Tax Tip: The More Obscure Medical Expenses

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

For many small business corporations the use of shareholder loan accounts is a way of life.  Some owners use the account as their own personal ATM machine by withdrawing money whenever the mood or need strikes.  However, this practice has tax consequences often requiring experienced tax advice, and advisors must let their clients know about the rules. Using the shareholder loan account is an area that many accountants and bookkeepers have difficulty with fully understanding the rules of the accounts, and when the amounts have to be added to the income of the owner. In general, S. 15(1) of the Income Tax Act requires that a shareholder include in income the principal amount of any loan received from a corporation. In the year the loan is made, the amount received is included as business income. There are several exceptions to this requirement to include the loan as income, however: The loan is repaid by the shareholder within 1 year after the corporation's year-end in which the loan was made The loan is made as part of the ordinary course of business, for a lending business, and repayment terms are made at the time of the loan (e.g. shareholders of a bank), The loan is made between persons who are non-residents of Canada . An imputed interest charge must also be added to taxable income, based on the prescribed rate in effect at the time the loaned amounts are outstanding. The imputed interest to be included in income is the excess of interest calculated at the prescribed rate (at the time the loan is granted) over the amount of interest paid by the shareholder.  The current prescribed rate on these types of loans is 1%. Note that where the principal amount of a loan has been included in income, a taxpayer is permitted to deduct an amount under S. 20(1)(j) when the loan is repaid. The deduction is the portion of the amount previously included in income that is repaid in the taxation year. For more tax tips, purchase a copy of Essential Tax Facts written by The Knowledge Bureau's President, Evelyn Jacks, to learn how to ace your 2009 tax return and save money all year long. 

With the tax filing deadline arriving in less than 45 days (yikes!), we should give some thought to how to claim all those tuition fees that were paid out to various educational institutes. Advisors and clients should check the points below for a better understanding of qualifying criteria. Here is a review of the basic definitions for non-refundable credits and what qualifies for the tuition credit and education amounts: EDUCATION AND TEXTBOOK AMOUNTS Full-Time Students. The education credit for full-time students is $400 per month, the textbook credit is $65 per month. A full-time education amount may be claimed for each whole or part month in the year that the student was enrolled in a qualifying educational program at a designated educational institution and the student: was enrolled full-time, was enrolled part-time and qualified for the disability amount, or was enrolled part-time because of a mental or physical impairment. Qualifying educational programs (FULL-TIME): a program that lasts at least 3 consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (not including study time). Instruction or work includes lectures, practical training, and laboratory work. It also includes research time spent on a post-graduate thesis. After 2003, a program taken by the student in connection with the student's employment duties, even if that student receives income from that employment, will qualify provided only that the employer does not reimburse the tuition cost. Prior to 2004, the opposite was the case: such programs did not qualify, whether the employer reimbursed the student or not. Non-qualifying educational programs: Students who receive, from a person with whom he or she deals at arm's length, a grant, reimbursement, benefit, or allowance for that program do not qualify. However, receipt of a scholarship, fellowship, bursary, or prize received, or any benefit received under the Canada Student Loans Act, Canada Student Financial Assistance Act, or the Act respecting financial assistance for education expenses of the Province of Quebec does not disqualify the education program. Scholarship Exemption: Beginning in 2010, where a scholarship, fellowship, or bursary is received 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. This limitation does not apply to students who are entitled to the Disability Tax Credit. 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 however, be taxable. Part-Time Students. The education credit is $120 per month, the textbook credit is $20 per month. These may be claimed for each whole or part month in the year that the student was enrolled in a specified educational program at a designated educational institution. A specified educational program is a program that lasts at least 3 consecutive weeks and requires at least 12 hours of instruction each month. NOTE: KNOWLEDGE BUREAU SELF STUDY COURSES QUALIFY!  See our website at www.knowledgebureau.com for more information on our programs. Only one education amount may be claimed for each month ó the full-time amount or the part-time amount. 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 BC budget was tabled on March 2, 2010. The budget focused on retaining vital services and looking to the future for economic growth within the province.   Basic Personal Amount   The Basic Personal Amount for B.C. residents will increase to $11,000 in 2010.   Corporate Tax Rates   General corporate income tax rates will decrease to 10% as of January 1, 2011, the rate is currently 10.5%.  The small business rate will be 0% as of April 1, 2012 (current rate is 2.5% on income under $400,000).   Property Tax Deferral program This program will come into effect in early 2010 allowing homeowners with children under 18 to defer provincial and local property taxes to recognize the resources required to raise families.   Tax Credit Programs Introduced   Various tax credit programs were introduced in the budget as follows:   BC HST credit program established Flow through share tax credits Digital animation credits Film and television credits Interactive media credits Production services credits

Let the Knowledge Bureau Report be your go-to resource for provincial budget information over the next few weeks.  The schedule of provincial budget releases is as follows:   March 2nd, 2010 ñ B.C. Budget Released - see synopsis below   March 23rd, 2010 - Manitoba Budget to be released   March 24th, 2010 - Saskatchewan Budget to be released   No firm dates have been set for the following:  Ontario, Quebec, Nova Scotia, Newfoundland and Labrador and Prince Edward Island.   Stay current and up-to-date on provincial tax changes by reading the Knowledge Bureau Report every week.

