Cynical Tax Accountant's Guide to Budget 2012

[msj]

Budget 2012 - Let's get cynical:

1) Doubled the threshold for businesses using the Quick Method for HST/GST. Instead of not being able to use this method if your revenue/GST/HST collected exceeds $200,000 in a fiscal year you now can keep using the QM up to $400,000.

Cynical take - great for political lobbyists.

A "consultant" could work for the government and is able to see a higher profit by using the Quick Method.

Note that lawyers and accountants and other professionals are specifically disallowed from using the QM - so I have a bias here since I'm not able to game the system like our good friends who act as "consultants."

But "consultants" working for the government can use the QM. And recent changes brought in under the HST legislation for Ontario/BC made it so that various levels of government would pay and collect HST (whereas previously they were exempt).

Bottom line - good for political consultants everywhere.

2) Extending the EI Hiring Credit for another year

Cynical take - another way to get up to $1,000 into the hands of friendly business people.

I'm one of the few that won't be bribed.

Just got the $1,000 cheque last week for this program which was brought in with the 2011 budget.

If anyone honestly thinks that a business person is going to hire someone because of a $1,000 hiring credit then you are probably an ideologue or work for the government and clueless as to why business people actually hire people.

3) OAS - changing the age to 67 and allowing people to defer taking OAS up to age 70/72 rather than 65/67

Cynical take -

A) While seniors receiving, using a real world example, $120,000 from an Air Canada pension, get to save the $6,300 in OAS clawback and another $4,000 in income tax (because the pension is split with a spouse who only has CPP and OAS income herself) poor people will have to work longer to get OAS.

Yes, pension splitting introduced for 2007 is a great way to keep richer seniors who are/were able to collect OAS at 65 from paying back part/all of their OAS.

Defer taking OAS/CPP until age 70/72. If you wait longer you will get a bigger pension.

This is an extension of the rules already in place for CPP for many years and applying them to OAS.

This will allow a person who retires to be able to consider taking OAS and CPP later thereby providing opportunities to further avoid/reduce OAS clawback by smoothing out income.

For example, withdraw funds at an accelerated rate from a RIF while not collecting CPP and/or OAS. Split this with the spouse under the pension rules. Transfer any excess to a TFSA. Wait to 70/72 to collect a bigger pension from either or both the CPP/OAS.

Since RRSP/RRIF values are lower (due to withdrawals) the amount one is forced to withdraw at age 72 - upon conversion to a RRIF at age 71 - is lower thereby reducing/eliminating OAS claw back.

Thankfully even the better off can't control when they will die so such planning will backfire from time to time.

However, since the better off live longer, on average, than poor people, the better off should, on average, benefit from such planning.

At least the poor person who has no choice but to wait until 67 doesn't have the burden of hiring a financial advisor/tax accountant to run the scenarios to find out what will be the most beneficial (sarcasm).

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Don't get me wrong, there are things in this budget which do impact the better off: changes to section 88/100 with respect to tax avoidance through the use of partnerships, thin capitalization rules, foreign dumping, and even transfer costing.

[August1991]

Cynical take? Here's mine:

Retirement just got harder for ordinary Canadians and for public servants, but the gold-plated pension plan enjoyed by members of Parliament has emerged virtually unscathed — at least for now — from Thursday's federal budget.

The budget promises only to begin moving "over time" toward making parliamentarians pay 50 per cent of their pension contributions and vaguely refers to further "adjustments" which won't take effect until after the next election in 2015.

"So far, the government's been pretty hard on ordinary Canadians and there's no evidence that they're willing to lead by example at all," said Gregory Thomas, federal director of the Canadian Taxpayers Federation.

Winnipeg Free Press

If this CTF report is accurate, then I suspect that this budget is dead wrong (on a matter of a few million), and may cost Harper some of his 35% baseline support.

Money isn't the issue: $10 million, or $100 million.

The base believes that MP pensions are too generous, and Harper cannot ask other trough-feeders to move away while MPs keep their snout well placed.

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Then again, maybe Harper is so cynical that he knows the MPs - and game theory. There may be a 2015 MP pension end-game surprise.

Edited March 30, 2012 by August1991

[Topaz]

I would think that going from 65 to 67 for OAS is the last straw for most Canadians. They should have made it the rule of your choice, if you need it take, if not wait til your 70 and the clawback at over $100,000 income? They should have lowered clawback and for the minister to tell Canadians who need OAS to at 65 to go on welfare for 2 years! It seems the Fed are down loading on the provinces and the citizens of those provinces and in 2015 they hope to be debt free so they can run on the fact they paid off their over spending and brag about in the election.

[Bonam]

Life expectancies are way way up since the age was set at 65. It's time to increase it, as I've argued many times before. In fact, 67 is still far too little. It should be set at like 80, with exceptions for those who have a doctor's certification that they are no longer able to work due to age-related physical or mental infirmity.

[Jerry J. Fortin]

OAS is the smallest form of pension I have ever seen. How the hell can a person live on that! Lets be honest here folks. Forget the program and the cost OF programs. Sit down and design the 'Canada" plan.

