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. 

This week's announcement by the Bank of Canada that it expects to hold its key policy interest rate (also referred to as the "target for the overnight rateî) at 1% for a protracted period of time confirmed what many people already thought to be true ñ the global economy, including the Canadian economy, is still struggling to recover from the economic contraction of 2008-2009 and the odds of a double dip have increased. What does this mean for financial advisors and their clients? First, the struggle to find positive rates of return continues. For the risk adverse client used to buying GICs and T Bills, the news is dismal indeed. Today's low interest rates are likely here to stay for at least another year, maybe more. This is creating a real strain for many seniors who don't want to dip into their capital but who are being forced to because of the extremely low yields available in the market. From a planning perspective, it also throws into question the correct assumptions about an appropriate real rate of return to use on a go forward basis. The lower the real rate of return, the more money people have to save to ensure they have sufficient capital prior to retirement. For example, if a retiree wants $5,000 a month of actual purchasing power for a 25 year retirement and real rates are expected to be 5%, they need to have saved $855,000 as of their retirement date (assuming they will exhaust their capital at the end of the 25 year period). However, if real rates are only 2%, they need almost $1,200,000 of savings. And with today's real rates hovering around 1%, they would need about $1,327,000 of savings. Unfortunately, the problem doesn't end there. High real rates prior to retirement make the process of saving for retirement easier. With today's extremely low rates, much more of the heavy lifting has to come from actual savings and much less can be expected to come from compounding within the portfolio. As if this were not enough, the final problem is the rapid rate at which Canadians are piling up debt. Induced to take on more debt by today's extremely low interest rates, the average individual in Canada has debt equal to 146% of disposal income, which is approximately equal to the debt carried by US citizens prior to the meltdown of 2008/2009. However, whereas the US consumer has rediscovered the virtues of thrift and the value of saving money, Canadians are continuing to add to their debt loads at a rapid pace. When interest rates eventually start to normalize, the increased burden of carrying this debt will reduce their ability to spend on other goods and services, potentially putting a drag on Canadian growth rates for several years in the future. Advisors will want to cover these two points with their clients.

The Bank of Canada made an abrupt announcement this week, declaring that the economic outlook for Canada has changed, requiring a reduction in targeted growth rates in 2011 and 2012 to 2.3 and 2.6 per cent respectively, while the overnight rate remained at 1%. The next scheduled date for the overnight target rate will be December 7. These changes reflect a new phase in global economic recovery. Fiscal stimulus activities will shift to fiscal consolidation over the next several years. On the horizon are a weaker recovery in the US and other advanced economies, a slowing of growth rates in emerging economies and a "subdued profile for household spending" here at home. Notably, housing debt has become an important factor in a decreased capacity for consumer spending. The good news, however is that demand is expected to shift towards business investment, and net exports, the strength of which will be affected by currency rates, and external demand. Click here for the full report. What is the impact on advice? Several year end strategies may be employed to plan into a moderate recovery cycle: Tax efficiency of both active and passive sources becomes increasingly important as investment returns continue to be negligible. Debt management is critically important; therefore a critical view to instalment tax remittance requirements is necessary. Portfolio risk management is paramount. Transfer of financial and business assets amongst family members may be attractive Inter-spousal loans at low prescribed rates of interest may facilitate transfer strategies Tax loss selling is important; so is the tax free transfer of qualifying shares to charity, with the resulting offsetting tax credit. These and other strategies will be discussed in detail at the Distinguished Advisor Canada-wide Workshops starting November 3 to 9 brought to you by Knowledge Bureau and Dr. Tax.

Firms that do tax discounting transactions tend to pop up at year end, and they will prepare the return and electronically file it, but provide "instant refunds" at a cost of 15% of the first $300 and 5% of the rest of the refund. That means if your refund is $300, you'll pay $45 to have the return prepared and email and get $255 back immediately. If your refund is more like $1500óthe average refund in Canadaóyou'll pay $105 for this: $45 on the first $300 and $60 on the next $1200. This will put $1395 in your pocket instantly. Is that worth it? Consider the annualized cost of advancing yourself money this way. . .and then some alternatives. Perhaps if you have access to a line of credit or can earn extra income with a second job, you'll preserve more of that tax refund. Or, if you have errors or omissions on prior filed returns, you may be able to recover missed refunds or benefits that will cover costs in the short term. Your tax advisor can help. The form and sample cost calculations can be found at the following link: http://www.cra-arc.gc.ca/E/pbg/tf/rc71/rc71-10b.pdf Additional educational resources: Introduction to Personal Tax Course and Essential Tax Facts.

