Tag: Tax

Multi-Generational Home Renovation Tax Credit

Do you have a disabled child who is aging out and want to keep them at home? Perhaps you are considering a basement suite or something similar? Help is now here!

Starting in the 2023 tax year, a new tax credit is being introduced to help families add a secondary unit to their home for the purpose of allowing an immediate or extended family member to live with them. The family member must be a senior or an adult (age 18 or older) with a disability. A disability is defined as qualifying for the Disability Tax Credit at any time during the year.

This new credit will provide 15% tax credit on expenses of up to $50,000 or in other words, up to a $7,500 tax refund.

The secondary suite must be for a related adult over the age of 65 or an adult with a disability, including a grandparent, parent, child, grandchild, sibling, aunt, uncle, niece, or nephew. The suite must be self-contained and include a separate entrance, bathroom, kitchen and sleeping area. The unit must be inhabited or reasonably expected to be inhabited within 12 months after the renovations are completed.

Appliances, repairs, maintenance, security, financing costs, housekeeping or other services do not qualify for the credit. If you do the work yourself, you may not claim the labour as a cost, but you may claim permits, building materials, fixtures, plans and equipment rentals. If a family member or friend performs the work, you may claim their labour as an expense only if they have a GST/HST number.

The tax credit may be claimed by a person who lives in the house within 12 months of completed renovation and is:

  • An eligible person (the senior or the adult with a disability) or,
  • A spouse of the eligible person or,
  • A qualifying relation of the eligible person, who owns the dwelling

Expenses claimed for the Multi-Generational Home Renovation Tax Credit may not also be claimed as a Home Accessibility Tax Credit or a Medical Expense Tax Credit.

Refer to the CRA site for more detailed information.

Updated Home Buyers Amount

The Home Buyers Amount tax credit is normally for first time buyers, however if you acquired the home for the benefit of a related person who is eligible for the disability amount, you may claim the amount. The purchase must be made to allow the person eligible for the disability amount to live in a home that is more accessible or better suited to the needs of that person.

For the tax year 2022 and beyond, this tax credit has been increased to $10,000 from $5,000.

To be clear, the tax refund is 15% of $10,000 which is $1,500.

Does it only apply if this is your first home?

No! The home does not need to be for first time buyers if it was the benefit of someone with a disability.

May I use this credit more that once?

Yes! You may use this credit for different homes purchased in different years. The only criteria is that you purchased the home for the benefit of someone who qualifies for the Disability Tax Credit.

I missed applying for this in previous years. Can I still get the credit?

Yes! As long as the home purchase was made when the person qualified for the Disability Tax Credit and you purchased the home for their benefit, you may request the backdated credit.

To do this write a simple letter to CRA requesting the credit, mailing a T1-ADJ form or using Change My Return on the CRA My Account.

2021 Tax Checklist

It’s that time of the year! Are you struggling to remember all the credits and deductions that apply to Autism? Are you afraid you might let a tax slip slip? Do you want to maximize your tax refund?

This 2021 Tax Checklist is for you.

Of course, if you are concerned that retired politicians are not receiving an adequate pension, then by all means skip this checklist. I’m sure they would greatly appreciate your charity.

If you file your own taxes, this checklist will ensure you don’t miss some tax benefits.

If an accountant or tax preparer completes your taxes, complete this form and tell them what you want claimed.

This checklist is intended for families with minor children with autism who may or may not qualify for the Disability Tax Credit (DTC). If you want help claiming business costs relating to your Crypto Currency investments, I am afraid you will have to look elsewhere.

2020 Tax Checklist

Too many tax credits and deductions to remember? Are you afraid you might let a tax slip slip? Do you want to maximize your tax refund?

The 2020 Tax Checklist is for you.

Of course, if you are concerned the government does not have enough corporate jets, then by all means skip this checklist. I’m sure they would greatly appreciate your charity.

If you file your own taxes, this checklist will ensure you don’t miss some tax benefits.