Governance should not depend on fiscal prudence at any time. Nor should it ever. Government needs to do what ever it is that is right then find a way to pay for it. The Canada that folks want has not yet been defined. What we have here is a lot of unfinished business, about what you expect during a MINORITY government. It should not be expected with a majority government. Here is a chance for Harper to have a real legacy!

What we are getting is the death of a penny. Wow, an 11 million saving!!! Mr Citizen. the government now says you will work longer and wait longer to get a pension. The government gets a virtually free pension that allows you to get full benefit pensions working only a small fraction as long as the citizens do. I will not bet on the citizens being very happy with the concept to start with. Through a little lime light on it and see where it goes I guess.

I suppose you can't expect much from a guy who got to be the Prime Minister without ever having a real job. The man that never worked a day in his adult life is now in a position to TELL the working class citizens of Canada any damned thing he wants. I do not think that is a good thing at all. I think its a little disrespectful to the citizens who had to work for a living. Then again that is just one working citizens view. I have two years left to work to get my pension. That will make the economic butchers bill to be thirty five years of my life to QUALIFY for a pension. Go ahead and ask me if I think that the citizens in Canada are treated equally. Perhaps they should ask me if I thought the politicians were worth their expense.

[msj]

Life expectancies are way way up since the age was set at 65. It's time to increase it, as I've argued many times before. In fact, 67 is still far too little. It should be set at like 80, with exceptions for those who have a doctor's certification that they are no longer able to work due to age-related physical or mental infirmity.

I used to think like this too.

Then I thought: hey, the age was set at 65 to begin with and how do we know how affordable that was/is?

Well, as long as the government is willing to give wealthy seniors a $10,000 tax/OAS clawback break each year then we at least have an idea that the government has little interest in finding out.

And as long as do not do a serious Royal Commission on this issue we know that they prefer to give up those tax breaks than consider the effects of making the poor work an extra two years.

[Smallc]

OAS is the smallest form of pension I have ever seen. How the hell can a person live on that! Lets be honest here folks. Forget the program and the cost OF programs. Sit down and design the 'Canada" plan.

My grandmother does. She has thousands of dollars in the bank, too. Now, if you live in an expensive urban area, the money you'd get (i'm not sure what the minimum would be there) might not be enough...or would be just on the line.

[msj]

OAS is the smallest form of pension I have ever seen. How the hell can a person live on that!

What you are forgetting is that the GIS (Guaranteed Income Supplement) is tied to OAS.

Presumably, the eligibility for this, too, will increase to age 67.

So, a person who may need to live on $4,500 per year of CPP, $6,368 per year of OAS, and, say, $4,800 per year of GIS* is SOL.

Sorry, got to work 2 more years.

But that guy who gets the $120,000 Air Canada pension? Yeah, he gets out of clawback and saves income tax because he can split the pension with his wife. They need that $10,400 savings.^

Those are the priorities of a Flaherty/Harper government.

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*I have not bothered to look up the actual amount of GIS based on the numbers above as exact figures are not needed to make the poiont.

^ This number is within a couple hundred bucks because it is based on a real life situation.

[Moonbox]

If I was a little older and wasn't something like 35+ years from retirement, I'd probably be pretty upset about this. Unfortunately, like most Canadians, if it doesn't affect me or my family directly/immediately, I don't pay it much thought.

Realistically it's another example of previous generations absolutely screwing younger generations. Over-generous pensions set up in the gravy-train days of Keynesian economics are dumped on my generation so that when the people paying them finally retire, they don't get near as nice a benefit.

It's enough to make you sick.

Edited March 30, 2012 by Moonbox

[msj]

If I was a little older and wasn't something like 35+ years from retirement, I'd probably be pretty upset about this. Unfortunately, like most Canadians, if it doesn't affect me or my family directly/immediately, I don't pay it much thought.

Realistically it's another example of previous generations absolutely screwing younger generations. Over-generous pensions set up in the gravy-train days of Keynesian economics are dumped on my generation so that when the people paying them finally retire, they don't get near as nice a benefit.

It's enough to make you sick.

On what basis can you make the claim that the OAS is an "over generous" pension?

OAS is paid for with general revenue.

Harper/Flaherty have given pension splitting to seniors (depending on type of income - either starting as easly as 55 or 65) which can lead to drastic savings in both income taxes and OAS clawback.

I say that Harper/Flaherty are being overly generous by allowing many wealthy people to not have to pay any clawback like they used to prior to 2007.

When OAS Clawback was brought in it was under the assumption that this would leave more funds in general revenue for which to continue paying OAS out to the little people.

Now we have a government who thinks it's a good idea to give wealthy people big tax breaks while making poor people work 2 more years.

All without any clear evidence that changing the age to 67 is necessary or not.

Edited March 30, 2012 by msj

[hardguy]

I would think that going from 65 to 67 for OAS is the last straw for most Canadians. They should have made it the rule of your choice, if you need it take, if not wait til your 70 and the clawback at over $100,000 income? They should have lowered clawback and for the minister to tell Canadians who need OAS to at 65 to go on welfare for 2 years! It seems the Fed are down loading on the provinces and the citizens of those provinces and in 2015 they hope to be debt free so they can run on the fact they paid off their over spending and brag about in the election.

you ARE awae that the OAS changes will not take effect for several years...