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. 

Last week, the CRA released figures for the average tax refund for the 2007 tax season. They touted the government's tax relief measures as the reason for the significant increase in refunds. But what do these large refunds mean for the average Canadian? It means that, on average, the government is withholding over $100 too much from the taxpayer's income each month. While some taxpayers consider this to be a form of forced savings (you don't miss what you don't see), is this really the best use of their money? Other potential (more beneficial) uses might be: If the taxpayer has credit card debt, pay down that debt by $100 every month (interest savings @19% interest: $104 in the first year); If the taxpayer has a mortgage, increase the monthly mortgage payment by $100 (potential savings on a $100,000 mortgage for 25 years @ 7%: $33,211 - plus the mortgage is paid off 6 1/2 years earlier); Deposit $100/month into an RRSP (potential accumulation over 20 years @9% income is over $64,000, not to mention the tax refunds generated by the RRSP deposits); If the taxpayer has no debt, and has maxed out RRSP contributions, invest the money at 4% interest (potential interest $26/year - less tax on the income of about $10, depending on the taxpayer's income level). The key is to get the employer to withhold less income tax from each paycheque. There are basic techniques that employees need to use to allow the employer to withhold less. Make sure that the TD1 Personal Tax Credits Return form is completed properly. All amounts to which the taxpayer is entitled should be claimed. If the taxpayer has any of the following deductions or credits, which are not accounted for on the TD1 form, then Form T1213 Request to Reduce Tax Deductions at Source should be completed and submitted to the employer. RRSP contributions Deductible Support Payments Employment Expenses Carrying Charges Charitable Donations Rental Losses Taxpayers should always remember this: a refund is not a good thing! Let us know how your clients feel about getting a tax refund - vote in our poll question below.

Andrew Brash, Knowledge Bureau Faculty made it to the summit of Mt. Everest last week, fulfilling a dream that was interrupted in 2006 when he saved a fellow mountain climber from certain death, thereby sacrificing his own ambition to make it to the top. We congratulate this true Canadian hero! So much of this climb was out of Andrew's control, from having to climb on the Nepal side, to waiting out the Olympic flame's controversial trip to the top. However, when it came down to it, Andrew said he would reach the summit of Mt. Everest on May 22 or 23. And he did. He and a small group, climbed through the night to arrive at the top of the world at 7am May 23! "It was a more difficult climb than I realized it would be and climbing all night borders on desperate (we left camp at 9 pm). The summit was cold and windy, as was most of the climb Ö" says Andrew. Since then, Andrew and his team began the descent with the eye on returning to family and friends back home. As of May 26, they have returned to and packed up base camp, then began the hike back toward the world they left two months ago. Andrew concludes this remarkable journey with his heroic act of compassion and humanity to flame his ultimate, triumphant achievement! Hear his adventures first hand! Book Andrew as a keynote speaker to hear his triumphs first hand. Contact The Knowledge Bureau now: 1-866-953-4769. The Knowledge Bureau was a proud sponsor of Andrew's successful return to Mt. Everest. You can review all his online entries for the whole 2008 Mt Everest experienced by visiting his website andrewbrash.com.

