This is a Thought Leadership Article by PrimeGlobal member firm Shimmerman Penn LLP which looks at which tax credits to consider for attendant care and nursing home fees.
Caring for an aging or disabled loved one can be overwhelming. Frequently, even the most dedicated relatives are unable to provide the full-time attention required to assist with their loved one's day-to-day needs.
As Canada's population ages, devoted family members often find themselves struggling with the responsibility of caring for loved ones who are unable to care for themselves. Although a difficult decision, it is often necessary to consider alternative forms of care to help the family cope with the burden. In addition to the emotional impact of seeking external care, the decision often presents financial challenges to family members as well.
There are various social assistance and government programs that may be available to help ease the financial burden associated with providing attendant care or suitable alternative living arrangements for a loved one. A number of these programs are built into the Canadian taxation system in the form of tax credits and registered plans.
The two primary non-refundable tax credits to consider in these situations are generally the medical expense tax credit (METC) and the disability tax credit (DTC). These credits are co-ordinated to provide varying degrees of tax relief where deemed warranted under the circumstances.
This article will describe some of the tax benefits the METC and DTC can provide to families for different levels of care that an elderly or disabled relative may require, and provide guidance on how to navigate the complex and nuanced rules to maximize a family's claim.
Medical Expense Tax Credit (METC)
The federal METC is a non-refundable tax credit calculated as 15% (plus an additional 5.05% provincial component in Ontario) of qualified medical expenses in excess of 3% of net income and a specified annual minimum threshold (i.e. $2,302 in 2018). Medical expenses that were paid within any 12 month period ending in the tax year can be claimed.
Once the minimum threshold is reached, there is generally no limit to the amount of qualifying expenses that can be claimed for the METC. However, as the tax credit is non-refundable, the benefit from the credit cannot exceed the taxpayer's tax liability that would otherwise be calculated for the year.
In addition to allowing for a credit to be claimed with respect to cumulative medical expenses paid for one's self, a spouse or common-law partner, and/or dependant minor children, the METC may also be claimed by a taxpayer for medical expenses paid for other eligible dependants.
Other eligible dependants can include other family members dependent on the taxpayer for support in the year. Some examples of other eligible dependants might include a parent, grandparent, sibling, uncle, aunt, niece or nephew, or adult dependent child.
Whether a relative is dependent on the taxpayer for support is a question of fact. Dependence may include financial reliance, but can involve any dependence for the basic necessities of life such as food, shelter and clothing, on a regular and consistent basis.
Where the METC is claimed with respect to amounts paid by a taxpayer for the medical care of other eligible dependants, the taxpayer can claim medical expenses in excess of 3% of the dependant's net income, and the specified annual minimum threshold. Note that in Ontario, the maximum claim for medical expenses paid for an eligible dependant is limited to $12,632.
Disability Tax Credit (DTC)
The federal DTC is a non-refundable tax credit worth up to $1,235 (calculated as 15% of a base amount of $8,235 for 2018). The provincial component in Ontario is worth up to an additional $422 (calculated as 5.05% of a base amount of $8,365 for 2018).
For an individual to qualify, a form T2201; Disability Tax Credit Certificate completed and certified by a medical practitioner must confirm the individual suffers from a severe and prolonged mental or physical impairment which markedly restricts their basic daily living activities. After following up with the medical practitioner to confirm the severity and expected duration of the disability to determine that the eligibility criteria have been met, CRA may approve the individual to claim the credit. Where all or part of the DTC cannot be used by the disabled individual, which may be the case in low income situations, the unused portion may be transferred to a spouse or common-law partner or to another supporting taxpayer (i.e.: parent, adult, child).
In the context of attendant care and/or an alternative living arrangement, the METC and DTC may overlap to provide targeted tax relief. Optimizing the tax benefits requires an understanding of the interaction of these credits.
Attendant care refers to care provided by a person who performs those personal tasks for which the individual is unable to do for themselves. The attendant cannot be the individual's spouse or common-law partner, nor under 18 years of age.
In addition to including salaries and wages of individuals providing services of meal preparation, health care, housekeeping, laundry service, transportation service, and security, attendant care can also include care in certain types of facilities, as will be discussed further below.
Attendant care at home
If an individual requires assistance while continuing to live at home, the cost of one full-time attendant may be eligible for the METC when the individual either qualifies for the DTC, or has been certified in writing by a medical practitioner as being dependent on others for personal needs and care for an indefinite duration of time.
If the individual qualifies for the DTC, the taxpayer will have an option to claim the DTC and limit their claim for attendant care costs to $10,000 ($14,318 for purposes of the Ontario METC provincial component). Alternatively, the taxpayer may claim the full amount of attendant care expenses and forgo claiming the DTC. Accordingly, claiming the full attendant care costs for the METC and forgoing the DTC will generally be more beneficial when the qualifying attendant care exceeds $18,235 ($8,235 DTC + $10,000 METC).
