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. 

Real gross domestic product (GDP) fell 0.1% in November. The unexpected decline, on top of a flat October, has convinced many economists that the Canadian economy is slowing sooner than anticipated, indicating continued shepherding of your personal wealth. "If GDP manages to rise 0.2% in December,î writes Doug Porter, deputy chief economist at Bank of Montreal, in a report, "and that's no sure thing after back‐to‐back disappointments, growth will come in a touch below 1.5% in the fourth quarter, compared with the Bank of Canada's latest estimate of 2.0%.î According to Statistics Canada, reduced output in the energy sector was behind the November decline. Oil and gas extraction dropped 2.5% in the month, partially the result of maintenance shutdowns. Decreased drilling activity made for a 3.8% drop in support activities for oil and gas extraction. Certainly, as Porter notes, most of the downside was concentrated in that one category, but no other sector "stepped upî to provide any offset. For the third consecutive month, manufacturing output did increase ó but only by 0.6%. "Expectations of an increase in overall GDP in November were largely based on earlier indications of a sharp 1.7% rise in the volume of manufacturing sales in the month,î reports Paul Ferley, assistant chief economist at Royal Bank of Canada. Manufacturing growth was mainly in the production of durable goods such as machinery and motor vehicles (+0.9%) vs. non-durable goods (+0.1%). According to StatsCan, fabricated metal products, furniture and related products, and primary metal products also posted gains in output while manufacturing of computer and electronic products posted declines. Other major categories that increased output are retail trade (0.6%) and real estate and brokers (2.2%). Among those that decreased output are utilities (0.6%) wholesale trade (0.6%), finance and insurance (0.4%), and construction (0.3%). "After a strong third-quarter performance (+3.5%), economic growth in Canada has clearly lost momentum,î writes Dina Cover in a TD Bank Group report. "Overall, we expect the modest rate of expansion recorded in the fourth quarter to carry over into 2012.î If the economy is slowing at the rate projected, this has serious implications for the management of your personal wealth. Cautious spending and reduced debt are in order, as is guarding your wealth against the eroding effects of personal income taxes. If the employment environment worsens, have a back-up plan in case job loss threatens your financial well-being; consider opportunities for self-employment. Having a disaster recovery plan will help see you through what could be a challenging 2012. Additional Educational Resources: Debt and Cash Flow Management and Introduction to Personal Tax Preparation Services.  

The Feb. 29 deadline for 2011's RRSP contribution is fast approaching and if you are like a number of Canadians, you may well be procrastinating. It seems that when it comes to contributing to RRSPs, Canadians' intentions are far better than their actions. Take, for example, a recent survey of 1,520 Canadians 18 years of age and older conducted this past November on behalf of BMO Financial Group. Of the respondents, 69% said they would be contributing the same amount or more to their RRSPs in 2011 as they did in 2010. Yet, a recent Statistics Canada release shows less than one in four Canadians contributed to his or her RRSP in 2010. In fact, although 93% of taxfilers were eligible to contribute, only 26% of those who were eligible did. In reality, slightly less than six million Canadians made contributions in 2010. (Data is based on tax returns filed for 2010.) Either those Canadians surveyed in November were feeling optimistic about future contributions or they were being ironic: they contributed nothing last year and they intend to contribute nothing in 2011. Those who did contribute in 2010 put a total amount of $33.9 billion into RRSPs, a 2.6% increase from the amount contributed in 2009. But that $33.9 billion still represents only 5.1% of the total room available to eligible taxfilers. In fact, says StatsCan, the median contribution was $2,790, that is half of the tax filers contributed more than $2,790 and half less. Either way, that is a long way from the $22,000 maximum for 2010. This year, the maximum contribution is $22,450. To contribute, you must have qualifying income from 2011 (generally employment income which includes income from self-employment) or unused room from earlier years. The limit is based on 18% of the previous tax year's earned income to that maximum, less any pension adjustments, plus any unused room carried forward. (You can find your RRSP contribution room for 2011 by going to your latest notice of assessment, or reassessment, from Canada Revenue Agency. Or you can open "My Accountî on the CRA website, which gives you online access to your tax information.) Of the respondents to the BMO survey who are not contributing or are contributing less this year, 38% cited other expenses and 20% said they don't have the money. Yet, the BMO survey found, 61% of Canadian have an RRSP even if they don't make regular contributions. But