Joseph Devaney, Author at LawNow Magazine
A Website of The Centre for Public Legal Education Alberta

LawNow Magazine

relating law to life

You are here: Home / Archives for Joseph Devaney

Joseph Devaney, CPA, CA, has worked in both small and large public accounting firms in Alberta and Ontario. He currently is a member of the Video Tax News editorial board and is a co-writer and presenter of the Video Tax News National Personal Tax and Corporate Tax update courses.

About Joseph Devaney

Joseph Devaney, CPA, CA, is a member of the editorial board of Video Tax News in Edmonton, Alberta.

Working from Home: Income tax issues

By and

During the COVID-19 pandemic, many employees transitioned to working from home. During the crisis, few were considering the income tax implications. As life returns to whatever the “new normal” is, we can be confident taxes will still exist. So what are the tax implications of a workspace in the home?

Photo from Pexels

Deducting home office expenses

In general, the expenses employees can deduct are very limited. The COVID-19 pandemic has opened up new questions in respect of working from home. The tax community has been pushing for guidance in time for the next tax filing season. However there has been little commentary from the Canada Revenue Agency (CRA) to date, which is understandable given the other priorities during the crisis.

When are expenses deductible?

In order for home office expenses to be deductible against employment income, the employee’s contract must require them to incur such expenses. While the COVID-19 pandemic has required many to work from home, was this required under their contract of employment? The CRA has not commented on this issue to date. They will hopefully acknowledge that, when the only option for working at all was working from home, such a requirement was implicit and does not require revising existing employment contracts. Note that if the employee had the choice of working from home or at the regular workplace, they would not meet this requirement.

Any claim for workspace in home costs must meet one of the following tests:

  1. The home is where the employee principally (more than 50% of the time) does their work; or
  2. The employee uses the space exclusively to earn employment income, and on a regular and ongoing basis for meeting clients, customers or other people in the course of performing employment duties.

In order for home office expenses to be deductible against employment income, the employee’s contract must require them to incur such expenses.While working from home during the COVID-19 pandemic, it seems likely that many more workers will meet the requirement under (i) than in previous years. However, it is uncertain whether the workspace must be the main place of work in context of the entire year, or whether meeting this test for a period during the year (such as the weeks or months dictated by preventative COVID-19 measures) is sufficient. While the CRA has not yet commented, hopefully they will provide a reasonable interpretation for this unusual situation before we need to file tax returns.

If working from home for only part of the year means qualifying under provision (ii), the requirement for regular and ongoing meetings becomes more problematic than usual due to social distancing measures and government-required shutdowns. The CRA has historically stated that those meetings must be in person. Tax Court decisions have held differently, accepting telephone calls as well. The advent of videoconferencing adds a third possibility. Perhaps this will be the impetus for CRA to review their position, which many have suggested is outdated.

In addition to meeting these criteria, any such deduction requires the employee to obtain a completed T2200 (Declaration of Conditions of Employment) from their employer. Some large employers whose workforce shifted substantially to remote work during the pandemic have raised concerns regarding the administrative costs of completing this form for hundreds, or even thousands, of employees. While again we hope for CRA guidance, the form is a legislative requirement, which may make CRA uncomfortable waiving it.

What expenses are deductible?

A portion of household costs – such as electricity, heating, water, rent, security and maintenance – would typically be deductible. If the employee is a commissioned salesperson, as opposed to a regular employee, they can also deduct a portion of property tax and insurance costs. No employee (neither commissioned salespersons nor regular employees) can deduct mortgage interest or capital cost allowance on the residence itself.

… CRA recently noted that acquiring computer equipment may be primarily for the employer’s benefit, in the context of the COVID-19 pandemic …When calculating the deductible percentage, a reasonable basis should be used, such as the area of the workspace divided by the total finished area (including hallways, bathrooms, kitchens, etc.). Expenditures that relate solely to the workspace and employment duties do not have to be prorated. For example, an employee who installed a separate phone line exclusively for employment use or incurred long-distance charges for employment-related calls would deduct those costs in their entirety. On the other hand, costs incurred entirely for personal use would be excluded from any deduction claim. For example, few employees would need to pay for cable television or deck repairs in connection with their employment duties. Where the employee used the workspace for only part of the year, a further prorating of relevant costs for time used for employment also becomes relevant. Finally, the claim cannot exceed income earned from the employment, prior to this deduction.

