"The HST transition rules provide that if services are commenced prior to July 1, 2010 and continue after July 1, 2010, the supplier will be required to allocate between the pre-HST period and post-HST period and not charge HST on the pre-HST period and charge HST on the post-HST period. An allocation is required (except if 90% or more of the services are provided prior to July 1, 2010).

"Suppliers need to maintain evidence to provide to Canada Revenue Agency auditors.  While it is incorrect to say that all auditors are difficult idiots, I often tell clients to assume that such an auditor will show up on their doorstep in the future to conduct an audit.  What evidence and documentation are you going to have to prove your point to the auditor?  With respect to not charging HST on pre-July 1, 2010 supplies of services, what evidence are you going to be able to present?

"Good documentation will include docket entries, time sheets, employee punch cards, etc.  What will also be helpful are invoices issued in June 2010 billing the client for pre-July 1, 2010 services that have been performed.  I often refer to this as "blowing out your WIP (work in progress).  If you issue a bill and it is recorded in your computer system prior to July 1, 2010, it must be that the the services recorded as being provided before July 1, 2010 were actually provided. Note that if you are billing in May/June 2010 for services to be rendered on or after July 1, 2010, HST will be applicable.

"I have one caveat that I have to highlight - you need to ask whether it is likely your client will pay the invoice. If a supplier issues an invoice prior to July 1, 2010 and must charge GST (that is, the supply is not zero-rated or exempt), the supplier will be required to remit the GST to the Receiver General of Canada with the GST/HST return for the reporting period in which the invoice is issued (e.g., June 2010).  If the recipient does not pay the GST by the GST/HST return filing deadline, the supplier still must remit the GST.  As a result, there can be a cash flow issue.

"If a supplier cannot issue an invoice, we are recommending a "WIP freeze".  This means that the supplier would generate a document that would evidence the pre-July 1, 2010 work in progress.  Depending on the circumstances, the document may evidence the number of hours worked and/or the value of the services rendered prior to July 1, 2010.  The document will need to be supported by some verifiable data (e.g. a date stamped printout of computerized records). The method must be able to withstand scrutiny and be reasonable in the circumstances.  What is communicated (and the words used) may be important as auditors assessment radar is often triggered by the words taxpayers use."

- Great advice!

" Things have not gone well for the BC Liberal party since the end of an Olympic Games that Premier Gordon Campbell had hoped would restore some support. On February 4, British Columbia’s Chief Electoral Officer Harry Neufeld approved a petition initiative spearheaded by former Premier Bill Vander Zalm to derail the HST, giving the Fight HST group 90 days from April 6 to collect signatures from 10 per cent of voters in each of the 85 electoral ridings.

"By the end of April, only three weeks into the petition campaign, 300,000 registered voters had already signed the initiative to kill the HST. By May 11, that figure had ballooned to 400,000 signatures. And now, according to the Fight HST website, with fully seven weeks to go in a 13-week campaign, organizers say they have reached the half-million mark.

"This figure, organizers report, represents success in 72 of the 85 ridings that have reached the minimum 10% threshold from Elections BC, with 51 of those ridings sitting at 15% or more. Clearly it would seem that the first stage of the initiative is slated to succeed."

- Impressive. 

- Nothing really new here.  HST is basically GST at 12% where the province keeps 7% and the federal government keeps 5%. 

Not to seem jaded but the problem with instant rebates (noted under the rebates section of the website) is that they can be revoked at a future point when BC residents have accepted the existence of HST in their daily lives.

As well, although there will be a HST credit for low income individuals in BC, BC residents can expect their overall personal tax burden to increase, as the provincial portion of HST to exceed the outgoing PST in so much as to what the new HST tax is charged on.  

The transition rules that take effect May 1, 2010 are intended to avoid both PST and (provincial portion of) HST being charged on the same payment for goods and services.  In other words, to prevent the consumer from being charged 7% PST and 12% HST. 

The core of HST transition rules is based on "transfer of ownership". 

When goods or services are transferred and an invoice is submitted, there is a transfer of ownership.   If an immediate transfer of ownership does not occur and, in fact, occurs over time (a lease, building construction, prepayment for goods) there needs to be transition rules to prevent confusion and ensure consistency.

May 1st transition rule:

Consumers purchasing goods and services that will be provided on or after July 1, 2010, or entering into leases on or after July 1, 2010, will start seeing HST on their invoices or bills for these as of May 1, 2010. 

In other words, as of May 1st, if you sign up for a lease or agree to purchase goods or services and the agreement doesn't begin or the goods aren't delivered until July 1, 2010, your agreement still has to be based on HST. This makes sense as it not only prevents double taxation (confusion as to what to charge when the goods finally arrive) but it prevents tax avoidance (people purposely purchasing goods and services but delaying delivery and payment). 

www.sbr.gov.bc.ca/documents_library/notices/HST_Notice_001.pdf

www.cra-arc.gc.ca/tx/pstr/trnstnl/menu-eng.html

"One of the big announcements was the new property tax deferral program for families with children living under the age of 18. They were hoping to implement this as soon as June 2010. The provincial government was hoping that families would utilize this if one parent lost a job temporarily, or families will use the extra money they saved from having to pay property taxes to pay off their car loans or credit card debt instead.

