Governor Mark Carney of the Bank of Canada stated that “gold has no role to play in the international monetary system,” following a speech on financial reform in Geneva.If gold has no role to play, why are all the central banks flocking to gold right now?Why has China ramped up it’s gold reserves dramatically over the last few years? Because Gold has always been there and has always played a role in every financial system that stood over time.Every time gold has been taken away from the backing of a currency, we end up with a Fiat Monetary System that never lasts over 100 years before crashing!
In another article in the Gazette we find that Robert Zoellick, president of the World Bank, tried to offer an alternative to the present conflict-plagued monetary system in which gold could be used as a reference point for market expectations for inflation and future currency values. Now this makes more sense as gold brings stability to a financial system.
Since we can see that currency that is not backed by something of value such as gold always crashes, why would we now want a global monetary system that is not backed by something of absolute value???
As per my last blog, please ensure you know your rights as a Tax Payer according to the Tax Payer Bill of Rights.Here are 3 other important facts in dealing with the CRA:
Don’t ever take what a CRA agent says on the phone as fact. Get it in writing!They can never be held accountable to what they say on the phone, and typically you are getting a junior agent that may have just started working at the CRA!
Don’t take what the CRA website says as fact! (see their disclaimer)Here’s a link and below is what is written in the disclaimer:
Disclaimer: Some of the information on this Web site has been provided by external sources. The CRA is not responsible for the quality, merchantability and fitness for a particular purpose of products or services available on external sites and listed or described on our menu; nor is it responsible for the accuracy, reliability or currency of the information contained on our Web site and supplied by external sources.
If you don’t agree with their assessment, appeal (See further in this blog for details)
APPEALING
Number 4 on the Tax Payer Bill of Rights states that you have the right to a formal review and subsequent appeal.So, if after they review your file you get reassessed, you can appeal their Assessment if you don’t agree with it.This assessment typically comes in 2 forms, a Notice of Assessment (N.O.A.) or a Notice of Reassessment (N.O.R.A.).Either one may be appealed as long as the appeal is within 90 days of the date on the N.O.A. or N.O.R.A.To appeal a decision you should file a Notice of Objection: http://www.cra-arc.gc.ca/E/pbg/tf/t400a/t400a-09e.pdf.Once your Notice of Objection is sent in you should receive a letter stating that they’ve received your Objection and that they will be reviewing your file.If after the review is completed, which sometimes takes a considerable amount of time, they state the Assessment still stands than you can appeal to the Tax Court of Canada.Their correspondence will come with the paperwork and steps to do so, however if you need assistance in your Notice of Objections or appeals, please don’t hesitate to contact us.
Please watch for my next blogs as I will continue to give you tips and information when it comes to dealing with the CRA.
As we have been discussing trusts for the last couple of months you should have a good understanding of the basics of a trust.There are many uses for a trust and in this series of blogs we are mostly discussing the use of family trusts.There are numerous other types of trusts and they all operate similarly in the fact that they all have the 3 same factors: 1. Settlor 2. Trustee(s) 3. Beneficiaries. We will now do some recap on a few items and discuss some other considerations of having a trust.
Family Trusts are very effective when used to hold assets and distribute cash flow.We must remember that income that is left inside of the trust is taxed at the highest marginal tax rate, however the trust is allowed specific tax deductions and tax credits such as dividend tax credits, capital gains deductions, donation credits etc.Income can flow through a trust, however losses cannot typically be flowed through the trust.The losses can be used against income in the trust, carried forward, or carried back up to 3 years to apply against income of other years.If you have paid tax in the past and apply for a loss carryback you may receive a tax refund of the taxes you paid in the prior years you are applying the loss to.This is similar for individuals and corporations.
Also remember that a trust has a $750,000 Lifetime Capital Gains Exemption, which is the same as every Canadian individual taxpayer.This is key for the sale of small business shares, farm property or fishing property.Because all of the beneficiaries have the same exemption this could allow for millions of dollars in qualified capital gains which could be exempt from tax.
Another rule of most trusts that CRA has put into place is the 21 year deemed disposition rule.This rule means that 21 years after the asset was acquired you will have to claim the tax on the the current fair market value less the cost of the asset and improvements to the asset.This is done every 21 years.This rule can be avoided by distributing property to the beneficiaries before the 21st year, or by providing in the trust that the property will indefeasibly vest in the beneficiaries prior to the disposition.
One last thing to discuss is the option of a trust acquiring a beneficiary’s principal residence.The sale should be a real sale with actual funds changing hands.There is typically no tax advantages to selling your principal residence to a trust as you do not pay capital gains tax when you sell your principal residence.The only reason you may want to sell your principal residence to the trust is for the potential of liability protection.Other real estate however should be sold to the trust or a corporation owned by the trust.This property that the trust acquires can be almost anywhere in the world as the trust can also have non resident beneficiaries.
