Tax Tip: The More Obscure Medical Expenses

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

This week, the Task Force on Financial Literacy released a discussion paper entitled Leveraging Excellence. The Task Force was formed by Finance Minister Jim Flaherty and is charged with making a cohesive national strategy on financial literacy.     Evelyn Jacks, the founder and President of The Knowledge Bureau, is a member of the Task Force. "We are hoping to find ways to strengthen financial education among young people and help Canadian adults become more confident and knowledgeable financial decision-makers. Tax and financial advisors may have a unique view and may want to participate in the consultation process to help us strengthen the financial literacy of all Canadians." Mr. Flaherty advises that financial literacy is a key priority for the current Government and thata national strategy for improving Canadian'sfinancialliteracy is importantto "ensure Canadians are able to make informed and prudent financial decisions throughout their lives." The release of the discussion paper kicks off the beginning of national consultations which will take place over a three-month period, with The Task Force meeting with Canadians in 15 cities and will also be hosting an interactive online forum.   For more information on the Task Force and the upcoming consultations, click here.

The RRSP has a new sibling, just over a year old.  The Tax-Free Savings Account is young, but already powerful.  This dynamic duo can make investment planning a pleasure for the average Canadian who simply plans to invest tax refunds into the TFSA for power savings.     Taxpayers over the age of 17 may contribute up to $5,000 each year to a TFSA account, or their relatives and supporting individuals may make contributions for them. The amount is indexed each year to the nearest $500. However, the amount will remain at $5,000 in 2010 due to the low inflation rate in 2009. The TFSA is exempt from the normal "Attribution Rulesî which require higher earners who transfer or loan money to their spouses or family to report earnings on the transferor's return. There is no upper age limit and no earned income qualification under this plan. This makes it an ideal tax shelter for those who have RRSP contribution restrictions.   Compliance Alert: Many people are not aware of the new form and schedules used to calculate the taxes and penalties imposed on excess contributions or prohibited or non-qualified investments to TFSA's. 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) For more information on this and other tax planning strategies, purchase the January 2010 Line by Line Workbook from the Distinguished Advisor Workshop tour.   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.  Call: 1-800-953-4769 to order today.

A popular question from taxpayers at tax time is "Can I write off my home and car against employment income?".  The answer is "Perhaps".     The newly released Form T2200, Declaration of Conditions of Employment contains some of the answers.  There are a number of changes to the form including questions regarding allowance or reimbursement of expenses by the employer and if the employee is required to be away from the municipality or metropolitan area for at least twelve consecutive hours. Review the new version of the form by linking to it here.     The Income Tax Act is very specific about the expenses that may be claimed by employees. They are specified in S. 8, generally deductible on Form T777 Statement of Employment Expenses and generally require the completion of Form T2200 Declaration of Conditions of Employment by the employer.     Form T2200 Declaration of Conditions of Employment required: All employees who claim employment expenses are required by S. 8(10) to complete Form T2200 for each year in which tax deductible expenses are claimed and have this signed by their employers.   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. Additonal Resource:  Make Sure It's Deductible, 4th Edition, by Evelyn Jacks.

