mackay.news spring2012 • Newsletter 1

It’s Tax Time AgainIt’s that lovely time of year again where we reconcile our debt with the Canadian government in exchange for all the services they provide. In other words, it’s tax time again. For those of you lucky enough to be clients of MacKay, the actual calculation of your tax bill will be done for you. Unfortunately, there are still things you have to do to prepare for filing your return.

First of all, gather all your slips. T4s and T5s should arrive by the end of February, while T3s and T5013s should arrive by the end of March. It is important to make sure that, if you get a slip, it is reported on your tax return. Occasionally you may find or receive a slip after we have filed your tax return. It is important to contact us and let us know about the slip you just discovered. If you don’t report income that is on a slip on your tax return, CRA may levy punitive penal-ties, if not this year then on any slip missed in the next three years.

RRSP contributions can be made up to February 29, 2012 and can be deducted on your 2011 tax return. RRSP contribution slips may be received as late as March if contributions are made in January or February.

Gather all your medical receipts; some pharmacies will provide you with an annual summary if you have a large number of prescriptions throughout the year. Common medical receipts include prescriptions, dentist fees and optometrist fees. Depending upon your province or territory of residence physiotherapy, registered massage therapy, naturopathic doctor fees (but generally not the products sold by a naturo-path) and chiropractor fees are medical expenses. In addition, travel medical insurance documentation is also relevant.

If you have investments outside your RRSP, RRIF or TFSA, either provide all your monthly, quarterly or annual statements or provide a list of buys and sells for the year along with the amount originally paid for investments you sold in the year. Some investment

companies will provide this information in an annual summary.

If you have employment expenses, obtain a signed T2200 from your employer and collect your receipts for employment expenses paid in 2011.

If you have business, farm or other self employment income or rental properties, prepare a summary of income and expenses by business or property.

Once you have done all this, deliver everything to MacKay and we’ll take care of the rest.

The Latest HST News for BCThe basic plan is that the BC Provincial Sales Tax, formally called the PST or Social Services Tax, will be reintroduced on or about April 1, 2013. It will be many months before transitional rules will be available.

mackay.newsA publication of MacKay LLP Chartered Accountants and Business Advisors

sprin

g20

12

inthisissue

It’s Tax Time Again 1

The Latest BC HST News 1

Is Your Data Safe? 2

Children’s Art Activities Tax Credit 3

Why Canada’s Corporate Tax Cuts Rate a Collective Cheer 4

Tax Considerations for Aboriginal Business Owners 5

Change of Address 5

Income Tax Filing Requirements on Death 6

mackay.news spring2012 • Newsletter 2

Is Your Data Safe?This article is meant to provide a high level overview of data security and is not meant to be used as a guide or in the place of advice from an industry expert. It is also by no means a full account of all areas or facets of data security. You are advised to seek consultation from an appropriate individual or organization with the relevant experience and credentials before implement-ing or following any recommendations in this article.

DataAlmost everything we do today is in some way asso-ciated with a computer. The widespread adoption of computers into most day-to-day processes has resulted in the creation of large amounts of computer data and files. It is important that we be aware that some of these data files will contain information that can be sensitive or could be used for malicious pur-poses. For example, there is a good chance you have electronic documents with your birthdate or your Social Insurance Number contained within them. In the wrong hands this information could be used to obtain credit cards or commit other types of identity fraud. With the sensitive nature of some of your electronic data, it now becomes increasingly important that you take appropriate steps to ensure that it is protected.

There are a number of ways that your data could be obtained by an unauthorized third party. For example, email is inherently insecure by nature. Once you send a message from your email client it will travel through, at a minimum, three to four devices through the Inter-net. Any of the devices that handle the email message could potentially access the information in it.

Another common method for a malicious third party to obtain information is through the theft of a laptop or mobile computing device (Smartphone, iPad, Playbook, etc.). Unless the device is properly configured and pro-tected, it is a simple matter to access any data stored on it. Additionally USB memory sticks can be easily lost or stolen and can contain large amounts of data.

What Steps Can You Take?Knowing that there are innumerable ways that your sensitive information could fall into the wrong hands is enough to keep anyone up at night. While there is no system that is completely secure and impervious to malicious activity, there are a number of ways that you can ensure that your data will be relatively secure and more difficult to acquire.

