Tax Tip: The More Obscure Medical Expenses

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

Several important forms of interest to employers have recently been released to incorporate the provisions of the January 27, 2009 Federal Budget: A. CALCULATING AUTO BENEFITS   The CRA released Form RC18E which is used to calculate employee's automobile benefits for 2008.  An employee may use a company vehicle for purposes other than business, and the personal use of the vehicle is considered a taxable benefit to the employee. This form will help determine the total automobile taxable benefit amount, and may be used to calculate the withholding deductions required for 2009. Please link to the form here.   B. NEW PAYROLL DEDUCTION TABLES RELEASED FOR APRIL 1, 2009   Payroll deduction tables for each province have been released by CRA to incorporate the increased basic personal amounts, spouse or common-law partner amount and amounts for eligible dependents. The updated tables also introduce the increases to personal income tax thresholds announced in the budget. The new payroll deduction tables should be used beginning with the first payroll in April 2009.   It is important to note that the basic personal amounts and thresholds used in the newly released payroll deduction tables reflect the amounts announced in Budget 2009 when the deductions are commenced on April 1, 2009.  The amounts used are grossed up to incorporate the annual amounts over a nine month period (April - December) and are not reflective of the new personal amounts or thresholds.   C. New Personal Tax Credits Worksheet   As mentioned above, changes were made to personal amounts as a result of the Federal Budget issued on January 27, 2009.  Form TD1 has been revised for April 1, 2009 and will introduce changes to the tax withheld for the nine months from April to December 2009 as if the changes were in place for the entire year.  Form TD1-WS provides calculations for employees to calculate claim amounts for the age amount, caregiver amount and amount for infirm dependants to input on Form TD1.   Employers should have employees use the updated Form TD1, Personal Tax Credits Return (09-04) for pay received after April 1, 2009.      

    KNOWLEDGE BUREAU SPEAKERS JACKS, NELSON AND POYSER PRESENT ACCREDITED EDUCATION SESSIONS AT THE FINANCIAL FORUM FRIDAY, MARCH 13 The Financial Forum is coming to Calgary March 13 and 14th and you should be there to get the most leading edge information on tax, retirement, business succession and practice management in these unprecedented times. Master Financial Advisor Workshops Friday, March 13 Workshop I: 8:30 ñ 12:00 Noon Investment and Retirement Income Planning It's not always about how much you have; it's all about how much you keep! Evelyn Jacks and Doug Nelson will show you how to combine the knowledge of tax efficient income planning with the benefits of tax efficient investments. When you invest with the best tax outcomes in mind your clients will not only save money on their tax bill each year, but also increase cash available from social benefits and non-refundable tax credits. Increasing the tax efficiency of your client's portfolio can counteract the affects of a volatile market. Workshop II: 1:15 ñ 4:30 pm Tax, Estate, Business Succession and Wealth Transfer Planning Business owners often spend years devotedly building their businesses, giving little thought to structuring their exit to retirement. This process, statistically takes years, however, if well done, business owners and their families will preserve millions of dollars in equity while structuring tax efficient retirement income sources. Evelyn Jacks will show you how you can work with your clients to develop a succession strategy from A to Z. If they do not, the business will unfortunately join the ranks of a host of succession failures. Baby boomers are looking to ìcash inî their chips. Advisors, who proactively approach this transition, will gain the trust as well as the assets of this significant transition of wealth. John Poyser will guide you through the world of trusts, freezes and various structures in relation to tax, estate and wealth transfer planning. ìTo learn more about these workshops and to register click here. On Friday and Saturday, the KB Event Theatre will be the site of presentations by Knowledge Bureau Faculty members, Evelyn Jacks, John Poyser, Doug Nelson and Jim Ruta. These nationally recognized speakers will be discussing various topics including Death and Taxes, How to Tweak Your Portfolio Like a Pro and How to Build an Expert Financial Team, to name a few. Presentations are open to advisors and investors, all are welcome. Clients need leadership from their advisors more than everÖ Taking in the KB Event Theatre at Financial Forum helps advisors be ìIdea Leadersî with their clients. ALSO AT FINANCIAL FORUM: MEET THE AUTHOR! Drop by The Knowledge Bureau Booth # 407 (right next to the KB Event Theatre) and say hi to Knowledge Bureau staff and meet the authors of three of the newly-released Master Your Personal Finances Series of books. Evelyn Jacks, author of Master Your Taxes, Doug Nelson, Master Your Retirement and Jim Ruta, Master Your Money Management, will be signing copies of their books and available for an informal chat between presentations! LOTS TO DO AND MUCH TO LEARN! JOIN US AT CALGARY'S FINANCIAL FORUM MARCH 13 ñ 14, 2009!

