Tax Tip: The More Obscure Medical Expenses

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

The Honourable Jim Flaherty, Minister of Finance, tabled a Notice of Ways and Means Motion to implement Budget 2010 tax measures, and provisions referenced in the Budget, on March 22. The Notice also includes provisions referenced in Budget 2010 to implement tax measures that were previously announced, including changes to:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> The claiming of Universal Child Care Benefit amounts by single parents; The elimination of tax reporting for many investments under the definition of taxable Canadian property; The removal of expenses incurred for purely cosmetic procedures from the Medical Expense Tax Credit; A reduction in the rate of interest payable to corporations by CRA on tax overpayments The Notice also contains measures relating to federally regulated private pension plans.  These include: Increased protection for plan members as solvency deficits are dealt with and upon plan terminations companies will be required to fully fund the pension benefits. Disclosure requirements within plans will be enhanced and annual member statements will include expanded information, which will provide important details for plan members. Minimum funding requirements using average solvency ratios to determine the market value of the plans. Pension surplus thresholds will be increased to 25 percent under the Income Tax Act, an increase from the current 10%. Funding arrangements will be made for pension plans that are in distress and the plan sponsor would be provided with a period of time where payments are not required. Changes would be negotiated to the pension arrangements and representation would be provided all plan members. A framework for defined contribution plans that would implement measures to provide explicit information on responsibilities and accountabilities to employers, members and administrators. The Minister of Finance, the Honourable Jim Flaherty said "These reforms will provide enhanced benefit security for workers and retirees while allowing pension plan sponsors to better manage their funding obligations as part of their overall business operations.î   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.  

With tax season upon us, it is time for a review of the joint, transferable and optional tax provisions that can be claimed on an inter-family basis. Remember, there are benefits to filing your tax return from a family point of view; it willinfluence your wealth accumulation activities and inter-generational estate planning. Tax Element Provision Can be claimed by Income Canada Pension Plan Benefit After age 60, either spouse, if an assignment of split benefits has been applied for. Taxable Dividends Can be transferred to high earning spouse if Spousal Amount is created or increased. Eligible pension income Up to 50% can be transferred to other spouse Deductions Safety Deposit Box Either spouse may claim if it holds household investment documents Non-Refundable Tax Credits                                                                                                               Basic Personal Amount Not transferable Age Amount, Pension Income Amount, Disability Amount, Tuition, Education and Textbook Amounts, Amount for Dependent Minor Transferable to higher earner if lower earner is not taxable. In the case of the Disability Amount and Tuition, Education and Textbook amounts this can include transfers from dependants other than spouse. Claims for Spouse or Equivalent, Infirm Adults, Caregiver, Donations Claimed by the supporting individual with higher taxable income in general. Adoption Expenses Can be claimed by either spouse or shared between them. Medical Expenses Usually claimed by spouse with lower net income for best benefit. Labour Sponsored Fund Tax Credit Can be claimed by either spouse if purchased within spousal RRSP. Amount for children born in 1992 or later Can be claimed by either spouse or shared between them Canada Employment Amount Not transferable Public Transit Amount Can be claimed by either spouse or shared between them Children's Fitness Amount  Can be claimed by either spouse or shared between them Home Renovation Tax Credit Amounts over $1,000 can be claimed by either spouse or shared between them       For more tax saving ideas, order Evelyn Jacks' Essential Tax Facts 2010 Edition.

