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. 

By Evelyn Jacks Every year I have the privilege of travelling across the country twiceóin November and Januaryóto host the Knowledge Bureau's Distinguished Advisor Workshops for tax and financial advisors who require continuing education credits and updating for their professional practices. This teaching tour always results in inspiration about the important work these highly informed and engaged people do. As an education company, we are privileged to spur on their enthusiasm for personal and corporate taxation matters, and then watch the lights go on throughout the room as both tax and financial advisors start thinking about how working together can help them get better results and ultimately, peace of mind, for their clients. Peace of mindómy definition of "affluence"óoccurs when you stop worrying about whether your money will cover the necessities plus emergencies, and focus instead on how to use your money as a tool to build wealth for future generations. If advisors could get more people focused on the twin goals of filing annual tax returns and minimizing their tax bills with fully funded RRSP contribution room, we could be more impactful in helping families build sustainable wealth for the future. Here are some simple, but critical action items, stemming from the discussions at the Distinguished Advisor Workshops, for you to impart proactively to your clients at tax time: Many Canadians are behind in filing their tax returns. This means they are likely missing out on tax refunds and refundable credits like the Child Tax Benefit and GST Credit. What to do about it? a. Advisors should ask whether prior returns are missing and if so, encourage their clients to file to recover missed refunds or avoid penalties and interest charges. b. Advisors should inform clients that they are not building RRSP or TFSA contribution room and that can have a big impact on their ability to build and grow family wealth. c. They are likely also missing out on reporting capital losses, which help average income taxes downward by offsetting capital gains of the current year, three years back and indefinitely into the future. Most Canadians are still underfunding their RRSP contribution room, giving up double-digit tax savings which could be leveraged into TFSAs or used to pay down non-deductible credit card debt. Show your clients the folly of missing these important opportunities. Many Canadians are still not benefiting from pension and investment income splitting opportunities that come from filing tax returns as a family. Tax and financial advisors can show their clients the benefits, working together. They can also review prior filed returns and adjust them if income splitting has not been maximized. February is an important month when tax and financial advisors do some of their most important work in the pursuit of their communities' financial well-being. You are celebrated for your leadership! 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.

This is the time of year when it's important to take note of new tax filing forms from CRA and then what happens when taxpayers can't pay after filing their returns. Released over the past week are several important publications for those who owe money to CRA, those preparing farm returns and reporting partnership income: Publication T4060E CRA's Collection Policies, found at this link: http://www.cra-arc.gc.ca/E/pub/tg/t4060/t4060-09e.pdf, outlines the rules for debtors, and provides guidance regarding the negotiation of payment arrangements when balances cannot be paid in full. Advisors and their clients should take particular note of the fact that ìability to payî must be supported by full disclosure of income, living expenses, assets and liabilities before any proposal is accepted to pay over time. Publication T4003 Farming Income 2009, information for individuals earning farming income as self-employed farmers or as partners in a farm partnership. A new form T2042  with the title Statement of Farming Activities is located at http://www.cra-arc.gc.ca/E/pbg/tf/t2042/t2042-09e.pdf Partnership Filing: T5013 Statement of Partnership Income, the information slip for the authorized members of a partnership is used to report to each partner their share of income for the fiscal period that the partner has to report on the appropriate income tax return for the year. Also: T5013SCH52 Summary Information for Partnerships that Allocated Renounced Resource Expenses to their Members: Note that the 2006 T4068 guide will not be revised for the 2009 tax year. However, all partnership forms are being revised for 2009 and will be available in print near the beginning of March 2010. Tax practitioners are advised to use the information in the supplemental guide T4068-1, 2009 Supplement to the 2006 T4068 ñ Guide for the T5013 Partnership Information Return, to file the partnership information return for the 2009 tax year. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> Suggested Educational Resources: Introduction to Personal Tax Preparation, Tax Preparation for Proprietorships

On February 16, Finance Minister Jim Flaherty, announced new measures to encourage and support the long-term stability of Canadian home ownership and its vital place in the Canadian economy, with measures proposed to come into force on April 19, 2010. These changes are of particular importance to wealth advisors working today with families who build wealth through home ownership.   "A key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing," said the Finance Minister in adjusting three rules for government-backed insured mortgages: To prepare for higher interest rates in the future, the government will require all borrowers to meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. To ensure the effectiveness of using home ownership in savings activities, the government will lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 percent from 95 percent of the value of their homes. To manage risk, the government will require a minimum down payment of 20 percent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation. The measures are intended to proactively help prevent Canadian households from getting overextended, ". . .and to prevent some lenders from facilitating it," said Minister Flaherty. Suggested Educational Resources: "Pass it Onî A workbook on intergenerational property transfers by John Poyser and Evelyn Jacks or the January 2010 Line by Line Tax Update Journal.