The Canadian Loonie had a strong showing last month, chalking up impressive present values, which helped travelers especially to the US and Europe with their exchange rates. The value of the Canadian dollar vs other currencies was as follows: Month US Dollar Euro Mexican Peso UK Pound September 1.033 1.3535 0.08073 1.61044286 July 1.04268571 1.3358 0.08139 1.59522857 Average 2009 1.14197729 1.5855 0.08448 1.7835578 Why is watching the fluctuations of the loonie important to the Canadian economy, and more specifically those who work, spend and save in it? According to the Bank of Canada "Specifically, a rise or fall in the external value of the Canadian dollar will make Canadian goods and services less or more expensive for foreign buyers, and this will tend to boost or hold back their demand for our products. Movements up or down in the Canadian dollar relative to other currencies will also make imported goods more or less affordable, thus increasing or reducing the volume of our imports.î So while travelers rejoice, the strong loonie can hurt manufacturers, exporters and those who work in those industries affected by foreign buyers. Apparently there is not much we can do to control the value of our currency. The Bank's research shows that . . .î the evolution of commodity prices is the main driver of the Canadian dollar over time. Commodity prices, however, are essentially shaped by global forces that are beyond Canada's control.î Lots of other factors also influence the value of our currency: the world prices for commodities. Our relative economic performance. relative inflation rates relative interest rates Canada's productivity record trade and current account balances the size of Canada's public debt relative to that of the United States, as well as Canadian tax policies and incentives. short-term capital flows domestic political turmoil For more information, a good background article on exchange rates appears here: http://www.bankofcanada.ca/en/backgrounders/bg-e1.html Additional Education Resources: Knowledge Bureau Courses: Elements of Real Wealth Management Financial Literacy: Evaluating Risk and Return Tax Efficient Investment Income Planning

The Finance Department Released its update on economic projections on October 12, a fitting encore to a Thanksgiving weekend that had Canadians basking in beautiful sunshine in much of the country. Sunny too is the mood of investors, particularly with the news about our financial recovery, which has taken us back to a pre-crisis environment. However, the fly in the ointment is certainly the deficit, which has increased moderately to almost $56  Billion, according to the report, since the March 4, 2010 budget, primarily due to an accrual of $5.6billion in transitional assistance payments for recent provincial tax decisions to be paid in 2010ñ11 and 2011ñ12. Personal income taxes will also rise by 8.8 per cent in 2010ñ11, as our progressive tax system takes more from the anticipated growth in personal income, combined with the expiration of the Home Renovation Tax Credit. Corporate income tax revenues are projected to decline by 7.6 per cent in 2010ñ11. The department underscored that the Canadian economy "fared much better than other major advanced economies throughout the recession and over the recovery to date.î Our decline in GDP during the global recession was the smallest of all G-7 countries. However, looking forward into the short term, our GDP growth is expected to be moderate. Private sector economists expect a growth rate of 1.8 per cent in the third quarter of 2010 followed by an increase to approximately 2.5 per cent over the next three quarters. Interest rate projections have also been decreased since the March budget. Three-month treasury bill rates are now expected to be lower by an average of about 50 basis points between 2010 and 2014 while 10-year government bond rates are expected to be lower by an average of about 75 basis points. Further the unemployment rate for 2010 is forecasted to remain at 8.0 per cent, which is down only .5% since budget time. These economic trendlines and their impact on tax, investment, and retirement plannng will be discussed in depth at the Distinguished Advisor Workshops throughout Canada in November and at the Distinguished Advisor Conference in Orlando. In particular delegates will learn how these projections affect year end planning and a longer term strategic approach to family wealth management, respectively, at these events.

Golden Girl Finance Inc. and The Knowledge Bureau are pleased to announce their strategic educational partnership. Through this partnership, Golden Girl Finance hopes to inspire more women towards pro-active management of their personal and family wealth, as well as incite interest and excitement towards careers in finance. As Laura J. McDonald, co-founder of Golden Girl Finance along with Susan L. Misner, cites: Through our partnership with The Knowledge Bureau, we hope women will want to get more engaged in personal finance and careers in finance, surrounding themselves with their own circle of financially savvy friends!î Susan L. Misner echoes this enthusiasm: "Weíre very excited about working with The Knowledge Bureau and its innovative leader, Evelyn Jacks, one of Canadaís most recognized tax experts. The Knowledge Bureau offers opportunities for women to switch careers, maintain flexible hours that benefit their family, and light a real path in the financial services industry.î "We recognized that Golden Girl Finance was connecting with women and truly engaging them,î said Evelyn Jacks, founder and president of the Knowledge Bureau. "We are pleased to partner with such an exceptional opportunity to reach smart, savvy, influential women.î About The Knowledge Bureau The Knowledge Bureau is a national educational institute providing certificate training and professional development at a post-secondary level to advisors in the tax and financial services industries, as well as educational news and information services to their clients. http://www.knowledgebureau.com/ About Golden Girl Finance Golden Girl Finance was born out of a deep desire to inspire, motivate, engage and support women into taking control of their financial lives and futures. To connect women, to mentor them, and certainly to never underestimate them. And to make it all fun and, dare we say, fashionable. Absolute style backed by absolute quality and top notch content and expertise. Giving women the sweet on the street. http://www.goldengirlfinance.ca/