Apply Now For The DTC And Collect $600

The federal government has just introduced Bill C-20 which will give everyone who is eligible for the Disability Tax Credit (DTC) $600. This money is non-taxable and will be sent automatically to anyone who qualifies.

What if my Child does not qualify for the DTC?

You will have 60 days following royal assent (which should be coming very shortly) to apply for the DTC and receive the payment. The processing time for the DTC will likely be longer than 60 days but you only need to submit the application in time.

What if we are still waiting for the Provincial Autism Assessment?

The criteria to qualify for the federal DTC is not the same as qualifying for provincial benefits. Please read my guide Autism and the T2201 for more detailed information.

Are there any traps I should be aware of?

The T2201 will need to be signed by a qualified practitioner. I would not recommend your family doctor as it is a specialized form. Most doctors will not know how to correctly complete the form for a child with autism. Once again, please read my guide Autism and the T2201 for more information. Make your appointment now! Do not delay the process.

Do not mail in your application. Use the CRA My Account to submit your application and avoid postal delays.

Claim Private School Tuition as a Medical Expense

Did you know that school tuition may be claimed as a medical expense?

If your child qualifies for the Disability Tax Credit because of a mental or physical impairment and you need the equipment, facilities, or staff specially provided by that place for persons with the same type of impairments, you may claim the entire amount as a medical expense.

If your child does not qualify for the Disability Tax Credit, all is not lost. An appropriately qualified person may certify in writing the school is necessary for the reasons listed in the previous paragraph. The appropriately qualified person may be a medical practitioner, principal of the school or the head of the institution or other place.

Save Those Summer Camp Receipts!

Summer Camps receipts may be used for the Child Care tax deduction so hang on to them!

Refresh my memory.  What is the Child Care Tax Deduction?

If you pay someone to care for your child so you can earn an income or go to school, you may be able to deduct these costs from your total income. This is often more valuable than a simple tax credit.  For more information refer to my page Child Care Expenses.

As a reminder, the lower income spouse may claim up to $11,000 per child if they qualify for the Disability Tax Credit (DTC). In addition, the normal age limit of 16 does not apply assuming the child is dependent on you or your spouse.

What summer camp receipts are eligible?

Day camps and day sports school may be claimed in their entirety towards your Child Care limit.  Overnight camps on the other hand may only be claimed up to a maximum of $275 per week, if your child qualifies for the DTC.

You may also claim caregivers providing child care services, day nursery and day child care centers.

Anything else?

Remember if someone else pays the bills (i.e. the Autism Funds Unit) you cannot claim it as an expense.

The Canada Caregiver Amount

The Family Caregiver Amount has now been incorporated into the Canada Caregiver Amount. It is a good move on the part of the feds as it was an admittedly confusing credit. The different names led people to wonder if they should claim more than one caregiver credit.

The Canada Caregiver Amount is for people who have a spouse or common-law partner, or a dependant with an impairment in physical or mental functions. They now share a common name but you will claim the credit on different lines in your tax return:

For your spouse or common-law partner, you may be entitled to claim an amount of $2,150 in the calculation of line 303. You could also claim an amount up to a maximum of $6,883 on line 304.

For an eligible dependant 18 years of age or older, you may be entitled to claim an amount of $2,150 in the calculation of line 305. You could also claim an amount up to a maximum of $6,883 on line 304.

For an eligible dependant under 18 years of age at the end of the year, you may be entitled to claim an amount of $2,150 on line 367 or in the calculation of line 305.

If you have more than one child with an impairment in mental or physical functions, you may claim $2,150 for each of them.

Note that unlike other credits discussed on this site, you do not necessarily need an approved T2201 Disability Tax Credit Certificate to claim this.

You must have a signed statement from a medical doctor showing when the impairment began and what the duration of the impairment is expected to be. For children under 18 years of age, the statement should also show that the child, because of an impairment in physical or mental functions, is dependent on others for an indefinite duration. This dependence means they need much more assistance for their personal needs and care compared to children of the same age. For your convenience, there is a sample letter on my Files page, which you can complete before the doctor’s appointment and present to him/her for a signature.

A doctor’s letter is not required if the child has an approved Form T2201 Disability Tax Credit Certificate from the CRA for the specified period.

 

BC Home Renovation Credit

Last year I wrote about the Federal Home Accessibility Tax Credit and neglected to mention that BC also has a Home Renovation Tax Credit.

The BC Home Renovation Tax Credit originally was for seniors, but as of 2016 it was extended to families with a member who qualifies for the Disability Tax Credit. Eligible renovations include work done after Feb 16, 2016 to:

  • improve access to the home or land,
  • improve mobility and functions within the home or land, or
  • reduce the risk of harm within the home or land.

The credit is worth 10% of the renovation cost to a maximum value of $1,000 for $10,000 worth of renovation costs.

Can you claim this in addition to the federal Home Accessibility Tax Credit?