Colin Hansen says in his budget to The Speaker:

The point is, it’s their choice. The option is available to help them enhance their quality of life in whatever way they choose.

So you might be instantly thinking “Score! Time to make me some babies! I’m all for enhancing my quality of life!”

But note the key word, DEFERRAL."

- the housing bubble in the US was created by low interest rates and a lack of oversight.  When people are allowed to defer debt, very few plan for paying the future liability deferred.  A common "trick" by big box stores is the deferral of debt (6 months, 12 months etc) where interest accrues and is only payable *if* the individual does not pay the full amount by the end of the deferral period.  In a majority of cases, people do not plan for the liability deferred and are burdened with the additional interest cost.  I would suspect this would be no different.

"The Canadian economy has clearly pulled out of recession with 5% growth in the fourth quarter and good momentum heading into this year. Excluding movements in inventories of unsold goods, final sales were up sharply last quarter, posting 6.5% growth compared to a much slower 1.9% pace in the U.S. Despite the relative strength in our economy, businesses in Canada, in their cautionary fashion, have been reluctant to step up their expenditures on machinery, equipment and innovation to offset the decline in competitiveness resulting from the surge in our dollar (Chart 1)."

- the US is heading for a second leg down due to the commercial real estate bubble and Option Arm debt.  Although the US government is attempting to appear confident it is relying on short term solutions (ie. extend and pretend) for long-term problems.  As the US is a large trade partner, businesses in Canada are wise to be cautious as if/when the next collapse takes place, liquidity to wait out the resulting economic storm is very important.

Measures concerning businesses

• The budget proposes to expand Class 43.2 (specified clean energy generation and conservation equipment – declining balance capital cost allowance (CCA) rate of 50%) to include: (a) heat recovery equipment used in a broader range of applications; and (b) distribution equipment used in district energy systems that rely primarily on ground source heat pumps, active solar systems or heat recovery equipment. These measures will apply to eligible assets acquired on or after March 4, 2010 that have not been used or acquired for use before that date.
• The budget proposes that satellite and cable set-top boxes that are acquired after March 4, 2010 and that have neither been used nor acquired for use before March 5, 2010 be eligible for a declining balance CCA rate of 40%.
• The budget proposes that the definition of taxable Canadian property be amended to exclude shares of corporations, and certain other interests, that do not derive their value principally from real or immovable property situated in Canada, Canadian resource property or timber resource property (subject to the 60 month rule). This measure will eliminate section 116 compliance obligations for these types of properties and will bring Canada’s domestic tax rules more in line with our tax treaties and the tax laws of major trading parties. This measure will apply in determining after March 4, 2010 whether a property is taxable Canadian property of a taxpayer.

Measures concerning individuals

• The existing rules restrict the receipt of the Canada Child Tax Benefit and the Universal Child Care Benefit (UCCB) to only one eligible individual in respect of a qualified dependant each month. This restriction also applies to the child component of the GST/HST credit payable each quarter. Effective for benefits payable starting in July 2011, it is proposed that two eligible individuals can share these benefits in respect of a child, if the recipients would be eligible to receive amounts under the existing shared eligibility policy of the CRA. This policy applies when a child lives more or less equally with two individuals who live separately.
• In two-parent families, the UCCB must be included in the income of the lower income spouse or common-law partner, while in a single parent family the UCCB is generally included in the single parent’s income. To alleviate the inequity of a single parent potentially paying more tax on UCCB amounts than a couple with one income earner, it is proposed that effective in 2010, a single parent will have the option of including the UCCB amounts in the parent’s income or the income of the dependant.
• It is proposed that medical expenses incurred after March 4, 2010 for purely cosmetic procedures be ineligible for the Medical Expense Tax Credit.
• Under certain conditions, an employee of a publicly-traded company who acquires shares under a stock option agreement may elect to defer the recognition of the employment benefit until the disposition of the optioned securities. The special election is also available for securities disposed of before 2010.
• It is proposed that the inclusion rate for US Social Security benefits received after 2009 be reduced from 85% to 50% for Canadian residents who have been receiving US Social Security benefits since before January 1, 1996.

- A lot of interesting changes with this budget including two eligible individuals being able to share child tax benefits.  This is a big step in the direction of recognizing not only "split families" but fathers being as important as mothers in the raising of children.

The Budget proposes to increase to 100% the CCA rate applicable to computer hardware and systems software acquired after January 27, 2009 and before February 1, 2011. Further, the half- year rule will not apply to property that is subject to this accelerated CCA treatment.

