The day is coming... Are You Ready?

The official end to the individual tax year is April 30. Today is the 29, leaving two days to face the inevitable tax man. The wording "tax man" leaves a question in itself. Is it the tax man or a tax man. Is CRA as a body refered to as a singular person or as a plural as tax men. I suppose the more gender neutral abbreviations would be classifying the tax authorities as "tax persons" or more properly "tax men and women".

Back to the first sentance, the reason of the two days can be attributed to the old Lords day Act, in which government business could not be conducted on a Sunday. Some Canadians who have left there taxes to the last possible day have until mid night May 1, to file their final return of the year. Of course if the government owes you a refund they will be happy for you to file late or not at all. Remember when you file it should be automatic to check the voting register box.

Free Course

A while back Joe informed of a free aldersgate course to take from GBS. Along the same lines I would like to inform my 6 readers*that there is another free online course that you can take to increase your knowledge about another very important subject, the taxation system. CRA is now offering a free online course to increase the average citizens knoweldge of the tax system. The course will only take a couple of hours. A diligent Canadian should take this course and learn the some of the complexities of the system and the Act. Canadians are so often worried about hockey and hockey playoffs. Its about time that Canadians focus on learning the tax system especially sense the Maple Leafs are out of the playoffs, hockey is now irrelevant.
The website is: http://www.cra-arc.gc.ca/tax/individuals/topics/learn-tax/menu-e.html
*I read it 2 times a day :)

In Merk v. International Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Local 771 (November 11, 2005), the Supreme Court of Canada adopted a broad interpretation of the whistle-blower protection provision of the Saskatchewan Labour Standards Act.
Merk was the bookkeeper and office manager employed by Local 771 of the International Union of Iron Workers. She reported to her supervisor, the local’s business manager, that he and the local union president were double charging expenses by putting them on the union credit card (paid directly by Local 771) after having already received advances for the same expenses, or claiming reimbursement as though they had been paid out of pocket.
Merk was not satisfied with the response that she received. Ultimately, she contacted the General President of the International Union, and he assigned a union investigator. The investigator spoke with Merk and others and concluded that the Local 771 by-laws did not specifically prohibit collecting more than once for the same expenses. Following this, Merk’s employment was terminated.Merk alleged that she was terminated because she blew the whistle on the business manager and local president, and that her termination violated the anti-reprisal provision of the Saskatchewan Labour Standards Act. Section 74 of that statute, which has since been amended, provided that “no employer shall discharge...an employee because the employee has reported...to a lawful authority any activity that is or is likely to result in an offence pursuant to an Act or an Act of the Parliament of Canada.”
At trial, the judge concluded that Merk “certainly was terminated because of her pursuit of the issue of [the business manager’s] expenses through the union. Once it appeared to [him] that the union’s investigation cleared him, he felt safe to fire her.” Furthermore, the trial judge found that the alleged misconduct qualified as an “activity that is or is likely to result in an offence pursuant to an Act or an Act of the Parliament of Canada.” Nevertheless, the trial judge concluded that section 74 had not been violated because Merk had not complained to a “lawful authority.”
Relying on the trial judge%u20

The Hi-Tech Boom is back...

@Road, publicly traded on the NASDAQ (ARDI), is up to levels unseen sense the last bubble burst. It traded up 0.42 cents today to 5.81 a share, which is 0.44 cents off the anticipated increase over the 2006 fiscal period.

New contracts with Eaton Corp. drove the share price up over the 5.00 barrier, accompanied with a high excellence of customer sevice, after winning a customer service award.

Financial analyst David Douglas of DK Financial Services, commented that "its the stock that everyone should be watching, and is a good growth stock for the forseeable future" Other industry analyst said to stay away from this stock, but since Mr. Douglas's recent comments they have changed their view point on the profitability of @Road, (ARDI).

