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Medical Expense – Air Conditioner
In a 27 April 2009 External Technical Interpretation, CRA notes that a taxpayer may claim the cost of installing a central air conditioner as a medical expense providing certain tests are met.
In particular, the taxpayer needs a prescription from his/her doctor which indicates that he/she needs an air conditioner to help cope with an ailment which is both severe and chronic. Also, the medical expense claim for an air conditioner is limited to the lesser of $1,000 and 50% of its cost.
Medical Expenses – Out-of-country
In a 19 May 2009 External Technical Interpretation, CRA notes that the cost of stem cell therapy which is not available in Canada will qualify as a medical expense, including payments to medical practitioners and hospitals and the transportation and travel expenses for the patient and, where an individual has been certified as being incapable of travelling alone, for an accompanying individual.
CRA did note that certain requirements must be met such as substantially equivalent medical services were not available in the individual’s locality.
However, CRA also noted that even where medical services are available nearer to the individual’s locality, if, in the circumstances, it is reasonable for the individual to have travelled to the place where the medical services were obtained, the reasonability requirement would be met.
Medical Expense – Tuition Fees
In a 7 April 2009 Tax Court of Canada case, the taxpayer claimed tuition fees paid to Foothills Academy of $10,499 and $21,525 as a medical expense.
The Court noted that the taxpayer must provide a certificate from an appropriately qualified person (example, a doctor) certifying that:
(i) the person has a mental or physical handicap; and
(ii) by reason of which the person requires equipment, facilities or personnel specially provided by that school for care, or care and training, of people suffering from the same handicap.
Taxpayer Wins – Partially
The Court determined that there was no medical expense due to an inadequate certificate. CRA did say that if a proper certificate was provided they would reconsider the claim.
However, a portion could still be claimed (estimated to be 20%) as remuneration for tutoring services that are supplementary to the primary education of the patient who has a learning disability or mental impairment as certified in writing by a medical practitioner.
CRA Administrative Changes
On 11 June 2009, CRA introduced administrative policy changes for taxable employment benefits. This is a brief summary of some of the changes.
Overtime Meals and Allowances Provided to Employees
For 2009, CRA will consider no taxable benefit to arise if:
- the value of the meal or meal allowances is reasonable; a value of up to $17 will generally be considered reasonable,
- the employee works two or more hours of overtime right before or right after his/her scheduled hours of work, and
- the overtime is infrequent and occasional in nature. Less than three times a week will generally be considered infrequent or occasional. However this condition may also be met where the meal or allowance is provided three or more times per week on an occasional basis to meet workload demands such as major repairs or periodic financial reporting.
If overtime occurs on a frequent basis or becomes the norm, CRA considers the overtime meal allowances to be a taxable benefit since they start taking on the characteristic of additional remuneration.
Municipality or Metropolitan Area
For 2009, CRA will accept that allowances paid for travel within a municipality or metropolitan area may be excluded from income if the allowance is paid primarily for the benefit of the employer. An allowance may be excluded from income when its principal objective is to ensure that the employee’s duties are undertaken in a more efficient manner during the course of a work shift, and where allowances paid are not indicative of an alternative form of remuneration.
For 2009, CRA will no longer require loyalty points (e.g., frequent flyer points) that are controlled by the employee to be added as employment income by the employee as long as:
- the points are not converted to cash,
- the plan or arrangement is not indicative of an alternate form of remuneration, or
- the plan or arrangement is not for tax avoidance purposes.
Where an employer controls the points (e.g. a company credit card), the employer will continue to be required to report the fair market value of any benefits received by the employee on the employee’s T4 Slips when the points are redeemed.
Non-Cash Gifts and Non-Cash Awards
The current rules are that up to two gifts and two awards costing $500 or less are non-taxable to the employee and deductible to the employer.
For 2010, the following changes are being made to CRA’s gift and award policy:
- Non-cash gifts and non-cash awards to an arm’s length employee, regardless of the number, will not be taxable to the extent that the total aggregate value of all non-cash gifts and awards to that employee is less than or equal to $500 annually. The total value in excess of $500 annually will be taxable.
- In addition to the above, a separate non-cash long-service/ anniversary award may also qualify for non-taxable status to the extent its total value is $500 or less. The value in excess of $500 will be taxable. To qualify, the anniversary award cannot be for less than five years of service or for five years since the last long-service award had been provided to the employee. For the purpose of applying the $500 thresholds, the annual gifts and awards threshold and the long-service/ anniversary awards threshold are separate. In other words, a shortfall in value under one policy cannot be used to offset an excess value on the other.
