Tax Tip: The More Obscure Medical Expenses

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

Taxpayers might benefit twice by filing missed returns by year endóonce to ensure tax year 1999 doesn't fall off the boards because of the 10-year statute of limitations enforced by CRA for such voluntary compliance under the Taxpayer Relief Provisions. But those who file late and owe can also avoid expensive late filing penalties. Based on what The Knowledge Bureau heard from professionals on its recent Distinguished Advisor Regional Workshop Tour, there are plenty of late filers out there. This is never a good idea especially when CRA owes you money, as you have continued to give the government an interest free loan. Worse, however, is when you owe them; and yes, they will be charging you interestócompounded dailyóand more.  And remember, a return should be filed every year in order to accumulate TFSA contribution room and Registered Retirement Savings Plan room. Voluntary compliance can really pay off when you help a client to file a tax return to clear up their guilty conscience. CRA will not charge penalties if they are told about tax indiscretions before they uncover them ó and there are specific penalties that apply if you are a chronic late filer. There are several layers of penalties that can be invoked including interest, compounded daily, at the prescribed rate of interest, plus 4%. Those kinds of penalties can be downright painful! File 1999 Return Before December 31 To comply voluntarily, tax advisors should remind their clients to see them before year end for details regarding all under-reported income, over-reported deductions or credits and file form T1ADJ to correct errors or omissions. Remember, tax filing year 1999 will be statute barred after the end of this year, so if CRA owes a client a refund, it will be lost if it is not claimed in December. In fact, this could all turn out well if you hurryóan unexpected refund from an adjustment or late filed return could help your client with the credit card payments in January! Non-Compliance Penalties Late filing penalties ófirst time: 5% of unpaid tax plus 1% per month for 12 months; second time within a three year period after demand to file: 10% plus 2% per month for 20 months Failure to file a return ófor each such failure, the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100 during which the failure to file continues. Late or insufficient instalments ó 50% of interest payable exceeding $1,000 or 25% of interest payable if no instalments were made, whichever is greater. Failure to deduct or remit source deductions ó1 to 3 days: 3% penalty; 4or 5 days: 5% penalty; 6 or 7 days: 7% penalty; more than 7 days: 10% penalty Second such failure in same year if grossly negligent ó 20% of amount not withheld or remitted. To learn more about preparing T1 tax returns, register for Introduction to  Personal Tax Preparation Services or call 1.866.953.4769 today to make an appointment for your free professional development consultation.

Christmas brides and grooms take heed - there may be no tax benefits to marriage before year end, but that may not be a good enough reason to postpone the big day!  Conjugal relationshipsólegal or common lawórequire the combining, reporting, and sharing of financial resources under provincial marital property laws and for certain provisions of the Income Tax Act.   Here's what you need to know about the tax status of your relationships: ï Check ìmarriedî on your tax return if you are legally married, whether you are a heterosexual or same sex couple. ï Check ìcommon lawî if you have lived together with your partner for a continuous period of 12 months or if at December 31 you were parents of a natural or adoptive child together. Common law couples are treated like married couples for tax purposes. ï Check ìseparatedî if you have been apart for a period of 90 days or more, or you have a written separation agreement. ï Check ìdivorcedî if you have dissolved your marriage with a court order or decree. ï Check ìwidowedî if you lost your spouse or common-law partner to death during the year. These various conjugal relationships affect the filing of tax returns ­significantly, for example: ï They can increase or decrease your monthly cash intake from Child Tax Benefits. ï Maximize your opportunities to contribute to investments like RRSPs. ï They can help you maximize the use of each family member's ­personal ìtax-free zonesî by transferring certain credits between spouses, or win on pension income splitting if you are a couple receiving benefits from one partner's company pension plan. ï They can also restrict you to having just one tax exempt personal residence for your family unit. In terms of the tax preparation process, this requires a family focus, rather than individual, for the best tax advantages for the family unit as a whole, and understand that the family that files tax returns together wins more in tax savings. Mastering your taxes as a family will result in bigger resources for wealth creation. Educational Resources:  Now is a good time to look at retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future, which could certainly include tax increases on both income and capital.  To learn more consider the following Educational Resources available from The Knowledge Bureau: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> Tax Efficient Retirement Income Planning    Master Your Retirement       Master Your Taxes Tax Efficient Investment Income Planning                      Master Your Real Wealth      Master Your Investment in the Family Business  