T3 ñ Statement of Trust Income Allocations and Designations Taxpayers will receive a T3 slip if they received income from a trust. The following is a guide to what the various box numbers mean, and where the amount will end up on the T1 Tax Return.   Box Where do I put it? What is it? What else is relevant? 21 Schedule 3, Line 176 Capital gains Subtract the amount in Box 30 to get the amount of capital gains that are not eligible for the capital gains deduction. If any portion of this amount is foreign non-business income, a footnote will indicate the amount that is to be entered on Line 433 of Schedule 1 in the calculation of Foreign Tax Credit. 22 Line 130 Lump-sum pension benefits This amount is eligible to be transferred to the taxpayer's RRSP. 23   Actual amount of dividends other than eligible dividends This amount is used to calculate the amount shown in Box 32. Do not include this amount on the return. 24 Line 135 and Form T2209 Foreign business income Complete Form T2209 Federal Foreign Tax Credits, to determine the credit for taxes shown in Box 33. 25 Schedule 4 and Line 433 on Schedule 1 Foreign non-business income Include this amount on Line 433 of Schedule 1 in the calculation of Foreign Tax Credit. 26 Line 130 Other income Reduce the amount in Box 26 by the amount in Box 31 and enter the result on Line 130. If a footnote indicates that a portion of the amount in this box is for eligible capital property, enter that amount on Line 173 of Schedule 3. 30 Schedule 3 Capital gains eligible for the capital gains deduction The footnotes will tell you how much is for qualified small business corporation shares enter on Line 107 of Schedule 3 and the amount that is for qualified farm or fishing property enter that amount on Line 110 of Schedule 3. 31 Line 115 Qualifying pension income This amount qualifies for the Pension Income Amount on Line 314 and thus for pension income splitting. 32 Line 120 Taxable amount of dividends other than eligible dividends This is 125% of the amount in Box 23. This amount is added to the taxable amount of eligible dividends and the total is reported in Line 120. This amount is also reported in Line 180. 33 T2209 Foreign business income taxes paid Complete Form T2209 Federal Foreign Tax Credits to determine the credit for foreign business taxes paid. 34 Schedule 1 Foreign non-business income taxes paid Include this amount on Line 431 of Schedule 1 in the calculation of Foreign Tax Credit for non-business income taxes paid. 35 Line 130 Eligible death benefits This amount may be reduced by the $10,000 exemption. 36   Miscellaneous The footnotes will indicate what type of income or deduction this is. 37 Schedule 3 Insurance Segregated Fund Capital Losses Enter this amount as a loss (negative amount) on Line 176 of Schedule 3. 38 Line 456 Part XII.2 tax credit. This is a credit for taxes already paid by the trust. 39 Schedule 1, Line 425 Dividend tax credit for other than eligible dividends This is the credit for the dividends reported in Box 23 (and shown grossed-up in Box 32). This amount is added to the dividend tax credit for eligible dividends reported in box 51 and the total is reflected in Line 425. 40 T2038(IND) Investment tax credit cost Use this amount in completing T2038(IND) Investment Tax Credit (Individuals). 41 T2038(IND) Investment tax credit Use this amount in completing T2038(IND) Investment Tax Credit (Individuals). 42   Amount resulting in cost base adjustment. This amount is not entered on the current year return, but is used to reduce the ACB of the mutual fund units owned by the taxpayer. 45 T1129 Other Credits Use the footnoted amount to complete Form T1129 Newfoundland Scientific Research and Experimental Development Tax Credit or the Form T1232 Yukon Research and Development Tax Credit. The credit will be transferred to Line 479. 46   Pension income qualifying for an eligible annuity for a minor. This amount is already included in Box 26. 47   Retiring allowance eligible for transfer to an RRSP or RPP. This amount is already included in Box 26. 48 Schedule 9 Eligible amount of charitable donations. Include on the appropriate line of Schedule 9, depending on the type of donation. 49   Actual amount of eligible dividends This amount is used to calculate the amount shown in Box 50. Do not include this amount on the return. 50 Line 120 Taxable amount of eligible dividends This is 145% of the amount in Box 49. This amount is added to the taxable amount of other than eligible dividends and the total is reported in Line 120. This amount is also reported in Line 180. 51 Schedule 1, Line 425 Dividend tax credit for eligible dividends This is the credit for the dividends reported in Box 49 (and shown grossed-up in Box 50). This amount is added to the dividend tax credit for other than eligible dividends reported in box 32 and the total is reflected in Line 425. 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.

There is significant news of interest to Canadian taxpayers and their professional advisors in this federal budget, the first since the bottom of the financial crisis that required global stimulus to avert a global financial disaster. This Special Report provides analysis from three points of view: The Economic Overview Tax Changes Editorial Comment: What Was Missing