This guide provides base for filing tax return but professional advice is a good investment By B.E. Freamo* A medical practitioner, unless 75% or more of his income for the year is de¬ rived from salary, wages or other re¬ muneration as an employee from which tax has been deducted at source, is required to pay quarterly instalments of tax during each year. Each instalment is either 25% of the tax payable by the individual for the previous year or 25% of the estimated tax payable for the current year. The lesser amount can be chosen at the individual's discretion. Each instalment payment must be sent in with remittance form T7DR (no instalments are payable where the in¬ dividual's tax payable for the previous year or the current year is not more than $400). Any balance of income tax due is payable on or before April 30 of the succeeding year, plus interest where applicable. Every doctor who pays salaries or wages to employees is required to de¬ duct tax according to the table of tax deductions obtainable from the various district taxation offices. Each employee should complete and file one copy of form TD1 with his employer when he commences employment or within 7 days of any change that affects his personal exemptions. If form TD1 is not filed, tax deductions must be made as though the employee were a single person without dependants. Tax deductions withheld from salaries or wages must be remitted to the receiver general of Canada not later than the 15th day of the following month, accompanied by remittance form PD7AR. If a doctor has ceased to carry on business, any tax deduc¬ tions which have not been paid to the receiver general must be paid within 7 days of ceasing business. *Mr. Freamo is executive vice
president of MD
Management Ltd., the investment service of the Canadian Medical Association Reprint requests to: MD Management Ltd., Box 8650, 1867 Alta Vista Dr., Ottawa K1G 0G8
Details of the total salaries
or
wages
paid to employees and the tax deducted
must be forwarded to the local district taxation office on forms T4-T4A sum¬ mary and T4 supplementary not later than the last day of February in each year. Here's the timetable: . Doctors who don't receive salaries that amount to 75% of income: Mar. 31, form T7DR; Apr. 30, form Tl; June 30, form T7JDR; Sept. 30, form T7DR; Dec. 31, form T7DR. . Doctors who do receive salaries that amount to 75% or more of in¬ come: April 30, form Tl. . Doctors who pay salaries to their own employees: 15th of each month, form PD7AR; Feb. 28, form T4-T4A summary and T4 supplementary. Doctors who pay salaries or wages to employees are also responsible for contributions to the Canada Pension Plan (in Quebec, to the Quebec Pension Plan). Employee contributions are de¬ ducted from salaries and wages by employers and remitted with the in¬ come tax deductions. Employers match contributions made by employees. Selfemployed persons pay both portions of the contribution. The booklets "Canada Pension Plan", "Information for Em¬ ployers" and "Contribution Tables" give complete details. Extra copies may be obtained from the district taxation of¬ fices. Again this year, "personalized" in¬ come tax forms have been mailed to most taxpayers. In addition to the taxpayer's name and address, the forms include a number for fast identifica¬ tion during machine processing. If you have not received your in¬ come tax return in the mail, you can get unaddressed and unnumbered re¬ turns at any post office or district taxation office. If your pre-addressed return is spoiled, use a new form, tak¬ ing care to enter name, address and number from the original.
Under the Income Tax Act, a doctor is required to maintain an accurate rec¬ ord of all income fees, investment in¬ come, capital gains, ete. Such records, which may be maintained on cards or in books, must not be destroyed until written permission for their disposal is obtained from the minister of national revenue.
Records of expenses should be main¬
tained, supported by vouchers. These
should include: . Salaries or wages paid to pro¬ fessional assistants, nurse, office help, bookkeeper. (Note that the Income Tax Act does not allow as a deduction a salary paid by a husband to a wife or vice versa. Such an amount, if paid, must be added back to the employer's
income.)
. Assistants' fees. The names and addresses of assistants to whom fees are paid should be furnished. This in¬ formation is to be given each year to Revenue Canada on form T4A supple¬ mentary, obtainable from your district taxation office. . Medical, surgical and like sup-
plies.
Telephone expenses (long-discharges on business calls and service charges for business telephones listed in the doctor's naime, fees for telephone answering services). . Rentals paid. The name and ad¬ dress of the owner (preferably) or agent of the rented premises should be fur¬ nished (see 'below). . Postage and stationery. . Depreciation, or as it is referred to in the Income Tax Act, capital cost allowance. A brief discussion of capital .
tance
cost allowance will be found in item 17 on page 9 of the 1974 income tax filing guide. Schedule 8 attached to the 1974 form Tl tax return is the schedule to be completed for capital cost allowance purposes.
The method of computing deprecia¬ tion for tax purposes is basically the
CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112 389
same as that used in previous years. Schedule 8 is largely self-explanatory if followed carefully, with the exception of column 6. Column 6 provides for
adjustments pursuant to regulation 1102(15) and regulation 1110. The former relates to certain classes of prop¬ erty used for manufacturing or processing acquired between Dec. 3, 1970 and Apr. 1, 1972. Regulation 1110 relates to certain commercial buildings whose construction commenced after June 3, 1969 and before 1971. For further information on these regula¬ tions ask your tax adviser or inquire at your local district taxation office. See Table I for rates of depreciation. For example, if the residence was a brick building costing $30 000 and one
third of the space was used for office, the doctor would use $10 000 as the business portion of the cost and apply the building rate of 5% to determine the maximum depreciation the first year. Care should be taken here; the doctor should consult his tax advisers in view of the revenue department's policies on principal residence exemp¬ tion from capital gains tax. Under pres¬ ent policies, it would appear possible to claim a principal residence exemption from capital gains tax for the entire residence, even though the doctor may, since 1972, have used part of it for professional purposes. A strict inter¬ pretation of the Income Tax Act would not necessarily bring a tax adviser to this conclusion. . Automobile expense. This amount will include gasoline, oil and grease, repairs and replacements, insurance, licence, washing, garage rental (if any), automobile rental (if automobile is leased) and capital cost allowance (if automobile is owned). Of the total of these expenses, only those incurred for the purpose of earn¬ ing the professional income are de¬ ductible in computing that income. If the car is used also for personal pur¬ poses, you must divide the total cost in proportion to the miles travelled for
