Archive for January, 2019

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Helping Seniors: 10% Fail to Receive GIS

According to Statistics Canada*in 2016, 4.9% or 289,000 of 4.9 million seniors in Canada were living in poverty. Yet, more than one in ten seniors who are eligible for the Guaranteed Income Supplement (GIS) didn’t receive it in 2016-17. This is a big concern because, in fact, the number of seniors living in poverty is on the rise. So what’s the problem?

The Guaranteed Income Supplement (GIS) is designed to assist low-income seniors. Unfortunately, the government says many low-income seniors who could use the extra cash often don’t apply for GIS because they think they earn too much, or don’t understand the process.

The current process is that seniors who are automatically selected to receive Old Age Security are also automatically selected to receive the GIS based on their income, as reported on their last income tax return. But here is one of the problems – not all seniors file or file a return on time.

Once enrolled, seniors continue to receive the GIS so long as they file a tax return and report sufficiently low income. But, those income levels fluctuate and the eligibility ranges are not well known. They also depend on the taxpayer’s family status as shown in the table below.

The Basics on Eligibility.  The allowance is available to low-income seniors aged 60 to 64 who are married to a pensioner or are the surviving spouse of a senior. These figures are for January to March 2019 and are indexed quarterly.

Family Situation Maximum Income
(excluding OAS)
Maximum
Amount
Reduction
Rate*
Single, widowed, or divorced senior $18,240* $898.32 $1/$24
Spouse receives full OAS $24,096* $540.77 $1/$48
Spouse does not receive OAS $43,728* $898.32 $1/$96 over $4,096
Spouse receives the Allowance $43,728* $540.77 $1/$48

* Benefit reduced by one dollar or each multiple of income level shown (e.g. $1 for each $24 of income for a single senior). Note that the first $3,500 of employment income does not count.

** combined income of both spouses


Less Common GIS Situations:

  • Retiring seniors – seniors who are about to retire and anticipate a lower income in their first year of retirement may apply for the GIS based on their estimated income after their retirement date. This occurs even if they do not qualify based on income reported on their last tax return.
  • Death of a spouse – when a taxpayer’s spouse dies, their GIS is based on their own income for the year of death rather than their family income (as it was for years when they were married at the end of the year). However, even if this income level is very low, they will not automatically receive the GIS based on their income unless they apply for it.
  • RRSP meltdown – when the taxpayer reaches age 72, any RRSP balances have to be transferred to an RRIF and there are minimum withdrawal amounts annually from the RRIF. For low-income seniors, the minimum withdrawal reduces their GIS each year. 

Seniors anticipating low income in retirement and who have small RRSP balances, transfer the RRSP balance to the TFSA before they are eligible for the GIS so withdrawals can be made without affecting the GIS.

More wrinkles:  For those who are not automatically enrolled or who do not qualify based on income reported on their last tax return, an application is required. Over the coming weeks, the government will be sending out tens of thousands of letters to seniors who are receiving OAS to remind them to apply, but there is no reminder for GIS. Those that meet the eligibility criteria outlined above are encouraged to apply. 

A role for advisors. Tax and financial advisors can help by encouraging their clients to know and understand income ranges that qualify for the GIS and to complete the application forms for seniors as a public service.

Written in collaboration with Walter Harder.


Getting the New Climate Action Incentive Rebate Right

Canada now has anationwide standard for reducing carbonpollution, which means that starting in 2019, a federal “backstop” carbon pollution pricing system will apply to four provinces – Saskatchewan, Manitoba, Ontario and New Brunswick – that have not implemented their own systems. For taxpayers in these provinces, a new refundable tax rebate will be claimed on the 2018 tax return. But, like most tax provisions, it has its wrinkles.