The red ink flowed in the Manitoba Budget today, however, in the context of the current economic environment--post-financial crisis--new Finance Minister Rosann Wowchuk's first provincial budget will likely be best judged five years from now, when her plan for a return to a budget surplus is either met, or not, and the accumulating debt load that is anticipated, is well managed. Knowledge Bureau President Evelyn Jacks reports from the Budget Lockup: This year's Manitoba provincial budget contains three pieces of significant news for taxpayers, and a lot of tinkering. First, a significant milestone arrives for small business corporations in Manitoba on December 1, 2010: a 0% small business tax rate on income under $400,000. Manitoba is the first jurisdiction in Canada with this claim to fame, but good news travels fast. The small business tax rate goes to 0% in BC effective April 2012. (Its rate for 2010 is 2.5%, on a $500,000 income limit as of Jan 1, 2010). While this is great news for the multiplicity of small businesses that make up the backbone of Manitoba's economy, and hopefully, the new businesses the provision may attract, there is little in the way of good news on the personal tax side. Unfortunately, the best that can be said is that personal tax rates and brackets are unchanged from last year. There have been no inflation adjustments and so again this year, the $25 million increase in personal income tax collections is the result of the hidden taxes by way of "bracket creepî. Further, the highest marginal tax rate of 17.4% levied on taxable incomes over $67,000 amounts to a penalty for the upper middle class and in particular, the highly educated and highly mobile graduates of our expensive educational institutes, who can simply look to neighboring Saskatchewan to earn incomes up to $115,297 before paying a top rate of only 15% there. Taxpayers at top tax brackets fare better in every other western province, and in Ontario too. Lower income earners are not spared, either. With a Basic Personal Amount of only $8134, the lowest of the Western provinces and Ontario, Manitoba continues to tax non-discretionary earnings sooner than other nearby provinces. In Alberta, for example, individuals pay no tax on the first $16,825 in income in Alberta ($33,650 per couple or single with dependant child); and $13,348 in Saskatchewan ($26,695 per couple or single with dependant child). This continued stubborn bracket creep in the post-financial crisis environment is puzzling, as one of the best ways to stimulate the economy is to give people more money in their jeans every two weeks at payday. Raising the basic personal amounts would accomplish that. Purchasing power is also enhanced when personal amounts and tax brackets are inflation-adjusted. These are the kind of differences in tax competitiveness that spur employees to choose one province over another; however, it is true that taxes are not the primary factor in inter-provincial migration. The main one is the ability to land a good job. Manitoba should come through the recession well, if zero taxation on business income fosters an economic climate that creates great, sustainable jobs at the higher wage rates skilled graduates of our wonderful schools are looking for. However, it faces accumulating debt, and higher debt servicing costs, as it prepares to spend $2 billion more than it will take in now until 2014. That in fact, is perhaps the bigger story in this budget. Technical details follow: PERSONAL TAXATION Personal Tax Brackets and Rates (Line 428 on the Federal T1 Tax Return): For individuals there are no new changes over those announced last year. Noteworthy is that by 2010 the lowest provincial tax rate will be 10.70% and by 2011--10.50%. An inter-provincial comparison of tax rates and brackets follows: Provincial Tax Brackets and Rates for 2010 Province Tax Brackets Rate Surtax FEDERAL BPA $10,382 $10,382 $10,383- 40,970 $40,971 - $81,941 $81,942-$127,021 $127,022 and up 0% 15% 22% 26% 29% British Columbia BPA $11,000 Spouse $9,653 $0 to $35,859 $35,860 to $71,719 $71,720 to $82,342 $82,343 to $99,987 Over $99,987 5.06% 7.70% 10.5% 12.29% 14.7% Alberta BPA $16,825 Flat tax of 10% Saskatchewan BPA $13,348 Up to $40,354 $40,355 to $115,297 Over $115,297 11.0% 13.0% 15.0% Manitoba BPA $8134 $0 to $31,000 $31,001 to $67,000 Over $67,000 10.8% 12.75% 17.4% Ontario BPA $8943 $0 to $37,106 $37,107 to $74,214 Over $74,214 5.05% 9.15% 11.16% 20% > $4,006 36% > $5,127 Non-Refundable Tax Credits: The Fertility Treatment Tax Credit will allow 40% of the costs up to $20,000, including treatment and drugs, to be claimed, up to a maximum of $8000. The credit will be transferrable between spouses and eligible costs paid after September 2010 will be claimed as a medical expense using federal income tax rules. Refundable Tax Credits. There is important news for students who pay tuition fees in Manitoba. Tuition Fee Income Tax Rebate Advanceóan refundable advance of 5% of tuition and ancillary fees paid after August 31, 2010 to a maximum of $250 will be allowed; and 10% to a maximum of $500 in 2011 and following years to a lifetime Advance "capî of $5000. Amounts so claimed will reduce the lifetime maximum of $25,000 allowed under the Tuition Rebate Program which follows graduation. No Change to Education Property Tax Credit. While the Education Property Tax Credit was increased from $600 in 2008 to $650 in 2009, the scheduled increase to $700 for 2010 did not materialize. Further, farmers will not benefit from a scheduled increase in the Farm School Tax Rebate. The