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. 

Eight mayors of cities in British Columbia ó Vancouver, Burnaby, North Vancouver, Vernon, Armstrong, Enderby, Lake Country and Metchosin ó argued in an April 26 letter to B.C.'s premier, its Opposition NDP leader and the leader of the B.C. Conservative Party that marijuana should be legalized and taxed. Their argument is persuasive, but have they considered all the ramifications?Clearly, prohibition has proven to be an ineffective solution. Despite increased spending on law enforcement, the use and availability of marijuana has been increasing across Canada. Not only that, the eight mayors state, 85% of the province's marijuana industry is controlled by criminal groups. As prohibition drives prices up, it puts more money into the hands of these criminal organizations. (Think Al Capone and his boot-legging and smuggling activities in Prohibition-era United States.) Late last month, the chief medical health officers of three provinces weighed in on the discussion, publishing a paper that compares Canada's illicit drug policies to those of other countries. "For the last decade, Portugal has decriminalized all drug use and [it has] some of the lowest rates of drug use in Europe and some of the least amounts of harm from drug use,î said Dr. Robert Strang, Nova Scotia's chief medical health officer. In contrast, the three reported, drug use hasn't decreased since the US$1-trillion "war on drugsî was declared and aggressive law enforcement began. There is evidence that the U.S., too, is rethinking its policy in the face of the stark, underlying statistics. Notably, John McKay, the former U.S. district attorney who prosecuted B.C. marijuana activist Marc Emery in a cross-border sting, is calling for the legalization and taxation of pot in Canada and the U.S. Stop the Violence BC ó a coalition of high-profile academic, legal, law enforcement and health experts which is working to reduce crime and public health problems stemming from the prohibition on marijuana ó recently held a lecture in Vancouver. McKay took the stage, maintaining that the laws keeping pot illegal no longer serve a purpose, but allow gangs and cartels to generate billions in profits. "I want to say this just as clearly and as forthrightly as I can,î he said, "marijuana prohibition, criminal prohibition of marijuana is a complete failure.î To be successful, any prohibition in society requires broad support from the population, he added, and that isn't the case with marijuana. Jodie Emery, Marc Emery's wife, and former B.C. Attorney General Geoff Plant, also attended the lecture. McKay went on to say that marijuana, like alcohol, should be produced and sold to adults by the government. That would generate at least US$500 million in revenue annually in Washington State alone. Furthermore and most importantly, he said, ending prohibition would end the violent reign of gangs and drug cartels. Transpose this model to B.C., where the black market is said to be $7 billion annually, and the revenue generated is staggering. Federally, Canada could eradicate its deficit, relieve its court system and stop placing non-dangerous criminals in jail. Indeed, many law enforcers have become reluctant to prosecute people in possession of personal quantities. But marijuana prohibition is a federal law. That means Ottawa has to amend the Criminal Code. The Liberal Party of Canada recently voted almost 80% in favour of placing the legalization of marijuana on its platform, but the ruling Conservatives are not so sure. They argue that legalization will hurt trade with the U.S. and lead to longer waits at the border, although Stop the Violence BC and others believe those concerns are unsubstantiated. There are no clear-cut, easy answers to these questions. But any measure that promises to increase revenue and decrease a major source of funds for organized crime is worth a closer look. Let's go back to Al Capone. Is it, perhaps, instructive that Al Capone was only ever incarcerated for tax evasion? 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.  

In an effort to win opposition NDP members' support for its 2012 budget, the Ontario government agreed to impose a "Deficit-Fighting High-Income Tax Bracket.î As a result, 20,000-30,000 Ontarians who earn more than $500,000 annually ó or 0.2% of Ontario tax filers ó face what amounts to a 2% surtax on personal income. According to an Ontario government press release, when fully implemented, the top statutory Ontario income tax rate on taxable incomes over $500,000 will be 13.16%, up from the current 11.16%, and will remain at that level until the budget is balanced in the fiscal year ending March 31, 2018. For 2012, the Deficit-Fighting High-Income Tax Bracket will be 12.16%, one-half of the increase in the rate, with the full 2% increase effective in calendar 2013. This means that the combined federal and Ontario top marginal tax rate will increase to 49.53% from 46.41% in 2013.The government estimates an average incremental tax bill of $19,000 once the tax is fully implemented. Ontario says this change will generate additional revenue of $280 million in 2012/13, $470 million in 2013­/14, and $495 million in 2014­/15. "All of the additional revenue raised by this proposed measure would be used to reduce the provincial deficit,î said the government press release, "and accelerate Ontario's plan to eliminate the deficit by 2017/18.î In fact, a $500 million surplus is expected in 2017/18. Unfortunately, the increased revenue from the tax was not enough to appease credit rating agencies. Standard & Poor's put Ontario on a negative watch ó with a 33% probability of a credit rating downgrade within two years. Moody's then lowered Ontario's rating a notch to Aa2. As TD Bank Group economists Craig Alexander and Sonya Gulati point out in a report, since 2009, all three major rating agencies (DBRS, S&P and Moody's) have downgraded Ontario because of concerns about its "deficit profile, growing debt burden and deficit reduction efforts.î "Credit-rating scores and the risk premium associated with holding provincial debt have important implications for debt-servicing costs,î say Alexander and Gulati in their report. The two economists list some disturbing figures: ï Ontario's net debt as share of the economy will peak at 41.6% in fiscal 2014/15; five years ago the provincial debt burden stood at 26.8%. ï In the current low borrowing environment, interest costs consume about 8¢ of every $1 spent. ï Given the status-quo, in a few years, interest rate payments will inch up to 11¢ of every $1 spent. "If markets demand more of a premium to hold Ontario debt given credit rating agency unease,î say Alexander and Gulati, "Ontarians could see less money directed toward actual programs and services.î CIBC economist Warren Lovely does see some upside as a result of the new tax. In a CIBC report, he notes that every $1 of improvement in Ontario's budget balance will lessen the amount the province has to borrow. "So, for the current 2012/13 fiscal year,î Lovely says, "the long-term borrowing requirement has been lowered to $34.9 billion from $35.6 billion. The province has raised $1.6 billion toward that target since April 1.î

