Two quarterly newsletters have been added—one about personal issues, and one about corporate issues.

Two quarterly newsletters have been added—one about personal issues, and one about corporate issues. They can be accessed below.

Corporate:

Issue #19 Corporate

Personal:

Issue #19 Personal

A number of circumstances and developments have come together over the past few years to make working from a home office—once almost unheard of—a common fact of business life. First and foremost, of course, is the technology (particularly communications technology) which enables the home-based worker to have access to all of the information and services available to his or her in-office counterpart. Given the right technology, it’s nearly as easy for an employee working from home to send and receive e-mails through the employer’s communications network and access the people, information, and services needed to do his or her job in the same way as it would be if he or she was at the office.

A number of circumstances and developments have come together over the past few years to make working from a home office—once almost unheard of—a common fact of business life. First and foremost, of course, is the technology (particularly communications technology) which enables the home-based worker to have access to all of the information and services available to his or her in-office counterpart. Given the right technology, it’s nearly as easy for an employee working from home to send and receive e-mails through the employer’s communications network and access the people, information, and services needed to do his or her job in the same way as it would be if he or she was at the office.

While technology has made it possible to work from home on a regular basis, other developments have made the daily commute to the office, and the maintenance of large offices in major urban centres less and less appealing. The ever increasing price of gasoline has made the cost of that daily commute prohibitively expensive in some cases. As well, there is an increased awareness of the environmental cost of having most major highways clogged each morning and evening with hundreds of thousands of cars sitting in traffic gridlock. And finally, the cost of renting office space in most major Canadian cities means that most employers are at least willing to consider the cost savings which might be realized from work-at-home or telecommuting arrangements for their employees.

Along with the greater availability of work-at-home arrangements for employees, there has been a significant increase in the number of self-employed Canadians. And while not all of the self-employed work from home, it’s fairly common for those venturing into the world of self-employment for the first time to save costs by operating their business, at least initially, out of a home office.

One of the things which makes a telecommuting or work-at-home arrangement attractive, aside from avoiding the daily commute, is the tax deductions which can be claimed. While those benefits, especially for employees, are not necessarily as generous as is popularly believed, it is the case that working from home can make costs which would be incurred in any event deductible for tax purposes.

As is usually the case in tax matters, the rules differ for employed taxpayers and for the self-employed, as the latter enjoy a greater degree of latitude in the deductions which may be claimed. That said, both the employed and the self-employed must meet the same basic two-part test in order to be eligible to deduct home office expenses, and that test is as follows:

• the home office must be the place at which the taxpayer principally (defined by the Canada Revenue Agency as more than 50% of the time) performs the duties of employment or must be the taxpayer’s principal place of business: or

• the home office must be both used exclusively for the purpose of earning income from employment or from the business and must be used on a regular and continuing basis for meeting customers or clients of the employer or the business.

A self-employed taxpayer who meets these criteria is entitled to claim (on Form T2124(E) (Statement of Business Activities)) expenses such as property taxes, rent, or mortgage interest (but not mortgage principal amounts), insurance, utilities costs etc. However, such expenses are not deductible in their entirety: rather, the taxpayer must apportion the expenses based on the percentage of the total space which is used as a home office. For example, a self-employed taxpayer whose home office takes up 15% of available floor space and who incurs $2000 each year in qualifying expenses would be entitled to deduct $300 ($2,000 times 15%) in home office expenses for that year. There is one further caveat, in that the amount of home office expenses claimed in a year cannot be greater than the amount of income from the business. It’s not, in other words, possible to run a business which produces $5,000 in income for the year and to then claim $10,000 in home office expenses relating to that business. However, where home office expenses exceed business income in any given year, the excess expenses can be carried over and claimed in a subsequent year in which there is sufficient business income to offset those expenses.

Employed taxpayers who meet the two-part test set out above must meet a further condition before being eligible to claim home office expenses, as follows:

• the employer must provide the employee with a Form T2200, which indicates that the employee is required by his or her contract of employment to provide and pay for the expenses related to the home office;
• the employee must not have been reimbursed by the employer for such expenses; and
• the expenses must have been used directly in the employee’s work at home.

Once the T2200 has been issued, and the other conditions are met, an employee who is a tenant can claim a proportionate part of his or her rent. An employee who owns his or her own home can claim a proportionate percentage of utilities and maintenance costs. An employee is not, however, entitled to claim any portion of mortgage interest, property taxes, or home insurance costs paid, and cannot claim capital cost allowance.

