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For Individuals

Registered Retirement Savings Plan (RRSP)

The 2008 contribution is limited to the lesser of 18% of 2007 earned income or $20,000 ($21,000 for 2009), minus the pension adjustment (PA) that applies to members of registered pension plans or deferred profit sharing plans. The maximum RRSP contribution for 2008 applies to earned income of $111,111 in 2007 ($116,666 in 2008). Some taxpayers may benefit from a pension adjustment reversal (PAR) in certain circumstances. Your 2007 federal Notice of Assessment includes information on your 2008 RRSP deduction limit and unused contributions from prior years.

An individual who does not contribute his or her deduction limit for a given year can carry forward this unused contribution room indefinitely (actually, until the year the individual, or the individual’s spouse, reaches age 71).

The age limit to contribute to an RRSP is at the end of the year in which the individual turns 71 years of age.

Contributions do not have to be deducted in the year they are made, but can be carried forward and deducted in a future year. This will be interesting for individuals with a relatively low income in the current year who are expecting their revenue to be in a higher tax bracket in future years.

A contribution in excess of the annual limit can be carried forward to be applied against the deduction room for any subsequent year. No penalty applies where an RRSP overcontribution (cumulative) is not more than $2,000, any excess being subject to a 1% per month tax. Please note that the tax on overcontributions to RRSPs has been assessed on a regular basis by the authorities in recent years.

Earned income for RRSP purposes is the total of all salaries (net of employment expenses), alimony, net research grants, income (loss) from a business, rental income (loss) and disability payments received under the Canada and Québec Pension Plans. Tax deductible support (alimony and maintenance) payments made by the taxpayer will reduce earned income for RRSP purposes. All or part of an RRSP contribution may be made to a spousal plan (without affecting the contribution available to the spouse) until the end of the year in which the spouse turns 71. This can serve as an income splitting method upon the eventual withdrawal of the funds, provided the funds are left in the plan for a sufficient period of time. Contributing to a spousal RRSP remains sound tax planning even with the implementation in 2007 of the Pension Income Splitting rules. Pension Income Splitting is limited to 50% of the spouse’s pension income for a year while the benefits of a spousal RRSP are not limited in this manner. RRSP contributions should, where possible, be made early in the year to benefit from the longer period that income is earned on a tax-sheltered basis within the RRSP. Please note that any interest paid on loans contracted in order to contribute to an RRSP will not be tax deductible, nor will RRSP management fees.

Employees can ask their employer to pay a portion of their salary directly into an RRSP without deduction of income tax at source.

Contributions other than in cash are also permissible to self-administered RRSP plans. However, a non-cash contribution may result in a gain or loss. A capital gain would be taxable while a capital loss would be non-deductible.

A recipient of certain payments, most notably amounts received on leaving employment that are categorized as “retiring allowances”, can transfer all or a portion (based on specific limits) to their own RRSP on a tax deferred basis.

Individuals who have RRSP deduction room after age 71 will be able to contribute to a spousal RRSP up until the end of the year in which their spouse turns age 71.

If you turn 71 this year, you must mature (wind-up) your plans by December 31, 2008.

In order to avoid paying tax immediately upon the maturity of an RRSP, an annuity can be purchased and/or the RRSP can be transferred to a Registered Retirement Income Fund (RRIF).

If you turn age 71 this year and consequently cannot contribute to an RRSP in 2009 (assuming a spousal plan contribution is not available), you may contribute your 2009 - available RRSP deduction in December 2008 (before winding-up your RRSP) and pay a maximum penalty of $190 (1% of $19,000).

RRIF and Pension Withdrawals

The Federal Economic and Fiscal Statement of November 27, 2008 proposed to reduce the required minimum withdrawal amount for RRIFs by 25% for 2008. If more than the new reduced minimum amount has already been withdrawn, the excess (up to the original minimum amount) can be re-contributed and a deduction may be claimed on this amount in 2008. The re-contribution must be made by March 1st, 2009 or later, depending on the date of Royal Assent. Similar rules will apply to people receiving variable benefit payments under a money purchase registered pension plan.

