All the help they can get

Weissman expects more Canadians will be caring for aging parents who have special needs, and thus will be seeking advice on the financial burdens that this can bring. “It’s a very difficult situation, emotionally and energy-wise, for the family,” he says, “but it’s also very difficult financially.”

For example, medical expenses can be astronomically high for these families. And in cases in which the disability prevents an individual from working, household income can suffer.

Certain tax credits help to ease the bur-den for such families. The non-refundable disability tax credit, for instance, can save a family approximately $1,700 per year in taxes, depending on which province they live in. And in cases in which the individual with the disability doesn’t have income, the credit can be transferred to someone else.

“It’s a significant amount,” says Cleo Hamel, senior tax analyst with H&R Block Canada Inc. in Calgary. “It’s some more money back in your [client’s] pocket to help with any additional costs that [they’re] dealing with.”

Applying for the disability tax credit can be a cumbersome process. The application form must be filled out by a medical practitioner, which usually involves a fee of $50 to $100. And the application must include very specific details about the disability, along with the appropriate medical records.

And there’s no guarantee that the application will be approved; the Canada Revenue Agency reviews applications on a case-by-case basis because no two disabilities are the same. In general, the CRA approves individuals for the tax credit if the impairment is prolonged, lasting at least 12 months and if it significantly restricts activities of daily living.

The tax credit covers physical and mental disabilities of all kinds, including learning disabilities. In cases of the last type, it can be especially hard to predict whether an individual will meet the CRA’s criteria for approval. “It’s less tangible,” says Weissman. “You can’t visualize or see a mental infirmity, so it’s harder for the CRA.”

Still, tax experts say, it can be worthwhile for clients to apply for the disability tax credit. Those who are approved can become eligible for various other benefits that can further reduce their tax burden. “The DTC is the starting point, but it’s not the be-all and end-all,” says Weissman. “It also creates other possibilities.”

For example, individuals approved for the tax credit are then eligible to open a RDSP, which allows them to accumulate tax-free savings and earn grants and bonds from the government.

Medical expenses

If the person with the disability is a child, approval for the tax credit also can lead to eligibility for the child disability benefit, as well as higher than average benefits under the children’s fitness credit and the child-care expense deduction.

Beyond the disability tax credit, other benefits exist to help families manage the expenses they incur as a result of a family member’s disability. Like all Canadians, they can claim medical expenses in cases in which they exceed 3% of net income, as well as a wide variety of additional expenses.

For instance, someone with a mobility impairment can claim the costs associated with home renovations that enhance the accessibility of the home, such as the construction of a wheelchair ramp. And, if someone needs to travel more than 80 kilometres for medical treatment that’s not available locally, they can claim travel costs, meals and accommodations as medical expenses.

In addition, the disability supports deduction allows individuals to deduct the expenses they incur in order to work or go to school. This includes such costs as braille note-takers for individuals who are blind, electronic speech synthesizers for those who are unable to speak and tutoring services for individuals with learning disabilities, among many other types of expenses.

A health and welfare trust is another financial vehicle that families can use to manage disability-related costs. Business owners can set up these to fund their employees’ health-care expenses and can deduct contributions. Because these benefits aren’t taxable to the employee, they lead to significant overall tax savings even if the expenses would have qualified for the medical expense tax credit, Weissman says: “This trust can help people save more, and makes it less expensive to fund expenses.”

More flexibility

But, he warns, it’s critical for your clients to stay within the CRA’s guidelines when creating these trusts. The CRA has been cracking down on abuse in the trust space, and Weissman expects health and welfare trusts to come under scrutiny. “I think there’s been a lot of abuse in the health and welfare trust area,” he says. “So, if people are going to use one, they should make sure they set it up properly.”

Individuals with disabilities also can access locked-in funds to help cover medical or disability-related treatment. They can withdraw up to 50% of the year’s maximum pensionable earnings from their RRSP or RRIF for these expenditures, as long as the cost of the treatment constitutes more than 20% of their expected income for that year.

These families also have more flexibility with registered plans when an annuitant dies. Within 60 days after the annuitant’s death, their RRSP or RRIF funds can be rolled into an RRSP or RRIF of a child or grandchild who was financially dependent on them because of a disability.

When combined, these benefits can lead to substantial tax savings for families coping with a disability. But with such a wide range of complex options, eligible clients are likely to need your help in navigating through the rules. And many clients may not even realize these benefits exist, says Hamel: “We still see a large number of taxpayers that don’t take advantage of them.”  IE