As is the case with self-employed taxpayers, an employee’s deduction for home office expenses cannot be greater than the income from employment income for the year to which the expenses relate. And, once again, carryover to a subsequent taxation year is allowed.

One of the tax benefits which is commonly supposed to exist for the home office workers is the right to claim depreciation (or capital cost allowance (CCA), in tax parlance) on one’s home for tax purposes. For employees, however, such a claim is simply not allowed. And, while the self-employed may be entitled to claim CCA on a home, making such a claim can create a short-term benefit with long-term costs. Making a CCA claim on one’s home is likely to erode the principal residence exemption from capital gains tax which is claimable when a home is sold, and that exemption is almost always more valuable, in monetary and tax terms, than any CCA claim which might have been made.

Being able to claim home office expenses doesn’t result in the huge tax benefits that some popular tax myths claim. However, it can and does permit qualifying taxpayers to claim a portion of home ownership (or rental) expenses which would have been incurred in any case while also avoiding the dreaded daily commute, making it a win-win scenario.

As if dealing with bills from the recent holiday season and trying to come up with the funds for an RRSP contribution weren’t enough, February is also the month in which millions of Canadian taxpayers receive an Instalment Reminder from the Canada Revenue Agency (CRA). For many of those taxpayers, who have received many such notices in the past, the reminder and the tax instalment process are familiar, although not necessarily welcome. For those who are receiving one for the first time, however, both the reminder itself and figuring out how to deal with it can be baffling.

As if dealing with bills from the recent holiday season and trying to come up with the funds for an RRSP contribution weren’t enough, February is also the month in which millions of Canadian taxpayers receive an Instalment Reminder from the Canada Revenue Agency (CRA). For many of those taxpayers, who have received many such notices in the past, the reminder and the tax instalment process are familiar, although not necessarily welcome. For those who are receiving one for the first time, however, both the reminder itself and figuring out how to deal with it can be baffling.

Most Canadians, certainly those who are employed, have income tax deducted “at source”, meaning that their employer deducts an amount for income tax from their paycheques and remits it to the CRA on their behalf. However, for those who are self-employed or, frequently, those who are retired, no such deduction is automatically made from their income, and the issuance of an Instalment Reminder by the CRA may be the result.

The receipt of such a Reminder may be particularly puzzling to the newly retired, who have been accustomed to having tax deducted at source from their paycheques throughout their entire working life. However, no matter what the source of one’s income or the reason that tax has not been deducted at source, the options available to a taxpayer who receives such a reminder are the same.

Canadian federal tax rules provide that a taxpayer may be required to pay income tax by instalments where the amount of tax owing on filing is more than $3,000 in the current year (2012) and either of the two previous years (2010 or 2011). Essentially, the requirement to pay by instalments will be triggered where the amount of tax withheld from the taxpayer’s income is at least $3,000 less than their total tax liability for the current and either of the two previous years. Such instalment payments of tax are due on March 15, June 15, September 15, and December 15 of each year.

An Instalment Reminder issued by the CRA in February 2012 will specify two amounts, one to be paid by March 15 and the other due by June 15. Those amounts represent the CRA’s best estimate, based on the taxpayer’s return filed for the 2010 taxation year, of the net tax will which be payable by the taxpayer for 2012. The taxpayer then has the following three options.

First, the taxpayer can pay the amounts specified on the Reminder, by the respective due dates of March 15 and June 15. A taxpayer who does so can be certain that he or she will not face any interest or penalty charges, even if the amount paid turns out to be less than the taxes actually payable for the 2012 tax year. (If the instalments paid turn out to be more than the taxpayer’s net tax liability for 2012, he or she will of course receive a refund on filing.)

Second, the taxpayer can make instalment payments based on the amount of tax which was owed for the 2011 tax year. Where a taxpayer’s income has not changed between 2011 and 2012 and his or her available deductions and credits remain the same, the likelihood is that total tax liability for 2012 will be slightly less than it was in 2011, owing to the indexation of tax brackets and personal tax credit amounts.

Third, the taxpayer can estimate the amount of tax which he or she will owe for 2012 and can pay instalments based on that estimate. Where a taxpayer’s income will decrease from 2011 to 2012 and there will consequently be a reduction in tax payable, this option may be worth considering.

A taxpayer who elects to follow the second or third options outlined above will not face any interest or penalty charges where there is no tax payable when the return for the 2012 tax year is filed in the spring of 2013. However, should instalments paid be late or insufficient, the CRA can impose interest charges, at rates which are higher than current commercial rates. (The rate charged for the first quarter of 2012—until March 31, 2012—is 5%.) As well, where interest charges are levied, such interest is compounded daily, meaning that on each successive day, interest is levied on the previous day’s interest. It’s also possible for the CRA to impose penalties, but this is done only where the amount of instalment interest charged for the year is more than $1,000.