it is mostly older Canadians putting money into RRSPs: 62% of respondents aged 18-34 said they have not yet opened an RRSP. That is consistent with StatsCan's findings. In 2010, the average age of contributors was 45. Of the almost six million taxfilers making contributions in 2010, 30% were in the 45-54 age category. The 35-44 age group accounted for 24%, while the 55-64 age group added another 21%. The under-35s accounted for 22% of contributors ó still slightly ahead of the 55-64 age group, who, you might assume, would be more motivated to save. Geographically, looking at median contributions in 2010, Canadians in the north and west were the largest contributors to RRSPs in 2010. Nunavut's median contribution was $4,100, Northwest Territories' was $3,610, Yukon's was $3,310. But as might be expected, the number of contributors was smaller in those areas. Ontario and Quebec had the greatest number of contributors, 2.2 million and 1.5 million, respectively, but were in the lower half for median contributions, $2,880 and $2,530, respectively. So, stop procrastinating and make your RRSP contribution. Don't forget the corresponding tax credit means your taxable income will be reduced by the amount of your contribution. The BMO survey also found one in three Canadians is not confident about his or her ability to save for retirement. The StatsCan numbers go a long way to explaining why. Tessa Wilmott is a financial journalist and editor of the Knowledge Bureau Report.   Additional Educational Resources: Tax Efficient Retirement Income Planning and Master Your Retirement, 2012 Edition.  

This week, a friend in business lamented the shocking loss of a key employee. The unanticipated death closed down the firm for several days as fellow employees absorbed this traumatic loss. It was the tenth death within this circle of employees, suppliers and clients and their respective families. When it rains, it often pours. Although very difficult emotionally, conceptually we understand the consequences of human frailty and demise. As humans, we do our best in times of great change: we rally around those who are vulnerable. Again and again, we cope with the stages of grieving ó moving from shock and denial to pain and guilt to anger and bargaining and, finally, to the beginnings of acceptance: reflection, re-organization and re-construction. People around the world are reacting to the disruptive and sometimes devastating effects of the extended global financial crisis with this same shock, denial and anger. And the challenge for governments is to manage these global economic threats to our fiscal health while keeping cherished social benefits in place. In Canada, there are big issues ahead for the large, baby-boom generation and the government that counts on boomers' continued contribution to its tax coffers. For their part, boomers are at the front door of retirement and are facing significant changes to Canada Pension Plan benefits and, possibly, access to Old Age Security. This comes after a decade of zero returns on their savings or, worse, the reduction or demise of their employer-sponsored or private pension plans. For its part, the federal government is already seeing interest charges on our public debt and support to the elderly eat up 11¢ and 13¢, respectively, of a dollar of government revenue. On the revenue side, the federal government counts on personal income taxes to provide 48¢ of every dollar of revenue collected. This source of revenue will be difficult to grow as this significant group of taxpayers heads into retirement. Fortunately, Canada is in a good position to balance global economic threats and preserve social benefits. According to the federal Department of Finance's Fiscal Monitor, released last week, the budgetary deficit for the first eight months of the government's 2011-12 fiscal year was $17.3 billion, vs. $26 billion a year earlier, a 35% improvement. Net tax revenues were up; program expenses were down. Public debt charges, however, increased and that is a threat for retirees. Higher deficits cost more money to service and, should interest rates rise, the ability to maintain or increase existing social benefits will be squeezed. It's important to anticipate that now so you can chart an alternate course if required. And so it goes: the burden of the healthy is to manage the consequences of decline and loss with grace and strength and to take the very best possible care of those who are vulnerable. It's Your Money. Your life. Things change. This tax season, take the time to find ways to save more of your income, so you can build and grow family wealth. Challenge your tax advisors to dig for every tax deduction and credit to which you are entitled, so you can reduce non-deductible debt and invest more tax-efficiently. This is one of the best ways to build your pensions and investments so you'll be ready for unexpected personal and/or economic shocks. Evelyn Jacks, President of Knowledge Bureau, is author of Essential Tax Facts 2012 and co-author of Financial Recovery in a Fragile World. Mrs. Jacks will be launching her books and addressing today's financial and tax issues in Toronto on Feb. 7 and Winnipeg on Feb. 9. To register, click here.

