Dentists and Taxes

When we think of dentists and we think of taxes, we usually consider the medical expenses incurred at the dentist to claim on our personal tax returns.

However, in 2010 the Canada Revenue Agency has made some changes to the medical expense tax credit. Procedures that are purely cosmetic are now ineligible to be claimed as medical expenses.

For instance, your decision to whiten your teeth will no longer provide a tax credit but your root canal extraction will. If the expense is for medical or reconstructive purposes, then the expense will still qualify.

Another change to the dental industry is the decision by the government in the 2010 Budget to have GST/HST be charged on the cosmetic procedures. So now not only will your cosmetic treatments not get you a tax credit, you will also be paying 13% GST/HST on top of the cost.

The rationale is that cosmetic procedures are not basic health care and therefore are subject to tax. For details on which specific procedures qualify, visit the CRA website at www.cra-arc.gc.ca.

Charity Scandals 101

Time and time again, clients walk into our offices because of their involvement in a charity scandal. Although there are many variations of these schemes, the most popular one is as follows:

Mr. Doe wants to increase his tax refund. His accountant suggests that he makes a contribution to a charity to help him decrease his taxes by increasing his donation credit. Mr. Doe then receives a donation receipt for a far greater amount than the actual cash outlay. Mr. Doe’s accountant then proceeds to record the inflated donation on Mr. Doe’s tax return. Then Mr. Doe finds himself in trouble with the government, and his accountant has disappeared.

It is not common practice for your accountant to ask you for money that he will donate on your behalf to a charity. If your accountant suggests this to you, you may want to look for a different accountant. If he/she claims to have a professional designation, contact their related institute to determine if they are in good standing and have not lost any type of licence.

When you do want to make a legitimate donation, investigate the charity first. The CRA website has a list of all authorized charities, as well as charities that have lost their statuses.

Charity receipts are required by Canada Revenue Agency to include specific information about their organization, including, the following: Statement that it is an official receipt for income tax purposes, charity’s registration number, name and address of the charity, serial number of the receipt, place receipt issued, day/year of donation, full name of donor, amount of the donation, the eligible amount of the donation, a signature of an individual authorized with the CRA from the charity, and the CRA website address.

Make sure that the amount on the donation receipt matches the donation you have made. If you make your donation with a cheque, keep the cancelled cheque so that you have proof of payment in case any CRA enquiries arise.

If you have contributed tangible goods to a charity, do not record the goods on your return as a donation and a capital gain. When this is done, it appears that you have both received funds and donated the same goods.

If the government discovers that you have participated in one of these scandals, they will likely revise your tax return to reflect the actual cash outlay of the donation. If this puts you into a tax owing position, interest and penalties will be applied to the balance from May 1^st of the tax year that this occurred.

It can take many years for the CRA to look into charity scandals and it is quite common for returns from 2002, 2003, etc to be looked at now. This means that 8+ years of daily compounding interest and penalties that apply can easily end up doubling the tax debt.

Protect yourself and do not involve yourself in these type of schemes. It may appear to save you some money now, but the consequences when you are caught are just not worth it. It is in your best interest to make a donation to a registered charity and take the donation credit you deserve.