January 2015

PRESCRIBED INTEREST RATES

CRA has announced the prescribed rates for the first quarter, January 1 to March 31, 2015. The
following rates apply:

•    Interest charged on overdue taxes – 5%
•    Interest paid on overpaid corporate tax – 1%
•    Interest paid on overpaid personal tax – 3%
•    Interest  calculated  on  taxable  benefits  for  shareholders  and employees – 1%


AUTOMOBILE DEDUCTION LIMITS FOR 2015

Once more the Ministry of Finance has failed to recognize the increased costs of owning and
operating a vehicle as they announce the new numbers (that are the same as the old numbers since
2002) which are as follows:

The maximum price of a vehicle for capital cost allowance remains at $30,000 before tax.

The maximum lease amount that can be deducted remains at $800 before tax.

The maximum deductible interest expense on a loan to purchase a vehicle remains at $300 per month.

The tax-exempt allowance per kilometre has increased by $0.01 to $0.55 per kilometre for the first
5,000 kilometres and $0.49 for each additional kilometre.


LIFE INSURANCE

In order to maximize the Capital Dividend Account (CDA) created when life insurance proceeds are
received by a corporation it is advised that the owner and beneficiary be separate. This is because
the cost of the policy is used to reduce the amount available in the CDA. You are advised to
discuss this issue
with your insurance advisor.

US FBAR PENALTIES

The penalties for failing to file foreign reporting information to the IRS have been increased to
50% of the highest balance of unreported amounts for each year. This means the whole of the
accounts can we wiped out if there is a failure to file for 2 years.

NEW TRUST TAX RULES

The ability to take advantage of reduced tax rates for testamentary trusts (a trust created by the
death of an individual) has been severely curtailed. The new rules now in affect will allow only 3
years of tax calculated at personal marginal tax rates starting from the date of death. 36 months
after the date of death will be the final tax return using the progressive rates after which the
trust will be required to convert to a calendar year-end and will be taxed at the full highest
marginal tax rates for the province where the estate is located. Only one trust can be designated
for this treatment which will limit the use of multiple trusts and also complicate planning related
to multiple wills.

Finance has also created an anomaly for spousal trusts by requiring the income on death to be
included in the terminal return of the surviving spouse’s death and not in the trust, where the
assets will be located. This can cause  conflicts between beneficiaries, especially where the
spouses were in a second marriage and had issue from the first marriages. It also limits the
ability to apply subsequent losses incurred by the trust as the gains will have been recognized by
the trust on death.

While the new rules allow a testamentary trust to be exempt from the new 36 month limitation where
there is a qualified disabled beneficiary, only one trust can be deemed exempt. Therefore a
disabled beneficiary that is also a beneficiary of an insurance trust or Henson trust will only be
able to have one trust (estate) designated for the reduced tax treatment. This will require the
revisiting of current planning for such individuals but, unfortunately, will not be of help in
cases where the testator has already passed away.

IMPORTANT DATES

Please note that the filing deadline for T4, T5, T5018 and NR4 is March 2. The deadline for RRSP
contributions is March 2.

The filing deadline for most trust returns is March 31.

The filing deadline for US returns for non-US citizen or green card holders is April 15.

The filing deadline Canadian tax returns is April 30.

The filing deadline for Canadian self-employed tax returns and U.S returns for
non-residents-US citizens and green card holders is June 15.