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. 

Interest rates are putting policymakers and politicians between a rock and a hard place. When the Bank of Canada recently left the overnight rate at 1%, it confirmed the likelihood the stable, low-interest-rate environment would continue into 2013. But those same low interest rates have fostered Canada's overvalued real estate market and record levels of household debt. As TD Bank chief economist Craig Alexander puts it in a recent report, this imbalance "poses a clear and present danger to Canada's medium-term economic outlook.î He calls on policymakers to address the imbalance and take action to minimize the risks associated with the higher interest rates that will eventually, but surely, come. Certainly, mortgage rates are low enough to make acquiring a home, even at inflated prices, attractive. In a battle for market share, non-bank lenders are offering 10-year closed mortgages around the 4% mark, while bank rates may be a two percentage points higher. In fact, it is currently more expensive to owe Canada Revenue Agency money. The CRA's rate on overdue taxes, Canada Pension Plan contributions and Employment Insurance premiums, calculated quarterly, for the period April 1 to June 30, is 5% of the overdue amount. If you owe taxes for 2011 and don't file your 2011 return on time, the CRA charges a late-filing penalty of 5% of your 2011 balance owing, plus 1% of your balance owing for each full month that your return is late, to a maximum of 12months. The CRA recommends taxpayers file their returns on time and pay what they can ó even if they can't pay the whole amount. Alexander's concern is highly leveraged households. He notes growth in household debt over the past decade has been fuelled by "real-estate secured loansî such as mortgages and home equity lines of credit. Either sinking house prices or rising interest rates could provide the economic shock that sends Canadians reeling. "We have estimated,î he writes, "that once interest rates return to more normal levels, more than one million Canadian households (roughly 10% of households that currently have debt) will have to devote 40% or more of their income to making their monthly debt payments ó a level that the Bank of Canada deems puts households in a financially vulnerable position.î Alexander outlines three option: ï shorten the maximum amortization on mortgages to 25 years from 30 years; ï in­troduce a minimum interest-rate floor on all income tests, say 5.5%, when qualifying for mortgages or home equity loans; ï raise the minimum down payment modestly, say to 7% from 5%. He does not recommend all three be instituted at once: "Tighter standards should be imposed in a gradualist fashion to avoid triggering a sharp unwinding of the imbalances that are present.î He admits nothing can be done about the real estate and personal debt imbalance but policy action could prevent that imbalance from becoming larger.   Additional Educational Resources: Financial Recovery in a Fragile World  

If you are supporting an adult who is dependent on you because of mental or physical impairment, the Canada Revenue Agency (CRA) offers tax relief on this year's federal tax return in the form of several, important, non-refundable tax credits. ï Amount for an Infirm Dependant Over 18. (Line 306) If an adult is dependent on you because of an impairment in mental or physical functions, you may be eligible to claim this amount. The dependent adult's net income ó including social assistance and world income ó in 2011 must be less than $10,358. ï Caregiver Amount. If the dependant lives with you in your home, you may also be able to claim the Caregiver Amount. The dependant's net income threshold is higher in this instance than the infirm-dependant amount. The tax credit begins to be clawed back around the $14,600 mark, making this credit accessible to more taxpayers, particularly seniors who are receiving public and private pension benefits. ï Disability Amount. If that adult child is markedly restricted in daily living activities and a medical practitioner completes form T2201 Disability Tax Credit Certificate, you can also claim the Disability Amount ó provided the disability is expected to last for a continuous period of 12 months or more. This amount is not income-tested; if the dependant does not have enough taxable income to absorb it, you ó as the supporting individual ó may claim it. ï Medical expenses. Medical expenses for the dependent adult, too, may be claimed. Note that as of 2011, there is no longer a $10,000 ceiling on the amount of these expenses. ï Child-care costs. Working parents note: you are also eligible for a lucrative tax deduction for infirm adult children who qualify for the Disability Amount. If you incur child-care costs at your expense, you may be able to claim those child-care expenses, up to a maximum of $10,000 a year. It's Your Money. Your Life. If you are supporting an infirm adult, claim your tax credit. Or, if you know of a family that is taking care of an infirm adult, pass along this information. Often, these tax preferences assist greatly, especially if the caregiver's ability to earn is curtailed because of the responsibilities of care. In fact, knowing about these tax opportunities can create important new money for investments such as a Tax-Free Savings Account or RRSP, which can bring further tax-advantaged cash flow into the family. Next Time: Investing Tips for Young Adults Evelyn Jacks, president of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. To purchase your books, visit www.knowledgebureau.com/Books.asp. Follow Evelyn on Twitter @evelynjacks