each purpose. A reduction in capital any particular item is fair. . Sundry expenses. Under these ex¬ cost allowance would also be appro¬ for he should only cover small items car is used both where the penses priate professional and personal purposes. not otherwise classified: for instance However, an allocation by mileage of laundry, malpractice insurance ete. Ex¬ the capital cost allowance is not neces¬ penses charged to this account should sarily appropriate, especially where the be capable of analysis and supported professional mileage is disproportion- by records. Claims for charitable donations ately low. An allocation of capital cost allowance based upon the time the car should be made in the space for that item on the Tl return form and should was available for professional purposes only would be more appropriate. Never¬ not be included in professional ex¬ theless, a fixed percentage of such penses. Such claims (provided receipts capital cost allowance should not be are supplied) are allowable as a deduc¬ claimed. Personal driving includes driv¬ tion from income up to an amount not ing from home to office and vice versa. exceeding 20% of the net income. No But where the doctor's only business allowance will be made for a "donaoffice is in his home, driving between tion" consisting of the value of services there and a hospital would not be per¬ rendered to a charitable organization. sonal driving. Annual professional membership No expenses of capital cost allow¬ dues, the payment of which is necessary ance may be claimed on any car used to maintain a doctor's professional status, may be deducted. wholly for personal driving. The doctor should be able to support In general, tuition fees over $25 paid his claim by providing total mileage to attend a course in an educational and business mileage for the year., institution in Canada may be claimed Revenue Canada's interpretation bul¬ as a deduction. No travelling or living letin no. IT-180, Sept. 30, 1974, says: expenses are allowable in this connec¬ tion. status of fees paid or the (i) Proportional expenses of doctors prac¬ cost ofTheattending postgraduate courses tising from their residence. in educational institutions outside Can¬ a the doctor: where doctor Owned (a) by practises from a house which he owns ada is discussed in Revenue Canada's and as well resides in, a proportionate al¬ interpretation bulletin no. IT-82. lowance of house expenses will be given . Interest. Where paid on borrowed for the study, laboratory, office and wait¬ money, interest may or may not be ing room space, on the basis that this as an expense, according to space bears to the total space of the charged residence. The charges cover taxes, light, the use made of the borrowed money. heat, insurance, repairs, capital cost al¬ For example, if used to acquire an in¬ lowance and interest on mortgage (name terest in a medical partnership or to and address of the mortgagee to be stated). buy professional equipment, interest The claiming of such expenses does not paid may be claimed as an expense appear to affect the department's policy in computing professional income. If it with respect to the principal residence was used to securities or real exemption for capital gains tax purposes. property, theacquire interest paid may be (b) Rented by the doctor: only the rent and other expenses borne by the doctor claimed as an expense in computing such as heat and light will be apportioned income or creating a non-capital loss and only insofar as such expenses are which, in turn, can be applied against the responsibility of the doctor and not professional income. Interest paid on the landlord. money borrowed for personal use may not be claimed as a deduction from The doctor should be prepared to any kind of income. demonstrate that the apportionment of . Other taxes. Business tax will be allowed as an expense but federal, pro¬ vincial or municipal income tax will !B!!UUL!,.,S-::.':,.J not be allowed. lill . Medical expenses. These are al¬ lowed to the extent that they exceed 3% of "net income". . Social clubs. Dues are no longer deductible but it should be noted that the term "social club dues" includes only initiation fees or annual or monthly membership dues or fees; the term does not include charges for food and drink, living accommodation, fees for introduction of guests and the like to the extent that such charges or fees were expended wholly and directly for the purpose of increasing a doctor's business income. Convention expenses are allowable
390 CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112
individual carrying on business practising a profession. But the al¬ lowance is restricted to the expenses of attending in any one year no more than two conventions held by a business or professional organization; the doctor need not be a member of the organiza¬ tion sponsoring the convention but his attendance at the convention must be related to his business or professional practice. The act further provides that the con¬ vention must be at a location reasonably consistent with the territorial scope of the business or professional organ¬ ization (see below for a more complete review of the territorial limitation). Ex¬ penses of a personal nature, including those attributable to the attendance of the taxpayer's spouse at the conven¬ tion, may not be claimed. No expenses for attending a conven¬ tion are allowable as a deduction from salary income; however the department is of the view that where an employer requires an employee to attend a con¬ vention as part of the duties and pays his reasonable costs in so doing, such reimbursement will not normally con¬ stitute income to the employee. to an
or
The doctor should submit with his
return information about the dates and
location of the convention, number of
days present and the expenses incurred. He should segregate transportation,
meal and hotel expenses. Proceeds and vouchers should be obtained where pos¬ sible and kept available for inspection.
Registered
retirement
savings plan
The amount deductible in respect of contributions to an RRSP is limited as follows: . In the case of an employee re¬ ceiving salary and being covered by a registered pension fund established by his employer (whether or not the em¬ ployee contributes to the plan) the de¬ ductible amount is limited to the lesser of $2500 or 20% of his earned income minus, in each case, the amount of any of his deductible contributions for the year under the employer's pension plan. . In the case of any other taxpayer, including a self-employed doctor, the lesser of $4000 or 20% of his earned income. The amounts deductible are those paid in 1974 or within 60 days after the end of 1974. A payment made in January or February 1975 cannot be claimed in 1975 if it could have been deducted from 1974 income. Doctors who have applied for mem¬ bership in the Canadian Medical As¬ sociation Retirement Savings Plan (CMARSP) not later than Feb. 28, 1975 may be assured that their names are registered as participants in a re¬ gistered retirement savings plan and .
that their contributions are deductible for the taxation year 1974 to the ex¬
outlined above. Certificates showing the amount of contributions will be mailed to CMARSP members in March 1975 to support claims made for deductions in their 1974 income tax returns. tent
Professional
under
salary contract The Income Tax Act provides that income from an office or employment is liable to tax without deductions other than those specifically permitted by the act. Allowable deductions include the employment expense deduction, which generally speaking is equal to men
the lesser of $150 or 3% of the doc¬ tor's aggregate salary income. The de¬ ductions also include the employee's contributions to a pension fund, alimony, travelling expenses, annual pro¬ fessional membership dues, office rent, salary to an assistant or substitute, supplies consumed directly in the perform¬ ance of the duties of employment and amount paid into a registered retire¬ ment savings plan. The act permits deduction from income of an office or employment for annual professional membership only if the payment is necessary to maintain a professional status recognized by statute. The an¬ nual registration fee of the provincial medical licensing authority would be allowable if paid by the doctor himself. In the case of office rent or salary to an assistant or substitute, the pay¬ ment of such expenses must be required by the contract of employment. In order to claim travelling expenses the employee must be ordinarily required to carry on the duties of his employ¬ ment away from his employer's place of business. Travelling expenses be¬ tween the doctor's home and his place of employment are not included. Where travelling expenses are allow¬ able, depreciation may be claimed on the automobile used for this purpose, but no other claim for depreciation may be made.
