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. 

Uncertainty over yet another euro zone debt crisis took its toll on the world's wealth and, for the second time in four years, the aggregate investible wealth of high net-worth individuals (HNWIs) declined in 2011. According to the World Wealth Report 2012, produced by Capgemini and RBC Wealth Management, the euro zone crisis increased market volatility and slowed global economic growth, unsettling investors and triggering losses in asset values. In 2011, the number of HNWIs globally did increase marginally, by 0.8% to 11 million, with most of the growth ó 1.1% ó coming in the $1 million-$5 million "wealth band,î which represents 90% of the global HNW population. That followed two years of healthy growth in 2009 and 2010 after the devastating effects of 2008. Canada, however, bucked the trend with the number of HNWIs declining by 0.9% in 2011, dropping to 279,900 from 282,300 in 2010. It was aggregate investible wealth, as measured by asset values, that took the real hit in 2011. It declined by 1.7% in 2011 to US$42.0 trillion. "The global population of Ultra-HNWIs declined 2.5% to 100,000 in 2011,î says the report, "and their wealth declined by 4.9%, after gaining 11.5% in 2010. The number of mid-tier millionaires declined 1% to 970,000 and their wealth by 1.2%. These two segments account for just 9.7% of the global HNW population, but 56.9% of its investible wealth.î The Asia-Pacific region, with 3.37 million HNWIs, now boasts more HNWIs than second-place North America with 3.35 million and third-place Europe with 3.17 million HNWIs. But North America retains top ranking for the amount of investible wealth, at US$11.4 trillion in 2011 ó though that was down 2.3% from 2010. Asia-Pacific had investible wealth of US$10.7 trillion in 2011 and Europe US$10.1 trillion. The countries that suffered the greatest loss in wealth in 2011 were India and Hong Kong. "Equity-market capitalization plunged in India in 2011,î explains the report, "wiping out asset values and levels of investible wealth.î India's HNW populations dropped by 18%. Likewise, in Hong Kong ó where, says the report, HNWIs tend to be very exposed to equities ó the HNW population declined by 17.4%. The bulk of the world's HNW population remains concentrated in the three top-ranked countries ó the U.S., Japan, and Germany, numbers one, two and three, respectively. Together, the three countries accounted for 53.3% of the world's HNWIs in 2011. Canada ranked seventh in the world by HNW population in 2011 and 2010. Additional Education Resources: Financial Recovery in a Fragile World and Elements of Real Wealth Management.    

