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. 

With back to school just around the corner and other money spending opportunities on the horizon, we thought it would be worthwhile to review the Tax-Free Savings Account (TFSA) rules to determine if it is worthwhile raiding the account for those upcoming cash requirements. Here are the top 6 questions we receive regarding TFSA's: 1. What is a TFSA and Who Can Contribute To It? Available since January 1, 2009, the new Tax-Free Savings Account (TFSA) is a registered account in which investment earnings, including interest, dividends and capital gains accumulate within the account on a tax free basis. Contributions up to an annual maximum of $5000 can be made by/for those who have reached 18 years of age and are residents of Canada. There is no maximum contribution age (you can be 92, for example!), however a tax return must be filed to build "TFSA Contribution Roomî. This $5000 annual maximum amount will be indexed after 2009, with rounding to the nearest $500. The annual maximum remains at $5,000 for 2010 contributions. 2. How is TFSA Contribution Room Calculated? The TFSA contribution room is made up of: ∑ annual TFSA dollar limit ($5,000peryear plus indexation, if applicable); ∑ any unused TFSA contribution room in the previous year; and ∑ any withdrawals made from the TFSA in the previous year, excluding qualifying transfers. 3. Can unused contribution room be carried forward to future years? Unused contribution room can be carried forward on an indefinite carry forward basis. This means two things: first if you have unused TFSA contribution room of $10,000, you can in fact carry that unused contribution room forward indefinitely to fund when you have the money. Secondly once you build contribution room, you can't lose it. That is, you can take the principal and earnings out of your TFSAóon a tax free basis--and spend it on whatever you want; then put it back ñ as long as you wait until you have the contribution room. 4. How can I keep track of my TFSA Contribution Room? Based on information provided by the issuers, the Canada Revenue Agency (CRA) will determine the TFSA contribution room for each eligible individual and report this on the Notice of Assessment. Withdrawals, excluding qualifying transfers, made from a TFSA in the year will be added back to TFSA contribution room at the beginning of the following year. 5. What happens when I make an overcontribution? Taxpayers cannot contribute more than their available TFSA contribution room in a given year, even if they make withdrawals from the account during the year. If they do, a penalty tax of 1% of the highest excess amount in the plan during the month, is charged, for each month you are in an overcontribution position. Discrepancies in contribution room limit or excess contributions, must be reported to the TFSA issuer. In addition, after October 16, 2009, any income earned resulting from an overcontribution, or a contribution to a prohibited or non-qualifying investment will be taxed at 100%. For example, let's take Paul who contributed $5,000 to his TFSA in 2009, and another $5,000 in 2010. In mid 2010 he decided to take out $4,000 from his TFSA to put a deposit on a sports car he saw for sale on e-Bay. When Paul found out he couldn't import the sports car into Canada, he backed out of the sale and received his deposit back. Unfortunately, as Paul has already put his full TFSA maximum into the account, he no longer has contribution room. He will have to wait until 2011 to re-contribute all or part of the $4,000 withdrawal. If he does re-contribute during 2010 he would be subject to the penalty tax of 1% a month for each month the excess contribution is in the account. 6. What income sources should be earned from the TFSA account? That largely depends on age and sources of other income. Those sources of income subject to the highest marginal tax rates (such as interest) or dividends, (which artificially inflate net income, thereby decreasing social benefits payments), should perhaps be earned within a TFSA. Capital gains and losses should perhaps be incurred outside the TFSA for better tax results, particularly if planned in combination with a charitable giving strategy. But if you are looking for the power of real tax free growth, the TFSA should contain a diversified set of investments, including equities. Note that losses from investments earned within a TFSA are not deductible from capital gains held outside the account. In addition, transfers of assets held outside of a TFSA, which result in a capital loss at time of transfer are considered to be "superficial lossesî which are not usable as a deduction against capital gains of the year.   Compliance Alert:    Many people are not aware of the form and schedules used to calculate the taxes and penalties imposed on excess contributions or prohibited or non-qualified investments to TFSA's. RC243 Tax-Free Savings Account (TFSA) Return 2009 RC243-SCH-A Schedule A - Excess TFSA Amounts RC243-SCH-B Schedule B - Non-Resident Contributions to a Tax Free Savings Account (TFSA) 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.

