Tax Tip: The More Obscure Medical Expenses

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

17% of family units held equity in a business.1 By the year 2013, 41% of business owners in Canada are expected to exit their businesses2. Over 60% of entrepreneurs age 55 to 64 have yet to discuss their plans with their families. The primary reason for this: They think it's too early! These statistics are important because transitions of businesses are typically not successful. In fact, 72% of family assets will be gone within the first and 90% within the 2nd generation3, the reasons for such a significant track record of failure in successful transfers amounts to lack of trust, lack of communication and unprepared heirs. Lack of or out of date succession planning is another major factor. Addressing and working to avoid such business succession failures is an important component of wealth management for the Canadian economy. For this reason we are pleased to present Succeeding in Business Succession, a series of five "Did You Know" information segments featuring instruction from financial advisor Douglas Nelson, author of Advising Family Business, a certificate course from The Knowledge Bureau. This new course has be chosen for students in the Retirement Income Specialist program leading to the MFA Designation, for its importance in helping advisors understand the important issues business owners face in transitioning the firm or farm to a new generation. So, what keeps business owners from planning? Check it out in Breaking Tax and Investment News and knowledgebureau.com. NEXT TIME: Working in or on your business? 1 Statistics Canada 20072 CFIB Survey 20073 William Group Survey and Preparing Heirs 2003

Alan Rowell, DFA from The Accounting Place in Stoney Creek Ontario writes: In the Ontario Economic Outlook release last November, the Ontario government raised the maximum investment in LSIF's to $7,500, creating a maximum credit of $1,125. CRA is not processing returns with this credit. CRA is processing at the "old" $750 maximum credit stating: "The legislation authorizing an increase to the maximum allowable tax credit is not yet law. If your return is affected by this legislation, we will review it for a possible adjustment to reflect the new maximum amount once the legislation has been enacted by the Government of Ontario" Although this announcement has been implemented in some tax preparation software, the printed forms distributed by the CRA do not reflect this announcement.

Tax filing deadlines compel most ó but not all ó of Canada's 23 million tax filers to arrange their affairs and reconcile last year's taxes by April 30. There are however, many late filers. Last week's Breaking Tax and Investment News covered the penalties associated with non-compliance in depth. Failure to file will also cost you potentially large sums when you miss important planning opportunities. For example, tax form T1032 Joint Election to Split Pension Income must be filed by your tax filing due date (which for most people is April 30). This is a very lucrative income splitting opportunity for those receiving qualifying pension income and it would be a shame to miss the extra tax refunds due to tardy tax filing habit. Those advisors in the tax and financial services industry should be sure to call all clients who have not yet filed a return by April 30 to maximize availability of this type of provision and of course avoid late filing penalties. CRA should continue to be on the radar screen, however, even after this week's April 30 tax filing deadline. Please be sure to diarize milestones that maximize your rights under the Income Tax Act: KNOWLEDGE BUREAU CHECKLIST: INCOME TAX DEADLINE MAXIMIZER WITHIN THE TAX FILING YEAR ENDING APRIL 30 April 30 Tax Filing Deadline: Personal Tax Returns May 1 Interest accrues daily on overdue taxes owing June 15 CRA owes interest to tax filers on late processed refunds (in fact, the agency has an obligation to process refunds within 45 days of receipt of the return after April 30) Tax Filing Deadline: Proprietorship Returns Quarterly Instalment Payment Due July 1 New Benefit Year: Child Tax Benefit, GST Credit, Old Age Security (file 2007 tax return to determine benefit levels) August 31 Working Income Tax Benefit Advance Payment Application for 2008 September 15 Quarterly Instalment Payment Due December 15 Quarterly Instalment Payment Due December 31 Annual Instalment Due for Farmers, Fishers January 16 Request to Defer Tax on $100,000 of Securities Options January 30 Requirement to pay interest on inter-spousal loans February 28 T4 Slip Completion and Distribution March 15 Quarterly Tax Instalment due March 31 T3 Slip Completion and Distribution Interest Penalty Due on RRSP Excess Contributions For more information on tax planning provisions and compliance requirements subscribe to The Knowledge Bureau's online tax reference for taxpayers, financial advisors and their clients: EverGreen Explanatory Notes. To increase your knowledge and train new staff ready to help your expanding practice in tax season 2008, enrol in tax courses within the Tax Services Specialist program from The Knowledge Bureau. Next time: Just How Long do you Have to Keep Those Tax Receipts in your Closet?