The CRA has issued a news release advising that more financial institutions are now offering the Registered Disability Savings Plan (RDSP) to eligible Canadians.  Scotiabank, TD Waterhouse will now be offering RDSP's, joining ranks with the other institutions (Bank of Montreal, CIBC and Royal Bank) that currently administer the plans.  Link to the full CRA news release by clicking here.   The Registered Disability Savings Plan (RDSP) may be established for an individual who has a severe and prolonged physical or mental impairment and qualifies for the disability tax credit during the year of establishment, or would have if the restriction for the attendant care amount were disregarded.   Any person eligible to claim the Disability Amount can be the beneficiary of an RDSP and the plan can be established by them or by an authorized representative. Anyone can contribute to an RDSP ñ they need not be a family member. Contributions are not deductible. Income accumulates in an RDSP tax free. Contributions withdrawn from an RDSP are not taxable, but all other amounts ñ accumulated investment income, grants and bonds (discussed below) ñ are taxable in the hands of the beneficiary as withdrawn. There is no annual limit on contributions but lifetime contributions cannot exceed $200,000. Contributions are permitted until the end of the year in which the disabled beneficiary turns 59. For more detail about withdrawal requirements and the Canada Disability Savings Grant and Bond, consult: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA. This topic is covered in detail here.

As we discussed in last week's Breaking Tax and Investment News, a contractor may have individuals providing services who consider themselves to be self-employed or who don't want to be treated as employees, even if they are! This year, with the popularity of the Home Renovation Tax Credit, it is more important than ever that the nature of the relationship be properly established and the correct tax forms filed.  Individuals filing for the credit will be completing Schedule 12 on their returns providing the CRA with a list of amounts paid and the GST numbers of those who received the funds.  Contractors who have employees must withhold CPP, EI and Income Tax from payments to those employees and issue T4 slips before the end of February.  If the contractor is using independent sub-contractors to perform the work, no withholding is required and payments should be documented by issuing T5018 (or, outside the construction industry, T4A) slips. Individual who are independent contractors and not employees must account for contracting income (whether reported on a slip or not) as business income, meaning: Business-related deductions such as home-office expenses, promotion and entertainment expenses, capital cost allowance on equipment and other such expenses can be claimed. Reasonable salaries paid to family members for services rendered are deductible in determining business profits and can be used to split income. The owner may incorporate the business and claim the low tax rate applicable to active business income. There is no requirement to contribute to Employment Insurance, and there is no ability to draw Employment Insurance during periods of inactivity. Canada Pension Plan contributions are still required. Depending on the level of revenue, the business may need to register and collect GST on revenues. A good deal of Canada's underground economy takes place in the construction industry.  With the reporting requirements for individuals to claim the Home Renovation Tax Credit for 2009, you can be certain that the CRA will be using this new source of information to ensure that those who received the payments are reporting the income on their tax returns.  Bookkeepers should be familiar with the reporting requirements for the construction industry to ensure that their clients are well prepared for a CRA audit this year. Educational Resources: For more information, see Advanced Bookkeeping for a Selection of Business Profiles, one of the courses that comprise the Bookkeeping Services Specialist program.

Construction contractors are often confused when it comes to dealing with people who provide labour and sub-contract work. Because of the nature of the business, the confusion lies in whether the service provider is employed or self-employed. A contractor may have individuals providing services who consider themselves to be self-employed or who don't want to be treated as employees, even if they are! Alternatively, a contractor may consider those providing labour as sub-contractors (or self-employed) when they are and should be treated as employees. Over the years, the courts have developed criteria to be used in evaluating whether an individual is an employee or is self-employed. The following questions are a starting point to determine this status: Has the individual entered into a contract of service (an employee) or contract for service (self-employed)? What level of control does the payer have over the worker? Does the worker provide his or her own tools and equipment? Can the worker subcontract the work or hire assistants? Is there a degree of financial risk taken by the worker? Does the worker have the potential for profit or loss? What is the degree of the worker's responsibility for investment and management? What does the written contract state? Depending on their commercial arrangement a contractor and its sub-trades may have the ability to manage their relationship so as to create either an employment or self-employment relationship.   Join us next week to determine the requirements for independent contractors and some of the deductions they are eligible for. Educational Resources: Excerpted from Advanced Bookkeeping for a Selection of Business Profiles, one of the courses that comprise the Bookkeeping Services Specialist program.