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. 

Taxable benefits are so important to the payroll cycle that CRA has written a separate payroll guide to explain them, T4130, Employers Guide - Taxable Benefits and Allowances. Every payroll clerk should have this guide at hand to determine income reporting and statutory deduction withholding requirements on an ongoing basis. In all cases, where a taxable benefit arises the value of the benefit to be included in income is reduced by any payment the employee makes to the employer with respect to the benefit. There are four basic facts about taxable benefits to remember in processing a payroll: 1. Add their Value to Gross Pay. The taxable benefit must be added to the employee's cash compensation each pay period and normal statutory deductions must be withheld from the total amount. Remember that the value of the taxable benefit is reduced by any payment the employee made to compensate the employer for providing the benefit. 2. Annualized Tax Withholding is Possible. Where a non-cash benefit is very large so that withholding of income tax will cause undue hardship, the value of the benefit and the related withholdings can be spread over the remainder of the year. 3. CPP Deductions Required. If the benefit or allowance is taxable, it will also be pensionable. Therefore Canada Pension Plan (CPP) contributions will be required to be withheld, as will income tax. 4. EI Deductions May Be Required. If the taxable benefit is paid in cash and relates to insurable employment, it is insurable. Employment Insurance (EI) premiums will therefore be required. However, if the employment is not insurable under the Employment Insurance Act, taxable benefits paid in cash are not insurable and are not subject to EI premiums. Finally, if the taxable benefit is a non-cash benefit, it is not insurable. In that case, the benefit does not attract EI premiums. The T4130 Guide is also available in EverGreen and it contains a chart which clearly identifies, in alphabetical order, the various types of taxable benefits and their source remittance. This table is also reproduced electronically on the CRA web site. Excerpted from Advanced Payroll for Professionals, one of the courses that comprise the Bookkeeping Services Specialist program.

A fiscal period is any period of time for which an enterprise prepares its accounts. Most business enterprises have a fiscal year, and many report more frequently and also have fiscal months and fiscal quarters for internal reporting purposes. Strictly from an accounting perspective, there are no constraints on the fiscal period an enterprise can choose. Thus, accounting records can be maintained and financial statements can be prepared for any period of time that provides useful information to the owners and managers. There are often government-imposed regulations which restrict an enterprise's flexibility in choosing its fiscal periods. Most of these arise under the Income Tax Act. Some of these restrictions apply generally; some vary with the type of organization. General Restrictions The Income Tax Act provides: a new fiscal period starts immediately after the end of the prior fiscal period, a new fiscal period must generally end 12 months after it began, a corporation is permitted to have a fiscal period that is up to 53 weeks long, a professional corporation must use a calendar fiscal period, the general rule is that the fiscal period for a proprietorship must end on the last day of the calendar year in which it began. However, see the more detailed commentary below, once a fiscal period has been established, it cannot be changed without the prior written consent of the taxation authorities. Permission will only be granted where the change is requested for business and not tax-planning reasons. Corporations Corporations have the greatest flexibility, in that they can basically choose any fiscal period end that suits the business ñ save only that a professional corporation must use a calendar fiscal year. Each fiscal period can be up to 53 weeks long. Generally, only corporations engaged in retailing choose to vary their year ends, using the 53-week rule, so that each fiscal year has the same number of business days in it as the year before. The vast majority of corporations have their fiscal periods end on the same day each year. Example ñ Fiscal Period for a Corporation Acme Corporation was incorporated on June 13, 20X8, when Articles of Incorporation were filed. What flexibility do the officers of Acme have in selecting its first year end? Acme can choose any year end it likes, so long as the first does not end more than 53 weeks after June 13, 20X8. Normally, a corporation will choose a year end that coincides with a slow period in its business cycle. Such a year end may free up time for the bookkeepers, accountants and management to prepare year-end financial statements and other reports. Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Bookkeeping Services Specialist program.

Tax and financial advisors beware: soon you may be required to report certain transactions. The Minister of Finance, The Honourable Jim Flaherty, has announced that consultations with Canadians with regard to implementing a reporting regimen for tax avoidance transactions will take place over the next two months. Federal Budget 2010 indicated that tax avoidance transactions that were indicative of aggressive tax planning would become reportable to the Canada Revenue Agency.  The consultation proposals released by the Government of Canada provides details with respect to the following: Reporting rules and the persons who would be subject to these rules Disclosable transactions Form, content and timing of the disclosure required Consequences for failing the disclose a transaction Comments received by the Government during the public consultations will be reviewed and the measures introduced in the 2010 Budget will be adjusted as necessary.  Submissions may be made to the Tax Legislation Division at the Department of Finance at consultations245@fin.gc.ca. For the complete news release including Backgrounder information and Description of Proposal, link here.   ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes Basic Bookkeeping for Business Advanced Bookkeeping for Business Profiles

The estimated cost of complying with the multitude of tax regulations for the average taxpayer, along with the sweat and tears expended when taxpayers are pulling together the required papers to complete the return and meeting with tax professionals is a whopping $4 to $5.8 billion cost per year. That's $215 for every tax filer ñ more than $300 for businesses. It translates into 5 hours of tax prep time; seven hours counting tax planning and appealing decisions made by CRA, this according to a recent study by the Fraser Institute, The Cost to Canadians of Complying with Personal Income Taxes by Francois Vaillancourt. Some highlights from the study follow: 51 percent of Canadians filing taxes pay for professional assistance (versus only 39% in 1986) 31 percent of tax filers are involved in preparing their own returns 18 percent of the filers use friends, family or non-profit organizations for help Men are more likely to prepare their own returns than women Paid tax preparers are used at a significantly higher rate when taxable income is over $100,000 For more information, link here for the full study released by the Fraser Institute. 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.