Income from
a
partnership
Additional expenses incurred by a not charged to the partner¬ ship, may be claimed as a deduction from the partner's share of the income. However, the partner must be in a position to substantiate these expenses,
partner, but
to explain why they were not charged directly to the partnership and show that they were necessarily laid out to earn partnership income. For example, a number of doctors may form a part¬ nership but none of their automobiles have become partnership assets. Then automobile expenses and capital cost allowance may be claimed by each
Speciallytailored to pregnancy
Stow-ffefoHc Brief Prescribing Information Formula:
Each SLOW-Fe folic tablet contains 160 mg dried ferrous sulfate (equivalent to 50 mg of elemental iron) and 400 micrograms folic acid in a specially formulated slow release base. The iron content is released evenly over an average period of 2 hours, optimum time for maximum effective absorption. The tablets are film coated.
Indications Prophylaxis of iron and folic acid deficiencies and treatment of megaloblastic anemia, during pregnancy, puerperium and lactation. Dosage andOneAdministration tablet daily throughout Prophylaxis: pregnancy, puerperium and lactation. To be swallowed whole at any time of day regardless of meal times. Treatment of megaloblastic anemia: during pregnancy, puerperium and lactation; and, in multiple pregnancy: two tablets, in a single dose, should be swallowed daily. Side Effects The incidence of gastro-intestinal side effects such as nausea and gastro-intestinal irritation is extremely low. Treatment of Overdosage Signs of toxicity from folic acid have not been observed even with doses several times higher than the usual therapeutic levels. Care has been taken to minimize the risk of accidental consumption of SLOW-Fe folic in children by making the tablets a relatively unattractive offwhite colour with an almost tasteless film coat. Moreover the push-through type of foil packaging makes the extraction of any tablets difficult and tedious for children. However, in the event of overdosage the usual treatment for iron poisoning should be instituted. Because the iron is only slowly released, the risk of toxic levels of ionic iron being absorbed is less and there is a wider time margin in which to carry out stomach washouts; also the use of an iron-chelating agent such as DESFERAL® (deferoxamine CIBA) is likely to be more effective. The treatment of iron poisoning is described in detail in the CIBA literature on DESFERAL®.
Contraindications Hemochromatosis, hemosiderosis, and hemolytic anemia.
Warnings out of reach of children.
Keep Precautions The use of Folic acid in the treatment of pernicious (Addisonian) anemia, in which vitamin B12is deficient, may return the peripheral blood picture to normal while neurological manifestations remain progressive. Oral iron preparations may aggravate existing peptic ulcers, regional enteritis and ulcerative colitis. Iron when given with tetracyclines, binds in the equimolecular ratio thus lowering the absorption of tetracyclines.
Supplied SLOW-Fe folic tablets are
packaged in pushthrough packs containing 30 tablets per sheet
and are available in units of 30 and 120 tablets.
CIBA Dorval, Quebec H9S
1B1
c-4052
CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112 391
Conferences and conventions should be chosen carefully e Each doctor must produce a state¬ individual partner against his share of in limited circumstances and in relative¬ nominal the partnership income. ment of profit and loss for 1974 on an amounts. ly Dividend income continues to be accrual basis. e Most doctors who had a year end taxable in the doctor's hands. If he reMiscellaneous matters ceives a dividend from a Canadian during the calendar year of 1971 main¬ Research grants remain personal tax¬ corporation, he is required to bring tain a reserve in respect of 1971 ac¬ able income, but an amount of out-of- into income \V$ the amount of the counts receivable. The Income Tax Act requires a doc¬ pocket cost may be claimed as deduct¬ dividend received, compute federal tax ible expenses. on this increased basis, deduct dividend tor to include in his income for the Income from fellowships, scholar- tax credit equal to roughly one third 1974 taxation year an amount equal ships and bursaries must now be in¬ of the dividend received and calculate to the amount deducted in respect to cluded in income for tax purposes, but provincial tax thereon. his 1971 receivables reserve for the a partial offset is provided by a $500 Generally speaking, a doctor receives purpose of calculating his income for additional exemption for recipients. interest income from a number of the 1973 taxation year. Having added It remains important for doctors to sources bank accounts, insurance the reserve (deducted in order to de¬ exercise care in selecting up to two dividends and bonds, mortgages, ete. termine income in 1973) to his 1974 conventions to attend in each year. Generally the taxpayer is allowed to income, the doctor is entitled to deduct This is particularly so because the con¬ compute interest on an accrual basis, from the resulting figure an amount ventions must be held at places reason- or he may include interest in his in¬ equal to the lesser of the amount de¬ ably consistent with the territorial scope come when it is actually received (see ducted in 1973 and the amount of his of the organization concerned in order also discussion under 1974 federal professional receivables outstanding at for the expenses of attendance to be budget). the end of his 1974 taxation year. In deducted. If, for instance, a Canadian the case of a doctor who is a member of a partnership, the doctor is entitled professional business management or¬ Capital gains to deduct the lesser of the amount ganization held a convention in Hawaii, it is doubtful that the expenses of at¬ Generally speaking, one half capital deducted in 1973 and his investment tendance would be deductible for a gains realized during the year will be interest in the partnership. Canadian doctor, even if he were a added to other income and taxed at A doctor's tax advisers are undoubt¬ member of the organization. Reason¬ regular income tax rates. One half edly familiar with the relevant figures able prudence must be exercised. capital losses realized during the year involved in the reserve calculations, but will be deductible from capital gains the example which follows is illustrative of the for incurred Expenses purpose attending refresher courses remain non- realized. However, individuals may of a situation where a doctor had total deductible, except to the extent that claim a net capital loss up to $1000 billings re 1974 of $60 000, deductible they qualify as tuition fees, under the yearly and may defer any excess allow¬ expenses of $22 000, a reserve deducted able capital loss to subsequent years. Income Tax Act. in respect of his 1973 income of There may still be some taxpayers $20 000 and receivables at the end of For 1974, personal exemptions have been increased to $1706 for a single who have not had occasion to value 1974 of $18 000. It is to be noted taxpayer and $3198 for a married tax¬ their capital assets at valuation day that, had the receivables at the end of payer. The over-65 exemption has been values as opposed to valuing them the the 1974 period exceeded $20 000, only tax free zone method. The tax free zone the $20 000 (the amount deducted in raised to $1066. Moving expenses may be claimed if method will ordinarily be available to 1973) would have been allowed as a you move to a new work location, a taxpayer unless he elects at the time deduction. whether you are a self-employed doctor he first reports a taxable capital gain or allowable capital loss to receive or a doctor receiving a salary. Moving $ 60 000 Total billing during year expenses include travelling cost for the valuation day value treatment. 22 000 He may deduct bank and other in¬ Business expenses taxpayer and his family, costs of transused to porting and storing household effects, terest charges for loans $ 38 000 board and lodging near the old resi¬ purchase investments or to invest in reserve deducted for Add: retirement for a dence or the new residence savings plans. period registered 20 000 1973 period When you prepare your 1974 income up to 15 days, lease cancelling costs in mind should and selling costs for old residence. The statement, you keep $ 58 000 details: taxpayer's new residence must be at several Deduct: receivables at end of e If possible a doctor should retain 18 000 least 30 km closer than his previous 1974 period a professional accountant to compute residence to his new work location. Net business income during year $ 40 000 Child care expenses remain available his net business income. 392 CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112
The maximum annual contribution that may be made to a RRSP has been substantially increased: if you are self-employed you may contribute to CMARSP up to $4000 per year (or 20% of earned income if this is less). If you are participating in an employeeemployer pension plan, as well as contributing to CMARSP, the total of your contributions to both plans should not exceed $2500 (or 20% of earned income, if this is less). Old age security pension payments and payments under the Canada Pen¬ sion Plan constitute earned income and therefore in limited circumstances the receipt of such payments may enable a doctor to make larger annual con¬ tributions. For further information
please
contact MD
Management.