Most Canadian taxpayers are understandably disinclined to pay their taxes any sooner than absolutely necessary. However, ignoring an Instalment Reminder is never in the taxpayer’s best interests. Those who don’t wish to have to involve themselves in the intricacies of tax calculations can simply pay the amounts specified in the reminder. The more technical-minded (or those who want to ensure that they are paying no more than absolutely required, and are willing to take the risk of having to pay interest on any shortfall) can avail themselves of the second or third options outlined above.

It’s that time of year again, when advertisements about the wisdom of contributing to your registered retirement savings plan (RRSP) fills the airwaves and Web sites. And, since the introduction of tax-free savings accounts (TFSAs) in 2009, February is now also the month in which Canadians wrestle with the question of whether to put any available funds into an RRSP before the contribution deadline of February 29, 2012, or whether to deposit those funds instead in a TFSA.

It’s that time of year again, when advertisements about the wisdom of contributing to your registered retirement savings plan (RRSP) fills the airwaves and Web sites. And, since the introduction of tax-free savings accounts (TFSAs) in 2009, February is now also the month in which Canadians wrestle with the question of whether to put any available funds into an RRSP before the contribution deadline of February 29, 2012, or whether to deposit those funds instead in a TFSA.

It’s important to be clear, at the outset, that it’s not an either/or choice. Taxpayers can (and probably should) utilize both the RRSP and TFSA options in planning their financial affairs. Realistically, however, for most taxpayers the limitation is one of resources and cash flow, and it’s often not possible to fund contributions to both an RRSP and a TFSA in the same year, let alone in the same month. That said, what are the considerations which apply in determining which savings/investment vehicle is preferable for 2012?

There are some similarities between TFSAs and RRSPs. Both allow savings to grow and compound free of current tax, and for both, contributions not made in a year can be carried forward and made in any subsequent year. As well, the types of investments which can be made with RRSP or TFSA contributions are, for all intents and purposes, the same, meaning that one’s choice of investment (i.e., guaranteed investment certificates (GICs), mutual funds, bonds, etc.) should be irrelevant to the choice of RRSP vs. TFSA. However, the differences between the two savings vehicles are at least as significant as their similarities.

Perhaps most important to taxpayers, contributions made to an RRSP are deductible from income, resulting in a lower tax bill for the year of contribution and, for many taxpayers, a tax refund. Contributions to a TFSA are, on the other hand, made with after-tax funds, meaning that tax will already have been paid on the income used to make that contribution. Many taxpayers, when presented with an option which will reduce current year taxes, find that the most attractive choice. However, over the long-term, the tax consequences of choosing an RRSP over a TFSA can erode that benefit. When funds contributed (along with investment income earned on those funds) are withdrawn from a TFSA or an RRSP, the tax consequences are very different. Funds withdrawn from an RRSP (or a registered retirement income fund (RRIF) into which the RRSP has been converted) are fully taxable, without exception, at whatever tax rate applies to the taxpayer at the time of withdrawal. TFSA funds (including accumulated investment income) are withdrawn from the plan free of tax, regardless of when the withdrawal is made or the purpose to which the funds are put. And for taxpayers who are receiving Old Age Security benefits (or any other means-tested benefits) from the federal government, it is important to note that RRSP or RRIF funds withdrawn will be included in income for the purpose of determining eligibility for such benefits, while TFSA funds will not. Finally, while RRSP contributions for 2011 must be made by February 29, 2012, there is no similar deadline for TFSA contributions—they can be made at any time during the calendar year. Finally, when funds are withdrawn from a TFSA, the plan holder can “top up” the TFSA in any subsequent year by the amount of that withdrawal. Funds withdrawn from an RRSP cannot be re-contributed, unless the withdrawal was made as part of government-sanctioned withdrawal plans, like the Home Buyers’ Plan or the Lifelong Learning Plan.

The minority of working taxpayers who are members of registered pension plans will likely find the TFSA option particularly attractive. The maximum amount which can be contributed to an RRSP for the 2011 tax year is calculated as 18% of earned income for 2010, to a maximum contribution of $22,450. However, that maximum contribution is reduced, for members of RPPs, by the amount of benefits accrued during the year under the pension plan. Where the RPP is a particularly generous one, RRSP contribution room may be minimal, and a TFSA contribution the logical alternative.

