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. 

Summer rocks in Manitoba: 100,000 glistening, fresh-water lakes; big music festivals under big, blue skies; and a hot sun that shines until well past nine o'clock at night. It's a time to count your blessings ó and your savings. After all, way too soon your winter escape will become a priority. But if you plan carefully, your tax refund can be the impetus for future fun. Here are some summer tax tips to consider: Summer Tip #1: Contribute your tax refund to your TFSA. A Tax-Free Savings Account is a great place to park your money because the income you earn in your TFSA is tax-free. When the time comes, you simply withdraw your accumulated savings; you pay no tax penalty, as you would with an RRSP. So, when choosing investments for your TFSA, think growth. Remember: the more you earn, the bigger your TFSA withdrawal and, because withdrawals open a like amount of contribution room, the more "re-contributionî room you will have in your TFSA. Now, go ahead, can scan the sales for your winter vacation. Summer Tip #2: Exercise outside. Now is a good time to change personal and financial habits. Give up your gym membership for the summer (especially if you never go) and exercise outdoors instead. Come winter, you can re-establish your gym membership, but in the meantime, drop those savings into your TFSA. Rethinking the need to spend and developing frugal habits allows you to leverage your savings in tax-efficient investments. That will put you on the fast track to building real wealth. Summer Tip #3: Preserve the sunshine and rethink Christmas. Lots of families veer off the financial track because they overspend at Christmas. This year, give the gift of summer memories. Take lots of photos on your vacation; then, make them tangible. In an electronic world, an emailed summer photo brings smiles at Christmas, especially when it captures fun family memories. Now, cross Christmas gift-giving off your list, calculate your savings over last year's spend and put the difference into your TFSA or RRSP. Summer Tip #4: Bottle the "yum.î You may need to ask the elders how to do it, but this year, pick, chop, bottle and freeze summer's fabulous bounty. Image pulling plump, sweet blueberries out of the freezer in winter! You can also wrap up your home-made jams and chutneys for sharing. Then, cross birthday presents off your list, calculate the savings and drop the cash into your TFSA or RRSP. You get the picture! Summer Tip #5: Reduce your tax withholdings. Summer savings can help you increase your RRSP contribution. If you are in line for a larger tax deduction in 2012, ask your employer to reduce your withholding taxes (Knowledge Bureau Report, July 4). Your take-home pay will increase, allowing you to reduce consumer debt and stay on track to meet investment goals. It's a great way to leverage both time and money. It's Your Money. Your Life. Do something different this year: give yourself the gift of summer fun, yum and financial freedom. By preserving your bounty in a variety of old-fashioned ways, including tax-savvy savings, you will extend summer's joy and unlock your potential to break up those long winter months. Evelyn Jacks is president of Knowledge Bureau, a virtual campus that makes financial education easy and convenient all summer long. Visit www.knowledgebureau.com for books and courses.  

Suppose you are fired without cause and receive a severance package as per your contract. Are you obliged to find another job as quickly as possible and forego severance payments in order to reduce costs for your former employer? In a somewhat surprising, albeit unanimous decision, the Ontario Court of Appeal held that there is no such responsibility. The recent decision ó Bowes v Goss Power Products Ltd (2012) ó has held that an employee who is fired without cause and is contractually entitled to a fixed severance is not required to find another job in order to mitigate his or her employer's losses ó unless the employment contract specifically says so. Absent clear language, then, an employer cannot deduct from the fired employee's severance pay the income he or she has earned in other employment during the notice period. As you might imagine, Bowes has shaken the employment environment in Canada. Usually, under common law, contractual agreements entail an obligation to mitigate any damages arising from some facet of non-performance, even if it is the fault of the other side. Say, for example, you own a butcher shop and you order 15 refrigeration units from company X Ltd. You and X agree that X will deliver the units to your shop door on Monday morning at 10 a.m., before you receive a big shipment of meat later that day. Unfortunately, X has a problem and, on Thursday, phones to tell you it won't be making next Monday's delivery. Under the law, any losses ófrom meat being unrefrigerated and going bad to lost sales ó can essentially be billed to company X, but you have to mitigate your losses. When X calls on Thursday, you can't just sit in your office and throw your hands in the air boiling with rage. You must contact another supplier and try to lessen the damages however reasonably possible. Now, Bowes demonstrates how the common law of contract has evolved in the employment sphere. Increased social consciousness, human rights and workers' rights movements, and legislation have all contributed to judgments in the past two decades that attempt to level the playing field in the employment-contract arena. This should be heralded, as employees are certainly more valuable and respectable than appliances, but rulings such as these can be tough to swallow, affecting both employers and the common law system. Legislative changes can amend this ruling at any time, however. The genesis of this case involved a civil suit that Bowes filed against his former employer, Goss Power. The senior sales executive was fired from his job without cause and his contract stipulated six-months severance. Three weeks later Bowes found a new job with similar pay. For that reason, Goss Power refused to pay Bowes his severance. The lower court judge found in favour of Goss Power, citing Graham v Marleau, a case that most considered "settled lawî on this subject. But the Court of Appeal disagreed. It reasoned that, when an employment agreement contains a stipulated entitlement on termination without cause, the amount in question is either liquidated damages or a contractual sum. "Either way,î said Justice Warren Winkler, "mitigation is irrelevant.î Employers across Canada are taking note of this decision. But they should proceed carefully: a mitigation clause cannot simply be added to an existing contract without the employee's consent and new consideration (payment). But you can bet amendments to future contract templates are underway across the country. Greer Jacks is updating jurisprudence in the EverGreen Explanatory Notes, an online research library of assistance to tax and financial professionals in working with their clients.  

