Archive for March, 2012

Budget 2012: Changes to Old Age Security

March 29, 2012

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The increase in the age of eligibility of the Old Age Security program in Budget 2012 was widely telegraphed in advance but there were still a few surprises. Here are the other major initiatives introduced by Finance Minister Jim Flaherty in Budget 2012:

Travellers’ Exemptions Increased

The travellers’ exemption is a dollar limit that Canadian residents can bring back after a trip abroad without having to pay customs duties or sales taxes. Budget 2012 proposes that the Travellers’ Exemption limits will increase to $200 for an absence of more than 24 hours (current limit: $50), $800 for an absence of more than 48 hours (current limit: $400) and $800 for an absence of more than 7 days (current limit: $750).

Increase in Old Age Security Age of Eligibility

Starting in April 2023, the age of eligibility for OAS and GIS will be gradually increased from 65 to 67. In other words, Canadians who were born on or after Feb. 1, 1962 can expect to receive OAS benefits at age 67. The age of eligibility will gradually rise for Canadians who were born between April 1, 1958 and January 31, 1962. The OAS age of eligibility remains unchanged for Canadians born before March 31, 1958.

New Option to defer Old Age Security

Budget 2012 proposes that starting on July 1, 2013, Canadians can opt for a voluntary deferral of OAS for up to 5 years and receive an actuarially adjusted higher pension. Here’s an example provided in the Budget document:

Rita will be turning 65 in December 2013. She plans to continue working as long as she can. She prefers to forgo her OAS pension for the maximum deferral period of five years so that she can have a substantially higher annual pension amount, starting at age 70. When she takes up her OAS pension at age 70, her annual pension will be $8,814 instead of $6,481 (in 2012 dollars).

Eliminating the penny

As of Fall 2012, the Government will no longer distribute pennies. Good riddance!

Workforce adjustments

The Federal Government is planning to reduce its headcount by 19,200 over a three-year period, a number that includes attrition. Most of the job reductions will occur in the National Capital Region.

Adjustments to Public Sector Pension Plans

The Government is proposing that public sector employees contribute 50 percent to their pension plans over time (IIRC, the current employee contribution target is 40 percent). Starting in 2013, employees joining the public service will see the age of retirement raised from 60 to 65.

Other changes that maybe of interest in the Budget include protection of long-term disability plans and improvements in the registered disability savings plan.

Own Foreign Stocks or ETFs? You may have to File Form T1135

March 28, 2012

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As I am preparing my income taxes, I am reminded yet again of the trap that the Canada Revenue Agency has set for taxpayers in the T1 General form with this innocuous question:

“Did you own or hold foreign property at any time in 2011 with a total cost of more than CAN$100,000? (See “Foreign Income” in help for details)”

An unsuspecting taxpayer might reasonably infer “foreign property” to mean a condominium in Florida or a not-so-secret-these-days Swiss bank account and owning nothing of the kind might answer “No” to the question. The General Income Tax and Benefit Guide put out by the CRA does not shed much light on the question either.

To find out the details of what constitutes “specified foreign property” in CRA’s eyes, one has to turn to the information provided in Form T1135 Foreign Income Verification Statement. In it, CRA defines “shares of non-resident corporations held by the resident filer or on deposit with a Canadian or foreign broker” and “interests in mutual funds that are organized in a foreign jurisdiction” as specified foreign property. In other words, if our taxpayer held US stocks or ETFs with a cost of more than $100,000 in a Canadian investment brokerage account, she must answer “Yes” to the question in T1 General and file Form T1135.

Curiously, a Canadian taxpayer owning what one would reasonably consider “foreign property”, say a condo in Miami purchased for $250,000, strictly for personal use, does not have to file T1135! The taxpayer, who simply assumed that foreign stocks held in taxable Canadian brokerage accounts for which trading summaries are filed annually with the CRA and income taxes are paid, has to file T1135 if the cost of foreign stock holdings exceeds $100,000.

The penalties for failing to complete and file T1135 by the due date (April 30) are severe. The penalty for filing late is $25 per day for up to 100 days (maximum of $2,500). Since the penalty is levied for each year, a taxpayer could face penalties running into the tens of thousands of dollars.

Some notes about Form T1135:

– If you own foreign stocks in joint investment accounts, you should file Form T1135 only if the cost of your share of the investments exceeds $100,000.

– Canadian mutual funds and ETFs that own foreign stocks or ETFs are not considered “specified foreign property”.

– Foreign stocks and ETFs held in registered accounts such as RRSPs and TFSAs are also not considered “foreign property”.

– As already mentioned, real estate owned in foreign countries and held strictly for personal use are not considered “foreign property”.

It is entirely appropriate to levy strict penalties on taxpayers trying to hide income in foreign jurisdictions. It does not seem reasonable to levy stiff penalties on taxpayers who are reporting and paying taxes on investments held in Canadian accounts but inadvertently missed filing paperwork. In fact, the punishment strikes me as cruel and unjust.

NB: This post is of an informational nature and should not be construed as tax advice.

TD Waterhouse Launches Mobile Trading

March 20, 2012

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[Screenshot of TD Mobile iPhone App]

TD Canada Trust has recently released an update to its mobile app that now allows clients to place trade orders from their smartphone. The TD Canada Mobile App previously provided features such as viewing bank and brokerage account balances, bill payment, Interac e-Transfer, fund transfer between TD accounts, stock quotes etc. TD Waterhouse has now added mobile trading to the feature list. The trading feature allows clients to place orders to buy or sell Canadian and US stocks and change or cancel orders. However, the TD Mobile app, which is available on the iPhone, Android and BlackBerry devices does not allow trading in mutual funds.

It appears that adequate security measures are in place to prevent unauthorized access if the mobile phone gets stolen or is lost. First, the app offers to store the access card number or connect id but the password is not stored. Second, the app does not allow adding a new payee for bill payment or adding a new recipient for email transfer. Third, TD Canada Trust extends its security guarantee that reimburses losses due to unauthorized or fraudulent transactions to mobile banking.

Though I tested out the TD Mobile App, I don’t think I will be using a smartphone to execute my stock trades. However, the app includes a couple of features that will come in quite handy in certain situations. For example, if you are visiting an unfamiliar place and would like to access the nearest bank machine, the app automatically detects your current location and displays the nearest TD Bank branches. Another example is an accident toolkit that will allow motorists to document the details of a collision they are involved in.

I’m told that RBC will also be bringing mobile trading to smartphones in the near future.