Yup! Just to be clear, you may claim the same receipts for:

  • The federal Home Accessibility Tax Credit ($10,000 x 15%)
  • The BC Home Renovation Credit ($10,000 x 10%) and
  • A medical expense tax credit (with both federal and provincial components), although this is only for mobility issues

Can we claim this credit for 2016 if we have already filed our return?

Yup! Use the form T1-ADJ which is a simple one page form to claim this credit.

How do I claim this?

Visit Home Renovation Tax Credit for Seniors and Persons with Disabilities for more information.

T2201 Guide Version 4 Released

Form T2201 is the linchpin for The Disability Tax Credit (DTC). I cannot begin to describe how important this form is to our families.  Unfortunately some new political realities are making it more difficult for families to apply.

A successful filing of the form T2201 will set your family up to apply for:

  • The Disability Tax Credit
  • The Child Disability Benefit
  • The Home Buyers Amount
  • Additional qualifying medical expenses
  • Home Accessibility Tax Credit and
  • Most importantly, the Registered Disability Savings Plan (RDSP)

It appears that the rejection rate is on the rise.  We have all seen the news stories of families being rejected for the DTC, even if they have previously qualified. At first I thought this was simply a few families who did not fully complete their forms, but it looks like it going well beyond that.

Does This Mean You Shouldn’t Apply?

No!

It does mean that you need to be even more careful about how the form is completed and how your case is presented.

As one of my favorite bloggers (Big Canjun Man at the Canadian Personal Finance Blog) likes to point out; “If you don’t apply, you will never get the Disability Tax Credit”.

The updated T2201 Guide is available for download here. There is some additional guidance how far back the disability can be back dated as well as how to deal with the changing political climate. I strongly recommend that you read the document completely before sending it to the government.  It is so much easier to deal with issues now rather than following a rejection.

Navigating services for your child with Autism is like juggling shape-shifting porcupines.  It's not easy, and you encounter a lot of pricks.

 

Did You Buy A New Home?

First time home buyers can claim a $5,000 tax credit, but what if this is not your first home?

  • Do you have a family member who qualifies for the Disability Tax Credit?
  • Is the new home more accessible to the individual or
  • Is it better suited to their needs?

If so, you qualify for the Home Buyers Amount even if this is not your first home. The $5,000 tax credit translates into $750 in your pocket.  Not bad eh?

For more information consult CRA – Home Buyers’ Amount

What if I purchased a home previously and forgot to claim it?

No problem!  That’s what the form T1-ADJ form is for.  It’s a simple one page form that my 8 year old could fill out.

 

 

The Demise of the Fitness and Arts Credit

In case you hadn’t noticed, the September 2017 BC Budget has put the final nail in the coffin for the Fitness and Arts Tax Credit.

The federal government had withdrawn these tax credits in 2016, but BC hung on with their provincial component. 2017 is now the last tax year that you will be able to claim the Fitness Tax Credit and the Arts Tax Credit (along with the $500 bonus for disabled kids).

Don’t get too excited about these credits.  If you somehow manage to claim the maximum amount ($500 plus the $500 disability bonus) you will only save $50 on your taxes.  Certainly worth doing, but hardly a windfall.

In reality these credits are only valuable to those who are back dating their tax credits for previous years.

Milburn’s Excellent Guide to Back Dating Disability Credits

So what are we talking about here?

Most of the federal tax credits that I describe on my website are based on the foundation of eligibility of the Disability Tax Credit (DTC). This is granted by the government after a successful filing of the T2201 form.

I will warn you that this is a long post.  If you are not interested in getting a substantial amount of money from the government, please stop reading now! On the other hand if you are like most humans and you like money, read on and I will provide you with some simple solutions.

Many people are unaware that the tax credits in question begin not on the day the DTC is granted, but rather the effective date, which may be many years in the past or ideally birth. Of course, as readers of my website, you obviously consulted my T2201 guide and ensured that birth was the effective date of the disability.  You did read the guide…right? If you were unaware of this, you can certainly re-apply for the DTC with updated information using the form T2201.

Once the DTC eligibility is in hand, many of the tax credits can be back dated to the effective date of the disability, but in most cases, you have to ask for it.

So, one by one, here are some of the tax credits that you can have back dated.  Please don’t dismiss this as too hard.  The process is very easy and can add up to a substantial amount of money. You can do it with only a couple of hours work and the payout can in some cases be worth tens of thousands of dollars of after tax money. Hey, I would love to get a job that pays $5,000 per hour.  Wouldn’t you?

The Disability Tax Credit

This is the only tax credit which can be back dated automatically on request.  The new T2201 form has an election (in other words…tick the box) to have the government automatically calculate the amount for you.  Why it is an election is beyond me.  Why wouldn’t someone want the the government to send them a pile of money?  The DTC is presently worth about $2,300. Multiply that by the years owing and that could turn into a lot of coin.