If an accountant or tax preparer completes your taxes, complete this form and tell them what you want claimed.

This checklist is intended for families with minor children with autism who may or may not qualify for the Disability Tax Credit (DTC). If you want help claiming business costs relating to your foreign mining exploration in Botswana, I am afraid you will have to look elsewhere.

Combine Your Child Care Expenses

Did you know you may combine all the allowable child care expenses for your family and use them for only one child?

Neither did I! I cannot believe that in all the years of giving tax advice, I did not know this.

Let’s walk through an example:

Your family has 3 children: Robert 15, Adrian 13 and Deborah age 11. Deborah also qualifies for the Disability Tax Credit. The family limit for Child Care Expenses is $21,000 ($5,000 + $5,000 + $11,000). Visit TaxTips.ca for a detailed breakdown of what each child may claim.

Robert and Adrian hang with friends after school and do not need child care. Deborah has very high needs and must be supervised at all times. In this case, the family may claim up to $21,000 annually for Deborah’s child care.

Child Care Expenses are a tax deduction rather than a tax credit, so this is potentially more valuable to the family in question. Please read my page Child Care Expenses for more information.

Many thanks to Jamie Golombek of the Financial Post for bringing this to our attention.

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.

 

 

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.

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.

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.

Federal Budget 2016

I just finished reading through the 2016 Federal Budget and quite frankly they could have done better. I expected a little something for our disabled kids and unfortunately there is nothing positive.

What did we get? Nothing! In fact the government is actually reducing some of the benefits for our kids.

The Fitness Tax Credit and Arts Tax Credit will be cut in half for 2016 and eliminated for future years. Where this really hurts our kids is that we have been able to add $500 to the total as long as we spent $100. This was in recognition of the fact that our kids have high barriers to sports and arts program and frequently need supervision or training to participate. Now our kids are just like the others (as if!).

I’m disappointed with our new Prime Minister. Yes, the previous government definitely had its problems, but at least it was friendly towards persons with disabilities. Some of the enhancements on their watch included:

  • The Registered Disability Saving Plan (RDSP)
  • The Family Caregiver Amount
  • The Fitness Tax Credit with enhancements for disabilities
  • The Arts Tax Credit with enhancements for disabilities

I expected better from this government. Do they not care about the most vulnerable people in our society?

Are you annoyed? Let your local Federal Member of Parliament know about it.

Beyond that, Medicare for Autism Now (MFAN) has an initiative calling for ABA treatment to be universally accessible and covered under Medicare. This is a time sensitive issue and if you want your voice heard, go to their website and see how you can participate.

 

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

Why Your Autistic Teenager Should File A Tax Return

We discussed in previous posts why the Registered Disability Savings Plan (RDSP) is the best way to save for your child’s future. The key element to the plan is the government grants and bonds (free money!) which is added to the account. The amount added is dependant on the family income.

If the beneficiary of the RDSP is over the age of 18 then the “family net income” used to calculate the government grants/bonds is that of the beneficiary and his/her spouse. The income that will determine the grant and bond is based on the income tax return from the second preceding year. (Example: Contribution made in 2009 – net income based on the taxable year of 2007.)

In other words, to ensure your child receives the maximum entitled grant and bond he/she should file taxes starting at age 17 (even though his income may be low or even non-existent) so that the grant and bond will be based on his/her low income status.

What To Do With An Unwanted RESP

Some of us opened an RESP for our child only to later realize they will not be attending post secondary education. It’s tempting to simply collapse the RESP but there is now a better option.

For the last couple of years an option to rollover some of the funds from an RESP to an RDSP has existed. To do this one of the following conditions must be met:

  • The individual has a severe and prolonged condition which will prevent him/her from attending post secondary education
  • The RESP itself must be at least 10 years old and the beneficiaries at least 21 years and not pursuing further education or
  • The RESP itself must have been in existence for 35 years

Once one of the above conditions has been met, the rollover will happen as follows:

  • The contributions will be returned to the subscriber (i.e. the parent) on a tax free basis
  • The savings bonds and grants will be returned to the government
  • The investment income will be transferred to the RDSP
  • The transfer will count toward the lifetime contribution limit of the RDSP
  • It will not attract a matching government grant
  • The funds will be taxable on withdrawal from the RDSP in the hands of the beneficiary

What does this mean for you?

