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. 

CRA released an updated Publication RC4178 Death of a RRIF Annuitant on October 27. It has been modified to allow the rollover of RRIF proceeds to the RDSP of the financially dependant child or grandchild of the deceased, a change stemming from the March 4, 2010 budget . These changes will be in effect on July 1, 2011 for deaths occurring after March 3, 2010. Eligible transfers must take place after June 30, 2011. Transitional rules apply for the death of the RRIF annuitant after 2007 and before 2011 that allow similar treatment of the RRIF proceeds. Under these rules the contribution must be made between July 1st and December 31st 2011. These changes also apply to the proceeds of RRSPs and certain lump-sum amounts from Registered Pension Plans. For more information see: http://www.cra-arc.gc.ca/E/pub/tg/rc4460/README.html

Although our population is aging we have one of the lowest proportions of seniors in OECD (Organization for Economic Development and Co-operation) countries. In 2005 seniors comprised 13.5% of our population compared to 16% in the United Kingdom, 16.6% in France and 20.2% in Germany. Interestingly, the U.S. had only 12.8% of its population represented by seniors. The baby boom will increase these percentages in the years to come and life expectancy will continue to increase. Preparation for this senior population explosion is important, particularly because the value of pension savings declined during the financial crisis in 2008 ñ no surprise there. Employer-sponsored pension plans have the lion's share of these assets. This is particularly true for advisors and their senior clients in the Maritimes, which has the largest proportion of seniors, while Alberta has the smallest, due in no small part to the out-migration of young workers. More seniors are working beyond the traditional age of retirement and median after-tax incomes have increased significantly since 1982. In the general population, educated Canadians tend to have higher incomes. This is also true among seniors but not to the same degree because our income security programs (Old Age Security and Guaranteed Income Supplement) tend to level the playing field. Source: Statistics Canada, Canada Yearbook 2010. ADDITIONAL EDUCATIONAL RESOURCES: Tax Efficient Retirement Income Planning Course

In an honorable gesture, a measure announced on October 28, 2010, retroactive to January, 2010, provides for a rebate on all GST paid to suppliers for wreaths and poppies acquired by the Royal Canadian Legion for Remembrance Day. The Legion, in addition, cannot charge GST when selling these items.

Canadians will again pay more to fund the Canada Pension Plan this year, as maximum pensionable earnings will be increased to $48,300, in line with increases in average weekly salaries. A $3500 basic exemption, unchanged from prior years, ensures that no premiums are payable if income is less than this amount. As the premium rate applied remains unchanged at 9.9% for the combined employer/ employee remittance requirements, the maximum premium will be $2217.60 ($184.80 per month) for employees and $4435.20 ($369.60 per month) for the self employed. It's important to maximize benefits from the CPP by planning to assign them equally between spouses and planning early on whether or not one should wait to age 65 to begin receiving benefits, or tap into them as early as age 60. Advisors and their clients will want to have this discussion several months in advance of receipt of benefits to allow for the application process, but also to perhaps defer income into the right time of the year in 2011. Additional Educational Resources: Tax Efficient Retirement Income Planning Course featuring The Knowledge Bureau's Retirement Income Projector. Also available in EverGreen Explanatory Notes.

The Canada Year Book (CYB), which was first published in 1867 ñ a significant year in Canadian historyóhas just been released for purchase and download. Its data is based on the 2009 year. This year's version is now available for purchase and has just been released for download: http://www.statcan.gc.ca/pub/11-402-x/index-eng.htm. Data from 2009 is most recently analyzed, and the findings are interesting. . . . Investors Returned. Both foreigners and Canadians invested in Canadian assets as the TSX Composite Index rebounded in 2009. Spending Increased; So Did Net Worth. The effects of the 2008-2009 global recession were milder and shorter in Canada than in other G7 countries. In 2009 consumer spending increased slightly and government spending rose considerably due in great part to economic stimulus. Personal income and national net worth increased slightly, while net foreign debt increased due to our strong dollar and the deficit. Purchasing Power. The purchasing power of Canadians and household spending increased in 2008. An increase in export prices due to a strong demand for resources made the cost of imported goods more affordable. Non-Discretionary Spending. Low income households spent 52% of their budgets on food, shelter and clothing while wealthy households directed only 28% of their budgets to basics. Women and Work. In 7 out of 10 families both spouses were working in 2008, compared to 4 out of 10 in the mid-1970s. Women are working longer and earning more and the percentage of women who are equal or primary breadwinners has risen. Working Moms In 40's Doubles. More women are delaying childbirth in order to complete their education and launch careers. Over the last 20 years the number of mothers in their 40s with preschool age children has doubled! The number of working mothers with young children also doubled to 74% from 1976 to 2008. Next time: CANADA HAS LOWEST PROPORTION OF SENIORS IN OECD ADDITIONAL EDUCATIONAL RESOURCES: INTRO to personal tax

Over the years, the wealth of Canadians has grown due in great part to increases in housing values. But, as the Governor of the Bank of Canada, Mark Carney, pointed out last month, a correction to the housing market in Canada is a distinct possibility. An increase in interest rates and a housing correction could change things in a hurry. Canadians should pay attention to debt reduction as a sure way to increase net worth. This is backed up by a report by The Economist, which has just published a survey of global house prices in which it compares the ratio of current house prices with rents: http://www.economist.com/node/17311841?story_id=17311841&CFID=146602169&CFTOKEN=17636472 . It determined that Canadian houses are overvalued by almost 24%. Certainly a decline in housing activity would diminish the net worth of many Canadians, yet another potential blow to those contemplating pre-retirement. According to Statistics Canada, the benchmark of housing affordability is 30% of income. One in five Canadians exceed this threshold with single people, single-parent families, renters, home owners with mortgages and recent immigrants making up a large part of this group. More Canadians own homes than rent them and this has increased since 1986. However, household debt increased to $145 for every $100 of disposable income in 2009, up from $139 in 2008. Astute advisors will address the emerging issues now, finding ways to shore up wealth by minimizing costs and debt, and increasing tax efficiency of incomeóboth passive and active. ADDITIONAL EDUCATIONAL RESOURCES: Elements of Real Wealth Management Course