The Child Disability Benefit

Once you qualify for the DTC, the government will automatically calculate a back dated amount for the current and two previous tax years.  Prior to those years, you will have to make a request. To make this request is dead simple.  Write a letter to the Canada Revenue Agency (CRA) and ask that they back date this benefit to the effective date of the DTC.  It’s just that simple!

At over $2,700 per year for a low income household, this tax free benefit can add up dramatically.

Medical Expenses

All those years of tutoring or therapy can now be claimed.  Use the T1-ADJ form to make the request.  It’s a simple one page form with no calculations required. Make sure you include receipts and invoices to back this up. Refer to https://asdfunding.com/medical-expenses/ for more information.

Attendant Care Expenses

A sub-section of Medical Expenses which may include hiring a nanny for your child. Refer to https://asdfunding.com/medical-expenses/ for more information.

Fitness and Arts Tax Credit

Even though the federal government has phased out it’s program, you can still claim expenses from years past using the T1-ADJ form.  Remember that for each year of DTC eligibility, the government will add $500 to the total just because you have a disabled child. Receipts are required if you have not already submitted them. Refer to https://asdfunding.com/other-tax-credits/ for more information.

Child Care Expenses

You did hang on to your receipts from years past, right?  If so, you can now claim up to $10,000 per child eligible for the DTC. Again the T1-ADJ form is the one to use. Refer to https://asdfunding.com/childcare/ for more information.

Canada Caregiver Amount

The Canada Caregiver Amount (which now incorporates the Family Caregiver Amount) can be back dated to 2012 (the inception of the credit) or the effective date of the DTC, whichever is later.  No receipts are required and again the T1-ADJ form is used. Refer to https://asdfunding.com/other-tax-credits/ for more information.

Home Buyers Amount

Normally this is for first time home buyers, but if you purchased a home for the benefit of someone who qualifies for the DTC, then you may be eligible for this $5,000 tax credit. The purchase must be made to allow this person to live in a home that is more accessible or better suited to their needs. Once again, use the T1-ADJ form. Refer to https://asdfunding.com/other-tax-credits/ for more information

Home Accessibility Tax Credit

If you had home renovations in 2016 for the benefit of someone who qualifies for the DTC, you may claim up to $10,000 of expenses.  Refer to this post for more information.  Once again use the T1-ADJ.

Receipts

Receipts must be supplied to back up your claims for the following credits/deductions:

  • Medical Expenses
  • Attendant Care Expenses
  • Fitness Tax Credit
  • Arts Tax Credit
  • Home Accessibility Tax Credit
  • Home Buyers Amount
  • Child Care Expenses

Normally when filing a tax return, you would not include receipts, but rather hold on to them in case CRA asks for them.  In this case as you are filing for past credits, you must include them in your letter.  Make sure that they are broken down by year and category.  It should go without saying, but if you don’t have the receipts, don’t claim the credit.

Registered Disability Savings Plan (RDSP)

OK, so this is a little bit different than the tax credits referred to above, but no less valuable. The RDSP grants and bonds from the government (read that as free money) can be back dated to the effective date of the DTC.  All you have to do, is open the RDSP.  The Disability Savings Bond (up to $1,000 per year) will automatically be back dated. To receive back dated Government Saving Grants, you will have to make appropriate contributions to the account.

That sounds like way too much work!

I agree! Two hours of work to receive thousands or even tens of thousands of dollars is completely unreasonable. Fortunately, Milburn has created an easier solution for you!

It turns out that you don’t actually have to use the form T1-ADJ.  You can just write a letter instead.  Too much work still?  No problem! I have created a template letter in docx format that you can download here and send to the CRA.  You’re welcome!

Anything Else?

For God’s sake don’t pay anyone to do this for you.  So called “Disability Agencies” will charge you an exorbitant amount to do what you can easily do yourself.  Don’t even call them for a quote, unless you enjoy being harassed to use their services.

What next?

Once you have completed all of the above, there are three very important steps that you must do:

  1. Firstly, congratulate yourself for being so clever.
  2. Secondly, go out and celebrate your good fortune.
  3. Thirdly, post your experience on whatever parent message board you are using.  Let other parents know how valuable this is and encourage them to do the same.

Last Minute Tax Tips

Are you waiting for the last possible moment to file your taxes?  Welcome to the club.

As a quick reminder, remember to claim the following autism specific items on your taxes (assuming you have a valid Disability Tax Certificate):

Who should claim the credits?

Refer to this page for a quick refresher

Home Accessibility Tax Credit

Did you have home renovations during 2016 to:

  • Allow a qualified individual to gain access to, or to be mobile or functional within your dwelling, or
  • Reduce the risk of harm to the individual within the dwelling or in gaining access to the dwelling?

If so, you may be eligible to claim a tax credit (15%) on up to $10,000 worth of renovations. For more detailed information consult CRA – Line 398 Home Accessibility Expenses

Who is a qualified individual?

An individual who is eligible for the Disability Tax Credit (DTC) for 2016.

