Tax Tip: The More Obscure Medical Expenses

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

At this time of traditional giving, CRA is urging Canadians to exercise caution when donating to charity as the holiday season approaches, by avoiding fraud and tax receipts worth multiple times more than the actual donation. To avoid an unexpected tax headache down the line, Canadian taxpayers and their advisors should review the rules when giving to their favorite charity this holiday season: 1. Confirm Registered Charity status: Consult the CRA Charities Listings or call 1-800-267-2384. 2. Get proper receipting: An official donation receipt for cash must include a statement that it is an official receipt for income tax purposes, the name and address of the donor, the CRA registration number (Business Number) of the charity, the amount of the donation, the year of donation, the CRA name and charities website and a unique serial number. In-kind donations must include the fair market value of the gift. Contribution of your time or skill, fees for day-care, purchase of lottery tickets where proceeds benefit a charity and payment of certain tuition fees do not qualify. 3. Avoid Charitable donation schemes: CRA reviews all tax shelter arrangements, which by definition include tax shelter donation arrangements such as gifting trust arrangements, leveraged cash donations, and buy-low, donate-high arrangements. CRA routinely reduces the tax credit claimed to the amount of the taxpayers' cash donation or less, and may also charge interest and penalties. To date, the CRA has denied approximately $1.4billion in donations claimed, auditing over 70,000 taxpayers. Canada Revenue Agency provides detailed information on its website on fraud avoidance. Of particular interest are the 3 videos in the series Giving to Registered Charities 101. They offer an easy to understand look at the benefits of giving as experienced by both the donor and the recipient. This is an ideal introduction for teens and young adults ñ CRA even has a YouTube channel! http://www.cra-arc.gc.ca/chrts-gvng/dnrs/menu-eng.html ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes and the Knowledge Bureau certificate course: Fundamentals of Charitable Giving

The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance premiums will remain at 5% for the first quarter of 2011, while the rate paid on taxpayer overpayments on corporate returns will be 1% and non-corporate returns 3%. The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%.

For corporations other than Canadian controlled private corporations which qualify for the small business deduction, the net tax rate will decrease from 18% effective January 1, 2010 to 16.5% effective January 1, 2011 and 15% effective January 1, 2012. In other good tax news for business, computer hardware acquired before February 2011 will qualify for a 100% tax write off with no half year rule (Class 52) if the asset will be situated in Canada, not used for any other purpose before acquisition and is for use in a business carried on in Canada. ADDITIONAL EDUCATIONAL RESOURCE: KB Introduction to Corporate Tax Preperation and EverGreen Challenge 2010

Taxpayers should prepare to file their TD1 Personal Tax Credits Return before the end of December to ensure their withholding taxes on their January pay cheques are correct. Each year certain tax and benefit amounts are indexed to inflation. This year these credits and thresholds have increased by 1.4 %. The link to the form is http://www.cra-arc.gc.ca/E/pbg/tf/td1/README.html The Basic Personal Amount for 2010 was $10,382 in 2010; it has been increased to $10,527 for 2011, or $877.25 a month. The actual annual dollar equivalent is $1579.05 on the federal side; provincial credits will increase these amounts. For seniors the following credits are important, and most are indexed for 2011: Age Amount: This has risen by $91 to $6537 Infirm Dependant Amount: An increase of $49 to $4282 Disability Amount: Up by $102 to $7341 Caregiver Amount: A $59 increase to $4282 Pension Amount: Remains at $2000 Canadians are also curious about making claims under the Medical Expense Tax Credit. For 2011, eligible medical expenses in excess of 3% of net income--up to a ceiling of $2052ócan be claimed. This ceiling level has increased by $28 for the 2011 tax year. Medical expenses are claimed in the best 12 month period ending in the tax year. Unchanged in 2011, the amounts of eligible donations claimable qualify for a federal non-refundable tax credit of 15% for amounts less than $200 and 29% for amounts over $200 to a maximum of 75% of net income. Unused donations can be carried forward for five years. To take advantage of tax savings sooner, best to make donations before year end. The Distinguished Advisor Workshops (DAW), being held across Canada January 11 to 20 will cover details behind all of these and other important deductions and credits, as well as a thorough review of tax, investment and retirement planning options for 2011. Registrations are excerpted until January 7 for Winnipeg, Calgary, Edmonton, Vancouver, Toronto, Ottawa, Montreal and London venues. (hotlink) ADDITIONAL EDUCATIONAL RESOURCES: Essential Tax Facts by Evelyn Jacks (hotlink)

