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. 

When government have large debt, investors must be particularly vigilant about future inflationary spikes when lending money. In this excerpt from Financial Recovery in a Fragile World, a soon-to-be-published book from Knowledge Bureau, co-author Robert Ironside explains why below: Any form of taxation is a transfer of purchasing power from Party A to Party B. With the ëinflation tax', the transfer of purchasing power is from creditors to debtors. In Canada and the U.S., as in most other countries, the largest debtor is the Government. The inflation tax works like this: The Government issues a fixed coupon, long-term bond. Let's assume that the bond in question has a $1,000 face value, a 4% coupon and ten years to maturity. The bond sells in the market at par, based on current inflation expectations of 2%. The bond investor is thus expecting a 2% real return as compensation for deferring consumption. After the bond is issued, the Central Bank allows several years of 6% inflation. At the bond's maturity date, the bond investor receives a payment of $1,000 in exchange for her bond, but due to inflation, the $1,000 received will purchase a much smaller basket of goods and services than the $1,000 that was initially used to purchase the bond. There has been an effective transfer of wealth from the bond investor to the bond issuer. Although the bond's coupon of 4% compensated for a portion of the loss in purchasing power, it is not sufficient to totally offset the loss of purchasing power due to the unexpected inflation. The unexpected inflation has led to a confiscation of wealth that is every bit as real as an income tax, but most investors are never aware that a portion of their wealth has been expropriated. It is for this reason that inflation has always been used by weak governments that have become over-indebted. As long as the government's debt is held by the domestic population and denominated in the domestic currency, any government can inflate its way back to fiscal solvency. The holders of long-term government bonds become the unwilling (and often unwitting) taxpayers who make it possible. A Government that can print its own currency and that issues debt denominated in its own currency which will never default. It will simply redeem its debt with a depreciated currency that will purchase fewer goods and services than it formerly did. The U.S. government, for example, would only default on its debt if it were not allowed to issue more debt (as occurred during the summer of 2011) or if the Central Bank refused to purchase debt issued by the government. As long as the government has the ability to create new debt and as long as the Central Bank is willing to monetize the debt of the government, the U.S. government will never default on its debt, although the holders of that debt may suffer significant losses in wealth. This does not mean that the purchase of long Government bonds is a bad idea. It just means that a bond investor must always remain vigilant to possible changes in inflation that might erode the real (or purchasing power) value of the bond's face value. ADDITIONAL EDUCATIONAL RESOURCES: Financial Recovery and Elements of Real Wealth Management    

An Excerpt from Financial Recovery in a Fragile World The Greek financial crisis has been dominating the news and it has had significant effect on the confidence of investors, who are looking for a safe place to park their money. Inflation has a lot to do with both issues, as explained in this soon-to-be-published book from Knowledge Bureau, by co-author Robert Ironside below: In simple terms, inflation erodes the value of money. More money is required to purchase the same basket of goods and services. When it comes to investing, a lender wants to be compensated for the loss of purchasing power that might occur over the period of the loan. If lenders don't obtain sufficient compensation for inflation, as often happens during periods of rising inflation, the real yield earned on their money is negative. During a period of high and rising inflation, bond investors of the past have consistently under estimated the impact of inflation on their securities. For example, from 1966 to 1981, bond investors had a negative, real annually compounded rate of return of -4.2% in the United States[1]. To be successful over time, a bond investor wants to obtain a realized yield that compensates for both the deferral of consumption (the real interest rate), as well as compensation for the loss of future purchasing power that occurs due to inflation. The problem arises when inflation unexpectedly spikes upward, after a bond has been purchased. In this case, the yield-to-maturity that the bond was purchased to provide is not sufficient to compensate for the unexpected loss of purchasing power. It is for this reason that inflation is sometimes described as just another form of taxation and it is a form of taxation that is likely to be widely deployed as governments in all developed nations attempt to work their way out of their massive debt problems. Next time, we'll explain why. Part 2: Understanding the Impact of Inflation on Debt Reduction next week.   ADDITIONAL EDUCATIONAL RESOURCES: FINANCIAL RECOVERY AND ELEMENTS OF REAL WEALTH MANAGEMENT [1] Data is from Professor Jeremy Siegel.