By David Christianson, BA, R.F.P., CFP, TEP Last week's 50 basis point drop in interest rates, now reflected in the major banks' prime lending rates, may spell opportunity for your clients (and you) to reduce your borrowing costs. The chartered banks' prime lending rate, the rate at which they lend money to their most creditworthy customers, has gone from 5.25% one year ago to 2.5% today. This means that if you have a line of credit at prime plus 1% with an average balance of $10,000, your annual interest has decreased from $620 to $350. A $100,000 variable rate mortgage might have cost about $5,000 in annual interest last year, while this year you will pay about $3,700. Variable rate loans are the easy ones. Any loan that is tied to the prime rate, like a line of credit or a variable rate mortgage, has automatically adjusted its interest rate to give you the saving. Consumers don't have to do anything with those loans. Where the real potential exists is with a large mortgage that was at a fixed rate, which is likely in the range of 7% if it was taken out a year ago, and could be rewritten today at just over 5%, or as low as 3.5% if you are willing to go variable rate.  Here are some rates being offered by National Bank to their large mortgage customers:   Minimum Mortgage: $300,000.00 Rate Guarantee: 30 days 1 Year fixed: 2.91 % 2 Year fixed: 3.55 %3 Year fixed: 3.96 % 4 Year fixed: 4.29 % 5 Year fixed: 4.60 % 5 Year Variable: Prime +1: 3.5 % All-In-One: Prime + 1: 3.5 % The trade-off is often a penalty though, which may be three months of interest. You need to check on the prepayment privileges for each mortgage. Some banks will allow the borrower to "blend and extendî, which means adding time to the term of the loan and receiving benefit for the new lower rates on the extension to the term.   Credit cards If the credit card balance is not paid off every month, then interest is charged (retroactively to the date of purchase, often) on the outstanding amount. If this happens once, then interest is charged until two successive months go by with a zero balance. The interest rates are usually in the range of 18% or more. Electronics and furniture companies often have loans charging as much as 24% or more. This is something many consumers don't understand. If someone accepts the great offer of "no interest until 2010î, then they better make sure they pay off the balance before the first payment is due. Obviously, paying off these credit cards and consumer debts is where the greatest potential interest rate saving exists. Debt consolidation - either by setting up a fixed term loan or a line of credit - can save hundreds of dollars of interest each year, or even thousands if a person has large debts. If you have high interest rate, non-deductible debt, then now is a great time to talk to your bank or credit union (or their competitor) about how you can save on interest costs. Don't let them talk you into more loan than you need, though, and don't let cheap money convince you to go further into debt. "Re-pricing initiativesî Here's a funny thing - the banks' actual cost of money has gone up over the last 18 months, in spite of all its declines in interest rates. They are not deemed as creditworthy as they were a year ago, and their own credit is much tighter. This means the banks are scrambling to provide these loans at low rates and still make a profit. Many of the banks are undergoing what they euphemistically call "re-pricing initiatives", which means raising the rates on existing lines of credit. At least two major banks are sending out letters "advisingî customers of an increase in their interest rates, relative to prime. I was pretty perturbed last week when I got a letter from my bank's head office letting me know that my line of credit with being raised from prime plus 1% to prime plus 3%, without consultation or reason. Although it will end up being cheaper than it was a year ago, I don't want it to increase and was extremely put off by the way they approached it. My bank manager is sympathetic and is encouraging me to continue to harass the head office person who had the gall to sign the letter. He left no contact information, but I've been able to track him down and clog up his voice mail. New borrowing I'm going to say two contradictory things here. The first is that if the recession has a person worrying about job security, it's likely not a time to borrow more money, just because interest rates are low. It's a time to build up cash and make sure that any existing loan payments could be handled through an interruption in income. The contradiction is that this is theoretically the ideal time to be borrowing to invest. When you borrow to invest, the interest you pay is tax-deductible. The time to buy investments is when they are low. Whether a person is inclined to purchase an investment property to rent out or invest in the stock market, there's no doubt that prices are low. However, an important consideration is obviously whether prices are going to go lower and, especially, whether they will stay low for a long period of time. My only point in bringing this up is that people were quite anxious to borrow money to invest two years ago, when the stock markets were 40% higher and the prime rate for borrowing was 2.5% higher. The tough part about buying low is that you actually have to do it - you have to buy when things look really bad, which they do now, and when any sensible person would be running for the hills. Now, having gotten your attention, I am not recommending that anyone run out and borrow to invest, although I would be less likely to talk them out of it now than I would have been one year ago. David Christianson is author of The Knowledge Bureau's certificate course "Client Centred Practices" and is a nationally recognized expert in successful communication between investors and their financial advisors, with a specialty in the ethical behaviour of financial planners. His many industry and professional awards attest to his success in communicating this knowledge to professionals and clients alike.  

