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. 

Too much golf and sun? A large number of new retirees may find themselves back at work this fall, and if so, they'll need to know new CPP source deduction rules starting January 1, 2012. Here's what we know so far for those who  continue to work while drawing Canada Pension Plan payments: Beginning January 1, 2012, the work cessation rules for early uptake of CPP no longer apply. Anyone can work while drawing Canada Pension. For those between 60 and 65, employee and employer contributions will be mandatory. Once you reach age 65 and continue to work, contributions are optional but if the employee wants to keep contributing so must the employer. Form CPT30, Election to Stop Contributing to the Canada Pension Plan or Revocation of a Prior Election, must be filed if you have been working and contributing to CPP and you plan to continue working but want to discontinue your contributions at age 65. The change will be effective on the first day of the month following the election, and will have to be filed with your employer and sent to CRA. Form CPT30 has not yet been released, and details of the revocation process are not yet available. It is known, however, that revocation of a previous election cannot be undertaken until the calendar year following the election. Self-employed individuals must use Schedule 8 to elect to cease CPP contributions after age 65. Those with both employment and self-employment earnings may use form CPT30 to stop both types of CPP contributions. You must revoke the prior election if, after the age of 65, you wish to restart CPP contributions that had been previously stopped. Contributions are not permitted after age 70. Decisions, decisions Ö if you are considering working past age 65, consult a tax professional for help in determining the best course of action! ADDITIONAL EDUCATIONAL RESOURCES: Financial Recovery in a Fragile World Available in December, 2011!  

Despite total CPI inflation up 3.7% in the 12 month period ending in May (the largest increase since March, 2003), the BOC held its overnight interest rate at 1%. This announcement made on July 19th was largely expected as the Canadian economy had slowed in the second quarter. The bank expects it to pick up during the latter half of the year and to see inflation head toward the target 2% rate by the middle of 2012. This suggests that there may be an interest rate hike before the end of this year. In the short term it is expected that inflation will continue in the 3%+ range. The Bank made the interest rate call on the assumption that the sovereign debt crisis in Europe will be resolved in an orderly manner. Slow growth and debt issues in the US could cause problems with economic projections as well. The next interest rate announcement by the Bank of Canada is due on September 7, 2011. Not everyone agrees with the decision to maintain the status quo. The CD Howe Institute's Monetary Policy Council was hoping that the overnight rate would be raised to 1.25%. This is a group of Canadian financial-market and monetary economists who provide an independent assessment of monetary policy. The consensus of the group is that the overnight rate should rise to 2.25% by July 2012. Although they agree with the Bank of Canada that higher interest rates ahead of any U.S. upward moves would hamper domestic growth, global inflationary pressures are of concern as well. They would like to see a modest increase in 2011 as the risks of European and U.S. debt concerns are made clear. If all goes well, more aggressive rate hikes would occur in 2012. ADDITIONAL EDUCATIONAL RESOURCES: The One Financial Habit That Could Change Your Life

Start the tax year 2012 on the right financial footing: keep more of what you earn by carefully completing the TD1 Personal Tax Credits Return released last week by the Canada Revenue Agency (www.cra-arc.gc.ca/formspubs/frms/td1-eng.html). The TD1 determines the amount of personal income taxes that will be deducted from your employment income, or other income such as pension income, received after Jan. 1, 2012. There are federal and provincial/territorial TD1s. You should also review the tax credits portion of the TD1, particularly in light of the new $2,000 Family Caregiver Tax Credit, available starting in 2012. A new worksheet for computing the Age Amount, Caregiver Amount and Amount for Infirm Dependents accompanies the TD1 for these purposes. Of particular interest: ∑ Age Amount: The maximum credit is $6,720 in 2012 and this amount will be reduced when individual net income exceeds $33,884 in that tax year. ∑ Caregiver Amount and Amount for Infirm Dependent age 18 and older: A new calculation arises when a dependent is infirm, to account for the $2,000 increase. The CRA defines "infirmî as: A mental or physical infirmity such that the person is likely to be dependent on others for his or her personal needs and care for the long term, and needs a full-time attendant, as certified in a letter from a medical practitioner. Talk to your tax professional and your payroll administrator. It is up to you to complete your TD1 as soon as possible and give it to your employer. Additional Educational Resources: Introduction to Personal Tax Preparation Services and Esstential Tax Facts 2012  

