Archive for July, 2018

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Non-Residents in the Family: What’s the CRA’s Take?

Summertime is family time; but it is also the time of year when people prepare for big life changes taking place in the fall. Young adults make plans to work abroad, travel or go to school and empty-nesters journey to warmer climates. However, non-residency comes with tax consequences, so a visit to a tax advisor should be part of your travel preparation.

In fact, it can pay handsomely to find a cross-border tax expert who can help you determine with confidence what your filing status is, both before and after you leave. Knowing that will help you comply and avoid costly penalties and interest for failure to file various returns, especially if you are compelled to do so retroactively.

In fact, it can pay handsomely to find a cross-border tax expert who can help you determine with confidence what your filing status is, both before and after you leave. Knowing that will help you comply and avoid costly penalties and interest for failure to file various returns, especially if you are compelled to do so retroactively.

You will also make better decisions about contributing to and withdrawing from Canadian investments left behind: TFSAs, RRSPs, RRIFs, taxable Canadian real estate or business properties, for example.

You should be especially concerned about your tax ties if you are going to a country with which Canada does not have a tax treaty that prevents double taxation. You must be prepared to show that you have severed ties with Canada and have a permanent home elsewhere to avoid attachment to the Canadian tax system. However, taxable assets left in Canada will still have tax consequences for non-residents upon their disposition.

In addition to taxing the worldwide income of residents, the government of Canada imposes income taxes on non-residents who earn income in Canada. Except where there is an international tax agreement restricting the collection of such taxes, anyone in Canada who pays income to a non-resident is required to withhold income taxes from those payments.

In most cases, this is the only tax that the government will get on that income, as the non-resident will generally not be filing a Canadian income tax return. In fact, an expatriate of Canada may find that withholding taxes on Canadian income earned while a non-resident is cheaper than paying taxes in Canada.

Even in cases where there is little or no Canadian income, a non-resident may wish to file a tax return in Canada, in order to attempt a refund of the withholding taxes. There are three opportunities:

  • Under Section 216—Collection of rents and timber royalties. These filings are not eligible for any personal amounts and so are subject to 48 percent non-resident surtaxes, the same taxes levied to deemed residents.
  • Under Section 216.1—Non-resident actors may file a return in Canada under this section to report net Canadian-source acting income.
  • Under Section 217—Non-residents receiving any of the following sources of income may file a return for amounts that include:
    • Old Age Security pension, Canada Pension Plan or Quebec Pension Plan benefits, most superannuation and pension benefits, deferred profit- sharing plan payments, RRSP or RRIF payments, certain retiring allowances or death benefits.
    • Employment Insurance benefits or registered supplementary unemployment benefit plan payments, or amounts received from a retirement compensation arrangement (RCA), or the purchase price of an interest in a retirement compensation arrangement.
    • Prescribed benefits under a government assistance program.

In these cases, if Canadian-source income is 90 percent or more of their worldwide income, taxpayers will be allowed to claim full personal amounts. If Canadian-source income is less than 90 percent of world income, then personal amounts are limited to 15 percent of eligible income. The 48 percent non-resident surtax will apply but will be reduced by the factor of eligible income divided by non-eligible world income. Paying the 25 percent withholding taxes may be simpler and less expensive.

It’s complicated, and that’s why you may need help from a tax professional in making the right filing decisions when your life changes and takes you across the border or overseas.

Excerpted from Evelyn Jacks’ latest book, Essential Tax Facts: How to Make the Right Moves and Be Audit-Proof, Too. Pick up your copy today as your guide for tax-efficiency at all life stages.

Additional educational resources: Ready to improve your skillset and help your clients navigate complex issues in a tax-efficient way? Try Knowledge Bureau’s Cross Border Taxation course. Or complete a full designation to become a Distinguished Financial Advisor – Tax Services Specialist, or Master Financial Advisor – Business Services Specialist.

COPYRIGHT OWNED BY KNOWLEDGE BUREAU INC., 2018.
UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.

 


CSA’s Proposed Client-Focused Reforms: KYC and KYP Guidelines

The Canadian Securities Administrators (CSA) recently proposed expanded guidelines on registrants’ obligations to act in a client’s best interests and on its proposals regarding embedded commissions. Knowledge Bureau is pleased to announce that Ian Russell, President and CEO of the Investment Industry Association of Canada (IIAC) will provide expert commentary on the matter at the Distinguished Advisor Conference November 10-14 in Quebec City.

