Tax tips for 2011 tax year: Make income tax time work for you
When filing income taxes this year, it is important to take advantage of credits and refunds that are available to you.
A good place to start is the information for people with disabilities on the Canada Revenue Agency (CRA) website at www.cra-arc.gc.ca Then scroll down to People with Disabilities listed on the left-hand side of the home page. In addition, The General Income Tax and Benefit Guide, which some people still receive by mail with their tax forms if they haven’t electronically filed in the past, provides information about each line of the tax return. It is also available on the CRA website and at your local post office.
Another useful publication is called Services for People with Disabilities produced by Service Canada. It provides an overview of Government of Canada services and programs for people with disabilities. It includes information on employment, accessibility, education, health, income support and tax benefits. It is available at www.pwd-online.ca at the right-hand side of the page. Or call 1-800-622-6232 to request a copy.
» Registered disability savings plan
The registered disability savings plan (RDSP) is in its fourth year of operation and most financial institutions are offering the product. The deadline to make contributions for the 2011 contribution year and to apply for the matching grant and income-tested bond was December 31, 2011. The RDSP is designed to encourage individuals to create protected savings plans for themselves or for persons with disabilities.
Eligible individuals must qualify for the Disability Tax Credit (see more information about the DTC below); have a valid social insurance number (SIN); be a resident of Canada; and be under the age of 60.
Effective for the 2010 tax year, an individual can request that the Minister of National Revenue make a determination as to his or her eligibility for the disability tax credit. The CRA will send the individual a notice of determination.
For those who qualify, the federal government will provide a bond of $1,000 per year for up to 20 years until the plan holder turns 50 years old. The bond program is a fantastic reason why each and every person who qualifies for the Disability Tax Credit and is under 50 should open an RDSP. Those with low incomes automatically qualify for the $1,000 bond. In addition, for those who haven’t already opened a plan, bonds may be retroactively paid into the plan for the past years.
The RDSP also includes a program of matching grants from the federal government, subject to income, of up to $70,000 until the individual who holds the plan turns 50.
Investment income earned in the plan will accumulate tax-free. However, grants, bonds, and investment income earned in the plan will be included in the beneficiary’s income for tax purposes when paid out of an RDSP. Contributions to an RDSP for a beneficiary are limited to a lifetime maximum of $200,000, with no annual limit.
Another good source of information is the website of Planned Lifetime Advocacy Network (PLAN) at www.plan.ca or www.rdsp.com (English only) PLAN led the push for the development of the RDSP.
» Working income tax benefit
You could also consider whether you are eligible for the working income tax benefit (WITB). In addition, people who qualify for the disability amount (Disability Tax Credit) may claim an additional WITB disability supplement. You have to be eligible for the disability tax credit to claim the supplement.
The WITB, which is a refundable tax credit, is designed to provide lower-income taxpayers with a financial incentive to enter and/or remain a part of the work force and to overcome the disincentive for people who find that the net effect of taking a job is that they end up poorer.
The list of expenses eligible for the Medical Expense Tax Credit for the 2011 tax year is available on the Canada Revenue Agency website. You can browse through eligible expenses at www.cra-arc.gc.ca by clicking "M" on the A to Z Index and then scroll down to Medical Expenses. Or for a complete list see the publication Medical and Disability-Related Information (RC4064). It is available on the Canada Revenue Agency website at: http://www.cra-arc.gc.ca/E/pub/tg/rc4064/README.html
Most medical expenses require a prescription by a qualified practitioner. Medical expense deductions of particular interest to people with MS are prescription medications, medical and assistive devices and half the cost of an air conditioner if prescribed (maximum $1,000).
People with MS who have travelled outside of Canada for procedures and services such as the CCSVI procedure or stem cell procedure may be eligible to claim, as a medical expense, the cost of the procedure as well as travel to the medical practitioner or medical facility. For more information about this particular situation, see the following article Medical Expense Tax Credit for Procedures and Services Received Outside of Canada at: http://mssociety.ca/en/information/taxTips_medicalcredoutsidecan.htm
Medical expenses including those premiums paid out of your net pay or privately for your extended health and dental plan (remember to include any travel medical plan as well) can be claimed by either spouse, usually the one with the lower net income as the 3% threshold is lower for the lower income spouse. Sometimes it is more advantageous to split the medical expenses claim between the two spouses. Also claimable is the uninsured portion of the claim for reimbursement of expenses and the uninsured dental costs under your or your spouse’s private health plan.