When the federal government tightened the rules on mortgage lending (Knowledge Bureau Report, June 27)  it was meant to slow Canadians in their accumulation of mortgage debt. But credit card debt is also a part of consumers' heavy debt load and the feds have not addressed credit card debt since May 2009. As Knowledge Bureau Report asks in its July poll, "Should governments have regulated exorbitant credit card rates instead of mortgage amortization periods?î Certainly mortgage debt deserves consideration. This era of rock-bottom interest rates has made home buying very attractive, leading to overextended households and overheated housing markets in some parts of Canada. It has provoked concern from both the Organization for Economic Co-operation and Development (OECD) in its Economic Survey of Canada (Knowledge Bureau Report, June 20)  and the Bank of Canada in its June Financial System Review (FSR)  that Canadian households are vulnerable to economic shocks, such as higher interest rates. Stated the FSR: "Both the share of indebted households with a debt-service ratio equal to or higher than 40% and the proportion of debt owed by these households have remained above their 2002ñ11 averages, despite record-low interest rates.î It seems mortgage debt and consumer debt (which includes credit card debt) go hand in hand. According to a Statistics Canada article entitled "Household Debt in Canada,î by Raj K. Chawla and Sharanjit Uppal, in 2009, households with mortgages accounted for 39% of the population but 58% of debtors. "Debt was concentrated among mortgagees,î reported the authors, "who held 82% of outstanding debt (averaging $161,200 per debtor). "The proportion of debtors with an outstanding credit card balance was 48%; 41% had an outstanding line of credit; 32% had other loans (e.g., personal loans); 18% had student loans; 3% had other debts (e.g., unpaid bills); and less than 1% had payday loans,î the article reported. So the feds have every reason to be concerned about mortgage debt. But there are other considerations. As the FSR points out, in the past six months or so, the rate of debt accumulation in Canada has slowed and credit card debt particularly. Total household debt grew by slightly more than 4% in June vs 6%-plus growth in December. Residential mortgage growth declined to 6% from 8% in December and consumer debt sank to about 1% from almost 4% in that time period. One explanation for the latter decline is that credit card holders are transferring their very high-priced debt to their very cheap mortgages. So the federal government may feel there is no need to interfere in credit card rates ó or it has no business interfering. The changes to the mortgage requirements, after all, were on new government-backed insured mortgages, which gives the government a vested interest. When it comes to credit cards, the feds have taken a more "consumer bewareî approach. In May 2009, Finance Minister Jim Flaherty introduced a number of measures meant to educate consumers on the dangers of credit cards and restrict the opportunities of card providers to take advantage of consumers. An amendment to the Cost of Borrowing Regulations, for example, requires providers to produce a summary box that sets key features, such as interest rates and fees. You can go to the Financial Consumer Agency of Canada  for more information. So should the feds have stepped up and curtailed interest rates on credit cards? Knowledge Bureau Report would like to hear your perspective. Please go to our online poll and give us your opinion.   Additional Education Resources: Debt and Cash Flow Management and The One Financial Habit  book.  

