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Insight Newsletter

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INSIGHT is a complimentary quarterly newsletter which is mailed to clients and other interested parties. It is produced entirely in-house. This publication explains tax and financial matters in simple terms. It communicates new developments in the business and financial world and assists you in managing your financial affairs better.

Current Issue: Winter 2011

• What's new at Nilson & Co.
• Annual Gift Suggestion
• Clients of Distinction
• Property Tax Deferment
• New Corporate Tax Rates
• 2012 Payroll Amounts
• Year-end Reminders
• 2011 T4 Filing
• Just for Fun
• 2011 Tax Changes

What's New at Nilson & Co.

In September, Don was recognized as a Fellow of FPSCTM™ (the Financial Planning Standards Council of Canada) along with 32 other financial planners across the country who received this new recognition award. In November, Don travelled to Toronto to attend the annual Convention of the Canadian Association of Professional Speakers. While there, he was appointed National Treasurer of CAPS for the upcoming year. Don delivered courses in the Fall on wealth management and on professional conduct. He completed further course enhancements resulting from the June pilot delivery of Thinking 101:Creating a Fertile Mind.

Jacqueline attended PD training this Fall and is endeavouring to push out our tech expertise in the area of database applications. In the Fall quarter, we executed a major technology upgrade: every workstation was replaced with new machines, a more robust network server was installed and we migrated to Windows 7.

Remember that we have 2012 pocket calendars.

Remember also that you can Go Green by electing to receive our newsletters electronically.

This year’s Christmas photo was taken by staffer Joan McCance. The setting is the Callaghan Valley at Whistler.

Everyone here wishes you and yours a happy and memorable Festive Season.

Annual Gift Suggestion

Our annual Christmas gift suggestion is Moonwalking with Einstein: The Art and Science of Remembering Everything, by young New York author Joshua Foer. This book takes you through both the history and modern day of memory development. The author displays himself as a budding modern-day polymath.

Clients of Distinction

Tricia Smith became our second client to be awarded the Order of Canada, in recognition of her career accomplishments which include serving on the Rowing Division of the IOC. Tricia, and her sister Shannon, have both been Olympic medalists for Canada, in rowing and swimming respectively.

UVic student Michel Fabre was awarded the Certificate of Merit by the Port Moody Police Board for bravery in apprehending an armed intruder during a house invasion.

Property Tax Deferment

We have written previously about the opportunity to defer property taxes for seniors over age 55 and families with children under age 18.

As the New Year rolls around, you might want to think about whether you wish to defer your taxes for 2012. If you are making monthly instalments, you may wish to stop them if you plan to defer. The interest rates going into 2012 are 1% for seniors and 3% for parents.

New Corporate Tax Rates

The general federal corporate rate will drop on January 1, 2012 by 1.5% to 15%. The general BC rate, however, will increase by 2%, for a combined increase of .5%. The combined small business rate remains unchanged at 13.5%.

2012 Payroll Amounts

The maximum CPP earnings amount will rise to $50,100 for 2012. The premium rate remains unchanged; therefore, the maximum contribution will be $2306.70.

Year-end Reminders

• Make your last personal tax instalment by December 15th
• Complete your 2011 donation plans by December 31st
• Make sure your RRIF withdrawal requirements have been met by December 31st
• If you turned 71 this year, you are obliged to convert your RRSP to a RRIF by Dec 31st
• Business owners should consider making use of the tax-free gift laws for staff Xmas bonuses (see details on our website)
• Contemplate the wisdom of triggering taxable amounts, eg by RRSP deregistrations
• Trigger the full $2,000 of tax-preferred pension income by December 31st if you haven’t already
• Keep your transit pass receipts for the whole family, and buy monthly passes
• Set up your new tax-free savings account (TFSA) if you haven’t already, and prepare to make your 2011 contribution early in the new year
• Beat the February rush and make your 2011 RRSP contribution now
• Review your unrealized capital gains/losses strategy
• Review your 2011 RESP contribution and withdrawal status and strategy

2011 T4 Filing

Our corporate clients can find the T4 Preparation Guide on our website in the NewsRoom. Contact us if you would prefer us to mail you a hard copy.

Just for Fun

Nilson &Co/A.F.T. Trivest Management are pleased to announce our second annual travel event, open to our clients and their friends. Trivest Travels will focus on our own backyard in the Pacific Northwest, going to places you haven’t been for a long time, or always meant to visit.

This year we have partnered with Mandate Tours for a June 12-15, 2012 visit to Long Beach and Tofino on Vancouver Island. The trip will include an evening in Port Alberni en route, a half day cruise down Barkley Sound to Ucluelet on the MV Frances Barkley, two nights accommodation at the Tin Wis resort on Chesterman Beach and tours to Qualicum, Coombs, Pacific Rim Park and Tofino.

