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. 

CRA has provided us with the lowest prescribed rates in the last 25 years - 1% once again this quarter- for the application to outstanding sums for shareholder loans, employee benefits and interspousal loans. This is a great opportunity to use low-taxed corporate dollars to fund family income splitting, the purchase of new vehicles, new investments or to fund employer-required moves. Advisors and their clients should be discussing these strategies in the post June 15 period, after filing 2008 proprietorship returns. The Canada Revenue Agency announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporations. These rates are calculated quarterly in accordance with applicable legislation and will be in effect from July 1, 2009, to September 30, 2009. Income tax The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance Premiums will be 5%. The interest rate paid on overpayments will be 3%. The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%. Other taxes The interest rate on overdue and overpaid remittances for the following taxes will be: Tax and Duty Overdue remittances Overpaid remittances GST 5% 3% HST 5% 3% Air Travellers Security Charge 5% 3% Excise Tax (non GST) 5% 3% Excise Duty (except Brewer Licensees) 5% 3% Excise Duty (Brewer Licensees) 3% N/A Softwood Lumber Products Export Charge 5% 3%   <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />  Educational Resource: 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.  

At a time when individuals are concerned, and justifiably so, about planning for their retirement and the income sources they can rely on, a major revamp of the Canadian Pension Plan is being considered.  Based on two recent news releases, the question being asked by many is: Are Canadians able to rely on the public pension plan provided by the government, or should they be saving for their golden years through their own retirement savings plans?<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />   A June 1st article in the Globe & Mail regarding Canadian retirement savings plans states that private-sector pension coverage was available for only 23.7% of employees in 2006, down from 30.5% in 1991.  This almost 7% drop in private pension plan availability means that individuals will be looking to the government to provide some form of retirement pension income to top up their own RRSP's.   An information paper was released by the Department of Finance at the end of May containing some recommendations for changes to the current Canada Pension Plan. As joint stewards, and as part of a regular three year review process, Federal, Provincial and Territorial Ministers announced that the current Canada Pension Plan is sound but are suggesting some changes be made to the plan.  Changes have been recommended in order to provide greater flexibility for workers planning on retirement, or for those who would like to continue to work and beef up their pensions.   Some of the recommended changes that will improve flexibility and pension coverage for beneficiaries in the Canada Pension Plan are:   ∑         Eliminating the work cessation test ∑         Increasing the number of low-earnings drop out years ∑         Allowing them to continue to work and make CPP contributions   The CPP was established in the mid 1960's to provide working Canadians with some basic income for retirement, and was intended to replace up to 25 percent of the pre-retirement employment earnings (up to certain maximums). In 2009 the maximum pensionable earnings amount was $46,300, and the current maximum annual retirement pension amount is $10,905.   As mentioned above, one change that has been recommended to the CPP is the removal of the work cessation test, whereby individuals under the age of 65 are required to stop working or reduce their earnings before applying for CPP benefits. The change would take place in 2012 and workers could apply for early benefits, without having to stop working or reducing hours worked in order to qualify.   Another significant change that has been suggested for implementation is to increase the  general low earnings drop-out amount. Under the current rules, 15% of years where earnings were either low or nil are allowed to be dropped from the CPP retirement pension amount calculation. This drop-out amount allows for periods of unemployment or full time attendance at school to be disregarded for calculating the pension maximums. The proposed change would increase the drop-out rate to 16% in 2012, and 17% in 2014 and allow for an increase in the average career earnings amount due to periods of low earnings.   Another recommendation would allow recipients of the CPP pension to return to work and continue to make CPP contributions in order to increase their retirement benefit amount. It would allow workers to collect their pensions and at the same time build a secure source of income for the future.    The Chief Actuary of the CPP will be assessing the long-term financial implications of the changes outlined above and a bill will be tabled by the Government.   Questions or comments regarding these changes can be sent to the Federal Government by e-mail before July 31st, 2009 to CPP2009@fin.gc.ca.   We are also interested in hearing your feedback regarding the proposed changes to the Canada Pension Plan, and the state of retirement income planning overall.