---Douglas Krohn Magazine

Current US tax issues

Before signing any noncompete agreements, purchasers and sellers should carefully consider the tax treatments of such covenants
Canadians may differ in opinion regarding our foreign policy and various global issues. Nevertheless, many Canadians, political analysts, and observers agree that as a result of its activities overseas, the US is experiencing elevated consumption levels that have resulted in an increase in demand for Canadian products and services. This despite a seemingly weakening economy. And as Canadian businesses were harvesting the benefits of the greater demand for their products and services, US policy makers were working on comprehensive changes in US tax legislation. On October 22, 2004 President George W. Bush signed the American Jobs Creation Act, which contains about US$138 billion in tax changes. Many say the act is the most significant revision to the tax code since the 1986 Tax Reform Act. The new act primarily affects domestic taxpayers. However, it contains provisions that may significantly impact Canadian multinationals and individuals with activities in the US. For example, the act repeals the Extraterritorial Income (ETI) Exclusion Act of 2000, which provided benefits to US taxpayers engaged in qualifying export activities. Instead, the act introduces a provision that provides for deductions relating to income attributable to US production activities, which could benefit Canadian businesses with production activities in the US. Other important changes include significant modifications to tax shelter regimes, deferred compensation arrangements and repatriation of US taxpayers’ foreign earnings rules.The repeal of the current ETI Exclusion Act and the introduction of the domestic manufacturing deduction provision represent the showpiece of the act. The legislation provides for a 9% (subject to phase-in provisions) deduction against qualified production gross receipts from certain domestic manufacturing activities, which would enhance US job creation. Unlike the ETI regime, the domestic manufacturing deduction provision applies to all taxpayers deriving income from qualified domestic production activities, regardless of whether the taxpayer is engaged in export activities. This was a key requirement under the ETI regime. Another difference is that the domestic manufacturing deduction is not available to taxpayers with a tax loss or to those who have utilized a loss carryover to shelter taxable income.Qualified production gross receipts generally include sale, exchange or other disposition, or any lease, rental or license of certain qualifying production property, qualified film, electricity, natural gas or potable water that was manufactured, produced, grown or extracted by the taxpayer in whole or in significant part within the US. Qualified production gross receipts also include construction activities or engineering and architectural services performed in the US.The new legislation is expected to benefit not only manufacturers, as the name suggests, but also handlers of agricultural products, software, film production, construction, electric, and gas and water companies, and engineering and architectural firms. Moreover, the deduction is available to corporations, partnerships and other pass-through entities and individuals.The qualified manufacturing deduction provision creates significant opportunities for Canadian businesses with US operations. Canadians sell and, in many cases, produce and sell their products and services to the US through various avenues, using commission-based or buy and sell arrangements by way of their US subsidiaries and branches. The decision on the structure by which to conduct US operations is based on a medley of factors, including: transfer pricing, duties, US/Canada treaty exemptions, labour costs, legal and regulatory considerations, etc. Canadians should now consider the qualified manufacturing deduction in their decision-making process, subsequent to a careful examination of the new legislation details, and weighing the tax benefits against other nontax-related matters. For example, many US subsidiaries of Canadian corporations are highly leveraged, but still incur US income tax because of limitations on interest expense deductions such as earnings stripping limitations. Moreover, in the case of a Canadian-related entity debt, interest expense may be taxable as income to the Canadian entity and may also be subject to US withholding tax. The qualified manufacturing deduction can be considered an alternate method of sheltering taxable income of US subsidiaries and branches, as it may eliminate US withholding tax and interest income inclusion to Canadian entities.In conjunction with the qualified manufacturing deduction, Canadians must consider similar state and local legislation that provide tax deductions and credits for activities that create jobs or new business in that state. Combined federal, state and local tax savings may be significant.Another significant new legislation introduced by the act is the modifications to the tax-shelter regime. Currently, under the tax shelter regulations, taxpayers are subject to federal income tax reporting and other disclosure requirements relating to reportable transactions, including listed transactions. In general, listed transactions are certain transactions that the IRS has identified as corporate tax shelters, while other reportable transactions are transactions that have certain quantitative tax effects and defined characteristics. Prior to the new legislation under the act, there were no penalties imposed on taxpayers for failure to disclose reportable transactions; rather, it weakened the taxpayer’s defence if and when the transaction resulted in an understatement of income tax.Distinctly, and as opposed to the existing tax shelter regulations, the act imposes significant penalties on taxpayers who fail to disclose reportable transactions, regardless whether the reportable transaction resulted in an understatement of income tax. For example, the act imposes US$50,000 and US$100,000 penalties on companies for failure to disclose a reportable transaction and listed transaction, respectively. It also provides for a 20% (30% in