The RC343 Worksheet for calculating the contribution room for Tax-Free Savings Account Plans (TFSAs) is now available in electronic form on the Canada Revenue Agency (CRA) website. But you use the worksheet only if the CRA has incomplete information about your TFSA contributions. To find out what the CRA says about your contribution room you have three options: go online to www.cra.gc.ca/myaccount or www.cra.gc.ca/quickaccess or call the Tax Information Phone Service at 1-800-267-6999. If your numbers and the CRA's numbers don't match, fill in the RC343 Worksheet. Remember, you can contribute up to $5,000 a year and, if you miss contributing in a particular year or make withdrawals, the room accumulates in successive years. But you must be wary of contributing more than your contribution room. As with RRSPs, the CRA charges a monthly penalty ó a tax of 1% on your highest excess amount in that month. But unlike the RRSP, there is no $2,000 "graceî amount for the TFSA. The 1% tax applies from the first $1 of excess contributions. So, if you unintentionally go over, withdraw the excess amount as quickly as possible. Even so, that 1% tax applies for the particular month in which you had an excess. Also, now online is the CRA's RC4018 Electronic Filers' Manual for 2011 income tax returns. Chapter one deals with preparing electronic records while chapter two addresses how to deal with errors when filing electronically.   Additional Educational Resources: Essential Tax Facts 2012 Edition and EverGreen Explanatory Notes  

The Ontario government is changing the way it delivers its Ontario Energy and Property Tax Credit (OEPTC) as well as its Northern Ontario Energy Credit (NOEC)  and Ontario Sales Tax Credit (OSTC). Instead of quarterly cheques, come July, all three will be rolled into the Ontario Trillium Benefit (OTB) and will be delivered to the low- to moderate-income Ontarians who qualify as monthly cheques. "Through the OTB, the Province transformed the delivery of Ontario's key refundable tax credits by making payments to Ontarians earlier and more frequently than before,î the provincial government says. "This approach ensures that the payments better match when people incur these costs.î The move has caused some heated discussion among recipients of the tax credit who still prefer to receive one, lump-sum payment. Ontario Finance Minister Dwight Duncan admits his government did a poor job of communicating the change. In future years, he promises, taxpayers will be given the option to choose monthly payments or a lump-sum payment. Ontario instituted quarterly payments in 2011 with payments for the 2011-12 benefit year ó based on the 2010 personal income tax return ó going out in July 2011, December 2011, March 2012 and June 2012 for the OETPC and NOEC. The OSTC benefits were paid August 2011, November 2011, February 2012 and May 2012. Payments for the 2012-13 benefit year ó based on the 2011 personal income tax return ó will be monthly beginning in July. That means Ontario taxpayers receiving the credits get one more quarterly installment ó May for the OSTC and June for the OETPC and NOEC ó before the new, monthly regime begins.   Additional Educational Resources:  Debt and Cash Flow Management and Financial Recovery in a Fragile World  

