Tax Tip: The More Obscure Medical Expenses

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

A study released by Statistics Canada determined that by the age of nine, variations in scholastic achievement were affected by gender, province of residence and the income level for their household. The study also concluded there were significant differences based on their "education environmentî, which includes such factors as the parent's attitude toward education, their involvement in their child's school and school activities as well as their homework. Not surprisingly, children with lower attention spans tended to have academic performance that was lower than those that were better able to pay attention in class, and those with better attention skills were less likely to fail a grade or be in special education classes. The study also supports previous research which determined that the level of school readiness children bring when they first begin school will be a determining factor for future learning in the early years. "Children from households with very low income tended to have lower achievement than children from more affluent households on many measures.î Therefore, family wealth management is a critical component of financial planning with intergenerational consequences. Educational resources: 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.  

A recently released report shows that complaints filed by taxpayers and small businesses against financial advisers and financial institutions increased at a record pace in 2009. The increase in cases launched with The Ombudsmen for Banking Services and Investments was likely due to the severe drops in stock market that had occurred during the year along with the global economic crisis. Cases related to the investment industry increased by over 70%, while those that were banking related showed a 21% increase. Complaints that were made on the investment side of the business were generally related to the suitability of advice provided by advisers. This information released in the report ties in the results provided in the Summary Report on Retirement Income Adequacy, released by the Department of Finance. The summary report determined that financial intermediaries have some work to do in helping investors reduce risk. Here are highlights from the report: The role of financial intermediaries is to help investors reduce risk and information costs as well as provide liquidity to investors when they need it. The objective is not to eliminate risk but to use it wisely and better distributed it in a sensible way. Some individuals may simply need government support and CPP/QPP benefits in retirement and the house they purchased during their working lives. Given the complexities involved in investment and estate-planning decisions, Canadians often pay for asset management and advice, with the most expensive fees associated with retail mutual funds (about 200 basis points). This comes at a cost to the income they earn on their investments. These costs are acceptable to the extent that they improve returns on their saving. The research suggests that active management does not provide returns on a persistent basis any better than passive management for both pension plans and mutual funds. Once taking into account active management costs, passive managed assets would provide superior returns. Individual investors do not seem to be advised sufficiently to invest in indexed and exchange-traded funds to improve fund performance. Nor is it clear as to why pension fund managers invest in active managed funds for the same reason. The research that has been undertaken to date does not explain why pension and retirement accounts are not invested more heavily in passively managed funds.   Educational Resources: Now is a good time to look at retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future which could certainly include tax increases on both income and capital. To learn more consider the following Educational Resources available from The Knowledge Bureau: ► Tax Efficient Retirement Income Planning ► Master Your Retirement ► Master Your Taxes ► Tax Efficient Investment Income Planning ► Master Your Real Wealth ► Master Your Investment in the Family Business

Thousands of Canadians have learned a painful lesson during the recent economic downturn ñ they've been living beyond their means. Vancouver-based financial planner Erika Penner addresses that issue, and what can be done about it, in her book, Master Your Real Wealth: How to live your life with financial security. She has revealed the top 10 ways Canadians can achieve financial security: 1. Understand what real wealth means. It's what's left after debt, taxes, inflation and costs. It's the money you need for your life now -- and in the future. To get more of it, you need to understand the value of every dollar spent and saved. 2. Get started ñ even if you're not in great financial shape. The sooner you start, the better your chances of growing your pot of gold. Record your assets and debts, income and expenses. You need to know where your money is going. Until you do, you won't be able to build real wealth. 3. Don't build your lifestyle with debt. Many Canadians have fallen into the trap of using too much credit. By not paying off their credit card balances each month, they're incurring large, non-deductible interest expense. That works against the accumulation of real wealth. 4. Use your income wisely. Employ it to acquire assets that will help build, not erode, your real wealth ñ after debt, taxes, costs and after inflation. 5. Don't go it alone. A team comprised of a financial planner, insurance specialist, accountant and lawyer may be required in various life stages ñ and can bring value that will really pay off. 6. Protect your wealth. Insurance isn't just an expense. It can protect the assets you've acquired and are growing. Fully understanding the insurance products you're buying is a key to achieving your financial goals. 7. Minimize your taxes. Simple strategies can save a lot of income taxes. You have the right to arrange your affairs to pay the least amount of tax the law will allow. Various products and income streams can all be taxed differently ñ and will either be better or worse for your financial situation. 8. Pay attention to inflation. Increasingly, Canadians are living as long in retirement as they worked. It's important that our retirement income increases to overcome inflation or that we have enough financial assets to draw upon. Inflation erodes future purchasing power. 9. Ensure you get value for your money. All products, including financial products, cost money. Their prices vary, as do the ways of paying for them. Don't be afraid to ask what something costs ñ and what you're getting in return. 10. Know what will bring you financial peace of mind. Know what's important for you to achieve financial peace of mind and access the people, products and processes that can help you attain it. Remember that it's always okay to ask for help. Master Your Real Wealth is the fourth in the Master Your Personal Finances books, published by The Knowledge Bureau, a leading Canadian financial services education institute. The Knowledge Bureau is a national publisher and certified post-secondary educational institute, which provides continuing professional development to practicing professionals in tax and financial services leading to certification and designation. For more information, please visit their website at http://www.knowledgebureau.com/.

