Lohn Caulder Advisor - December 2009
In this issue of the Lohn Caulder Advisor:
1. Lohn Caulder announces industry-specific HST Seminars
2. Tax Loss Selling
3. Changes to the Canada Pension Plan
4. Home Renovation Tax Credit Program Ending
5. Apprenticeship Job Creation Tax Credit
1. Lohn Caulder announces industry-specific HST Seminars
We in British Columbia, along with our friends in Ontario, are switching to a combined sales tax system, which will see an end to the long-familiar BC 7% social services tax.
As of July 1, 2010, BC will see a single 12% "Harmonized Sales Tax (HST)" apply to the sales price of all taxable sales and services arising in BC.
Many professions and industries that have never had to deal with BC sales tax will then have to face the HST (accountants, unfortunately, included !). However, businesses which were exempt from dealing with the GST will remain exempt under the HST (example: health care providers, and financial institutions).
Some of the issues to consider with the new system will be:
Full recovery of both GST and PST after July 1, 2010, if your business revenues are subject to HST (most will be) - therefore, consider deferring acquisitions of tangible goods that would otherwise suffer non-recoverable PST until July 2010.
Negotiate pricing discounts from suppliers, who should be experiencing a reduction of costs after July 1, 2010, as they will no longer need to absorb PST costs.
Increase filing frequency from annual, to quarterly, so as to get HST input refunds much faster.
Consider the impact of the HST on long-term contracts that straddle July 1, 2010, or for which you may have taken a down payment or retainer fee.
The key is knowing whether you are affected, and to what extent. Therefore, Lohn Caulder has prepared a number of industry-specific seminars, which we plan to run in our boardroom at our office, on various Tuesday evenings in January and February, 2010.
Watch for a notice in your inbox ! And of course, if you need specific information right away, contact Ed Young, our commodities tax and HST manager.
2. Tax Loss Selling
The havoc in the securities markets seems to have settled down since the spring of 2009, but many, if not most, of our clients may find that their portfolio values are still down from their peaks.
It may also be that some of the stocks in your portfolio were purchased at, or near, that peak, and so are currently worth less than you paid for them.
If so, you may find it worthwhile to realize some of these losses, by selling these investments.
There are usually 3 excellent reasons for doing this:
You may have realized a taxable gain on something else during 2009, and could use some losses to shelter (i.e., reduce, or eliminate) that gain within the 2009 taxation year;
You may have realized taxable gains in any of your immediately 3 prior personal tax returns (2006, 2007 & 2008), and a loss realized in 2009 could be carried back to those years, to generate a reassessment of that year, and a tax refund; or
It simply makes sense to unload the investment, since while it may be down, it might very possibly go down some more.
Two opposing motivations would be the brokerage cost of selling the stock, and of course, the absoluteness of it all: while you continue to hold the stock, there always remains the possibility that its value will recover - or at least the hope of it doing so.
If you plan to avoid the latter problem by simply re-purchasing the same stock, beware the artificial loss rule: any repurchase within a 60-day period centering on the loss realization date will render the loss nil. You would thus have to cross your fingers that your hoped-for recovery in value occurs somewhat later than 30 days from the original loss event (when you've had time to buy back in without nullifying your loss claim).
While it had not been announced at the time of preparation of this newsletter, it is likely that the last possible day for selling a stock on a public stock exchange to have it register as a loss in 2009 will be December 24th. You should confirm this date with your broker or investment advisor.
3. Changes to the Canada Pension Plan
A number of changes were announced some months ago to the Canada Pension Plan rules. Generally, while there are some good things, the changes are for the worse for most of our clients who aren't old enough to have claimed the CPP yet. Note that those who are already drawing benefits will not be affected by any of these changes.
The changes are to take effect January 1, 2011.
Some background:
The CPP was originally introduced in 1966. It is intended to replace up to 25% of pre-retirement income, up to a maximum of the 5-year average of the "year's maximum pensionable earnings (YMPE)" (which increases with Canada's average wage). The YMPE in 2009 is $46,300.