Most of us are aware that principal residences are eligible for special tax status.  Throughout the last 40 years there have been a number of changes to the rules surrounding principal residences, particularly those that are long-held (think family cottages), the historical changes are outlined below.   As an overview, a property qualifies as your principal residence if it meets the following conditions: Is a house, cottage, condominium, apartment, trailer, mobile home, or houseboat. Is owned by you alone or jointly with another person. You, your spouse, your former spouse, or any of your children lived in it at some time during the year. You designate your property as your principal residence. Form T2091, Designation of a Propery as a Principal Residence by an Individual is used to calculate the capital gain portion.   The basic computation to calculate the exempt gain is as follows:   Total Gain X        1+ the number of years the home was designated as a principal residence                                               Total number of years you owned teh home after 1971 <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />  Historical changes Special consideration must be given to the tax status of long-held residences in determining tax consequences of the various plans clients have: ï Pre 1972: No tax is payable on accrued gains on any capital assets ï 1972 to 1981: Prior to 1982 one principal residence designation was allowed for each year for each spouse. Therefore for these years a husband and wife can designate different principal residences (e.g. a house and a cottage) to help minimize capital gains (and taxes) on a sale. 1982 to date: Since 1982 you have been able to designate only one home as your family's principal residence for each year. If you are married or are 18 years or older your family includes you, your spouse, and your minor children. If you are not married or are under age 18, your family includes your mother and father and your brothers and sisters (unmarried and under age 18). ï 1993 to date: One principal residence designation allowed for each year to each conjugal relationship (married or common-law) ï 1994: Prior to February 23, 1994, everyone had a $100,000 personal capital gains exemption. This meant that every Canadian could generate up to $100,000 of capital gains during their lifetime (up to this date) and not pay tax on those gains. In order to get the final benefit from this exemption, many people elected, on form T664, to use up their exemption and trigger a capital gain. The election increased the adjusted cost base of particular assets owned at that time so that when the property was actually sold, the taxable capital gain was that much less. If you filed a T664, you are considered to have sold your capital property at the end of February 22, 1994, and to have immediately reacquired it on February 23, 1994. ï 1998 to 2001: Same-sex couples could elect conjugal status, thereby limiting their tax-exempt residences to one per unit ï 2001 to date: Same-sex couples are required to limit themselves one principal residence designation per year per conjugal relationship   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.

Employers - in the very near future you will have many summer students leaving their jobs to head back to school, it's time to brush up on the rules related to "interruption of earnings" or what is more commonly referred to as a "termination of employment".   A termination checklist is useful in helping the payroll department to determine that all payments and all deductions are captured for the final pay. It can also be used to ensure that all internal policies relating to a termination have been complied with.   A record of employment (ROE) form is required by the government once an employee has a break in employment. The government uses the information on the ROE to determine whether a person qualifies for EI benefits, the benefit rate and the duration of his or her claim. An ROE must be issued by an employer even if the employee has no intention of filing a claim for EI benefits. An interruption in earnings could be due to the employee's quitting or the employer terminating the employment, but only arises if it involves or is expected to involve 7 consecutive calendar days without work or insurable earnings from the employer. An interruption of earnings also occurs where a salary falls below 60% of normal earnings due to illness, injury, quarantine, pregnancy, the need for a parent to care for either newly born or adopted children, or the need to provide care or support to a family member who is gravely ill with a significant risk of death. Special rules apply to casual workers. When a part-time or casual worker has not worked for 30 days, is no longer on the employer's active employment list or the employee or the government requests an ROE form, a form must be completed by the payroll department. When an employee is terminated a termination letter is usually prepared by the payroll or human resource department which outlines the reason for the termination, monies owing to the employee and continuation of any benefits or other coverage. The letter should also describe any non-competition agreement terms and any other actions required by both the employer and the employee. An employee may or may not work their notice of termination period ñ the period from the announcement that employment is terminated until the last day of work. As noted above, if an employee chooses not to work their notice period, the employer generally does not have to pay the employee for the notice period. On the other hand, if an employer chooses not to have the employee work out their notice period then the employer must pay the employee for this period. As mentioned earlier in the course, this payment is referred to as "pay in lieu of notice". Notice period rules vary by province and can be found in provincial labour standards. Educational Resources: Excerpted from Advanced Payroll for Professional Bookkeepers,  one of the courses that comprise the Bookkeeping Services Specialist program.