One positive change from the 2011 federal budget was the removal of the $10,000 limit on eligible medical expenses that can be claimed under the Medical Expense Tax Credit for a dependent relative. There has not been a limit for people claiming their own and their spouses’ (plus their dependents under 18) medical expenses.
Some renovations are eligible for medical expense tax credits where they are necessary and do not enhance the value of your home. Of interest to people with MS are expenses such as the cost of widening halls and doorways, lowering kitchen and/or bathroom cabinets and certain costs related to ramps, elevators or lifts. Where an actual elevator and shaft is installed, the cost of the elevator hardware that is prescribed by a qualified practitioner is viewed to be an eligible medical expense while the cost of installing the elevator shaft and the supporting structure is not.
At least one recent tax case allowed the difference in cost between building wider doorways and halls over the cost of standard doorways and halls, in a new home (rather than renovating an existing home) to be an eligible medical expense. This case even allowed the expenses for a person with a deteriorating condition who was not in need of the modifications at the time but whose prognosis indicated that the modifications would become necessary.
» Refundable medical expense supplement
Individuals with high medical expenses and a low family income may be eligible for a refundable medical expense supplement.
If you pay income tax, you can claim the supplement as a tax credit to reduce your taxes. If you don't pay income tax, you may receive a refund for medical expenses. For more information, see line 452 in the General Income Tax and Benefit Guide or the CRA website.
» Disability supports deduction
A disability supports deduction introduced in 2005 expanded the attendant care costs claimable on Line 215. Essentially, it expanded the list of eligible expenses that can be deducted from income, rather than claimed as a tax credit by people with physical or mental impairments for products or services related to working or going to school. Please note, you cannot claim these expenses if you or someone else will be claiming them as a medical expense.
These expenses do not transfer or carry forward and must be used against the income of the person with the disability. If these expenses are not able to be used by the person with the disability, they may still qualify to be used by their spouse as a medical expense tax credit. See Form T929 for more information at this link on the CRA website.
» Caregiver tax credit / Caregiver amount
If a parent, grandparent 65 or older, or an "infirm" dependent relative over 18 including a child, grandchild, brother, sister, niece, nephew, aunt, uncle, lives with you, you may be eligible for the caregiver amount, which provides a credit that can be used to reduce tax that is payable. The dependent relative over 18 must either be an "infirm" adult, which would require certification by a qualified medical practitioner or a parent or grandparent over 65 years of age. Spouses are not eligible for this amount. For more information see line 315 in the General Income Tax and Benefit Guide.
» Family caregiver tax amount
The 2011 federal budget announced a new-caregiver tax credit can be claimed by spouses and common-law partners of persons who are considered an “infirm dependent.”
The new family caregiver tax credit, a 15-per-cent non-refundable credit on an amount of $2,000, amounts to a $300 tax reduction, and will be effective for the 2012 tax year and beyond. Employees can adjust their TD1 Federal with their employers to receive a reduction in tax withheld at source immediately.
It is important to note that an “infirmity” is not defined in the Income Tax Act, and takes its meaning from the dictionary. Infirmity is not the same as “disability” and requires different documentation. The Disability Tax Credit approval does not automatically qualify a person for a claim for “infirmity”.
» Disability tax credit / Disability amount
In 2005, eligibility requirements to qualify for the disability tax credit (DTC) were expanded, which benefitted a number of people with MS. People who have multiple impairments that have a cumulative effect of being severe and prolonged should be able to qualify for the DTC. In addition, eligibility requirements for impairments that are intermittent (such as MS symptoms) have been clarified.
Despite these changes, persistence is important in ensuring the application for the DTC is approved. Sometimes you may need to discuss with your physician or other qualified person the type of information that is needed on the application form to assist in a successful application. For more information about the DTC process, see the section on taxes in the MS Society publication A Guide to Employment and Income Support, available at www.mssociety.ca, search words [employment and income support].
Also, if you have already been approved for the DTC, your eligibility may expire if it is not renewed. You can check your approval notice from the CRA to determine in which year it expires. It is advisable to submit a new request well in advance of the end of the year in which your current approval expires.
If you qualify, the amount of taxes you or a supporting person pay will be reduced by a non-refundable tax credit. If you qualified for the credit and should have claimed it in the past, you may, under the fairness provisions, ask for your tax returns to be adjusted for the previous ten years.
