One of my Globe and Mail columns this week touched on disability planning in Canada. As usual, there is a word count limit on my columns that precludes an exhaustive examination of most topics. There are many more programs and tax relief considerations when it comes to disability planning. One of which is the Disability Tax Credit Certificate (DTC). A reader sent me an email that I thought was worth sharing. They requested anonymity, which I’m happy to provide to anyone who wishes to make a contribution to this blog with info worth sharing. Enjoy.
It works much like a non-refundable tax credit (ie. lowest marginal tax rate credit, currently 15% federal and depending on province). A person may be eligible for a permanent certificate or a temporary one depending on the nature of the illness/disability. For instance, parents with a child with Type 2 diabetes can be entitled to the credit on their personal T1 returns until the child has turned 16 ( I believe, don’t quote me on that age!).
Other people, such as the elderly with Alzheimers or terminal cancer, can received a permanent Certificate that they can use each year on their T1 returns until death. The certificate is an all or none kind of proposition – either you are approved or not, and it is not pro-rated for a tax year. If you become disabled on December 31, 2011 and are approved, you are entitled to use the FULL credit for the year 2011.
Taxpayer (BC resident) has Alzheimer’s disease dating back to 2008; subsequently dies in 2010. On her T1 returns for 2008, 2009, and the final 2010 T1 return the taxpayer can claim a federal Line 316 amount, Schedule 1
PLUS a provincial Line 5844 , Form BC428 as follows:
(NOT chump change for many Canadians).
There are some subtleties to this DTC:
- If you are claiming the costs that are paid to be in a nursing home (as opposed to an assisted living/retirement home), than you cannot claim the DTC at all – even if the amount is under $10,000 (unlikely except for part years).
- Example One: NURSING HOME
Mrs. Dolores Smith, who has advanced dementia and COPD, resides full time at a nursing home located in Niagara Falls, Ontario. At the end of 2011 she receives an annual statement showing she paid $43,000 over the year to live there with full services. She would claim this amount as a medical expense IN FULL on her 2011 taxes. Dolores has a DTC but is not allowed to claim it.
- Example Two: RETIREMENT HOME OR ASSISTED LIVING ESTABLISHMENT
Her twin sister, Mrs. Janet Jones, who is diabetic,resides full time in a retirement home in Brampton, Ontario. At the end of 2011 she receives an annual statement showing she paid $30,000 over the year to live there. The statement breaks down the attendant care services provided (ie. salaries and wages for staff) as $14,000 with the remaining $16,000 for rent . Janet has a DTC as well. Janet, unlike Dolores, has two choices for her 2011 tax return:
- 1) Claim a maximum of $10,000 of the $14,000 attendant care expenses (medical expenses) AND the DTC.
- 2) Claim the $14,000 as attendant care expenses (medical expenses) and NO DTC.
- Taxpayers must have a certified person, such as a physician, complete the CRA Certificate. They usually charge for this service (in the area of $50) but it can be claimed as a medical expense. The disability can be dated back several years and once approved, the taxpayer can ask to have their relevant T1 returns reassessed. It should be noted that if a DTC is approved back to 2007, say, the taxpayer cannot assume that CRA will automatically reassess. The taxpayer must request they do it. A bit quirky but CRA needs to know that the taxpayer wishes to use it. Offhand, I can’t remember how many years the CRA will go back retroactively.
- The DTC can be transferred to a spouse if that is more tax advantageous with restrictions (ie. your income is so low it doesn’t change your tax liability but would be useful to your spouse with a higher income).
- The credit amount for dependent children is supplemented so in fact is higher than the example given above.
- The parameters for being granted the DTC are not as strict as CPP disability pension, I have been told.
Thanks for the insight and detailed comments… whoever you are. ;)