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. 

The Minister of Finance, The Honourable Jim Flaherty, has once again released the Fiscal Monitor, this time for the three months ending June 2010, announcing a deficit of $2.8 billion for the first quarter of the 2010-11 fiscal year, compared to a deficit of $5.0 billion for the same period ending June 2009. Although at first glance this looks like good news, we need to remember that for the same period in 2008 there was a budgetary surplus of $2.9 billion. During the period personal and corporate income tax revenues were decreased by 3.4% and 5.1% respectively. Other revenues consisting of net profits and revenues from Crown corporations and returns on investments were down as much as 15%. EI premiums revenues were up $11 million, just under a 1% increase. What does this mean to the average Canadian? As discussed previously in the Knowledge Bureau Report, today's deficits are always of concern for several reasons:  will they become the taxes of tomorrow?  This is of particular significance to the ten million or so baby boomers who make up approximately one-third of our population and just under 50% of the tax filers, who may be concerned about the future purchasing power of whatís left of their retirement savings. By the year 2011, the first boomers will reach age 65. Those aged 65 and over, according to Infrastructure Canada, are the most intensive users of the health care system, a financing burden yet to come for Canadian governments. What effects will this continued deficit spending by both federal and provincial governments have on public pensions and the health care system? How should elder Canadians prepare for higher costs of medical treatments, hospital care or the requirement for private home assistance resulting from an overburdened health care system? A review of retirement income plans, critical health care plans, family succession and estate plans would be timely in an attempt to better understand financial needs for a future with less government capacity to assist and the possibility of increasing taxes on income or capital.  What can be done today to plan for these uncertainties when returns on investments are minimal and inconsistent? We would like to know your thoughts on the deficit, and what plans Canadians can make to prepare for the future. <?xml:namespace prefix = o />Educational Resources:  Now is a good time to review tax planning considerations and strategies for your clients. Consider the following Educational Resources available from The Knowledge Bureau: Portfolio Risk Manager Tax Efficient Retirement Income Planning  

The Distinguished Advisor Conference November 14-17 Winnipeg, Manitoba. Influential thought leaders, executives and multi-disciplinary advisory teams from across the ranks in the Canadian financial services industry will gather November 14 to 17 at the Distinguished Advisor Conference to discuss family wealth management at a pivotal time in history, when a global economy is facing a series of difficult scenarios. "The times are new, they are tough, and for some, they are scary,î says Evelyn Jacks, President, The Knowledge Bureau, founder and host of this event. "The best advisors and their associated firms need to know how to navigate families towards their best possible financial outcomes, as the developed world continues to experience the effects of significant change including deleveraging, recession, unemployment, lower tax revenues, and persistent challenges to a family's required investment returns.î Twenty influential speakers will take the stage to help advisors plan strategically to take on the challenge of these and other key issues facing advisors today including: Robert Ironside, who will discuss how the end of the "Debt SuperCycleî will impact the wealth of families and their current investment strategies Richard Croft on how flat investment returns, and erosion of purchasing power will require new product solutions while Evelyn Jacks explains how tax and economic change impacts Real Wealth Management. Gordon Pape, on whether this is the right time to buy propertyóin Canada, Florida or other retirement havens Ron Thiessen, Debbie Hartzman and Enzo Calamo on how to broach the emotional impact of financial change on family structures Terri Williams, Louise Guthrie, Doug Nelson, Roland Chalupka, Alan Rowell and Lea Koiv on how planning can increase cash flow in lifecycle transition periods, particularly in retirement, health and estate planning Don Stewart, on how financial illiteracy affects the financial health of Canadians and what can be done by advisors to help Greg Pollock, Lisa Langley and Anthony Morris on how global economic change defines the new financial advisor and their family practices, with vital discussion on how to survive and thrive in hard times Paul Bates, Al Emid, Kish Kapoor and Mick Kelly on fostering successful relationships with families in good times and in bad. . . .Cont'd. Early registration for the DAC is now possible, with a discount offered until September 30. The event takes place at the Hard Rock Hotel in Orlando; detailed information is available by phone at 1-866-953-4769 at www.knowledgebureau.com/dac. Contact: Evelyn Jacks, President, evelyn@knowledgebureau.com

