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. 

April 6, 2011 saw another province table a "hold the lineî budget. Prince Edward Island announced no income tax changes this year as it works to eliminate its deficit by 2013-14. Increased tax on tobacco and liquor will add to provincial coffers, while centralization of government services and other cost-cutting measures are in place to reduce expenditures. Per cigarette, the tax rises to $25.4 cents from 22.45 cents. The tax on gasoline is unchanged. The estimated deficit for 2011-2012 is $42.99 million, down from $53.7 million in the previous fiscal year. Modest increases to pre-school and kindergarten education and a 3% increase to post-secondary institution grants were announced. Funding for physician and ambulance services and primary health care initiatives will help to address healthcare issues, while senior care and housing projects focus on an aging population. Municipalities, public transit and community organizations will benefit from moderately enhanced support in this budget.

CRA has updated RC192 Information for Students ñ Educational Institutions Outside Canada. Students should seek professional advice in advance of leaving for foreign studies so they are aware of their Canadian tax filing requirements. Determining whether the sojourn is a temporary absence or if the student is severing ties with Canada is the first thing to establish. A temporary absence would make you a factual resident of Canada while a permanent move would make you a non-resident. A factual resident has to file a tax return every year to report worldwide income, using the tax package from your most recent province of residence. Even with no income it is important to record tuition, education and textbook amounts and apply for tax credits. Form CPT20 will allow CPP contributions when there is employment income outside Canada, and this income also counts for RRSP contribution room. Tax treaties avoid double taxation, so depending where you end up your residency and income treatment may be affected. CRA provides a link to tax treaties where your tax advisor can research terms and conditions for current agreements. Some countries, like the U.S., have special rules for students. Students who are away temporarily will have to file in Canada and usually also in the country where they are residing. Your advisor should research the tax filing requirements of the host country. Foreign tax credits can offset foreign tax paid, and there are federal (Form T2209) and provincial (form T2036) credits available. Make sure that you are made aware of the rules for reporting as some types of income that is tax-exempt in Canada, such as scholarships, may be taxable in another country. The complete details for reporting income and claiming deductions, credits and benefits is available through RC192, which provides links to other publications and web pages. This publication will be familiar to tax professionals who work with student pursuing educational opportunities outside of Canada. Note that the recent federal budget proposed reducing the duration of eligible courses from 13 to 3 consecutive full-time weeks for the purpose of claiming Tuition, Education and Textbook credit and accessing Educational Assistance Payments from RESPs.   EverGreen digs deeper ...  

Nova Scotia Finance Minister Graham Steel spent much of 2010 conducting pre-budget consultations with interested residents, groups, organizations and business leaders. The result is a "back to balanceî plan with a target of 2013-2014 to eliminate the deficit. A program of disciplined spending with few across the board cuts has been implemented. Cost-reduction measures such as downsizing the civil service by 10% and eliminating "March Madnessî spending by departments at the end of the fiscal year will also improve the bottom line. The government of Nova Scotia surpassed projections by ending the past year with a surplus of 447.2 million, allowing a net debt reduction of 37.8 million. This can be attributed in part to one-time revenues from other years, but spending constraints played a role as well. The government has planned for a 389.6 million deficit this year as it holds the line on the health budget with its "Better Care Soonerî plan. Health and Welfare cost increases will be limited to 1.2%. It plans to focus on economic growth with its "jobsHereî strategy, encouraging productivity, innovation, co-operative education opportunities, small business lending and international commerce. Students will be pleased to learn that a maximum "debt capî of $28,560 is being implemented, and the popular Graduate Retention Rebate will continue. However, declining enrolments means that grants to regional school boards has been cut by 1.67%, although the per-student funding is increased. Grants to universities have been cut by 4% along with a 3% cap on tuition increases. A reduction in the small business corporate tax rate from 4.5 to 4% has been announced, effective January 1, 2012; this applies to the first $400,000 of taxable income. On July 1, 2011, the Large Corporations Tax on capital of non-financial institutions falls to 0.05% from 0.10% and it will be eliminated on July 1, 2012. In December, 2010, the province announced that it had removed the total production costs cap for the Film Industry Tax Credit, allowing producers to claim 50-65% of eligible Nova Scotia labour. Personal tax changes for 2011 include an increase of $250 to the Basic Personal Amount, bringing it to $8481. Non-refundable tax credits will rise in proportion to this. The Nova Scotia Affordable Living Tax Credit and Poverty Reduction Credit, two refundable tax credits, will be indexed by 2.2% effective July 1, 2011.  As announced in the fall, seniors receiving the GIS in 2010 will be refunded the full amount of provincial tax paid upon filing for 2010. Last year the government introduced the 21% 5th personal income tax bracket for income above $150,000, along with the corresponding removal of the 10% surtax on provincial tax in excess of $10,000 payable. These measures will remain in place until the province returns to a fiscal balance.   ADDITIONAL EDUCATIONAL RESOURCES:   Essential Tax Facts: 2011 Edition    

