TORONTO _ COVID-19’s devastating impact on seniors in the months since the virus became a global menace has many Canadians wondering what can be done to protect their aging loved ones.
Experts say that too often, people fail to anticipate the long-term needs of aging and are unaware of the various forms of government assistance available to them.
A good way to start the planning process is to learn about the multitude of government programs and tax credits that can reduce the financial burdens for seniors and their families, says Robyn Thompson, president of Castlemark Wealth Management in Toronto.
“Take free money where you can,” Thompson says. “Make use of all the available resources. And then look to your investments and your portfolio after that.”
For example, Canada Revenue Agency lists 134 different types of medical expenses that are eligible to reduce taxable income.
“There have (also) been some pretty interesting government initiatives that have come out to try to help seniors and help them through this pandemic,” Thompson says.
But even without an event like the pandemic, Thompson says families should be proactive about making adjustments now after determining what their seniors may need in future.
For example, if the senior is likely to live in their own home or their child’s home, Thompson suggests having a budget to install ramps, stair lifts or an accessible bathroom.
In that case, she says, a parent’s life insurance policy could eventually be used to compensate a child who did paid for that type of expense.
Alternatively, it may be necessary to have the funds available for the senior to move into a retirement home or long-term care facility that provides more support services.
Isobel Mackenzie, the B.C. government’s seniors advocate, says each province provides some sort of subsidy for seniors in nursing homes or long-term care facility.
These types of facilities provide extensive medical support and the basics of living for people who may be physically or mentally unable to take care of themselves.
But details of who qualifies for subsidies vary by province, she adds.
“In B.C., and most provinces, it’s based on your income. Or there’s a flat fee and then there’s a discount if you have low income,” Mackenzie says.
“You do pay something towards it but everybody can afford it. It’s designed that way.”
Some provinces, but not all, provide some support for assisted living or retirement home living, which provide less medical intervention than long-term care.
“So, for example, Ontario doesn’t give any financial support for that. Alberta gives quite a bit of support. And B.C. gives some support,” Mackenzie says.
Similarly, she says, only some provinces provide funding for personal support workers for seniors who have medical or mobility needs but still live at home.
“The degree to which it’s available varies from province to province and the degree to which people have to pay for it varies from province to province,” Mackenzie says.
Ontario, for example, pays the cost of at-home visits by personal support workers.
Colin Marcus, a financial planner at YourLife Financial in Toronto, says some of his clients in their 80s now are still living independently but they’ve got the funds to make choices about where they can go if the need arises.
Often they want to avoid becoming a burden on their kids, Marcus says.
“Nobody wants to do that, either financially or emotionally or physically.”
OTTAWA – The federal government is claiming $4.4 billion from Canadians and corporations suspected of cheating the taxman by hiding their money in offshore tax havens.
“The gross number is $4.4 billion at this moment. It’s many years ahead of schedule, but it remains the gross number,” said Ted Gallivan, assistant commissioner of international, large business and investigations branch at the Canada Revenue Agency.
Gallivan was responding to a question from Bloc Québécois MP Julie Vignola during a virtual meeting of the House of Commons Committee on Government Operations and Estimates on Monday.
Vignola asked both CRA and the Minister of National Revenue Diane Lebouthillier to detail the results of over $1 billion in investments by the Liberal government to fight tax fraud and offshore tax evasion since 2015.
How many Canadian companies and individuals does that $4.4 billion involve? And how far back do those claims go? And what were the CRA’s claims targets that the agency is now “many years ahead of schedule” on?
Gallivan wasn’t asked to answer any of those questions by MPs, and the assistant commissioner was not available for an interview in the hours following the meeting.
But that $4.4 billion is far from won for Canada’s tax agency. Tax evasion cases, particularly when they involve wealthy individuals and corporations, often lead to notoriously long and difficult court fights for the CRA.
And that’s no different today, said Gallivan, who emphasized many times that $4.4 billion remains the gross amount, not the amount ultimately recouped by the agency.
“We still have a lot of cases that are in front of the courts, over 3,000 of them in fact. A lot of these inquiries will be resolved by the courts, but as of now, the gross amount is $4.4 billion,” Gallivan explained to MPs.
OTTAWA _ Five things to know about Ottawa’s $82-billion financial-aid package announced Wednesday to help weather the COVID-19 pandemic:
New emergency benefits
Ottawa is waiving the one-week waiting period to claim employment insurance sickness benefits. The government is also proposing a new emergency care benefit of up to $900 every two weeks for up to 15 weeks to help workers who are quarantined or sick with COVID-19 or taking take of a sick family member, but do not qualify for employment insurance sickness benefits. The new benefit will also be available for parents who can’t earn employment income because they need to care for children, whether or not the parents qualify for employment insurance.