Who can claim this tax credit?

  • A qualified individual, or
  • An eligible individual (for our purposes, someone who is entitled to claim the disability amount for the qualifying individual)

What is an eligible dwelling?

A housing unit that is owned by the qualifying individual or by the eligible individual.

Eligible Expenses

  • Expenses are outlays made or incurred during the year that are directly attributed to a qualifying renovation and must be for work performed and/or goods acquired in the tax year.
  • For work performed by yourself, you may claim materials, plans, rentals and permits. You may not however claim your own labour or tools as expenses.
  • For work performed by a family member, the expenses are not eligible unless the person is registered for GST/HST.

What are some examples of work are applicable to a child with autism?

  • A fence to contain a child with elopement issues
  • Modifications to the structure to contain a violent or aggressive individual
  • Floors that may lessen the risk of injury

What can’t be claimed?

  • Maintenance
  • Appliances
  • Financing
  • Home entertainment systems
  • Renovations meant to increase the value of the home

Can you double dip?

YES! For those who qualify for renovation costs as a medical expense, both the Home Accessibility Tax Credit and the Medical Expense Tax Credit may be claimed for the same expense. Keep in mind however that the Medical Expense is only for those with mobility issues.

Can you triple dip?

Sure, why not? If you acquired the home for the benefit of a related person who is eligible for the DTC you may be able to claim $5,000 via the Home Buyers Amount even if it is not your first home. The stipulation is the home must be purchased to allow the person with the disability to live in a home that is more accessible or better suited to the needs of that person. Refer to CRA – Home Buyers Amount for more information.

Bill C-462 – Dead on Arrival

Tweet For those of you unaware Bill C-462 the Disability Tax Credit Promoters Restrictions Act ,was passed into law and received Royal Assent (2014-05-29) . Limits are needed for DTC Consultation Firms (link to CBC article on the act) This Disability Tax Credit Promoters Restrictions Act summary This enactment restricts the amount of fees that can…

via Bill C-462 : Protecting Disabled Canadians or a Paper Tiger ? — Canadian Personal Finance Blog

Fitness and Arts Tax Credit

Sadly 2016 is the last tax year that we will be able to claim the Fitness and Arts Tax Credit. They were popular tax credits among parents with disabled children as there was a supplemental credit of $500 for children eligible for the Disability Tax Credit.

Fitness Tax Credit

The maximum eligible amount that may be claimed for 2016 has been reduced to $500 (down from $1,000). The supplemental $500 figure remains intact.

For those who have not claimed this credit before, the amount is increased by $500 as long as at least $100 claimed.  In other words, if you have $200 worth of eligible receipts, the claimed amount would be $700. Most tax software will automatically add the $500 supplement as long as you have indicated that a T2201 has been filed.

Arts Tax Credit

The maximum eligible amount for 2016 has been reduced to $250 (down from $500). The $500 supplement remains intact and works the same as for the Fitness Tax Credit.

The Future

Both of these tax credits will be eliminated for 2017 and sadly the $500 supplement will disappear at the same time.  The Federal Government has not announced any changes that will make up for this loss.

It is true that for most kids there will be an increased amount through the new Canada Child Benefit. This is fine for a typical kid, but there is nothing now to recognize the high barriers that we have getting our children into sports and arts classes.

The New Disability Tax Credit Certificate

Last year Canada Revenue Agency (CRA) held consultations across the country regarding the Disability Tax Credit (DTC) program. The welcome changes involve a simplified Disability Tax Credit Certificate Form T2201 and the method of claiming adjustments to the Disability Amount for previous years.

Some highlights include:

  • The form is reduced from 12 pages to 6
  • Detailed instructions are now moved to the Form RC4064 – Disability Related Information
  • Added a new section to allow for adjustment for previous tax years
  • Added more space for “Effects of Impairments”
  • Added a gentle hint for each mandatory section by labeling it “Mandatory
  • Shortened some sections for clarity
  • For each type of impairment, CRA has added who may certify that section

All these changes are most welcome and will simplify the process for new applicants. The basic premise of DTC application has not changed and advice from other parents who have completed the process remains largely intact.

My detailed T2201 Guide has now been amended. I strongly recommend that you download and read this guide prior to making your initial application.

Tax Changes for 2015

There are a few minor tax changes for the 2015 tax year that parents with ASD kids need to be aware of. Some of the changes are cosmetic and others may have a more substantial impact on your family finances.

