Tax Tip: The More Obscure Medical Expenses

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

A summary of upcoming deadlines:   Monday, March 2, 2009 - RRSP, RDSP and Labor sponsored fund donation deadlines   Monday, March 16, 2009 - Instalment payment deadline   Tuesday, March 31, 2009 - T3 receipts to be received   Later of March 2, 2009 or thirty days after legislation passes (which has not occurred yet)- Recontributions to an RRIF   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 2008 tax return and save money all year long.  

With tax season upon us once again, it is time to take a look at some of the changes regarding personal income tax filings.  One area that prompts many questions is the pension splitting rules which were introduced for the 2007 tax year.  Let's review some of the rules for splitting pensions: Pension Income Amount Claim. A taxpayer who is over 65 at the end of the year and receiving pension income or who is under 65 but receives qualified pension income may claim the lesser of the pension income or qualified pension income, as the case may be, and $2,000 Claimants Over Age 65. Pension income includes amounts included in the taxpayer's income for the year that are: payments in respect of a life annuity from a superannuation or pension plan, RRSP annuity, RRIF payment, DPSP annuity, the interest portion of annuity payments, and amounts accrued under certain life insurance policies and annuities. Claimants Under Age 65: Qualified pension income includes amounts included in the taxpayer's income for the year that are: payments in respect of a life annuity from a superannuation or pension plan, and amounts received from the following because of the death of the taxpayer's spouse: RRSP annuity, RRIF payment, DPSP annuity, amounts accrued under certain life insurance policies and annuities. Excluded: Specifically excluded from the definitions of pension and qualified pension income are: Old Age Security, Canada or Quebec Pension Plan Benefits, a death benefit an amount that is included in income but for whom a deduction is taken (such as exempt foreign pension or the deducted portion of US Social Security) a payment received out of or under a salary deferral arrangement, a retirement compensation arrangement, an employee benefit plan, an employee trust or the Saskatchewan Pension Plan. Claim the pension income amount on line 314 of Schedule 1 Federal Tax. No separate form is provided by CRA for calculating the Pension Income Amount but an area is provided on the Federal Worksheet to calculate the amount. If the taxpayer has a spouse or common-law partner and the taxpayer's income is low enough that the pension income amount is of no benefit, then the unused amount may be transferred to the spouse or common-law partner using Schedule 2 Federal Amounts Transferred From Your Spouse or Common-law Partner. As the provincial pension amount varies by province, the transfer of the provincial amount will differ from the federal amount and must be performed on a special Schedule 2 for the province of residence. In some provinces, the Pension Income Amount is indexed. Note: As 2007 was the first year of the provision and many software optimizations were not perfected or available on time, it is recommended that last year's choices be reviewed. T1ADJ adjustment requests will be allowed on the election.  

With the recent issuance of refund cheques from certain gasoline cooperatives, it is timely to review the tax treatment of such "refunds" or patronage dividends.    Patronage is the amount of business conducted with the particular customer. More specifically, "allocation in proportion to patronage" for a taxation year means an amount credited by a taxpayer to a customer of that year on terms that the customer is entitled to or will receive payment thereof, computed at a rate in relation to the quantity, quality or value of the goods or products acquired, marketed, handled, dealt in or sold, or services rendered by the taxpayer from, on behalf of or to the customer, whether as principal or as agent of the customer or otherwise, with appropriate differences in the rate for different classes, grades or qualities of goods, products or services. The amounts so computed are to be credited to the customer in the taxation year or within the 12 month period following the end of the taxation year. Tax Consequences A payment to a customer includes the issuance of a certificate of indebtedness or a share of the corporation to the customer. The amount actually paid to the taxpayer, and received by the taxpayer, must be included in the income of the taxpayer under S. 135(7) unless the patronage dividend relates to consumer purchases. These are not taxable. Tax withheld on patronage dividend payments should be claimed as a credit. This is true whether or not the patronage dividend is taken into income. Example: Patronage Dividend Issue: Joan is a farmer. She buys her groceries and her fuel at the local co-operative. She has received a T4A representing her patronage dividend for the prior year. Her dividend was $1,000, against which $250 of tax was withheld. Joan's records show that 40% of her expenditures at the Co-op related to groceries, with the balance to fuel. How does she report the income? Answer: $600 of the patronage dividend should be reported on her statement of farming income. This portion of the dividend, which relates to her farm fuel purchases, is taxable. The other $400, which relates to her consumer purchases, is not taxable. Joan should report the full $250 withheld as tax withheld at source on her T1 return. The full amount is creditable.   Excerpted from EverGreen.  With a subscription to EverGreen Explanatory Notes you will have access to more than 800 files containing all the relative links, examples, tips, and interview checklists you need. Internet-based, and just a couple of mouse clicks awayóEverGreen brings the information to you. TRY THE EverGreen Explanatory Notes DEMO TODAY!