some cases) accuracy-related penalty to understatements of reportable transactions. Other penalties and restrictions include: extending the statute of limitations on unreported listed transactions; disallowing deductions for interest on underpayments of income tax relating to nondisclosed reportable transactions; imposing stricter guidelines for penalty relief; and requiring mandatory disclosure of penalties and underpayments of income tax in annual reports and other public documents for SEC registrants.In addition, the act introduces specific reporting requirements to material advisers, who provide any material aid, assistance or advice in organizing, managing, promoting, selling, implementing or carrying out a reportable transaction and receive fees over a certain threshold.This provision deems compliance with tax shelter regulations imperative, especially since the effects of noncompliance may extend beyond monetary damages to other ramifications such as increased governmental scrutiny and a negative effect on public opinion. It is not uncommon for Canadian taxpayers to overlook US regulatory and tax compliance matters while concentrating on Canadian compliance requirements. To avoid any catastrophic consequences of noncompliance, it is important for Canadian taxpayers to understand various tax shelter regulations and to effectively put in place risk management measures to ensure strict compliance.Another significant change is to deferred compensation arrangement rules. Previously, there was flexibility surrounding nonqualified deferred compensation plans. New provisions introduced specific compliance requirements, creating an immediate need for companies to review their deferred compensation plans and assess the impact of the new requirements. To the extent the new requirements are not met, participants may have to include the total amount of deferred compensation in gross income and may be subject to a 20% penalty, including interest. Taxpayers with deferred compensation plans (in Canada or the US) who have US participants should review their plans to determine if they are subject to the new requirements and if any action should be taken.The act also introduces changes to the repatriation of US taxpayers’ foreign earnings rules. Currently, US corporations are taxed on their worldwide income, including income from operations of foreign subsidiaries when such income is distributed as a dividend to the US parent. The act provides for a one-time 85% dividend received deduction on a cash dividend in excess of a base amount, provided the dividend is reinvested in the US under an approved domestic reinvestment plan. This is effective for a one-year election available in either 2004 or 2005, but not both.Although this legislation seems less relevant to Canadian corporations, it may be utilized to reorganize, in a tax-efficient manner, certain undesirable foreign structures of Canadian corporations with US subsidiaries. A common undesirable structure often seen in the market involves a Canadian parent conducting its US operations through a US subsidiary, and the US subsidiary is a parent to a Canadian subsidiary or other foreign subsidiaries (commonly referred to as sandwich structures). This often results from acquisitions and other transactions, creating adverse income and withholding tax implications, as well as foreign tax credit inefficiencies. Depending on the facts and circumstances, Canadian firms may utilize this new legislation, as well as existing US tax law, to spin out undesirable subsidiaries of US corporations in sandwich structures with reduced adverse tax effects.Of the many provisions of the act, the above-mentioned are the most relevant to Canadian multinationals. However, many of these provisions are unclear, ambiguous and may leave unanswered questions until the Internal Revenue Service and the US Treasury provide guidance through announcements, notices and proposed regulations. In fact, preliminary guidance relating to deferred compensation provisions, guidance relating to the repatriation of US taxpayers’ foreign earnings rules, and domestic manufacturing deductions have been issued. It is expected that legislation will be introduced to resolve technical problems with some provisions of the act. In addition to legislative changes, the act requires the US Treasury to submit studies on US transfer pricing rules; US tax treaties focusing on inappropriate reductions in withholding taxes and opportunities for abuse; and US earnings stripping rules by June 30, as well as a study on the anti-inversion provisions of the act by December 31, 2006. These studies represent areas the IRS and US Treasury continue to focus on, and ultimately may result in further tax legislative changes.A most important US international tax area for Canadian multinationals is the earnings stripping regime, as many US operations of Canadian multinationals are financed by debt. In the past, several proposed bills were introduced on Capitol Hill, including provisions that would have significantly tightened the current earnings stripping rules, but none were included in final bills or in the act. Nevertheless, the battle is not over: the act requires the US Treasury to submit a study on earnings stripping rules, an indicator that new earnings stripping proposals are on the way.Despite significant changes to international (and domestic) taxation legislation introduced, President Bush has promised further fundamental changes to US tax rules will be considered in the next few years, and taxpayers should expect recommendations on tax reform from a presidential panel during 2005.Taxpayers examining federal tax implications of the act to their businesses and individual circumstances may overlook state and local tax implications. Generally, states follow federal tax treatment of certain areas of the tax law and impose their own legislation on other areas. Many states have issued guidance on certain provisions of the act. For example, Massachusetts has introduced legislation to decouple its legislation from the qualified manufacturing deduction provided in the act. It’s important for taxpayers to examine state and local tax implications and continually observe new state and local reactions to the act.