rate stays the same at 75% and there is no indication of when the deferred rate of 80% will be instituted. REFUNDABLE MANITOBA PERSONAL TAX CREDITS 2008 2009 and 2010 Basic Personal Credit for Self or Spouse $190 $195 Age Credit for Self or Spouse $110 $113 Disability Credit for self, spouse or dependant $110 $113 Disability Credit for Dependants $60 $62 Credit for Dependent Children $25 $26 Education Property Tax Credit $600 $650 Other Personal Tax News: Mirroring New Federal Rules from the March 4, 2010 budget, Manitoba taxpayers will also benefit from provincial tax reductions due to (a) The Fitness Tax Credit, which will be expanded for young adults age 16 to 24 (currently claims are limited to those up to age 15). However this new tax treatment will start only in 2011. (b) Manitoba will allow single taxpayers with a dependant child to recognize income from the Universal Child Care Benefit in the income of the child, making the benefit tax free for most in this situation. (c) The new rules surrounding Stock Option Benefits, including elimination of a double deduction, and deferral of the benefit, and the provision limiting tax on disposition of a deferred benefit to proceeds of disposition will be mirrored in Manitoba. BUSINESS TAX NEWS The general corporate tax rate will fall from 14% to 13% on July 1, 2008 and again to 12% on July 1, 2009. The goal to drop the general rate to 11% sometime after this, was not confirmed in this budget. The Small Business Rate charged on taxable income under $400,000 will be reduced from 3% to 2% in 2008 and then to 1% in 2009, falling to 0% in 2010. New Profits Tax: Credit Unions and Caisse Populaires will be subject to a 1% profits tax on taxable income over $400,000 effective January 2, 2011. A tax return will need to be filed 6 months after year end. A New Co-operative Development Tax Credit will be introduced for contributions made to a fund managed by the Manitoba Cooperative Association after September 2010, used for technical assistance, co-ordination of existing resources and to provide small grants and strategic investments. In addition, changes to the following existing tax provisions were announced: Small Supplier Amount for RST: Small business with annual taxable sales under $10,000 will no long need to register and collect Manitoba Sales Taxes. The 20% Research and Development Tax Credit which promotes co-operation between corporations and research institutes is fully refundable for R & D carried on in Manitoba under a contract with a qualifying research institute. This credit will be extended to in-house research starting in 2011 when one quarter of the 20% credit will be refundable; starting in 2012, 50% of the 20% credit will be refundable. The Small Business Venture Capital Tax Credit, set to expire on December 31, 210 is extended to December 31, 2013. Formerly known as the Community Enterprise Investment and Development Tax Credit, its purpose is to prioritize economic development in line with provincial objectives. This is a non-refundable one equal to 30% on a maximum $450,000 investment in equity capital. The maximum annual approval limit for this program doubled to $33,000,000 starting in 2009. The value of issuable shares that a business can apply for doubled from $500,000 to $1 Million, starting in 2009. This is non-refundable personal income tax credit is equal to 30% on a maximum $30,000 investment. Interactive Digital Media Tax Credit. This credit was new to corporations which produce interactive digital media projects in Manitoba in 2009, including videos and games and educational media/webcasts. The maximum credit on an eligible project is $500,000 and it is calculated as 40% of the remuneration paid to Manitobans on eligible projects as approved by Manitoba Science, Technology, Energy & Mines. It has been extended to December 31, 2013 and is claimable on expenditures made on a taxation year basis. Film and Video Production Tax Credit. After 2007 a 5% Producer bonus is introduced as well as a Frequent Filming bonus. Eligible salaries paid to non-residents for work in Manitoba is increased from 20% to 30%. This credit was extended in the budget to March 1, 2014 and enhanced to allow a 30% credit on production costs paid for labour, goods and services provided in Manitoba for an eligible film. Manufacturing Investment Tax Credit. A generous increase from 35% to 70% comes into effect retroactively on January 1, 2008 and this credit will be available until December 31, 2011. Co-op Education and Apprenticeship Tax Credits have been broadened starting in 2011 to include employers who hire high school and post-secondary Level 1 and 2 apprentices who are not eligible for federal Apprenticeship Job Creation Tax Credits. This is a credit of 10% of wages and salary to a maximum of $2000. 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 various provincial budgets released over the next few weeks will provide details on how each province or territory will tackle the deficits that have resulted from addressing the impact of the economic downturn that has taken place globally. The Ontario budget will be released on Thursday, March 25th.  Join us next week  in the Knowledge Bureau Report for a full report on those provincial changes. With a subscription to EverGreen Explanatory Notes you will have access to more than 800 files containing all the relative links, examples, tips, and interview checklists you need. Internet-based, and just a couple of mouse clicks awayóEverGreen brings the information to you. TRY THE EverGreen Explanatory Notes DEMO TODAY!