Andrew Brash Update Andrew Brash, Knowledge Bureau Faculty member is exactly where he has trained to be. Andrew and his team continue to acclimatize to the altitude and prepare for the climb ahead. The pace climbers move from base camp can impact their entire climb. Rushing the assent leaves your body without the stamina to handle the climb. Stalling too long puts a climber at risk of missing a weather window. "Ah, Everest base camp. Some have called it a circus, a zoo, a repository for misfits, mutants and just plain strange people (ourselves obviously being no exception). It also happens to be a place where it is possible to experience warm hospitality and friendship." We will continue featuring an ongoing update on his climb to the summit as part of Breaking Tax and Investment News or you can track his progress by visiting his website http://www.andrewbrash.com/ for live updates from the expedition. Stay tuned for updates! To book Andrew as a keynote speaker for your next conference or educational event contact The Knowledge Bureau, 1-866-953-4769.

With the April 30 filing deadline just around the corner, now is a good time to review two essential questions with taxpayers: Is the taxpayer aware of the penalties and offences for non-compliance with CRA? Has the taxpayer reported all income and deducted/claimed only legitimate amounts during form filing? It's important to stay on the right side of CRA, as the agency is empowered to impose a variety of punishments on taxpayers who fail to comply with the Income Tax Act. And of course, it's important to note at the outset that, under S. 18(1)(t) fines for charges levied under the Income Tax Act are not deductible. Here's what taxpayers and their advisors need to know: Layers of Penalties Exist. Penalties are charged under S. 162 and 163 prior to the commencement of criminal prosecution proceedings, which are undertaken in cases where a taxpayer has intentionally participated in tax evasion. In such cases, the consequences of successful prosecution are covered under the charging sections of the Income Tax Act in S. 238 and 239, Offences and Punishment. If a taxpayer is convicted of an offence under S. 238, the penalties under S. 162 and 163 may not be subsequently applied. However, if the penalties were assessed before the complaint gave rise to a conviction, both penalties and offences may be charged. It is therefore common practice for CRA to issue a reassessment notice with penalty charges assessed under S. 163 prior to prosecution proceedings.  Cost of Penalties. Common administrative penalties levied by CRA for non-compliance, excerpted from The Knowledge Bureau's EverGreen Explanatory Notes include the following: Failure to file a return on time ñ 5% of unpaid taxes plus 1% per month up to a maximum of 12 months from filing due date, which is June 15 for unincorporated small businesses Subsequent failure to file on time within a 3-year period ó 10% of unpaid taxes plus 2% per month to a maximum of 20 months from filing due date Failure to provide information on a required form ó $100 for each failure Failure to provide Social Insurance Number - $100 for each failure unless the number is applied for within 15 days of the request Failure to make partnership information return ó For each such failure, the greater of $100 and the product obtained when $25 is multiplied by the number of days, not exceeding 100 during which the failure continues.  Repeated failure to file partnership information return ó For each such failure, the greater of $100 for each member of the partnership for each month or part month not exceeding 24 months during which the failure continues.  Failure to provide information with regard to a foreign-held property ó $500 per month for a maximum of 24 months; $1,000 a month for a maximum of 24 months if there is a failure to respond to a demand to file plus an additional penalty of 5% of the value of the property transferred or loaned to a foreign trust or the cost of the foreign property where failure to file exceeds 24 months Gross negligence: false statement or omission of information in the return - 50% of tax on understated income with a minimum $100 penalty. This penalty will also apply to a false statement relating to the GSTC. False statements or omissions with regard to foreign properties ó 5% of the fair market value of contributions made to the property, minimum of $24,000 (Note: the burden of proof for establishing facts leading to penalties is on the Minister) Effect of carryback of losses ó Deemed not deductible to reduce penalties under S. 163(2.1) S. 163(4) Late or insufficient instalments ó 50% of interest payable exceeding $1,000 or 25% of interest payable if no instalments were made, whichever is greater. Misrepresentation by a Third Party: penalty for tax planning arrangements or valuation activities ó the greater of $1,000 and the total of gross entitlements from the plan or in all other cases, $1,000 Third party Participation in make of false statements ó greater of $1,000 and the lesser of the penalty to which the taxpayer is liable to under S. 163(2) and the total of $100,000 plus the person's gross compensation Failure to deduct or remit source deductions ó 10% of amount not withheld, or remitted Second such failure in same year ó 20% of amount not withheld or remitted if this was done knowingly or through gross negligence. Cost of Offences and Additional Punishment. Convictions under S. 238 and 239 result from criminal prosecution. The taxpayer must be found guilty beyond a reasonable doubt in order to be charged with these consequences. The taxpayer's advisors can also be found guilty and charged under these sections. Here are some of the consequences: Failure to make or file a return as required ó A fine of not less than $1,000 and not more than $25,000 or both fine and imprisonment for a term not exceeding 12 months. Tax Evasion including making of false, deceptive statements, in a return, certificate, statement or answer, destroying, altering, mutilating, books or records, assenting to false or deceptive entries, or otherwise willfully evading tax or conspiring to commit tax evasion with any person ó A fine of not less than 50% and not more than 200% of the amount of tax sought to be evaded or both the fine and imprisonment of not more than 2 years.  Tax Evasion, but relating to the claiming or refunds or credits - A fine of not less than 50% and not more than 200% of the amount of tax sought to be evaded or both the fine and imprisonment of not more than 2 years.  Prosecution on indictment: any person charged with an offence under 239(1) or 239(1.1) may be prosecuted at the election of the Attorney General of Canada to a further penalty ó in addition to any other penalty. ó A fine of not less than 100% and not more than 200% of the amount of tax sought to be evaded or credits sought to be obtained. Providing incorrect tax shelter number to another person - A fine of not less than 100% and not more than 200% of the cost of that other person's interest in the tax shelter . Contravening an order not to communicate confidential information by government official ó A fine of not more than $5,000 or imprisonment of up to 12 months or both. Communication of taxpayer's SIN ó A fine of not more than $5,000 or imprisonment of up to 12 months or both. Remember, it is every taxpayer's legal right and duty to arrange financial affairs within the framework of the law to pay the least amount of taxes possible. But if your intent is to defraud, or if you are negligent, there can be a very steep price to pay. Click on these links now for more information on the Knowledge Bureau's Tax Services Specialist programs or EverGreen Explanatory Notes.

