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. 

The Department of Finance has once again released the Fiscal Monitor, this time for the four months ending July 2009,announcing a deficit of $18.3 billion for the first quarter of the 2009-10 fiscal year, compared to a surplus of $2.9 billion for the same period a year ago. However, this deficit is on target with updated projections reflecting a weaker fiscal outlook than forecast in the January 2009 Budget. The projected combined deficit spending for the period 2008 ñ 2012 has gone from an estimated balance of $84.9 billion in January 2009 to a staggering $153.8 billion as an estimated deficit in the Update of Economic and Fiscal Projections released in September 2009. The summary of changes table from the report is reproduced below: Department of FinanceSummary of Changes in the Fiscal Outlook Since the January 2009 Budget 2008ñ2009 2009ñ2010 2010ñ2011 2011ñ2012 2012ñ2013 2013ñ2014 2014ñ15 (billions of dollars) January 2009 Budgetary Balance -1.1 -33.7 -29.8 -13.0 -7.3 0.7 n/a Impact of Economic and Fiscal Developments Budgetary revenues -3.3 -8.3 -6.8 -8.5 -7.8 -9.6 Program expenses1 Employment Insurance -0.7 -3.2 -3.1 -2.5 -1.6 -0.6 Policy Measures 0.0 -9.4 -4.4 -2.0 0.0 0.0 Lapse 0.0 0.0 0.0 0.0 0.0 1.5 Economic and other Changes -0.4 -0.2 -0.7 -0.9 -0.7 -0.7 Total program expenses -1.1 -12.8 -8.2 -5.4 -2.3 0.2 Public debt charges -0.3 -1.2 -0.4 -0.5 -2.0 -2.5 Total Economic and Fiscal Developments -4.7 -22.2 -15.4 -14.4 -12.1 -11.9 Revised Budgetary Balance -5.8 -55.9 -45.3 -27.4 -19.4 -11.2 -5.2 1A positive number implies a decrease in spending and an improvement in the budgetary balance. A negative number implies an increase in spending and a deterioration in the budgetary balance.Note: Totals may not add due to rounding. In addition to the increased deficit by the end of the 2012 fiscal year, the projected deficit spending is expected to continue and a surplus balanced budget by 2014 is no longer in the forecast. The continuing budget deficits are in the wake of eleven consecutive years of balanced budgets. The month of July 2009 alone produced a deficit of $5.8 billion, a result of the weakened economy and the tax measures brought in under the Economic Action Plan. $5.1 billion was spent on program expenses due to an increase in Employment Insurance (EI) payments and monetary support for those suffering in the motor vehicle manufacturing areas. What does this mean to the average Canadian? These deficits will require taxpayers to ask hard questions, not only about the financial state of the nation, but about their own ability to fund retirement income and health care costs, if governments are stretched by new financing costs. By the year 2011, the first boomers will reach age 65. According to Infrastructure Canada, those age 65 and over are the most intensive users of the health care system, a financing burden yet to come for Canadian governments. Will today's deficitsócreate by the financial stimulus world leaders have created to avoid further financial disaster--become the taxes of tomorrow?  Likely.   In Canada, where baby boomers make up approximately one-third of our population and just under 50% of the tax filers, these circumstances are serious and require careful planning.  The questions for tax and financial advisors and their clients to ponder are:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> 1.  To what extent will increased taxationóand the potential for inflation--erode future purchasing power of retirement savings? 2.   How can current tax and investment strategies anticipate and plan for these obstacles? Other questions to consider by those planning to retire shortly are: 1.    What effects will deficit spending today have on public pensions and the health care system? 2.    How will deficit spending affect the taxation of wealth transition in the future? 3.    How will incomes of boomer offspring fare in their stewardship of the boomerís wealth on an after-tax basis? Educational Resources:  Now is therefore a good time to revisit 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: 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   Your thoughts on the future outcomes of deficit spending and financial stimulus packages for Canadian taxpayers?

ìToday's leading advisors must understand the interlocking relationship between both risk and return in the 21st Century,î said Robert Ironside, faculty member of The Knowledge Bureau. ìThey must learn to evaluate how this relationship impacts both individual investments as well as the overall portfolio and, importantly, they must communicate this information to the client in a simple fashion.î     At the Distinguished Advisor Conference to be held November 8-11 at the Loews Ventana Canyon Resort in Tucson, Arizona, Mr. Ironside will discuss the three things that every investor wants to know today. These include: whether a clients portfolio will produce the short, and long term returns needed to achieve their objectives and make up for the market meltdown; the level of risk the client will need to take on to achieve the necessary returns; and the alternatives available to the client so they can make the best decisions to grow their wealth. Mr. Ironside will outline how to build efficient portfolios in turbulent times to maximize new opportunities.