  The majority of Knowledge Bureau Report readers think the rich and corporations should pay more taxes, judging by the responses to Knowledge Bureau's June poll. When asked "Should high-income earners and corporations pay higher marginal tax rates?î 101 readers responded; 61% said "Yesî and 39% said "No.î But the "Nosî were more voluble when it came to explaining their positions. Of the 38 readers who left comments on Knowledge Bureau's website, there were 22 in the "Noî camp and 16 in the "Yes.î And from both camps, slightly less than a quarter raised the idea of a "flat taxî in which everyone is taxed the same percentage, such as Alberta uses. Those who believe high-income earners and corporations should pay higher income taxes often cited the dreadful state of government finances. Governments at both the federal and provincial levels are struggling with deficits, they said, and could use the additional revenue. "With Canadians demanding the Cadillac of services,î wrote Walburga Pagniello, "how do we think our governments can provide it? We must strive for balanced budgets at all levels and pay down our national debt ó or we are heading for disaster, like other countries globally!î Added Patricia: "It may be an unpopular idea and many may argue that these people employ other people etc., but the country needs more tax revenue. The provinces are broke. Everyone argues that what people pay in taxes should be commensurate with their ability to pay. Well, this is a step in the right direction.î But many on the other side of the argument feel the government doesn't deserve any additional tax revenue. Governments' inefficiency and spendthrift ways have gotten them to where they are today. "Our governments take almost six months of our income through the current tax system,î wrote a former civil servant, "and they still cannot make it work. Giving them more tax monies will not work. The annual findings of the federal and provincial auditors general on governments' wasteful spending are only the tip of the iceberg.î Added another reader: "We really need to find out where the powers-that-be are spending the money first. I'm not against paying my fair share, but I would like to see an accountable system, instead of throwing more money at the problem.î Or, as another reader succinctly put it: "It's time the government became responsible for handling our money! Many in the "Noî camp, however, labour under the misconception that high-income earners do not pay their fair share of taxes. A recent C.D. Howe Institute report entitled Ontario's Tax on the Rich: Grasping at Straw Men maintains that is not the case. For example, the top 1% of Ontario earners account for 12% of the province's income from taxable sources yet provides 27% of its income tax revenues. The top 10% provide 66% of all net income taxes, says the report's author Alexandre Laurin, while the bottom 75% of tax filers deliver only 12% of the province's income taxes. Although Ontarians may have a heavier tax load than the rest of Canada, the numbers are not so different across the country. For the rest of Canada, the top 1% has a 10.9% share of taxable personal income yet shoulders 18.7% provincial income tax burden. "These groups already pay a highly disproportional share of the total tax burden,î commented Carl Davidson, "whereas low-income individuals often pay no income taxes at all.î Those who are against raising the taxes of high-income earners also fear that those individuals will move or, through tax planning, rearrange their incomes so they pay less taxes ó a fear shared by Evelyn Jacks, president of Knowledge Bureau (see Knowledge Bureau Report, June 27). Overtaxing of corporations could likewise have unintended consequences, they have pointed out. "Raising the corporate tax rate will have a negative effect on job creation and production,î wrote a reader. "Corporate tax rates were extremely high in the past and we are now seeing the benefit of having reduced the corporate tax rate.î Bill Kelsall had a suggestion: "Perhaps corporations should have a sliding scale similar to personal taxpayers, instead of the all-or-nothing $500,000 small business limit. I also believe that lower tax rates for corporations should be tied to the amount of investment in capital and employees in Canada." Nine of the 38 who left comments suggested a flat tax would be a good idea. Alan's comment was typical: "I am a proponent of a simplified, flat tax system with a high basic exemption.î That would even the playing field. Knowledge Bureau Report would like to thank readers for participating in June's poll. July's questions is "Should governments have regulated exorbitant credit card rates instead of mortgage amortization periods?î We look forward to hearing from you. Additional Educational Resource: Tax Strategies for Financial Advisors      

The federal government wants to know how best to employ the $400 million it has earmarked in its Economic Action Plan 2012 to boost venture-capital investments in start-up companies. It wants Canadians' input on the financing needs of high-growth firms in Canada, the factors that influence private-sector participation in venture capital, and the role that governments can play in developing an environment that supports a sustainable private-sector-led venture capital market. According to the Department of Finance press release,  the government is seeking to increase the capital and expertise available for growing, innovative firms while focusing resources on companies most likely to become global leaders. Its discussion paper outlines the questions the government would like to see discussed during its consultation: ï What are the key challenges facing high-growth firms in Canada in accessing the capital they need to innovate? What are the unique challenges confronting early- or late-stage companies? ï What barriers do Canadian and international investors (e.g., financial institutions, pension funds, endowments) face in participating in venture-capital markets? ï What models of venture-capital support should the government consider in order to encourage private-sector participation and investment? Should a priority be placed on attracting corporate strategic investors, foreign venture-capital participation or some other form of private-sector investment? ï Does Canada have the right mix of large-scale and small-scale funds? Should a portion of public support target any particular stage of company development? ï What criteria should the government consider in allocating the new resources to support venture capital in order to meet its objectives? The government has appointed Samuel Duboc, a partner in private equity firm EdgeStone Capital Partners, as a special advisor on venture capital. To make your voice heard, submit your comments by e-mail to ConsultationsVentureCapital-CapitaldeRisque@fin.gc.ca. The closing date for comments is July 27.   Additional Educational Resources: Tax Strategies for Financial Advisors.  

