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   After the financial crisis of 2008 and 2009 that resulted in an unprecedented financial stimulus into the global marketplace, Canada is poised for a significant economic recovery in 2010, amidst some very good news in terms of the financial health of Canadian households, but also some significant red flags for the future. While personal net worth has rebounded above its ten year average and Canadian savings rates are at an eight year high, considerable fiscal expansion and monetary stimulus are supporting domestic demand, which may well spell higher taxation levels in future federal and provincial budgets. Taken together with the strength of the Canadian dollar and the impact of inflation, the tax preparation and wealth planning process takes on new importance this quarter with tax season beginning again for over 24 Million Canadian taxfilers. The following economic review follows developments at the Bank of Canada, specifically recent speeches by its Governor, Mark Carney on Current Issues in Household Finances on December 16, and in a report to the Standing Committee on Banking, Trade and Commerce, as well as recent news releases and compliance documentation from the Department of Finance, and the Canada Revenue Agency (CRA), will help advisors and their clients better anticipate what 2010 holds in store for purchasing power, savings rates, consumer spending and debt as well as taxation trends. PART 1: CANADA IN A GLOBAL ECONOMY Canadian economy has suffered a deep, albeit brief, recession. More than 400,000 jobs were lost and Canada suffered a $30 billion fall in output. However, it is expected that the Canadian economy will likely grow faster than the other G-7 countries in 2010. In most major economies, the inventory cycle has turned and housing sectors are stabilizing. But according to the Bank of Canada, stronger growth in domestic consumption will be necessary to offset weak external demand for Canadian exports, given our strong dollar and the global recession. The situation is worse for us because of the problems in the US, where the rebound in consumer consumption there is projected to be more moderate than in previous cycles. This is largely because, over the last three decades, U.S. consumer spending grew substantially faster than national income, driving the ratio of consumption to GDP from 62 per cent to a record 70 per cent. In the same period, the personal savings rate fell from 11 per cent of disposable income to 1 per cent, while household debt doubled from 84 per cent of disposable income to 165 per cent. This is quite unlike the trendlines in Canada: Canadians' Net Worth is Strong. Rebounding housing and financial markets increased Canadian household net worth to 589 per cent of disposable income by the end of the third quarter, above its 10-year average. Personal Savings Rate: The personal savings rate in Canada rose to an eight-year high of 5.5 per cent in the second quarter of 2009, reflecting a sharp increase in household savings and in general a responsible and precautionary reaction to the uncertainties stemming from the economic outlook and financial conditions of the past year. Consumer Borrowing: Consumers did and are expected to continue to take further advantage of unusually low borrowing rates, which the government's stimulative monetary policy is structured to encourage. Household Finance: At the same time, the Bank of Canada has warned that it is the responsibility of households to be able to service debt when fiscal stimulus measures are unwound and the marketplace produces its own results, which could include inflation and higher interest rates and taxation in the future. Bankruptcy Increases: While government stimulus packages hope to encourage consumer consumption to balance the economy and meet inflation targets, personal bankruptcies in Canada rose 41 per cent in the third quarter from the same period a year ago, leaving the number of bankruptcies as a proportion of the population at its highest level since 1991. Loan Delinquencies: Delinquency rates on loans have risen as well, with the proportion of mortgages with payments in arrears three months or more having increased by half over the past year. Mortgage Arrears. The current rate of mortgage arrears, remains more than one-third below its peak in the early 1990s. Financial institutions: Institutions have been alerted by the Bank of Canada not take false comfort from mortgage insurance and past performance of household credit, as the overall credit profile of Canadian households could well shift in a negative trend if debt continues to grow at current rates. Debt Service Ability: The Bank of Canada undertakes regular stress tests, to understand the vulnerability of Canadian households and their financial stability. Recent results illustrated that a hypothetical increase in unemployment could produce loan losses for financial institutions representing about 10 per cent of their Tier 1 capital. Should these simulations be accurate, by the middle of 2012, almost one in ten (9.6 per cent) Canadian households would have a debt-service ratio greater than 40 per cent, the threshold above which households are considered financially vulnerable. Don't miss the Annual Line-by-Line T1 Tax Update, a Distinguished Advisor Workshop presented by The Knowledge Bureau in five Canadian cities in January. It's an excellent way to update your skills in personal tax preparation with all the latest changes in tax laws. For dates, locations and registration, click here.

