Archive for June, 2014

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Warm Holiday Counts as Reasonable Medical Expenses?

Should taxpayers be able to deduct travel expenses to warmer climates as medical expense tax credits (METCs) to alleviate pain and suffering?

Unknown ObjectOur legal researcher, Greer Jacks, found an interesting case, Tallon v. The Queen, which considered just that and in the process allowed the taxpayer a lucrative winter holiday bonus. Here’s what happened:

The taxpayer suffered from chronic pain and was prescribed by her doctor to live in a warmer climate than Canada can offer in the winter. After an appeal to the Court, the appellant was successful in claiming expenses in her 2008 taxation year, but her claim of $17,494.50 as METCs in her 2009 taxation year for her and her spouse to travel to Thailand and Indonesia was denied by the Canada Revenue Agency.

At trial, the Crown alleged that the appellant’s doctor’s certificate was insufficient, a complaint that was not made in 2008. In order to successfully claim METCs under subsections 118.2(2)(g) and (h) of the Income Tax Act, the medical services must not be available in the local community, the route taken must be a direct route, and it must be reasonable for the taxpayer to travel to that place to obtain the services. The claim can include the expenses for another if there is a medical certificate stating that the patient cannot travel alone.

The Honourable Justice Judith Woods was concerned that she was not provided with the reasons for judgment (given orally) in the appellant’s 2008 decision, but was only given cases by Crown counsel that sought to distinguish that decision. When Crown counsel offered to arrange for a transcript of the oral reasons subsequent to the hearing, Justice Woods stated that in this particular case the additional time and cost were not justified (it was a hearing under the informal procedure that was heard in Toronto rather than Thunder Bay for the purposes of an expedited decision).

Although finding in the appellant’s favour, Justice Woods shared a little skepticism about the claim in her concluding remarks. At paragraph 27 she said:

 “Before concluding, I would mention that I am troubled about the number and location of countries that Ms. Tallon and her spouse have visited over the years, which are mentioned above. This leaves me with the impression that these locations were not chosen only for medical reasons. I leave this issue for another day because the Crown did not argue that the reasonableness requirement in s. 118.2(2)(v) was not satisfied.”

What do you think? Should these expenses have been allowed? Or was this an $18,000 vacation on the taxpayers dime. Post your thoughts on our Facebook page.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management”  Follow Evelyn on Twitter at @EvelynJacks.


Illness is Expensive; Tax Savings Can Help

One of the most common yet most missed provisions on the personal tax return is medical expenses, and in an aging demographic, they are more prevalent.

This means there is a greater chance that professional counselling is required on this topic to ensure taxpayers claim all the expenses they are entitled to.

The allowable list is lengthy. . .so is the list of ineligible expenses. The first rule for the best claim is to group medical expenses into the best 12 month period ending in the tax year; then make the claim on the return of the spouse with the lower taxable income. That’s because medical expenses are reduced by 3% of net income on line 236. Lower earners generally get a better claim.

So what’s deductible? The list of expenditures prescribed by qualified medical practitioners includes:

  • Air conditioners
  • Attendant care expenses
  • Bathroom aids and incontinence products
  • Cancer treatments and travel to receive them if not available in your home town
  • The incremental costs of gluten free products
  • Hearing aids and their batteries
  • Insulin and its monitoring devices
  • Whirlpool bath treatments

And what’s not deductible? Notably for the elderly:

  • Personal response systems such as Lifeline and Health Line Services
  • Athletic or fitness club fees
  • Blood pressure monitors
  • Cosmetic surgery
  • Organic food and over-the-counter vitamins and supplements

In some cases, medical expense claims fall into a “gray area.”

It’s Your Money. Your Life. Now’s a good time to go over your tax return to see if you claimed everything to your advantage this past tax filing season. If not, contact a tax specialist to adjust your return.

NEXT WEEK: A surprising case on warm climate retreats.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management”  Follow Evelyn on Twitter at @EvelynJacks.


