Tax Tip: The More Obscure Medical Expenses

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

IN AN EXCLUSIVE INTERVIEW WITH Breaking Tax and Investment News, DR. JACK MINTZ, Palmer Chair in Public Policy at the University of Calgary, told Knowledge Bureau President Evelyn Jacks that while markets will follow history and eventually recover, what we have seen over the past two dramatic weeks south of the border is a significant event. Advisors and their clients need to be very careful and not overreact, as there is both good and bad news. "Canada is in a better position than the US because we have done a lot of good things lately," said Dr. Mintz. "We've had good fiscal policy. Corporations on the whole are in a strong position, debt is down, and in general we are not over levered. Strength of the balance sheet is key today. In addition, Canadian consumers are not as heavily in debt as their US counterparts, and that for the moment is good news in a volatile environment." But there is plenty of cause for caution as well, something to be discussed in earnest between advisors and their clients. "The biggest concern is for those who need credit or immediate cash flow. Many people moved into cash a while ago, but the uncertainty in the marketplace today makes it difficult to play the markets, because we really don't know how long it will take to come out of this bear market," says Dr. Mintz, recommending that it is best to avoid unnecessary indebtedness, and to understand that credit will get tighter, especially in the US." In terms of strategy, Dr. Mintz cautions that "anyone who was retired should have thought about safety in assets when designing their portfolios. Over the long haul, 10-15 years from now, markets will be up again, but it's going to take time." For those about to retire, it may be best to think about Dr. Mintz's words above and think about a longer term horizon in planning. "Stay diversified, he says, "and don't overreact." Dr. Jack Mintz is the Palmer Chair in Public Policy at the University of Calgary and lead speaker at The Distinguished Advisor Conference in Monterey California, November 2 to 5th.

Record-breaking and severe global stock market swings followed the announcement of new tax breaks and deposit insurance protection resulting from the historic bailout of the US financial market, approved on October 3 by the US House of Representatives. The package was designed to kick start the flow of credit by US banks who backed impaired assets, like mortgages on homes which values have plummeted. What is the impact of these developments for Canadians? In this special report, we interpret Finance Minister Jim Flaherty's October 6 news release outlining Canada's relative fundamental strength as a means to comfort Canadians rattled by the volatility in the financial markets. Read in conjunction with the Bank of Canada Governor Mark Carney's message to the Canadian Club of Montreal on September 25, it appears that this correction should eventually be "cathartic" and "stabilizing" in restoring order to global financial markets. October 6 News Release: Finance Minister Jim Flaherty Financial Minister Jim Flaherty issued a news release today to comment on the severe shocks gripping the global credit system, in particular the US and now Europe, and to provide comfort to Canadians about their own financial institutions, which he described as "sound and well-capitalized, and less leveraged than their international peers." Mr. Flaherty explained: "The structure of our financial institutions continues to benefit Canadiansólarge Canadian investment dealers have been bank-owned since the late 1980s, and as a result are regulated on a consolidated basis by the Office of the Superintendent of Financial Institutions." "Canadian capital requirements for financial institutions are well above minimum international standards and higher than in other jurisdictions. Canadian institutions have met, and continue to meet, their capital requirements. The IMF has concluded that Canada's financial system is mature, sophisticated and well-managed, and able to withstand sizeable shocks." When it comes to real estate, our mortgage scene is also in better shape: smaller mortgages relative to home values, a small subprime component and sound economic factors, such as low interest rates, rising incomes and a growing population all make our housing finance model supportable. That's the good news. The bad news is that Canada's financial system will see the effects of the credit squeeze too, with the result that longer term credit extended to Canadian businesses and households will likely be affected. In response, the Bank of Canada has increased the availability of "term liquidity" to the tune of $20 Billion. As well the range of credit to be accepted for this liquidity has been widened, in an effort to keep credit affordable for Canadians. This announcement should provide comfort to Canadians panicking during the current ìtsunamiî of financial concerns. However, both Governor Carney and Finance Minister Flaherty cautioned that global markets are now at a critical juncture as many foreign financial institutions need to raise capital for lending purposes, but their ability to do so has been reduced. This affects all those who rely on credit for their future, particularly businesses and consumers. Without credit, business operations cannot be financed in advance, mortgages and auto loans cannot be provided to consumers. Survival depends for many on cutting costs in an attempt to shore up balance sheets. Knowledge Bureau faculty members spoke with President Evelyn Jacks to comment on these recent developments and their potential impact on Canadian, in this Special Report After the Bailout: The Impact on Canadians News Releases October 6 News Release: Finance Minister Jim Flaherty Bank of Canada Governor Mark Carney's message to the Canadian Club of Montreal on September 25 Commentary The Good News and The Bad News with Dr. Jack Mintz Canada and the New Super Banks with Richard Croft Brace Yourself: Why a Crisis on Wall Street in Coming to a Bank Near You with Robert Ironside Rebounds: Not Soon with Gordon Pape Are You Ready for a Bear Market? with David Christianson   Solutions   Financial Markets Meltdown - Severe Credit Crunch