In a similar way, for taxpayers over the age of 71, the RRSP v. TFSA question is simply irrelevant. Taxpayers over that age are not eligible to make contributions to an RRSP, making TFSAs the only tax-free savings vehicle to which they can make contributions. The benefit is greatest for older taxpayers whose required RRIF withdrawals are greater than their current needs. While such RRIF withdrawals must be included in income and taxed in the year of withdrawal, transferring the funds to a TFSA will allow them to continue compounding free of tax and no additional tax will be payable when and if the funds are withdrawn. And, unlike RRIF or RRSP withdrawals, monies withdrawn from a TFSA will not affect the planholder’s eligibility for Old Age Security benefits or for the federal age credit.

For younger taxpayers, where the savings goal is short-term (e.g., a down payment on a home or paying for next year’s vacation), the TFSA is clearly the better choice. While choosing to save through an RRSP will provide a deduction on that year’s return and probably a tax refund, tax will still have to be paid when the funds are withdrawn from the RRSP a year or two later. And, more significantly from a long-term point of view, using an RRSP in this way will eventually erode one’s ability to save for retirement, as RRSP contributions which are withdrawn from the plan cannot be replaced. While the amounts involved may seem small, the loss of compounding on even a small amount over 25 or 30 years can make a significant dent in one’s ability to save for retirement.

Taxpayers who are expecting their income to rise significantly within a few years (e.g., students in post-secondary or professional education or training programs) can save some tax by contributing to a TFSA while they are in school and their income (and therefore their tax rate) is low, and then withdrawing the funds tax-free once they’re working, when their tax rate will be higher. At that time, the withdrawn funds can be used to make an RRSP contribution, which will be deducted against income which would be taxed at the much higher rate, generating a tax savings. And, if a need for the funds should arise in the meantime, a tax-free TFSA withdrawal can always be made.

Financial planners and tax advisers are accustomed to being asked by clients at this time of year whether it makes more sense to pay down the mortgage (or other debt) or to contribute to an RRSP. That question has become more complicated now that the TFSA option has been added to the mix. There is, however, a solution which allows you to do both. Assuming a marginal tax rate of 45%, an RRSP contribution of $10,000 will generate a tax refund of $4,500. Contribute that $10,000 (or as much as you can) to your RRSP and, when the resulting tax refund lands in your bank account, move it to a TFSA or use it to pay down the mortgage or other debt, or split it between the two.

The Canada Revenue Agency has dedicated sections of its Web site to addressing the need of taxpayers for information about TFSAs and RRSPs, and those sections can be found at http://www.cra-arc.gc.ca/tx/tfsa-celi/menu-eng.html and http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/menu-eng.html, respectively.

It’s almost impossible not to have heard that the amount of debt carried by Canadian households is at an all-time high—reaching, on average, just over 150% of household income. Carrying so much debt can be relatively painless when interest rates are at historic lows, but it’s clear that rates cannot and will not remain at such levels indefinitely.

It’s almost impossible not to have heard that the amount of debt carried by Canadian households is at an all-time high—reaching, on average, just over 150% of household income. Carrying so much debt can be relatively painless when interest rates are at historic lows, but it’s clear that rates cannot and will not remain at such levels indefinitely.

Whether it’s because of the warnings issued by financial professionals and government officials, or just the sight of ever-increasing balances on the monthly credit card or line of credit statements, it seems that Canadians are starting to recognize that their debt loads have to be reduced. And—right on cue—a number of debt reduction companies have begun advertising their services, promising to do just that.

Typically, debt reduction companies promise to work or negotiate with an individual’s creditors in order to have the amount of outstanding debt reduced—a service for which the debtor will of course pay a fee. The claims made by some such companies can seem like a lifeline to debt-burdened families. For those dealing with calls from irate creditors and struggling to make minimum monthly payments on outstanding debts, the prospect of having those debts reduced by up to 70% is very compelling. When a promise to restore a good credit rating by removing past credit mistakes from the debtor’s credit history is added to the sales pitch, it can seem almost too good to be true. And that, in fact, is the title of a recent consumer alert issued by the Financial Consumer Agency of Canada (FCAC): “Debt Reduction Companies: Beware of “Too Good to be True” Offers. That alert is available on the Agency’s Web site at http://www.fcac-acfc.gc.ca/eng/resources/consumerAlerts/alerts_posting-eng.asp?postingId=393.

The alert issued by the FCAC examines some of the claims made by many debt reduction companies, and compares these claims to the reality of the situation. The first unrealistic claim is often the one made about the percentage by which an individual’s debt can be reduced. The FCAC notes that no creditor is required to negotiate with or speak to a debt reduction company, even if the debtor has paid a fee to have such a company negotiate on its behalf. And, even if the creditor is willing to deal with the debt reduction company, it is in no way obliged to reduce debt by any amount. In other words, it’s perfectly possible for the debtor to pay a fee but get nothing for it.