The majority of the charges collected from a fuel tax that begins on April 1, 2019, will be returned through this rebate, called the Climate Action Incentive payments. The amounts being returned to individuals and families are calculated as follows:

PROVINCE
TAXPAYER SPOUSE/ELIGIBLE DEPENDANT QUALIFIED DEPENDANT
SK $305 $152 $76
MB $170 $85 $42
ON $154 $77 $38
NB $128 $64 $32

Payments in Subsequent Years. Climate Action Incentive payments will increase annually as fuel charges rise, until at least 2022. The exact payment amounts are to be announced annually, but for the time being are projected to be as follows:

 Saskatchewan 2020 2021 2022
First adult $452 $596 $731
Spouse $225 $297 $364
Child $113 $148 $182
Family of four $903 $1,189 $1,459


 Manitoba 2020 2021 2022
First adult $250 $328 $402
Spouse $125 $164 $201
Child $62 $81 $99
Family of four $499 $654 $801


 New Brunswick 2020 2021 2022
First adult $189 $247 $303
Spouse $94 $124 $152
Child $47 $62 $76
Family of Four $377 $495 $607


 Ontario 2020 2021 2022
First adult $226 $295 $360
Spouse $113 $147 $180
Child $56 $73 $89
Family of four $451 $588 $718

Supplement for Residents of Rural and Small Communities. In recognition of increased energy needs and reduced access to alternative transportation options, residents of rural and small communities will have their payments increased by 10 percent. To find out which areas will qualify, go to this link:

There, you should be able to find the places outside of metropolitan areas that may qualify, according to CE Summit delegate Dianne Lepage of Liberty Tax Service. She tells us that some towns don’t show up per se, but their rural municipality does. For example, Rapid City, Manitoba, is not there but the rural municipality of Oakview is. It will, in other words, take some digging to find out exactly who qualifies to get the extra payment.

Following are other criteria for the program shared by Finance Canada:

Relief for Farmers. Upfront relief from the fuel charge will be provided with exemption certificates when certain conditions are met. Specifically, a registered distributor can deliver, without the fuel charge applying, gasoline or light fuel oil (e.g., diesel), if the fuel is for use exclusively in the operation of eligible farming machinery and all, or substantially all, of the fuel is for use in the course of eligible farming activities. Farmers do not need to be registered for the purposes of this relief.

Eligible farming machinery means property that is primarily used for the purposes of farming and that is a farm truck or tractor, a vehicle not licensed to be operated on a public road, or an industrial machine or stationary or portable engine. Diversion rules to ensure that the fuel charge applies if gasoline or light fuel oil is not used as intended.

Relief for Fishers. Similar rules apply to fishers when all, or substantially all, of the fuel is for use in the course of eligible fishing activities and when certain conditions are met, one of them being that the province be prescribed for the purposed of the relief. There are currently no listed provinces that are prescribed.

Exemptions to Carbon Taxes. A full exemption from carbon pollution pricing will be granted to: diesel-fired electricity generation in remote communities, for aviation fuel in the territories, and for farmers and fishers. Partial relief from the fuel charge would also be provided for eligible commercial greenhouse operators.

Bottom line: Remind all taxpayers in these provinces to file a tax return – whether they have income or not. It will lead to a bigger tax refund!


The Tax Refund: Friend or Foe to Wealth Management?

The Statistics Canada’s Individual Income Tax Report*released on January 8, highlighted just how much Canadians are being over-taxed by the CRA. With average tax refunds coming in at $1,757 for the 2018 filing season, many taxpayers are effectively providing the government with interest-free loans of approximately $150 per month for up to 16 months before they see their refund. Just how much is that really costing you?

Consider this: $150 a month could help you take advantage of investment opportunities or pay down debt. Investing the money in a TFSA at a 5% return would earn almost $50 in interest over a 12-month period. While that may not sound like much annually, it’s significant over the long-term if that investment is allowed to grow. The earnings are tax-free along the way and when they are withdrawn, too. 

If the money was put into an RRSP, almost immediate tax savings would result, at the taxpayer’s marginal tax rates, provided the taxpayer is age-eligible and has RRSP contribution room.  A spousal RRSP opportunity may also be possible. This opportunity brings with it the possibility of reducing withholding taxes throughout the year, using Form T1213.