Computer equipment otherwise included in Class 50 will be eligible for this accelerated CCA regime. Such equipment is general-purpose electronic data processing equipment and systems software for that equipment. In addition, to be eligible for the accelerated CCA, the computer equipment and systems software must:

• be situated in Canada;
• be acquired for use in a business carried on in Canada or to earn income from property situated in Canada or for lease to a lessee who so uses the equipment or software; and
• not have been used, or acquired for use, for any purpose before it is acquired by the taxpayer.

Generally computer equipment and systems software, unless it qualifies as manufacturing and processing equipment and is therefore included in Class 29, is included in Class 50 and is subject to a 55% CCA rate on a declining balance basis. Computer equipment and systems software that would otherwise be included in Class 29 as manufacturing and processing equipment will also benefit from the 100% CCA rate.

It should be noted that computer software, other than systems software, is already subject to a 100% CCA rate under Class 12.

- UPDATE! Revenue Canada considers iPhone's computer equipment and so fall under the 100% rule for 2010.



"There are several changes coming for the CPP retirement pension.  The changes will not affect anyone who is currently collecting the CPP retirement, disability or survivor benefits.  It will also not affect anyone who starts to collect their pension

"The changes were included in Bill C-51, which received Royal Assent on December 15, 2009.

"A person's CPP retirement pension

Removal of the Work Cessation Test

"Before 2012, in order to qualify to collect the CPP retirement pension before age 65, a person must have reduced earnings for the month prior to collecting the pension, and the following month.

"Starting in 2012 - the Work Cessation Test will be removed.  No reduction in earnings will have to take place in order to collect the benefits prior to age 65.

Increase in the General Low Earnings Drop-Out

"If a person starts collecting CPP at age 60, the contributory period is 42 years, and at age 65 would be 47 years.  However, adjustments are made to the contributory period and average pensionable earnings by "dropping out" certain periods of low income

"Before 2012, there is a general drop-out of 15% of the contributory years which are low or nil for other reasons.  For individuals who start their CPP at age 65, this removes almost 7 years of low or zero earnings from the calculation.  This increases the average earnings and CPP retirement pension for every person.

Starting in 2012 -  increase the general drop-out rate to:

	16% in 2012, allowing a maximum drop-out of almost 7.5 years
	17% in 2014, allowing a maximum drop-out of 8 years.

"This change will also increase the average CPP disability and survivor pensions, which are based on the retirement benefit calculation.

CPP Contributions When Receiving Retirement Pension

"Currently, CPP contributions are no longer paid once a person is receiving a CPP retirement pension, or once the person is 70, whichever is earlier.

"Future - CPP retirement benefit recipients will be required to continue to make CPP contributions until age 65.  Those age 65 to 70 will be able to elect not to continue contributing to the CPP.  CRA states that

	These contributions will result in increased retirement benefits, even for persons already receiving the maximum pension amounts.
	The additional benefits would be earned at a rate of 1/40th of the maximum pension amount ($10,905 in 2009) per year of additional contributions.  The exact amount would depend on the earnings level of the contributor, and the resulting pension could be above the maximum.

Pension Adjustments for Early and Late CPP Take-Up

"Before 2012, when the CPP retirement pension is taken early, it is reduced by 0.5% per month for each month that the pension is taken before the 65th birthday.  The pension is reduced by 30% (5 years x 12 months x 0.5%) for a person who starts collecting it at age 60.

"The late pension is increased by 0.5% per month up to the age of 70.  The pension is increased by 30% for a person who waits until age 70 to start collecting it.

"Starting in 2012 the percentage amounts used to reduce or increase the early or late taken pensions will be gradually increased.  To do this:

	The early pension reduction would be gradually increased to 0.6% per month for each month that the pension is taken before age 65.  This would be done over a period of 5 years, starting in 2012.  This would result in the pension being reduced by 36% for a person who begins collecting it at age 60 after 2017.
	The late pension augmentation would be gradually be increased to 0.7% per month for each month that the pension is taken after the 65th birthday, up to age 70.  This would be done over a period of 3 years, starting in 2011.  This would result in the pension being increased by 42% for a person who begins collecting it at age 70 after 2014.

"This change would not affect those currently collecting CPP retirement benefits or those taking their benefit before these changes begin to take effect.

"For more information, see the Department of Finance Information Paper on Proposed Changes to the Canada Pension Plan."

For a number of years, the CRA has permitted the EFILE community to submit returns in advance of our official opening in February providing their software has been certified.  For the 2010 program (2009  tax year returns) the EOL+ (batch) filing system will accept transmissions into the stockpile inventory on January 25th, 2010 at 8:30 a.m. (eastern (Ottawa) time). These returns will be held until we open for processing on February 15th, 2010.

- EFILE HELP DESK 1/18/2010 4:38AM

For those of you who like to file early, please note that CRA will not be processing T1's filed until February 15th.  If you need your refund before the end of February, it is possible but it takes (on average) 2 weeks for a refund to appear in your mailbox after Efiling...

If you are getting a sizeable refund, as the government isn't giving you money and is merely returning your money, you may want to request a decrease in the tax deducted at source (if possible).