Some of the changes include:

  • The Family Caregiver Amount for children under the age of 18, is now claimed on line 367 of your tax return. This tax credit is $2,093 for 2015.
  • The Fitness Tax Credit used to be a non-refundable tax credit, but starting with the 2015 tax year becomes a refundable tax credit. In essence, this means your tax payable for the year can be reduced below zero. Unlike previous years, you may now claim up to $1,000 and if your child is eligible for the Disability Tax Credit (DTC) and provided you spend at least $100, you may add an additional $500 to the total. If you are using tax software (highly recommended), it will automatically add the $500 as long as it knows your child qualifies for the DTC.
  • The Child Tax Credit (this is the base tax credit for all children) has been replaced with an enhanced Universal Child Care Benefit (UCCB) which gives a new benefit of $720 per year for children ages 6 to 17. It’s important to note that this is taxable, so be ready for a tax bill (or a decreased tax refund).
  • For those of you with disabled teenagers, a gentle reminder that you should file tax returns on their behalf starting for the year that they turn 17 (and every year thereafter). This is vitally important for their Registered Disability Savings Plan (RDSP) grants and bonds when they turn 19. The Canada Revenue Agency (CRA) considers the amount of income 2 years prior to the current tax year to calculate government contributions.
  • The Disability Tax Credit for 2015 is $7,899 and the disability supplement for persons under the age of 18 is $4,607. As in previous years, the supplement may be reduced if someone claimed Child Care or Attendant Care expenses. I strongly suggest that you use tax software for this calculation.
  • There are some changes to the T2201 Disability Tax Credit Certificate and how to claim for previous years. I will be expanding on this subject next week.

Time to Re-apply for the Disability Tax Credit Certificate

Let me preface this post with a thank you to Milburn Drysdale at ASDFunding.com (or Autism Funding in BC for Dummies) his documentation is what we based most of this work on, and if anyone asks you, they should check out his site before you read anything over here about Registered Disability Savings Plans for Disability Tax Credits. I’d…

Source: Time to Re-apply for the Disability Tax Credit Certificate

Child Care vs Medical Expense – Part 4

Last week we saw how claiming either child care or medical expenses may be more advantageous for different families. Now I will give you some simpler guidelines to use for your situation:

  • The first and foremost tip is to use tax software such as TurboTax or Ufile.  Use the software purchased for the previous tax year to examine scenarios for your family.  This will allow you to decide if you want to claim child care or medical expenses for this year.
  • Change the variables in the software to look at the tax savings available to you. One change can so dramatically change the outcome that you can’t reliably use a simple calculator for the problem.
  • When you file your tax using tax software, complete all your entries and just prior to filing, switch the medical expenses from one partner to another to see which is the most advantageous.
  • Remember to examine the total tax owing as a family instead of focusing on one return.
  • If the difference between the two is minimal, you may wish to simplify your filing by claiming only one category.
  • If your total tax owing for the year will be below zero, you may wish to consider the refundable medical tax credit.  Your tax software will calculate this automatically.
  • If you are in a higher income tax bracket, it is a no brainer to claim child care expenses.  Not only is your marginal tax rate higher, but you may also increase the “Family Tax Cut” savings.
  • Have a good look at your non-refundable tax credits on your tax schedule. If they are higher than your tax owing, they are going to waste as you can’t reduce your tax to less than zero using non-refundable credits.

If this is all too hard, don’t beat yourself up.  If you claim either expense, you are saving tax. This is something a lot of people aren’t doing and you should give yourself some credit. Well done and keep up the good work.

Child Care vs Medical Expense – Part 3

Continuing from our discussion last week regarding the merits of claiming child care expenses vs claiming medical expenses, we look at some actual results. It may be too technical for some of you, but please persevere as I will provide some simple solutions. I will use the example of the following fictitious family:

  • A higher income spouse
  • A lower income spouse
  • One child who qualifies for the Disability Tax Credit (DTC)
  • $2,000 in medical expenses other than ABA Therapy or child care
  • $10,000 in expenses which can be claimed as either child care or medical expenses

The following rules were applied to each scenario:

  • Only 2/3 of the lower income could be applied towards child care to a maximum of $10,000 (2014)
  • The higher income claimed the DTC
  • After reaching the end of each scenario, I used TurboTax to decide who should claim the medical expenses

It is virtually impossible to create a formula or spreadsheet to decide which one to claim because of the huge number of variables. Instead I will list some examples in the table below using TurboTax 2014. The lowest tax owing figure is highlighted in green.

Higher Income Lower Income Combined Income Tax Owing using child care Tax owing using   medical expenses Difference
$20,000 $20,000 $40,000 -$200 -$427 $227
$30,000 $10,000* $40,000 -$717 -$427 $290
$40,000 $10,000* $50,000 $342 $448 $106
$40,000 $20,000 $60,000 $2,493 $1,818 $675
$40,000 $40,000 $80,000 $6,091 $6,245 $154
$60,000 $40,000 $100,000 $10,957 $11,633 $676
$80,000 $30,000 $110,000 $13,766 $14,846 $1,080
$80,000 $40,000 $120,000 $16,852 $17,707 $855

*Only 2/3 of the lower income could be applied to child care so the remainder was added to medical expenses

Why is it in the first 4 examples, it could be either child care or medical expenses being more advantageous?