A person's pension entitlement also depends on the number of years they have contributed to the plan. The maximum annual retirement pension in 2009 is $10,905. The pension lasts for life, and is fully indexed to inflation.
The CPP is financed through mandatory contributions from workers, including the self-employed. The contribution obligation is split equally between workers and employers, so that the maximum amount paid into the plan by employees and employers is, in 2009, $2,118.60 each (if the employee earns $46,300 or more in 2009). The self-employed must pay "both sides" of this premium: $4,237.20 in 2009.
Benefits are fully taxable. They are generally claimable at age 65, but it is possible to apply as early as age 60, or a claim can be deferred up to age 70.
Benefits can be applied for earlier than 60 if a person's capacity to work is affected by a severe and prolonged mental or physical condition.
Benefits can also be paid to a surviving spouse or common-law partner.
The changes:
Claimants who are under 65 have had to "cease working" to make a claim under the CPP. This resulted in widespread cheating, since many people, particularly the self-employed, would continue to run their businesses well beyond initiation of their pension. Now, there is no need to cease working - a good thing.
Generally, CPP refers to earnings from age 18 until 65 - a period of 47 years. However, given that many people continue to pursue post-secondary education, it has been possible to have almost 7 years of low or zero earnings (15% of the 47 years) without suffering a reduction from the maximum pension benefit. This allowance is being increased: to 16% in 2012, and to 17% in 2014 (by then, allowing a maximum of 8 years of "drop out" status).
Up until the new rules, it has been possible for early claimants (i.e., persons age 60 to 65) to eliminate their obligation to pay into the CPP. The rule was: if you get it, you don't have to pay into it. For owner-managers of their own businesses, who were liable to pay $4,237 per year into the plan (see above) this was a net financial win, which more than compensated for the pension discount that early claimants must suffer. The new rules eliminate this exemption from mandatory contributions (until age 65) - thus all who continue to earn employment or self-employment income from 60 to 65 will have to continue contributing to the plan.
The discount applied to "early claimants" (between age 60 & 65) has historically been 0.5% per month for each month that a pension is taken prior to the individual's 65th birthday. Thus, the maximum discount would be 30% (5 years early = 60 months, x 0.5%/month).
Now, the early-claim discount will be increased - to 0.6% per month, phasing in over 5 years, starting in 2012 - implying an 'age 60 discount' of 36%, once fully phased-in. However, those deferring pensions to as late as age 70 will have their pensions increased by 0.7% per month, phasing in over 3 years starting in 2011 (prior rules had this premium at 0.5%).
We are told that these changes will "improve the long term financial sustainability of the CPP". Does that mean that the CPP will now be assuredly viable for the long term? They're not saying.
4. Home Renovation Tax Credit Program Ends January 31, 2010
Readers should refer to our detailed analysis of this program which was featured in our April, 2009 newsletter.
If you haven't topped up the expenses needed for a maximum claim, you might want to do so now - remember, the credit is 15% of eligible costs up to $10,000 maximum (less a $1,000 deduction - so would be $1,350 (15% x ($10,000-$9,000)).
You will need to keep acceptable documentation to back up any claim that you do make on your 2009 personal income tax return.
5. Apprenticeship Job Creation Tax Credit
Many young people seem to be having difficulty finding employment in the fields they have been trained in. We want to draw your attention to a Federal Government program that might help: The Apprenticeship Job Creation Tax Credit (AJCTC).
The AJCTC is a non-refundable tax credit for the employer, equal to 10% of wages, up to $2,000 per apprentice.
An eligible apprentice is someone working in a prescribed trade in the first 2 years of their apprenticeship contract (which must be registered with the Governmental authority that certifies or licenses individuals in that particular trade).
The trades included are those considered "red seal trades" (bakers, boilermakers, bricklayers . . and many, many more). Unfortunately . . . accountants not included! Find the complete list at www.red-seal.ca.
Employers will apply for these credits by attaching schedule T2SCH31 to their corporate returns. Other credits may also be available. Lohn Caulder is familiar with the completion of these forms and can certainly assist you if you are unsure of your eligibility.