Note that on a review of any claim for these deductions, the CRA will expect supporting documentation. The employee must retain:

  • receipts for the various expenses claimed;
  • the completed T2200 (Declaration of Conditions of Employment) from the employer; and
  • details of the manner in which the personal usage was prorated, based on:
    • space (portion of house) used for work;
    • daily time (portion of the day used for work); and
    • overall time, prorating expenses that do not relate to the portion of the year when working from home.

For more information and copies of the relevant forms, see CRA Guide T4044.

Telecommuting allowances and reimbursements

What if the employer pays the costs incurred for working from home?

In general, all allowances paid to an employee are taxable.Generally, a reimbursement for a personal purchase of equipment used for working remotely would be a taxable benefit for the employee. However, CRA recently noted that acquiring computer equipment may be primarily for the employer’s benefit, in the context of the COVID-19 pandemic and the resulting requirement that many employees work remotely. Accordingly, CRA indicated that they are prepared to accept that such reimbursement would be a non-taxable benefit to the employee. Actual invoices or receipts must support the reimbursement and total no more than $500 towards equipment for an employee. Unfortunately, to date, CRA has not published this French interpretation in a form accessible to the general public. Read the French version online at Video Tax News, a non-government website. Non-accountable allowances would always be taxable, as no provision would provide for an exclusion of such amounts, so once again, receipts are essential.

A portion of household costs – such as electricity, heating, water, rent, security and maintenance – would typically be deductible.CRA did not comment on situations where the equipment was used exclusively for employment and was owned by the employer, not the employee. CRA has indicated in the past that there is no taxable benefit to the employee where equipment is the employer’s property and any personal use is incidental. Of course, this would suggest that the employee return the equipment to the normal workplace after the crisis has passed.

In general, all allowances paid to an employee are taxable. This means that where an employer pays, say, a monthly allowance for the period the employee was required to work from home, this allowance would be treated like the rest of the employee’s compensation – subject to source deductions, T4 reporting and inclusion in income. The provision of such an allowance would at least seem to indicate that the employee was required to work from home, possibly supporting the claim that this is a contractual requirement and opening the door to deductions as described above.

Overall

As the immediate crisis passes, the economy returns to some semblance of normalcy and we all struggle to assess what “normal” will mean in the post-pandemic world, assessing the tax implications of that temporary work-from-home arrangement well in advance of tax time next year will allow appropriate documents to be gathered and hopefully result in some tax savings next April.

Seniors – Health, Homes, and Help from the Taxman

By and

As individuals age and medical conditions become more prevalent and significant, the need for assistance in daily activities increases. As a result, many consider moving to nursing homes, retirement homes, or smaller apartments or condos. Alternatively, some may choose to remain in their home but engage others for assistance or make structural modifications to improve accessibility or safety. Several tax benefits may be available to assist with these potentially costly transitions. This article focuses on benefits within the federal tax system though many other supports may be available (e.g. provincial programs and subsidies).

Many of these tax benefits are available through the medical tax credit (METC). The METC reduces taxes where medical expenses are greater than the lesser of the following amounts:

  • 3% of the payer’s net income; or
  • $2,352 (in 2019; indexed annually for inflation).

Expenses in excess of the threshold generate a credit at the lowest personal tax rate (15%). A similar process determines the provincial METC (10% rate in Alberta). In other words, taxes are reduced by 25% of eligible expenses.

Eligibility for the METC depends on a number of factors, including the type of expenditure (eg. fees paid to a nursing home, renovations to one’s home) and the specific medical condition or impairment.

