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. 

From Jan. 1 to March 31, 2012, the Canada Revenue Agency (CRA) will charge you 5% interest on overdue taxes, Canada Pension Plan contributions and Employment Insurance premiums. Interest on overpayments owed by the CRA to corporate taxpayers will be 1% and to non-corporate taxpayers 3%. To calculate taxable benefits for employees and shareholders from interest-free and low-interest loans, the rate is 1%. Rates are calculated quarterly. The federal government would like your input on Pooled Registered Pension Plans (PRPPs). The Department of Finance has released for consultation draft legislation for changes to the Income Tax Act and the Income Tax Regulations to accommodate PRPPs, a broad-based, low-cost, defined-contribution pension vehicle available to employers, employees and self-employed individuals. You can submit comments to PRPPtaxrules-RPACreglesfiscales@fin.gc.ca until Feb.14,2012. The backgrounder and explanatory notes can be found at www.fin.gc.ca/n11/11-134-eng.asp.

Any way you measure it, credit rating agency Moody's Investors Service doesn't like Ontario's increasing debt. It has put the province on notice, revising its outlook to negative from stable. Ontario's 2012-2013 budget will determine whether the province's Aa1 rating is downgraded come spring. Certainly, Ontario has accumulated a mountain of debt ó $238.4 billion as of the province's March 31, 2012, fiscal year end. According to data from RBC Economics Research, that is the highest provincial debt by far; the next closest is Quebec, at $166.1 billion, with third-place British Columbia, at $36.5 billion, presenting another sizeable gap. Alberta is at the other end of the spectrum, with an $11.3-billion surplus. Ontario's debt is surpassed only by the federal debt of $585.2 billion. On a per-capita basis, Ontario's debt is $17,830, second only to Quebec's $20,829. Federally, debt per capita is $16,970. But perhaps a more important indicator is net debt as a percentage of gross domestic product (GDP). For the 2011-2012 fiscal year, Ontario's debt-to-GDP ratio is 37.4% and, although the province promises to balance the books by 2016-2017, debt is expected to rise for the next few years. Derek Burleton, deputy chief economist at TD Bank Group, expects the debt-to-GDP ratio to reach an uncomfortably high 40.6% before it stabilizes in 2015-2016. As part of its undertaking to reduce its $16-billion 2011-2012 deficit, Ontario's government has promised to keep increases in program spending over the next six years to 1%-1.5% a year. Burleton says that represents "the longest period of austerity Ontario has seen in the Post-War period.î Ontario's ability to stick to the plan worries not only Burleton but also Moody's. It is concerned an unexpected economic shock could knock Ontario plans "off target.î Ontario has already adjusted its projections for economic growth downward because of the worsening global outlook. In its November 2011 Economic Outlook and Fiscal Review, it projected real GDP growth for 2011 and 2012 at 1.8%, revised from 2.4%. Growth in 2013 will be 2.5%, it says, and 2.6% in 2014.

Consumer prices rose 2.9% in the 12 months ended November, matching the increase in October. Prices in all eight components of the Consumer Price Index (CPI) rose ó led by transportation and food ó and every province experienced higher prices. According to Statistics Canada, the cost of transportation increased 5.7% in the 12 months from November 2010 to November 2011, fuelled by a 13.5% increase in gasoline prices. And that is the good news. Gasoline prices advanced 18.2% in October and the November increase was the smallest year-over-year gain since the beginning of 2011. As well, consumers paid 4.4% more for passenger vehicle insurance and 1.8% more for passenger vehicles. Food prices rose 4.8% in the 12 months. Says StatsCan, consumers paid 5.7% more for food purchased from stores as prices increased for common staples, including meat (6.2%), fresh vegetables (13.2%) and bread (11.9%). Prices for food purchased from restaurants also went up. As for prices in the remaining categories: ï household operations, furnishings and equipment increased 2.4%, ï health and personal care was up 1.6%, ï shelter gained 1.5% on the back of a 24.4% increase in the price of fuel oil, ï clothing and footwear was up 1.1% ï Alcoholic beverages and tobacco products gained 0.9% ï Recreation, education and reading was up a slight 0.5%. The provinces hit hardest by price increases were the eastern provinces with prices in Newfoundland and Labrador up 4.1%, New Brunswick up 3.9% and Nova Scotia up 3.7%. At the other end of the scale Ontario and British Columbia had the smallest consumer price increases with 2.5% and 2.3%, respectively. The Bank of Canada's core index, which excludes eight of the CPI's most volatile components as well as the effects of changes in indirect taxes on the remaining components, rose 2.1% from November 2010 to November 2011.