Andrew Brash Update Andrew Brash, Knowledge Bureau Faculty member has settled into the routine at base camp. He and his team are testing rope lines and practicing rope work for the climb ahead. One of the obstacles Andrew and his team will face early in the climb on this side of Mt. Everest is the Khumbu Icefall. This formidable advisory comes with a reputation that proceeds it as one of the most dangerous stages of the South Col route. The Khumbu Icefall is at the head of the Khumbu Glacier, which advances down the mountain three to four feet a day. This movement puts the icefall in a constant state of change ñ crevasses can open up with no notice or be buried under snow, causing climbers to fall in. The icefall is close to base camp and allows climbers to do ëtest runs', exactly what Andrew and his team have done. "Today after years of reading, watching and listening to horror stories about the legendary Khumbu Icefall, I entered it with some trepidation to say the least. What I found was without doubt a serious mountaineering undertaking, but one with which I felt more comfortable than I would have imagined. It was in fact quite a relief to calm my fears concerning this infamous obstacle that is often considered the key to the mountain." We will continue featuring an ongoing update on his climb to the summit as part of Breaking Tax and Investment News or you can track his progress by visiting his website http://www.andrewbrash.com/ for live updates from the expedition. Stay tuned for updates! To book Andrew as a keynote speaker for your next conference or educational event contact The Knowledge Bureau, 1-866-953-4769.