  • A child care claim may indeed reduce an individual’s net income, but it may lower it to the point that non-refundable tax credits are going to waste as they can’t reduce tax below zero
  • A child care claim may lower net family income to the point that the refundable medical expense (one of the few ways to reduce your tax below zero) becomes the greater advantage
  • The medical expense claim may be advantageous if tax owing is kept above zero for both persons. The combined federal and provincial credits may reach approximately 20%

In the $80,000/$30,000 example, claiming the $10,000 as child care saves you $3,086. That is a 30.9% tax savings which is well above the marginal tax rate. Why is that?

  • I admit that this was a head scratcher for me. It took some digging, but the reason is, lowering the net income of one partner increased the “Family Tax Cut” which is the fake income splitting introduced in 2014.

This is all very technical, but next week I will suggest some easy to follow “Rules of Thumb” that you can use to maximize your tax savings.

Child Care vs Medical Expense – Part 2

When it comes time to claim expenses on your tax form, should you claim child care or medical expenses?

A bit of background first.  If you have BI’s caring for your child and you control the invoices, you have the option of putting either “Child Care” or “Tutoring” as the service rendered. Conventional wisdom says that you should claim child care expenses to the maximum allowable ($11,000 for 2015) and the remainder as “Tutoring” which is a medical expense.  The logic is that child care is a tax deduction (much like an RRSP) while medical expenses are only a tax credit.

It sounds logical, but is it true?

The answer is more complex than most people realize. Let’s have a look at the pros and cons of each claim.

Firstly child care:

  • It’s a tax deduction which reduces your taxable income
  • You may claim $11,000 (for 2015) or 2/3 of the income of the lower income spouse, whichever is less
  • The Disability Tax Credit (DTC) supplement will be reduced if you claim Child Care in excess of $2,654 (2014 figure) or $2,507 without reducing the provincial supplement.

Next medical expenses:

  • Firstly the non-refundable tax credit (i.e. it can’t reduce your tax below zero)
    • Only expenses in excess of $2,208 (2015) or 3% of your net income whichever is less, can be claimed
  • Refundable Medical Expenses (i.e. it can reduce your tax below zero)
    • For 2015 the maximum supplement is the lesser of $1,172 or 25% of medical expenses.
    • This is reduced by 5% of combined net in excess of $25.939. It is eliminated when combined net income reaches $49,379
  • Many people focus on the 15% federal tax credit rate and don’t realize that there is also a provincial credit which may add another 5% to the total.

Next week, the answer that completely shocked me

 

Child Care vs Medical Expense – Part 1

I received an email recently from a reader asking about child care expenses. I’ve copied it below:

Hi Milburn,

Long-time fan and avid user of your website. You might recall that we have emailed a few times over the years too.

I have a question about claiming childcare costs properly on my annual taxes. Since our team of BIs primarily work 1-1 with my son, I have only been claiming those hours as childcare. For example, I don’t think a team meeting of 4 individuals would qualify as childcare.

The other monthly BI costs are related to attending team meetings, materials prep and occasional phone call with me.

I have been issuing a separate monthly receipt labelling these costs as “other intervention services” and not claiming them on my taxes. However I’ve started to think that these activities may qualify as “tutoring services” under the medical expense tax credit. Although these activities are not directly involving my son, they are valuable to his long-term care and development.

What are your thoughts on my approach for claiming these monthly activities under these categories?

I’m sure this differentiation and clarity would be helpful to your readers.

Much appreciated,

And my response:

Hi xxxx

Good to hear from you again.

Firstly, you are on the right track by claiming child care expenses before medical expenses.  You may qualify for child care claims if:

  • You and your partner are working
  • You are going to school
  • You are single or
  • You are carrying on research or similar work.

Child care is a tax deduction (much like an RRSP) and will often provide a greater tax reduction than medical expenses which is a tax credit. This is especially true if you are in a higher income tax bracket.

When I create an invoice and receipt for my BI’s, I ensure that the service listed matches what I want to claim on my taxes.  If I qualify for child care claims, that is what the receipt and invoice will show.

Team meetings and overlaps are all part of the process and I don’t believe that a knowing person would suggest that this is improper.  To keep the bureaucrats happy, we will keep things clear and not give them details that they don’t understand.  The service provided should indicate “Child Care” and nothing else.

Once you have reached the $11,000 limit for child care (assuming your child qualifies for the Disability Tax Credit) you no longer need child care receipts.  I suggest that the service now indicate “Tutoring” which is claimable as a medical expense.  The only point here is that you need a doctor’s letter indicating the need for such services.  Once again, do not put extra detail on the invoices and receipts as this will only confuse CRA.

Hope this helps

Regards

Was my advice correct? Is it better to claim child care or medical expenses? The answer turns out to be more complex than one might imagine.

Next week, I will dive into the topic and you might find the answers surprising.

New Medical Expense Tax Category

A new medical expense category for the 2014 tax year is the “Personalized Therapy Plan”. In a nutshell this is what you can use to claim expenses paid to your Behaviour Consultant (BC).

