Claiming Medical Expenses: Free Healthcare?

Free Health Care? Did you know that Canadians spend on average more than $1,000 on medical expenses each year? It’s estimated that government programs, via our taxes, cover about 72% of medical expenses, which means that we pay for the rest. Your clients may be over-paying on their taxes because they don’t know about medical expense deductions. 

With Canada's economic growth a modest 2% and inflation about 2%, it is hard to grow new wealth in today's fragile world. One sure solution is keeping firm control of the costs that will erode your wealth. That means monitoring investment fees and limiting the amount of income taxes you pay, two things in an otherwise unpredictable environment that you can control. Let's talk about tax efficiencies first. Consider investing any new money in the order in which it will most boost your after-tax results, choosing the biggest booster first. For example, a contribution to an RRSP would take precedence over a contribution to a Tax-Free Savings Plan (TSFA). If you have taxable income, are age eligible and have RRSP contribution room, the RRSP will provide a win for you because of the tax savings it generates. Thanks to your ability to deduct the amount of your RRSP contribution from your taxable income, you will pay less income taxes ó and generate extra dollars for investing ó by the amount of your marginal tax rate. For example, if you are in a 30% marginal tax bracket, every $1,000 invested in the RRSP takes $300 off your income taxes. If you don't have RRSP contribution room or don't qualify to contribute to an RRSP, a TFSA is the next best choice because income earned in your TSFA account is not subject to taxes. However, TFSA contributions are not tax deductible the way RRSP contributions are and they are limited to $5,000 annually. You also need to be a resident of Canada to contribute. But, if you have available TFSA room, a TSFA is a great place to park savings and earn tax-free investment income. What's next in your tax-efficient investing plan, once you have topped up your RRSP and TFSA? Now, you should consider non-registered accounts and the tax implications of various types of investment returns. How much of your non-registered portfolio should be generating interest, dividends or capital gains to get the after-tax results you need? Given recent public pension reforms, you should also consider how long you intend to work. If you work past the age of 60, you can increase future income by continuing to contribute to the Canada Pension Plan. By July 2013, you'll also be able to postpone taking your Old Age Security for up to five years, thereby increasing pension benefits later. These are important opportunities that should be carefully considered when you are planning your retirement. Let's turn now to the fees you pay for having your money managed. How much do you pay each year to invest your money? Should you pay an investment-management fee based on a percentage of your capital, or a cost per transaction? Are there savings to be had? Depending on how much money you have invested, you can sometimes negotiate lower investment-management fees. And investment-management fees are tax-deductible, unlike the fees changed for mutual funds and transaction costs. Either way, you'll want to factor in exactly how much more of a return you will need over a defined period of time to offset the fees. Then, weigh the costs of the advice against the value of the advice. If the good advice received and the consistent process for sound decision-making helps you get better results, it will be worth it. It's Your Money. Your Life. When returns on investments are low and unpredictable, investors must manage risks more closely. The returns needed to cover the effects of inflation, taxes and fees must be part of your planning. Whether you invest on your own or within a collaborative professional team, be sure these factors are considered in constructing ó and reconstructing ó your investment portfolio. Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax- and wealth-planning books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov 11 to 14.   Additional Educational Resources: FREE TRIAL - Elements of Real Wealth Management, Financial Recovery in a Fragile World Book.    