New divorcees are often unaware that spousal support is taxable, and that can wrack up costly fines with CRA over time. It is important to review the rules before divorce papers are signed to understand the real value of the resulting payments. The payor will, of course, want to get the tax benefits of a deduction, however, if any portion of the spousal support payments are considered instead to be for child support, the payments will not be deductible. That can happen if child support is in arrears. The following checklist can help sort it out: ELIGIBILITY: Spousal support is taxable to the recipient and deductible to the payor, if certain conditions are met: The amounts paid are pursuant to a written separation agreement, judgment, order or decree The parties were separated and living apart when the payments were made The parties continued to live apart for the remainder of the year The payments were made to the former spouse or a third party for the maintenance of the spouse  The payments were made on a periodic basis (lump sum payments are not deductible).  The amount deductible by the payor and taxable by the recipient is the least of  The amount required to be paid under the agreement, judgment or order  The amount actually paid TRAPS: If child support payments are in arrears, all payments are deemed to be child support payments (not taxable) until all child support payments are brought up to date. Once child support payments are up-to-date, additional payments required are considered to be for spousal support, which is taxable. It's important too that agreements define the support payments carefully. For example child support is defined as any support amount that is not identified in the agreement or court order as spousal support. Child support payments made under agreements or court orders entered into after April 30, 1997 will not be taxable to the recipient or deductible to the payor. Court orders or written agreements should be registered with CRA using Form T1158 Registration of Family Support Payments under the following circumstances: The order or agreement was made after April 1997 and it specifies support payments for a spouse or common-law partner. The order or agreement was made before May 1997, it specifies support payments for a spouse or for a spouse and a child, and  Form T1157 Election For Child Support Payments has been filed; or The order or agreement was changed after April 1997 to increase or decrease the amount of child support payable. ADDITIONAL EDUCATIONAL RESOURCES: DISTINGUISHED ADVISOR WORKSHOPS, November 2 in Winnipeg, November 3 in Ottawa, November 4 in Toronto, November 9 in Vancouver, and November 10 in Calgary.  

CRA issued an updated Disability Tax Credit Certificate this week, a requirement for claiming the lucrative disability tax credit for a taxpayer with "a severe and prolonged impairment in mental or physical functions." The amount is claimed as a non-refundable credit against taxes payable, and must be signed by a qualified medical practitioner, so year end is a good time to review vulnerabilities with client families and send them along to their doctor's office to have this lengthy form completed. Any fees paid for the form filling qualify as a medical expense, and it is an expense that can be quite advantageous given how much money the credit is worth. It has two components: Basic Disability Amount is a non-refundable tax credit that acknowledges the expenses incurred corresponding to the treatment of a mental or physical impairment. This amount is available to all taxpayers who qualify. A Supplementary Disability Credit is available for taxpayers who are under 18 years old. The amount of the supplement is decreased by any child care expenses claimed (in excess of the base child care amount). Form T2201 Disability Tax Credit Certificate must be signed by a medical practitioner to qualify. The Basic Disability Amount for 2011 is $7,341. For those supporting a disabled minor, this amount is enhanced by an indexed supplement of $4,282 for 2011, for a total claim of $11,623 for 2011. This amount is reduced by amounts claimed under child care expenses on Line 214 and the disability supports deduction on Line 215 in excess of a Basic Child Care Amount of $2,508 for 2011. It's not always easy to qualify for the credit, and there are often disputes when CRA refuses. Measures announced on November25, 2010 will ensure that individuals can appeal, in every case, a determination concerning their eligibility for the Disability Tax Credit. In order to object to a determination, the taxpayer must file a Notice of Objection before the later of: 90 days after the notice of determination is mailed and one year after the due date of the taxation year to which the disability claim applies. For those who missed claiming the amount may reach back and recover missed credits for a period of up to 10 years; which means that tax year 2001 will drop off on December 31. ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes; Introduction to Personal Tax Preparation  