PasswordsFirst and foremost is your password. Consider this: your password is the key that unlocks your computer and allows you access to everything stored on it and your computer network. It can be inferred then that your password is one of the best ways to ensure that your information is kept secure. Before employing any of the following tips, please check to ensure that they meet any guidelines set forth in your company’s password policy. Some password tips:

• Choose something with at least 12 characters

• Use a combination of uppercase and lowercase characters

• Use punctuation characters and special symbols, e.g. !@#$%^&*( )[ ]

• Use as many different passwords for your accounts as possible

If you wish to write your passwords down, go for it! However, if you write it down you should keep it in a safe place such as a locked drawer or an encrypted file. A good utility for managing passwords is KeePass http://www.keepass.info

If your company does not have a password policy in place, you should consider drafting one or having one drafted for you.

Antivirus SoftwareAntivirus software is one of the main software compo-nents on your computer that can help to keep it safe from virus infections and exploits. This in turn will help to prevent potential data theft. While some of the free antivirus solutions may be enough to meet the needs of home users, they do not generally have enough features to adequately protect an office environment. When it comes to software in general it is the same as most other things: You get what you pay for! Most of the major antivirus vendors that provide a paid product will offer sufficient protection for your computer(s). When choosing an antivirus solution, research should include your needs, feature sets offered, and overall independent test rankings.

A couple of good sites to review are http://www.av-comparatives.org and http://www.virusbtn.com

Continued on page 3

mackay.news spring2012 • Newsletter 3

Application PatchesOne of the easiest ways for a malicious attacker to access your data is through a vulnerability in an appli-cation or the operating system. On a regular basis vulnerabilities are found in common software applica-tions that, under the correct circumstances, can be exploited by a malicious attacker. For example, if you have an outdated version of the Adobe Flash Player on your computer, simply visiting a website is enough to have your computer compromised and in turn your data potentially stolen.

In order to ensure that your computer is as safe as possible from application exploits, you need to ensure that you are proactively installing any relevant patches for your applications. Microsoft regularly releases patches for their applications and operating systems. In order to ensure that your system is as safe as pos-sible from application exploits, the patches should be tested and installed in a timely manner.

Disk and File EncryptionDisk and file encryption is one of the best ways to ensure that, if your computer or USB drive is sto-len, your data will remain unattainable. When data is encrypted it is scrambled using a mathematically complex key generation technique. In order to access the data you, or the software on your computer, must posses the correct key to de-scramble the data.

Full-disk encryption results in all the data, including the operating system, on your computer being encrypted. It can be either software or hardware based. A number of hard drive manufacturers are now producing hard drives that have encryption technology built right into them. Software-based full-disk encryption will pro-vide you with more flexibility and control over how the data is encrypted and who can obtain access to it. By encrypting everything on the hard drive, it precludes the user from having to make a choice and take action to encrypt the files.

Individual file encryption is generally a software based encryption that requires you to select the files and make a conscious choice to encrypt them. Once the files are encrypted, similarly to full-disk encryption, the proper key is required in order to access the files. This method can be useful if you will be copying files to a USB key or if you have a file that contains password information or any other sensitive information.

Data and computer security is an ever-changing and evolving field. It is not enough to simply ignore the ever-present threats that are out there and hope that your data does not get intercepted or accessed. Given enough time and the right tools, a determined intruder may be able to circumvent even some of the best security measures. That being said, while no system is 100% secure and impervious to intrusion, you can rest a little easier by following the recommendations in this article.

Children’s Art Activities Tax CreditStarting in 2011 the Government of Canada created a tax credit to help parents with the cost of enrolling their children in artistic activities. The credit is very similar to the Fitness Tax Credit, which has been available for a few years. To qualify for the credit the artistic activity must either be at least once a week for eight weeks or five consecutive days long and provided to a child under 16 years of age. The activity must be supervised, suitable for children and contribute to the development of creative skills or expertise in an artistic or cultural discipline. If the activity is also eligible for the Fitness Tax Credit (for example; dance) then only one credit may be claimed. The maximum amount of

the claim is $500 per child. If you paid for art activities for your child in 2011 remember to include the official receipt with your other tax slips provided to us so that your MacKay LLP tax preparer can ensure the credit is claimed.

mackay.news spring2012 • Newsletter 4

Why Canada’s Corporate Tax Cuts Rate a Collective Cheer (Reprint from the Globe and Mail January 4, 2012)

In an end-of-year review of his government’s achieve-ments in 2011, Prime Minister Stephen Harper noted Forbes magazine’s selection of Canada as the No. 1 country in the world to do business. (“Credit a reformed tax structure,” Forbes declared.) Mr. Harper was right to cite this distinction. On New Year’s Day, Canada’s corporate tax rate – federal and provincial rates com-bined – fell to 25 per cent, giving Canada the lowest rate in the Group of Seven countries, and a more com-petitive economy on a global basis.