Some claims require the individual be eligible for the disability tax credit (DTC). To be eligible, Form T2201 must be certified by a qualified medical practitioner and submitted to the Canada Revenue Agency (CRA). There are several ways to qualify for the DTC but generally the individual must have an impairment which results in a marked restriction in an activity of daily living.

Nursing Homes

A nursing home is a facility which provides full-time care (including 24-hour nursing care) to those that cannot care for themselves. A location may be considered a nursing home even if it is not publicly described as one, as long as it meets this description.

The home accessibility tax credit (HATC) may provide tax relief of 15% on up to $10,000 of eligible expenses per year.Generally, the full amount paid for full-time care at a nursing home is eligible to claim as a METC. This would include fees paid for food, accommodation, nursing care, administration, maintenance, social programming and activities. Other personal expenses (such as hairdresser fees) are generally ineligible.

In order to claim these amounts, the individual must either:

  • be eligible for the DTC; or
  • receive certification from a medical practitioner that they will be dependent on others for personal needs and care into the foreseeable future because of a lack of normal mental capacity.

Individuals eligible for the DTC are faced with a potentially complex decision. They can either:

  • claim the nursing home fees in their entirety (and not claim the DTC); or
  • claim the DTC along with up to $10,000 in attendant care ($20,000 for the year of death) as a METC. Some of the nursing home fees for salaries could be reclassified as attendant care (described in the Retirement Homes section).

In these cases, an analysis should be completed to determine the most advantageous option.

Schools, Institutions or Other Facilities

Similar to care provided at a nursing home, a wide range of costs are eligible for the METC where care, or training and care, is provided at a school, institution or other facility. Unlike nursing homes though, full claims related to these facilities can be made even if the DTC is also claimed.

In some cases, these tax credits may be claimed by a supporting relative … There is often a fine line between these facilities and nursing homes. The key difference is that these facilities provide equipment, facilities, or specialized staff which a medical practitioner or head of the institution determines are needed. Such facilities may be open to individuals of all ages, whereas a nursing home generally focuses on individuals of advanced age. They generally provide a greater level of specialized medical support than a typical nursing home, however, nursing homes with specialized equipment may also qualify.

Retirement Homes

For the purpose of this article, retirement homes are those where some, but not full-time, care or assistance is provided. If the individual is eligible for the DTC, the salaries and wages paid for “attendant care” are eligible for a METC. Eligible attendant care services include food preparation, housekeeping of personal living space, laundry, health care, activities, transportation, security, and salon services (if included in the monthly fee). Note that it is only wages paid which qualify and not the materials or supplies (like food, detergent, and cleaning supplies) used in the provision of the service. Like nursing home costs, claiming attendant care costs in excess of $10,000 can prevent claiming the DTC.

Staying at Home or Moving to a Smaller Apartment or Condo

In situations where there are no organized care services for residents, individuals are still able to engage assistants on their own. This may be the case where the individual chooses to remain at home. If full-time assistance is required because of a physical or mental impairment, the cost would be eligible as a METC if the individual:

  • is eligible for the DTC; or
  • has certification from a medical practitioner that the dependency is ongoing.

The METC claim is capped at $10,000 if the individual also wishes to claim the DTC.

Home Renovations

If staying at home, an individual may need to make modifications to assist with their medical condition. The home accessibility tax credit (HATC) may provide tax relief of 15% on up to $10,000 of eligible expenses per year. Eligible expenditures include renovations to a qualified dwelling to enhance mobility or reduce risk of harm for a qualifying person. The qualifying person must reside, or intend to reside in the location. Such renovations must be enduring in nature and integral to the dwelling.

A qualifying person is:

  • an individual aged 65 years or older at the end of the year; or
  • an individual eligible for the DTC.

The $10,000 limit applies to each home regardless of whether there is one or more qualifying persons residing there. If the qualifying person resides in more than one dwelling, a maximum of $10,000 in total can be claimed. Similar provincial credits are available in some provinces such as British Columbia, but not Alberta.