As we discussed in our last issue of Breaking Tax and Investment News, with the end of the year now past us, it is worthwhile to review changes that have occurred during 2009 that may impact you or your clients at tax filing time.   Following are recent tax changes specific to those who are employed. It is important to review various tax provisions available to employees in this year of change, as the economic downturn has led to numerous job losses, especially in the automotive, media and manufacturing sectors. Apprenticeship completion and incentive grants. Employees who received these amounts must report them as income on Line 130 of the tax return. RPP Contribution Maximums. It is a time when companies are struggling to fund their employees' pension plans. However, if you are entitled to one, and you are assured your company will be able to fund your retirement, your role in planning is to consider all the ways to maximize recent contribution maximums, and "backfillingî any available contribution room based on past services provided. For money purchase plans, the annual contribution limit will be $22,000 in 2010; thereafter the amounts will be indexed. For defined benefit plans, the maximum pension benefit per year of service will be $2,333 in 2009 and $2,444 for 2010. After this, the maximum benefit will be calculated as 1/9 the money purchase limit. Don't forget, you may be able to make past service contributions as well. And if you are about to receive a pink slip and a severance package, consider maximizing your RRSP contribution. In some cases, legal fees for challenging the amount of severance offered will be deductible too. RRSP Contribution Maximums. You may contribute to your RRSP throughout the year and within the first 60 days of the new year in order to make a deduction to offset 2009 taxes. Maximum contributions are calculated as 18% of earned income to a maximum dollar contribution limit. This was set at $21,000 for tax year 2009, based on an earned income of $116,667 in 2008. The contribution deadline is March 1st, 2010.   Educational Resources:  Now is a good time to look at retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future which could certainly include tax increases on both income and capital.  To learn more consider the following Educational Resources available from The Knowledge Bureau: Tax Efficient Retirement Income Planning    Master Your Retirement       Master Your Taxes <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />Tax Efficient Investment Income Planning                      Master Your Real Wealth      Master Your Investment in the Family Business  

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> January: Jan. 2: Reduce your tax withholdings at source: file your TD1 form to claim tax credits and a T1213 form. Make your TFSA deposit. Jan. 16: Defer stock option benefits. Jan. 30: interest payment on inter-spousal loans. April: April 15: US tax filing date April 30: T1 individual tax filind deadline February: T4, T5 slips due Federal Budget review (dates vary) May: Will and estate planning review March: Federal Budget review for 2010 RRSP filing deadline Pension Adjustment Reversal deadlines March 15: instalment due T3 slips due June: T1 proprietorship filing deadline June 15: instalment Closer Connection Exception Statement for Aliens (IRS Form 8840) Discuss these milestones with your clients when doing your year end planning in order that these important deadlines are not missed.     Join us next week for more milestones to mark in your calendar for discussion purposes.   To learn more about preparing T1 tax returns, register for Introduction to Personal Tax Preparation Services or call 1.866.953.4769 today to make an appointment for your free professional development consultation.

By Evelyn Jacks The financial stimulus packages of prior years are doing their job: stimulating domestic demand, and helping Canadians recover their financial health. But is there a cost for this flood of money into the economy? Will it spell higher taxation levels in future federal and provincial budgets? Should more be done to encourage Canadians and their governmentsóboth federal and provincial - to act responsibly and with purpose towards our ongoing economic recovery? These are important questions in advance of the annual federal budget expected to come down this quarter. According to the Department of Finance's Annual Fiscal Report for 2008-2009, the share of revenues spent on public debt charges declined from 13.7 percent in 2007ñ08 to 13.3 percent in 2008ñ09. This is down from a peak of about 38 percent in 1990ñ91. The share of revenues devoted to public debt charges is now at its lowest level since the late 1970s. However, recent deficits have increased dramatically: For the first seven months of the 2009ñ10 fiscal year, the budgetary deficit was $31.9 billion, compared to a deficit of $0.1 billion reported in the same period of 2008ñ09. With a budgetary deficit of $31.9 billion and a requirement of $26.3 billion from non-budgetary transactions, the federal government had a total financial requirement of $58.3 billion in the April to October period of 2009ñ10, compared to a financial requirement of $33.8 billion in the same period of 2008ñ09. Currently the Department of Finance is requesting input from Canadians on the upcoming Federal Budget. It's an opportunity to express opinions and best thoughts on the financial future and provide feedback. You can make your suggestions through the following link to the Department of Finance website. Suggestions submitted by The Knowledge Bureau include the following changes to personal taxation provisions that may continue to increase after-tax income available to stimulate both savings and spending by certain demographic groups in Canada: Raise basic personal amounts so as not to tax non-discretionary income of single moms and young working families. Increase the TFSA savings rate to $10,000 per year; then encourage average Canadians to pay down non-deductible consumer debt. Provide a moratorium on taxation of the first $10,000 in RRSP/RRIF withdrawals to stimulate spending by boomers; Increase deductible attendant care/nursing home costs to $2,500 a month and make this a deduction from income of either the elderly or their supporting individuals; who are bearing an economic burden with health care advocacy; Increase tuition/education transfer to supporting individuals from $5,000 to $10,000 per year; Allow for general averaging on severance packages over 5 years to allow the best tax result. NEXT TIME: HOUSEHOLD FINANCE NUMBERS ARE LOOKING GOOD Mark Carney, Governor of the Bank of Canada recently spoke on Current Issues in Household Finances (December 16), and the news is mostly good. Tune in next week to anticipate what 2010 holds in store for purchasing power, savings rates, consumer spending and debt as well as taxation trends.

