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 new Home Renovation Tax Credit (HRTC) introduced in the 2009 Federal budget means that if you've been planning on renovating your home, this is a good year do it. For eligible home renovation expenditures made after January 27, 2009 and before February 1, 2010, families will be able to claim a 15% non-refundable tax credit for certain amounts paid to renovate their residence. This non-refundable tax credit will be available for this period for families completing renovations to their personal residence, which may include a cottage as well as the taxpayer's principal residence. Eligible expenditures include the cost of labour, building materials, fixtures, equipment rental, and permits. The cost of financing the renovations will not be eligible. Renovation costs do not include regular repair expenses, costs of audio-visual equipment or items that have value independent of the home, such as furniture, draperies and construction equipment. Some examples of eligible expenses are: Renovating bathroom, kitchen or basements New bathroom floors New carpets Building an addition, deck or retaining wall New furnace or hot water heater Interior or exterior painting Driveway resurfacing New sod Ineligible expenses would include: Contracts regarding maintenance (i.e. snow removal, furnace cleaning, lawn care) Purchase of furniture and appliances The credit will apply to the costs of renovations in excess of $1,000 to a maximum cost of $10,000. The maximum credit is thus $1,350 ($9,000 x 15%). The maximum credit applies to all renovations (renovations made to more than one residence may be pooled for claiming the credit). The credit will not be reduced by grants received through the ecoENERGY Retrofit program related to the renovation or by claiming the renovation expenses as a medical expense if they so qualify. Excerpted from EverGreen Explanatory Notes. 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.

Regular salary to an owner-manager is easy for the payroll department to record, but when a payment is made to an owner, a process needs to be in place to ensure proper recording. Identifying the nature of the payment is very important to its proper recording. Communication between ownership/management and the payroll department is necessary to determine the payments structure. For example: a drawing from a shareholder account has no impact for the payroll department whereas a payment for salary does have an impact. Proper recording is important to ensure the accounting records are maintained properly and to ensure that tax treatment is optimized. An owner/manager may take his or her compensation in varying ways and may not take a regular salary if cash flow does not permit or if the receipt of a dividend is more efficient from a tax perspective. A salary is usually paid to an owner or manager to allow a regular flow of earnings. Payment of a salary creates contribution room for an RRSP because salary is earned income for RRSP purposes, maximizes CPP contributions and permits the deduction of child care expenses, if applicable. How do the Statutory Deductions Work When I am Paying an Owner or Manager? The statutory deductions for regular payments to owners or managers are the same as regular employees, except that an owner must meet certain criteria to be covered by employment insurance. Withdrawals that are charged to a shareholder loan account and dividends are not subject to any withholding. At the end of the year, payments for regular salary, commissions, employee RPP contributions and employer RRSP contributions are to be recorded on a T4 slip. Dividend distributions should be recorded at the end of the year on a T5 slip. There is no reporting requirement for withdrawals that are charged to a shareholder loan account. Excerpted from Advanced Payroll for Professional Bookkeepers, one of the courses that comprise the DFA, Bookkeeping Services Specialist designation program.

  Evelyn Jacks, founder and President of The Knowledge Bureau, stands inside her new company headquarters in Winnipeg. Jacks bought the 4500-square foot facility to house her 9 employees and 25 associated faculty members and construct a state-of-the-art training centre because business at her financial educational institute is growing rapidly. "Financial experts need to continually increase and update their knowledge," says Jacks, "whatever the state of the economy."

