Tax Tip: The More Obscure Medical Expenses

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

By Evelyn Jacks, Knowledge Bureau President There was little mention of the global financial crisis in the March 25, 2009 Manitoba provincial budget, the theme of which was steady, balanced. In Part 2 of the budget coverage, some future considerations which will affect Manitobans are outlined in the editorial by Evelyn Jacks, below: With Manitoba's diverse economy performing relatively well under the circumstances, the trick for Manitoba Finance Minister Selinger will be to pilot this year's "steady, balanced" budget into turbulent waters ahead. Three threats emerge for his consideration: 1. Our aging population. The decline in the share of the population of working age is common to most industrialized countries, but projections by the United Nations show that over the next 25 years, Canada will experience the second largest decline among G7 countries and the fourth largest among all OECD countries. An aging population will add to the shortages of labour that are already developing in our economy, putting downward pressure on living standards. At the same time, the aging of our society will create additional demand for health and social services. How does this relate to our specific standards of living? Tax patterns tell the story: In Manitoba we collect just under $12 billion in revenues with 21% of this coming from personal income taxes, 26% from retail sales, education property taxes and other taxes, 12% from other fees and 6.5% from Government business enterprises. To zero in on the taxation side, here is how this shakes out for individuals: From 2007 data we know that 855,000 Manitobans filed income tax returns, and of these, 556,000 (65%) actually paid MB tax. But who contributes the most to individual tax coffers? Based on a department of finance calculation last done in 2006, using 2003 tax year data, the breakdown looked like this: taxable income up to $30,000: 42% of taxpayers, paying 12% of tax; taxable income $30,000 to $60,000: 42% of taxpayers, paying 39% of tax; taxable income over $60,000: 16% of taxpayers, paying 50% of tax. These folksóyoung professionals and top-of-career baby boomers represent a potentially diminishing tax base, without whose powerful tax dollars our standard of living will be affected. It is important to shore up this tax base to continue the revenue patterns this province has come to rely on. 2. Changes To Transfer Payments. By far the largest revenue line item for government however is federal transfer payments at 32% of total. This reliance on federal transfer payments can represent a large problem we are heading into with full knowledge in the near future, but one that we are seemingly unprepared for. Equalization measures a province's ability to raise revenues and in Manitoba we have previously received the 4th highest amount after PEI, New Brunswick, Newfoundland and Nova Scotia. Specifically, changes announced by the federal government on November 3, 2008 would permanently change the Equalization Payment formula by imposing a ceiling on the program. This could be particularly significant here, because Manitoba has enjoyed relatively stronger economic performance in the past several years than most provinces. As a result, Equalization Payments would begin to decline in future yearsóat the same time when tax revenues are expected to decline due to our global economic slowdown. While the impact will be tempered with a protection payment this fiscal year, there appears to be no vision for the longer term impact of such changes. With federal transfers representing almost 32% of provincial revenues, (as compared to personal tax revenues which represent only 21%) Manitoba's standard of living may be at risk in the future in the wake of a disappearing boomer tax base. At the same time, the net per capita debt has risen from $8846 in 2008 to $9142 in 2009óan increase of over 3%. 3. Declining tax revenues ahead. Finally, tax revenues are projected to decline as a result of world economic events. Businesses deal with these scenarios by drastically cutting costs. Government has not done so yet, raising a potential debate between stimulating economies today at the expense of deficits tomorrow. Baby boomers planning for retirement are certainly forward looking, and concerned about their wealth, and that of the country poised to cover their needs in old age. For them, the question to consider is whether temporary tax reductions and deficit spending serve them and their heirs well in the long run? This issue was not addressed in the budget. Next Week: Part 3 - What can we do about this: Building Successful New Economies

The CRA is warning taxpayers about numerous schemes making the rounds regarding registered retirement savings plans (RRSP) and registered retirement income funds (RRIF) withdrawals.  The tax alert warns that these schemes can have a drastic effect on your retirement savings and the possibility of reassessments on your tax returns.  In fact, CRA has reassessed over 5,000 taxpayers who engaged in these schemes, producing an additional $250 million in taxable income from the reassessments.    Schemes to be avoided may be presented as follows: Get immediate access to locked in RRSP's and RRIF's Income tax receipts equal to three or more times the amount originally invested Returns on investments that are not realistic Ability to withdraw funds from RRSP and RRIF accounts with no tax penalties The people who are presenting these offers to taxpayers will usually direct them to purchase an investment, such as shares in a company or participation units in a co-op, through a specified trustee.    These promotional schemes can put your savings in a precarious position because in some cases the promoter will walk away with the funds.  No matter the sales pitch, the full amount of any withdrawals or an ineligible investment will be included in the taxpayer's income for the year in which it was made, and may be subject to interest and penalties.   We would advise anyone considering such an investment to contact their tax or accounting professional to seek advice before investing.   To view the complete news release issued by CRA, click here.  

