It’s no secret that governments are awash in debt. But, where is the money to pay down federal and provincial deficits and accumulated debt going to come from?
Hopefully, it will come from positive economic outcomes — growing economies, higher wages and bigger business profits — that naturally increase the amount of taxes collected. But, if those positive outcomes don’t happen, governments look to the taxpayer.
Recently, in Ontario, Nova Scotia and Quebec, new high-income surtaxes have been introduced. This has happened in other jurisdictions around the world as well. Taxing “the rich” is a worrisome trend for your future wealth. Here’s why.
The term “rich” requires definition; you might be surprised that it may apply to your family, too. Windfalls and one-time financial events occur at different times in a family’s financial lifecycle and can push your income into a high-surtax category. Even Grandpa, today a typical pensioner, will fit into the “rich” profile for tax purposes if he sells his business or dies with a large accumulation in his unspent RRIF account.
It’s Your Money. Your Life. Tax planning can help you avoid high taxes on windfalls and, therefore, are an important part of your family’s economic future. Be sure you become informed, then plan for a softer tax landing when windfalls occur.
You may not be able to control the economy but you can control the amount of income taxes you pay.
The growth of wealth in your lifetime will occur naturally if you do some of the right things. But the capital you accumulate — your savings — can fall victim to the eroding effects of inflation and economic uncertainty if you aren’t careful. Fortunately, under our system of self-assessment, it is your legal right to arrange your affairs within the framework of the law to pay the least possible taxes. So, to secure your own future and that of your heirs, be tax-efficient and protect earnings and savings.
This is very important because — even though you may not see your financial affairs this way — your provincial government may consider you “rich” for income tax purposes and you’ll be in line for the new, “high-income surtaxes” on withdrawal of savings as a pension or on money that’s left unspent.
So, when you complete your tax returns, be tax-efficient. If you discover you have overpaid your taxes, you can request adjustments to prior filed federal T1 returns within 10 years after the end of the taxation year being adjusted. Adjust your tax return by following these instructions:
- If you think you missed claiming something on a previously filed return, call your tax practitioner to make an adjustment, or do it yourself using form T1-ADJ, available on the CRA’s website.
- You can also make an electronic adjustment on the CRA website. Log on to
“My account” and choose the “Change my return” option.
- Have supporting documentation available in case of audit.
- Never file a second tax return.
It’s Your Money. Your Life. File a tax return each year on time to recover tax refunds and preserve wealth. You can even recover “gold” from prior years by adjusting previously filed returns. Many taxpayers miss claiming all the deductions and credits to which they are entitled. Be sure you’re not one of them.
Evelyn Jacks is the best-selling author of Jacks on Tax, Your Do-it-yourself Guide to Filing Taxes Online and Essential Tax Facts, Secrets and Strategies for Take-Charge People, available at www.knowledgebureau.com and better bookstores.
The Canada Revenue Agency (CRA) has proved once again: there is no escaping your responsibility to pay income taxes.
In early January, a couple from Ottawa, the Websters, pleaded guilty in the Superior Court of Justice to tax evasion. The couple were fined close to $350,000 (100% of federal income taxes evaded) and their sentence included house arrest, the husband for six months and the wife for three.
The CRA investigation found the couple had failed to report more than a $1 million in income from 2004 to 2009. Unfortunately, the Websters had relied on the “Paradigm scheme” which is based on the faulty premise that it is unconstitutional for the government to impose a direct tax on a human being, and taxing the labour of human being is a violation of the Canadian Bill of Rights.
In posting its win, the CRA also provided a strong warning against tax protesters who not only fail to report their own earnings, but also conspire, counsel and promote these tax schemes to others. The CRA will not hesitate to reassess income taxes and charge interest plus penalties, as well as drag these taxpayers into court to prosecute them for tax evasion.
It is legal, however, to arrange your affairs within the framework of the law to pay the least taxes possible. Canadians who embark upon tax planning within the framework of the law are within their rights.
It’s Your Money. Your Life. You can avoid penalties and interest as well as house arrest and jail time by voluntarily complying with the law. If you have failed to file a previous year’s return, do so now to avoid gross negligence and tax evasion penalties. Your tax practitioner can help.
“Take-charge” taxpayers preparing for their annual income-tax filing will want to take a look at this year’s T1 Income Tax and Benefits return, available online.
The 2012 personal tax return provides a basic checklist of what you will need for the annual tax-filing process. As the gathering of documentation is often the biggest frustration of tax season, it is best to get on it quickly. This year, the T1 return includes an indexing factor of 2.8% on the federal tax brackets and many of the non-refundable personal amounts.
Tax preparers will want to pay special attention to Schedule 5, Amounts for Spouse or Common Law Partner and Dependants. This features the new $2,000 Family Caregiver Amount, which is a special supplement for those who give care to someone who is dependent because of a mental or physical impairment. For the first time, this form will be required when making a claim for the Spousal Amount. If you use software to file, the basic calculations will be automatically entered on Schedule 5.
If you are making a claim under the Family Caregiver Amount, you will need a statement from your medical practitioner indicating when the dependant’s impairment began and how long it is expected to last. So, if you are eligible for the extra claim because of a dependant, now is a good time to see your medical practitioner and request the required documentation.
April 30, that annual tax-filing deadline, does come around quickly. So, do a preliminary tax preparation for each family member now — in preparation for the slips and other documents you will receive shortly so you can file your 2012 tax return.
It’s Your Money. Your Life. Being organized means understanding the tax changes you’ll need to embrace in this tax-filing year. The new Family Caregiver Amount is but one of many tax credits and deductions you could miss if you are not organized. That could cost you money that you could apply to credit card bills or employ in investment opportunities.
Evelyn Jacks is author of Jacks on Tax, Your Do-it-Yourself Guide to Filing Taxes Online and Essential Tax Facts, Secrets and Strategies for Take-Charge People, both available at www.knowledgebureau.com and leading bookstores.