Emad Zabaneh (CA Magazine)

How Much Tax is enough?

Federal tax rates for 2006 are:

• 15% on the first $36,378 of taxable income;
• 22% on the next $36,378 of taxable income;
• 26% on the next $45,529 of taxable income; and
• 29% of taxable income over $118,285

Ontario Rates

• 6.05% on the first $34,758 of taxable income,
• +9.15% on the next $34,759,
• +11.16% on the amount over $69,517

Other Taxes:

• Regressive Taxes like PST and GST,
• CPP, EI,
• Municipal Property Tax,
• Other Municipal bills (drainage...)

Keeping the Government Accountable

Today a new poll was released in which the Conservatives have a commanding 18% point lead. They are holding steady at 40% with the Liberals slipping to 22% and the NDP at 21%.
I'm glad that the Conservatives have made a much needed comeback from the post-election decline. The Conservative minority government may only last one year, but the Conservative Majority Government will last a maximum of 5 years.

How Long Should you keep your tax stuff?

Who has to keep books and records?
3. For the purpose of this circular, person has the meaning assigned by subsection 248(1) of the Income Tax Act (the Act). Therefore, in addition to individuals, a “person” in this context includes a corporation, a trust, and any exempt entity listed in subsection 149(1) of the Act such as a registered charity, a registered Canadian amateur athletic association, and a non-profit organization.
4. Books and records must be kept by every:
person carrying on a business;
person who is required to pay or collect taxes or other amounts according to the acts mentioned in paragraph 1 above;
registered charity or registered Canadian amateur athletic association; and
registered agent of a registered political party or an official agent for a candidate in a federal election.

How Long?
26. Under the Act, books, records, and their related accounts and source documents, other than those referred to in paragraphs 27 and 28 below, have to be kept for a minimum of six years from the end of the last tax year to which they relate. The tax year is the fiscal period for corporations and the calendar year for all other taxpayers. Under the Employment Insurance Act and Canada Pension Plan, the retention period begins at the end of the calendar year to which the books and records relate.

DO you have Income Tax Problems?

How returns are selected for review
There are a number of reasons why a tax return may be selected for review under the Pre-Assessment Review, Processing Review or Matching programs:
random selection;
comparison of information to third-party information sources, such as T4 information slips; or
types of deductions or credits claimed and an individual's review history (Were you selected for review in a previous year? If so, was there an adjustment made to the claim that was reviewed?).
Types of reviews
Review programs promote client education by identifying common areas of misunderstanding. Analysis of results and feedback from clients are used to review and improve the guides and forms the CRA provides to the public. Three of our review programs are the Pre-assessment Review Program, the Processing Review Program, and the Matching Program.
Pre-assessment Review ProgramUnder this program, we review various deductions and credits on returns before we issue the Notice of Assessment and if there is one, the refund. The peak period for this type of review is February to July.
Processing Review ProgramThis program is similar to the Pre-assessment Review Program except the review takes place after we have issued the Notice of Assessment. The peak period for this type of review is June to November.
Matching ProgramThis review also takes place after the Notice of Assessment has been sent. However, under this program, we compare the information on an individual's tax return to the information provided by third-party sources, such as employers.
For example, the amount of income an individual reported on his or her tax return can be compared to the employment income shown on T4 slips that the individual's employer has filed with the CRA or to the investment income shown on T5 slips.
The Matching Program provides support for other important programs such as the Canada Child Tax Benefit, the GST/HST credit, and the Guaranteed Income Supplement by correcting the net income reported by individuals.
Also, the Matching Program corrects errors relating to an individual's RRSP deduction limit and spousal-related claims, including child-care expenses, provincial tax credits, and provincial tax reductions. The peak period for this type of review is September to March.
Beneficial Client AdjustmentsThe Matching Program administers the Beneficial Client Adjustments Initiative, which supports the Minister's 7-Point Plan For Fairness.
Currently, this initiative identifies under-claimed credits relating to tax deducted at source or Canada Pension Plan contributions by comparing an individual's return to third-party information. We adjust the return to allow the amount the individual is entitled to, then issue a Notice of Reassessment and if it applies, a refund.

