1. spring
2012 mackay.news
A publication of MacKay LLP Chartered Accountants and Business Advisors
It’s Tax Time Again
It’s that lovely time of year again where we reconcile companies will provide this information in an annual
our debt with the Canadian government in exchange summary.
for all the services they provide. In other words, it’s tax If you have employment expenses, obtain a signed
time again. For those of you lucky enough to be clients T2200 from your employer and collect your receipts
of MacKay, the actual calculation of your tax bill will be for employment expenses paid in 2011.
done for you. Unfortunately, there are still things you
If you have business, farm or other self employment
have to do to prepare for filing your return.
income or rental properties, prepare a summary of
First of all, gather all your slips. T4s and T5s should income and expenses by business or property.
arrive by the end of February, while T3s and T5013s
Once you have done all this, deliver everything to
should arrive by the end of March. It is important to
MacKay and we’ll take care of the rest.
make sure that, if you get a slip, it is reported on your
tax return. Occasionally you may find or receive a slip
The Latest HST
after we have filed your tax return. It is important to
contact us and let us know about the slip you just
discovered. If you don’t report income that is on a
slip on your tax return, CRA may levy punitive penal-
ties, if not this year then on any slip missed in the next
three years.
News for BC
RRSP contributions can be made up to February 29, The basic plan is that the BC Provincial Sales Tax,
2012 and can be deducted on your 2011 tax return. formally called the PST or Social Services Tax, will be
RRSP contribution slips may be received as late as reintroduced on or about April 1, 2013. It will be many
March if contributions are made in January or February. months before transitional rules will be available.
Gather all your medical receipts; some pharmacies
will provide you with an annual summary if you have inthisissue
a large number of prescriptions throughout the year. It’s Tax Time Again 1
Common medical receipts include prescriptions,
dentist fees and optometrist fees. Depending upon The Latest BC HST News 1
your province or territory of residence physiotherapy, Is Your Data Safe? 2
registered massage therapy, naturopathic doctor
Children’s Art Activities Tax Credit 3
fees (but generally not the products sold by a naturo-
path) and chiropractor fees are medical expenses. Why Canada’s Corporate Tax Cuts
In addition, travel medical insurance documentation Rate a Collective Cheer 4
is also relevant. Tax Considerations for Aboriginal
If you have investments outside your RRSP, RRIF or Business Owners 5
TFSA, either provide all your monthly, quarterly or Change of Address 5
annual statements or provide a list of buys and sells
for the year along with the amount originally paid for Income Tax Filing Requirements on Death 6
investments you sold in the year. Some investment
mackay.news spring2012 • Newsletter 1

2. Is Your Data Safe?
This article is meant to provide a high level overview of Passwords
data security and is not meant to be used as a guide First and foremost is your password. Consider this:
or in the place of advice from an industry expert. It is your password is the key that unlocks your computer
also by no means a full account of all areas or facets and allows you access to everything stored on it and
of data security. You are advised to seek consultation your computer network. It can be inferred then that
from an appropriate individual or organization with the your password is one of the best ways to ensure that
relevant experience and credentials before implement- your information is kept secure. Before employing
ing or following any recommendations in this article. any of the following tips, please check to ensure that
Data they meet any guidelines set forth in your company’s
password policy. Some password tips:
Almost everything we do today is in some way asso-
ciated with a computer. The widespread adoption • Choose something with at least 12 characters
of computers into most day-to-day processes has • Use a combination of uppercase and lowercase
resulted in the creation of large amounts of computer characters
data and files. It is important that we be aware that • Use punctuation characters and special symbols,
some of these data files will contain information that e.g. !@#$%^&*( )[ ]
can be sensitive or could be used for malicious pur-
• Use as many different passwords for your accounts
poses. For example, there is a good chance you have
as possible
electronic documents with your birthdate or your
Social Insurance Number contained within them. In the If you wish to write your passwords down, go for it!
wrong hands this information could be used to obtain However, if you write it down you should keep it in a
credit cards or commit other types of identity fraud. safe place such as a locked drawer or an encrypted
With the sensitive nature of some of your electronic file. A good utility for managing passwords is KeePass
data, it now becomes increasingly important that you http://www.keepass.info
take appropriate steps to ensure that it is protected. If your company does not have a password policy
There are a number of ways that your data could be in place, you should consider drafting one or having
obtained by an unauthorized third party. For example, one drafted for you.
email is inherently insecure by nature. Once you send
Antivirus Software
a message from your email client it will travel through,
at a minimum, three to four devices through the Inter- Antivirus software is one of the main software compo-
net. Any of the devices that handle the email message nents on your computer that can help to keep it safe
could potentially access the information in it. from virus infections and exploits. This in turn will help
to prevent potential data theft. While some of the free
Another common method for a malicious third party to
antivirus solutions may be enough to meet the needs
obtain information is through the theft of a laptop or
of home users, they do not generally have enough
mobile computing device (Smartphone, iPad, Playbook,
features to adequately protect an office environment.
etc.). Unless the device is properly configured and pro-
When it comes to software in general it is the same as
tected, it is a simple matter to access any data stored
most other things: You get what you pay for! Most of
on it. Additionally USB memory sticks can be easily
the major antivirus vendors that provide a paid product
lost or stolen and can contain large amounts of data.
will offer sufficient protection for your computer(s).