Monies payable from a registered retirement savings plan at a participant's death before the commencement of the retirement annuity are taxable to the estate or other recipient. Tax deferral may be achieved by having the monies payable to the surviving spouse who may then "rollover" the proceeds into his or her own registered retirement group plan. Any individual receiving such proceeds may defer tax through the purchase of an incomeaveraging annuity contract. For these purposes the participant may have to execute a codicil to his will. For this, legal counsel should be obtained.
Legislation The federal budget was presented on Nov. 18, 1974. It proposed various amendments to the Income Tax Act, many of which apply to the 1974 taxation year. At the date of this article's preparation the amending legis¬ lation had not been formally enacted; however, it is anticipated that it will be passed in due course. Revenue Can¬ ada has prepared the 1974 individual income tax returns, Form Tl 1974, on the assumption that the legislation will come into force. The following summarizes some of the principal changes affecting doctors: e If a doctor does not utilize the maximum deductible contribution to his or her registered retirement savings plan (or plans), all or any part of the deficiency may be contributed to a registered retirement savings plan for his or her spouse. Provided the plan is established and the contribution is made by Feb. 28, 1975, this contribution to the spouse's plan will be deductible for the 1974 taxation year. While this amendment does not increase the over¬ all maximum deductible contributions available to a doctor, it is to be noted that payments out of the spouse's plan to the spouse are not subject to income attribution. (Those doctors residing in
BC, Man., Sask., Ont. and Que. should a contribution to a spouse's registered retirement savings plan may be subject to provincial gift tax.) e Any taxpayer over the age of 18 who does not now own a home will be permitted to make a tax-deductible con¬ tribution of up to $1000 per year to a registered home ownership savings plan, up to a lifetime maximum $10 000. The income of the plan is exempt from tax and the amount accumulated in the plan when distributed to the individual will not be subject note that
persons 65 or over or persons under 65 who are receiving pension income following a spouse's death. Qualifying
pension payments include payments under registered pension funds or plans, registered retirement savings plans or deferred profit-sharing plan annuities. Old Age Security and Canada or Que¬ bec pension plan benefits will not quali¬ fy. Any portion of the $1000 pension deduction not used by an individual may be deducted by his or her spouse. e Whereas, previously, investment counsel fees were only 50% deductible, to tax if it is applied towards the pur¬ for the 1974 and subsequent taxation chase of a first home or home furnish- years they are fully deductible. ings for a first home. An individual e individual who is required may have only one registered home under An a separation or divorce agree¬ his life¬ ownership savings plan during time. Proceeds not so used will be ment to make payments to a third taxed as income to the recipient. How¬ party for the benefit of a spouse, former ever, the recipient may "rollover" such spouse or children of the marriage may deduct such payments from income and proceeds into a registered retirement the or former spouse must in¬ savings plan or an income-averaging cludespouse them in his or her income. contract. annuity e Capital cost allowances on new Registered home ownership savings plans are to be issued by trust com¬ multiple unit residential construction panies. In most of their aspects they started between Nov. 19, 1974 and Dec. will be quite similar to registered re¬ 31, 1975 may be deducted against in¬ tirement savings plans. In order for come from other sources. In these lim¬ an individual to make a deductible con¬ ited circumstances, the former policy tribution to a registered home owner¬ has been restored. This change will ship savings plan effective for the 1974 apply to the original owner and subse¬ taxation year, the plan must be estab¬ quent purchasers. lished and the contribution made by Interest and property taxes payable Feb. 28, 1975. after May 6, 1974 in respect of real e For the 1974 taxation year, an estate held for inventory or for future individual may deduct up to $1000 of development must be capitalized to the net interest income from Canadian extent that these carrying charges are sources. For this purpose, payments greater than the income derived from under a registered retirement savings the property. plan, deferred profit-sharing plan, re¬ e formerly, a man sepgistered pension fund or plan or an aratedWhereas, from his wife could only deduct and income-averaging annuity contract, care expenses by virtue of such royalties are not considered to con¬ child pursuant to a written agree¬ stitute interest. Further, interest paid separation deduction is now permitted the ment, to an individual by a person with whom where the separation is pursuant to a he does not deal at arm's length or court order or decree. interest paid to an individual by a part¬ e member of which does he is a A nership retiring partner is deemed not not qualify. Payments received from a to have disposed of his partnership in¬ trust (including a mutual fund trust or terest and to continue to have a part¬ other unit trust) designated as such by nership interest until all his rights to the trust may constitute interest for the receive property from the partnership in satisfaction of his interest have been recipient. in full. This "residual interest" Recipients of cash bonuses on Can¬ received ada Savings Bonds may treat such may serve to maintain an "investment bonuses either as interest, which quali- interest" in the business. Therefore, fies for the above $1000 interest deduc¬ recognition of his "1971 receivables" reserve, if any, may be deferred. tion, or as capital gains. While not effective for the 1974 taxation year, for the 1975 and subse¬ quent taxation years, the $1000 interest deduction will be expanded to include Canadian sources grossed-up dividend income. Also for the 1975 and sub¬ sequent taxation years, an individual will be able to deduct the first $1000 private pension income received in the year. This deduction is available to
Amendments have also been intro¬ duced to permit members of a partner¬ ship to enter into an agreement to allocate a share of partnership income or losses to a former partner, to the former partner's spouse, estate or heirs, or to a person who acquired a right under such an agreement. The former partner need not have any capital in¬ vested in the partnership. ¦
CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112 393
president of MD
Management Ltd., the investment service of the Canadian Medical Association Reprint requests to: MD Management Ltd., Box 8650, 1867 Alta Vista Dr., Ottawa K1G 0G8
Details of the total salaries
or
wages
paid to employees and the tax deducted
