Archive: Segal LLP Insider Current News

2018 Federal Budget

On February 27, 2018, the Federal Government released the 2018 budget.

This budget has been long awaited in light of the controversy caused by the July 2017 private company tax proposals released by Finance Minster Bill Morneau.

The significant uncertainty hanging over Canadian business owners was the government’s proposals on passive income investments held by corporations. This budget has clarified the government’s position, which represents a retreat from the severity of the original proposals.

Segal LLP 2018 Federal Budget Commentary.PDF

Deciding when to start receiving Old Age Security benefits


The baby boom generation, which is now in or near retirement, has always been able to factor receiving Old Age Security benefits, once they turn 65, into their retirement income plans. While receipt of such benefits can be still be assumed by the majority of Canadian retirees, the age at which such income will commence is no longer a fixed number. Retirees are now faced with a choice about when they want those benefits to start. For the past four years, Canadians have had the option of deferring receipt of their Old Age Security benefits, for months or for years past the age of 65, and that election to defer continues to be available. The difficulty that can arise is how to determine, on an individual basis, whether it makes sense to defer receipt of OAS benefits and, if so, for how long. It’s a consequential choice and decision, since any election made to defer is irrevocable.

Under the rules now in place, Canadians who are eligible to receive OAS benefits can defer receipt of those benefits for up to five years, when they turn 70 years of age. For each month that an individual Canadian defers receipt of those benefits, the amount of benefit eventually received would increase by 0.6%. The longer the period of deferral, the greater the amount of monthly benefit eventually received. Where receipt of OAS benefits is deferred for a full 5 years, until age 70, the monthly benefit received is increased by 36%.

The decision of whether to defer receipt of OAS benefits and for how long is very much an individual one — there really aren’t any “one size fits all” rules. There are, however, some general considerations which are common to most taxpayers:

  • The first consideration in determining when to begin receiving OAS benefits is how much total income will be required, at the age of 65 by determining what other sources of income are available to meet those needs, both currently and in the future.  Once income needs and sources and the possible timing of each is clear, it’s necessary to consider the income tax implications of the structuring and timing of those sources of income.  Taxpayers need to be aware of the following income tax thresholds and cut-offs.
    • Income in the first federal tax bracket is taxed at 15%, while income in the second bracket is taxed at 20.5%. For 2017, that second income tax bracket begins when taxable income reaches $45,916.
    • The Canadian tax system provides (for 2017) a non-refundable tax credit of $7,225 for taxpayers who are over the age of 65 at the end of the tax year. That amount of that credit is reduced once the taxpayer’s net income for the year exceeds $36,430, and disappears entirely for taxpayers with net income over $84,597.
    • Individuals can receive a GST/HST refundable tax credit, which is paid quarterly. For 2017, the full credit is payable to individual taxpayers whose family net income is less than $36,429.
    • Taxpayers who receive Old Age Security benefits and have income over a specified amount are required to repay a portion of those benefits, through a mechanism known as the “OAS recovery tax”, or clawback.   For the July 2017 to June 2018 benefit period, taxpayers whose income for 2016 was more than $73,756 will have a portion of their OAS benefit entitlement “clawed-back”. OAS entitlement for that time period is entirely eliminated where taxpayer income for 2016 was more than $119,615.

The goal is to ensure sufficient income to finance a comfortable lifestyle while at the same time minimizing both the tax bite and the potential loss of tax credits, or the need to repay OAS benefits received. Taxpayers who are trying to decide when to begin receiving OAS benefits could, depending on their circumstances, be affected by one or more of the following considerations.

  • What other sources of income are currently available?
  • Is the taxpayer eligible for Canada Pension Plan retirement benefits, and at what age will those benefits commence?
  • Does the taxpayer have private retirement savings through an RRSP?

Finally, not all the factors in deciding how to structure retirement income are based on purely financial and tax considerations. There are other, more personal issues and choices which come into play. Those include the state of one’s health at age 65 and the consequent implications for longevity, which might argue for accelerating receipt of any available income. Conversely, individuals who have a family history of longevity and who plan to continue working for as long as they can may be better off deferring receipt of retirement income where such deferral is possible.

Many Canadians put off plans, like a desire to travel, until their retirement years. Realistically, from a health standpoint, such plans are more likely to be possible earlier rather than later in retirement. The early years of retirement are usually the most active ones, and consequently are the years in which expenses for activities are likely to be highest. Having plans for significant expenditures in the early retirement years might argue for accelerating income into those years, when it can be used to make those plans a reality.