RRSP Education Withdrawals

Eligible individuals are able to make tax-free withdrawals from an RRSP to finance full-time training or education for themselves or their spouses. Withdrawals may not exceed $10,000 in a year and will be permitted for a period of up to four calendar years, provided that the total amount withdrawn does not exceed $20,000. Withdrawals under the plan will be repayable by the recipient in equal instalments over a period of 10 years, with the first payment due no later than 60 days after the fifth year following the first withdrawal.

The RRSP Home Buyers’ Plan

Subject to certain conditions, an individual who is a first-time home buyer can borrow up to $20,000 in a single year from his or her RRSP, repayable over a 15 year period. If you intend using the Plan towards year-end, consider deferring your withdrawal until after December 31. This will extend by one year the time period for repaying the amounts withdrawn.

Individual Pension Plan (IPP)

An IPP is an option for owners of incorporated businesses who wish to boost the amount of their retirement savings. Contributions are made by reference to the owner’s salary and the pension benefit desired, and can significantly exceed RRSP contribution limits, including a potentially large past-service contribution (and deduction) by the corporate employer.

NEW Tax-Free Savings Account (TFSA)

Starting January 2009, Canadian residents age 18 and older will be able to contribute up to $5,000 per year (indexed after 2009) without being subject to income tax on investment income or capital gains. The $5,000 annual contribution limit is in addition to any RRSP contribution limit. Unused contribution room will be carried forward indefinitely. For example, if you contribute $3,000 to your TFSA in 2009, your contribution room for 2010 will be $7,000 ($2,000 carried forward from 2009 plus $5,000 for 2010). Unlike an RRSP, any money you contribute to a TFSA is not tax-deductible. However, upon withdrawal of the funds, no income tax will be imposed on the capital and the income earned in the plan.

Most investments that can currently be held in an RRSP will also be allowed in a TFSA. Eligible investments may include certain savings accounts, GICs, mutual funds, stocks and bonds. Contributions in kind are allowed under certain conditions; the amount of the contribution will be equal to the FMV of the property transferred.

Account holders will be able to withdraw funds at any time, for any reason. The withdrawal will not be subject to income tax. The amount withdrawn from a TFSA can be reinvested, without reducing contribution room, but this may only be done in a subsequent calendar year.

The TFSA will not affect your eligibility for federal income-tested benefits, such as the Canada Child Tax Benefit, the Guaranteed Income Supplement, OAS Benefits, the Age credit, and the GST credit. The TFSA will be a great alternative savings vehicle when your RRSP contributions have been maximized.

Registered Education Savings Plan (RESP)

Under an RESP, contributions are made to a plan intended to pay for the post-secondary education of designated beneficiaries, usually the taxpayer’s children or grandchildren. Although contributions are not tax-deductible, withdrawal of the capital invested will not be taxable and only the income earned in the plan will be taxable when distributed, at which time it is taxed in the hands of the beneficiary. In 2008, the contributions will be limited to a lifetime maximum of $50,000 per beneficiary, with no annual contribution limits. Contributions for 2008 must be made by December 31.

The federal government will provide a grant, the Canada Education Savings Grant (CESG), generally equal to 20% of the first $2,500 of annual contributions made to RESPs for each child up to and including the age of 17. A social insurance number must be provided for each child. The CESG will be payable to a maximum of $500 per child per year (the lifetime CESG limit is currently $7,200).

Certain restrictions will apply with respect to the CESG for children aged 15-17 years of age.

Québec has instituted a refundable tax credit whereby it will contribute, upon application, an amount equivalent to approximately half of the CESG to the RESP trust. Québec will pay an amount equal to 10% of the net contributions paid into an RESP account over the course of a year, up to a maximum of $250 (lifetime maximum grant of $3,600). RESP contributors should check with their RESP providers to ensure that this credit is being claimed.

