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. 

Changes introduced in Canada's Economic Plan under An Act to amend the Employment Insurance Act and to increase benefits which started on October 25, 2009, officially ended on September 11, 2010. The federal government will no longer be extending the additional five weeks of EI benefits and the extra 20 weeks of employment insurance available toemployees who had long service, this despite continued high unemployment in certain areas of the country. Now is a good time for tax and financial advisors to be of service. The January 27, 2009 Federal budget, extended regular EI benefit entitlements by the five extra weeks. In addition, that budget increased the maximum benefit entitlement period to 50 weeks from 45 weeks. These extended benefits were available for long-tenured workers who had accessed EI benefits on a limited basis in the past, and were designed to help them transition back into employment. In difficult times, employees and executives are often given opportunities to "package outî of their workplaces. Advisors and their clients should familiarize themselves with changes to the availability of income benefits from Employment Insurance (and when these changes are removed) and the possibility of a related clawback of those benefits at tax time. RRSP contributions as part of a severance reinvestment plan can help avoid the clawback.   For more information on EI benefits available, visit the Service Canada website by linking here.   Educational Resources:   Taking the Knowledge Bureau's certificate course Introduction to Personal Tax Preparation Services is a great way get your start earning a second income as a tax services specialist. See www.knowledgebureau.com for more information on our courses and how to enroll.

It is, and will continue to be, very common for you or your clients to do some part time work if laid off from employment or for a portion of their retirement years. Now's a good time to review tax rules relating to home office expenses; particularly attractive because you will find that you can get a tax deduction for a portion of the expenses you must incur anyway, e.g. monthly utilities, rent, or mortgage interest. For costs to be deductible, you must ensure your workspace meets one of two tests.   Let's assume that your client runs a small business out of their home during retirement or they do some occasional consulting work. Just because it is their principal residence, and since their principal residence is non-taxable on sale in the future, can he still deduct some of the housing costs as business expenses? If you operate your business from your home, you can deduct the portion of the expenses related to maintaining the home office workspace. This is particularly attractive because you will find that you can get a tax deduction for a portion of the expenses you must incur anyway, e.g. monthly utilities, rent, or mortgage interest. For costs to be deductible, you must ensure your workspace meets one of two tests. 1. Under the first test, the workspace must be the chief place where your business is carried out. For example a contractor who uses his home to receive work orders, complete invoicing, bookkeeping, and prepare payrolls would qualify to claim a home office. 2. You may still qualify to deduct home office expenses if your workspace is used exclusively to carry out your business activities. In addition to using the space exclusively for these activities, you must use the space on a "regular and continuousî basis for meeting customers or others associated with carrying out your business. A percentage of the following home expenses are deductible against business income earned: Electricity, heat and water Maintenance costs, condo fees Rent Property tax Insurance on your home or apartment Mortgage Interest (but not mortgage principal) Please note that capital cost allowance should not be claimed on a principal residence that is also used to operate a business as you will lose your principal residence exemption on the portion of the property upon which this deduction is claimed.     Eductional Resource: Excerpted from Tax Efficient Retirement Income Planning, one of the courses that is part of the MFA,Retirement Income Services Specialist program. Register now and save.  

The prescribed rates have been announced by CRA for the final quarter of 2010 and the trend of low interest rates continues on the same path we have seen for the past seven quarters.  These low prescribed rates - a 1% rate for certain taxable benefits and loans provides a great opportunity to use low-taxed corporate dollars to fund family income splitting, the purchase of new vehicles, new investments or to fund employer-required moves. Advisors should also consider speaking to their clients about opportunities for inter-spousal and shareholder loans with the rates that are currently available.   The Canada Revenue Agency announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporate and non-corporate taxpayers. These rates are calculated quarterly in accordance with applicable legislation and will be in effect from October 1 to December 31, 2010.   Income tax The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance Premiums will be 5%. The interest rate paid on overpayments by corporate taxpayers will be 1%. The interest rate paid on overpayments by non-corporate taxpayers will be 3%. The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%. Other taxes The interest rate on overdue and overpaid remittances for the following taxes will be: Tax and Duty Overdue remittances Overpaid remittances Corporate/Non-Corporate GST 5% 1% / 3% HST 5% 1% / 3% Air Travellers Security Charge 5% 1% / 3% Excise Tax (non GST) 5% 1% / 3% Excise Duty (except Brewer Licensees) 5% 1% / 3% Excise Duty (Brewer Licensees) 3% N/A Softwood Lumber Products Export Charge 5% 1% / 3%   <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />  Educational Resource:   For more information on tax planning provisions enroll in our Tax Efficient Retirement Income Planning, course one of the six courses that is part of the MFA, Retirement Income Services Specialist program. Register now and save.

