taxdetective-Sandusky-Register

As you prepare tax returns remember to listen for clues that someone has a disability or an infirmity. Keep in mind that they aren't the same thing.

For disability: Review the RC4064 guide and complete an application on Form T2201 reviewing definitions with the help of videos created to assist doctors with certification found on this page by clicking on the definitions under Step 1
http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/dsblts/qlfd-prcts/rspnsblts-eng.html

Remember that it's not just impairment in ability, it's also about it taking an inordinate amount of time to complete an activity, that defines impairment in ABILITY

Consider cumulative effect of a significant impairment in two or more categories may qualify one for the disability tax credit.
http://www.cra-arc.gc.ca/tx/ndvdls/sgmnts/dsblts/menu-eng.html

For infirmity: Review my earlier post and a reminder, complete a new TD1 federal/provincial to have less tax taken at source now for 2012 if you expect a tax refund... why let them have the use of your money when you could put it to better use paying down your credit cards or other debts?
http://taxdetective.blogspot.ca/2012/02/what-does-infirm-mean.html

Click the title for another reading list on retirement topics

What always rips me up is involuntary separation and in particular how only one of the parties can claim the GST/HST credit. It's a fight to get to the post box first with the tax return as only the first to file gets the credit.

Service Canada handles GIS adjustments as a result of a separation that isn't voluntary. You'll be required to complete a number of forms to request consideration for income from pension splits to not be considered for GIS for prior years as they are calculated on the June 30th basis not the calendar year, and GIS can be amended without an amendment to the personal tax return for a pension split.

It's very time consuming to figure it all out, and requires a visit to their offices with documentation to verify the separation, (the ambulance invoice and hospital/care facility invoices will do).

If the cost of care is an issue for a funded bed, an amendment to the personal tax return for the prior year to reverse a pension split may be necessary, plus payment of the extra tax so that the combined income isn't factored into the calculation of income by the social worker. Net income is how the cost of care is calculated (in BC it's 80% of net income) and pension splits are included for the provincial calculation.

Click the title for some topical reading about hiring a caregiver in Canada.

Click the title to access the Letter about what the MOH considers that it pays for when funding beds in BC.

This ruling provides some clarity around multiple claimants for the same patient.

If you're confused about what changed about personal tax credits, when it comes to the $10,000 join the crowd...you have reasons to be confused.

Not only is there a rule that says that if you claim the DTC and up to $10,000 of attendant care costs, you can't claim in the same year for other types of attendant or nursing or group home care. It's one or the other but not both in the same year...so it's necessary to perform what if calculations for which is the optimal claim, but you aren't going to be able to claim, in a year of transition from attendant care to nursing home care, the entire cost of care. Not possible.

What changed is that the limit on claiming medical expenses for a dependent over 18 was $10,000 and now it's limitless as of 2011.

Well, that's only partially true. There are limits, also $10,000, found in the medical expenses S. 118.2(2)(b.1). If you're paying medical expenses for attendant care and the patient does qualify for the disability tax credit claim, it's possible to claim the DTC and up to $10,000 of attendant care. Those expenses are limited to $10,000 for the individual (if you read the Income Tax Act, S. 118.2(2)(b.1) says the limit is $10,000 or $20,000 in the year of death of the individual, which when you go backwards to the definition of individual, that's not really the patient, for whom the medical expenses are being paid, but the person making the claim for those paying those expenses, which is really confusing.

For anyone who's overly paranoid, this will fuel your paranoia. I once had a discussion with a senior finance officer in Rulings who told me that they have chosen to ignore that the ITA says, and go with it's the patient, not the individual claiming for whom this rule applies. They also ignore that it says that if you pay one penny more than $10,000 that you can't claim anything. They've chosen administratively to ignore that the ITA doesn't say what they want it to say. One does wonder how long this will continue to be the case.