  • If you have set up an RESP don’t panic as you are not going to lose your money
  • Don’t be in a rush to collapse the RESP as you may yet find a way to use the account.

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.

Autism and Divorce – The Ugly Truth

It is commonly said that 75% of marriages that have a child with autism will end in divorce. This may or may not be true but according to Mrs. Drysdale, the other 25% are simply waiting for the right moment.

I’m not pretending to be an expert in matters of marital separation as I have not been fortunate enough to go through such an ordeal. I found researching this post to be extraordinarily difficult as the rules are vague and can easily vary based on separation agreements and court rulings. The bottom line is that if you can work together to come up with a plan you will be much better off.

An autism diagnosis and a divorce are two of the most devastating financial events that can occur to a family. With some advance planning and cooperation from the two parents, the financial implications can be minimized.

There is an excellent article in the Financial Post about how to save money in a divorce. It is a short read, but very worthwhile.

The new Family Law Act came into effect last year and many of the terms you may be familiar with have changed. The Legal Services Society has a guide to the new act which you can find here.

This brief introduction to the financial arrangements of divorce and separation is no substitute for professional advice which I strongly recommend that you seek.

The broad tax implications

For divorces (and separations longer than 90 days) after April 1997 any child support payments are not deductible by the payer and don’t have to be claimed as income by the recipient. Spousal support payments on the other hand can be claimed as a deduction by the payer and must be claimed as income by the recipient.

To identify if a payment is child or spousal support, you must look to the court order or written agreement. Any payments which are not specifically designated for the sole support of the former spouse are to be considered child support.

In order to claim a spousal support deduction, the payer must first pay all of the child support payments. Any arrears in child support payments are added to the next year’s support payments and again these must be paid before any spousal support is claimed.

Taxation of payments to third parties

Examples of payments to third parties include property tax and insurance. It is important to structure these payments properly so as to minimize taxation. In order to deduct such payments, three conditions must be met:

  • There is an agreement or order specifying that these payments are to be made for the benefit of the recipient spouse.
  • The payer and recipient are living apart.
  • The written agreement or court order specifies that the payer may deduct these payments and the recipient will claim them as income.

When to notify CRA of the marital status change?

The Canada Revenue Agency (CRA) must be notified in the month following the change of marital status. If you are separated, CRA must be notified after 90 continuous days of separation. You can use the form RC65 to notify CRA.

Canada Child Tax Benefit (CCTB)

The CCTB will be recalculated based on the new family income and will be adjusted in the month following the marital breakup. The person who resides with the child and is responsible for his/her upbringing is the one who will receive the CCTB.

It’s important to remember that the CCTB is based on family income. After the breakup of a marriage it may be advantageous for the lower income person to receive the CCTB so as to maximize the monthly cheque. A well-crafted separation agreement or order or judgment should take this into account and designate the lower income parent to be the one to claim for the CCTB.

In a shared custody arrangement if the parents:

  • live in separate locations;
  • live with the child on an equal or near-equal basis; and
  • are primarily responsible for the child’s care and upbringing when living with the child.

then the CCTB will be apportioned on a 50/50 basis.

Remember that you must continue to file an income tax return every year in order to receive the CCTB even if you have no income.

Eligible Dependent Claim

You can claim the Amount for an Eligible Dependent (AED – also known as the “single parent exemption”) if you didn’t have a spouse or common-law partner living with you and you supported a dependent and you lived in the same home as the dependent. If a parent pays child support they become ineligible for the AED. Once again a properly written agreement will specify who may claim for this amount.