The Minister of Finance, The Honourable Jim Flaherty has announced new regulations that have come into effect on September 1, 2010 that will help provide protection to Canadians and their use of credit cards.  One of the regulations that came into force provides a minimum 21 day interest-free grace period for credit card purchases when balances are paid in full.  The application of the new regulations will relate specifically to those credit cards issued by banking institutions that are federally regulated. Regulations that came into effect earlier this year provided information to credit card customers related to interest rates and applicable fees, consent requirement for increases to credit limits and changes to debt collection practices. In addition to the interest free grace period, the new regulations will provide additional information to consumers through the following changes: A breakdown of the time it would take to fully pay off outstanding debt if only the minimum monthly payment is made Disclosure of all interest rate increases in advance to the credit card customer Payment allocation would be changed to benefit the cardholder Minister Flaherty advised that the change in regulations would "make financial products more transparent for consumersî and "will protect Canadians and their families from unexpected costs.î To review the full new release, link here.   To keep current with all financial and economic news try the EverGreen Explanatory Notes DEMO TODAY! Or call us to subscribe: 1-866-953-4769.  

Robert Ironside, Ph.D., Knowledge Bureau faculty member, course author and financial professor discussed his views on the state of the economy in a recent interview with Knowledge Bureau President Evelyn Jacks. Q. How can we think about investing into the best of the bad outcomes our current global economy is experiencing? Do you have any concerns that existing investments in "safe, guaranteed investmentsî are at risk? A. 'I think the likely outcome will be recession followed by significant inflation as the only way the developed economies (probably led by Japan) can stave off an outright default (although this might still be several years in the future). Remember, inflation is just another form of taxation. Any form of tax is a transfer of purchasing power from Party A to Party B. The inflation tax is a transfer of purchasing power from creditors to debtors. It works by reducing the purchasing power of the nominal dollars loaned out. Thus I buy a $1,000 bond today that matures ten years from now. If we have significant inflation between today and ten years from today, the bundle of goods and services that my $1,000 will purchase will shrink. This shrinkage is an effective confiscation of my wealth that is every bit as real as an income tax, but because it is so insidious, it can be imposed by the weakest of governments. Therefore, in answer to your question, the major concern I have is about the erosion of wealth in fixed income securities. Many, many investors have moved significant portions of their portfolios into fixed income. In order to get yields above zero, many investors have started to lengthen out their maturies. If the securities have maturies beyond about five years, I think they are highly exposed to purchasing power risk (the loss of value due to inflation). As to tax, that is a huge issue, because tax is levied on the nominal return, not the real return. Although investors should only be concerned with the real, after-tax return, most of them focus only on the nominal return. As inflation (and nominal returns) rise, the real, after-tax return falls in a linear fashion. It does not take much to produce a negative, real, after-tax return. The higher the nominal return, the more negative the real, after-tax return.î   Robert Ironside, ABD, PH. D is the author of several Knowledge Bureau certificate courses, including Financial Literacy: The Relationship Between Risk and Return.  Mr. Ironside will headline the Distinguished Advisor Conference being held November 14-17th in Orlando, Florida, where the theme is "Focus on The Family".   View the entire agenda by clicking here.