To further compound your anxiety about how to apply the ITA when claiming for attendant care costs, the BC Gov't has stated in a letter to care homes that they pay the cost of care when it's a funded bed, and the 80% the tenants pay, that's supposedly not medical expenses, as those are covered by the gov't. They claim what you are paying is the rent and the non medical costs of living expenses, which means you really may not have a claim for medical expenses at all.

If you are a BC care facility, I'd be talking to a lawyer about an opinion on issuing receipts claiming that your tenants are paying attendant care costs when the gov't is saying they paid for that, and that your tenants are only paying rent.

Q: Are the QuickBooks data files available?
A: Yes, they are available under the Links tab on my website

Q: I have a sole proprietor who incorporated Nov 23/11. She did nothing different about running her business after Nov 23rd. She has chosen October 31, 2012 as her year end. My question is do we STOP recording transactions in the sole proprietors data file on Nov 23/11 or on October 31/11 or do we continue to Dec 31/11? Would we still go thru the processes you discussed today to move balances from the sole proprietor's data file to the new compoany data file? There are no loans or assets for this client. GST became effective Jan 2012 for the Inc. (newco) so what happens to the GST for the sole proprietor from Nov 23/11 to Dec 31/11?
A: I don't really have answers for you as your first question is a legal one and I don't practice law. When your proprietor incorporated, was there a business with a valuation that should have been sold to the corporation? If so, where is the contract for the sale/purchase of the business? Why did GST become effective in Jan/2012 for the Newco? It should have become effective when the newco started operating if the sole proprietor was a registrant, there should not have been any lapse.
Just because you incorporate doesn't mean you own the right to the business automatically. There must be a contract to move the business (as in a purchase/sale agreement) to start using the corporation for the business.

Q: I was taught that personal income tax owed by a proprietor is never shown on the business financials - has that changed or is this just for the purposes of this lesson?
A: Good question. A financial report can have anything you want on it and if your standard is not to show the tax because it's personal, that's fine. It's also fine to show it if it makes sense to show it, and for the purposes of this exercise, where I was showing the rental and business income only and doing a pro-former (example in fancier words) I wanted to show the integration of tax. Remember integration is where the tax effect should be approximately the same, whether its personal or corporate, and when you want to choose between corporate or personal tax treatment, sometimes there is a difference or a deferral depending on the rates. We also talked about how if this was a personal services business there could be a huge difference as integration doesn't work because of the decision that this type of corporation would be penalized, and taxed exactly the same as if the person were an employee.

Q: If a sole proprietor purchases computer equipment for the purposes of the corporation 3 weeks before he gets his incorporation date, can these be posted in the corporation and offset to shareholder loan or do they have to be run through the sole proprietorship?
A: There are some special rules about bringing assets into the corporation from personal and it would be best to read those rules. Having said that, the sole proprietorship is the person. The person owns an asset, and the asset is now being sold to the corporation. There should be a contract for purchase/sale and tax consequences must be effected.

Q: Is it possible to get a copy of the PowerPoint?
A: The PowerPoint really isn't very useful, it's just a talking point guide, better to get the video and it's for sale on my website now in the Store @ www.taxdetective.ca/shop.html. If you are an IPBC member, it's 50% off by accessing special pricing page found by going to my Partner page on the IPBC.ca website once you are logged in as an IPBC member.

Q: What are some of the major advantages of incorporation? ...given all the drawbacks discussed today?
A: LOL, now that's a good question. I'll leave that for the lawyers and your clients to discuss. It's expensive to incorporate, and to maintain a corporation requires special skills and knowledge. The reasons to incorporate should be legal ones relating to limiting liability, or sharing income with investors who have provided capital or sweat equity, via dividends, should there be excessive income over and above salaries. If you don't follow proper procedures to incorporate, and to purchase the business, as well as the assets, you may find that your corporation isn't doing business with the rights it requires to do the business. Don't forget to sell the business, not just the assets!

To download the QBB sample files, or if you aren't a QuickBooks user, access the samples of both proprietor and newco Journals or the GL in PDF format, click below:

http://www.taxdetective.ca/bkpgtransitions.html