By Evelyn Jacks Every year I have the privilege of travelling across the country twiceóin November and Januaryóto host the Knowledge Bureau's Distinguished Advisor Workshops for tax and financial advisors who require continuing education credits and updating for their professional practices. This teaching tour always results in inspiration about the important work these highly informed and engaged people do. As an education company, we are privileged to spur on their enthusiasm for personal and corporate taxation matters, and then watch the lights go on throughout the room as both tax and financial advisors start thinking about how working together can help them get better results and ultimately, peace of mind, for their clients. Peace of mindómy definition of "affluence"óoccurs when you stop worrying about whether your money will cover the necessities plus emergencies, and focus instead on how to use your money as a tool to build wealth for future generations. If advisors could get more people focused on the twin goals of filing annual tax returns and minimizing their tax bills with fully funded RRSP contribution room, we could be more impactful in helping families build sustainable wealth for the future. Here are some simple, but critical action items, stemming from the discussions at the Distinguished Advisor Workshops, for you to impart proactively to your clients at tax time: Many Canadians are behind in filing their tax returns. This means they are likely missing out on tax refunds and refundable credits like the Child Tax Benefit and GST Credit. What to do about it? a. Advisors should ask whether prior returns are missing and if so, encourage their clients to file to recover missed refunds or avoid penalties and interest charges. b. Advisors should inform clients that they are not building RRSP or TFSA contribution room and that can have a big impact on their ability to build and grow family wealth. c. They are likely also missing out on reporting capital losses, which help average income taxes downward by offsetting capital gains of the current year, three years back and indefinitely into the future. Most Canadians are still underfunding their RRSP contribution room, giving up double-digit tax savings which could be leveraged into TFSAs or used to pay down non-deductible credit card debt. Show your clients the folly of missing these important opportunities. Many Canadians are still not benefiting from pension and investment income splitting opportunities that come from filing tax returns as a family. Tax and financial advisors can show their clients the benefits, working together. They can also review prior filed returns and adjust them if income splitting has not been maximized. February is an important month when tax and financial advisors do some of their most important work in the pursuit of their communities' financial well-being. You are celebrated for your leadership! 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.

This is the time of year when it's important to take note of new tax filing forms from CRA and then what happens when taxpayers can't pay after filing their returns. Released over the past week are several important publications for those who owe money to CRA, those preparing farm returns and reporting partnership income: Publication T4060E CRA's Collection Policies, found at this link: http://www.cra-arc.gc.ca/E/pub/tg/t4060/t4060-09e.pdf, outlines the rules for debtors, and provides guidance regarding the negotiation of payment arrangements when balances cannot be paid in full. Advisors and their clients should take particular note of the fact that ìability to payî must be supported by full disclosure of income, living expenses, assets and liabilities before any proposal is accepted to pay over time. Publication T4003 Farming Income 2009, information for individuals earning farming income as self-employed farmers or as partners in a farm partnership. A new form T2042  with the title Statement of Farming Activities is located at http://www.cra-arc.gc.ca/E/pbg/tf/t2042/t2042-09e.pdf Partnership Filing: T5013 Statement of Partnership Income, the information slip for the authorized members of a partnership is used to report to each partner their share of income for the fiscal period that the partner has to report on the appropriate income tax return for the year. Also: T5013SCH52 Summary Information for Partnerships that Allocated Renounced Resource Expenses to their Members: Note that the 2006 T4068 guide will not be revised for the 2009 tax year. However, all partnership forms are being revised for 2009 and will be available in print near the beginning of March 2010. Tax practitioners are advised to use the information in the supplemental guide T4068-1, 2009 Supplement to the 2006 T4068 ñ Guide for the T5013 Partnership Information Return, to file the partnership information return for the 2009 tax year. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> Suggested Educational Resources: Introduction to Personal Tax Preparation, Tax Preparation for Proprietorships

On February 16, Finance Minister Jim Flaherty, announced new measures to encourage and support the long-term stability of Canadian home ownership and its vital place in the Canadian economy, with measures proposed to come into force on April 19, 2010. These changes are of particular importance to wealth advisors working today with families who build wealth through home ownership.   "A key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing," said the Finance Minister in adjusting three rules for government-backed insured mortgages: To prepare for higher interest rates in the future, the government will require all borrowers to meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. To ensure the effectiveness of using home ownership in savings activities, the government will lower the maximum amount Canadians can withdraw in refinancing their mortgages to 90 percent from 95 percent of the value of their homes. To manage risk, the government will require a minimum down payment of 20 percent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation. The measures are intended to proactively help prevent Canadian households from getting overextended, ". . .and to prevent some lenders from facilitating it," said Minister Flaherty. Suggested Educational Resources: "Pass it Onî A workbook on intergenerational property transfers by John Poyser and Evelyn Jacks or the January 2010 Line by Line Tax Update Journal.