Caring for The Disabled: It’s Tough and You Can Help

As our population ages, disability-related caregiving for family members will increase, but, as a society, how well are we able to cope? From meal preparation and household chores to time off for appointments with doctors or to deal with financial matters, the commitment in caring for the sick, the disabled and dying is enormous and it is exhausting. This demanding area is an opportunity for tax and financial advisors to provide both compassion and much-needed help.

First is the opportunity to discuss the actual costs of caregiving and any potential tax savings. The financial consequences can include loss of economic activities for the caregiver, such as income from employment and self-employment. In addition, the caregiver may require supports at home as a result of caregiving: child care for the nuclear family, personal and respite care needs and, in addition, resources for specialized nursing care if publicly-provided home care is unavailable or inadequate.

Second, it is important that attention be given to the physical and psychological toll on family caregivers, which is also huge: up to 75% will develop psychological illnesses; 15 to 32% suffer from depression. These are significant numbers. Having important, proactive conversations about legal matters can provide a huge service to your emotionally-stressed clients (for example, is there a health-care directive in place, powers of attorney, a will?).

Consider a post-tax-season checklist of concern, and an invitation to speak in a private and confidential manner about the following:

  1. CPP Disability Payments: Individuals are eligible after a three-month waiting period for severe and prolonged disabilities.
  2. Employment Insurance: You may be entitled to receive benefits from Employment Insurance for up to 15 weeks as a result of your inability to work. These benefits are taxable. They can amount to up to 55% of your average insurable earnings to a dollar maximum. Lower income families can receive up to 80% of the average insurable earnings. However, applying for them involves a qualification process with Service Canada, including health information with a doctor’s certificate, as well as detailed employment records. If you are eligible, the payments will start in 28 days, after a two-week waiting period. There is also EI relief for caregivers: compassionate care benefits can be received for up to six months if you are caring for someone who is sick or disabled.
  3. Other income sources: Complications arise when EI is received in conjunction with other income. For example, any money you receive during the two-week waiting period will be deducted from the benefits you are entitled to receive for the first three weeks, dollar for dollar. Likewise, if you work while receiving EI sickness benefits—or receive commissions, compensation under a work accident plan, group health or group wage loss replacement plan, payments under an accident insurance plan, or retirement income under a public or private plan—the amount you earn will be deducted dollar for dollar.
  4. Tax preferences: Save all receipts. A long list of medical expenses can be claimed on the tax return if health care plans or deductibles don’t cover all the costs. In addition, a new Home Accessibility Tax Credit available in 2016 can help defray up to $1500 of home modification costs (15% of the cost up to $10,000). Finally, moves to more accessible housing can be facilitated by tapping into the first-time Home Buyers Plan under the RRSP rules.

If you are a financial or tax advisor, know that your help in bringing financial supports to the emotionally difficult and financially draining task of caregiving can be a great value-added service—one that your clients and their families will greatly appreciate.

If you are a family going through something like this, don’t forget that your qualified tax and financial professionals are there for you to help. Give them a call today.

Donations Tax Credit Goes Further for Fort Mac

Helping in helplessness . . . watching the heartbreaking devastation in Fort McMurray has been gut-wrenching. How one hour can change life so dramatically! Making donations from afar seems only right; and it feels especially good, given how terrible the events of the last week have been.

It is a good time to review the charitable donations tax credit, too, because giving more can really help on your taxes this year. Your gift will give back to you, too. There are three key things to know:

First, the donation credit is non-refundable and reduces taxes payable. The 2015 amount was calculated on Schedule 9 of the T1 return as follows:

  • The first $200 of total gifts is eligible for a credit at the rate equal to the lowest federal tax bracket (15%).
  • The remainder of the gifts is eligible for a credit at the federal tax rate for the highest tax bracket for the year (29%).
  • When provincial taxes are factored in, charitable donations over $200 often return close to 50% of amounts donated.

Those rules are largely in place in 2016, but with one exception: With the introduction of a new 33% rate bracket, the credit for charitable donations will increase to 33% for incomes over $200,000.

Here’s how it works: If a taxpayer’s taxable income exceeds $200,000 and is therefore subject to the 33% rate, that rate will be applied to the lesser of the amount of the donations over $200 and the taxpayer’s taxable income over $200,000.