Want to start 2012 on a sound financial footing? Your family's tax returns are a great place to look for year-end tax-planning opportunities. Following are seven tax tips to discuss with your tax and financial advisors before the year end that may yield you gold: Recover taxes owing from prior years. Sometimes, individuals put off filing their income tax returns because they think they owe money. In fact, the tax department may owe them. (It's always nice when that happens!) So, if you're a delinquent filer, get caught up ó and remember, by filing a return, you create RRSP contribution room as well as capital loss carry forward or carry back opportunities. Or, you may have filed your returns but missed an important tax-saving provision. Tax refunds resulting from errors and omissions may be recovered for up to 10 years. So, if you're in this later category, refile your returns; if one of those missed opportunities is for 2001, be sure to adjust your tax returns by December 31, before the time runs out. After all, it is your legal right to arrange affairs within the framework of the law to pay the least income taxes possible. Don't overpay your quarterly instalments. If you pay your income taxes in quarterly instalments, you had an instalment due on December 15 or, in the case of farmers, it is due December 31. If you haven't yet paid, be sure to calculate your estimated income for the current tax year first. If your 2011 income is lower than in past years, you may be able to reduce that payment or not make it at all. To use the optional "current yearî or "prior yearî methods of calculating your instalments, check out the Canada Revenue Agency's publication P110 Paying Your Income Taxes by Installment. This is a nice way to create new capital for investment purposes or that much needed vacation! Compute your family RRSP advantage: Most Canadians do not maximize the opportunity to contribute to their RRSPs and that's a shame for a number of reasons. One important consideration: a RRSP deduction reduces net income ó that line on your tax return upon which refundable and non-refundable tax credits are based. Lower net income increases those credits and, therefore, cash flow, leaving more money for investment opportunities. Contributing to an RRSP can truly save you a lot of money and, taken on a family basis, can boost your family net income. So, plan now to contribute to an RRSP for each family member who has contribution room. (Check last year's Notice of Assessment for this figure.) RRSPs are also important planning tools for couples wanting to split retirement income under a spousal plan. If cash is scarce this time of year, consider moving assets you have in a non-registered account into a RRSP. Talk to your tax and financial advisors about superficial loss rules and how they may apply. Consider tax-loss selling activity. Year end is a good time to consider selling losers in your portfolio to offset the winners. Capital losses generated by the sale or transfer of stocks and bonds in a non-registered portfolio before year end will offset capital gains incurred this year. Unused losses can be carried back three years to offset capital gains you reported in any of those years ó a great way to reach back and recover taxes previously paid. Or, you can carry unused capital losses forward indefinitely ó an important way to manage taxes on your next winning investment. Split income and transfer assets. Today's low interest rates make it opportune to borrow money to increase your investment portfolio. Interest on your loan is tax-deductible provided there is a reasonable expectation that your investment will generate income ó interest, dividends, rents or royalties ó in the future. (Note: capital appreciation is not considered income from investment.) For family income-splitting purposes, a spouse can lend money to a lower-income spouse to enable the reporting of investment income in that person's hands. Just draw up a bona fide loan and charge your spouse the interest rate prescribed by Canada Revenue Agency. Your spouse, however, must actually pay you the interest by January 30 following each taxation year and you must, of course, report the interest on your tax return. A TFSA is a must. Give your adult children a valuable Christmas gift: open a Tax-Free Savings Account and make sure you and/or they maximize the opportunity to put up to $5,000 in it each year. The earnings that accumulate in the account are tax free and using this valuable savings room can build family millionaires. Donate securities. Capital gains can be avoided entirely when qualifying securities with accrued gains are transferred to your favorite charity before year end. A receipt for the donation will also offset taxes payable. That's a win-win and worth a portfolio review. Other tax saving tips to consider and discuss with your advisor before year end include: maximizing medical expenses, annualizing taxes on bonus payments, buying a car or computer before year end to maximize capital cost allowance deductions, finalizing the auto log for 2011, then qualifying for " loggingî only three months next year, moving before year end if your new job or business is in a province with a lower tax rate, avoiding clawbacks on Old Age Security and refundable tax credits with net income planning, avoiding promotional expense claim restrictions for rookie commissioned-sales reps, planning for early retirement with new CPP changes starting in 2012, sorting receipts early: this year, be on time and be audit-proof. It's your money, your life. A tax-wise investor becomes wealthier over the long run regardless of the economic cycle. Most people leave tax savings on the table. Maximize your potential to reduce your after-tax income before year end! Evelyn Jacks, a best-selling Canadian author of 48 books including Essential Tax Facts 2012, is the Founder and President of The Knowledge Bureau, a national educational institute focused on Real Wealth Managementô. Learn tax preparation and tax-efficient retirement income planning: see www.knowledgebureau.com. ADDITIONAL EDUCATIONAL RESOURCE: Distinguished Advisor Workshop - Annual T1 Update