In the next couple of weeks, as the children head back to school, we should give some thought to how to claim all those tuition fees that are being paid out to various educational institutions. Here is a review of the basic definitions for non-refundable credits and what qualifies for the tuition credit and education amounts: TUITION FEES Students may claim the fees paid for courses taken in the tax year. To qualify, each tuition fee must be more than $100. Eligible tuition fees include: Fees paid for courses at a post-secondary school level paid to a university, college, or other educational institution in Canada, Fees paid to an educational institution in Canada certified by the Minister of Human Resources Development for courses (if the student was 16 or older in the year) to develop or improve skills in an occupation, Fees paid for courses at a post-secondary school level paid to a university, college, or other educational institution in the United States if the student lived in Canada near the border throughout the year and commuted to the school, and Fees paid if the student was in full-time attendance at a university outside Canada, for courses that were at least 13 consecutive weeks long, and that will lead to a degree. Other eligible fees include: admission fees, charges for the use of library or laboratory facilities, examination fees, application fees (but only if the student later enrolls in the institution), charges for a certificate, diploma, or degree, mandatory computer service fees, academic fees, the cost of any books that are included in the total fees for a correspondence course, and fees, such as athletic and health services fees, paid to a university, college, or other educational institution in addition to tuition for post-secondary courses, when such fees are required to be paid by all students. If not all students are required to pay them, then amounts eligible are limited to $250. Non-qualifying tuition fees include: Costs for secondary education at a private school or for private music, dance or other such lessons, do not qualify. students' association fees, medical care, transportation and parking, meals and lodging, goods of lasting value that you will keep, such as a computer, microscope, uniform, or an academic gown, and initiation or entrance fees to a professional organization Also, fees cannot be claimed if: they are paid or reimbursed by an employer, where the amount is not included in the employee's income, paid by a federal, provincial, or territorial job training program where the amount is not included in income, or the fees were paid (or are eligible to be paid) under a federal program to help athletes, where the payment or reimbursement has not been included in income. NOTE: KNOWLEDGE BUREAU SELF STUDY COURSES QUALIFY!   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.  

 Are the services you provide to your clients GST-taxable? If you are not sure, you might be interested in a revised notice CRA issued in June regarding the application of GST on the delivery of financial services. Notice 250 - Proposed Changes to the Definition of Financial Services defines when GST is required to be charged on financial services and contains several lengthy examples outlining the obligations of investment managers, full service brokers and financial intermediaries like mutual fund sales people. The rules have left much to interpretation of facts, and this has advisors worried, rightly so. In general, financial services, as defined in subsection 123(1) of the Excise Tax Act (the Act) are exempt. This includes the sale of insurance policies and trailer fees. However, the proposals specify that the following services are not financial services and therefore taxable: asset management services; credit management services; and certain services that are preparatory to or provided in conjunction with a financial service. Although paragraph (q) of the definition of financial service is not directly amended, its scope will be clarified by the proposed addition of new definitions of the terms "asset management service" and "management or administrative service" to subsection 123(1) of the Act. What is important, according to the Notice, is that " asset management services, provided to an investment plan, or any corporation, partnership or trust whose principal activity is the investing of funds, are considered to be management or administrative services and therefore excluded from the definition of "financial service".î That means, they are taxable. An investment plan includes a trust governed by: a registered pension plan; a registered retirement savings plan; a registered education savings plan; and a mutual fund trust Example 4 in the notice discussed mutual fund sales: "The buying and selling of mutual fund units are supplies of financial services. In the course of providing services to clients and to the dealer, the mutual fund salesperson agrees to assist investors in purchasing, redeeming and exchanging units held in accounts. While the salesperson provides some services that are preparatory to a supply of a financial service, such as customer assistance, information and advice, the nature of the business and the degree of reliance by the dealer and the investor on the salesperson in effecting a supply of a financial service indicate that the services provided by the salesperson go beyond those that are merely preparatory. The services provided by the salesperson in these circumstances would be included in paragraph (l) as arranging for a financial service and not excluded by any of paragraphs (n) to (t) or proposed paragraphs (q.1) and (r.3) to (r.5).   In other words, the activity would be defined as a financial service under subsection 123(1) of the Excise Tax Act and therefore, exempt from tax. The notice goes on to explain that "it would be a question of fact as to whether the services provided in any particular case are considered to be a single supply that is made only in consideration of the commission on the purchase of the units or a combination of the commission on the purchase and the trailing commission. The facts and circumstances of each transaction would have to be considered on their own merits.î Advisors should consult a qualified tax practitioner well versed in the new rules if they have any concerns about tax compliance.   We have created a table summarizing the taxable versus non-taxable services under the Excise Tax Act and the application of GST/HST in respect of "financial service".  Contact us at reception@knowledgebureau.com if you are interested in a copy of the summary.   We would like to hear from you on this subject ñ what do these changes mean to advisors and their clients?      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.  