The Canada Revenue Agency has announced the prescribed annual interest rates that will apply to any amounts owed to the CRA and to any amounts the CRA owes to individuals and corporations. These rates are calculated quarterly in accordance with applicable legislation and will be in effect from April 1, 2009, to June 30, 2009. Income tax The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance Premiums will be 5%. The interest rate paid on overpayments will be 3%. The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 1%. Each of these rates represents a 1% drop from the rates in effect from the last quarter. Other taxes The interest rate on overdue and overpaid remittances for the following taxes will be: Tax and Duty Overdue remittances Overpaid remittances GST 5% 3% HST 5% 3% Air Travellers Security Charge 5% 3% Excise Tax (non GST) 5% 3% Excise Duty (except Brewer Licensees) 5% 3% Excise Duty (Brewer Licensees) 3% N/A Softwood Lumber Products Export Charge 5% 3%

Stay tuned for budget commentary from The Knowledge Bureau. Manitoba needs to take a close look at personal taxation as it contemplates a future within a financial crisis. Some thoughts for the Finance Minister: Financial strength comes from what you own. Tax systems must make it possible for people in all income brackets to accumulate and keep capital while they are financially productive, and then stop stripping it away when they are not. That way their assets can sustain them, when they can no longer work, taking a strain off social support requirements. It is important to note that different income sources are subject to different marginal rates of tax. Further, risk and reward plays into the tax systemóbusiness and capital losses offsetting income and capital gains over time will show different income results for tax purposes. Particularly in these difficult times, we need to understand whether we agree as a society that it is important to reward those who are brave enough to invest their money within highly volatile marketplaces, at least with the ability to offset taxable income with losses, particularly when those losses often result from the employment of workforces, which creates taxpayers. The unfairness in the system comes in large part from the taxing of non-discretionary incomesóincreasing non-refundable tax credits like the basic personal amount can help here. Other culprits are bracket creepówhich Manitoba notoriously keeps in place year over year--and for the low and middle classes in particular, high marginal tax rates in clawback zones. . .which generally occur with incomes under the top brackets. Tax rates, brackets and clawback zones need urgent review in this province. Taxing one time lump sums from unexpected sources like severance packages is also problematic. Governments need to consider income averaging as a solution to spiking marginal tax rates leading to unfairness in certain situations like these. Farmers could also benefit greatly from a return to averaging over 5 years. High user fees also transfer taxes disproportionately to the low and middle classes. This needs to be added to the discussion. Finally a global economy requires that volatility associated with currency fluctuations and future inflationary pressures are better addressed in the tax mix. It's tough to be a finance minister these days. . .we wish the Minister luck in his deliberations and recommendations for stimulus and change.

Many people are preparing to pay their March 15 quarterly instalment and worrying about their April 30 tax liabilities, while they watch their portfolios languish in turbulent times. You should be preparing not to pay, especially if it hurts the portfolio further by generating withdrawals that are not required. Check out Tax Tips 1 and 2, the first in a new ongoing series of information tips now forming part of Your News. Add your own tips too, as you make it through tax season 2008. Two things to know before you overpay instalments or avoid your obligations on April 30: You can avoid the March 15 and June 15 quarterly instalments if your income is expected to drop in 2009. Simply request that instalments be based on an estimate of 2009 taxable income by writing a letter to CRA. However, note that interest will be charged if instalments are deficient when you file your 2009 tax return. You can avoid late filing, gross negligence and tax evasion penalties if you file on time, but then make arrangements with the collections department at CRA to pay over time. Interest will be charged as CRA waits for its money, but that's a much better wayóand ultimately less expensive way--to handle the issue than the Ostrich Approach.