Another claim sometimes made by debt reduction companies is that they will protect the debtor’s credit rating or even “clean up” that rating by having information on past defaults or late payments eliminated. The reality is that, unless the information contained in a person’s credit rating is demonstrably inaccurate, there is no way to have it removed from the credit report. Listings of past transactions, like late payments or defaults, do eventually disappear from a credit report, but that happens after a specific period of time has elapsed, not because the removal of such information is requested or demanded by a third party. The FCAC alert also reviews claims made that working with a debt reduction agency won’t have any negative effect on the individual’s credit rating or score. It warns that some such companies delay making payments to creditors for a few months in the hope of getting better results from negotiations to reduce the debt amount and that, where that happens, those late payments are likely to be reported to the credit reporting agencies, further damaging the individual’s credit rating. In some cases, debt reduction companies encourage debtors to stop all direct contact with creditors, or even to sign a power of attorney, giving the company authority to make agreements by which the debtor will be bound, even if he or she had no knowledge of them at the time.

Perhaps the most egregious claim made by debt reduction companies is the strong impression given that they are approved by the Canadian government or even that they are operating as part of a federal government program. Neither is true. Neither the federal nor the provincial or territorial governments operate debt reduction companies, and there are no government sponsored programs offering this type of debt reduction. While it is the case a debt reduction company will usually need to be registered and/or licensed by its provincial or territorial government in order to operate as a business, that is simply an administrative requirement which applies to all companies operating in a particular province or territory. Licensing or registration does not in any way mean that the provincial or federal government has approved of or endorsed the company or its way of doing business, and any claims to the contrary are simply false.

Sometimes, debtors avail themselves of the services of debt reduction companies because they are under the incorrect impression that there is no other choice open to them to deal with their debts. There are, in fact, several options. Where a debtor intends to and is able to discharge existing debts, he or she could obtain a debt consolidation loan from a financial institution. The rate of interest charged on such a loan will almost certainly be lower than that being levied on outstanding credit card or payday loan company debts, and the debtor will be able to make a single payment instead of juggling the demands of multiple creditors. Where it’s not possible to obtain such a loan, or the debtor doesn’t feel able to manage the debt repayment process alone, the best course of action is to obtain the services of a reputable credit counseling agency, which can set up a debt management program for the debtor. As part of that program, the agency will contact the individual’s creditors to arrange a manageable payment plan which might include a reduction in interest rates charged. Once a program is in place, the individual makes payments to the credit counseling agency which, in turn, forwards payments to the individual’s creditors as agreed. As well, credit counseling agencies work with clients to help with budgeting and financial management skills, with the goal of avoiding a recurrence of the individual’s financial problems. Reputable credit counseling agencies exist in both the private and the not-for-profit sectors, and information on the latter can be found on the Credit Counselling Canada Web site at http://www.creditcounsellingcanada.ca/Home.aspx.

In many ways, getting out of debt has a lot in common with that perennial New Year’s resolution of many Canadians—losing some weight and getting in shape. With both, it’s human nature to want to believe that there is an easy, painless way of accomplishing the goal without a need to change existing habits, and so it’s easy to fall for persuasive sales pitches that claim to have a quick fix for the problem. In both cases, however, the reality is the opposite—results can only be obtained through some effort, but where that effort is made and existing habits altered, successful long-term results are possible.

While the majority of Canadian employees still travel to the office at the beginning of each working day, there has been a huge increase over the past decade or so in the number of Canadian who work, on a part-time or a full-time basis, from a home office. Such an arrangement can work to everyone's benefit: the worker is spared the cost and aggravation of the daily commute and, where a significant number of employees work at least part-time from home, the employer's costs of maintaining office space, usually in expensive urban markets, can go down.

While the majority of Canadian employees still travel to the office at the beginning of each working day, there has been a huge increase over the past decade or so in the number of Canadian who work, on a part-time or a full-time basis, from a home office. Such an arrangement can work to everyone's benefit: the worker is spared the cost and aggravation of the daily commute and, where a significant number of employees work at least part-time from home, the employer's costs of maintaining office space, usually in expensive urban markets, can go down.

As working from a home office has become more common, a certain degree of mythology has also grown up around the tax treatment of expenses related to maintaining a home office. In the most optimistic (and unrealistic) of such scenarios, virtually all household expenses, including the mortgage, are transformed into tax deductions, reducing one's tax liability to miniscule amounts. It goes almost without saying that such is not the case. Deductions are certainly available, but the tax rules governing what's deductible and when are specific and detailed.