As discussed in last week's issue of Knowledge Bureau Report,  a fiscal period is any period of time for which an enterprise prepares its accounts. Most business enterprises have a fiscal year, and many report more frequently and also have fiscal months and fiscal quarters for internal reporting purposes. Strictly from an accounting perspective, there are no constraints on the fiscal period an enterprise can choose. Thus, accounting records can be maintained and financial statements can be prepared for any period of time that provides useful information to the owners and managers. There are often government-imposed regulations which restrict an enterprise's flexibility in choosing its fiscal periods. Most of these arise under the Income Tax Act. Some of these restrictions apply generally; some vary with the type of organization. General Restrictions The Income Tax Act provides: a new fiscal period starts immediately after the end of the prior fiscal period, a new fiscal period must generally end 12 months after it began, a corporation is permitted to have a fiscal period that is up to 53 weeks long, a professional corporation must use a calendar fiscal period, the general rule is that the fiscal period for a proprietorship must end on the last day of the calendar year in which it began. However, see the more detailed commentary below, once a fiscal period has been established, it cannot be changed without the prior written consent of the taxation authorities. Permission will only be granted where the change is requested for business and not tax-planning reasons. Partnerships A partnership can have any fiscal period it wants, except if an individual, a professional corporation or another partnership which itself has an individual or professional corporation as a member, is a member ñ in which case the fiscal year must be the calendar year. In other words, if any individual or professional corporation is either directly, or through one or more intermediary partnerships, a partner in the partnership, the partnership must have a calendar fiscal period end. Otherwise, it can choose any fiscal period end it likes. Example ñ Partnership Fiscal Period Acme Partnership has three partners, a chartered bank, a real estate development corporation and an insurance company. Acme Partnership would like to operate with an October 31 year end. Is this permitted? Yes. Because none of Acme Partnership's partners is an individual, a professional corporation or another partnership in which either an individual or professional corporation is a member, Acme Partnership is free to choose any fiscal period it wants. If it chooses October 31, it will have fiscal periods starting November 1 and ending October 31 for as long as it is in existence, unless it obtains prior written approval to change its year end. Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Bookkeeping Services Specialist program.

From a business standpoint there can be many advantages to choosing a year end that will be the most suitable to your business; for example, a corporation may choose to time their fiscal year end before their busy period in December in order to defer the tax payable on the net income earned. A fiscal period is any period of time for which an enterprise prepares its accounts. Most business enterprises have a fiscal year, and many report more frequently and also have fiscal months and fiscal quarters for internal reporting purposes. Strictly from an accounting perspective, there are no constraints on the fiscal period an enterprise can choose. Thus, accounting records can be maintained and financial statements can be prepared for any period of time that provides useful information to the owners and managers. There are often government-imposed regulations which restrict an enterprise's flexibility in choosing its fiscal periods. Most of these arise under the Income Tax Act. Some of these restrictions apply generally; some vary with the type of organization. General Restrictions The Income Tax Act provides: a new fiscal period starts immediately after the end of the prior fiscal period, a new fiscal period must generally end 12 months after it began, a corporation is permitted to have a fiscal period that is up to 53 weeks long, a professional corporation must use a calendar fiscal period, the general rule is that the fiscal period for a proprietorship must end on the last day of the calendar year in which it began. However, see the more detailed commentary below, once a fiscal period has been established, it cannot be changed without the prior written consent of the taxation authorities. Permission will only be granted where the change is requested for business and not tax-planning reasons. Proprietorships The general rule is that any business enterprise carried on by an individual must have a calendar fiscal year, to coincide with the individual proprietor's taxation year. The Income Tax Act does permit most individuals to elect not to report their business activities using a calendar year fiscal period. However, where such an election is made, the individual is required to report a notional amount of income on his or her income tax return, to represent an estimate of what the business's additional income would have been if the fiscal period had not ended before December 31. Because of this accounting for notional "stub-period incomeî, very few individuals elect to report business income on anything other than a calendar year fiscal period. Example ñ Proprietor's Fiscal Period Gillian starts a bookkeeping business, as a proprietor, on April 17, 20X8. Unless she elects otherwise, her first fiscal year will cover the period April 17, 20X8 to December 31, 20X8. Her second fiscal year will start January 1, 20X9 and end December 31, 20X9.   Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Bookkeeping Services Specialist program.