must be forwarded to the local district taxation office on forms T4-T4A sum¬ mary and T4 supplementary not later than the last day of February in each year. Here's the timetable: . Doctors who don't receive salaries that amount to 75% of income: Mar. 31, form T7DR; Apr. 30, form Tl; June 30, form T7JDR; Sept. 30, form T7DR; Dec. 31, form T7DR. . Doctors who do receive salaries that amount to 75% or more of in¬ come: April 30, form Tl. . Doctors who pay salaries to their own employees: 15th of each month, form PD7AR; Feb. 28, form T4-T4A summary and T4 supplementary. Doctors who pay salaries or wages to employees are also responsible for contributions to the Canada Pension Plan (in Quebec, to the Quebec Pension Plan). Employee contributions are de¬ ducted from salaries and wages by employers and remitted with the in¬ come tax deductions. Employers match contributions made by employees. Selfemployed persons pay both portions of the contribution. The booklets "Canada Pension Plan", "Information for Em¬ ployers" and "Contribution Tables" give complete details. Extra copies may be obtained from the district taxation of¬ fices. Again this year, "personalized" in¬ come tax forms have been mailed to most taxpayers. In addition to the taxpayer's name and address, the forms include a number for fast identifica¬ tion during machine processing. If you have not received your in¬ come tax return in the mail, you can get unaddressed and unnumbered re¬ turns at any post office or district taxation office. If your pre-addressed return is spoiled, use a new form, tak¬ ing care to enter name, address and number from the original.
Under the Income Tax Act, a doctor is required to maintain an accurate rec¬ ord of all income fees, investment in¬ come, capital gains, ete. Such records, which may be maintained on cards or in books, must not be destroyed until written permission for their disposal is obtained from the minister of national revenue.
Records of expenses should be main¬
tained, supported by vouchers. These
should include: . Salaries or wages paid to pro¬ fessional assistants, nurse, office help, bookkeeper. (Note that the Income Tax Act does not allow as a deduction a salary paid by a husband to a wife or vice versa. Such an amount, if paid, must be added back to the employer's
income.)
. Assistants' fees. The names and addresses of assistants to whom fees are paid should be furnished. This in¬ formation is to be given each year to Revenue Canada on form T4A supple¬ mentary, obtainable from your district taxation office. . Medical, surgical and like sup-
plies.
Telephone expenses (long-discharges on business calls and service charges for business telephones listed in the doctor's naime, fees for telephone answering services). . Rentals paid. The name and ad¬ dress of the owner (preferably) or agent of the rented premises should be fur¬ nished (see 'below). . Postage and stationery. . Depreciation, or as it is referred to in the Income Tax Act, capital cost allowance. A brief discussion of capital .
tance
cost allowance will be found in item 17 on page 9 of the 1974 income tax filing guide. Schedule 8 attached to the 1974 form Tl tax return is the schedule to be completed for capital cost allowance purposes.
The method of computing deprecia¬ tion for tax purposes is basically the
CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112 389
same as that used in previous years. Schedule 8 is largely self-explanatory if followed carefully, with the exception of column 6. Column 6 provides for
adjustments pursuant to regulation 1102(15) and regulation 1110. The former relates to certain classes of prop¬ erty used for manufacturing or processing acquired between Dec. 3, 1970 and Apr. 1, 1972. Regulation 1110 relates to certain commercial buildings whose construction commenced after June 3, 1969 and before 1971. For further information on these regula¬ tions ask your tax adviser or inquire at your local district taxation office. See Table I for rates of depreciation. For example, if the residence was a brick building costing $30 000 and one
third of the space was used for office, the doctor would use $10 000 as the business portion of the cost and apply the building rate of 5% to determine the maximum depreciation the first year. Care should be taken here; the doctor should consult his tax advisers in view of the revenue department's policies on principal residence exemp¬ tion from capital gains tax. Under pres¬ ent policies, it would appear possible to claim a principal residence exemption from capital gains tax for the entire residence, even though the doctor may, since 1972, have used part of it for professional purposes. A strict inter¬ pretation of the Income Tax Act would not necessarily bring a tax adviser to this conclusion. . Automobile expense. This amount will include gasoline, oil and grease, repairs and replacements, insurance, licence, washing, garage rental (if any), automobile rental (if automobile is leased) and capital cost allowance (if automobile is owned). Of the total of these expenses, only those incurred for the purpose of earn¬ ing the professional income are de¬ ductible in computing that income. If the car is used also for personal pur¬ poses, you must divide the total cost in proportion to the miles travelled for
each purpose. A reduction in capital any particular item is fair. . Sundry expenses. Under these ex¬ cost allowance would also be appro¬ for he should only cover small items car is used both where the penses priate professional and personal purposes. not otherwise classified: for instance However, an allocation by mileage of laundry, malpractice insurance ete. Ex¬ the capital cost allowance is not neces¬ penses charged to this account should sarily appropriate, especially where the be capable of analysis and supported professional mileage is disproportion- by records. Claims for charitable donations ately low. An allocation of capital cost allowance based upon the time the car should be made in the space for that item on the Tl return form and should was available for professional purposes only would be more appropriate. Never¬ not be included in professional ex¬ theless, a fixed percentage of such penses. Such claims (provided receipts capital cost allowance should not be are supplied) are allowable as a deduc¬ claimed. Personal driving includes driv¬ tion from income up to an amount not ing from home to office and vice versa. exceeding 20% of the net income. No But where the doctor's only business allowance will be made for a "donaoffice is in his home, driving between tion" consisting of the value of services there and a hospital would not be per¬ rendered to a charitable organization. sonal driving. Annual professional membership No expenses of capital cost allow¬ dues, the payment of which is necessary ance may be claimed on any car used to maintain a doctor's professional status, may be deducted. wholly for personal driving. The doctor should be able to support In general, tuition fees over $25 paid his claim by providing total mileage to attend a course in an educational and business mileage for the year., institution in Canada may be claimed Revenue Canada's interpretation bul¬ as a deduction. No travelling or living letin no. IT-180, Sept. 30, 1974, says: expenses are allowable in this connec¬ tion. status of fees paid or the (i) Proportional expenses of doctors prac¬ cost ofTheattending postgraduate courses tising from their residence. in educational institutions outside Can¬ a the doctor: where doctor Owned (a) by practises from a house which he owns ada is discussed in Revenue Canada's and as well resides in, a proportionate al¬ interpretation bulletin no. IT-82. lowance of house expenses will be given . Interest. Where paid on