Tax Tip: The More Obscure Medical Expenses

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

The estimated cost of complying with the multitude of tax regulations for the average taxpayer, along with the sweat and tears expended when taxpayers are pulling together the required papers to complete the return and meeting with tax professionals is a whopping $4 to $5.8 billion cost per year. That's $215 for every tax filer ñ more than $300 for businesses. It translates into 5 hours of tax prep time; seven hours counting tax planning and appealing decisions made by CRA, this according to a recent study by the Fraser Institute, The Cost to Canadians of Complying with Personal Income Taxes by Francois Vaillancourt. Some highlights from the study follow: 51 percent of Canadians filing taxes pay for professional assistance (versus only 39% in 1986) 31 percent of tax filers are involved in preparing their own returns 18 percent of the filers use friends, family or non-profit organizations for help Men are more likely to prepare their own returns than women Paid tax preparers are used at a significantly higher rate when taxable income is over $100,000 For more information, link here for the full study released by the Fraser Institute. 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.

As discussed in last week's issue of Knowledge Bureau Report,  a fiscal period is any period of time for which an enterprise prepares its accounts. Most business enterprises have a fiscal year, and many report more frequently and also have fiscal months and fiscal quarters for internal reporting purposes. Strictly from an accounting perspective, there are no constraints on the fiscal period an enterprise can choose. Thus, accounting records can be maintained and financial statements can be prepared for any period of time that provides useful information to the owners and managers. There are often government-imposed regulations which restrict an enterprise's flexibility in choosing its fiscal periods. Most of these arise under the Income Tax Act. Some of these restrictions apply generally; some vary with the type of organization. General Restrictions The Income Tax Act provides: a new fiscal period starts immediately after the end of the prior fiscal period, a new fiscal period must generally end 12 months after it began, a corporation is permitted to have a fiscal period that is up to 53 weeks long, a professional corporation must use a calendar fiscal period, the general rule is that the fiscal period for a proprietorship must end on the last day of the calendar year in which it began. However, see the more detailed commentary below, once a fiscal period has been established, it cannot be changed without the prior written consent of the taxation authorities. Permission will only be granted where the change is requested for business and not tax-planning reasons. Partnerships A partnership can have any fiscal period it wants, except if an individual, a professional corporation or another partnership which itself has an individual or professional corporation as a member, is a member ñ in which case the fiscal year must be the calendar year. In other words, if any individual or professional corporation is either directly, or through one or more intermediary partnerships, a partner in the partnership, the partnership must have a calendar fiscal period end. Otherwise, it can choose any fiscal period end it likes. Example ñ Partnership Fiscal Period Acme Partnership has three partners, a chartered bank, a real estate development corporation and an insurance company. Acme Partnership would like to operate with an October 31 year end. Is this permitted? Yes. Because none of Acme Partnership's partners is an individual, a professional corporation or another partnership in which either an individual or professional corporation is a member, Acme Partnership is free to choose any fiscal period it wants. If it chooses October 31, it will have fiscal periods starting November 1 and ending October 31 for as long as it is in existence, unless it obtains prior written approval to change its year end. Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Bookkeeping Services Specialist program.

From a business standpoint there can be many advantages to choosing a year end that will be the most suitable to your business; for example, a corporation may choose to time their fiscal year end before their busy period in December in order to defer the tax payable on the net income earned. A fiscal period is any period of time for which an enterprise prepares its accounts. Most business enterprises have a fiscal year, and many report more frequently and also have fiscal months and fiscal quarters for internal reporting purposes. Strictly from an accounting perspective, there are no constraints on the fiscal period an enterprise can choose. Thus, accounting records can be maintained and financial statements can be prepared for any period of time that provides useful information to the owners and managers. There are often government-imposed regulations which restrict an enterprise's flexibility in choosing its fiscal periods. Most of these arise under the Income Tax Act. Some of these restrictions apply generally; some vary with the type of organization. General Restrictions The Income Tax Act provides: a new fiscal period starts immediately after the end of the prior fiscal period, a new fiscal period must generally end 12 months after it began, a corporation is permitted to have a fiscal period that is up to 53 weeks long, a professional corporation must use a calendar fiscal period, the general rule is that the fiscal period for a proprietorship must end on the last day of the calendar year in which it began. However, see the more detailed commentary below, once a fiscal period has been established, it cannot be changed without the prior written consent of the taxation authorities. Permission will only be granted where the change is requested for business and not tax-planning reasons. Proprietorships The general rule is that any business enterprise carried on by an individual must have a calendar fiscal year, to coincide with the individual proprietor's taxation year. The Income Tax Act does permit most individuals to elect not to report their business activities using a calendar year fiscal period. However, where such an election is made, the individual is required to report a notional amount of income on his or her income tax return, to represent an estimate of what the business's additional income would have been if the fiscal period had not ended before December 31. Because of this accounting for notional "stub-period incomeî, very few individuals elect to report business income on anything other than a calendar year fiscal period. Example ñ Proprietor's Fiscal Period Gillian starts a bookkeeping business, as a proprietor, on April 17, 20X8. Unless she elects otherwise, her first fiscal year will cover the period April 17, 20X8 to December 31, 20X8. Her second fiscal year will start January 1, 20X9 and end December 31, 20X9.   Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Bookkeeping Services Specialist program.