Approximately 4.7 million Canadians opened Tax-Free Savings Accounts since they were introduced, and about 70,000 of those account holders have been asked to provide additional information on their accounts to CRA. The government is recognizing that there was some general confusion regarding the TFSA rules by account holders as well as the financial institutions holding the accounts. A recent news release from the Department of Finance advised that the deadline for responding to TFSA letters received from CRA has now been extended from June 30th to August 3rd. Available since January 1, 2009, the Tax-Free Savings Account (TFSA) is a registered account in which investment earnings, including interest, dividends and capital gains accumulate within the account on a tax free basis. Contributions up to an annual maximum of $5000 can be made by/for those who have reached 18 years of age and are residents of Canada. There is no maximum contribution age (you can be 92, for example!), however a tax return must be filed to build "TFSA Contribution Roomî. This $5000 annual maximum amount will be indexed after 2009, with rounding to the nearest $500. The annual maximum remains at $5,000 for 2010 contributions. In the news release, the Government of Canada announced that for 2009, the first year of the program, there will be a case-by-case review to determine if tax will be waived on excess contributions that occurred during the year. In many cases, over contributions were occurring in situations when individuals were using the TFSA accounts as an ATM, i.e. depositing and withdrawing amounts frequently, and in other cases transferring TFSA amounts from one institution to another. These over contributions can result in penalties, and require the account holder to complete a form advising the CRA of the amounts for each month that an over-contribution was made during the year. Compliance Alert:    Many people are not aware of the form and schedules used to calculate the taxes and penalties imposed on excess contributions or prohibited or non-qualified investments to TFSA's. RC243 Tax-Free Savings Account (TFSA) Return 2009 RC243-SCH-A Schedule A - Excess TFSA Amounts RC243-SCH-B Schedule B - Non-Resident Contributions to a Tax Free Savings Account (TFSA) 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.

Tax filing deadlines compel most ó but not all ó of Canada's almost 24 million tax filers to arrange their affairs and reconcile last year's taxes by April 30. However, there are many late filers. Please be sure to diarize milestones that maximize your rights under the Income Tax Act: 2010   July 1 New Benefit Year: Child Tax Benefit, GST Credit, Old Age Security (file 2009 tax return to determine benefit levels) August 31 Working Income Tax Benefit Advance Payment Application for 2010 September15 Quarterly Instalment Payment Due December 15 Quarterly Instalment Payment Due December 31 Annual Instalment Due for Farmers, Fishers 2011 January 30 Requirement to pay interest on inter-spousal loans February 28 T4 Slip Completion and Distribution, RRSP Deadline March 15 Quarterly Tax Instalment due March 30 T3 Slip Deadline April 30 Personal Income Tax Filing Deadline May 1 Interest accrues daily on overdue taxes owing June 15 CRA owes interest to tax filers on late processed refunds (in fact, the agency has an obligation to process refunds within 45 days of receipt of the return after April 30) Tax Filing Deadline: Proprietorship Returns Quarterly Instalment Payment Due 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.

At long last, an announcement has been made by The Honourable Keith Ashfield confirming a new simplified logbook requirement has been introduced for expenses incurred for motor vehicle use. The change is part of the strategy announced in the 2008 Federal Budget for assisting small and medium sized businesses with tax compliance. As indicated in the Federal Budget documents, one of the intentions of the initiative was to reduce the recordkeeping burden for taxpayers who claim automobile expenses. As was announced at that time, "To reduce the record-keeping burden and allow small business owners more time to devote to growing their firms, Budget 2008 proposes that maintaining a logbook during a sample period of time, that is representative of how the motor vehicle is used, be sufficient to support motor vehicle expense and taxable benefit calculations. The revised administrative policy that has been introduced allows businesses to maintain a logbook for an entire year, starting in 2009, in order to establish the use of a motor vehicle for business purposes. The logbook should be maintained for the entire year in order to establish a base year. After the base year has been established, a logbook can be kept by the taxpayer for a continuous three month period, which can then be used to calculate the business use for the entire year. The sample logbook would require the vehicle's business use to be within a 10% range of the base year's calculated annual business use. Care should be taken in the year that the vehicle is purchased or leased as there are limitations based on the type of vehicle purchased and amounts that can be claimed for tax purposes. For full details on the CRA's sample logbook policy, link here.   Click on these links now for more information on the Knowledge Bureau's Tax Services Specialist programs or EverGreen Explanatory Notes.