Recently released economic data suggest Canada is feeling the impact of the global financial turmoil with disappointing growth in gross domestic product (GDP), a widening trade deficit, shrinking employment and a cooling housing market. But in all those numbers, there may well be a silver lining. Consider Canada's trade deficit, for example. According to Statistics Canada, Canada's merchandise trade deficit widened to $1.8 billon in June from $954 million in May, the third consecutive monthly deficit. A slight increase in exports ó 0.2% to $39.1 billion ó was offset by a healthy 2.3% increase in imports, to $40.9 billion. The only sector making gains on the export side of the ledger was automotive products, up 13.9% to $6.3 billion in June as volumes increased 13.2%. So, where's the good news? Economists say import levels are indicative of the ongoing resilience of all-important domestic demand. As CIBC economist Peter Buchanan wrote in an Aug. 10 Economic Flash: "While [export levels] suggests weaker growth abroad is taking a toll on Canada's economic performance, the recent momentum of imports is a hopeful sign that domestic spending is still showing some signs of life.î Economists also like the 3.2% increase in imports of machinery and equipment ó to a record high of $11.2 billion. The optimists hope these numbers reflect increasing business investment that could improve Canada's competitiveness and pay dividends down the road. Wrote TD Bank economist Francis Fong in a Aug. 9 report: "Imports of machinery and equipment have now surpassed their prerecession peak and are at their highest level on record ó a sign that businesses in Canada are making good use of their superior financial position.î As the C.D. Howe Institute argues, business investment is a key driver of economic growth. In a report entitled From Living Well to Working Well: Raising Canada's performance in non-residential investment, authors Benjamin Dachis and William Robson compared gross non-residential capital spending per worker in Canada to the average among Organisation for Economic Co-operation and Development (OECD) member countries and the United States. In the early 2000s, they say, Canada lagged. From 2001 to 2005, for every $1 per worker invested across OECD countries, Canada invested 94¢; for every $1 per U.S. worker, Canada invested 79¢. "Since then, Canada's performance has improved,î report the authors. "From 2006 to 2010, our businesses invested 99¢ per worker for every $1 invested across the OECD, and 88¢ for each $1 invested by U.S. businesses. Preliminary 2011 data show Canadian businesses investing more per worker than the OECD average ó 102¢ per $1 across the group ó and maintaining the late 2000s average of 88¢ per $1 invested in the U.S.î Perhaps the most disheartening news has been the 30,000 jobs lost in July following mediocre gains in May and June, with unemployment rate rising 0.1 percentage points to 7.3%. Year over year, said StatsCan, employment increased a mere 0.8% or 139,000 jobs. There is a silver lining, however, as the composition of jobs shifted from part-time to more lucrative full-time positions. While Canada lost 51,600 part-time positions in July, it gained 21,300 full-time jobs. "That continues a trend that has seen Canada add 30,000 new jobs per month on average over the past six months,î wrote TD Bank economist Leslie Preston recently, "but lose an average of 8,000 part-time jobs.î Another bright spot was the 3.9% year-over-year gain in the average hourly wage rate for permanent work. "Wage growth has outpaced inflation for four months now,î said Preston, "a welcome development after lagging through much of last year.î On the housing front, StatsCan tells us the total value of building permits fell 2.5% to $6.8 billion in June, following a 7.1% increase in May. But the non-residential sector was behind the downturn, with contractors taking out $2.5 billion in permits, a decrease of 12.3%. In the residential sector, the value of permits rose 4.2% to $4.4 billion in June, a second, consecutive monthly increase. New home starts did slip to 208,500 units in July, from 222,100 units in June. But, as TD Economics reported, "Housing starts have seen some big swings over the past five months, but remain quite healthy nonetheless. Indeed, the three-month moving average is sitting at 216,200 units." The biggest area of concern is the "volatile multiples segment.î As for GDP, economists rue its lack of momentum. It edged up a mere 0.1% in May, after a slight 0.3% increase in April. According to StatsCan, the output of service industries rose 0.1% in May on the strength of retail trade and the finance and insurance sector. Goods production was unchanged in May as the increase in mining and oil and gas extraction was offset by declines in manufacturing and, to a lesser extent, construction. But it is still on the positive side and, for many countries, growth, no matter how small, still looks good. Bank of Montreal economist Mike Gregory noted in the Aug. 10 Focus, that Canada has become a safe haven. "Foreign investors,î he wrote, "purchased a record $24 billion (net) of Canadian fixed-income securities in May. There was strong demand for both bonds ó at $16.7 billion, the third highest on record ó and money market instruments ó at $7.3 billion, the second highest on record. In recent years, Canada has been perceived as a prime destination for fixed-income portfolio diversification. However, Mayís results symbolically marked the emergence of Canada as a destination for safe-haven flows as well.î   Additional Resources: Master Your Retirement, Financial Recovery in a Fragile World    

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The British Columbia Supreme Court has fined a Richmond. B.C., company $100,000 for selling retailers and restaurants software that erases sales records allowing those companies to evade federal and provincial taxes. InfoSpec Systems Inc. and its "Zapperî software has been the subject of a couple of actions by the BC. Supreme Court and the Canada Revenue Agency (CRA) beginning in 2010. InfoSpec, which sells computers and software to restaurants and retail outlets, designed the Zapper software to work with point-of-sale systems and electronic cash registers. It erases sales records, allowing InfoSpec's customers to suppress income and evade taxes. The first to feel the sting of the CRA was InfoSpec salesman David Au. On Dec. 16, 2010, the BC Supreme Court convicted Au of one count of fraud over $5,000 in relation to the sale of the Zapper software. Au was sentenced to two years and six months in jail. Upon sentencing Au, the court noted: "It is particularly aggravating that Mr. Au continued to sell the Zapper to customers after he became aware of the CRA investigation of InfoSpec and attempted to assist his customers to evade detection during the CRA's audits. As a consequence, Mr. Au's actions are highly blameworthy and attract a sentence that both denounces his misconduct and acts as a general and specific deterrent for him and like-minded others.î Then, on June 22, 2012, InfoSpec itself was found guilty of one count of fraud over $5,000 in relation to the sale of the software. On July 20, 2012, the court gave its sentence ó a $100,000 fine. The court concluded that Pius Chan, the president of InfoSpec, was the "directing mind of the corporationî and he "intended to defraud the public by providing or distributing a Zapper programî that allowed InfoSpec customers to suppress income and thereby evade taxes.   Additional Educational Resources: EverGreen Explanatory Notes  