By Roger Currie, Guest Columnist Wow! Ö So near and yet so far! That was the story of the 2009 Grey Cup for Canada's team, as they end up losing it 28-27, despite holding a 16-point lead over the beasts from the east early in the 4th quarter. A lot of clichés come to mind about now. It was the legendary Vince Lombardi who said ìWinning isn't everything. It's the only thing.î It's hard to argue against that one most of the time, but I hope Rider Nation doesn't sink too deep into doom and gloom, and I hope they don't lose any of that amazing loyalty that is something to behold. Cliché #2 says ìThe game lasts 60 minutesîósometimes more for the Riders, and the marvelous Yogi variation on that oneó ìIt ain't over till it's over.î Yes, someone on the sidelines made a horrible mistake by not doing a simple count of the noses on the field. But you don't keep a team like Anthony Calvillo and the Alouettes down forever. Anyway, this team that many picked to finish last, gave us more joy and entertainment this year than anyone could possibly have imagined. Unlike the 1976 Riders who broke our hearts and were followed by the infamous ëReign of Error', this squad is young and talented in many key areas. There's no reason to believe they won't be right up there giving their all in front of that sea of green at Commonwealth Stadium a year from now. The Roughriders have indeed achieved the goal of Jim Hopson and others, and have become an elite franchise. It's now an organization that players and coaches are more eager to embrace, and we can all be proud. So, no sad songs and no fingerpointing, please. It's only a game, and our team played it better than most in 2009. Roger Currie is the Director of News and hosts Currie's Corner on 620 CKRM in Regina.    Educational Resources:  Learn how to win with family dynamics, join us at the Distinguished Advisor Conference to be held in Orlando, Florida in 2010 where we will present topics relating to "Focus on the Family".

Lengthy Wrongful Dismissal Suits Can Produce Lump Sum Averaging <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com🏢smarttags" />Opportunity<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />   Itís a tough time for certain employees today.  As unemployment rises in response to the financial meltdown and global recessions, job loss is a reality in North America, with many receiving termination notices and often, that comes with wrongful dismissal suits.   Once settled, amounts are paid after the fact, with the result that taxable lump sums must be added to income in some cases.  Taxpayers receiving certain lump sum payments, including damages for loss of wages and pension benefits may qualify for special averaging provisions under the Income Tax Act.  The lump-sum payment must have been paid after 1994 from one of the following sources: income from an office or employment received under: judgment from a court or other competent tribunal; an arbitration award; or a lawsuit settlement agreement (including damages for loss of office or employment); benefits from Unemployment Insurance or Employment Insurance; benefits from a superannuation or pension plan (other than non-periodic benefits such as lump-sum withdrawals); spousal, common-law partner or taxable child support payments; or benefits from a wage-loss replacement plan. Amounts not qualifying include: an amount under normal collective bargaining, such as negotiated back pay (although an amount from an arbitration award does qualify); severance and bonuses that are accepted as paid (that is without a dispute); legal expenses; salary reimbursements; reimbursement of top-up payments; repayment of pension benefits; deduction of social assistance payments, workers' compensation, etc. The averaging treatment is allowed under S. 120.31.  Definitions of qualifying amounts are in S. 100.2.  The qualifying amount received by the individual in the particular year (as outlined above) is deducted if that total is $3,000 or more.  The income is then added back into income for the year to which it applies.  The taxes for each year are then recalculated and if the averaging method results in a reduction in taxes, the current-year taxes are reduced accordingly. Taxpayers with income that qualifies for this special averaging treatment will receive a Form T1198 from the payor.  The form should be attached to the tax return and the full amount received included on the return.  CRA will perform the special averaging and reduce the current-year taxes if the averaging results in savings.   Educational Resources:  Now is a good time to look at retirement income plans, family succession and estate plans in an attempt to better understand financial needs for a future which could certainly include tax increases on both income and capital.  To learn more consider the following Educational Resources available from The Knowledge Bureau: Tax Efficient Retirement Income Planning    Master Your Retirement       Master Your Taxes Tax Efficient Investment Income Planning                      Master Your Real Wealth      Master Your Investment in the Family Business  

