By Shelby Parkinson, Liberty Tax Service
According to Statistics Canada, there are about 5.4 million Canadians providing care for others. About 60% spend a minimum of 10 hours per week providing care and most experience some financial impact as well. The tax return is a gateway to various social benefit programs and has some tax reduction measures for caregivers, so it is important to file for both yourself and the family member you are responsible for.
Most of the benefits come to those who are caring for a fragile family member who lives with them in their home. Key to claiming the maximum tax benefits is the Disability Tax Credit, granted by the Canada Revenue Agency when a doctor fills out form T2201. Information on this is available on the CRA website. The Disability Tax Credit:
- Allows the higher income person living in the same household to claim the caregiver amount, a tax credit that can reduce taxes by as much as $1,000. As long as the person in care has a total income under $22,000 this can be claimed. Note that the amount declines as income gets closer to $22,000.
- Can be transferred to another person in the same household if not needed by the taxpayer. This can be significant if the caregiver is working.
- In BC, it means that home improvements done to the residence to allow mobility or access can be used to reduce provincial taxes. Up to $10,000 of expenses can be claimed triggering a refundable tax credit of up to $1,000.
- New for 2016, is the federal Home Accessibility Tax Credit which mirrors the BC tax credit on the federal side, again up to $10,000 of expenses. This doubles tax credits available for needed home renovations! Federally, the credit reduces taxes owed (it does not show up as a “refund”).
- And further good news, if the accessibility renovation also qualifies as a medical expense you can claim that as well. A good example is a new accessible bathtub: get a 15% federal tax credit for the renovation, a 10% refundable provincial credit plus the 15% medical credit. Key to claiming these credits is who actually paid for the renovations. If it benefits the caregiver then it must be the caregiver who pays the bills.
- Other medical expenses might be claimed as well, although this can be tricky if the caregiver is not the spouse. The amount claimed must be over 3% of the person’s income and the caregiver must be able to prove that they paid the medical expenses themselves. Using a joint bank account will not be acceptable. Any bills, for example, from a dentist, must show the patient name and then the name of who paid. If medical expenses are high, then it can be worthwhile to get professional advice on this. Medical expenses are commonly “reviewed” by the CRA after they are claimed and a clear paper trail is needed.
The new measures around home accessibility provide an opportunity for tax planning in 2017 and beyond. If a renovation is contemplated, then there are really good reasons to plan it carefully and keep all the documents.
In some cases, the caregiver may be eligible for the dependent amount. However, there are conditions on this credit: the caregiver must be single, the person in care must live with them (and be related), and the dependent’s income must be below $11,474 in 2016.
In 2016, the Employment Insurance Compassionate Care Benefits program was increased from six weeks to six months. The qualification requirements can be explored by visiting the Service Canada website. Although this does not have a direct implication on a tax return it can provide temporary help during a difficult and stressful time.
When a family member must be moved to a care facility, most of the tax reduction measures are limited to the spouse. Medical expenses, including the nursing home fees, can be claimed by either spouse – whoever needs the credit to reduce taxes. The Disability Tax Credit can be transferred to a spouse but not to another family member, such as an adult child.
The Canada Revenue Agency has improved its systems and it is now possible to get most tax slips online. However, when doing this for another person it can be trickier. The taxpayer must give signed authorization (form T1013) which is submitted to the CRA. Professional tax preparers are registered with CRA and once the form is signed can have instant authorization. This is very useful because missing slips result in penalties and delays.
Providing care is stressful, as is doing taxes; however, with knowledge, planning and preparation filing tax returns can bring peace of mind and some financial relief.