Tax Tip: The More Obscure Medical Expenses

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

The CRA has issued a news release advising that more financial institutions are now offering the Registered Disability Savings Plan (RDSP) to eligible Canadians.  Scotiabank, TD Waterhouse will now be offering RDSP's, joining ranks with the other institutions (Bank of Montreal, CIBC and Royal Bank) that currently administer the plans.  Link to the full CRA news release by clicking here.   The Registered Disability Savings Plan (RDSP) may be established for an individual who has a severe and prolonged physical or mental impairment and qualifies for the disability tax credit during the year of establishment, or would have if the restriction for the attendant care amount were disregarded.   Any person eligible to claim the Disability Amount can be the beneficiary of an RDSP and the plan can be established by them or by an authorized representative. Anyone can contribute to an RDSP ñ they need not be a family member. Contributions are not deductible. Income accumulates in an RDSP tax free. Contributions withdrawn from an RDSP are not taxable, but all other amounts ñ accumulated investment income, grants and bonds (discussed below) ñ are taxable in the hands of the beneficiary as withdrawn. There is no annual limit on contributions but lifetime contributions cannot exceed $200,000. Contributions are permitted until the end of the year in which the disabled beneficiary turns 59. For more detail about withdrawal requirements and the Canada Disability Savings Grant and Bond, consult: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA. This topic is covered in detail here.

As we discussed in last week's Breaking Tax and Investment News, a contractor may have individuals providing services who consider themselves to be self-employed or who don't want to be treated as employees, even if they are! This year, with the popularity of the Home Renovation Tax Credit, it is more important than ever that the nature of the relationship be properly established and the correct tax forms filed.  Individuals filing for the credit will be completing Schedule 12 on their returns providing the CRA with a list of amounts paid and the GST numbers of those who received the funds.  Contractors who have employees must withhold CPP, EI and Income Tax from payments to those employees and issue T4 slips before the end of February.  If the contractor is using independent sub-contractors to perform the work, no withholding is required and payments should be documented by issuing T5018 (or, outside the construction industry, T4A) slips. Individual who are independent contractors and not employees must account for contracting income (whether reported on a slip or not) as business income, meaning: Business-related deductions such as home-office expenses, promotion and entertainment expenses, capital cost allowance on equipment and other such expenses can be claimed. Reasonable salaries paid to family members for services rendered are deductible in determining business profits and can be used to split income. The owner may incorporate the business and claim the low tax rate applicable to active business income. There is no requirement to contribute to Employment Insurance, and there is no ability to draw Employment Insurance during periods of inactivity. Canada Pension Plan contributions are still required. Depending on the level of revenue, the business may need to register and collect GST on revenues. A good deal of Canada's underground economy takes place in the construction industry.  With the reporting requirements for individuals to claim the Home Renovation Tax Credit for 2009, you can be certain that the CRA will be using this new source of information to ensure that those who received the payments are reporting the income on their tax returns.  Bookkeepers should be familiar with the reporting requirements for the construction industry to ensure that their clients are well prepared for a CRA audit this year. Educational Resources: For more information, see Advanced Bookkeeping for a Selection of Business Profiles, one of the courses that comprise the Bookkeeping Services Specialist program.

Construction contractors are often confused when it comes to dealing with people who provide labour and sub-contract work. Because of the nature of the business, the confusion lies in whether the service provider is employed or self-employed. A contractor may have individuals providing services who consider themselves to be self-employed or who don't want to be treated as employees, even if they are! Alternatively, a contractor may consider those providing labour as sub-contractors (or self-employed) when they are and should be treated as employees. Over the years, the courts have developed criteria to be used in evaluating whether an individual is an employee or is self-employed. The following questions are a starting point to determine this status: Has the individual entered into a contract of service (an employee) or contract for service (self-employed)? What level of control does the payer have over the worker? Does the worker provide his or her own tools and equipment? Can the worker subcontract the work or hire assistants? Is there a degree of financial risk taken by the worker? Does the worker have the potential for profit or loss? What is the degree of the worker's responsibility for investment and management? What does the written contract state? Depending on their commercial arrangement a contractor and its sub-trades may have the ability to manage their relationship so as to create either an employment or self-employment relationship.   Join us next week to determine the requirements for independent contractors and some of the deductions they are eligible for. Educational Resources: Excerpted from Advanced Bookkeeping for a Selection of Business Profiles, one of the courses that comprise the Bookkeeping Services Specialist program.

