Tax Tip: The More Obscure Medical Expenses

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

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 July1, 2008, to September 30, 2008. Income tax The interest rate charged on overdue taxes, Canada Pension Plan contributions, and Employment Insurance Premiums will be 7%. The interest rate paid on overpayments will be 5%. The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 3%. Each of these rates represents a 1% drop from the rates in effect for the last two quarters. Other taxes The interest rate on overdue and overpaid remittances for the following taxes will be: Tax and Duty Overdue remittances Overpaid remittances GST 7% 5% HST 7% 5% Air Travellers Security Charge 7% 5% Excise Tax (non GST) 7% 5% Excise Duty (except Brewer Licensees) 7% 5% Excise Duty (Brewer Licensees) 5% N/A Softwood Lumber Products Export Charge 7% 5%  

Canada Pension Plan (CPP) The Canada Pension Plan is a mandatory contributory, earnings-related social insurance program. It provides some protection to contributors and their families against the loss of income due to retirement, disability and death by providing a pension. CPP must be deducted from an employee's earnings if that employee: is 18 years or older, but younger than 70, is in pensionable employment during the year, and does not receive a CPP retirement or disability pension. Each employer is also required to contribute the same amount of CPP that is deducted from their employees pay. Most, but not all, earnings are pensionable. Some examples of earnings not subject to CPP contributions would include: pension payments, death benefits and payments made after an employee dies, except for amounts the employee earned and was owed before the date of death. Employment Insurance (EI) Employment Insurance is a social program that provides assistance to workers who lose their jobs. It also provides maternity, parental, and sickness benefits for employees who are unable to work temporarily. Participation is mandatory for all employees who qualify and for their employers. Like CPP, most earnings are subject to EI deductions ñ these are known as insurable earnings. Employers are required to contribute at a rate of 140% of the employee contribution to employment insurance.  That is, for each $1.00 that is deducted from the employee's paycheque for EI premiums, the employer must remit $2.40. There is one very important area to be aware of here though. Earnings of an employee whose conditions of employment are not those of an ìarms lengthî employee are not insurable. It is always a question of fact as to whether an employee's conditions of employment meet this test. Generally, the issue is only important whenever the employee is related to the employer in some way. Related persons are individuals connected by blood relationship, marriage, common-law relationship, or adoption. Where the employer is a corporation, the employee will be related to the corporation when the employee is related to a person who either controls the corporation or is a member of a related group that controls the corporation. If such an employee enjoys employment conditions that an arm's length employee would not ñ unreasonably high or low pay, irregular working hours, no formal responsibilities, etc. ñ the employment is not insurable.  In addition, the employment of a person who is employed by a corporation and who controls more than 40% of the voting shares is not insurable. Excerpted from Advanced Payroll for Professional Bookkeepers, one of the courses that comprise the DFA, Certified Bookkeeping Specialist designation program.

Last week, the CRA released the 2008 tax filing statistics as of May 28, 2008. The trend towards electronic filing continues although fewer taxpayers opted to use the TELEFILE system in 2008 as shown in the following table. 2008 2007 Change Total received 23,687,417 23,099,964 +2.5% NETFILE 4,150,737 3,957,938 +4.9% TELEFILE 478,023 505,966 -5.5% EFILE 9,014,295 8,259,416 +9.1% Paper 10,044,362 10,376,644 -3.2%

