Posts Tagged ‘payroll’

What are the pensionable earnings for CPP in 2014?

CPP Pensionable Earnings Rise for 2014

The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2014 will increase to $52,500 in 2014, which is an increase from $51,100 in 2013, while the basic exemption remains at the current $3,500 level.

 

While employee contribution rates remain unchanged at 4.95% and the self‑employed contribution rate will remain unchanged at 9.9%, maximum contributions will still rise for everyone.

The maximum employer and employee contributions are $2,425.50 each and the maximum self-employed contribution will be $4,851.00. The maximums in 2013 were $2,356.20 and $4,712.40.

Should I continue to contribute to CPP?

Canada Pension Plan Administrative Concession for 2012

Prior to 2012, persons turning 65 were no longer able to contribute to CPP, even though they were working. Starting in 2012, persons aged 65 to 70 could continue to make contributions to CPP, if they were still working. What such seniors or their employers may not have realized is that unless they completed form CPT30 Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election (CPT30) to elect out of paying CPP premiums for 2012, premium payments must be made. In this case, seniors and their employers would be subject to an assessment for the premiums if not paid.

CRA has advised that for the 2012 year only, an administrative concession has been adopted to deal with those who may not have been aware of this change. This administrative concession will be applicable only for the transition year 2012. For years 2013 and subsequently, the election must be filed.

For those seniors whose intent was not to contribute to the CPP for year 2012, but no CPT30 election was filed, the CRA will accept CPT30s for year 2012 dated as far back as December 2011, or as far back as they would have been able to file such an election. In order to submit a CPT30 election dated December 2011, the individual would have had to be at least 65 years of age and would have had to have been in receipt of a CPP/QPP retirement pension prior to December 2011. Otherwise, the earliest a CPT30 could be dated would be the month the senior satisfied the two conditions – that of being 65 years of age and also in receipt of a CPP/QPP retirement pension, keeping in mind that the election takes effect the first of the following month.

This is welcome news from CRA and should be a relief for the many seniors across the country that may have been affected by this election requirement.

Who is Considered a Resident for Canadian Tax Filing Purposes?

Knowing your residency status and tax filing obligations can save you from expensive penalties.

 For most individuals, the question residency for Canadian tax filing purposes is a straight-forward one. If you reside in Canada for 183 days or more, you’re a resident for tax purposes, and you must file a tax return if the taxes due on your world income less deductions exceeds your credits. The question of residency gets trickier when you spend part of the year outside Canada. 

Immigrants and emigrants are often referred to as “part-year residents” for tax purposes. Part-year residents are taxable on world income for the period in which they are resident in Canada. For the remainder of the year, they are taxed as non-residents.  

“Immigrants” become residents of Canada once they establish their permanent residency in Canada. “Emigrants” become non-residents of Canada once they establish permanent residency in another country. In short, an immigrant will file a tax return in the year of immigration and report on world income earned after immigration.

An emigrant will file a final tax return for the year of emigration which includes world income earned prior to emigration. A departure tax will be applied to capital gains resulting in the increase in value of taxable assets as of the date of departure. Some people are considered “deemed residents.” This includes those who visit Canada for 183 days or more in the year, students studying abroad temporarily or members of the Canadian Armed Forces, those working in a foreign country under a program of the Canadian International Development Agency, or those who work as a high commissioner, ambassador, officer or servant of Canada, for example. Also included in the definition are spouses or children of those taxpayers.

It’s Your Money. Your Life. Failing to file a tax return and paying your taxes on time can generate expensive penalties that erode your wealth and, in some cases, your health. Be sure you know your tax filing obligations, especially if you are not sure of your residency status.

This article was written by Evelyn Jacks who is the best-selling author of 50 books on tax and wealth management and President of Knowledge Bureau.

Why should you withdraw from your RRSP?

Are RRSPs the Holy Grail of Retirement Savings or the Holey Grail?

 

In March 2011, I wrote a blog post disputing Jamie Golombek’s assertion that RRSPs are not the Holy Grail of retirement to Canadians. In May 2011, I followed up the above noted blog with another post in which I attempted to reflect that RRSPs are only accessed under financial duress.

 

Based on the above two blog posts, clearly my opinion has been that RRSPs are the Holy Grail of retirement planning for Canadians. However, I am beginning to wonder if my personal experience in dealing with higher net worth people who tend not to “touch” their RRSPs, has distorted my view of the situation and RRSPs are really a “Holey Grail”.

The catalyst that has led me to second guess myself as to whether RRSPs are really sacrosanct is a recent poll (of 2,013 people) undertaken by the Scotiabank on
Canadians’ mindset regarding RRSPs.

