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. 

As of January 1, 2011, the federal general corporate income tax rate is 16.5%, down from 18%. The rate will be further reduced to 15% on January 1, 2012. The rate for qualifying small business income remains at 11% (since 2008) and the limit remains at $500,000 (since 2006 when it increased from $300,000 to $400,000). The government is hopeful that these changes will stimulate jobs and economic growth in Canada.

CRA has released an updated RC2, The Business Number and your Canada Revenue Agency Program Accounts. For new businesses it is an excellent primer on your reporting and remittance obligations to the government. Sections on GST/HST and payroll will be especially helpful. Links are included to provincial programs, such as Worker's Compensation in Nova Scotia and the Ontario Workplace Safety and Insurance Board. These are harmonized with the federal BN and can be accessed seamlessly through Business Registration Online or through provincial websites.   Business owners should have a copy of Make Sure it's Deductible - Fourth Edition available at all times!

CRA has released bulletin RC4054 which provides an update of the ceiling amounts it will allow for rents and utilities benefits calculated for those living in Prescribed Zones for the purposes of the Northern Residents Deductions. For prescribed zones without a developed rental market, the ceiling amounts reflect increased in the Consumer Price Index. For 2011, for common shelter, the amount is $173 a month, same as last year. For apartments or duplex, the amount has increased to $467 a month for rent only, $227 per month, utilities only and $694 for rent and utilities. For a house or trailer, the 2011 amounts are $781 per month, rent only, $345 per month, utilities only and $1126 for both. ADDITIONAL EDUCATIONAL RESOURCES: DFA-Tax Services Specialist Designation courses.

The Electronic Filer's Manual for 2010 (RC4018) was released on January 14, 2011: http://www.cra-arc.gc.ca/E/pub/tg/rc4018/rc4018ch1-10e.pdf The "What's Newî section discusses the Universal Child Care Benefits (UCCB) amount which can now be designated to a dependant of single parents, E.I. for the self-employed, GST/HST modifications and several provincial changes to tax and credits. New fields for Stock Option Special Relief are outlined as well. ADDITIONAL EDUCATIONAL RESOURCES: Distinguished Advisor Workshop Reference Journal, now available in the Knowledge Bureau bookstore.

The Governor of the Bank of Canada, Mark Carney, spoke at a press conference in Ottawa on January 19, 2011. He discussed several factors that caused the Bank to maintain its target for the overnight rate at 1%. The economic recovery, although proceeding more quickly than anticipated, still has associated risks and challenges. Although private domestic demand in the U.S. has grown, financial stability and sovereign debt issues in Europe continue to be of concern. In Canada, household debt is expected to restrict consumption and residential investment but business investment should continue to grow. The strong Canadian dollar and low productivity will continue to dampen the recovery here. The inflation target remains at 2%. Upside risks include higher commodity prices and unexpected momentum in the housing sector. Downside risks include weak Canadian competitiveness and muted household spending. The Bank expects the economy to return to full capacity by the end of 2012. The next scheduled announcement date to announce the overnight target is March 1, 2011. ADDITIONAL EDUCATIONAL RESOURCES: Distinguished Advisor Workshop Reference Journal, now available in the Knowledge Bureau bookstore.

 For the second time in less than a year the federal government has announced measures that will tighten mortgage regulations in this country, a move designed to protect Canadians from taking on too much debt. The three changes announced on January 17, 2011 are: Borrowers looking for more than 80% financing for a new, government insured mortgage will be restricted to a 30% amortization period. The loan to value ratio for refinancing is reduced from 90% to 85% Lines of credit that do not require regular payments (non-amortizing) and are secured by homes will no longer be eligible for government-backed insurance. A home ownerís line of credit that has a fixed schedule of principal and interest payments will continue to be insured by the government. The first two measures will come into force on March 18, 2011 and the third on April 18, 2011. Although the new rules reduce mortgage options, they should also serve to increase equity for homeowners and reduce interest paid for the lifetime of the mortgage, particularly for those using home equity loans.   These changes follow an interesting history in home financing in Canada: In 2006 the government began loosening regulations, allowing amortization periods to rise from 25 to 40 years and approving 100% loan-to-value financing. In response to the global economic crisis amortization periods were reduced to 35 years in October, 2008 and financing brought down to 95%. In April, 2010 the loan to value financing ratio was further reduced to 90% and a 20% down payment required for properties not occupied by the owner. Measures to ensure that borrowers are credit-worthy have been implemented recently as well. ADDITIONAL EDUCATIONAL RESOURCES: For more information on financing a mortgage see Essential Tax Facts, 2011 edition.