Tax Tip: The More Obscure Medical Expenses

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

On November 4, CRA released an update to the P151 publication; an excellent reference for Canadians who vacation or spend part of the year in the U.S. The guide includes information on completion of both Canadian and U.S. Tax returns. The Internal Revenue Service (IRS) has contributed to the information contained in the section on U.S. Tax Laws. Readers will find information on health coverage, ownership of U.S. property and a discussion of residential ties. U.S. gambling and lottery winnings are also discussed. This is a must-read for anyone who plans to travel to our neighbor to the south this year! ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes and Cross Border Taxationóa certificate course from the Knowledge Bureau. (link) TAX EVASION: FAILURE TO ACCOUNT FOR MIXED USE EXPENSES A real estate agent from Hammonds Plains, NS has been fined $25,126 for evading taxes by falsifying business expenses. This amount is more than 120% of the taxes owed. Personal expenses were altered to look like business expenses and she arranged for invoices for shared expenses to be reissued as her expenses alone. HST returns were also falsified. In addition to court-imposed fines, persons convicted of tax evasion must file or re-file the tax returns in question and pay the taxes owing plus interest. Civil penalties may also be assessed by CRA. For more information see: http://www.cra-arc.gc.ca/nwsrm/cnvctns/ns/ns101103-eng.html ADDITIONAL EDUCATIONAL RESOURCE: Essential Tax Facts 2011

Significant change is about to occur to the Canada Pension Plan, and tax and financial advisors should use this opportunity to do some "knowledge marketingî to their clients before 2012 is upon us. Canadians who have already started to receive CPP and are not going to be working in the future will not be affected by these changes. However, for the rest of us, the following changes will apply: The monthly amount will increase for those waiting until after age 65 to receive CPP. The longer you wait, the more you get until age 70. The monthly amount will decrease for those taking CPP between ages 60-65. The sooner you begin the less you will receive. You will not have to stop working in order to begin receiving CPP. If you are under 65, receiving CPP and still working, you and your employer will have to continue making CPP contributions. This will increase your benefit, however, later. If you are between 65-70 you can choose to continue to make CPP contributions. If you contribute then your employer has to do so as well. This will increase your benefit when you do begin to receive it. A longer period of low earning years will be excluded from your CPP benefit calculation. This too will increase your benefit. The links below contain more detailed information for the general public: http://www.servicecanada.gc.ca/eng/isp/common/proceed/socinfo.shtml http://www.servicecanada.gc.ca/eng/isp/cpp/postrtrben/main.shtml For professionals, the information for Financial Advisors is especially interesting at this link: http://www.servicecanada.gc.ca/eng/isp/cpp/postrtrben/advisors.shtml ADDITIONAL EDUCATIONAL RESOURCES: Introduction to Personal Tax Preparation, Tax Efficient Retirement Income Planning

  The Distinguished Advisor Conference 2010 concluded in Orlando this week, to rave reviews and hundreds of business building ideas for the over 130 advisors in attendance. Amongst the top strategic business building thoughts: A greater focus on family planning is important. Professionals need to be more disciplined with clients and their children by transitioning from individual to family planning. Advisors play a key role in financial literacy education. Educate your team and implement a "knowledge campaign.î Use plain language and be sure to communicate carefully with clients to ensure they really understand your message. Focus on family education: by helping parents, you are actually helping their children. Understand financial behavior. Start with your personal relationship with money. It will affect how you speak to your clients about theirs. Be conservative with your clientsí moneyóhelp them to manage debt and risk while building wealth. Teach your clients the difference between good and bad debt. These are difficult times. No individual is an island. Our children and grandchildren are the future. Lead by example: ask and learn more about the family. No matter what clients are going through, professionals need to let them know there is a light. Strategic financial planning includes electronic communications with the whole family. If you want to connect with younger generations, you must have electronic messaging strategies and use internet-based communications tools to grow your business. The economy is driven by confidenceóadvisors need to help instill confidence in clients in working with their money through intergenerational planning. . .seven generation thinking! Reassure them that with proper strategic planning and your counsel they will be okay. Encourage clients to take advantage of all tax credits related especially to pre-retirement planning, retirement planning, medical expenses and disability-related tax preferences. This is a topic often neglected by financial advisors. Remember that 20% of lifetime health care costs occur in the last year of lifeóare you ready to be in the business of "ego, dignity and respect?î Statistically, 8 out of 10 clients are looking for new advisorsónow is a good time to ask for referral business. You do important work. ADDITIONAL EDUCATIONAL RESOURCE: For more information on next yearís DAC in Palm Springs, CA, November 13 to 16: see www.knowledgebureau.com/dac

CRA released an updated Publication RC4178 Death of a RRIF Annuitant on October 27. It has been modified to allow the rollover of RRIF proceeds to the RDSP of the financially dependant child or grandchild of the deceased, a change stemming from the March 4, 2010 budget . These changes will be in effect on July 1, 2011 for deaths occurring after March 3, 2010. Eligible transfers must take place after June 30, 2011. Transitional rules apply for the death of the RRIF annuitant after 2007 and before 2011 that allow similar treatment of the RRIF proceeds. Under these rules the contribution must be made between July 1st and December 31st 2011. These changes also apply to the proceeds of RRSPs and certain lump-sum amounts from Registered Pension Plans. For more information see: http://www.cra-arc.gc.ca/E/pub/tg/rc4460/README.html

Although our population is aging we have one of the lowest proportions of seniors in OECD (Organization for Economic Development and Co-operation) countries. In 2005 seniors comprised 13.5% of our population compared to 16% in the United Kingdom, 16.6% in France and 20.2% in Germany. Interestingly, the U.S. had only 12.8% of its population represented by seniors. The baby boom will increase these percentages in the years to come and life expectancy will continue to increase. Preparation for this senior population explosion is important, particularly because the value of pension savings declined during the financial crisis in 2008 ñ no surprise there. Employer-sponsored pension plans have the lion's share of these assets. This is particularly true for advisors and their senior clients in the Maritimes, which has the largest proportion of seniors, while Alberta has the smallest, due in no small part to the out-migration of young workers. More seniors are working beyond the traditional age of retirement and median after-tax incomes have increased significantly since 1982. In the general population, educated Canadians tend to have higher incomes. This is also true among seniors but not to the same degree because our income security programs (Old Age Security and Guaranteed Income Supplement) tend to level the playing field. Source: Statistics Canada, Canada Yearbook 2010. ADDITIONAL EDUCATIONAL RESOURCES: Tax Efficient Retirement Income Planning Course

In an honorable gesture, a measure announced on October 28, 2010, retroactive to January, 2010, provides for a rebate on all GST paid to suppliers for wreaths and poppies acquired by the Royal Canadian Legion for Remembrance Day. The Legion, in addition, cannot charge GST when selling these items.