If you pay tax and support a dependent relative, you could be eligible for significant tax breaks well in excess of all the tax credits touted in the latest federal budget.
Under the fairness provisions, assuming you are comfortable opening up previous years to audit, you could even be entitled to refunds for the past 10 years, refunds and tax credit entitlements that might be over $20,000 if there is a child with a disability.
Here’s a rundown of the major support and medical deductions and credits now available.
Some of the personal tax credits require proof of support. So what exactly is support all about? According to CanRev, support is evidenced by direct provision of basic essentials, food, and shelter, clothing or medical expenses. (See CanRev’s Interpretation Bulletin IT 513, Personal Tax Credits.)
Let’s remember that for welfare purposes, support from anyone is cause for a clawback of benefits dollar for dollar. Bank accounts are monitored, and it is a requirement to report gifts of boots, coats, meals, and so on. Hence, requests for documentation for tax credits from the combination social welfare/medical clinic might be unwise.
The new Disability Savings Plan proposal in the federal budget discusses how the provinces must ease up on their income, means, and needs testing before such a plan could be implemented. The budget also proposes an Enabling Accessibility Fund for ramps and other projects.
Infirmity. “Infirmity” is what is required to claim the Infirm Over 18 or the Caregiver Credits. For purposes of the Income Tax Act, “infirmity” has no definition, relying instead on common usage, as do the terms “mental or physical handicap,” “mental or physical impairment,” “lack of normal physical development,” all of which are used in the Income Tax Act in s.118.2(2), the medical expenses section. Often, doctors must certify a label that has no definition.
Disabled or impaired: what’s in a label? The word “disability” is not the word used by our laws to describe what has been called the “Disability Tax Credit.” The Income Tax Act provides for a credit for mental or physical impairment where an individual has one or more severe and prolonged impairments in physical or mental functions that markedly restrict an individual’s ability to perform a basic activity (s.118.3). Note the positive use of “individual’s ability” compared with “disability.” Why do CanRev guides prefer to label people as “disabled” rather than “impaired”? See the revised 12-page application, Form 2201, issued in January 2007.
For a child, there is a Disability Supplement for Persons Under 18 that should reduce tax payable by a further $800 on top of the regular Disability Tax Credit, which reduces tax by about $1,400. The child disability supplement is clawed back by attendant care or childcare claims by anyone. The Child Disability Supplement is a supplement to the Disability Tax Credit (use Form 5000-D to calculate this supplement).
Note that the Disability Supplement is not the same as the Child Disability Benefit, which is a tax-free amount paid out to families along with their Child Tax Credit.
Refundable Medical Expense Supplement (RMES). For the working poor earning at least $2,919, this might provide for up to $1,000 of medical expenses reimbursement.
Transferable credits. Some tax credits are transferable if you provide support to your spouse or other dependent relative with a disability. These include tuition, education and textbook transfers from a child or grandchild or a spouse or partner.
Credits for dependent relatives. Dependent relatives over 18 who are infirm may not necessarily live with you. Check out Form TD1 and don’t stop at the first few credits; read all the way to the bottom of number 11 on the form. Not only is this the form you use to ask your employer to reduce withholding tax at source, it is a great reference source for determining which credits you might be able to claim. For example, the Caregiver Credit was introduced in 1998 to provide an incentive for Canadians to care for their aging parents at home, but it is relatively underused.
If you think you have a claim, talk to your tax preparer or utilize tax software to perform the calculations, because there is a top-up provision that might garner you or a spouse/partner a further tax reduction for these items:
- Eligible Dependent (if you are single).
- Infirm over 18 if the dependant’s income is really low.
- Caregiver credit if you have relatives living with you or you and your spouse/partner.
For the first time ever, CanRev lists about 123 medical expenses eligible to be claimed by those who qualify with the correct certification in writing or prescription or receipt, or a combination of all of those. In some cases, the Disability Tax Credit may also be available.
What many people do not realize is that the threshold for claiming medical expenses is 3% of your net income, but the threshold has a cap of $1,884 for 2006. Every penny of medical expenses for you and your spouse/partner and children that exceeds $1,884 is claimable, no matter how high your income climbs. Dental work, glasses, attendant care for a parent or other relative, lifts, ramps, handrails in the bathroom…
Extended health and dental premiums by payroll deduction or through a private plan plus the amount of medical expense paid directly qualify. For example, many plans require a copayment of 20% of drugs and 50% or more of dental costs, plus the excess over $200 for all those glasses. These qualify as medical expenses. There is no limit on your claims, only a threshold of the lower of 3% and $1,884.
Form T4002 contains more information about deducting your premiums as a business expense.
Request that your employer complete Box 85 on your T4 if you paid the premiums from your net pay. If you paid your premiums through your payroll plan at work, your T4 should have a box with a Code 85 containing the amount.
Now let’s take a look at the math assuming annual earnings of $30,000. In this case, $30,000 x 3% is only $900, and your premiums were probably between $900 and $2,000 or maybe even more. There is a separate line on your medical expense tax form for those premiums for private health plans.
Claim medical expenses for you, your spouse or partner, and your children 18 and under on Line 330. Usually the most beneficial plan is to claim all of your family’s medical expenses on the lower-income-spouse’s return.
Medical expenses for dependent relatives over 18. If you pay for a dependant’s medical expenses directly, claim what you paid up to $10,000 as a tax credit on Line 331. If Mom is in a care home and you are contributing directly by paying the bill, not by giving Mom money, you can claim. If your relatives also pay up to $10,000 for Mom’s care, there is a CanRev ruling that each of you can claim $10,000. I wonder how long this will last.
Attendant care is usually considered an employer/employee relationship. Compliance with payroll, employment standards, and Worker’s Compensation rules is in the family’s best interest in spite of pressure from caregivers to pay cash. Accidents or injuries in the workplace bring out the best lawyers, funded by Employment Standards or Workers Compensation to represent the caregiver.
Unless you know where to look, you would never know that in addition to personal tax credits, there are other government programs you might qualify for:
- Gas tax refunds, both federal and provincial/territorial.
- CMHC grants for a variety of reasons to do with support, for example a $3,500 grant for devices to assist with mobility in the bathroom or a $24,000 grant to fund a “garden suite.”
- An HRDC fund called the Opportunities Fund for Persons with Disabilities.
There are also various provincial or territorial assistance plans that you will have to check out through your individual provincial or territorial Websites. These could include the following:
- Premium reduction on Provincial medical plans for persons with low income.
- Assistance with vehicle insurance premiums for persons with disabilities.
- Assistance with property taxes by way of grants and deferrals.
Remember, if you have not claimed these credits, you may be able to go back up to 10 years and request a reassessment under the fairness provisions. However, consult your accountant before you do, to ensure you don’t open yourself to an audit.