Commute this pension or not? Part 2

Commute this pension or not? Part 2

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In October 2016, I was quoted in an article about whether to commute a defined-benefit pension.

A reader asked if my answer about whether to commute Georgi’s pension would be different if the following variables were changed:

  • His pension is indexed.
  • It is an Ontario Teachers’ pension.
  • He has decided to work until age 65 and makes approximately $150,000 per year.

In the original article, Georgi is 50 years old and no longer working. The health of his company was questionable and the pension was not indexed to inflation. After weighing his options, Georgi took the commuted value, transferring the eligible amount to a Locked-In Retirement Account (LIRA) and taking the balance as taxable income.

Georgi had 26 years of service and would receive a lump sum of $800,000 if he took the commuted value. At a 53% tax rate in Ontario, Georgi would be left with $394,800 in his LIRA and $202,600 in an after-tax non-registered account.

Read: Commute this pension or not?

Georgi’s changed circumstances

  • Pension is indexed. An indexed pension will provide Georgi with an income stream that will increase in value every year. There are not many indexed pensions, so staying in the plan can provide Georgi with an income that can continue to cover his expenses when his cost of living increases due to inflation.
  • Pension is administered by Ontario Teachers’ Pension Plan. This pension plan is large, healthy and well-run. Georgi can be comforted knowing that his pension benefits are more stable than they would be in the company used in the first example. In addition, Georgi and his wife Liesel will be able to access extended health and dental benefits offered in this pension plan, unlike at Georgi’s former company.
  • Georgi decides to keep working to age 65, with an income of $150,000 per year. This fact would result in income tax consequences should Georgi commute his pension. There would be increased income tax for Georgi to pay, with the same amount of pension monies flowing into his LIRA.

Read: 5,000 people retire each week. Are we ready?

The solution

With Georgi working until age 65, he has an income coming in, so he doesn’t need the cash flow from commuting his pension. With the extra benefits and the indexation of his pension, Georgi decides to leave his pension intact and wait to draw on his full pension at age 65.

As you can see, no two situations are the same. Encourage clients to speak to you before deciding to commute or stay in a defined-benefit pension.

Would you do the same thing? Email us or comment below.

(Why?)

Published at Fri, 03 Feb 2017 16:13:01 +0000

Tax-News.com: British Columbia Issues Reminder On Carbon Tax Relief

Tax-News.com: British Columbia Issues Reminder On Carbon Tax Relief

by Mike Godfrey, Tax-news.com, Washington

02 February 2017

The British Columbia Government has issued a reminder to commercial greenhouse operators that the deadline for applications for this year’s greenhouse carbon tax relief grants is March 20, 2017.

The annual grant covers 80 percent of the carbon tax that commercial greenhouse growers paid on the natural gas and propane they used for greenhouse heating and CO2 production in the previous year. Commercial vegetable and floriculture producers, wholesale nurseries, and forest seedling nurseries are eligible to apply for the grant.

The Ministry of Agriculture expects the processing of applications to be completed by May 30.

The Government said that since the relief grant was made a permanent program in 2013, commercial greenhouse operators have received grants of around CAD7m (USD5.4m) a year.

(Why?)

Published at Thu, 02 Feb 2017 00:00:00 +0000

Tax-News.com: British Columbia To Amend Foreign Buyers Tax

Tax-News.com: British Columbia To Amend Foreign Buyers Tax

by Mike Godfrey, Tax-news.com, Washington

31 January 2017

The British Columbia Government is to amend the foreign buyers tax to exempt those with work permits.

Premier Christy Clark said: “We are going to lift the foreign owners tax on people who have work permits who are paying taxes and living in British Columbia, as a way to encourage more people to come.”

An additional property transfer tax applies on residential property transfers to foreign entities in the Greater Vancouver Regional District. Since August 2016, the tax has been applied at 15 percent on the fair market value of the foreign entity’s proportionate share of a residential property located in whole or in part of the Greater Vancouver Regional District, excluding Tsawwassen First Nation lands.

Clark’s office is expected to release full details of the exemption shortly.

(Why?)