David Christianson, BA, CFP, R.F.P., TEP I always like to ask that question when the markets are high, as that is the ideal time to assess your preparedness for a bad market. I ask the same question in sideways markets and bad markets. That's why I asked the question in 1994, 1998, 2000, 2005 and again last year. Why this theme? Because investors must always be ready for a bear market. Bears follow bulls as surely as winter follows summer. (Good news is that, unlike Winnipeg winters, bear markets are shorter than their opposite season.) In our professional practice, we are always looking at our client portfolios and asking, "Is this financial plan ready to withstand a bear market? If stock prices collapsed tomorrow, do we have enough cash, short-term and guaranteed investments set aside to provide all the client's spending requirements until the markets recover?" It takes a lot of discipline to consistently ask this question when the markets are at record highs and clients are resisting investments into boring old bonds that will only pay them 4%. However, it's those preparations that carry us through tough times like 2008. It's a lot tougher to ask the question after the markets have declined 20%, but you still have to ask it and make the necessary adjustments and provisions. Bear market facts. The accepted definition of a bear market is a stock index declining 20% from its previous peak. We are now officially in a bear market. Since 1970, there have been six bear markets on the Toronto Stock Exchange. The declines ranged from 20% to a high of 43%, for the longest bear, from 2000 to 2002. (Remember that much of that decline was due to the decline of Nortel, which made up over 20% of the total market at its peak.) In all cases except 2002, the stock market started its recovery before the economy emerged from recession. The 2002 stock market recovery was delayed by historic events like 9-11, and the crush to confidence from accounting fraud in companies like Enron, WorldCom and others. What about recoveries? The average return has been 25% for the 12-month period after the end of the last four bear markets. The lowest 12-month return was 15.2%, and that was produced even while the 1991 recession was still working its way through the economy. A bear market is different than a quick correction, in that it can last quite a while. A rapid correction is easier in many ways, because the pain is over quickly. In a real bear market, the market can decline for months or even years, with short rallies in between to keep our hopes up. The possibility (or the reality) of a bear market is not a reason to pull out of the markets or to stop investing. Like a bull market, a bear market can stop at any time and turn around. It usually happens when things look very bad for the economy. The important thing is to make sure you are ready, in case this bear market is not over. Are you ready financially? Will you be able to leave your investment portfolio for the two or three years that could be required? Better yet, will you able to add more money and buy stocks at real bargain levels? If you will need cash from your portfolio in the next year or two, make sure that you've put that money aside in money market funds or other guaranteed vehicles. Are you ready psychologically? Do you have what it takes to ignore all the pundits coming out of the woodwork, saying they told us so? Market gurus tend to want to make headlines by over-dramatizing a situation. The media tend to exaggerate these dramatic comments because they make great headlines. When these stories start to suggest that all of our assumptions about a rising market in the future were wrong and the market will never rise again, are you prepared to ignore the noise and continue to invest according to your personal investment policy? Hopefully, you examined the balance in your portfolio when the market was peaking, and made sure that you had adequate amounts in bonds and money market. If not, you might want to make sure you do that now. This is not to abandon the market, but rather to make sure that you have the staying power to remain invested throughout the bad market and volatility. And don't forget, if your advisor had seemed too conservative for you in 2006 and 2007, send him or her a thank you card. They may have been protecting you from your own enthusiasm. Things are different this time. Closed credit markets are threatening to bring the US economy (and all others by extension) to a grinding halt. But remember, nothing lasts forever and better times will return eventually. The important thing is to look at your time horizon for your investments. If you have the staying power, then stay the course and remain invested according to your own personal optimal asset mix. If you don't have the time, then make sure you have enough money off the table to tide you through. David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. and author of a certificate course for The Knowledge Bureau entitled The Structure of Client-Centred Practices.