Financial advisors have been under a great deal of pressure since the markets imploded in 2008 ñ and investors began losing millions. ìIn many cases, the troubled markets have put the advisor-client relationship in jeopardy,î says Jim Gray, Principal of Media Strategy Inc. ìAdvisors don't help their cause when they carelessly or unknowingly alienate clients and put further pressure on relationships that already run the risk of blowing up.î Mr. Gray, a media and presentation skills coach who works extensively in the financial services industry, will reveal the 10 biggest communication mistakes that advisors make when conversing with prospects and clients at the 6th annual Distinguished Advisor Conference to be held November 8 -11 at the Loews Ventana Canyon Resort in Tucson, Arizona. Gray will demonstrate how advisors can, with more preparation and focus, initiate positive, productive conversations that lead to solid, enduring relationships.

By Evelyn Jacks, Knowledge Bureau President Canada Savings Bonds Rates have been set at 40 basis points, against a backdrop of three consistent months of negative inflation. Further, Canada Premium Bonds are indicating fixed interest rates (1%, 1.4%, 1.8%) which are significantly under the projected rate of CPI inflation over the next three years (1.9%, 2.1% and 2.1% respectively). That sounds like a potential lose-lose proposition for risk-adverse savers, who are attempting to preserve and build wealth while negotiating within this turbulent marketplace. So what's going on with the purchasing power resulting from these extremely low rates of return on the use of your savings? To help us understand, we have consulted with Knowledge Bureau Faculty Member, Robert Ironside, ABD, Ph.D. (Finance), who is also a headlining speaker at the Distinguished Advisor Conference next month. Some definitions to help: Inflation is the rise in prices over time, which erodes your future purchasing power. Negative inflation, or deflation, reflects something different: it happens when costs decrease against increased productivity (that's not necessarily bad). Or it can happen when people stop buying; perhaps in anticipation of lower pricing in the future or simply a lack of demand due to uncertainty, job loss, other personal financial factors (that's not good). Robert Ironside, Knowledge Bureau Faculty member weighs in: Investors should always seek a balance between risk and return. A common mistake made by many investors is to focus only on return, ignoring risk. The current issue of Canada Savings Bonds (CSBs) is a good example, although the risks attached to the CSB are not those we normally think of. As just announced, the current Series 120 CSB pays an annual interest rate of just 40 basis points (or 0.40%). The new Series 70 Canada Premium Bond (CPB) has a slightly higher fixed return of 1%, 1.4% and 1.8% over three years. In a world with zero inflation and zero taxes, the return on these issues of CSBs and CPBs would still be well below the returns normally thought of as "risk-free". Of course, these are not normal times, but what happens to return when we introduce both taxes and inflation? In Canada, we are taxed on the nominal interest earned. Thus as the Table below shows, if we invest $100,000 in CPBs, in year one we earn $1,000 in interest income. The $1,000 of interest income is then fully taxed at our marginal tax rate, assumed to be 40%. After taxes, we end up with $600 of interest income. Our total after-tax investment is now worth $100,600. We now have to include the impact of inflation. The purchasing power of our entire investment goes down by the assumed increase in the CPI each year that we own the instrument. For example, if we have inflation of 1.9% in the first year, the actual purchasing power of our investment falls from $100,600 to $98,724.24. If we were to repeat the exercise with the 0.4% annual yield earned on the CSB, the results would be even worse. Now, the real, after-tax value of the $100,000 investment falls to just $98,335.44. Both of these real, after-tax returns are better than putting the $100,000 "under the mattress", since if we did that, our purchasing power would have declined to $98,135.43. We are approximately $589 better off by buying the CPB and $200 better off with the CSB than from doing absolutely nothing. However, as investors, we are concerned with both preserving and growing our wealth, not watching its purchasing power be confiscated by inflation. By being ultra-conservative in our investing strategy, we are incurring the risk of earning too little in after-tax returns to maintain our purchasing power. Of course, the future path of inflation is uncertain. We could enter into a period of deflation, which is characterized by widespread falling prices, in which case a 1% nominal rate of return would be worth more than 1% in real returns. How likely is it that Canada will slip into a deflationary spiral, given that the total CPI in Canada has declined for three consecutive months, from June through August (the latest figures that are available)? The answer possibly lies in the core CPI, which excludes the eight most volatile components of inflation, including food and energy. Core inflation has shown a very different picture, with annual increases of 1.9%, 1.8% and 1.6% over the last three months (to August, 2009). With Central Banks all over the world pushing strongly on the interest rate string and employing unprecedented levels of monetary easing, it is not likely that we will see a prolonged period of deflation, although it cannot be ruled out, as Japan has shown in its struggle to curb deflation. The greater risk is that at some future date, inflation will quickly rear its ugly head and consume the wealth of the unwary. Taking taxes into account, here's what you can expect from this year's CSB/CPB offering: Example: $100,000 invested in October 2009 in Canada Premium Bonds by a taxpayer whose marginal tax rate is 40%. Inflation rate assumed to be 1.9%, 2.1% and 2.1%.   Current $   Future $ Year Capital Interest Earned Value of investment Income Tax Payable Net value after tax   Net value after tax 2009 $100,000.00             2010 $100,000.00 $1,000.00 $101,000.00 $400.00 $100,600.00   $98,724.24 2011 $100,000.00 $1,414.00 $102,414.00 $565.60 $101,848.40   $97,893.60 2012 $100,000.00 $1,843.45 $104,257.45 $737.38 $103,520.07   $97,453.83 Notes: 1. Each year the taxpayer will have to pay the tax on the accrued interest (November to October) in spite of the fact that the interest has yet to be received and is therefore not available to pay the tax bill. 2. The average interest rate (stated as 1.39%) is reduced by income taxes to approximately 0.834%. 3. After 3 years, in current dollars, the $100,000 investment will have grown to $103,520.07 (after taxes are paid). However, if inflation continues at the projected rates, that $103,520.07 will be worth $97,453.83 in today's dollars. If the $100,000 were not invested, its value in today's dollars would be $94,140.03. EDUCATIONAL RESOURCE: For Advisors: The Economic Policies for Canadian Investors Stemming from The Global Financial Crisis will be discussed at DAC (Distinguished Advisor Conference) hosted by The Knowledge Bureau in Tucson, Arizona November 8-11. Over 15 dynamic experts on the cutting edge of the financial crisis will address leading tax and financial professionals on the technical and soft skills required to embrace Leadership and Opportunity in Turbulent Times. For Advisors and Their Clients: The MASTER YOUR PERSONAL FINANCE Series of Books provide financial education for decision makers. Published by The Knowledge Bureau, they help investors and their advisors have better conversations about their money and the decisions required to accumulate, grow, preserve and transition it to the next generation.