Canadian residents are required to pay tax on world income in Canadian funds and tax treaties in place with over 80 countries assist governments to help Canadians avoid double taxation with provisions like the foreign tax credit. Generally, only the portion of benefits received under the social security program of another country that would have been taxable in the originating country has to be included in income on a Canadian tax return. In Germany, the taxable portion began at 50% in 2005 and will rise incrementally depending upon the type of income, when it started and the status of the recipient. By 2040 100% of German Social Security Income will be taxable. More detailed information on taxation of German Social Security Pension income is available: http://www.cra-arc.gc.ca/tx/nnrsdnts/ntcs/grmny2005-eng.html Canadians receiving social security pensions from Germany have recently been required to file a tax return in Germany to report their pensions there for tax years 2005 to 2009, and this new requirement has hit a snag here in Canada, as CRA is grappling with how to treat the potential double taxation. According to Siegfried Merten, MFA, it is important to file a notice of objection and request for cancellation of penalty interest with the German Tax Office. As well, check the non-German income thresholds for non-German income to see if it is possible that the taxpayer is exempt from German tax. The current tax treaty with Germany refers to the exchange of info between Canada and Germany regarding Social Security Benefits: "With reference to Article 18, paragraph 3, subparagraph (c), the competent authority of a Contracting State shall notify the competent authority of the other Contracting State of changes made to the amount of social security benefits excluded from the taxable income of a resident of the first-mentioned State receiving such benefits.î Article 23 of the tax treaty deals with measures to eliminate double taxation and, according to Mr. Merten, this should apply to the current situation with Germany. The full text of the tax treaty with Germany is available: http://www.collectionscanada.gc.ca/webarchives/20071126010425/http:/www.fin.gc.ca/news01/data/01-042_1e.html Unfortunately, these tax assessments have come as a surprise to most of the Canadian pension recipients, it seems, many of whom are elderly, disabled and understandably distressed about this. The German government has provided short timelines for filing and stringent penalty and interest provisions without fairness provisions for the hardship scenarios this is causing in some cases, especially the disabled or those who are alone without access to help. The German Consulate will not answer questions here; referring callers to the International Tax Office here in Canada, who has told Knowledge Bureau reporters they have no further information at this time. According to that office, we do not yet know whether extra taxes paid in Germany this year will qualify for a foreign tax credit in 2010 in Canada, whether all taxes paid there this year will be allowed for credit in 2010 or if taxpayers will have to adjust prior filed returns to access relief from double taxation. We will keep you posted; in the meantime here is contact information for those seeking German tax filing information: German Tax Office: Financzamt Neubrandenburg, Postfach 110164, 17041 Neubrandenburg, Germany, Phone -11149 395 4422247 000; Fax ñ 01149 395 380 1059 and email: ria@financzamt-neubrandenburg.de International Tax Office in Canada: 1-800-267-5177 ADDITIONAL EDUCATIONAL RESOURCES: Cross Border Taxation course and EverGreen Explanatory Notes.

An important message for those who are cash-strapped this Christmas: look to your tax filing habits for some cash flow relief. Some Canadians have to prepay income taxes by making quarterly instalment payments. This includes those who report income from self employment, investments, or other sums from which tax is not withheld at source. When you fall into an instalment payment profile, you will start receiving a regular billing notice from Canada Revenue Agency reminding you to pay on time. Trouble is, if your income has dropped since you last filed a tax returnóand that's quite possible given recent financial turmoil--CRA will not know to reduce your payments. Good news: reducing your quarterly instalments is easy, and this is important now, just before the final December 15 quarterly instalment is due, or the annual December 31 instalment for farmers and fishers is payable! Simply write a letter to request a revised billing based on your estimated income for the current year. This is a much better way to manage your cash flow at Christmas time and use the money to pay down credit cards more quickly, or better yet, fund a family vacation. Professional tax and financial advisors can help, but it is important to make that appointment with your advisor now.