The ability to defer receipt of OAS benefits does provide Canadians with more flexibility when it comes to structuring retirement income. The price of that flexibility is increased complexity, particularly where, as is the case for most retirees, multiple sources of income and the timing of each of those income sources must be considered, and none can be considered in isolation from the others.

Individuals who are facing that decision-making process will find some assistance on the Service Canada website. That website provides a Retirement Income Calculator, which, based on information input by the user, will calculate the amount of OAS which would be payable at different ages. The calculator will also determine, based on current RRSP savings, the monthly income amount which those RRSP funds will provide during retirement. Finally, taxpayers who have a Canada Pension Plan Statement of Contributions which outlines their CPP entitlement at age 65 will be able to determine the monthly benefit which would be payable where CPP retirement benefits commence at different ages between 60 and 70.

The Retirement Income Calculator can be found at

The Debt load of Canadian households – onward and upward?


The fact that Canadian households are carrying a significant amount of debt is not news.  In fact, debt loads seem to continually set new records. For several years, both private sector financial advisers and federal government banking and finance officials have warned of the risks being taken by Canadians who took advantage of historically low interest rates by continuing to increase their secured and unsecured debt.

The risks most commonly cited by those advising more borrowing restraint was the impact that an increase in interest rates would have on the ability of those debtors to repay  the debt which they had accumulated. As well, to the extent that such borrowings were secured by home equity, the risk was that a downturn in the real estate market could put those borrowers at risk.

Both of those circumstances have started to materialize in the last two calendar quarters. The Canada-wide real estate market is not in a downturn. However, the expectation among borrowers that real estate values in major urban markets would simply continue to increase without limit has been tempered by the drop in real estate sales in the Greater Toronto Area since the spring of this year. While real estate prices in that market are still up, as measured on a year-over-year basis, they have declined, overall, from the highs recorded in the winter and early spring of 2017.

The long-anticipated increase in interest rates has finally occurred as well; The Bank of Canada raised the interest rate for the first time since September 2010. Financial institutions responded by increasing their mortgage and other loan interest rates.

The end of June, just prior to The Bank of Canada’s first interest rate increase, marked the end of second quarter of 2017. And, as is usually the case, many government and non-government organizations issued statistics and analysis of the current state of Canadian consumer debt. Given the timing, those figures will create a kind of benchmark against which future statistical summaries will be compared, as they create a “snapshot” of the state of Canadian consumer debt taken just as interest rates began to rise, at the end of the ultra-low interest rate environment which began in 2009, and as the ultra-hot real estate market started to cool down.

As of the end of June, the debt to disposable income ratio stood at $1.68, meaning that the average Canadian household carried $1.68 in debt for each $1.00 of disposable (after-tax) income.

While it’s easy to see that an increasing debt-to disposable income ratio means that Canadians are taking on more debt. What is striking is the growth of that ratio over the past quarter century and, especially, since 2005.

In 1990, that percentage stood at 93%, meaning that the debt load of the average Canadian household was 93% of disposable income. By 2005, the debt-to-disposable ratio had risen to 108%. It took 15 years for the percentage to increase from 93% (in 1990) to 108% (in 2005). From that point, the debt to disposable income ratio accelerated dramatically, as it rose from 108% in 2005 to 150% just five years later, in 2010. The ratio now stands, as of the second quarter of 2017, at 168%.

The StatsCanada figure captures all forms of debt; secured and unsecured, meaning that it includes mortgages, car loans, installment loans of all kinds, lines of credit, and credit card debt. There are a couple of significant differences between secured and unsecured debt — secured debt, by definition, is secured against an asset, so that in the event the borrower goes into default, the lender can seize the asset in payment of the secured debt. The value of that asset is always, at the time of borrowing, greater than the amount borrowed. Unsecured debt is provided on no more than the borrower’s promise to repay. For both those reasons, it’s more likely that borrowers, when faced with an interest rate increase which bumps up their cost of borrowing, will get into difficulty with unsecured debt. And, as of the second quarter of 2017, the average unsecured debt owed by individual Canadians was for the first time, over $22,000.