Prison sentence and $533,251 fine for income tax expert found guilty of tax fraud

Montréal, Quebec, March 31, 2006… Christian Avard, an income tax expert operating under Le Pro de l’impôt, pleaded guilty to tax evasion charges before the Court of Quebec in Montréal on March 13. He was fined $533,251, which represents 100% of the tax evaded, and received a fixed 12-month prison sentence.
A Canada Revenue Agency (CRA) investigation showed that for the tax years 1997 to 2002, Avard encouraged many of his clients to evade tax by sharing in tax refunds illegally obtained. Furthermore, without the knowledge of his clients, he claimed bloated tax refunds to which the taxpayers were not entitled, and had the refunds mailed to him so he could cash them.
On another count, for the tax years 1997 to 2001, Avard failed to declare $307,008 of income from his delivery business, thus evading the payment of $68,742 in income tax with the help of nominees. On this count he was fined $68,742, which represents 100% of the tax evaded.
Taxpayers found guilty of tax fraud must pay the full amount of taxes, all related interest, and any civil penalties that apply, as well as the fine imposed by the Court.
“The vast majority of Canadians pay their taxes in full and on time. The Canada Revenue Agency has strong and effective programs to identify those who try to avoid paying what they owe,” said Michel Dorais, Commissioner of the Canada Revenue Agency.

New Money

Bank of Canada to Upgrade $5 Bank Note

FOR IMMEDIATE RELEASE4 April 2006
CONTACT: Jeremy Harrison613 782-8782
OTTAWA—The Bank of Canada today announced that it will issue a $5 note with upgraded security features beginning 15 November 2006 as part of its ongoing effort to improve the security of Canadian bank notes.
The upgraded $5 will include the same security features as the other denominations in the Canadian Journey series, making it easier for consumers and cash handlers to detect counterfeits. These features include a metallic holographic stripe, a watermark portrait, a windowed colour-shifting thread woven into the paper, a see-through number, and enhanced fluorescence under ultraviolet lighting. The design, colour, and theme of the upgraded note will remain the same as those on previously issued $5 notes from the Canadian Journey series.
The Bank is collaborating with its partners to ensure the smooth introduction of the upgraded $5 note into circulation. The Bank will provide manufacturers of note-handling equipment—such as automated banking machines (ABMs), change makers, and automated ticket dispensers—with the necessary information to make the required adjustments to their equipment before the notes are circulated.
The Bank will also work closely with financial institutions to replace older $5 notes in circulation with the upgraded $5 notes. This will ensure that Canadians have the more secure notes as quickly as possible to reduce opportunities for counterfeiters. Older versions of the $5 note will, however, remain legal tender.
Consumers and retailers can protect themselves from loss and reduce opportunities for counterfeiters by regularly checking their bank notes. Retailers are the first line of defense in the fight against counterfeiting. By knowing how to quickly and reliably identify genuine bank notes, they can help keep counterfeits out of circulation. In a similar manner, consumers can protect themselves by checking the notes they receive in change.
For more information on Canadian bank notes and their security features, as well as for educational and training materials, visit www.bankofcanada.ca/en/banknotes.