With the June 15 filing deadline approaching for proprietors, tax and financial advisors to farmers should note that realized farm income amounted to $3.3 billion in 2008, up $1.3 billion (+63.2%) from 2007, according to a Statistics Canada report released May 25. This was the second consecutive annual increase after declines in 2005 and 2006. This could mean that for some, the taxes due on June 15 may be higher than last year. Should this happen, a variety of planning opportunities including averaging and capital cost allowance provisions may help. Advisors and their clients should confer this week to optimize, and clients should be aware that interest will be charged from May 1st forward if there is a balance due on June 15. In anticipation of the June 15th deadline, some of the common deductible items that can attract audit attention are: Home office expenses Auto expenses Interest costs Wages paid to family members Gross margins relating to purchases and inventory Personal consumption of tax deductible purchases. We will review the allowable deductions available when completing a tax return with home office expenses. Generally, deductions can include: supplies used up directly in the work (stationery, maps, etc.); salaries paid to an assistant (including spouses or children if Fair Market Value is actually paid for work actually performed); office rent or certain home office expenses. For the self-employed, deductible home workspace expenses include: utilities, maintenance and repairs including light bulbs and cleaning supplies; rent, insurance, property taxes, mortgage interest; Capital Cost Allowance (CCA) (although this is not recommended as the exempt status of the principal residence is then lost on the portion of the home on which CCA is claimed). You may claim expenses related to the home office space. To qualify, the space must be the place where the individual principally (more than 50% of the time) performs the office or employment duties, or is used exclusively to earn income from the office or employment and, on a regular and continuous basis, for meeting customers or others in the ordinary course of performing the office or employment duties. Help your clients arrange their affairs within the framework of the law and pay the least taxes possible! Educational Resources: For more information on preparing tax returns for the self-employed or farmers, register for Tax Preparation for Proprietorships, a certificate course by self study from The Knowledge Bureau. In this course, students will learn how to complete the income statement using the most recent tax laws and prepare tax returns for: self-employed, partnerships, farmers, fishermen, and professionals. For more information on this course and others go to www.knowledgebureau.com/sage. For a free professional development consultation call 1-866-953-4769.

The CRA has released a draft of a new form RC240 Designation of an Exempt Contribution Tax-Free Savings Account.  This form is to be used to designate an exempt contribution when a TFSA holder passes away.  The successor holder of the TFSA obtains the rights to the arrangement and can use the form to complete a qualifying transfer to their TFSA.   An exempt contribution is an amount that has been designated by a TFSA holder's survivor regarding a payment received from the deceased holder's account.  Form RC240 is completed when a taxpayer is a recipient of a survivor payment from a TFSA and the form helps to calculate the maximum amount that may be designated as the exempt contribution.   For a link to the form click here, for more information on Tax-Free Savings Accounts, go to www.cra.gc.ca/tfsa.

The June 15 Tax Filing Deadline is fast approaching for proprietors. Those who fail to file their 2008 tax returns by midnight June 15 face a late filing penalty as well as interest dating back to May 1.Recently CRA has announced a number of convictions for those who fail to comply with their requirements to report and pay taxes, including a Manitoba-based tax preparer who is going to jail for failing to report a half million dollars in income, an Alberta based plumber who was fined for failure to report $200,000 in income, and an Ontario businessman who was fined over $1 Million for failure to report $2.4 Million in income. (Both penalties and interest, as well as the taxes must be paid in those cases).Nationwide convictions can be reviewed on the CRA site: http://www.cra-arc.gc.ca/nwsrm/cnvctns/menu-eng.htmlCanadians can avoid penalties and jail by making voluntary disclosures ó that is filing missed tax returns or reported missed income or correcting overstated deductions and credits ó on a voluntary basis.

Taxable benefits are so important to the payroll cycle that CRA has written a separate payroll guide to explain them. Every payroll clerk should have this guide at hand to determine income reporting and statutory deduction withholding requirements on an ongoing basis. In all cases, where a taxable benefit arises the value of the benefit to be included in income is reduced by any payment the employee makes to the employer with respect to the benefit. There are four basic facts about taxable benefits to remember in processing a payroll: 1. Add their Value to Gross Pay. The taxable benefit must be added to the employee's cash compensation each pay period and normal statutory deductions must be withheld from the total amount. Remember that the value of the taxable benefit is reduced by any payment the employee made to compensate the employer for providing the benefit. 2. Annualized Tax Withholding is Possible. Where a non-cash benefit is very large so that withholding of income tax will cause undue hardship, the value of the benefit and the related withholdings can be spread over the remainder of the year. 3. CPP Deductions Required. If the benefit or allowance is taxable, it will also be pensionable. Therefore Canada Pension Plan (CPP) contributions will be required to be withheld, as will income tax. 4. EI Deductions May Be Required. If the taxable benefit is paid in cash and relates to insurable employment, it is insurable. Employment Insurance (EI) premiums will therefore be required. However, if the employment is not insurable under the Employment Insurance Act, taxable benefits paid in cash are not insurable and are not subject to EI premiums. Finally, if the taxable benefit is a non-cash benefit, it is not insurable. In that case, the benefit does not attract EI premiums. The T4130 Guide available in EverGreen contains a chart which clearly identifies, in alphabetical order, the various types of taxable benefits and their source remittance. This table is also reproduced electronically on the CRA web site. The CRA has released payroll tables to be used beginning July 1, 2009, which incorporate the 2009 provincial budget changes. The CRA has also announced that it will no longer be printing payroll deduction tables due to the small number of requests for them.  You can link to the July 1, 2009 payroll deduction formulas for computer programs by clicking here. Excerpted from Advanced Payroll for Professionals, one of the courses that comprise the Bookkeeping Services Specialist program.