The first proposal gradually increases the eligibility age from 65 to 67 starting in April 2023. The change will be fully phased in by January 2029. If you were born on or after February 1, 1962 you will be fully impacted by this measure.  However, if you are 54 years of age or older as of March 31, 2012 this measure will not affect you.  If you were born between April 1, 1958 and January 31, 1962, you will have an eligibility age between 65 and 67.

These changes will apply equally to the allowance and survivor’s allowance that are currently paid to qualifying individuals between the ages of 60 and 64. The eligibility age for these benefits will increase by two years, to ages 62 to 66 and these benefits will be subject to the same notification and phase-in periods.

The government will also ensure that other federal programs that provide income support until age 65 are aligned with the new OAS program rules and do not cause an income gap at ages 65 and 66.

OAS Deferral Option

Effective July 1, 2013, the budget also proposes a new OAS deferral option.  This option will allow you to defer receiving OAS for up to five years. Similar to the Canada Pension Plan, deferring receipt of OAS will result in a higher actuarially determined benefit. The budget papers provide an example that assumes an annual OAS benefit of $6,481. Deferral by one year would result in an annual benefit of $6,948, while a five-year deferral would result in an annual benefit of $8,814. It should be noted that this actuarial adjustment would not apply to GIS benefits.

Proactive Automatic Enrollment for OAS and GIS

A proactive automatic enrollment for both OAS and GIS recipients has also been proposed.  This should eliminate the need for having to complete application forms for these benefits in the future. Proactive enrollment will be phased in from 2013 to 2015.

By Jordan Caplan, BBA, CA, Partner — Assurance & Advisor

Earlier this year, the Ontario government announced major changes to the Estate Administration Tax (also known colloquially as “probate fees”) in its annual budget. These amendments are a direct result of Ontarians implementing numerous planning techniques to minimize their probate fees payable on death.

After you die, your will may need to be probated. This involves presenting your will and a list of your assets to the Courts for certification that the will is valid and can be relied upon by third parties. At the time of probating the will, an estate administration tax of 0.5 percent must be paid on the first $50,000 of estate assets and 1.5 percent on the value of the remaining assets. Prior to the 2011 Ontario Budget, the Minister of Revenue had very little ability to determine if the appropriate amount of tax (fees) had been paid.

These new changes will require an applicant for a probate certificate to “give the Minister of Revenue such information about the deceased person as may be prescribed by the Minister of Finance … within the time and in the manner as may be prescribed by the Minister of Finance.” This new filing obligation to disclose information about the estate assets will come into force on January 1, 2013.

Of even greater concern are new audit and verification powers being given to the Minister of Revenue. They are modeled after the assessment, objection and appeal procedures in the Federal Income Tax Act. The Minister of Revenue now has the right to assess an estate in respect of its estate administration tax liability. Assuming  the filing of the application with the courts is separate from the filing of estate inventory and valuation with the Minister of Revenue, the possibility of an assessment should not hold up the issuance of the probate certificate. However, these changes allow the Minister to conduct a review of the estate inventory and valuation provided in that separate filing and, if a greater estate value is determined, assess additional tax to be paid.

The amended rules will allow an assessment or reassessment to be issued up to four years from the date that original tax became payable (the date of filing for the initial probate application). However, an assessment or reassessment may be made at any time that the Minister considers reasonable, upon establishing:

(i) That the estate trustee has not filed the information required; or

(ii) That any person has made a misrepresentation that is attributable to neglect, carelessness or willful default, or has committed any fraud in supplying any information regarding an estate or in omitting to disclose any information regarding the estate.

As to be expected, penalties have been added to encourage compliance. Once the regulations are in place, it will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue. It will also be an offence for any person who makes, or assists in making, a false or misleading statement in connection with the estate trustee’s filing.

Offences are punishable by fine, by imprisonment or both. The minimum fine will be $1,000. The maximum fine will be twice the estate administration tax payable.

The requirement to file with the Minister of Revenue will not take effect until the regulations are in place; however, the Minister’s authority to (re)assess an estate became effective on May 12, 2011– even in a case in which the application for a certificate was filed before this date. The penalty provisions for false or misleading statements will become applicable for applications made after December 31, 2012.

There is uncertainty with these amendments that pertains to the possible impact on the winding up of an estate. This impact will depend on whether an estate trustee is exposed to personal liability if the estate assets have been distributed before the Minister of Revenue issues a notice of assessment or reassessment. Unlike the income tax rules, there is no ability to obtain a “clearance certificate” to protect the estate trustee from personal liability.

