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Prepayment of Medical Treatments = No Tax Credits?

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By: Cory G. Litzenberger, CPA, CMA, CFP, C.Mgr – President & Founder of CGL Strategic Business & Tax Advisors

Which came first, the payment or the expense?

As of May 21, 2018, according to the website: https://turbotax.intuit.ca/tips/are-medical-expenses-deductible-5317 (image above) they recommend paying large medical expenses in advance in order to claim a tax credit in the year you paid.

This is not entirely accurate.

Payment alone will not guarantee that you can claim it as a medical expense.

In an (originally issued in French) external interpretation issued by the Canada Revenue Agency on December 6, 2016 (2015-0589041E5 F) they clarified that prepayment of medical services only works for services consumed in the 12 months ended in the tax year.

Relying on a 2001 Federal Court of Appeal case, the CRA stated,

“an expense is “incurred” […] only where there is an obligation to pay a sum of money. […] we are of the view that a fee paid is not necessarily an expense incurred. This could mean that it is to be regarded as a prepaid fee. With respect to an amount paid for medical expenses, it must, therefore, be determined whether it is an expense incurred or a prepaid amount.”

Uh oh.

They are saying that there is a difference in the tax treatment between prepayment and an expense, which is why we have to figure out what the payment is.

It seems to say that if there were no services rendered, then it isn’t an expense.

Think of the following scenario:

– Your child goes back to school in the fall.
– You find out they need braces.
– After some back and forth and budget planning you decide to go ahead.
– The orthodontist in this example gives you payment options: pay up front or set up a payment plan (usually a higher amount overall).
– You make the voluntary decision to pay upfront before installing the braces.
– You pay the fee in late November in the tax year, but the braces are not installed until January of the following year.

To this extent the CRA continues:

“…medical expenses [for a particular taxation year must] have been paid within any period of 12 months that ends in the taxation year…”

The CRA continues by stating that an individual can choose any 12-month period in the year, but the expenses must be paid in that period.

“Thus, for the purposes of computing the METC, it is necessary to determine whether the expenses paid […] were paid during the period chosen by the taxpayer.”

So yes, we paid during the period, but the CRA is using that word expenses, and we already know that they don’t call it an expense unless services are rendered

This means since no services were rendered in the tax year, we cannot claim the prepayment as an expense (or at least according to them).

The ruling gets worse.

If you are like most people, you submit your receipts on a calendar year to your accountant and don’t give it much more thought than that.

The CRA states how you could lose the deduction entirely:

“where an individual chooses the period from January 1 to December 31 [of the taxation year] the expenses that are the subject of the METC computation must have been paid during the same period.

For example, if a dental service is rendered on January 15 [of the taxation year] […] and the expenses are incurred at that time, the fees paid for that service would be medical expenses […]

If these fees were paid on December 31, [of the previous year] they would not be eligible for the METC computation for [the taxation year] as they would not have been paid during the selected period.”

Pardon?

Yes, they are saying that if you prepaid for medical services, the amount held on deposit at your orthodontist’s office would not be considered expenses – even as the services are rendered – if the payment was not in the 12-month period reported on the return.

So not only did you not get the expense in the tax year that you prepaid but because you filed your medical expenses on the calendar year, you don’t get the medical expense when the services were rendered either because there was no payment in the year.

They do provide a little hind-sight relief, however, but it requires more filings subject to their approval (which is never a quick process). Simply put, they state that in this scenario, they would let you go back to amend the earlier tax year to include the expense.

Personally speaking, this is frustrating because when you file the first year, they are saying it is not eligible, but after you file the second year, they tell you to go back and amend the first year.

Seems like semantics, as the braces won’t be installed on your child unless you are both bound to some sort of contract including requirements to pay but watch for an over-zealous tax auditor to kick out your deposit in year one if services were not yet rendered especially where the deposit is refundable.

My recommendation?

In order to please the CRA, it is my suggestion that when you make the prepayment – rather than just getting your credit card slip and a statement of account showing the deposit – you need to have some sort of written contract or agreement with the medical practitioner’s office. This agreement should state that the prepayment is for medical services to be rendered by the practitioner and is non-refundable and that you have an “obligation to pay” prior to services being rendered.

Hey… I didn’t say it was a GREAT recommendation… and most things to appease the rules in the Income Tax Act aren’t.

CEO | Director, Canadian Tax Advisory CGL Strategic Business & Tax AdvisorsWith the Income Tax Act always by his side on his smart-phone, Cory has taken tax-nerd to a whole other level. His background in strategic planning, tax-efficient corporate reorganizations, business management, and financial planning bring a well-rounded approach to assist private corporations and their owners increase their wealth through the strategies that work best for them.An entrepreneur himself, Cory started CGL with the idea that he wanted to help clients adapt to the ever-changing tax and economic environment and increase their wealth through optimizing the use of tax legislation coupled with strategic business planning and financial analysis.His relaxed blue-collar approach in a traditionally white-collar industry can raise a few eyebrows, but in his own words: “People don’t pay me for my looks. My modeling career ended at birth.”More info: https://www.CGLtax.ca/Litzenberger-Cory.html

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Downtown Wednesday Market returns tomorrow!