What Steps Can You Take? When choosing an antivirus solution, research should
include your needs, feature sets offered, and overall
Knowing that there are innumerable ways that your
independent test rankings.
sensitive information could fall into the wrong hands
is enough to keep anyone up at night. While there is A couple of good sites to review are
no system that is completely secure and impervious http://www.av-comparatives.org
to malicious activity, there are a number of ways that and
you can ensure that your data will be relatively secure http://www.virusbtn.com
and more difficult to acquire. Continued on page 3
mackay.news spring2012 • Newsletter 2

3. Application Patches Full-disk encryption results in all the data, including the
One of the easiest ways for a malicious attacker to operating system, on your computer being encrypted.
access your data is through a vulnerability in an appli- It can be either software or hardware based. A number
cation or the operating system. On a regular basis of hard drive manufacturers are now producing hard
vulnerabilities are found in common software applica- drives that have encryption technology built right into
tions that, under the correct circumstances, can be them. Software-based full-disk encryption will pro-
exploited by a malicious attacker. For example, if you vide you with more flexibility and control over how the
have an outdated version of the Adobe Flash Player data is encrypted and who can obtain access to it. By
on your computer, simply visiting a website is enough encrypting everything on the hard drive, it precludes
to have your computer compromised and in turn your the user from having to make a choice and take action
data potentially stolen. to encrypt the files.
In order to ensure that your computer is as safe as Individual file encryption is generally a software based
possible from application exploits, you need to ensure encryption that requires you to select the files and
that you are proactively installing any relevant patches make a conscious choice to encrypt them. Once the
for your applications. Microsoft regularly releases files are encrypted, similarly to full-disk encryption, the
patches for their applications and operating systems. proper key is required in order to access the files. This
In order to ensure that your system is as safe as pos- method can be useful if you will be copying files to a
sible from application exploits, the patches should be USB key or if you have a file that contains password
tested and installed in a timely manner. information or any other sensitive information.
Data and computer security is an ever-changing and
Disk and File Encryption evolving field. It is not enough to simply ignore the
Disk and file encryption is one of the best ways to ever-present threats that are out there and hope that
ensure that, if your computer or USB drive is sto- your data does not get intercepted or accessed. Given
len, your data will remain unattainable. When data enough time and the right tools, a determined intruder
is encrypted it is scrambled using a mathematically may be able to circumvent even some of the best
complex key generation technique. In order to access security measures. That being said, while no system
the data you, or the software on your computer, must is 100% secure and impervious to intrusion, you can
posses the correct key to de-scramble the data. rest a little easier by following the recommendations
in this article.
Children’s Art Activities
Tax Credit
Starting in 2011 the Government of Canada created a the claim is $500 per child. If you paid for art activities
tax credit to help parents with the cost of enrolling their for your child in 2011 remember to include the official
children in artistic activities. The credit is very similar receipt with your other tax slips provided to us so that
to the Fitness Tax Credit, which has been available your MacKay LLP tax preparer can ensure the credit
for a few years. To qualify for the credit the artistic is claimed.
