Tax Tip: The More Obscure Medical Expenses

Are you claiming all the medical expenses you or your clients might be entitled to? 

CRA has a new Tax Tip page with information on Tax Free Savings Accounts. It clarifies the type of investments that can be held and how TFSA contribution room is calculated. It also explains that contribution room freed up by withdrawing from a TFSA account is not restored until the beginning of the next tax year. The difference between a transfer and a withdrawal is highlighted as well. TFSA over-contributions are based upon the total contributed each year and not on the balance of all TFSA holdings at the end of the year. So, multiple withdrawals and re-contributions could put a taxpayer over their limit even though the balance does not change! A tax of 1% per month on the highest excess TFSA amount will be charged until the extra contributions are withdrawn. For more information: http://www.cra-arc.gc.ca/nwsrm/txtps/2011/tt110111-eng.html?=eml20110111 http://www.cra-arc.gc.ca/tx/tfsa-celi/menu-eng.html   Additional Educational Resources: Elements of Real Wealth Management

Canada Revenue Agency has a message for taxpayers who participate in gifting schemes ñ you will be audited! These gifting arrangements involve donation receipts that are issued for amounts that far exceed the money contributed to the "charityî. If the contribution is denied the taxpayer will have lost the amount given to the organization involved, the refund will have to be repaid and interest and penalties may apply. For more information: http://www.cra-arc.gc.ca/nwsrm/lrts/2010/l101223-eng.html?=eml20101223   Additional Education Resources: Fundamentals of Succession Planning  and Master Your Philanthropy

The passing of Bill C-47 has ensured that the Canadian Disability Savings Grant (CDSG) and Bond will be carried forward from the inception of the RDSP in 2008. This means that an eligible contribution in 2011 will attract Grant and Canada Disability Savings Bond (CDSB) for the years 2008, 2009, 2010 and 2011. The amount received will depend upon the family income of the beneficiary and the amount contributed. Up to $3 of grant will be available for each dollar contributed to the plan to a maximum of $3500 per year with $10,500 allowed annually for unused entitlements. The Canada Disability Savings Bond adds $1000 annually with $10,000 available each year for unused amounts. For family incomes less than $81,941 the government will pay CDSG of $3.00 for the first $500 contributed and $2.00 for the remainder to a maximum of $3500 per year. So, a $2000 contribution to a new RDSP in 2011 could attract the $3.00 grant on $500 for each of the carry back years, totaling $6000 of CDSG. For beneficiaries with a family income less than $23,855 the CDSB will add $1000 for each of the 4 years for a total of $4000. That's $10,000 of government money on a $2000 contribution ñ what a great start! It should be noted that a beneficiary has to be age 49 or under at the time of the claim to be eligible for the CDSG and CDSB. This suggests that a request for retroactive bond or grant by an overage beneficiary will be denied. Bill C-47 also allows transfers from Registered Pension Plans, RRSPs or RRIFS to the RDSP of a financially dependent child or grandchild. Transfers are included in the lifetime maximum of $200,000 contributed to each plan. This will be a valuable estate planning tool as it will allow a portion of a registered savings plan to be transferred to a lower-income beneficiary instead of having it fully taxable in the year of death. The taxable portion of RDSP payments will include grants, bonds, investment earnings and proceeds of transfers. RDSP income is excluded from calculations of federal government benefits and tax credits. Most provinces exempt RDSP payments from calculations of eligibility for income assistance programs: http://www.hrsdc.gc.ca/eng/disability_issues/disability_savings/rdsp_ptb.shtml   Additional information on Registered Disability Savings Plans is available: http://www.hrsdc.gc.ca/eng/disability_issues/disability_savings/index.shtml http://www.cra-arc.gc.ca/E/pub/tg/rc4460/README.html http://www.cra-arc.gc.ca/rdsp/

On January 1, 2011, Canadians age 18 and over will have another $5000 of Tax Free Savings Account (TFSA) contribution room. Although these contributions are not tax deductible, investment income earned within a TFSA is not taxable and will not interfere with income-tested government benefits and credits. Contribution room carries forward, including the value of amounts withdrawn! Just remember ñ TFSA redemptions during one year cannot be re-contributed until the following year. For more information: http://www.fin.gc.ca/n10/10-132-eng.asp

CRA is giving you the opportunity to "self auditî with a series of audit letters targeting those in business, professions or rental property owners to review claims made in prior years and "self-declareî errors with adjustments within 30 days of receipt of the letters in the mail. Candidates are being randomly chosen from industry groupings to encourage compliance. Tax professionals should be ready to help clients pro-actively by asking about these letters and inviting clients to drop in before the busy tax filing season to deal with this invitation. It's a good way to avoid penalites and interest, too.   Additional Education Resources: Introduction to Personal Tax Preparation Services and Essential Tax Facts 2011

According to a national survey published last week by the CICA, tips on how to minimizes taxes were the number one most wanted financial literacy skill by Canadians. Evelyn Jacks, President of The Knowledge Bureau, and member of the Task Force on Financial Literacy is not surprised and in fact, added a series of tax literacy quizzes to her new edition of Essential Tax Facts, just so people could better understand what they do and don't know about their taxes. "When it comes to your taxes, do you know what you don't know? That's the question we want Canadians to consider with our challenge to "Test Your Tax IQî in this year's edition of Essential Tax Factsî, said Mrs Jacks, currently on national tour to teach the most recent tax and wealth management issues to tax professionals across Canada and provide media interview opportunities. "   If you think you know a lot, learning more about tax preparation is a good idea, but applying that knowledge to tax planning activities is important all year long for each family member, says Mrs. Jacks. "With all the new provisions available to better split income and preserve capital, the government has made it possible for Canadians to better weather recent economic and financial difficulties. But it's up to you to take advantage of these tax preferences. Know less than you thought? Then choosing the right tax advisor for your needs is critical. . .by increasing your knowledge to ask better questions of your advisor, and understand whether your advisor is up to speed. "We are spending time this week in strategic technical planning think tanks with leading tax and financial advisors across Canada. These are people who are most informed and ready, willing and able to do a top notch job for their clients.î A book launch and information session is planning in Winnipeg at the McNally Robinson Bookstore on Grant avenue January 26 at 7:00. To obtain a copy of Essential Tax Facts online immediately, visit the bookstore tab at http://www.knowledgebureau.com/ or better bookstores locally.   To enrol in the January T1 Tax Update Workshops January 11 to 20, go to the workshop tab at http://www.knowledgebureau.com/.   To book media interviews with Evelyn Jacks, please contact Debbie@knowledgbureau.com. Direct line is 204-953-4763.