borrowed for the study, laboratory, office and wait¬ money, interest may or may not be ing room space, on the basis that this as an expense, according to space bears to the total space of the charged residence. The charges cover taxes, light, the use made of the borrowed money. heat, insurance, repairs, capital cost al¬ For example, if used to acquire an in¬ lowance and interest on mortgage (name terest in a medical partnership or to and address of the mortgagee to be stated). buy professional equipment, interest The claiming of such expenses does not paid may be claimed as an expense appear to affect the department's policy in computing professional income. If it with respect to the principal residence was used to securities or real exemption for capital gains tax purposes. property, theacquire interest paid may be (b) Rented by the doctor: only the rent and other expenses borne by the doctor claimed as an expense in computing such as heat and light will be apportioned income or creating a non-capital loss and only insofar as such expenses are which, in turn, can be applied against the responsibility of the doctor and not professional income. Interest paid on the landlord. money borrowed for personal use may not be claimed as a deduction from The doctor should be prepared to any kind of income. demonstrate that the apportionment of . Other taxes. Business tax will be allowed as an expense but federal, pro¬ vincial or municipal income tax will !B!!UUL!,.,S-::.':,.J not be allowed. lill . Medical expenses. These are al¬ lowed to the extent that they exceed 3% of "net income". . Social clubs. Dues are no longer deductible but it should be noted that the term "social club dues" includes only initiation fees or annual or monthly membership dues or fees; the term does not include charges for food and drink, living accommodation, fees for introduction of guests and the like to the extent that such charges or fees were expended wholly and directly for the purpose of increasing a doctor's business income. Convention expenses are allowable
390 CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112
individual carrying on business practising a profession. But the al¬ lowance is restricted to the expenses of attending in any one year no more than two conventions held by a business or professional organization; the doctor need not be a member of the organiza¬ tion sponsoring the convention but his attendance at the convention must be related to his business or professional practice. The act further provides that the con¬ vention must be at a location reasonably consistent with the territorial scope of the business or professional organ¬ ization (see below for a more complete review of the territorial limitation). Ex¬ penses of a personal nature, including those attributable to the attendance of the taxpayer's spouse at the conven¬ tion, may not be claimed. No expenses for attending a conven¬ tion are allowable as a deduction from salary income; however the department is of the view that where an employer requires an employee to attend a con¬ vention as part of the duties and pays his reasonable costs in so doing, such reimbursement will not normally con¬ stitute income to the employee. to an
or
The doctor should submit with his
return information about the dates and
location of the convention, number of
days present and the expenses incurred. He should segregate transportation,
meal and hotel expenses. Proceeds and vouchers should be obtained where pos¬ sible and kept available for inspection.
Registered
retirement
savings plan
The amount deductible in respect of contributions to an RRSP is limited as follows: . In the case of an employee re¬ ceiving salary and being covered by a registered pension fund established by his employer (whether or not the em¬ ployee contributes to the plan) the de¬ ductible amount is limited to the lesser of $2500 or 20% of his earned income minus, in each case, the amount of any of his deductible contributions for the year under the employer's pension plan. . In the case of any other taxpayer, including a self-employed doctor, the lesser of $4000 or 20% of his earned income. The amounts deductible are those paid in 1974 or within 60 days after the end of 1974. A payment made in January or February 1975 cannot be claimed in 1975 if it could have been deducted from 1974 income. Doctors who have applied for mem¬ bership in the Canadian Medical As¬ sociation Retirement Savings Plan (CMARSP) not later than Feb. 28, 1975 may be assured that their names are registered as participants in a re¬ gistered retirement savings plan and .
that their contributions are deductible for the taxation year 1974 to the ex¬
outlined above. Certificates showing the amount of contributions will be mailed to CMARSP members in March 1975 to support claims made for deductions in their 1974 income tax returns. tent
Professional
under
salary contract The Income Tax Act provides that income from an office or employment is liable to tax without deductions other than those specifically permitted by the act. Allowable deductions include the employment expense deduction, which generally speaking is equal to men
the lesser of $150 or 3% of the doc¬ tor's aggregate salary income. The de¬ ductions also include the employee's contributions to a pension fund, alimony, travelling expenses, annual pro¬ fessional membership dues, office rent, salary to an assistant or substitute, supplies consumed directly in the perform¬ ance of the duties of employment and amount paid into a registered retire¬ ment savings plan. The act permits deduction from income of an office or employment for annual professional membership only if the payment is necessary to maintain a professional status recognized by statute. The an¬ nual registration fee of the provincial medical licensing authority would be allowable if paid by the doctor himself. In the case of office rent or salary to an assistant or substitute, the pay¬ ment of such expenses must be required by the contract of employment. In order to claim travelling expenses the employee must be ordinarily required to carry on the duties of his employ¬ ment away from his employer's place of business. Travelling expenses be¬ tween the doctor's home and his place of employment are not included. Where travelling expenses are allow¬ able, depreciation may be claimed on the automobile used for this purpose, but no other claim for depreciation may be made.
Income from
a
partnership
Additional expenses incurred by a not charged to the partner¬ ship, may be claimed as a deduction from the partner's share of the income. However, the partner must be in a position to substantiate these expenses,
partner, but
to explain why they were not charged directly to the partnership and show that they were necessarily laid out to earn partnership income. For example, a number of doctors may form a part¬ nership but none of their automobiles have become partnership assets. Then automobile expenses and capital cost allowance may be claimed by each
Speciallytailored to pregnancy
Stow-ffefoHc Brief Prescribing Information Formula:
Each SLOW-Fe folic tablet contains 160 mg dried ferrous sulfate (equivalent to 50 mg of elemental iron) and 400 micrograms folic acid in a specially formulated slow release base. The iron content is released evenly over an average period of 2 hours, optimum time for maximum effective absorption. The tablets are film coated.