It's important, when dealing with the question of the deductibility of home office expenses, to distinguish between deductions claimed by employees and those claimed by the self-employed. As is almost always the case in such matters, the self-employed enjoy a greater degree of latitude in the deductions which may be claimed. That said, both the employed and the self-employed must meet the same basic two-part test in order to be eligible to deduct home office expenses, and that test is as follows:

• the home office must be the place at which the taxpayer principally performs the duties of employment or must be the taxpayer's principal place of business: or

• the home office must be both used exclusively for the purpose of earning income from employment or from the business and must be used on a regular and continuing basis for meeting customers or clients of the employer or the business.

A self-employed taxpayer who meets these criteria is entitled to claim (on Form T2124(E) (Statement of Business Activities)) expenses such as property taxes, rent or mortgage interest (but not mortgage principal amounts), insurance, utilities costs etc. However, such expenses are not deductible in their entirety: rather, the taxpayer must apportion the expenses based on the percentage of the total space which is used as a home office. For example, a self-employed taxpayer whose home office takes up 20% of available floor space and who incurs $1000 each year in qualifying expenses would be entitled to deduct $200 ($1,000 times 20%) in home office expenses for that year. There is one further caveat, in that the amount of home office expenses claimed in a year cannot be greater than the amount of income from the business. It's not, in other words, possible to run a business which produces $5,000 in income for the year and to then claim $10,000 in home office expenses relating to that business. However, where home office expenses exceed business income in any given year, the excess expenses can be carried over and claimed in a subsequent year in which there is sufficient business income to offset those expenses.

One of the benefits which is commonly supposed to exist for home office workers is the right to claim depreciation (or capital cost allowance (CCA), in tax parlance) on one's home for tax purposes. For employees, however, such a claim is simply not allowed. And , while the self-employed may be entitled to claim CCA on a home, making such a claim can create short-term benefits with longer term costs. Making a CCA claim on one's home is likely to erode the principal residence exemption from capital gains tax which is claimable when a home is sold, and that exemption is almost always more valuable than any CCA claim which might have been made.

Employed taxpayers who meet the two-part test set out above must meet a further condition before being eligible to claim home office expenses, as follows:

• the employer must provide the employee with a form T2200, which indicates that the employee is required by his or her contract of employment to provide and pay for the expenses related to the home office;

• the employee must not have been reimbursed by the employer for such expenses; and

• the expenses incurred are incurred solely for the purpose of earning income from an office or employment.

Once the T2200 has been issued, and the other conditions are met, an employee who is a tenant can claim a proportionate part of his or her rent. An employee who owns his or her own home can claim a proportionate percentage of utilities, cleaning costs and minor repairs (but not improvements). An employee is not entitled to claim any portion of property taxes, insurance or mortgage interest paid.

Slightly more latitude is provided to commission employees who work from home and own their home. Such employees may claim, in addition to the costs outlined above for employees, a portion of property taxes and insurance paid on the home. Mortgage interest and capital cost allowance remain non-deductible.

As is the case with self-employed taxpayers, an employee's deduction for home office expenses cannot be greater than the income from employment income for the year to which the expenses relate. And, once again, carryover to a subsequent taxation year is allowed.

While the deduction of home office expenses isn't the huge tax benefit that popular tax mythology would sometimes suggest it is, it can, assuming that the legal requirements are met and proper records kept, provide some tax relief on expenditures which would likely have to be incurred in any case by the taxpayer.

In order to carry out their charitable activities while ensuring their own financial viability, charities are virtually compelled to carry out fund-raising activities and solicitations throughout the year. However, it's also true that, as the holiday season approaches, the number and variety of charitable appeals seems to increase. As well, many taxpayers, as they near the end of their fiscal or financial year, are in a better position to determine the level of charitable giving which their financial circumstances will permit. Finally, to be realistic, many taxpayers look at charitable giving as a means of reducing their tax burden for the year, and many year-end charitable donations undoubtedly arise from such motives.

In order to carry out their charitable activities while ensuring their own financial viability, charities are virtually compelled to carry out fund-raising activities and solicitations throughout the year. However, it's also true that, as the holiday season approaches, the number and variety of charitable appeals seems to increase. As well, many taxpayers, as they near the end of their fiscal or financial year, are in a better position to determine the level of charitable giving which their financial circumstances will permit. Finally, to be realistic, many taxpayers look at charitable giving as a means of reducing their tax burden for the year, and many year-end charitable donations undoubtedly arise from such motives.