Why do Canadians willingly prepay more income taxes than required, at the expense of investing and benefiting from the time value of money? If you believe in the power of compounding, you'll raise an eyebrow at the size of the average income tax refund  in Canada this year: slightly more than $1,600, or about $130 a month. That number has risen dramatically over the past several years. In 2006, just six years ago, the average tax refund was $1,240, or 27% less. With the debt-to-disposable income ratio at a record high of debt is 152% of household income and Canadians saving only 4% of their disposable income, they could certainly use that money in more financially productive ways ó for example, to pay down debt and save for retirement. Reducing the amount of income taxes withheld from paycheques would create savings room and this can make a big difference in wealth accumulation and preservation. Think of what you could do with the extra money. You could maximize contributions to Tax-Free Savings Accounts (TFSAs) and RRSPs, for example. According to Statistics Canada, only 26% of 24.5 million eligible taxpayers ó about six million Canadians ó contributed to an RRSP in 2010 (Knowledge Bureau Report, Feb. 1) and contributed slightly less than $3,000 (the median contribution was $2,790). In fact, some 21 million taxfilers had unused contribution room. As for TFSA, by June 2011 the average account held only $6,354 out of $15,000 in available room, according to Investor Economics. (Today, available room has gone up another $5,000 to an accumulative $20,000). A survey commissioned by Bank of Montreal in November 2011 found only 44% of Canadians had TFSAs and those investors left tax-free compounding room on the table, investing on average only $3,700 a year. If they put the average tax refund to work, they could have contributed the $5,000 maximum. In today's volatile markets, when investors are eeking out small returns, it's important to maximize every available new dollar of income and shelter it from taxes. Reducing your income tax prepayments will put more money into your hands with every pay period and allow you to leverage your investment returns tax-efficiently. Indeed, tax-efficient investing begins when you take control of the first dollar you earn. So, take a good look at the amount of taxes you are paying at source. Start the process by taking stock of the various deductions and credits to which you'll be entitled in 2012 ó a tax pro can help ó and then ask your employer to reduce your withholding taxes. Two forms will help: the TD1 Tax Credit Return  and the T1213 Request for Reduction of Tax at Source. That way you'll get back your refund with every pay period ó instead of waiting until the spring of next year. It's Your Money. Your Life. Make the time value of money work for you. Remember, indebted governments expect you to be more self-reliant in the future; you'll be better able to do that if you reduce withholding taxes and invest the difference. 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.    

If you have been vacationing in another province, say in B.C.'s Okanagan or Ontario's Niagara wine districts, you can now bring your favourite wines home with you. The federal government has amended the Importation of Intoxicating Liquors Act, which governs the interprovincial and international trade of intoxicating liquors, allowing you to bring personal quantities of wine across provincial borders. Subsection 3(2) of the Act was amended by adding the following exception to the restrictions contained in subsection 3(1): (h) the importation of wine from a province by an individual, if the individual brings the wine or causes it to be brought into another province, in quantities and as permitted by the laws of the latter province, for his or her personal consumption, and not for resale or other commercial use. Each province will determine how much wine will be considered "personalî consumption. In fact, provincial authorities still have the ability to limit legal consumption ages, set no-drinking areas and generally restrict access to alcohol in manners to which we have become accustomed in Canada. This new federal law does not apply to beer, cider or spirits, leaving many observers perplexed, to say the least.   Additional Educational Resources: EverGreen Explanatory Notes  

If you are an American living in Canada or a dual U.S.-Canada citizen and you are behind on filing your U.S. income tax returns, the Internal Revenue Service (IRS) has good news for you. The IRS ó the U.S. equivalent to the Canada Revenue Agency (CRA) ó has a plan that will help U.S. citizens residing overseas catch up on their tax filings and address issues with foreign retirement plans. The U.S. requires that U.S. citizens regardless of where they live file income tax returns on their world-wide assets. Tax treaties (see Knowledge Bureau Report, June 20) among countries strive to eliminate double taxation. The IRS initiative will allow U.S. citizens who are low compliance risks to get current with their tax requirements without facing penalties or additional enforcement action. These people generally will have simple tax returns, says the IRS press release, and owe $1,500 or less in taxes for any of the covered years. U.S. truant taxpayers will be required to file delinquent tax returns, with appropriate related information returns, for the past three years and to file delinquent Reports of Foreign Bank and Financial Accounts (FBARs) for the past six years. Submissions from taxpayers that present higher compliance risk will be subject to a more thorough review and potentially subject to an audit, which could cover more than three tax years. In addition, the IRS will streamline the process for U.S. citizens and dual citizens who have contributed to RRSPs or Registered Retirement Income Funds (RRIFs) in Canada to take advantage of the provision in the Canada-U.S. Tax Treaty allowing deferral of taxation in the U.S. of income in those accounts. The new procedure takes effect on Sept. 1, 2012.   Additional Education Resource: Cross Border Taxation Course - Newly updated version available September 2012 Pre-register now!