Tax Tip: The More Obscure Medical Expenses

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

Many employees have deductions or credits available to them that are not reflected on the TD1 form. Where an employee has such deductions or credits available, it is to his or her advantage to have the employer take these into account when calculating the tax to be withheld. Reducing tax withheld at source enhances the employee's cash flow ñ amounts that would otherwise be received as a lump-sum refund when the tax return is filed are converted into an increase in the take-home paycheque received every pay period. This is one of the reasons that in 2008 the average tax refund was $1,400 per taxpayer.  Non-Statutory Deductions Some deductions can be taken into account by the employer without having to obtain the consent of CRA. Others require a pre-authorization from CRA before the employer can take them into account and reduce withholdings. Deductions that do not require Approval the employee's contributions to a registered pension plan, the deduction available to an employee who resides in a prescribed Northern zone, union dues, contributions to a Retirement Compensation Arrangement or certain other pension arrangements, and certain contributions to a Registered Retirement Savings Plan. Deductions that Require Approval An employee may have deductions or credits available other than those described above which will reduce the amount of tax he or she ultimately has to pay when the tax return is filed. The employee has the right to request that the employer take these into account in calculating the amount of income tax to withhold from net pay. However, the employee must first obtain the written permission of the Canada Revenue Agency. Permission is requested by filling a Form T1213 with the CRA on which the employee identifies the employer and the dollar amounts of deductions or credits that will be available to reduce the amount of tax. If the CRA is in agreement, an authorization will be issued to the employer. Education resource: Excerpted from Advanced Payroll for Professional Bookkeepers, one of the courses that comprise the DFA, Bookkeeping Services Specialist designation program.

Increase in Taxes - A Sign of Things to Come?To cope with a $9 Billion deficit, and an expected deficit of $222 Million in 2010-2011, Nova Scotia will raise its Harmonized Sales Tax to 15% starting on July 1st, and create a new "high income" tax bracket, taxing those with incomes above $150,000 at 21%, beginning retroactively on January 1, 2010. This 21% rate is one of the highest penalties for those with top earnings in the country. With other provinces and the federal government itself facing large deficits, this may signal the advent of new taxation trends for the years to come. Other tax initiatives include: HST offset for low income earners (less than $30,000) of $240 per year plus an additional $57 for children under 19 and living at home Elimination of the 10% surtax on provincial income tax payable greater than $10,000 effective January 1, 2010 Taxes on small business (under $400,000) declining to 4.5% from 5%, effective January 1, 2011 Capital taxes on non-financial institutions declining and set to be eliminated in two years How does this compare to taxation changes in other provinces? See KBR budget summations in archived issues by linking here.The bottom line for Nova Scotians? At a time when recovering economies need fiscal stimulus, consumers will pay more (and this penalizes in particular, young familiesin the middle class) and the tax disincentive for high income earners may create a brain drain Nova Scotia may miss for its future. Planning to reduce, change or diversify investment or business income sources may help to average down these new tax rates. So will RRSP contributions which save tax dollars on a proportionately higher basis for high income earners.Your thoughts? Evelyn Jacks is President of The Knowledge Bureau and author of Essential Tax Facts 2010, Master Your Taxes, and Make Sure It's Deductible; all available from the Knowledge Bureau bookstore at bulk purchase pricing for advisors and their clients.

The Minister of Finance, The Honourable Jim Flaherty, released a statement recently advising proposed changes contained in the Notice of Ways and Means Motion tabled on March 22, 2010 will provide clear GST rules for those within the financial services industry. The draft legislation relating to the application of GST within the industry was introduced to improve on the legislation previously released in January 2007. The current system for applying GST contains very complex rules relating to registered pension plan trusts, and the new system will offer an equitable application of GST rebates and an updated process for GST returns to provide improved reporting. Some highlights of the draft legislation are as follows: The CRA and financial institutions will have an improved and more flexible pre-approval process for the allocation method of input tax credits (ITC's) Canadian financial institutions with foreign branches can choose a self-assessment process that is simpler to implement when services are provided by those foreign branches Banks and other large dealers will be allowed to use their own methods to allocate ITC's Large derivative transactions undertaken by financial institutions could be excluded from self-assessment rules. A new GST annual information return would be introduced, due the same time as the institution's annual tax return To review the GST Notice related to the changes, link here. 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.

The 2010 Saskatchewan budget was tabled on March 24, 2010. Although it was presented as being a balanced budget, it required some borrowing from its Growth and Financial Security Fund (the rainy day fund) in order to meet that goal, otherwise there would have been a $174 million dollar deficit. The budget contained little in the way of income tax changes or sales tax changes. Announcements were made with respect to cutting just over 500 government positions, many due to programs that were being wound down and some others due to attrition. There were sin tax increases on both beer and cigarettes and there have been a limit established on tax-free cartons for First Nation smokers ñ decreased to one carton from three. An end was also announced regarding subsidies available for universal chiropractic care which would save $10 million dollars a year. Low-income Saskatchewan residents will now be covered to a maximum of twelve visits a year. A three percent increase in health care spending was also announced. For the most up-to-date information on tax forms and tax changes consult: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA.