- The employer gift and award policy will not apply to non-arm’s length employees (e.g. relative of the proprietor, shareholders of closely held corporations) or related persons of the non-arm’s length employee.
- For clarification purposes, items of an immaterial or nominal value, such as coffee, tea, T-shirts with employer logos, mugs, plaques, trophies, etc. will not be considered a taxable benefit to employees. Also performance-related awards (e.g. sales targets) or cash and near-cash awards (e.g. gift certificates) will continue to fall outside the administrative policy and will be required to be included in the taxable income of the employee.
See www.cra.gc.ca/tx/bsnss/tpcs/pyrll/bnfts/gfts/menu-eng.html for more information.
Restructuring of Borrowings
In a 31 March 2009 External Technical Interpretation, CRA was asked to review a situation where the taxpayer has a mortgage on a personal property (interest expense is non-deductible) and proposes to sell investments (such as shares and bonds), use the proceeds to repay the mortgage, and then secure a joint line of credit with the personal property as security in order to acquire investment assets to earn income.
CRA notes that a taxpayer may restructure borrowings and the ownership of assets so that the interest is deductible for tax purposes.
Caution: Professional assistance is needed in this area.
Deductible Life Insurance Premiums
Premiums payable by a taxpayer under a life insurance policy used as collateral for a loan may be deductible in computing income from a business or property where certain conditions are met including:
(i) the life insurance policy is assigned to a financial institution in the course of borrowing from that institution;
(ii) the assignment of the life insurance policy is required by the financial institution as collateral for the borrowing; and
(iii) the interest payable in respect of the borrowing is otherwise deductible in computing the taxpayer’s income for the year.
Home Renovation Tax Credit
Under proposed changes a taxpayer can claim a non-refundable tax credit on the 2009 personal income tax return based on eligible expenditures incurred for work performed or goods acquired after 27 January 2009, and before 1 February 2010, in respect of an eligible dwelling. The HRTC applies to eligible expenditures of more than $1,000, but not more than $10,000, resulting in a maximum credit of $1,350 [($10,000 - $1,000) x 15%].
The CRA site at www.cra.gc.ca/hrtc notes that generally any dwelling that you own and is used personally by you or your family can qualify, including your home or cottage.
Examples of eligible costs include renovating a kitchen, bathroom, or basement; new carpet or hardwood floors; building an addition, garage, deck, garden/storage shed, or fence; re-shingling a roof; a new furnace, wood stove, boiler, fireplace, water softener, or water heater; a new driveway or resurfacing a driveway; interior or exterior painting; window coverings directly attached to the window frame and whose removal would alter the nature of the dwelling; laying new sod; permanent swimming pools; fixtures (lights, fans); associated costs such as permits, professional services, equipment rentals and incidental expenses.
Expenses that will not qualify include furniture, appliances, audio and visual electronics, tools, carpet or housecleaning, maintenance contracts, and financing contracts.
Also, CRA notes in a 19 May 2009 External Technical Interpretation, that any window covering, including blinds, shutters and shades, that is directly attached to the window frame and whose removal would alter the nature of the dwelling will qualify for the HRTC. However draperies or curtains would generally not be considered to be fixtures and will not qualify for the HRTC.
Also, in another 19 May 2009 External Technical Interpretation, CRA notes that the larger, heavier type of hot tub that needs to be hardwired directly to the homeowner’s electrical panel would qualify for the HRTC. However the “plug-and-play” type that comes with the cord connected and ready to use, without the need of a permanent electrical installation, would not qualify as it is not enduring in nature and integral to the eligible dwelling.
New Tax Return
The Registered Charity Information Return has been substantially revised by the CRA and the new forms (T3010B) must be used by all Charities for fiscal years ending in 2009. The new return is more than twice the length of the old form (four pages to nine pages), so Treasurers should be prepared to spend more time dealing with the return this year.
Registered charities which are charitable organizations were given a holiday of several years in regard to a component of their disbursement quota relating to investment assets. The holiday is over in 2009! All charities must now add 3.5% of the average market value of their inactive investments to their disbursement quota (the minimum expenditures on charitable activity needed to preserve an organization’s charity status). Treasurers should speak to their accountants to determine the impact on their charity’s operations.