By Alan Rowell , DFA, Tax Specialist and President, The Accounting Place   A Single Sales Tax and Reduced Personal Taxes On March 26th 2009 the Ontario government announced that it would become the 5th province to join in a single sales tax system and move to a Value-Added Tax Structure. Provincial estimates put the savings on the "cost of compliance" for Ontario business to be $500 million per year, marking a most significant move for businesses and consumers alike. In addition the government moved to reduce personal income taxes for low income earners as well as corporate taxes, in its response to stimulate the economy. Details follow: THE SINGLE SALES TAX (SST) Effective July 1, 2010, Ontario will move to a Single Sales Tax of 13%, comprised of 5% Federal and 8% Ontario components. This change will allow Ontario businesses to claim Input Tax Credits on purchases made in the course of doing business, resulting in lower costs and lower pricing as the cost savings are passed to the consumer. Further, the budget states that, in order to simplify administration, the single sales tax will generally use the same rules and tax base as the federal GST. This means that businesses selling taxable or zero-rated goods and services would deduct the input credits from collected sales tax and remit the difference to Canada Revenue Agency who will administer the Single Sales Tax (SST) on behalf of Canada and Ontario. Additionally, the "cost of enforcement" currently incurred by the Ontario government will become the responsibility of Canada Revenue Agency, resulting in costs savings at the provincial level. Further, the Federal Government will provide Ontario with $4.3 billion in cash transfers to promote economic growth and support the implementation of the new value-added tax system. Additional provisions resulting from this announcement include the following: Ontario Sales Tax Transition Benefit will be provided to families and individuals in Ontario. A family with income less than $160,000 will receive a total of $1,000 from June 2010 to June 2011. The credit begins to phase out at $161,001 and is eliminated at $166,600. Individuals 18 and over will receive a credit of $300 with incomes below $80,000 and will be fully phased out at $82,000. Small Business Transition. Ontario businesses currently collecting RST on behalf of the province receive compensation of up to $1,500 per year. Under the new system this compensation is removed. In order to assist with costs associated with the transition, Ontario business with less than two million in annual sales will receive a Small Business Transition Credit based on their taxable sales for their first full fiscal quarter commencing after June 30, 2010.   Taxable Revenues ñ Fiscal Quarter Transition Credit Up to and including $15,000 $300 $15,001 up to and including $50,000 2% of taxable revenue in the quarter $50,000 up to and including $500,000 $1,000   Small Supplier Threshold. The SST will mirror the current GST requirements where, if sales are less than $30,000 in the prior year, registration is not required. The business would neither collect sales tax nor claim input tax credits unless they choose to register. Exemptions. Ontario will offer targeted point-of-sale exemptions for the provincial portion of the SST on the following items: Books Children's clothing and footwear Children's car seats and car booster seats Diapers Feminine hygiene products New home buyers will also receive a rebate of 75% of the provincial portion of the SST (6% of the purchase price) on new homes up to $400,000 and a pro-rated rebate on a purchase price from $400,001 to $500,000. New homes exceeding $500,000 will not qualify for the rebate. Resale homes would not be subject to the single sales tax. Ontario's Public Service Bodies and Qualifying Charities and Non-Profit Organizations will also receive rebates of the SST based on the provincial portion of the SST. Restricted Input Tax Credits. Taking a page from the Quebec HST system, large businesses with sales in excess of $10 million, along with financial institutions, will have restrictions on the ITC's they can claim during the first five