Prospects for global growth have gotten a whole lot cloudier over the summer. The risks to our economic well-being seem to be increasing, not decreasing, as Europe struggles with recession, emerging markets such as China experience decelerating growth, and Canada's growth stalls at 2%. The time has come to think about how you are going to manage the accumulating risks ó and for many of us risk management means debt management. Certainly, Canadians are between the metaphorical rock and a hard place. With 2% economic growth and 2% inflation ó the Bank of Canada notes in its July Monetary Policy Report (MPR)  it expects core inflation to sit around 2% for the next few years ó investors aren't likely get much in the way of returns that beat inflation. And Canadians have been piling on the debt. The debt-to-income ratio of Canadians is at an all-time high of 153%, according to June 2012 reports from the Bank of Canada. Much of that debt is priced significantly higher than 2%, indicating growth in debt is likely to outpace growth in personal income. Yet, a lot is riding on consumer spending. As the MPR notes, the Bank of Canada's 2%-inflation scenario is not without risk: ï On the upside, the Bank says, higher global inflationary pressures, stronger Canadian exports and stronger momentum in Canadian household spending could push inflation higher. ï On the downside, the European crisis, weaker global momentum and weakening growth in Canadian household spending could push inflation lower. It all points to managing risk ó and managing debt. Consider mortgages. It's not a bad idea to move upmarket to a better home if you can sell the old house at a tax-exempt profit and get a low-interest rate mortgage on the new place for a long period of time. But it is not such a good idea if you are carrying a variable-rate mortgage. According to the Canada Canadian Association of Accredited Mortgage Professionals, about 30% of Canadian mortgages are at variable rates. That means one-third of Canadians could very well face higher interest rates when they renew. That could boost debt and descimate savings plans. Those who have used low-rate lines of credit or business loans to acquire appreciating assets are in the same boat. Although a low-interest rate environment can be the right time to acquire such assets, what happens to your balance sheet if rates head higher? Consider what would happen to your mortgage payments,loan payments and retirement savings plans if interest rates increased 2%. You need to manage that possibility when you take on big, long-term debt. So, be sure to discuss the following questions with your financial advisor: 1. Should you lock in your variable-rate mortgage now, when interest rates are low? 2. Should you make paying down debt a priority? 3. Should you lock in savings at today's low interest rates at the expense of paying off debt? It's Your Money. Your Life. If you have debt, it's prudent to anticipate your "Plan Bî should interest rates rise. Evelyn Jacks is president of Knowledge Bureau, best-selling author of close to 50 tax- and wealth-planning books and keynote speaker at the Distinguished Advisor Conference in Naples, Florida, Nov 11 to 14.   Additional Educational Resources: Debt and Cash Flow Management Course, Financial Recovery in a Fragile World Book.      

Canada needs to focus its limited resources where they are likely to make a difference, argues Michael Hart in a new C.D. Howe commentary entitled Breaking Free: A post-mercantilist trade and productivity agenda for Canada. That makes East Asia a priority, he contends, although Canada should not forget its long-time trading party, the United States. "The rapidly expanding markets of China, India and other Asian countries are well worth the pursuit,î Hart writes, "but the U.S. market will remain the bread and butter of the Canadian economy for the foreseeable future.î Hart, who is the Simon Reisman Chair in Trade Policy at the Norman Paterson School of International Affairs at Carleton University in Ottawa, says Canada needs to adapt to a world of "value chains, evolving trade and investment patterns, and deepening global integration.î That means getting rid of "home-grown impedimentsî such as anti-dumping and countervailing duty regimes, ineffective subsidies and procurement preferences, tariff restrictions in supply-managed sectors, overabundant regulations and restrictions on foreign ownership. Since the late 1990s, Canada's trade performance has stagnated. Canada's share of the world export market has dropped to 2.5% from 4.5% in 2000. Going hand in hand with Canada's lagging trade performance is productivity. "To revitalize Canadian trade and improve Canada's productivity performance,î Hart writes, "Canadians will have to be prepared to address remaining barriers to greater global engagement. "Progress on these issues requires a better understanding of the nature of modern production and exchange, the changing patterns of Canadian trade and investment, and the barriers, both domestic and international, to gaining greater advantage from deepening global integration,î he maintains.   Additional Educational Resource: Distinguished Advisor Workshops