quadrantadmin, Author at Quadrant

Surge in number of Canadians who can’t pay their debts has economists worried — and scratching their heads

Nearly 2,000 Canadian consumers filed for insolvency in September, a 19 percent increase from a year ago. This represents a potentially worrying development for the nation’s household debt landscape. Economics professor Stephen Gordon calls the data “perplexing” given the favorable economic landscape. Indeed, other data related to household debt – such as mortgage arrears – is more positive. Others have pointed out that the number insolvency filings is low as a proportion of the entire Canadian workforce (0.06%). Nonetheless, if next month’s insolvency data shows a worsening trend, that could be a troubling sign.

“While the increases are coming from low levels, the trend is a worrying development that suggests cracks are starting to appear in Canada’s household debt landscape.”

Better Business Bureau gives tips on recognizing CRA scam

It’s a recurring con that reappears every tax season with a different spin. Getting notified by the CRA that you have taxes owed can be scary, and it can get a lot scarier when it’s a scammer threatening you with demands to pay immediately or face an arrest or even jail time. These scammers usually call to demand money or try to get your personal information by saying you have a tax refund coming. There are ways to tell if a scammer is targeting you. These include threatening language, asking for credit card details as well as personal information. If you have been scammed, or think you have, immediately contact Service Canada at 1-800-206-7218.

“The CRA tax scam call is one of the most frequent scams we hear about at BBB (Better Business Bureau),” says BBB president and CEO Peter Moorhouse. “Although international law agencies have intervened, and even shut some of these call centres down, the scam is still very prevalent, especially with tax season approaching.”

The clearance certificate: what it is, and why it matters

When someone passes away, estate executors are responsible to keep seven years of the deceased tax receipts, unless a clearance certificate is obtained. Appropriate documentation is needed, and a TX19 form has to be filled out and filed. Executors, after obtaining the certificate, can distribute the assets of the deceased’s estate without worrying about owing taxes down the road. Once the beneficiaries have approved, the certificate can be used to close the estate allowing everyone to move on.

Key Takeaways:

Obtaining a clearance certificate is not required by law, but an executor risks incurring tax liability without one.
Requesting a clearance certificate requires filing Form TX19 along with all required estate documents and may take about 6 months for processing.
If estate assets are to be distributed before obtaining a clearance certificate, executors should reserve assets valued at two to three times any expected tax liability.

“One of an executor’s most important jobs is to obtain the clearance certificate: written confirmation from the Canada Revenue Agency that the deceased (and the deceased’s estate) has paid all taxes and associated interest and penalties up to the date the certificate is issued. “

Canadians are passing up billions of dollars in pension plan contributions from their employers – The Globe and Mail

It is hard to believe that many employees either do not contribute at all or do not contribute the maximum amount allowed to their pension plan. A recent study determined that 3 to 4 billion dollars a year are passed up in Canada because employees were not part participating in their employer match programs for retirement savings. The study estimates that only 60% of employees participate in retirement plans and of those that do participate 20-25% do not make the maximum contribution. One of the reasons for non-participation is the complex and confusing amount of paperwork involved in voluntary participation. A recent trend toward auto enrollment is increasing participation in some company plans. You can accumulate lots of money over time simply by taking advantage of the full benefit of your pension plan.

“Personal finance so often veers into tips for saving a tiny bit of money here and there in hopes of accumulating into something significant over time. Getting full value from your company’s pension plan is a way to accumulate lots of money over time.“

Are tax-free workplace pension plans an idea whose time has come?

When tax-free savings accounts accounts were created, Canadians gained incentives to save more money for their retirement. Over the years, pension plans have become smaller or even non-existent at some businesses, but a tax-free option could improve those numbers. Tax free pension plans could take some burden off the government social assistance programs, while making it easier for employers to provide these plans. Pensions that are not taxed as income could also improve business environments as employees have an incentive to work and save.

“Better options are needed to support employers’ efforts to offer pension plans that help their entire workforce — benefitting not only workers, but also employers’ business objectives. For example, financially secure employees are better positioned to meet their retirement goals and retire on time, which supports employers’ succession planning needs.”

Can I reclaim the withholding tax on my U.S. stocks?