Published at Tue, 31 Jan 2017 00:00:00 +0000

Tax-News.com: OECD Progresses With MAP Peer Review Work

Tax-News.com: OECD Progresses With MAP Peer Review Work

by Ulrika Lomas, Tax-News.com, Brussels

31 January 2017

The OECD is seeking taxpayers’ input on the mutual agreement procedure frameworks in place in the second batch of countries that will now be peer reviewed under Action 14 of the OECD’s base erosion and profit shifting Action Plan.

The OECD’s Action 14 proposals concern making dispute resolution mechanisms more effective. The MAP is used to settle disputes between countries and taxpayers concerning cross-border tax arrangements for trade and investment where double taxation of the same income occurs.

The MAP peer review and monitoring process under BEPS Action 14 was launched in December 2016, with the first peer reviews of frameworks in Belgium, Canada, the Netherlands, Switzerland, the UK, and the US underway. The peer review process is conducted in two stages: Stage 1 seeks to evaluate implementation of the Action 14 minimum standard for Inclusive Framework members and Stage 2 focuses on monitoring how countries respond to recommendations resulting from Stage 1.

The OECD is now gathering input for the Stage 1 peer reviews of Austria, France, Germany, Italy, Liechtenstein, Luxembourg, and Sweden. The OECD has asked taxpayers, as the main users of the MAP, to complete a questionnaire on specific issues.

The OECD has requested respondents to not discuss any technical issues relating to the application of a tax treaty provision in a specific case or in the agreement reached via competent authority discussion.

Responses to the questionnaire must be received by February 27, 2017. All responses will be shared with the assessed jurisdiction and all members of the Forum on Tax Administration MAP Forum.

(Why?)

Published at Tue, 31 Jan 2017 00:00:00 +0000

Tax-News.com: Canadian Manufacturers Call For Boost To Tax Competitiveness

Tax-News.com: Canadian Manufacturers Call For Boost To Tax Competitiveness

by Mike Godfrey, Tax-news.com, Washington

31 January 2017

Industry body Canadian Manufacturers and Exporters (CME) has urged the Canadian Government to create a globally competitive business tax structure that supports growth.

CME has released “Manufacturing a Competitive Business Environment in Canada,” the first of five reports resulting from its Industrie 2030 initiative. The project aims at doubling manufacturing output by 2030. CME and its strategic partners held 55 community consultations and received more than 550 responses to its biannual Management Issues Survey.

According to CME, participants identified a range of tax increases and policy changes that are making it more difficult and costly to do business in Canada. It said: “Payroll taxes are rising, carbon taxes and other levies are being expanded, and the corporate tax rate is going up in several provinces.” It added that, by contrast, the new US Administration intends to cut corporate taxes, streamline the regulatory burden on domestic businesses, and has committed to not introduce carbon taxes.

“As a result, if we are to succeed, Canada must act aggressively not only to overcome its current investment image challenges, but to respond to this widening gap. Failure to do so will only accelerate the rate at which manufacturing investment passes Canada by,” CME argued.

Among CME’s recommendations is that Canada’s federal and provincial governments should reform the corporate tax structure so that only distributed profits are subject to tax. It said that business income that is retained and re-invested should be tax-exempt.

CME also suggested that the business structure “should be reformed to reward companies for growing and adding value rather than for being small.” It said the gap between small business and headline corporate tax rates should be re-examined, along with a range of other tax exemptions for SMEs.

At present, the federal small business rate is 10.5 percent compared to the general rate of 15 percent. Provincial corporate tax rates range from 11 percent to 16 percent, with small business rates varying from zero percent in Manitoba to eight percent in Quebec.

Lastly, CME called on the federal Government to establish a national manufacturing and processing tax credit. The intention is that this would reduce the federal corporate tax rate from 15 percent to 12 percent.

(Why?)

Published at Tue, 31 Jan 2017 00:00:00 +0000

No foreign buyers tax for those with work permits: B.C. premier

No foreign buyers tax for those with work permits: B.C. premier

Vancouver

British Columbia is amending its tax on foreigners buying property in Metro Vancouver.