Statistics Canada released two studies in April that point to a need for a different approach to financial planning for dual earning couples in Canada and, in particular, for highly educated working women, who have recently closed the earnings gap with their male counterparts. Advisors in the know about needs of this constituency have a great opportunity to win trust and provide ongoing service to this demographic. According to the study entitled Hours and Earnings Of Dual-Earner Couples released on April 24, 2009, the gap has been closing on the difference in earnings and working hours of Canadian husbands and wives. From 1997 to 2008, the average weekly hours worked by wives increased steadily, while during the same period, husbands were putting in fewer hours on the job. At the same time, women's average weekly earnings increased at a faster pace, although most dual earner wives still contributed less than half of the total family income. Education is one of the reasons for the closing of the earnings gap. The National Graduate Survey, published on April 22, noted ìshowed differences in terms of earnings from one level of education to another. The largest earnings gap existed between the bachelor's and master's levels, suggesting that investing in further postgraduate work is financially beneficial.î The survey also showed that the employment rate among master's graduates remained stable for men at 94%, while it rose for women, from 89% in 2002 to 92% in 2007. Consequently, among graduates with a master's degree, the gap in employment rates between women and men nearly closed. Further, a higher proportion of graduates of master's programs were working full time in 2007, compared with college, bachelor's or doctorate graduates.  A link to the study is available here.    These statistics tell an interesting story of the ìideal clientî for investment and retirement planning services. Financial advisors will in fact be planning for two retirements and tapping income and capital from multiple public and private pension accumulations as well as a variety of capital accounts from each member of a dual income family. High levels of education and experience will lend to a different relationship, as clients will demand more information and involvement in decision-making. This changed reality requires a different approach, new processes for specialized retirement and investment planning services, and leadership in preparation of a support team to assist with providing services to these new clients. Leadership and Opportunity in Turbulent Times, the theme of this year's Distinguished Advisor Conference broaches these new demographic issues with experienced advisors at this year's event, being held November 8-11 in Tucson, Arizona. In fact, the roster of speakers on the substantive agenda are reflective of a new guard of leaders in financial services as well, featuring a number of high profile women: Lisa Langley, Executive Director, International Money Management Institute covers Compliance Issues in Managing Wealth  Nicola Elkins provides insight into Mastering Your Philanthropy Robin Taub, CA and Wayne Cadogan, Regional Director, Investor's Group offer a male-female discussion of Character-Based Leadership Kerry Breeze, Publicist, tells us how to Blog, Twitter and Tweet Your Way to Success   Evelyn Jacks, President, The Knowledge Bureau will speak on the discipline of team-based Real Wealth Management For more information and to see the full conference agenda, visit the Knowledge Bureau's website at www.knowledgebureau.com/DAC.

The Canada Revenue Agency is scrutinizing eBay "PowerSellers", those who sell more than $3,000 a year on the site, to determine if they are reporting the full amount of revenues earned from the activities. Federal tax officials are expanding their review to users of eBay Canada to determine whether more than 10,000 sellers have included these revenues when they filed their income tax returns. The probe was launched approximately two years ago by the Canada Revenue Agency and initially focused on all eBay Canada PowerSellers in 2004 and 2005. The agency recently told eBay Canada it plans to expand the investigation to include all PowerSellers in 2006 and 2007 as well, putting several thousand more people under review. The CRA's investigation hit roadblocks with eBay Canada because they were allegedly refusing to turn over information about PowerSellers. Accordingly to eBay Canada officials, the information was stored on parent eBay Inc.'s computers in the U.S. and were therefore not within the CRA's jurisdiction.  They also felt the investigation was too broad and could be viewed as a "fishing expedition."   The Federal Court of Appeal dismissed eBay's arguments once the case was before them. The court ruled that e-Bay Canada has access to the records "with the click of a mouse," therefore putting them within the CRA's reach.  PowerSellers personal information such as names, addresses and gross sales revenues was ordered to be provided to the CRA, and the company advised it would comply with the decision.   Many of the PowerSellers affected by the court's decision feel the CRA's review is unfair as the sales on e-Bay Canada's site weren't run as a business, and the records they are requesting are not available.  The lesson in all this should be to keep your business records in order, as you never know when the tax man will come knocking at your door.   For more information on audit proofing your affairs and knowing the compliance requirements for both business and personal tax, subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes.