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" /> The Government of Canada has introduced some proposed legislation under the Fairness for the Self-Employed Act which could provide the opportunity for self-employed individuals to access many of the same employment insurance benefits as employees.  The legislation, recently announced by the Minister of Human Resources and Skills Development, The Honourable Diane Finley, forms part of the pledge for helping self-employed taxpayers with some much needed income protection for life events such as the birth of children, sickness and compassionate leave.   With over 2.6 million Canadians in the ranks of the self-employed and many more turning to starting their own businesses as they are facing lay-offs, the opportunity to receive employment insurance benefits for this sector of the work force couldn't be better timed.   In the January 27, 2009 Federal Budget, the Government brought forth a proposal to review alternative methods of providing those self-employed Canadians with access to benefits that, in the past, have only been available to those who were working for an employer.   Under the proposed legislation in the Fairness for the Self-Employed Act, in order to access the benefits, those workers who are self-employed would be required to earn a minimum of $6,000 from their business in the previous calendar year.  There would be an ìopt inî requirement to the EI program, and those who enrolled would be required to pay premiums into the plan for at least one year before they would be allowed access to the benefits available.  With a proposed start date of January 2010, those who chose to enrol in the plan at the beginning of the program could have access to the benefits beginning in January 2011.   The benefits that could be provided under the plan would include the following:   ∑         Up to 15 weeks of sickness benefits to be provided if a person couldnít work due to injury or sickness   ∑         Up to six weeks of compassionate care leave to those who need time away in order to care for members of their family who are at risk of death through illness   ∑         Up to 35 weeks of adoptive or parental benefits available for parents with a newborn baby or an adopted baby in their care   ∑         Up to 15 weeks of maternity leave benefits for mothers or those about to give birth to a child   As mentioned, premium payments to the EI benefits plan under the proposed changes  would be required for a minimum one-year period, after which benefits could be applied for.  If program benefits are accessed by the self-employed person, the individual would be required to continue making premium payments on their income for as long as they continued to be self-employed.  There would be an opportunity for the self-employed person to opt out of the program if EI benefits were not applied for or received.    The EI premium rate paid would be the same as that of a salaried person.  In 2010 the amount remitted to the plan would total $747.36, based on maximum insurable earnings of $43,200. The employer side of the payment would not be required as the benefits available to the self-employed would be restricted in that there is no access to regular employment insurance benefits.   More information on the proposed measures is available at the Human Resources and Skill Development website at www.hrsdc.gc.ca.   For Advisors and Their Clients: The MASTER YOUR PERSONAL FINANCE series of books provide financial education for decision makers. Published by The Knowledge Bureau, they help investors and their advisors have better conversations about their money and the decisions required to accumulate, grow, preserve and transition it to the next generation.

The Department of Finance has released a proposal for improvements to the framework of private pension plans that are federally regulated. The reforms are the end result of a process begun by Minister of Finance Jim Flaherty in January 2009. A review of the shortfalls in pension funding, which some estimates put as high as $50 billion dollars, was needed to deal with the meltdown that occurred within the financial markets over the past year. It is estimated that approximately 7% of current pension plans would fall under this category of plans in Canada. The reform proposals would have an impact on the following areas: Plan members would have increased protection as solvency deficits are dealt with and upon plan terminations companies will be required to fully fund the pension benefits. Disclosure requirements within the plan 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 full background paper on the Modernized Federal Pension Framework link here.     Subscribe to EverGreen Explanatory Notes for more information. Or attend The Knowledge Bureau's November Year End Tax Planning Workshop coming to a city near you November 24 to 30.