The costs of renovations may also be eligible as a METC. A full METC may be claimed – it is not reduced by the HATC. The amount eligible for METC would be reduced for any government subsidization of these costs but the amount eligible for HATC is not subject to a similar reduction.

Where CRA assessors deny a claim, it is possible to file a Notice of Objection to obtain a review by a more senior CRA representative.To be eligible for the HATC, the renovation must provide greater mobility or functioning within the home for someone with a severe mobility impairment or who lacks normal physical development. Those eligible for the HATC based on age may be ineligible for the METC. The expenditures must also be reasonable, not normally expected to increase the value of the home, and not normally incurred by those without medical or developmental impairment. Although they may be prescribed by a medical practitioner, costs of installing amenities such as hot tubs may be restricted by these criteria.

Supporting Documentation

As the claims discussed above can generate significant income tax benefits, they are commonly reviewed by CRA. Receipts, invoices, and letters from medical practitioners are frequently requested. If claiming attendant care costs, the related salaries and descriptions must be clearly described. This is of particular importance for those in retirement or nursing homes where the relevant salaries form only a portion of the monthly payment.

In respect of renovations claimed for the HATC or METC, it is helpful if the receipt or invoice states that the work or product is intended to specifically enhance mobility or reduce risk of harm. Where CRA assessors deny a claim, it is possible to file a Notice of Objection to obtain a review by a more senior CRA representative.

Moving Out

Moving out of one’s house to a retirement or nursing home may trigger a tax liability or disclosure requirements. This is typically the case when an individual sells or gifts their home, or begins renting it out. A detailed discussion of these issues is beyond the scope of this article. The direct costs of moving to a new residence for health reasons do not generate any tax relief.

Conclusion

While the cost of assistance with daily tasks and medical care for those of advanced age can be quite significant, a number of tax benefits may be available. A wide variety of expenses may qualify, such as renovating one’s home, or engaging the assistance of an individual for day-to-day tasks.

In some cases, these tax credits may be claimed by a supporting relative, which is beneficial where the individual is not taxable, perhaps due to low income. Such claims seem to attract even more CRA scrutiny.

Unfortunately, the rules for accessing these claims can be quite complex, often requiring detailed analysis to determine the most beneficial option. Considerable information on these claims is available on the CRA website. Professional advice may also merit consideration. Finally, care should be afforded to retaining proper documentation to support the claims.

Tax Issues for Older Adults

By and

couple 4In our working years, determining our personal tax burden can be quite simple – earn income and pay personal tax at the graduated rates. In our senior years, the formula is less straightforward. Though seniors pay tax at the same graduated personal tax rates as the rest of the population, senior-specific benefits, programs, and credits may be negatively impacted by their income. Programs vary, from nursing home and health care premium subsidies to Old Age Security payments. Further complicating matters, the type of earnings, such as employment income versus eligible dividends versus ineligible dividends have different impacts.

There are numerous other provincial/territorial credits and programs available to seniors which are often paid only if applied for, and commonly rely on personal income tax return filings to support eligibility.There are numerous other provincial/territorial credits and programs available to seniors which are often paid only if applied for, and commonly rely on personal income tax return filings to support eligibility. Many income-tested programs are available only to the lowest-income seniors, making an understanding of the impact of various types of income critical. Below we will discuss the types of income a senior may receive and planning considerations for managing the income. Also, we will consider tax credits and other programs commonly available to seniors.

Old Age Security (OAS) and Guaranteed Income Supplement (GIS)

OAS and GIS are monthly payments available to most Canadians aged 65 and greater. The age of eligibility will gradually increase to 67, commencing in April 2023, delaying access for those born after 1957. To qualify for the full pension, an individual must have 40 years of Canadian residency after age 18.

OAS and GIS payments vary depending on the recipient’s “net income” for tax purposes. The maximum GIS amount for the third quarter of 2015 for a single, divorced or widowed pensioner is $765.93. These amounts are eroded as the recipients earn income. GIS payments are eliminated quite early; for 2015, at approximately $17,000 for single persons and $22,000 for married couples. Generally, each additional dollar of income on this year’s tax return reduces next year’s GIS benefits by $0.50 – equivalent to an additional 50% tax on these earnings.

