Fear and Respect

As a factual resident of Canada, I submit a tax return each year to the CRA. Due to a tax treaty between Japan and Canada which states that there shall be no double taxation, I am generally exempt from Canadian income taxes. My world income is input on one line, and a corresponding deduction is entered on another line, resulting in zero taxable income from salary.

My return has been filled out the same way for years, and there had never been a problem until last year, when they kept my 2009 return for review. They agreed with my return, but said any return could be re-reviewed at any time.

They took themselves up on that offer by sending me a letter in January saying that my 2007, 2008, and 2009 returns were under review.  After complying with their request for information, my returns have been left as they were (which is a relief) but at least this time I think I know what was setting off the CRA’s alarm.

I submit my statements of earnings from my Japanese sources with my return. I also submit a legend that tells the CRA what each box means (income, pension payments, taxes paid, insurance premiums paid etc.) as well as receipts for local taxes paid,  but I had never thought about translating the addresses of my various employers. This seems to have been the rub, as their January letter specifically asked for the translation and telephone numbers of my sources of income, as well as a description of how the income was earned.

I submitted the information within the 20 days given to me, and they wrote back saying that since I sent in that information, no adjustments would be made to my returns, and that everything looked to have been filed correctly.

As I prepare my documents for my 2010 return, you can be sure I will have an extra page inserted with my forms giving the addresses in the Roman alphabet, the phone numbers and a brief description of how I earn my money. Regardless of how right you think you are, it can’t stop the feeling you feel when you receive a letter from the CRA.

Related Posts:

1. The Audit: Part I
2. The Audit: Part II

Using Credit Card Points Toward RRSPs Revisited

One year ago I wrote my first post on this blog. It was a simple little post about using reward points on RBC or National Bank credit cards toward RRSPs held with those banks. I don’t think anyone read that post for months.

Starting this past January, however, that first post of mine has seen a massive spike in traffic generated from search engines, as people think about making their RRSP contributions. I thought I would repost for those thinking of getting a start on this coming year’s contributions. Remember, by contributing earlier in the year, you have more time to compound your money on a tax deferred basis.

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If you have a Royal Bank or National Bank of Canada credit card that accumulates points, you can redeem those points for much more than a new desk lamp.

While certain TD, Scotia, BMO and CIBC cards give “cash back” credit of 0.25% – 2% of your yearly spending, RBC and National Bank of Canada encourage saving and lowering debt with their point system by allowing those points to be redeemed for “financial rewards” coupons.

At RBC points can be redeemed for vouchers that can then be deposited into your Royal Bank RRSP, TFSA, or RESP account. If you hold your mortgage or line of credit with the bank, you could also apply your points to the principal of those loans.

Redemptions start at 12,000 points for a $100 voucher, and move in increments of $25 per 3000 points. At these numbers, and assuming 1 point per dollar charged, it works out to a bonus of 0.83% of your credit card spending.

National Bank of Canada cards work out to a little higher (0.91%) but have slightly different options. Like at RBC, points can be redeemed toward your National Bank RRSP or TFSA account, but they do not seem to have an RESP option.

Points can also be used to pay down your mortgage or other loans held at National Bank, and if you are a Quebec resident, they can even be used for a rebate on your car or home insurance.

Redemption starts at 11,000 points for $100, and can only be redeemed in amounts of $100 (ie. 11,000 points, 22,000 points etc.)

Though it’s too late to use your points for the 2010 tax year, you can redeem anytime and get a good start on this year’s contributions.

After a few years of compound interest, I’m sure that the tax sheltered cash will be worth a lot more than the frying pan you could have had.

Related Posts:

1. Using Cash Back Cards Toward RRSPs etc.

Making the Most of Your Charitable Donation

For many people, giving to charity is not only part of their moral code, but also a part of their overall financial plan. If we have the means to help others as well as ourselves, it can bring not only a sense of satisfaction, but can also be helpful to someone less fortunate. The tax deduction certainly doesn’t hurt.

Leaving the debate on altruism for another day, let’s look at the act of giving. The moment a donation is made, two of the above elements are met. We feel pride for having done something, and the government will recognize that act in the form of a reduced tax bill. The real question left unanswered, and probably the most important, is if your donation was able to help someone or not.

It is, of course, quite difficult to track your specific dollar, but there are some websites that can help to get an idea of how your donation will be used. If you give $100 to a charity, which in turn uses $30 of that for fund-raising, and another $25 to pay for administration and salaries, then you have to question if your donation was used effectively.

Charity Navigator has been a great tool for looking at American charities. It assigns a rating based on how effectively a charity uses the money it receives. There has been a lack of such a site in Canada.

While the Charities and Giving section of the CRA offers some good information, it is not necessarily easy to compare charities.

Starting last year, however, Money Sense magazine started The Charity 100, a list of the top charities in Canada. They set out criteria and graded the charities based on how effectively money was being used. It certainly isn’t as extensive as Charity Navigator, but it does offer a great starting point for Canadians trying to decide where their money will help the most.

The Audit – Part II

I’m happy to report that this will be the last instalment in my series on the infamous audit of 2010.  After being reviewed, the CRA has decided that there is nothing unusual about my tax return, and has agreed with its calculations.

I am still left with unanswered questions, but I can only assume that my return was selected randomly. As I said before, it is a fairly simple return. Perhaps they just needed some time to check the validity of my claim that there is a tax treaty in effect.

In any event, I received a letter from them the other day, and it looks like all is in order. They do keep you guessing, however, with a header that states they may re-review my return at a later date.

For now, I consider the case closed.

The Audit – Part I

This is the first post in an (un)planned series of posts documenting what it is like to go through an audit.  Yes, Revenue Canada has flagged you humble narrator for review.

To be frank, I am not sure why my tax return has been selected for audit. My return is quite simple: My world income is declared, and it is written off due to a tax-treaty between Canada and Japan. I declare my dividend, interest, and distribution income from Canadian and foreign sources, and that is pretty much it. It’s been pretty much the same for a number of years.

The CRA website gives some criteria for who may be selected for audit, and it seems to be computerized based on taxpayer groups, which is based on type of return, occupation, gross income etc.. It doesn’t give me a lot of answers, as I am unsure of what sort of group I would fall into. I know a lot of Canadian teachers here in Japan, and I have yet to meet one that has filed a tax return while working abroad.

That being said, there are a couple of ideas I have as to why I would have been selected:

• My income is too high to avoid tax: Even though there is a tax treaty in place, the CRA may feel that I don’t pay enough in tax. Perhaps. But the main culprit here is the fact of a remarkably strong Japanese yen during 2009 that made it look as if I made more money than I actually did (world income is calculated using the average exchange rate during the year).  Two years ago, for example, I made more nominal yen, but the exchange rate was reversed, making it look like I was a pauper.
• My wife doesn’t have a Social Insurance Number, yet I tried to declare her as a dependant spouse: Well, there is no avoiding this one. We don’t live in Canada yet, so she doesn’t have a SIN, but we live entirely off my income, so I feel this is a justified declaration. This issue caused problems last year when I tried to claim the HST rebate (though we currently dwell in Japan, the bulk of investments are held in Canada, thus will be subject to the HST, and we contribute a good amount to the economy when we are back).

Those are the only two things that really stand out as being possible red flags. The other possibility is that being audited is just like jury duty… it’s bound to happen to everyone sometime.