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Spring 2012 Newsletter


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Spring 2012 Newsletter

  1. 1. spring 2012 A publication of MacKay LLP Chartered Accountants and Business Advisors It’s Tax Time Again It’s that lovely time of year again where we reconcile companies will provide this information in an annual our debt with the Canadian government in exchange summary. for all the services they provide. In other words, it’s tax If you have employment expenses, obtain a signed time again. For those of you lucky enough to be clients T2200 from your employer and collect your receipts of MacKay, the actual calculation of your tax bill will be for employment expenses paid in 2011. done for you. Unfortunately, there are still things you If you have business, farm or other self employment have to do to prepare for filing your return. income or rental properties, prepare a summary of First of all, gather all your slips. T4s and T5s should income and expenses by business or property. arrive by the end of February, while T3s and T5013s Once you have done all this, deliver everything to should arrive by the end of March. It is important to MacKay and we’ll take care of the rest. make sure that, if you get a slip, it is reported on your tax return. Occasionally you may find or receive a slip The Latest HST after we have filed your tax return. It is important to contact us and let us know about the slip you just discovered. If you don’t report income that is on a slip on your tax return, CRA may levy punitive penal- ties, if not this year then on any slip missed in the next three years. News for BC RRSP contributions can be made up to February 29, The basic plan is that the BC Provincial Sales Tax, 2012 and can be deducted on your 2011 tax return. formally called the PST or Social Services Tax, will be RRSP contribution slips may be received as late as reintroduced on or about April 1, 2013. It will be many March if contributions are made in January or February. months before transitional rules will be available. Gather all your medical receipts; some pharmacies will provide you with an annual summary if you have inthisissue a large number of prescriptions throughout the year. It’s Tax Time Again 1 Common medical receipts include prescriptions, dentist fees and optometrist fees. Depending upon The Latest BC HST News 1 your province or territory of residence physiotherapy, Is Your Data Safe? 2 registered massage therapy, naturopathic doctor Children’s Art Activities Tax Credit 3 fees (but generally not the products sold by a naturo- path) and chiropractor fees are medical expenses. Why Canada’s Corporate Tax Cuts In addition, travel medical insurance documentation Rate a Collective Cheer 4 is also relevant. Tax Considerations for Aboriginal If you have investments outside your RRSP, RRIF or Business Owners 5 TFSA, either provide all your monthly, quarterly or Change of Address 5 annual statements or provide a list of buys and sells for the year along with the amount originally paid for Income Tax Filing Requirements on Death 6 investments you sold in the year. Some investment spring2012 • Newsletter 1
  2. 2. Is Your Data Safe?This article is meant to provide a high level overview of Passwordsdata security and is not meant to be used as a guide First and foremost is your password. Consider this:or in the place of advice from an industry expert. It is your password is the key that unlocks your computeralso by no means a full account of all areas or facets and allows you access to everything stored on it andof data security. You are advised to seek consultation your computer network. It can be inferred then thatfrom an appropriate individual or organization with the your password is one of the best ways to ensure thatrelevant experience and credentials before implement- your information is kept secure. Before employinging or following any recommendations in this article. any of the following tips, please check to ensure thatData they meet any guidelines set forth in your company’s password policy. Some password tips:Almost everything we do today is in some way asso-ciated with a computer. The widespread adoption • Choose something with at least 12 charactersof computers into most day-to-day processes has • Use a combination of uppercase and lowercaseresulted in the creation of large amounts of computer charactersdata and files. It is important that we be aware that • Use punctuation characters and special symbols,some of these data files will contain information that e.g. !@#$%^&*( )[ ]can be sensitive or could be used for malicious pur- • Use as many different passwords for your accountsposes. For example, there is a good chance you have as possibleelectronic documents with your birthdate or yourSocial Insurance Number contained within them. In the If you wish to write your passwords down, go for it!wrong hands this information could be used to obtain However, if you write it down you should keep it in acredit cards or commit other types of identity fraud. safe place such as a locked drawer or an encryptedWith the sensitive nature of some of your electronic file. A good utility for managing passwords is KeePassdata, it now becomes increasingly important that you http://www.keepass.infotake appropriate steps to ensure that it is protected. If your company does not have a password policyThere are a number of ways that your data could be in place, you should consider drafting one or havingobtained by an unauthorized third party. For example, one drafted for is inherently insecure by nature. Once you send Antivirus Softwarea message from your email client it will travel through,at a minimum, three to four devices through the Inter- Antivirus software is one of the main software compo-net. Any of the devices that handle the email