Making Advance Health Care Decisions – Getting Started

Have you thought about what medical care you would like to receive in the event you become unable to express your wishes?  More importantly, have you shared those thoughts with loved ones and your medical professionals?  Like making your Will, planning for future incapacity can be difficult, and discussing it with your loved ones may be uncomfortable.    But this is one area where it is very much a case of an ounce of prevention being worth a pound of cure.  Discussions with your loved ones clearly setting out your wishes on the types of medical care you wish to receive will not only lessen the likelihood of conflict amongst your loved ones, but will also allow them to make hard decisions knowing the decision is truly in keeping with your wishes.

The hardest part may simply be getting started.  Fortunately, the BC government has a comprehensive step by step resource available, including an easy to follow guide with workbook.

The guide includes practical advice and specific examples to use as a starting point for your considerations and discussions.  While the larger decisions such as when or whether to refuse life support are included, so are other considerations such as the environment that would help you be comfortable (open windows, music playing, family nearby, etc.).  The guide includes a basic discussion of three advance care planning options: Representation Agreements, Advance Directives, and Enduring Powers of Attorney.  These are all documents that record your advance care decisions in written form.  The workbook included in the guide (beginning at page 26) contains worksheets for you to complete and then share with your loved ones, as well as precedents of certain advance care options.

This resource provided by the BC government is an excellent place to start considering you advance health care plan, and I encourage you to do so.

The “Family Tax Cut” is not income splitting

Proposed amendments to the Income Tax Act were released today which include the “Family Tax Cut”. The media is reporting this as an income splitting proposal. I’ve reviewed the amendments and I think at most I would call it simulated income splitting. In simplified terms, here’s how it works.

The Family Tax Credit is a limited tax credit for couples with young children and unequal incomes. You’re eligible for the credit if (i) you have an “eligible relation” – basically a Canadian resident married or common law spouse whom you’re not separated from, (ii) you have a child under 18 that lives with you or your eligible relation (and presumably with both of you since you’re not separated), (iii) you’re resident in Canada, and (iv) you didn’t spend 90 days or more in prison (!).

If you’re eligible, you run through the following steps:

Step 1. Calculate the combined tax liability for you and your spouse. (A)

Step 2. Now calculate the adjusted combined tax liability for you and your spouse, as though the higher income spouse had transferred enough income to the lower income spouse to equalize their taxable incomes, to a maximum of a $50,000 transfer (i.e. an income differential of $100,000). (B)

Step 3. If the difference between combined tax (A) and adjusted combined tax (B) is greater than $2,000, the higher income spouse gets a tax credit of $2,000. If (A) – (B) is less than $2,000, the credit is the amount of the difference.

So for eligible spouses, their respective taxable incomes aren’t changed in the end, and your applicable marginal tax rates will be the same. Instead, the higher income spouse simply gets a tax-reducing credit (up to $2,000) to simulate the effect of income splitting.

Given the limited scope of these proposals, structuring where possible to achieve actual income splitting will remain important for high income earners.

Proposed Changes Impacting Charitable Giving

The government tabled a detailed Notice of Ways and Means Motion today to implement a number of changes announced in Budget 2014, as well as other measures. One of these changes will provide greater flexibility with respect to charitable gifts that are made in a will.

Currently, any charitable gifts in an individual’s will are deemed to have been made by the individual immediately before they died and the donation tax credits that arise from the charitable gift can be used in the deceased’s terminal tax return or the immediately prior tax return. It is not possible for any excess credits to be used by the estate to offset any income that may be earned by the estate.

The proposed changes will provide additional flexibility so that the donation tax credits can be used by the deceased, or by the deceased’s estate. The draft legislation provides that for deaths that occur on or after January 1, 2016, the estate will be deemed to have made the charitable gift at the time the property is transferred to the charity, and the donation tax credit can be used by:

  • the estate in the taxation year in which the gift is made;
  • the estate in an earlier taxation year;
  • the estate in the five subsequent taxation years;
  • the deceased in the year of death; or
  • the deceased in the year prior to the year of death;

In order to benefit from this increased flexibility, the charitable gift must be transferred to the charity within 36 months of the individual’s death, which may be difficult in situations where there is ongoing litigation or other issues that delay the administration of the estate.

Overall, these proposed changes are positive as they will provide more flexibility for charitable gift planning in the future.