Tax Assistance for Persons with Disabilities - LawNow Magazine

Tax Assistance for Persons with Disabilities

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.

 

Authors:

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


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