That figure — $22,154 average debt load per individual borrower — appeared in a summary issued by TransUnion. The summary also outlines the average balance per borrower by the kind of debt incurred, as follows:

Bank card (credit card) ………… $4,069

Automobile …………………………… $20,447

Line of Credit ………………………… $30,108

Installment Loan …………………… $25,455

And, as recently reported by the Financial Consumer Agency of Canada, recent trends in secured debt patterns may also give rise to concern going forward.

One of the fastest growing consumer credit products in Canada is the home equity line of credit (HELOC). A HELOC is similar to a mortgage, in that the debt is secured against the homeowner’s equity in the property. However, under a HELOC, a lender agrees to provide credit to a borrower, not for a fixed amount, but up to a maximum amount, based on the value of the property. Once the HELOC is in place, the available funds can be used for any purpose, whether that purpose is related to home ownership or not. And, while monthly payments are required, the borrower can usually, if he or she wishes, pay only the interest amount which has accrued since the last payment, without reducing the principal at all.

The number of households that have a HELOC and a mortgage secured against their home has increased by nearly 40 percent since 2011.

  • 40 percent of consumers do not make regular payments toward their HELOC principal.
  • 25 percent of consumers pay only the interest or make the minimum payment.
  • Most consumers do not repay their HELOC in full until they sell their home.

If there is good news in the figures summarizing the ever-increasing debt load of Canadians, from all sources, it’s in the fact that borrowers are still managing to keep payment of those debts in good standing. In fact, delinquency rates (meaning debts on which payments are more than 90 days late) are, for the most part, down during the second quarter of this year, as measured on both a quarter-over-quarter and year-over-year basis. Whether that trend will continue or be reversed as the impact of the recent interest rate increases takes hold remains to be seen.

Legal fees — what’s deductible and when?


For most Canadians, having to pay for legal services is an infrequent occurrence. In many instances, the need to seek out and obtain legal services is associated with life’s more unwelcome occurrences and experiences, such as a divorce, a dispute over a family estate, or a job loss. About the only thing that mitigates the pain of paying legal fees would be being able to claim a tax credit or deduction for the fees paid.

Unfortunately, while there are some circumstances in which such a deduction can be claimed, those circumstances don’t usually include the routine reasons — purchasing a home, getting a divorce, establishing custody rights, or seeking legal advice about the disposition of a family estate. Generally, personal legal fees become deductible for most Canadian taxpayers only where they are seeking to recover amounts which they believe are owed to them, particularly where those amounts involved employment or employment-related income or, in some cases, family support obligations.

The first situation in which legal fees paid may be deductible is that of an employee seeking to collect (or to establish a right to collect) salary or wages. In all Canadian provinces and territories, employment standards laws provide that an employee who is about to lose his or her job (for reasons not involving fault on the part of the employee) is entitled to receive a specified amount of notice, or salary or wages equivalent to such notice. However, the employee can establish a right to a period of notice (or payment in lieu) greater than the statutory minimum. The amount of notice or payment in lieu of notice which is payable can then become a matter of negotiation between the employer and its former employee, and such negotiations usually involve legal representation, legal fees incurred by the employee to establish a right to amounts allegedly owed by the employer are deductible by that former employee. If a court action is necessary and the Court requires the employer to reimburse its former employee for some or all of the legal fees incurred, the amount of that reimbursement must be subtracted from any deduction claimed.

In some situations, an employee or former employee seeks legal help in order to collect or to establish a right to collect a retiring allowance or pension benefits. In such situations, the legal fees incurred can be deducted, up to the total amount of the retiring allowance or pension income actually received for that year. Where part of the retiring allowance or pension benefits received in a particular year is contributed to an RRSP or registered pension plan, the amount contributed must be subtracted from the total amount received when calculating the maximum allowable deduction for legal fees.

The rules covering the deduction of legal fees incurred where an employee claims amounts from an employer or former employer are relatively straightforward. The same, unfortunately, cannot be said for the rules governing the deductibility of legal fees paid in connection with family support obligations. Those rules have evolved over the past number of years in a somewhat piecemeal fashion. The current rules are as follows:

  • Legal fees incurred by either party in the course of negotiating a separation agreement or obtaining a divorce are not deductible. Such fees paid to establish child custody or visitation rights are similarly not deductible by either parent.

