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Tax rule change could punish those saving for retirement

Tim Cestnick
Special to The Globe and Mail
Published Thursday, Mar. 02, 2017 4:12PM EST
Last updated Friday, Mar. 03, 2017 8:22AM EST
The right answer

If you were to pay an annual registered plan fee of, say, $100, and paid it on behalf of your RRSP from outside the plan, it would amount to $2,000 in total fees over 20 years. That’s an extra $2,000 in your RRSP over that time since your RRSP didn’t have to make the payments.

What is so offensive about hard-working Canadians – who are already behind in saving for retirement – trying to save an extra $2,000 or so in a registered plan? It’s not as though Canadians are better off by $2,000 – they’re still paying their registered plan fees from outside the plan. And don’t forget, the taxman has already said that $2,000 inside an RRSP is no big deal; the RRSP over-contribution allowance is $2,000.

The CRA can very easily make an administrative exception to payment of these fees from outside the plan (there’s still time – the Income Tax Folio hasn’t been published yet). For the CRA to levy the advantage tax on middle-class Canadians just trying to save a (very) little more for retirement is completely inconsistent with the approach to the middle class taken by the Liberals leading up to and since the last election.


Last week, I mentioned that you must file Form T2091 to take advantage of the principal residence exemption. As it turns out, Schedule 3 of your tax return has been recently revised and is all you need to file if you are designating a property you’ve sold as your principal residence for all years you’ve owned it. If you’ve owned more than one property at the same time, talk to a pro.

This is of interest to Victoria BC Canada.
​The RRSP contribution deadline for 2016 came and went this week without much fanfare. So, all is well on the retirement savings front, I suppose. Not so fast. Canadians are still behind in saving for retirement, and any day now the tax community is expecting the Canada Revenue Agency (CRA) to make saving for retirement a little more difficult.

You see, the CRA is due to release an Income Tax Folio providing information related to your registered retirement savings plan (RRSP), registered retirement income fund (RRIF), and tax-free savings account (TFSA).

This folio will provide CRA’s views on something called the “advantage rules,” which were introduced in 2009, revised in 2011, and apply to these registered plans.

Now, it appears the taxman is poised to apply these rules in ways that can impact your ability to grow your plan assets.
Let me explain.

The rules
The advantage rules are designed to prevent investors from increasing the value in their RRSPs, RRIFS and TFSAs in creative but inappropriate ways (swap transactions, deliberate over-contributions, prohibited and nonqualified investments and certain types of withdrawals were shut down with the introduction of the advantage rules). If someone has created an “advantage,” the rules will levy a special tax that is equal to 100 per cent of the amount of the advantage. But how does this affect the average Canadian who is not looking to cheat the system?

The issue
The CRA was asked last year, at the annual Canadian Tax Foundation conference, to comment on a situation where an investor chooses to pay his RRSP, RRIF or TFSA investment management or administration fees from outside the plan. Many Canadians do this, and it makes good sense. Why? Because this will allow the assets in your plan to grow without being hindered by small, but regular, withdrawals to pay the annual fees on the account.

CRA has already said, in the past, that if you pay these fees from outside your plan, the amount will not be considered a contribution to the plan for purposes of the over-contribution rules – which is a good thing. As an aside, it’s always been the case that you can’t deduct the fees related to your registered plan, even if you pay them from outside the plan.

At the conference, CRA suggested that paying your fees from outside your plan should trigger the advantage rules. Since the fee is a liability of your RRSP, RRIF or TFSA, the taxman has suggested that the plan should pay the fee. If you pay the fee from outside the plan, you will have increased the value inside your plan, creating an advantage, and you should pay the special tax.

Suppose you pay a $100 RRSP administration fee from outside your plan. The advantage you have bestowed on your plan would be $100. The tax under the advantage rules would be 100 per cent of that advantage, or $100. You’d have to voluntarily pay that tax by filing a special tax return – Form RC339, due by June 30 each year.

Author: Mariela Perez-Simons
Greensboro, NC

The Importance of Accounting For Small Business Startups

Business Articles | April 7, 2009

Accounting is a crucial part of running a business. Many people mistakenly believe that if you are starting a small business, you really do not need accounting. However, this is not true. If you want your business to reach its full potential, you have to follow basic accounting practices. You might find accounting boring, but you cannot avoid it.

Accounting is a crucial part of running a business. Many people mistakenly believe that if you are starting a small business, you really do not need accounting. However, this is not true. If you want your business to reach its full potential, you have to follow basic accounting practices. You might find accounting boring, but you cannot avoid it.

Importance Of Accounting

When you start up a small business, you need an accounting system in place. This could help you create a record of all the revenue and the expenditure of your business on a daily basis. Maintaining this data is crucial because you will need it when you file for tax returns. You might also need it for legal purposes. If, in the future, you apply for a loan to expand your business, this data can help you get one.

Another important purpose of maintaining an accounting system is that it provides you with a tool to assess your business’s performance. An accounting system provides you with information about your business that will help you analyze the weak and the strong points of your business. You will realize what is helping your business and what is not.

Once you realize how important accounting is, you will be more than eager to put in that extra effort. Moreover, accounting is not that hard for small businesses. All you need to do is ensure that your financial records accurately reflect your business’s income and expenditure.


Most small businesses maintain their records in a ledger, which is a record of sales receipts and expenditures. You need to transfer all your receipts and expenditures to this ledger. You can do this on a daily, weekly, or a monthly basis. Basically, this will depend on your business.

Three Financial Measures

Accounting for small businesses usually consists of three financial measures: Balance Sheet, Profit and Loss Statement, and Cash Flow Statement.

The Balance Sheet portrays how much your business is worth. This statement will list all your assets (cash, inventories, account receivables, etc) and liabilities (loans, accounts payable, and debts). If done in a proper manner, the Balance Sheet can show you exactly where your business stands. Your ledger will not show accounts payables and receivables; however, your balance sheet will.

The Profit and Loss Statement shows how your business is performing. This statement covers a time period, which could be monthly or quarterly.

The Cash Flow Statement provides an assessment of future cash needs of your business.

So now you understand how important accounting is for your business. If you have been educated in the field of commerce, you might be able to do the accounting yourself. However, if you do not know much about accounting, you can consult an accountant to help you set up your accounting system. Consulting an accountant is cheaper than hiring a bookkeeper.

Another thing you can do is purchase accounting software. It will not only help you keep track of all the receipts and expenditures, but will also help you create quality financial reports.

The bottom line is that as long as you make the commitment to setting some time for your accounting needs and start maintaining your accounting system you will realize how easy it is.