The following forms and guides have just been released on the CRA website, ensure your payroll department is up-to-date and stays informed with the most current information available. RC18 Calculating Automobile Benefits T4127-APR Payroll Deductions Formulas for Computer Programs - 89th Edition - Effective April 1, 2009 T4001 Employers' Guide - Payroll Deductions and Remittances As the February 28th deadline for the issuance of annual T4's approaches, it is worthwhile to review the rules surrounding the production of the T4 slips. The final result of any payroll system is the production of the T4 Supplementary slips, and T4 Summary, which is required by every employer on an annual basis. A T4 Supplementary slip is prepared for each employee, and indicates the earnings of the employee, as well as the amounts of those deductions that CRA takes an interest in ñ such as CPP, EI and income tax deductions. The T4 Summary simply totals the information in all of the T4 Supplementary slips for the employer, and reconciles the total deductions taken for the year to the total amount remitted to the CRA. Any difference becomes a balance owing by the employer, and will probably be subject to penalties and interest, as if payroll has been properly handled all year, there should not be a balance owing on the T4 Summary. A link to these forms is provided on the Knowledge Net for this chapter. Regardless of the year end that the employer may have for financial statement purposes, the payroll has to be balanced and T4's have to be issued to employees, with copies provided to the CRA by February 28th of each year, for the previous calendar year. What is required information for completing T4 slips and the T4 summary? In order to complete the T4 slips and T4 summary for an employer, the bookkeeper will need to produce a summary for each employee of all amounts paid during the calendar year. The T4 is prepared on a cash basis, so it is not necessary to include pay periods ending during the year, only pay periods for which payment was made during the year. This summary should total the gross pay, all amounts deducted and the net pay for the year. Ensure that this summary cross balances by checking that total gross pay, less the total of all deductions is equal to total net pay. Also, ensure that the total amount remitted to the government agrees to the amount that should have been remitted based on total deductions.   Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the DFA, Certified Bookkeeping Specialist designation program.   The Knowledge Bureau has updated its Advanced Payroll for Professional Bookkeepers course and now uses Simply 2009 software.  Click here to register.    

The Canada Revenue Agency is sponsoring a national video contest that will tackle the long standing issue of the underground economy. Titled The Underground Economy - Not Your Problem? the contest invites video submissions from Canadians on why the underground economy is bad for all of us.    The Minister of National Revenue, The Honourable Jean-Pierre Blackburn, had a meeting with students at Algonquin College in mid-February for a discussion regarding the underground economy and its impact on them both personally and professionally.  Many of the students who will be graduates of the college will become tradespeople and have significant potential for exposure to the underground economy.   The underground economy offers both an unfair and illegal advantage to those that operate within it by non-compliance with Canada's tax laws.  By exposing college students to this at an early stage, and particularly in a genre they are familiar with, YouTube videos, they are opening up their eyes to the impact it can have on aspects of the economy.   The CRA YouTube channel is being launched to provide all Canadians with an opportunity to present their ideas on how the underground economy can impact them, their businesses, and their own communities.  Submissions will be accepted until April 30, 2009.  For more information on the contest, link here.   

By Evelyn Jacks , PresidentThe Knowledge Bureau If happiness is a by-product of achievement, then planning for one of life's most important transitionsófrom economic activity in the workplace to ìeconomic inactivityî in retirementócan provide tremendous peace of mind. It can also result in the satisfaction of knowing your lifetime of work will not only fund your lifestyle, but provide an opportunity to transfer your life's workóboth wealth and wisdomófrom one generation to the next. This is, in large part, the key to opening the discussion around retirement income planning for many boomers. Often the soft issuesóthe difference between wants and needsóare the most difficult to approach in the discussion around finances in the last third of life. Busy, full lives are not often conducive to discussions about how to tap into the capital that's been accumulated or what we leave behind. That of course has always been the reason behind financial planning: to ensure there are enough resources available to meet personal needs and goalsóno matter what lifecycle you find yourself inóand then, if possible, to preserve and pass on a legacy. When you add tax efficiency to that planning mix (which very few do, by the way) you have the recipe for a ìgourmetî retirement. At the beginning of a retirement period clients are more concerned about the former issueówill I have enough to retire? However, as people move through this lifecycle towards the end of retirementódeathóthe legacy issue becomes more important. Legacy planning requires gazing beyond the grave, culminating with an understanding of how existing wealth will crystallize, on an after-tax basis for the use of survivors and more importantly, the family wealth stewards. Therefore a process that helps to identify the structure of stewardship for the transition of wealth from one generation to another is the starting point in a discussion about estate planning. Only then can the right roadmap be crafted for the completion of the journey from a life of work, to life's work, to a life's legacy. Simply put, there are three prerequisites for successful tax and financial planning that transitions underlying capital from a retirement income plan to an effective estate plan: A structure for identifying issues of concern A formal strategic plan for financial results A process for real wealth management: after tax, inflation-adjusted, cost-controlled Such a process should also deliver, as required, in regular and pre-defined time periods: Ongoing evaluation of the structure by the stewards of the plan Annual measurement and evaluation of net worth In short, for boomers, it's really not about retirement. . .it's all about transitioning from economic activity to a healthy and active lifestyle and an intact financial legacy. Tax and financial advisors need to have awareness of these issues; a deep understanding of the triggers that motivate boomers to come to the table for planning will enable the tax and financial advisor to quarterback the successful transition of both wealth and wisdom. The Knowledge Bureau is pleased to provide the Retirement Income Specialist Designation Program by self study which provides designated training in real wealth management focused on tax efficient retirement income planning.