As investors fret about the latest market gyrations, there is much that can be done to hedge against loss. How you invest, when you invest and for how long has significant impact on wealth accumulationówhich determines whether you'll have income for life and beyond. Retirement income adequacy, according to post-crisis research by the Department of Finance "critically dependsî on three things: ∑ the tax assistance for savings (RRSP versus nonñRRSP), ∑ timing of investments and ∑ the type of investment. According to the study, by Dr. Vijay Jog (December 2009), an individual investing 18% of her saving. . . in blended portfolio at zero cost and invested in corresponding passive equity, debt and t-bills would have saved 18years worth replacement income (60% of salary). The same amount invested outside RRSP would have resulted in 14years worth replacement income. Both these numbers assume a 35% tax rate during workyears and a 20% tax rate at the retirement year.[1]î Predictable investment income returns result from a combination of efforts. Performance of your investment is important, but so is financial behavior. For example, when you manage your spending carefully (cutting back expenses by 4% is akin to an 8% return on the money before taxes at a 50% marginal tax rate), more money is available for savings. All savings plans begin with the end in mind. Through precise planning and product selection, you will be able to build the income sources to generate income for life, even though there are many hurdles to jump or avoid along the way. A series of questions to review at year end include the following, to facilitate decisions that could still impact the opportunity to create new wealth in 2011, despite current market conditions: What is your life expectancy, compared to the national average? How much money can you save? (Project this out over your lifetime) How much money can your savings generate in income for you? How long will your money last if you start withdrawing your capital to live? What investments will help you achieve your goals? ADDITIONAL EDUCATIONAL RESOURCES: Distinguished Advisors Workshops: November featuring year end tax planning.       [1] Investment Performance And Costs Of Pension And Other Retirement Savings Funds In Canada: Implications On Wealth Accumulation And Retirement, Dr. Vijay Jog, December 2, 2009

How can you be more innovative and then let the world know about it? It's an interesting question, in the context of last week's blog, in which we discussed Canada's drop to 12th place overall, in the World Competitiveness Report. The Finance Minister, Jim Flaherty, spoke to the matter in a September 16 news release, too. In it he "urged the private sector to increasingly make innovation a central component of business strategies to ensure that Canada can compete with the world's best and transform promising ideas into pioneering results.î While the government has earmarked funds for research and innovation, upgraded universities and even the government's intent to market Canadian business outputs to a global economy, for most businesses in the trenches today, bringing new and promising ideas to market is expensive: they require capital in a difficult lending environment. To get the financial backing, requires well-researched and astute business planning, often assisted by a great presentation to a lender. This can be burdensome in a more naturally reserved Canadian culture. The key question, however, is this: why should a lender help you innovate so that your business could be more competitive? You'll need to let your passion show. For many businesses, that passion is driven by the seductive power of positive reinforcement: how well their innovative value propositions are meeting their customers' needs. A good starting point, in being more competitive, might be to do some research with your clients. If you are working in the financial services, for example, you are aware that Canadians are being bombarded with disheartening financial news every day. It's quite possible that you may be the leader they are looking for to help them make decisions. Have you asked, recently, how well you are meeting those needs? Do you have the new knowledge and skillsets that are required to do so? At the Knowledge Bureau, we have been passionate about our innovation: teaching Real Wealth Management as a framework for building sustainable, intergenerational wealth. It has been a delight to know about the positive results our graduates are experiencing both in new personal insights and in collaborating with their teams. In a fragile financial world, we can get better results, and that's why it's worthwhile trying new ways to do so. Doing the same things over and over again and expecting different results, after all, is the definition of insanity, according to Albert Einstein, who, incidentally, was also responsible for one of my favourite tax quotes: the hardest thing in the world to understand is the income tax. (Hard to disagree!) It's Your Money. Your Life. What are you passionate about in your work? Are you sharing that with your clients? Let them know. . .you might be surprised at how well you are doing when you listen to your value proposition from your clients' point of view. Evelyn Jacks is President of Knowledge Bureau and is currently co-writing a new book with Robert Ironside and Al Emid entitled "Financial Recovery in a Fragile Worldî.