years. ITC's would then be phased on during years 6, 7 and 8 to allow for full claims of ITC's. Temporary ITC's Restrictions for Large Businesses: Energy, except where purchased by farms or used to produce goods for sale Telecommunication services other than internet access or toll-free numbers Road vehicles weighing less that 3,000 kilograms (including parts and certain services) and fuel to power those vehicles Food, beverages and entertainment Tourism. Ontario currently has an RST rate of 5% on transient accommodations. This rate will increase to 8% under the SST with the additional funds collected being allocated to destination marketing in Ontario's tourism regions. Alcohol. RST on alcoholic beverages will reduce to an 8% provincial component under the SST from the current levels of 10% through licensed establishments and 12% through retail stores. SST Taxable / GST Exempt. Currently RST is charged on insurance premiums, except automobile insurance, while GST is not. The budget proposes to retain the 8% SST portion on insurance premiums. Private Transfers of Used Vehicles. SST will apply to the private transfers of ownership on used motor vehicles. PERSONAL TAX CHANGES Personal Income Tax Rates. Effective January 1, 2010 the personal income tax rate on the first $36,848 of taxable income will decrease from the current 6.05% to 5.05%. Consequently, the threshold for Ontario Surtax thresholds will decrease.   Surtax 2009 2010 20% surtax Basic Ontario Tax > $4,257 Basic Ontario Tax > $3,978 30% surtax Basic Ontario Tax > $5,370 Basic Ontario Tax > $5,091 Alternative Minimum Tax calculations and thresholds will also be affected. Ontario Dividend Tax Credit. The budget proposes to reduce the dividend tax credit effective January 1, 2010 to accommodate the reduction in the base tax bracket. Ontario Senior Homeowners' Property Tax Grant. Ontario Seniors will benefit as the budget doubles the Ontario Senior Homeowners' Property Tax Grant from $250 in 2009 to $500 for 2010. Ontario Sales Tax Credit. The current Ontario Sales Tax Credit will change and be paid in advance as opposed to the current system. The credit will also increase to $260 from $100 for adults and $50 for children. The credit remains income tested and begins to phase out at $20,000 for a single person and $25,000 for a couple. Tax Free Savings Account. The budget also proposes changes to the Succession Law Reform Act to allow for a beneficiary designation for TFSA savings. This legislation will enable beneficiaries to receive proceeds the same way as RRSPs.   CORPORATE TAX CHANGES Corporate Income Tax Rates. Effective July 1, 2010 the budget proposes reducing corporate tax rates for all sectors:   Ontario's Proposed Corporate Income Tax Rate Cut Plan Rates (Per Cent) Date General M&P1 Small Business2 Small Business Deduction Surtax3 Current 14 12 5.5 4.25 July 1, 2010 12 10 4.5 0 July 1, 2011 11.5 10 4.5 0 July 1, 2012 11 10 4.5 0 July 1, 2013 10 10 4.5 0 1 Income from manufacturing and processing, mining, logging, farming or fishing. 2 Applies to Canadian-controlled private corporations (CCPCs) on the first $500,000 of active business income. 3 Applies to CCPCs on taxable income between $500,000 and $1.5 million. Note: The proposed tax rate reductions would be pro-rated for taxation years straddling the effective dates. The elimination of the Small Business Deduction Surtax results in all Canadian Controlled Private Corporations paying only 4.5% Ontario tax on the first $500,000 of taxable income. The reduction in the Corporate Income Tax rate will also result in a corresponding reduction in the Corporate Minimum Tax. Also proposed is a reduction in the Corporate Minimum Tax rate to 2.7% and a corporation with less than $50 million in assets or $100 million in gross revenues will not pay any Corporate Income Tax in Ontario. Capital Tax. The budget will accelerate and eliminate Capital Tax effective July 1, 2010.   