If only part-time attendant care is provided, the attendant care claim for the METC is limited to a maximum of $10,000, and the individual must be eligible for the DTC to make the claim.
Although several part-time attendants providing care to the individual over a specific period of time can qualify as one full-time attendant, a claim can only be made for the equivalent of one full time attendant for that period of time.
Notably, where attendant care is paid by more than one supporting family member, each supporting person may be entitled to a separate claim of up to $10,000 for the METC in respect of the same qualifying individual, without prohibiting the DTC claim in respect of the individual. Accordingly, if the cost of caring for a relative is split among multiple persons, the $10,000 limit for attendant care can be multiplied without impacting eligibility to claim the DTC.
Attendant care in a long-term care facility
If it is determined that a family member can be better cared for in a long-term care facility, such as a retirement home, salaries and wages for certain services provided by the facility may qualify for METC as attendant care, provided the individual is eligible for the DTC. Such services may include food preparation, housekeeping, laundry, healthcare, activities, etc. and must be separately identified on a receipt or invoice issued by the retirement residence.
Similar to the situation where attendant care is provided at home, the individual will have an option to claim the DTC, provided any claims for attendant care costs claimed by them or any supporting person is limited to $10,000. Alternatively, if the DTC is foregone, the full amount of attendant care expenses can be claimed for the METC.
Full-time care in a nursing home
When a dependant requires a more comprehensive level of care, such as the type of care provided by a nursing home (or other similar long-term care facility), the entire cost of the care may qualify as an eligible medical expense, if the dependant is either approved for the DTC or has been certified in writing by a medical practitioner to be dependant due to a lack of normal mental capacity.
Nursing home fees may be claimed as a medical expense by the individual or by a supporting family member who paid the fees.
If the full amount of the nursing home fees are claimed as an METC, the DTC cannot also be claimed with respect to the individual. The DTC may still be claimed, however, where the METC claim is limited to $10,000 for the salaries and wages component paid to the nursing home for attendant care (must be broken down on an invoice from the nursing home).
Other medical care facilities
While a nursing home provides a comprehensive level of care to the elderly, younger family members suffering physical or mental disabilities may require additional support from supplemental tutoring services, a specialized school or institution, or care provided in a group home in more severe cases.
Some students with learning disabilities may be able to succeed in the mainstream school system with some additional support. The cost of tutoring services may qualify for the METC provided a medical practitioner has certified in writing that the individual requires these services as a result of having a learning disability or mental impairment. The tutoring must be provided by an unrelated person who is ordinarily engaged in providing this service.
Care and/or training in a school or similar institution
Children experiencing more serious learning difficulties or behavioural problems may require special attention or facilities only available at a school or institution specializing in their condition.
The cost of care and/or training of an individual at a specialized school or an institution will qualify as an eligible medical expense if the individual has been certified in writing to require the equipment, facilities or personnel specially provided by the school or institution due to a mental or physical disability. Note that additional attention or higher teacher/student ratios available in general purpose private schools do not qualify as special equipment or personnel.
A student's learning difficulties or behavioural problems must be the result of, or symptoms of, an underlying physical or mental handicap in order to qualify for the METC under this provision.
In addition to a medical practitioner, the principal of the school or the head of the institution may also be able to certify how the individual's needs are fulfilled by the institution's facilities.
An individual is not required to be qualified for the DTC in order to claim the costs of the school or similar institution. However, an individual eligible for the DTC may claim this credit in addition to the cost of the care and/or training in the school or institution.
Care in a group home
A group home is generally a single-family dwelling for individuals that need a supervised living environment. Common examples include individuals with serious developmental or physical disabilities or individuals recovering from substance abuse (i.e.: rehabilitation center). In this situation, the costs of remuneration for care or supervision will qualify for the METC provided the individual is eligible for the DTC.
In contrast to care in other long term care facilities, in these circumstances the DTC may be claimed in respect of the individual in addition to the METC claim for the cost of care in a group home.
In conclusion, there are a number of circumstances where the METC and DTC can provide much needed tax relief. However, as discussed, determining the optimal claim for the METC and DTC can be complex at times.
Other benefits to consider
Although we have focused primarily on the importance of the METC and DTC, there are a number of other tax incentives that may also be available when caring for an elderly person or someone with a mental or physical disability.
For example, the Canada Caregiver Credit (up to $6,986 in 2018) may be available to a taxpayer who supports a spouse or common-law partner or a dependant with a physical or mental impairment.
In addition, elderly or disabled individuals, or persons supporting them, may be eligible for tax relief when incurring renovation expenses related to improving accessibility or mobility within their homes.
Finally, the Registered Disability Savings Plan (RDSP) is designed to help parents and others save for the long term financial security of a person who is eligible for the DTC.
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