Increased benefits and top-ups
The government is moving to make a special one-time payment to those who receive the goods and services tax credit that will double the maximum annual payment amounts for the 2019-20 benefit year. The government is also proposing to increase the maximum annual Canada Child Benefit payment amounts for the 2019-20 benefit year by $300 per child.
Help for businesses
The government wants to provide eligible small employers a temporary wage 10 per cent wage subsidy for three months. The payment will be up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Companies eligible will include those eligible for the small business deduction, as well as non-profit organizations and charities.
The Canada Revenue is pushing back the income-tax filing deadline for individuals until June 1. For trusts with a taxation year the same as the calendar year the filing date will be deferred to May 1. The agency will also allow all businesses to defer, until after Aug. 31, 2020, income-tax payments on amounts that become owing between now and September 2020. No interest or penalties will accumulate on these amounts during this period.
Other targeted aid
The government is providing $305 million for a new distinctions-based Indigenous community support fund for First Nations, Inuit, and Metis Nation communities. It is also placing a six-month interest-free moratorium on the repayment of Canada Student Loans. The required minimum withdrawals from Registered Retirement Income Funds are being cut by 25 per cent for 2020.
The Canada Revenue Agency is sending an unlikely message to kick off tax season: Paper-filers, we have not forgotten you.
Despite a years-long push to have more people file taxes online because it’s generally faster and easier, many Canadians still prefer putting pen, or pencil, to paper.
The people who prefer paper to online are getting particular attention because they tend to be Canadians whose tax files are needed to send them essential benefit payments.
There are seniors who need old-age security, parents eligible for the Canada Child Benefit and first-time filers who might be eligible for a new benefit for low-income workers.
Because of that, the CRA has made changes to the paper tax booklet to further simplify language, add notes about new benefits for the 2019 tax year, and include a checklist so nothing gets missed.
Frank Vermaeten, the CRA’s assistant commissioner, said the agency wants to make sure those who prefer paper are still comfortable using it amid wider pushes to electronic filing.
“Certainly, we promote electronic filing — we see a lot of benefits for Canadians in doing that, but we also want to be sure that paper filers are served and served well,” Vermaeten said in an interview.
The federal tax collector expects to handle about two million paper returns this calendar year out of roughly 26 million filings.
Even at the current rate people are shifting to digital filing and away from paper, Vermaeten said the CRA could see paper files for another 20 years.
The agency’s tax machine fired up in earnest Monday, with new staff joining call centres that run at extended hours.
About 1.6 million printed tax-return booklets are also being mailed out that include an option for some to file by phone if their incomes are largely unchanged from year to year, such as seniors.
Staff have also been hired to manage paper filers, including a team that searches for errors and corrects them.
Vermaeten said a new service will see staff input forgotten T4 slips, for instance, on paper returns filed before the deadline, to save taxpayers interest penalties.
For any Canadian with the ability to save money, sheltering income from the taxman in one of the two main savings vehicles the government makes available is a no-brainer.
David Rotfleisch, founding tax lawyer of Toronto firm Rotfleisch and Samulovitch, recommends Registered Retirement Savings Plans (RRSPs) to everyone.
“You should be putting away the maximum you can into your RRSP. That in and of itself is the most important tax-saving tip and it’s available to everyone,” he said.
Contributions to an RRSP are tax-free, meaning you don’t have to pay any income tax on them in the year of the contribution. The funds can also be invested with no tax on gains until the age 71 — at which point a taxpayer must begin to withdraw funds, which are then treated as taxable income.
Tax-free savings accounts (TFSAs) are another option. While the money you contribute to your TFSA will be post-tax income, any interest, dividends or capital gains earned in it are tax-free for life, and you won’t have to pay taxes on the withdrawals.
Wealthy Canadians use these accounts too, though Jamie Golombek, managing director of tax and estate planning at CIBC, said they might use them a bit differently. They’re likely maxing out their RRSPs and TFSAs by contributing the yearly limit — but they aren’t stopping there.
“What the wealthy are doing beyond that is they are actually using TFSAs to fund for their children once the children reach the age of 18,” Golombek said. “So some wealthy families are giving money to their kids at 18 to encourage the kids to put money into their own TFSAs. And what that does is it’s able to transfer wealth intergenerationally while keeping all the investment income tax-free.”
Many wealthy Canadians run a side business (or their own business) for the benefits of lower tax rates, business write-offs and tax-deductible individual pension plans.
If you run a business, are self-employed or doing freelance and contract work, it’s worth considering incorporation. Barrett said the choice should depend on how you use the income you’re earning.