CHANGES RELATING TO FEDERAL BUDGET 2009 The Ontario budget will mirror changes announced January 27, 2009 as follows: Ontario Innovation Tax Credit (Scientific Research and Development) phase-out thresholds increased by $100,000 to $500,000 and fully phased out at $800,000. Accelerated CCA for computers and software acquired after January 27, 2009 and before February 2011 at 100% with no half-year rule application. Mirroring of the Federal CCA legislation for Manufacturing and Processing Equipment Mirroring of the Federal budget announcement increasing the Home Buyers' Plan withdrawal limit to $25,000 Mirroring the Federal budget announcement to allow losses incurred in RIF and RRSP holdings of a deceased person to be carried back and applied against income inclusion on the deceased annuitant's final return. TARGETED TAX CREDITS Ontario Budget 2009 also proposes to enhance a number of Ontario targeted tax credits. Ontario Interactive Digital media Tax Credit Ontario Computer Animation and Special Effects Tax Credit Ontario Book Publishing Tax Credit Co-operative Education Tax Credit Apprenticeship Training Tax Credit The following temporary targeted tax credits will be made permanent. Ontario Film and Television Tax Credit Ontario Production Services Tax Credit Alan Rowell, DFA, President and Tax Specialist of The Accounting Place, specializes in working with individuals and small to medium size businesses by providing accounting and taxation services that are unique to each client. Alan is a faculty member of The Knowledge Bureau, and was a presenter on their January 2009 workshop tour.

The 2009 Newfoundland and Labrador budget was delivered on March 26, 2009. Low income earners and small businesses were the main beneficiaries of the NL Budget released for 2009. Low-Income Reduction Program The budget announced income threshold amounts under the Low-Income Reduction program, introduced in 2005, has been increased for both individuals and families. For individuals the income threshold was increased to $15,911 and for families the threshold increased to $26,625. Dividend Tax Credit The dividend tax credit rate on eligible dividends was increased to 9.75% from 6.65% to keep the rate in line with that of other provinces. LSVCC Effective April 1, 2009, the provincial tax credit rate for an investment in a registered LSVCC will be increased from 15% to 20% of the amount invested, subject to a maximum annual investment limit of $10,000 (previous limit $5,000). This would be in addition to the 15% Federal income tax credit. Small Business Threshold and Rate Effective January 1, 2009 the small business threshold has been increased to $500,000 from $400,000, and the small business tax rate is 5% to this limit.    

The 2009 Quebec budget was tabled on March 19, 2009. New Stock Saving Plan SSP IIQuebec taxpayers who purchase shares in an eligible Quebec corporation (maximum $200 million assets) and hold the shares for a minimum of 2 years will be eligible for a tax deduction of: 150% for investments before December 31,2010 and 100% for investments after December 31, 2010 and before January 1, 2015. Sales TaxThe QST will be increased from 7.5% to 8.5% as of January 1, 2011. To offset this increase for low-income Quebecers, the refundable Quebec sales tax credit will be increased by $125 for singles and $150 for couples beginning in 2011. Child Care ExpensesThe maximum expenses eligible for the child care credit are increased from $7,000 to $9,000 for children under 7. The credit rate is also increased for families with income over $85,000. RRSP/RRIF losses after DeathMirroring the federal changes, losses on RRSP and RRIF assets after death will be deductible on the Quebec return. Capital Cost AllowanceThe 50% accelerated depreciation for manufacturing and processing equipment is extended until the end of 2011. Computer equipment acquired before February 2011 will be eligible of 100% accelerated depreciation. (matches the federal budget change). Small Business DeductionThe small business deduction is increased for $400,000 to $500,000 beginning March 20, 2009. (matches federal budget changes) Income Tax HolidayBusinesses dedicated to the commercialization of intellectual property that are incorporated in Canada after the budget and before April 1, 2014 will be eligible for a ten-year income tax holiday (starting at the date of incorporation).