2011 Tax Changes

The Finance Department has been busy this year and there are many tax changes afoot that might affect you…

Partnerships

Many years ago, CRA created a prescribed information return (T5013) to be filed by each partner, instead of the actual financial statements of the partnership itself. However, this only applied where there were six or more partners throughout the year. This will change, commencing with year-ends ending after 2010. Thus, there may be new eligibility requirements already in 2011!

The new requirement test is one of the following three:

1. the partnership includes partners who are corporations or trusts or another partnership, or
2. the book value of assets at year-end exceeds $5M, or
3. the sum of revenue and expenses at year-end exceeds $2M.

The last one is an unusual new twist in algorithmic computation by CRA!

The new tests will cause some partnerships to "fall off the rolls" for T5013 reporting (eg six or more partners but fail the 3 tests above); however, in turn, many new ones will face the T5013 compliance obligations.

The filing deadline is a bit complicated, too....as the old saying goes..."It depends"!

1. 5 months after the partnership year-end, where all partners are corporations
2. March 31 of the following calendar year where all partners are individuals
3. the earlier of the above dates where the partnership includes trusts or is a hybrid of individuals and corporations

Partnerships have taken a second, and significant, hit as well. Almost 15 years ago, CRA sharpened it's present value calculator, and decided to eliminate a one-year-or-less tax deferral available to individuals involved in proprietorships or partnerships which had a non-calendar year end. CRA dreamed up a rolling reserve algorithm which, while facile to calculate, was brutishly crude in trying to get the taxpayer to lose this one year tax deferral advantage. These kinds of taxpayers were particularly poorly served where their business income fluctuated significantly over the years.

The 2011 Budget has decided to turn this same system on to corporations with partnership interests in excess of 10% of the partnership. This will apply to corporations whose own fiscal year ends after Budget Day, which is surprisingly short notice. The rules, calculations and transitional rules largely parallel the same implementation almost 15 years ago. This means that the income from the partnership must be increased by rolling it forward to the year-end of the corporate partner. This is done by a system of opening and closing reserves, each of which are calculated by straight-lining the actual partnership fiscal year profit out the extra months to the corporate partner’s year-end. Transitional rules exist, as 15 years ago, to allow the initial profit uptake to be “amortized” into income over the following five years (15%, 20%, 20%, 20% and 25%). The transitional rules also, as 15 years ago, allow the partnership to make a one-time election to change its year-end to match one of the partners’ year-ends. There are specific deadlines to make this election.

...you can't run.....you can't hide…….

Joint ventures are common structures to conduct joint business endeavors, in a fashion slightly different to partnerships. The mandarins in Finance were quick to figure that the above accelerated tax collection change for partnerships ought to apply equally to joint ventures. And so, it does! This reverses a long-standing administrative policy that allowed a JV to pass across in a year only the income from it's own fiscal year, regardless of the fiscal years of the co-venturers. The same set of implementational and transitional rules apply as above re corporate partnerships.

Small business gets a small break

Upon filing the 2011 T4 returns, private companies may earn a rebate of employer EI premiums, by the amount that their EI cost in 2011 exceeded the 2010 amount (and only if employer premiums did not exceed $10,000), but only to a maximum recovery of $1,000. This is the same as a similar program a few years ago. This will be calculated by CRA, and credited against your 2012 remittances.

Kids' activities

Budget 2011 added an "Arts credit" effective 2011 onwards to parallel the "Fitness credit" extant. It works in the same fashion (for children under age 16 on January 1st).... so collect those receipts for next April, if you wish to save up to $75.

What's in a name

If you are senior over age 65, you may receive confusing communication from CRA referring to a Recovery Tax. This has nothing to do with you helping to fund an economic recovery out of the current downturn! At least.. not directly! CRA has decided to morph the nasty “OAS clawback” to a new, gentler name - “recovery tax”!

T slip reporting

CRA is considering a broad expansion of the sweep of T4A reporting requirements by payers. Several years ago, this was landed upon the construction industry; but it may extend far and wide across the economy in the near future. Historically, Napoleon referred to the Brits as a "nation of shopkeepers"- we may become a nation of record keepers!

RRSPs and private companies

For many years, and under certain conditions, an RRSP could own shares in a private company. The Budget 2011 reverses this view. Effective Budget Day, no such investments may be added to an RRSP. Furthermore, there is a transition to the end of 2012 for existing such investments to be disposed or removed, or face a significant (50%) penalty. They can be swapped out at fair value, but equal value in money or other, qualified investments must come in.

...and the patient are sometimes rewarded!

The Summer of 2011 closed with a whimper for many American ex-pats, who were offside their reporting obligations with Uncle Sam. There was considerable panic when heated IRS rhetoric promised significant penalties for late-filing of income tax returns and financial accounts returns. The US Ambassador to Canada recently announced a gentler stance, with details to follow from the IRS. While the devil will be in the to-be-announced details, it is expected that these penalties will be waived upon compliance with income tax returns when no taxes are due, and with a mea culpa innocence statement for financial accounts returns (Form TDF 90-22.1).