“If all the income that’s coming in is being consumed by you every year, then there’s no advantage,” he said. But if the money you’re making through self-employment, even if it’s a small side business, is extra money for you, incorporation has its benefits. The 2019 small business tax deduction rate was nine per cent after the federal tax abatement, meaning you’d be taxed at the much lower corporate rate on your income.
Before you incorporate, Rotfleisch said to evaluate whether it’s worth your time and money. “Incorporation costs a couple of thousand dollars, but then you have your accounting costs to do the financial statements and tax returns and that’s going to cost you around $1,500 dollars,” he said. “So you have to decide if it’s worth spending that for the other tax benefits.”
Income-splitting and prescribed rate loans
While this strategy is particularly effective for wealthier Canadians within the highest tax bracket, there are benefits for the average Canadian too. If one spouse is in a higher tax bracket than another, they may want to shift some of that taxable income to another family member, including children.
However, in Canada, if you just loan money to a family member, the money will be attributed back to you on your tax returns. Instead, you would need to set up a prescribed rate loan with the Canada Revenue Agency-approved interest rate (currently two per cent). As long as the family member pays that interest rate to you every year, the money you’ve loaned will count under their tax return. When loaned to a child or spouse who doesn’t earn any income, that money then becomes taxed at the lowest tax bracket.
Permanent life insurance
Most Canadians are familiar with term life insurance, which provides temporary coverage for a set time. Permanent life insurance, on the other hand, lasts for life. This life insurance comes with an investment component that grows free of annual taxation.
However, it’s not quite accessible to the average Canadian, as it’s sometimes six to 10 times the cost of term life insurance. Permanent life insurance is usually an additional investment option for the wealthy who have already maxed out their RRSPs, TFSAs and other investment options and know that they have extra income that they’d rather not pay taxes on every year.
Jennifer Poon, director of advanced planning at Scotia Wealth Management, said that this is an option normally favoured by wealthier Canadians because it’s a long-term investment. “You can’t always just lock up all your cash in a life insurance policy because this is a tax shelter,” she said.
Ultimately, Barrett noted, the more money you have, the more tax planning you can do with it. Average Canadians can try out these strategies, but the savings won’t come close to the thousands and millions that the wealthiest are saving every year.
But with the right planning, savings are still possible.
“Even if you’re making 60 grand a year, and you’re smart and you’re frugal, and you’ve done all your tax planning properly, you can still get some really good savings that may be meaningful to you at that kind of an income level,” he said.
Millions of Canadians file their tax returns late—and if you’re one of them, you may figure that with so many others in the same boat, surely the transgression can’t be too terrible.… Right? Well, no.
Assuming you have a refund coming, it’s not a great financial plan to let Canada Revenue Agency (CRA) hold onto your money, interest-free. But if you owe money to the CRA along with your delinquent paperwork, things get bad, fast: You could face hundreds, even thousands of dollars in penalties and interest.
What are the potential penalties if you don’t file a tax return?
To understand the depth and breadth of the financial trouble you could get into by ignoring your tax filing obligations, consider the following penalties. (Note this does not represent an exhaustive list.)
Failure to file a tax return. If you owe money to the CRA, you will endure a late filing penalty of 5% of your unpaid taxes, plus 1% a month for 12 months from the filing due date. That’s just for the first strike. If you fail to file on time again within a three-year period, that penalty goes up to 10% of unpaid taxes plus 2% per month for a maximum of 20 months.
Gross negligence, false statements or omissions on your return. Turning a blind eye to your obligations attracts a penalty of 50% of the tax owing. Add interest to that if you don’t pay promptly.
Tax evasion. This is a criminal offence that involves intentionally understating income or overstating expenses, or hiding assets in Canada or abroad. It attracts a penalty of up to 200% of the taxes evaded and, potentially, jail time of up to five years. Tax evaders are fingerprinted and have a criminal record. This can put a big damper on your travel plans, employment and business ventures.
What are the chances of getting caught?
Pretty good. The CRA recently received more than $1-billion in funding to crack down on intentional tax evasion, and the effort is paying off, according to a media briefing looking at 2017–2018. Average jail sentences increased by 40% over the prior year, and CRA won higher overall conviction rates in evasion cases—95% compared to 89% in the year before. Further, revenue generation from audit activities exceeded the CRA’s expectations for that year, as half a billion dollars more in taxes owing was uncovered.
It’s important, however, to underscore that under our system of self-assessment, taxpayers have the right to arrange their affairs within the framework of the law to pay the least amount of taxes possible. Tax evasion is illegal, but tax avoidance under these circumstances is your legal right.