Short of cash after a long summer off? Take a second look at your tax withholdings and quarterly tax instalment requirements (the next one coming up September 15). Many employees have deductions or credits available to them that are not reflected on the TD1 form; a review could create new cash. Retired? Remember that often pensioners, business owners and investors overpay instalments needlessly, too. If this is just the right time to invest after-tax dollars and the wrong time to be pulling capital out of the marketplace to make unnecessary tax prepayments, you'll want to review the amount you're paying in tax on income. Employees: Where an employee has additional deductions or credits available this year, be sure to have the employer take these into account when calculating the tax to be withheld by redoing the TD1 Tax Credit Return. Reducing tax withheld at source enhances the employee's cash flow ñ amounts that would otherwise be received as a lump-sum refund when the tax return. Why wait for spring when the money could be working for you now? Convert overpaid taxes into an increase in the take-home paycheque received every pay period. If you find it unacceptable that the average tax refund was $1,400 per taxpayer in 2009, when that money could be working for you or your clients instead, act now. Non-Statutory Deductions Some deductions can be taken into account by the employer without having to obtain the consent of CRA. Others require a pre-authorization from CRA before the employer can take them into account and reduce withholdings. Deductions that do not require Approval the employee's contributions to a registered pension plan, the deduction available to an employee who resides in a prescribed Northern zone, union dues, contributions to a Retirement Compensation Arrangement or certain other pension arrangements, and certain contributions to a Registered Retirement Savings Plan. Deductions that Require Approval An employee may have deductions or credits available other than those described above which will reduce the amount of tax he or she ultimately has to pay when the tax return is filed. The employee has the right to request that the employer take these into account in calculating the amount of income tax to withhold from net pay. However, the employee must first obtain the written permission of the Canada Revenue Agency. Permission is requested by filling a Form T1213 with the CRA on which the employee identifies the employer and the dollar amounts of deductions or credits that will be available to reduce the amount of tax. If the CRA is in agreement, an authorization will be issued to the employer. Excerpted from Advanced Payroll for Professionals, one of the courses that comprise the Bookkeeping Services Specialist program.   Next time: September 15 Instalment Payment Need Adjusting?

End of summer is a great time to review the income requirements of your family business clients. This is a prerequisite to any year end planning activities and required investment services to reduce and maximize after-tax income. Here are some tips to consider: First, in determining the optimum tax efficient income plan, each individual family member's total income sources and their "tax timingî should be analyzed. The Knowledge Bureau's Tax Efficient Retirement Income Planning Course features an Income Analysis and Projection software tool that makes this process both fast and easy. It is important to ensure that every family member has enough total after-tax income or available cash flow to meet needs and wants. Family income splitting, which allows family members to fully utilize personal credits, and social benefit payments are most important planning factors. Planning now for type of income to be earned coming into year end is critical, too. The payment of a reasonable salary, for example, will increase both net and taxable income. At lower income levels, it will also normally attract CPP and (often) EI contributions, both of which give rise to additional personal credits and may increase the family member's Canada Employment Credit. A decision to pay additional salary will increase net income for the purposes of calculating deductions like child care and credits like spousal and child amounts, medical and charitable donations. Keeping an eye on relevant net income thresholds is important and RRSP planning can help get desired tax minimization results. Therefore tax and investment advisors need to work together. Remember that a salary is earned income for purposes of creating RRSP contribution room. If it is desirable to allow family members to accumulate more tax sheltered retirement income there may be a preference for paying a salary over a dividend, for example. Dividend income, remember, increases both net income and taxable income as well, on an inflated basis, because it includes a gross up provision. That is later offset by the dividend tax credit, as part of the integration process between the corporate and personal tax systems. Therefore, issues that need to be taken into account in evaluating the payment of a dividend as compensation include:the taxable amount of the dividend is greater than the cash amount, so dividends have a greater effect on clawbacks than do salary, dollar for dollar: dividend income is not earned income and does not create RRSP contribution room; dividend income is investment income for purposes of computing the Cumulative Net Investment Loss account, and the receipt of a dividend may increase access to the capital gains deduction; dividends paid from a private corporation to a minor will normally attract the kiddie tax, meaning that they are taxed at the highest possible rate; because of the dividend tax credit, the tax treatment of the dividend must be modeled closely where the taxpayer has relatively low income and may be in danger of not utilizing all of his or her personal credits. For more information on owner-manager tax planning, join us at our November Tax Planning Workshop: Year End Planning Strategies for Individuals and Business Owners - Focus On The Family Business.  Link here for more details.