Registered Disability Savings Plan (RDSP)

Beginning in 2008, an RDSP program can be set-up for individuals qualifying for the disability tax credit. The RDSP program is based on the principles of the Registered Education Savings Plan. Government assistance is available for families in the form of the Canada Disability Savings Grant (CDSG) and, for low income families, Canada Disability Savings Bonds (CDSB), which can be paid into an RDSP until the year in which the beneficiary turns 49 years of age. The lifetime maximum contribution limit to an RDSP is $200,000 for each beneficiary, with no annual contribution limit. Contributions are not tax-deductible but investment income earned in the plan will not be taxable. Contributions can be made until the end of the year in which the beneficiary reaches 59 years old. Contributions cannot be made, and grants have to be repaid if the beneficiary ceases to be eligible for the disability tax credit (DTC), dies, or ceases to be resident of Canada.

Capital Gains and Losses

Capital losses realized in 2008 (net of any capital gains realized) can be carried back up to three years and carried forward indefinitely to offset capital gains reported in other years. This could be particularly relevant with the current state of world stock markets. In order to recognize realized losses on your 2008 personal tax returns, trades on the TSX should be made on or before December 24th (check with your stockbroker for exact deadlines).

Capital losses will not be recognized at the time of disposition where, during the period that begins 30 days before and ends 30 days after the disposition of the property, the taxpayer or a person affiliated with the taxpayer acquires an identical property (a “superficial loss”). However, this rule can be used advantageously to transfer a capital loss to an affiliated person, notably a spouse, who has capital gains.

Corporations should consider paying a dividend out of the Capital Dividend Account (essentially the tax-free portion of net capital gains) prior to the realization of capital losses.

We encourage our clients to contact us before implementing any of the strategies described above, as the specific facts in a particular situation may indicate an alternate strategy. Remember that taxation concerns are only one aspect of a complete investment plan. Before realizing losses attention should be given primarily to the quality of the investments involved and their place in one’s investment plan.

Capital Gains Exemption

A capital gains exemption is available for individuals to use in relation to gains realized on qualified small business corporation shares (or a family farm or fishing property). The maximum lifetime capital gain exemption is $750,000 for dispositions after March 18, 2007.

Notwithstanding the income attribution rules, it may be advantageous to transfer a certain portion of qualifying growth assets to children to enable future capital gains to be exempt from taxation by utilizing the child’s capital gain exemption.

Consideration should be given to crystallizing a gain that qualifies for the exemption. Because of Alternative Minimum Tax (AMT), however, a crystallization may be more beneficial if spread over more than one year.

Be aware of the possible disadvantage of selling investments eligible for the $750,000 capital gains exemption and investments with losses in the same year. Capital losses realized in the year must be offset against capital gains of that year including “exempt” gains, thus leaving a smaller amount available to claim the exemption against. Investments with losses should therefore be kept until the next year.

Capital Gains Rollovers for Small Business Investors

To improve access to capital for small businesses with high growth potential, there exists a tax measure that, subject to certain conditions, permits individuals to defer capital gains on eligible small business investments to the extent that the proceeds are reinvested in another eligible small business. The reinvestment in an eligible small business must be made at any time in the year of disposition or within the first 120 days of the following year.

Income Splitting

Investment income earned by an individual who invested money borrowed at low or no interest from a related person will be attributed back to the lender. This rule does not apply where the loan is to a related person other than a spouse or minor child (subject to a purpose test). Nor will it apply where the loan is to a spouse or minor child if interest is charged at the prescribed rate in effect at the time the loan is made (the prescribed rate for the fourth quarter of 2008 is 3%). When utilizing this exception, interest must be paid no later than 30 days after the end of the year to avoid attribution of income.

Since the attribution rules are complex, caution is advised when contemplating a transfer of property or a loan to a spouse or a child (including transfers indirectly through a corporation or a trust).

Some other basic planning ideas would include:

• gifting growth assets to a minor child, as the resulting capital gain is not attributed to the donor;
  
• gifting property to a child who is not a minor;
  
• segregating and re-investing “attributed” income of a spouse or minor child;
  
• segregating and investing child assistance and child tax benefit payments;
  
• using the higher-earner’s income to pay all family expenses and segregating and investing the lower-earner’s income;
  
• using a trust for the benefit of family members to hold shares of a closely-held corporation. However, there are restrictions in regard to income-splitting with minor children.