The provinces (especially British Columbia, Alberta and Ontario) collaborated with Ottawa to reach this strategic objective, announced shortly after Mr. Harper formed his first minority government in 2006. But the federal government did the heavy lifting: a 33 per cent tax rate cut, implemented incrementally over five years, in the stridently antagonistic environment of successive minority parliaments. In annual steps, the government lowered the federal rate from 22 per cent to 15 per cent (The provincial collaborators now have a common rate of 10 per cent.)

Remarkably, the gradual lowering of the corporate tax rate appears to have resulted in little loss in corporate tax revenue (when compared with long-term, prereces-sion revenues). Corporate tax revenue did take a big hit ($10 billion) in 2008, the year of the market melt-down. But the tax cuts were barely started in 2008.

By 2010–2011, federal corporate tax revenue reached $30 billion, substantially more than the average of $25 billion in the last four years of the prior Liberal govern-ment: 2002 through 2005. Further, federal corporate tax revenue equalled 1.8 per cent of Canadian gross domestic product, a much higher percentage than the revenue produced during the recessionary years in the early 1990s. In tough-times 1992, for example, corporate revenue, with higher tax rates, fell to 1 per cent of GDP.

Economists predictably disagree on the economic importance of corporate tax rates, mostly on an ideo-logical basis, but it makes good sense to keep this particular tax as low as possible. These taxes, after all, are a direct cost of doing business – and Canada’s corporate cuts ensure that this country will have a cross-border edge for the next two or three years at least. With a combined federal-state rate of 39.2 per cent, the United States has the second-highest rate in the world (after Japan, with 39.5 per cent).

Eventually, the U.S. will respond. Republican presi-dential candidates have embraced deep corporate tax cuts; some of them, such as Texas Governor Rick Perry, propose a federal corporate rate of 12.5 per cent. Mr. Perry’s position reflects the judgment of his tax adviser, Steven Forbes – owner and editor of the eponymous magazine that ranked Canada as the best business domicile in the world. Mr. Forbes takes taxes seriously. (He declined to support Mitt Romney because the former Massachusetts governor wouldn’t endorse a single-rate personal income tax. Mr. Forbes has mocked Mr. Romney’s 59-point platform for its complexity, saying: “God only had 10 points.”)

Former Pennsylvania senator Rick Santorum proposes a permanent zero-per-cent corporate tax rate on all manufacturing companies – and says he would tax capital gains at 12 per cent (or half the rate that a typical Canadian now pays). Former speaker of the House of Representatives Newt Gingrich proposes an optional 15 per cent flat tax on personal income and the elimination of capital gains taxes for people who choose the flat-tax alternative. Mr. Romney proposes to eliminate capital gains taxes for people with less than $200,000 (U.S.) a year in taxable incomes.

In his own end-of-year review, Finance Minister Jim Flaherty noted the completion of his corporate rate-cut assignment. He set out six years ago to brand Canada as a low-tax jurisdiction for business invest-ment. He succeeded. On this file, Mr. Flaherty’s per-formance was as good as it gets. Mr. Harper and Mr. Flaherty probably don’t expect coast-to-coast hosan-nas. Nevertheless, it seems a bit much that the most audible applause has come from a business magazine based in New York. In fact, the Canadian government achieved a great legislative success in pursuit of an important economic objective. For this, it deserves a round of Canadian-based applause.

Mr. Flaherty’s job isn’t finished. He acknowledged this last year when he said the government would proceed, in due course, with personal income tax reform by reducing the number of tax brackets from five to two or three. In a world of vast and highly entropic com-plexity, simplicity is always an indispensible public-policy goal.

This article was written by Neil Reynolds of the Globe and Mail and is reprinted with permission.

mackay.news spring2012 • Newsletter 5

Tax Considerations for Aboriginal Business OwnersAs an aboriginal or Inuit business owner you may think that your business income will not be subject to income tax. Depending on where your business income earning activities are located, your conclusion could be incorrect.

Section 87 of the Indian Act is commonly relied upon to provide protection from taxation. This Section pro-vides that an Indian or band is not subject to gov-ernment taxation in respect to property situated on reserve. Over the years a number of court cases has limited the Section 87 tax exemption.

The Canada Revenue Agency and the courts agree that in order for income earned by a status Indian to be exempt from tax the business income needs to earned on reserve. Basically the location of the actual income generating activities determines the tax payable. For example a unincorporated logging business has an office on reserve, stores it’s equipment on reserve and does its bookkeeping on reserve, but logs off reserve. The income generated by this business would be sub-ject to income tax as the income generating activity, the logging, is done off reserve.

Any income earned from the unincorporated logging business by the employees of the logging business goes through a similar test. For example the business has two employees, a manager who stays in the office and runs the company and a supervisor who runs the logging operations. Both are Status Indians. The man-ager’s wages would not be subject to income tax as he is earning his income on reserve, while the super-visor’s income would be subject to income tax as he is earning his income off reserve.