With Canada's high personal tax rates, there is a great desire among taxpayers to find ways to save on taxes within the family unit, particularly where one spouse has a significantly higher income than the other. Income splitting is the process of redirecting income within a family group to take advantage of the lower tax brackets, deductions and credits available to each family member. Income is split by transferring income-earning assets from high-income to lower-income family members. Savings can be achieved in a number of ways: from strategies as simple as making interest free loans to making more complex arrangements involving corporations and trusts. There are three important characteristics of the Canadian tax system that make income splitting attractive to taxpayers: Because of the progressive nature of our income tax system in Canada, marginal tax rates applied to taxable income rise as the individual's income increases. The Canadian tax system taxes individuals rather than households. In addition, each individual has a basic personal tax credit, and pays no tax on income earned up to the amount that generates the credit. For 2010, the basic personal amount is $10,382. Certain income sources are taxed more advantageously than others (capital gains and dividends are taxed at lower marginal rates than interest income). Therefore, better tax results for the family unit as a whole can often be obtained when each individual in the family earns taxable income, as opposed to one person earning all of the income. The Canadian Government is well aware of these potential tax savings and over time has enacted several rules to prevent it. The Attribution rules found in S. 74 and 75 of the Income Tax Act potentially apply whenever property is transferred or a loan is made at little or no interest to a family member. Income Splitting Rules Some important rules related to income splitting are as follows: Transfers and loans to spouse or common-law partner If an individual transfers or loans property either directly or indirectly, by means of a trust or any other means to the spouse or common-law partner for that person's benefit, any resulting income or loss from that property is taxable to the transferor. An exception to this rule is made if a bona-fide loan is made and interest paid at the prescribed rate or more (S. 74.1(1)). Example: Inter-spousal Interest-free Loan Issue: Bob makes an interest-free loan to his wife, Sue, of $50,000. Sue then invests the $50,000 in bonds so she can earn interest income. She will pay less tax than if Bob had invested the money, as she is in a lower tax bracket. Will this strategy work? Answer: No. Loans to a spouse/common-law partner are subject to attribution where any income or loss from property is realized from the loan proceeds. Had the loan been made to earn income from a business that Sue runs, however, the business income would not be attributed. Assignment of CPP Benefits A specific exception to this rule surrounds the assignment of Canada Pension Plan (CPP) benefits to a spouse, which is allowed and results in the reporting of those benefits by the spouse to whom they have been transferred. Example: Splitting CPP Benefits Issue: Ethel's CPP benefits are larger than Elwin's. They wish to equalize the amount that is reported on their tax returns by splitting CPP benefits equally. Is it possible to do so? Answer: Yes. By making application with HRDC, Ethel and Elwin can split the CPP benefits to the extent that the benefits were earned while the couple was together. Further, attribution rules will not apply on income from property earned on CPP benefits that have been assigned to a spouse. Therefore, Elwin can invest the assigned CPP benefits and report resulting earnings in his own hands. Election to Split Pension Income Beginning with the 2007 tax year, taxpayers who receive pension income that is eligible for the pension income amount may elect to have their spouse report up to 50% of that pension income. This election affects how much pension income is reported by each spouse but does not involve the actual transfer of those funds and therefore does not result in any attribution. Transfers and loans to minors Where property is transferred or loaned either directly or indirectly to a person who is under 18 and who does not deal with the transferor at arm's length or who is the niece or nephew of the transferor, the income or loss resulting from such property is reported by the transferor until the transferee attains 18 years of age. An exception to this rule is made if a bona-fide loan is made and interest paid at the prescribed rate or more (S. 74.1(2)). Example: Loan to a Non-Arm's Length Minor Issue: Maggie lends $5,000 (interest-free) to her son, Tom (16), who invests in the bond market. This year, Tom earns $625 in interest income from those bonds. How much income will Tom report on his tax return? Answer: Nil. Attribution rules require the $625 earned by Tom to be reported by Maggie because the interest was earned by a minor, in a non-arm's-length transaction. Gain or Loss Deemed That of Transferor When property that is transferred to the individual's spouse or common-law partner earns taxable capital gains (or losses), such gains or losses will be reported by the transferor (S. 74.2(1))   Educational resources:For more information on tax planning provisions and compliance requirements, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes. Call: 1-800-953-4769 to order today.