Approximately three million people will have their tax returns audited this year, if the previous pattern of reviewing tax returns by the CRA is any indication. The CRA has advised that in 2008 they reviewed approximately 2.8 million tax returns and many of these reviews are done when the tax returns are received and before a notice of assessment is mailed. The returns are reviewed to verify the income reported as well as the credits and deduction amounts claimed by the taxpayer. CRA will contact taxpayers to request information relating to income sources, receipts or dependents claimed on the tax return. Some areas of interest are as follows: Home renovation tax credit Charitable donations Child care expenses Spousal payments Support payments  RRSP contributions So make sure that your receipts are retrievable in the event you need to verify any amounts reported on your income tax return. The administrative provisions of the Income Tax Act deal with the various issues that can arise with respect to tax returns are: Filing a return; S. 150 sets out the deadlines for filing the return CRA's assessing, auditing and reassessing a return; S. 150.1 provides the authority for the Minister to accept the return that is filed electronically.. A taxpayer's objecting to an assessment or reassessment, and appealing CRA's confirmation of an assessment or reassessment and the statutory and administrative provisions that permit CRA to provide fair treatment and administrative relief to taxpayers; S. 151 requires that everyone who files a return estimate on that return the amount of tax that is owed. For more information on CRA review of tax returns visit their website at www.cra.gc.ca/review. 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.

In a volatile marketplace, investors, small business owners and seniors should keep a tight rein on their quarterly instalment payments. Now is a good time for tax advisors to consult with their clients to ensure there is no capital encroachment as a result of a mistaken overpayment to the upcoming quarterly instalment. An estimation of the income for the year can be used as an instalment base. Current-Year Option Under this option, the taxpayer's income tax liability for the current taxation year is estimated and, if the estimate exceeds $2,000, then one-quarter of the estimated amount is due on each of the four due dates. Prior-Year Option Under this option, the first two instalments are estimated at one-quarter of the taxes due in the second prior year (since the prior year's return is not available when these instalments are due) and the last two instalments are calculated at one-half of the excess of taxes due in the prior year over taxes due in the second prior year. Example: Instalments Issue: In the prior two years, Peter's taxes owing when he filed his return were as follows: Last year: $3,500 Year before last: $4,000 At what amounts would Peter's quarterly instalment payments be under each option? Answer: Using the Prior-Year Option, Peter's first two instalment payments are $1,000 (= $4,000/4) and his third and fourth instalments are $750 each (= ($3,500 - $1,000 - $1,000) / 2). If Peter estimates that his current year tax liability will be $3,400 he may use the current-year option and make instalment payments of $850 ($3,400/4) each quarter. Click on these links now for more information on the Knowledge Bureau's Tax Services Specialist programs or EverGreen Explanatory Notes.

As discussed in last week's Knowledge Bureau Report, the June 15th filing deadline for proprietorships is around the corner, and some consideration should be given to the implications of selling a business and encouraging discussion between a business owner and their advisory team.   An earn-out agreement is a purchase and sale agreement in which the ultimate price to be paid is dependant in whole or in part on the economic results the business produces.   Where an earn-out has been negotiated it is not possible at the date of closing of the sale to determine the exact proceeds of disposition the vendor is to account for. For this reason mechanisms must exist to adjust the tax accounting for the disposition as the proceeds become known.   The treatment of an earn-out payment depends of whether it relates to the purchase of assets or the purchase of shares. In this issue we will review the earn-out payment where the purchase of assets is used. Asset Purchase The tax treatment of earn out payments that do not qualify under the conditions required for a sale of shares differs because there is a statutory rule in the Income Tax Act that deals with them. This rule normally applies where the payment to be made for assets is based on the gross revenue, net income or production that the assets are to generate. Where this is the case, the non-variable portion of the proceeds is accounted for in the normal way. Any payment that is based on production or use is treated as business income to the vendor. This is true even where the payment represents part of the capital cost of the property purchased to the vendor. This treatment does not apply where the purchaser and vendor agree on a fixed price which can be adjusted downwards if revenue, income or production targets are not met. In those cases, the vendor accounts for the sale based on the agreed price. If it turns out that the price is adjusted downwards, an amendment is made to the return(s) on which the disposition was reported.       ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes Fundamentals of Succession Planning Accounting For Business Transitions