The poll states that “one-third of RRSP holders (36 per cent) reporting taking money out of their RRSP this year, up from 23 per cent back in 2005”. The poll also reported “the average amount Canadians withdrew from their RRSP was $24,531. In 2005, the average amount Canadians withdrew from their RRSP was $10,716″. 

What I personally found shocking about the poll was that “Canadians aged 55+ (41 per cent) are more likely than 18-34 year olds (32 per cent) and 45-54 year olds (30 per cent) to have taken money out of their RRSPs”. Although one must take into account people greater than 55 years old will have larger RRSPs from which to withdraw, one would think that of anyone, those closest to retirement would consider their RRSPs as Holy Grails. However, as noted by the
Canadian Investor in the comments area, some +55 year olds may be accessing their RRSPs as part of their retirement plan, in essence lowering and/or smoothing their income tax liability and funding retirement expenses.

I summarize the poll numbers below (Note: I have used the numbers in the Scotiabank press release and from an article in the Financial Post by Garry Marr on “
What not to buy with your RRSP”, to pull these numbers together, as I could not directly access the survey).

Reasons People Withdraw from Their RRSPs


Buy a first home – 40%

Pay down debt – 16%

Convert to a RRIF – 15%

Cover day-to-day expenses – 14%

Home renovations – 8%

Vacations – 6%

Education – 4%

Medical – 3%

Holy Cow – Did you really use your RRSP for a Suntan?


So, let’s step back for a moment to review the reasons provided by Canadians for withdrawing money from their RRSPs and examine whether my postulation that RRSPs are the retirement Holy Grail is flawed.

In total, 14% of RRSP withdrawals are used for home renovations and vacations; two fairly self-indulgent and discretionary expenses, that most would suggest should not be funded by a RRSP. What is scary is that number would be much higher if we added the percentage of day-to-day expense withdrawals that were for discretionary expenses such as tablets and TV’s. Ouch, not much of a holy grail.

Holy or Holey?


The Scotiabank poll still reflects that 64% of the population do not access their RRSPs and that percentage would move closer to 70% if we exclude the legislated conversion of RRSPs to RRIFs, which are not true withdrawals.

If you believe that first time home purchases are technically just loans from your RRSP and not true withdrawals, the percentage increases to almost 85%. Finally, if you believe paying back debt is just a result of financial duress and not because RRSPs are holey, it could be argued the percentage of people accessing their RRSPs is a relatively small narcissistic percentage.

So let’s look at the top two reasons for RRSP withdrawals in greater detail.

Buying a First Home


As noted above, the largest single reason for withdrawing money from a RRSP is the purchase of a first home. This is an extremely complex issue to analyze, because the CRA has condoned the use of RRSP funds for first-time home buyers. Many people make RRSP contributions they would never have made in the first place, knowing they will get an immediate income tax deduction and tax refund, while keenly aware that they will utilize these RRSP funds to assist in purchasing a home in the short-term.
 
In the Scotiabank press release, Bev Moir, a ScotiaMcLeod Wealth Advisor, said the following: “Investing in a home and investing in retirement are both important parts of life and finding a way to balance both is key. If Canadians are going to take money out of their RRSP for a major purchase like a house, they need to have a plan in place to return that money as soon as they can so they don’t limit their options in the future. “  

The problem I have with Ms. Moir’s statement is that it ignores the reality of the situation. People buying their first home typically struggle to just repay the yearly minimum
Home Buyers Plan (HBP), which is re-payable over 15 years. In my CA practice, it is my experience that many people do not make the required yearly HBP repayment. The consequence of non-payment is that the required payment amount becomes taxable income in that year; which results in additional income tax and a further deterioration of potential retirement funds. Even where people have a plan and make the yearly repayments, years of tax-free compounding are forgone and their future retirement options may be limited to some extent.

Here is what Rob Carrick of the Globe and Mail has to say on this topic. In his book
How Not To Move Back In With Your Parents Rob says that when people ask him should they contribute to their RRSP so they can withdraw money under the HBP his answer is “Uh no. You contribute to an RRSP to save for retirement. If you need some of your RRSP to afford a house, fine. But there’s too much of a tendency for people to see RRSPs as a savings account from which money can, if necessary, be withdrawn.”

Personally, I don’t think using a RRSP to purchase your first home negates my Holy Grail argument. The intention of the HBP program is in essence to provide a 15 year or shorter term “self” mortgage, while keeping your RRSP whole; however, like any legislation that has more than one objective, both objectives cannot be fully satisfied.

Repayment of Debt


I discussed the issue of excessive Canadian debt in my blog, Debt – An Ugly Four Letter Word. Accessing RRSP funds to pay down debt is a blog on its own, so for now, I will only say, often RRSP withdrawals related to debt repayment are accessed under financial duress. Now whether this duress is self-inflicted due to excessive discretionary spending is another question entirely.

