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. 

Canadians taxpayers may find that their overall income from investments or even employment and business activities may have taken a hit over the year.  There may be a bit of good news to offset the bad, at least from a tax point of view, if you are a quarterly instalment payer. Many people don't realize that instalments remitted to CRA (often by post-dated cheques) can be adjusted to actual income earned in the year. Others don't know that the CRA "billing method" of collecting quarterly instalments is only one of three methods of payment. The other two are optional: Current-Year Option. Under this option, the taxpayer's income tax liability for the current taxation year is estimated then one-quarter of the estimated amount over $3,000 is due on each of the four due dates: March 15, June 15, September 15 and December 15. (Farmers and fishers must only make one instalment payment, on December 31 on 2/3 of the estimated taxes owing.) Prior-Year Option. Under this option, the first two instalments are estimated at one-quarter of the taxes due in the second prior year (since the prior year's return is not available when these instalments are due) and the last two instalments are calculated at one-half of the excess of taxes due in the prior year over taxes due in the second prior year. If you know your income will drop this tax year over last, write a letter to CRA to recalculate your instalment payment base and return the last post-dated cheques. Note that, for 2008 and subsequent years, the instalment threshold for individuals is $3,000 ($1,800 for Quebec filers). You will not be required to make an instalment payment at all if the actual tax owing will not exceed $3,000 in 2008 ($1,800 in Quebec). Subscribe to EverGreen Explanatory Notes for more information. Or attend The Knowledge Bureau's November Year End Tax Planning Workshop coming to a city near you November 24 to 30.

In the past few years, governments have been moving towards family income splitting in very limited circumstances. For example, in 2007 it became possible for those who receive certain pension benefits to transfer up to 50% of that income to a spouse if that is to their tax advantage. This will usually provide for tax savings as pensioners take advantage of the progressivity of tax brackets and rates. It is also possible for business owners to split the revenues they earn by hiring their spouse or children in the business, if they otherwise would have hired a stranger to perform the role. The family member must be qualified to perform the role and actually do so, for reasonable compensation similar to what would be paid to a stranger. In this case, the amounts paid are deductible to the business owner and taxable in the hands of the family member. This is great tax planning, as it opens up tax advantaged investment opportunities for the family members by creating "roomî for contributions to Registered Retirement Savings Plans (RRSP) and in the case of adults, contributions to the Canada Pension Plan (CPP), and Tax-Free Savings Account (TFSA). Certain employed commission sales agents may also split income by hiring a family member as an assistant, however the fact that this ­assistance is required and paid for by the agent must be a condition of their contract of employment. When it comes to splitting investment income the rules are more ­complicated, as described below. Passive income from investments is reported each calendar year and, with the exception of rental income, will not create RRSP contribution room. The primary categories of investment income are: ï Interest: this income is reported in full in the year received, or in the case of compounding investments, in the year accrued. ï Dividends from Canadian Corporations: Paid out after-tax profits of a corporation, the actual amounts received are "grossed upî on the tax return, thereby increasing a taxpayer's net income. You'll see this on your T-slip as the "taxableî amount. This gross-up can have an effect on the size of refundable or non-refundable tax credits. However, the dividend is offset by a dividend tax credit which reduces federal taxes and, in the end, gives most investors better tax results than interest earnings. Dividends from Canadian Controlled Private Corporations are subject to different gross-up and dividend tax credit rates from those of public corporations, because of the way the corporations are taxed. This system ­integrates the personal and corporate tax systems in an attempt to avoid double taxation. ï Rents: This income is reported on a "net profit basisî and is ­generally nil, as many taxpayers like to reduce their rental income by claiming a deduction called Capital Cost Allowance based on the value of their building. This may however cause a tax problem in the future, if buildings appreciate over time. ï Royalties: This income is reported in full, but certain resource properties may be subject to more advantageous tax treatment. It is important to understand how you might earn these types of income from your investments. If you are still unclear about these terms speak to your advisors so that you can match investment products to income sources. Notice that capital gains earned on the sale of income producing assets, such as publicly traded shares or a rental property, are not included in this list of investment income sources. A capital gain occurs when an income producing asset is sold for more than its "adjusted cost baseî. That's your original acquisition value or price plus certain additions or deductions. Only one half of any capital gains are taxable, after you reduce them by any capital losses incurred during the year. This source is in a category by itself.   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: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> Tax Efficient Retirement Income Planning    Master Your Retirement       Master Your Taxes Tax Efficient Investment Income Planning                      Master Your Real Wealth      Master Your Investment in the Family Business

  The Distinguished Advisor Conference November 8 - 11, 2009 Leadership and Opportunity in Turbulent Times The Distinguished Advisor Conference (DAC) is the annual educational, motivational and fun networking conference for Canada's leading financial advisors. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />   The spectacular stars all come out at the DAC Opening Reception November 8. Be there!   Agenda    Application     Speakers   To Register: 1-866-953-4769     For more information and to view complete Conference Program, please visit http://www.knowledgebureau.com/dac.

