Caregivers: Tax Literacy Matters

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

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

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

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

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

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

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

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

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

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

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

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

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

Next week: learn more about the Disability Tax Credit

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

Additional educational resources:

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


Inflation Hits High Point: Continues Upward Trend to 2.5%

Inflation has hit its highest point since February 2012’s 2.6%. It now sits at a lofty 2.5%, and is expected to hold steady until the second half of 2019. Poorly understood, inflation, together with high taxes and rising interest rates, is a great wealth eroder.

This trend brings with it an opportunity for you to add value in discussions with clients.

Up from 2.2% in May, the 2.5 percent inflation rate applies based on economic trends throughout the month of June. This is above the Bank of Canada’s target midline rate of 2%. Bank of Canada uses its prescribed interest rate to keep inflation in check. But consistent increases, like those earlier this summer and the next one anticipated with the fourth quarter announcement this fall, have implications to debt management in particular.

Bank of Canada rate increases drive up the prime lending rates of the big banks, as well as the Canada Revenue Agency’s prescribed interest rates. Though the banks’ rate hikes do not affect existing borrowers with fixed-rate products, new borrowers and those with existing variable-rate debt will definitely feel the pinch on their pocketbooks, and so will those who are behind on what they owe the taxman.

What issues should be discussed? For consumers who need a loan or are intending on making a home purchase, it’s important to speak to your financial advisor about the best strategy for your personal financial circumstances. One valuable approach may be to take advantage of lower rates available today, before they rise further over the next year. If you have consumer debt, variable-rate loan products, or you owe money to the CRA, paying down this debt should be among your top priorities.

For investors, revisiting a holistic Real Wealth Management strategy is critical at this time. This means focusing on how to accumulate, grow, preserve and transition wealth with sustainability after taxes, inflation and fees like interest and professional costs. Look for a tax or financial advisor who has Knowledge Bureau’s Distinguished Financial Advisor or Real Wealth Manager certifications. These specialists can help you with tax-efficient strategies to mitigate the risks of rising inflation and interest rates that will affect you over the next year.

For more insight on effective strategies and interpretations about Bank of Canada prescribed rates and inflation, we also recommend reading some of our previous coverage on these subjects:

Additional Educational Resources:

  1. Help Canadians with issues like these – learn more about Knowledge Bureau’s customizable online curriculum options, including those that will earn you credits towards DFA or RWM designations. Register before September 15, 2018, for tuition savings! Free trials are available of many courses.
  2. Pick up a copy of Evelyn Jacks’ Essential Tax Facts – it’s an essential tax resource for Canadians managing their finances throughout every life stage, as well as professionals in the tax and financial services.


Take 2: New Complex Tax Rules, Short Comment Periods

If the date July 18, 2018 rings a bell it should: it marked the one-year anniversary of Morneau’s controversial small business tax proposals. This year, mid-summer tax complexity is again in the news, as Finance Canada released two important new tax documents for Canadians on July 27: the Draft Sales and Excise Tax Legislative and Regulatory Proposals and the Draft Income Tax.

The Draft Sales and Excise Tax Legislative and Regulatory Proposals impact the GST/HST holding corporation rules, the excise refund for diesel used for certain purposes, the GST/HST rebate for printed books for qualifying public service bodies, information sharing in criminal matters, and reassessment periods for compliance orders.

The Draft Income Tax Legislative Proposals are designed to improve access to the Canada Worker’s Benefit, and also affect the deductibility of employee contributions under the Quebec Pension Plan, the reporting requirements for trusts, cross-border surplus stripping for partnership and trusts, more complex rules on the holding of passive investment income, and reassessment periods, among other provisions.

Canadians are invited to submit comments on both of these proposals until September 10, 2018. This, despite protests from tax practitioners and business owners on the short comment periods allowed on the very complex corporate tax changes announced last year.  The Finance Department also initiated consultations on two other aspects of the GST/HST holding corporation rules, with an accompanying consultation paper. Comments on this paper must be made by September 28, 2018.

Further, in a statement from a G20 Summit in July, Finance Minister Morneau indicated that Canadians can expect competitiveness issues to be addressed with this fall’s Economic Statement, which will be covered at Knowledge Bureau’s CE Summits in early November. The opportunity for advisors will be to learn how to help their clients assess the impact of uncertain trade relations and Canada’s high tax rates, on year-end personal and business tax and wealth planning.

Mr. Morneau noted in his statement, that his priority will be lowering the cost of new investment rather than cutting tax rates overall, despite the pressures posed to match the newly implemented rates south of the border.

At the same time, he announced the government will invest $16.8 million in the Global Sharing Platform for Tax Administrations, which will have to goal of helping countries around the world to deal with the challenge of international tax evasion and aggressive tax avoidance. This platform will provide governments around the world access to virtual classrooms, networks of experienced tax administrators and a growing library of global best practices, according to the July release.

Mr. Morneau has also teased that other focal points of the Fall Economic Statement will include NAFTA renegotiation, and plans to build Canada’s oil pipeline; in an effort to enhance Canada’s competitive stance. This Economic Statement is also widely expected to clear the path for another Bank of Canada rate hike this fall, making debt management a key issue for advisors to discuss with clients, especially pre-retirees, now until year-end.

Additional educational resources:

Considering the focus of the fall economic statement, tax and financial advisors will need to be up to speed on the latest issues impacting their corporate clients. Knowledge Bureau’s fall CE Summits will help you do just that, with workshops focusing on year-end planning for investors and small businesses. Reserve your spot today in one of four Canadian cities – Winnipeg on November 2, Vancouver on November 5, Calgary on November 6, or Toronto on November 7. We also recommend the Business Valuation for Advisors certificate course, which can provide needed credits towards a Master Financial Advisor – Business Services Specialist designation and the Debt and Cash Flow Management Course as a professional development choice this fall.