OAS payments are eroded at a higher level; in 2015, at $72,809 and fully eliminated at $117,954. Every extra dollar earned reduces the OAS benefit by $0.15, effectively a 15% tax.

Keep in mind that any amounts removed from a RRIF or RRSP will increase the individual’s “net income” thereby causing a potentially significant tax bill and eroding benefits.  Seniors whose OAS would be fully clawed back may consider deferring the commencement of payments until age 70. This provides the benefit of higher future payments (0.6% per month of deferral, so 7.2% per year or 36% for the maximum five-year deferral).

In April 2013, the Government began automatically enrolling certain eligible seniors for OAS. While this assists many in receiving timely payments, those who wish to defer should be diligent to avoid automatic enrolment. Individuals must still apply and file tax returns, to receive GIS, if eligible. Therefore, even low-income seniors who are not taxable should file tax returns and apply for GIS. Other payments, such as the GST/HST credit, depend on filing tax returns.

Canada Pension Plan (CPP)

The CPP provides taxable benefits to contributors who retire, become disabled or die. Unlike OAS and GIS, the CPP is based past contributions, regardless of current earnings.

Like GIS and OAS, the standard age to receive CPP is 65. Also like OAS, individuals can defer receiving CPP up to age 70. The increase in monthly payments for deferral are slightly larger for CPP; an increase of 0.7% per month (8.4% for each year, 42% for the full five-year deferral). Alternatively, individuals can choose to receive a reduced CPP payment as early as age 60. From 2012 to 2016 the early pension reduction is being gradually increased. By 2016, an individual who starts receiving their pension at 60 will receive 36% (0.6% x 12 months x 5 years) less than if they had commenced the pension at age 65.

Many income-tested programs are available only to the lowest-income seniors, making an understanding of the impact of various types of income critical. For those working aged 60 to 65, contributions to the CPP (creating a post-retirement benefit (PRB) are mandatory. Individuals aged 65 and over can choose to stop contributing when receiving CPP payments. To do so, the individual should complete Form CPT30 and provide the original to CRA and a copy to their employer. Working individuals aged 65 to 70 should consider whether it is more beneficial to:

  • stop contributing to CPP, which would require the individual to collect CPP payments (ie. the option to defer is unavailable); or,
  • continue to make CPP contributions (leaving the options to collect or defer CPP payments).

Individuals aged 65 and greater who have already qualified for maximum CPP payments can enjoy an additional PRB on top of the regular CPP payment by continuing to contribute.

Tip: Service Canada’s calculator at http://www.servicecanada.gc.ca/eng/services/pensions/cric.shtml provides retirement income information on OAS and CPP.

Investment Income

Earlier, we noted that benefits were reduced based on a tax concept called “net income”. Different types of investment income increase “net income” at different rates. For example, a $100 eligible dividend received in 2016 is grossed-up to “net income” of $138. A dividend tax credit mitigates the tax, however, the net income is still $138. Contrast that to a $100 non-eligible dividend or $100 of interest income, which for 2016 “net income” purposes are $117 and $100 respectively. Care should be given to understanding the consequences of dividends on income-tested benefits.

Tip: Consider earning investment income in a Tax Free Savings Account such that income earned will not erode income-sensitive benefits such as OAS and GIS.

Registered Retirement Savings Plan (RRSP) & Registered Retirement Income Funds (RRIF)

Withdrawals from both RRSPs and RRIFs are taxable to the recipient and may impact the above noted income-tested benefits. However, income on growth within the plan is deferred and not taxed until withdrawal.

While individuals are not required to withdraw amounts from an RRSP, except possibly at age 71, they are required to withdraw a certain amount from their RRIF based upon their age. For 2015 and subsequent years the minimum RRIF withdrawal has been reduced.
At age 71, individual holders of an RRSP must:

  • withdraw the funds;
  • transfer them to a RRIF; or,
  • use them to purchase an annuity.

