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. 

On October 5, the The Department of Finance announced the interest rates payable on Canada Savings Bond (CSB) Series 126 and Canada Premium Bond (CPB) Series 76, which are on sale now until November 1, 2010. These bonds have a 10-year maturity.  For the CSBs, only the rate for the first year has been set: 0.65%.  For the CPBs, rates or the first three years are set at 1.1%, 1.4% and 1.7% respectively. With Statistics Canada's latest inflation rate (August) sitting at 1.7%, plus the fact that interest earned on these bonds is taxable, it is unlikely that investments in either CSB or CPB will even protect investors from inflation much less increase the value of the investments. Educational Resources:   Learn more about the taxation of interest income and claiming of carrying charges in EverGreen Explanatory Notes from The Knowledge Bureau.  

An interesting change in the most recent income tax bill (C-47) is the introduction of new subsection 244(14.1) of the Income Tax Act, which authorizes electronic communications of a notice or other communication to a person or partnership.  Bill C-47  also changes the word "mailed" to "sent" in many areas of the Income Tax Act. This will accommodate the electronic transmission of notices both to and from CRA. Whatís interesting is that a notice or other communication will be presumed to be sent by the Minister and received by you at the electronic address you have most recently provided on the date before the message. This has all kinds of ramifications for significant compliance dates, appeal periods, and so on. Once an email address is given to CRA it must be kept up to date to avoid unintended and expensive consequences.  This new section as no effective date so one can assume that it will become effective when Bill C-47 is passed.  The bill is currently in first reading in the House of Commons. While the contents of Notices of Assessment, etc. will not be included in an email message for security reasons, the email message will serve as notification that the Notice of Assessment (or other notice) is available online in the person or partnership's secure electronic account.  Presumably the CRA will use the individual's "My Account" or "My Business Account" for posting such notices

The 2010 Manitoba provincial budget announced a new Fertility Treatment Tax Credit which allows a credit for 40% of the costs of fertility treatments, up to $20,000, including both the cost treatment and of drugs, (maximum credit $8,000). Eligible expenses incurred after September 2010 qualify for this new credit. Eligible expenses claimed as a medical expense using federal income tax rules may also be claimed under the provincial credit.  Expenses that are reimbursed may not be claimed. In an October 1, 2010 News Release, the following guidelines were provided: The credit may be claimed by either spouse (but may not be split between spouses). Claims may be made for expenses paid for fertility treatments provided by Manitoba licensed medical practitioners and infertility treatment clinics. Claim may be made for medications prescribed in Manitoba for fertility treatments, even if those treatments are not tied to a specific fertility program or service. Reversing procedures such as vasectomies or tubal ligations do not qualify for the credit. Educational Resources:   Learn more medical expense claims taking the Knowledge Bureau's certificate course Introduction to Personal Tax Preparation Services.

The deadline for the Canada Employment Insurance Financing Board to officially announce the EI premium rate for 2011 is November 14, 2010. Speculation of late has been that the rate would be increased by the maximum allowed (0.15%). However, on September 30, the finance minister announced that the maximum increase for 2011 will be limited to .05% and for subsequent years, the increase will be limited to 0.1%. The EI premium rate for 2010 was capped at the 2009 rate (1.73%; 1.36% in Quebec).  The new rate for 2011 will therefore be no more than 1.78% of insurable earnings.  With Statistics Canada reporting an increase in the average weekly earnings of about 3.9%, one can expect that the maximum insurable earnings will increase from $43,200 to roughly $44,800.  This would mean an increase of about $50.00 in maximum EI premiums ($44,800 x 1.78% ñ $43,200 x 1.73%) to $797.44  (from $747.36).  The official announcement of the 2011 rate and maximum insurable earnings has not yet been made. Educational Resources:   Learn more about payroll taxes by taking the Knowledge Bureau's certificate course Basic Bookkeeping for Business or increase your knowledge by taking Advanced Payroll for Professional Bookkeepers.