Spouses can choose to share their QPP and CPP retirement pensions.

Income splitting may be achieved by having your spouse be your business partner or by having a business owner pay reasonable salaries to his or her spouse or children.

Pension Income Splitting

Individuals who receive eligible pension income can elect to allocate to their spouse or common law partner up to 50% of that income when filing their income tax returns. Eligible pension income is income that qualifies for the $2,000 pension income credit. For individuals aged 65 and over, eligible pension income includes annuity payments from an RPP, an RRSP, a DPSP, and payments from a RRIF. For individuals under 65 years old, eligible pension income is restricted to annuity payments from an RPP, and certain other payments received as a result of the death of a spouse or partner.

The amount allocated to the spouse will be deductible in computing the income of the transferor and included in computing the income of the transferee. The pension income tax credit (see section below) will be available to the transferee only if the pension income transferred qualifies as eligible pension income in his or her hands.

In order to benefit from Pension Income Splitting, both spouses or common-law partners must file form T1032 with their 2008 income tax return.

We recommend that you discuss any planning of Pension Income Splitting with your BGK advisor, as other aspects of your personal tax situation may be affected.

Donations

If planning to make any donations to a registered charity, consider contributing marketable securities that have inherent gains, as the income-inclusion rate of the resulting capital gain is zero for donations made to a public charity after May 1, 2006. This measure was extended to encompass gifts of marketable securities made to a private foundation after March 18, 2007. The donation credit is based on the market value of the securities.

The elimination of the tax on capital gains accruing on donations of publicly-traded securities to registered charities and private foundations, when coupled with tax incentives on flow-through shares issued by companies in the resource sector, has generated great interest and planning opportunities for investors. Potential donors of marketable securities should consult their BGK advisor to evaluate the tax advantages of these gifting arrangements.

Personal Income Tax Installments

Individuals who are required to make quarterly installments should review the amounts paid, to avoid or reduce the non-deductible interest charged (which can be onerous) on late or deficient installments. Individuals are required to remit their federal and Québec installment payments on or before March 15, June 15, September 15 and December 15. For the 2008 taxation year, the threshold requiring an individual to make quarterly installments of federal income tax is $3,000 ($1,800 for residents of Québec).

If the tax liability for 2008 will be less than originally estimated, the December remittance can be reduced accordingly.

Canada Revenue Agency and Revenu Québec will continue to notify individuals required to remit installments of the amount of each installment determined on the basis of tax information from prior years. Payments made in accordance with these notifications will always avoid interest charges.

Tax Assisted Investments

When considering tax-assisted investments, it should be noted that most are speculative in nature. While they may result in significant tax savings, there remains a cost to the investor. The decision to invest should be based on the quality of the investments as well as the favourable tax treatment they receive.

Film Investments

The purchase of an ownership interest in certified Canadian films continues as a tax deferral vehicle by allowing the investor certain tax credits.

Investment in the Petroleum, Gas and Resource Industries

These investments, whether made directly, through a partnership or by the purchase of shares, allow the investor a deduction from income of varying amounts depending on whether the investment is in oil and gas or mining. The income tax rules and financial implications relating to such investments are extremely complex and should be reviewed on an individual basis.

SME Growth Stock Plan

Québec Stock Savings Plan (QSSP) investments are no longer possible. Tax assisted investments in Québec corporations can now be made through the SME Growth Stock Plan. This plan will itself end on December 31, 2009. A single deduction rate of 100% of the adjusted cost of eligible shares applies. The annual deduction cap of 10% of the individual’s income for a year that applied under the former QSSP also applies under this plan.

Pension Income Credit

An individual may be entitled to a federal tax credit on up to $2,000 of eligible pension income (Ontario $1,201; Québec $1,500). OAS and QPP (CPP) pensions are not eligible for the pension income credit. The Québec credit is reduced when “family income” exceeds $29,645.