Last week, the CRA released figures for the average tax refund for the 2007 tax season. They touted the government's tax relief measures as the reason for the significant increase in refunds. But what do these large refunds mean for the average Canadian? It means that, on average, the government is withholding over $100 too much from the taxpayer's income each month. While some taxpayers consider this to be a form of forced savings (you don't miss what you don't see), is this really the best use of their money? Other potential (more beneficial) uses might be: If the taxpayer has credit card debt, pay down that debt by $100 every month (interest savings @19% interest: $104 in the first year); If the taxpayer has a mortgage, increase the monthly mortgage payment by $100 (potential savings on a $100,000 mortgage for 25 years @ 7%: $33,211 - plus the mortgage is paid off 6 1/2 years earlier); Deposit $100/month into an RRSP (potential accumulation over 20 years @9% income is over $64,000, not to mention the tax refunds generated by the RRSP deposits); If the taxpayer has no debt, and has maxed out RRSP contributions, invest the money at 4% interest (potential interest $26/year - less tax on the income of about $10, depending on the taxpayer's income level). The key is to get the employer to withhold less income tax from each paycheque. There are basic techniques that employees need to use to allow the employer to withhold less. Make sure that the TD1 Personal Tax Credits Return form is completed properly. All amounts to which the taxpayer is entitled should be claimed. If the taxpayer has any of the following deductions or credits, which are not accounted for on the TD1 form, then Form T1213 Request to Reduce Tax Deductions at Source should be completed and submitted to the employer. RRSP contributions Deductible Support Payments Employment Expenses Carrying Charges Charitable Donations Rental Losses Taxpayers should always remember this: a refund is not a good thing! Let us know how your clients feel about getting a tax refund - vote in our poll question below.

Andrew Brash, Knowledge Bureau Faculty made it to the summit of Mt. Everest last week, fulfilling a dream that was interrupted in 2006 when he saved a fellow mountain climber from certain death, thereby sacrificing his own ambition to make it to the top. We congratulate this true Canadian hero! So much of this climb was out of Andrew's control, from having to climb on the Nepal side, to waiting out the Olympic flame's controversial trip to the top. However, when it came down to it, Andrew said he would reach the summit of Mt. Everest on May 22 or 23. And he did. He and a small group, climbed through the night to arrive at the top of the world at 7am May 23! "It was a more difficult climb than I realized it would be and climbing all night borders on desperate (we left camp at 9 pm). The summit was cold and windy, as was most of the climb Ö" says Andrew. Since then, Andrew and his team began the descent with the eye on returning to family and friends back home. As of May 26, they have returned to and packed up base camp, then began the hike back toward the world they left two months ago. Andrew concludes this remarkable journey with his heroic act of compassion and humanity to flame his ultimate, triumphant achievement! Hear his adventures first hand! Book Andrew as a keynote speaker to hear his triumphs first hand. Contact The Knowledge Bureau now: 1-866-953-4769. The Knowledge Bureau was a proud sponsor of Andrew's successful return to Mt. Everest. You can review all his online entries for the whole 2008 Mt Everest experienced by visiting his website andrewbrash.com.

In a previous article we discussed that each of the five basic account types is either in a debit balance (assets and expenses typically), or in a credit balance (liabilities, equity and revenue typically). We also learned that as a result of the fundamental accounting equation, the total of all debit balances in the accounts at any one point in time must be equal to the total of all credit balances.  How is this end result of these postings reported? The general ledger is used to produce several standard reports. The primary report, used by the bookkeeper in assessing the completeness and accuracy of the financial records for a business, is the trial balance report. A trial balance is a report reflecting all the account balances in a general ledger at a given point in time. It shows both the total of all debit balances and the total of all credit balances and is used for many purposes. Control ToolThe fact that the trial balance is in balance (that total debits equals total credits), indicates that all transactions recorded and reflected in the trial balance have been posted with some accuracy. While this fact indicates that debits equal credits (a good starting point!), note that it does not mean that all transactions were either classified or reported correctly. Error IdentificationAnother way in which a bookkeeper will employ a trial balance is to use it to identify obvious errors and/or accounts whose balances need to be investigated for possible adjustment. A review of the trial balance to identify such sources of potential adjustment requires that the bookkeeper use both common sense and a knowledge of the business itself ñ that is, that the bookkeeper ask the question, "Does this make sense?" Support for Financial Statements Finally, the trial balance will normally be used as the starting point in preparing the financial statements to be distributed to the owners/managers. The flow from the general ledger to the trial balance to the financial statements can be summarized as follows the bookkeeper summarizes the balances in the general ledger in a preliminary trial balance, obvious errors and/or accounts to be adjusted are identified, accounts to be analyzed further are identified, adjustments required are documented, recorded in the general journal and posted to the general ledger, a revised trial balance is produced, the income statement and balance sheet are prepared from the revised trial balance. Excerpted from Basic Bookkeeping for Business, one of the courses that comprise the Certified Bookkeeping Specialist program.