By Alan Rowell , DFA, Tax Services Specialist Ontario's budget announced on March 25, 2010 was big on repetition of previously announced measures, but low on details. Ontario will record a budget deficit of $21.3 billion, down from the forecasted $24.7 billion, but still holds the dubious distinction of being the highest deficit in Ontario's history. The Ontario government plans to eliminate the deficit over the next seven years, but there is no effective indication or detail as to how this will be achieved, other than government cost cutting and project deferrals. The main thrust of the deficit reduction plan consists of forecasted job creation over the next seven years. In the meantime, Ontario forecasts estimate an interest expense of 10 billion dollars over the 2010-11 fiscal year; almost 10% of Ontario's forecasted revenues.Harmonized Sales Tax Ontario's previously announced move to a Value-Added tax on July 1, 2010 remains the focus of Ontario's budget plan. The budget reaffirmed the government's commitment for the combined federal and provincial HST rate to be 13%. To help offset the impact of the HST, the budget announced two new tax credits, replacing the existing combined property and sales tax credits, effective for the 2010 tax year for individuals and families. Ontario residents will also receive Sales Tax Transition Benefit cheques in June 2010, December 2010 and June 2011. These transition amounts are based on income reported on the 2009 income tax returns and consist of total amounts of $300 for a single taxpayer with income less than $80,000, and $1,000 for family incomes less than $160,000. The new Ontario Sales Tax Credit will consist of quarterly payments totalling $260 per year for each adult and child in an eligible family. These tax credits will be income-tested and will phase out based on the family income. Ontario business will also receive assistance to offset the costs of transitioning to HST of up to $1,000.Tax Cuts for Individuals A previously announced personal tax rate change, reducing the personal rate from 6.05% to 5.05% on the first $37,106 of income gives Ontario, at least temporarily, the distinction of having the lowest personal tax rate in Canada. The previously existing Property Tax Credit will be replaced with a new Ontario Energy and Property Tax Credit. This credit will be paid quarterly beginning in 2011 based on 2010 personal tax return filings. While details are not available, it is almost a certainty that this credit will also be income tested. The Northern Ontario Energy Credit has been made a permanent tax credit to help Northern Ontario residents offset the higher cost of energy. The credit consists of $130 for single persons with incomes up to $35,000 and up to $200 for families with incomes up to $45,000. The credits are income tested and are eliminated at $48,000 and $65,000 respectively.Tax Cuts for Business The budget announced a reduction in the small business corporate income tax rate from 5.5% to 4.5% effective July 1, 2010, on net income under $500,000. Additionally the budget reiterated a number of previously announced measures including: Cutting the general corporate tax rate from 14% to 12%. The rate is to be further reduced to 10% over the next three years. Cutting the corporate income tax rate for manufacturing, processing, mining, logging, farming and fishing from 12% to 10% Elimination of the Ontario Capital Tax effective July 1, 2010 Elimination of the small business surtax of 4.5%Mirroring Federal Tax Ontario adopted and automatically will mirror the Federal budget tax changes announced earlier this year. Roll-over of certain registered plan proceeds to a Registered Disability Savings plan; Taxation options of the Universal Child Care Benefit; Changes to the Medical Expense Tax Credit; Scholarship exemption and Education Tax Credit; Treatment of employee stock options; Deduction for US Social Security benefits; Disbursement quota for charities; and Capital cost allowance system. For the most up-to-date information on tax forms and tax changes consult: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA.

The Federal Government, as part of Canada's Economic Action Plan, has introduced Bill C-56, Fairness for the Self-Employed Act, which will allow self-employed person to "opt-inî to restricted Employment Benefits currently only available to employees.  The legislation has now been passed therefore, effective January 1, 2010, those taxpayers running proprietorships can now access some of the same EI benefits that employees have.The Benefits The Fairness for the Self-Employed Act will allow self-employed persons to receive EI benefits for life-transition events as follows: Maternity benefits (15 weeks maximum) are available to birth mothers and cover the period surrounding birth Parental/adoptive benefits (35 week maximum) are available to adoptive or biological parents while they are caring for a newborn or newly adopted child, and may be taken by either parent or shared between them Sickness benefits (15 weeks maximum) which may be paid to a person who is unable to work because of sickness, injury or quarantine; and Compassionate care benefits (6weeks maximum) which may be paid to persons who have to be away from work temporarily to provide care or support to a family member who is gravely ill with significant risk of death It is important to note that self-employed persons will remain ineligible for regular EI benefits due to lay-offs or business slow-downs.Opt-in Beginning January 1, 2010, self-employed persons have the option of participating in the program. In order to be eligible for benefits, the individual must register with the Canada Employment Insurance Commission on-line through Service Canada. For the purposes of this EI program, you are considered self-employed if you operate your own business or are employed by a corporation and control more than 40% of the voting shares.Opt-out Once registered, you will have 60 days to change your mind. After the 60 days, you are in the program for the calendar year whether you want to or not. Assuming that you do not collect any EI benefits, you may choose to opt-out at the beginning of any calendar year. If you do receive EI benefits, you are no longer eligible to opt-out of the EI program on self-employed earnings, ever. This stipulation remains in effect regardless of your self-employed status or change in self-employment. Once you receive a benefit, you will continue to remain in the program and pay annual premiums.Costs Self-employed persons deciding to "opt-inî to the EI program will be subjected to the EI premium same as an employee. The business however, will not be required to pay the employer's portion of the EI premium. Premiums will be paid on the individual's personal tax return annually and a minimum self-employed income of $6,000 is required. In order to qualify for EI benefits the self-employed person must be registered and pay EI premiums for one year prior to filing a claim. This means that if you register in January 2010, you will become eligible to receive EI benefits in January 2011. Additionally, any income earned from employment or self-employment while in receipt of EI benefits may reduce the amount of the benefit. The legislation for this Act was passed on December 15, 2009 so self-employed individuals can opt into the EI sytem and be eligible for special EI benefits. Self-employed persons should check with their individual financial advisors before entering into an EI agreement to ensure that it is right for you. Alan Rowell is a DFA, Tax Services Specialist and President of The Accounting Place. Alan can be reached through www.theaccountingplace.net