Important changes are in the works for Canadian residents who own Roth IRAs.  Unless taxpayers want to start paying tax on accumulated earnings within their Roth IRAs, an election must be filed by April 20, 2011. On August 27, 2010, the Department of Finance released draft legislation that amends the rules in the Income Tax Act governing the taxation of non-resident trusts and the related foreign reporting rules. These new rules will apply to a Roth IRA trust, subject to the application of the Canada-US Tax Convention. The new rules will apply to taxation years that end after March 4, 2010. Note that for Canadian income tax purposes an IRA (but not a Roth IRA) is a "foreign retirement arrangement" and is treated like a pension plan. Under recent changes to the Canada-US Tax Convention (known as the "Fifth Protocol"), a Roth IRA will be a "pension" for purposes of the Convention as long as no contribution is made to the Roth IRA after December 31, 2008, by or on behalf of the individual, while the individual is resident in Canada. Thus, if no contributions were made after 2008 while the taxpayer was resident in Canada, income accruing in the plan will continue to be deferred. Rollovers from one Roth IRA to another are not considered to be Canadian contributions, however, rollovers from plans other than another Roth IRA are considered to be Canadian contributions (if the taxpayer is resident in Canada at the time) and after such rollovers, the Roth IRA is no longer considered to be a "pension" and subsequent earnings on those contributions within the plan will be taxable to Canada. Election to Defer Canadian Taxes on Accrued Income in Roth IRAs Taxpayers who established Canadian residence prior to January 1, 2010 and had a Roth IRA, must file an election before April 30, 2011 if they wish to defer Canadian taxes on income earned within the Roth IRA. Taxpayers who establish residence after December 31, 2009 have until the filing due date for the return for that year to file the election. The election is irrevocable and applies to all tax years in which the taxpayer is a Canadian resident. According to CRA's Income Tax Technical News No. 43, dated September 24, 2010, the election should be made in the form of a letter containing the following information for each Roth IRA plan or account: The taxpayer's name and address; The taxpayer's social insurance number and social security number; The name and address of Roth IRA trustee or plan administrator; The Roth IRA account number; The date that the plan was established; The date that the taxpayer became resident in Canada; The balance of the Roth IRA as of December 31, 2008 or as of the date on which the taxpayer became resident in Canada, whichever is later; The amount and date of the first Canadian Contribution made to the Roth IRA, if any; and A statement signed by the taxpayer indicating that they elect to defer Canadian taxation under paragraph 7 of Article XVIII of the Canada-U.S. Tax Convention with respect to any income accrued in the Roth IRA for all taxation years ending before or after the date of the Election, until such time as a Canadian Contribution is made. The letter should be mailed to: Income Tax Rulings Directorate 16th Floor, Tower A, Place de Ville 320 Queen Street Ottawa ON K1A 0L5 If the taxpayer makes and election and had previously reported accrued income from the IRA, they may request and adjustment to the return for the year(s) in which the income was reported to remove the amount from income. The usual 10-year limitation on adjustments applies. The election is valid only until a Canadian contribution is made. Once a Canadian contribution is made, the Roth IRA is no longer a "pension" according to the Convention and therefore any subsequent earnings within the Roth IRA will be taxable in Canada. This information was extracted in EverGreen Explanatory Notes from The Knowledge Bureau.

Sooner or later theyíre gonna get you if you donít file your tax return! At least that was the expensive lesson learned by a BC man who failed to file tax returns for six years. On September 1, 2010, a hefty court-imposed fine of $6,000 on top of unpaid taxes and interest was handed down. CRA penalties have not been indicated to date. He must also file all outstanding tax returns and has been handed a years probation. A good tax preparer can complete previous years' returns using information provided by the taxpayer and missing information obtained directly from employers and CRA. Prosecution and penalties can be avoided through the Voluntary Disclosures Program (VDP) if outstanding tax returns are filed before CRA initiates action. Taxes owing and interest must still be paid. For more information see www.cra.gc.ca/voluntarydisclosures Educational Resources:   Learn more about filing prior years' returns, deadlines, fines and penalties by taking the Knowledge Bureau's certificate course Introduction to Personal Tax Preparation Services.