Tip: Consider earning investment income in a Tax Free Savings Account such that income earned will not erode income sensitive benefits such as OAS and GIS.Keep in mind that any amounts removed from a RRIF or RRSP will increase the individual’s “net income”, thereby causing a potentially significant tax bill and eroding benefits. The impacts can be very large if an individual chooses the default option to withdraw all funds at age 71.

Tax Credits and Programs

In addition to managing the cash inflows and the impact on benefits, seniors should also ensure they are fully accessing tax credits available to them. Some common non-refundable tax credits they may benefit from include:

  • Medical Expense Tax Credit – A tax credit based on the cost of certain medical expenses, such as prescription medicine:
  • Disability Tax Credit – A tax credit for individuals with a severe or prolonged impairment in physical or mental function. This credit can be transferred between spouses or common-law partners;
  • Age Amount – A tax credit for individuals 65 years and older. This credit, which is transferrable to a spouse or common-law partner is income-sensitive, fully eroding at $82,353 (for 2015);
  • Pension Amount – A tax credit for those with an eligible pension, superannuation, or annuity payment, which can be transferred to a spouse or common-law partner;
  • Public Transit Amount – A tax credit based on the cost of certain public transit passes; and
  • Home Accessibility Tax (HAT) Credit – New for 2016 and later tax years, the HAT credit will provide a maximum $1,500 tax credit to seniors (65 years or older at the end of the tax year) or certain related persons who spend up to $10,000 on eligible renovation expenses per year. These renovations must be of an enduring nature which allow a senior (or an individual eligible for the disability tax credit) to be more mobile, safe and functional within their home.

…even low income seniors who are not taxable should file tax returns and apply for GIS.  Other payments, such as the GST/HST credit, depend on filing tax returns. In addition to claiming tax credits, individuals receiving certain pension income (such as life annuity payments, RRIF payments and RRSP annuity payments) may consider splitting, or shifting their pension income from the higher income to the lower income spouse. Though there will be a tax benefit from shifting income from a higher to a lower tax bracket, consideration should also be given to other income-tested benefits such as OAS which may be impacted by this shifting of income.

There are numerous other provincial/territorial credits and programs available to seniors which are often paid only if applied for, and commonly rely on personal income tax return filings to support eligibility. For example, the Alberta Seniors Benefit (detailed at http://www.seniors.alberta.ca/seniors/seniors-benefit-program.html) provides cash payments to seniors with income under $26,400 ($43,000 combined income for couples).

Conclusion

The numerous pensions, benefits, tax credits and other programs available to seniors can be generous, and the income can create significant consequences. Eligibility for certain programs outside the tax regime (e.g. nursing home subsidies, provincial health subsidies) depends on tax returns. Failing to file, even if not required, may impede access to these programs and benefits, even where income levels do not impact them.

Managing cash flow and preserving retirement capital can be counter-intuitive and confusing.

Seniors must be especially careful to consider the costs related to their income, and the critical importance of filing a tax return.

 

Caitlin L. Butler, CPA, CA is a designated accountant splitting her time between Vancouver, British Columbia and Edmonton, Alberta. She is a member of the Video Tax News editorial board and is a co-writer and presenter of the Video Tax News National Personal Tax and Corporate Tax update courses.

Joseph R. Devaney, CPA, CA has worked in both small and large public accounting firms in Alberta and Ontario. He currently is a member of the Video Tax News editorial board and is a co-writer and presenter of the Video Tax News National Personal Tax and Corporate Tax update courses.

Tax Assistance for Persons with Disabilities

By

photo of a calculatorAccording to a 2012 Statistics Canada survey, an estimated 3.8 million adults in Canada are living with a disability.  Of those in the survey aged 75 or greater, 42.5% suffered from one or more disabilities that limited their daily activities.