Ontario Budget Much like the Federal budget of last week, the Ontario budget announced today reads like a biography of everything that has gone well since 2003. There are very few changes on a tax front with "Deficit Controlî being the keyword. However, the Ontario government did announce a couple of lateral "tax tweaks." Ontario Trillium Benefit The Ontario government currently provides three refundable tax credits to Ontario residents, the Ontario Sales Tax Credit, the Ontario Energy and Property Tax Credit, and the Northern Ontario Energy Credit. The Province proposes to combine these refundable tax credits into the Ontario Trillium Benefit (OTB) in July 2012.  While there is no change in the value of the credits, in order to better align the receipt of these credits with the expenses that people face, the payments of these three credits would be delivered on a monthly basis. Ontario Book Publishing Tax Credit The Ontario Book Publishing Tax Credit is a 30 per cent refundable tax credit, to a maximum of $30,000, available to Ontario book-publishing corporations for qualifying expenditures related to publishing and promoting a book by a Canadian author in an eligible category of writing.  For expenditures incurred after March 29, 2011, the Budget proposes to change the 12-month period for qualifying marketing expenditures to a period beginning one-year before and ending one year after the date of publication. New Brunswick Budget The 2011 budget was unveiled in New Brunswick last week. As most governments are focused on slaying deficit dragons, tax cuts and spending increases were front and centre. Pre-budget consultations in New Brunswick resulted in an awareness of public concerns that was reflected in the budget measures. Residents identified health and senior care, economic development, job creation and prudent financial management as primary concerns. Spending initiatives addressed in the budget include healthcare, job strategies, poverty reduction, and education. The government plans to balance the budget by 2014-2015. Debt and deficit reduction is the main theme of the New Brunswick budget, with new revenue from increased tobacco and gas tax rather than higher income tax rates. This should also help Nova Scotia communities close to the New Brunswick border who have been losing customers to New Brunswick, more so since the HST rate in Nova Scotia rose to 15% last July. The tax on a pack of smokes in New Brunswick has risen from $2.94 to $4.25, while fuel tax on gasoline increased from 10.7 cents per litre to 13.6 cents. Government wage restraint will also play a part in moving toward a balanced budget, as will the delay in further personal income tax rate reductions. For 2011, the lowest tax rate for New Brunswick residents dropped from 9.3% to 9.1% on the first $37,150. For the next $37,150, the 2010 rate of 12.5% was reduced to 12.1% in 2011. Income from $72,843 to $118,427 attracts a 12.4% rate, down from 13.3% in 2010. The highest tax rate is 14.3% and this is unchanged from 2010, reversing the announced reduction in last year's budget. The latest budget confirmed that, for 2012, all rates will remain the same with 2% indexing on personal income levels. The corporate tax rate is scheduled to fall from 13% in 2008 to 10% in 2012, rather than the previously planned reduction to 8%. The small business corporate tax rate has been at 5% since 2008 and is scheduled to creep down to 4.5% in 2012. The small business limit will remain at $500,000, the same level since 2009. Saskatchewan Budget Resource-rich Saskatchewan can afford to address debt reduction, tax relief and a broad range of spending initiatives. Increased funding for healthcare, child care, tourism, the environment, education, child welfare, infrastructure, policing, rural initiatives, research and innovation, energy and resources and affordable housing have been written into this surplus budget. Personal tax relief is highlighted by increases in the personal exemption rates. The basic personal and spousal/equivalent amounts for 2011 will rise from $13,535 to $14,535. The net income threshold for the spousal/equivalent amounts consequently rises from $1,354 to $1,454. The amount for children will also increase by $500 to $5514. Personal tax rates for 2011 are unchanged, although income levels have been indexed. Tax of 11% is payable on the first $40,919 of income with 13% due on the next $75,992 and 15% on higher income levels. The small business corporate tax rate has fallen from 4.5% to 2%.  Consequently, the dividend tax rate for small business dividends will be reduced from 6% in 2010 to 5% for 2011 and 4% for 2012.   ADDITIONAL EDUCATIONAL RESOURCES:

