Caregivers: Tax Literacy Matters

The vast majority of Canadians caring for sick and disabled family members are missing out on lucrative tax assistance and paying for expensive care costs out of pocket, according to a CIBC poll. Worse, only 12 percent of caregivers are accessing available tax deductions, credits, and benefits on their tax returns.

This creates an opportunity for tax-savvy financial consultants to provide valuable advice.
In this three-part series, three of the most important credits to for advisors and clients to discuss are covered, starting with the claim for medical expenses.

“Missing a claim for medical expenses is common in Canada,” says Evelyn Jacks, President of Knowledge Bureau, who covers the subject in depth in her new book, Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-Proof Too. “But, you have to know to save all your receipts, and navigate your way through some complex rules to get top benefits.”

Here are some details on the Medical Expense Tax Credit, which is found on Line 330 and 331 of your tax return.

How are medical expenses calculated? Qualifying medical expenses over the lesser of 3 percent of net income and $2302 in 2018 will qualify for a federal non-refundable tax credit. Medical expenses can be claimed for a number of people in the family who may be sick or disabled:

• the nuclear family: the taxpayer, and the taxpayer’s spouse or common-law partner
• a child or grandchild of the taxpayer or the taxpayer’s spouse who depended on the taxpayer for support
• a parent, grandparent, brother, sister, uncle, aunt, niece, or nephew of the taxpayer or the taxpayer’s spouse who lived in Canada at any time in the year and depended on the taxpayer for support

Medical expenses for dependent children may be added to the medical expenses of the parents. Because the claim for medical expenses is reduced by 3 percent of the taxpayer’s net income, it is often best to claim the amount on the return of the lower-income taxpayer, unless that taxpayer is not taxable.

But medical expenses can also be claimed for dependent adults. In this case, the total medical expenses must be reduced by 3 percent of the dependant’s net income for the tax year. This transferred claim is not to be pooled with the taxpayer’s other medical expenses. That means it is not further reduced by 3 percent of the net income of the person making the claim.

What expenditures qualify? There is a very long list of expenditures that qualify for medical expense claims. An astute tax specialist will have these handy, but the trick is really to save all the receipts for any medical expenses incurred by you or your relatives, as medical expenses are often audited.

Most federal budgets add to the list every year. A recent addition is the cost of owning a psychiatric service animal. Starting in 2018, the costs of animals that have been specially trained to provide assistance to people with severe mental impairments may be claimed; for example, guiding a disoriented patient, searching the patient’s home if the patient has severe anxiety or applying compression to patients who have night tremors. The animal must be trained by a person or organization whose main purpose is this specialized training.

Eligible expenses include cost of care and maintenance for the animal, including food, veterinary costs, reasonable travel costs for the patient to attend training at a facility that teaches how to handle the animal.

Other commonly missed medical expenses that caregivers should take advantage of are outlined in detail in the article entitled “Commonly Missed Medical Expenses: Dig for Tax Savings”.

So what’s it all worth? The allowable medical expense claim, after the 3 percent limitation, reduces your taxes payable by 20 to 25 percent of the claimable amount (depending on what province you live in). Medical expenses not claimable because of the 3 percent limitation can also be carried forward for possible use in the following year, so saving unclaimed receipts is important. You can make the claim for the best 12-month period (the period in which you had the highest expenses, that is), ending in the current tax year; make that 24 months in the year of death.

Next week: learn more about the Disability Tax Credit

Evelyn Jacks’ Essential Tax Facts – How to Make the Right Tax Moves and Be Audit-proof Too can be purchased online with free shipping!

Additional educational resources:

Help your clients claim complex caregiver tax credits – enhance your knowledge with the Advanced Income Tax Consultancy course.

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