Legal fees paid for the following purposes will be deductible by the person receiving those support payments:

  1. Collecting late support payments;
  2. Establishing the amount of support payments from a current or former spouse or common-law partner;
  3. Establishing the amount of support payments from the legal parent of that person’s child (who is not a current or former spouse or common-law partner). However, in these circumstances the deduction is allowed only where the support is payable under a court order, not simply under the terms of an agreement between the parties; or
  4. Seeking an increase in support payments;

On the payment side of the support payment/receipt equation, the situation is not so favourable, as a deduction for legal fees incurred will generally not be allowed to a person paying support. More specifically, as outlined on the Canada Revenue Agency (CRA) website, a person paying support cannot claim legal fees incurred in order to “establish, negotiate or contest the amount of support payments”.

Finally, where the CRA reviews or challenges income amounts, deductions, or credits reported or claimed by a taxpayer for a tax year, any fees paid for advice or assistance in dealing with the CRA’s review, assessment or reassessment, or in objecting to that assessment or reassessment, can be deducted by the taxpayer. A deduction can similarly be claimed where the taxpayer incurs such fees in relation to a dispute involving employment insurance, the Canada Pension Plan or the Quebec Pension Plan.

Segal LLP A 2017 Best of the Best Firm

best2017INSIDE Public Accounting (IPA) has named Segal LLP a Best of the Best Canadian Firm for the second consecutive year.  Segal is honoured to be one of only 5 Canadian CPA firms ranked as a 2017 Best of the Best firm based on a wide variety of financial and operational performance.

“We are honoured to once again be named a Best of the Best in Canada; it is a vote of confidence in our people and in Segal’s unwavering commitment to client service, our vision and our approach to our business” said Dan Natale, Managing Partner at Segal.

“Best of the Best firms excel by achieving the delicate balance of focus on culture, clients, team and financial results,” says Michael Platt, principal of the Platt Group and publisher of the accounting trade publication, INSIDE Public Accounting.

Tax Changes for Students


The end of summer means back to school for students of all ages. For parents of elementary and secondary school students the focus is on obtaining back to school clothes and supplies and starting the process of enrollment in after-school activities for the fall. For those already in (or starting) post-secondary education, choosing courses, finding a place to live and paying the initial bills for tuition and residence are more likely to be on the immediate agenda.

What both groups of parents and students have in common this school year, however, is that this is the first full school year affected by previously announced tax changes. Each of those tax changes, for students at all levels, means higher after-tax costs for education-related expenses.

For students enrolled in the public education system there is no cost to attend, however there are out-of-pocket costs for participation in most after-school activities.  Depending on the activity, those costs can easily amount to several hundred dollars per child over the course of the school year.  Parents have been able to offset those out-of-pocket costs by claiming the children’s arts credit or the children’s fitness credit; both credits have been eliminated as of the 2017 tax year. In budgeting for the cost of any contemplated after-school activity, parents must budget on the basis that they will be paying the full cost out-of-pocket, and will not be claiming any offsetting tax credit on their tax return for 2017.

There is some good news for parents of elementary school-aged children, in that fees for after-school care, can still be claimed as part of the general child care expense deduction. The deduction may be claimed (within specified limits) where child care costs are incurred for the parent to work, at employment or self-employment. The amount of deduction claimable depends on the age of the child and the actual amount expended, with an overall limit based on family net income. More information on claiming the child care expense deduction can be found on the Canada Revenue Agency (CRA) website at

At the post-secondary education level, students (and their parents) have benefitted from an “assist” through our tax system, which provides deductions and credits for some of the associated costs of college or university.  Two of those credits are, however, no longer available.

The biggest cost of post-secondary education is tuition, and the tax credit provided for eligible tuition costs remains in place the upcoming (and subsequent) academic and taxation years. Any student who incurs more than $100 in tuition costs at an eligible post-secondary institution can still claim a non-refundable federal tax credit of 15% of such tuition costs.  Some provinces and territories also provide students with an equivalent provincial or territorial credit, with the rate of such credit differing by jurisdiction.  In Ontario, a tuition credit can be claimed for eligible tuition up to September 4, 2017.  At both the federal and provincial levels, the credit acts to reduce tax otherwise payable. Where a student doesn’t have tax payable for the year, as is often the case, any credits earned can be carried forward and claimed by the student in a future year, or transferred in the current year to a spouse, parent, or grandparent.