Fortunately, Canada has several tools to assist us in dealing with these challenges from a financial perspective.  For many, reductions in tax payable for either the person with the disability or a caregiver are available.  In addition, there are several benefits, grants and other support mechanisms offered.  This article will provide an overview discussion of the more common opportunities available through the income tax system as well as the Registered Disability Savings Plan (RDSP).    For many, reductions in tax payable for either the person with the disability or a caregiver are available.  In addition, there are several benefits, grants and other support mechanisms offered The availability of these opportunities is primarily based on the level of disability and the income of the individual, the caregiver and their respective families.  We will discuss these aspects using rates, thresholds, and values for an Alberta resident in the 2014 calendar year.

Opportunities by level of disability

Category 1 – An impairment of physical or mental function that is severe and lasts at least 12 months

The individual must either be markedly restricted in the ability to perform a basic activity of daily living (or significantly restricted in enough activities to be considered markedly restricted in the whole), or would be restricted but for life-sustaining therapy.  In order to prove this level of disability, Form T2201 – Disability Tax Credit Certificate, must be completed (indicating these conditions have been met) and signed by a “Qualified Practitioner” (which generally means a doctor qualified to opine on the applicable disability).

To meet the markedly restricted test, it must take the individual an inordinate amount of time (which the Canada Revenue Agency (CRA) suggests to usually be three times the normal amount of time), or he/she must be unable to perform one of the activities of daily living all or substantially all of the time (at least 90% of the time).  The activities of daily living include: speaking, hearing, walking, elimination, feeding, dressing, and mental functions necessary for everyday life.

To be significantly restricted, a person’s vision or ability to perform a basic activity of daily living must be substantially restricted all or substantially all of the time (at least 90% of the time).  To meet the Disability Tax Credit (DTC) test, he or she must be significantly restricted in at least two activities of daily living, or, significantly restricted in vision plus one activity of daily living, to the point where they would be considered markedly restricted in at least one activity of daily living.

The CPP Disability Benefit is a monthly payment available to people who have contributed to the CPP and who are not able to work regularly at any job because of a disability.

Opportunities available and respective maximum dollar values include:

  • Disability Tax Credit ($2,537/year),
  • Disability Supplement Tax Credit for minors ($1,710/year),
  • Child Disability Benefit ($2,650 per year)
  • Registered Disability Savings Plan  (RDSP) (tax on earnings is deferred until payout)
    • Canada Disability Savings Grant ($3,500/year up to $70,000 lifetime)
    • Canada Disability Savings Bond ( $1,000/year up to $20,000 lifetime)
  • Canada Pension Plan (CPP) Disability Benefit ($1,236/month)

Of special note, the Disability Tax Credit (DCT) may be transferred to the person on which the individual with the disability is dependent.  Certain medical expense claims, such as nursing home costs, can prevent the claim of the DTC.

Most of these items may have their value reduced based on a number of factors.  For example, the Disability Supplement Tax Credit is reduced if child care expenses are claimed in respect of the minor, while the Child Disability Benefit, a supplement to the Canada Child Tax Benefit, is reduced by 4% of adjusted family net income exceeding $43,953, assuming one child with a disability in the family.

Access to payments related to an RDSP is phased out based on family income.   A deceased person’s RRSP or RRIF may be transferred into an RDSP for a financially dependent child or grandchild.   For a  minor with a disability, this is the parents’ income as computed for the Canada Child Tax Benefit.  Beginning in the year in which the individual with the disability turns 19, access is based on family income of the individual and their spouse.  The Canada Disability Savings Bond (BOND) is completely phased out when family income reaches $43,953.

For the Canada Disability Savings Grant (GRANT), the crucial family income number is $87,907.  Where the income is less than or equal to this amount, the Government will provide up to $3,500 if at least $1,500 is contributed by others.  Where the income is higher, $1,000 will be provided if at least $1,000 is contributed by others.  BONDs and GRANTs are available in any year before the year of the beneficiary’s 50th birthday, subject to the lifetime limit.

