Disabled Taxpayers – Credits, Deductions and Rebates

Introduction

Disabled taxpayers often incur extra costs because of their disabilities and tax law offers them some relief aimed at helping to compensate for those expenses.

First and perhaps foremost, is the non-refundable disability tax credit.  This is a non-refundable credit qualified individuals can claim on their personal income tax returns.  An additional credit supplement is available for taxpayers under age 18, although it is reduced if childcare or attendant care expenses are claimed on the return.

Credits, Deductions and Rebates

To qualify for the credit, you must meet two requirements:

  1. You must obtain a Disability Tax Credit Certificate, which is completed and signed by a qualified practitioner.
  2. You must be markedly restricted in one or more areas of daily life such as walking, speaking, hearing, dressing, feeding, elimination, or mental functions.

In addition to the credit, there are deductions available to help offset the costs associated with enabling a disabled individual to work, carry on a business, perform research, or attend school.  The deductible expenses include:

    1. Attendant care.
    2. Job coaching.
    3. Tutoring.
    4. Devices such as speech synthesizers, voice recognition software, and talking textbooks.

Medical expenses deductions are also available to the disabled, including the costs of group homes, nursing homes, renovations to make a home more accessible, modifications to a vehicle to accommodate a wheelchair, therapy, and training courses to enable care for an infirm dependent.

Attendant care costs of more than $10,000 and nursing home fees nullify a disability amount claim so consult with your tax adviser to help determine which claim in most advantageous to you.

There are other tax breaks available, such as:

  1. moving allowance to offset the costs of moving an individual with severe and prolonged impairments to a home that is more accessible or improves functionality and mobility.
  2. Childcare expenses for dependent children over the age 16 who are physically or mentally infirm. Childcare expenses are generally deductible by the lower income spouse.  However, there is an exception if the spouse was incapable of caring for children due to mental or physical infirmity during the year.
  3. full-time education amount for each month a disabled student is enrolled part-time in a designated educational institution.

Lower income families with a child who qualifies for the disability amount receive a Child Disability Benefit with their Child Tax Benefit payment.  This is a tax-free benefit and has no impact on continuing to claim the disability amount.

Individuals whose mobility impairments make it unsafe to use transportation are offered a rebate for a portion of the federal excise tax on gasoline.

The provinces also have programs to assist disabled individuals.  British Columbia, for example, offers the following programs:

    1. Deferred property taxes on a property owned by disabled individuals or their spouses where equity in the home is at least 25 per cent.  Those taxes may be deferred until the property is sold.  A reduced rate of interest, two per cent below the provincial government rate, is applied to the deferred balance and must be paid along with any administration charges when title is transferred.
    2. Exemptions and refunds on provincial taxes relating to medications, health related equipment and personal items, transportation devices and equipment as well as modifications to vehicles to accommodate disabled individuals.
    3. A provincial sales tax fuel rebate may also be applied each calendar year.

RRSP Benefits

Disabled individuals also receive some benefits related to their Registered Retirement Savings Plans (RRSPs):

  1. They can withdraw amounts from RRSPs tax-free under the Home Buyer Plan without the requirement that they or their spouses have not owned a home at any time in the previous five years.
  2. RRSP annuitants may roll over a plan to a financially dependent disabled child or grandchild upon their death.  Financial dependence is assumed when the income of the dependent is below the basic exemption plus the disability amount claimed.
  3. Amounts reported on the deceased annuitant’s final return may be reduced when transferred to a financially dependent child or grandchild if the amounts qualify as a refund of premiums.  Any refund of premiums is taxed to the beneficiary but may qualify to be rolled over to the beneficiary’s RRSP allowing a tax deferral.

Saving for Security

The federal government offers a Registered Disability Savings Plan (RDSP), similar to a Registered Education Savings Plan (RESP) that allows money to be invested tax-free until it is withdrawn.  It is intended to help parents and others to save for the long-term financial security of a child with a disability.

Contributions are limited to a lifetime maximum of $200,000, have no annual limit and can be made until the year in which the child attains 59 years of age.

While contributions are not tax deductible, earnings generated in the plan are tax-exempt until they are withdrawn.  When the money is taken out as part of a disability assistance payment, it is taxed in the hands of the beneficiary.  With wise financial planning, there may be no taxes due by using the personal exemption and the disability tax credits.

The money contributed to the plans may be supplemented by Canada Disability Savings Grants, or money equivalent to 100 per cent to 300 per cent of contributions, to a maximum of $3,500 depending on the net income of the beneficiary’s family.  The grants will be paid until the end of the year the beneficiary turns 49.

Ottawa will also provide a modest Canada Disability Bond, much like the RESP. Canada Learning Bond, for very low income households.

Conclusion

There are many variables to consider in ensuring that you are obtaining the maximum income tax deductions that you are entitled to.

We have been reviewing and preparing income tax returns for over 30 years, and this has to be one of the simplest but also the most confusing areas of a tax return that individuals rarely submit the correct filing position to maximize their income tax refunds.

If you have any questions, please call Joe Truscott at 905 528 0234, Extension 224 or email Joe at joetruscott@josephtruscott.com.