In years past, I recommended that you tailor invoices for your Behaviour Interventionists (BIs) and call the service rendered as “tutoring”. This advice still holds true, but for your BCs (who always write their own invoices) you can now file your medical expenses using this new category.

There are a few conditions to claim expenses as a “Personalized Therapy Plan”:

  • The plan has to be designed for someone who is eligible for the disability tax credit
  • The payment is made to someone who is in the business of providing such services to unrelated persons
  • The therapy has to be prescribed and supervised (in the case of a mental impairment) by a medical doctor or a psychologist
  • The plan has to be needed to access public funding for a specialized therapy (as in BC Autism Funding )

Tax Software Checkup

Did your tax software give you the credits and deductions that you planned? It’s not always that obvious, especially for people new to the world of disabilities.

To begin with, I have attached a table of who should claim the different credits and deductions. As you enter your data into your preferred tax software, check off each item that is applicable to you as you enter it.

Remember no matter what software you are using, you need to tell the program a few basic things about your family:

  • The disability status (i.e. T2201) of your child
  • Who will claim the disability amount transferred from a dependant
  • It’s best to complete both spousal returns at the same time to ensure all credits are accounted for and medical receipts assigned to the correct spouse (good software will assist in this task)
  • Who will claim child care, if at all (generally it will be the lower income spouse)

Once your taxes are complete, refer to the next checklist (Post Tax Checklist) to give your tax preparation a mini “audit”.

Attachments:

Which Spouse should claim or receive funds

Post Tax Checklist

Tax Software Face Off

Why should you use tax software? As the parent of a disabled child there are a lot of extra credits and deductions available to you. Not all of them are straightforward. Many of the credits interplay with other credits. For example, attendant care expenses and child care may reduce the disability tax credit supplement. The fitness tax credit and the children’s arts tax credit add $500 to the total as long as you spend at least $100 in either category. In addition there is the family tax cut (not a disability related item) which I understand has as many as 85 individual steps to follow. The days of doing your taxes on paper are quickly coming to an end.

I normally use the most popular tax program in Canada which is TurboTax. It has worked well for me and it’s easy to understand. This year however, for the first time some of the leading tax products are offering their software for free.

Foremost among them is H&R tax. Their online product is now free with no restrictions. I tried it out for comparison sake and whilst I found it worked, I had to make three passes through the data entry before it accepted everything I entered. It’s not quite up to the level of TurboTax in terms of user-friendliness, however you cannot get cheaper than free. Other free programs are available (click here for the full list).

I gave another free product, SimpleTax a run through and found it interesting. It’s a pay by donation product ($0 if you wish). I don’t recommend this product especially for people filing disability claims for the first time. Many of the entries required a manual input of tax credits which may be slightly beyond the capabilities of first time filers.

For me, TurboTax is still the product to beat. It has a step by step procedure and offers extensive help for every entry point. You can buy it just about anywhere (I picked up my copy at Costco for about $28). The online version is $18, but you will pay extra for a spousal return. The CD version will process up to 8 returns.

The free software presents an ideal opportunity for some parents to test their tax capabilities. If you are nervous about your taxes and insist that an accountant do them for you, this is your chance to find out what you can do. Once the accountant completes your taxes, use some of the free software to do it yourself and compare the result. Maybe this will give you the confidence to take over next year.

The big question is how do you know if your chosen product has correctly processed all the disability related items?

Next week I will post a simple tax preparation checklist for you to follow to ensure you are getting your entitlements.

Family Caregiver Amount Update

The Family Caregiver Amount (FCA) is a tax credit for families caring for a child with mental or physical impairments. The credit for the 2014 tax year is $2,058 which equates to a tax savings of $308.

In previous tax years it was a requirement to obtain a doctor’s letter to confirm that the child is dependent on others for an indefinite duration. This is no longer a requirement if the child has an approved T2201 Disability Tax Credit Certificate from the Canada Revenue Agency for the specified time.

This is a most welcome and obvious solution.

For more detail refer to my page Other Tax Credits

Private School As A Medical Expense

Did you know that you may be able to claim the expenses for private school as a medical expense? If the school is required due to a physical or mental impairment, you may apply to the Canada Revenue Agency (CRA) to have the fees considered a medical expense.

Big Cajun Man of the Canadian Personal Finance Blog has a detailed article on how you may be able to claim these expenses.

I have copied his template letter to the CRA and added it to my files page.

Disability Tax Credit: Please Do It Yourself

Here is another article from the Big Cajun Man, author of The Canadian Personal Finance Blog entitled Disability Tax Credit: Please Do It Yourself .

It is a good reminder to all to stay away from the online “Disability Experts” who want to take your money and leave you with no value added.

T2201 Guide Version 2 Released

Those of you about to file a T2201 (Disability Tax Credit Certificate) for the first time would be well advised to review the T2201 Guide.  It outlines some of the errors that parents and their doctors make as well as answering many frequently asked questions.