Read: No foreign buyer tax in Ontario

Premier Christy Clark says the levy will be lifted for those who have a work permit and pay taxes in B.C., in order to encourage more people to come to the province.

The 15% foreign buyers tax was implemented last August in a bid to cool skyrocketing real estate prices.

Government data released earlier this month shows there was a steep drop in real estate transactions in the Vancouver area last summer after the tax was introduced.

Tax revenues from property transfers in Metro Vancouver show there were about 15,000 transactions in an approximately seven-week period ending Aug. 1, but the number dropped to a low of about 4,700 for the month of October.

The data shows there were about 1,970 purchases involving foreign buyers in the period ending Aug. 1, compared to 60 in the rest of August and about 200 in November.

Also read:

Beware rising housing prices: CMHC

CMHC hiking mortgage loan insurance premiums for homebuyers

(Why?)

Published at Mon, 30 Jan 2017 14:55:22 +0000

Filing taxes after someone has died

Filing taxes after someone has died

businessman-consoling-woman-death-taxes

Dealing with the death of a loved one is difficult. So, the last thing you’ll want is for a client to have to figure out how to handle someone’s taxes after they pass away.

When discussing a client’s estate plans, consider sharing the following steps with them and their families to alleviate any future stress.

When someone dies, here’s what CRA requires: 

  1. Tell CRA about the deceased’s date of death as soon as possible. Call 1-800-959-8281 or fill out the form on the back of RC4111, What to Do Following a Death (send the form to a tax services office or tax centre).
  2. If the deceased was receiving any of the benefit and credit payments listed below, contact the CRA as soon as possible to stop the payments and, if applicable, transfer them to a survivor:
  3. Tell Service Canada the deceased’s date of death by contacting a Service Canada office or call 1-800-622-6232.

Other important facts

  • People must file a final return after a family member’s death. On the deceased’s final return, the legal representative of the deceased must report all of the deceased’s income from January 1 of the year of his or her death, up to and including the date of death, and claim all credits and deductions that the person is entitled to.
  • Income earned after the date of death may have to be reported on a T3 Trust Income Tax and Information Return. For more information on how to complete the deceased’s final return, see tax guide T4011, Preparing Returns for Deceased Persons.
  • The legal representative of the deceased is required to file any tax returns for the years that the person did not file before he or she died.
  • If an individual who pays tax by instalments dies during the year, instalment payments due on or after the date of death do not have to be paid.
  • The due date for the final return depends on the deceased’s date of death. For more information, refer to RC4111, What to Do Following a Death or tax guide T4011, Preparing Returns for Deceased Persons.

(Why?)

Published at Fri, 27 Jan 2017 16:46:55 +0000

Tax-News.com: EU Provides Update On Ongoing Free Trade Talks

Tax-News.com: EU Provides Update On Ongoing Free Trade Talks

by Ulrika Lomas, Tax-News.com, Brussels

26 January 2017

The European Parliament has provided an update on the trade agreements under negotiation by the EU.

Parliament’s International Trade Committee on January 24 voted in favor of the Comprehensive Economic Trade Agreement (CETA) with Canada. Parliament as a whole is expected to vote on the deal in next month’s plenary session.

In an update, Parliament said that CETA “is far from the only deal the EU is working with.” It explained that negotiations have been concluded in a number of cases, with talks finalized with Ecuador, Singapore, Vietnam, West Africa, and the East African Community. These agreements have yet to enter into force.

In Asia, negotiations with Malaysia are “about halfway, but most difficult issues remain to be resolved.” Four negotiation rounds have been held with both Thailand and Myanmar, but no new rounds have been scheduled in either case. A negotiation round with Indonesia is taking place currently, and the next round with the Philippines will take place in February. There is a possibility that the agreement with Japan could be concluded in early 2017, Parliament said.

A second negotiation round for an agreement with Mexico will be held in early April, and separate talks will take place in Buenos Aires in March.

The update noted that the proposed Transatlantic Trade and Investment Partnership with the US has “proved very controversial due to concerns over product standards and the resolution of investment disputes.” It explained that there have been 15 rounds of negotiations since July 2013, with the latest round taking place in October 2016.