The federal government is tackling an area the Organization for Economic Co-operation and Development (OECD) highlighted as a trouble spot in its June Economic Survey of Canada: Canada's overheated housing market. As of July 9, the feds are making adjustments to the rules governing government-backed insured mortgages that should slow the rush of Canadians to acquire homes by taking on too much debt. The Department of Finance has announced four measures for new government-backed insured mortgages with loan-to-value ratios of more than 80%: ï The maximum amortization period will be 25 years, reduced from 30 years. The maximum amortization period was set at 35 years in 2008 and reduced to 30 years in 2011. ï The maximum amount Canadians can borrow when refinancing will be 80% of the value of their homes, not 85%. ï The maximum gross debt-service ratio will be set at 39% and the maximum total debt service ratio at 44%. ï Government-backed insured mortgages will be available only on homes with a purchase price less than $1 million. The changing rules are meant to help Canadians with high loan-to-value mortgages reduce their total interest payments, build up home equity and reduce the risk that higher interest rates would jeopardize their financial stability. For example, a household with a $350,000 mortgage bearing a 3% interest rate would save $184 a month by reducing the amortization period to 25 years from 30. Over the life of the mortgage, that becomes a $33,052 savings. As interest rates go higher, the savings are greater. At 5% interest rates, the borrower would save $61,765 with an amortization period of 25 years vs 30 years. As Finance Minister Jim Flaherty said in the press release: "The adjustments we are making today will help [Canadians] realize their goals, build on the previous measures we have introduced to keep the housing market strong, and help to ensure households do not become overextended.î Additional Educational Resources: Debt and Cash Flow Management Course and Financial Recovery in a Fragile World.  

On June 18, New Brunswick farmer and second-time offender Merlyn Anderson was sentenced to 15 months in jail and fined $37,212 for tax evasion. This case is a good example of how repeat offenders under the Income Tax Act generally receive harsher sentences than first-time offenders. From Jan. 1, 2006, to Dec. 31, 2009, Anderson filed false harmonized sales tax (HST) returns for his farming business and claimed fraudulent input tax credits totalling $74,425 to which he was not entitled. In 2007, he had been fined $56,300 for similar offences. Since this was Anderson's second offence under the Act, and the first was a similar charge, his sentence was aggravated. Says the Canada Revenue Agency (CRA): "Taxpayers who claim false expenses, credits or refunds are liable not only for corrections to their tax returns and payment of the full amount of tax owing, but also to penalties and interest. In addition, if convicted of tax evasion, the court may fine them up to 200% of the tax evaded and sentence them for up to a five-year jail term.î Anderson's inability to learn from his first run-in with the CRA opened him up to a harsher penalty ó 15 months in jail ó the second time around. The CRA reminds taxpayers who have made errors or omissions on their tax returns, that they can came forward and obtain some relief under the Voluntary Disclosures Program.    

Aggrieved Canadian corporate taxpayers are much more likely to get cases heard in the highest court of the land than their American counterparts. And a recent study shows the Internal Revenue Service (IRS) ó the U.S. equivalent of the Canada Revenue Agency (CRA) ó has a better chance of succeeding than corporate taxpayers, for a few reasons. The study, conducted by two U.S. tax scholars, Joshua Blank, faculty director of the graduate tax program at New York University Law School, and Nancy Staudt, a tax scholar at the University of Southern California Gould School of Law, looked at more than a century of tax-abuse cases that went to the U.S. high court. The 69-page study, entitled "Corporate Shams,î will be published in the New York University Law Review in December. According to Reuters news agency, which reported on the study, from 1909 to 2011, 919 income tax cases reached the U.S. Supreme Court. Of those, 364 involved corporations. In cases involving blatant abuse of the governing act, the IRS won 61% of the time. In all other circumstances, the IRS prevailed 68% of the time. A look at Canadian statistics tells a similar story. From 1920 to 2003, the Supreme Court of Canada (SCC) heard 356 corporate income tax cases; the CRA won about 66% of the time and corporations a third. SCC cases from 2004 to 2012 reveal no significant change. But these numbers do not tell the whole tale. In the U.S., the study tells us, only about 2% of all applications to the U.S. Supreme Court are granted, indicating how hard is the road aggrieved corporate taxpayers must travel. In Canada, the SCC's leave-to-appeal statistics tell another story. The SCC statistics reveal that slightly more than 12% of leave applications in Canada are granted ó a far cry from 2%. That means, ultimately, corporations ó as well as other aggrieved taxpayers ó are up to six times more likely to succeed in their cases before the SCC than in cases before the Supreme Court of the U.S. 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.