The Estate Administration Tax Act provides that “tax is payable by the estate representative in his, her or its representative capacity only.” However, if an estate trustee were to distribute the assets of the estate, would they not still be personally liable under trust law if the additional tax could not be paid? Also, the estate trustee is not protected from the imposition of a fine if he or she is found to have been responsible for a false or misleading statement (assuming the defense of “reasonable diligence” cannot be made).

There are many uncertainties that lie ahead for estate trustees and their advisors. How will the auditors conduct their work? What valuation methods will they employ? Who will be liable for any additional tax? What are the risks to lawyers who act for the estate trustees? Will there be greater compliance? Will these new measures increase the government coffers? A new era in estate administration has begun, and many questions remain to be answered.

JORDAN CAPLAN

Jordan is a partner with the Assurance & Advisory Group at Soberman LLP. Jordan is well versed in private and public enterprise affairs. He works with clients, who range from high net-worth individuals to owner-managed and family-run businesses in helping them achieve their goals. Jordan is also a member of the firm’s SuRE Services for Family Businesses Group and the director of the Canadian Association of Family Enterprise (CAFÉ) GTA Chapter.

Connect with Jordan at:

416 963 7191 or jcaplan@soberman.com

http://ca.linkedin.com/in/jordancaplan

Starting this January, the government is taking 30 per cent off the average tuition for families — that means a savings of $800 for undergraduate university or college degree students and $365 for college diploma and certificate students this semester. This grant will also be extended to eligible students beginning or continuing their studies in the summer semester.

In September, the permanent 30 per cent off Ontario Tuition Grant will apply to the full school year. This translates to a savings of $1,600 for students in a university or college degree program and a savings of $730 for students in college diploma and certificate programs.

According to a press release issued by the FPSC, “The long-standing and sustained contributions of the people in this first-ever group of Fellow of FPSC recipients are exceptional. Their contributions have made an important impact in helping to build this profession and advance financial planning,’ says Cary List, President and CEO, FPSC.

To become a Fellow of FPSC member, candidates must be nominated by at least two other individuals and meet at least two of the following criteria: advancement of FPSC’s vision and mission through volunteering with FPSC; advancement of Certified Financial Planner^® professional standards; and embodiment of CFP^® professional standards.

Examples of contributions from this group of Fellow of FPSC recipients include long-standing and exemplary service to FPSC through volunteerism; promotion of financial planning and CFP certification as the profession of choice to the next generation; significant involvement in FPSC’s examination development process; direct and broad support of the CFP designation within industry; and extensive promotion of financial planning and CFP certification to Canadians on a
grassroots level.”

A Will allows us to express our final wishes and let our loved ones know that we took the time to think about and provide for them after we have gone. Everyone’s situation is unique to their personal circumstances, but the following are some common issues to look for in a well drafted Will:

a) Dying without a Proper Will (“Intestate”)

Where there is no Will or a Will has failed (i.e. due to incomplete execution or ambiguous wording), our government has imposed a process for dealing with your estate. For example, assume that you are currently living in Ontario, have both a spouse and children, and the value of your estate is over $200,000. The legislation dictates that your spouse will receive the first $200,000, with the remaining value of your estate being divided between your spouse (who would receive 1/3) and your children (who would receive 2/3). If your children are minors, they may not receive their share of your estate until they reach of age of majority or until the minor’s guardian is granted custody of the assets. Either way, it becomes a more difficult process which can be avoided by simply having a Will which clearly outlines your wishes.
The complications of dying intestate are compounded if you are in a blended family situation, or a common law relationship, or are the owner of a private company, or hold assets in other jurisdictions and/or hold dual citizenship with another country. These are only a few of the obvious issues to consider.

b) Taking Care of Children

This is rightfully a big consideration for many parents. The only place where you can express who you would like to take care of your young children in the event something happens to you is in your Will. If you die intestate and your children are entitled to a share of your estate, their share is paid into court and held for them until they attain the age of 18 years or until the minor’s guardian is granted custody of the assets, which can take a significant amount of time. Perhaps of even greater significance is the fact that there are no restrictions or guidance provided to your child when they receive their share at the age of 18 years. Many people are concerned at the thought of having their children receive a large sum of money (for use at their absolute discretion) at a very young age.

c) Tax Planning

There are two different types of taxes that are payable at death, income taxes and estate administration taxes. As a general rule, one is deemed to have disposed of all of their property immediately before death, which commonly results in the triggering of capital gains. Under a properly structured Will, capital gains can be deferred upon death. There are also other tools that can be utilized in particular circumstances to minimize the payment of income taxes and/or estate administration taxes, such as the use of various testamentary trusts or the use of multiple Wills.