No matter what the underlying motivation, our tax system ensures that giving to a registered charity creates a win-win situation for all concerned. Both the federal government and the provinces provide a tax credit for donations to registered charities and, in this case, the more you give, the more you get.

A taxpayer who is contemplating making a charitable donation needs to ensure, first of all, that the charity to which the donation will be made is in fact recognized by the Canada Revenue Agency as a "registered" charity, as, generally, donations to organizations (with some limited exceptions, such as, for example, registered amateur athletic associations or United Nations agencies) which are not registered charities will not qualify for any tax credit. It's also an unfortunate fact that the charities sector, like every other area of the economy, attracts its share of unscrupulous individuals who misrepresent the "charitable" nature of their activities. It's relatively easy to recognize well-known, mainstream charities, but a taxpayer who is considering making a donation to a less well-known organization can easily verify the organization's charitable status. The Canada Revenue Agency, through its Charities Directorate, maintains a listing of registered charities on its Web site at http://www.cra-arc.gc.ca/ebci/haip/srch/advancedsearch-eng.action. That list is updated daily, and a taxpayer seeking information about a particular charitable organization can search for that organization in a variety or ways. In addition, the taxpayer can access the latest information return filed by that charitable organization, which contains a wealth of detail on the charity, including its various fundraising activities and the purposes to which the funds raised are put.

Once a decision has been made to contribute to a particular charity, the next question is how much, and here it's a situation of the more the better, for all concerned. The larger the donation, the greater the benefit to the charity, of course, but larger donations also create larger tax benefits for the donor. The charitable donations credit, both federally and provincially, is a two level credit. Donations of up to $200 receive a tax credit (federally) of 15%. All donations over the $200 threshold are eligible for a federal tax credit at a rate of 29%. The provinces maintain a similar system, in which the credit on the first $200 of donations is equal to the lowest individual tax rate applied in that province. Donations above the $200 threshold are eligible for a credit at the highest individual tax rate levied by that province. The percentage figures will vary, of course, from province to province, but in all cases, donating above the $200 threshold will result in an increased tax benefit.

It's important for would-be donors to realize, as well, that for a donation to be claimed in a particular taxation year, it must be made by the end of the calendar year. Donations made after December 31, 2008, for instance, can first be claimed on the 2009 tax return filed in April 2010. That said, however, it's possible to time charitable donations in such a way as to maximize the available tax benefit. The simplest way to do so is to combine charitable donations which would be made in, for example, at the end of 2009 and early in 2010, into a single donation in 2009, particularly where combining the donations will push the total contributed over the $200 threshold.  Alternatively, the taxpayer can take advantage of the "carryover" provisions which allow a charitable donation to be claimed in the year it is made, or any of the five subsequent taxation years. It can work like this: a taxpayer who makes a $200 annual donation to his or her favourite charity beginning with the 2006 taxation year would not claim any of those donations until he or she files the income tax return for the 2010 tax year. By then, total unclaimed donations will amount to $1,000, and the federal tax credit calculation will be as follows:

$200 X 15.25% = $30

$800 X 29.0% = $232

Total tax credit on the $1,000 in donations will be $262. Had the taxpayer claimed the $200 donation each year as it was made, the total tax credit received over the five-year period would have been $150 ($200 X 15% X 5). For the charity or charities involved, the timing of the claim makes no difference, as they have received the funds each year either way. And, while the taxpayer has forgone a tax credit claim for four years, the additional credit of $112 should more than offset any "loss" occasioned by the delay.

Finally, taxpayers are sometimes surprised to find that the amount on the charitable donation receipt which they receive in respect of their donation is less than the actual amount of the donation. This happens because the charity is required to deduct from the amount of any charitable donation the value of any "advantage" received by the taxpayer in relation to that donation. For example, a charity running fundraising campaigns may seek to attract donors by providing them with a "gift", with the value of the gift tied to the level of donation. Or, donors may purchase a ticket to attend a social function, like a luncheon or a golf tournament, with the proceeds from ticket sales going to a particular charity. In that case the "value" of the luncheon or the round of golf will be deducted from the ticket price when the charitable donation receipt is prepared and provided to the taxpayer (even if the taxpayer doesn't attend). Of course, in the case of a "gift", the taxpayer is free to decline (and charities will often give the taxpayer that option at the time of donation) and, in that case, the donation receipt will reflect the full amount of the donation. Where a dinner or other event is involved, and the taxpayer wishes to receive a donation receipt for the full value of his or her donation, the best course of action would be to make an independent donation to the particular charity in the same amount, but not tied to any dinner or other event.