Indications Prophylaxis of iron and folic acid deficiencies and treatment of megaloblastic anemia, during pregnancy, puerperium and lactation. Dosage andOneAdministration tablet daily throughout Prophylaxis: pregnancy, puerperium and lactation. To be swallowed whole at any time of day regardless of meal times. Treatment of megaloblastic anemia: during pregnancy, puerperium and lactation; and, in multiple pregnancy: two tablets, in a single dose, should be swallowed daily. Side Effects The incidence of gastro-intestinal side effects such as nausea and gastro-intestinal irritation is extremely low. Treatment of Overdosage Signs of toxicity from folic acid have not been observed even with doses several times higher than the usual therapeutic levels. Care has been taken to minimize the risk of accidental consumption of SLOW-Fe folic in children by making the tablets a relatively unattractive offwhite colour with an almost tasteless film coat. Moreover the push-through type of foil packaging makes the extraction of any tablets difficult and tedious for children. However, in the event of overdosage the usual treatment for iron poisoning should be instituted. Because the iron is only slowly released, the risk of toxic levels of ionic iron being absorbed is less and there is a wider time margin in which to carry out stomach washouts; also the use of an iron-chelating agent such as DESFERAL® (deferoxamine CIBA) is likely to be more effective. The treatment of iron poisoning is described in detail in the CIBA literature on DESFERAL®.
Contraindications Hemochromatosis, hemosiderosis, and hemolytic anemia.
Warnings out of reach of children.
Keep Precautions The use of Folic acid in the treatment of pernicious (Addisonian) anemia, in which vitamin B12is deficient, may return the peripheral blood picture to normal while neurological manifestations remain progressive. Oral iron preparations may aggravate existing peptic ulcers, regional enteritis and ulcerative colitis. Iron when given with tetracyclines, binds in the equimolecular ratio thus lowering the absorption of tetracyclines.
Supplied SLOW-Fe folic tablets are
packaged in pushthrough packs containing 30 tablets per sheet
and are available in units of 30 and 120 tablets.
CIBA Dorval, Quebec H9S
1B1
c-4052
CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112 391
Conferences and conventions should be chosen carefully e Each doctor must produce a state¬ individual partner against his share of in limited circumstances and in relative¬ nominal the partnership income. ment of profit and loss for 1974 on an amounts. ly Dividend income continues to be accrual basis. e Most doctors who had a year end taxable in the doctor's hands. If he reMiscellaneous matters ceives a dividend from a Canadian during the calendar year of 1971 main¬ Research grants remain personal tax¬ corporation, he is required to bring tain a reserve in respect of 1971 ac¬ able income, but an amount of out-of- into income \V$ the amount of the counts receivable. The Income Tax Act requires a doc¬ pocket cost may be claimed as deduct¬ dividend received, compute federal tax ible expenses. on this increased basis, deduct dividend tor to include in his income for the Income from fellowships, scholar- tax credit equal to roughly one third 1974 taxation year an amount equal ships and bursaries must now be in¬ of the dividend received and calculate to the amount deducted in respect to cluded in income for tax purposes, but provincial tax thereon. his 1971 receivables reserve for the a partial offset is provided by a $500 Generally speaking, a doctor receives purpose of calculating his income for additional exemption for recipients. interest income from a number of the 1973 taxation year. Having added It remains important for doctors to sources bank accounts, insurance the reserve (deducted in order to de¬ exercise care in selecting up to two dividends and bonds, mortgages, ete. termine income in 1973) to his 1974 conventions to attend in each year. Generally the taxpayer is allowed to income, the doctor is entitled to deduct This is particularly so because the con¬ compute interest on an accrual basis, from the resulting figure an amount ventions must be held at places reason- or he may include interest in his in¬ equal to the lesser of the amount de¬ ably consistent with the territorial scope come when it is actually received (see ducted in 1973 and the amount of his of the organization concerned in order also discussion under 1974 federal professional receivables outstanding at for the expenses of attendance to be budget). the end of his 1974 taxation year. In deducted. If, for instance, a Canadian the case of a doctor who is a member of a partnership, the doctor is entitled professional business management or¬ Capital gains to deduct the lesser of the amount ganization held a convention in Hawaii, it is doubtful that the expenses of at¬ Generally speaking, one half capital deducted in 1973 and his investment tendance would be deductible for a gains realized during the year will be interest in the partnership. Canadian doctor, even if he were a added to other income and taxed at A doctor's tax advisers are undoubt¬ member of the organization. Reason¬ regular income tax rates. One half edly familiar with the relevant figures able prudence must be exercised. capital losses realized during the year involved in the reserve calculations, but will be deductible from capital gains the example which follows is illustrative of the for incurred Expenses purpose attending refresher courses remain non- realized. However, individuals may of a situation where a doctor had total deductible, except to the extent that claim a net capital loss up to $1000 billings re 1974 of $60 000, deductible they qualify as tuition fees, under the yearly and may defer any excess allow¬ expenses of $22 000, a reserve deducted able capital loss to subsequent years. Income Tax Act. in respect of his 1973 income of There may still be some taxpayers $20 000 and receivables at the end of For 1974, personal exemptions have been increased to $1706 for a single who have not had occasion to value 1974 of $18 000. It is to be noted taxpayer and $3198 for a married tax¬ their capital assets at valuation day that, had the receivables at the end of payer. The over-65 exemption has been values as opposed to valuing them the the 1974 period exceeded $20 000, only tax free zone method. The tax free zone the $20 000 (the amount deducted in raised to $1066. Moving expenses may be claimed if method will ordinarily be available to 1973) would have been allowed as a you move to a new work location, a taxpayer unless he elects at the time deduction. whether you are a self-employed doctor he first reports a taxable capital gain or allowable capital loss to receive or a doctor receiving a salary. Moving $ 60 000 Total billing during year expenses include travelling cost for the valuation day value treatment. 22 000 He may deduct bank and other in¬ Business expenses taxpayer and his family, costs of transused to porting and storing household effects, terest charges for loans $ 38 000 board and lodging near the old resi¬ purchase investments or to invest in reserve deducted for Add: retirement for a dence or the new residence savings plans. period registered 20 000 1973 period When you prepare your 1974 income up to 15 days, lease cancelling costs in mind should and selling costs for old residence. The statement, you keep $ 58 000 details: taxpayer's new residence must be at several Deduct: receivables at end of e If possible a doctor should retain 18 000 least 30 km closer than his previous 1974 period a professional accountant to compute residence to his new work location. Net business income during year $ 40 000 Child care expenses remain available his net business income. 392 CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112
The maximum annual contribution that may be made to a RRSP has been substantially increased: if you are self-employed you may contribute to CMARSP up to $4000 per year (or 20% of earned income if this is less). If you are participating in an employeeemployer pension plan, as well as contributing to CMARSP, the total of your contributions to both plans should not exceed $2500 (or 20% of earned income, if this is less). Old age security pension payments and payments under the Canada Pen¬ sion Plan constitute earned income and therefore in limited circumstances the receipt of such payments may enable a doctor to make larger annual con¬ tributions. For further information
please
contact MD
Management.