The deadline for contributing to an Registered Retirement Savings Plan (RRSP) will be March 1, 2010.  The contribution amount allowed is equal to 18% of earned income in the prior year, up to a maximum of $21,000 in 2009.   The term "Earned Income" is used in several ways in the Income Tax Act, and its meaning varies depending on the use. It is used for the purposes of computing Child Care Expenses, Child Tax Benefits (CTB) and Registered Retirement Savings Plan (RRSP) deductions. We will discuss the earned income requirements for RRSP purposes below: A taxpayer's earned income for the year for RRSP purposes is defined in S. 146(1). It is composed of the sum of: Employment earnings minus union dues and employment expenses Net business income (subtract if a loss) CPP/QPP disability benefits Royalties from a work or invention Net rental income (subtract if a loss) Taxable support payments received Net research grants Employee profit sharing benefits Supplementary employment benefits Less: Losses from a business carried on alone or as a partner Rental losses from real property Gains of Eligible Capital Property included in business income Deductible support payments For a non-resident, during the period of non-residency, employment, business and rental income must be from Canadian sources. 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.     

The Minister of Finance, The Honourable Jim Flaherty has announced that the Federal Budget will be released on March 4, 2010. The Knowledge Bureau will issue a full report of the budget changes that are introducedwithin EverGreen Explanatory Notes, as well as a highlights version in a Special Edition of Breaking Tax and Investment News on March 5th, 2010. Mr. Flaherty has also announced that consultations with Canadians are being requested with help to determine measures in the 2010 Federal Budget. The Government will be looking for answers to the following: To what level has your industry or community been impacted by measures provided by the Economic Action Plan? Do you have any suggestions for making the various programs more effective? Are there other steps that could be taken in order for the Canadian economy to remain competitive? Can you suggest a time period over which the Government can rebalance the budget? Suggestions from The Knowledge Bureau: A Tax Deduction for Volunteering: According to Statistics Canada, more than 12.5 million Canadians did volunteer work in 2007. Approximately 2.1 billion volunteer hours were provided, which is the equivalent of 1.1 million full-time jobs. Charity receipting for labour is of course not possible at this time; however, it is a trend that has an economic impact which could have "tax value" if governments allowed for a tax credit. An Increase in the Transfer of Tuition Credits. From $5000 to an unlimited amount reflective of the contributions of supporting individuals to their dependants' schooling success. Additional Educational Resource: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA.

January 28, 2010 (TORONTO) ñ Evelyn Jacks, President, The Knowledge Bureau, and Ronald Alepian, VP of Communications, TSX Markets, will open the market today to celebrate the launch of the Tax Facts & Planning section now featured on www.TMXmoney.com.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />   ìWe are pleased to offer content on tax and planning for investors,î said Andre Craig, Vice President, TMX Datalinx. "The Tax Facts & Planning section further diversifies our content offering on www.TMXmoney.com.î   The section features timely and topical articles on tax planning and preparation, including how to reduce the amount of taxes you pay, understanding how to leverage the effectiveness of family tax planning and income-splitting, and preparing for taxation changes triggered by retirement.   The content for the Tax Facts & Planning section is provided by The Knowledge Bureau, a national educational institute focused on excellence in financial education for tax and financial advisors and their clients.   "It's important that Canadians have a solid understanding of how the taxation system works,î said Evelyn Jacks, President, The Knowledge Bureau. ìThe Tax Facts & Planning section on www.TMXmoney.com will provide investors with the tools and information necessary to increase their financial literacy in this important area."   For Market Openings: Media may pick up a feed from the TOC (television operations centre) for all market open ceremonies. The feed is named TSX Transmit 2 and is produced at the TMX Broadcast Centre and sent live to the TOC. Those featured in the market opening move into position for the market open ceremony at approximately 9:27 a.m. and the markets will open with the sound of a siren (the traditional market open on <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com🏢smarttags" />Toronto Stock Exchange) at 9:30 a.m.   About TMX Group (TSX-X)   TMX Group's key subsidiaries operate cash and derivative markets for multiple asset classes including equities, fixed income and energy. Toronto Stock Exchange, TSX Venture Exchange, Montreal Exchange, Natural Gas Exchange, Boston Options Exchange (BOX), Shorcan, Equicom and other TMX Group companies provide trading markets, clearing facilities, data products and other services to the global financial community. TMX Group is headquartered in Toronto with offices in Montreal, Calgary and Vancouver.  For more information about TMX Group, visit our website at www.tmx.com.   About The Knowledge Bureau:   The Knowledge Bureau is a national designated education institute and publisher, which provides excellence in financial education to tax and financial advisors and their clients. For further information: please visit www.knowledgebureau.com or call 1-866-953-4769.   For more information please contact: Carolyn Quick Director, Corporate Communications TMX Group 416-947-4597, carolyn.quick@tsx.com