By Evelyn Jacks Happy New Year! The tax preparation and wealth planning process will take on new importance this quarter with tax season beginning again for over 24 million Canadian tax filers in the aftermath of an unprecedented financial stimulus into the global marketplace, over the past two years. It appears Canada is poised for a significant economic recovery in 2010, and with that comes some tax planning opportunities. The personal net worth of Canadians has rebounded above its ten-year average and Canadian savings rates are at an eight-year high, according to statistics from the Bank of Canada and the Department of Finance. In addition, millions of Canadians have responded to the economic stimulus provided by the Home Renovation Tax Credit. This provision might well result in significant bottlenecks in tax preparation services, as busy tax advisors prepare for the increased data entry required on new Schedule 12, which requires an itemization of home renovation receipts. Specifically then, investment and financial advisors and their clients will want to focus on a review of the following provisions, sooner rather than later, to maximize tax preferences and reduce waiting time for tax refunds and their related investment benefits: RRSP top-ups for 2009 tax year TFSA contributions for 2010 A 2010 income projection and quarterly instalment tax review for March 15, 2010 Completion of source deduction and reduction forms: TD1 and T1213 A review of personal amounts for 2010 to ensure receipting is properly started for the calendar year A review of remaining opportunities under the temporary Home Renovation Tax Credit, under which work must be completed by February 1, 2010, but materials can be acquired for later use by the same date. Additional Educational Resource: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA.

Tax filing season 2010 will bring with it some new tax provisions and numerous increases in personal tax deductions, as well as refundable and non-refundable tax credits. Reviewing new personal provisions is a great way to start the financial year, particularly as Canadians get ready to file their 2009 tax returns, top up their RRSP contributions and make TFSA deposits. To help advisors and their clients prepare to pay only the correct amount of tax on personal and business activities, Evelyn Jacks, Canada's most trust tax author has recently released her 45th and 46th books, Essential Tax Facts 2010 (Knowledge Bureau, Inc) and Make Sure It's Deductible (McGraw Hill) and the following checklist to discuss in preparation for tax season 2010. 2010 TAX SEASON READINESS CHECKLIST: WHAT'S NEW? Tax receipting for the new Home Renovation Tax Credit The New Home Buyers' Amount ($5000) The GST/HST New Housing Rebate Increased EI Benefits and Clawback Zones ($52,875) Wage Earner Protection Program Employment Perks. Employees will be treated to new tax free perks of employment in certain circumstances. New RPP Contribution Maximums New RRSP Contribution Maximums Deductibility of Losses in RRSP/RRIF values on final return Child Care Expense Limitation for Working Teenagers Moving Expenses review Increased claims for Trucker's Meal Expenses Changes to GST/HST Rebates on Employment Deductions ( 5/105 for GST and 13/113 for HST) Indexing changes to personal amounts including Basic Personal Amount and Age Amounts and many more.  Changes under the CANADA-US Tax Treaty GST and the Financial Services, including Trailer Commissions or Trailer Fees Additional Education Resources: Distinguished Advisor T1 Tax Update Tour. Join us for a concentrated, focused day on the personal tax filing issues of concern to taxpayers, investors and professional planners in major centres across Canada January 15 to 25.   EverGreen Challenge 2010 Self Study Course: Hands-on practical training designed especially for tax and financial advisors and their new and returning staff. Convenient self study course to enable in-office certificate studies before the busy tax season starts. Lower in-office group study rates available. Don't delay! Call 1-866-953-4769 to register now.