After a long period of historically low interest rates, are rates soon to edge higher? In the wake of the Bank of Canada's setting of the overnight rate and releasing the April Monetary Policy Report (MPR),  bank economists are speculating that rates are poised to increase later this year or early in 2013. But, they maintain, any move will be gradual. The U.S. central bank, the Federal Reserve, has promised to hold firm on rates until 2014. Canada cannot get too far out of step with the U.S. without economic repercussions. TD Bank Group chief economist Craig Alexander contends the Bank of Canada cannot raise interest rates by more than one percentage point. Bank of Montreal economist Doug Porter puts the "maximum sustainable divergenceî between Canadian and U.S. rates at 200 basis points. Either way, it is a tight range. "This argues for a step-wise tightening of monetary policy,î says Alexander in a report, "with periodic pauses to assess how the risks and economic environment are unfolding.î Certainly, the April MPR paints a brighter economic picture than the January edition. Globally, the Bank of Canada notes, Europe is emerging from recession, probably in the second half of 2012, U.S. growth is "slightly strongerî than expected, and emerging economies are still showing robust if slower growth. In Canada, inflation is within the 2% target range, business investment has been solid and household spending continues to support the economy. As a result, the Bank has adjusted its growth projection slightly upward; it expects the economy to grow by 2.4% in both 2012 and 2013 before moderating to 2.2% in 2014. "The degree of economic slack has been somewhat smaller than anticipated,î Bank of Canada Governor Mark Carney told the press conference when releasing the MPR, "and the economy is now expected to return to full capacity in the first half of 2013.î This was followed by the remark that fuelled rate speculation: "In light of the reduced slack in the economy and firmer underlying inflation,î Carney said, "some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2% inflation target over the medium term.î But Carney left maneuvering room. "The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments,î he added. And, clearly, there are no guarantees it will be smooth sailing. The MPR lists three main upside risks to inflation in Canada: ï persistently higher oil prices, which would fuel global inflation; ï U.S. economic growth that outpaces expectations; ï stronger-than-expected household expenditures in Canada. The two main downside risks to inflation in Canada are: ï the sovereign debt and banking crisis in the euro area, although improved, could re-escalate, affecting Canada through financial, confidence and trade channels; ï high household debt levels in Canada could lead to a sharp deceleration in household spending, having a spillover effect on other areas of the economy. Those are a lot of "ifs.î The realization of any one of those scenarios, as CIBC economist Avery Shenfeld points out, could put rate hike plans once again "on the back burner.î   Additional Educational Resources: Elements of Real Wealth Management and Financial Recovery in a Fragile World.  

