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. 

June 15th is the tax filing deadline for the self-employed and their spouses and common law partners; it is also the date the second quarterly instalment payment is due for some taxpayers. These are important milestones for compliance and wealth planning purposes and the following are tips for maximizing opportunities in each case. Proprietors. Form T2125 is used to report business or professional income and expenses for unincorporated business owners, including self-employed commission sales persons.  Farmers use form T2042, fishers report income and expenses on Form T2121, and home daycare providers have special reporting requirements noted in CRA Guide P134.  Each individual business category requires a host of unique reporting options, so take special note of income and deductions in these industries, and their related audit-sensitive provisions. In particular this year, because auto log reporting requirements have changed, it's important to seek guidance on audit-proofing. Tip: Because the interest clock starts ticking on May 2, when there is a balance due for 2010, don't wait until the June 15 tax filing due date to calculate the bottom line. Trap: Late filing penalties kick in for those who file past midnight of June 15. Investors, Pensioners and Self-Employed. June 15th is also the due date for the second quarterly instalment payment. Taxpayers who owe more than $3000 ($1800 in Quebec) in the current tax year or either of the two previous years will be directed to make instalment payments. Anything that you can do this year to reduce your net tax owing will reduce the required instalment payment for next year. Tip: Additional withholding tax from employment or pension income (ask for this on the TD1 or related forms) or from benefits such as CPP and OAS (use form ISP3520) is the easiest way to reduce instalment requirements, but not always the most tax efficient.  Remember, keeping more of the first dollar you earn and investing it sooner makes you richer in the long run.  Trap: Don't ignore Form T1213óRequest for Reduction in Tax Withholding. Use it if you are reducing your income throughout the year with deductible expenditures or non-refundable tax credits that are not found on form TD1 or related forms.  These include RRSP contributions, childcare expenses, support payments, employment expenses, rental losses and deductible carrying charges.  Don't include the deduction for the split-pension amount, as your withholding tax on that income has to be shared with your spouse. Tax credits such as medical expenses and charitable donations may be included on the T1213 as well.  Documentation has to be attached and the T1213 forwarded to CRA for approval.  Don't be shy about getting your tax refund all year long, with reduced tax withholding and/or decreased instalment payments. And, always file your tax return on time to avoid penalties and interest when you have a balance due. Finally, by knowing tax credits and deductions that will apply to you in 2011, you'll pull ahead. Now is the time to have those tax efficiency conversations. Ask for qualified professional assistance to file to your best tax advantage!

According to the Organization for Economic Co-operation and Development (OECD), Canada  pays less in tax and social security as a percentage of labour costs than many OECD countries. In 2010, the tax and social security burden on labour income for Canada increased slightly for single parents with low earnings and decreased or remained constant for all other household categories.  The Netherlands, Spain and Ireland experienced increases in 2010, while Greece, Hungary and Germany declined the most. Has the cost of employing people risen? The OECD  seems to think so overall. Its annual report, Taxing Wages, maintains that in 2010 the average tax and social security burdens on employment income rose in 22 of the 34 OECD countries. It looks at the difference between the total cost of employing someone and that person's net take-home pay, including child and family benefits. It defines the "tax wedgeî as "the total taxes paid by employers and employees, net of cash transfers received, divided by the employer's total payroll costs.î  Increased employer social security charges were a factor in those countries for which the tax wedge increased, while lower income taxes and/or wages helped reduce the tax wedge in other countries.  Table 0.1 in Taxing Wages lists for all OECD countries the total tax wedge for 2010 as percentage of labour costs for a single worker without children at the average wage.  That number was 30.3% in Canada, compared to the highest at 55.4% in Belgium and the lowest, 7% in Chile . Since 2000 the tax wedge in Canada has decreased for all family types and is lower than the OECD average in all categories of households. It is interesting to note that in Canada, single parents with low earnings have a negative tax wedge ñ they receive more in government transfers than they pay in taxes.  The OECD points out that, on average, all governments that were able to reduce taxes during the past decade directed these efforts at working families, especially those with children and/or low incomes. The following table from Taxing Wages illustrates the 10 year picture in Canada. Tax Wedge in % of labour costs for different wage levels and household types, 2000 and 2010 What does this mean? The OECD concludes that, since taxes on wages have an impact on hiring decisions, governments should redirect tax increases to indirect measures such as higher property taxes. They should increase the flow of taxes by reining in spending rather than increasing personal income tax rates. This should give employers reason to hire, and workers the satisfaction of keeping more of what they earn.      

These days it is not unusual for Canadians to have to miss deadlines because of circumstances beyond their control, especially when extreme weather is involved. Manitoba is dealing with the worst flooding in 300 years, so it may be expected that some self-employed residents of that province may still be pumping out their basements or drying out documents on the June 15th filing deadline. CRA provides taxpayer relief provisions for times like these ñ perhaps this is a good time to review them. CRA may waive or cancel penalties and/or interest when the request is because of a natural or man-made disaster, a civil disturbance or disruption such as a strike, a serious illness or accident, or serious emotional or mental distress as in the loss of a loved one. As well, actions by the CRA such as publication errors, communication delays and processing errors may be grounds for taxpayer relief. If an amount owing to CRA cannot be paid due to loss of employment and the ensuing financial hardship, or because of a large interest charge, some, or all, of the interest portion of the bill may be waived. In this case a payment schedule must be agreed upon and all payments made on time. For individuals there is usually a 3 year limitation period from the end of the tax year to file a tax return to claim a refund, and a 3 year limitation period from the date of the original Notice of Assessment to ask for an adjustment. However, section 152.2 of the Income Tax Act allows for a longer period of reassessment with the taxpayers consent. There is a rolling 10 year period for requests under the Taxpayer Relief Provisions that is reset on January 1st of each year; therefore in 2011, requests can be made as far back as the 2001 tax year. Form RC 4288 Request for Taxpayer Relief may used to submit information, although it is not mandatory. It should be completed in full, including a detailed explanation of the circumstances and documentation attached when required. CRA expects that, before requesting relief due to financial hardship, current year remittances have been made to date, a payment arrangement has been set up and all tax filing is current. The taxpayer's history with CRA will also be taken into account. If a request for taxpayer relief is denied there will be two opportunities to have CRA review the file and, if these are unsuccessful, an application for judicial review may be made. For detailed information on taxpayer relief, consult the CRA publication IC07-1, Taxpayer Relief Provisions.

