Tax Tip: The More Obscure Medical Expenses

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

Are you using your operating line of credit to buy the kids a big-screen TV? Are you also using it to fund your investment activities? Come tax-filing time, this may be a problem. The cost of borrowing to invest is a legitimate income-tax deduction. The cost of financing the purchase of a TV, however, is not. So, if you want to deduct the interest paid on your line of credit as a carrying charge, you will need to keep your borrowings separate and traceable. The onus, then, is on you to establish that the borrowed funds are being used for the purposes of earning income ó from a business (this is claimed on a business statement) or from an investment in property, real or financial (claim on your Rental Property statement or on Schedule 4 ñ Statement of Investment Income).  The Canada Revenue Agency (CRA) will want to see a direct link between your borrowing and the resulting earnings, although there are some exceptions to this rule. Remember that interest is not deductible if the loan is used to acquire a life insurance policy or property that produces tax-exempt income, or if you borrow to contribute to a registered retirement savings plan (RRSP), a registered education savings plan (RESP), a registered disability savings plan (RDSP) or a Tax-Free Savings Account (TFSA). If you borrowed to buy securities ó such as common shares or mutual funds ó for your non-registered account, you face another hurdle. Because common shares or mutual funds generally do not carry a stated interest or dividend payment, the interest costs on the loan may not be deductible. The CRA will generally allow you to deduct interest costs on funds borrowed to buy common shares if there is a reasonable expectation that those shares will pay dividends, whether or not they are actually do. But each case will be assessed individually upon audit. You should also know that if the source of the income for which you borrowed no longer exists or has substantially diminished because the investment has lost significant value, you will be able to continue writing off the interest on the loan as if the underlying asset still existed. It's Your Money. Your Life. If you must be in debt, make sure the money you borrow is put to work to earn income and your interest payments are clearly traceable. That way those costs will be tax deductible. It makes those interest payments a bit easier to swallow. Evelyn Jacks is president of Knowledge Bureau, whose curriculum includes wealth-management and income tax-preparation courses. You can also offer Knowledge Bureau financial education books to your clients or family members. For more information, click here.   Additional Educational Resources: Introduction to Personal Tax Services Preparation and Advanced Tax Prepararation and Research.  

Knowledge Bureau Report readers do not dispute the value of education; it is the future ó for our children and our country. And most agree that affordable post-secondary education is important if we are to have a world-class workforce and a vibrant economy. But not all agree Canada's overburdened taxpayer should bear the cost. KBR's September poll noted that the pressure to increase university tuitions is growing if universities are to meet the cost of infrastructure and curriculum improvement. That would make university educations inaccessible for lower-income families. So, the poll asked, "Should university tuitions remain low in order to accommodate all students?î Of the 129 readers who responded, a resounding 71% agreed university tuitions should remain low and accessible for lower-income families. But even among the 29% who voted "No,î their aim was not to deny lower-income families access to education but to find creative solutions to the growing cost of education. Judging by the more than 70 comments left on the Knowledge Bureau website, readers link education and prosperity, both at an individual level and a national level. As Larry said: "Higher education leads to prosperity for our nation.î And whether they are in the "Yesî camp or the "Noî camp, readers believe no one should be denied an education because they don't have the money. As accounting professional Trenholme Lodge says: "Education is the country's future and should be available to all at a low cost. This country needs this approach.î Zafar agrees: "We need an educated Canada and post-secondary education must be accessible by the poor.î Adds another reader: "Of all the things that our governments waste money on, education is not one of them. We need all children to be able to receive a good education and not have the barriers of high tuition costs keep them from pursuing their dreams.î No one disagrees with that sentiment; the greater concern is how we, as a society, pay the growing cost of post-secondary education. "The taxpayers can only afford so much,î says a reader from the "Noî camp, "and we already do subsidize post-secondary education.î As Beatrice Grant put it: "We live in a world today that cannot continue to subsidize and put governments in the red. We have to pay as we go along ó and this goes for students in university.î Some readers suggested that one answer is to cut administrative costs, and some perceived professors are paid too much while some believe that if we want to attract top-notch professors, universities need to pay them more. Many believe there should be more merit-based scholarships and grants that will help students shoulder the cost of a university education. And some mentioned the value of programs that blend paid work and university attendance. Another solution, said other readers: make student loans more accessible by raising the family-income ceiling for loans and by lowering the amount of interest changed on the loans. Dave McGruer suggested something more radical: "Universities should be cut loose from government controls so they can flourish on merit and in economic reality. Competition will ensure quality and allow for different cost models to flourish.î Whether education is free or low-cost, readers agree it should be universally accessible. The quandary is just how to deliver high-quality education that is affordable. Knowledge Bureau Report would like to thank all the readers who responded to the September poll. We look forward to your comments to our October poll.   Additional Educational Resources: The Smart, Savvy Young Consumer and Financial Recovery in a Fragile World books.  

