Persons, or families who support persons who are certified as either disabled or infirm, often hire caregivers or respite care. This article will provide practitioners with information to address the requirements of the Income Tax Act and the B.C. Workers Compensation Act regarding hiring caregivers or respite care.
Disability is defined as a severe, prolonged mental or physical impairment that markedly restricts one’s ability to perform basic activities of daily living. In order to claim disability status for tax purposes, a taxpayer must be certified as disabled on Form 2201 by a qualified medical practitioner. For further information, refer to CRA’s Policy Statement CPS-002, Relief of the Aged.
Infirmity is not specifically defined and usually takes its ordinary meaning. One definition I found is "weak, not firm or sound physically; weak especially from age; feeble or weak of mind." I found this definition in CRA Guide RC4064, Information Concerning People with Disabilities. Infirmity documentation must be in writing and usually takes the form of a letter from the appropriate medical practitioner.
Types of Taxation Treatments
Medical expenses are tax credits and reduce taxes payable. Caregiver or respite costs for those certified as disabled are a medical expense. Medical expenses can also be claimed for:
- use of a full time attendant at home because of a mental or physical infirmity; or
- care, or care and training, at a school, institution or elsewhere, because of a physical or mental handicap.
For details of who qualifies and how much is allowable, see the Income Tax Act, Section 118.2(2)(b)-(e).
If the person receiving the caregiver or respite care is attending school or working, their caregiver or respite costs could qualify as disability support, formerly known as attendant care. Disability support is treated as a deduction to arrive at taxable income. For details of what is allowable see Income Tax Act Section 64.
Transfer of Credits
Persons who pay for medical expenses on behalf of a dependent relative may be able to claim medical expenses up to a limit of $5,000. ($10,000 in 2005). To qualify the dependent relative must be over 18 years old at the end of the year. Commencing in 2004, the threshold for a claim is 3% of the supported person’s net income. For further information see Income Tax Act Section 118.2(1).
Funding provided by provincial health or welfare authorities is not taxable to the recipient under Regulation 233 of the Income Tax Act only if the recipient qualifies as disabled under Section 118.3 of the Income Tax Act. Documentation required for disability is Form T2201, which is available in the CRA’s Guide RC4064, Information Concerning People with Disabilities.
Government or Private Funding
Funding from government or private sources may be received to reduce caregiver and respite costs. Medical expenses may be claimed net of this funding.
Grants received are included in income, with the offsetting expense claimed as disability support if the recipient is attending school or working. This same expense could be claimed as a medical expense if the recipient is not attending school or working.
Use of Tax-free Funding
Tax-free funding, received from the provincial Ministry of Health and Welfare or other government sources under Regulation 233, does not flow through tax free for payments made to caregivers and for respite care.
Major Considerations When Hiring Caregivers and Respite Care
These are the major considerations to remember when hiring caregivers or respite care.
Agencies and families who hire caregivers are required to:
- Comply with payroll regulations as set out by CRA
- Comply with provincial employment standards
- Keep employment and time records
- Deduct, withhold, remit and report income tax and Canada Pension Plan (CPP) and Employment Insurance (EI) contributions
- Issue T4s by the end of February each year or when required
- Issue Record of Employment forms when required
- Calculate the appropriate amounts of tax to be withheld at source and eligibility for CPP, by obtaining a TD1 form (both federal and provincial) from each employee and ensuring it includes their:
- Full name
- Social Insurance Number (SIN)
- Verify the employee’s permission to work in Canada if they have a SIN beginning with a nine. SINs with a leading nine are issued to those who are neither Canadian citizens nor permanent residents. They require this type of SIN for employment purposes or for other authorized uses. The SIN is valid until the end of the person's authorized stay in Canada, as determined by Citizenship and Immigration Canada. In most cases, applicable individuals will need a work or study permit as well as a contract of employment. For further information, see Service Canada.
- Process Form T1213, Request to Reduce Tax Deductions at Source, as authorized by CRA
- All caregivers are required to
- Report all income from worldwide sources
- Provide full name, address and SIN to employers
- Provide work visas or permits as required
- Caregivers who are self-employed must meet the tests set out in the RC4110, Self-employed Versus Employed Guide.
- Self-employed caregivers must issue invoices and receipts for all payments. This allows the individual with the disability or infirmity, as required by CRA, to make claims based on the actual payment date, not the invoicing date.
- To qualify as a medical expense, receipts must include the full name, SIN or Business Number and address of the caregiver plus the reason for payment.
Workers’ Compensation Board (WCB) of British Columbia
In British Columbia there are various rate classifications affecting caregivers. The website www.worksafebc.com provides descriptions of the classifications under the following codes:
- 764029 Domestic childcare
- Includes pet sitting, nannies, foster care, babysitters, in-home childcare, care for physically challenged persons and guardianship
- Rate for 2005 is $.89 per $100 of assessable payroll
- 764030 Home support services
- This includes homemaker services like cleaning, cooking, laundry, non-medical care or non-medical physical assistance
- Rate for 2005 is $3.63 per $100 of assessable payroll
- 764018 Domestic cleaning
- Includes hiring domestic cleaners to clean, vacuum, dust or wash walls
- Rate for 2005 is $5.44 per $100 of assessable payroll
Agencies and families employing caregivers must comply with WCB registration requirements. Exemptions apply if:
- Working less than eight hours per week or
- Working 15 hours per week if employed before/after school or
- Working at a temporary job for less than 24 hours
- Employees or self-employed persons in the home may result in additional insurance premiums
- House insurance companies require notification of employees or self-employed persons in the home
- Lack of notification and documentation, through the use of a rider, may result in coverage denial in the event of a claim
- Regular review of your client’s policy with their insurer should include the notation that non-family members are present in their home and for what reason
Another Disability Resource
On December 15, 2004, the federal government welcomed the final report of the Technical Advisory Committee on Tax Measures for Persons with Disabilities, entitled Disability Tax Fairness. The Government of Canada established the committee in April 2003 to provide advice to the federal Ministers of Finance and National Revenue on how to address issues related to tax measures for persons with disabilities. The Government has set aside funding of $85 million per year, starting in fiscal 2005, to improve tax fairness for persons with disabilities. The report is available on the Technical Advisory Committee’s Web site.
A Call to Action
Compliance with employment and income tax standards for caregiver employees or self-employed caregivers takes time and effort. When a business complies with these same standards it receives tax-deductible expenses for the compliance costs incurred; yet individuals with disabilities or infirmities do not. These persons bear the cost for complying with employment standards, including preparation of payroll, T4s, WCB premiums and insurance procurement and disclosure requirements. It follows that the cost of compliance for payroll and tax return preparation related to attendant care should be allowed as a medical expense per Section 118.2 or disability support per Section 64 of the Income Tax Act. As well, the benefit of compliance, similar to that enjoyed by business, should result in a tax credit claim and reduced income taxes for persons with disabilities or infirmities or those who support them.
On behalf of those hiring caregivers or respite care, I have written to the Minister of National Revenue asking that the cost of compliance for payroll and tax preparation be an allowable expense. The response stated to date is that the Tax Policy Branch in Ottawa is giving consideration to this issue. More voices joining with mine may bring about this much-needed change for individuals with disabilities and infirmities. If you or your clients wish to help, please write to:
Policy and Legislation Branch
Canada Revenue Agency
Ottawa ON K1A 0L5