Care must be taken if you decide to ask for previous tax returns to be adjusted. You will need to ensure that all income has been claimed previously in those years, and you have available all the necessary documentation. Also ensure that the CRA has the person making the claim documented as eligible for the transfer of the DTC credit. The eligible person may change from year to year and the credit transfer may be split.
If you request amendments, check the re-assessments carefully to ensure that all of your requests were actually implemented. You may have to contact CRA, possibly even request a second adjustment if not all adjustments are completed correctly. You could also file a Notice of Objection, depending on the circumstances.
» Child disability benefit
The child disability benefit is a tax-free payment in addition to the Child Tax Benefit for families who care for a child under age 18 with a severe and prolonged impairment in mental or physical functions. The child must qualify for the disability tax credit. The amount is reduced as income rises.
The home buyer’s plan allows first-time homebuyers to withdraw up to $25,000 from their RRSPs on a tax-free basis to buy or build a home if certain criteria are met.
For a person who is disabled or for families which include a person who is disabled, you do not have to be a first-time homebuyer to qualify for the plan if the house is purchased by a person with a disability or to assist a person who is eligible for the disability tax credit. For example, a parent who owns a home could use up to $25,000 of his/her RRSP funds to help a child who is eligible for the DTC to purchase a home.
In addition to the Home Buyers Plan, there is also a home buyer’s tax credit of $5,000. It may be available to new first-time home buyers or for a house purchased by a person who is disabled or if purchased for a person who is disabled.
In addition, your province/territory may have fuel tax refund programs for persons with a disability.
You may also find there are GST/HST exemptions and rebate programs. Some, but not all health care services and medical devices and supplies are exempt or zero-rated for the goods and services tax/ harmonized sales tax (GST/HST).
In addition, when you buy a vehicle that has been modified for a person with certain disabilities or have those modifications made, you should be able to claim the portion of the GST related to the modifications.
CPP disability benefits can be included when calculating base income for the RRSP contribution limit. To calculate your RRSP deduction limit for 2011, see Guide T4040, RRSPs and Other Registered Plans for Retirement.
Effective January 2009, a new investment account became available -- the tax-free savings account. Capital gains and investment income earned within the account are not taxed, even when withdrawn. Contributions to a tax-free savings account are not tax-deductible, unlike contributions to an RRSP. The maximum contribution each year is $5,000. For more information, go to www.cra-arc.gc.ca and enter tax-free savings account into the search tool. Or contact your bank or other financial institution.
» Health and welfare trusts
The CRA allows an employer to fund eligible medical expenses that are not covered by group or private insurance, without causing the amount to be a taxable benefit to the employee. If you are self employed and have incorporated your business, you may be able to pay for the uninsured portion of your medications, therapy and eligible devices as an eligible business expense, rather than having to use personal income. This is a complicated but beneficial approach that should not be used without qualified professional advice. More information can be obtained at http://www.cra-arc.gc.ca/E/pub/tp/it85r2/it85r2-e.html.
Legacy gifts are a great way to reduce your income tax payable. Each type of legacy gift provides you with tax relief, either upon creation of the legacy gift or at some point in the future. Gifts in a will (otherwise known as bequests) are the most popular type of legacy gift. Bequests typically reduce your estate taxes. Gifts of life insurance are the second most popular type of legacy gifts. Depending on how it’s structured by your insurance company, these gifts can provide you with annual income tax relief in addition to reducing your estate taxes.
Legacy gifts like trusts can be structured to ensure that a child with a disability has the benefit of tax savings, government assistance and access to inheritance in an efficient and prudent manner, in addition to providing your estate with tax relief.
For more information on legacy gifts, visit www.MSlegacy.ca or call your local MS Society legacy giving expert at 1-800-268-7582. We encourage you to speak with your professional advisors when creating a legacy gift.
» Tax relief for donations
Charitable giving is a great way to reduce overall taxes (it's also a great way to support the MS Society of Canada). Be sure to claim your 2011 donations (with receipts) and any unclaimed donations in the past five years on your tax form.
Tips and more information
Ensure you have all the information you need: keep a file with all tax information and receipts; keep track of your investments; prepare your own schedules of employment expenses, donations and medical receipts to reduce external preparation costs.
CRA offers a free Community Volunteer Income Tax Program. The trained volunteers can help people with low incomes and simple tax situations. For more information about the free program, call 1-800-959-8281.
The tax information provided here may not consider all possible complications and should be considered as general advice only. Contact your own tax or financial advisor for individual advice.
Many thanks to Eileen Reppenhagen (www.taxdetective.ca) for reviewing and improving this article.