If there is not sufficient pension income to qualify for the full amount of the credit, additional qualifying income can be created by commencing to receive pension income in the form of a life annuity and, if age 65 or older, also by converting all or part of your RRSP plan into an annuity, or by simply purchasing an ordinary (unregistered) life annuity contract with other funds.

Alternative Minimum Tax

The AMT imposes a minimum tax on certain individual taxpayers and could adversely affect those high-income individuals who have significant deductions arising from investments in tax shelters. Certain shelters such as flow-through shares of mining companies, etc. as well as large capital gains and eligible dividend income may subject the individual to the AMT in 2008.

Taxpayers who have paid the AMT in the past may have an opportunity in 2008 (and following years) to recover part or all of the AMT previously paid.

Salary/Dividend Planning

Many factors must be considered in determining the most beneficial combination of remunerating the owner/manager of a closely-held corporation. As with other planning, each case must be examined separately and no one “rule of thumb” can apply to all situations.

The ongoing changes in the taxation of dividend income will have to be taken into account in this determination.

Some factors to be considered are:

• The tax rate of the corporation
  
• The tax rate of the individual
  
• Exposure to Alternative Minimum Tax
  
• The need for salary income by the individual to qualify for RRSP and CPP/QPP contributions or to benefit from childcare expenses
  
• Wage levies applicable to salaries, such as the Ontario Employer Health Tax and Québec’s health services fund and 1% training “tax”
  
• Québec restrictions on the deductibility of investment expenses by individuals
  
• Whether eligible dividends can be paid to shareholders

Some planning techniques include:

Remuneration that is accrued and expensed by a corporation must be paid to the employee within 179 days of the corporation’s year-end. Where that year-end falls in the latter half of the calendar year (actually, after July 6), the corporation can cause the owner/manager’s remuneration to fall into either the current or subsequent calendar year.

The payment of dividends can be used to reduce or eliminate the owner/manager’s CNIL, thus maximizing the amount of capital gains exemption that may be available to the taxpayer.

Taxable Canadian corporations can pay two types of taxable dividends, eligible and other. Most dividends paid by public corporations will be eligible dividends, as will dividends from private corporations out of active income on which a Small Business Deduction was not claimed. Most provinces, including Ontario and Québec, have announced tax rate changes for individuals receiving eligible dividends. The taxation of taxable dividends other than eligible dividends will continue with the current treatment for federal purposes.

Corporations have to notify in writing each of their shareholders when an eligible dividend is paid.

The top marginal rate on eligible dividends for residents of Ontario will be 23.96% in 2008 and 23.06% in 2009. For residents of Québec the top marginal rate on eligible dividends will remain 29.69%.

For Corporations

Timing of Acquisition of Assets

Accelerate the acquisition of depreciable property used in carrying on a business otherwise planned for the beginning of the next year. This will allow additional depreciation to be available to be claimed in the current year. The “available-for-use rules” should be considered (generally requiring the depreciable property to be used in operations for the depreciation deduction to be allowed).

Conversely, consider delaying until the subsequent year the acquisition of depreciable property in a class that would otherwise have a terminal loss in the current year.

Shareholder Loans

If contemplating a loan from a corporation to a shareholder, the potential taxability should be evaluated.

Corporation Tax on Capital

A tax on capital may be imposed on certain corporations in certain provincial jurisdictions including Ontario and Québec. Ontario plans to eliminate its capital tax effective July 1st, 2010. From January 1st, 2008 Ontario corporations will benefit from a capital deduction of $15 million, while the capital tax rate will continue to be lowered until the elimination date. Québec has announced that it will eliminate tax on capital as of January 1st, 2011 and will gradually reduce the applicable rates in the interim.

This tax may be reduced for a corporation that has cash on hand by using it before the end of its fiscal year to (a) reimburse shareholder loans, (b) reduce existing borrowing, or (c) acquire eligible investments.

Both federal and Québec Small Business Deduction amounts are reduced when the aggregate taxable capitals of associated corporations for the preceding year exceed $10 million. This means that it will still be necessary for corporations in associated groups with taxable capital approaching or in excess of $10 million to calculate taxable capital for federal purposes, and it will continue to be advantageous in these circumstances to reduce taxable capital whenever possible.