What if you genuinely made a mistake?
It is possible to come forward voluntarily to tell CRA about errors or omissions you may have made in reporting your taxes. Here are the two categories that qualify:
The income tax stream. You can correct income that was under-reported, expenses that were over-reported or not eligible, missed source deductions for the Canada Pension Plan (CPP/QPP), or a missed form T1135 Foreign Income Verification Statement.
The GST/HST stream. This stream is for errors or omissions regarding the GST/HST, excise taxes and duties, softwood lumber products and Air Travellers Security Charge, including underreported tax liabilities missed in a previous reporting period, as well as errors in claiming input tax credits (such as GST/HST paid on business expenses), refunds or rebates.
The entire process of reporting errors or omissions can take place electronically using Form RC199, the Voluntary Disclosures Program (VDP) Application, but it is a good idea to get some professional help with this. By filing the form, you agree that CRA has the right to audit any information you provide, whether or not you are granted relief from penalties and interest. CRA also has the right to transfer the information you have disclosed to other departments. But, importantly, you will be giving up your rights to file an objection or appeal under the Income Tax Act or the Excise Tax Act to dispute a decision by the VDP. You will have the right to apply to the Federal Court, however, for a judicial review.
At the outset, if you have been a model tax-filing citizen looking to correct an occasional mistake, you will be treated differently than those who have intentionally avoided paying their income taxes. You’ll also suffer a worse consequence if CRA has received leaked information that you are involved in an offside or offshore transaction. In the latter case, you’ll be automatically subject to the “limited program,” under which you will not be granted penalty or interest relief. However, you will stop any further criminal prosecution, and you will not be subject to gross negligence penalties if your disclosure is accepted.
For everyone else, the “general program” ensures you will not be charged penalties. It’s possible to receive relief on interest you owe for the most recent three years, but interest relief is limited for any years prior. For that reason, it’s a very bad idea to be more than three years behind on filing your tax returns.
If the VDP turns down your request for interest relief, it is still possible to apply for other Taxpayer Relief Provisions, which allow CRA to waive penalties and interest, or grant extensions of certain filing due dates. This is all done on Form RC4288 Request for Taxpayer Relief—Cancel or Waive Penalties or Interest.
There are five circumstances under which you can apply for this relief:
CRA delay or error. If CRA provided you with incorrect information or takes an unusual amount of time to resolve a tax dispute in an audit or objection, all the while charging you interest on taxes owing and penalties, it is possible to ask for relief from penalties or interest. You’ll have to describe the details and timelines, so it is always a good idea to keep meticulous records of all interactions with the CRA, printed, in a folder. Do not rely on electronic transmissions only to keep records of your interactions. It’s easy to lose a critical email or fail to keep a copy of a cloud-based transaction. If it’s important, print it and keep it in a retrievable file folder.
Financial hardship or inability to pay. If this describes your financial situation, you can apply for penalty or interest relief, but a statement of income, expenses, assets and liabilities must be filed. For this, you can use Form RC376. Be prepared to include the net income or your spouse or common-law partner, as well as a host of back up documents like mortgage payments, property tax and utilities bills, lease and condo fee statements, the most recent three months of bank statements, investment and credit card statements, and insurance statements.
Death or serious illness, mental distress. If you have suffered cancer, depression, stroke, an accident or the death of a significant other, you may also be granted relief from interest or penalties. Justify the claim with doctor’s certificates, records of hospital stays and explanations of why your condition affected your tax filing patterns.
Natural or human-made disaster. If you suffered flood, fire or other natural disasters, provide fire/police reports and insurance claim statements.
Civil disturbances. As the vast majority of tax returns are now filed electronically, there are few occasions to use this circumstance.
Most law-abiding taxpayers can preserve access to missed refunds beyond the normal three-year audit limitations, generally up to 10 years. Your year-end tax planning activities, therefore, should include a review of prior years’ returns for lucrative deductions and credits you may have missed; for the 2019 tax year, that includes returns dating back to the 2009 tax year.
Filing a tax return is your ticket to receiving a tax refund of overpaid taxes as well as lucrative tax federal tax credits like the Canada Child Benefit, the Canada Workers Benefit and the GST/HST Credit, and full or partial access to the Old Age Security benefits. For some, provincial tax credits are possible too.
On the flip side, your obligations to pay the CRA are serious ones that can upset the most carefully constructed portfolio, if you fall offside. For these reasons, your financial literacy must include tax literacy.
Given all these potential financial consequences, your tax return is truly the most important financial transaction of the year. Be sure you spend an adequate amount of time to get it right, which is a good first step towards managing tax risk. Remember, what matters is what you keep.