Expenses Incurred by Volunteers on Behalf of a Registered Charity
In a 28 April 2009 CRA Release, CRA notes that where a volunteer has a right to reimbursement from the registered charity for expenses incurred, the charity may treat the reimbursement waiver as a gift in kind and issue a receipt for income tax purposes.
A written direction from the volunteer should be obtained confirming the right to reimbursement and direct the registered charity to issue a receipt rather than provide reimbursement – for example, “I ____ direct that the funds to which I am entitled by way of reimbursement for ____, and would otherwise be forwarded to me by cash or cheque, be transferred to ____ as my gift.”.
The charity should also have a policy in place on reimbursing volunteers.
The charity should report the amount of the gift on the Registered Charity Information Return (Form T3010) both as revenue, and as an expenditure.
BC New HST
The Premier announced in July that effective 1 July 2010, BC will combine its Provincial Sales Tax (PST) with the Federal Goods and Services Tax (GST) into a single Harmonized Sales Tax (HST) at a rate of 12%. Point-of-sale rebates will be made for a number of goods which are currently exempt from PST including: gasoline and diesel fuel, books, children’s clothes, and new homes (pre-owned homes are already exempt from HST). A BC HST credit will also be available to low-income individuals, similar to the existing GST credit and carbon tax credit.
GST/HST New Housing Rebates
In April 2009, CRA released a 27-page Guide RC4028, GST/HST New Housing Rebate, which provides information if you built or bought a new or substantially renovated house (including a condominium unit and a mobile home), if you built a major addition to your existing house or if you converted a non-residential property into your house. The Guide explains the New Housing Rebate including Forms GST190 and 191.
Sale of Real Property
Under the Excise Tax Act, sales of real property in Canada are generally subject to GST/HST unless the supply is eligible for a specific exemption such as where the sale is made by an individual, unless it was used primarily in a business carried on by the individual with a reasonable expectation of profit.
Input Tax Credits (ITCs) – Caution
In a 2009 Federal Court of Appeal case, Telus acquired business assets from EdTel and filed a joint election under the Excise Tax Act such that the purchase resulted in no GST. However, some of the business assets acquired had not yet been paid for by EdTel and, therefore, the Agreement stated that Telus would pay the unpaid liabilities plus the GST of $1.8 million.
CRA successfully disallowed the $1.8 million of GST ITCs on the basis that Telus was not the recipient of the supplies for GST purposes.
Also, in corporate structures, it is important to ensure that it is only the recipient of the supply that claims the ITC. CRA has made assessments where the wrong person in a corporate group has claimed the ITCs.
Home Construction Industry
In a 41-page CRA Release (RC4052), CRA discusses the GST/HST information for the Home Construction Industry including who remits the tax, filing the return, claiming Input Tax Credits, substantial renovations, sales of real property, grants and subsidies, and special situations.
Your regular Firm News contributor, David Rolfe, is currently away from the office enjoying some well-earned vacation time. As previously reported, Greg Lonsbrough retired on 31 July however he continues to provide advice and ongoing support while allowing himself additional time to enjoy his Pender Island retreat and more time at home. In July, we were very pleased to announce the merging of another CA practitioner with our firm, Abdul Allibhai who joins us with his staff member, Gord Sing. Abdul has practiced in Vancouver for 30 years and brings with him a very loyal group of clients. We hope that you enjoy the continued relationship with Rolfe, Benson.
As David Rolfe is away from the office, we thought this would be a good time to give you a little information on him. David obtained his CA designation in 1955 and started this firm on 8 December 1958. Many of you might wonder if David will ever leave however we have come to realize that this is his second home and he is likely not going anywhere nor will we let him. Over the years, David’s involvement in many activities include: sporting, charitable, business and community events has kept him very busy doing the work that he seems to enjoy so much. When not in the office, David has a variety of outside interests that keep him so busy that we suspect he doesn’t actually sleep. Under David’s management for 40 of our 50 years, Rolfe, Benson has built a solid reputation providing good business advice with a strong moral grounding. The firm hopes to continue in that fashion well into the future and with a little nudging from David, we seem to be on the right track. Our profession continues to change and evolve and as we keep up with these changes, David is always around to provide his opinion, insight and direction. We’re not sure if he’ll be around in another 50 years, although the odds makers are suggesting that it might be a good bet.