On Feb. 28, Winnipeg chiropractor Rosalie Chobotar was sentenced in the Provincial Court of Manitoba to six months in jail and fined $162,513. Chobotar's offense: tax evasion. She is what Canada Revenue Agency (CRA) refers to as a "tax protester,î someone who believes income taxes are unconstitutional, optional or easily averted using certain interpretive techniques. The justification tax protesters most commonly use for not paying taxes is the "natural personî vs "legal personî dichotomy. As the CRA explains, a tax protester treats him- or herself as two people for income tax purposes. The natural person is the individual who performs the labour required to earn income while the legal person is the entity the federal government creates by issuing a social insurance number. Tax protesters acknowledge that the legal person has to file an income tax return ó which Chobotar did ó but contend that income received as a natural person is not subject to Canadian income taxes. For example, Chobotar reported "nilî income on the tax returns she filed for the years 2002 to 2007; when she signed the returns, she included the phrase "to the best of my knowledge without understanding". But, as Chobotar discovered, the courts do not accept this argument. (Go to http://www.cra-arc.gc.ca/nwsrm/cnvctns/mb/mb120228-eng.html.) And Chobotar isn't alone in paying the price. An Ontario tax protester was recently fined $522,000, representing 150% of the federal taxes evaded. The taxpayer was also given a one-year conditional sentence, ordered to remain in Ontario and surrender his passport, and perform 180 hours of community service. A little history. Canada's income taxes were instituted to pay for the First World War. Prime Minister Sir Robert Borden introduced federal income taxes on business profits in 1916 and on personal income in 1917. At the time of introduction, the minister of finance stated: "I have placed no time limit upon this measure; a year or two after the war is over, the measure should certainly be reviewed.î Thirty-two years later, on January 1, 1949, income taxes were declared permanent. The authority to tax. From where does the authority to impose taxes derive? Income taxes must have a constitutional basis that defines and legitimizes their implementation and administration. Canada's legal system is based largely on the common law of the United Kingdom and the rule of no taxation without representation extends back to the Magna Carta of 1215. Although Canada's constitution now comprises many documents, section 52 of the Constitution Act 1982 provides that the Constitution of Canada is the "supreme law of Canadaî and any law inconsistent with it has no force or effect. Included in section 52's non-exhaustive list of documents comprising the supreme law of Canada is the original British North America Act of 1867, written in London for the new dominion. This Act divides the authority to impose taxes between the federal and provincial governments. Under subsection 91(3) of the Act, Parliament has the power to raise money by any mode or system of taxation. Subsection 92(2) permits the provinces to impose income taxes but only through direct taxation within the province and only for raising revenue for provincial purposes. By organizing the power to tax in such a way, the federal government has considerable power over the national economy and the distribution of wealth amongst the provinces. Courts confirm constitutional validity. Courts analyze the "pith and substanceî of laws to determine their constitutional validity. The division of powers between Parliament and the provincial legislatures offers a hurdle for laws seeking validation. If, for example, a provincial legislature enacts a law that the courts construe as pertaining to another province, the court will strike the law down as ultra vires or outside the jurisdiction of the legislature. Other than this jurisdictional safeguard, Parliament and the provincial legislatures are almost unconstrained in their ability to impose and reform income taxes. Conclusion. Tax protesters have no legal basis for their claims and, as Chobotar found out, there are serious consequences ó interest costs and penalties and, possibly, jail time ó for pursuing this course. So, long story short: pay your taxes ó you are legally obligated to do so. See also the CRA's "Debunking Tax Myths.î 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.  

With the federal budget scheduled for Thursday, March 29, Federal Finance Minister Jim Flaherty recently met with Canada's leading private sector forecasters to gather their views on Canada's economic prospects. The Department of Finance bases its economic forecast for budget-planning purposes on the average of private sector economic forecasts. But Flaherty came away from the meeting empty-handed as economists wanted time to digest Statistics Canada's announcement of real gross domestic product (GDP) numbers on March 2. Generally speaking, GDP rose 0.4% in December, good news after a 0.1% dip in November. On an annualized basis the economy expanded by 1.8% in the final quarter of 2011, taking the average growth for all of 2011 to 2.5%. The other surprise was StatsCan's third-quarter revision of GDP growth ó upward to 4.2% from 3.5%. "Consumer spending and exports contributed the most to fourth-quarter GDP growth,î StatsCan reported in its release. Generally speaking, bank economists are feeling optimistic about GDP numbers, even if they didn't give Flaherty a takeaway number. U.S growth registered 3% in the fourth quarter and the recession in Europe appears to be milder than expected ó all good news for Canada. "The monthly gain provides a nice hand‐off for GDP growth in first quarter 2012,î Bank of Montreal economist Doug Porter wrote in a report, "with the economy likely on track for something close to 2% again this quarter and for all of 2012.î TD Bank Group economist Sonya Gulati wrote in her report: "The headline result was below our expectations of 2.3%, but if we exclude the upward revisions Statistics Canada made to the quarter three data, the economy would have grown at roughly 2.5% in quarter four. This hand-off and the recent developments abroad will provide positive momentum for the Canadian economy this year. As a result, we will be modestly lifting Canadian GDP growth to just above 2% in 2012 in our next forecasting cycle, up from the 1.7% we had thought in December.î Observers are venturing that the consensus number offered to Flaherty will be between 2% and 2.5% for 2012 growth. In last year's budget, the Department of Finance based its growth projections for the fiscal year ending March 31, 2011, at 2.7% and U.S. growth at 3.2%.   Additional Education Resources: Financial Recovery in a Fragile World and Master Your Retirement 2012 Edition.