In a previous article we discussed that each of the five basic account types is either in a debit balance (assets and expenses typically), or in a credit balance (liabilities, equity and revenue typically). We also learned that as a result of the fundamental accounting equation, the total of all debit balances in the accounts at any one point in time must be equal to the total of all credit balances.  How is this end result of these postings reported? The general ledger is used to produce several standard reports. The primary report, used by the bookkeeper in assessing the completeness and accuracy of the financial records for a business, is the trial balance report. A trial balance is a report reflecting all the account balances in a general ledger at a given point in time. It shows both the total of all debit balances and the total of all credit balances and is used for many purposes. Control ToolThe fact that the trial balance is in balance (that total debits equals total credits), indicates that all transactions recorded and reflected in the trial balance have been posted with some accuracy. While this fact indicates that debits equal credits (a good starting point!), note that it does not mean that all transactions were either classified or reported correctly. Error IdentificationAnother way in which a bookkeeper will employ a trial balance is to use it to identify obvious errors and/or accounts whose balances need to be investigated for possible adjustment. A review of the trial balance to identify such sources of potential adjustment requires that the bookkeeper use both common sense and a knowledge of the business itself ñ that is, that the bookkeeper ask the question, "Does this make sense?" Support for Financial Statements Finally, the trial balance will normally be used as the starting point in preparing the financial statements to be distributed to the owners/managers. The flow from the general ledger to the trial balance to the financial statements can be summarized as follows the bookkeeper summarizes the balances in the general ledger in a preliminary trial balance, obvious errors and/or accounts to be adjusted are identified, accounts to be analyzed further are identified, adjustments required are documented, recorded in the general journal and posted to the general ledger, a revised trial balance is produced, the income statement and balance sheet are prepared from the revised trial balance. Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Certified Bookkeeping Specialist program.

Andrew Brash Update   Dear Andrew: CONGRATULATIONS!!!   From all of your friends and associates at The Knowledge Bureau, we send you our happy cheers and heartfelt congratulations on reaching the Top of the World! Thank you for taking The Knowledge Bureau flag to the top of Mount Everest with you and know that we are so grateful that you are safe, sound and triumphant! Thousands of cheers and high fives to you! Sincerely,Evelyn Jacks, The Knowledge Bureau and your fellow speakers at The Distinguished Advisor Conference   Andrew Brash, Knowledge Bureau Faculty member. The Knowledge Bureau is a proud sponsor of Andrew's return to Mt. Everest. You can review his online entries for the whole 2008 Mt Everest experience by visiting his website andrewbrash.com for live updates. Book Andrew as a keynote speaker to hear his triumphs first hand. Contact The Knowledge Bureau now: 1-866-953-4769.

Budget 2007 introduced a tax incentive that provides a special deduction to corporations for approved medicines donated, for the purpose of international aid, to a registered charity that has received funding under a program of the Canadian International Development Agency, for gifts made on or after March 19, 2007. The corporations are eligible for a charitable donations deduction equal to the fair market value of the property gifted. In order to provide an incentive for corporations to participate in international programs for the distribution of medicines, Budget 2007 also proposed to allow corporations that make donations of medicines from their inventory to claim a special additional deduction equal to the lesser of 50 per cent of the amount, if any, by which the fair market value of the donated medicine exceeds its cost; and the cost of the donated medicine. This additional deduction was to be available only when the donee is a registered charity that has received a disbursement under a program of the Canadian International Development Agency, and the gift is made in respect of activities of the charity outside of Canada. Budget 2008 proposed to change the definition of an eligible charity for this purpose. An eligible charity will be a registered charity that, in the opinion of the Minister of International Cooperation, meets conditions prescribed by regulation. (In the event that no such Minister has been appointed, the opinion will be required of the Minister responsible for CIDA.) The main purpose of these conditions will be to ensure that eligible charities: act in a manner consistent with the principles and objectives of the World Health Organization Guidelines for Drug Donations; have expertise in delivering medical donations to the developing world; and implement appropriate policies and practices with respect to the delivery of international development assistance. Currently, the additional deduction is available in respect of medicines that meet the requirements of the Food and Drugs Act even if those medicines' expiry date is imminent. Budget 2008 proposes that eligible gifts must be donated at least six months prior to the expiration date of the medicines. These changes will apply to eligible donations of medicines made on or after July1, 2008.