To participate as the beneficiary of an RDSP, you must be eligible for the DTC.  Contributions to the RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.  Once the RDSP is opened, the GRANT and the BOND can be accumulated within it.  The GRANT, the BOND, and the investment income earned in the account are taxable once they are paid out of the plan.  A deceased person’s RRSP or RRIF may be transferred into an RDSP for a financially dependent child or grandchild.  Likewise, a Registered Education Savings Plan may be transferred to an RDSP if certain conditions are met.

The CPP Disability Benefit is a monthly payment available to people who have contributed to the CPP and who are not able to work regularly at any job because of a disability.  To qualify, the disability must be severe and prolonged, CPP contribution requirements must have been met, and the individual must be under the age of 65.

Category 2 – Dependent on someone due to an impairment in physical or mental function

In order to be eligible for these items, the test is not whether the impairment is severe but rather whether there actually is an impairment and whether the individual is dependent on someone.  Dependency is determined on a case by case basis but requires the need for regular and consistent provision of the basic necessities of life such as food, shelter and clothing.

The Caregiver Amount and the Family Caregiver Amount are claimed by individuals that have an impaired dependent.  The Caregiver Amount is available for certain related individuals who reside in the same household.

Opportunities available and respective potential dollar values include:

  • Caregiver Amount ($1,710),
  • Amount for an Infirm Dependent 18 or Older ($1,710)
  • Family Caregiver Amount ($302)
  • Disability Supports Deduction (Can deduct all applicable expenditures)

The Caregiver Amount and the Family Caregiver Amount are claimed by individuals that have an impaired dependent.  The Caregiver Amount is available for certain related individuals who reside in the same household.  The amount for an infirm dependent is available for a broader group of dependents, regardless of where they reside.  Both are income-tested, with the Caregiver credit allowing claims for a higher income dependent.  The Family Caregiver Amount is basically a top-up credit for those who are claiming another credit for the dependent.  Many of these credits were discussed in Law Now issue 37-1 “Credit where Credit is Due”.  The Disability Supports Deduction is for expenditures that allow an individual to go to school or earn certain income.

Category 3 – Medical Expenditures

What constitutes a medical expenditure is complex and encompasses several specific inclusions under the Income Tax Act.  The more commonly included expenditures are: non-cosmetic services provided by an authorized medical practitioner, travel costs to receive medical services, prescribed drugs, attendant care, nursing home fees,  medical assistance devices such as glasses, and home renovation to allow greater mobility, function or access (for those with severe and prolonged mobility impairments).

In general, only expenditures over and above base amounts (base amount varies depending on income level) will be multiplied by 15% (Federal) plus 10% (Alberta) to determine the total tax credit.

A claim may be made with respect to payments made for the individual or on behalf of a spouse, a minor child, a spouse’s minor child, or another prescribed relative who is also considered a dependent.

Some claims require either impairment or eligibility for the disability tax credit and some require making a choice between the claiming the medical credit and the DTC.

In addition to the medical credit itself, the Refundable Medical Expense Supplement, based on the same expenses, can be worth up to $1,152 when family income is between $3,363 and $25,506.

Other Credits and Benefits affected by Disability or Impairment

Where an individual has a disability, and in some cases simply an impairment, several non-disability focused credits and deductions can be affected.  For example, with regard to the Child Care Expense Deduction, an individual with a dependent child eligible for the Disability Tax Credit may be afforded an additional $3,000 to $6,000 in potential deductions.  Some other items that may be affected include: the Education Amount, the Home Buyer’s Program, the Working Income Tax Benefit, the Child Fitness Tax Credit and the Child Arts Tax Credit.

Conclusion

This is a list of only a few of the financial supports available. Where an individual has a disability, and in some cases simply an impairment, several non-disability focused credits and deductions can be affected. Several of these opportunities can be used simultaneously; however, one benefit or claim may affect the value of another.  The individual’s province of residence may also have benefits available, such as Assured Income for the Severely Handicapped in Alberta.  As such, a professional should be consulted to determine which combinations of benefits and claims will be most beneficial and whether more complicated planning such as the use of Trusts would be appropriate.

 

LawNow

Funded by

 
Font Resize
Contrast