Disabilities and Tax Issues
- The Disability Amount
- Amounts for Infirm Dependents Age 18 or Older
- Claims Made by More Than One Person
- Caregiver Amount
- Attendant Care Expenses
- Medical Expenses
- Education Amounts
- Amounts Transferred from your Spouse
- What is the Disability Tax Credit?
- What is Probate?
- The Cost of Probate
- How to Reduce Probate Fees Wisely
- Keep your Sense of Reality
The Disability Amount
What is the disability amount?
The disability amount is an non-refundable tax credit that reduces the amount of income tax people with disabilities, or people supporting them, may have to pay.
Who can claim the disability amount?
If you qualify, you, as a person with a disability, can claim the disability amount on your return. Your spouse or another supporting person may be able to claim the part of the amount that you do not need to use to reduce your federal income tax to zero.
If you or anyone else paid for an attendant or for care in a nursing home or other institution because of your impairment, it may be more beneficial to claim the amounts paid as medical expenses instead of the disability amount. In some circumstances, both amounts may be claimed.
Claiming the disability amount for yourself
You should use Form T2201, Disability Tax Credit Certificate, to claim the disability amount. If you were allowed the disability amount last year, and you still meet the eligibility requirements this year, you can claim the amount this year without sending another Form T2201.
Transferring the unused part of the disability amount
You, as a person with disabilities, may not need all of the disability amount to reduce your federal income tax to zero. In that case, your spouse or supporting person may be able to claim the unused part of the amount.
Generally, a supporting person has to be related to the person with disabilities by blood, marriage, or adoption. For this purpose, you will be considered to be a supporting person related to a person with disabilities if that person is any of the following:
- Completely dependent on you for support now, and you have custody and control of the person with disabilities or did have custody and control of the person immediately before that person turned 19 years of age
- Your natural or adopted child
- Your spouse's child
- Your child's spouse
More than one supporting person may make a claim for the same dependant. However, the total amount claimed by all supporting persons for that dependant cannot be more than the unused part of the amount.
Amounts for Infirm Dependents Age 18 or Older Top
You can claim an amount for your or your spouse's dependant child or grandchild only if that child or grandchild was mentally or physically infirm and is 18 or older.
You can also claim an amount for a person who meets all of the following conditions. The person must have been:
- Your or your spouse's parent, grandparent, brother, sister, aunt, uncle, niece, or nephew
- Is aged 18 years or older
- Mentally or physically infirm
- Dependent on you, or on you and others for support
- Living in Canada at any time in the year
Claims made by more than one person Top
If you and another person support the same dependant, you can split the claim for that dependent. However, the total of your claim and the other person's claim cannot be more than the maximum amount allowed for that dependant.
Caregiver Amount Top
If, during the year, you (either alone or with another person) maintained a dwelling where you and a dependant lived, you may be able to claim the caregiver amount. The dependant must have been one of the following individuals:
- Your child or grandchild
- Your brother, sister, niece, or nephew, parent, or grandparent (including in-laws) who was resident in Canada
- Your aunt or uncle who was resident in Canada
Attendant Care Expenses Top
You can claim the expenses you paid for personal attendant care that allowed you to earn certain income if all of the following conditions apply:
- You are entitled to claim the disability amount for yourself
- You paid the expenses for care in Canada so you could earn income from employment or from a business (in which you were actively involved), or carry on research or similar work for which you received a grant
- The attendant was not your spouse and was at least 18 years of age at the time you made the payments
- No one has claimed the payments as medical expenses
Medical Expenses Top
You can claim allowable medical expenses you or your spouse paid for any of the following persons:
- Yourself
- Your spouse
- Your or your spouse's children or grandchildren who depended on you for support
- Your or your spouse's parent, grandparent, brother, sister, uncle, aunt, niece, or nephew who lived in Canada at any time in the year and depended on you for support.
There is also a refundable tax credit for working individuals with low incomes and high medical expenses.
Allowable Medical Expenses:
- If you paid fees to a group home in Canada for individuals who qualify for the disability amount the part of those fees paid to someone to care for or supervise such an individual, if nobody has claimed it as an attendant - or institutional -care medical expense, a child care expense or an attendant care expense.