Bank of Canada Governor Mark Carney spoke to the Canadian Club of Canada in Montreal on September 25th and advised that Canada's financial system is in a good position to "weather the financial storm because it is prudent and soundly capitalized". In his speech he noted that the slowdown in the U.S. markets and the insecurity in the market have been international factors that have affected the Canadian economy.  A continuation of volatile commodity prices can be expected in the near future, although to date it has been a benefit to the Canadian economy. Governor Carney also noted that Canadian banking and financial institutions are in much better shape than many other international countries and credit growth remains strong in this country.   He also stressed that while international events might have an influence on the Canadian economy, the Bank of Canada would do everything in its power to monitor developments with due care and set monetary policy to achieve a 2 percent inflation target. At the Knowledge Bureau, we are interested in hearing your opinion on the current market crisis.  To what degree does the recent stock market crisis impact retirement and investment strategies of Canadians? Your comments would be appreciated.

Recent new forms issued by CRA should be reviewed by wealth advisors in the financial and tax services for changes that may be of concern to their clients. Of particular interest: GST370 Employee and Partner GST/HST Rebate Application (2008 version, updated to use the 5% GST/ 13% HST rates applicable to 2008) T2200 Declaration of Conditions of Employment (2008 version, changed to add a new question regarding the repayment of expenses paid by the employee) T1162A-1 Pre-Authorized Payment Plan (Personal Quarterly Instalment Payments) (this form allows for personal quarterly instalments to be deducted by automatic bank withdrawal for fixed or calculated amounts on the 15th day of March, June, September and December - no more late payments!) In an upcoming Breaking Tax and Investment News we will look at quarterly instalments and tax planning ideas so that no one makes an overpayment on December 15th.

A joint venture is an arrangement between individuals, groups of individuals, partnerships or corporations working together in an undertaking that is not a permanent arrangement but more of a specific project. Usually, all participants of the project (joint venture) contribute assets, share risks, and have mutual liability. Once the project has been completed, the joint venture ceases to exist. Generally, the participants in a joint venture name one participant to be the "joint venture operator". It is not always easy to distinguish between a partnership and a joint venture not the least reason for which is that the participants themselves may be very unclear about what type of relationship it is that they are trying to create. It may be necessary to obtain legal advice on what it is that has been created. Differences between a partnership and a joint venture: A joint venture is not considered a "person" for any purposes. Thus, income for income tax purposes is not computed at the joint venture level but each venturer severally, and a joint venture cannot register for and/or collect GST/HST or provincial retail sales taxes. As noted above, net income for income tax purposes is computed at the partnership level and a partnership registers for, collects and remits GST/HST and provincial sales taxes. Since a joint venture is not a person, it cannot own property. Specifically, a joint venture does not claim capital cost allowance; the venturers do. Joint Venture TransactionsDespite the fact that a joint venture is never a person for any purposes, most joint ventures keep a set of accounts as though the joint venture were a partnership. This "accounting fiction" makes life a lot easier, because it allows transactions to be accounted for once by the venture rather than several times by the venturers. It should be noted that although these accounts may be drawn up for any reporting period the parties choose, the joint venture itself is not a person and does not have a year end, per se. In the examples below we review how transactions are accounted for in practice and how they would be accounted for if the fact that a joint venture is not a person were recognized. Recording RevenueWhen a joint venture earns revenue, each venturer should account for its own share of the revenue. Technically, each venturer is required to make a separate determination as to whether sales taxes are to be collected. Expense recording follows the same principles: each venturer should technically report its share of each outlay. Practically, the joint venture maintains accounts and records the whole expenditure. Contribution of PropertyThe contribution of property to a joint venture is a disposition of an interest in that property by the venturer, but only to the extent that the other venturer's acquire an interest in the property. The venturer does not report a disposition of that portion of the property that continues to be owned through participation in the venture. As with partnerships: For financial reporting purposes, the disposition should be accounted for at the fair market value of the property involved. The venturer contributing the property will normally have to account for sales taxes that normally arise if the property is subject to tax. However, unlike a partnership, there is no election for income tax purposes to have the contribution of property accounted for at tax cost. Disposition of an InterestUnlike a partnership, where a disposition of an interest is a transaction between partners which does not affect the partnership accounts, a disposition of a joint venture interest is a disposition of an interest in the underlying property of the venture itself. However, as noted above, where joint venture accounts are maintained, the values recorded in the joint venture balance sheet are generally not representative of the sum of the proportionate interests of the venturers. Since the value on the venture statement does not represent anything meaningful, joint ventures which keep accounts typically do not record the transfer of interests between the venturers. Excerpted from Advanced Bookkeeping for a Selection of Business Profiles, one of the courses that comprise the Certified Bookkeeping Specialist program.