An Individual Pension Plan (IPP) is a defined benefit Registered Pension Plan set up for as few as one employee, usually owners and/or managers of a business. It allows for deductible contributions and withdrawal mechanisms that can be structured to provide what has been perceived as an unfair advantage over other retirement savings plans.  For that reason, the March 22, 2011 budget, recently reintroduced on June 6, has made two significant changes to reduce these benefits, as explained below. The current rules for IPPs allow the commuted value of a pension to be transferred into an IPP. The result is often a large pension surplus that does not require withdrawals, and that provides a tax deferral that is not available to contributors to other retirement savings plans. The 2011 Federal Budget proposes, therefore,  to mandate minimum withdrawals from IPPS, similar to the rules for RRIFs. This will apply beginning in 2012. Contributions and transfers into any retirement plan will have an effect on RRSP contribution room. Cash contributions are deductible, while transfers from other registered plans are not. Currently, an employee who switches from RRSP savings to RPP savings later in his or her working career, and who is able to have past service recognized under an IPP, is able to fund a far greater amount of past service in an IPP than the reduction in RRSP contribution room and assets required under existing rules.   This ability to contribute to an IPP in respect of past service can provide a significant tax advantage. The 2011 budget proposes that contributions made to an IPP that relate to past years of employment will have to come from all existing RRSP assets and by reducing the RRSP contribution room, before new deductible contributions (i.e. cash) in relation to the past service may be made. This will certainly reduce the tax deduction for past service funding for business owners who have accumulated large RRSPs. This measure is in effect as of March 22, 2011. Watch for more discussion on IPPs and the proposed Pooled Registered Pension Plans later this summer! ADDITIONAL EDUCATIONAL RESOURCES:  Master Your Investment in the Family Business

Recent changes in section 60.02 of the Income Tax Act, will enable a rollover of an RRSP, RRIF or RPP or SPP (Saskatchewan Pension Plan) to the eligible beneficiary of an Registered Disability Savings Plan (RDSP). The beneficiary must be the child or grandchild of a deceased annuitant who was financially dependant on the deceased for support for reasons of mental or physical infirmity. Form RC4625 Rollover to a Registered Disability Savings Plan (RDSP) enables the transaction. The receiving RDSP issuer must keep this form and any relevant documentation as a record of the rollover transaction. A separate form must be completed for each rollover. Completing this form is the final step in the rollover process. Any rollover amounts are included in the RDSP lifetime contribution limit for the beneficiary. Unlike contributions to the RDSP, rollover proceeds will be reported as taxable income when paid out. Bill C-3 implemented two other important measures for RDSP beneficiaries. Beneficiaries with shortened life expectancies will be able to make withdrawals without triggering penalties under the 10-year repayment rule. An election must me made and certification by a physician is required. This measure is effective as of June 26, 2011. More information is available here. As well, applicants for the Disability Tax Credit (DTC) will be able to appeal a determination in all circumstances. A requirement for opening an RDSP is eligibility for the DTC. Before this law was enacted, the DTC could be denied if applicants had no taxable income, and there was no avenue for appeal. Because of this, some disabled residents were not able to open RDSP accounts. Contributions to RDSPs may be made by others such as parents, siblings and supporters of the disabled, so eligibility for the DTC by the beneficiary is of great importance. ADDITIONAL EDUCATIONAL RESOURCES: Tax Efficient Investment Income Planning  

The first increase to the Nova Scotia Child Benefit in a decade will boost payments by 22% per child per month as of July 1, 2011. The NSCB is a non-taxable benefit paid to parents of children younger than age 18. It is fully funded by the province and combined with the Canada Child Tax Benefit into a single monthly payment. Other improvements include the Income Assistance Program personal allowance which will rise by $15.00 per month. The Affordable Living Tax Credit and Poverty Reduction Credit will now be indexed to inflation. An additional 250 child care subsidies will allow more families to afford childcare, and foster care rates will increase by 10%. Income Assistance clients who work can keep more of their wages now. Before July 1st, only 30% of earnings could be kept before clawback of assistance payments. Now the first $150.00 earned is retained before the 30% clawback kicks in. Disabled recipients of income assistance can now keep $300.00 of earnings before assistance payments decrease. Nova Scotia continues to support its most vulnerable citizens despite the economic challenges faced by individuals, businesses and governments everywhere.   ADDITIONAL EDUCATIONAL RESOURCES: Debt and Cash Flow Management Pre-order now!