Only one person can claim for an eligible dependent. If you have shared custody and both make support payments for the dependent, only one person may claim for an eligible dependent. If you can’t agree who is to make this claim, then no one can claim it.

Child Care Expenses

Both separated parents can now claim child care expenses (assuming there is no other supporting person) up to the limit for that child ($10,000 if the child qualifies for the Disability Tax Credit). However there are some caveats:

  • The expenses must be for the period that the parent has custody of the child
  • That parent must pay the expenses
  • It still must be for the purposes of:
    • Earning employment income
    • Going to school
    • Running a business
  • If both parents use the same child care provider, they must pay separately and obtain receipts to reflect the period that they had custody.

If there is a separation and subsequent reconciliation, Form T778 Child Care Expenses Deduction will guide you through the amount you can claim.

Medical Expenses

Either party may continue to claim for medical expenses provided they made the payments for a supported person. The big difference is that while married or common-law couples can pool their medical expenses to lower the tax payable, divorced or separated parents must make individual claims.

Where possible, the family’s medical expenses should be claimed by the parent with the lower income in order to maximize the medical expense tax credit.

Tax Credits and Deductions

It should be specified in the separation agreement which parent will be claiming the available credits and deductions.

BC Autism Funding

There should be no great change as this amount is not taxable. As before, only one parent may be in charge of the funds from the AFU and this is unlikely to change after a separation or divorce.

Fitness and Arts Tax Credit

Each parent can claim the fitness amount and arts amount. However, the claims cannot be for the same expenditures and the combined claim per child for each program cannot exceed the $500 limitation.

Who gets the extra $500 for a disabled child? Either parent can claim this amount as long as another person has not already claimed the same fees.

Legal Fees

You can’t deduct legal fees used to obtain a divorce, establish or contest child custody, or to divide property.

Legal fees that are deductible include:

  • To obtain child or spousal support
  • Legal fees used to collect salary or wages
  • Fees to try to make child support payments non-taxable

Personal Residence Exemption

Prior to a marital separation, only one residence per family could be used for the “Principal Residence Exemption”. This is used to exempt the property from any capital gains tax during the years that it is designated as a principal residence. Following the separation, each parent is now entitled to their own “Principal Residence Exemption” but only after:

  • One year of living apart and
  • They are separated pursuant to a judicial order or written separation agreement

A significant delay to a separation could involve a nasty tax surprise for a separated couple who each own a primary residence.

Separation Agreement

This has been a far from comprehensive guide to divorce involving a child with autism. The key point to everything written above is that you must have a clear, well written separation agreement. It should designate which parent is entitled to the child tax credits and deductions available under the Income Tax Act. This can amount to a substantial amount of money and should certainly be considered when calculating child and parental support payments.

Emotions typically run very high during this period, but it is critical to remember that a well-crafted agreement will go a long way to relieving heartache and legal bills down the road. Cooperation, not confrontation will ultimately lead to a better financial outcome for all parties.

I have always encouraged parents of children with autism to be masters of their own financial domain. Dealing with the Autism Funds Unit, applying for tax credits and deductions and managing their child’s therapy is certainly within the grasp of most people. Divorce is a different beast altogether and good professional advice is essential. At the very least, you should have a reputable lawyer draft the separation agreement. In very complicated cases you may need to enlist the services of an accountant.

I would strongly encourage any of you to share your personal experiences and tips in the comment section below.

GST/HST Relief – Budget 2014

Our pleas and lobbying efforts have now paid off.  Behaviour Consultant services will finally be exempt from GST/HST according to the budget release notes.

Economic Action Plan 2014 proposes to expand health-related tax relief under the GST/HST and income tax systems to better reflect the health care needs of Canadians.

The Government is committed to ensuring that the tax system reflects the evolving nature of the health care system and the health care needs of Canadians. Economic Action Plan 2014 proposes measures that will expand health-related tax relief by:

  • Providing further tax recognition for costs associated with eligible specially designed medical therapies and training by:

    • Expanding the current GST/HST exemption for training that is specially designed to help individuals cope with a disorder or disability to also exempt services of designing such training, such as developing a training plan.
    • Including amounts paid for the design of an individualized therapy plan as an eligible expense for income tax purposes under the Medical Expense Tax Credit.