Oct. 1 was National Seniors Day in Canada and the treatment of Canada's seniors is on the mind of Diana Juricevic,  a member of the British Columbia Human Rights Tribunal and a speaker at this year's Distinguished Advisor Conference. Elder abuse ó be it physical or financial ó is a human rights issue for a number of reasons, says the Ontario native. "One, seniors are entitled to respect,î Juricevic explains. "Also, seniors have the right to live in safety and security and, thirdly, seniors have the right to be free from economic and financial abuse. Their money and property belong to them ó not to their families or administrators.î Juricevic has spent a career thinking about human rights and how those rights can best be safeguarded. A lawyer by profession, she was a member of the defense team for General Ante Gotovina, who was being tried in the International Criminal Tribunal for the former Yugoslavia. In 2010, she worked in the Extraordinary Courts of Cambodia as it dealt with the atrocities committed by the Khmer Rouge in the later part of the 1970s. Now in Vancouver as part of B.C.'s Human Rights Tribunal, she sees cases of elder abuse ó and it raises concerns. Certainly, there is a growing awareness of elder abuse ó and for good reason. According to Statistics Canada's report The Canadian Population in 2011: Age and Sex, the number of seniors in Canada is increasing. From 2006 to 2011, says the report, the number of seniors aged 65 and over increased 14.1% to close to 5million. In 2011, seniors accounted for 14.8% of the population, up from 13.7% five years earlier ó a record high. But growing even faster is the number of Canadians aged 60-65. In that time period, their numbers increased by 29.1%. Says the report: "This suggests that population aging will accelerate in Canada in the coming years, as the large baby boom generation, those born between 1946 and 1965, reaches 65 years old.î There are indications that incidence of elder abuse is growing in tandem with the aging population. Another StatsCan report, Family violence in Canada: A statistical profile, 2010, notes that, compared to other age groups, seniors are at the lowest risk of violence ó but that doesn't make them free of violence. "Overall,î says the report, "seniors were most at risk from friends or acquaintances (73 victims per 100,000 seniors), followed by family members (61 victims per 100,000) and strangers (51 victims per 100,000). Grown children were most often identified as the perpetrator of family violence against seniors.î Financial abuse is also growing. "Financial abuse occurs whenever someone gains financial benefit at the expense of an older adult without his or her consent or lawful authority,î explains Juricevic. "This may include failing to use the assets of an older adult to support his or her own welfare, as well as other ways of misappropriating money or property.î At this year's Distinguished Advisor Conference, "Navigation: Charting a New Courseî ó to be held Nov. 11-14 in Naples, Fla. ó Juricevic will discuss the signs of elder abuse, as well as other human rights violations, and suggest strategies advisors can use in their practices when working with vulnerable groups. She takes to the stage Tuesday, Nov. 13. "Everyone has the right to live with dignity and respect in Canada,î she concludes. "We have a responsibility to ensure that all Canadians can benefit from the services that are available in our country ó and especially our seniors and those who are most vulnerable in our society.î  

Recent economic data tell the same story: Canada has hit what TD Bank Group economists call a "soft patch.î Indications are Canada's economic performance will remain "sub-parî for the rest of 2012. Certainly Statistics Canada's job vacancy numbers are nothing to crow about. From June 2011 to June 2012, the number of job vacancies increased by 20,000 to 263,000 vacancies. "There were 5.3 unemployed people for every job vacancy,î reports StatsCan, "down from 5.8 in June 2011.î There is growth, but it is sub-par. StatsCan also measures the national job vacancy rate among Canadian businesses. In June, it was 1.8%, up slightly from 1.7% a year ago. "Higher job vacancy rates are often associated with periods of economic growth,î writes StatsCan "while lower rates may be associated with periods of slower growth or economic contraction.î Declining house sales are also putting a damper on growth. According to the Canadian Real Estate Association (CREA), house sales were down 5.8% in August from July, the fifth straight monthly decline. Actual (not seasonally adjusted) activity stood 8.9% below levels in August 2011. Prices, too, have cooled. CREA tells us the national average home price was up a mere 0.3% on a year-over-year basis in August. As Bank of Montreal economist Robert Kavcic points out, "Canada's market has quietly built up an above-normal 6.5 months' worth [of inventory] ó far from saturated, but certainly keeping the bidding wars at bay.î That puts a chill on Canada's economic recovery. According to TD's quarterly economic forecast, "Canadian Outlook: Caught in the middle,î Canadian households have begun the long process of reining in their borrowing. "Even with this moderation,î says the forecast, "combined growth in mortgage and consumer debt has continued to outstrip that of incomeÖ. Some cooling off in formerly-red-hot housing markets is expected to weigh on consumers' appetite for more credit and spending over the forecast period.î The result: a sub-par pace of consumer spending. On the plus side, the consumer price index (CPI) rose 1.2% in the 12 months to August, following a 1.3% gain in July. According to StatsCan, higher prices for the purchase of passenger vehicles, gasoline, meat and food purchased from restaurants were major factors in the year-over-year increase. Still, that keeps inflation well within the Bank of Canada's desired 2% target range, probably keeping the spectre of higher interest rates at bay. "With no engine firing on all cylinders,î says the TD's forecast, "economic growth is being held to a meek sub-2% rate and the jobless rate is stuck above 7%. By early 2013, we suspect that global headwinds will have dissipated enough to spur stronger Canadian exports and entice cash-flush businesses to loosen their purse strings ó pulling real GDP growth back above 2% and pushing the jobless rate down modestly.î Additional Educational Resources: Elements of Real Wealth Management course and Financial Recovery in a Fragile World book.      