Employee Stock Options

Employees may be able to defer the income inclusion of benefits that result from exercising eligible employee stock options for publicly listed shares until the disposition of the shares, subject to an annual $100,000 limit. Employees disposing of such shares will be eligible to claim the stock option deduction in the year the benefit is included in income.

Gifts and Awards To Employees

CRA and Revenu Québec have liberalized their approach towards employee gifts and awards. Employers can give their employees, on a tax-free basis, two non-cash gifts and two non-cash awards each year. The total cost of the gifts and the total cost of the awards must not exceed $500. Certain conditions apply.

Other Matters to Consider

Refundable Tax Credit for Home-Support Services for Seniors

Residents of Québec over 70 years of age can claim this credit to help pay for eligible home-support services. A portion of rent and condo fees may also be covered. See Revenu Québec publication IN-102 for more details.

The credit is claimed when filing the Québec income tax return, it is therefore important to retain all relevant receipts. The maximum credit for 2008 is $4,680 (30% of $15,600) and, for dependent seniors, $6,480 (30% of $21,600).

Starting in 2008 the tax credit that may be claimed by a person or couple will be reduced by 3% of family income in excess of $50,000.

Interest Deductibility

Whenever possible, ensure that debt is structured so that the interest expense is deductible. When repaying an existing debt, pay off the debt that has non-deductible interest before debt with deductible interest.

Québec restricts the deductibility of investment expenses including interest and advisor fees. Investment expenses are only deductible by individuals to the extent of investment income, including taxable dividends and taxable capital gains. Disallowed investment expenses can be carried back up to three years or forward indefinitely. The federal government continues to consider certain restrictions. Contact your BGK advisor to discuss ways to minimize the impact of these measures.

U.S. Citizens in Canada

A U.S. citizen resident in Canada must file Canadian and U.S. income tax returns, reporting worldwide income. These tax returns should usually be prepared by a competent professional advisor, due to the complex interplay of foreign tax credits.

U.S. citizens and residents with Canadian RRSPs or RRIFs are able to elect to defer recognition of the income arising in the plans until it is received. Recent IRS announcements have significantly increased the U.S. reporting requirements for such plans.

However, income earned inside RESPs (and, starting in 2009, in TFSAs) is taxable in the U.S. in the year the income arises.

Logbook for an Automobile - Québec

For 2005 and onward, an employee who benefits from an automobile made available by the employer will have to supply the employer with a copy of the detailed logbook he or she maintains with respect to the automobile so as to allow the employer to accurately determine the employee’s taxable benefits. The copy of the logbook has to be provided within ten days from the end of the year or from the end of the period in which the automobile was made available to the employee. Failure to provide the logbook to the employer will result in a penalty to the employee of $200.

Manpower Training

Québec employers with a payroll in excess of $1,000,000 are required to spend the equivalent of 1% of their payroll on job training.

Employers subject to this 1% requirement that do not expend that amount will be required to contribute the shortfall as a “tax”. Consequently, employers should evaluate their manpower training programs and facilities in order to determine how they can meet the criteria that will enable them to reduce or eliminate the tax. Eligible training expenses incurred in a year in excess of the 1% required can be used in the following year. Your BGK advisor will be pleased to assist you.

Québec Real Estate Labour Costs

When work is performed on real estate located in Québec that is used in a business or to earn income, the identity of the persons performing the work and the amounts paid must be reported to Revenu Québec each year. For instance, individuals earning rental income must file form TP-1086.R.23.12 each year reporting the names, addresses, Social Insurance Number or Québec Sales Tax identification number, and amounts paid for all persons who performed work on the property – from the contractor who replaced the roof to the gardener. Payments to employees do not have to be reported, but payments to a contractor by a company for work done on a property that it leases are subject to these rules. You may be liable to penalties of $200 for each unreported payment recipient.

Construction Industry Reporting

Businesses whose principal activity is construction must keep a record of the name, address and Business Number or Social Insurance Number of their subcontractors, and the amounts they were paid in the year. This information must be reported to CRA annually.