For many years post-secondary students have also been able to claim two other federal tax credits — the education tax credit and the textbook tax credit. Both have been eliminated, however, where the education and textbook credits have been earned but not claimed in previous years, they are still available to be claimed by the student as carryover credits in 2017 or later years.

The CRA publishes a very useful guide to tax measures which affect students enrolled in post-secondary education. That guide, entitled Students and Income Tax, has been updated to take account of the recent changes, and the most recent version is available on the CRA website at

Claiming the Guaranteed Income Supplement (September 2017)


Most Canadians approaching retirement know that they will have some retirement income through the Canada Pension Plan (CPP) and Old Age Security (OAS) programs. Many, however, are unaware that there is a third federal program, the Guaranteed Income Supplement (GIS), which provides an additional monthly income amount to eligible individuals. While there is no need for an individual to apply to receive an Old Age Security benefit, anyone who wishes to receive the GIS must apply to do so. Automatic enrollment in GIS is something that is planned for future implementation, but is not yet in place. Finally, while the OAS benefit is a standard amount for most recipients, the rules governing eligibility for GIS, and the amount an individual will receive, are more complex.

The first and most basic rule of GIS eligibility is that GIS is paid only to individuals who are already receiving the Old Age Security benefit. Canadians can begin receiving such OAS benefit at age 65, or can defer receipt of that benefit up until the age of 70. However, regardless of the age at which an individual chooses to begin collecting OAS, he or she cannot receive the GIS until that OAS benefit has started.

There is a perception that GIS benefits are available to only the lowest income seniors. While it is true that eligibility for the GIS is tied to income, the current reality is that in the first quarter of 2017, nearly 2 million Canadians, or nearly one-third of those who collect OAS, also received GIS benefits.

The basic rule is that single (or divorced or widowed) individuals who have less than $17,688 in net income for the previous year are eligible to receive at least partial GIS benefits each month. Once net income exceeds the $17,688 threshold, eligibility for GIS is eliminated. That figure is somewhat deceiving, however, as not all income sources are treated the same way when it comes to determining net income for purposes of assessing GIS eligibility. When determining such eligibility, the sources from which income is received is nearly as important as the amount of that income.

Generally, in calculating net income for purposes of determining GIS eligibility, the following income amounts are included:

  • Canada Pension Plan or Quebec Pension Plan amounts;
  • Amounts received from a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF);
  • Amounts received from a registered pension plan (i.e., an employer-sponsored pension plan); and
  • Investment income (interest, dividends, etc.) from all sources.

The following income amounts are not included in net income for purposes of determining GIS eligibility:

  • Old Age Security amounts; and
  • Withdrawals from a Tax-Free Savings Account (TFSA).

Finally, many retirees work part-time, whether out of financial need or for social reasons. In calculating net income to determine GIS eligibility, an exemption is provided for the first $3,500 in employment income earned each year.

In 2017, an individual who is single, divorced, or widowed and is eligible for a full GIS amount will receive $871.86 per month. That amount is reduced as income increases and is eliminated entirely where the individual’s net income exceeds the $17,688 cut-off.

A similar calculation is required for taxpayers who are married. The net income calculation is the same, but the cut-off amount above which GIS eligibility for both spouses is eliminated, where both spouses are receiving OAS, is $23,376. Where one of the spouses does not receive OAS, the combined income threshold for GIS eligibility is $42,384. More information on the benefit and income cut-off amounts for the current quarter (July to September 2017), as well as links to tables which will show the exact amount of GIS payable at different income levels, can be found on the website at

A final note — where individuals receive the Guaranteed Income Supplement, whether the full benefit or partial amounts, all such amounts received are non-taxable.

Getting a Mortgage now – What is a “stress test”?


The Bank of Canada’s recent decision to raise interest rates generated a lot of media attention, because while the increase itself was only one quarter of a percentage point, it was the first move made by the Bank of Canada to increase rates in the past seven years    Speculation was whether this or future increases in interest rates would act as a barrier to those seeking to get into the housing market.  The mortgage financing “stress test” — is likely one that is unfamiliar to most Canadians, even those who are affected by it.

When anyone seeks to borrow money, a key factor in determining their ability to obtain a loan is, their ability to repay the loan/That same consideration applies when an individual or a couple apply for approval or pre-approval of a mortgage.

In determining whether a borrower will be able to repay the mortgage loan as required, mortgage lenders rely on two debt-to-income ratios, known as Gross Debt Service (GDS) and Total Debt Service (TDS). The two are similar, but not the same.