Likewise, if taxpayers used that $150 monthly payment to reduce debt — particularly high-interest consumer debt — instead of giving it up to the CRA in overpayment, that could make a significant financial impact. Especially when you consider that the average interest rate for credit cards in Canada is 19%, and that number continues to rise. The benefit is exponentially positive, given that interest on consumer debt is not deductible.

Many Canadians celebrate their refund cheque as though it’s free money when, in reality, money collected through over-taxation should have been theirs all along. Lacking access to it therefore has a negative impact on their financial future – making the tax refund a foe, not a friend, to financial planning goals.

To prevent these repercussions seek out the services of a certified professional in tax-efficient debt management  or a Real Wealth Manager, who can help you coordinate financial plans with tax filing priorities. It’s important to reduce CRA’s reach up-front, and control whether the correct amount of tax is being paid on a regular basis.

Consider the following implementation tips:

  • Fill out a TD1 for your employer’s payroll department, outlining tax credits and deductions you’re likely to claim. Payroll deductions can be adjusted accordingly. This often needs to be requested, as most companies don’t routinely provide these forms to new hires.
  • Update your employer on significant life changes that may impact the amount of tax to be withheld (child or spouse no longer a dependent, for example).
  • Inform your employer if you have more than one employer in the same tax year. This could affect your tax-exempt basic personal amount. Otherwise, if a new employer assumes this applies, under-taxation could occur and you’ll owe money you weren’t anticipating.
  • CRA can give approval to an employer to collect less tax in cases where employees are making RRSP contributions or claiming significant childcare costs, for example. An advisor can help you make the right moves in order to ensure only the necessary taxes are being withheld.

Advisors helping taxpayers through this process can do more than simply manage the logistics; having conversations around this issue creates an opportunity for education. It’s time to start moving the needle and help Canadians better understand the complex tax issues that impact their wealth.

The Statistics Canada Individual Income Tax Report*


What Else Is New in 2019? Auto Expense Deduction Changes

Did you check your odometer reading at the start of the year? Finance Canada confirmed its 2019 auto expense rates on December 27, but they don’t quite measure up to cover the carbon taxes that increase the cost of driving, including the increased gas prices as of January 1. Those who use passenger vehicles for business will be disappointed that their write-offs haven’t changed at all, unless a new vehicle was purchased after November 20, 2018.

Here are the tax changes:

Employer-owned cars. For those who use an employer-provided vehicle, the prescribed rate that determines the taxable benefit for the personal portion of operating expenses paid by employers will be increased to 28 cents per kilometer from 26 cents. For those employed principally in selling or leasing cars, the rate goes up to 25 cents; also a 2-cent-per-kilometer increase. However, that’s not all in terms of costs to employees with this benefit: a standby charge must be computed separately to reflect the fact that the car is available for personal use.

Employee-owned cars. For those who purchase a passenger vehicle, limits on the claims for capital cost allowance, interest costs and leasing costs will not be changed from 2018 limits. The amounts are $30,000 (plus taxes), $300 a month and $800 a month (plus taxes), respectively.

Tax-exempt allowances. The limit on tax-exempt allowances paid to employees who use their own vehicles for business purposes will increase by 3 cents to 58 cents per kilometer for the first 5,000 kilometres driven, and then to 52 cents for each additional kilometer. Those living in the Northwest Territories, Nunavut and Yukon will add 4 cents to this, making it 62 cents per kilometer for the first 5,000 kilometres, and 56 cents there over that distance.

Given that these allowances are intended to offset the costs of owning and operating the vehicle — including fuel, financing, insurance, maintenance and depreciation — the new rates may not be enough to cover the carbon taxes of 4.4 cents starting April 1 for provinces that do not have their own carbon tax regime; and that amount will be even more in other provinces that do.

Average gas prices. It turns out Manitoba has the lowest average gas prices in the country these days, according to the CAA website. As of January 2, the rates were as follows:

Province Gas Price per Litre ($)
Alberta 091.1
British Columbia 125.8
Manitoba 088.7
New Brunswick 101.6
Newfoundland and Labrador 108.5
Nova Scotia 096.1
Ontario 097.6
Prince Edward Island 095.7
Quebec 108.4
Saskatchewan 096.0