How is a Will an Estate Planning Tool?

During our lives we focus on how to gather and manage our assets so that we have enough wealth during our lifetime. However, we also need to focus on preserving those assets on death and ensuring that the wealth is transferred to the next generation. A properly planned Will is a critical and integral component of your estate plan.

What Are You Really Paying For?

A properly drafted Will can save your loved ones grief and aggravation during a sensitive and difficult period. Some people are taken back at the cost of properly drafting a Will when there are pre-printed forms and computer programs available on the market for a fraction of the cost. So why use a lawyer? You are paying for someone to think through the maze of legal and practical issues surrounding death to ensure what is written in your Will reflects your wishes and works for your particular circumstances. You are paying for the analysis, planning, critical thinking and drafting which is behind the paper that the Will is written on, not the paper alone.

Pre-printed forms, computer programs, or a poorly drafted Will may seem like a good way of saving money on legal fees. However, there is a risk that these forms could be completed incorrectly or could include ambiguous wording. This may end up costing your loved ones significantly more in court and legal fees than the amount you would have paid to have the Will properly drafted by an experienced lawyer in the first place.

Jag Gandhi practices in the area of Tax, Trusts and Estate Planning at Wilson Vukelich LLP, Barristers and Solicitors in Markham (www.wvllp.ca). She can be reached at 905.944.2953 or by e-mail at jgandhi@wvllp.ca.

Before the 2011 budget, when flow-through shares were donated to a charitable organization, the donor could receive generous tax credits and deductions that would result in little after-tax cost. This was due to the fact that the donor could take advantage of the deduction for the expenses flowed through from the corporation, the applicable federal and provincial mineral exploration flow-through tax credits, the charitable donations tax credit or deduction in respect of the value of the shares, and relief from capital gains tax, including tax on the portion of the gain attributable to the zero cost of the shares.

The budget proposed to change the rules with regards to shares acquired on or after March 22, 2011 to allow the exemption from capital gains tax only to the extent that the cumulative capital gains in respect of the disposition of the shares exceed the original cost of the flow-through shares.

With regards to past service contributions, After March 22, 2011, they will have to be funded firstly froma transfer of the plan member’s RRSP assets or by reducing his/her RRSP contribution room before newdeductible past service contributions can be made.

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Starting January 2011 the rules that apply to Canada Pension Plan (CPP) have changed. Since the CPP is a component of retirement income for all Canadians it is important that you are aware of the changes and consider them in your retirement planning.

Four areas will be impacted by these changes.

Calculation of Career Earnings

This is one area that will be positively impacted. Up until 2010, the dropout percentage for years of low or no earnings (referred to as the “general drop-out provision”) was 15% of average career earnings. This percentage will be increased to 16% in 2012 and 17% in 2014. Therefore, retirees who start receiving their CPP income in 2011 or future years should have a higher retirement benefit than those who started receiving their benefits before 2011.

Removal of the Work Cessation Test

This is another welcome change. In the past applicants were required to cease employment or have reduced income for a two month period in order to be eligible to apply for benefits. However, starting in 2012 this is no longer the case and you can apply for your CPP benefits while still working.

Change in Benefits for Those Who Start Before or After 65

This change is fair given the fact that we are living much longer than we used to when the CPP was first introduced in 1966. According to these changes those who start receiving their benefits earlier than age 65 will have a bigger reduction in their benefits and those retirees who start receiving their benefits after age 65 will have a bigger enhancement in their benefits.

These changes will be implemented gradually starting in 2012 for reduction in early receipt and will be fully in place in 2016. At that time, you will receive .6% less for each month that you start receiving your CPP retirement benefits before age 65 (36% less if you receive your benefits at age 60, vs. 30% less before the changes).

The changes with regards to delaying receipt and receiving enhanced benefits will gradually be implemented starting in 2011 and will be fully in place by 2013. When the rules are fully implemented, for each month that you delay receiving your CPP benefits beyond age 65, you will receive .7% increase in your benefits (42% if you delay receiving your benefits until age 70 vs. 30% more before the changes).

Contributions to CPP While Receiving Benefits and Working

The negative change for seniors is that according to the new rules if you are under age 65 and in receipt of CPP payments and are still working, you and your employer will have to contribute to CPP (which was not the case before). On the bright side, these contributions will increase your CPP benefits starting in 2013.

If you are age 65 to 70 and work while receiving your CPP benefits, you can choose to contribute to CPP and these contributions will increase your benefits starting in 2013 as well.

If you are under the age of 65 and are receiving early CPP retirement benefits and are also working and earning employment income, you will be required to once again contribute to CPP as of January 2012.