Category Archives: Taxes

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.

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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.


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.

Is Consumption Tax in Japan on the Rise?

Talk here in Japan has heated up about a possible increase to the 5% consumption tax (sales tax) that is currently levied. It began, as I mentioned before, in the inaugural address by the current Prime Minister, and has since moved into more public forums.

In a recent “round-table” talk with all the party leaders, each and every one said they were adamantly against doubling the consumption tax to 10%. I suspect party leaders understand the need to raise taxes, and even silently support such a rise, yet want to distance themselves from such a controversial decision.

But is it so controversial?

A recent poll suggested that 48% of eligible voters were in favour of doubling the consumption tax, and this is after only a couple of weeks of debate. 48% in support of increasing taxes doesn’t seem too radical to me.

As for public awareness, more and more TV programs are devoting time to this issue. Only last night was I watching a show subtitled “Japan in Danger!” that compared  the possible future of Japanese debt to the current struggles of Greece, and continued on why a rise in the consumption tax could be good. As the public becomes more informed, I suspect the support number will edge upward from that 48%.

As far as my two cents go, while I think raising taxes is necessary, I think the government is taking the wrong bull by the horns. Personally, I think they should raise personal income tax (which is only about 10% or so for the majority of earners) and lower corporate tax (which currently sits at about 40%).

40 percent!!??? No wonder Japan, Inc. can’t turn a profit.

Raising income taxes will bring in more money, which can be used to pay down debt and help out social services. And the way I see it, lowering corporate taxes would increase investment and expansion, which would in turn increase hiring. Increased profits mean increased share prices which would mean investors feel better about their holdings, and better about spending cash.

And that is the point we can talk about raising the consumption tax… when people are actually consuming.

Japan’s Debt Problem

Before Bloomberg started charging for content, I listened to their podcasts everyday.

One guest that I enjoyed was Carl Weinberg.  Not because I found much of what he said terribly useful, but rather that it was always interesting to see how much further he could go in his adamant loathing of Japan’s debt issues. He was always ranting that ratings agencies should lower the status of Japanese bonds to slightly better than “junk”.

Mr. Weinberg was mentioned in a recent article I read about Japan’s debt issues, and he was at it again, saying “the debt situation is irrecoverable.”

Please, Mr. Weinberg.  If there is a debt situation that is irrecoverable, it is surely that of the U.S. who have absolutely no way to pay back the monstrous amounts of money they have borrowed from the world.

To be sure, Japan has a lot of debt outstanding. But what I think analysts like Carl Weinberg forget, is that Japan mostly owes money to… the Japanese. More than I thought, actually, as the above-mentioned article states 95% of Japanese debt is domestic.

With that fact, the situation doesn’t seem as dire as it does on paper. First, the interest on Japanese bonds are ridiculously low, and as soon as it is paid to a Japanese resident, it is automatically taxed at 20%, meaning the government will get back almost 20% of the interest it pays in the form of taxes. The money is still in the economy, as well. So people and pension funds will either roll over the cash into a new bond, or will spend it in the economy.

Of course, the Japanese will still have an issue to deal with on the payment of principal, but that is where the easy difficult question lies. Easy because it is so simple, but difficult because of red-tape and political backlash.

Yes, taxes. Raising taxes will almost certainly alleviate this situation, and considering Japan’s foolishly low tax rates, will not terribly burden the consumer.

Last year I paid a dazzling 6.89% of my income to the government in the form of income tax.  Add my National health insurance premiums (no OHIP here) and it still came to a breath-taking 10.83% of my 2009 salary.

Ok, maybe not the best pill to swallow, but rasing taxes in this under-taxed country is the simple solution to it all.