- Therapy provided for a person who qualifies for the disability amount by someone who is neither under 18 nor your spouse. This does not include amounts paid to a medical practitioner, such as a qualified therapist, because these amounts are already allowable as medical expenses.
- Tutoring that a medical practitioner certifies as necessary because of a person's learning disability or mental impairment, by someone who is in the business of providing such services to the public.
- "Talking textbooks" prescribed by a medical practitioner for someone who has a perceptual disability and is enrolled in an educational institution in Canada.
- Payments to a doctor, dentist, nurse, or public or licensed private hospital.
- Payments for artificial limbs, wheelchairs, crutches, hearing aids or personal assistive listening devices, prescription eyeglasses, contact lenses or personal assistive visual devices, dentures, pacemakers, prescription drugs, and many prescription medical devices
- Expenses for guide and hearing-ear dogs
- The purchase and installation of outdoor or indoor ramps where stairways impede the mobility of a person with disabilities
- The enlarging of halls and doorways to allow a person with disabilities access to the various rooms of their dwelling
- The lowering of kitchen or bathroom cabinets to allow a person with disabilities access to them
- 20% of the cost of a van that has been adapted (or is adapted within 6 months of when you acquire it) to transport an individual who uses a wheelchair, to a limit of $5,000
- 50% of the cost of an air conditioner, prescribed by a medical practitioner for an individual with a severe chronic ailment, disease, or disorder, to a limit of $1,000
- Reasonable moving expenses to move an individual who has a severe and prolonged mobility impairment, or who lacks normal physical development, to housing that is more accessible to the individual or in which the individual is more mobile or functional, to a limit of $2,000
- Reasonable costs of altering the driveway of the primary residence of an individual with a severe and prolonged mobility impairment, to allow easier access to a bus
- Sign language interpreter fees paid to a person in the business of providing such services, for an individual with a speech or hearing impairment
- Amounts paid for you or a relative to learn to care for a relative who has a mental or physical infirmity and who is in your household or is dependent on you for support
- Amounts paid for attendant care, or care in an establishment
Travel Expenses
If medical treatment is not available locally, you may be able to claim, as a medical expense, the cost of traveling to get the treatment somewhere.
Reimbursement of an allowable medical or dental expense
You cannot claim the part of an expense for which you have been or can be reimbursed. However, you can claim all of the expense if the reimbursement is included in your income, such as a benefit shown on a T4 slip, and you did not deduct the reimbursement anywhere else on your return.
Education Amounts Top
Generally, you can claim the education amount if you were enrolled in a qualifying educational program at a designated educational institution.
A qualifying educational program is a program that lasts at least 3 consecutive weeks and requires a minimum of 10 hours of instruction or work in the program each week (excluding study time). Instruction or work includes lectures, practical training, and laboratory work. It also includes research time spent on a post-graduate thesis.
Designated educational institutions include most universities and colleges, or Canadian educational institutions certified by the Minister of Human Resources Development as offering non-credit courses that develop or improve skills in an occupation.
Tuition and education amounts transferred from a child
A student who does not need to claim all of his or her yearly tuition and education amounts to reduce his or her federal income tax to zero may be able to transfer the unused part to you, if you are the parent or grandparent of that student or of that student's spouse. The maximum amount that each student can transfer is $5,000 minus the amount the student needs, even if there is still an unused part.
Amounts transferred from your spouse Top
You can transfer from your spouse any part of certain amounts for which your spouse qualifies, but does not need, to reduce his or her federal income tax to zero. The amounts you can claim are:
- The age amount (if your spouse is 65 or older)
- The pension income amount
- The disability amount
- Tuition and education amounts, as designated by the student. The limit on the total of these amounts that can be transferred is $5,000 minus the amount your spouse needs, even if there is still an unused part
Child care expenses
Generally, you can claim expenses you or your spouse paid for someone to look after your child, so you (or your spouse) could earn income, go to school, or conduct research. The child must, at some time in the year, have either been under 16 or have had mental or physical infirmity.
What is the Disability Tax Credit? Top
The disability tax credit provides additional tax assistance for individuals who have a severe and prolonged mental or physical impairment. The credit will reduce your income tax payable if you qualify. If you have no tax payable, you may transfer the credit to your spouse or supporting person.