message nents on your computer that can help to keep it safecould potentially access the information in it. from virus infections and exploits. This in turn will help to prevent potential data theft. While some of the freeAnother common method for a malicious third party to antivirus solutions may be enough to meet the needsobtain information is through the theft of a laptop or of home users, they do not generally have enoughmobile computing device (Smartphone, iPad, Playbook, features to adequately protect an office environment.etc.). Unless the device is properly configured and pro- When it comes to software in general it is the same astected, it is a simple matter to access any data stored most other things: You get what you pay for! Most ofon it. Additionally USB memory sticks can be easily the major antivirus vendors that provide a paid productlost or stolen and can contain large amounts of data. will offer sufficient protection for your computer(s).What Steps Can You Take? When choosing an antivirus solution, research should include your needs, feature sets offered, and overallKnowing that there are innumerable ways that your independent test rankings.sensitive information could fall into the wrong handsis enough to keep anyone up at night. While there is A couple of good sites to review areno system that is completely secure and impervious http://www.av-comparatives.orgto malicious activity, there are a number of ways that andyou can ensure that your data will be relatively secure http://www.virusbtn.comand more difficult to acquire. Continued on page spring2012 • Newsletter 2
  3. 3. Application Patches Full-disk encryption results in all the data, including theOne of the easiest ways for a malicious attacker to operating system, on your computer being encrypted.access your data is through a vulnerability in an appli- It can be either software or hardware based. A numbercation or the operating system. On a regular basis of hard drive manufacturers are now producing hardvulnerabilities are found in common software applica- drives that have encryption technology built right intotions that, under the correct circumstances, can be them. Software-based full-disk encryption will pro-exploited by a malicious attacker. For example, if you vide you with more flexibility and control over how thehave an outdated version of the Adobe Flash Player data is encrypted and who can obtain access to it. Byon your computer, simply visiting a website is enough encrypting everything on the hard drive, it precludesto have your computer compromised and in turn your the user from having to make a choice and take actiondata potentially stolen. to encrypt the files.In order to ensure that your computer is as safe as Individual file encryption is generally a software basedpossible from application exploits, you need to ensure encryption that requires you to select the files andthat you are proactively installing any relevant patches make a conscious choice to encrypt them. Once thefor your applications. Microsoft regularly releases files are encrypted, similarly to full-disk encryption, thepatches for their applications and operating systems. proper key is required in order to access the files. ThisIn order to ensure that your system is as safe as pos- method can be useful if you will be copying files to asible from application exploits, the patches should be USB key or if you have a file that contains passwordtested and installed in a timely manner. information or any other sensitive information. Data and computer security is an ever-changing andDisk and File Encryption evolving field. It is not enough to simply ignore theDisk and file encryption is one of the best ways to ever-present threats that are out there and hope thatensure that, if your computer or USB drive is sto- your data does not get intercepted or accessed. Givenlen, your data will remain unattainable. When data enough time and the right tools, a determined intruderis encrypted it is scrambled using a mathematically may be able to circumvent even some of the bestcomplex key generation technique. In order to access security measures. That being said, while no systemthe data you, or the software on your computer, must is 100% secure and impervious to intrusion, you canposses the correct key to de-scramble the data. rest a little easier by following the recommendations in this article.Children’s Art ActivitiesTax CreditStarting in 2011 the Government of Canada created a the claim is $500 per child. If you paid for art activitiestax credit to help parents with the cost of enrolling their for your child in 2011 remember to include the officialchildren in artistic activities. The credit is very similar receipt with your other tax slips provided to us so thatto the Fitness Tax Credit, which has been available your MacKay LLP tax preparer can ensure the creditfor a few years. To qualify for the credit the artistic is claimed.activity must either be at least once a week for eightweeks or five consecutive days long and provided toa child under 16 years of age. The activity must besupervised, suitable for children and contribute to thedevelopment of creative skills or expertise in an artisticor cultural discipline. If the activity is also eligible forthe Fitness Tax Credit (for example; dance) then onlyone credit may be claimed. The maximum amount spring2012 • Newsletter 3