Rob Carrick in his book states that “there are better ways to accomplish this very worthwhile objective” than using your RRSP to repay debt. I discuss some of these ways in my above noted Debt blog post. Rob also makes a great point in noting that the statutory withholding tax rate attributable to RRSP withdrawals is often less than the person’s marginal income tax rate, which can result in an income tax shortfall, which creates yet another new debt. In that regard, if a RRSP is accessed by a taxpayer in the 31% marginal tax bracket (
the tax bracket the average Canadian would be in) to pay down debt, they will only be applying approximately $69 of each withdrawal to pay down their debt after the CRA takes its tax bite.

My Final Comment


At this point, I can only suggest that RRSPs are the Holy Grail for at least 70% of Canadians. However, for a disturbingly large segment of the population, RRSPs are the Holey Grail. For this percentage of the population, instant self-gratification, whether in the form of a nicer house, vacation or the latest electronic gadget, is of greater importance, than a distant concept called retirement. As for the high percentage of 55+ year olds making RRSP withdrawals, I am very concerned for their retirement if the withdrawals are not being made as part of their retirement plan.

This article was written by The Blunt Bean Counter and posted on Dec 3, 2012 at www.thebluntbeancounter.com.

 

Do you use sub-contractors within your business?

Do you use sub-contractors within your business? If so, you are required to file T4A slips for each sub-contractor that you hire.  If you are in the Construction field, then the slip required for each sub-contractor is a T5018, rather than the T4A.

Canada Revenue Agency (CRA) requires that a T4A or T5018 slip must be filed if you have made any of the following payments listed below on behalf of an individual or business:

  • The total of all payments in the year was more than $500; or
  • You deducted tax from any payment

Also if you are a payer, such as an employer, trustee, an estate executor (or liquidator) an administrator or corporate director, and you paid any of the following types of income:

  • Pension or superannuation;
  • Lump sum payments;
  • Self-employed commissions;
  • Annuities;
  • Patronage allocations;
  • Fees or other amounts for services; or
  • Other income such as research grants, certain payments under a wage-loss replacement plan, death benefits, and certain  benefits paid to partnerships or shareholders.

The T4A/T5018 slips require the name of the contractor (personal or business), their current address, and the Social insurance number/Business number of the contractor.

These T4A slips must be filed and given to the recipient on or before the last day of February following the calendar year to which the information return applies, whereas the T5018 slips must be filed 6 month after the corporations fiscal year end.  The minimum penalty for late filing the T4A/T5018 return is $100.00 and the maximum penalty is $7500 and $2500 respectively.  CRA has been lenient regarding T4A/T5018 slip submission in the past but are now starting to enforce this requirement.

Padgett Business Services will be providing this additional service.  Please call us at 403-220-1570 for further information.

Daniela Hops, CMA

Are you eligible for the small business hiring credit?

Minister Shea highlights hiring credit for small business

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

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

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

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

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

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

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

Do you know the 2012 changes for the Canada Pension Plan?

Canada Pension Plan changes for individuals aged 60 to 70 — January 2012

Did you know…?

Significant changes to the Canada Pension Plan (CPP) will occur in January 2012 to reflect the way Canadians are living, working, and retiring. The changes will affect both employees and self-employed workers aged 60 to 70. The changes will not affect you if you are already receiving a CPP or Quebec Pension Plan (QPP) retirement pension and you remain out of the workforce.

What’s new?

Contribution changes (what you will pay):

  • All workers aged 60 to 65 will be required to make CPP contributions—even if they are receiving a CPP or QPP retirement pension.
  • Workers who are 65 to 70 years of age and who are receiving a CPP or QPP retirement pension will be required to contribute unless they have elected to stop their CPP contributions. To elect to stop contributing to the CPP, workers will have to be at least 65 years of age and do the following:
    • Employees (who may also have self-employment income) will have to complete Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election and give a copy to their employer. In addition, employees should send the original to the Canada Revenue Agency (CRA). The election will take effect on the first day of the month after the employee gives the form to their employer.
      • Note: The CRA has been accepting Form CPT30 since December 1, 2011, but only from those employees who as of December 31, 2011 are at least 65 years of age and in receipt of a CPP or QPP retirement pension.
    • Self-employed workers will have to complete Schedule 8, CPP Contributions on Self-Employment and Other Earnings, when they file their income tax and benefit return for 2012 or any subsequent year. The election will be effective on the first day of the month referred to in Schedule 8.

Benefit changes (what you will receive):

Changes to CPP retirement pension benefits began in 2011 and will continue to be phased in until 2016. If you are retired, or are planning your retirement, go to www.servicecanada.gc.ca/cppchanges for tools and information on how the changes to CPP retirement pension benefits may affect you.