The proposed amendments outline ways in which a registrant may tailor it’s Know Your Client (KYC) process to reflect its business model, the nature of its relationships with clients, as well as how to collect KYC information using technology. This article setout some of the details released.

Know Your Client and Your Product. Advisors will be particularly impacted by a new section 13.2.1 [Know your product] that will require a much more detailed information-collection process by registrants, in order to better determine investment suitability with a more fulsome KYC process:

  • 13.2(2)(c) — Explicitly sets out KYC information that must be collected by registrants to understand their clients well enough to meet their suitability determination obligations. The information required includes the client’s personal and financial circumstances, investment needs and objectives, investment knowledge, risk profile and investment time horizon.
  • 13.2(3.1) – This new subsection will require registrants to take reasonable steps to obtain clients’ confirmation of the accuracy of their KYC information, collected at account opening and when any significant change occurs.
  • 13.2(4.1) – This new subsection will specify the circumstances when a client’s KYC information must be reviewed and updated, including when the registrant knows, or reasonably ought to know, of a significant change in a client’s KYC information and, in any event, at minimum intervals of:
    • 12 months for managed accounts
    • 12 months prior to making a trade or recommendation for exempt market dealers
    • 36 months for other accounts

The CSA is considering a phased implementation schedule for the final amendments:

  • Referrals: immediately upon coming into force, except three years to bring pre-existing arrangements into conformity;
  • Relationship Disclosure Information (RDI): One year to provide publicly available information under new requirement; two years for the other new requirements;
  • KYC, KYP, Suitability and Conflicts of Interest: Two years.

The news has received mixed reviews, particularly because on the same day, CSA Staff Notice 81-330 Status Report on Consultation on Embedded Commissions and Next Steps, was released. In that document, the CSA announced its policy decision on mutual fund embedded commissions, which was essentially to allow them. This has not sat well with some critics of the industry.

The CSA’s policy decision in this regard has three components. The first is integrated into the proposal on Client-Focused Reforms, to require registrants to address conflicts of interest in the best interest of the client, including conflicts of interest associated with embedded commissions and other third-party compensation. The CSA says it will address the other two components with a publication of rule proposals for comment in September 2018. It intends to prohibit:

  • All forms of the deferred sales charge option, including low-load options and their associated upfront commissions; and
  • The payment of trailing commissions to dealers who do not make a suitability determination.

For those who wish to make comment, feedback must be submitted in writing on or before October 19, 2018. Those who are not submitting by email should send a CD containing the submissions (in Microsoft Word format).

Address the submission to your local CSA as follows:

British Columbia Securities Commission
Alberta Securities Commission
Financial and Consumer Affairs Authority of Saskatchewan
Manitoba Securities Commission
Ontario Securities Commission
Autorité des marchés financiers
Financial and Consumer Services Commission of New Brunswick
Superintendent of Securities, Department of Justice and Public Safety, Prince Edward Island
Nova Scotia Securities Commission
Securities Commission of Newfoundland and Labrador
Registrar of Securities, Northwest Territories
Registrar of Securities, Yukon Territory
Superintendent of Securities, Nunavut

But deliver your comments only using one of the addresses below, for distribution to the other participating CSA members.

The Secretary
Ontario Securities Commission
20 Queen Street West
22nd Floor, Box 55
Toronto, Ontario M5H 3S8
Fax: 416-593-2318
comments@osc.gov.on.ca
Me Anne-Marie Beaudoin

Corporate Secretary
Autorité des marchés financiers
800, Square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H4Z 1G3
Fax: 514-864-6381
consultation-en-cours@lautorite.qc.ca

Additional educational resources:

The Real Wealth Management Program, leading to the RWM certification, is focused on the strategy and process required to assist clients with the accumulation, growth, preservation and transition of sustainable family wealth – after eroders like taxes, inflation and fees. Emphasis is placed upon the use of strategies to better know your clients and approach wealth planning holistically. The Master Financial Advisor – Retirement Planning Services can also help you meet your clients’ needs, including in securing retirement income needed for future financial security.

If you prefer instructor-led strategic education, plan to attend the Distinguished Advisor Conference, which will be held in Quebec City, November 10-14.

CE/CPD credits are earned for completing both options, and free course trials are available.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading national financial education institute and author of a new book in 2018: Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof, Too.  Follow her on twitter @evelynjacks

COPYRIGHT OWNED BY KNOWLEDGE BUREAU INC. 2018.
UNAUTHORIZED REPRODUCTION, IN WHOLE OR IN PART, IS PROHIBITED.