Financial Planning, Investment Counselling, Tax and Accounting

Contents

CRA is auditing all gifting arrangements
Take the great Canadian tax test
Top ten reasons people file their taxes late
Important deadline for business owners

CRA is auditing all gifting arrangements

Despite numerous warnings and audit actions by the CRA, taxpayers are still participating in tax shelter gifting arrangements. The CRA is urging taxpayers to avoid these schemes.

Taxpayers should be aware that the CRA plans to audit all tax shelter gifting arrangements. Every audit completed to date has resulted in a reassessment of tax, plus interest. In many cases the CRA has denied the "gift" completely. Penalties will be considered, especially where an investor was audited and reassessed for previously participating in a gifting arrangement.

• To date, the CRA has reassessed over 26,000 taxpayers who participated in these schemes, and denied about $1.4 billion in donations claimed.
• Audits of another 20,000 taxpayers involving $550 million in donation claims are just about complete.
• Audits on other arrangements involving over 50,000 taxpayers are about to begin.

New schemes are being marketed that claim to be different from those for which the CRA has previously issued warnings. Taxpayers should avoid all schemes that promise donation receipts for three to four times the cash payment. It is the CRA's position that the proposed legislation, effective since 2003, will apply to reduce the donation credit to no more than the actual cash payment. Furthermore, as indicated above, completed audits have shown that there was effectively no gift being made in many cases, and as a result, the donation was reduced to zero.

Packages promoting these schemes sometimes include letters of commendation about the particular charity, which can give the impression of endorsing the scheme itself. These letters should not be interpreted as providing any assurance that these schemes do what they claim to be doing or that the promised tax benefits are in accordance with the Income tax act.

If you are still thinking about participating in a tax shelter gifting arrangement, it's very important that you get independent legal and tax advice. Independent advice means advice from a tax professional that is not connected to the scheme or promoter. If property is involved, you should also get independent advice on its true value. Packages from promoters will often claim to have legal or tax opinions from a law firm. You may find that these opinions contain very general comments and do not provide unconditional support for the scheme. Ask to see them, and have them reviewed by an independent professional.

In addition, participants who have been reassessed for previous participation in these schemes may also wish to obtain independent tax advice to determine their best options.

The CRA reminds taxpayers that tax shelter numbers are used for identification purposes only. These numbers identify both the schemes and those taxpayers who participate in them. They do not guarantee that taxpayers are entitled to receive the proposed tax benefits.

The CRA generally has three years from the date of assessment to reassess taxpayers, and these audits can take over a year to complete. The fact that investors in these tax shelters have not been contacted and/or reassessed should not be interpreted as the CRA's acceptance of their claim.

Take the great Canadian tax test

When it comes to tax knowledge, Canadians just aren't making the grade. On a recent Great Canadian Tax Test conducted by Leger Marketing, the average Canadian was only able to answer three out of 10 questions correctly.

Canadians scored even lower than they did on a comparable tax test conducted two years ago. In that one, similar to this year’s style of 10 true or false questions, the average was 6 out of 10 correct answers. Are taxes getting harder to figure out? Are we getting dumber?

This year's tax test incorporated many questions about the new changes to the Canadian tax system.

"Most people don't use 8-track tapes anymore or rely on outdated medical techniques, so why would they live with outdated tax planning?" asks Sandy Cardy, Senior Vice President of Tax and Estate Planning for Mackenzie Financial. "Since we conducted our last tax test, there have been many tax modifications that can help put money back in our pockets. Canadians should speak to a financial advisor to make sure they are taking full advantage of the newly allowed deductions and credits."

Test yourself at http://www.advisor.ca/quiz/taxquiz.html

Top 10 reasons people file their taxes late

Not surprisingly, Revenue Canada is not on very many Christmas card lists, however most of us get around to filing our tax return by the end of April. There are however more than one million Canadians who either file late or don't file a tax return at all.

Alberta-based Personal Tax Consultants asked people why they filed their tax returns late. The answers might be surprising.

The answers from 10 to one are:

10. I am too young.
9. I don't make enough money.
8. I am dead.
7. I don't have all my information; I think my dog ate some receipts.
6. I will get to it someday; I have other priorities right now, and I'm too busy!
5. I think I owe too much money.
4. I think they owe me money, so the longer I wait, the more they will owe me.
3. Maybe they will forget about me.
2. I thought my wife did it this year.
1. You mean I have to pay taxes in this country? I did not know this.

While the "I am dead" excuse might get you out of a day’s work, it's unlikely that it'll go over well with Revenue Canada.

So our advice? File your tax return properly and on time.

March 1, 2008 Deadline for contributing to your RRSP for the 2007 tax year.
March 15, 2008 Quarterly instalment due if you pay taxes to CRA by instalments.
April 30, 2008 CRA 2007 personal income tax filing deadline.
April 30, 2008 Payment to CRA of your balance owing for 2007 personal income tax is due April 30, 2008 for all personal income tax filers including self-employed.
June 15, 2008 CRA 2008 personal income tax return deadline for self-employed persons. Any balance owing must be paid by April 30, 2008.

Important deadline for business owners

Now is a good time to review expenditures that you might make over the next six months if you operate an unincorporated business. Consider making those purchases, especially those that are capital in nature (i.e. computers), before December 31, 2007 in order to receive the tax benefits sooner (spring 2008) rather than waiting to make them after January 1, 2008 (when tax benefits are deferred until 2009). Here are some examples:

• New auto purchases
• New computers or other equipment
• Office supplies
• Maintenance and repairs to business assets
• Promotional expenditures
• Legal, accounting, or other professional work
• Salaries, bonuses
• Travel for business or business education
• Inventory management