MASTER Your Philanthropy Author: Nicola ElkinsHow to maximize your strategic giving   Is charitable giving important to you? Do you want to give time, money, future assets? Do you want to make a bequest in your will?   If you answered yes to these three questions, it's time to make a great decision. Learn how to MASTER YOUR PHILANTHROPY!   It really doesn't matter how much you have to give, either. If you have a cause that's really important to you, you can plan today to give substantial sums through insurance or other financial structures. But one this thing is for sure: when it comes to charitable giving, donors are becoming far more demanding about ways to maximize the impact of their donations.   If this describes you, this book will put you in the driver's seat. It is a must-read for anyone who is thinking about developing a strategic plan for their charitable giving and for the financial advisors who can support these individuals. Learn how to: Develop your charitable giving strategies and select your chosen cause  Decide how much you want to give and what role you want to play  Plan and implement the partnership with the charity of your choice Decide whether you want to give directly, start your own charity, give through an endowment, use donor-advised funds, etc. Determine what financial tools and techniques are appropriate for you  TARGET AUDIENCE: Anyone who wants to break free of financial stress relating to the future of their money and achieve peace of mind. By better understanding the components of Real Wealth Managementô, you can arrange your affairs to accumulate, growth and preserve wealth even in difficult markets and then focus on living your dreams.   ABOUT THE AUTHOR Nicola Elkins is the CEO and Founder of Benefaction Foundation. She has broad experience in developing and driving key business strategies and product initiatives within the financial services sector. She has held a number of senior roles in marketing, product development and strategic planning with Fidelity Investments (UK and Canada), First Asset Advisory Services, and BMO Nesbitt Burns. She holds a Master of Science degree in economics from the London School of Economics and a bachelor's degree from McGill University. She is also a graduate of the Canadian Gift Planning Course offered by the Canadian Association of Gift Planners. Price: $24.95 Buy Now THE KNOWLEDGE BUREAU is dedicated to publishing Newsbooks which provide financial education for decision-makers of all ages. The MASTER YOUR ... series is written for everyday Canadians looking for sound answersóand the right questions to askóconcerning today's volatile marketplace. Strategy. Process. Plan. Masterful Execution. Powerful Results.

As discussed in last week's Breaking Tax and Investment News, it is the time of year that we should begin thinking about Year End Tax Planning, and one area that is often given little thought is the planning for charitable donations. Nnow is a good time to review what tax deductible gifts are and special rules regarding gifts of capital property:   Gifts can be made to:   ¸ A registered charity ¸ Registered Canadian amateur athletic association ¸ Tax exempt housing corporation providing low-cost housing for seniors ¸ Government of Canada, province or territory, municipality ¸ The United Nation and its related agencies ¸ Prescribed university outside Canada ¸ Charitable organization outside Canada to which our government has made a donation in the tax year or previous tax year ¸ Gifts to US charities if you have US income Note: Gifts to Canada include monetary gifts made directly to the federal Debt Servicing and Reduction Account, sent to the Receiver General requesting this. A tax deductible receipt will be issued. Special Rules: Gifts of capital property: ¸ FMV at time of gift can trigger capital gains consequences ¸ Gifts of publicly traded shares should be initiated before December 21 and can be transferred on a tax free rollover basis to registered charities and private foundations (after March 19, 2007). ¸ Zero inclusion rates for purposes of capital gains and losses apply if you donate: Shares, debt obligations or rights listed on a designated stock exchange Shares of a mutual fund corporation Units of a mutual fund trust Interests in related segregated fund trusts Prescribed debt obligations Ecologically sensitive land ¸ Gifts can be made to a registered charity or after March 18, 2007 to certain private foundations. ¸ Gifts of depreciable property can trigger recapture or terminal loss ¸ Gifts of significant movable cultural property to Canadian heritage institutions or public authorities must be certified under the Canadian Cultural Property Export Review Board, which determines its FMV and provides you with a certificate for tax credit purposes (Form T871). In this case no capital gain is required to be recorded. ¸ Artists: to qualified donee, the gift is a disposition from ìinventoryî rather than capital property. The value is calculated as the cost amount or an amount not greater than the FMV and not less than the cost and any advantage received. ¸ Art or Antique dealers: objects donated are considered to be a disposition of inventory, not capital property and must be based on FMV at the time of donation. Non-qualifying gifts: ¸ Shares you control ¸ Obligation or securities issued by yourself So start planning now to meet your charitable donation goals and the receiving the best tax deduction based on your charitable giving. Attend the Knowledge Bureau's November workshop presentation in cities across Canada for more tax planning ideas and information on recent changes to the tax laws.

