Canadian tax system

Tax Assistance for Persons with Disabilities

March 6, 2014 By Joseph Devaney

According 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 50^th 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.

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.

More Resources on Personal Tax Credits

September 17, 2012 By CPLEA STAFF

In the latest issue of LawNow, the article “Credit where Credit is Due: Personal Tax Credits in the Canadian Tax System” looks at where personal tax credits are available.

These include credits for:

dependent family members,
children’s fitness and arts,
pensions,
medical expenses,
employees,
student’s tuition,
gifts to registered charities,

and more.

The amounts of each of these credits can change each year. The 2011/2012 amounts are available on the Canada Revenue Agency’s website.

The Canada Revenue Agency also suggests the top 5 ways to get ready to file your tax return. One of the ways they suggest is just as Hugh Neilson, the author of this article, suggests: annually review what tax credits are available to you by reading your tax package. You can find tax packages for all years on the Canada Revenue Agency website.

You can also check out the Canada Revenue Agency’s video series on preparing your income tax and benefit return.

Be prepared and get the most out of your tax return!

Credit where Credit is Due: Personal Credits in the Canadian Tax System

September 1, 2012 By Hugh Neilson

2012 is the 25^th year of personal credits in the Canadian tax system. Prior to 1988, personal exemptions were deducted from taxable income. Since 1988, credits against taxes payable have been used. This was perceived as more fair, because the benefit of deductions was greater for higher income taxpayers. Credits result in the same tax benefit for every individual, unless their taxes are insufficient to fully use the credits, because they are not refundable.

Most personal credits apply the lowest federal tax rate (presently 15%) to either a value set by law or actual expenditures. The lowest personal tax rate has declined since 1988, effectively reducing the benefits of these credits. Each province also provides an array of credits, often varying considerably from the federal credits, especially in recent years.

Personal credits have become the popular mechanism for providing new tax benefits to individuals. Recent budgets have featured several new credits for various costs and activities. The 2012 budget was the first in several years to feature no new credits.

A full discussion of all the credits, and the specific rules applicable to them, is beyond the scope of this article. The amounts available for many credits are subject to annual indexation, and the 2011 and 2012 amounts can be found at the Canada Revenue Agency website.

We are Family: Tax credits for families

An array of credits is available for various dependent family members, including:

• The basic personal amount, available to every Canadian resident individual.

• The credit for a spouse or common law partner is equal to the basic personal amount, less the spouse’s net income. References to married parties in this article also include parties to a common law relationship. A “common law partner” is defined as a person with whom the taxpayer “cohabits at that time in a conjugal relationship” if the couple either has cohabitated for at least a year, or are natural parents of a child.

In addition to this credit, many credits of one spouse can be transferred to the other, if not needed to eliminate taxes. These include the age, pension, disability and children credits, as well as education-related credits as described elsewhere in this article.

• An amount for an eligible dependent equal to a spouse credit is available for a child, sibling, parent, grandparent or grandchild if the claimant is either unmarried or separated from their spouse and maintains a “self-contained domestic establishment” where they live and support the dependent

• Children under age eighteen generate a credit.

• A caregiver credit can be available for a child, grandchild, parent, grandparent, brother, sister, aunt, uncle, nephew or niece who is at least age eighteen, and either dependent due to infirmity or, a parent or grandparent, provided the dependent resides with the claimant.

• The maximum spouse, eligible dependent, child and caregiver amounts are each increased where the dependent is infirm.

• An infirm dependent credit can be claimed, where the claims discussed above are not available.

Won’t Somebody Think of the Children?: Tax credits for children

In the year a child under age 18 is adopted, a credit can be claimed for up to $11,440 of expenses incurred (e.g. agency fees, travel, etc.).

Parents can also claim a ”Children’s Fitness Amount” and “Children’s Arts Amount” with respect to up to $500 of costs, for each credit, incurred for each child under the age of 16 (age 18 if eligible for the disability credit) during the year. The criteria are similar, including:

• add $500 if at least $100 in costs is incurred for a disabled child;

• programs must run 8 consecutive weeks or a minimum of 5 days;

• activities must be supervised and suitable for children;

• fitness activities must contribute to cardio-respiratory endurance and one of muscular strength, muscular endurance, or flexibility and balance; and

• the arts credit is for “artistic, cultural, recreational or developmental activity”, defined broadly, but specifically excludes physical activities (so the same activity cannot qualify for both credits).

“Enrichment or tutoring in academic subjects” is eligible for the arts credit, an aspect surprising to many parents and therefore often overlooked.

When I get Older: Tax credits for persons over 65

Individuals over age 65 by the end of the year receive a credit, with the amount reduced by 15% of the individual’s income in excess of $33,884 (2012).

A pension income credit applies on a maximum of $2,000 of pension income. Annuities from a pension plan always qualify. For persons over age 65, the credit also applies if they receive amounts as a consequence of a spouse’s death; annuity payments from a Registered Retirement Savings Plan or Deferred Profit Sharing Plan; or payments from a Registered Retirement Income Fund. The interest component of annuity payments and some life insurance policies also qualify.