(Why?)

Published at Thu, 26 Jan 2017 00:00:00 +0000

CRA business-inquiries phone line gets a C-

CRA business-inquiries phone line gets a C-

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Third time isn’t a charm for the CRA’s business inquiries phone line. As part of its red tape awareness week, the Canadian Federation of Independent Business (CFIB) has conducted its third secret shopper evaluation of  CRA’s call centre, giving it a grade of C-minus.

Read: CRA tweaks process for accessing online tax info of businesses

Here’s the breakdown of the grade:

  • Accountability (A+). CFIB saw a laudable increase in agents providing their name and agent identification number.
  • Accuracy of information (D-). Only 69% of inquiries resulted in complete and accurate answers. This is a decrease from the 2012 survey, where 76% all responses were complete. A third of callers are still receiving incorrect or insufficient information.
  • Connecting to an agent (F). The lacklustre evaluation was mostly due to the number of calls that didn’t reach a CRA agent — nearly 30%. On many occasions, the callers simply couldn’t get past the busy signals. The number of calls that were unsuccessful at reaching an agent is up 50% since 2012.
  • Wait time (B+). Once in the queue, callers waited only two minutes on average, which is the goal set out by the CRA service standard.
  • Agent professionalism (C-). While the vast majority of agents tried their best to answer questions, some put little effort into answering clearly and correctly. Some agents simply read the answer off the website, while others directed the caller to the webpage without providing a verbal answer.

“The CRA helpline needs to find ways to offer better service to business owners,” says CFIB vice-president of national affairs, Monique Moreau, in a release. “We do applaud the government’s investments in the call centre from budget 2016 but encourage them to continue making good customer service a priority.”

Also read:

CRA to tax registered investment fees paid from open accounts

Help your immigrant client face the taxman

CRA may be watching clients’ social media

(Why?)

Published at Thu, 26 Jan 2017 17:27:09 +0000

CI figures out how clients will be taxed on payments related to no-contest settlement

CI figures out how clients will be taxed on payments related to no-contest settlement

planning-business-platform-taxes-CRA-audit

CI Investments has worked out a tax arrangement after an administrative error had left hundreds of thousands of clients short a collective $156.1 million.

Last year, we reported on the record no-contest settlement between CI Investments and the OSC regarding understated fund values.

CI had self-reported to the OSC that more than 384,000 clients of its mutual and segregated funds were owed $156.1 million because of an administrative error that understated the net asset values (NAVs) of seven mutual funds. The owed money “was never co-mingled with the property of CI Investments,” the firm said in a statement at the time.

CI told us that it had sent cheques and transaction notices to clients owed money or fund units in March 2016. Special payments to segregated fund investors were made in August 2016. About half of the affected retail investors received payments of $100 or less.

One outstanding question? How the payments would be taxed, and in which tax years, since the NAVs had been understated “for several years,” as the fund company stated.

CI now has the answer.

After discussing the matter with CRA, CI determined “the payments will be taxable in 2016, the year in which they were made to investors,” Mark MacLeod, senior vice-president, Client Service, CI Investments, told Advisor.ca by email. “As a result, we do not expect any penalties or interest charges to be levied against our clients regarding the special payments. Since this is a 2016 taxable event, the investor’s tax bracket for 2016 would apply.”

MacLeod notes that not all payments will be considered a taxable event, and that “the tax treatment of a payment depends on the plan type of the affected account and the payment method, which was either a cheque or a deposit of fund units.”

Read: CRA business-inquiries phone line gets a C-

What investors can expect

Affected clients should receive all related paperwork within the next month.

“We are mailing a letter and tax documents relating to the special payments starting later this month and we expect the mailing to be completed by the end of February,” says MacLeod. “Only clients whose payment resulted in a taxable impact will be contacted.”

The tax documents will arrive separately from regular year-end account statements and tax documents. CI has also made a list of affected clients available to their advisors.

Read: Here’s what you pay: Explain services and fees to clients

(Why?)

Published at Fri, 27 Jan 2017 14:53:03 +0000