The Manitoba Provincial Budget, announced on March 25, 2009, largely confirmed last year's tax initiatives, but little else new, as outlined by Knowledge Bureau President Evelyn Jacks in her report from yesterday's Budget Lockup, commentary on province-wide CJOB radio and the Mapping Manitoba Post-Budget budget analysis: TAX PROVISIONS IN THE BUDGET - By Evelyn Jacks Good for Business, Ignores Storm Clouds The very best that can be said about this year's Manitoba provincial budget is its continued support of lower tax rates for Manitoba businesses; the worst that it continues to subject individual taxpayers to bracket creep, a high tax rate on incomes over $67,000 and a tax free zone that continues to tax non-discretionary income for the working poor at a time when an economic stimulus is desired for all. Details follow: Personal Tax Brackets and Rates (Line 428 on the Federal Return): For individuals there are no new changes over those announced last year. Noteworthy is that by 2010 the lowest provincial tax rate will be 10.70% and by 2011-10.50%. But it is in the failure to move on the indexation of tax brackets that Manitobans really lose out, a situation that can worsen if we are subjected to higher inflation rates in the future. This is, in fact, a hidden tax on the poor and in a time when economic stimulus is desired to aid ailing economies, counter-productive. Here's how Manitoba compares with other provinces: Provincial Tax Brackets and Rates for 2009 Province Tax Brackets Rate Surtax British Columbia $0 to $35,716$35,717 to $71,433$71,434 to $82,014$82,015 to $99,588Over $99,588 5.06%7.70%10.5%12.29%14.7% Alberta Flat tax of 10%   Saskatchewan Up to $40,113$40,114 to $114,610Over $114,610 11.0%13.0%15.0% Manitoba $0 to $31,000$31,001 to $67,000Over $67,000 10.8%12.75%17.4% Ontario $0 to $36,848$36,849 to $73,698Over $73,698 6.05%9.15%11.16% 20% > $4,25736% > $5,370 Lagging Tax Free Zones. As mentioned, Manitoba continues to tax non-discretionary income of the working poor sooner than any province in Canada, as demonstrated below. The zero provincial tax rate represents the maximum income with no provincial tax for a single person, and includes all refundable and non-refundable credits that don't rely on other actions ñ like rent or property taxes, etc. Province Basic Personal Amount Income for Zero Provincial Tax BC $ 9,373.00 $17,200 AB $16,775.00 $16,775 SK $13,269.00 $13,269 MB $ 8,134.00 $10,020 ON $ 8,881.00 $12,010 NB $ 8,605.00 $14,020 NS $ 7,981.00 $11,150 PE $ 7,708.00 $10,260 NL $ 7,778.00 $12,450 YT $10,100.00 $10,100 NT $12,664.00 $12,664 NU $11,644.00 $11,644 Refundable Tax Credits (Line 479 on the Federal Return): Following the comments above, Manitoba's refundable tax credit system has featured a series of refundable tax credits that are income tested; now a new one will be added and it will not be income tested. The Primary Caregiver Tax Credit will take effect in 2009 and provide volunteer primary caregivers, who are in that role for more than three consecutive months, will receive a refundable credit of $85 a month to a maximum of $1,020 for the year. The credit may be earned for no more than three qualifying dependants in the year. Qualifying dependants are a spouse, other relative, neighbour or friend who qualifies for Manitoba Home Care. Only one person may be the primary caregiver at any one time. Other refundable Tax Credits. The following modest increases were announced to take effect in 2009, and in the only significant personal tax change over last year's announcements, the Education Property Tax Credit is increased from $600 in 2008 to $650 in 2009: Provision 2008 2009 Basic Personal Credit for Self or Spouse $190 $195 Age Credit for Self or Spouse $110 $113 Disability Credit for self, spouse or dependant $110 $113 Disability Credit for Dependants $60 $62 Credit for Dependent Children $25 $26 Education Property Tax Credit $600 $650 Good News for Business. For Corporations, the general corporate tax rate will fall from 14% to 13% on July 1, 2008 and again to 12% on July 1, 2009. The goal is to drop the rate to 11% sometime after this, but that was not confirmed in this budget. The Small Business Rate charged on taxable income under $400,000 will be reduced from 3% to 2% in 2008 and then to 1% in 2009, falling to 0% in 2010. In addition the following provisions were announced: Interactive Digital Media Tax