Brush Up on Claiming Medical Expenses

Claiming medical expenses can itself be painful: There are so many receipts and tiny numbers involved with making the claim!

Nonetheless it’s definitely worthwhile for taxpayers and their advisors to be aware of how they can save money in this area. Medical expenses themselves are common, yet most of us don’t know exactly what’s deductible, so there are lots of misses when claiming these common costs. Get ready for some “aha moments” as we look closely at claiming medical expenses.

Most people know, for example, that they can claim medical expenses for their nuclear family: mom, dad and their minor children; but you can also claim for others who are dependent on you: children over 18, grandchildren, parents, grandparents, siblings, even uncles, aunts, nephews and nieces if they are resident in Canada.

There are also a host of interesting costs that are deductible, provided they are unreimbursed by a medical plan. So, for example, if you are on a medical plan at work, and it covers 80% of all these costs, you can claim the 20% that is not covered by the plan.

Furthermore, the premiums for private medical plans are claimable too, including those provided by an employer. Check pay stubs and Box 40 of the T4 slip for the premiums in this case.

Generally, the costs of visiting the following medical practitioners are eligible:

• dentist or dental hygienist • medical doctor or practitioner

• optometrist • pharmacist

• psychologist or psychoanalyst • chiropractor

• naturopath • therapeutist or therapist

• physiotherapist • chiropodist (or podiatrist)

• acupuncturist • dietician

• nurse, including a practical nurse whose full-time occupation is nursing • audiologist

Eligible medical treatments include:

• medical and dental services, eyeglasses, hearing aids and their batteries • attendant or nursing home care

• ambulance fees • guide dogs or dogs to manage severe diabetes, including care and travel for training

• prescribed alterations to the home to accommodate disabled persons • cost of training a person to provide care for an infirm dependant

• lip reading or sign language training • tutoring services for a patient with a learning disability or mental impairment

• drugs and lab tests prescribed by a medical practitioner and recorded by a pharmacist • private health plan premiums, including group insurance premiums, Blue Cross premiums, and travel insurance costs

Next time we take a look at some eyebrow-raising write-offs that might make a knowledgeable tax expert the most interesting person around the water fountain

The Mad Dash to April 30 – Stay Focused on the Plan

The great tax filing race is on. Most people know that April 30, the tax filing deadline for individual taxpayers, is three weeks away.

But in the heat of the moment it is easy to forget that this is the most significant financial transaction for many taxpayers. If you are a tax and/or financial advisor bent on using this event as a “teachable financial moment”, the big question, in terms of maximizing and leveraging that significant windfall is to remember to ask a simple question:

“What are you going to do with your tax refund–will you spend it or invest it?”

With the average refund last year coming in at $1700—and with the new Family Tax Cuts and enhanced Universal Child Care Benefits providing additional windfalls for some —the average Canadian could double today’s average retirement savings just by investing their tax bonuses! It’s a significant value proposition to clients when their tax and financial advisors can help them discipline their decisions and leverage their tax options.

Here are six tax efficient ideas for building wealth using a tax refund. Be sure to discuss them during the rush to the tax filing deadline:

1. Bad Debt: Pay off expensive, non-deductible debt, like credit card balances. (Then vow to budget and live within your means, saving first, before spending.)

2. Save within a TFSA—the Tax Free Savings Account. It’s a great place to park money and earn tax free investment income. Clients must file a tax return to build TFSA, as well as RRSP contribution room.

3. Use RRSP Room: If there is taxable income, investing in an RRSP brings immediate tax savings–in the double-digits, money that can then be used for a TFSA contribution.

4. Invest in an RESP: For clients with children or grandchildren the RESP comes with a sweetener—the Canada Education Savings Grants and Bonds.

5. Invest in an RDSP: Invest the money in an RDSP—a Registered Disability Savings Plan—for a family member who qualifies for a Disability Tax Credit, and benefit from the grant and bond structures available here.

6. Invest with Tax Efficiency: Invest the money in non-registered accounts, after exhausting the possibilities above, with a view to earning tax efficient income like dividends and capital gains.

And yes, it’s true, best advice and intentions, some people will simply succumb to the pleasure of consumerism. Oh well, at least it will stimulate the economy!

But, do ask your clients to think about this for next year: the trick to mastering your money is to take control of the first dollar you earn, hold on to it the longest through wise investment choices, and then, pass along the most to yourself in retirement and your heirs at death. Good luck in the countdown to April 30th… and try to get some sleep!

Tax Hikes in Alberta Affects Cottage Owners and Insurers

There are three certainties in life: death, taxes and change. That’s why taxpayers and their advisors must take note when provinces like Alberta raise their taxes for the first time since 1987.

And with this latest news, we are likely seeing the end of the lowest taxed era in Canada since the turn of this century.

What has happened in Alberta is that the flat tax of 10% is ending in 2016 in favor of two higher tax brackets for those who earn over $100,000 in taxable income. A temporary tax will also be instituted over three years starting in 2017 for those who earn over $250,000.

In addition, however, the charitable donation tax credit will decrease for amounts over $200, from 21% to 12.75% making it less advantageous to give with tax relief than in the past. Another important change hits further down the income brackets.

The upper middle class will pay more, sooner, for their health care. The Health Care Contribution Levy kicks in on July 1, 2015 and is deducted through payroll remittances, or prepaid through quarterly tax remittances. It will form part of the income tax filings for 2015.

But it’s in the fine print that didn’t make the headlines that further tax increases in other areas of the budget really shine. In some areas, Albertans are going to be in for a real surprise. For example, there is a new Insurance premiums tax increase of 1% starting on April 1, 2016. This amount will be received by insurers and remitted: 3% on life, sickness and health, 4% on other insurance policies. While it’s the first increase of its kind in 25 years, advisors should take note.

It’s going to be important to slow down, too. Traffic fines are going up 35% across the board. Your speeding tickets are going start cutting into the shoe budget pretty quickly, going up to $474 at the maximum level. If you run a red light, that’s now going to cost $388 and if you fail to stop at a stoplight – $233.

But it’s cottage owners whose properties are on cottage lot leases that will be hit perhaps the hardest. Fees are going up from $600 – $700 a year to between $1200 and $1400 a year.

Despite the fact that a New Alberta Working Family Supplement is ear-marked for July of 2016, families who have made gains under the Family Tax Cuts and enhanced Universal Child Care Benefit may want to think carefully about spending the money they’ll receive by July 2015 too quickly. Looks like in Alberta, at least, you may be forking your vacation windfall money from the federal government to the province in their various new fees and levies.