activity must either be at least once a week for eight
weeks or five consecutive days long and provided to
a child under 16 years of age. The activity must be
supervised, suitable for children and contribute to the
development of creative skills or expertise in an artistic
or cultural discipline. If the activity is also eligible for
the Fitness Tax Credit (for example; dance) then only
one credit may be claimed. The maximum amount of
mackay.news spring2012 • Newsletter 3

4. Why Canada’s Corporate Tax
Cuts Rate a Collective Cheer
(Reprint from the Globe and Mail January 4, 2012) Eventually, the U.S. will respond. Republican presi-
In an end-of-year review of his government’s achieve- dential candidates have embraced deep corporate
ments in 2011, Prime Minister Stephen Harper noted tax cuts; some of them, such as Texas Governor Rick
Forbes magazine’s selection of Canada as the No. 1 Perry, propose a federal corporate rate of 12.5 per
country in the world to do business. (“Credit a reformed cent. Mr. Perry’s position reflects the judgment of his
tax structure, Forbes declared.) Mr. Harper was right
” tax adviser, Steven Forbes – owner and editor of the
to cite this distinction. On New Year’s Day, Canada’s eponymous magazine that ranked Canada as the
corporate tax rate – federal and provincial rates com- best business domicile in the world. Mr. Forbes takes
bined – fell to 25 per cent, giving Canada the lowest taxes seriously. (He declined to support Mitt Romney
rate in the Group of Seven countries, and a more com- because the former Massachusetts governor wouldn’t
petitive economy on a global basis. endorse a single-rate personal income tax. Mr. Forbes
has mocked Mr. Romney’s 59-point platform for its
The provinces (especially British Columbia, Alberta complexity, saying: “God only had 10 points. )
”
and Ontario) collaborated with Ottawa to reach this
strategic objective, announced shortly after Mr. Harper Former Pennsylvania senator Rick Santorum proposes
formed his first minority government in 2006. But the a permanent zero-per-cent corporate tax rate on all
federal government did the heavy lifting: a 33 per manufacturing companies – and says he would tax
cent tax rate cut, implemented incrementally over five capital gains at 12 per cent (or half the rate that a
years, in the stridently antagonistic environment of typical Canadian now pays). Former speaker of the
successive minority parliaments. In annual steps, the House of Representatives Newt Gingrich proposes an
government lowered the federal rate from 22 per cent optional 15 per cent flat tax on personal income and
to 15 per cent (The provincial collaborators now have the elimination of capital gains taxes for people who
a common rate of 10 per cent.) choose the flat-tax alternative. Mr. Romney proposes
to eliminate capital gains taxes for people with less
Remarkably, the gradual lowering of the corporate tax than $200,000 (U.S.) a year in taxable incomes.
rate appears to have resulted in little loss in corporate
tax revenue (when compared with long-term, prereces- In his own end-of-year review, Finance Minister Jim
sion revenues). Corporate tax revenue did take a big Flaherty noted the completion of his corporate rate-
hit ($10 billion) in 2008, the year of the market melt- cut assignment. He set out six years ago to brand
down. But the tax cuts were barely started in 2008. Canada as a low-tax jurisdiction for business invest-
ment. He succeeded. On this file, Mr. Flaherty’s per-
By 2010 –2011, federal corporate tax revenue reached formance was as good as it gets. Mr. Harper and Mr.
$30 billion, substantially more than the average of $25 Flaherty probably don’t expect coast-to-coast hosan-
billion in the last four years of the prior Liberal govern- nas. Nevertheless, it seems a bit much that the most
ment: 2002 through 2005. Further, federal corporate audible applause has come from a business magazine
tax revenue equalled 1.8 per cent of Canadian gross based in New York. In fact, the Canadian government
domestic product, a much higher percentage than achieved a great legislative success in pursuit of an
the revenue produced during the recessionary years important economic objective. For this, it deserves a
in the early 1990s. In tough-times 1992, for example, round of Canadian-based applause.
corporate revenue, with higher tax rates, fell to 1 per
cent of GDP. Mr. Flaherty’s job isn’t finished. He acknowledged this
last year when he said the government would proceed,
Economists predictably disagree on the economic in due course, with personal income tax reform by
importance of corporate tax rates, mostly on an ideo- reducing the number of tax brackets from five to two
logical basis, but it makes good sense to keep this or three. In a world of vast and highly entropic com-
particular tax as low as possible. These taxes, after plexity, simplicity is always an indispensible public-
all, are a direct cost of doing business – and Canada’s policy goal.
corporate cuts ensure that this country will have a
cross-border edge for the next two or three years at This article was written by Neil Reynolds of the Globe
least. With a combined federal-state rate of 39.2 per and Mail and is reprinted with permission.
cent, the United States has the second-highest rate in
the world (after Japan, with 39.5 per cent).
mackay.news spring2012 • Newsletter 4

5. Tax Considerations for
Aboriginal Business Owners
As an aboriginal or Inuit business owner you may compensation received by him or her may be exempt
think that your business income will not be subject income. In order to reduce the taxes payable by the
to income tax. Depending on where your business corporation a common planning technique in certain
income earning activities are located, your conclusion circumstances is the increase the wages of the active
could be incorrect. owner/manager if they are an on reserve Status Indian.