The Honourable Jim Flaherty has been awarded the Finance Minister of the Year award for 2009 by Euromoney magazine. Mr. Flaherty spoke about the reasons Canada stood out as a role model upon acceptance of the award, including strong regulation in Canada's financial systems and sound Canadian banks. He also noted that the recently proposed international standards changes regarding capital and leverage by the G20's were modelled after Canada's current practices in these areas. The Finance Minister also noted that Canadians had persevered through the recent economic crisis and that as a result of the country's sound economy, the job loss has been lower than that experienced by the U.S. Canada will be one of the G7 countries least affected by the downturn in 2009 according to an International Monetary Fund forecast. For complete background information on this story, please link to the News Release here.

ìToday's top advisor has an explosive opportunity to boost revenue, referral frequency and case size,î said Anthony Morris, an international speaker and practice development specialist. At the 6th annual Distinguished Advisor Conference to be held November 8-11 at the Loews Ventana Canyon Resort in Tucson, Arizona, Mr. Morris will present the three key strategies for conference delegates that will help them lead in turbulent times and turbo-charge their productivity.     He will discuss prospecting and acquiring new clients, signing clients for additional services and keeping touch with clients. Mr. Morris will showcase clever uses of simple technology, creative deployment of client conversation, conceptual selling and personal branding that will allow you to re-align your business model, increase income and take more time off.         EDUCATIONAL RESOURCE: Information on the latest information related to financial crisis will be presented at DAC (Distinguished Advisor Conference) hosted by The Knowledge Bureau in Tucson, Arizona November 8-11. Speakers such as Robert Ironside (see his commentary above), and Richard Croft will address leading tax and financial professionals on the technical and soft skills required to embrace Leadership and Opportunity in Turbulent Times.  Registration for the conference will be accepted until Friday, October 30th.