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It’s Back!! Downtown Red Deer Market offering local goods and produce on Little Gaetz Avenue

Throughout the summer season, the farmers’ market comes to Little Gaetz Avenue in Downtown Red Deer every Wednesday from 3:30 – 6:30 p.m.

You can purchase farm fresh food from nearby farms including meat, fresh vegetables and fruit, baked goods and handmade items at this accredited Alberta Farmers’ Market.

Check out the Downtown Red Deer Market Facebook page for regular updates throughout the market season.

COVID-19

The 2020 Downtown Red Deer Market is launching on June 3rd.  During Market, precautions will be taken to ensure physical distancing and hand sanitization practices are adhered to.

The health and well-being of our staff, vendors, and the public is our number one importance and we encourage you to stay informed by regularly reviewing information on the Canadian government’s COVID-19 webpage.

https://www.canada.ca/en/public-health/services/diseases/2019-novel-coronavirus-infection.html

Please note: Dogs are not permitted on-site during the market, as per Alberta Health Services regulations. We apologize for any inconvenience this may cause.

Interested Vendors

If you’d like to join our market as a vendor, please send us a completed application form. We welcome both seasonal and weekly vendors, and approve applications as they arrive throughout the season.

Please allow 2-3 business days to process applications. Click here to access the 2020 vendor application form.

Some of our regular vendors include:

Parking at the Market

See our parking page for Downtown parking options near the market site.

#RedDeerStrong – Tacoloft can’t wait to open for customers again on day 1 of phase 1 this Thursday

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Alberta

German Fitness Trainer Finds Himself Stuck in Calgary – And Making the Best of It!

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Cultures collide as COVID-19’s descent on the world leaves personal trainer global adventurer Darian Bessell stuck in Calgary. 

Originally from Germany, Darian has been travelling the world for the last year and a half, landing in Canada in February with plans to stay and work for a year. After getting all his permits in place and obtaining a work visa, he was hired by one of the major gyms in Calgary as a personal trainer. Unfortunately, he was immediately laid off after COVID-19 hit the city.

Seeing the situation as an opportunity to strike out on his own, Darian began offering his services as a personal trainer online, offering free consultations by Zoom or in person. His first client, Matt Keay, connected with Darian during his search for a way to improve health and mobility as well as mental wellbeing in his demanding role as a CEO. 

“I look over at my two-year-old daughter and she’ll be holding a squat position playing with toys for nearly an hour, totally natural for her,” says Keay, “why can’t I do that?” Keay suffers from sore hips and wrists due to years of abuse from skateboarding and poor diet. This proves difficult, as his role as a leader demands high performance and consistent energy.

“I’ve got training every day with Darian … well, it’s more like all day long,” says Matt, “I’ve heard people say how fitness is a lifestyle, well I really understand that now. I am standing more at my desk, doing more stretches, busting into a squat in the boardroom and the pain I’ve dealt with for years is melting away.”

Darian Bessell, newly appointed Business on Camera Director of Physical and Mental Health will bring health and wellness to high-performance entrepreneurs in Calgary. “The knowing-doing gap is a worldwide common issue,” offers Bessell, “people know that enjoying nuts as a snack is healthier than a chocolate bar, and they know the way they feel physically could be better. Often some simple support tools to improve mobility can have a huge impact on overall fitness and hold the key to a new healthy lifestyle.”

The human body sends signals that it is in poor condition by aching and demonstrating discomfort.  The mind also sends signals, for example, feeling depressed or tired all the time. Most people know that they have to change something, but it is all too easy to get caught up in routines and maintain bad habits. 

“Most people have the desire to do more for their mental and physical health, so why not just do it then?”

Health and fitness is one of the most flooded industries on the market with new gadgets, diets and methods constantly emerging, leaving no shortage of options when it comes to personal health. 

“Choosing to work with Darian was based on the education he had regarding the symbioses between mental health and physical performance, nutrition and mobility. He often referred to a program created by Dr. Kelly Starrett called “Becoming a Supple Leopard,” continues Keay, “a ton of professional athletes and stunt actors are Supple Leopards; I would describe it as intentional and intuitive.  For me at this time, the goal is to feel better everywhere, increase mobility, energy, and mood in under thirty minutes a day.”

Darian’s goal is to help individuals overcome the disconnect between desire and action by cultivating discipline and a strong commitment to health and happiness in his clients. “People have to take a huge step to get over the gap between knowing what is good for them and really having the discipline to do it,” says Bessell, “Human beings get used to things so fast and fall into a cycle of ‘I need to do something about that’, then continue to ignore it, and fall into the deep hole between knowing and doing.”

 

Darian gives people that much-needed kick in the butt. By helping clients reposition their approach to fitness and replace negative habits with positive changes, his program addresses physical and mental wellbeing, leaving clients feeling better than ever. “Other benefits include better sleep, more focus and better work-life balance,” says Darian, “it is all about implementing a holistic approach to health to get your body in an efficient, healthy position, and maintain it with intentional practice.”

Keay is thrilled with his results and excited to see where the program takes him. “I am constantly paying attention to my body now,” he says,  “the way I sit, the way I walk, engaging my core, doing a squat instead of bending over to pick something up…it’s really had a tremendous impact on my ability to move properly, and we’re just getting started.”

Darian can be reached by phone at 403-478-3836 or [email protected]

 

For more stories, visit Todayville Calgary.

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