Hopefully by now, after reading ‘Tax Tips for Seniors – Part 1‘. , it’s obvious that there are a lot of things for seniors to consider with respect to their income. Equally important are expenses and tax credit considerations. Let’s take a closer look…
Pension income amount
The pension income amount is a non-refundable credit (2014 – $2,000) available to those aged 65 or older (sometimes available to individuals with eligible pensions and under age 65) who collect eligible pension income.
In order to claim it, you must be receiving eligible pension income which includes private pensions, RRIF, annuity income out of an RRSP or DPSP and taxable foreign pensions. Pension income that is not eligible includes CPP, OAS, GIS, lump sum RRSP withdrawals and retiring allowances.
The age amount is a non-refundable credit (2014 – $6,916) available to those age 65 or older. The amount is gradually reduced by 15% of income in excess of $34,873 and is totally eliminated when income exceeds $80,980.
An individual can claim medical expenses paid by themselves or their spouse or common-law partner. The amounts that can be claimed are expenses paid on behalf of a taxpayer, their spouse or common-law partner, or child under age 18 who is dependent on them for support.
There is a little leeway in the timing of the expenses. More specifically, the expenses can be claimed for any 12 month period ended during the year, so long as they weren’t claimed in a previous year.
For the most part, you’re able to claim all medical expenses paid in and outside of Canada. However, you’re only able to claim the amount you actually paid. If you were reimbursed for any costs, you can only claim the portion that was not reimbursed.
The rules relating to claiming medical expenses are relatively simple. However, I’ve seen it several times where taxpayers previously weren’t claiming them.
‘The credit is based on an amount paid in excess of a minimum. The minimum is calculated as the lesser of $2,171 for the 2014 taxation year and 3% of net income. Any medical expenses paid in excess of this amount is the amount used to calculate the medical expenses credit.
Depending on the medical expenses paid and net incomes of the taxpayer, you may qualify for the refundable medical expense supplement. This is available to low income individuals who paid medical expenses.
Deceased taxpayers may claim medical expenses for the last 24 months in the year of death. On a taxpayer’s terminal return, you may want to consider adjusting their previous year’s return so that no medical expenses were claimed so that 24 months of expenses can be claimed on the final return.
The disability tax credit is a non-refundable credit (2014 – $7,766) available to individuals having severe and prolonged impairment which markedly or significantly restricts their ability to perform a basic activity of daily living.
The CRA is rather particular about which circumstances enable an individual to qualify for the disability amount. Let’s look at some of the specifics required by CRA:
1. Severe impairment’ means you’re unable to perform basic activities of life or it takes an inordinate amount of time
2. ‘Prolonged impairment’ is simply defined as having the impairment last, or expected to last, continually for more than 12 months
3. ‘Markedly’ or ‘significantly’ means you’re noticeably restricted all, or substantially all, of the time and you’re unable to perform a basic activity of life even with therapy of appropriate devices and medication
4. ‘Basic activities’ include speaking, hearing, walking, feeding and dressing
Unlike other credits, the disability amount cannot simply be claimed upon completion of your personal return. In order to claim the disability amount, you must have a medical practitioner sign form T2201 Disability Tax Credit Certificate which certifies whether you qualify. This signed form is then submitted to and approved by CRA.
If you determine that you qualify for the disability as of several years ago, you can actually go back up to 10 years and retroactively claim it for missed years.
The disability amount is not a credit that you simply claim with no other required tax considerations or perks. For example – depending on the incomes of the spouses or common-law partners, the individual qualifying for the disability may not need the entire credit..
In that situation, the taxpayer who qualifies can transfer the unused portion to the spouse or common-law partner or even as far as a relative of whom the disabled is dependent.
Also, if you qualify for disability amount, some medical expenses that don’t otherwise qualify may qualify:
1. Animals trained to help blind and profoundly deaf and their related costs
2. Vehicle modification
3. Renovation or construction expenses for altering your home
Attendant care costs can be extremely high and the rules relating to them are quite particular and comprehensive. Basically, attendant care costs are amounts paid to an attendant who was not the taxpayers spouse or common-law partner and who was age 18 or older.
Attendant care costs cannot be claimed by just anyone. Individuals who are eligible for the disability amount are entitled to claim the costs and, in some situations, individuals who do not qualify for the disability amount. For taxpayers who do not qualify for the disability amount and wish to claim attendant care costs, they must have a medical practitioner certify in writing that they need full time attendant care due to a mental or physical infirmity and it’s likely that they’ll continue to be dependent on other for the long-term. Depending on whether or not you qualify for the disability amount, examples of attendant care costs include amounts paid for full time attendant care in a self-contained domestic establishment or nursing home, full or part-time care in a school, institution or other establishment and care or supervision provided in a group home in Canada.
If you qualify for the disability amount, you have two options with respect to claiming attendant care expenses and the disability amount. You can either:
1. Claim the disability amount and attendant care expenses up to a maximum of $10,000 and $20,000 in the year of death. Any unused portions can be transferred to your spouse or supporting person; or
2. You can choose to not claim the disability amount, and with this route you are not limited to the amount of attendant care expenses you can claim.
So, which option do you choose? Well, if your attendant care expenses are in excess of $17,677 ($10,000 limit plus $7,677 disability amount for 2014) then it’s, more likely than not, more advantageous to claim the attendant care expenses. If that’s the case, then the disability amount cannot be claimed by the taxpayer or anybody else.
Nursing home expenses
Amounts paid for full-time care in a nursing home can also be claimed. Also, there’s no limit on the maximum amount that can be claimed but the disability amount cannot also be claimed. In order to claim nursing home expenses, you must either qualify for the disability amount or have a letter from a medical practitioner that certifies you need full-time attendant care due to a mental or physical infirmity, and you will likely continue to be dependent on others for the long-term.
If you maintained a dwelling during the year and your or your spouse or common-law’s parent or grandparent age 65 or older lived with you, you can likely claim the caregiver amount (2014 – $4,530). Depending on the net income of the parent or grandparent, the credit may be phased out partially or entirely. More specifically, for the 2014 taxation year, the credit begins to be reduced when their income is $15,472 and is entirely phased out when their income is $20,002.
But wait, there’s more. If you qualify to claim the caregiver amount and the person you’re caring for qualifies for the disability amount, then you can have their unused portion transferred to you. If you cannot claim the caregiver amount because of the individual’s income being too high, it’s still possible to claim any of their unused disability amount.
The caregiver amount doesn’t only apply to individuals who are age 65 or older. You may also be able to claim the caregiver amount if you maintained a house where you and a dependent relative lived if the dependent was age 18 or older and dependent upon you as a result of a mental or physical infirmity. Qualifying dependents include your child, grandchild, spouse or common-law partner’s sibling, niece, nephew, aunt or uncle.
Wills and estate planning
This is a large and complex matter. So much so that I’ve chosen not to discuss it in detail here but will do so in a future writing.
Planning beyond the basic estate plan is an option that exists and is too often overlooked.
This planning is done with a much longer time frame. Planning beyond the basic estate plan is an option that exists and is too often overlooked. Putting some thought and time into it upfront allows you to reduce estate taxes, create a legacy and protect your assets.
Caveat: The information in this publication is current as of the time it was written. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Deuzeman & Associates to discuss these matters in the context of your particular circumstances. Deuzeman & Associates does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.