The picture for 2012 that the Bank of Canada Monetary Policy Report paints is of a Canadian economy constrained by a fragile global economy and dependent on continued, strong household spending. And, although inflation is expected to stay around 2% in 2012 and into 2013, too much or too little household spending could dislodge that outlook. Canadians have voiced their concerns about rising inflation (Knowledge Bureau Report, Jan. 11) but all indications are inflation poses little threat in 2012. Statistics Canada this week reported a 2.3% rise in the consumer price index (CPI) for the 12 months to December, on the back of declining gas prices. Bank of Canada's core inflation ó which excludes eight of the more volatile components of the CPI ó was 1.9% in 2011. Says the Bank of Canada in its report: "Core inflation is projected to moderate through 2012 to a level somewhat below 2%, as excess supply persists and the effects of higher prices for food and clothing on year-over-year inflation unwind. Total CPI inflation is projected to continue to decline to around 1.5% by mid-2012, reflecting lower core inflation as well as the gradual impact on gasoline prices of the decline in world oil prices from their peak in the second quarter of 2011. Both total and core inflation are expected to start to rise gradually by the end of 2012, reaching 2% by the third quarter of 2013 as excess supply in the economy is slowly absorbed, the growth of labour compensation increases modestly and inflation expectations remain well anchored.î The Bank, however, cites three upside risks to that scenario: climbing global inflation, stronger-than-expected U.S. growth and too much household spending. Risks on the downside are failure to contain the European crisis and too little household spending. So, how did household spending end up a linchpin of our economic stability? It wasn't so long ago that both the Bank of Canada and the International Monetary Fund were expressing concern about the levels of household debt. At the end of 2011, Canadians' household debt as a percentage of disposable income had surpassed 150%, giving the IMF reason to worry. Likewise in a Dec. 12 speech in Toronto, Bank of Canada Governor Mark Carney talked about "reducing our economy's reliance on debt-fueled household expenditures.î But, later in his speech, Carney also noted: "To eliminate the household sector's net financial deficit would leave a noticeable gap in the economy. Canadian households would need to reduce their net financing needs by about $37 billion per year, in aggregate. To compensate for such a reduction over two years could require an additional three percentage points of export growth, four percentage points of government spending growth or seven percentage points of business investment growth.î What has become clear is that those alternatives may not be available. With the worsening global outlook and slowing U.S. growth, Canada is not likely to see much in the way of export growth. Governments are facing mounting deficits, the result of recession-fighting incentive programs, and are cutting spending. Businesses, although in good shape financially, are taking a cautious approach to investment spending given the global outlook and will no doubt fall short of that seven-percentage-points goal. So, it comes back to household spending. Says the Monetary Policy Report: "Confidence effects stemming from the weaker and more uncertain global outlook are projected to exert only a modest dampening effect on Canadian household spending. Reflecting the upwardly revised profile for residential investment, household expenditures are now expected to remain high relative to GDP over the projection horizon and the ratio of household debt to income is projected to rise further.î What does Canadian household spending look like? According to StatsCan's 2009 Survey of Household Spending (the most recent data available), average household spending in Canada was $71,120. That average household spent 20.2% of its income on personal taxes, 19.8% on shelter, 13.7% on transportation and 10.2% on food. That left 36% for other spending. At each end of the spectrum, the one-fifth of Canadian households with the lowest income spent an average of $23,860 in 2009 while one-fifth of households with the highest income spent an average of $147,090. The lowest-income group spent almost 52% of that on food, shelter and clothing while the highest-income group allocated 27%. Personal taxes, on the other hand, represented 2.8% of the lowest-income household's budget and 30% of the highest-income household. Canadian's did cut back marginally on discretionary spending in 2009. Spending on household furnishing and recreation declined; for example, spending on snowmobiles fell 11%.