The GDS ratio measures how much of the would-be borrower’s income will be needed to meet his or her housing costs. For any borrower, GDS represents the total of mortgage payments, property taxes, heating costs, and — where applicable — one-half of condo fees. Optimally, that total figure will represent less than 35% of the would-be borrower’s income.

Of course, most Canadians carry one or more kinds of consumer debt besides their mortgages, and so it’s necessary to determine their cost of servicing that total debt as a percentage of income. That figure is their TDS, which is the total of housing expenses (as calculated for purposes of GDS) plus any other debt repayment, including car loans, credit cards, lines of credit, and student loans. Optimally, the total amount of housing costs plus other repayment will be less than 42% of the would-be borrower’s income.

Where a would-be borrower is particularly credit-worthy (e.g., he or she has a reliable source of income and a good credit history), lenders will provide mortgage financing even where the optimal debt ratios indicated above are exceeded. However, the maximum GDS and TDS ratios allowed are, respectively, 39% and 44%.

While the GDS and TDS ratios do provide a reasonable measure of the ability of a prospective borrower to repay funds advanced to him or her, the weakness of those ratios are that they provide only a “snapshot” of the individual’s housing costs and debt repayment costs at a point in time and, more significantly, at current interest rates. As everyone knows, interest rates in Canada are, and have been for several years, at or near records lows and that many Canadians have taken advantage of those low rates. Specifically, as of the first quarter of 2017, the average debt load of Canadian households (including mortgage debt) stood at 167.3% of disposable income.

The combination of those two factors means that Canadian households are, on average, carrying much higher levels of debt (as a percentage of disposable income) and that the cost of carrying such debt is at or near record lows. When, as has recently proven the case, those interest rates begin to rise, such increase has the potential to put Canadian households on financial thin ice. And that possibility is what gave rise to the introduction by the federal government of the “stress test” which might equally well be called the “what-if?” test.

Basically, the stress test requires that lenders assess a would-be mortgage borrower’s ability to manage their debt, not only at current interest rates, but at the higher rates which those borrowers will certainly face sometime during the life of their mortgage. Carrying out a stress test is, in fact, something which financial planners advise clients to do as part of financial planning whenever taking on debt is contemplated. It’s simply prudent (especially where debt is longer term in nature and consequently higher payments resulting from an increase in interest rates is inevitable) to consider, not just whether the debt is manageable at current interest rates, but whether it will remain manageable where those interest rates rise by 1, 2, or 3% — or more. The “stress test” simply creates a requirement out of something that was always a good idea.

It’s true that the application of the “stress test” as interest rates rise will cause more borrowers to be unable to qualify for a mortgage, or will require them to reduce their expectations in terms of the amount of mortgage financing for which they can qualify. But, it’s also the case that would-be borrowers who cannot “pass” a stress test are the very borrowers who would be put most at risk by an increase in interest rates. Where interest rates will be a year or two from now is something that no one — including the Bank of Canada — knows. It is undoubtedly disappointing for would-be borrowers to have to reduce their expectations with respect to the amount of mortgage financing (and therefore the “amount” of house) they can obtain. That scenario is, however, infinitely preferable to one in which they discover down the road that they can no longer afford to carry their mortgage at the higher interest rates then in effect, and are at risk of defaulting on that mortgage and potentially losing their home.

CRA Suspends Audits on Charities’ Political Activities

072826_Thinkstock_186059084_lores_ABMany Canadians are generous in their gifts to charity, and in return, they may receive tax benefits. In recent months, there’s been some loosening of the restrictions placed on charities, which may be of interest to contributors.

While Ottawa was in the hands of the Conservative Party led by Stephen Harper, the government put strict restrictions the political activities of charities in 2012.

Five years later, Canada Revenue Agency (CRA), under the current Trudeau-led Liberal Party government, said it is suspending audits of political activity by charities. The move comes after recommendations by a panel the CRA commissioned to study the issue. The panel’s 2017 report urges the government to “broaden the ability of registered charities to engage in political activities,” while at the same time maintain “an absolute prohibition on partisan political activities.”

The five-member panel said that one particularly strong message emerging from the feedback it received during consultations was that a lack of clarity meant that some charities view political activities as too risky and engage in self-censorship. Without knowing the exact parameters within which they can operate, and given that the penalty for even an accidental breach of the rules may be deregistration, many charities make a rational choice to avoid or limit the risk.