I have been blogging about how individuals and businesses can work hard to reduce their debt. While reduced consumer spending may add to Canada's sluggish economic outlook in the short term, on a personal level, cutting spending is a very good plan for shoring up your long-term financial stability. Without aggressive saving, it's possible that your debt, rather than your wealth, will be the legacy of your retirement. Getting your financial house in order sooner rather than later will help you find "redundant income,î that is, money that is available for savings after you have covered your regular expenses. That is income you can save and grow inside tax-efficient plans, including your RRSP or TFSA. Managing debt will also help you protect your savings from taxes and inflation, the two factors that are bound to erode your future wealth. You may be aware that governments' biggest source of revenue is taxes on personal income. If governments are to continue spending to stimulate the economy and if ongoing sluggish economic activity further reduces tax revenues, an important recourse for governments is raising taxes to meet the demand for government services. That scenario makes it even more important to manage your personal finances with tax savvy.To minimize personal income taxes, know your marginal tax rate on every source of income you or your investments generate.You can then tweak your income and cash flow plan with tax efficiency. It's also important to take a family approach and employ income-splitting techniques whenever you can.When you split and diversify your sources of income, you will pay fewer taxes. Finally don't forget the ideal order of investing which will give optimize your investment dollars by minimizing the tax impact. Decide what should come first: for example, your RRSP, your TFSA or an RESP. It's your money, your life. It's the tax-savvy steps you can take now that can help you build sustainable wealth. Speak to your tax advisors soon about creating new strategies to "average down your taxesî with income diversification, income splitting and the deferral of taxes on your investing activities. Evelyn Jacks is President of Knowledge Bureau and has recently been named one of Canada's Top 25 Women of Influence. Knowledge Bureau has just published new courses on debt management, updates to cross-border taxation issues and a new library of personal, corporate and GST tax matters to take recent court cases into account. For more information call 1-866-953-4768

If you pay by instalment, December 15 is the date for your last quarterly instalment in 2011 ó unless you are a farmer, in which case the date to remember is Dec. 31. It is also time to estimate income for 2012 and Canada Revenue Agency has posted on its website the booklet and forms that you and your tax advisor need. Instalments are periodic income tax payments that cover taxes that you would otherwise have to pay in a lump sum on April 30 of the following year. Instalments are not paid in advance; they are paid throughout the calendar year in which you earn the taxable income. According to P110 Paying Your Income Tax by Instalments, you have to pay your income tax by instalments for 2012 if your net tax owing is more than $3,000:  in 2012; and  in either 2011 or 2010. There are exceptions. For example, different rules apply if your main source of income in 2012 is self-employment income from farming or fishing. The guide provides more detailed information. Also on the CRA website are the worksheets you and/or your tax advisor will need to calculate tax payable: T2WS1 Calculating estimated tax payable and tax credits for 2012 T2WS2 Calculating monthly instalment payments for 2012 T2WS3 Calculating quarterly instalment payments for 2012 5000-S8_5005-S8 Schedule 8 - 5013, Non-Residents and Deemed Residents of Canada 2009 Additional Educational Resources: Distinguished Advisor Workshop January