Finally, first-time donors can get an extra 25% credit for cash donations up to $1,000, but only until 2017. Here’s how that works for someone with an income over $200,000:

William has taxable income of $205,000 and he makes a charitable donation of $10,000. His credit is 15% of the first $200 plus 33% of the lesser of

  • the gift over $200 (that’s $9,800) and his taxable income over $200,000 (that’s $5,000) plus
  • 29% of the remainder (that’s $10,000 – $200 – $5,000 = $4,800) plus
  • 25% of the first $1,000.
  • His total federal credit for 2016 is $200 x 15% + $5,000 x 33% + $4,800 x 29% + $1,000 x 25% = $30 + $1,620 + $1,392 + $250 = $3,322.

Remember that your allowable claim for the regular donation credit is calculated as follows, based on your qualified gifts which can include cash, publicly traded securities and mutual funds, life insurance policies, personal use property, capital property, depreciable assets, cultural and ecological gifts:

Your donations limit is:

  • the least of
    • the individual’s total charitable gifts
    • if the individual died in the year or the following year, the individual’s net income for the year, otherwise the sum of
    • 75% of the individual’s net income for the year
      • plus 25% of
        • taxable capital gains on gifts
        • reserves from the prior year on gifts of non-qualifying securities
        • recapture on gifts of depreciable property
        • lesser of net proceeds from gifted depreciable property and the capital cost of that property
      • minus capital gains deduction claimed on gifted property
  • the individual’s total Crown gifts
  • the individual’s total cultural gifts
  • the individual’s total ecological gifts

Cultural gifts are gifts of objects that the Canadian Cultural Property Export Review Board has determined meet the criteria set out in the Cultural Property Export and Import Act.

Ecological gifts are gifts of land that is certified by the Minister to be ecologically sensitive land, the preservation of which is important to the preservation of Canada’s ecological heritage. Such gifts must be made to Canada, a province, a municipality, or a registered charity whose main purpose is the preservation of Canada’s environmental heritage. The taxation of the capital gains on such gifts is completely eliminated.

If you are unable to claim all of your donations, you may carry forward the unclaimed amounts for up to five years.

My choice in helping the folks in Fort McMurray was to give some money to the Red Cross, as the federal government is matching that donation, and then to provide something for the humane societies that are helping the poor animals left behind. Our thoughts and prayers are with them all.

Tax Tips: Six Important Tips in Correcting Errors On Tax Returns

Tax season may be over but you may have forgotten to claim a lucrative tax deduction or credit, like medical expenses, moving expenses or the disability amount. First tip: don’t file a new return; simply adjust your prior filed return. But, what’s the deadline for making adjustments?

For most provisions it’s ten years; however, to optimize your pension income splitting, it’s only three years. Here are three more anomalies:

  • Claims for Capital Cost Allowance on a rental or business asset cannot be the basis for adjusting a tax return.
  • Overpayments of EI premiums can be made for three years following the tax year.
  • Overpayments of CPP premiums can be made for four years following the tax year.

My sixth tip for you today is about a really common omission: the medical amount. It can really pay to hunt down medical expenses and claim them over the best 12-month period ending in the tax year. There are numerous out-of-pocket expenses that qualify, ranging from batteries for hearing aids to driveway alteration costs for disabled family members.

Millions of taxpayers miss claiming medical expenses every year for their spouse and other dependants. This includes the costs of getting medical care not available to a patient in the home community. You must travel at least 40 kilometres outside your home area; travel must be at least 80 kilometers to claim meals and lodging.

Keep a distance log and claim either your actual gas receipts or use a cents per kilometer method. Use 47 cents per kilometer in Manitoba; that compares to 55 cents for taxpayers in Ontario; and 44.5 cents in Alberta.

Meals and lodging claims are based on receipts. Also included in the group of service animals for which costs are claimable, you can now also claim the costs of service animals which help to manage severe diabetes. In addition it’s possible to claim the design of personalized therapy programs for the disabled.

If these tax tips fascinate you, do consider joining us for our Spring Training Options. This is a great time to take an online tax course, or attend the Distinguished Advisor Workshops being held later this month. Even laypeople can attend and earn a certificate while learning to save money. . .just like a pro!