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 released a draft of a new form RC240 Designation of an Exempt Contribution Tax-Free Savings Account.  This form is to be used to designate an exempt contribution when a TFSA holder passes away.  The successor holder of the TFSA obtains the rights to the arrangement and can use the form to complete a qualifying transfer to their TFSA.   An exempt contribution is an amount that has been designated by a TFSA holder's survivor regarding a payment received from the deceased holder's account.  Form RC240 is completed when a taxpayer is a recipient of a survivor payment from a TFSA and the form helps to calculate the maximum amount that may be designated as the exempt contribution.   For a link to the form click here, for more information on Tax-Free Savings Accounts, go to www.cra.gc.ca/tfsa.

The June 15 Tax Filing Deadline is fast approaching for proprietors. Those who fail to file their 2008 tax returns by midnight June 15 face a late filing penalty as well as interest dating back to May 1.Recently CRA has announced a number of convictions for those who fail to comply with their requirements to report and pay taxes, including a Manitoba-based tax preparer who is going to jail for failing to report a half million dollars in income, an Alberta based plumber who was fined for failure to report $200,000 in income, and an Ontario businessman who was fined over $1 Million for failure to report $2.4 Million in income. (Both penalties and interest, as well as the taxes must be paid in those cases).Nationwide convictions can be reviewed on the CRA site: http://www.cra-arc.gc.ca/nwsrm/cnvctns/menu-eng.htmlCanadians can avoid penalties and jail by making voluntary disclosures ó that is filing missed tax returns or reported missed income or correcting overstated deductions and credits ó on a voluntary basis.

Taxable benefits are so important to the payroll cycle that CRA has written a separate payroll guide to explain them. Every payroll clerk should have this guide at hand to determine income reporting and statutory deduction withholding requirements on an ongoing basis. In all cases, where a taxable benefit arises the value of the benefit to be included in income is reduced by any payment the employee makes to the employer with respect to the benefit. There are four basic facts about taxable benefits to remember in processing a payroll: 1. Add their Value to Gross Pay. The taxable benefit must be added to the employee's cash compensation each pay period and normal statutory deductions must be withheld from the total amount. Remember that the value of the taxable benefit is reduced by any payment the employee made to compensate the employer for providing the benefit. 2. Annualized Tax Withholding is Possible. Where a non-cash benefit is very large so that withholding of income tax will cause undue hardship, the value of the benefit and the related withholdings can be spread over the remainder of the year. 3. CPP Deductions Required. If the benefit or allowance is taxable, it will also be pensionable. Therefore Canada Pension Plan (CPP) contributions will be required to be withheld, as will income tax. 4. EI Deductions May Be Required. If the taxable benefit is paid in cash and relates to insurable employment, it is insurable. Employment Insurance (EI) premiums will therefore be required. However, if the employment is not insurable under the Employment Insurance Act, taxable benefits paid in cash are not insurable and are not subject to EI premiums. Finally, if the taxable benefit is a non-cash benefit, it is not insurable. In that case, the benefit does not attract EI premiums. The T4130 Guide available in EverGreen contains a chart which clearly identifies, in alphabetical order, the various types of taxable benefits and their source remittance. This table is also reproduced electronically on the CRA web site. The CRA has released payroll tables to be used beginning July 1, 2009, which incorporate the 2009 provincial budget changes. The CRA has also announced that it will no longer be printing payroll deduction tables due to the small number of requests for them.  You can link to the July 1, 2009 payroll deduction formulas for computer programs by clicking here. Excerpted from Advanced Payroll for Professionals, one of the courses that comprise the Bookkeeping Services Specialist program.

The new Home Renovation Tax Credit (HRTC) introduced in the 2009 Federal budget means that if you've been planning on renovating your home, this is a good year do it. For eligible home renovation expenditures made after January 27, 2009 and before February 1, 2010, families will be able to claim a 15% non-refundable tax credit for certain amounts paid to renovate their residence. This non-refundable tax credit will be available for this period for families completing renovations to their personal residence, which may include a cottage as well as the taxpayer's principal residence. Eligible expenditures include the cost of labour, building materials, fixtures, equipment rental, and permits. The cost of financing the renovations will not be eligible. Renovation costs do not include regular repair expenses, costs of audio-visual equipment or items that have value independent of the home, such as furniture, draperies and construction equipment. Some examples of eligible expenses are: Renovating bathroom, kitchen or basements New bathroom floors New carpets Building an addition, deck or retaining wall New furnace or hot water heater Interior or exterior painting Driveway resurfacing New sod Ineligible expenses would include: Contracts regarding maintenance (i.e. snow removal, furnace cleaning, lawn care) Purchase of furniture and appliances The credit will apply to the costs of renovations in excess of $1,000 to a maximum cost of $10,000. The maximum credit is thus $1,350 ($9,000 x 15%). The maximum credit applies to all renovations (renovations made to more than one residence may be pooled for claiming the credit). The credit will not be reduced by grants received through the ecoENERGY Retrofit program related to the renovation or by claiming the renovation expenses as a medical expense if they so qualify. Excerpted from EverGreen Explanatory Notes. 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.

Regular salary to an owner-manager is easy for the payroll department to record, but when a payment is made to an owner, a process needs to be in place to ensure proper recording. Identifying the nature of the payment is very important to its proper recording. Communication between ownership/management and the payroll department is necessary to determine the payments structure. For example: a drawing from a shareholder account has no impact for the payroll department whereas a payment for salary does have an impact. Proper recording is important to ensure the accounting records are maintained properly and to ensure that tax treatment is optimized. An owner/manager may take his or her compensation in varying ways and may not take a regular salary if cash flow does not permit or if the receipt of a dividend is more efficient from a tax perspective. A salary is usually paid to an owner or manager to allow a regular flow of earnings. Payment of a salary creates contribution room for an RRSP because salary is earned income for RRSP purposes, maximizes CPP contributions and permits the deduction of child care expenses, if applicable. How do the Statutory Deductions Work When I am Paying an Owner or Manager? The statutory deductions for regular payments to owners or managers are the same as regular employees, except that an owner must meet certain criteria to be covered by employment insurance. Withdrawals that are charged to a shareholder loan account and dividends are not subject to any withholding. At the end of the year, payments for regular salary, commissions, employee RPP contributions and employer RRSP contributions are to be recorded on a T4 slip. Dividend distributions should be recorded at the end of the year on a T5 slip. There is no reporting requirement for withdrawals that are charged to a shareholder loan account. Excerpted from Advanced Payroll for Professional Bookkeepers, one of the courses that comprise the DFA, Bookkeeping Services Specialist designation program.

  Evelyn Jacks, founder and President of The Knowledge Bureau, stands inside her new company headquarters in Winnipeg. Jacks bought the 4500-square foot facility to house her 9 employees and 25 associated faculty members and construct a state-of-the-art training centre because business at her financial educational institute is growing rapidly. "Financial experts need to continually increase and update their knowledge," says Jacks, "whatever the state of the economy."