Preparing your income taxes when your tax records are helter-skelter is a difficult, frustrating and exasperating task. To assure yourself of better results come tax-filing time, make January the month you organize not only last year's records, but also this year's. Under the Income Tax Act, you are required to provide books and records to the Canada Revenue Agency, if asked, for a period of at least six years, which starts at the end of the tax year to which the records relate. That means 2011 records must be kept until Dec. 31, 2017. But some records and supporting documents must be kept indefinitely, including records documenting the acquisition and disposal of property, share registries, capital loss balances and other important historical information that can affect future tax returns or have an impact upon the net tax results from the disposition or wind-up of a business. The consequences of not having the appropriate records on hand can be onerous. (See CRA Information Circular 78-10). For example, if you fail to provide information or documents requested by the tax man, section 231.2 of the Act gives the government the power to require you to provide that information or documents. If you fail to maintain adequate books and records or provide the information or documents, CRA can bring a summary conviction and prosecute you. If it wins, in addition to any penalty otherwise payable, you may be subject to imprisonment and/or a fine not less than $1,000. Alternatively, the CRA can apply to the court for a compliance order, in which a judge orders you to provide access, assistance, information or the documents the CRA seeks. It's your money, your life. If you want to stay on the right side of the tax man, keeping records for tax purposes is not optional. But there is a second, just as important reason. Good financial records help you make better financial decisions for your family. You're the CEO of your money; make sure you have the documents you need to verify your personal net worth. It makes sense not just from a tax perspective but from a wealth-management and estate-planning point of view, too. Your professional tax and financial advisors can help. Evelyn Jacks is President of Knowledge Bureau and author of Essential Tax Facts 2012 and Financial Recovery in a Fragile World with Al Emid and Robert Ironside.

If you have lent money to ó or borrowed money from ó your spouse you will want to take note of this Jan. 30 deadline. You have less than a week to collect, or pay, the prescribed rate of interest on your loan, if you want to stay in Canada Revenue Agency's good books. Inter-spousal loans allow couples to split capital gains and income earned on "property.î The idea is the higher-income spouse lends money to the lower-income spouse, allowing the latter to purchase either real or financial assets. Then, the money earned on the property and the gains on the property's disposal is taxed in the hands of the lower-income spouse, who presumably has a lower income tax rate. Income splitting is a legitimate strategy and to keep it that way the CRA requires a repayment schedule be put in place at the time of the loan, with an annual interest rate that is no less than the prescribed rate of interest (currently 1%). If the spouse who is doing the borrowing does not stick to the repayment schedule, the CRA does not recognize it as a loan and attributes the earned income back to the lending spouse. So, to be exempt from attribution rules, it is necessary to maintain the structure of the loan. The borrowing spouse, therefore, must pay the lending spouse the prescribed interest within 30 days of the end of each calendar year, that is, no later than Jan. 30. The lending spouse is required to report the interest received on his or her income tax return as income. Assuming the loan was used to purchase income-producing stocks in a non-registered account, the borrowing spouse can deduct the interest paid on his or her tax return.   Suzanne Wray is Business Relations Coordinator at the Knowledge Bureau.   Additional Educational Resources: Essential Tax Facts 2012 and Introduction to Personal Tax Preparation Services.