Eligibility for this tax credit is based on the effects of the impairment rather than its presence. You are eligible to apply for the disability tax credit if you have a severe and prolonged mental or physical impairment such that you are markedly restricted in your ability to perform a basic activity of daily living.
What is Probate? Top
Probate fees are the fees charged by provincial governments to probate your Will when settling your estate. Probating your Will is the process of having your Will authenticated and of confirming the appointment of your executor.
The Cost of Probate Top
Probate fees are highest in Ontario at $5 per thousand on the first $50,000 of estate value and $15 per thousand on the excess. In other provinces they are typically $3 to $6 per thousand. As a result, Ontario's probate fees for a modest estate of $500,000 now amount to $7,000. There is also no "spousal credit," which means assets that were subject to probate fees on the death of the first spouse, will be subject to probate fees a second time when the surviving spouse dies.
Fees payable on entire estate
When your Will is probated, fees are applied to the total value of the assets in your estate. There are no deductions for debts other than those against real estate. For example, if you have a mortgage on your home and a bank loan for your business, the value of your home will be reduced by the amount of the mortgage, but the bank loan will not reduce the value of your business.
The only assets exempt from probate are: insurance policies payable to a named beneficiary or assigned for value; assets held in a joint account and passing by survivorship; and real estate outside of Ontario. The exemption provided for insurance policies with a named beneficiary is, in practice, extended to RRSP's, RRIF's and pension plans.
How To Reduce Probate Fees Wisely Top
There are a number of ways you can reduce probate fees without jeopardizing your assets. The two most popular ways of reducing probate fees are:
- Transferring property prior to death
- Transferring assets outside of your estate
Transferring Property Prior To Death
It may make sense to transfer some of your assets to your heirs while you are alive. Such gifts allow you to enjoy the delight and appreciation of the recipients, along with the satisfaction of knowing you've avoided future probate fees.
In addition to reducing future probate fees, charitable contributions can generate substantial income tax credits now, which could be lost if donations are made through your Will.
Transferring Assets Outside Of Your Estate
Use a life insurance company to transfer money and investment assets outside of your estate. Whether it is life insurance, registered and prescribed annuities, RRSP's RRIF's, GICs or segregated (mutual) funds, you can keep these assets out of your estate by simply naming beneficiaries in the contracts.
In addition to your RRSP or RRIF, make sure you have named a person - preferably your spouse for tax reasons - as beneficiary of your pension plan and group insurance. Many people name their "estate" as beneficiary when they get a job and never give the matter another thought. If this is your situation, simply ask your employer for a "change of beneficiary" form and change it to the person of your choice.
One of the most popular ways of keeping assets out of your estate is by holding them in joint tenancy. If you are leaving property to your spouse, an adult child, or any other person, you may want to consider owning the property with that person as joint tenants. Joint tenancy means that you both have undivided ownership of the property while living and full ownership will pass automatically to the survivor at death. Probate is avoided because the property does not form part of your estate, but be careful you don't create other problems in the process.
Tax Consequences
The overzealous use of joint tenancy to avoid probate fees may serve to frustrate other tax planning. Where the property in question is a principal residence, exemption will be lost for all years your joint tenant does not continue to live there.
Except for your principal residence, property transferred into joint tenancy, with anyone other than your spouse, is deemed to have been sold at fair market value. This often results in an immediate taxable gain for the donor.
Keep Your Sense of Reality Top
Above all, don't get carried away in your desire to avoid paying
probate fees. Immediate costs such as legal fees and other expenses may
cancel out other savings. Joint Tenancy between spouses only defers
payment of probate fees until the death of the surviving spouse.
Any planning to reduce probate fees should take into account numerous
other issues, many of which have been discussed here and professional
advice is strongly recommended. Consult with your tax and financial
advisors before putting any assets in joint ownership to ensure that you
are not putting them at risk.
Estate planning is one area where it is very easy to be "penny wise and pound foolish." A good estate planner can help you far more than you will ever pay in fees and ensure that your heirs pay as little as possible.
Important Note: A Henson Trust must be filed through its own tax return.