Ostriches Aren’t Smart; Tax Penalties Are Expensive

Well it’s that time of the year again. . .tax audit season. The ostrich approach is one way to cope, but not the smartest.

Rather, getting your head out of the sand and taking one more look at the validity of the claims on the tax returns you prepared – for yourself and your clients – is really important before submission to the glorious cottage season. The alternative approach, in fact, could ruin many sunsets to come.

The onus of proof is on the taxpayer to show that all the information on a tax return is properly reported – all the income is reported from all sources, including barter transactions; all the deductions are matched to income-earning potential; documentation is available to back up those numbers and all tax credits – refundable and non-refundable alike – are properly claimed (no hiding that common-law relationships, for example).

However, when there is potential fraud, in addition to late filing and gross negligence penalties, criminal prosecution can be pursued by CRA. The onus of proof Is on CRA to show your willful intent, but both taxpayers and their professional advisors can also be found guilty and charged. . .and the consequences are expensive, as shown in the chart below.

 

Offence Punishment
Failure to make or file a return as required. 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, or otherwise willfully evading tax or fraudulently claiming 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 two years.
Prosecution on indictment: any person charged tax evasion may be prosecuted at the election of the Attorney General of Canada to a further penalty—in addition to any other penalty. 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.
Communication of confidential information by government official. A fine of not more than $5,000 or imprisonment of up to 12 months or both.
Communication of taxpayer’s SIN. A fine of not more than $5,000 or imprisonment of up to 12 months or both.

 

It’s Your Money. Your Life. Filing accurate tax returns on time is one sure-fire way to preserve wealth in the family. And, in contrast to the economic and political black swans we cannot do much about, avoiding tax penalties is completely within our control.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management”  Follow Evelyn on Twitter at @EvelynJacks.


Affluence Is About Managing Cash Flow

What is wealth? Many people don’t think that “wealthy” describes them or their lifestyle, but to the outside world they may seem quite affluent. Wealth really is more about a state of mind than an actual number.

I like to think of it as that time in your lifecycle where you can say with absolute certainty, “we have enough. . .for today and the future too.”

To get there, it’s important to understand how much you are worth today. Do a personal and a family net worth statement. You’d be amazed how few families actually take the time to do this, but it’s really important from a tax point of view in order to minimize the risk of tax erosion should something happen to you.

Take the time now to value of all your assets and how much insurance you’ll need to pay the taxes on any unexpected tax liabilities. Do a will, health care plan and power-of-attorney review at the same time.

The truly wealthy achieve more for themselves and all the stakeholders around them because they take the time to know the numbers: their net worth, cash flow (before and after tax), and future needs. Three things to remember in planning:

  1. Include a Tax Filter. Measuring wealth “before tax” can over-exaggerate the true amount of financial capability when we need it. Talk to your tax professional about planning your after-tax income now.
  2. Measure Active and Passive Income Often. If one of the primary purposes of wealth is to have enough financial resources to replace your actively earned income in the future, then we must plan to build passive income sources by acquiring “income producing capital”. Is your portfolio of investments designed to do that? An astute investment advisor can help structure a portfolio design that will.
  3. Plan for Liquidity and Purchasing Power. Is money available in the future when needed? What will it be worth – after tax – when you need it? Plan sustainability of income by including both a tax and investment lens in your planning.

It’s Your Money. Your Life.  Leverage all your resources – time and money – to get the peace of mind you deserve in the future. That requires a deliberate process and, quite often, the help of tax and financial advisors. Secure your happiness and peace of mind working with the right people on the right plan.

Evelyn Jacks is president of Knowledge Bureau and author of 51 books on tax and personal wealth management. She is also the founder and director of the Distinguished Advisor Conference (DAC). The theme of the 2014 three day think tank in Horseshoe Bay, Texas Nov 9-12 will be “Think BIG: Find the Sweet Spots in Wealth Management”  Follow Evelyn on Twitter at @EvelynJacks.