The tax-filing deadline is midnight April 30 ó unless you are self-employed, in which case the deadline is midnight June 15. But even if you qualify for the June 15 deadline, you still have to pay the Canada Revenue Agency (CRA) any amount owing on your 2011 taxes by April 30. So, filing by April 30 is the best and only way to avoid expensive late-filing penalties on this year's taxes. The CRA charges a penalty of 5% of the unpaid balance plus 1% for each full month the amount remains unpaid to a maximum of 12 months. The penalty is higher if you repeatedly file late. Nor does it pay to use the CRA to bankroll accumulating unpaid taxes: it charges interest on the amount owing based on the "prescribed rateî of interest, set quarterly by the CRA, plus 4%. This interest compounds daily ó it can add up quickly. So, if you have savings, cashing out to pay overdue taxes could pay off. But seek the advice of your tax and financial advisory team before you take action. From a tax planning point of view, you will want to tap into tax-paid savings such as a guaranteed investment certificates or Tax-Free Savings Accounts before withdrawing money from your RRSP or RRIF ó that will only result in a tax liability next year. What happens if you can't pay? If your balance is not paid within 30 days of the receipt of your Notice of Assessment or Reassessment, you will receive a letter or a phone call from the CRA. This is your opportunity to arrange a payment schedule with the CRA. If the CRA is satisfied you have exhausted all other means of paying ó cashing in savings, borrowing or arranging lines of credit ó it will work with you. Speak to a payment agent or ask your tax advisor do so for you. Promptly clearing up your bill with the CRA is to your advantage. Indeed, interest will be charged on the outstanding balances but you'll avoid receiving what the CRA calls the "final letter.î This will advise you that if you don't make arrangements that are satisfactory to the CRA within 90 days of the Notice of Assessment, the CRA can take legal action, such as garnishing your income or directing a sheriff to seize and sell assets. Also, don't expect a refund from any other statute administered by the CRA, such as your GST/HST account if you are self-employed. The CRA will use those amounts to pay off your income tax bill.   Itís Your Money. Your Life. Filing an income tax return on time and paying balances promptly will save you time, money and the stress of dealing with legal action. So, do make the time to see your tax advisor this week.   Evelyn Jacks is president of Knowledge Bureau and author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World with Al Emid and Robert Ironside.   Follow her on twitter @evelynjacks      

If you are filing a return for either a testamentary trust or an inter vivos trust, you will want to review Canada Revenue Agency's T3 Trust Guide, 2011. There are a number of changes including the treatment of eligible dividends and Employee Life and Health Trusts (ELHT). An ELHT is a single-purpose inter vivos trust established by one or more employers to deliver benefits to employees and related persons. Employers' contributions to the trust are tax-deductible ó as long as the benefits delivered meet the conditions set out in subsection 144.1(4) of the Income Tax Act. Employees can also contribute to an ELHT but their contributions are not deductible. Their contributions may qualify, however, for the medical expense tax credit, to the extent that they are contributing to a private health services plan. The ELHT itself can deduct amounts paid to employees or former employees for designated benefits and can generally carry non-capital losses back or forward three years. The CRA notes that any amount received from an ELHT other than a designated benefit must be included in income. Payments of benefits to non-resident employees or former employees will generally not be subject to taxes under Part XIII. The T3 Trust Guide also notes that: ï If the trust for which you are reporting uses the International Financial Reporting Standards, you will need to note that on the T3. ï Effective Jan.1,2011, the gross-up rate for eligible dividends and the rate that applies to the taxable amount of eligible dividends, for purposes of the dividend tax credit, have changed. The CRA has also made it easier for those filing a T3 return for an estate that has only pension income, investment income or death benefits. An aptly placed symbol indicates the information you need, greatly reducing your reading time.   Additional Educational Resource: Use of Trusts in Tax and Estate Planning  

The Canada Revenue Agency (CRA) takes the obligations of Canadian taxpayers to pay their taxes honestly and fairly very seriously. As three recent cases show, the CRA is becoming increasingly diligent in its pursuit of that goal ó and the courts equally as conscientious. ï Two British Columbia men, Sikander Singh Bath and Manjit Singh Khangura, were given jail terms of four and a half years and three years, respectively. Their crime: fraudulent GST rebates. Over a period of three years, the two filed false GST refunds that totaled more than $11 million. Bath was charged with six counts of fraud and Khangura three. Their scheme took place between August 1994 and August 1997 and involved 13 fictitious companies. Although the companies claimed to be in the lumber business ó and claimed and received GST refunds accordingly ó the court found the companies did no real business to support the GST refunds. Earlier this year, a co-accused, Paramjit Gill, pleaded guilty to three charges of fraud related to the activities totaling almost $3 million. He was sentenced to two years less a day for his part in the scheme. (Judges often hand down this sentence because it relieves the courts of placing those offenders usually seen as less culpable in a federal penitentiary.) ï Colwood, B.C., contractor Brian Mark Buchan was convicted of tax evasion on April 16 and fined $28,000. The CRA showed that Buchan failed to report almost $190,000 in business income from self-employment for the taxations years 2004-2006, thus evading $25,432 in federal income taxes. The CRA identified the amount of unreported income by reviewing the T5018 Statement of Contract Payments forms of some of Buchan's larger customers and using other investigative tactics. ï Earlier this month, Ontario resident Wallace Dove was fined $59,388 and given a nine-month conditional sentence, including four and a half months under house arrest, and 12 months probation. Dove pleaded guilty to creating false documents in order to obtain false refunds from the CRA. The case revolves around a CRA notice that stated Dove was liable for $118,777. Dove altered the notice to say that $118,777 had been withheld from him, and the CRA owed him a $118,777-refund. During a subsequent audit, the fraud was revealed and Dove was charged. His fine was half the amount of his attempted fraud.Individuals convicted of tax evasion must repay the full amount of taxes owing, plus interest and any civil penalties that may be assessed by the CRA. Additionally, the court may fine them up to 200% of the taxes evaded and impose a jail term of up to five years. 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.