Furthering a Group’s Charitable Purpose

The panel recommended that a charity’s political activities, whether pressing for a change in government policy or buttonholing a politician, be judged on whether they further the group’s charitable purpose. The panel proposes eliminating current rules that restrict a charity’s political activities to 10% of its resources.

One of the panel’s key recommendations was that the CRA revise its policy guidance to explicitly allow charities to:

1. Provide information to others related to their charitable objects (including the conduct of public awareness campaigns) for the purpose of informing and swaying public opinion. Such information must be truthful, accurate and not misleading.

2. Conduct research, distribute it to others and discuss the research and its findings with the media and others as they see fit.

3. Express opinions on matters relating to their charitable objectives, as long as they draw on research and evidence and don’t impinge on hate laws or other legitimate restrictions on freedom of speech.

4. Encourage keeping or changing law or policy, either in Canada (on any level of government) or outside of Canada.

5. Call on supporters or the general public to contact politicians of all parties to express their support for, or opposition to, a particular law or policy.

6. Make written or verbal statements to elected officials, parties and candidates, and release such materials publically. The adoption of a charity’s policy by a political party doesn’t in itself constitute partisan political activity.

7. Invite competing candidates and political representatives to speak at the same event, or request written submissions for publication, provided that candidates and parties are given an equal opportunity to speak or have their views published.

8. Express their views and offer others opportunities to express their views, on social media or elsewhere provided such platforms are monitored and partisan political messages are removed.

The panel also encouraged the CRA to:

  • Remove the requirement that a charity’s materials must reflect all sides of the argument, and add that they must be fact-based, and
  • Amend CRA Form T3010, Registered Charity Information Return (annual report) to remove the requirement to quantify resources used for political activities, and replace it with one to describe, in narrative form, the nature of the public policy dialogue and development work undertaken.

Expansive View of Charitable Activity

The panel went on to say that, in its view, the CRA could find support for a broader view of what constitutes charitable activity in case law.

For example, the 1999 Supreme Court ruling in Vancouver Society of Immigrant and Visible Minority Women v. Minister of National Revenue supports looking at the activity in the context of a charitable purpose. If a charity calls for a change in the law in furtherance of its charitable purpose — and such activity is subordinate and non-partisan, the panel said it believes the policy could accept it as charitable.

The panel noted that it believed such an expanded view would go a long way in providing clarity to the charitable sector and would enable it to more meaningfully contribute to public policy reform. Moreover, the panel said, it would remove the current disadvantage faced by the charitable sector in relation to for-profit companies, which can advocate in the public policy arena without restriction.

The panel also urged the CRA to list examples of what will be considered partisan political activities to replace the prohibition on both “direct and indirect” partisan political activities, which the panel suggested is highly subjective (particularly “indirect”), and has been the subject of much confusion.

Need for Legal Changes

Feedback on another issue was clear: fundamental legislative change is needed, and new policy or other administrative measures won’t be sufficient. Suggestions from the panel included:

  • Adopt an inclusive list of acceptable charitable purposes in the Income Tax Act that reflects contemporary society, its issues and expectations.
  • Consider the approach of other jurisdictions, some of which have softened restrictions on political purposes.
  • Clarify that public policy activities (for example, research, dialogue, advocacy, and calls to action) are charitable, provided they’re non-partisan and subordinate to a charitable purpose. In other words, accept the Supreme Court of Canada decision from the Vancouver Immigrant Society case and incorporate it in future legislation (that an activity is considered in the context of the charitable purpose).
  • Create a permanent mechanism for consultation with the charitable sector to ensure an ongoing process for developing policy guidance.
  • Enable charities to benefit from social enterprise and social finance models.

The CRA said the suspension of charity audits will be in effect until the government officially responds to the panel’s report.


CRA Aims to Boost Services for Small and Medium-Sized Businesses

071417_Thinkstock_521090040_lores_kwSmall- and medium-sized businesses will be getting more help from Canada Revenue Agency (CRA) over the next couple of years.

The tax agency recently unveiled plans to make its services for those businesses more helpful and easier to use. The new plan follows consultations started in October 2016 and follows separate consultations in 2012 and 2014. The agency met with businesses, accountants and CRA employees who regularly interact with businesses, and also accepted feedback online and discussed issues with business associations.

