Originally posted on Advisor.ca By Melissa Shin
If your clients pay their registered-account investment fees from open accounts, revisit that practice with them now.
At the November 2016 Canadian Tax Foundation Conference, CRA told attendees that paying registered plan fees from non-registered, or open, accounts, will incur a tax penalty equivalent to the fee.
CRA views the practice as creating an unfair advantage because it’s an indirect increase in the value of the registered plan — so the agency has changed its administrative position.
Now, “a controlling individual who pays investment management fees with respect to his or her RRSP, RRIF or TFSA outside of the plan could be subject to a tax equal to the amount of fees paid,” says a PwC release on the issue.
CRA will begin taxing people who pay fees in this manner as of January 1, 2018, and the tax will be punitive: based on CRA’s wording, if a person pays $100 in registered fees from an open account, she would trigger $100 in tax.
Michelle Connolly, vice-president, Tax, Retirement and Estate Planning at CI Investments, says people typically pay fees from outside their registered accounts to preserve registered capital and reduce taxable capital and potential income instead. But this tactic is predominantly a deferral, she points out, since the preserved registered capital will eventually be taxed as regular income upon withdrawal.
Some advisors argue preserving registered capital allows for greater compounding, she adds, but “I never viewed [fee redirection] as a top-three planning idea,” she says.
Connolly says there are three main situations where people redirect fees:
With this administrative change, CRA is focusing on the advantage created by paying the fee from an open account. But there’s another risk to fee redirection: overcontributing to a registered plan.
Let’s say a person contributes the maximum $5,500 to her TFSA, owes $100 in investment fees, and pays those fees from outside the TFSA. Under CRA’s new position, “she will have been viewed to have contributed $5,600,” says Connolly. And, not only will she have to pay $100 in tax due to her fee redirection, she may be penalized $1 per month (1% of the excess) for overcontributing to her TFSA. “Will CRA go that far?” asks Connolly. “Potentially.”
What advisors should do
“An advisor should look at any clients that are redirecting fees on registered accounts and discuss these changes with clients,” says Connolly. “As of January 1, 2018, CRA will now view [fee redirection] much more aggressively.”
If the grandfather in our example wishes to help his grandchildren pay for investment fees for non-tax reasons, he can gift them an equivalent amount in cash after the grandchildren pay the fees out of their registered accounts.
The PwC release says CRA may announce administrative concessions when it releases its tax folio in early 2017. But Connolly says it’s unlikely that there will be any concessions.
Originally posted on National Post December 2, 2016 by John Ivison
The Liberal government is considering taxing private health and dental plans, in a measure that would raise about $2.9 billion, sources say.
As many as 13.5 million Canadians have lower tax bills because health and dental benefits are not treated as taxable outside Quebec.
Dan Lauzon, a spokesman for Finance Minister Bill Morneau, said no decisions have been taken and that any moves would not be made in isolation. The employee-sponsored health care tax exemption is being scrutinized as part of a sweeping review of 150 tax credits worth about $100 billion a year in foregone federal revenue.
Lauzon said the review is not being seen as a revenue-generating exercise.
The Department of Finance has asked seven external experts to look at the tax system to ensure that it is as fair, efficient and simple as possible.
It is understood the academics reviewed health and dental benefits, but it is not clear what they recommended.
The argument for killing the health and dental benefit exemption is that it does not treat all remuneration equally.
Most employee benefits are taxed – for example, life insurance paid by employers are reported on employees’ T4 slips and included as taxable income. Similarly, a car paid for by an employer is taxed.
But health benefits are an exception. Proponents of eliminating the credit argue that those with lower incomes but without private health plans are subsidizing those with employee-sponsored coverage.
On the other hand, there is a strong economic case for encouraging employers to provide health coverage for employees.
Quebec included health and dental plans as a taxable benefit in the early 2000s and found that employers scaled back the coverage offered.
The Liberals have been clear that they intend to take action on eliminating some tax credits, particularly those that benefit higher-income Canadians.
Morneau told the Senate finance committee that changes are coming.
“We think we did make some simplifying efforts in budget 2016, but we know there’s more work to be done in this regard to look at things that no longer have the desired impact,” he said. “It’s an effort that we’re pursuing.”
The 2016 budget removed the children’s fitness tax credit and the children’s arts tax credit.
During the 2015 election campaign, the Liberals talked about reducing or eliminating the credits for individuals paid by stock options. but backed away, over concerns from Canada’s high-tech sector.
Any attempt to hit health and dental coverage would be controversial, particularly because of the many Canadians who receive it.
But the prospect of raising such as much as the $2.9 billion forecast in the current Report on Federal Tax Expenditures might prove too enticing for Morneau to ignore.
January 18, 2017
Use this list to help your senior clients ensure they claim the most common tax credits, deductions and benefits for which they’re eligible.
Read: Essential tax numbers
In part one of a three-part series about year-end tax planning, Jamie Golombek, managing director of tax and estate planning with CIBC Wealth Strategies Group, explains how the changes to the principal residence exemption will affect every Canadian. Click here to register for Golombek’s 2016 Year-end Tax Planning webinar.
The website, “Get Smarter about Money”, is operated by the Investor Education Fund – a non-profit organization founded by the Ontario Securities Commission – that provides unbiased and independent financial tools to help consumers improve their financial literacy. Click on the link below to access the information: http://www.getsmarteraboutmoney.ca
The British Columbia Securities Commission also offers consumers online resources and tools to research and assess potential investments and protect themselves from unsuitable or fraudulent investments. See more at: InvestRight.com This website offers consumer information in English, Punjabi, and Chinese.
The Financial Consumer Agency of Canada (FCAC) has an online financial literacy self-assessment quiz to help you determine how well you keep track of market trends, plan to make ends meet, set goals, and choose the right products and services. Find out how your money management skills measure up.
The FCAC also has a database of seminars, workshops, and interactive tools to help you strengthen your financial literacy. There are listings from all across Canada, so you canyou access information close to your community.
The Ontario Securities Commission (OSC) has an Investor Office page that provides consumers with information to help them understand the investment world and make intelligent investing decisions.
The Financial Services Commission of Ontario (FSCO) offers a series of videos focused on helping Ontarians understand retirement planning. The video series, “A Guide to Retirement Planning” outlines strategies for retirement planning in easy-to-understand terms.