In the face of government cutbacks at all levels over the past decade or so, charities have had to rely more and more on private sector donations to finance their activities. Fortunately, this is one area where individuals can both do good and create a tax benefit for themselves by doing so.

Each year, millions of Canadian taxpayers claim a non-refundable federal and provincial tax credit for out-of-pocket medical expenses. Many medical expenses are, of course, covered by provincial government health care plans, including most medical services provided by one's physician and, should the need arise, hospital care. For many taxpayers, the basic government plan is supplemented by private health care insurance, purchased privately or made available as part of an employer's benefit package. Such plans typically extend coverage to expenses not covered under government plans, including dental care, prescription drugs and vision care.

Each year, millions of Canadian taxpayers claim a non-refundable federal and provincial tax credit for out-of-pocket medical expenses. Many medical expenses are, of course, covered by provincial government health care plans, including most medical services provided by one's physician and, should the need arise, hospital care. For many taxpayers, the basic government plan is supplemented by private health care insurance, purchased privately or made available as part of an employer's benefit package. Such plans typically extend coverage to expenses not covered under government plans, including dental care, prescription drugs and vision care.

The rapid increase over the past several years in both cost pressures and user demands on government health care plans have led to the "delisting" of many previously covered expenses. As a result, many taxpayers now pay directly for health care services which were formerly covered by the public health care system, and seek to claim a medical expense tax credit for such costs.

The Canada Revenue Agency's (CRA's) answer to the question of whether direct payment for medical services will qualify for the medical expense tax credit has been a qualified "yes". However, whether the CRA will accept such costs as a qualifying medical expense rests on the nature of the services rendered and the qualifications of the person providing them. The CRA's general position is that a "qualifying medical expense", as defined in the Income Tax Act, includes an amount paid "to a medical practitioner ... in respect of medical ... services". The CRA therefore takes the general view that payments for services other than specific medical services rendered by a qualified practitioner cannot be claimed as a medical expense, and that services rendered must relate to an existing medical condition or illness.

The CRA has been asked whether a medical expense credit would be allowed for costs incurred in the following situations.

Membership fees charged by a private medical clinic

In this case, a membership fee was charged by a private medical clinic that allowed the individual access to private medical services when such services were required. The fee did not relate to any existing condition that the individual had and, where private medical services were provided, a fee over and above the membership fee was charged. In some cases, that additional fee was covered by the applicable provincial health services plan, while in others, the individual was responsible for payment.

The CRA concluded that the membership fee charged by the clinic did not qualify as a medical expense, as it was not attributable to any particular medical service provided to the individual but rather was for the availability of the services if they were required.

Fees paid to corporation for access to para-medical services

Another situation considered by the CRA was that of a fee paid to a corporation that agreed to provide certain services, if required, including basic homemaking services, recreational, occupational and physiotherapy services. Once again, the CRA concluded that the fee paid would not qualify as a medical expense, even though some of the services offered would have qualified as medical expenses, had they been paid for directly. As with the private clinic membership fees, the CRA considered that the fee paid to the corporation was not paid directly for the provision of medical services.

Doctors' fees for "de-listed" services

As different services have been "delisted" by provincial government health insurance plans, doctors have begun charging patients for the provision of those delisted services. The CRA was asked whether an annual fee charged by a doctor for services not covered by the applicable provincial government health insurance plan (such as telephone advice or telephone prescription renewals) would qualify as a medical expense. The answer was no and, in addition, the CRA took the view that such ancillary or incidental services provided for the fee were not of the type which could be reimbursed by a private health care services plan. Once again, the basis for the CRA's position was that a fee charged for making medical services available was not a fee for medical services provided and consequently could not qualify.

Executive medical done in a private clinic

Many companies require senior officers or executives of the company to undergo regular physical examinations with a view to prevention or early treatment of possible health problems. Where such examinations are carried out in a private clinic, the costs will qualify as a medical expense, as long as the service related to the diagnosis, treatment or prevention of disease and was performed by a qualified medical practitioner.

The number and variety of medical and para-medical services, and the administrative structures through which those services can be delivered is virtually limitless, and it's unlikely that the CRA will ever be able to develop a position or policy which encompasses all situations. In the meantime it seems, from the technical opinions and interpretations issued by the CRA to date, that taxpayers are probably on safe ground in claiming the medical expense tax credit for costs incurred relating to any direct medical services provided by qualified medical practitioners. However, amounts paid solely for access to medical care will not, it seems, qualify for the credit.