For most of us the tax filing deadline has passed, and with any luck we are expecting a refund or we have managed to pay the balance owing to CRA. What happens if we are facing a large amount due that we are unable to pay all at once? First of all, it is always important to submit your tax return on time to avoid late filing penalties! Late filers this year are being charged compound daily interest (based upon a 5% annual rate) on amounts owing after May 2, 2011.  It is best to pay any tax owing by April 30th of each year, or the next business day if that date falls on a weekend. Even when your filing due date is later, as in the case of self-employed taxpayers, the interest clock starts ticking on the first business day after the April 30th filing deadline - May 2nd this year. The government expects you to beg, borrow or steal (well, beg or borrow anyway) to come up with the amount owing. When circumstances don't allow this, pay as much as you can then contact the CRA Debt Management Centre at 1-888-863-8657 to arrange for a payment plan. There may be penalties when you owe CRA, especially if you have been in arrears before. Benefits such as GST payments may be withheld until your balance owing is repaid. It is wise to seek professional advice before the end of the tax year so you can plan proactively to satisfy your tax obligations. The best time to start that planning ñ right now!   ADDITIONAL EDUCATIONAL RESOURCES: Master Your Money Management   

How much does the average Canadian family pay in taxes each year? The Fraser Institute published the annual Canadian Consumer Tax Index in April, and the findings are not pretty. Since the Institute began documenting this statistic in 1961, the total tax bill has increased by 1686%! When expressed in 2010 dollars, the inflation-adjusted tax bill drops to 140.07% of the 1961 level. The annual tax expenditure has grown more than any other category of expense, including food, clothing and shelter. Spending on taxes has overtaken the Consumer Price Index, a measurement of the average price that Canadians pay for a representative basket of goods and services. It is interesting to note that Statistics Canada just announced that the mix of goods in that basket is being revised to better represent the kinds of things that Canadians currently buy. The Canadian Consumer Tax Index includes a variety of taxes and expenditures when calculating the annual tax bill. This may change from year to year as new taxes are added or deleted, and the makeup of the average family is adjusted as well. Taxes include income tax, EI and CPP contributions, property tax, user fees, business taxes passed on to customers and consumer tax such as provincial sales tax, duty, GST and HST. In 1961, the average household income was $5000, and $1675 or 33.5% was paid in taxes. Fast forward to 2010, when the average household took in a cool $72,393, and gave back $29,913 in taxes. That is 41.3% of income paid out in taxes, and most governments are operating in a deficit position which means that the taxes collected are not even covering current expenditures, let alone debt! If you think of a budget deficit as deferred taxation, and include these annual deficits in the tax burden, the total tax bill for the average Canadian family (not adjusted for inflation) has increased by a whopping 1987% since 1961! What does this mean? According to the Fraser Institute, in 2010 the average Canadian family spent 34% of income on the necessities of life, and 41% was paid in taxes. Compare that to 1961, when 56.5% of income earned put a roof over your head and food on the table, and the government collected 33.5% in taxes. We all pay taxes in order to ensure that programs, services and infrastructure are maintained for all Canadians.  However, no-one should pay more income tax than he or she has to by law.  Don't you think that money in the hands of the taxpayer is just as important as government spending for a healthy, prosperous nation?  Your tax return is a snapshot of your financial health.  Take the time to examine it each year and be sure to seek professional guidance when you have questions or concerns.  Canadians must embrace financial literacy in order to regain control of their tax liability, their budgets and their futures ñ take action now! ADDITIONAL EDUCATIONAL RESOURCES: Master Your Taxes

Job numbers were on the upswing in Canada in April, according to the most recent Labour Force Survey by Statistics Canada. More employment was created last month in the areas of finance, insurance, real estate and leasing, business building and other support services. Overall, jobs numbers have increased 1.7% nationally since April, 2010 and unemployment is down slightly to 7.6%. Full-time employment is now back to October, 2008 levels for the first time since the recession. The good news is spread unevenly across the country, however. Part-time jobs in Ontario rose, driving the unemployment rate down to 7.9% with a 12 month employment gain of 2.4%. Newfoundland and Labrador saw increases in employment as well with its April unemployment rate dropping to 11.1% following a 12 month employment gain of 6.9% - the highest in Canada. Nova Scotia and Manitoba lost jobs in April. Data for tables from: Labour Force Characteristics by Province Tables 3 and 4 Statistics Canada, April, 2011   It is interesting to note that women age 55 and over benefitted from new jobs more than anyone in April, with an increase in employment of 7.9%. It will be interesting to see if the upward trend in employment in general continues, as some of April's job gains are due to temporary hiring for the election and census. ADDITIONAL EDUCATIONAL RESOURCES: Master Your Real Wealth