED with a truncated paper on the tax agency’s website explaining that there were too few complaints and insufficient evidence to reach any conclusions. Mr. McKenna further surmises that the closing of Mr. Dubé’s report will allow Prime Minister Stephen Harper to make the changes his government desires in the upcoming March 29th budget. Mr. McKenna notes that the Prime Minister embraced a report headed by Tom Jenkins, chairman of Open Text, that urged the government to limit SR&ED’s refundable credits, tighten the rules and then use the savings to support more strategic financing of R&D.

It will be interesting to see if the next federal budget addresses the SR&ED issue. From a more macro perspective, what impact would targeted R&D have in assisting Ontario to morph its economy?  As I have given the idea more thought, I think the reality is R&D would only form a small part of any solution.

So what other alternatives does Ontario have? Many including the Premier think maybe the "Ring of Fire" a mining area in Northern Ontario can stimulate the Ontario mining sector, as his government describes it as "the most promising mining opportunity in Canada in a century."

Maybe Ontario will never recover or replace its manufacturing base? Is Ontario as Mr. Ibbitson states destined to become two Ontario's. "The first Ontario is Toronto, a Canadian New York whose economy is powered by financial services, education, biosciences, cultural industries, tourism and more" and a second Ontario, "outside Greater Toronto that is a whole lot of Ohio, as the manufacturing sector follows other Great Lakes economies into rustbelt status."

What do you think? How would you re-make Ontario?

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Confessions of a Tax Accountant & an Ode to the Toronto Maple Leafs

For all those readers waiting with bated breath, yes, Confessions of a Tax Accountant will be back by popular demand (if two emails requesting such constitutes popular demand).

Those misguided individuals who have been reading my blog from the beginning will recall that last year during income tax season I wrote a weekly piece called Confessions of a Tax Accountant. These posts highlighted contentious personal income tax issues that arose in my practice during tax season and personal income tax issues that I thought would be of interest to readers.

I will start this year’s series next week (I will try and clarify the confusion surrounding the interaction between the new Children's Arts Amount, the Children's Fitness Amount and claiming child care). However, my first confession of the year is that because of client projects, integrating a new practice into our firm, the ridiculous amount of personal income tax returns now done in April (because the T-slips are often issued so late) etc. my confessions may be more sporadic in 2012.

Ode to the Toronto Maple Leafs

One advantage of having your own blog (besides the groupies) is that you can blog about whatever is on your mind. So last week as yet another Toronto Maple Leafs season appeared to be dissolving in front our eyes, I felt compelled to write this ode to the Maple Leafs, based on the Frankie Valli and the Four Seasons song, Oh What a Night. After writing this ode, the Leafs fired Ron Wilson and hired Randy Carlyle, so I thought maybe this ode may be a bit premature. However, after observing the Leafs terrible defensive zone coverage against the Bruins last night, winning a Stanley Cup would seem to require Divine Intervention, so I am still posting this ode, as the sentiments unfortunately appear to still be valid.

Don’t ask me how this crap, I mean prose, pops into my head, I have no idea. Hopefully, the above noted Miracle on Ice takes place and I can write another verse about how the Leafs rose from the dead to make the Playoffs and win the Cup (I am on some strong cough medicine). So here it goes:

Oh, what a night
Early May back in '67
A little boy saw the Leafs win the cup and felt like he had gone to heaven
What a very special time for me
Cause I remember what a night

Keon, Mahovlich, Baun, Horton and Bower were just some of the names
When Armstrong scored to make it 3-1, who knew it would never be the same
45 years and counting without a big game
Oh, what a Cup, Oh what a night

Oh, I was 8 and got a happy feeling when they drank from the Cup
It was great beating the Habs and we did not even need to use Duane Rupp
I darted like Red Kelly about the room
As I recall, the celebration ended much too soon
Oh, what a victory, Oh what a night

Forty-five years later it is still a mesmerizing sight
It was everything I dreamed it would be
Sweet Stanley, Oh, what a night

Early January, 2012, I felt a rush like a rolling bolt of thunder
Playoff hope spinnin' my head around and taking my body under,
The Leafs looked secure atop the standings, Oh, what a heady month

But I got a funny feeling as February grew longer
In the dressing room the boys looked tense and somber
The hope of January ended much too soon.
Oh, just another sad season ending with a swoon

Why is it taking so long to see the playoff lights
Now it all seems so wrong, when things looked so bright
Oh, what a team, what a drought

Okay, I know what you are thinking; Mark stick to the tax, estate and financial blogs. I know, I know.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Is Personal Income Tax Planning a Fallacy for most Canadians?

As a tax accountant, I could make your head spin with all the income tax planning machinations I can undertake for corporate income tax clients in the correct circumstances.

But what about personal income tax planning? In my opinion, for the average middle class Canadian, personal income tax planning is almost a fallacy. Surprisingly, probably to most, personal income tax planning for higher income earning Canadians is also somewhat restricted. However, there are greater planning opportunities available that I discuss below.

I understand the "middle class" has stratified over the years and is not easily definable; but for purposes of this post, I will define middle class as a family, with either one or both spouses earning T4 employment income with a family income between $70,000 to $100,000, with no self-employment income (self-employment provides for some tax planning opportunities).

To be clear, I don’t consider the maximization of personal and family credits, medical expenses credits or charitable tax credits, etc. as tax planning. Although there can be some planning involved, the reality is that in most cases if you purchase an income tax software program, these credits will be maximized automatically for you.

Why do I say income tax planning is a fallacy for the average person? Because other than purchasing a RRSP, for all intents and purposes, there are no significant planning opportunities. Really, think about it. I am sure you have already read several income tax planning tip columns in your favourite newspaper this year; what was the best tip you read? That you can claim your safety deposit box fee? For those who incur employment expenses, maybe you can claim some employee expenses such as your car on your return. 

Even as I review a tax tips column I wrote for Jim Yih’s Retire Happy Blog last year, I am struck by how limited income tax planning is for the average person.

For all you socialists out there, I will tell you that as usual, higher income and higher net worth people do have some personal income tax planning opportunities. But, compared to the planning possibilities my corporate clients have, they are still very limited in nature.

Some personal income tax planning opportunities available to higher income Canadians (and in some cases middle income earners) include:

Income Splitting- For example, the use of a prescribed loan.

Capital loss utilization- See the 3rd paragraph from the bottom of this blog post on transferring capital losses to a spouse.           

Rental Properties – For those with enough disposable income to purchase a rental property, I discuss the income tax implications of purchasing a rental property in this blog post.  

Flow Through Shares- Higher income Canadians often purchase Flow Through Shares to reduce their income tax liability. I discuss this opportunity in this blog post.

Interest deductibility- In this blog post I briefly discuss how to mitigate your income tax exposure when claiming investment interest.

This post is not like an April fool’s joke where you reach the bottom and I provide you with ten great personal income tax planning tips. Unfortunately, all I can tell you is that for most Canadians, the personal tax planning joke is on you.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.