Version 2 includes a sample “Impact Statement” written by one of our keen parents. It provides guidance for doctors who are struggling for words or possibly a complete statement for the medical professional. It should not be copied, but it provides a starting point for a parent who needs to describe their child’s disability.

The pdf can be downloaded from my Files page.

TD1 – Reduce Your Income Tax Deductions

What is a TD1?

This form will assist your employer to determine the amount of tax to withhold from your pay. This form is mandatory for new employees and should be updated when there is a change in your circumstances.  As the parent of a disabled child qualifying for the Disability Tax Credit you will elect to have these tax credits reduce your regular income tax withheld.  The alternative is to effectively give an interest free loan to the government as you wait to have these amounts refunded after you file your income tax return.

Where do I get these forms?

They will either be supplied by your employer or you can download them at TD1 Forms for 2014

What should I claim?

Firstly under Line 2 you will claim $2,255 for each child and $2,058 for your infirm child. The latter refers to the Family Caregiver Amount that you will claim on your tax return.

On line 12 you will claim $7,766 for 2014. This is for the “Disability Amount Transferred from a Dependent”. You could claim the disability supplement but this will be reduced if you claim child care or attendant expenses.  Best to be safe and leave it at $7,766. Likewise on the provincial TD1BC form you would similarly claim $7,402 on Line 11.

Prepare Your Own Therapy Invoices And Save $$$

Who creates the invoices for the therapy provided for your child? The Behaviour Consultants (or agency) will generally submit an invoice on a monthly basis for the Autism Funds Unit (AFU) or direct payment from you. But what about your Behaviour Interventionists (BI’s)? You should take on the responsibility of making the monthly invoice. Why?

  • It gives you more control over the type of services rendered (more on that below)
  • If you leave it to your BI’s, they will get it wrong
  • You will be more aware of the hours that are being billed
  • It will reduce fraud
  • You need to closely track how funds are dispersed

I have my therapists complete a hand written time sheet which are collected at the month end and used to create the invoices that will be submitted to the AFU or held for tax purposes. I track the AFU funds on a spreadsheet or hand written table to ensure funds are available and set aside for that therapist. It sucks away team morale if the BI’s aren’t paid because you weren’t paying attention to how much was in the account.

You must pay particular attention to the “services rendered”. Firstly the AFU has specific terms they want used. Do you think they are going to pay for a particular day if the BI enters the service rendered as “Bike riding with little Johnny”? I think not! For a more detailed discussion of terms that should be used for the AFU invoice refer to the ACT Autism Manual for BC Chap 5.

After the AFU funds are used, you need to think about taxes. Services that can be claimed include:

  • Tutoring
  • Child Care
  • Attendant Care

Therapists who construct the invoices themselves have no awareness of your tax situation and will screw it up by entering services such as:

  • Overlaps
  • Team Meetings
  • Training
  • Travel
  • Materials expenses

All of the above services are ineligible for tax purposes and hence the need for you to control the invoices.

So how would this work for you? For starters, you may want to claim funds from the AFU to the $22,000 (or $6,000) limit. Once those funds are exhausted and both parents are working (and hence eligible to claim child care expenses) you will create invoices listing “Child Care” as the service provided. Remember you can claim up to $10,000 (assuming the child qualifies for the Disability Tax Credit). This is a tax deduction and will usually provide the best tax refund. After these limits are reached you can then assign the rest of the therapy as “Tutoring” which is a medical expense.

If you have a live in domestic helper, the same principles apply. Firstly use the $10,000 child care expenses and then apply the rest to “Attendant Care” which will be added to the medical expenses.

Are you starting to see why you should create your own invoices and receipts? It’s your money and no one better than yourself understands what you should be claiming. Remember that each invoice should be matched with a proper receipt with the required information.

Now you could ask your BI’s to make their own invoices using certain rules, but I guarantee they will screw it up. You will then expend twice the effort to correct their mistakes. It’s much easier to do it right the first time.

I have provided some examples in my Files page of invoices you can create. It can be hand written in table format (keep it neat!) or constructed using a spreadsheet (my personal favourite).

GST Reminder

The Federal budget of 2008 promised that autism services would be exempt from GST. The reality thus far has been mixed. Without getting into all the technical details, the bottom line is that some Behaviour Consultants are continuing to charge GST on their invoices.

We have some people in the autism community who have been working with the federal government to resolve this, but the wheels of government turn very slowly.

In the meantime you can apply for a refund of GST paid to Behaviour Consultants during the previous two years. The process is detailed here. The two year window counts back from the time they receive your paperwork at the GST center. Realistically you can’t do it every two years and get all of your money refunded because of the time constraints.

I recommend once a year, gathering your paperwork and sending in for a refund. To me this strikes the best balance between getting your money back and not being overly burdened with paperwork.

We all truly hope this will be a temporary solution and the federal government will live up to it’s commitment in the 2008 budget to exempt autism services from the GST. Standby for further!