Blessed by the Potato

Sandi Martin of Spring (the blog) has stormed onto the PF blogosphere. I’ve added her to the blogroll on the side there, but wanted to point you to a few posts in particular.

In my book I recommended TD Waterhouse as the go-to place for new index investors, largely because of their low-cost, easy e-series index funds and because then you’d have a decent brokerage account you were comfortable with when it came time to “graduate” to ETFs. Not long after the book was e-published, a number of other brokerages (e.g., Scotia) came out with free-to-trade ETFs, presenting a competitive alternative to TD Waterhouse. People wrote to me asking if my recommendation had changed, and while I couldn’t be as singular about it, I would still recommend TDW. It was a bit of waffling about simplicity (the list of free-to-trade ETFs is fairly daunting, and misses the usual recommendations), a bit about customer service (which even if you only need it once is still important if you’re a new investor trying to get something going and you don’t even know what it is you’re trying to ask for), and a bit about e-series allowing you to optimize/maximize your investing with monthly savings plans thanks to a low minimum and the ability to invest in arbitrary increments. Sandi managed to articulate this very well in a recent post:

“…you’ll find a lot of reviews that talk about “$9.95 trades” and “great research tools”. Those features just don’t matter […] Your wish list is heavily slanted towards the cost to invest in, hold, and rebalance a portfolio of index funds, and the minimum purchase requirements for regular investment plans. “Ease of use” doesn’t even make the list, and neither does “research and education” or “personal rate of return tracking”…”

Now of course she recommended my book in this post on mutual funds, so that is going to get a link. It’s also a nice, succinct piece on why people should look to boring index investing.

She’s got a series on avoiding “the useless retirement plan” (start here), building off her experiences working at a bank.

And she mentions the deceptive “may” in the HST instructions in this post on the matter. Well we got caught in that same confusing wording, and seeing that others are also having problems with it means its time to write someone to get it fixed. So I wrote an email to my MP and a letter to the CRA (Taxpayer Services Directorate; Canada Revenue Agency; 395 Terminal Avenue; Ottawa, ON K1A 0L5), copied below:

Dear [My MP];

I’m writing you today in regards to some confusing instructions at the Canada Revenue Agency. For small businesses that collect HST, after reaching $3,000 in tax for a fiscal year the Canada Revenue Agency requires quarterly tax installments, rather than annual payments. However, the instructions say:

“If you are an annual filer and your net tax for a fiscal year is $3,000 or more, you may have to make quarterly installment payments throughout the following fiscal year” [emphasis mine] http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html

That “may” has caused some confusion for business owners and freelancers within my own family, as well as other cases I have recently heard of in the community. The CRA requires quarterly payments once the $3,000 threshold is reached, and does not send notice, instructions, reminders, or a payment schedule. If quarterly installments are not made, they levy interest. Yet the instructions do not make it clear that it is up to the small business to remit quarterly without further instructions — indeed, the “may” suggests that they would not have to remit quarterly unless directed otherwise.

This confusion is exacerbated by the contrast with income taxes, where the CRA does explicitly direct the taxpayer when and how to remit quarterly when they are so required.

I am not asking for the tax law to be changed, but rather for the procedures and instructions to be clarified to prevent this common error from occurring. Two potential solutions that come to mind are:

1. Change the procedure to include a notice period, and have the CRA lay out a schedule for quarterly HST installment payments (as with the income tax).
2. Change the instructions to make it clear that small businesses must remit quarterly, and should not expect advanced direction from the CRA.

Thank you for any help you can offer in fixing this for other small business owners. I want to mention that my own situation has long since been cleared up, so I do not need any personal help with HST. I have sent a similar letter to the Taxpayer Services Directorate of the Canada Revenue Agency.

Sincerely;
[Me]

Please feel free to take from this, put it into your own words, and help make a small change that can save administration work at the CRA and penalty interest and headaches at numerous small businesses.

As an aside, it makes me wonder how apropos it is that the address for suggestions is on terminal avenue…