The exemption will be effective after budget day, but you can expect there to be a few delays as the government publishes a GST update information sheet and Behaviour Consultants take time to confer with their accountants.

As more information becomes available, I will publish further updates.

Finally, one small win for us!

 

 

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.

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!

Autism and the T2201

I have received many questions over the years about the T2201 Disability Tax Credit Certificate, some obvious and others not so much.  For a parent new to autism, it can be an intimidating process.

I’ve put together a package with information that parents need to know before completing the T2201 form.  For those of you that don’t know, the T2201 form is how you apply for disability status with the federal government. Approval for the Disability Tax Credit (DTC) leads to many tax breaks for parents of disabled children.

The PDF file can be obtained from the link T2201 Guide or from the Files page.

It should be compared against the latest T2201 form which can be downloaded here.

Attendant Care

One of the most overlooked tax breaks for parents with children who qualify for the Disability Amount is Attendant Care.

Some examples of Attendant Care include:

  • Hiring a nanny to care for your child (full time or part time)
  • Paying a babysitter or child care worker
  • House cleaning services (Yes, it’s true! Check out 2007 Tax Court of Canada case, Zaffino v. the Queen)
  • Full or part time care in a school, institution, or other establishment (to claim these expenses, a medical practitioner must confirm the person’s need for the equipment, facilities, or personnel available in the establishment)
  • Transportation services
  • Maid service
  • Meal preparation
  • Care or supervision in a group home
  • Respite

Attendant Care is claimed as part of the Medical Expense Tax Credit. This means that you will get about 20% of your money back.

You may claim up to $10,000 and still receive the Disability Amount. Note that this is per paying individual. Each spouse may contribute the $10,000 for a total of $20,000. This amount may then be combined and claimed as a medical expense. To do this, each supporting individual must have receipts to back up their claim.

Claiming attendant care costs higher than $2,578 (for the 2012 tax year) will reduce the Disability Amount Supplement.

You may claim more than the $10,000 however this will reduce the Disability Amount. I do not recommend that you claim more than this amount unless the attendant care expenses go beyond $17,546 (for the 2012 tax year).

Tax Tip

Hire a relative to care for your disabled child. The individual must not be your spouse or common-law partner and must be at least 18 years of age. You also have to provide invoices with the individual’s SIN number.

Child Care Expenses

Today we will have a look at Child Care Expenses and why you should be claiming them. Firstly, let’s review the basics of such a claim.

  • Expenses for child care may be claimed if both spouses work, go to school or carry out research
  • Up to $10,000 may be claimed if your child is eligible for the Disability Amount

Tax Tip#1

If you hire someone to care for your child even in the context of ABA therapy or tutoring, you should adjust the invoice and receipts to reflect child care until you reach the $10,000 limit.

Tax Tip#2

Child care expenses are a tax deduction and not a tax credit. That means for every dollar you spend on child care it will reduce your taxes owing by your marginal rate. For the highest tax bracket, this means you will get a tax savings of $0.43 for every dollar claimed. This is significantly more than the maximum 20% that you would receive for a medical expense claim. Refer to TaxTips.ca for your personal combined Federal and Provincial tax rates.

Tax Tip#3

Hire a relative aged 18 or older (or other person of any age) and claim these costs as a child care expense. Note that you must have proper invoices and receipts including the person’s SIN number.

Tax Tip#4

Other eligible care child expenses include

  • caregivers providing child care services;
  • day nursery schools and daycare centres;
  • educational institutions, for the part of the fees that relate to child care services;
  • day camps and day sports schools where the primary goal of the camp is to care for children
  • boarding schools, overnight sports schools, or camps where lodging is involved (other than education costs)

Refer to my page Child Care Expenses for more detail.

Next time: Attendant Care Expenses

 

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