  4. 4. Why Canada’s Corporate TaxCuts Rate a Collective Cheer(Reprint from the Globe and Mail January 4, 2012) Eventually, the U.S. will respond. Republican presi-In an end-of-year review of his government’s achieve- dential candidates have embraced deep corporatements in 2011, Prime Minister Stephen Harper noted tax cuts; some of them, such as Texas Governor RickForbes magazine’s selection of Canada as the No. 1 Perry, propose a federal corporate rate of 12.5 percountry in the world to do business. (“Credit a reformed cent. Mr. Perry’s position reflects the judgment of histax structure, Forbes declared.) Mr. Harper was right ” tax adviser, Steven Forbes – owner and editor of theto cite this distinction. On New Year’s Day, Canada’s eponymous magazine that ranked Canada as thecorporate tax rate – federal and provincial rates com- best business domicile in the world. Mr. Forbes takesbined – fell to 25 per cent, giving Canada the lowest taxes seriously. (He declined to support Mitt Romneyrate in the Group of Seven countries, and a more com- because the former Massachusetts governor wouldn’tpetitive economy on a global basis. endorse a single-rate personal income tax. Mr. Forbes has mocked Mr. Romney’s 59-point platform for itsThe provinces (especially British Columbia, Alberta complexity, saying: “God only had 10 points. ) ”and Ontario) collaborated with Ottawa to reach thisstrategic objective, announced shortly after Mr. Harper Former Pennsylvania senator Rick Santorum proposesformed his first minority government in 2006. But the a permanent zero-per-cent corporate tax rate on allfederal government did the heavy lifting: a 33 per manufacturing companies – and says he would taxcent tax rate cut, implemented incrementally over five capital gains at 12 per cent (or half the rate that ayears, in the stridently antagonistic environment of typical Canadian now pays). Former speaker of thesuccessive minority parliaments. In annual steps, the House of Representatives Newt Gingrich proposes angovernment lowered the federal rate from 22 per cent optional 15 per cent flat tax on personal income andto 15 per cent (The provincial collaborators now have the elimination of capital gains taxes for people whoa common rate of 10 per cent.) choose the flat-tax alternative. Mr. Romney proposes to eliminate capital gains taxes for people with lessRemarkably, the gradual lowering of the corporate tax than $200,000 (U.S.) a year in taxable incomes.rate appears to have resulted in little loss in corporatetax revenue (when compared with long-term, prereces- In his own end-of-year review, Finance Minister Jimsion revenues). Corporate tax revenue did take a big Flaherty noted the completion of his corporate rate-hit ($10 billion) in 2008, the year of the market melt- cut assignment. He set out six years ago to branddown. But the tax cuts were barely started in 2008. Canada as a low-tax jurisdiction for business invest- ment. He succeeded. On this file, Mr. Flaherty’s per-By 2010 –2011, federal corporate tax revenue reached formance was as good as it gets. Mr. Harper and Mr.$30 billion, substantially more than the average of $25 Flaherty probably don’t expect coast-to-coast hosan-billion in the last four years of the prior Liberal govern- nas. Nevertheless, it seems a bit much that the mostment: 2002 through 2005. Further, federal corporate audible applause has come from a business magazinetax revenue equalled 1.8 per cent of Canadian gross based in New York. In fact, the Canadian governmentdomestic product, a much higher percentage than achieved a great legislative success in pursuit of anthe revenue produced during the recessionary years important economic objective. For this, it deserves ain the early 1990s. In tough-times 1992, for example, round of Canadian-based applause.corporate revenue, with higher tax rates, fell to 1 percent of GDP. Mr. Flaherty’s job isn’t finished. He acknowledged this last year when he said the government would proceed,Economists predictably disagree on the economic in due course, with personal income tax reform byimportance of corporate tax rates, mostly on an ideo- reducing the number of tax brackets from five to twological basis, but it makes good sense to keep this or three. In a world of vast and highly entropic com-particular tax as low as possible. These taxes, after plexity, simplicity is always an indispensible public-all, are a direct cost of doing business – and Canada’s policy goal.corporate cuts ensure that this country will have across-border edge for the next two or three years at This article was written by Neil Reynolds of the Globeleast. With a combined federal-state rate of 39.2 per and Mail and is reprinted with permission.cent, the United States has the second-highest rate inthe world (after Japan, with 39.5 per cent) spring2012 • Newsletter 4
  5. 5. Tax Considerations forAboriginal Business OwnersAs an aboriginal or Inuit business owner you may compensation received by him or her may be exemptthink that your business income will not be subject income. In order to reduce the taxes payable by theto income tax. Depending on where your business corporation a common planning technique in certainincome earning activities are located, your conclusion circumstances is the increase the wages of the activecould be incorrect. owner/manager if they are an on reserve Status Indian.Section 87 of the Indian Act is commonly relied upon Status Indians in certain areas, such as the Yukon,to provide protection from taxation. This Section pro- should be aware that the tax exemption provisionsvides that an Indian or band is not subject to gov- of Section 87 of the Indian Act, described above, doernment taxation in respect to property situated on not generally apply where a Final Agreement existsreserve. Over the years a number of court cases has with a First Nation. In the North West Territories, taxa-limited the Section 87 tax exemption. tion will be dependent upon the particular agreementThe Canada Revenue Agency and the courts agree involved. These and certain other natives who do notthat in order for income earned by a status Indian to be have exemption may need more detailed tax adviceexempt from tax the business income needs to earned and may need to utilize incorporated entities or otheron reserve. Basically the location