By Evelyn Jacks The March 4, 2010 Federal Budget delivered two provisions of interest to students and their supporting individuals, explained below. Taxpayers and their advisors will want to discuss them this tax season: Students are affected, too. There are two provisions of interest to students and their supporting individuals in this budget: Scholarship Exemptions: Where students receive a scholarship, fellowship, or bursary in connection with a part-time program, the scholarship exemption will be limited to the amount of the tuition paid for the program plus the cost of program-related materials, starting in 2010. This limitation will not, however, apply to students who are entitled to the Disability Tax Credit. In addition: Programs that are research-based and qualifying for the education amount, and leading to a degree or diploma will qualify for the exemption. Post doctoral fellowships will be fully taxable. Education Amount: The budget clarifies that a post-secondary program that consists principally of research will be eligible for the Education Amount (and a scholarship exemption) only if it leads to a college or CEGEP diploma, or a bachelor, masters or doctoral degree (or an equivalent degree). Post-doctoral fellowships will not be eligible. Tax Tip: Be sure to take advantage of the scholarship exemption. Many taxpayers mistakenly claim these income sources as income. Errors on prior filed returns can be corrected for a ten year period; this year, we are able to correct tax years 2000 and forward. 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.

By Evelyn Jacks The March 4, 2010 Federal Budget was a cautious document in a post-financial crisis environment, delivering no additional tax increases for most Canadians, and some interesting tax changes. In particular, families, students and investors are affected positively, while executives and business owners have seen the last of tax loopholes surrounding stock option benefits. Are you affected? Check out our Budget 2010 tax tips below. Medical Expenses: More and more people are having cosmetic surgery and in some cases the costs will be tax deductible. A good example is reconstructive surgery required after an accident or an illness, like cancer. However, for expenses incurred after March 4, 2010, the cost of medical or dental services, or any related expenses, provided for purely cosmetic purposes, will not be deductible. This includes the cost of botox, liposuction, hair replacement or teeth whitening. Tax Tip: Medical expenses are often under-claimed. From glasses and dental work to hearing aids and their batteries, a host of medical expenses can be claimed in the best 12 month period ending in the tax year but is subject to a 3% net income limitation or $2,011 (whichever amount is less) for 2009. Tax Changes for Single Parents. If you are sharing custody of your children with an ex-spouse, or receiving benefits as a single parent you'll be interested in two new provisions: Joint Custody of Children: Effective for payments received after June 2011, where a child lives more or less equally with two individuals who live separately, each of the individuals will be eligible to receive 50% of the amount of any Canada Child Tax Benefit, Universal Child Care Benefit (UCCB) and GST Credit received in respect of the child. Tax Tip: Each parent should invest these benefits in the name of the child to build up a great education fund, but also to avoid tax on resulting investment earnings. UCCB for Single Parents: Beginning in 2010, where the UCCB is received by a single parent, the parent may elect to include it either in their own income or in the income of the child who was claimed as an "eligible dependantî; that is one who qualifies for an equivalent-to-spouse tax credit. Where that child has little of no other income, this election will eliminate the tax on the UCCB. In addition, if the child invests the UCCB, resulting investment earnings are taxed in the hands of the child. Tax Tip: Be sure to invest the tax savings the parent earns from this reporting change; possibly in an RRSP to leverage the tax results. Child benefits should be invested in a separate account in the hands of the child. Next time:  Students and the disabled are affected too!   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.