“The vast majority of Canadians do everything right.”

— A CRA employee

The result is a program called Serving You Better. The CRA received more than 1,500 comments and suggestions. Here is a summary of the new initiative taken from the CRA website:

Making Tax Information Easier to Access, Understand and Use

Participants told the CRA they don’t like busy signals when they call and they do like services with a call-back option. Accountants want to ask complex questions on the phone. Businesses would like an auto-fill option and to be able to complete more tasks online.

The CRA said it will:

  • Switch over to the Government’s telephone platform and complete feasibility studies for adding call-back and secure chat lines.
  • Conduct a pilot for a service dedicated to letting tax preparers call experienced CRA staff members who can help with complex technical issues.
  • Review the Pensionable Insurable Earnings Report (PIER) and other notices and letters for businesses. Let corporations see the assessed value of income tax returns and schedules as well as their CRA-verified dividend account balances in My Business Account.
  • Expand the Liaison Officer Assistance Requests pilot program to allow businesses across Canada to request a Liaison Officer visit. Start an auto-fill option using commercial software.
  • Study the possibility of setting up a volunteer tax program that would help the smallest new businesses understand the payroll, GST/HST and other tax obligations that come with starting a business.
“My clients and I are frustrated that we aren’t able to obtain remittance forms online.”

— An accountant

Clarifying Information about Payment Options

Participants noted that payments don’t always go where they expect. Although there have been improvements, individuals said they still had concerns about these errors and the time it takes to resolve them.

The CRA said it will:

  • Improve the way it explains how to fix misallocated payments when and where taxpayers want.
  • Raise awareness about direct deposits into taxpayers’ bank accounts.
  • Make payroll remittance vouchers easier to order online.
  • Explain clearly how remittance vouchers are personalized to ensure payments go to the right accounts.
“Objections are a nightmare just to get assigned.”

— From an accountant

 Improving Services Related to Audits, Collections and Appeals

Taxpayers and accountants were clear about how unhappy they are with the amount of time it takes to resolve any objections. They want better communications between their businesses and representatives and CRA auditors.

The CRA said it will:

  • Improve the time it takes to resolve an objection (it developed a plan to improve timeliness and better inform Canadians of the expected and actual time frames for resolving an objection based on its complexity.
  • Improve audit processes and communications through a post-audit survey and by monitoring the feedback it receives.
  • Enhance the clearance certificate process by communicating earlier when you apply and by helping businesses identify situations when a certificate isn’t required.
  • Ensure consistency by communicating collection procedures to audit branches and offering training for auditors.

The CRA notes that it has previous consultations on cutting red tape in 2012 and 2014. As a result, the tax agency says it already has:

1. Introduced the Liaison Officer initiative.

2. Engaged associations including the Canadian Payroll Association and the Chartered Professional Accountants of Canada (CPA Canada) to identify CRA guides and forms needing to be simplified and clarified.

3. Reduced the payroll remittance burden for the smallest new employers.

4. Allowed businesses to request a payment search using the My Business Account Enquiries Service and to submit cashed cheques as proof of payment using Submit Documents.

5. Included a My Audit tab in My Business Account that allows electronic communications between businesses and auditors.

6. Provided a streamlined Interactive Voice Response system that makes it easier for business callers to connect with an agent.

7. Introduced training to help auditors become more sensitive to the needs and realities of small and medium businesses.

8. Reviewed completely its notices and letters to make them clearer and easier to understand.

9. Reduced the need for callers to repeat information when a call is transferred from one agent to another.

10. Set up a way to connect callers to the right expert.

Top 10 Things You’ll Be Able to Do

The CRA’s 2017-2019 Serving You Better action plan contains over 50 action items that the agency expects will improve services for small and medium businesses.

According to the CRA, here are the top 10 things you’ll be able to do:

1. Receive a CRA security code by email

2. Call a new dedicated telephone service for tax preparers that helps with more complex technical issues

3. Request a Liaison Officer visit

4. Provide T4 information slips to your employees in electronic format (certain conditions apply)

5. Use T2 Auto-fill through commercial software

6. Create your own filing and balance confirmation letters online

7. View short “how-to” videos that explain the services on My Business Account

8. Experience telephone service improvements

9. Share feedback about your audit experience in a new post-audit survey

10. Have your objections resolved faster