Credit. This new credit, announced in 2008, is available to corporations which produce interactive digital media projects in Manitoba, including videos and games and educational media/webcasts. The maximum credit on an eligible project is $500,000 and it is calculated as 40% of the remuneration paid to Manitobans on eligible projects as approved by Manitoba Science, Technology, Energy & Mines. Book Publishing Tax Credit, also introduced in 2008, will provide 40% of eligible Manitoba labour costs including non-refundable author advances, salaries for editing, design and project management, fees paid to freelances for editing, design, research, artwork and development of prototypes. A maximum of $100,000 credit is available and at least 2 books must be published after April 9, 2008 and before 2012. When paper with a 30% recycled content is used a further 10% of Manitoba printing costs qualifies for the credit. This budget confirmed that books published in the time period April 9, 2008 to 2012 will qualify as well as those for which agreements had been entered into in this period. Co-Op Education and Apprenticeship Tax Credits. A journeypersons Hiring Incentive became available last year for hirings after April 9, 2008 amounting to 5% of wages and salaries paid up to $2500. A Certificate of Qualification must have been received after this date and the employee must have been hired within 18 months of certification. A new component called the Advanced-Level Apprentices Hiring Incentive was introduced in December 2008 to ease bottlenecks in high demand trades. To be eligible the employer must hire an apprentice enrolling at an advanced level on January 1, 2009 or later and before the end of 2011. This is a fully refundable credit. Film and Video Production Tax Credit. After 2007 a 5% Producer bonus is introduced as well as a Frequent Filming bonus. Eligible salaries paid to non-residents for work in Manitoba is increased from 20% to 30%. Manufacturing Investment Tax Credit. A generous increase from 35% to 70% comes into effect retroactively on January 1, 2008 and this credit will be available until December 31, 2011. The Community Enterprise Investment and Development Tax Credits. The se credits have been enhanced based on their fully subscribed status last year. The Community Enterprise Investment Tax Credit is a non-refundable one equal to 30% on a maximum $450,000 investment in equity capital, available to both individual and corporate investors who acquire equity capital in emerging enterprises after 2007 and 2011. The maximum annual approval limit for this program has been doubled to $33,000,000 starting in 2009. The value of issuable shares that a business can apply for under the Community Enterprise Development Tax Credit has doubled from $500,000 to $1 Million, starting in 2009. This is a non-refundable personal income tax credit equal to 30% on a maximum $30,000 investment. Other significant provisions: The Home Buyer's Plan withdrawal limit from RRSPs will increase to $25,000 to mirror the federal tax changes. CCA Rate On Manufacturing And Processing Machinery And Equipment is written off on a 50% straight line basis if acquired after March 18, 2007 and this rate change will continue as per the federal budget changes, on acquisitions before 2012. CCA on computer hardware and systems software acquired in 2009 and 2010 will qualify for 100% CCA rates. Corporation Capital Tax for manufacturing and processing companies will be eliminated effective July 1, 2008. There are phased in reductions in the tax from 2009 to December 31, 2010 when the tax will be eliminated for those corporations as well. Retail sales tax exemptions: Service to direct agents (manufacturing process), welding tips & nozzles, rolls used in pulp and paper industries. Starting May 1, 2009 the sales tax exemption for books is expanded to include educational workbooks. Tax on Coal Emissions: will be effective July 1, 2011. Fuel Tax Changes; Effective July 1, 2009 the aviation fuel tax rate for domestic cargo flights will be reduced from 3.2 cents to 0.5 cents per litre and the fuel tax exemption for international flights is expanded to include direct and indirect cargo flights to and from the US, staring July 1, 2009. The fuel tax exemption for forestry companies is expanded effective May 1, 2009 to include fuel used for forest renewal. Next time: Some Future Budget Considerations