Claiming U.S. withholding tax is only possible in recognized tax-deferred registered accounts and non-registered accounts. The U.S. only recognizes an RRSP and not an RESP or TFSA. Therefore, for a registered account, it is only possible for RRSP account and any foreign taxes in an RESP and TFSA cannot be recovered. Outside a registered account, you can claim withholding taxes on your Schedule 1 or Form W8 for U.S. dividends, which ensures you don’t pay tax on the same income in both Canada and the foreign jurisdiction.

Key Takeaways:

Inside an RRSP there is no need to report anything for foreign taxes paid, and there is no immediate recovery of the tax, either.
Foreign taxes paid in an RRSP will reduce the amounts of money available for distribution to you on retirement.
Foreign investments in RPPs, PRPPs, RRSPs, RRIFs, RESPs, RDSPs, or TFSAs do not have to be reported on a T1135 Foreign Income Verification Statement.

“RRSPs are exempt from U.S. withholding taxes but RESPs and TFSAs are not. This is because the U.S. does not recognize them as tax-deferred registered accounts.”

With taxes, you’re guilty until proven innocent

The presumption of innocence, a cornerstone of Liberal Democracy, is essentially flipped in Canada when it comes to one matter: taxes. Here one is guilty until proven innocent. There is some justification for this. Taxpayers tell the Canada Revenue Agency how much they owe, not vice versa. The taxpayer is presumed to have all the relevant information. The problem is that this is not always the case. There have been cases where taxpayers have had money stolen from them, and the Canadian Revenue Service presented them with a bill. In such cases, the reversal of presumption of innocence is not justified.

“The idea is that the burden of proving innocence is on the taxpayer because the taxpayer – and not the Canada Revenue Agency – has the information required to properly determine his or her tax liability. Except that this isn’t always the case.“

Personal Investor: When investing turns into wealth management – BNNBloomberg.ca

As we age, changes in our investment portfolio, like our split between equity and fixed income, will likely shift. Younger people will typically allocate more to equities. As we approach retirement, depending on our circumstances, our portfolio will shift to safer, lower yield investments without as much risk. Asset allocation is best discussed with your financial advisor to ensure there is the right mix to achieve your retirement goals. Keep in mind that there is such a thing as being too safe as well.

“The most obvious shift from investing to risk management is reflected in how assets are split between equities and fixed income.”

Are you self-employed? Know your tax obligations

Canadians who are self-employed have slightly different tax obligations that they need to be aware of to ensure that they stay on the right side of the CRA. For instance, one difference is that while their tax return can be submitted later (e.g. their 2018 tax return was due on June 17, 2019), but any money owing on their 2018 return needed to be paid by April 30, 2019 or be subject to a late-filing penalty. Income earned from self-employment also requires you to keep good records of your business activities as they may be needed to support any tax claims you made on your return, if the CRA asks you to provide proof. It’s important to retain these records for six years.

Key Takeaways:

Individuals need to report their income from any business they run themselves or with a partner in that year’s tax return.
Any earned income that has no tax withheld or does not have enough tax withheld during the year, may require payment of tax by instalments throughout the year.
Sources of income can be from rental, investment, or self-employment income, if you receive certain pension payments, or if you have income from more than one job.

“If you own a business or carry out a commercial activity, keep complete and detailed records.”

How will a pension buyback impact your income tax return?

Public sector pensions use formulas based on the length of service made by an employee to determine that employee’s pension when he or she retires. A pension buyback allows an employee to buy an amount of service, or time, that increases the pension’s value. This buyback amount can be tax deductible, but usually, it will need to be planned carefully to maximize the benefits. For example, a large buyback can result in it being greater than your income for that year. Since you can’t deduct more than your income nor can you carry forward non-deducted amounts to a following year, it might be better for it to be structured over several years. Another option is to pay for some or all of it with registered in contrast to non-registered funds.

Key Takeaways:

In the federal government’s defined-benefit pension plan, a pension buyback is a legally-binding agreement “to purchase a period of prior service to increase your pensionable service under the federal public service pension plan.”
When using a transfer from your Registered Retirement Savings Plan (RRSP), you won’t get a tax deduction for the past service you purchase.
The right solution will depend on the availability of funds to use for the buyback, the source of your funds, and the size of the buyback amount relative to your taxable income.

“Even if you can deduct the cost in one year, it’s usually better, from a tax standpoint, to take the deductions over several years, if you have that option.”