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.
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.
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.
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.
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 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.
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.