Disability, physical and mental, all too often comes with age. And as the baby boomers get older ó in 2016, 16% of Canadians will be over the age of 65 ó the economic and social costs of disability will climb, for families and communities. According to Statistics Canada's Participation and Activity Limitation Survey,  43.5% of people aged 65 to 74 have a mental or physical disability while 56.3% of people 75 and over are disabled. Dementia is of particular concern. Currently, about one in 11 Canadians over the age of 65 lives with dementia. Within a generation, says the Canadian Study of Health and Aging (CSHA), that number will double to two in 11. CSHA and the Alzheimer Society of Canada  have calculated the economic costs of this changing demographic. Over the next 25 years, the cumulative economic cost of dementia, which includes Alzheimer's Disease, the most common form of dementia,  is expected to exceed $872 billion. The number of family care-giving hours will triple to 756 million hours in 2038 from 259 million hours in 2010. Dementia hits women particularly hard: 72% of all Alzheimer's cases and 62% of all dementia cases are female. According to Statistics Canada 2008 Elder Care: What we know today, women have traditionally been the caregivers. That means the burden of care will need to shift to others in the family or the community. This is a devastating and significant issue and the federal government has started to recognize the costs to families of dealing with vulnerable family members. In the 2011 federal budget it introduced the Family Caregiver Amount. If you care for a disabled dependant, when you prepare your 2012 taxes the following non-refundable tax credits will increase by $2,000: Spousal amount; Amount for eligible child (claimed by a single parent for one child); Amount for dependants under 18; Amount for infirm dependants 18 and over; Caregiver amount. Granted, the value of the additional amount is $300, a small reward given the sacrifices made when caring for a vulnerable person. Nonetheless, that $300 will help pay for some much-needed respite. Also, if you qualify for the credit and pay your income taxes on a quarterly basis, you may wish to change your withholding tax rate for the final quarter of the year or reduce your quarterly instalment payments accordingly. It's Your Money. Your Life. Caring for the vulnerable is a community issue. We need to prepare for that with our precious resources of time and money, because it's an honor and a privilege to give back with compassion and empathy to those who have done so much for us. Evelyn Jacks is president of Knowledge Bureau, which offers bookkeeping and income tax preparation courses within its curriculum. You can also offer financial education books to your clients or other family members. For more information, click here.   Additional Educational Resources: Introduction to Personal Tax Preparation Services and EverGreen Explanatory Notes.  

Quebec is taking a page from France's book. To battle deficits and increase revenues, recently elected leaders in France and Quebec have announced intentions to deliver tax hikes to higher-income residents. Earlier this month, France's new Socialist president, FranÁois Hollande, proposed a 75% income tax on the portion of an individual's income that exceeds €1 million (C$1.2 million) a year. More recently, Quebec's Parti Québécois premier, Pauline Marois, made good on an election promise to introduce provincial tax brackets for incomes over $130,000 and over $250,000, with provincial tax rates expected to be 28% and 31% respectively. That is on top of federal income taxes. Add in the maximum federal tax and Quebecers in the $130,000 to $250,000 tax bracket would see their marginal tax rate rise to 52%; for those earning more than $250,000 it would be 55%. The majority of taxpayers seem content with these new plans. According to the New York Times,  half the nation's households earn less than €19,000 a year; only about 10% of households earn more than €60,000 annually. In Quebec, according to The Globe and Mail, Ministry of Finance figures show that in 2010, slightly more than 102,000 people earned between $130,000 and $250,000 a year; another 38,000 earned more than $250,000 a year. The wealthy, however, are clearly unimpressed. The United Arab Emirates' English-language The National.ae has reported that Bernard Arnault, the owner of the LVMH luxury goods group and the wealthiest person in France, has since applied for citizenship of neighbouring Belgium, where the fiscal regime is more agreeable. Many more are concerned that France's aggressive tax plan will scare away investment and jobs, hurting the already-fragile economy. Another top earner in France described the 75% tax to the The National as "morally and politically legitimate but economically stupid.î Those concerns are mirrored in Quebec. "Anything above 50% means that you're really working for the government more than yourself," Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, told Montreal's The Gazette. "It's a huge barrier." Hollande estimates he must create €30 billion in new taxes and spending cuts to meet his target of reducing the public deficit to 3% of GDP by the end of next year. For Marois, the challenge is replacing the $850 million lost when the government eliminates Quebec's health tax. As these controversial proposal comes closer to reality, the world will be watching to see how both France and Quebec are affected and what the wealthy choose to do. Such policies may help win an election, but only time will tell if taxing "les richesî will steer an economy out of the sewer. Additional Educational Resource: Distinguished Advisor Conference