Section 87 of the Indian Act is commonly relied upon Status Indians in certain areas, such as the Yukon,
to provide protection from taxation. This Section pro- should be aware that the tax exemption provisions
vides that an Indian or band is not subject to gov- of Section 87 of the Indian Act, described above, do
ernment taxation in respect to property situated on not generally apply where a Final Agreement exists
reserve. Over the years a number of court cases has with a First Nation. In the North West Territories, taxa-
limited the Section 87 tax exemption. tion will be dependent upon the particular agreement
The Canada Revenue Agency and the courts agree involved. These and certain other natives who do not
that in order for income earned by a status Indian to be have exemption may need more detailed tax advice
exempt from tax the business income needs to earned and may need to utilize incorporated entities or other
on reserve. Basically the location of the actual income structures to minimize taxation. Often trusts or partner-
generating activities determines the tax payable. For ships are used in native business planning to minimize
example a unincorporated logging business has an taxation. If you are an aboriginal business owner and
office on reserve, stores it’s equipment on reserve and you are carrying on some or all of your income earning
does its bookkeeping on reserve, but logs off reserve. activities off reserve, you could be subject to income
The income generated by this business would be sub- tax. Consult your professional advisor to determine if
ject to income tax as the income generating activity, any planning opportunities are available.
the logging, is done off reserve. This material is general in nature and should not be
Any income earned from the unincorporated logging relied upon to replace the requirement for specific
business by the employees of the logging business professional advice.
goes through a similar test. For example the business
has two employees, a manager who stays in the office
and runs the company and a supervisor who runs the
logging operations. Both are Status Indians. The man- Change of
Address
ager’s wages would not be subject to income tax as
he is earning his income on reserve, while the super-
visor’s income would be subject to income tax as he
is earning his income off reserve.
Please be advised that MacKay LLP in Surrey has
For profit corporations are always subject to income a new address (just down the hallway from the old
tax. Many aboriginal or native incorporated companies location):
are not for profit or municipal in nature. These com-
119, 7565 – 132nd Street
panies may have filing requirements but may not be
Surrey, BC V3W 1K5
taxable, subject to advice in each case.
Incorporated for profit businesses; if they are owned
by Status Indians and operate on reserve, for example
a corporation that has a logging business and that pri-
marily harvests timber on reserve, is likely to subject to
taxation and filing requirements. If the owner/manager
of the corporation is a Status Indian who manages
all the operations on reserve and lives on reserve,
mackay.news spring2012 • Newsletter 5

6. Income Tax Filing
Requirements on Death
Terminal Return assets by the estate. This return is filed annually within
This is the deceased’s final Personal Income Tax 90 days of the selected year end which can be no later
Return. The return reports income for the year of death than the first anniversary date after death. The final
for the period from January 1st to the date of death. estate return is filed once the Executor is prepared
All regular income (i.e. pensions, employment income, to wind up the estate and distribute any remaining
interest, etc.) earned during this time period will be assets to the beneficiaries. This final estate return is
reported. In addition, the return will report any gains due within 90 days of the proposed wind-up date.
resulting from deemed dispositions on death. This Once the final estate return has been filed and
return has the normal filing deadline of April 30th of assessed, a Request for a Clearance Certificate would
the following year. When the individual has died in be prepared and filed in cases where it is appropriate.
November or December this filing deadline is extended A Clearance Certificate protects the Executor from any
to six months after the date of death. future liability for income taxes but does not protect an
individual as a beneficiary.
Additional Separate Return
It is possible to report certain types of the deceased’s Information Required to
income on a separate return for the year of death, Prepare the Returns
known as a “Rights or Things” return. The benefit of • A copy of the deceased’s prior year’s Income Tax
this separate return is that the individual is then able Return and Notice of Assessment,
to make a second claim for tax credits. In effect, they • A copy of the Death Certificate,
get to claim personal tax credits twice for the same
• A copy of the Last Will and Testament,
year. The reporting period and the filing deadlines are
the same as for the terminal return. The following is a • A copy of the Statement of Assets and Liabilities
brief list of the types of income that can be reported (from the probate documents)
on a separate return. • The purchase price of real estate (including the
• Dividends declared but unpaid at the date of death. house) or non-registered investments, and
• Income from another person’s estate. • All income tax information slips, including T3s,T4s
and T5s.
• Vacation pay from an employer.
This document is general in nature and should not be
Estate Return relied upon to replace specific professional advice.
The estate return reports any income earned after the
date of death. A typical example is the CPP death
benefit. Other types of income include interest on an
investment or bank account or any gains on the sale of
Prepared by the Taxation Services Section of MacKay LLP Chartered Accountants
and Business Advisors for review by our clients and other interested parties
Vancouver (604) 687-4511 Yellowknife (867) 920-4404
Surrey (604) 591-6181 Edmonton (780) 420-0626
Kelowna (250) 763-5021 Calgary (403) 294-9292
Whitehorse (867) 667-7651
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MacKay LLP is a Canadian firm of chartered accountants based in Western and Northern Canada and represented by offices in Alberta,
British Columbia, Yukon and the Northwest Territories. The firm currently has 43 partners and principals, approximately 220 staff, and
offers a full range of accounting, auditing, taxation, insolvency, valuation, computer, and management consulting services to all clients.
In other areas of Canada and internationally, the firm is represented by other locally managed independent accounting firms.
mackay.news spring2012 • Newsletter 6