For profit corporations are always subject to income tax. Many aboriginal or native incorporated companies are not for profit or municipal in nature. These com-panies may have filing requirements but may not be taxable, subject to advice in each case.

Incorporated for profit businesses; if they are owned by Status Indians and operate on reserve, for example a corporation that has a logging business and that pri-marily harvests timber on reserve, is likely to subject to taxation and filing requirements. If the owner/manager of the corporation is a Status Indian who manages all the operations on reserve and lives on reserve,

compensation received by him or her may be exempt income. In order to reduce the taxes payable by the corporation a common planning technique in certain circumstances is the increase the wages of the active owner/manager if they are an on reserve Status Indian.

Status Indians in certain areas, such as the Yukon, should be aware that the tax exemption provisions of Section 87 of the Indian Act, described above, do not generally apply where a Final Agreement exists with a First Nation. In the North West Territories, taxa-tion will be dependent upon the particular agreement involved. These and certain other natives who do not have exemption may need more detailed tax advice and may need to utilize incorporated entities or other structures to minimize taxation. Often trusts or partner-ships are used in native business planning to minimize taxation. If you are an aboriginal business owner and you are carrying on some or all of your income earning activities off reserve, you could be subject to income tax. Consult your professional advisor to determine if any planning opportunities are available.

This material is general in nature and should not be relied upon to replace the requirement for specific professional advice.

Change of AddressPlease be advised that MacKay LLP in Surrey has a new address (just down the hallway from the old location):

119, 7565 – 132nd Street Surrey, BC V3W 1K5

mackay.news spring2012 • Newsletter 6

Prepared by the Taxation Services Section of MacKay LLP Chartered Accountants and Business Advisors for review by our clients and other interested parties

Vancouver (604) 687-4511 Yellowknife (867) 920-4404Surrey (604) 591-6181 Edmonton (780) 420-0626Kelowna (250) 763-5021 Calgary (403) 294-9292Whitehorse (867) 667-7651

If you would like to be added to or removed from our mailing list, please contact your local office.

MacKay LLP is a Canadian firm of chartered accountants based in Western and Northern Canada and represented by offices in Alberta, British Columbia, Yukon and the Northwest Territories. The firm currently has 43 partners and principals, approximately 220 staff, and offers a full range of accounting, auditing, taxation, insolvency, valuation, computer, and management consulting services to all clients.

In other areas of Canada and internationally, the firm is represented by other locally managed independent accounting firms.

Income Tax Filing Requirements on DeathTerminal ReturnThis is the deceased’s final Personal Income Tax Return. The return reports income for the year of death for the period from January 1st to the date of death. All regular income (i.e. pensions, employment income, interest, etc.) earned during this time period will be reported. In addition, the return will report any gains resulting from deemed dispositions on death. This return has the normal filing deadline of April 30th of the following year. When the individual has died in November or December this filing deadline is extended to six months after the date of death.

Additional Separate ReturnIt is possible to report certain types of the deceased’s income on a separate return for the year of death, known as a “Rights or Things” return. The benefit of this separate return is that the individual is then able to make a second claim for tax credits. In effect, they get to claim personal tax credits twice for the same year. The reporting period and the filing deadlines are the same as for the terminal return. The following is a brief list of the types of income that can be reported on a separate return.

• Dividends declared but unpaid at the date of death.

• Income from another person’s estate.

• Vacation pay from an employer.

Estate ReturnThe estate return reports any income earned after the date of death. A typical example is the CPP death benefit. Other types of income include interest on an investment or bank account or any gains on the sale of

assets by the estate. This return is filed annually within 90 days of the selected year end which can be no later than the first anniversary date after death. The final estate return is filed once the Executor is prepared to wind up the estate and distribute any remaining assets to the beneficiaries. This final estate return is due within 90 days of the proposed wind-up date.

Once the final estate return has been filed and assessed, a Request for a Clearance Certificate would be prepared and filed in cases where it is appropriate. A Clearance Certificate protects the Executor from any future liability for income taxes but does not protect an individual as a beneficiary.

Information Required to Prepare the Returns• A copy of the deceased’s prior year’s Income Tax

Return and Notice of Assessment,

• A copy of the Death Certificate,

• A copy of the Last Will and Testament,

• A copy of the Statement of Assets and Liabilities (from the probate documents)

• The purchase price of real estate (including the house) or non-registered investments, and

• All income tax information slips, including T3s,T4s and T5s.

This document is general in nature and should not be relied upon to replace specific professional advice.