Budget 2009 increased the maximum amount that can be removed from a taxpayer's RRSP under the Home Buyers' Plan to $25,000 for withdrawals after January 27, 2009. Application for withdrawal of RRSP amounts is made on Form T1036 Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP. The CRA has released an updated Form 1036, click here to access the form.   In the same budget a First Time Home Buyers' Tax Credit was introduced.  This credit is a non-refundable tax credit based on $5,000 for first time buyers who purchase a home after January 27, 2009 (closing date must be after that date). The credit is claimable in the year the home is acquired.   The Home Buyers' Plan allows first-time home buyers (or those who have not owned a home in the current year or preceding four years) to withdraw (under S. 146.01), on a tax-free basis, up to $25,000 (after January 27, 2009) of funds saved within their Registered Retirement Savings Plan (RRSP) for the purpose of buying or building a home. No tax will be withheld on such withdrawals. The withdrawals may be a single amount or the taxpayer may make a series of withdrawals throughout the year as long as the total does not exceed $25,000. Tax-free withdrawals from an RRSP may also be made for the purpose of making home renovations or purchasing a compatible home to meet the needs of a disabled person. The funds must be repaid back into the RRSP, over a period not exceeding 15 years, beginning in the second calendar year after the withdrawal. Amounts which are due and not repaid are included in the taxpayer's income under S. 56(1)(h.1) in the year they are due. The taxpayer and their spouse or common-law partner may each participate in the plan and together withdraw up to $50,000 after January 27, 2009 from their respective RRSPs. Disabled Persons For HBP purposes, a disabled person is an individual who qualifies for the disability amount or a person related by blood, marriage, or adoption to a person who is eligible to claim the disability amount for the year of the HBP withdrawal. Disabled persons need not be first-time homebuyers to participate in the HBP. Qualifying Homes A qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings, all qualify. A share in a co-operative housing corporation that entitles the taxpayer to possess, and gives the taxpayer an equity interest in, a housing unit located in Canada also qualifies. Cancelling Participation If the taxpayer receives the funds from the RRSP but does not buy or build the home (and does not buy or build a replacement home), they may cancel their participation in the plan by contributing the funds back into the RRSP and notifying CRA of the cancellation. CRA provides a form in the Home Buyers' Plan Guide for this purpose. Any amount not recontributed to the RRSP will be considered income in the year received. Filing Requirements Members of the Home Buyers' Plan must file a tax return each year until their HBP balance is zero, regardless of whether they are otherwise required to file. Once payments begin, the taxpayer must report on Schedule 7 RRSP Unused Contributions, Transfers, and HBP or LLP Activities each year the amount of RRSP contributions designated as a repayment under the Home Buyers' Plan. These contributions are not considered to be an RRSP contribution and therefore do not require RRSP contribution room and are not deductible. If no contribution is made or the contributions are not designated as a HBP repayment, then the required repayment for the year will be included in the taxpayer's income on line 129. After the end of the year that the taxpayer turns 71, repayments can no longer be made to the HBP because the taxpayer may no longer contribute to his RRSP. Thus, in the year the taxpayer turns 71, if there is an outstanding HBP balance, the taxpayer must elect to pay the outstanding balance or include in income each year the required annual repayment. Emigration If a HBP participant becomes a non-resident, the outstanding balance must be repaid before the return for the year of emigration is filed but no later than 60 days after becoming a non-resident. Death of Participant In the year of death, the full outstanding amount under the Home Buyers' Plan must be repaid (or included in income of the taxpayer) unless, at the time of death, the taxpayer had a spouse or common-law partner and that individual elects (under S. 146.01(7)) jointly with the deceased's legal representative (often the same person) to make the payments under the Home Buyers' Plan and have the income inclusion not apply to the deceased taxpayer. This election may be made in the form of a letter attached to the deceased taxpayer's final return. If the election is made, the balance transferred must be repaid over the same period that applied to the deceased unless the survivor is also a participant under the HBP. If the survivor is a participant, the transferred amount must be repaid over the same period as the survivor's other HBP balance. Excerpted from EverGreen Explanatory Notes. 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.