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 housing prices on the rise across Canada and the appearance of increased interest rates on the horizon, there is no better time to consider purchasing a home and lock in those low rates. The Home Buyers' Plan and First Time Home Buyers' Tax Credit program may help fulfill those dreams.   As most of us are aware, the 2009 Federal budget increased the maximum amount that can be removed from a taxpayer's RRSP under the Home Buyers' Plan to $25,000 for withdrawals after January 27, 2009. An application for withdrawal of RRSP amounts is made on Form T1036 Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP, click here to access the form.   In the same budget a First Time Home Buyers' Tax Credit was introduced.  This credit is a non-refundable tax credit based on $5,000 for first time buyers who purchase a home after January 27, 2009 (closing date must be after that date). The credit is claimable in the year the home is acquired.  The credit translates to a $750 tax credit ($5,000 x 15%).   The Home Buyers' Plan allows first-time home buyers (or those who have not owned a home in the current year or preceding four years) to withdraw (under S. 146.01), on a tax-free basis, up to $25,000 (after January 27, 2009) of funds saved within their Registered Retirement Savings Plan (RRSP) for the purpose of buying or building a home. No tax will be withheld on such withdrawals. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals throughout the year as long as the total does not exceed $25,000. Tax-free withdrawals from an RRSP may also be made for the purpose of making home renovations or purchasing a compatible home to meet the needs of a disabled person. The funds must be repaid back into the RRSP, over a period not exceeding 15 years, beginning in the second calendar year after the withdrawal. Amounts which are due and not repaid are included in the taxpayer's income under S. 56(1)(h.1) in the year they are due. The taxpayer and their spouse or common-law partner may each participate in the plan and together withdraw up to $50,000 after January 27, 2009 from their respective RRSPs. Excerpted from EverGreen Explanatory Notes. 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.

Most people know that April 30 is the tax filing deadline for individual taxpayers, and by now you should have received all of your slips, including T3's and T5's, to send to your tax preparer in order to finish the task. But the big question, in terms of maximizing all your benefits is this: What are you going to do with your tax refund?  Will you spend it or invest it? Here are six tax efficient ideas for building wealth with your tax refund: Pay off expensive, non-deductible debt, like credit card balances. (Then vow to budget and live within your means, saving first, before spending.) Save within a TFSAóthat's the new Tax Free Savings Account. It's a great place to park money and earn tax free investment income. Remember to file your return to build TFSA contribution room. If you have taxable income, invest in an RRSP. You will reap immediate tax savings in the double-digits, money you can then use for a TFSA contribution. If you have children, invest the money in an RESPóa Registered Education Savings Plan, and benefit from the Canada Education Savings Grant. If you have a disabled dependant, invest the money in an RDSPóa Registered Disability Savings Plan, and benefit from the grant and bond structures available here. Invest the money outside registered plans in your non-registered accounts, with a view to earning tax efficient income like dividends and capital gains. However, if you must consume frivolously, it will stimulate the economy! But, think about this as you do it: the trick to mastering your money is to take control of the first dollar you earn, hold on to it the longest through wise investment choices, and then, pass along the most to yourself in your retirement and your heirs at death. Evelyn Jacks is President of The Knowledge Bureau and author of Master Your Taxes, Make Sure It's Deductible and Essential Tax Facts. Readers may sign up for a free subscription to Knowledge Bureau Report at www.knowledgebureau.com.

The Federal Task Force on Financial Literacy has been travelling across Canada holding consultations with Canadians on the issues that matter most to them with respect to literacy issues and financial matters.  For those that missed the public sessions, comments are still welcome on their website at www.financialliteracyincanada.com.   The Task Force was formed to make recommendations to the Minister of Finance on a cohesive national strategy on financial literacy and they have a website with more information on the work they do and what they hope to accomplish.  The Task Force travels East next.  See the full list of public consultations by clicking here.   The objective is to recommend ways to improve financial literacy so Canadians are better able to make sound financial decisions in a world that is fast moving and very complex.   Evelyn Jacks, the founder and President of The Knowledge Bureau, is a member of the Task Force. Interested subscribers to the Knowledge Bureau Report may wish to follow the work of the Task Force. Stay tuned for more details on the consultations as the Task Force continues its way across Canada.

Many employees have deductions or credits available to them that are not reflected on the TD1 form. Where an employee has such deductions or credits available, it is to his or her advantage to have the employer take these into account when calculating the tax to be withheld. 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 is filed are converted into an increase in the take-home paycheque received every pay period. This is one of the reasons that in 2008 the average tax refund was $1,400 per taxpayer.  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. Education resource: Excerpted from Advanced Payroll for Professional Bookkeepers, one of the courses that comprise the DFA, Bookkeeping Services Specialist designation program.

Increase in Taxes - A Sign of Things to Come?To cope with a $9 Billion deficit, and an expected deficit of $222 Million in 2010-2011, Nova Scotia will raise its Harmonized Sales Tax to 15% starting on July 1st, and create a new "high income" tax bracket, taxing those with incomes above $150,000 at 21%, beginning retroactively on January 1, 2010. This 21% rate is one of the highest penalties for those with top earnings in the country. With other provinces and the federal government itself facing large deficits, this may signal the advent of new taxation trends for the years to come. Other tax initiatives include: HST offset for low income earners (less than $30,000) of $240 per year plus an additional $57 for children under 19 and living at home Elimination of the 10% surtax on provincial income tax payable greater than $10,000 effective January 1, 2010 Taxes on small business (under $400,000) declining to 4.5% from 5%, effective January 1, 2011 Capital taxes on non-financial institutions declining and set to be eliminated in two years How does this compare to taxation changes in other provinces? See KBR budget summations in archived issues by linking here.The bottom line for Nova Scotians? At a time when recovering economies need fiscal stimulus, consumers will pay more (and this penalizes in particular, young familiesin the middle class) and the tax disincentive for high income earners may create a brain drain Nova Scotia may miss for its future. Planning to reduce, change or diversify investment or business income sources may help to average down these new tax rates. So will RRSP contributions which save tax dollars on a proportionately higher basis for high income earners.Your thoughts? Evelyn Jacks is President of The Knowledge Bureau and author of Essential Tax Facts 2010, Master Your Taxes, and Make Sure It's Deductible; all available from the Knowledge Bureau bookstore at bulk purchase pricing for advisors and their clients.

The Minister of Finance, The Honourable Jim Flaherty, released a statement recently advising proposed changes contained in the Notice of Ways and Means Motion tabled on March 22, 2010 will provide clear GST rules for those within the financial services industry. The draft legislation relating to the application of GST within the industry was introduced to improve on the legislation previously released in January 2007. The current system for applying GST contains very complex rules relating to registered pension plan trusts, and the new system will offer an equitable application of GST rebates and an updated process for GST returns to provide improved reporting. Some highlights of the draft legislation are as follows: The CRA and financial institutions will have an improved and more flexible pre-approval process for the allocation method of input tax credits (ITC's) Canadian financial institutions with foreign branches can choose a self-assessment process that is simpler to implement when services are provided by those foreign branches Banks and other large dealers will be allowed to use their own methods to allocate ITC's Large derivative transactions undertaken by financial institutions could be excluded from self-assessment rules. A new GST annual information return would be introduced, due the same time as the institution's annual tax return To review the GST Notice related to the changes, link here. 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.