CRA released its update to payroll deduction formulas for July 1, 2008 in draft format to enable programmers of payroll programs to get to work early, despite the fact that the Northwest Territories budget is expected this week. An overview of the important issues follows: Federal Tax Rates and Brackets. There are no changes to the federal tax rates, income thresholds, or personal amounts required for July 1, 2008. However, the federal Form TD1 has been revised for July 2008 but has yet to be released by the CRA. General refiling of the 2008 federal Form TD1 is not necessary, but a new employee, a new pensioner, or an individual who wishes to change his or her federal claim amounts will have to complete the July 2008 federal Form TD1. Canada Pension Plan (CPP) and Employment Insurance (EI). There are no changes to CPP or EI for July 1, 2008. An overview of the contribution rates and amounts follows: Provincial Changes for July 1, 2008. Some provincial and territorial changes have been announced for July 1, 2008: Newfoundland and Labrador, Ontario and British Columbia. Some of these proposals are not yet law but would be retroactive when passed. There are new formulas for withholding taxes, starting with the first payroll in July 2008. For more information see Publication T4127: Payroll Deductions Formulas for Computer Programs ñ 87th Edition For formulas and factors not included in this edition, see publication T4127, Payroll Deductions Formulas for Computer Programs ñ 86th Edition, effective January 1, 2008. 1. Newfoundland and Labrador. In the provincial Budget 2008 of April 29, 2008, changes were announced to the provincial tax rates. Effective July 1, 2008, the rates and tax brackets for Option 1 are as follows: 7.7% (formerly 8.7%) on income less than or equal to $30,215; 12.8% (formerly 13.8%) on income greater than $30,215, but less than or equal to $60,429; and 15.5% (formerly 16.5%) on income greater than $60,429. For the provincial tax rates to apply for Option 2, starting July 1, 2008, (cumulative averaging) see the Option 2 formulas beginning on page 17 of Publication T4127. Non-refundable personal tax credits amounts for Newfoundland and Labrador have not changed since January 1, 2008. Refer to Form TD1NL for complete information on personal amounts. The basic personal amount remains at $7,566. The spouse or common-law partner amount remains at $6,183. Personal amounts will be multiplied by the province's lowest non-zero tax rate of 7.7% (formerly 8.7%). For the provincial surtax payable to apply for Option 2, starting July 1, 2008, see the Option 2 formulas beginning on page 17. The provincial labour-sponsored funds tax credit (factor LCP) for Newfoundland and Labrador remains the lesser of $750 and 15% of the approved shares purchase. 2. Ontario. In the provincial Budget 2008 of March 25, 2008, the provincial labour-sponsored funds tax credit (factor LCP) has been changed. Retroactive to January 1, 2007, the maximum investment that can qualify for the tax credit has been increased to $7,500 (formerly $5,000). As a result of the above change, the formula for calculating Ontario's LCP is changed to: LCP = The lesser of: (i) $1,125 (formerly $750); and (ii)15% of the purchase of approved shares. 3. British Columbia. In the provincial Budget 2008 of February 19, 2008, changes were announced to the provincial tax rates and the provincial tax reduction for British Columbia. Effective July 1, 2008, the rates and tax brackets for Option 1 are as follows: 5.13% (formerly 5.35%) on income less than or equal to $35,016; 7.81% (formerly 8.15%) on income greater than $35,016, but less than or equal to $70,033; 10.5% on income greater than $70,033, but less than or equal to $80,406; 12.29% on income greater than $80,406, but less than or equal to $97,636; and 14.7% on income greater than $97,636. Non-refundable personal tax credits amounts for British Columbia have not changed since January 1, 2008. Refer to Form TD1BC for complete information on personal amounts. The basic personal amount remains at $9,189. The spouse or common-law partner amount remains at $7,868. Personal amounts will be multiplied by the province's lowest non-zero tax rate of 5.13% (formerly 5.35%). The provincial labour-sponsored funds tax credit (factor LCP) for British Columbia remains the lesser of $2,000 and 15% of the approved shares purchase. Provincial tax reduction for British Columbia. The provincial tax reduction for British Columbia is indexed and is calculated as follows: Where net income is less than or equal to $16,946, the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $381; Where net income is greater than $16,946 and less than or equal to $28,852.25, the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $381 ñ [(Annual net income ñ $16,946) ◊ 3.2%]; Where net income is greater than $28,852.25, the reduction is equal to $0.