By Becky Turcotte, CPA, CA
Due the shifting demographic in Canada, it is inevitable that we will have more and more seniors dependent on their loved ones for care as they age. The Canadian Income Tax system provides some financial assistance to help with these challenges.
Tax Credits
Each disabled individual is entitled to a tax credit which can be used to reduce their taxes payable in a year. In 2015, the credit was worth $7,899, which translates in Ontario to a potential $1,585 reduction of taxes. Because senior’s income can be reduced in retirement years, the individual may not have taxes payable; therefore, the credit is transferable to a spouse, or a relative on whom the individual is dependent.
You may already be familiar with the tax credits for medical expenses incurred during the year. Having a disability, or having an adult dependent with a disability, allows you to deduct some less common medical expenses that you may incur as a result of the disability. Some of these less common expenses include, but are not limited to:
- Animals trained to help the blind, profoundly deaf, etc.:
- This includes the cost of the animal, care, and maintenance (food, veterinarian care, etc.);
- Attendant care and nursing home costs (see our article on this topic on our blog);
- Deaf-blind intervening services;
- Vehicle modification; and
- Renovation or construction expenses:
- This includes the cost to alter principal residence to allow access for the disabled individual. Examples could include increasing the size of the driveway and adding ramps.
You are also able to claim the medical expenses on your tax return for anything you paid that was incurred by a dependent, such as your parents, or your spouse’s parents.
Canada Revenue Agency (CRA) defines being disabled as “having a severe and prolonged impairment in physical or mental function.”
In order to qualify for disability credits, the individual has to be severely impaired for a prolonged period of time.
A severe impairment means you are unable to perform basic activities of life, or it takes you an “inordinate” amount of time, generally meaning that it takes three times longer than usual to perform the basic activity. These basic activities include things such as speaking, hearing, walking, elimination, feeding, dressing, etc. This also includes having the mental functions necessary for everyday life.
To be eligible for disability credits, you would need to be markedly or significantly restricted. This basically means you are noticeably restricted all, or substantially all, of the time (90%) and you are unable to perform a basic activity of daily life even with therapy of appropriate devices and medication.
Prolonged impairment is simply defined as having the impairment last, or be expected to last, continually for more than 12 months.
For example, if you have poor eye sight and cannot see without corrective lenses, you are not considered disabled, because you can use appropriate devices, like glasses, to allow you perform a basic activity of life, such as sight. However, if you are blind and unable to see even with the aid of corrective lenses, you would qualify for disability credits.
The mental function necessary for everyday life starts to be affected by age as well. For example, someone who is having difficulties with memory, but is still able to care for themselves and live independently, is not markedly restricted in their mental functioning and is, therefore, ineligible for disability credits.
However, you could qualify for disability credits if you have a mental impairment, like dementia, that exists and requires you to rely on care to ensure your well-being.
If you or someone you know meets these criteria, as verified by a qualified medical practitioner, you should complete a T2201 Disability Tax Credit Certificate form to submit to CRA. Medical doctors, optometrists, and audiologists are just a few of the medical practitioners permitted to verify the T2201. The full list of qualified medical practitioners is available on CRA’s website.
Once CRA approves the Disability Certificate, you become eligible for various tax credits and programs designed to assist you. CRA will grant credits for up to 10 years back for any disabilities certified by a qualified medical practitioner. Credits can be granted indefinitely going forward. You are able to adjust your tax returns to account for the additional credits and deductions available as a result of the disability.
Additional Credits Available
If you have aging parents or grandparents with a mental or physical impairment that are dependent on you, you may be eligible for either the Caregiver Amount (“Caregiver”) or the Amount for Infirm Defendant Aged 18 Years or Older (“Infirm Dependent”). You can only claim one credit or the other, depending on which is more applicable.
The Caregiver credit is available if you or your spouse are the primary caregiver to the dependent. This dependent must be a Canadian citizen who lives with you, is over the age of 18, and related to you through blood marriage or adoption. In order to be eligible for a benefit under this credit, the dependent’s income must be under approximately $20,500 for the year.
This credit can be combined with the Family Caregiver amount, which has similar qualifications. These two credits, in aggregate, total $6,701 (in 2015).
The Infirm Dependent credit is similar to the Caregiver, with a few distinct differences. The dependent can be dependent for support on more than one person, as long as the total of the credit claimed by all people is not greater than $6,700 (in 2015). As well, the dependent does not need to live with you in order for you to be eligible to claim the credit. However, similar to the Caregiver credit, the dependent needs to have low income, in this case approximately less than $13,500, for you to be entitled to a credit.
You can only claim one of these, either the Caregiver or Infirm Dependent credit. The total combined credit is the basically the same for both, at $6,700, which in Ontario translates to $1,345 of tax savings.
Conclusion
Before claiming medical credits for your, or a dependent’s medical expenses, review the specific criteria with your accountant to ensure you meet the requirements.