By Evelyn Jacks, President, The Knowledge Bureau On October 16, 2009, the Department of Finance moved to close several loopholes for TFSA investors including the prohibition of swap transactions between various investment accounts and the earning of income from prohibited and non-qualifying investments. The new rules, which will come into effect after October 16, 2009, contain four main components: Shifts in Value in Swap Transactions. Asset transfer or "swapî transactions between registered or non-registered accounts and Tax Free Savings Accounts, will no longer be possible after this date. That is, transfers between accounts of the same taxpayer or that of the taxpayer and an individual with whom the taxpayer does not deal at arm's length will be prohibited. This will squash any shift value from, for example, an RRSP to a TFSA without paying tax, first. Income from Intentional Overcontribution. Income earned within a TFSA due to an intentional overcontribution will be subject to a tax of 100%. Should a taxpayer have made an overcontribution in error, prompt rectification is required to avoid the penalty; such actions will be seen positively by the Minister, who will have the discretion to waive interest and penalties in those cases. Income from Investment in Non-qualifying and Prohibited Investments. In addition, should the taxpayer invest in non-qualifying investments (land and general partnership units, for example) or prohibited investments ( such as shares of the capital stock of a corporation in which the holder has a significant (10% or greater) interest and investments in entities with which the holder does not deal at arm's length), any income reasonably attributable to those prohibited investments will be considered an "advantage" and taxed at 100%. No New TFSA Room. The proposed amendments will also include rules to ensure that the withdrawal of amounts in respect of deliberate overcontributions, prohibited investments, non-qualified investments, asset transfer transactions and income related to those amounts do not constitute distributions for TFSA purposes and therefore will not create additional TFSA contribution room. A brief review of TFSA Planning Rules: 1. What is a TFSA? Available January 1, 2009, the new Tax-Free Savings Account (TFSA) is a registered account in which investment earning, including capital gains accumulate tax free. Contributions up to an annual maximum of $5000 can be made by/for those who have attained 18 years of age and are residents of Canada. There is no maximum age limit. This amount will be indexed after 2009, with rounding to the nearest $500.   2. Can unused contribution room be carried forward to future years? Unused contribution room can be carried forward on an indefinite carry forward basis. You can take money out, in other words, spend it on whatever you want, and then put it back in when you can because the TFSA contribution room has been preserved. 3. 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 month, for each month you are in an overcontribution position is charged. Discrepancies in contribution room limit or excess contributions, must be reported to the TFSA issuer. In addition, after October 16, any income earned resulting from an overcontribution, or a contribution to a prohibited or non-qualifying investment will be taxed at 100%. 4. 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 marginal highest tax rates (such as interest) or dividends, which artificially inflate net income, thereby decreasing social benefits payments, should perhaps be earned within a TFSA. But if you are looking for real 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. 5. What are eligible investments for a TFSA? The same eligible investments as allowed within an RRSP apply to the TFSA. A special rule will prohibit a TFSA from making an investment in any entity with which the account holder does not deal at arm's length. Unlike the RRSP, contributions to a TSFA do not result in an income tax deduction and withdrawals from a TFSA are not reported as income nor included in income for any income-tested benefits, such as the Canada Child Tax Benefit or Goods and Services Tax Credit. 6. Do the Attribution Rules affect investments within the TFSA? There is no attribution rule attached to the new TFSA, allowing adults, including parents and grandparents to transfer $5000 per year to each adult child in the familyófor the rest of their lives. In addition, one spouse may transfer property to the TFSA of the other spouse without incurring attribution. 7. Can the TFSA be used for retirement planning? Yes. A 40 year old taxpayer who invests $5,000 each year for 25 years in a TFSA (total capital of $125,000) at a 3% rate of return, would accumulate $185,000 in the account, an increase of $60,000 or 48%. This would be approximately $15,000 more than if the same investment was made outside the TFSA in a taxable account.   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: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> Tax Efficient Retirement Income Planning    Master Your Retirement       Master Your Taxes Tax Efficient Investment Income Planning                      Master Your Real Wealth      Master Your Investment in the Family Business