While Canadians in some parts of the country plant flowers and prepare for opening the cottage, the June 15 tax filing deadline is just around the corner. This deadline is specific to unincorporated small business owners. In fact, those business owners who will have a balance due really should file immediately as the interest clock started ticking on May 1. The filing due date for a spouse is always the same as for the deceased, but any balance owing by that person must be paid on or before April 30 to avoid interest charges. June 15 is also the second quarterly instalment payment deadline, which makes it one of the most expensive days of the year for business owners. Therefore it is important to review instalment payment filing methods if the taxpayer has an opportunity to reduce the instalment due to income fluctuations or changes in deductions or credits. Legal representatives of a deceased individual who died in 2009, will also want to file the final return by its due date, which will depend on the date of death and whether the deceased or the surviving spouse carried on a business in 2009. When a deceased individual or spouse operated a business, death occurring between January and December 15 requires filing on the June 15 due date. Otherwise the due date is six months after date of death. Note, CRA has published a simple new guide for small business owners, which can be used to discuss key issues.  View the Guide for Canadian Small Businesses by linking here.   ADDITIONAL EDUCATIONAL RESOURCES: EverGreen Explanatory Notes Basic Bookkeeping for Business Advanced Bookkeeping for Business Profiles

May 7 was an interesting day in financial news in Canada. The latest report on unemployment in Canada by Statistics Canada's Labor Force Survey shows employment increased by109,000 in April, which represents the largest monthly gain in percentage terms since August 2002. It was in the private sector that these gains occurred, in both full and part time jobs, while the public sector neither lost nor grew new jobs. These numbers looks good on Canada as our anticipated recovery continues to shape upafter the 2008 global financial crisis. Highlights follow: Wholesale and retail trade; business, building and other support services; and construction lead the way in job number increases. Employment grew in all provinces in April, with the largest increases in Ontario, Quebec, British Columbia, Alberta and Manitoba. Manitoba is the province with the lowest unemployment rate in the country. Compared with a year earlier, average hourly wages were up 2.0% in April. For more information link here for the full report from Statistics Canada.   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.

On April 30, 2010 Finance Minister Flaherty unveiled Draft Legislation and Explanatory Notes related to changes in the TFSA effective after October 16, 2009. Link to the full text here.   Highlights of the changes are as follows: New Penalties for TFSA Abusers. Although Tax-Free Savings Accounts are fairly new, many have found ways to abuse it. The Department of Finance has moved quickly to stop those abuses with penalty provisions which will be effective for TFSA transactions occurring after October 16, 2009: Excess Contributions. When taxpayers make contributions over the allowed maximum, they are subject to a 1% per month penalty until the amounts are removed. However, if taxpayers are willing to pay the penalty tax in order to keep the money in the plan, hoping to reap an even higher tax-free return on the excess contribution, 100% of the gains will be subject to tax when deliberate overcontributions occur after October 16th, 2009. TFSA Eligible Investments. The same eligible investments as allowed within an RRSP will apply to the TFSA. A special rule will prohibit a TFSA from making an investment in any entity with which the accountholder does not deal at arm's length, and for occurrences after October 16th, 2009, a 100% penalty tax on the income so earned will apply. Swapping for Tax-Free Gains. When taxpayers swap investments from non-registered accounts for cash in the TFSA, and then swap them back out for a revised, higher price point, thereby leaving gains in the TFSA to be tax free, 100% of the gains are subject to tax, after October 16th, 2009. The CRA has also issued a form and two related schedules to calculate the taxes and penalties imposed on excess contributions or prohibited or non-qualified investments.  The TFSA return and any related payments are due by June 30th in the year following the end of the calendar year. RC243 Tax-Free Savings Account (TFSA) Return 2009 RC243-SCH-A Schedule A - Excess TFSA Amounts RC243-SCH-B Schedule B - Non-Resident Contributions to a Tax Free Savings Account (TFSA) 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.