There are so many ways to plan using a trust and we have discussed a lot of the basics.Please do inquire with questions on trusts, structuring and planning.We look forward to hearing from you!
In my last blog we discussed some of the ways to get money and assets out a trust.As we can see the 2 main ways that people use are loans and income from investments or businesses.In the case of loans you must remember that loans need to be at the current prescribed interest rate or higher.It is very important that you look up the current rates when you are doing a loan to or from a trust, corporation or spouse to make it a compliant loan.Prescribed rates are typically much lower than prime.Recently we’ve seen the prescribed rates 1% and lower.As discussed prior, loan interest must always be paid one month after the year end of a trust, which is almost always December, except in the case of some testamentary trusts.Thus most loan interest is due January 31st.
Getting money and assets out through income is the other main method people use.This can be extremely beneficial in income splitting, capital gains splitting, multiplying the capital gains exemption, utilizing dividends and more.Some income may even be able to be given to minors, however planning is key as special tax could apply.
The trust may own assets and these assets can be given to beneficiaries.For example if the trust owned a property the trust may choose to give that property to one or more beneficiaries.If the trust owns other assets or investments the trust may choose to distribute a portion or all of the assets to beneficiaries.It is again up to the trustees discretion if it is a discretionary trust. This can be done on a tax deferred basis if the beneficiary provides collateral or if a Rollout is used, however if a rollout is used, the trust may close and the beneficiary can no longer be a beneficiary.
It is key to plan with advisors when it comes to maximizing the use of your trust.Kustom Design, our associates and our advisors are all here to assist you in your planning.Please don’t hesitate to email us with any questions or contact us to book an appointment.Initial consultation is always free, and if you are on a Kustom Design package then you have lots of hours of included consulting.In my next blog we will be wrapping up our series on maximizing the use of trusts.
A family trust is a relationship created by a contract whereby the “settler” gives property to the “trustee” to manage for the benefit of the “beneficiaries”.As you can see from this opening definition there are 3 parties to a trust and we will now give you a basic understanding of each of them.
1. Settlor: The settler, also called a Grantor by some, will transfer property to the trustee to create the family trust.The settler must be a Canadian resident and should not ever be a beneficiary or trustee of the trust as this could incur attribution, which we will talk about in future blogs.Oftentimes, the person wanting to have a trust set up will select a family friend to be the settler.
2. Trustee: There must at least one trustee, but you may have more than one, who will deal with the property of the trust in a “duty of care” capacity for the benefit of the beneficiaries of the trust.The trustee is under fiduciary obligation to manage the trust property in the best interest of the beneficiaries.For practical reasons, most trusts have only one trustee, which is usually the person that wanted to have a trust created in the first place.Sometimes there is more than one trustee, such as a husband and wife, or sometimes a corporation may even be the trustee.It is also important to appoint the next trustee in the case that the current trustee dies.
3. Beneficiaries: Usually the beneficiaries are set up to be the eldest standing family members and the descendants of each of them along with the spouses of all those individuals.This is easier than listing each and every family member, of which you may forget some.The trustee may also be a beneficiary of the trust.It is possible that beneficiaries cannot be deleted or added in the future, thus careful selection of beneficiaries is important when drafting the trust deed.There is not necessarily an obligation to make payments to or for the benefit of any beneficiary.In fact, many beneficiaries may never end up knowing they are a beneficiary of a trust unless they receive a distribution or payment from the trust.You are not required to let anyone know they are a beneficiary.In some cases it makes sense to add God-children and others as beneficiaries as well.
Please see my next blog as we will continue to introduce you to the family trust.
Last Tuesday, the Bank of Canada has hiked its key interest rate by 25 basis points to 0.50%.This rate hike comes right after Statistics Canada reported a robust 6.1% GDP, the strongest quarterly performance in over a decade.The strong consumer spending and the rebuilding of businesses has benefited the economy and has thus produced a stellar GDP expansion.
But what does the rate hike mean? For a lot of experts, the BoC rate hike is a good sign for the Canadian economy.Experts believe that the rate hike means that the BoC is confident that the Canadian economy is well on its way to a full recovery from the latest recession.Moreover, the rate hike, experts say, somewhat reassures investors and the public that Canada is in a far better position than other G-7 countries.According to an article on www.advisor.ca, “a shallow recession and a speedy recovery from it are factors attributed to Canada being the only country in the G-7 to announce a rate hike.”
There is, however, some concern over the uncertainty in the economy given the financial crisis in Europe.With this concern looming over our heads, the BoC has stated that further rate hikes will be weighed carefully against global and domestic developments.