The 2011 Federal Budget tabled last week contained some interesting proposals regarding charitable donations. Although this budget is on the shelf for the moment, it is reasonable to expect that some of all of these measures will be included in future legislation. Individual taxpayers will notice modifications to current rules. As well, regulations that apply to registered charities now will be extended to apply to other qualified donees such as registered Canadian amateur athletic associations (RCAAAs) and municipalities. Heads up ñ there is more paperwork on the horizon! Here is a list of changes to watch for: Any organization that can issue a tax receipt for a donation (known as a qualified donee) will have to be on a list that is available to the public. The Income Act spells out the rules for donation receipts. If these rules are broken registered charities will have receipting privileges revoked or charitable status rescinded. Penalties that currently apply to registered charities will now apply to RCAAAs. All qualified donees must maintain books and records that are accessible to CRA. Failure to do so or will result in sanctions. Penalties that now apply to registered charities for failing to file information returns will be extended to RCAAAs. RCAAAs must now operate exclusively for promotion of amateur athletics rather than primarily. Feedback will be solicited to define allowed activities. A registered charity will be sanctioned if it provides an "undue benefitî to any person. Proposed measures will apply this rule to RCAAAs. Public availability of certain information pertaining to RCAAAs is proposed. The criminal history or past misconduct of individuals involved in charities will be grounds to refuse or revoke registration. Public consultation is planned to flesh out this policy. When donations received are subsequently returned to the taxpayer, the qualified donee must have a revised receipt issued to the donor and a copy sent to CRA. This will allow reassessment of previously claimed donations that have been cancelled or reduced. A donor will not receive a donation receipt for a donation of a NQS (non-qualifying security i.e. share in a private corporation) until, within five years of the donation, the shares have been sold for consideration that is not another NQS. In other words, there will be no receipt until the real value of the donation has been realized. The donation of an option to acquire a property is allowed and, in the past, a receipt has been issued immediately. New rules will delay the receipt until the option has been exercised. As well, the donation receipt will be issued for the difference between any amount paid for the property and/or option by the donee (the advantage) and the Fair Market Value of the property at the time the option is granted. If the advantage exceeds 80% of the FMV then it is not considered a gift and there will be no receipt. Donations of publically-traded flow-through shares will still be allowed. However, unlike other publically-traded securities that are donated, the elimination of tax on the capital gain will apply only to the amount that exceeds the original cost of the flow-through share, rather than the entire amount. This will greatly reduce the tax advantage of donating flow-through shares in the future. The 2011 Budget indicated that this change would be in effect for flow-through shares acquired on or after March 22, 2011. Sooner or later the government will enact changes to close tax loopholes that are costing it money. It is important to be aware of these proposed changes when counselling your clients in regard to their philanthropic activities. EverGreen digs deeperÖ  

It is hard to comprehend the magnitude of the disaster unfolding in Japan. The physical and mental suffering caused by the earthquake and tsunami are compounded by the fear of a nuclear catastrophe. How can Canadians help in a meaningful way? There are many organizations that have mobilized resources for the people of Japan, and our monetary donations will ensure that sustained relief efforts begin without delay. Our government includes donation advice on its website set up for natural disasters. Our public broadcaster, the CBC, lists many reputable organizations accepting money right now for Japan relief. Our federal government and provinces encourage us to give generously by providing tax credits for money that we spend on others. A donation of $1,000 to bring hope to a troubled nation costs much less than that amount, as illustrated below. Province of Residence Federal Tax Credit Provincial Tax Credit Total Tax Credit Cost to donate $1,000 British Columbia $262.00 $127.72 $389.72 $610.28 Alberta $262.00 $188.00 $450.00 $550.00 Saskatchewan $262.00 $142.00 $404.00 $596.00 Manitoba $262.00 $160.80 $422.80 $577.20 Ontario $262.00 $99.38 $361.38 $638.62 Quebec $262.00 $232.00 $494.00 $506.00 New Brunswick $262.00 $119.80 $381.80 $618.20 Nova Scotia $262.00 $185.58 $447.58 $552.42 Prince Edward Island $262.00 $153.20 $415.20 $584.80 Newfoundland $262.00 $121.80 $383.80 $616.20 Yukon $262.00 $116.16 $378.16 $621.84 North West Territories $262.00 $124.20 $386.20 $613.80 Nunavut $262.00 $100.00 $362.00 $638.00   Please give what you can, when you can, to support this most worthy cause.