PEO CANADA

Still confused about the TFSA? Wonder if you should encourage your employees to contribute to one as well as an RRSP? You are not alone. Perhaps a look at some pros and cons can help give some clarity.

A TFSA is a Tax Free Savings Account to which any Canadian 18 years or older can contribute a maximum of $5,000 per year. 

·          There is no requirement to have earned income to contribute to a Tax-Free Savings Account. This is perfect for spousal plans or for students.

·          There is no tax deduction for contributing to a TFSA; however, the returns generated on investments (interest, dividends or capital gains) are not taxable. 

·          Withdrawals are tax-free. Money can be withdrawn at any time, depending on the investment. In addition, contribution room accumulates each year and any amounts withdrawn can be re-contributed anytime after the year of withdrawal.

The choice of contributing to a RRSP over a TFSA can depend on the tax level at the time of contribution versus the tax level at the time of withdrawal. 

With an RRSP, higher income earners can take advantage of immediate tax deferrals to a future date when their income is expected to be lower and therefore be in a lower tax bracket when making the withdrawals. However, for the reverse, where income is currently low but a much higher income is anticipated at retirement, the TFSA makes more sense as the ability will be there to withdraw tax free at that later date when tax levels will be much higher. 

High income earners who have already maxed out their RRSP contribution room may wish to consider a TFSA as an additional savings option.

It can be available to provide a nice shelter for bonuses, income tax refunds or any other type of one-time windfall such as the lottery winnings we all wish for.

It is a flexible way to save for special short term objectives such as a new car, a well deserved vacation, household needs or even an emergency fund. If any amount is withdrawn, that amount is still available as contribution room that can be put back into the plan in the future.

Now that we have TFSA available, depending on your situation, a common strategy is to build up a good nest egg in both a TFSA and an RRSP. This will provide all kinds of planning opportunities to minimize tax after retirement. The TFSA allows more flexibility and fewer restrictions as withdrawals from a TFSA do not trigger the claw-back of government benefits such as Old Age Security or the Guaranteed Income Supplement.

So join the TFSA birthday celebration and encourage your employees to review the possibilities of adding a TFSA to their retirement plan. Effective communication and decision support tools will allow your employees to understand and use the TFSA effectively to meet their specific needs.  Although the benefits may seem small in the short term, the long term benefits can be significant.

We all need to reward ourselves!

For further insight into TFSA’s we recommend the following:

http://www.cga-canada.org/en-ca/ResearchReports/ca_rep_2009-01_tfsa.pdf

If you operate a business in Canada, you may have received a notification from Canada Revenue Agency regarding the new Program Identifier (RZ) that attaches to your Business Number. You may be asking yourself; What’s that all about? How does this affect me?

A Canada Revenue Agency Account Number is comprised of 3 parts; a nine-digit Business Number (BN), a two letter program identifier and a four-digit reference number. Each business or legal entity should have one BN.  

For example:

                                                                                   Business Number          Program Identifier          Reference Number

ABC Ltd.                                                                               123456789

        Corporation income tax account                                       123456789                    RC                                0001

        Payroll Account                                                              123456789                    RP                                0001

        Payroll Account (2)                                                         123456789                    RP                                0002

        GST/HST Account                                                          123456789                    RT                                 0001

        Information Returns – T5 Group                                        123456789                    RZ                                 0001

        Information Returns – T5 Group                                        123456789                    RZ                                 0002

        Information Returns – Contract Payments                         123456789                    RZ                                 0003

        Information Returns – TFSA                                             123456789                    RZ                                 0004 

Effective January 1, 2010, you will be required to use your BN with a new RZ account number to file any of the following information returns with CRA:

• T5 – Return of Investment Income
• T5007 – Return of Benefits
• T5008 – Return of Securities Transactions
• T5013 – Partnership Information Return
• T5018 – Contract Payments Information Return
• Registered Retirement Savings Plan (RRSP) Contribution Receipts Return
• The new Tax-Free Savings Account Annual Information Return.

If you employ third party administrators to issue receipts or returns you may not be affected. For example, if your RSP is through a large insurer who usually issues the receipts then the insurer may be responsible for submitting information using the new BZ numbers.

There isn’t a lot of information currently on the Canada Revenue Agency website. There are, however, a couple of sites that maybe useful:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/fncnvrsn/cctnmbr-eng.html

http://www.cra-arc.gc.ca/E/pub/tg/09-115/09-115-e.pdf

If you are responsible for information returns, I would recommend discussing this with your accountant/accounting department and any third party administrators to ensure that you are in compliance with the new requirements. Keep watching the CRA website as there maybe more bulletins posted as they receive more inquiries.

Happy Reporting!

The attached article posted on the Human Resources Networking Group site, brought to light many good points regarding the need to review outside influences and factors, in addition to performance, when dealing with what are perceived as difficult employees, or “Bad Apples”. A lot of employers assume that if an employ has a poor attitude, or is difficult then they are a trouble maker, and should be let go from the company. This article discusses the fact that maybe they are creating waves within the company because they are more productive then others and this is frustrating to them, or maybe they are not good in a group environment, and may be better suited in an environment in which they can work by themselves. Be careful because the friendly employees who get along with everyone might not be making the company profitable.

http://www.hrng.ca/sites/hrng.ca/files/The_Bad_Apple_At_Work_May_be_Your_Best_Apple_0.pdf