Monies payable from a registered retirement savings plan at a participant's death before the commencement of the retirement annuity are taxable to the estate or other recipient. Tax deferral may be achieved by having the monies payable to the surviving spouse who may then "rollover" the proceeds into his or her own registered retirement group plan. Any individual receiving such proceeds may defer tax through the purchase of an incomeaveraging annuity contract. For these purposes the participant may have to execute a codicil to his will. For this, legal counsel should be obtained.
Legislation The federal budget was presented on Nov. 18, 1974. It proposed various amendments to the Income Tax Act, many of which apply to the 1974 taxation year. At the date of this article's preparation the amending legis¬ lation had not been formally enacted; however, it is anticipated that it will be passed in due course. Revenue Can¬ ada has prepared the 1974 individual income tax returns, Form Tl 1974, on the assumption that the legislation will come into force. The following summarizes some of the principal changes affecting doctors: e If a doctor does not utilize the maximum deductible contribution to his or her registered retirement savings plan (or plans), all or any part of the deficiency may be contributed to a registered retirement savings plan for his or her spouse. Provided the plan is established and the contribution is made by Feb. 28, 1975, this contribution to the spouse's plan will be deductible for the 1974 taxation year. While this amendment does not increase the over¬ all maximum deductible contributions available to a doctor, it is to be noted that payments out of the spouse's plan to the spouse are not subject to income attribution. (Those doctors residing in
BC, Man., Sask., Ont. and Que. should a contribution to a spouse's registered retirement savings plan may be subject to provincial gift tax.) e Any taxpayer over the age of 18 who does not now own a home will be permitted to make a tax-deductible con¬ tribution of up to $1000 per year to a registered home ownership savings plan, up to a lifetime maximum $10 000. The income of the plan is exempt from tax and the amount accumulated in the plan when distributed to the individual will not be subject note that
persons 65 or over or persons under 65 who are receiving pension income following a spouse's death. Qualifying
pension payments include payments under registered pension funds or plans, registered retirement savings plans or deferred profit-sharing plan annuities. Old Age Security and Canada or Que¬ bec pension plan benefits will not quali¬ fy. Any portion of the $1000 pension deduction not used by an individual may be deducted by his or her spouse. e Whereas, previously, investment counsel fees were only 50% deductible, to tax if it is applied towards the pur¬ for the 1974 and subsequent taxation chase of a first home or home furnish- years they are fully deductible. ings for a first home. An individual e individual who is required may have only one registered home under An a separation or divorce agree¬ his life¬ ownership savings plan during time. Proceeds not so used will be ment to make payments to a third taxed as income to the recipient. How¬ party for the benefit of a spouse, former ever, the recipient may "rollover" such spouse or children of the marriage may deduct such payments from income and proceeds into a registered retirement the or former spouse must in¬ savings plan or an income-averaging cludespouse them in his or her income. contract. annuity e Capital cost allowances on new Registered home ownership savings plans are to be issued by trust com¬ multiple unit residential construction panies. In most of their aspects they started between Nov. 19, 1974 and Dec. will be quite similar to registered re¬ 31, 1975 may be deducted against in¬ tirement savings plans. In order for come from other sources. In these lim¬ an individual to make a deductible con¬ ited circumstances, the former policy tribution to a registered home owner¬ has been restored. This change will ship savings plan effective for the 1974 apply to the original owner and subse¬ taxation year, the plan must be estab¬ quent purchasers. lished and the contribution made by Interest and property taxes payable Feb. 28, 1975. after May 6, 1974 in respect of real e For the 1974 taxation year, an estate held for inventory or for future individual may deduct up to $1000 of development must be capitalized to the net interest income from Canadian extent that these carrying charges are sources. For this purpose, payments greater than the income derived from under a registered retirement savings the property. plan, deferred profit-sharing plan, re¬ e formerly, a man sepgistered pension fund or plan or an aratedWhereas, from his wife could only deduct and income-averaging annuity contract, care expenses by virtue of such royalties are not considered to con¬ child pursuant to a written agree¬ stitute interest. Further, interest paid separation deduction is now permitted the ment, to an individual by a person with whom where the separation is pursuant to a he does not deal at arm's length or court order or decree. interest paid to an individual by a part¬ e member of which does he is a A nership retiring partner is deemed not not qualify. Payments received from a to have disposed of his partnership in¬ trust (including a mutual fund trust or terest and to continue to have a part¬ other unit trust) designated as such by nership interest until all his rights to the trust may constitute interest for the receive property from the partnership in satisfaction of his interest have been recipient. in full. This "residual interest" Recipients of cash bonuses on Can¬ received ada Savings Bonds may treat such may serve to maintain an "investment bonuses either as interest, which quali- interest" in the business. Therefore, fies for the above $1000 interest deduc¬ recognition of his "1971 receivables" reserve, if any, may be deferred. tion, or as capital gains. While not effective for the 1974 taxation year, for the 1975 and subse¬ quent taxation years, the $1000 interest deduction will be expanded to include Canadian sources grossed-up dividend income. Also for the 1975 and sub¬ sequent taxation years, an individual will be able to deduct the first $1000 private pension income received in the year. This deduction is available to
Amendments have also been intro¬ duced to permit members of a partner¬ ship to enter into an agreement to allocate a share of partnership income or losses to a former partner, to the former partner's spouse, estate or heirs, or to a person who acquired a right under such an agreement. The former partner need not have any capital in¬ vested in the partnership. ¦
CMA JOURNAL/FEBRUARY 8, 1975/VOL. 112 393