An Apple a Day…: Tax credits for medical expenses

There is a credit for medical expenses, to the extent they exceed 3% of net income to a maximum ($2,109 for 2012). Extensive regulation defines eligible medical expenses, which can include travel where services are not available locally, and health insurance, such as out-of-country coverage. Expenses can be claimed for any twelve month period ended in the year, so analyzing receipts to pick the period with the greatest cost can be beneficial. Purely cosmetic procedures are not eligible. Expenses of a married couple and their minor children can be combined. Expenses paid for other dependents can be claimed, but are reduced by 3% of the dependent’s income.

Individuals with a severe and prolonged impairment resulting in a marked restriction in their ability to perform a basic activity of daily living (defined as perceiving, thinking & remembering; feeding or dressing; speaking; hearing; eliminating (bowel or bladder function); and walking) are eligible for a disability credit. An enhancement is available for minor children.

Eligibility for the disability credit requires a T2201 form completed by an appropriate medical practitioner. Where the disabled person has insufficient income to fully use the credit, the excess can be transferred to his or her spouse or a supporting relative. This credit is not available where costs of nursing home care or many forms of attendant care are claimed as a medical expense, often forcing a choice between the two claims.

Get a Job: Tax credits for employees

Employees are eligible for a credit based on their employment income, capped at $1,095 (2012), and their CPP and EI premiums. The self-employed receive credit for the portion of premiums they would have paid as employees.

Get an Education: Tax credits for students

Tuition, and some additional fees, paid to educational institutions for post-secondary education generate a credit provided the student is over 16 years of age. Fees for examinations to obtain professional status, or for licensing or certification, can also be claimed.

A fixed monthly education amount and textbook credit is available, with amounts dependent on whether the student is full-time or part-time. Receipts are not required, and the criteria for both credits are identical.

Unused tuition, education and textbook credits can be carried forward for a future claim. Up to $5,000, less the amount needed to eliminate the student’s taxes, can be transferred to a spouse, or to a parent. This credit interacts with other credits, and students with other tax credits may find these education credits eliminated with no added tax benefit. It is possible to use credits from prior years before using current credits, to preserve as much of the maximum $5,000 transfer amount as possible.

Interest paid under government student loan programs also qualifies for credit, and unused amounts can be carried forward for up to five years.

Give it Away!: Tax credits for donations

Gifts to registered charities, the Crown, universities and municipalities generate a different credit. Credit on the first $200 is at the standard 15% rate, with any excess generating a 29R credit. A donation can be claimed in the year it was made, or any of the five subsequent years.

Generally, donation claims are limited to 75% of the individual’s income. Donations to U.S. charities not registered in Canada can be claimed, to a limit of 75% of income from the U.S. (e.g. dividends on U.S. stocks). Spouses are allowed to claim donations in either spouse’s name.

Where appreciated securities are donated, the general rule is that any capital gains escape taxation. The amount of the charitable donation is not reduced as a consequence of any tax-free gains – the full value of donated securities is eligible for credit.

Contributions to federal and provincial political parties and election candidates are not charitable, but give rise to a political donation credit (separate from personal credits). The federal credit rates are higher than charitable donations (75% of the first $400, 50% of the next $350 and 1/3 of the next $525), but these contributions are limited to modest amounts. Provincial credits are generally similar.

The Odd Men Out: Tax credits in other areas

Most tax discussions break issues into categories, one of which is always “other” or “miscellaneous” for items not fitting into neat categories. Here are some examples.

A volunteer performing 200+ hours of firefighting services (including responding to fires, being on call, attending fire department meetings, and training) receive a fixed credit (worth $450 of tax). The fire chief is required to certify eligibility.

The cost of public transit passes, generally limited to monthly periods (weekly and per trip passes accounting for a month or more can qualify) generates a tax credit. Receipts, including the pass, are required. Passes for the taxpayer, their spouse and children under age 19 may be claimed.

A first-time homebuyer is eligible for a fixed credit ($750 of tax relief). This can be shared between co-owners. Each claimant must be on title under the provincial land titles registration system.

A credit for home renovations was a one-time opportunity in 2009, the only temporary credit in the 25 year history of the credit system.

Overall

While tax relief is always welcome, one might question the effectiveness of some of these credits. For example, the Children’s Fitness and Arts Credits have generated numerous questions to the Canada Revenue Agency (CRA) regarding qualifying programs, and the cost of requesting and reviewing receipts is considerable, especially compared to a maximum tax benefit of $150 per year for most children. Fixed amounts such as the first time homebuyer’s and volunteer firefighter’s credits, while perhaps less equitable in not scaling with actual costs, carry a much lower administrative burden.

An annual review of Schedule 1, the federal form for personal credits, can help ensure that all relevant credits are identified. The guidebooks produced by the CRA generally provide additional details of these provisions.