Statistics

  • Since 1998, Canada’s average retirement age has been increasing. 
  • From a low of 22% in 1996, the employment rate of individuals 55 and older climbed steadily to 34% in 2010.

According to Statistics Canada’s Labour Force Survey, the average retirement age was 60.9 in 1998, and it rose to 62.1 in 2010.

How do the court’s determine employee vs. contractor?

Tips from the Tax Court: Employee vs. Independent Contractor Status

In the ongoing saga to evade the taxman as much as is legally possible, sometimes characterization is key. The Income Tax Act (the Act) taxes sources of income. Section 3 identifies the following sources: employment, office, business, property, capital gains and other. Since the Act only provides deductions from employment income in limited circumstances (subsection 8(2) prohibits the deduction of any employment-related expense unless it is specifically authorized elsewhere in the Act), it is much more advantageous for a taxpayer to be characterized as an independent contractor because deductions from business income are presumed unless the Act specifically prohibits them in subsection 9(1).

Other advantages derive from independent contractor status. For one, employment income is always calculated on a calendar-year basis, whereas business income is determined on a fiscal-period. Secondly, tax is withheld on employment income at the source and is held in trust for the Crown, but business income is not subject to any systematic withholding at the source; independent contractors must make installment payments on account of their estimated tax payable. Finally, employment income is generally taxable on a cash basis whereas independent contractors are taxable on accrual, no matter when the taxpayer receives the income.

With this in mind, we will now examine some of the characteristics that the court examines in order to determine source of income from a business as opposed to an ordinary employment relationship. Some of the defining characteristics that have been elicited from centuries of common law jurisprudence are the degree of control, ownership of tools, chance of profit/ risk of loss, and the degree of integration.

Older cases identified an employment relationship as one of a master-servant, however today technology and societal advancements have made it possible, in fact common, for employees to have skills that are beyond the control of their masters. Therefore, some of the older tests are not as helpful. Recently, the courts have stressed the intent of the parties as revealed by their actions and their agreements. No test is truly determinative however and the onus is on the individual to establish the nature of his/her particular relationship.

After a comprehensive review of the case law, Bowman CJ in Lang v MNR (2007), in determining that the appellants were independent contractors, stated: “intent is a test that cannot be ignored but its weight is as yet undermined. It varies from case to case from being predominant to being a tiebreaker. It has not been considered by the Supreme Court, [however]…trial judges who ignore intent stand a very good chance of being overruled in the Federal Court of Appeal.”

It appears as though intent will play an increasingly important role in the characterization of income from either an employment relationship or a business; all taxpayers should welcome this development as it respects their relationships and intentions in an unprecedented manner in this area.


Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients. His subject is a bitterly disputed, and expensive one and he reflects on his experiences in reading recent cases.  Published by the Knowledge Bureau at www.knowledgebureau.com.

How do the recessions compare?

Workers Better Off During Last Recession

Despite volatile times, Canadian workers were better off during the last economic recession than during the two recessions in the 1980’s and 1990’s. This news comes from an article released by Statistics Canada on September 20, 2011, which outlined the factors involved. Information was derived from the study “Workers Laid-off During the Last Three Recessions: Who Were They, and How Did They Fare?”

In the early 1980s, 2.9% of workers were laid off either temporarily or permanently. In the 1990s, 2.7% of workers were laid off, while only 2.0% of employees were laid off between October 2008 and December 2010.

Workers also fared better due to the fact that the last recession was also much shorter in duration than previous recessions. In terms of employment, it took 27 months to return to its pre-downturn level, while it took 40 months during the early 1980s and 53 months during the early 1990s.

Education planning pays off in recessionary times. Common characteristics were found between workers who were more likely to be laid off. These workers were typically between 15 and 24 years of age, held no university degree, had less than two years of seniority, or were employed in the goods sector.

Holding a university degree seemed to improve workers chances of finding a job in the short term. Seniority also played a factor, as well as initial expectations to be recalled.

While many Canadian workers are still feeling the effects of the recession, conditions are slowly starting to improve.  Unemployment levels in 2011 continue to decrease overall, with minor fluctuations over time. The unemployment rate in Canada was last reported at 7.5 percent in November of 2011.

Published by the Knowledge Bureau at www.knowledgebureau.com

What is the Basic Personal Amount for 2012?

Basic Personal Amount to Rise to $10,822 in 2012

The federal government has announced increases to federal tax brackets, non-refundable and refundable credits based on an indexing increase of 2.8% for 2012. This brings the Basic Personal Amount, Spousal Amount and Amount for Eligible Child up to $10,822. The latter two amounts will be further increased to $12,822 under the new Family Caregiver Tax Credit. The indexing adjustment also raises the top tax bracket up to $132,406; this is the amount of taxable income that will be subject to the top federal tax rate of 29%.

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