of the actual income structures to minimize taxation. Often trusts or partner-generating activities determines the tax payable. For ships are used in native business planning to minimizeexample a unincorporated logging business has an taxation. If you are an aboriginal business owner andoffice on reserve, stores it’s equipment on reserve and you are carrying on some or all of your income earningdoes its bookkeeping on reserve, but logs off reserve. activities off reserve, you could be subject to incomeThe income generated by this business would be sub- tax. Consult your professional advisor to determine ifject to income tax as the income generating activity, any planning opportunities are available.the logging, is done off reserve. This material is general in nature and should not beAny income earned from the unincorporated logging relied upon to replace the requirement for specificbusiness by the employees of the logging business professional advice.goes through a similar test. For example the businesshas two employees, a manager who stays in the officeand runs the company and a supervisor who runs thelogging operations. Both are Status Indians. The man- Change of Addressager’s wages would not be subject to income tax ashe is earning his income on reserve, while the super-visor’s income would be subject to income tax as heis earning his income off reserve. Please be advised that MacKay LLP in Surrey hasFor profit corporations are always subject to income a new address (just down the hallway from the oldtax. Many aboriginal or native incorporated companies location):are not for profit or municipal in nature. These com- 119, 7565 – 132nd Streetpanies may have filing requirements but may not be Surrey, BC V3W 1K5taxable, subject to advice in each case.Incorporated for profit businesses; if they are ownedby Status Indians and operate on reserve, for examplea corporation that has a logging business and that pri-marily harvests timber on reserve, is likely to subject totaxation and filing requirements. If the owner/managerof the corporation is a Status Indian who managesall the operations on reserve and lives on reserve, spring2012 • Newsletter 5
  6. 6. Income Tax FilingRequirements on DeathTerminal Return assets by the estate. This return is filed annually withinThis is the deceased’s final Personal Income Tax 90 days of the selected year end which can be no laterReturn. The return reports income for the year of death than the first anniversary date after death. The finalfor the period from January 1st to the date of death. estate return is filed once the Executor is preparedAll regular income (i.e. pensions, employment income, to wind up the estate and distribute any remaininginterest, etc.) earned during this time period will be assets to the beneficiaries. This final estate return isreported. In addition, the return will report any gains due within 90 days of the proposed wind-up date.resulting from deemed dispositions on death. This Once the final estate return has been filed andreturn has the normal filing deadline of April 30th of assessed, a Request for a Clearance Certificate wouldthe following year. When the individual has died in be prepared and filed in cases where it is appropriate.November or December this filing deadline is extended A Clearance Certificate protects the Executor from anyto six months after the date of death. future liability for income taxes but does not protect an individual as a beneficiary.Additional Separate ReturnIt is possible to report certain types of the deceased’s Information Required toincome on a separate return for the year of death, Prepare the Returnsknown as a “Rights or Things” return. The benefit of • A copy of the deceased’s prior year’s Income Taxthis separate return is that the individual is then able Return and Notice of Assessment,to make a second claim for tax credits. In effect, they • A copy of the Death Certificate,get to claim personal tax credits twice for the same • A copy of the Last Will and Testament,year. The reporting period and the filing deadlines arethe same as for the terminal return. The following is a • A copy of the Statement of Assets and Liabilitiesbrief list of the types of income that can be reported (from the probate documents)on a separate return. • The purchase price of real estate (including the• Dividends declared but unpaid at the date of death. house) or non-registered investments, and• Income from another person’s estate. • All income tax information slips, including T3s,T4s and T5s.• Vacation pay from an employer. This document is general in nature and should not beEstate Return relied upon to replace specific professional advice.The estate return reports any income earned after thedate of death. A typical example is the CPP deathbenefit. Other types of income include interest on aninvestment or bank account or any gains on the sale of Prepared by the Taxation Services Section of MacKay LLP Chartered Accountants and Business Advisors for review by our clients and other interested parties Vancouver (604) 687-4511 Yellowknife (867) 920-4404 Surrey (604) 591-6181 Edmonton (780) 420-0626 Kelowna (250) 763-5021 Calgary (403) 294-9292 Whitehorse (867) 667-7651 If you would like to be added to or removed from our mailing list, please contact your local office. MacKay LLP is a Canadian firm of chartered accountants based in Western and Northern Canada and represented by offices in Alberta, British Columbia, Yukon and the Northwest Territories. The firm currently has 43 partners and principals, approximately 220 staff, and offers a full range of accounting, auditing, taxation, insolvency, valuation, computer, and management consulting services to all clients. In other areas of Canada and internationally, the firm is represented by other locally managed independent accounting spring2012 • Newsletter 6