Québec Real Estate Labour Costs

When work is performed on real estate located in Québec that is used in a business or to earn income, the identity of the persons performing the work and the amounts paid must be reported to Revenu Québec each year. For instance, individuals earning rental income must file form TP-1086.R.23.12 each year reporting the names, addresses, Social Insurance Number or Québec Sales Tax identification number, and amounts paid for all persons who performed work on the property - from the contractor who replaced the roof to the gardener. Payments to employees do not have to be reported, but payments to a contractor by a company for work done on a property that it leases are subject to these rules. You may be liable to penalties of $200 for each unreported payment recipient.

Mutual Funds

Many funds make distributions at the end of the year. If you are thinking of purchasing fund units at this time, you may be receiving an unexpected income inclusion without the benefit of the growth in value of the units through the year.

Foreign Withholding Taxes

Foreign withholding taxes are only creditable at the rate allowed for in the particular treaty. Ensure that, for example, withholding taxes on U.S. dividend income do not exceed 15%. Any excess amounts withheld may have to be recovered from the source country.

New Changes in Canada-U.S. Withholding Rates

In September 2008, the U.S senate approved a new protocol to the Canada-United States Tax convention. Upon ratification by both States, the protocol will provide a significant relief to Canadian taxpayers by eliminating withholding tax on most cross-border interest payments.

For instance, should the protocol be ratified before the end of 2008, the withholding rate for interest received from an unrelated party located in the other state would generally be reduced to 0%, with retroactive application to January 1st 2008. For interest received in the same circumstances from a related party, the rate reduction would be phased in, with a maximum withholding rate of 7% in 2008, 4% in 2009 and 0% thereafter.

Canadian Authorities have yet to issue guidance on how to benefit from the retroactive reduction of the withholding rates. It is likely that a Canadian lender will be required to apply for a refund of over-withheld U.S withholding tax from the US government.

Government Pensions

For persons who have turned or are about to turn 65, assure that OAS and QPP/CPP retirement applications are prepared.

Reduced QPP/CPP retirement benefits are available to persons between ages 60 to 65 and retired.

Enhanced QPP/CPP benefits are available if the application is delayed until after age 65 (up to 70).

Old age spousal or widow(er)’s allowances may be available, based on an income test, to a person aged 60 to 64:

• whose spouse is a GIS (OAS Supplement) recipient, or
  
• who is a widow(er)

Québec Prescription Drug Insurance Plan

When Québec residents turn 65 they are automatically enrolled in the Québec Prescription Drug Insurance Plan and are subject to the annual premium, a maximum of $563.50 for 2008. If you are in this situation and are also a member of a group insurance plan that fully covers prescriptions, you may request to the Régie de l’assurance maladie du Québec that you not be covered by the Québec plan. If you opt out of the Québec plan, ensure that you use the group plan only, and for every prescription purchased during the year. However, the associated costs and benefits must be evaluated before opting out.

All individuals under 65 who are eligible for coverage under a group insurance plan (e.g. members of many professional bodies) must purchase coverage under the group plan for themselves (and their spouse and children) and are ineligible for the Québec plan.

Snowbirds

Canadians who spend on average more than 120 days a year in the United States run the risk of being considered a U.S. resident for U.S. tax purposes. If you are caught under the specific rules, but have spent less than 183 days in the U.S. in the current year, the “Closer Connection Exemption” may apply. The exemption is claimed by filing IRS form 8840 on a timely basis, generally by June 15 of the following year. Please contact your BGK advisor for more details.

Ontario Health Premium

The Ontario Health Premium is now fully phased in with premiums ranging from $0 where an individual’s taxable income is less than $20,000 to $900 where taxable income exceeds $200,600.

Did You Know...?

This and other issues of Current Developments are available on our website at http://www.bgk.ca/.

The matters described herein, as well as other techniques used in tax planning, should be subject to ongoing review and analysis and, frequently, some decisions may more appropriately be implemented earlier, rather than later, in the year.

DATES TO REMEMBER